SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT (NO 2-75010)
UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 29 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [x]
Amendment No. [ ]
Variable Insurance Products Fund
(Exact Name of Registrant as Specified in Charter)
82 Devonshire St., Boston, MA 02109
(Address Of Principal Executive Office)
Registrant's Telephone Number, Including Area Code 617-570-7000
Arthur S. Loring, Secretary, 82 Devonshire St., Boston, MA 02109
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
( ) Immediately upon filing pursuant to paragraph (b)
(x) On April 30, 1994 pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)
() On () pursuant to paragraph (a) of Rule 485
Registrant has filed a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 and filed the notice required by such rule
on February 23, 1994.
VARIABLE INSURANCE PRODUCTS FUND
CROSS REFERENCE SHEET
Form N-1A Item Number
Part A Prospectus Caption
1 a,b Cover Page
2 a,b,c *
3 a,b A Look At The Trust's Financial History
c Performance
4 a(i) The Trust and the Fidelity Organization
a(ii) How The Trust Works; Matching the
Portfolios to Your
Investment Needs; Limiting Investment
Risks
b,c Limiting Investment Risks; Matching the
Portfolios to
Your Investment Needs
5 a,b(i) The Trust and the Fidelity Organization
b(ii)(iii),c Management, Distribution and Service Fees
d Management, Distribution and Service Fees
e A Look At The Trust's Financial History;
Management,
Distribution and Service Fees
f Portfolio Transactions
6 a(i) The Trust and the Fidelity Organization
a(ii) Redemptions
a(iii) *
b The Trust and the Fidelity Organization
c,d *
e Cover Page, Shareholder's Manual
f,g Distributions and Taxes
7 a The Trust and the Fidelity Organization
b(i),(ii) Financial Highlights; Share Price;
Investments
b(iii,iv,v) *
c,d,e *
f Management, Distribution and Service Fees
8 a Redemptions
b,c *
d Redemptions
9 *
_______________
* Not Applicable
Part B Statement of Information Caption
10,11 Cover Page
12 Description of The Trust
13 a,b,c Investment Policies and Limitations
d Portfolio Transactions
14 a,b Trustees and Officers
c *
15 a *
b,c Trustees and Officers
16 a(i) FMR
a(ii) Trustees and Officers
a(iii),b Management Contracts
c *
d Contracts with Companies Affiliated with FMR
e *
f Distribution and Service Plans
g *
h Description of the Trust
i Contracts with Companies Affiliated with FMR;
Description
of the Trust
17 a,b,c,d Portfolio Transactions
e *
18 a Description of the Trust
b *
19 a Additional Purchase and Redemption Information
b Valuation of Portfolio Securities; Additional
Purchase and
Redemption Information
c *
20 Taxes
21 a(i),(ii) Contracts with Companies Affiliated with FMR
a(iii),b,c *
22 Performance
23 Financial Statements for the Annual period are
incorporated by reference into the Statement of
Additional Information
_________
* Not Applicable
crossreference
VARIABLE INSURANCE 82 Devonshire Street
PRODUCTS FUND: Boston, Massachusetts
PROSPECTUS (bullet) HOW THE TRUST WORKS page
APRIL 30, 1994 (bullet) SHAREHOLDER'S MANUAL page
Variable Insurance Products Fund (the Trust) is designed to provide
investment vehicles for variable annuity and variable life insurance
contracts of various insurance companies. The Trust currently offers these
funds:
MONEY MARKET PORTFOLIO seeks to obtain as high a level of current income
as is consistent with preserving capital and providing liquidity. The fund
will invest only in high quality U.S. dollar-denominated money market
securities of domestic and foreign issuers. AN INVESTMENT IN MONEY MARKET
PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT, AND
THERE CAN BE NO ASSURANCE THAT THE FUND WILL MAINTAIN A STABLE $1.00 SHARE
PRICE.
HIGH INCOME PORTFOLIO seeks to obtain a high level of current income by
investing primarily in high-yielding, lower-rated, fixed-income securities,
while also considering growth of capital.
High yielding, lower-rated debt securities present higher risks of
untimely interest and principal payments, default, and price volatility
than higher-rated securities, and may present problems of liquidity and
valuation.
EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities, the fund
will also consider the potential for capital appreciation. The fund's goal
is to achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's 500 Composite Stock Price Index.
GROWTH PORTFOLIO seeks to achieve capital appreciation. The fund normally
purchases common stocks, although its investments are not restricted to any
one type of security. Capital appreciation may also be found in other types
of securities, including bonds and preferred stocks.
OVERSEAS PORTFOLIO seeks long term growth of capital primarily through
investments in foreign securities. Overseas Portfolio provides a means for
investors to diversify their own portfolios by participating in companies
and economies outside of the United States.
Please read this Prospectus before investing. It is designed to provide
you with information and to help you decide if the goal of one or more of
the funds matches your own. Retain this document for future reference.
Shares of each fund may only be purchased by the separate accounts of
insurance companies, for the purpose of funding variable annuity and
variable life insurance contracts. Particular funds may not be available in
your state due to various insurance regulations. Please check with your
insurance company for available funds. Inclusion of a fund in this
Prospectus which is not available in your state is not to be considered a
solicitation. This Prospectus should be read in conjunction with the
prospectus of the separate account of the specific insurance product which
accompanies this Prospectus.
A Statement of Additional Information (dated April 30, 1994) for the Trust
has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. This free Statement is available upon
request from your insurance company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Summary Management, Distribution
and Service Fees
A Look at the Fund s' Opening an Account
Financial History
Investment Objectives Investments
and Policies
Performance Redemptions
Distributions and Taxes Appendix
The Trust and the Fidelity
Organization
VARIABLE INSURANCE PRODUCTS FUND
SUMMARY
The Trust is an open-end, diversified management investment company
offering insurance companies a selection of investment vehicles for
variable annuity and variable life insurance contracts.
Each fund has its own distinct INVESTMENT OBJECTIVE. There is, of course,
no guarantee that any fund will achieve its investment objective. MONEY
MARKET PORTFOLIO seeks to obtain its objective by investing in
high-quality, U.S. dollar-denominated money market securities of domestic
and foreign issuers such as certificates of deposit, obligations of
governments and their agencies, and commercial paper and notes. HIGH INCOME
PORTFOLIO seeks to obtain its objective by normally investing at least 65%
of its total assets in income-producing debt securities and preferred
stocks, including convertible securities and up to 20% in common stocks and
other equity securities. EQUITY-INCOME PORTFOLIO seeks reasonable income by
normally investing at least 65% of its total assets in income-producing
common or preferred stock and the remainder in debt securities. GROWTH
PORTFOLIO seeks capital appreciation by investing in common stock, although
the fund is not limited to any one type of security. OVERSEAS PORTFOLIO
seeks long term growth of capital by normally investing at least 65% of its
total assets in securities of companies from at least three countries
outside North America. A discussion of each fund's investment objective
begins on page .
Various levels of risk are involved with each fund. Investments in money
market instruments are subject to the ability of the issuer to make payment
at maturity. Investments in high-yielding bonds normally involve
lower-rated securities which have a greater risk of default and have prices
which fluctuate more than those of higher-rated securities. With any equity
investment, in addition to the usual uncertainties involved, an investor
should be aware that each of the equity funds has risks particular to it.
Please refer to MATCHING THE FUNDS TO YOUR INVESTMENT NEEDS beginning on
page for a discussion of these risks. Each of the funds abides by various
insurance regulations. Please read your INSURANCE COMPANY'S SEPARATE
ACCOUNT PROSPECTUS AND CONTRACT for discussions relating to insurance
regulations and instructions on how to invest in and redeem from each fund.
A general discussion may be found on page 26.
Fidelity Management & Research Company (FMR), the funds' advisor,
provides each fund with investment advice and other services. Each fund
pays FMR a management fee for the management of investments and business
affairs. For a discussion of these fees please see MANAGEMENT, DISTRIBUTION
AND SERVICE FEES beginning on page .
A LOOK AT THE FUND S' FINANCIAL HISTORY
VIPF-4
FINANCIAL HIGHLIGHTS. The following tables give you information about each
fund's financial history and use the Trust's fiscal year (which ends
December 31).
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31, Year ended
November 30,
</TABLE>
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993 1992 1991 1990 1989 1988 1987 1986 1985 (dagger) 1984 (dagger)
SELECTED PER-SHARE DATA
Net asset value, beginning of
$ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
period
Income from Investment
.032 .038 .059 .078 .087 .071 .063 .065 .078 .100
Operations
Net interest income
Dividends from net interest
( .032 )(.038) (.059) (.078) (.087) (.071) (.063) (.065) (.078) (.100)
income
Net asset value, end of
$ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
period
TOTAL RETURN
3.23% 3.90% 6.09% 8.04% 9.12% 7.39 6.44 6.70 8.11 10.46
% % % % %
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
$ 353,104 $ 301,002 $ 271,123 $ 254,585 $ 142,970 $ 105,650 $ 87,778 $ 65,250 $ 81,899 $ 84,495
(000 omitted)
Ratio of expenses to
.22%(dagger)
(dagger) .24% .38% .56% .67% .60 .54 .50 .56 .66
average net assets
% % % % %
Ratio of net interest income
3.16% 3.85% 5.93% 7.76% 8.70% 7.16 6.38 6.52 7.81 9.97
to average net assets
% % % % %
</TABLE>
(dagger) DURING 1985, THE FUND CHANGED ITS FISCAL YEAR-END FROM NOVEMBER
30 TO DECEMBER 31. NET INTEREST INCOME AND DIVIDENDS FROM NET INTEREST
INCOME FOR THE PERIOD DECEMBER 1, 1984 TO DECEMBER 31, 1984 WERE $.008 AND
$.008, RESPECTIVELY. THE RESULTS FOR THIS ONE MONTH PERIOD ARE NOT
REFLECTED IN THE ABOVE FINANCIAL HIGHLIGHTS.
(dagger)(dagger) ALL EXPENSES INCURRED IN CONNECTION WITH A SPECIAL
MEETING OF SHAREHOLDERS WERE REIMBURSED BY FMR. IF NO REIMBURSEMENT HAD
BEEN MADE, TOTAL EXPENSES WOULD HAVE BEEN .23%.
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C> <C> <C> <C> <C>
HIGH INCOME PORTFOLIO
Year Ended December 31, September 19,
1985
(commencement
of
operations) to
SELECTED PER-SHARE DATA
1993 1992 1991 1990 1989 1988 1987 1986 December 31,
1985
Net asset value, beginning of period
$ 10.820 $ 9.550 $ 7.070 $ 8.110 $ 9.660 $ 9.680 $ 10.830 $ 10.310 $ 10.000
Income from Investment Operations
.728 .790 .890 .858 1.202 1.110 1.155 1.227 .319
Net investment income
Net realized and unrealized gain (loss)
1.332 1.290 1.590 (1.040) (1.550) (.020) (1.000) .520 .310
on investments
Total from investment operations
2.060 2.080 2.480 (.182) (.348) 1.090 .155 1.747 .629
Less Distributions
(.794) (.810) -- (.858) (1.202) (1.110) (1.155) (1.227) (.319)
From net investment income
In excess of net investment income
( .036) -- -- -- -- -- -- --
From net realized gain on investments
(.060) -- -- -- -- -- (.150) -- --
Total distributions
(.890) (.810) -- (.858) (1.202) (1.110) (1.305) (1.227) (.319)
Net asset value, end of period
$ 11.990 $ 10.820 $ 9.550 $ 7.070 $ 8.110 $ 9.660 $ 9.680 $ 10.830 $ 10.310
TOTAL RETURN (double dagger) #
20.40% 23.17% 35.08% (2.23)% (4.17)% 11.64% 1.22% 17.68% 6.38%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted)
$ 463,931 $ 200,591 $ 70,060 $ 29,990 $ 33,747 $ 30,246 $ 19,303 $ 13,057 $ 1,971
Ratio of expenses to average net assets(dagger)
.64%(diamond) .67% .97% 1.00% .93% .99% 1.02% 1.00% .78%*(dagger)(dagger)
Ratio of expenses to average net assets
.66%(diamond) .67% .97% 1.12% .93% .99% 1.29% 1.50% 1.50%*
before expense reductions(dagger)
Ratio of net investment income to average
8.69% 10.98% 12.94% 11.36% 12.94% 11.41% 11.19% 11.32% 12.10%*
net assets
Portfolio turnover rate
155% 160% 154% 156% 124% 139% 189% 78% 27%*
</TABLE>
* ANNUALIZED
(dagger) DURING THE PERIOD SEPTEMBER 19, 1985 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1985, FMR AGREED TO VOLUNTARILY WAIVE ADVISORY AND SERVICE
FEES. IN ADDITION, FMR VOLUNTARILY AGREED TO REIMBURSE THE FUND TO THE
EXTENT THAT THE AGGREGATE OPERATING EXPENSES WERE IN EXCESS OF AN ANNUAL
RATE OF .78% OF AVERAGE NET ASSETS. EFFECTIVE JANUARY 1, 1986, FMR
VOLUNTARILY AGREED TO REIMBURSE THE FUND'S OPERATING EXPENSES (EXCLUDING
INTEREST, TAXES, BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) ABOVE AN
ANNUAL RATE OF 1.00% OF AVERAGE NET ASSETS.
(diamond) DURING 1993, FMR REIMBURSED THE FUND FOR ALL EXPENSES IN
CONNECTION WITH A SPECIAL MEETING OF SHAREHOLDERS, INCLUDING THE
PREPARATION OF THE PROXY STATEMENT.
(dagger)(dagger) INCLUDES $.014492 PER SHARE OF MANAGEMENT FEES WAIVED
DURING 1985.
(double dagger) THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES
NOT BEEN REDUCED DURING THE PERIODS SHOWN.
# TOTAL RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED.
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C> <C> <C> <C>
EQUITY - INCOME PORTFOLIO
Year Ended December 31, October 9, 1986
(commencement
of operations) to
1993 1992 1991 1990 1989 1988 1987 December 31,
1986
SELECTED PER-SHARE DATA
Net asset value, beginning of period
$ 13.40 $ 11.85 $ 9.51 $ 12.29 $ 11.01 $ 9.42 $ 10.02 $ 10.00
Income from Investment Operations
Net investment income
.37 .40 .50 .58 .60 .53 .45 .06
Net realized and unrealized gain (loss)
2.06 1.57 2.43 (2.38) 1.29 1.59 (.51) (.04)
on investments
Total from investment operations
2.43 1.97 2.93 (1.80) 1.89 2.12 (.06) .02
Less Distributions
From net investment income
(.35) (.42) (.59) (.59) (.52) (.53) (.40) --
In excess of net investment income
(.04) -- -- -- -- -- -- --
From net realized gain
- -- -- -- (.39) (.09) -- (.14) --
Total distributions
(.39) (.42) (.59) (.98) (.61) (.53) (.54) --
Net asset value, end of period
$ 15.44 $ 13.40 $ 11.85 $ 9.51 $ 12.29 $ 11.01 $ 9.42 $ 10.02
TOTAL RETURN (double dagger) #
18.29% 16.89% 31.44% (15.29) 17.34% 22.71% (1.13) .20%
% %
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted)
$ 1,318,500 $ 592,880 $ 282,171 $ 154,080 $ 142,572 $ 51,807 $ 26,438 $ 3,850
Ratio of expenses to average net assets (dagger)
.62% .65% .74% .78% .85% 1.13% 1.33% 1.50%*
Ratio of expenses to average net assets before
.62% .65% .74% .78% .85% 1.13% 1.33% 4.83%*
expense reductions (dagger)
Ratio of net investment income to average net
2.87% 3.52% 4.83% 6.01% 5.82% 5.36% 4.78% 5.23%*
assets
Portfolio turnover rate
120% 74% 107% 94% 78% 69% 133% 7%*
</TABLE>
* ANNUALIZED
(dagger) EFFECTIVE OCTOBER 9, 1986, FMR VOLUNTARILY AGREED TO REIMBURSE THE
FUND'S OPERATING EXPENSES (EXCLUDING INTEREST, TAXES, BROKERAGE COMMISSIONS
AND EXTRAORDINARY EXPENSES) ABOVE AN ANNUAL RATE OF 1.50 % OF AVERAGE
NET ASSETS.
(double dagger) THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES
NOT BEEN REDUCED DURING THE PERIODS SHOWN.
# TOTAL RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED.
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C> <C> <C> <C>
GROWTH PORTFOLIO
Year Ended December 31, October 9, 1986
(commencement
of operations) to
1993 1992 1991 1990 1989 1988 1987 December 31,
1986
SELECTED PER-SHARE DATA
Net asset value, beginning of period
$ 19.76 $ 18.51 $ 12.91 $ 15.18 $ 11.72 $ 10.14 $ 10.03 $ 10.00
Income from Investment Operations
Net investment income
.12 .09 .09(diamond) .24 .24 .19 .10 .04
Net realized and unrealized gain (loss)
3.64 1.64 5.72 (1.98) 3.41 1.39 .27 (.01)
on investments
Total from investment operations
3.76 1.73 5.81 (1.74) 3.65 1.58 .37 .03
Less Distributions
From net investment income
(.11) (.05) (.21) (.21) (.19) -- (.11) --
From net realized gain
(.21) (.43) -- (.32) -- -- (.15) --
In excess of net realized gain
(.12) -- -- -- -- -- -- --
Total distributions
(.44) (.48) (.21) (.53) (.19) -- (.26) --
Net asset value, end of period
$ 23.08 $ 19.76 $ 18.51 $ 12.91 $ 15.18 $ 11.72 $ 10.14 $ 10.03
TOTAL RETURN (double dagger) #
19.37 9.32 45.51 (11.73)% 31.51 15.58 3.66 .30%
% % % % % %
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted)
$ 1,383,849 $ 749,837 $ 371,462 $ 135,487 $ 77,261 $ 28,520 $ 18,636 $ 1,965
Ratio of expenses to average net assets (dagger)
.71 .75 .84 .88% 1.02 1.24 1.50 1.50%*
% % % % % %
Ratio of expenses to average net assets before
.71 .75 .84 .88% 1.02 1.24 1.68 5.57%*
expense reductions (dagger)
% % % % % %
Ratio of net investment income to average net
.72 .83 .56 2.69% 2.83 1.91 1.78 3.27%*
assets
% % % % % %
Portfolio turnover rate
159 262 261 88% 111 155 37 --%
% % % % % %
</TABLE>
* ANNUALIZED
(dagger) EFFECTIVE OCTOBER 9, 1986, FMR VOLUNTARILY AGREED TO REIMBURSE THE
FUND'S OPERATING EXPENSES (EXCLUDING INTEREST, TAXES, BROKERAGE COMMISSIONS
AND EXTRAORDINARY EXPENSES) ABOVE AN ANNUAL RATE OF 1.50% OF AVERAGE NET
ASSETS.
(diamond) NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON
AVERAGE SHARES OUTSTANDING DURING THE PERIOD .
(double dagger) THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES
NOT BEEN REDUCED DURING THE PERIODS SHOWN.
# TOTAL RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED.
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C> <C> <C>
OVERSEAS PORTFOLIO
Year Ended December 31, January 28, 1987
(commencement
of operations) to
1993 1992 1991 1990 1989 1988 December 31,
1987
SELECTED PER-SHARE DATA
Net asset value, beginning of period
$ 11.53 $ 13.09 $ 12.42 $ 12.67 $ 10.11 $ 9.35 $ 10.00
Income from Investment Operations
Net investment income
.06 .16 .24 .18 .07 .09 .05
Net realized and unrealized gain (loss) on
4.16 (1.54) .74 (.39) 2.57 .67 (.59)
investments
Total from investment operations
4.22 (1.38) .98 (.21) 2.64 .76 (.54)
Less Distributions
From net investment income
(.18) (.18) (.17) (.04) (.08) -- (.11)
In excess of net investment income
(.04) -- -- -- -- -- --
From net realized gain
-- -- (.14)(diamond) -- -- -- --
In excess of net realized gain
(.05) -- -- -- -- -- --
Total distributions
(.27) (.18) (.31) (.04) (.08) -- (.11)
Net asset value, end of period
$ 15.48 $ 11.53 $ 13.09 $ 12.42 $ 12.67 $ 10.11 $ 9.35
TOTAL RETURN (double dagger) #
37.35% (10.72)% 8.00% (1.67)% 26.28% 8.13% (5.38)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted)
$ 777,961 $ 180,837 $ 126,490 $ 80,554 $ 25,865 $ 9,328 $ 6,568
Ratio of expenses to average net assets(dagger)
1.03% 1.14% 1.26% 1.41% 1.50% 1.50% 1.50%*
Ratio of expenses to average net assets before
1.03% 1.14% 1.26% 1.41% 1.98% 3.17% 3.94%*
expense reductions(dagger)
Ratio of net investment income to average net assets
1.21% 1.86% 2.33% 1.89% .66% .84% .78%*
Portfolio turnover rate
42% 61% 168% 100% 78% 95% 181%*
</TABLE>
* ANNUALIZED
(dagger) EFFECTIVE JANUARY 28, 1987, FMR VOLUNTARILY AGREED TO REIMBURSE
THE FUND'S OPERATING EXPENSES (EXCLUDING INTEREST, TAXES, BROKERAGE
COMMISSIONS AND EXTRAORDINARY EXPENSES) ABOVE AN ANNUAL RATE OF 1.50% OF
AVERAGE NET ASSETS.
(diamond) INCLUDES AMOUNTS DISTRIBUTED FROM NET REALIZED GAINS ON FOREIGN
CURRENCY RELATED TRANSACTIONS TAXABLE AS ORDINARY INCOME.
(double dagger) THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES
NOT BEEN REDUCED DURING THE PERIODS SHOWN.
# TOTAL RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED.
The Financial Highlights have been audited by Coopers & Lybrand,
independent accountants. Their unqualified report is included in the
Trust's Annual Report. The Annual Report is incorporated by reference into
the Statement of Additional Information.
At least twice a year, financial statements with a summary of each fund's
composition and performance will be distributed to the Trust's
participating insurance companies, which in turn will send the
financial statements to you.
HOW THE TRUST WORKS
INVESTMENT OBJECTIVES AND POLICIES
Variable Insurance Products Fund is designed to provide investment vehicles
for variable annuity and variable life insurance contracts of insurance
companies. The Trust offers a variety of funds with different investment
objectives which are described below. FMR manages the investments of each
fund. Each fund's investment objective is fundamental and can be changed
only by vote of a majority of the outstanding shares of the respective
fund. There is no assurance that each fund will achieve its investment
objective.
MONEY MARKET PORTFOLIO seeks to obtain as high a level of current income as
is consistent with preserving capital and providing liquidity. FMR will
invest the fund's assets in the following types of high-quality, U.S.
dollar-denominated money market securities of domestic and foreign issuers:
(bullet) obligations of financial institutions, such as banks, savings and
loan institutions, insurance companies and mortgage bankers. These
obligations include certificates of deposit, bankers' acceptances and time
deposits.
(bullet) obligations of governments and their agencies or
instrumentalities.
(bullet) short-term obligations, including high-quality debt obligations
such as commercial paper, notes and bonds with remaining maturities of 397
days or less.
(bullet) other short-term debt obligations with remaining maturities of 397
days or less.
Many of the fund's investments are described in the APPENDIX.
The fund may invest in obligations of U.S. banks, foreign branches of U.S.
banks (Eurodollars), U.S. branches and agencies of foreign banks (Yankee
dollars), and foreign branches of foreign banks. Euro and Yankee dollar
investments involve risks that are different from investments in securities
of U.S. banks. These risks may include future unfavorable political and
economic developments, possible withholding of taxes, seizure of foreign
deposits, currency controls, interest limitations or other governmental
restrictions which might affect payment of principal or interest.
Additionally, there may be less public information available about foreign
banks and their branches. Foreign branches of foreign banks are not
regulated by U.S. banking authorities, and generally are not bound by
accounting, auditing and financial reporting standards comparable to U.S.
banks. Although FMR carefully considers these factors when making
investments, the fund does not limit the amount of its assets which can be
invested in any one type of instrument or in any foreign country.
QUALITY. Pursuant to procedures adopted by the Board of Trustees, Money
Market Portfolio may purchase only high quality securities that FMR
believes present minimal credit risks. To be considered high quality, a
security must be a U.S. government security; rated in accordance with
applicable rules in one of the two highest categories for short-term
securities by at least two nationally recognized rating services (or by
one, if only one rating service has rated the security); or, if unrated,
judged to be of equivalent quality by FMR.
High quality securities are divided into "first tier" and "second tier"
securities. FIRST TIER SECURITIES have received the highest rating (e.g.,
Standard & Poor's A-1 rating) from at least two rating services (or
one, if only one has rated the security). SECOND TIER SECURITIES have
received ratings within the two highest categories (e.g., Standard &
Poor's A-1 or A-2) from at least two rating services (or one, if only one
has rated the security), but do not qualify as first tier securities. If a
security has been assigned different ratings by different rating services,
at least two rating services must have assigned the higher rating in order
for FMR to determine eligibility on the basis of that higher rating. Based
on procedures adopted by the Board of Trustees, FMR may determine that an
unrated security is of equivalent quality to a rated first or second tier
security.
DIVERSIFICATION. The fund may not invest more than 5% of its total assets
in second tier securities. In addition, the fund may not invest more than
1% of its total assets or $1 million (whichever is greater) in the second
tier securities of a single issuer.
MATURITY POLICIES. The fund must limit its investments to securities with
remaining maturities of 397 days or less and must maintain a
dollar-weighted average maturity of 90 days or less.
HIGH INCOME PORTFOLIO seeks to obtain a high level of current income by
investing primarily in high-yielding, lower-rated, fixed-income securities,
while also considering growth of capital. FMR will seek high current income
normally by investing the fund's total assets as follows:
(bullet) at least 65% in income-producing debt securities and preferred
stocks of all types, including convertible securities, zero coupon
securities, and mortgage-backed and asset-backed securities;
(bullet) up to 20% in common stocks and other equity securities when
consistent with the fund's primary objective or when acquired as part of a
unit combining fixed-income and equity securities.
The fund may invest up to 15% of its assets in securities for which there
is no readily available market. These illiquid securities may include
privately placed restricted securities for which no institutional market
exists. The absence of a trading market can make it difficult to ascertain
a market value for illiquid securities. Disposing of illiquid securities
may involve time-consuming negotiation and legal expenses, and it may be
difficult or impossible for the fund to sell them promptly at an acceptable
price. SEE THE APPENDIX FOR MORE INFORMATION.
The fund may also invest a portion of its assets in debt securities that
are not paying current income in anticipation of possible future income
from the securities. The purchase of defaulted bonds and their future
benefit to the fund depend upon FMR's ability to predict future prospects
of an issuer.
Higher yields are usually available on securities that have a longer-term
maturity and are lower-rated or are unrated. Lower-rated securities
(sometimes referred to as "junk bonds") are usually defined as those
rated Ba or lower by Moody's Investors Service, Inc. (Moody's) or BB or
lower by Standard & Poor's Corporation (S&P) and may be deemed to
be of a speculative nature. Lower-rated securities involve greater risk of
default or price changes than securities assigned a higher quality rating.
Unrated securities are not necessarily of lower quality than rated
securities but they may not be attractive to as many buyers. FOR A FURTHER
DISCUSSION OF LOWER-RATED SECURITIES, PLEASE SEE THE "RISKS OF LOWER-RATED
DEBT SECURITIES" SECTION ON PAGE .
In considering investments for the fund, FMR will look for high-yielding
securities of companies whose financial condition is adequate to meet
future obligations or has improved or is expected to improve in the future.
Among other things, yield is a function of the relative financial strength
of the issuing company and of debt maturity schedules. In evaluating these
factors, FMR will not rely solely on ratings assigned by Moody's and
S&P but will do its own credit analysis. This is because (1) Moody's
and S&P assign ratings based largely on historical financial
information and the ratings may not accurately reflect the current
financial outlook of companies and (2) there can be large differences
between the current financial conditions of issuers within the same rating
category.
The prices of high-yielding, lower-rated, fixed-income securities may
decline significantly in periods of general economic difficulty or rising
interest rates. The fund will try to recognize these periods and then may
adopt a defensive approach (i.e., temporarily invest up to 100% of its
assets in high quality debt securities and preferred stocks).
OTHER INVESTMENT PRACTICES. The fund may invest in foreign securities. For
information on the fund's foreign investments, see the section entitled
"International Investments: Special Considerations" on page . Refer to the
Appendix for information on other investments the fund may make, including
options and futures contracts, put options and short sales, repurchase
agreements and securities loans, interfund borrowing transactions,
government securities, zero-coupon bonds and pay-in-kind securities,
delayed-delivery transactions, asset-backed securities and indexed
securities. The fund may also invest in warrants.
EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities FMR will
also consider the potential for capital appreciation. The fund's goal is to
achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's 500 Composite Stock Price Index.
FMR normally will invest at least 65% of the fund's total assets in
income-producing common or preferred stock. The remainder of the fund's
assets will tend to be invested in debt obligations, many of which are
expected to be convertible into common stock (if convertible securities
present favorable investment opportunities). FMR expects to invest, as is
consistent with the fund's objective, in securities of varying quality but
does not intend to invest in securities of companies without proven
earnings or credit.
In addition, the fund may invest in high-yielding, lower-rated debt
securities (sometimes referred to as "junk bonds") which are subject
to greater risk than investments in higher quality securities and the fund
may invest in foreign securities. FOR A FURTHER DISCUSSION OF LOWER-RATED
SECURITIES AND FOREIGN INVESTING, PLEASE SEE THE "RISKS OF LOWER-RATED DEBT
SECURITIES" SECTION AND "INTERNATIONAL INVESTMENTS: SPECIAL CONSIDERATIONS"
ON PAGES AND , RESPECTIVELY.
OTHER INVESTMENT PRACTICES. See the Appendix for more information on other
investment practices including repurchase agreements and securities loans,
illiquid investments, restricted securities, loans and other direct debt
instruments, options and futures contracts, short sales, swap agreements,
indexed securities, asset-backed securities and interfund borrowing
transactions. The fund may also invest in warrants and mortgage-backed
securities.
GROWTH PORTFOLIO seeks to achieve capital appreciation. FMR normally will
purchase common stocks for the fund, although its investments are not
restricted to any one type of security. Capital appreciation may also be
found in other types of securities, including bonds and preferred stocks.
The emphasis on a particular security will depend on FMR's interpretation
of underlying economic, financial, and security trends. The fund does not
place any emphasis on dividend income from its investments except when FMR
believes this income will have a favorable influence on the market value of
the security.
In addition, the fund may invest in high-yielding, lower-rated debt
securities which are subject to greater risk than investments in higher
quality securities and the fund may invest in foreign securities. FOR A
FURTHER DISCUSSION OF LOWER-RATED SECURITIES AND FOREIGN INVESTING, PLEASE
SEE THE "RISKS OF LOWER-RATED DEBT SECURITIES" SECTION AND "INTERNATIONAL
INVESTMENTS: SPECIAL CONSIDERATIONS" ON PAGES AND , RESPECTIVELY.
OTHER INVESTMENT PRACTICES. Refer to the Appendix for more information on
investments the fund may make, including options and futures contracts,
short sales, swap agreements, indexed securities, interfund borrowing
transactions, repurchase agreements and securities loans, warrants,
restricted securities, and illiquid investments.
OVERSEAS PORTFOLIO seeks long term growth of capital primarily through
investments in foreign securities. The fund provides a means for investors
to diversify their own portfolios by participating in companies and
economies outside of the United States.
Foreign securities are defined as securities of issuers whose principal
activities are outside of the United States. In determining whether an
issuer's principal activities and interests are outside the United States,
FMR will look at such factors as the location of its assets, personnel,
sales and earnings.
Normally, at least 65% of the fund's total assets will be invested in
securities of issuers from at least three different countries outside of
North America. Although the fund may invest up to 35% in securities of
issuers from Canada, Mexico and the United States, FMR currently does not
expect to invest a significant part of this amount in securities of U.S.
issuers.
When allocating the fund's investments among geographic regions and
individual countries, FMR considers various criteria, such as prospects for
relative economic growth among countries, expected levels of inflation,
government policies influencing business conditions, and the outlook for
currency relationships. FMR expects to invest most of the fund's assets in
securities of issuers located in developed countries in these general
geographic areas: the Americas (other than the United States), the Far East
and Pacific Basin, Scandinavia and Western Europe.
FMR may invest the fund's assets in all types of securities, most of which
are denominated in foreign currencies. FMR expects that opportunities for
long term growth of capital will come primarily from common stock,
securities such as warrants or rights that are convertible into common
stock, preferred stock, and depositary receipts for those
securities. The fund may also invest in high-yielding, lower-rated debt
securities (sometimes referred to as "junk bonds") of any type if
FMR believes that doing so may result in long term growth. FOR A FURTHER
DISCUSSION OF LOWER-RATED SECURITIES, PLEASE SEE THE "RISKS OF LOWER-RATED
DEBT SECURITIES" SECTION ON PAGE . The fund does not place any emphasis on
dividends or interest income except when FMR believes this income will have
a favorable influence on the market value of the security. The fund may
invest in indexed securities whose value depends on the price of foreign
currencies, commodities, securities indices, or other financial indicators.
In the normal course of managing the fund, FMR may invest a portion of the
fund's assets in U.S. and foreign government obligations and money market
securities (including repurchase agreements) when the fund has monies not
yet invested, it has sold one security and is waiting to buy another one,
so that it will be prepared to meet redemption requests, or to earn a
return on available cash balances. When market conditions warrant, FMR can
make temporary defensive investments without limit in U.S.
government obligations or investment-grade obligations of companies
incorporated in and having principal business activities in the United
States.
OTHER INVESTMENT PRACTICES. Refer to the Appendix for further information
on the fund's investments, including options and futures contracts,
warrants, illiquid investments, restricted securities, swap agreements,
indexed securities, loans and other direct debt instruments, repurchase
agreements and securities loans, and interfund borrowing transactions.
MATCHING THE FUNDS TO YOUR INVESTMENT NEEDS
Each fund's shares may be used only as the investment vehicle for insurance
companies' variable contracts. You may enjoy certain tax benefits by
purchasing a variable annuity or variable life insurance contract.
(Refer to the prospectus of your insurance company's separate account for a
discussion of the tax benefits.)
No single fund constitutes a balanced investment plan. As described in the
following paragraphs, each fund stresses a different objective. Each fund's
share price (with the exception of Money Market Portfolio), yield and total
return will fluctuate and an investment in a fund (except Money Market
Portfolio) may be worth more or less than your original cost when
shares are redeemed.
Investments in MONEY MARKET PORTFOLIO earn income at current money market
rates. The fund's ability to achieve its investment objective depends on
the quality and maturity of its investments. Although its policies are
designed to help maintain a stable $1.00 share price, all money market
instruments can change in value when interest rates or issuers'
creditworthiness change, or if an issuer or guarantor of a security fails
to pay interest or principal when due. If these changes in value were large
enough, the fund's share price could deviate from $1.00. In general,
securities with longer maturities are more vulnerable to price changes,
although they may provide higher yields.
Money Market Portfolio will invest more than 25% of its total assets in the
securities of the financial services industry, under normal conditions.
Companies in the financial services industry are subject to various risks
related to that industry, such as government regulation, changes in
interest rates, and exposure on loans, including loans to foreign
borrowers. The fund's performance may be affected by conditions affecting
the financial services industry.
HIGH INCOME PORTFOLIO stresses earning high income by investing in
lower-rated, fixed-income securities and in equity securities. High Income
Portfolio offers the potential to earn a high yield; however, since the
fund has an aggressive approach to income investing, only investors who can
accept the greater price movements and credit risk associated with lower
quality bonds should consider this fund. Fixed-income securities are
generally considered to be interest-rate sensitive, which means that their
value (and the fund's share price) will tend to decrease when interest
rates rise and increase when interest rates fall. In general, securities
with shorter maturities offer lower yields, while providing greater price
stability than longer-term securities. Longer-term securities generally are
more affected by changes in interest rates; however, the lower-quality
securities in which the fund invests may not be as interest-rate sensitive
as higher-quality securities with equivalent maturities and are more
subject to credit risks.
EQUITY-INCOME PORTFOLIO stresses providing reasonable income, although the
fund will also consider the potential for capital appreciation. Since
capital appreciation is only a secondary consideration for the fund, you
should not expect a total return comparable to funds that have capital
appreciation as a primary objective. The fund may be appropriate for you if
you can afford to ride out changes in the stock market, because it invests
primarily in common and preferred stock. FMR also can make temporary
investments without limit in securities such as investment-grade
bonds, high-quality preferred stocks and short-term notes, for defensive
purposes when it believes market conditions warrant.
GROWTH PORTFOLIO seeks to achieve capital appreciation. This fund will
invest in the securities of both well-known and established companies, and
smaller, less well-known companies which may have a narrow product line or
whose securities are thinly traded. These latter securities will often
involve greater risk than may be found in the ordinary investment security.
FMR's analysis and expertise plays an integral role in the selection of
securities and, therefore, the performance of the fund. Many securities
which FMR believes would have the greatest growth potential may be
regarded as speculative, and an investment in the fund may involve greater
risk than is inherent in other mutual funds. It is also important to point
out that the fund may be appropriate for you if you can afford to ride out
changes in the stock market, because it invests primarily in common stocks.
FMR also can make temporary investments without limit in securities
such as investment-grade bonds, high-quality preferred stocks and
short-term notes, for defensive purposes when it believes market conditions
warrant.
OVERSEAS PORTFOLIO seeks long term growth of capital and any income return
is incidental to that objective. By investing in foreign securities, FMR
attempts to take advantage of differences between economic trends and the
performance of securities markets in various countries. To date, the market
values of securities of issuers located in many countries have moved
relatively independently of each other and during certain periods the
return on equity investments in some countries has exceeded the return on
similar investments in the United States. At other times, the return has
been less than that of similar U.S. securities. FMR believes that it may be
possible to obtain significant appreciation from a portfolio of foreign
investments and also achieve increased diversification in comparison to a
mutual fund that invests solely in U.S. securities. The fund obtains
increased diversification by combining securities from various countries
that offer different investment opportunities and are affected by different
economic trends. International diversification reduces the effect that
events in any one country or geographic area will have on the fund's
investments. Of course, negative movement by the fund's investments in one
foreign market represented in the portfolio may offset potential gains from
the fund's investments in another country's markets.
Although the fund will normally invest primarily in issuers located in
developed countries, the fund may also invest in developing countries.
Compared to the United States and other developed countries, developing
countries may have relatively unstable governments, economies based on only
a few industries, and securities markets which trade a small number of
securities. Prices on these exchanges tend to be volatile and, in the past,
these exchanges have offered greater potential for gain (as well as loss)
than exchanges in developed countries. See International Investments on
page 16 for further information on foreign securities.
RISKS OF LOWER-RATED DEBT SECURITIES
Lower-rated debt securities ( sometimes referred to as "junk bonds")
are usually defined as securities rated Ba or lower by Moody's or BB or
lower by S&P. Lower-rated debt securities are considered speculative
and involve greater risk of loss than higher-rated debt securities, and are
more sensitive to changes in the issuer's capacity to pay. This is an
aggressive approach to income investing.
The 1980s saw a dramatic increase in the use of lower-rated debt securities
to finance highly leveraged corporate acquisitions and restructurings. Past
experience may not provide an accurate indication of the future performance
of lower-rated debt securities, especially during periods of economic
recession. In fact, from 1989 to 1991, the percentage of lower-rated debt
securities that defaulted rose significantly above prior levels, although
the default rate decreased in 1992 and 1993.
Lower-rated debt securities may be thinly traded, which can adversely
affect the prices at which these securities can be sold and can result in
high transaction costs. If market quotations are not available, lower-rated
debt securities will be valued in accordance with standards set by the
Board of Trustees, including the use of outside pricing services. Judgment
plays a greater role in valuing lower-rated debt securities than securities
for which more extensive quotations and last sale information are
available. Adverse publicity and changing investor perceptions may affect
the ability of outside pricing services to value lower-rated debt
securities, and each fund's ability to dispose of these securities.
The market prices of lower-rated debt securities may decline significantly
in periods of general economic difficulty which may follow periods of
rising interest rates. During an economic downturn or a prolonged period of
rising interest rates, the ability of issuers of lower-rated debt to
service their payment obligations, meet projected goals, or obtain
additional financing may be impaired.
Each fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder
to seek to protect the interests of security holders if it determines this
to be in the interest of its shareholders.
The considerations discussed above for lower-rated debt securities also
apply to lower-quality, unrated debt instruments of all types, including
loans and other direct indebtedness of businesses with poor credit
standing. Unrated debt instruments are not necessarily of lower quality
than rated instruments, but they may not be attractive to as many buyers.
Each fund relies more on FMR's credit analysis when investing in debt
instruments that are unrated.
Please refer to the Appendix for a discussion of Moody's and S&P
ratings.
INTERNATIONAL INVESTMENTS: SPECIAL CONSIDERATIONS
The information contained in these paragraphs is of particular importance
to Overseas Portfolio; however, each fund can make foreign investments. FMR
limits the amount of High Income, Equity-Income and Growth Portfolio's net
assets that may be invested in foreign securities to 50%, respectively.
However, each fund , including Overseas Portfolio, may not invest
more than 20% of its assets in any one foreign country. Each fund
may have an additional 15% invested in securities of issuers located in any
one (but only one) of the following countries: Australia, Canada, France,
Japan, the United Kingdom or Germany. A fund must be diversified in at
least three different countries if it exceeds 20% in any one foreign
country.
Investing outside the U.S. involves different opportunities and different
risks from U.S. investments. FMR believes that it may be possible to obtain
significant returns from a portfolio of foreign investments, or a
combination of foreign investments and U.S. investments, and to achieve
increased diversification in comparison to a portfolio invested solely in
U.S. securities. By including international investments in your investment
portfolio, you may gain increased diversification by combining securities
from several countries and geographic areas that offer
various investment opportunities and are affected by
particular economic trends. At the same time, these opportunities
and trends involve risks that may not be encountered in U.S. investments.
International investing in general may involve greater risks than U.S.
investments. There is generally less publicly available information about
foreign issuers, and there may be less government regulation and
supervision of foreign stock exchanges, brokers, and listed companies.
There may be difficulty in enforcing legal rights outside the United
States. Foreign companies generally are not subject to uniform accounting,
auditing, and financial reporting standards, practices, and requirements
comparable to those that apply to U.S. companies. Security trading
practices abroad may offer less protection to investors such as the funds.
Settlement of transactions in some foreign markets may be delayed or may be
less frequent than in the U.S., which could affect the liquidity of a
fund's portfolio. Additionally, in some foreign countries, there is the
possibility of expropriation or confiscatory taxation; limitations on the
removal of securities, property, or other assets of a fund; political or
social instability; or diplomatic developments which could affect U.S.
investments in foreign countries. FMR will take these factors into
consideration in managing each fund's foreign investments.
Each fund may invest a portion of its assets in developing countries, or in
countries with new or developing capital markets; for example, nations in
Eastern Europe. The considerations noted above are generally intensified
for these investments. These countries may have relatively unstable
governments, economies based on only a few industries, and securities
markets that trade a small number of securities. Securities of issuers
located in these countries tend to have volatile prices and may offer
significant potential for loss as well as gain.
FOREIGN CURRENCIES. The value of each fund's foreign investments and
the value of its dividends and earned interest , may be
significantly affected by changes in currency exchange rates. Some foreign
currency values may be volatile, and there is the possibility of
governmental controls on currency exchange or governmental intervention in
currency markets, which could adversely affect the funds. Although FMR may
attempt to manage currency exchange rate risks, there is no assurance that
FMR will do so at an appropriate time or that FMR will be able to predict
exchange rates accurately. For example, if FMR increases a fund's exposure
to a foreign currency, and that currency's value subsequently falls, FMR's
currency management may result in increased losses to the fund. Similarly,
if FMR hedges a fund's exposure to a foreign currency, and that currency's
value rises, the fund will lose the opportunity to participate in the
currency's appreciation.
CURRENCY MANAGEMENT. The relative performance of foreign currencies is an
important factor in each fund's performance. FMR may manage each fund's
exposure to various currencies to take advantage of yield, risk, and
return characteristics that foreign currencies can provide for U.S.
investors.
To manage exposure to currency fluctuations, the funds may enter into
currency forward contracts (agreements to exchange one currency for another
at a future date) or currency swap agreements, buy and sell options and
futures contracts relating to foreign currencies, and purchase securities
indexed to foreign currencies. The funds will use currency forward
contracts in the normal course of business to lock in an exchange rate in
connection with purchases and sales of securities denominated in foreign
currencies. Other currency management strategies allow FMR to hedge
portfolio securities, to shift investment exposure from one currency to
another, or to attempt to profit from anticipated declines in the value of
a foreign currency relative to the U.S. dollar. There is no overall
limitation on the amount of the funds' assets that may be committed to
currency management strategies.
LIMITING INVESTMENT RISKS
The following summarizes the funds' principal investment limitations. A
complete listing is contained in the Statement of Additional Information.
The following limitations and the policies discussed in "HOW THE TRUST
WORKS" are considered at the time of purchase; the sale of securities is
not required in the event of a subsequent change in circumstances.
1. Money Market Portfolio (a) normally may not invest more than 5% of its
total assets in the securities of any single issuer. Under certain
conditions, however, the fund may invest up to 10% of its total assets in
the first tier securities of a single issuer for up to three business days;
and (b) will not purchase a security if, as a result more than 25% of its
total assets would be in a particular industry, except that the fund will
invest more than 25% of its total assets in the financial services
industry, under normal conditions. These limitations do not apply to
obligations issued or guaranteed as to principal and interest by the United
States government, its agencies or instrumentalities.
2. Neither High Income, Equity-Income, Growth nor Overseas Portfolios will
purchase a security if, as a result; (a) (with respect to 75% its total
assets) more than 5% of its total assets would be invested in the
securities of any single issuer or it would hold more than 10% of the
outstanding voting securities of that issuer; (b) more than 25% of its
total assets would be invested in a particular industry; or (c) more than
10% (15% for High Income and Overseas Portfolios) of its net assets would
be invested in illiquid securities. Limitations (a) and (b) do not apply to
U.S. government securities.
3. Each fund may borrow money or engage in reverse repurchase agreements
(as described in the Appendix) for temporary or emergency purposes (except
for Money Market Portfolio which may do so for investment purposes as
described in the Appendix), but not in an amount exceeding 25% of its net
assets.
4. Each fund may temporarily lend any security or make any other loan
provided that not more than 33 1/3% of a fund's total assets would be lent
to other parties.
Except for each fund's investment objective and limitations, 1(b), 2(a),
2(b), and 4, the policies described in this prospectus are not fundamental.
Non-fundamental policies can be changed at any time without the consent of
shareholders.
Each fund may borrow money only from banks or other funds advised by FMR
and will not purchase securities when borrowings exceed 5% of its total
assets (excluding reverse repurchase agreements for Money Market
Portfolio) . If a fund borrows money, its share price (except for
Money Market Portfolio) may be subject to greater fluctuation until the
borrowing is paid off. To this extent, (for all funds except Money Market
Portfolio) purchasing securities when borrowings are outstanding may
involve an element of leverage. Each fund may temporarily lend its
portfolio securities to broker-dealers and institutions, but only when the
loans are fully collateralized. Each fund may also make cash loans to other
funds advised by FMR in an amount not exceeding 5% of net assets for
Equity-Income, Growth and Overseas Portfolios, 7.5% of net assets for High
Income Portfolio and 10% of net assets for Money Market Portfolio (see
Appendix).
INTERNAL REVENUE SERVICE (IRS) LIMITATIONS. In addition to the above, each
fund also follows certain limitations imposed by the IRS on separate
accounts of insurance companies relating to the tax-deferred status of
variable contracts. More specific information may be contained in your
insurance company's separate account prospectus.
PORTFOLIO TRANSACTIONS
FMR chooses broker-dealers by judging professional ability and quality of
service and uses various brokerage firms to carry out a fund's equity
transactions. A fund's debt obligations and money market obligations are
generally traded in the over-the-counter market through broker-dealers. A
broker-dealer is a securities firm or bank which makes a market for
securities by offering to buy at one price and sell at a slightly higher
price. The difference between the prices is known as a spread. Overseas
Portfolio normally trades its securities in foreign countries since the
best available market for foreign securities is often on foreign markets.
In transactions on foreign stock exchanges, except in Canada, brokers'
commissions are generally fixed and are often higher than in the United
States, where commissions are negotiated. Since FMR places (directly or
through affiliated sub-advisors) a large number of transactions, including
those of Fidelity's other funds, the funds generally pay lower commissions
and incur lower costs, and broker-dealers are willing to work on a more
favorable spread than would be possible for most individual investors.
Each fund has authorized FMR to allocate transactions to some
broker-dealers who help distribute the fund's shares or shares of
Fidelity's other funds, and on an agency basis, to Fidelity Brokerage
Services, Inc. (FBSI) and Fidelity Brokerage Services, Ltd. (FBSL),
affiliates of FMR. FMR will make such allocations if commissions are
comparable to those charged by non-affiliated, qualified broker-dealers for
similar services. FMR may also allocate brokerage transactions to a fund's
custodian, acting as a broker-dealer, or to other broker-dealers, so long
as transaction quality and commission rates are comparable to those of
other broker-dealers, where the broker dealers will allocate a portion of
the commissions paid toward payment of a fund's expenses. These expenses
currently include transfer agent and custodian fees. The Custodian may
credit a portion of the commissions paid toward payment of the funds'
custodian charges.
Higher commissions may be paid to those firms that provide research,
valuation and other services, to the extent permitted by law. FMR also is
authorized to allocate brokerage transactions to FBSI in order to secure
from FBSI research services produced by third party, independent entities.
FMR may use this research information in managing a fund's assets, as well
as assets of other clients.
A fund may engage in short-term trading when consistent with its objective.
Also, a security may be sold and another of comparable quality
simultaneously purchased to take advantage of what FMR believes to be a
temporary disparity in the normal yield relationship of the two securities.
The frequency of portfolio transactions - a fund's turnover rate - for High
Income, Equity-Income, Growth and Overseas Portfolios will vary from year
to year depending on market conditions. FMR buys and sells securities for
the funds after considering a company's ability to repay, future business
conditions, interest rate levels and the availability of new investments or
higher relative yields. For fiscal year 1993, High Income, Equity-Income,
Growth and Overseas Portfolios had turnover rates of 155%, 120%, 159% and
42%, respectively. Because a higher turnover rate increases transaction
costs and may have certain tax consequences, FMR carefully weighs the
anticipated benefits of short-term investment against this consequence.
PERFORMANCE
Each fund's performance may be quoted in advertising in terms of yield and
total return if accompanied by performance at your insurance company's
separate account. Performance is based on historical results and not
intended to indicate future performance. For additional performance
information, contact your insurance company for a free annual report.
Money Market Portfolio's YIELD refers to the income generated by an
investment in the fund over a specified seven day period, expressed as an
annual percentage rate. Its EFFECTIVE YIELD is calculated similarly, but
assumes that the income earned from investments is reinvested. Money Market
Portfolio's effective yield will tend to be slightly higher than its yield
because of this compounding effect.
For High Income Portfolio, YIELD is a way of showing the rate of income the
fund earns on its investments as a percentage of the fund's share price. To
calculate yield, a portfolio takes the dividend and interest income, if
any, it earned from its portfolio of investments for a specified 30-day
period (net of expenses), divides it by the number of its shares entitled
to receive dividends and expresses the result as an annualized percentage
rate based on the portfolio's share price at the end of the 30-day period.
Yields are calculated according to accounting methods that are standardized
for all stock and bond funds. Because yield accounting methods differ from
the methods used for other accounting purposes, the portfolio's yield may
not equal its distribution rate, the income paid to an account or the
income reported in the portfolio's financial statements.
TOTAL RETURNS are based on the overall dollar or percentage change in value
of a hypothetical investment in each fund, including changes in share price
(except for Money Market Portfolio) and assuming each fund's dividends and
capital gain distributions, if any, are reinvested. A CUMULATIVE
TOTAL RETURN reflects a portfolio's performance over a stated period of
time. An AVERAGE ANNUAL TOTAL RETURN reflects the hypothetical annually
compounded return that would have produced the same cumulative total return
if a portfolio's performance had been constant over the entire period.
Because average annual returns tend to smooth out variations in a
portfolio's return, you should recognize that they are not the same as
actual year-by-year results. To illustrate the components of overall
performance, a portfolio may separate its cumulative and average annual
returns into income results and capital gain or loss.
High Income, Equity-Income, Growth and Overseas Portfolios may quote their
ADJUSTED NET ASSET VALUES, including all distributions paid, and may be
averaged over specified periods. Equity-Income, Growth and Overseas
Portfolios may use these averages to calculate the funds' MOMENTUM
INDICATORS, which track changes in adjusted net asset values over specified
periods.
YIELDS AND TOTAL RETURNS QUOTED FOR THE FUNDS INCLUDE THE EFFECT OF
DEDUCTING EACH FUND'S EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES
ATTRIBUTABLE TO ANY PARTICULAR INSURANCE PRODUCT. SINCE SHARES OF THE FUNDS
MAY ONLY BE PURCHASED THROUGH A VARIABLE ANNUITY OR VARIABLE LIFE CONTRACT,
YOU SHOULD CAREFULLY REVIEW THE PROSPECTUS OF THE INSURANCE PRODUCT YOU
HAVE CHOSEN FOR INFORMATION ON RELEVANT CHARGES AND EXPENSES. Excluding
these charges from quotations of each fund's performance has the effect of
increasing the performance quoted. You should bear in mind the effect of
these charges when comparing a fund's performance to that of other mutual
funds.
DISTRIBUTIONS AND TAXES
For a discussion of the tax status of your variable contract, refer to the
prospectus of your insurance company's separate account. It is suggested
you keep all statements you receive to assist in your personal
recordkeeping.
It is expected that shares of the funds will be held under the terms of
variable annuity or variable life insurance contracts. Under current tax
law, dividends or capital gain distributions from any fund are not
currently taxable when left to accumulate within a variable annuity or
variable life insurance contract. Depending on the variable contract,
withdrawals from the contracts may be subject to ordinary income tax and,
in addition, a 10% penalty tax on withdrawals before age 59 1/2.
Each fund is treated as a separate entity for federal income tax purposes.
Each fund intends to pay out all of its net investment income and net
realized capital gains for each year. Dividends from Money Market Portfolio
are declared daily and paid monthly. Equity-Income distributes its
dividends quarterly and High Income, Growth and Overseas Portfolios
distribute any dividends each year. Normally, net realized capital gains,
if any, are distributed each year for the funds. Such income and capital
gains are automatically reinvested in additional shares for the funds.
High Income, Equity-Income, Growth and Overseas Portfolios make dividend
and capital gain distributions on a per-share basis. After every
distribution from each of these funds, the fund's share price drops by the
amount of the distribution. Because dividends and capital gain
distributions are reinvested, the total value of an account will not be
affected because, although the shares will have a lower price, there will
be correspondingly more of them.
THE TRUST AND THE FIDELITY ORGANIZATION
The Trust is an open-end, diversified, management investment company
organized as a Massachusetts business trust on November 13, 1981. It has
its own Board of Trustees, which supervises its activities and reviews
contractual arrangements with companies that provide each fund with
services. The Trust is not required to hold annual shareholder meetings,
although special meetings may be called for a specific fund, or the Trust
as a whole, for purposes such as electing or removing Trustees, changing
fundamental policies or approving a management contract. An insurance
company issuing a variable contract that participates in the Trust will
vote shares in the separate account as required by law and interpretations
thereof, as may be amended or changed from time to time. In accordance with
current law and interpretations thereof, a participating insurance company
is required to request voting instructions from policyowners and must vote
shares in the separate account in proportion to the voting instructions
received. For a further discussion, please refer to your insurance
company's separate account prospectus.
Fidelity Investments is one of America's largest investment management
organizations and has its principal business address at 82 Devonshire
Street, Boston, Massachusetts. It includes a number of different companies,
which provide a variety of financial services and products. Each fund
employs various Fidelity companies to perform certain activities required
for its operation.
Fidelity Management & Research Company, the funds' manager, is the
original Fidelity company, founded in 1946. It provides a number of mutual
funds and other clients with investment research and portfolio management
services. It maintains a large staff of experienced investment personnel
and a full complement of related support facilities. Fidelity Management
& Research (U.K.) Inc. (FMR U.K.), Fidelity Management & Research
(Far East) Inc. (FMR Far East), Fidelity International Investment Advisors
(FIIA) and FMR Texas Inc. (FMR Texas) are wholly owned subsidiaries of FMR
that provide research, investment advice and portfolio management services
for certain funds advised by FMR with respect to foreign securities (FMR
U.K., FMR Far East, FIIA) and money market instruments (FMR Texas). FMR
U.K., FMR Far East, FIIA, and FMR Texas maintain their principal business
offices in London, Tokyo, Bermuda, and Dallas, respectively. As of December
31, 1993, FMR advised funds having more than 15 million shareholder
accounts with a total value of more than $ 225 billion. Fidelity
Distributors Corporation (Distributors) distributes shares for the Fidelity
funds. FMR Corp. is the holding company for the Fidelity companies. Through
ownership of voting common stock, Edward C. Johnson 3d, President and a
Trustee of the Trust, Johnson family members, and various trusts for the
benefit of the Johnson family form a controlling group with respect to FMR
Corp.
Each fund has an investment objective similar to that of an existing
Fidelity retail fund. Money Market Portfolio is most similar to Fidelity
Cash Reserves, High Income Portfolio to Spartan High Income Fund,
Equity-Income Portfolio to Fidelity Equity-Income Fund, Growth Portfolio to
Fidelity Retirement Growth Fund and Overseas Portfolio to Fidelity Overseas
Fund. Performance of these funds is not expected to be the same as the
performance of the corresponding retail fund due in part to dissimilarities
in their investments. Various insurance related costs at the insurance
company's separate account will also affect performance.
Bettina Doulton is the manager of Equity-Income Portfolio, which she has
managed since July 1993. Ms. Doulton is also manager of Fidelity Advisor
Equity Portfolio Income. Previously, she managed Fidelity Select Automotive
Portfolio and assisted on Fidelity Magellan Fund and Fidelity Equity-Income
Fund. Ms. Doulton also served as an analyst following the domestic and
European automotive and tire manufacturing industry as well as the gaming
and lodging industry. She joined Fidelity in 1985.
Barry Jay Coffman is vice president and manager of High Income Portfolio,
which he has managed since August 1990. Mr. Coffman also assists on
Fidelity Puritan Fund. Previously, he served as an assistant manager and
analyst for the high yield bond group. Before joining Fidelity in 1986, Mr.
Coffman was an analyst for Equitable Capital Management and was a senior
auditor at Arthur Anderson & Company.
Lawrence Greenberg is vice president and manager of Growth Portfolio, which
he has managed since April 1991. He also manages Emerging Growth.
Previously, Mr. Greenberg managed Select Environmental Services and Select
Medical Delivery. He also assisted on Fidelity Magellan Fund. Mr. Greenberg
joined Fidelity in 1986.
John R. Hickling is manager and vice president of Overseas Portfolio, which
he has managed since January 1993. Mr. Hickling also manages Fidelity
Overseas Fund, International Growth & Income, Advisor Overseas Fund,
and Japan Fund. Previously, he managed Emerging Markets, Europe,
International Opportunities and Pacific Basin. Mr. Hickling joined Fidelity
in 1982.
Each fund sells its shares to separate accounts of insurance companies
which are both affiliated and unaffiliated with FMR. Each fund currently
does not foresee any disadvantages to policyowners arising out of the fact
that each fund offers its shares to separate accounts of various insurance
companies to serve as the investment medium for their variable products.
Nevertheless, the Board of Trustees intends to monitor events in order to
identify any material irreconcilable conflicts which may possibly arise,
and to determine what action, if any, should be taken in response to such
conflicts. If such a conflict were to occur, one or more insurance
companies' separate accounts might be required to withdraw its investments
in one or more funds and shares of another fund may be substituted. This
might force a fund to sell securities at disadvantageous prices. In
addition, the Board of Trustees may refuse to sell shares of any fund to
any separate account or may suspend or terminate the offering of shares of
any fund if such action is required by law or regulatory authority or is in
the best interests of the shareholders of the fund.
MANAGEMENT, DISTRIBUTION AND SERVICE FEES
For managing each fund's investments and business affairs, each fund pays
FMR a monthly fee.
MONEY MARKET PORTFOLIO'S fee is made up of two components: (a) a basic fee
rate and (b) an income-based component. The basic fee rate is the
sum of the following two components:
1. A group fee rate based on the monthly average net assets of all the
mutual funds advised by FMR. This rate cannot rise above .37%, and it drops
(to as low as a marginal rate of .1325%) as total assets in all these funds
rise. The effective group fee rate for December 1993 was .1621%.
2. An individual fund fee rate of .03%.
One-twelfth of the combined annual fee rate is applied to the fund's net
assets averaged over the most recent month, giving a dollar amount which is
the fee for that month. If the fund's gross yield is 5% or less, the basic
fee is the total management fee. The income-based component is added to the
basic fee only when the fund's yield is greater than 5%. The
income-based fee is 6% of that portion of the fund's yield that represents
a gross yield of more than 5% per year. The maximum income-based component
is .24%.
For fiscal 1993, the fund's management fee was .14% of the average net
assets of the fund - approximately $1.40 for every $1,000 of the fund's
average net assets.
HIGH INCOME PORTFOLIO'S annual fee rate is the sum of two components:
1. A group fee rate based on the monthly average net assets of all the
mutual funds advised by FMR. This rate cannot rise above .37%, and it drops
(to as low as a marginal rate of .1325%) as total assets in all these funds
rise. The effective group fee rate for December 1993 was .1621%.
2. An individual fund fee rate of .45%.
One-twelfth of the combined annual fee rate is applied to the fund's net
assets averaged over the most recent month, giving a dollar amount which is
the fee for that month.
In fiscal year 1993, FMR's fee was .51% of the fund's average net assets or
$5.10 for every $1,000 of the fund's average net assets. This fee is
based on an individual fund fee rate of .35%. Shareholders of the fund
voted to increase the individual fund fee rate to .45% on December 15,
1993.
EQUITY-INCOME, GROWTH AND OVERSEAS PORTFOLIOS' annual fee rate is the sum
of two components:
1. A group fee rate based on the monthly average net assets of all the
mutual funds advised by FMR. This rate cannot rise above .52%, and it drops
(to as low as a marginal rate of .30%*) as total assets in all these funds
rise. The effective group fee rate for December 1993 was .3243%.
2. An individual fund fee rate of .20% for Equity-Income Portfolio, .30%
for Growth Portfolio and .45% for Overseas Portfolio.
*FMR voluntarily agreed to adopt a revised group fee rate schedule for
these funds which provides for a marginal rate as low as .285% when
average group net assets exceed $336 billion. A new management contract for
each fund with a revised group fee rate schedule will be presented for
approval at the next shareholder meeting.
One-twelfth of the combined annual fee rate is applied to each fund's net
assets averaged over the most recent month, giving a dollar amount which is
the fee for that month.
In fiscal year 1993, FMR's fee was .53%, .63% and .77% of Equity-Income,
Growth and Overseas Portfolios' average net assets, or $5.30, $6.30 and
$7.70 for every $1,000 of each fund's average net assets ,
respectively . Due to the greater complexity, expense and commitment of
resources involved in international investing, Overseas Portfolio's
management fee rate is higher than those of most domestic mutual funds, but
not necessarily higher than those of the typical international fund.
Each fund has adopted a Distribution and Service Plan (the Plans) pursuant
to Rule 12b-1 under the Investment Company Act of 1940. No separate
payments are authorized to be made by the funds under the Plans. Rather,
each Plan recognizes that FMR may use its management fee or other resources
to pay expenses associated with activities primarily intended to result in
the sale of each fund's shares. Each Plan also provides that FMR may make
payments from these sources to third parties, although the Board has not
authorized these payments to date.
On behalf of High Income and Overseas Portfolios, FMR has entered into
sub-advisory agreements with FMR U.K. and FMR Far East. In addition, FMR,
on behalf of Overseas Portfolio, has entered into a sub-advisory
agreement with FIIA. FIIA, in turn, has entered into a sub-advisory
agreement with its wholly owned subsidiary Fidelity International
Investment Advisors (U.K.) Limited (FIIAL U.K.). Under the sub-advisory
agreements, FMR may receive investment advice and research services with
respect to companies based outside the U.S. and may grant the
sub-advisors investment management authority as well as the authority
to buy and sell securities if FMR believes it would be beneficial to the
funds.
Currently, FMR U.K., FMR Far East, FIIA and FIIAL U.K. each focus on
companies other than the U.S., including countries in Europe, Asia and the
Pacific Basin.
Under the sub-advisory agreements FMR pays the fees of FMR U.K., FMR Far
East, and FIIA. FIIA, in turn, pays the fees of FIIAL U.K.
For providing investment advice and research services the sub-advisors are
compensated as follows:
(bullet) FMR pays FMR U.K. and FMR Far East fees equal to 110% and 105%,
respectively, of FMR U.K.'s and FMR Far East's costs incurred in connection
with providing investment advice and research services.
(bullet) FMR pays FIIA 30% of its monthly management fee with respect to
the average market value of investments held by each fund for which FIIA
has provided FMR with investment advice.
(bullet) FIIA pays FIIAL U.K. a fee equal to 110% of FIIAL U.K.'s costs
incurred in connection with providing investment advice and research
services.
For providing investment management services, the sub-advisors are
compensated according to the following formulas:
(bullet) FMR pays FMR U.K., FMR Far East, and FIIA 50% of its monthly
management fee with respect to each fund's average net assets managed by
the sub-advisor on a discretionary basis.
(bullet) FIIA pays FIIAL U.K. 110% of FIIAL U.K.'s costs incurred in
connection with providing investment management services .
On behalf of Money Market Portfolio, FMR has entered into a sub-advisory
agreement with FMR Texas, a Texas corporation with principal offices at 400
East Las Colinas Boulevard in Irving, Texas. Pursuant to the agreement, FMR
Texas has primary responsibility for providing investment management
services.
Under the sub-advisory agreement, FMR, and not the fund, pays FMR Texas a
fee equal to 50% of the management fee payable to FMR under its management
contract with the fund. (The fees paid to FMR Texas are not reduced by any
voluntary or mandatory management fee waivers or expense reimbursements
which may be in effect from time to time). In fiscal 1993, FMR paid FMR
Texas a fee of $207,606 which was equivalent to . 07 % of Money
Market Portfolio's average net assets.
Each fund utilizes Fidelity Investments Institutional Operations Company
(FIIOC), an affiliate of FMR, to maintain the master accounts of the
participating insurance companies. Under the transfer agent agreement with
FIIOC, each fund pays fees based on the type, size, and number of accounts
in each fund and the number of transactions made by shareholders of each
fund. For fiscal year 1993, Money Market, High Income, Equity-Income,
Growth and Overseas Portfolios paid FIIOC $87,208, $108,432, $111,756,
$140,122 and $143,222, respectively, for these services.
Each fund also has an agreement with Fidelity Service Co. (FSC), an
affiliate of FMR under which each fund pays FSC to calculate its daily
share price and to maintain the portfolio and general accounting records of
each fund and to administer each fund's securities lending program. The
fees for pricing and bookkeeping services are based on each fund's average
net assets, but must fall within a range of $20,000 to $750,000 per year
for Money Market Portfolio and $45,000 to $750,000 for High Income,
Equity-Income, Growth and Overseas Portfolios. The fees for securities
lending services are based on the number and duration of individual
securities loans. For fiscal year 1993, the fees paid to FSC (including
securities lending, if any, and related out-of-pocket expenses) amounted to
$53,769, $138,642, $439,891, $456,795, and $230,456 for Money Market, High
Income, Equity-Income, Growth and Overseas Portfolios, respectively.
Total expenses for fiscal year 1993 amounted to .22%, .64%, .62%, .71% and
1.03%, respectively of Money Market, High Income, Equity-Income, Growth and
Overseas Portfolios' average net assets.
FMR may, from time to time, agree to reimburse a fund for management fees
and other expenses above a specified percentage of average net assets.
Reimbursement arrangements, which may be terminated at any time without
notice, will increase a fund's yield. If FMR discontinues a reimbursement
arrangement, each fund's expenses will go up and its yield will be reduced.
FMR retains the ability to be repaid by a fund for expense reimbursements
if expenses fall below the limit prior to the end of the fiscal year.
Repayment by a fund will lower its yield. FMR has voluntarily agreed to
reimburse the total operating expenses (excluding taxes, interest
and extraordinary expenses) of High Income Portfolio in excess of 1.00% of
its average net assets and reimburse total operating expenses of
Equity-Income, Growth and Overseas Portfolios in excess of 1.50% of their
average net assets.
SHAREHOLDER'S MANUAL
OPENING AN ACCOUNT
SINCE YOU MAY NOT PURCHASE THE PORTFOLIOS' SHARES DIRECTLY, YOU SHOULD READ
THE PROSPECTUS OF THE INSURANCE COMPANY'S SEPARATE ACCOUNT TO OBTAIN
INSTRUCTIONS FOR PURCHASING A VARIABLE ANNUITY OR VARIABLE LIFE INSURANCE
CONTRACT.
SHARE PRICE
The term "net asset value" or NAV refers to the worth of one share. The NAV
is computed by adding the value of each fund's investments, cash and other
assets, deducting liabilities and dividing the result by the number of
shares outstanding. Each fund is open for business each day the New York
Stock Exchange is open. The price of one share is its NAV which FSC
normally calculates as of the close of business of the New York Stock
Exchange (normally 4:00 p.m. Eastern time).
Money Market Portfolio's securities are valued on the basis of amortized
cost. This means of valuation assumes a steady rate of amortization of any
premium or discount from the date of purchase until maturity instead of
looking at actual changes in market value.
High Income, Equity-Income and Growth Portfolios' securities are valued
primarily on the basis of market quotations. A fund's foreign
securities are valued based on quotations from the primary market in which
they are traded, and are translated from the local currency into U.S.
dollars using current exchange rates.
For all funds, other assets and securities for which market quotations are
not readily available will be valued by a method which the Trust's Board
believes accurately reflects fair value.
INVESTMENTS
Investments in each fund may be made only by separate accounts established
and maintained by insurance companies for the purpose of funding variable
contracts. Please refer to the prospectus of your insurance company's
separate account for information on how to invest in each fund.
Investments by separate accounts in each fund are expressed in terms of
full and fractional shares of each fund. All investments in the funds are
credited to an insurance company's separate account immediately upon
acceptance of the investment by a fund. Investments will be processed at
the next NAV calculated after an order is received and accepted by a fund.
The offering of shares of any fund may be suspended for a period of time
and each fund reserves the right to reject any specific purchase order.
Purchase orders may be refused if, in FMR's opinion, they are of a size
that would disrupt the management of a fund.
REDEMPTIONS
Shares of any fund may be redeemed on any business day. Redemptions are
effected at the per share NAV next determined after receipt of the
redemption request has been accepted by a fund. Redemption proceeds will
normally be wired to the insurance company on the next business day after
receipt of the redemption instructions by a fund but in no event later than
7 days following receipt of instructions. Each fund may suspend redemptions
or postpone payment dates on days when the New York Stock Exchange is
closed (other than weekend or holidays), when trading on the New York Stock
Exchange is restricted, or as permitted by the Securities and Exchange
Commission.
Please refer to the prospectus of your insurance company's separate account
for information on how to redeem from each fund.
APPENDIX
The following paragraphs provide a brief description of securities in which
the funds may invest and transactions they may make. Each fund is not
limited by this discussion, however, and may purchase other types of
securities and enter into other types of transactions if they are
consistent with the its investment objective and policies.
MONEY MARKET refers to the marketplace where short-term, high grade debt
securities are traded and i ncludes U.S. government obligations,
commercial paper, certificates of deposit and bankers' acceptances, time
deposits and short-term corporate obligations. Money market instruments may
carry fixed rates of return or have variable or floating interest rates.
COMMERCIAL PAPER represents short-term obligations issued by banks,
broker-dealers, corporations and other entities for purposes such as
financing their current operations.
CERTIFICATES OF DEPOSIT represent a commercial bank's obligations to repay
funds deposited with it earning specified rates of interest over given
periods.
BANKERS' ACCEPTANCES are obligations of a bank to pay a draft which has
been drawn on it by a customer. These obligations are backed by large banks
and usually backed by goods in international trade.
TIME DEPOSITS are non-negotiable deposits in a banking institution earning
a specified interest rate over a given period of time.
U.S. GOVERNMENT OBLIGATIONS are debt securities issued or guaranteed as to
principal and interest by the U.S. Treasury or by an agency or
instrumentality of the U.S. government. Not all U.S. government obligations
are backed by the full faith and credit of the United States. For example,
securities issued by the Federal Farm Credit Bank or by the Federal
National Mortgage Association are supported by the agency's right to borrow
money from the U.S. Treasury under certain circumstances. Securities issued
by the Federal Home Loan Bank are supported only by the credit of the
agency. There is no guarantee that the government will support these types
of securities, and therefore they involve more risk than other government
obligations.
DELAYED DELIVERY TRANSACTIONS. Money Market and High Income Portfolios may
buy and sell securities on a when-issued or delayed-delivery basis, with
payment and delivery taking place at a future date. The market value of
securities purchased in this way may change before the delivery date, which
could affect the market value of Money Market Portfolio's assets,
and could increase fluctuations in High Income Portfolio's yield.
Ordinarily, the funds will not earn interest on securities purchased until
they are delivered.
VARIABLE OR FLOATING RATE OBLIGATIONS, including certain participation
interests in municipal obligations, have interest rate adjustment formulas
that help stabilize their market values. Many variable and floating rate
instruments also carry demand features that permit a fund to sell them at
par value plus accrued interest on short notice. When determining the
maturity of a variable or floating rate instrument, Money Market Portfolio
may look to the date the demand feature can be exercised, or to the date
the interest rate is readjusted, rather than to the final maturity of the
instrument.
CREDIT ENHANCEMENT AGREEMENTS may be purchased simultaneously with a money
market instrument for guaranteeing principal and/or interest and may be
considered with the instrument for purposes of determining the quality of
the instruments. These include irrevocable note repurchase agreements or
letters of credit issued by banks and guarantees provided by creditworthy
institutions. A fund will purchase these agreements to enhance the
creditworthiness of instruments when FMR (through yield and credit
analysis) believes it is in the fund's best interest.
CORPORATE OBLIGATIONS are bonds and notes issued by corporations and other
business organizations in order to finance their long-term credit needs.
OPTIONS AND FUTURES CONTRACTS are a way for a fund to manage its exposure
to changing interest rates, security prices, and currency exchange rates.
Some options and futures strategies, including selling futures, buying
puts, and writing calls, tend to hedge a fund's investments against price
fluctuations. Other strategies, including buying futures, writing puts, and
buying calls, tend to increase market exposure. Options and futures may be
combined with each other or with forward contracts in order to adjust the
risk and return characteristics of the overall strategy. A fund may invest
in options and futures based on any type of security, index, or currency,
including options and futures traded on foreign exchanges and options not
traded on exchanges.
Options and futures can be volatile investments, and involve certain risks.
If FMR applies a hedge at an inappropriate time or judges market conditions
incorrectly, options and futures strategies may lower a fund's return. A
fund could also experience losses if the prices of its options and futures
positions were poorly correlated with its other investments, or if it could
not close out its positions because of an illiquid secondary market.
High Income, Equity-Income, Growth and Overseas Portfolios will not hedge
more than 25% of their total assets by selling futures, buying puts, and
writing calls under normal conditions. In addition, each fund will not buy
futures or write puts whose underlying value exceeds 25% of its total
assets, and each fund will not buy calls with a value exceeding 5% of its
total assets.
SHORT SALES. A fund may enter into short sales with respect to stocks
underlying its convertible security holdings. These transactions may help
to hedge against the effect of stock price declines, but may result in
losses if a convertible security's price does not track the price of its
underlying equity. Convertible securities hedged with short sales are not
currently expected to exceed 15% of a fund's total assets under normal
conditions.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS are interests in amounts owed by a
corporate, governmental, or other borrower to another party. They may
represent amounts owed to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or other
receivables), or to other parties. Direct debt instruments involve risk of
loss in case of default or insolvency of the borrower and may offer less
legal protection to a fund in the event of fraud or misrepresentation. In
addition, loan participations involve a risk of insolvency of the lending
bank or other financial intermediary. Direct debt instruments may also
include standby financing commitments that obligate a fund to supply
additional cash to the borrower on demand.
ILLIQUID INVESTMENTS. Each fund (other than Money Market Portfolio) may
invest up to 10% of its assets (15% for High Income and Overseas
Portfolios) in illiquid investments. Money Market Portfolio will invest
less than 10% of its assets in illiquid investments. Under the supervision
of the Board of Trustees, FMR determines the liquidity of each fund's
investments. The absence of a trading market can make it difficult to
ascertain a market value for illiquid investments. Disposing of illiquid
investments may involve time-consuming negotiation and legal expenses, and
it may be difficult or impossible for a fund to sell them promptly at an
acceptable price.
RESTRICTED SECURITIES. Each fund may purchase securities which cannot be
sold to the public without registration under the Securities Act of 1933
(restricted securities). Unless registered for sale, these securities can
only be sold in privately negotiated transactions or pursuant to an
exemption from registration.
INDEXED SECURITIES values are linked to currencies, interest rates,
commodities, indices, or other financial indicators. Most indexed
securities are short to intermediate term fixed-income securities whose
values at maturity or interest rates rise or fall according to the change
in one or more specified underlying instruments. Indexed securities may be
positively or negatively indexed (i.e., their value may increase or
decrease if the underlying instrument appreciates), and may have return
characteristics similar to direct investments in the underlying instrument
or to one or more options on the underlying instrument. Indexed securities
may be more volatile than the underlying instrument itself.
SWAP AGREEMENTS. As one way of managing its exposure to different types of
investments, a fund may enter into interest rate swaps, currency swaps, and
other types of swap agreements such as caps, collars, and floors. In a
typical interest rate swap, one party agrees to make regular payments equal
to a floating interest rate multiplied by a "notional principal amount," in
return for payments equal to a fixed rate multiplied by the same amount,
for a specified period of time. If a swap agreement provides for payments
in different currencies, the parties might agree to exchange the notional
principal amount as well. Swaps may also depend on other prices or rates,
such as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate
exceeds an agreed-upon level, while the seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate
falls below an agreed-upon level. An interest rate collar combines elements
of buying a cap and selling a floor.
Swap agreements will tend to shift a fund's investment exposure from one
type of investment to another. For example, if a fund agreed to exchange
payments in dollars for payments in foreign currency, the swap agreement
would tend to decrease a fund's exposure to U.S. interest rates and
increase its exposure to foreign currency and interest rates. Caps and
floors have an effect similar to buying or writing options. Depending on
how they are used, swap agreements may increase or decrease the overall
volatility of a fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks
assumed. As a result, swaps can be highly volatile and may have a
considerable impact on a fund's performance. Swap agreements are subject to
risks related to the counterparty's ability to perform, and may decline in
value if the counterparty's creditworthiness deteriorates. A fund may also
suffer losses if it is unable to terminate outstanding swap agreements or
reduce its exposure through offsetting transactions.
WARRANTS. High Income, Equity-Income, Growth and Overseas Portfolios may
invest in warrants, which entitle the holder to buy equity securities at a
specific price for a specific period of time. Warrants may be considered
more speculative than certain other types of investments in that they do
not entitle a holder to dividends or voting rights with respect to the
securities which may be purchased nor do they represent any rights in the
assets of the issuing company. The value of a warrant may be more volatile
than the value of the warrant's underlying securities. Also, the value of
the warrant does not necessarily change with the value of the underlying
securities and a warrant ceases to have value if it is not exercised prior
to the expiration date.
MORTGAGE-BACKED SECURITIES are securities issued by government and
non-government entities such as banks, mortgage lenders, or other financial
institutions. A mortgage-backed security may be an obligation of the issuer
backed by a mortgage or pool of mortgages or a direct interest in an
underlying pool of mortgages. Some mortgage-backed securities, such as
collateralized mortgage obligations or CMOs, make payments of both
principal and interest at a variety of intervals; others make semiannual
interest payments at a predetermined rate and repay principal at maturity
(like a typical bond). Mortgage-backed securities are based on different
types of mortgages including those on commercial real estate or residential
properties. Other types of mortgage-backed securities will likely be
developed in the future, and a fund may invest in them if FMR determines
they are consistent with its investment objective and policies.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment
risk. Prepayment, which occurs when unscheduled or early payments are made
on the underlying mortgages, may shorten the effective maturities of these
securities and may lower their total returns.
STRIPPED MORTGAGE-BACKED SECURITIES are created when a U.S. government
agency or a financial institution separates the interest and principal
components of a mortgage-backed security and sells them as individual
securities. The holder of the "principal-only" security (PO) receives the
principal payments made by the underlying mortgage-backed security, while
the holder of the "interest-only" security (IO) receives interest payments
from the same underlying security.
The prices of stripped mortgage-backed securities may be particularly
affected by changes in interest rates. As interest rates fall, prepayment
rates tend to increase, which tends to reduce prices of IOs and increase
prices of POs. Rising interest rates can have the opposite effect.
ASSET-BACKED SECURITIES may include pools of mortgages, loans, receivables
or other assets. Payment of principal and interest may be largely dependent
upon the cash flows generated by the assets backing the securities.
ZERO COUPON BONDS do not make interest payments; instead, they are sold at
a deep discount from their face value and are redeemed at face value when
they mature. Because zero coupon bonds do not pay current income, their
prices can be very volatile when interest rates change. In calculating its
daily dividend, a fund takes into account as income a portion of the
difference between a zero coupon bond's purchase price and its face value.
A broker-dealer creates a derivative zero by separating the interest and
principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury
Securities), TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury
Receipts) are examples of derivative zeros.
The Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and
principal components of an outstanding U.S. Treasury bond and selling them
as individual securities. Bonds issued by the Resolution Funding
Corporation (REFCORP) and the Financing Corporation (FICO) can also be
separated in this fashion. Original issue zeros are zero coupon securities
originally issued by the U.S. government, a government agency, or a
corporation in zero coupon form.
REPURCHASE AGREEMENTS AND SECURITIES LOANS. In a repurchase agreement, a
fund buys a security at one price and simultaneously agrees to sell it back
to the seller at a higher price. Each fund may also make securities loans
to broker-dealers and institutional investors, including FBSI. In the event
of the bankruptcy of the other party to a repurchase agreement or a
securities loan, each fund could experience delays in recovering its cash
or the securities it lent. To the extent that, in the meantime, the value
of the securities purchased had decreased, or the value of the securities
lent had increased, each fund could experience a loss. A fund may enter
into a FOREIGN REPURCHASE AGREEMENT with respect to foreign securities and
repurchase agreements denominated in foreign currencies. Foreign repurchase
agreements may be less well secured than repurchase agreements in U.S.
markets, and may involve greater risks of default. In all cases, FMR must
find the creditworthiness of the other party to the transaction
satisfactory.
REVERSE REPURCHASE AGREEMENTS are transactions when a fund temporarily
transfers possession of a portfolio instrument to another party, such as a
bank or broker-dealer, in return for cash. At the same time, the fund
agrees to repurchase the instrument at an agreed-upon price and time. Each
fund expects that it will engage in reverse repurchase agreements for
temporary purposes (except Money Market Portfolio, which may do so for
any purpose) such as to fund redemptions or when it is able to invest
the cash so acquired at a rate higher than the cost of the agreement, which
would increase the income earned by the fund. Reverse repurchase agreements
may increase the risk of fluctuation in the market value of each fund's
assets or in its yield.
INTERFUND BORROWING PROGRAM. Each fund has received permission from the
Securities and Exchange Commission to lend money to and borrow money from
other funds advised by FMR or its affiliates. Interfund loans and
borrowings normally will extend overnight, but can have a maximum duration
of seven days. Each fund will lend through the program only when the
returns are higher than those available at the same time from other
short-term instruments (such as repurchase agreements), and will borrow
through the program only when the costs are equal to or lower than the cost
of bank loans. Equity-Income, Growth and Overseas Portfolios cannot lend
more than 5% of net assets, High Income Portfolio cannot lend more than
7.5% of net assets and Money Market Portfolio cannot lend more than 10% of
net assets to other funds. Each fund will not borrow through the program
if, after doing so, total outstanding borrowings would exceed 15% of its
total assets. Loans may be called on one day's notice, and each fund may
have to borrow from a bank at a higher interest rate if an interfund loan
is called or not renewed. Any delay in repayment to a lending fund could
result in a lost investment opportunity or additional borrowing costs.
DEBT OBLIGATIONS. The following tables provide a summary of ratings
assigned to debt holdings (not including money market instruments) held by
High Income and Equity-Income Portfolios. These percentages are
dollar-weighted averages of month-end portfolio holdings during the
thirteen months ended December 31, 1993, presented as a percentage of total
investments. These percentages are historical and not necessarily
indicative of the quality of current or future portfolio holdings, which
may vary .
HIGH INCOME PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
DOLLAR- DOLLAR-
RATED BY WEIGHTED RATED BY WEIGHTED
S&P AVERAGE MOODY'S AVERAGE DESCRIPTION
INVESTMENT GRADE
AAA, AA, A 0.00 % Aaa, Aa, A 0.00 % Highest
quality/high
quality/upper
medium grade
BBB 0. 86 % Baa 0.82 % Medium grade
LOWER QUALITY
BB 10.13 % Ba 10.93 % Moderately
speculative
B 41.74 % B 37.56 % Speculative
CCC 5.03 % Caa 6.26 % Highly speculative
CC, C 0.25 % Ca, C 1.61 % Poor quality/lowest
quality, no interest
D 1.32 % 0.00% In default, in
arrears
</TABLE>
The dollar-weighted average of debt securities not rated by either S&P
or Moody's amounted to 21.50 %.*
EQUITY-INCOME PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
DOLLAR- DOLLAR-
RATED BY WEIGHTED RATED BY WEIGHTED
S&P AVERAGE MOODY'S AVERAGE DESCRIPTION
INVESTMENT GRADE
AAA, AA, A 1.28 % Aaa, Aa, A 1.45 % Highest
quality/high
quality/upper
medium grade
BBB 1.05 % Baa 0.73% Medium grade
LOWER QUALITY
BB 0.91 % Ba 1.26 % Moderately
speculative
B 1 .39 % B 1.06 % Speculative
CCC 0.03 % Caa 0.03 % Highly speculative
CC, C 0.00% Ca, C 0.00 % Poor quality/lowest
quality, no interest
D 0.02% 0.00% In default, in
arrears
</TABLE>
The dollar-weighted average of debt securities not rated by either S&P
or Moody's amounted to 0.28%.*
* MAY INCLUDE SECURITIES RATED BY OTHER NATIONALLY RECOGNIZED RATING
ORGANIZATIONS, AS WELL AS UNRATED SECURITIES. UNRATED SECURITIES ARE NOT
NECESSARILY LOWER-QUALITY SECURITIES.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:
The descriptions that follow are examples of eligible ratings for the
funds. Money Market Portfolio may, however, consider the ratings for other
types of investments and the ratings assigned by other rating organizations
when determining the eligibility of a particular investment.
AAA - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such issues.
AA - Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A - Bonds rated A possess many favorable investment attributes and are to
be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA - Bonds rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA - Bonds rated Ba are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of
other terms of the contract over any long period of time may be small.
CAA - Bonds rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
CA - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked
short-comings.
C - Bonds rated C are the lowest-rated class of bonds and issued so rated
can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S CORPORATE BOND RATINGS:
AAA - Debt rated AAA has the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal
is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher-rated
categories.
BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
B - Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it is
not likely to have the capacity to pay interest and repay principal.
CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed but
debt service payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The D rating will
also be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
The ratings from AA to CCC may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.
VARIABLE INSURANCE PRODUCTS FUND (THE TRUST)
MONEY MARKET PORTFOLIO, HIGH INCOME PORTFOLIO, EQUITY-INCOME PORTFOLIO,
GROWTH PORTFOLIO AND OVERSEAS PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1994
This Statement is not a prospectus but should be read in conjunction with
the Trust's current Prospectus (dated April 30, 1994). Shares of the Trust
may only be purchased by the separate accounts of insurance companies.
Please retain this Statement for future reference. The Annual Report to
shareholders of the Trust for the year ended December 31, 1993 is
incorporated herein by reference. To obtain additional copies of the
Prospectus or Annual Report, please call Fidelity Distributors Corporation
at 1-800-544-8888.
TABLE OF CONTENTS PAGE
Investment Policies and Limitations 2
Portfolio Transactions 12
Valuation of Fund Securities 13
Performance 14
General Information 18
Additional Purchase and Redemption Information 20
Taxes 20
FMR 20
Trustees and Officers 21
Management Contracts 23
Distribution and Service Plans 27
Contracts With Companies Affiliated With FMR 27
Summary of the Funds' Expenses 28
Description of the Fund 28
Financial Statements 29
Appendix 29
INVESTMENT ADVISOR
Fidelity Management & Research Company
SUB-ADVISORS
Money Market Portfolio:
FMR Texas Inc.
High Income Portfolio:
Fidelity Management & Research (U.K.) Inc.
Fidelity Management & Research (Far East) Inc.
Overseas Portfolio:
Fidelity Management & Research (U.K.) Inc.
Fidelity Management & Research (Far East) Inc.
Fidelity International Investment Advisors
Fidelity International Investment Advisors (U.K.) Limited
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
Fidelity Investments Institutional Operations Company (FIIOC)
VIP-ptB-494
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of a fund's assets that may be
invested in any security or other asset, or sets forth a policy regarding
quality standards, such standard or percentage limitation will be
determined immediately after and as a result of the fund's acquisition of
such security or other asset. Accordingly, any subsequent change in
values, net assets, or other circumstances will not be considered when
determining whether the investment complies with the fund's investment
policies and limitations.
Each fund's fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940) of each
fund. However, except for the fundamental investment limitations set forth
below, the investment policies and limitations described in this Statement
of Additional Information are not fundamental and may be changed without
shareholder approval.
MONEY MARKET PORTFOLIO
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS. THE FUND
MAY NOT:
(1) purchase the securities of any issuer (other than obligations issued or
guaranteed as to principal and interest by the United States, its agencies
or instrumentalities) if, as a result, more than 5% of its total assets
would be invested in the securities of such issuer, provided, however, that
with respect to 25% of its total assets, 10% of its assets may be invested
in the securities of any single issuer;
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(3) borrow money, except that the fund may (i) borrow money for temporary
or emergency purposes (not for leveraging or investment) and (ii) engage in
reverse repurchase agreements for any purpose; provided that (i) and (ii)
in combination do not exceed 33 1/3% of the fund's total assets (including
the amount borrowed) less liabilities (other than borrowings). Any
borrowings that come to exceed this amount will be reduced within three
days (not including Sundays and holidays) to the extent necessary to comply
with the 33 1/3% limitation;
(4) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(5) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the fund's total
assets would be invested in the securities of companies whose principal
business activities are in the same industry, except that the fund will
invest more than 25% of its total assets in the financial services
industry;
(6) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments;
(8) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements; or
(9) invest in companies for the purpose of exercising control or
management.
THE FOLLOWING INVESTMENT LIMITATIONS FOR MONEY MARKET PORTFOLIO ARE NOT
FUNDAMENTAL AND MAY BE CHANGED WITHOUT SHAREHOLDER NOTIFICATION.
(i) The fund does not currently intend to purchase a security (other than a
security issued or guaranteed by the U.S. government or any of its agencies
or instrumentalities) if, as a result, more than 5% of its total assets
would be invested in the securities of a single issuer; provided that the
fund may invest up to 10% of its total assets in the first tier securities
of a single issuer for up to three business days.
(ii) The fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(iii) The fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party. The fund will not borrow money in excess of 25% of net assets
so long as this limitation is required for certification by certain state
insurance departments. The fund will not purchase any security while
borrowings (excluding reverse repurchase agreements) representing more than
5% of its total assets are outstanding. The fund will not borrow from
other funds advised by FMR or its affiliates if total outstanding
borrowings immediately after such borrowing would exceed 15% of the fund's
total assets.
(v) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(vi) The fund does not currently intend to purchase or sell futures
contracts or call options. This limitation does not apply to options
attached to, or acquired or traded together with, their underlying
securities, and does not apply to securities that incorporate features
similar to options or futures contracts.
(vii) The fund does not currently intend to lend assets other than
securities to other parties, except by lending money (up to 10% of the
fund's net assets) to a registered investment company or portfolio for
which FMR or an affiliate serves as investment advisor. (This limit does
not apply to purchases of debt securities or to repurchase agreements.)
(viii) The fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission
except the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.
(Due to certain state insurance regulations, the fund does not currently
intend to purchase the securities of other investment companies.)
(ix) The fund does not currently intend to invest in oil, gas, or other
mineral exploration or development programs or leases.
Investments may be made in U.S. dollar-denominated time deposits,
certificates of deposit and bankers' acceptances of U.S. banks and their
branches located outside of the U.S., U.S. branches and agencies of foreign
banks, and foreign branches of foreign banks. The fund may also invest in
U.S. dollar-denominated securities issued or guaranteed by other U.S. or
foreign issuers, including U.S. and foreign corporations or other business
organizations, foreign governments and foreign government agencies or
instrumentalities, and U.S. and foreign financial institutions, including
savings and loan institutions, insurance companies, mortgage bankers and
real estate investment trusts, as well as banks. The fund may purchase
obligations of banks, savings and loan institutions and other financial
institutions whose creditworthiness might not otherwise meet the fund's
standards, provided that (i) the principal amount of the instrument
acquired by the fund is insured in full by the Federal Deposit Insurance
Corporation and (ii) the aggregate investment made in any one such bank or
institution does not exceed $100,000.
The obligations of foreign branches of U.S. banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by federal and state
regulation. Payment of interest and principal upon these obligations may
also be affected by governmental action in the country of domicile of the
branch (generally referred to as sovereign risk). In addition, evidences
of ownership of portfolio securities may be held outside of the U.S. and
the fund may be subject to the risks associated with the holding of such
property overseas. Various provisions of federal law governing the
establishment and operation of domestic branches do not apply to foreign
branches of domestic banks.
Obligations of U.S. branches and agencies of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by federal and state
regulation as well as by governmental action in the country in which the
foreign bank has its head office.
Obligations of foreign issuers also involve certain additional risks.
Foreign issuers may be subject to less governmental regulation and
supervision than U.S. issuers. Foreign issuers also generally are not
bound by uniform accounting, auditing and financial reporting requirements
comparable to those applicable to U.S. issuers.
HIGH INCOME, EQUITY-INCOME, GROWTH AND OVERSEAS PORTFOLIOS
THE FOLLOWING ARE HIGH INCOME, EQUITY-INCOME, GROWTH AND OVERSEAS
PORTFOLIOS' FUNDAMENTAL INVESTMENT LIMITATIONS. EACH FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, purchase the securities
of any issuer (other than securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities) if, as a result,
(a) more than 5% of the fund's total assets would be invested in the
securities of that issuer, or (b) the fund would hold more than 10% of the
outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(3) borrow money, except that the fund (i) may borrow money for temporary
or emergency purposes (not for leveraging or investment) or (ii) engage in
reverse repurchase agreements, provided that (i) and (ii) in combination
(borrowings) do not exceed 33 1/3% of its total assets (including the
amount borrowed) less liabilities (other than borrowings). Any borrowings
that come to exceed 33 1/3% of the value of the fund's total assets by
reason of a decline in net assets will be reduced within three days
(exclusive of Sundays and holidays) to the extent necessary to comply with
the 33 1/3% limitation;
(4) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(5) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of its total assets would
be invested in the securities of companies whose principal business
activities are in the same industry;
(6) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities); or
(8) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.
THE FOLLOWING INVESTMENT LIMITATIONS FOR HIGH INCOME, EQUITY-INCOME, GROWTH
AND OVERSEAS PORTFOLIOS ARE NOT FUNDAMENTAL AND MAY BE CHANGED WITHOUT
SHAREHOLDER NOTIFICATION.
(i) Each fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(ii) Each fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iii) Each fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment advisor or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (3)). Each fund will not
borrow money in excess of 25% of net assets so long as this limitation is
required for certification by certain state insurance departments. Any
borrowings that come to exceed this amount will be reduced within seven
days (not including Sundays and holidays) to the extent necessary to comply
with the 25% limitation. Each fund will not purchase any security while
borrowings representing more than 5% of its total assets are outstanding.
Each fund will not borrow from other funds advised by FMR or its affiliates
if total outstanding borrowings immediately after such borrowing would
exceed 15% of the fund's total assets.
(iv) Each fund does not currently intend to purchase any security if, as a
result, more than 10% of Equity-Income and Growth Portfolio's net assets
and 15% of High Income and Overseas Portfolio's net assets would be
invested in securities that are deemed to be illiquid because they are
subject to legal or contractual restrictions on resale or because they
cannot be sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued.
(v) Each fund does not currently intend to lend assets other than
securities to other parties, except by: (a) lending money (up to 5% of net
assets for Equity-Income, Growth and Overseas Portfolios and 7.5% for High
Income Portfolio's net assets) to a registered investment company or
portfolio for which FMR or an affiliate serves as investment adviser or (b)
acquiring loans, loan participations, or other forms of direct debt
instruments and, in connection therewith, assuming any associated unfunded
commitments of the sellers. (This limitation does not apply to purchases
of debt securities or to repurchase agreements.)
(vi) Each fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission
except the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.
(Due to certain state insurance regulations, each fund does not currently
intend to purchase the securities of other investment companies.)
(vii) Each fund does not currently intend to invest in oil, gas, or other
mineral exploration or development programs or leases.
(viii) Growth and Overseas Portfolios do not currently intend to purchase a
security if, as a result, greater than 5% of their net assets would be
invested in debt securities rated Ba or lower by Moody's Investors Service,
Inc. or BB or lower by Standard & Poor's Corporation.
For each fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions." For
each Portfolio's limitations on short sales, see the section entitled
"Short Sales."
Higher yielding, fixed-income securities of the type in which High Income
Portfolio invests will at times be purchased at a discount from or a
premium over par value. The total return on such securities includes the
potential for a capital gain or loss. High Income Portfolio generally does
not intend to hold securities for the purpose of achieving capital gains,
however, unless current yields on these securities remain attractive.
Capital gain or loss may also be realized upon the sale of portfolio
securities.
The U.S. government has from time to time in the past imposed restrictions,
through taxation and otherwise, on foreign investments by U.S. investors
such as the funds. If such restrictions should be reinstituted, it might
become necessary for Overseas Portfolio to invest all or substantially all
of its assets in U.S. securities. In such event, the Board of Trustees
would reevaluate the fund's investment objective and policies.
In accordance with the funds' fundamental investment policies, there are no
limitations on the percentage of the funds' assets which may be invested in
any one type of instrument. Nor are there limitations (except those
imposed by certain state insurance regulations) on the percentage of the
funds' assets which may be invested in any foreign country. However, in
order to comply with diversification requirements under Section 817(h) of
the Internal Revenue Code of 1986, as amended, in connection with FMR
serving as investment advisor, each fund has agreed to certain
non-fundamental limitations. Please refer to your insurance company's
separate account prospectus for more information.
AFFILIATED BANK TRANSACTIONS. A fund may engage in transactions with
financial institutions that are, or may be considered to be, "affiliated
persons" of the fund under the Investment Company Act of 1940. These
transactions may include repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50 largest
U.S. banks (measured by deposits); municipal securities; U.S. government
securities with affiliated financial institutions that are primary dealers
in these securities; short-term currency transactions; and short-term
borrowings. In accordance with exemptive orders issued by the Securities
and Exchange Commission (SEC), the Board of Trustees has established and
periodically reviews procedures applicable to transactions involving
affiliated financial institutions.
FUNDS' RIGHTS AS A SHAREHOLDER. Each fund does not intend to direct or
administer the day-to-day operations of any company. Each fund, however,
may exercise its rights as a shareholder and may communicate its views on
important matters of policy to management, the Board of Directors, and
shareholders of a company when FMR determines that such matters could have
a significant effect on the value of each fund's investment in the company.
The activities that each fund may engage in, either individually or in
conjunction with others, may include, among others, supporting or opposing
proposed changes in a company's corporate structure or business activities;
seeking changes in a company's directors or management; seeking changes in
a company's direction or policies; seeking the sale or reorganization of
the company or a portion of its assets; or supporting or opposing third
party takeover efforts. This area of corporate activity is increasingly
prone to litigation and it is possible that each fund could be involved in
lawsuits related to such activities. FMR will monitor such activities with
a view to mitigating, to the extent possible, the risk of litigation
against each fund and the risk of actual liability if each fund is involved
in litigation. No guarantee can be made, however, that litigation against
each fund will not be undertaken or liabilities incurred.
ASSET-BACKED SECURITIES may include pools of mortgages, loans, receivables
or other assets. Payment of principal and interest may be largely
dependent upon the cash flows generated by the assets backing the
securities, and, in certain cases, supported by letters of credit, surety
bonds, or other credit enhancements. The value of asset-backed securities
may also be affected by the creditworthiness of the servicing agent for the
pool, the originator of the loans or receivables, or the financial
institution(s) providing the credit support.
VARIABLE OR FLOATING RATE OBLIGATIONS bear variable or floating interest
rates and carry rights that permit holders to demand payment of the unpaid
principal balance plus accrued interest from the issuers or certain
financial intermediaries. Floating rate instruments have interest rates
that change whenever there is a change in a designated base rate while
variable rate instruments provide for a specified periodic adjustment in
the interest rate. These formulas are designed to result in a market value
for the instrument that approximates its par value.
A demand instrument with a conditional demand feature must have received
both a short-term and a long-term high-quality rating or, if unrated, have
been determined to be of comparable quality pursuant to procedures adopted
by the Board of Trustees. A demand instrument with an unconditional demand
feature may be acquired solely in reliance upon a short-term high-quality
rating or, if unrated, upon a finding of comparable short-term quality
pursuant to procedures adopted by the Board of Trustees.
Money Market Portfolio may invest in variable or floating rate instruments
that ultimately mature in more than 397 days, if the fund acquires a right
to sell the instruments that meets certain requirements set forth in Rule
2a-7. Variable rate instruments (including instruments subject to a demand
feature) that mature in 397 days or less and U.S. government securities
with a variable rate of interest adjusted no less frequently than 762 days
may be deemed to have maturities equal to the period remaining until the
next readjustment of the interest rate. Other variable rate instruments
with demand features may be deemed to have a maturity equal to the period
remaining until the next adjustment of the interest rate or the period
remaining until the principal amount can be recovered through demand. A
floating rate instrument subject to a demand feature may be deemed to have
a maturity equal to the period remaining until the principal amount can be
recovered through demand.
REPURCHASE AGREEMENTS are transactions in which a fund purchases a
security and simultaneously commits to resell that security to the seller
at an agreed upon price upon demand on an agreed upon date within a
specified number of days from the date of purchase. The resale price
reflects the purchase price plus an agreed upon incremental amount which is
unrelated to the coupon rate or maturity of the purchased security. A
repurchase agreement involves the obligation of the seller to pay the
agreed upon price, which obligation is in effect secured by the value (at
least equal to the amount of the agreed upon resale price and marked to
market daily) of the underlying security. Each fund may engage in a
repurchase agreement with respect to any security in which it is authorized
to invest even though the underlying security's maturity may be more than
one year. While it does not presently appear possible to eliminate all
risks from these transactions (particularly the possibility of a decline in
the market value of the underlying securities, as well as delay and costs
to each fund in connection with bankruptcy proceedings), it is the policy
of each fund to limit repurchase transactions to those whose
creditworthiness has been reviewed and found satisfactory by FMR.
Pursuant to an Exemptive Order issued by the SEC, the Money Market
Portfolio, along with other registered investment companies having
management contracts with FMR, may invest in a pool of one or more large
overnight repurchase agreements. The repurchase agreements' underlying
securities are U.S. government securities in which the fund is permitted to
invest.
FOREIGN REPURCHASE AGREEMENTS may include agreements to purchase and sell
foreign securities in exchange for fixed U.S. dollar amounts, or in
exchange for specified amounts of foreign currency. Unlike typical U.S.
repurchase agreements, foreign repurchase agreements may not be fully
collateralized at all times. The value of the security purchased by a fund
may be more or less than the price at which the counterparty has agreed to
repurchase the security. In the event of a default by the counterparty, a
fund may suffer a loss if the value of the security purchased is less than
the agreed-upon repurchase price, or if a fund is unable to successfully
assert a claim to the collateral under foreign laws. As a result, foreign
repurchase agreements may involve higher credit risks than repurchase
agreements in U.S. markets, as well as risks associated with currency
fluctuations. In addition, as with other emerging market investments,
repurchase agreements with counterparties located in emerging markets or
relating to emerging market securities may involve issuers or
counterparties with lower credit ratings than typical U.S. repurchase
agreements.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a fund
sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the instrument
at a particular price and time. While a reverse repurchase agreement is
outstanding, a fund will maintain appropriate liquid assets in a segregated
custodial account to cover its obligation under the agreement. A fund will
enter into reverse repurchase agreements only with parties whose
creditworthiness has been reviewed and found satisfactory by FMR. Such
transactions may increase fluctuations in the market value of a fund's
assets and may be viewed as a form of leverage.
SECURITIES LENDING. Each fund may lend securities to parties such as
broker-dealers or institutional investors, including Fidelity Brokerage
Services, Inc. (FBSI). FBSI is a member of the New York Stock Exchange
(NYSE) and a subsidiary of FMR Corp.
Securities lending allows a fund to retain ownership of the securities
loaned and, at the same time, to earn additional income. Since there may
be delays in the recovery of loaned securities, or even a loss of rights in
collateral supplied should the borrower fail financially, loans will be
made only to parties deemed by FMR to be of good standing. Furthermore,
they will only be made if, in FMR's judgment, the consideration to be
earned from such loans would justify the risk.
FMR understands that it is the current view of the SEC Staff that a fund
may engage in loan transactions only under the following conditions: (1)
the fund must receive 100% collateral in the form of cash or cash
equivalents (e.g., U.S. Treasury bills or notes) from the borrower; (2) the
borrower must increase the collateral whenever the market value of the
securities loaned (determined on a daily basis) rises above the value of
the collateral; (3) after giving notice, the fund must be able to terminate
the loan at any time; (4) the fund must receive reasonable interest on the
loan or a flat fee from the borrower, as well as amounts equivalent to any
dividends, interest, or other distributions on the securities loaned and to
any increase in market value; (5) the fund may pay only reasonable
custodian fees in connection with the loan; and (6) the Board of Trustees
must be able to vote proxies on the securities loaned, either by
terminating the loan or by entering into an alternative arrangement with
the borrower.
Cash received through loan transactions may be invested in any security in
which the fund is authorized to invest. Investing this cash subjects that
investment, as well as the security loaned, to market forces (i.e., capital
appreciation or depreciation).
DELAYED DELIVERY TRANSACTIONS. Money Market and High Income Portfolios may
buy and sell securities on a delayed delivery or when-issued basis. These
transactions involve a commitment by each fund to purchase or sell specific
securities at a predetermined price and/or yield, with payment and delivery
taking place after the customary settlement period for that type of
security (and more than seven days in the future). Typically, no interest
accrues to the purchaser until the security is delivered. The High Income
Portfolio may receive fees for entering into delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, each fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. Because each fund is not required to pay for securities
until the delivery date, these risks are in addition to the risks
associated with each fund's other investments. If each fund remains
substantially fully invested at a time when delayed-delivery purchases are
outstanding, the delayed-delivery purchases may result in a form of
leverage. When delayed-delivery purchases are outstanding, a fund will set
aside appropriate liquid assets in a segregated custodial account to cover
its purchase obligations. When a fund has sold a security on a
delayed-delivery basis, that fund does not participate in further gains or
losses with respect to the security. If the other party to a
delayed-delivery transaction fails to deliver or pay for the securities, a
fund could miss a favorable price or yield opportunity, or could suffer a
loss. Each fund may renegotiate delayed-delivery transactions after they
are entered into, and may sell underlying securities before they are
delivered, which may result in capital gains or losses.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they
are valued. Under the supervision of the Board of Trustees, FMR determines
the liquidity of each fund's investments and, through reports from FMR, the
Board monitors investments in illiquid instruments. In determining the
liquidity of each fund's investments, FMR may consider various factors,
including (1) the frequency of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for
trades (including the ability to assign or offset each fund's rights and
obligations relating to the investment).
Investments currently considered by Money Market Portfolio to be illiquid
include repurchase agreements not entitling the holder to payment of
principal and interest within seven days. Also, FMR may determine some
restricted securities and time deposits to be illiquid. Investments
currently considered by High Income, Equity-Income, Growth and Overseas
Portfolios to be illiquid include repurchase agreements not entitling the
holder to payment of principal and interest within seven days,
over-the-counter options and non-government stripped fixed-rate
mortgage-backed securities. Also, FMR may determine some restricted
securities, government-stripped fixed-rate mortgage-backed securities,
loans and other direct debt instruments, and swap agreements to be
illiquid. However, with respect to over-the-counter options a fund writes,
all or a portion of the value of the underlying instrument may be illiquid
depending on the assets held to cover the option and the nature and terms
of any agreement each fund may have to close out the option before
expiration.
In the absence of market quotations, illiquid investments for Money
Market Portfolio are valued for purposes of monitoring amortized cost
valuation at fair value as determined in good faith by a committee
appointed by the Board of Trustees . For all other funds, illiquid
investments are priced at fair value as determined in good faith by a
committee appointed by the Board of Trustees. If through a change in
values, net assets, or other circumstances, each fund were in a position
where 10% or more of Money Market Portfolio's net assets and more than 10%
of Equity-Income and Growth Portfolios' net assets and 15% of High Income
and Overseas Portfolio's net assets were invested in illiquid securities,
it would seek to take appropriate steps to protect liquidity.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, each fund may be obligated to pay all or part of
the registration expense and a considerable period may elapse between the
time it decides to seek registration and the time each fund may be
permitted to sell a security under an effective registration statement.
If, during such a period, adverse market conditions were to develop, each
fund might obtain a less favorable price than prevailed when it decided to
seek registration of the security. However, in general, Money Market
Portfolio anticipates holding restricted securities to maturity or selling
them in an exempt transaction.
SWAP AGREEMENTS. (excluding Money Market Portfolio) Swap agreements
can be individually negotiated and structured to include exposure to a
variety of different types of investments or market factors. Depending on
their structure, swap agreements may increase or decrease a fund's exposure
to long or short-term interest rates (in the U.S. or abroad), foreign
currency values, mortgage securities, corporate borrowing rates, or other
factors such as security prices or inflation rates. Swap agreements can
take many different forms and are known by a variety of names. The funds
are not limited to any particular form of swap agreement if FMR determines
it is consistent with a fund's investment objective and policies.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains
the right to receive payments to the extent that a specified interest rate
exceeds an agreed-upon level, while the seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate
falls below an agreed-upon level. An interest rate collar combines
elements of buying a cap and selling a floor.
Swap agreements will tend to shift a fund's investment exposure from one
type of investment to another. For example, if a fund agreed to exchange
payments in dollars for payments in foreign currency, the swap agreements
would tend to decrease the portfolio's exposure to U.S. interest rates and
increase exposure to foreign currency and interest rates. Caps and floors
have an effect similar to buying or writing options. Depending on how they
are used, swap agreements may increase or decrease the overall volatility
of a fund's investments and its share price and yield.
The most significant factor in the performance of swap agreements is the
change in the specific interest rate, currency, or other factors that
determine the amounts of payments due to and from a fund. If a swap
agreement calls for payments by a fund, it must be prepared to make such
payments when due. In addition, if the counterparty's creditworthiness
declined, the value of a swap agreement would be likely to decline,
potentially resulting in losses. A fund expects to be able to eliminate
its exposure under swap agreements either by assignment or other
disposition, or by entering into an offsetting swap agreement with the same
party or a similarly creditworthy party.
Each fund will maintain appropriate liquid assets in a segregated custodial
account to cover its current obligations under swap agreements. If a fund
enters into a swap agreement on a net basis, it will segregate assets with
a daily value at least equal to the excess, if any, of its accrued
obligations under the swap agreement over the accrued amount it is entitled
to receive under the agreement. If a fund enters into a swap agreement on
other than a net basis, it will segregate assets with a value equal to the
full amount of its accrued obligations under the agreement.
INDEXED SECURITIES. Each fund may purchase securities whose prices are
indexed to the prices of other securities, securities indices, currencies,
precious metals or other commodities, or other financial indicators.
Indexed securities typically, but not always, are debt securities or
deposits whose value at maturity or coupon rate is determined by reference
to a specific instrument or statistic. Gold-indexed securities, for
example, typically provide for a maturity value that depends on the price
of gold, resulting in a security whose price tends to rise and fall
together with gold prices. Currency-indexed securities typically are
short-term to intermediate-term debt securities whose maturity values or
interest rates are determined by reference to the values of one or more
specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed
securities may be positively or negatively indexed; that is, their maturity
value may increase when the specified currency value increases, resulting
in a security that performs similarly to a foreign-denominated instrument,
or their maturity value may decline when foreign currencies increase,
resulting in a security whose price characteristics are similar to a put on
the underlying currency. Currency-indexed securities may also have prices
that depend on the values of a number of different foreign currencies
relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they
are indexed, and may also be influenced by interest rate changes in the
U.S. and abroad. At the same time, indexed securities are subject to the
credit risks associated with the issuer of the security, and their values
may decline substantially if the issuer's creditworthiness deteriorates.
Recent issuers of indexed securities have included banks, corporations, and
certain U.S. government agencies.
WARRANTS (High Income, Equity-Income, Growth and Overseas
Portfolios) are securities that give a fund the right to purchase
equity securities from the issuer at a specific price (the strike price)
for a limited period of time. The strike price of warrants typically is
much lower than the current market price of the underlying securities, yet
they are subject to similar price fluctuations. As a result, warrants may
be more volatile investments than the underlying securities and may offer
greater potential for capital appreciation as well as capital loss.
Warrants do not entitle a holder to dividends or voting rights with respect
to the underlying securities and do not represent any rights in the assets
of the issuing company. Also, the value of the warrant does not
necessarily change with the value of the underlying securities and a
warrant ceases to have value if it is not exercised prior to the expiration
date. These factors can make warrants more speculative than other types of
investments.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. (High Income, Equity-Income,
Growth and Overseas Portfolios) Direct debt instruments are interests in
amounts owed by a corporate, governmental, or other borrower to lenders or
lending syndicates (loans and loan participations), to suppliers of goods
or services (trade claims or other receivables), or to other parties.
Direct debt instruments are subject to a fund's policies regarding the
quality of debt securities.
Purchasers of loans and other forms of direct indebtedness depend primarily
upon the creditworthiness of the borrower for payment of principal and
interest. Direct debt instruments may not be rated by any nationally
recognized rating service. If a fund does not receive scheduled interest or
principal payments on such indebtedness, a fund's share price and yield
could be adversely affected. Loans that are fully secured offer a fund more
protections than an unsecured loan in the event of non-payment of scheduled
interest or principal. However, there is no assurance that the liquidation
of collateral from a secured loan would satisfy the borrower's obligation,
or that the collateral could be liquidated. Indebtedness of borrowers whose
creditworthiness is poor involves substantially greater risks, and may be
highly speculative. Borrowers that are in bankruptcy or restructuring may
never pay off their indebtedness, or may pay only a small fraction of the
amount owed. Direct indebtedness of developing countries also involves a
risk that the governmental entities responsible for the repayment of the
debt may be unable, or unwilling, to pay interest and repay principal when
due.
Investments in loans through direct assignment of a financial institution's
interests with respect to a loan may involve additional risks to a fund.
For example, if a loan is foreclosed, a fund could become part owner of any
collateral, and would bear the costs and liabilities associated with owning
and disposing of the collateral. In addition, it is conceivable that under
emerging legal theories of lender liability, a fund could be held liable as
a co-lender. Direct debt instruments may also involve a risk of insolvency
of the lending bank or other intermediary. Direct debt instruments that are
not in the form of securities may offer less legal protection to a fund in
the event of fraud or misrepresentation. In the absence of definitive
regulatory guidance, a fund relies on FMR's research in an attempt to avoid
situations where fraud or misrepresentation could adversely affect a fund.
A loan is often administered by a bank or other financial institution that
acts as agent for all holders. The agent administers the terms of the
loan, as specified in the loan agreement. Unless, under the terms of the
loan or other indebtedness, a fund has direct recourse against the
borrower, it may have to rely on the agent to apply appropriate credit
remedies against a borrower. If assets held by the agent for the benefit of
a fund were determined to be subject to the claims of the agent's general
creditors, a fund might incur certain costs and delays in realizing payment
on the loan or loan participation and could suffer a loss of principal or
interest.
Direct indebtedness purchased by a fund may include letters of credit,
revolving credit facilities, or other standby financing commitments
obligating a fund to pay additional cash on demand. These commitments may
have the effect of requiring a fund to increase its investment in a
borrower at a time when it would not otherwise have done so, even if the
borrower's condition makes it unlikely that the amount will ever be repaid.
A fund will set aside appropriate liquid assets in a segregated custodial
account to cover its potential obligations under standby financing
commitments.
A fund limits the amount of total assets that it will invest in any one
issuer or in issuers within the same industry (see limitations 1 and 5).
For purposes of these limitations, a fund generally will treat the borrower
as the "issuer" of indebtedness held by a fund. In the case of loan
participations where a bank or other lending institution serves as
financial intermediary between a fund and the borrower, if the
participation does not shift to a fund the direct debtor-creditor
relationship with the borrower, SEC interpretations require a fund, in
appropriate circumstances, to treat both the lending bank or other lending
institution and the borrower as "issuers" for these purposes. Treating a
financial intermediary as an issuer of indebtedness may restrict a fund's
ability to invest in indebtedness related to a single financial
intermediary, or a group of intermediaries engaged in the same industry,
even if the underlying borrowers represent many different companies and
industries.
FOREIGN INVESTMENTS. Foreign investments can involve significant risks in
addition to the risks inherent in U.S. investments. The value of
securities denominated in or indexed to foreign currencies, and of
dividends and interest from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar.
Foreign securities markets generally have less trading volume and less
liquidity than U.S. markets, and prices on some foreign markets can be
highly volatile. Many foreign countries lack uniform accounting and
disclosure standards comparable to those applicable to U.S. companies, and
it may be more difficult to obtain reliable information regarding an
issuer's financial condition and operations. In addition, the costs of
foreign investing, including withholding taxes, brokerage commissions, and
custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including
those involving the release of assets in advance of payment, may involve
increased risks in the event of a failed trade or the insolvency of a
broker-dealer, and may involve substantial delays. It may also be
difficult to enforce legal rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments
adverse to the interests of U.S. investors, including the possibility of
expropriation or nationalization of assets, confiscatory taxation,
restrictions on U.S. investment or on the ability to repatriate assets or
convert currency into U.S. dollars, or other government intervention.
There may be a greater possibility of default by foreign governments or
foreign government-sponsored enterprises. Investments in foreign countries
also involve a risk of local political, economic, or social instability,
military action or unrest, or adverse diplomatic developments. There is no
assurance that FMR will be able to anticipate these potential events or
counter their effects.
The considerations noted above generally are intensified for investments in
developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities
markets that trade a small number of securities.
Each fund may invest in foreign securities that impose restrictions on
transfer within the U.S. or to U.S. persons. Although securities subject
to transfer restrictions may be marketable abroad, they may be less liquid
than foreign securities of the same class that are not subject to such
restrictions.
American Depositary Receipts and European Depositary Receipts (ADRs and
EDRs) are certificates evidencing ownership of shares of a foreign-based
issuer held in trust by a bank or similar financial institution. Designed
for use in U.S. and European securities markets, respectively, ADRs and
EDRs are alternatives to the purchase of the underlying securities in their
national markets and currencies.
FOREIGN CURRENCY TRANSACTIONS. The following information is of particular
importance to Overseas Portfolio. Each fund may conduct foreign currency
transactions on a spot (i.e., cash) basis or by entering into forward
contracts to purchase or sell foreign currencies at a future date and
price. The funds will convert currency on a spot basis from time to time,
and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers generally do not charge a fee for
conversion, they do realize a profit based on the difference between the
prices at which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to a fund at one rate, while
offering a lesser rate of exchange should the fund desire to resell that
currency to the dealer. Forward contracts are generally traded in an
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. The parties to a forward contract
may agree to offset or terminate the contract before its maturity, or may
hold the contract to maturity and complete the contemplated currency
exchange.
Each fund may use currency forward contracts for any purpose consistent
with its investment objective. The following discussion summarizes some,
but not all, of the possible currency management strategies involving
forward contracts that could be used by the funds. The funds (excluding
Money Market Portfolio) may also use options and futures contracts relating
to foreign currencies for the same purposes.
When a fund agrees to buy or sell a security denominated in a foreign
currency, it may desire to "lock in" the U.S. dollar price of the security.
By entering into a forward contract for the purchase or sale, for a fixed
amount of U.S. dollars, of the amount of foreign currency involved in the
underlying security transaction, the fund will be able to protect itself
against an adverse change in foreign currency values between the date the
security is purchased or sold and the date on which payment is made or
received. This technique is sometimes referred to as a "settlement hedge"
or "transaction hedge." The funds may also enter into forward contracts to
purchase or sell a foreign currency in anticipation of future purchases or
sales of securities denominated in foreign currency, even if the specific
investments have not yet been selected by FMR.
The funds may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. For
example, if a fund owned securities denominated in pounds sterling, the
fund could enter into a forward contract to sell pounds sterling in return
for U.S. dollars to hedge against possible declines in the pound's value.
Such a hedge, sometimes referred to as a "position hedge," would tend to
offset both positive and negative currency fluctuations, but would not
offset changes in security values caused by other factors. A fund could
also hedge the position by selling another currency expected to perform
similarly to the pound sterling -- for example, by entering into a forward
contract to sell Deutschemarks or European Currency Units in return for
U.S. dollars. This type of hedge, sometimes referred to as a "proxy
hedge," could offer advantages in terms of cost, yield or efficiency, but
generally will not hedge currency exposure as effectively as a simple hedge
into U.S. dollars. Proxy hedges may result in losses if the currency used
to hedge does not perform similarly to the currency in which the hedged
securities are denominated.
Each fund may enter into forward contracts to shift its investment exposure
from one currency into another currency that is expected to perform better
relative to the U.S. dollar. For example, if a fund held investments
denominated in Deutschemarks, the fund could enter into forward contracts
to sell Deutschemarks and purchase Swiss Francs. This type of strategy,
sometimes known as a "cross-hedge," will tend to reduce or eliminate
exposure to the currency that is sold, and increase exposure to the
currency that is purchased, much as if the fund had sold a security
denominated in one currency and purchased an equivalent security
denominated in another. Cross-hedges protect against losses resulting from
a decline in the hedged currency, but will cause the fund to assume the
risk of fluctuations in the value of the currency it purchases.
Under certain conditions, SEC guidelines require mutual funds to set aside
appropriate liquid assets in a segregated custodial account to cover
currency forward contracts. As required by SEC guidelines, the funds will
segregate assets to cover currency forward contracts, if any, whose purpose
is essentially speculative. The funds will not segregate assets to cover
forward contracts entered into for hedging purposes, including settlement
hedges, position hedges, and proxy hedges.
Successful use of currency forward contracts will depend on FMR's skill in
analyzing and predicting currency values. Forward contracts may
substantially change a fund's investment exposure to changes in currency
exchange rates, and could result in losses to the fund if currencies do not
perform as FMR anticipates. For example, if a currency's value rose at a
time when FMR had hedged a fund by selling that currency in exchange for
dollars, the fund would be unable to participate in the currency's
appreciation. If FMR hedges currency exposure through proxy hedges, a fund
could realize currency losses from the hedge and the security position at
the same time if the two currencies do not move in tandem. Similarly, if
FMR increases a fund's exposure to a foreign currency, and that currency's
value declines, the fund will realize a loss. There is no assurance that
FMR's use of currency forward contracts will be advantageous to the funds
or that they will hedge at an appropriate time .
SHORT SALES "AGAINST THE BOX". Money Market Portfolio may sell securities
short when it owns or has the right to obtain securities equivalent in kind
or amount to the securities sold short. Short sales could be used to
protect the net asset value per share of the fund in anticipation of
increased interest rates, without sacrificing the current yield of the
securities sold short. SHORT SALES. High Income, Equity-Income, Growth and
Overseas Portfolios may enter into short sales with respect to stocks
underlying its convertible security holdings. For example, if FMR
anticipates a decline in the price of the stock underlying a convertible
security it holds, it may sell the stock short. If the stock price
subsequently declines, the proceeds of the short sale could be expected to
offset all or a portion of the effect of the stock's decline on the value
of the convertible security. Each fund currently intends to hedge no more
than 15% of its total assets with short sales on equity securities
underlying its convertible security holdings under normal circumstances.
When a fund enters into a short sale or short sale against the box, it will
be required to set aside securities equivalent in kind and amount to those
sold short (or securities convertible or exchangeable into such securities)
and will be required to continue to hold them while the short sale is
outstanding. Each fund will incur transaction costs, including interest
expense, in connection with opening, maintaining, and closing short sales
and short sales against the box.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. High Income,
Equity-Income, Growth and Overseas Portfolios have each filed a notice of
eligibility for exclusion from the definition of the term "commodity pool
operator" with the Commodity Futures Trading Commission (CFTC) and the
National Futures Association, which regulate trading in the futures
markets. The funds intend to comply with Section 4.5 of the regulations
under the Commodity Exchange Act, which limits the extent to which a fund
can commit assets to initial margin deposits and option premiums.
In addition, each fund will not: (a) sell futures contracts, purchase put
options, or write call options if, as a result, more than 25% of each
fund's total assets would be hedged with futures and options under normal
conditions; (b) purchase futures contracts or write put options if, as a
result, each fund's total obligations upon settlement or exercise of
purchased futures contracts and written put options would exceed 25% of its
total assets; or (c) purchase call options if, as a result, the current
value of option premiums for call options purchased by each fund would
exceed 5% of its total assets. These limitations do not apply to options
attached to or acquired or traded together with their underlying
securities, and do not apply to securities that incorporate features
similar to options.
FUTURES CONTRACTS. When each fund purchases a futures contract, it agrees
to purchase a specified underlying instrument at a specified future date.
When each fund sells a futures contract, it agrees to sell the underlying
instrument at a specified future date. The price at which the purchase and
sale will take place is fixed when each fund enters into the contract.
Some currently available futures contracts are based on specific
securities, such as U.S. Treasury bonds or notes, and some are based on
indices of securities prices, such as the Standard & Poor's 500
Composite Stock Price Index (S&P 500) and the Bond Buyer Index of
municipal bonds. Futures can be held until their delivery dates, or can be
closed out before then if a liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase each fund's exposure to positive and
negative price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When each fund sells a
futures contract, by contrast, the value of its futures position will tend
to move in a direction contrary to the market. Selling futures contracts,
therefore, will tend to offset both positive and negative market price
changes, much as if the underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and
seller are required to deposit "initial margin" with a futures broker,
known as a futures commission merchant (FCM), when the contract is entered
into. Initial margin deposits are typically equal to a percentage of the
contract's value. If the value of either party's position declines, that
party will be required to make additional "variation margin" payments to
settle the change in value on a daily basis. The party that has a gain may
be entitled to receive all or a portion of this amount. Initial and
variation margin payments do not constitute purchasing securities on margin
for purposes of each fund's investment limitations. In the event of the
bankruptcy of an FCM that holds margin on behalf of each fund, each fund
may be entitled to return of margin owed to it only in proportion to the
amount received by the FCM's other customers, potentially resulting in
losses to each fund.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, each fund
obtains the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, each fund
pays the current market price for the option (known as the option premium).
Options have various types of underlying instruments, including specific
securities, indices of securities prices, and futures contracts. Each fund
may terminate its position in a put option it has purchased by allowing it
to expire or by exercising the option. If the option is allowed to expire,
each fund will lose the entire premium it paid. If each fund exercises the
option, it completes the sale of the underlying instrument at the strike
price. Each fund may also terminate a put option position by closing it
out in the secondary market at its current price, if a liquid secondary
market exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price
does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium
paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's
strike price. A call buyer typically attempts to participate in potential
price increases of the underlying instrument with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can
expect to suffer a loss if security prices do not rise sufficiently to
offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When each fund writes a put option, it takes
the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, each fund assumes the obligation to pay
the strike price for the option's underlying instrument if the other party
to the option chooses to exercise it. When writing an option on a futures
contract each fund will be required to make margin payments to an FCM as
described above for futures contracts. Each fund may seek to terminate its
position in a put option it writes before exercise by closing out the
option in the secondary market at its current price. If the secondary
market is not liquid for a put option each fund has written, however, each
fund must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to set aside
assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that
the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from
purchasing the underlying instrument directly, however, because the premium
received for writing the option should mitigate the effects of the decline.
Writing a call option obligates each fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those
of writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is
greater, a call writer gives up some ability to participate in security
price increases.
COMBINED POSITIONS. Each fund may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, each fund may purchase a put option and write a
call option on the same underlying instrument, in order to construct a
combined position whose risk and return characteristics are similar to
selling a futures contract. Another possible combined position would
involve writing a call option at one strike price and buying a call option
at a lower price, in order to reduce the risk of the written call option in
the event of a substantial price increase. Because combined options
positions involve multiple trades, they result in higher transaction costs
and may be more difficult to open and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match each fund's current or
anticipated investments exactly. Each fund may invest in options and
futures contracts based on securities with different issuers, maturities,
or other characteristics from the securities in which it typically invests,
which involves a risk that the options or futures position will not track
the performance of each fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match each
fund's investments well. Options and futures prices are affected by such
factors as current and anticipated short-term interest rates, changes in
volatility of the underlying instrument, and the time remaining until
expiration of the contract, which may not affect security prices the same
way. Imperfect correlation may also result from differing levels of demand
in the options and futures markets and the securities markets, from
structural differences in how options and futures and securities are
traded, or from imposition of daily price fluctuation limits or trading
halts. Each fund may purchase or sell options and futures contracts with a
greater or lesser value than the securities it wishes to hedge or intends
to purchase in order to attempt to compensate for differences in volatility
between the contract and the securities, although this may not be
successful in all cases. If price changes in each fund's options or
futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that
are not offset by gains in other investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
secondary market will exist for any particular options or futures contract
at any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily
price fluctuation limits for options and futures contracts, and may halt
trading if a contract's price moves upward or downward more than the limit
in a given day. On volatile trading days when the price fluctuation limit
is reached or a trading halt is imposed, it may be impossible for each fund
to enter into new positions or close out existing positions. If the
secondary market for a contract is not liquid because of price fluctuation
limits or otherwise, it could prevent prompt liquidation of unfavorable
positions, and potentially could require each fund to continue to hold a
position until delivery or expiration regardless of changes in its value.
As a result, each fund's access to other assets held to cover its options
or futures positions could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter options (options not traded on
exchanges) generally are established through negotiation with the other
party to the option contract. While this type of arrangement allows each
fund greater flexibility to tailor an option to its needs, OTC options
generally involve greater credit risk than exchange-traded options, which
are guaranteed by the clearing organization of the exchanges where they are
traded.
OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency futures
contracts are similar to forward currency exchange contracts, except that
they are traded on exchanges (and have margin requirements) and are
standardized as to contract size and delivery date. Most currency futures
contracts call for payment or delivery in U.S. dollars. The underlying
instrument of a currency option may be a foreign currency, which generally
is purchased or delivered in exchange for U.S. dollars, or may be a futures
contract. The purchaser of a currency call obtains the right to purchase
the underlying currency, and the purchaser of a currency put obtains the
right to sell the underlying currency.
The uses and risks of currency options and futures are similar to options
and futures relating to securities or indices, as discussed above. Each
fund may purchase and sell currency futures and may purchase and write
currency options to increase or decrease its exposure to different foreign
currencies. Each fund may also purchase and write currency options in
conjunction with each other or with currency futures or forward contracts.
Currency futures and options values can be expected to correlate with
exchange rates, but may not reflect other factors that affect the value of
each fund's investments. A currency hedge, for example, should protect a
Yen-denominated security from a decline in the Yen, but will not protect
each fund against a price decline resulting from deterioration in the
issuer's creditworthiness. Because the value of each fund's
foreign-denominated investments changes in response to many factors other
than exchange rates, it may not be possible to match the amount of currency
options and futures to the value of each fund's investments exactly over
time.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. Each fund will comply
with guidelines established by the SEC with respect to coverage of options
and futures strategies by mutual funds, and if the guidelines so require
will set aside appropriate liquid assets in a segregated custodial account
in the amount prescribed. Securities held in a segregated account cannot
be sold while the futures or option strategy is outstanding, unless they
are replaced with other suitable assets. As a result, there is a
possibility that segregation of a large percentage of each fund's assets
could impede portfolio management or each fund's ability to meet redemption
requests or other current obligations.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of a fund by FMR (either directly or through affiliated
sub-advisors) pursuant to authority contained in each fund's Management
Contract. FMR is also responsible for the placement of transaction orders
for other investment companies and accounts for which it or its affiliates
act as investment advisor. Money market securities purchased and sold by a
fund generally will be traded on a net basis (i.e., without commission).
In selecting broker-dealers, subject to applicable limitations of the
federal securities laws, FMR will consider various relevant factors,
including, but not limited to, the size and type of the transaction; the
nature and character of the markets for the security to be purchased or
sold; the execution efficiency, settlement capability and financial
condition of the broker-dealer firm; the broker-dealer's execution services
rendered on a continuing basis; the reasonableness of any commissions; and
arrangements for payment of fund expenses. FMR may allocate brokerage
transactions to broker-dealers who have entered into arrangements with FMR
under which the broker-dealer allocates a portion of the commissions paid
by a fund toward payment of a fund's expenses, such as transfer agent fees
or custodian fees. The transaction quality must, however, be comparable to
those of other qualified broker-dealers. Commissions for foreign
investments traded on foreign exchanges will generally be higher than for
U.S. investments and may not be subject to negotiation.
Each fund may execute portfolio transactions with broker-dealers who
provide research and execution services to a fund or other accounts over
which FMR or its affiliates exercise investment discretion. Such services
may include advice concerning the value of securities; the advisability of
investing in, purchasing or selling securities; the availability of
securities or the purchasers or sellers of securities; furnishing analyses
and reports concerning issuers, industries, securities, economic factors
and trends, portfolio strategy and performance of accounts; and effecting
securities transactions and performing functions incidental thereto (such
as clearance and settlement). FMR maintains a listing of broker-dealers
who provide such services on a regular basis. However, as many
transactions on behalf of a fund's money market securities are placed with
dealers (including broker-dealers on the list) without regard to the
furnishing of such services, it is not possible to estimate the proportion
of such transactions directed to such dealers solely because such services
were provided. The selection of such broker-dealers is generally made by
FMR (to the extent possible consistent with execution considerations) in
accordance with a ranking of broker-dealers determined periodically by
FMR's investment staff based upon the quality of research and execution
services provided.
The receipt of research from broker-dealers that execute transactions on
behalf of a fund may be useful to FMR in rendering investment management
services to a fund or its other clients, and conversely, such information
provided by broker-dealers who have executed transaction orders on behalf
of other FMR clients may be useful to FMR in carrying out its obligations
to a fund. The receipt of such research has not reduced FMR's normal
independent research activities; however, it enables FMR to avoid
additional expenses that could be incurred if FMR tried to develop
comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research or execution services. In order to cause a
fund to pay such higher commissions, FMR must determine in good faith that
such commissions are reasonable in relation to the value of the brokerage
and research services provided by such executing broker-dealers viewed in
terms of a particular transaction or FMR's overall responsibilities to a
fund and its other clients. In reaching this determination, FMR will not
attempt to place a specific dollar value on the brokerage and research
services provided or to determine what portion of the compensation should
be related to those services.
FMR is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided assistance
in the distribution of shares of each fund or shares of other Fidelity
funds to the extent permitted by law. FMR may use research services
provided by and place agency transactions with Fidelity Brokerage Services,
Inc. (FBSI) and Fidelity Brokerage Services, Ltd. (FBSL), subsidiaries of
FMR Corp., if the commissions are fair, reasonable, and comparable to
commissions charged by non-affiliated, qualified brokerage firms for
similar services. Prior to September 4, 1992, FBSL operated under the name
Fidelity Portfolio Services, Ltd. (FPSL) as a wholly owned subsidiary of
Fidelity International Limited (FIL). Edward C. Johnson 3d is Chairman of
FIL. Mr. Johnson 3d, together with various trusts for the benefit of
Johnson family members, owns directly or indirectly more than 25% of the
voting common stock of FIL. Section 11(a) of the Securities Exchange Act
of 1934 prohibits members of national securities exchanges from executing
exchange transactions for accounts which they or their affiliates manage,
except if certain requirements are satisfied. Pursuant to such
requirements, the Board of Trustees has authorized FBSI to execute fund
portfolio transactions on national securities exchanges in accordance with
approved procedures and applicable SEC rules.
The Trustees periodically review FMR's performance of its responsibilities
in connection with the placement of portfolio transactions on behalf of
each fund and review the commissions, if any paid by the funds over
representative periods of time to determine if they are reasonable in
relation to the benefits to the funds.
For the fiscal years ended 1993 and 1992, High Income Portfolio's turnover
rates amounted to 155% and 160%, Equity-Income Portfolio's turnover rates
amounted to 120% and 74%, Growth Portfolio's turnover rates amounted to
159% and 262% and Overseas Portfolio's turnover rates amounted to 42% and
61%, respectively. Because a high turnover rate increases brokerage
costs, FMR carefully weighs the added costs of short-term investment
against anticipated gain.
BROKERAGE COMMISSIONS. The chart below lists the percentage of the
brokerage commissions paid to brokerage firms which provided research
services; the total brokerage commissions paid; the commissions paid to
FBSI and FBSL in dollars and as a percentage of the dollar value of all
transactions in which brokerage commissions were paid for the fiscal
periods ended December 31, 1993, 1992 and 1991 for each of the funds. Of
the commissions paid to brokerage firms which provided research services,
the providing of such services was not necessarily a factor in the
placement of all this business with such firms. The funds pay both
commissions and spreads in connection with the placement of portfolio
transactions. The difference in the percentage of brokerage commissions
paid to, and the percentage of the dollar amount of transactions effected
through FBSI and FBSL, are the results of the low commission rates charged
by FBSI and FBSL.
HIGH INCOME PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% Paid to % %
Firms Transaction Transaction
s s
Period Providing To To % to through through
Ended TOTAL Research FBSI FBSL % to FBSI FBSL FBSI FBSL
</TABLE>
1993 $25,198 99% $0 -- -- -- -- --
1992 9,568 100 7 -- 0.1% -- 0.1% --
1991 6,211 74 -- -- -- -- -- --
EQUITY-INCOME PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% Paid to % %
Firms Transaction Transaction
s s
Period Providing To To % to through through
Ended TOTAL Research FBSI FBSL % to FBSI FBSL FBSI FBSL
</TABLE>
1993 $2,658,979 68% $712,270 -- 27% -- 42% --
1992 752,271 65 263,440 -- 35 -- 46 --
1991 462,428 55 167,858 -- 36 -- 45 --
GROWTH PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% Paid to % %
Firms Transaction Transacti
s ons
Period Providing To To % to through through
Ended TOTAL Research To FBSI FBSL % to FBSI FBSL FBSI FBSL
</TABLE>
1993 $2,137,399 49% $750,137 -- 35% -- 48% --
1992 2,073,624 59 599,019 -- 29 -- 37 --
1991 1,005,493 54 344,150 -- 34 -- 44 --
OVERSEAS PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% Paid to % %
Firms Transaction Transaction
s s
Period Providing To % to through through
Ended TOTAL Research To FBSI FBSL % to FBSI FBSL FBSI FBSL
</TABLE>
1993 $1,541,385 92% $3,119 -- .20% -- 0.92% --
1992 602,862 85 -- $4,314 -- 0.7% -- 1.4%
1991 710,018 91 -- 8,816 -- 1.0 -- 2.0
From time to time the Fund's Trustees will review whether the recapture for
the benefit of the funds of some portion of the brokerage commissions or
similar fees paid by the funds on portfolio transactions is legally
permissible and advisable. The funds seek to recapture soliciting
broker-dealer fees on the tender of portfolio securities, but at present no
other recapture arrangements are in effect. The Trustees intend to
continue to review whether recapture opportunities are available and are
legally permissible and, if so, to determine in the exercise of their
business judgment whether it would be advisable for the funds to seek such
recapture.
Although the Fund's Trustees and officers are substantially the same as
those of other funds managed by FMR, investment decisions for the funds are
made independently from those of other funds managed by FMR or accounts
managed by FMR affiliates. It sometimes happens that the same security is
held in the portfolio of more than one of these funds or accounts.
Simultaneous transactions are inevitable when several funds are managed by
the same investment advisor, particularly when the same security is
suitable for the investment objective of more than one fund.
When two or more funds are simultaneously engaged in the purchase or sale
of the same security, the prices and amounts are allocated in accordance
with a formula considered by the officers of the funds involved to be
equitable to each fund or portfolio. In some cases this system could have
a detrimental effect on the price or volume of the security as far as the
funds are concerned. In other cases, however, the ability of the fund or
portfolio to participate in volume transactions will produce better
executions and prices for the funds. It is the current opinion of the
Trustees that the desirability of retaining FMR as investment advisor to
the funds outweighs any disadvantages that may be said to exist from
exposure to simultaneous transactions.
VALUATION OF FUND SECURITIES
MONEY MARKET PORTFOLIO
Like most money market funds, the fund values its investments on the basis
of amortized cost. This technique involves initially valuing an instrument
at its cost and thereafter assuming a constant amortization to maturity of
any discount or premium, regardless of the market value of the instrument.
The amortized-cost value of an instrument may be higher or lower than the
price the fund would receive if it sold the instrument.
During periods of declining interest rates, the fund's yield based on
amortized cost may be higher than a yield based on market prices and
estimates of market prices. Under these circumstances, a new investor in
the fund would be able to obtain a somewhat higher yield than would result
from investment in a fund solely utilizing market quotations to determine
its NAV, and existing shareholders would receive less investment income.
The converse would apply in a period of rising interest rates.
Valuing the fund's instruments on the basis of amortized cost and use of
the term "money market fund" are permitted by Rule 2a-7 under the
Investment Company Act of 1940 (the 1940 Act). The fund must adhere to
certain conditions under Rule 2a-7.
The Board of Trustees of the fund oversees FMR's adherence to SEC rules
concerning money market funds, and has established procedures designed to
stabilize the fund's NAV calculated on the basis of amortized cost. At
such intervals as they deem appropriate, the Trustees review reports used
to determine whether NAV calculated by using available market quotations
would deviate from $1.00. If such a deviation would result in material
dilution or otherwise would be unfair to shareholders, the Trustees have
agreed to take such corrective action, if any, as they deem necessary and
appropriate. This may include selling portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity, withholding dividends, redeeming shares in kind, or establishing
NAV by using available market quotations.
HIGH INCOME PORTFOLIO
Securities for which market quotations are readily available are valued at
their market values determined by their most recent bid prices in the
principal market (sales prices if the principal market is an exchange) in
which such securities are normally traded. Securities and other assets for
which market quotations are not readily available (including restricted
securities, if any) are valued at their fair value as determined in good
faith under consistently applied procedures under the general supervision
of the Trustees of the Fund.
EQUITY-INCOME, GROWTH AND OVERSEAS PORTFOLIOS
Portfolio securities are valued by various methods depending on the primary
market or exchange on which they trade. Some equity securities for
which the primary market is the U.S. are valued at last sale price or, if
no sale has occurred, at the closing bid price. Some equity
securities for which the primary market is outside the U.S. are valued
using the official closing price or the last sale price in the principal
market where they are traded. If the last sale price (on the local
exchange) is unavailable, the last evaluated quote or last bid price is
normally used. Short-term securities are valued either at amortized cost
or at original cost plus accrued interest, both of which approximate
current value. Convertible and fixed-income securities are valued
primarily by a pricing service that uses a vendor security valuation matrix
which incorporates both dealer-supplied valuations and electronic data
processing techniques. This twofold approach is believed to more
accurately reflect fair value because it takes into account appropriate
factors such as institutional trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading
characteristics, and other market data, without exclusive reliance upon
quoted, exchange, or over-the counter prices. Use of pricing services has
been approved by the Board of Trustees.
Securities and other assets for which there is no readily available market
are valued in good faith by a committee appointed by the Board of Trustees.
The procedures set forth above need not be used to determine the value of
the securities owned by the fund if, in the opinion of a committee
appointed by the Board of Trustees, some other method (e.g., closing
over-the-counter bid prices in the case of debt instruments traded on an
exchange) would more accurately reflect the fair market value of such
securities.
Generally, the valuation of foreign and domestic equity securities, as well
as corporate bonds, U.S. government securities, money market instruments,
and repurchase agreements, is substantially completed each day at the close
of the NYSE. The values of any such securities held by the fund are
determined as of such time for the purpose of computing the fund's net
asset value. Foreign security prices are furnished by independent brokers
or quotation services which express the value of securities in their local
currency. Fidelity Service Co. (FSC) gathers all exchange rates daily at
the close of the NYSE using the last quoted price on the local currency and
then translates the value of foreign securities from their local currency
into U.S. dollars. Any changes in the value of forward contracts due to
exchange rate fluctuations and days to maturity are included in the
calculation of net asset value. If an extraordinary event that is expected
to materially affect the value of a portfolio security occurs after the
close of an exchange on which that security is traded, then the security
will be valued as determined in good faith by a committee appointed by the
Board of Trustees.
PERFORMANCE
The funds may quote their performance in various ways. All performance
information supplied by the funds in advertising is historical and is not
intended to indicate future returns. The funds' share prices (except
for Money Market Portfolio) , yields and total returns fluctuate in
response to market conditions and other factors, and the value of fund
shares (except for Money Market Portfolio) when redeemed may be more
or less than their original cost.
YIELD CALCULATIONS. Yields (except for Money Market Portfolio) for the
funds used in advertising are computed by dividing a fund's interest and
dividend income for a given 30-day or one month period, net of expenses, by
the average number of shares entitled to receive dividends during the
period, dividing this figure by the fund's NAV per share at the end of the
period and annualizing the result (assuming compounding of income) in order
to arrive at an annual percentage rate. Income is calculated for purposes
of yield quotations in accordance with standardized methods applicable to
all stock and bond funds. Dividends from equity investments are treated as
if they were accrued on a daily basis, solely for the purposes of yield
calculations. In general, interest income is reduced with respect to bonds
trading at a premium over their par value by subtracting a portion of the
premium from income on a daily basis, and is increased with respect to
bonds trading at a discount by adding a portion of the discount to daily
income. Capital gains and losses, if any, generally are excluded from the
calculation.
Income calculated for the purpose of determining the funds' yields differs
from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed
in yield calculations, the yields quoted for the funds may differ from the
income the funds paid over the same period or the rate of income reported
in the funds' financial statements.
In computing the current yield for Money Market Portfolio for a 7-day
period, the net change in value of a hypothetical account containing one
share exclusive of capital gains reflects the value of additional shares
purchased with dividends from the one original share and dividends declared
on both the original share and any additional shares. The net change is
then divided by the value of the account at the beginning of the period to
obtain a base period return. This base period return is annualized to
obtain a current annualized yield. Money Market Portfolio may also
calculate an effective yield by annualizing the base period return through
daily compounding. In addition to the current yield, the fund may quote
yields in advertising based on any historical seven-day period(s).
Yield information may be useful in reviewing Money Market Portfolio's
performance and for providing a basis for comparison with other investment
alternatives. However, yields fluctuate, unlike investments which pay a
fixed interest rate for a stated period of time. Yields for the Money
Market Portfolio are calculated on the same basis as other money market
funds as required by applicable regulations. Investors should give
consideration to the quality and maturity of the portfolio securities of
the respective investment companies they have chosen to consider when
comparing investment alternatives. In addition, investors should recognize
that the fees associated with the separate account are not reflected in the
yield quotation.
Should Money Market Portfolio incur or anticipate any unusual expense, or
loss or depreciation which would adversely affect its NAV per share or
income for a particular period, the Trustees would at that time consider
whether to adhere to the present dividend policy above or to revise it in
light of the then prevailing circumstances. For example, if the fund's NAV
per share was reduced or was anticipated to be reduced below $1.00, the
Trustees may suspend further dividend payments until the NAV returned to
$1.00. Thus, such expenses, losses or depreciation may result in a
redemption price per share lower than that which was paid.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of each fund's return, including the effect of reinvesting any
dividends and capital gain distributions, and any change in each fund's NAV
over the period. Average annual returns are calculated by determining the
growth or decline in value of a hypothetical historical investment in each
fund over a stated period, and then calculating the annually compounded
percentage rate that would have produced the same result if the rate of
growth or decline in value had been constant over the period. For example,
a cumulative return of 100% over ten years would produce an average annual
return of 7.18%, which is the steady annual rate that would equal 100%
growth on a compounded basis in ten years. While average annual returns
are a convenient means of comparing investment alternatives, investors
should realize that each fund's performance is not constant over time, but
changes from year to year, and that average annual returns represent
averaged figures as opposed to the actual year-to-year performance of each
fund.
In addition to average annual returns, the funds may quote unaveraged or
cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, and/or a
series of redemptions, over any time period. Total returns may be broken
down into their components of income and capital (including capital gains
and changes in share price) in order to illustrate the relationship of
these factors and their contributions to total return. An example of this
type of illustration is given below. Total returns, yields and other
performance information may be quoted numerically or in a table, graph, or
similar illustration.
NET ASSET VALUE. Charts and graphs using a fund's net asset values or an
insurance company's sub-account unit values, adjusted net asset values, and
benchmark indices may be used to exhibit performance. An adjusted NAV
includes any distributions paid by a fund and reflects all elements of its
return. Unless otherwise indicated, a fund's adjusted NAVs (or an
insurance company's sub-account unit values) are not adjusted for sales
charges, if any.
MOVING AVERAGES. A fund may illustrate performance using moving averages.
A long-term moving average is the average of each week's adjusted closing
NAV for a specified period. A short-term moving average is the average of
each day's adjusted closing NAV for a specified period. Moving Average
Activity Indicators combine adjusted closing NAVs from the last business
day of each week with moving averages for a specified period to produce
indicators showing when an NAV has crossed, stayed above, or stayed below
its moving average. On December 31, 1993, the 13-week and 39-week
long-term moving averages were 15.28 and 14.82, for Equity-Income
Portfolio, 22.87 and 21.91, for Growth Portfolio, and 15.09 and 14.29, for
Overseas Portfolio, respectively.
HISTORICAL FUND RESULTS. The following chart shows each fund's total
returns and Money Market and High Income Portfolios' yields for the period
ended 12/31/93. Performance is net of each fund's expenses, but does not
include charges and expenses attributable to an insurance company's
separate account. If these charges were included, the returns would be
lower.
Average Annual Total Returns Cumulative Total Returns
7 Day 30 Day One Five Ten Life of* Life of*
Yield Yield Year Year Year Fund Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market Portfolio 3.23% N.A. 3.23% 6.05% 6.92% 7.45% 132.96%
High Income Portfolio N.A. 8.82% 20.40% 13.42% N.A. 12.50% 165.46%
Equity-Income Portfolio N.A. N.A. 18.29% 12.56% N.A. 11.48% 119.61%
Growth Portfolio N.A. N.A. 19.37% 17.13% N.A. 14.41% 164.90%
Overseas Portfolio N.A. N.A. 37.35% 10.46% N.A. 7.80% 68.26%
</TABLE>
* Money Market Portfolio commenced operations April 1, 1982; High Income
Portfolio commenced operations September 19, 1985; Equity-Income and Growth
Portfolios commenced operations October 9, 1986; and Overseas Portfolio
commenced operations January 28, 1987. If FMR had not reimbursed certain
fund expenses during these periods, the total returns would have been
lower.
The following charts show the income and capital elements of each fund's
total return from the date it commenced operations through the year ended
December 31, 1993. The charts compare the funds' returns to the record of
the Standard & Poor's 500 Composite Stock Price Index (S&P), the
Dow Jones Industrial Average (DJIA), and the cost of living (measured by
the Consumer Price Index, or CPI) over the same period. The comparison to
the S&P shows how the funds' total returns compared to the record of a
broad average of common stock prices, and the comparison to the DJIA shows
how the funds' total returns compared to the record of a narrower set of
stocks of major industrial companies. Each fund has the ability to invest
in securities not included in either index, and its investment portfolio
may or may not be similar in composition to the indices. The S&P and
DJIA comparisons for High Income Portfolio are provided to show how the
fund's return compared to the return of common stocks over the same period.
Of course, since the High Income Portfolio invests in fixed-income
securities, common stocks represent a different type of investment from the
fund. The indices do not include fixed-income securities. As the
information below shows, common stocks generally offer greater potential
growth than the High Income Portfolio, but generally are more volatile in
value and may offer greater potential for loss. In addition, common stocks
generally provide lower income than a mutual fund, like High Income
Portfolio, which focuses on fixed-income securities. The S&P and DJIA
are based on the prices of unmanaged groups of stocks and, unlike the
funds' returns, their returns do not include the effect of paying brokerage
commissions and other costs of investing.
MONEY MARKET PORTFOLIO: During the period from December 31, 1983 to
December 31, 1993, a hypothetical $10,000 investment in the fund would have
grown to $19,532, assuming all distributions were reinvested. This was a
period of widely fluctuating interest rates and should not necessarily be
considered a representation of the income or capital gain or loss that
could be realized from an investment in the fund today.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Value of Value of INDEX
Value of Reinvested Reinvested
Period Initial $10,000 Dividend Capital Gain Cost of
Ended Investment Distributions Distributions Total Value Living
12/31/93 $10,000 $9,532 $0 $19,532 $14,393
12/31/92 $10,000 8,920 0 18,920 14,008
12/31/91 $10,000 8,211 0 18,211 13,613
12/31/90 $10,000 7,165 0 17,165 13,208
12/31/89 $10,000 5,888 0 15,888 12,448
12/31/88 $10,000 4,560 0 14,560 11,895
12/31/87 $10,000 3,559 0 13,559 11,392
12/31/86 $10,000 2,738 0 12,738 10,908
12/31/85 $10,000 1,939 0 11,939 10,790
12/31/84 $10,000 1,043 0 11,043 10,395
</TABLE>
Explanatory Notes: With an initial investment of $10,000 made on December
31, 1983, the net amount invested in shares of the fund was $10,000. The
cost of the initial investment ($10,000), together with the aggregate cost
of reinvested dividends for the period covered (that is, their cash value
at the time they were reinvested), amounted to $19,532. If distributions
had not been reinvested, the amount of distributions earned from the fund
over time would have been smaller and the cash payments (dividends) for the
period would have amounted to $6,715. There were no capital gain
distributions during this period. The fund's annualized net yield for the
seven days ending December 31, 1993 was 3.23% and the compound effective
yield was 3.28%. The fund's yield will fluctuate daily. Tax consequences
of different investments have not been factored into the above figures.
HIGH INCOME PORTFOLIO: During the period from September 19, 1985 to
December 31, 1993, a hypothetical $10,000 investment in the fund would have
grown to $26,546, assuming all distributions were reinvested. This was a
period of widely fluctuating interest rates and bond prices and should not
necessarily be considered a representation of the income or capital gain or
loss that could be realized from an investment in the fund today.
INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Value of Value of Value of
Initial Reinvested Reinvested
Period $10,000 Dividend Capital Gain Cost of
Ended Investment Distributions Distributions Total Value S&P DJIA Living**
12/31/93 $11,990 $14,223 $333 $26,546 $33,797 $38,211 $13,463
12/31/92 10,820 11,057 172 22,049 30,702 32,661 13,102
12/31/91 9,550 8,200 152 17,902 28,522 30,440 12,733
12/31/90 7,070 6,070 112 13,253 21,859 24,481 12,355
12/31/89 8,110 5,317 129 13,556 22,562 24,613 11,644
12/31/88 9,660 4,332 154 14,146 17,133 18,680 11,127
12/31/87 9,680 2,837 154 12,671 14,693 16,114 10,656
12/31/86 10,830 1,689 0 12,519 13,958 15,284 10,203
12/31/85* 10,310 328 0 10,638 11,761 12,031 10,092
</TABLE>
* From September 19, 1985 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on September
19, 1985, the net amount invested in shares of the fund was $10,000. The
cost of the initial investment ($10,000), together with the aggregate cost
of reinvested distributions for the period covered (that is, their cash
value at the time they were reinvested), amounted to $21,489. If
distributions had not been reinvested, the amount of distributions earned
from the fund over time would have been smaller and the cash payments for
the period would have amounted to $7,510 for income dividends and $210 for
capital gain distributions. If FMR had not reimbursed certain fund
expenses during the period shown above, the fund's returns would have been
lower. Tax consequences of different investments have not been
factored into the above figures.
EQUITY-INCOME PORTFOLIO: During the period from October 9, 1986 to
December 31, 1993, a hypothetical $10,000 investment in the fund would have
grown to $21,961, assuming all distributions were reinvested. This was a
period of widely fluctuating stock and bond prices and should not
necessarily be considered a representation of the income or capital gain or
loss that could be realized from an investment in the fund today.
INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Value of Value of Value of
Initial Reinvested Reinvested
Period $10,000 Dividend Capital Gain Cost of
Ended Investment Distributions Distributions Total Value S&P DJIA Living**
12/31/93 $15,440 $5,529 $992 $21,961 $24,966 $26,491 $13,230
12/31/92 13,400 4,304 861 18,565 22,680 22,644 12,877
12/31/91 11,850 3,272 761 15,883 21,070 21,104 12,514
12/31/90 9,510 1,963 611 12,084 16,147 16,972 12,142
12/31/89 12,290 1,682 293 14,265 16,667 17,064 11,443
12/31/88 11,010 979 167 12,156 12,657 12,951 10,935
12/31/87 9,420 343 143 9,907 10,854 11,172 10,472
12/31/86* 10,020 0 0 10,020 10,311 10,596 10,027
</TABLE>
* From October 9, 1986 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on October
9, 1986, the net amount invested in shares of the fund was $10,000. The
cost of the initial investment ($10,000), together with the aggregate cost
of reinvested distributions for the period covered (that is, their cash
value at the time they were reinvested), amounted to $14,859. If
distributions had not been reinvested, the amount of distributions earned
from the fund over time would have been smaller and the cash payments for
the period would have amounted to $3,440 for income dividends and $620 for
capital gain distributions. If FMR had not reimbursed certain fund
expenses during the period shown above, the fund's returns would have been
lower. Tax consequences of different investments have not been factored
into the above figures.
GROWTH PORTFOLIO: During the period from October 9, 1986 to December 31,
1993, a hypothetical $10,000 investment in the fund would have grown to
$26,490, assuming all distributions were reinvested. This was a period of
widely fluctuating stock prices and should not necessarily be considered a
representation of the income or capital gain or loss that could be realized
from an investment in the fund today.
INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Value of Value of Value of
Initial Reinvested Reinvested
Period $10,000 Dividend Capital Gain Cost of
Ended Investment Distributions Distributions Total Value S&P DJIA Living**
12/31/93 $23,080 $1,546 $1,864 $26,490 $24,966 $26,491 $13,230
12/31/92 19,760 1,202 1,230 22,192 22,680 22,644 12,877
12/31/91 18,510 1,075 715 20,300 21,070 21,104 12,514
12/31/90 12,910 542 499 13,950 16,147 16,972 12,142
12/31/89 15,180 400 225 15,805 16,667 17,064 11,443
12/31/88 11,720 124 174 12,018 12,657 12,951 10,935
12/31/87 10,140 107 150 10,398 10,854 11,172 10,472
12/31/86* 10,030 0 0 10,030 10,311 10,956 10,027
</TABLE>
* From October 9, 1986 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on October
9, 1986, the net amount invested in shares of the fund was $10,000. The
cost of the initial investment ($10,000), together with the aggregate cost
of reinvested distributions for the period covered (that is, their cash
value at the time they were reinvested), amounted to $12,255. If
distributions had not been reinvested, the amount of distributions earned
from the fund over time would have been smaller and the cash payments for
the period would have amounted to $880 for income dividends and $1,230 for
capital gain distributions. If FMR had not reimbursed certain fund
expenses during the period shown above, the fund's returns would have been
lower. Tax consequences of different investments have not been factored
into the above figures.
OVERSEAS PORTFOLIO: During the period from January 28, 1987 to December
31, 1993, a hypothetical $10,000 investment in the fund would have grown to
$16,826, assuming all distributions were reinvested. This was a period of
widely fluctuating stock prices and should not necessarily be considered a
representation of the income or capital gain or loss that could be realized
from an investment in the fund today.
INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Value of Value of Value of
Initial Reinvested Reinvested
Period $10,000 Dividend Capital Gain Cost of
Ended Investment Distributions Distributions Total Value S&P DJIA Living**
12/31/93 $15,480 $1,276 $70 $16,826 $21,371 $21,996 $13,112
12/31/92 11,530 720 0 12,250 19,414 18,801 12,761
12/31/91 13,090 631 0 13,721 18,036 17,522 12,401
12/31/90 12,420 285 0 12,705 13,822 14,092 12,032
12/31/89 12,670 250 0 12,920 14,267 14,168 11,340
12/31/88 10,110 121 0 10,231 10,834 10,753 10,836
12/31/87* 9,350 112 0 9,462 9,291 9,276 10,378
</TABLE>
* From January 28, 1987 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on January
28, 1987, the net amount invested in shares of the fund was $10,000. The
cost of the initial investment ($10,000), together with the aggregate cost
of reinvested dividends for the period covered (that is, their cash value
at the time they were reinvested), amounted to $11,024. If distributions
had not been reinvested, the amount of distributions earned from the fund
over time would have been smaller and the cash payments for the period
would have amounted to $940 for income dividends and $50 for capital gain
distributions. If FMR had not reimbursed certain fund expenses during the
period shown above, the fund's returns would have been lower. Tax
consequences of different investments have not been factored into the above
figures.
A yield for the S&P 500 is calculated by dividing the dollar value of
dividends paid by the S&P stocks during the period by the average
monthly value of the S&P over the period. The S&P yield is
calculated differently from the fund's yield; among other things, the
fund's yield calculation treats dividends as accrued in anticipation of
payment, rather than recording them when paid, and uses an ending price
rather than an average price as the basis of the percentage calculation.
The funds are only available for purchase through variable annuity or
variable life insurance contracts offering deferral of income taxes on
earnings, which may produce superior after-tax returns over time. For
example, a $1,000 investment earning a taxable return of 10% annually would
have an after-tax value of $1,949 after ten years, assuming tax was
deducted from the return each year at a 31% rate. An equivalent
tax-deferred investment would have an after-tax value of $2,100 after 10
years, assuming tax was deducted at the 31% rate from the deferred earnings
at the end of the ten year period. Individuals holding shares of the funds
through a variable annuity or variable life insurance contract may receive
additional tax benefits from the deferral of income taxes associated with
variable contracts. Individuals should consult their tax advisors to
determine the effect of holding variable contracts on their individual tax
situations.
YIELDS AND TOTAL RETURNS QUOTED FOR A FUND INCLUDE THE EFFECT OF DEDUCTING
THE FUND'S EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE
TO ANY PARTICULAR INSURANCE PRODUCT. SINCE YOU CAN ONLY PURCHASE SHARES OF
A FUND THROUGH A VARIABLE ANNUITY AND/OR A VARIABLE LIFE INSURANCE
CONTRACT, YOU SHOULD CAREFULLY REVIEW THE PROSPECTUS OF THE INSURANCE
PRODUCT YOU HAVE CHOSEN FOR INFORMATION ON RELEVANT CHARGES AND EXPENSES.
Excluding these charges from quotations of a fund's performance has the
effect of increasing the performance quoted.
GENERAL INFORMATION
A fund's performance may be compared to the performance of other mutual
funds in general, or to the performance of particular types of mutual
funds. These comparisons may be expressed as mutual fund rankings
prepared by Lipper Analytical Services, Inc. (Lipper), an independent
service located in Summit, New Jersey that monitors the performance of
mutual funds. Lipper generally ranks funds on the basis of total return,
assuming reinvestment of distributions, but does not take sales charges or
redemption fees into consideration, and is prepared without regard to tax
consequences. Lipper may also rank funds based on yield. In addition to
the mutual fund rankings, a fund's performance may be compared to mutual
fund performance indices prepared by Lipper. High Income Portfolio may
compare its performance to the Salomon Brothers High Yield Composite Index,
an index of high-yielding utility and corporate bonds with a minimum
maturity of seven years and with total debt outstanding of at least $50
million. Issues included in the index are rated Baa or lower by Moody's
Investors Service or BBB or lower by Standard & Poor's Corporation.
Overseas Portfolio may quote its performance in advertising and other types
of literature as compared to the performance of the Morgan Stanley Capital
International EAFE Index, an unmanaged index of over 820 foreign common
stocks. Each fund may also compare its performance against the Consumer
Price Index (CPI) and the funds in Lipper Annuity & Closed-End Survey
(LACES). LACES consists of periodic reports that track the performance of
closed-end mutual funds and variable annuities at the separate account
level. A fund will compare itself only to annuities, not to closed-end
funds in LACES.
From time to time, a fund's performance may also be compared to other
mutual funds tracked by financial or business publications and periodicals.
For example, a fund may quote Morningstar, Inc. in its advertising
materials. Morningstar, Inc. is a mutual fund rating service that rates
mutual funds on the basis of risk-adjusted performance. Rankings that
compare the performance of Fidelity funds to one another in appropriate
categories over specific periods of time may also be quoted in advertising.
Fidelity may provide information designed to help individuals understand
their investment goals and explore various financial strategies. For
example, Fidelity's FundMatchsm Program includes a workbook describing
general principles of investing, such as asset allocation, diversification,
risk tolerance, and goal setting; a questionnaire designed to help create a
personal financial profile; and an action plan offering investment
alternatives. Materials may also include discussions of Fidelity's three
asset allocation funds and other Fidelity funds, products, and services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical
returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury
bills, the U.S. rate of inflation (based on the CPI), and combinations of
various capital markets. The performance of these capital markets is based
on the returns of different indices.
Fidelity funds may use the performance of these capital markets in order to
demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any
of these capital markets. The risks associated with the security types in
any capital market may or may not correspond directly to those of the
funds. Ibbotson calculates total returns in the same method as the funds.
The funds may also compare performance to that of other compilations or
indices that may be developed and made available in the future.
Money Market and High Income Portfolios each may compare its performance or
the performance of securities in which it may invest to averages published
by IBC USA (Publications), Inc. of Ashland, Massachusetts. These averages
assume reinvestment of distributions. The IBC/Donoghue's MONEY FUND
AVERAGES(trademark)/taxable money market funds, which is reported in the
MONEY FUND REPORT(registered trademark), covers money market funds. The
Bond Fund Report AverageS(trademark)/taxable bond funds, which is reported
in the BOND FUND REPORT(registered trademark), covers bond funds. When
evaluating comparisons to money market funds, investors should consider the
relevant differences in investment objectives and policies. Specifically,
money market funds invest in short-term, high-quality instruments and seek
to maintain a stable $1.00 share price. Bond funds however, typically
invest in longer-term instruments and their share price changes daily in
response to a variety of factors.
In advertising materials, Fidelity may reference or discuss its products
and services, which may include: other Fidelity funds and insurance
products; retirement investing; brokerage products and services; the
effects of periodic investment plans and dollar cost averaging; saving for
college; charitable giving; and the Fidelity credit card. In addition,
Fidelity may quote financial or business publications and periodicals,
including model portfolios or allocations, as they relate to fund
management, investment philosophy, and investment techniques. Fidelity may
also reprint, and use as advertising and sales literature, articles from
Fidelity Focus, a quarterly magazine provided free of charge to Fidelity
fund shareholders.
Each fund may present its fund number, Quotron(trademark) number, and CUSIP
number, and discuss or quote its current portfolio manager.
VOLATILITY. A fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, a fund may compare these measures
to those of other funds. Measures of volatility seek to compare a fund's
historical share price fluctuations or total returns to those of a
benchmark. Measures of benchmark correlation indicate how valid a
comparative benchmark may be. All measures of volatility and correlation
are calculated using averages of historical data.
MOMENTUM INDICATORS indicate a fund's price movements over specific periods
of time. Each point on the momentum indicator represents a fund's
percentage change in price movements over that period.
The funds may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a
program, a policyowner invests a fixed dollar amount in an insurance
company's sub-account at periodic intervals which in turn invests in a
fund, thereby purchasing fewer units when prices are high and more units
when prices are low. While such a strategy does not assure a profit nor
guard against loss in a declining market, the policyowner's average cost
per unit can be lower than if fixed numbers of units had been purchased at
those intervals. In evaluating such a plan, policyowners should consider
their ability to continue purchasing units through periods of low price
levels.
Each fund has an investment objective similar to an existing Fidelity
retail fund. Money Market Portfolio is most similar to its corresponding
retail fund, Fidelity Cash Reserves. High Income Portfolio is most similar
to its corresponding retail fund, Spartan High Income Fund. Equity-Income
Portfolio is most similar to its corresponding retail fund, Fidelity
Equity-Income Fund. Growth Portfolio is most similar to its corresponding
retail fund, Fidelity Retirement Growth Fund. Overseas Portfolio is most
similar to its corresponding retail fund, Fidelity Overseas Fund.
Performance will differ between the funds and their corresponding retail
funds due in part to differences in investment policies and the effect of
insurance charges.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
High Income, Equity-Income, Growth and Overseas Portfolios are each open
for business and its NAV is calculated each day the New York Stock Exchange
(NYSE) is open for trading. The NYSE has designated the following holiday
closings for 1994: President's Day, Good Friday, Memorial Day, Independence
Day (observed), Labor Day, Thanksgiving Day, and Christmas Day (observed).
Money Market Portfolio is open for business and its NAV is calculated each
day that both the Federal Reserve Bank of New York City (the New York City
Fed) and the New York Stock Exchange (NYSE) are open for trading. In
addition to the above holidays, the following holiday closings have been
scheduled for Money Market Portfolio for 1994: Dr. Martin Luther, King, Jr.
Day (observed), Columbus Day (observed), and Veteran's Day. Although FMR
expects the same holiday schedule, with the addition of New Year's Day, to
be observed in the future, the New York City Fed or the NYSE may modify its
holiday schedule at any time. On any day that the New York City Fed or the
NYSE close early, or as permitted by the SEC, the right is reserved
to advance the time on that day by which purchase and redemption orders
must be received. To the extent that each fund's securities are traded in
other markets on days when the New York City Fed or the NYSE is closed,
each fund's NAV may be affected on days when investors do not have access
to each fund to purchase or redeem shares.
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are valued in
computing the NAV of each fund. Shareholders receiving securities or other
property on redemption may realize a gain or loss for tax purposes, and
will incur any costs of sale, as well as the associated inconveniences.
TAXES
For a discussion of tax consequences of variable contracts, please refer to
your insurance company's separate account prospectus. Variable contracts
purchased through insurance company separate accounts provide for the
accumulation of all earnings from interest, dividends, and capital
appreciation without current federal income tax liability to the owner.
Depending on the variable contract, distributions from the contract may be
subject to ordinary income tax and a 10% penalty tax on distributions
before age 59 1/2. Only the portion of a distribution attributable to
income is subject to federal income tax. Investors should consult with
competent tax advisors for a more complete discussion of possible tax
consequences in a particular situation.
Section 817(h) of the Internal Revenue Code provides that the investments
of a separate account underlying a variable insurance contract (or the
investments of a mutual fund, the shares of which are owned by the variable
separate account) must be "adequately diversified" in order for the
contract to be treated as an annuity or life insurance for tax purposes.
The Treasury Department has issued regulations prescribing these
diversification requirements. Each fund intends to comply with these
requirements.
Each fund intends to qualify each year as a "regulated investment company"
for tax purposes, so that it will not be liable for federal tax on income
and capital gains distributed to shareholders. In order to qualify as a
regulated investment company and avoid being subject to federal income or
excise taxes, each fund intends to distribute substantially all its net
taxable income and net realized capital gains within each calendar year as
well as on a fiscal year basis. The funds also intend to comply with other
tax rules applicable to regulated investment companies including a
requirement that gross capital gains from selling securities held less than
three months must constitute less than 30% of the funds' gross income for
each fiscal year. Income and capital gain distributions are reinvested in
additional shares of each fund. This is done to preserve the tax
advantaged status of the variable contracts. Each fund is treated as a
separate entity for tax purposes.
MONEY MARKET PORTFOLIO. This fund may distribute any net realized
short-term gains once each year, or more frequently if necessary, in order
to maintain the fund's NAV at $1.00 per share and to comply with tax
regulations.
As of December 31, 1993, Money Market Portfolio had an aggregate capital
loss carryover of approximately $13,800 arising from capital losses
realized in the past, of which $4,100 will expire in 1995, $500 will expire
in 1996, $4,900 will expire in 1997, and $4,300 will expire in 2000. This
capital loss carryover may be used to offset future capital gains realized
by the fund.
HIGH INCOME PORTFOLIO. Income from this fund is primarily derived from
interest rather than dividends. As of December 31, 1993 High Income
Portfolio had no unused capital loss carryover.
EQUITY-INCOME AND GROWTH PORTFOLIOS. As of December 31, 1993,
Equity-Income and Growth Portfolios each had no unused capital loss
carryover.
OVERSEAS PORTFOLIO. Withholding or other taxes that the fund paid to
foreign governments (if any), will reduce the fund's dividends. Foreign
tax withholding from dividends and interest (if any) is typically at a rate
between 10% and 35%. Shareholders will bear the cost of foreign tax
withholding, but generally not be able to claim a foreign tax credit or
deduction for foreign taxes paid by the fund by reason of the tax-deferred
status of investments through separate accounts. As of December 31, 1993,
Overseas Portfolio had an aggregate capital loss carryover of approximately
$8,614,000, which may be used to offset future capital gains realized by
the fund.
FMR
FMR is a wholly owned subsidiary of FMR Corp., a parent company organized
in 1972. At present, the principal operating activities of FMR Corp. are
those conducted by three of its divisions as follows: FSC, which is the
transfer and shareholder servicing agent for certain of the funds advised
by FMR; FIIOC, which performs shareholder servicing functions for certain
institutional customers; and Fidelity Investments Retail Marketing Company,
which provides marketing services to various companies within the Fidelity
organization.
Several affiliates of FMR are also engaged in the investment advisory
business. Fidelity Management Trust Company provides trustee, investment
advisory, and administrative services to retirement plans and corporate
employee benefit accounts. Fidelity Management & Research (U.K.) Inc.
(FMR U.K.) and Fidelity Management & Research (Far East) Inc. (FMR Far
East), both wholly owned subsidiaries of FMR formed in 1986, supply
investment research, and may supply portfolio management services, to FMR
in connection with certain funds advised by FMR. Analysts employed by FMR,
FMR U.K., and FMR Far East research and visit thousands of domestic and
foreign companies each year. FMR Texas Inc., a wholly owned subsidiary of
FMR formed in 1989, supplies portfolio management and research services in
connection with certain money market funds advised by FMR.
TRUSTEES AND OFFICERS
The Fund's Trustees and executive officers are listed below. Except as
indicated, each individual has held the office shown or other offices in
the same company for the last five years. All persons named as Trustees
and officers also serve in similar capacities for other funds advised by
FMR. Unless otherwise noted, the business address of each Trustee and
officer is 82 Devonshire Street, Boston, Massachusetts, 02109, which is
also the address of FMR. Those Trustees who are "interested persons" (as
defined in the Investment Company Act of 1940) by virtue of their
affiliation with the Fund or FMR, are indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d, Trustee and President, is Chairman, Chief Executive
Officer and a Director of FMR Corp.; a Director and Chairman of the Board
and of the Executive Committee of FMR; Chairman and a Director of FMR Texas
Inc. (1989), Fidelity Management & Research (U.K.) Inc., and Fidelity
Management & Research (Far East) Inc.
*J. GARY BURKHEAD, Trustee and Senior Vice President, is President of FMR;
and President and a Director of FMR Texas Inc. (1989), Fidelity Management
& Research (U.K.) Inc., and Fidelity Management & Research (Far
East) Inc.
RALPH F. COX, 200 Rivercrest Drive, Fort Worth, TX, Trustee (1991), is a
consultant to Western Mining Corporation (1994). Prior to February 1994, he
was President of Greenhill Petroleum Corporation (petroleum exploration and
production, 1990). Until March 1990, Mr. Cox was President and Chief
Operating Officer of Union Pacific Resources Company (exploration and
production). He is a Director of Bonneville Pacific Corporation
(independent power, 1989), Sanifill Corporation (non-hazardous waste,
1993), and CH2M Hill Companies (engineering). In addition, he served on
the Board of Directors of the Norton Company (manufacturer of industrial
devices, 1983-1990) and continues to serve on the Board of Directors of the
Texas State Chamber of Commerce, and is a member of advisory boards of
Texas A&M University and the University of Texas at Austin.
PHYLLIS BURKE DAVIS, P.O. Box 264, Bridgehampton, NY, Trustee (1992).
Prior to her retirement in September 1991, Mrs. Davis was the Senior Vice
President of Corporate Affairs of Avon Products, Inc. She is currently a
Director of BellSouth Corporation (telecommunications), Eaton Corporation
(manufacturing, 1991), and the TJX Companies, Inc. (retail stores, 1990),
and previously served as a Director of Hallmark Cards, Inc. (1985-1991) and
Nabisco Brands, Inc. In addition, she serves as a Director of the New York
City Chapter of the National Multiple Sclerosis Society, and is a member of
the Advisory Council of the International Executive Service Corps. and the
President's Advisory Council of The University of Vermont School of
Business Administration.
RICHARD J. FLYNN, 77 Fiske Hill, Sturbridge, MA, Trustee, is a financial
consultant. Prior to September 1986, Mr. Flynn was Vice Chairman and a
Director of the Norton Company (manufacturer of industrial devices). He is
currently a Director of Mechanics Bank and a Trustee of College of the Holy
Cross and Old Sturbridge Village, Inc.
E. BRADLEY JONES, 3881-2 Lander Road, Chagrin Falls, OH, Trustee (1990).
Prior to his retirement in 1984, Mr. Jones was Chairman and Chief Executive
Officer of LTV Steel Company. Prior to May 1990, he was Director of
National City Corporation (a bank holding company) and National City Bank
of Cleveland. He is a Director of TRW Inc. (original equipment and
replacement products), Cleveland-Cliffs Inc (mining), NACCO Industries,
Inc. (mining and marketing), Consolidated Rail Corporation, Birmingham
Steel Corporation, Hyster-Yale Materials Handling, Inc. (1989), and RPM,
Inc. (manufacturer of chemical products, 1990). In addition, he serves as
a Trustee of First Union Real Estate Investments, Chairman of the Board of
Trustees and a member of the Executive Committee of the Cleveland Clinic
Foundation, a Trustee and a member of the Executive Committee of University
School (Cleveland), and a Trustee of Cleveland Clinic Florida.
DONALD J. KIRK, 680 Steamboat Road, Apartment #1-North, Greenwich, CT,
Trustee, is a Professor at Columbia University Graduate School of Business
and a financial consultant. Prior to 1987, he was Chairman of the
Financial Accounting Standards Board. Mr. Kirk is a Director of General Re
Corporation (reinsurance) and Valuation Research Corp. (appraisals and
valuations, 1993). In addition, he serves as Vice Chairman of the Board of
Directors of the National Arts Stabilization Fund and Vice Chairman of the
Board of Trustees of the Greenwich Hospital Association.
*PETER S. LYNCH, Trustee (1990) is Vice Chairman of FMR (1992). Prior to
his retirement on May 31, 1990, he was a Director of FMR (1989) and
Executive Vice President of FMR (a position he held until March 31, 1991);
Vice President of Fidelity Magellan Fund and FMR Growth Group Leader; and
Managing Director of FMR Corp. Mr. Lynch was also Vice President of
Fidelity Investments Corporate Services (1991-1992). He is a Director of
W.R. Grace & Co. (chemicals, 1989) and Morrison Knudsen Corporation
(engineering and construction). In addition, he serves as a Trustee of
Boston College, Massachusetts Eye & Ear Infirmary, Historic Deerfield
(1989) and Society for the Preservation of New England Antiquities, and as
an Overseer of the Museum of Fine Arts of Boston (1990).
GERALD C. McDONOUGH, 135 Aspenwood Drive, Cleveland, OH, Trustee (1989), is
Chairman of G.M. Management Group (strategic advisory services). Prior to
his retirement in July 1988, he was Chairman and Chief Executive Officer of
Leaseway Transportation Corp. (physical distribution services). Mr.
McDonough is a Director of ACME-Cleveland Corp. (metal working,
telecommunications and electronic products), Brush-Wellman Inc. (metal
refining), York International Corp. (air conditioning and refrigeration,
1989), Commercial Intertech Corp. (water treatment equipment, 1992), and
Associated Estates Realty Corporation (a real estate investment trust,
1993).
EDWARD H. MALONE, 5601 Turtle Bay Drive #2104, Naples, FL, Trustee. Prior
to his retirement in 1985, Mr. Malone was Chairman, General Electric
Investment Corporation and a Vice President of General Electric Company.
He is a Director of Allegheny Power Systems, Inc. (electric utility),
General Re Corporation (reinsurance) and Mattel Inc. (toy manufacturer).
He is also a Trustee of Rensselaer Polytechnic Institute and of Corporate
Property Investors and a member of the Advisory Boards of Butler Capital
Corporation Funds and Warburg, Pincus Partnership Funds.
MARVIN L. MANN, 55 Railroad Avenue, Greenwich, CT, Trustee (1993) is
Chairman of the Board, President, and Chief Executive Officer of Lexmark
International, Inc. (office machines, 1991). Prior to 1991, he held the
positions of Vice President of International Business Machines Corporation
("IBM") and President and General Manager of various IBM divisions and
subsidiaries. Mr. Mann is a Director of M.A. Hanna Company (chemicals,
1993) and Infomart (marketing services, 1991), a Trammell Crow Co. In
addition, he serves as the Campaign Vice Chairman of the Tri-State United
Way (1993) and is a member of the University of Alabama President's Cabinet
(1990).
THOMAS R. WILLIAMS, 21st Floor, 191 Peachtree Street, N.E., Atlanta, GA,
Trustee, is President of The Wales Group, Inc. (management and financial
advisory services). Prior to retiring in 1987, Mr. Williams served as
Chairman of the Board of First Wachovia Corporation (bank holding company),
and Chairman and Chief Executive Officer of The First National Bank of
Atlanta and First Atlanta Corporation (bank holding company). He is
currently a Director of BellSouth Corporation (telecommunications),
ConAgra, Inc. (agricultural products), Fisher Business Systems, Inc.
(computer software), Georgia Power Company (electric utility), Gerber Alley
& Associates, Inc. (computer software), National Life Insurance Company
of Vermont, American Software, Inc. (1989), and AppleSouth, Inc.
(restaurants, 1992).
GARY L. FRENCH, Treasurer (1991). Prior to becoming Treasurer of the
Fidelity funds, Mr. French was Senior Vice President, Fund Accounting -
Fidelity Accounting & Custody Services Co. (1991); Vice President, Fund
Accounting - Fidelity Accounting & Custody Services Co. (1990); and
Senior Vice President, Chief Financial and Operations Officer - Huntington
Advisers, Inc. (1985-1990).
ARTHUR S. LORING, Secretary, is Senior Vice President and General Counsel
of FMR, Vice President-Legal of FMR Corp., and Vice President and Clerk of
FDC.
THOMAS D. MAHER, Assistant Vice President (1990), is Associate General
Counsel of FMR Texas Inc. (1990).
ROBERT LITTERST, Vice President of Money Market Portfolio (1992), is an
employee of FMR.
BARRY COFFMAN, Vice President of High Income Portfolio (1992), is an
employee of FMR.
ROBERT H. MORRISON, Manager, Security Transactions, is an employee of FMR.
Under a retirement program that became effective on November 1, 1989,
Trustees, upon reaching age 72, become eligible to participate in a defined
benefit retirement program under which they receive payments during their
lifetime from the fund based on their basic trustee fees and length of
service. Currently, Messrs. Robert L. Johnson, William R. Spaulding,
Bertram H. Witham, and David L. Yunich participate in the program.
As of March 31, 1994, the Trustees and officers of the Fund owned 0% of the
outstanding shares of the funds.
As of February 28, 1994, significant shares of the funds were held by the
following companies with the figures beneath each fund representing that
company's holdings as a percentage of each fund's total outstanding shares.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Money Market High Income Equity-Income Growth Overseas
Portfolio Portfolio Portfolio Portfolio Portfolio
Ameritas Variable Life 9.08% -- -- -- --
Insurance Company
(Lincoln, NE)
Fidelity Investments Life 47.43% 21.43% 27.98% 19.47% 21.48%
Insurance Company
(Boston, MA)
The Life Insurance 6.30% -- -- -- 5.31%
Company of Virginia
(Richmond, VA)
PFL Life Insurance 21.59% 12.92% 10.27% 6.14% 7.43%
Company
(Cedar Rapids, IA)
Nationwide Life -- 36.82% 30.11% 31.47% 43.21%
Insurance Company
(Columbus, OH)
State Mutual Life -- 6.70 9.30% 7.78% 6.20%
Assurance Company
(Worcester, MA)
The Travelers Insurance -- 5.51% -- 9.12% --
Company
(Hartford, CT)
</TABLE>
- -- Owns less than 5%.
A shareholder owning more than 25% of a particular fund's shares may be
considered to be a "controlling person" of that fund. Accordingly, its
vote could have a more significant effect on matters presented to
shareholders for approval than the votes of the funds' other shareholders.
Messrs. Edward C. Johnson 3d and J. Gary Burkhead, Trustees of the fund and
directors of FMR, together with Messrs. Francis D. Cabour, Richard B.
Fentin, Barry A. Greenfield, Richard C. Habermann, William J. Hayes,
Michael M. Kassen, Alan Leifer, Peter S. Lynch, and George A. Vanderheiden,
officers or employees of FMR, are members of the Equity-Income, Growth and
Overseas Portfolios' Investment Committee, which reviews recommendations of
the research staff of FMR.
MANAGEMENT CONTRACTS
Each fund employs FMR to furnish it with investment advisory and other
services. Under FMR's Management Contract with each fund, FMR acts as
investment advisor and, subject to the supervision of the Board of
Trustees, directs the investments of each fund in accordance with its
investment objective, policies and limitations. FMR also provides each
fund with all necessary office facilities and personnel for servicing each
fund's investments, and compensates all officers of the Fund, all Trustees
who are "interested persons" of the Fund or of FMR and all personnel of the
Fund or FMR performing services relating to research, statistical and
investment activities. In addition, FMR or its affiliates, subject to the
supervision of the Board of Trustees, provide the management and
administrative services necessary for the operation of each fund. These
services include providing facilities for maintaining each fund's
organization, supervising relations with custodians, transfer and pricing
agents, accountants, underwriters and other persons dealing with each fund,
preparing all general shareholder communications and conducting shareholder
relations, maintaining each fund's records and the registration of each
fund's shares under federal and state law, developing management and
shareholder services for each fund and furnishing reports, evaluations and
analyses on a variety of subjects to the Fund's Board of Trustees.
In addition to the management fee payable to FMR and the fees payable to
FSC and FIIOC, each fund pays all its expenses, without limitation, that
are not assumed by those parties. Each fund pays for typesetting, printing
and mailing its Prospectuses, Statements of Additional Information, reports
and proxy material to existing shareholders, legal expenses and the fees of
the custodian, auditor and non-interested Trustees. Other charges paid by
each fund include interest, taxes, brokerage commissions, each fund's
proportionate share of insurance premiums and Investment Company Institute
dues, and the costs of registering shares under federal and state
securities laws. Each fund is also liable for such nonrecurring expenses
as may arise, including costs of litigation to which each fund may be a
party and any obligation they may have to indemnify the officers and
Trustees of the Fund with respect to litigation.
MONEY MARKET PORTFOLIO. FMR is the fund's manager pursuant to a management
contract dated January 1, 1994, which was approved by shareholders on
December 15, 1993. For the services of FMR under the contract, the fund
pays FMR a monthly management fee calculated by adding a basic fee, which
consists of a group fee rate and an individual fund fee rate (.03% of
the fund's average net assets ), to an income-based component of 6% of
the fund's gross income in excess of a 5% yield, and multiplying the result
by the fund's average net assets. The group fee rate is based on the
monthly average net assets of all of the registered investment companies
with which FMR has management contracts and is calculated on a cumulative
basis pursuant to the graduated fee rate schedule shown on the left of the
chart below. On the right, the effective fee rate schedule shows the
results of cumulatively applying the annualized rates at varying asset
levels. For example, the effective annual fee rate at $232 billion of
group net assets--their approximate level for December 1993--was .1621%,
which is the weighted average of the respective fee rates for each level of
group net assets up to that level.
GROUP FEE RATE EFFECTIVE ANNUAL
SCHEDULE FEE RATES
Rate Group Net Effective
Asset Levels Assets Annual
Fee Rate
0 - $ 3 billion .3700% $ 25 billion .2664%
3 - 6 .3400 50 .2188
6 - 9 .3100 75 .1986
9 - 12 .2800 100 .1869
12 - 15 .2500 125 .1793
15 - 18 .2200 150 .1736
18 - 21 .2000 175 .1695
21 - 24 .1900 200 .1658
24 - 30 .1800 225 .1629
30 - 36 .1750 250 .1604
36 - 42 .1700 275 .1583
42 - 48 .1650 300 .1565
48 - 66 .1600 325 .1548
66 - 84 .1550 350 .1533
84 - 120 .1500 375 .1519
120 - 174 .1450 400 .1507
174 - 228 .1400
228 - 282 .1375
282 - 336 .1350
Over - 336 .1325
The individual fund fee rate is .03% of the fund's average net
assets. Based on the average net assets of funds advised by FMR for
December 1993, the basic fee rate would be calculated as follows:
Group Fee Rate Individual Fund Fee Rate Management Fee Rate
.1621% + .03% = .1921%
If the fund's gross yield is 5% or less, the basic fee is the total
management fee. The income-based component of the fee is added to the
basic fee when the fund's yield is greater than 5%. The income-based fee
equals 6% of that portion of the fund's gross income that represents a
gross yield of more than 5% per year. The maximum income-based component
is .24% (annualized) of average net assets, at a fund gross yield of 9%.
Gross income for this purpose, includes interest accrued and/or discount
earned (including both original issue discount and market discount) on
portfolio obligations, less amortization of premium. Realized and
unrealized gains and losses, if any, are not included in gross income. One
twelfth (1/12) of the basic fee plus the income-based component is applied
to the fund's average net assets for the current month, giving a dollar
amount which is the fee for that month.
Prior to January 1, 1994, the fund's management fee was calculated as a
percentage of the fund's gross income, calculated and paid monthly, and
varied together with the fund's yield. The fee equaled 4% of that portion
of the fund's gross income (before expenses) that was equivalent to a gross
yield of 5% or less, plus 6% of the fund's gross income that was equivalent
to a gross yield of more than 5%. The fee was subject to a maximum fee
rate, which varied between 0.50% and 0.40% (annualized) of average net
assets depending on the fund's size.
For the 1993, 1992 and 1991 fiscal years, FMR's fee as investment advisor
was $415,213, $487,024 and $710,490, respectively, which was equivalent to
an annualized rate of .14%, .17% and .28%, respectively of the fund's
average net assets.
HIGH INCOME PORTFOLIO. FMR is the fund's manager pursuant to a Management
Contract dated January 1, 1994, which was approved by shareholders on
December 15, 1993. For the services of FMR under the Contract, the fund
pays FMR a monthly management fee composed of the sum of two elements: a
group fee rate and an individual fund fee rate. The group fee rate is
based on the monthly average net assets of all of the registered investment
companies with which FMR has management contracts and is calculated on a
cumulative basis pursuant to the graduated fee rate schedule shown on the
left of the chart below. On the right, the effective fee rate schedule
shows the results of cumulatively applying the annualized rates at varying
asset levels. For example, the effective annual fee rate at $232 billion
of group net assets--their approximate level for the month of December 1993
was 1621%, which is the weighted average of the respective fee rates for
each level of group net assets up to that level.
GROUP FEE RATE EFFECTIVE ANNUAL
SCHEDULE FEE RATES
Rate Group Effective
Asset Levels Net Annual
Assets Fee Rate
0 - $ 3 billion .3700% $ 25 billion .2664%
3 - 6 .3400 50 .2188
6 - 9 .3100 75 .1986
9 - 12 .2800 100 .1869
12 - 15 .2500 125 .1793
15 - 18 .2200 150 .1736
18 - 21 .2000 175 .1695
21 - 24 .1900 200 .1658
24 - 30 .1800 225 .1629
30 - 36 .1750 250 .1604
36 - 42 .1700 275 .1583
42 - 48 .1650 300 .1565
48 - 66 .1600 325 .1548
66 - 84 .1550 350 .1533
84 - 120 .1500 375 .1519
120 - 174 .1450 400 .1507
174 - 228 .1400
228 - 282 .1375
282 - 336 .1350
Over - 336 .1325
The individual fund fee rate is .45%. Based on the average net assets of
the funds advised by FMR for December 1993, the annual management fee rate
would be calculated as follows:
Group Fee Rate Individual Fund Fee Rate Management Fee Rate
.1621% + .45% = .6121%
One-twelfth (1/12) of this annual management fee rate is then applied to
the fund's average net assets for the current month, giving a dollar amount
which is the fee for that month.
On November 1, 1993, FMR voluntarily adopted a revised schedule
providing for extended breakpoints for group assets in excess of $174
billion. The extended schedule was approved by shareholders of the fund
December 15, 1993. The schedule shown above (minus the breakpoints
approved by shareholders on December 15, 1993) was voluntarily adopted by
FMR on January 1, 1992. On December 16, 1992, shareholders approved the
extended schedule and revised management contract dated January 1, 1993.
Prior to January 1, 1992, the fund's group fee rate was based on a schedule
with breakpoints ending at .150% for average group assets in excess of $120
billion. This shorter schedule was included a prior management contract
with FMR dated January 1, 1990. Prior to January 1, 1994, High Income
Portfolio's individual fund fee rate was .35% of the fund's average net
assets.
During the fiscal years ended 1993, 1992 and 1991, FMR received $1,764,257,
$784,904 and $266,207, respectively, for its services as investment
advisor. These fees, were equivalent to .51%, .52% and .53% of the fund's
average net assets for those respective periods.
EQUITY-INCOME, GROWTH AND OVERSEAS PORTFOLIOS. FMR is each fund's manager
pursuant to Management Contracts dated January 1, 1993, which were approved
by shareholders on December 16, 1992. For the services of FMR under the
Contracts, Equity-Income, Growth and Overseas Portfolios pay FMR a monthly
management fee composed of the sum of two elements: a group fee rate and an
individual fund fee rate.
Each fund's group fee rate is based on the monthly average net assets of
all of the registered investment companies with which FMR has management
contracts and is calculated on a cumulative basis pursuant to the graduated
fee rate schedule shown on the left of the chart below. On the right, the
effective fee rate schedule shows the results of cumulatively applying the
annualized rates at varying asset levels. For example, the effective
annual fee rate at $232 billion of group net assets - their approximate
level for the month of December 1993 was .3243%, which is the weighted
average of the respective fee rates for each level of group net assets up
to that level.
GROUP FEE RATE EFFECTIVE ANNUAL
SCHEDULE* FEE RATES
Rate Group Effective
Asset Levels Net Annual
Assets Fee Rate
0 - $ 3 billion .520% $ 0.5 billion .5200%
3 - 6 .490 10 .4840
6 - 9 .460 20 .4398
9 - 12 .430 30 .4115
12 - 15 .400 40 .3944
15 - 18 .385 50 .3823
18 - 21 .370 60 .3728
21 - 24 .360 70 .3656
24 - 30 .350 80 .3599
30 - 36 .345 90 .3552
36 - 42 .340 100 .3512
42 - 48 .335 110 .3475
48 - 66 .325 120 .3444
66 - 84 .320 130 .3417
84 - 102 .315 140 .3394
102 - 138 .310 150 .3371
138 - 174 .305 160 .3351
174 - 228 .300 170 .3333
228 - 282 .295 180 .3316
282 - 336 .290 190 .3299
Over 336 .285 200 .3284
*The rates shown for average group assets in excess of $174 billion were
adopted by FMR on a voluntary basis on November 1, 1993. The schedule was
adopted for each fund pending shareholder approval of new management
contracts reflecting the extended schedule. The extended schedule provides
for lower management fees as total assets under management increase.
Based on the average net assets of the funds advised by FMR for December
1993, the annual management fee rates were calculated as follows:
EQUITY-INCOME PORTFOLIO
Group Fee Rate Individual Fund Fee Rate Management Fee Rate
.3243% + .20% = .5243%
GROWTH PORTFOLIO
Group Fee Rate Individual Fund Fee Rate Management Fee Rate
.3243% + .30% = .6243%
OVERSEAS PORTFOLIO
Group Fee Rate Individual Fund Fee Rate Management Fee Rate
.3243% + .45% = .7743%
One twelfth (1/12) of this annual management fee rate is then applied to
each fund's average net assets for the current month, giving a dollar
amount which is the fee for that month.
EQUITY-INCOME. During the fiscal years ended 1993, 1992 and 1991, FMR
received $5,004,191, $2,179,187 and $1,132,875, respectively, for its
services as investment advisor. These fees were equivalent to .53%, .53%
and .54% of the average net assets of the fund for those respective
periods.
GROWTH. During the fiscal years ended 1993, 1992 and 1991, FMR received
$6,358,701, $3,305,050 and $1,468,574, respectively, for its services as
investment advisor. These fees were equivalent to .63%, .63% and .64% of
the average net assets of the fund for those respective periods.
OVERSEAS. During the fiscal years ended 1993, 1992 and 1991, FMR received
$3,078,432, $1,231,227 and $799,438, respectively, for its services as
investment advisor. These fees were equivalent to .77%, .78% and .79% of
the average net assets of the fund for those respective periods.
SUB-ADVISERS. On behalf of OVERSEAS PORTFOLIO, FMR has entered into
sub-advisory agreements with Fidelity Management & Research (U.K.) Inc.
(FMR U.K.), Fidelity Management & Research (Far East) Inc. (FMR Far
East), and Fidelity International Investment Advisors (FIIA). FIIA, in
turn, has entered into a sub-advisory agreement with its wholly owned
subsidiary Fidelity International Investment Advisors (U.K.) Limited (FIIAL
U.K.). On behalf of HIGH INCOME PORTFOLIO, FMR has entered into
sub-advisory agreements with FMR U.K. and FMR Far East. Pursuant to the
sub-advisory agreements, FMR may receive investment advice and research
services with respect to companies based outside the U.S. from the
sub-advisors and may grant the sub-advisors investment management authority
as well as the authority to buy and sell securities if FMR believes it
would be beneficial to the Fund.
Currently, FMR U.K., FMR Far East, FIIA and FIIAL U.K. each focus on
companies in countries other than the United states including countries in
Europe, Asia, and the Pacific Basin.
FMR U.K. and FMR Far East are wholly owned subsidiaries of FMR. FIIA is a
wholly owned subsidiary of Fidelity International Limited (FIL), a Bermuda
company formed in 1968 which primarily provides investment advisory
services to non-U.S. investment companies and institutional investors
investing in securities of issuers throughout the world. FIIA was
organized in Bermuda in 1983 and FIIAL U.K. was organized in the United
Kingdom in 1984.
Under the sub-advisory agreements FMR pays the fees of FMR U.K., FMR Far
East, and FIIA. FIIA, in turn, pays the fees of FIIAL U.K.
For providing investment advice and research services the sub-advisors are
compensated as follows:
FMR pays FMR U.K. and FMR Far East fees equal to 110% and 105%,
respectively, of FMR U.K.'s and FMR Far East's costs incurred in connection
with providing investment advice and research services.
FMR pays FIIA 30% of FMR's monthly management fee with respect to the
average market value of investments held by the Fund for which FIIA has
provided FMR with investment advice.
FIIA pays FIIAL U.K. a fee equal to 110% of FIIAL U.K.'s costs incurred in
connection with providing investment advice and research services.
For providing investment management and executing portfolio transactions,
the sub-advisors are compensated as follows:
FMR pays FMR U.K., FMR Far East, and FIIA 50% of its monthly management
fee (including any performance adjustment) with respect to the Fund's
average net assets managed by the sub-advisor on a discretionary basis.
FIIA pays FIIAL U.K. 110% of FIIAL U.K.'s costs incurred with providing
investment management services.
FMR entered into the sub-advisory agreements described above with respect
to Overseas Portfolio on April 1, 1992 following shareholder approval of
the agreements on March 25, 1992. FMR entered into the sub-advisory
agreements described above with respect to High Income Portfolio on January
1, 1994 following shareholder approval of the agreements on December 15,
1993.
Prior to April 1, 1992, FMR had sub-advisory agreements with FMR Far East
and FMR U.K. on behalf of OVERSEAS PORTFOLIO pursuant to which FMR Far East
and FMR U.K. provided FMR with investment advice and research services.
Under those agreements, FMR Far East and FMR U.K. were compensated for
their services according to the same formulas as they are compensated
currently for providing investment advice and research services.
For fiscal years ended December 31, 1993, 1992 and 1991, FMR paid $63,133,
$41,512 and $66,930, respectively to FMR (U.K.) and $125,264, $34,267 and
$65,440, respectively to FMR Far East on behalf of Overseas Portfolio.
F MR entered into a sub-advisory agreement with FMR Texas Inc. (FMR
Texas), pursuant to which FMR Texas has primary responsibility for
providing investment management services to MONEY MARKET PORTFOLIO.
FMR Texas, a wholly owned subsidiary of FMR was formed in 1989 and
registered under the Investment Advisers Act of 1940 on June 9, 1989 to
provide investment management services to money market mutual funds; to
advise FMR generally with respect to money market instruments; and to
manage or provide advice with respect to cash flow management.
The sub-advisory agreement provides that FMR and not the fund, will pay
fees to FMR Texas equal to 50% of the management fee payable to FMR under
its current Management Contract with the fund. The fees paid to FMR Texas
are not reduced by any voluntary or mandatory fee waivers or expense
reimbursements that may be in effect from time to time. For fiscal years
ended December 31, 1993, 1992 and 1991, FMR paid $207,606, $243,512 and
$355,245, respectively, to FMR Texas on behalf of Money Market Portfolio.
DISTRIBUTION AND SERVICE PLANS
Each fund has adopted a distribution and service plan (the Plans) under
Rule 12b-1 under the Investment Company Act of 1940 (the Rule). The Rule
provides, in substance, that a mutual fund may not engage directly or
indirectly in financing any activity that is primarily intended to result
in the sale of shares of the fund except pursuant to a plan adopted by the
fund under the Rule. The Fund's Board of Trustees has adopted the Plans to
allow each of these funds and FMR to incur certain expenses that might be
considered to constitute indirect payment by the funds of distribution
expenses. Under the Plans, if the payment by a fund to FMR of management
fees should be deemed to be indirect financing by a fund of the
distribution of its shares, such payment is authorized by the Plans.
The Plans specifically recognize that FMR, either directly or through FDC,
may use its management fee revenue, past profits or other resources,
without limitation, to pay promotional and administrative expenses in
connection with the offer and sale of shares of the funds. In addition,
the Plans provide that FMR may use its resources, including its management
fee revenues, to make payments to third parties that provide assistance in
selling shares of the funds or to third parties including banks, that
render shareholder support services. However, no such payments to third
parties are currently contemplated.
Each fund's Plan has been approved by the Trustees. As required by the
Rule, the Trustees carefully considered all pertinent factors relating to
the implementation of each Plan prior to its approval, and have determined
that there is a reasonable likelihood that the Plan will benefit the
respective fund and its shareholders. In particular, the Trustees noted
that the Plan does not authorize payments by the fund other than those made
to FMR under the Management Contract with each fund. To the extent that a
Plan gives FMR and FDC greater flexibility in connection with the
distribution of shares of a fund, additional sales of the fund's shares may
result. Additionally, certain shareholder support services may be provided
more effectively under a Plan by local entities with whom shareholders have
other relationships. Money Market, High Income, Equity-Income and Growth
Portfolios' Plans were approved by shareholders of their respective fund on
December 11, 1986. Overseas Portfolio's Plan was approved by shareholders
on November 18, 1987.
CONTRACTS WITH COMPANIES AFFILIATED WITH FMR
Each fund has an agreement with FSC, an affiliate of FMR Corp., under which
FSC determines the NAV per share and dividends of each fund and maintains
the portfolio and general accounting records of each fund. Prior to July
1, 1991, the annual fee for these pricing and bookkeeping services was
based on two schedules, one pertaining to each fund's average net assets,
and one pertaining to the type and number of transactions each fund made.
The fee rates in effect as of July 1, 1991, are based on each fund's
average net assets as follows: for Money Market Portfolio, .0175% for the
first $500 million of average net assets and .0075% for average net assets
in excess of $500 million. The fee is limited to a minimum of $20,000 and
a maximum of $750,000 per year; for High Income Portfolio, .04% for the
first $500 million of average net assets and .02% for average net assets in
excess of $500 million. For Equity-Income, Growth and Overseas Portfolios,
.06% for the first $500 million of average net assets and .03% for average
net assets in excess of $500 million. The fee for High Income, Equity
Income, Growth and Overseas Portfolios is limited to a minimum of $45,000
and a maximum of $750,000 per year.
The following are the fees paid by each fund to FSC for the last three
fiscal years:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Money Market High Income Equity-Income Growth Overseas
Portfolio Portfolio Portfolio Portfolio Portfolio
12/31/93 $53,769 $138,642 $439,891 $456,795 $230,456
12/31/92 $52,389 $62,305 $242,745 $303,007 $109,649
12/31/91 $74,243 $54,512 $143,655 $162,678 $105,226
</TABLE>
Each fund utilizes FIIOC, an affiliate of FMR Corp., to maintain the master
accounts of the participating insurance companies. On June 1, 1989 each
fund entered into a contract with FIIOC for transfer agent services. Under
the contract, each fund pays a fee of $95 per shareholder account per year
and a fee of $20 or $17.50 for each monetary transaction by a full service
client or remote client, respectively. In addition to providing transfer
agent and shareholder servicing functions, FIIOC pays all transfer agent
out-of-pocket expenses and also pays for typesetting, printing and mailing
Prospectuses, Statements of Additional Information, reports, notices and
statements to shareholders allocable to the master account of participating
insurance companies.
The following are the fees paid by each fund to FIIOC (including
reimbursement for out-of-pocket expenses) for the last three fiscal years:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Money Market High Income Equity-Income Growth Overseas
Portfolio Portfolio Portfolio Portfolio Portfolio
12/31/93 $87,208 $108,432 $111,756 $140,122 $143,222
12/31/92 $59,118 $61,198 $68,260 $79,504 $65,240
12/31/91 $42,462 $45,665 $49,893 $53,613 $49,268
</TABLE>
If a portion of each Portfolio's brokerage commissions had not been
allocated toward payment of these fees, the transfer agent fees for the
last three fiscal years would have been as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Money Market High Income Equity-Income Growth Overseas
Portfolio Portfolio Portfolio Portfolio Portfolio
12/31/93 N/A N/A $171,916 $228,419 --
12/31/92 N/A N/A -- -- --
12/31/91 N/A N/A -- -- --
</TABLE>
Each fund has a Distribution Agreement with FDC, a Massachusetts
corporation organized July 18, 1960. FDC is a broker-dealer registered
under the Securities Exchange Act of 1934 and a member of the National
Association of Securities Dealers, Inc. The Distribution Agreement calls
for FDC to use all reasonable efforts, consistent with its other business,
to secure purchasers for shares of the funds which are continuously offered
at net asset value. Promotional and administrative expenses, in connection
with the offer and sale of shares, are paid for by FMR.
SUMMARY OF THE FUNDS' EXPENSES
The expense summary format below was developed for use by all mutual funds
to help you make your investment decisions. Of course you should consider
this expense information along with other important information in the
Prospectus and Statement of Additional Information and the funds'
investment objectives. This table does not include any charges or expenses
which are attributable to any particular insurance product. You should
carefully review the Prospectus of the insurance product you have chosen
for information or relevant charges and expenses.
A. SHAREHOLDER TRANSACTION EXPENSES
Money High Equity-
Market Income Income Growth Overseas
Portfolio Portfolio Portfolio Portfolio Portfolio
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Sales Load on Purchases................................... None None None None None
Sales Load on Reinvested Dividends............... None None None None None
Deferred Sales Load Imposed on Redemptions. None None None None None
Exchange Fees None None None None None
</TABLE>
(as a percentage of average net assets after expense
reimbursement)
B. ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Management Fees .20% .61% .53% .63% .77%
12b-1 Fees None None None None None
Other Expenses .08% .13% .09% .08% .26%
Total Fund Operating Expenses .28% .74% .62% .71% 1.03%
</TABLE>
C. EXAMPLE: You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1 $3 $8 $6 $7 $11
Year............................................................
3 9 24 20 23 33
Years...........................................................
5 16 41 35 40 57
Years...........................................................
10 36 92 77 88 126
Years.........................................................
</TABLE>
EXPLANATION OF TABLE: The purpose of this table is to assist you in
understanding the various costs and expenses that an investor in the funds
would bear directly or indirectly.
A. SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or
sell shares of a fund. There are none for these funds, other than charges
which may be imposed by a particular insurance product.
B. ANNUAL FUND OPERATING EXPENSES are based on each fund's historical
expenses adjusted to reflect the current management contract .
Management Fees are paid by each fund to Fidelity Management & Research
Company (FMR) for managing its investments and business affairs. The funds
incur Other Expenses for maintaining shareholder records, furnishing
shareholder statements and reports and other services. FMR has voluntarily
agreed to limit the Annual Fund Operating Expenses of High Income,
Equity-Income, Growth and Overseas Portfolios (excluding interest, taxes,
brokerage commissions and extraordinary expenses) to an annual rate of
1.00%, 1.50%, 1.50% and 1.50%, respectively. If the funds' expenses exceed
these rates, FMR reimburses the fund to the extent necessary to reduce
expenses to the above levels. A Special Meeting of Shareholders of
Money Market and High Income Portfolios was held December 15, 1993. All
expenses in connection with the meeting, including preparation of the proxy
statement, its enclosures and all solicitations were reimbursed by FMR. If
FMR had not reimbursed these expenses, management fee, expenses and total
expenses under the former contracts would have been .14%, .09% and .23% for
Money Market Portfolio and .51%, .15% and .66% for High Income
Portfolio.
C. EXAMPLE OF EXPENSES. The hypothetical examples illustrate the expenses
associated with a $1,000 investment over periods of 1, 3, 5 and 10 years
for each of the funds. These examples are based on the annual fund
operating expenses detailed above and an assumed annual rate of return of
5%. The return of 5% and expenses should not be considered indications of
actual or expected fund performance or expenses, both of which may vary.
DESCRIPTION OF THE TRUST
TRUST ORGANIZATION. Money Market Portfolio, High Income Portfolio,
Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio are funds
of Variable Insurance Products Fund, an open-end management investment
company. In July 1985, pursuant to shareholder approval, the Declaration
of Trust was amended to change the name of the Trust from Fidelity Cash
Reserves II to Variable Insurance Products Fund. The Declaration of Trust
permits the Trustees to create additional funds.
Investments in the Trust may be made only by the separate accounts of
insurance companies for the purpose of funding variable annuity and
variable life insurance contracts issued by insurance companies.
In the event that FMR ceases to be the investment adviser to the Trust or a
fund, the right of the Trust or fund to use the identifying name "Fidelity"
may be withdrawn. There is a remote possibility that one fund might become
liable for any misstatement in its prospectus or statement of additional
information about another fund.
The assets of the Trust received for the issue or sale of shares of each
fund and all income, earnings, profits, and proceeds thereof, subject only
to the rights of creditors, are especially allocated to such fund, and
constitute the underlying assets of such fund. The underlying assets of
each fund are segregated on the books of account, and are to be charged
with the liabilities with respect to such fund and with a share of the
general expenses of the Trust. Expenses with respect to the Trust are to be
allocated in proportion to the asset value of the respective funds, except
where allocations of direct expense can otherwise be fairly made. The
officers of the Trust, subject to the general supervision of the Board of
Trustees, have the power to determine which expenses are allocable to a
given fund, or which are general or allocable to all of the funds. In the
event of the dissolution or liquidation of the Trust, shareholders of each
fund are entitled to receive as a class the underlying assets of such fund
available for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY. The Trust is an entity of the type
commonly known as "Massachusetts business Trust." Under Massachusetts law,
shareholders of such a Trust may, under certain circumstances, be held
personally liable for the obligations of the Trust. The Declaration of
Trust provides that the Trust shall not have any claim against shareholders
except for the payment of the purchase price of shares and requires that
each agreement, obligation, or instrument entered into or executed by the
Trust or the Trustees shall include a provision limiting the obligations
created thereby to the Trust and its assets. The Declaration of Trust
provides for indemnification out of each fund's property of any
shareholders held personally liable for the obligations of the fund. The
Declaration of Trust also provides that each fund shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the fund and satisfy any judgment thereon. Thus, the risk of
a shareholder incurring financial loss on account of shareholder liability
is limited to circumstances in which the fund itself would be unable to
meet its obligations. FMR believes that, in view of the above, the risk of
personal liability to shareholders is remote.
The Declaration of Trust further provides that the Trustees, if they have
exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declaration of Trust protects Trustees
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of their office.
VOTING RIGHTS. Each fund's capital consists of shares of beneficial
interest. The shares have no preemptive or conversion rights; the voting
and dividend rights, the right of redemption, and the privilege of exchange
are described in the Prospectus. Shares are fully paid and nonassessable,
except as set forth under the heading "Shareholder and Trustee Liability"
above. Shareholders representing 10% or more of the Trust or a fund may, as
set forth in the Declaration of Trust, call meetings of the Trust or a fund
for any purpose related to the Trust or fund, as the case may be,
including, in the case of a meeting of the entire Trust, the purpose of
voting on removal of one or more Trustees. The Trust or any fund may be
terminated upon the sale of its assets to another open-end management
investment company, or upon liquidation and distribution of its assets, if
approved by vote of the holders of a majority of the Trust or the fund. If
not so terminated, the Trust and the funds will continue indefinitely.
CUSTODIAN. Morgan Guaranty Trust Company, 60 Wall Street, New York, NY is
custodian of Money Market Portfolio's assets; The Bank of New York, 110
Washington Street, New York NY, is custodian of High Income Portfolio's
assets; The Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New
York, NY 10036, is custodian of Equity-Income Portfolio's assets; and Brown
Brothers Harriman & Co., 40 Water Street, Boston, MA, is custodian of
Growth and Overseas Portfolios' assets. The custodians take no part in
determining the investment policies of the funds or in deciding which
securities are purchased or sold by the funds. The funds, however, may
invest in obligations of the custodians and may purchase or sell securities
from or to the custodians. Investors should understand that the expense
ratio for the Overseas Portfolio may be higher than that of investment
companies which invest exclusively in domestic securities since the cost of
maintaining the custody of foreign securities is higher.
FMR, its officers and directors and its affiliated companies from time to
time have transactions with various banks, including the custodian banks
for certain of the funds advised by FMR. The Boston branch of Brown
Brothers Harriman & Co. leases its office space from an affiliate of
FMR at a lease payment which, when entered into, was consistent with
prevailing market rates. Other transactions that have occurred to date
include mortgages and personal and general business loans. In the judgment
of FMR, the terms and conditions of those transactions were not influenced
by existing or potential custodial or other fund relationships.
AUDITOR. Coopers & Lybrand, One Post Office Square, Boston, MA, serves
as the Fund's independent accountant, providing services including (1)
audit of annual financial statements, (2) assistance and consultation in
connection with SEC filings and (3) review of the annual federal income tax
return filed on behalf of the fund.
FINANCIAL STATEMENTS
The Annual Report to shareholders for the Trust's 1993 fiscal year is a
separate report and is incorporated herein by reference and is supplied
with this Statement of Additional Information.
APPENDIX
The DOLLAR-WEIGHTED AVERAGE MATURITY of a fund's fixed-income holdings is
derived by multiplying the value of each fixed-income investment held by a
fund by the number of days remaining to its maturity, adding these
calculations, and then dividing the total by the value the fund's
fixed-income holdings. An obligation's maturity is typically determined on
a stated final maturity basis, although there are some exceptions to this
rule.
For example, if it is probable that the issuer of an instrument will take
advantage of a maturity-shortening device, such as a call, refunding, or
redemption provision, the date on which the instrument will probably be
called, refunded, or redeemed may be considered to be its maturity date.
Also, the maturities of mortgage-backed securities and some asset-backed
securities. such as collateralized mortgage obligations, are determined on
a weighted average life basis, which is the average time for principal to
be repaid. For a mortgage security, this average time is calculated by
assuming a constant prepayment rate for the life of the mortgage. The
weighted average life of these securities is likely to be substantially
shorter than their stated final maturity.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S COMMERCIAL PAPER RATINGS:
PRIME-1 (or related institutions) have a superior capacity for repayment of
short-term
promissory obligations. Prime-1 repayment capacity will normally be
evidenced by the following characteristics:
- - Leading market positions in well established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
- - Broad margins in earnings coverage of fixed financial charges with high
internal cash generation.
- - Well established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2 (or related supporting institution) have a strong capacity for
repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S COMMERCIAL PAPER
RATINGS:
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus (+)
sign designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated A-1.
DESCRIPTION OF FITCH INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS:
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded
as having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than the strongest issues.
DESCRIPTION OF FITCH INVESTORS SERVICE, INC. CORPORATE BOND RATINGS:
AAA--rated bonds are considered to be investment grade and of the highest
quality. The obligor has an extraordinary ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA--rated bonds are considered to be investment grade and of high quality.
The obligor's ability to pay interest and repay principal, while very
strong, is somewhat less than for AAA rated securities or more subject to
possible change over the term of the issue.
DESCRIPTION OF DUFF & PHELPS INC. COMMERCIAL PAPER RATINGS:
DUFF 1--Very high certainty of timely payment. Liquidity factors are
excellent and supported by strong fundamental protection factors. Risk
factors are minor.
DUFF 2--Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing internal funds needs may enlarge
total financing requirements, access to capital markets is good. Risk
factors are small.
DESCRIPTION OF DUFF & PHELPS INC. CORPORATE BOND RATINGS:
DUFF 1--Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
DUFF 2,3,4--High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic
conditions.
VARIABLE INSURANCE PRODUCTS FUND and
VARIABLE INSURANCE PRODUCTS FUND II
CROSS REFERENCE SHEET
Form N-1A Item Number
Part A Prospectus Caption
1 a,b Cover Page
2 a,b,c *
3 a,b A Look At The Trusts' Financial History
c Performance
4 a(i) The Trusts and the Fidelity Organization
a(ii) How The Trusts Work; Matching the
Portfolios to Your
Investment Needs; Limiting Investment
Risks
b,c Limiting Investment Risks; Matching the
Portfolios to
Your Investment Needs
5 a,b(i) The Trusts and the Fidelity Organization
b(ii)(iii),c Management, Distribution and Service Fees
d Management, Distribution and Service Fees
e A Look At The Trusts' Financial History;
Management,
Distribution and Service Fees
f Portfolio Transactions
6 a(i) The Trusts and the Fidelity Organization
a(ii) Redemptions
a(iii) *
b The Trusts and the Fidelity Organization
c,d *
e Cover Page, Shareholder's Manual
f,g Distributions and Taxes
7 a The Trusts and the Fidelity Organization
b(i),(ii) Financial Highlights; Share Price;
Investments
b(iii,iv,v) *
c,d,e *
f Management, Distribution and Service Fees
8 a Redemptions
b,c *
d Redemptions
9 *
_______________
* Not Applicable
Part B Statement of Information Caption
10,11 Cover Page
12 Description of The Trusts
13 a,b,c Investment Policies and Limitations
d Portfolio Transactions
14 a,b Trustees and Officers
c *
15 a *
b,c Trustees and Officers
16 a(i) FMR
a(ii) Trustees and Officers
a(iii),b Management Contracts
c *
d Contracts with Companies Affiliated with FMR
e *
f Distribution and Service Plans
g *
h Description of the Trusts
i Contracts with Companies Affiliated with FMR;
Description
of the Trusts
17 a,b,c,d Portfolio Transactions
e *
18 a Description of the Trusts
b *
19 a Additional Purchase and Redemption Information
b Valuation of Portfolio Securities; Additional
Purchase and
Redemption Information
c *
20 Taxes
21 a(i),(ii) Contracts with Companies Affiliated with FMR
a(iii),b,c *
22 Performance
23 Financial Statements for the Annual period are
incorporated by reference into the Statement of
Additional Information.
_________
* Not Applicable
crossreference
VARIABLE INSURANCE PRODUCTS
FUND AND VARIABLE INSURANCE 82 Devonshire Street
PRODUCTS FUND II: Boston, Massachusetts
PROSPECTUS (bullet) HOW THE TRUSTS WORK page
APRIL 30, 1994 (bullet) SHAREHOLDER'S MANUAL page
Variable Insurance Products Fund and Variable Insurance Products Fund II
(the Trusts) are designed to provide investment vehicles for variable
annuity and variable life insurance contracts of various insurance
companies. The Trusts currently offer these funds:
MONEY MARKET PORTFOLIO seeks to obtain as high a level of current income
as is consistent with preserving capital and providing liquidity. The fund
will invest only in high quality U.S. dollar denominated money market
securities of domestic and foreign issuers. AN INVESTMENT IN MONEY MARKET
PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT, AND
THERE CAN BE NO ASSURANCE THAT THE FUND WILL MAINTAIN A STABLE $1.00 SHARE
PRICE.
HIGH INCOME PORTFOLIO seeks to obtain a high level of current income by
investing primarily in high-yielding, lower-rated, fixed-income securities,
while also considering growth of capital. High yielding, lower-rated debt
securities present higher risks of untimely interest and principal
payments, default, and price volatility than higher-rated securities, and
may present problems of liquidity and valuation.
EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities, the fund
will also consider the potential for capital appreciation. The fund's goal
is to achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's 500 Composite Stock Price Index.
GROWTH PORTFOLIO seeks to achieve capital appreciation. The fund normally
purchases common stocks, although its investments are not restricted to any
one type of security. Capital appreciation may also be found in other types
of securities, including bonds and preferred stocks.
OVERSEAS PORTFOLIO seeks long term growth of capital primarily through
investments in foreign securities. Overseas Portfolio provides a means for
investors to diversify their own portfolios by participating in companies
and economies outside of the United States.
INVESTMENT GRADE BOND PORTFOLIO seeks as high a level of current income as
is consistent with the preservation of capital by investing in a broad
range of investment-grade fixed-income securities. The fund will maintain a
dollar-weighted average portfolio maturity of ten years or less.
ASSET MANAGER PORTFOLIO seeks high total return with reduced risk over the
long-term by allocating its assets among domestic and foreign stocks, bonds
and short-term fixed-income instruments.
INDEX 500 PORTFOLIO seeks to provide investment results that correspond to
the total return (i.e., the combination of capital changes and income) of
common stocks publicly traded in the United States. In seeking this
objective, the fund attempts to duplicate the composition and total return
of the Standard & Poor's 500 Composite Stock Price Index while keeping
transaction costs and other expenses low. The fund is designed as a
long-term investment option.
Please read this Prospectus before investing. It is designed to provide
you with information and to help you decide if the goal of one or more of
the funds matches your own. Retain this document for future reference.
Shares of each fund may only be purchased by the separate accounts of
insurance companies, for the purpose of funding variable annuity and
variable life insurance contracts. Particular funds may not be available in
your state due to various insurance regulations. Please check with your
insurance company for available funds. Inclusion of a fund in this
Prospectus which is not available in your state is not to be considered a
solicitation. This Prospectus should be read in conjunction with the
prospectus of the separate account of the specific insurance product which
accompanies this Prospectus.
A Statement of Additional Information (dated April 30, 1994) for each
Trust has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. These free Statements are available upon
request from your insurance company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
A Look at the Funds' Management, Distribution and
Financial History Service Fees
Investment Objectives and Policies Opening an Account
Performance Investments
Distributions and Taxes Redemptions
The Trusts and the Fidelity Appendix
Organization
A LOOK AT THE FUND S' FINANCIAL HISTORY
3
FINANCIAL HIGHLIGHTS. The following tables give you information about each
fund's financial history and use each Trust 's fiscal year
(which ends December 31).
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31, Year ended
November 30,
</TABLE>
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993 1992 1991 1990 1989 1988 1987 1986 1985(dagger) 1984(dagger)
SELECTED PER-SHARE DATA
Net asset value, beginning of
$ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
period
Income from Investment
. 032 .038 .059 .078 .087 .071 .063 .065 .078 .100
Operations
Net interest income
Dividends from net interest
(. 032 ) (.038) (.059) (.078) (.087) (.071) (.063) (.065) (.078) (.100)
income
Net asset value, end of
$ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
period
TOTAL RETURN
3.23% 3.90% 6.09% 8.04% 9.12% 7.39 6.44 6.70 8.11 10.46
% % % % %
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
$ 353,104 $ 301,002 $ 271,123 $ 254,585 $ 142,970 $ 105,650 $ 87,778 $ 65,250 $ 81,899 $ 84,495
(000 omitted)
Ratio of expenses to
.22%(dagger)(dagger).24% .38% .56% .67% .60 .54 .50 .56 .66
average net assets
% % % % %
Ratio of net interest income
3.16% 3.85% 5.93% 7.76% 8.70% 7.16 6.38 6.52 7.81 9.97
to average net assets
% % % % %
</TABLE>
(dagger) DURING 1985, THE FUND CHANGED ITS FISCAL YEAR-END FROM NOVEMBER
30 TO DECEMBER 31. NET INTEREST INCOME AND DIVIDENDS FROM NET INTEREST
INCOME FOR THE PERIOD DECEMBER 1, 1984 TO DECEMBER 31, 1984 WERE $.008 AND
$.008, RESPECTIVELY. THE RESULTS FOR THIS ONE MONTH PERIOD ARE NOT
REFLECTED IN THE ABOVE FINANCIAL HIGHLIGHTS.
(dagger)(dagger) ALL EXPENSES INCURRED IN CONNECTION WITH A SPECIAL
MEETING OF SHAREHOLDERS WERE REIMBURSED BY FMR. IF NO REIMBURSEMENT HAD
BEEN MADE, TOTAL EXPENSE WOULD HAVE BEEN .23%.
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C> <C> <C> <C> <C>
HIGH INCOME PORTFOLIO
Year Ended December 31, September 19,
1985
(commencement
of
operations) to
SELECTED PER-SHARE DATA
1993 1992 1991 1990 1989 1988 1987 1986 December 31,
1985
Net asset value, beginning of period
$ 10.820 $ 9.550 $ 7.070 $ 8.110 $ 9.660 $ 9.680 $ 10.830 $ 10.310 $ 10.000
Income from Investment Operations
.728 .790 .890 .858 1.202 1.110 1.155 1.227 .319
Net investment income
Net realized and unrealized gain (loss)
1.332 1.290 1.590 (1.040) (1.550) (.020) (1.000) .520 .310
on investments
Total from investment operations
2.060 2.080 2.480 (.182) (.348) 1.090 .155 1.747 .629
Less Distributions
(.794) (.810) -- (.858) (1.202) (1.110) (1.155) (1.227) (.319)
From net investment income
In excess of net investment income
(. 036 ) -- -- -- -- -- -- -- --
From net realized gain on investments
(.060) -- -- -- -- -- (.150) -- --
Total distributions
(.890) (.810) -- (.858) (1.202) (1.110) (1.305) (1.227) (.319)
Net asset value, end of period
$ 11.990 $ 10.820 $ 9.550 $ 7.070 $ 8.110 $ 9.660 $ 9.680 $ 10.830 $ 10.310
TOTAL RETURN (double dagger) #
20.40% 23.17% 35.08% (2.23)% (4.17)% 11.64% 1.22% 17.68% 6.38%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted)
$ 463,931 $ 200,591 $ 70,060 $ 29,990 $ 33,747 $ 30,246 $ 19,303 $ 13,057 $ 1,971
Ratio of expenses to average net assets(dagger)
.64%(diamond) .67% .97% 1.00% .93% .99% 1.02% 1.00% .78%*(dagger)(dagger)
Ratio of expenses to average net assets
.66%(diamond) .67% .97% 1.12% .93% .99% 1.29% 1.50% 1.50%*
before expense reductions(dagger)
Ratio of net investment income to average
8.69% 10.98% 12.94% 11.36% 12.94% 11.41% 11.19% 11.32% 12.10%*
net assets
Portfolio turnover rate
155% 160% 154% 156% 124% 139% 189% 78% 27%*
</TABLE>
* ANNUALIZED
(dagger) DURING THE PERIOD SEPTEMBER 19, 1985 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1985, FMR AGREED TO VOLUNTARILY WAIVE ADVISORY AND SERVICE
FEES. IN ADDITION, FMR VOLUNTARILY AGREED TO REIMBURSE THE FUND TO THE
EXTENT THAT THE AGGREGATE OPERATING EXPENSES WERE IN EXCESS OF AN ANNUAL
RATE OF .78% OF AVERAGE NET ASSETS. EFFECTIVE JANUARY 1, 1986, FMR
VOLUNTARILY AGREED TO REIMBURSE THE FUND'S OPERATING EXPENSES (EXCLUDING
INTEREST, TAXES, BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) ABOVE AN
ANNUAL RATE OF 1.00% OF AVERAGE NET ASSETS.
(diamond) DURING 1993, FMR REIMBURSED THE FUND FOR ALL EXPENSES IN
CONNECTION WITH A SPECIAL MEETING OF SHAREHOLDERS, INCLUDING THE
PREPARATION OF THE PROXY STATEMENT.
(dagger)(dagger) INCLUDES $.014492 PER SHARE OF MANAGEMENT FEES WAIVED
DURING 1985.
(double dagger) THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES
NOT BEEN REDUCED DURING THE PERIODS SHOWN.
# TOTAL RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED.
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C> <C> <C> <C>
EQUITY - INCOME PORTFOLIO
Year Ended December 31, October 9, 1986
(commencement
of operations) to
1993 1992 1991 1990 1989 1988 1987 December 31,
1986
SELECTED PER-SHARE DATA
Net asset value, beginning of period
$ 13.40 $ 11.85 $ 9.51 $ 12.29 $ 11.01 $ 9.42
$ 10.02 $ 10.00
Income from Investment Operations
Net investment income
.37 .40 .50 .58 .60 .53 .45 .06
Net realized and unrealized gain (loss)
2.06 1.57 2.43 (2.38) 1.29 1.59 (.51) (.04)
on investments
Total from investment operations
2.43 1.97 2.93 (1.80) 1.89 2.12 (.06) .02
Less Distributions
From net investment income
(.35) (.42) (.59) (.59) (.52) (.53) (.40) --
In excess of net investment income
(.04) -- -- -- -- -- -- --
From net realized gain
- -- -- -- (.39) (.09) -- (.14) --
Total distributions
(.39) (.42) (.59) (.98) (.61) (.53) (.54) --
Net asset value, end of period
$ 15.44 $ 13.40 $ 11.85 $ 9.51 $ 12.29 $ 11.01 $ 9.42 $ 10.02
TOTAL RETURN (double dagger) #
18.29% 16.89% 31.44% (15.29) 17.34% 22.71% (1.13) .20%
% %
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted)
$ 1,318,500 $ 592,880 $ 282,171 $ 154,080 $ 142,572 $ 51,807 $ 26,438 $ 3,850
Ratio of expenses to average net assets (dagger)
.62% .65% .74% .78% .85% 1.13% 1.33% 1.50%*
Ratio of expenses to average net assets before
.62% .65% .74% .78% .85% 1.13% 1.33% 4.83%*
expense reductions (dagger)
Ratio of net investment income to average net
2.87% 3.52% 4.83% 6.01% 5.82% 5.36% 4.78% 5.23%*
assets
Portfolio turnover rate
120% 74% 107% 94% 78% 69% 133% 7%*
</TABLE>
* ANNUALIZED
(dagger) EFFECTIVE OCTOBER 9, 1986, FMR VOLUNTARILY AGREED TO REIMBURSE THE
FUND'S OPERATING EXPENSES (EXCLUDING INTEREST, TAXES, BROKERAGE COMMISSIONS
AND EXTRAORDINARY EXPENSES) ABOVE AN ANNUAL RATE OF 1.50 % OF AVERAGE
NET ASSETS.
(double dagger) THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES
NOT BEEN REDUCED DURING THE PERIODS SHOWN.
# TOTAL RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED.
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C> <C> <C> <C>
GROWTH PORTFOLIO
Year Ended December 31, October 9, 1986
(commencement
of operations) to
1993 1992 1991 1990 1989 1988 1987 December 31,
1986
SELECTED PER-SHARE DATA
Net asset value, beginning of period
$ 19.76 $ 18.51 $ 12.91 $ 15.18 $ 11.72 $ 10.14 $ 10.03 $ 10.00
Income from Investment Operations
Net investment income
.12 .09 .09(diamond) .24 .24 .19 .10 .04
Net realized and unrealized gain (loss)
3.64 1.64 5.72 (1.98) 3.41 1.39 .27 (.01)
on investments
Total from investment operations
3.76 1.73 5.81 (1.74) 3.65 1.58 .37 .03
Less Distributions
From net investment income
(.11) (.05) (.21) (.21) (.19) -- (.11) --
From net realized gain
(.21) (.43) -- (.32) -- -- (.15) --
In excess of net realized gain
(.12) -- -- -- -- -- -- --
Total distributions
(.44) (.48) (.21) (.53) (.19) -- (.26) --
Net asset value, end of period
$ 23.08 $ 19.76 $ 18.51 $ 12.91 $ 15.18 $ 11.72 $ 10.14 $ 10.03
TOTAL RETURN (double dagger) #
19.37 9.32 45.51 (11.73)% 31.51 15.58 3.66 .30%
% % % % % %
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted)
$ 1,383,849 $ 749,837 $ 371,462 $ 135,487 $ 77,261 $ 28,520 $ 18,636 $ 1,965
Ratio of expenses to average net assets (dagger)
.71 .75 .84 .88% 1.02 1.24 1.50 1.50%*
% % % % % %
Ratio of expenses to average net assets before
.71 .75 .84 .88% 1.02 1.24 1.68 5.57%*
expense reductions (dagger)
% % % % % %
Ratio of net investment income to average net
.72 .83 .56 2.69% 2.83 1.91 1.78 3.27%*
assets
% % % % % %
Portfolio turnover rate
159 262 261 88% 111 155 37 --%
% % % % % %
</TABLE>
* ANNUALIZED
(dagger) EFFECTIVE OCTOBER 9, 1986, FMR VOLUNTARILY AGREED TO REIMBURSE THE
FUND'S OPERATING EXPENSES (EXCLUDING INTEREST, TAXES, BROKERAGE COMMISSIONS
AND EXTRAORDINARY EXPENSES) ABOVE AN ANNUAL RATE OF 1.50% OF AVERAGE NET
ASSETS.
(diamond) NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON
AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
(double dagger) THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES
NOT BEEN REDUCED DURING THE PERIODS SHOWN.
# TOTAL RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED.
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C> <C> <C>
OVERSEAS PORTFOLIO
Year Ended December 31, January 28, 1987
(commencement
of operations) to
1993 1992 1991 1990 1989 1988 December 31,
1987
SELECTED PER-SHARE DATA
Net asset value, beginning of period
$ 11.53 $ 13.09 $ 12.42 $ 12.67 $ 10.11 $ 9.35 $ 10.00
Income from Investment Operations
Net investment income
.06 .16 .24 .18 .07 .09 .05
Net realized and unrealized gain (loss) on
4.16 (1.54) .74 (.39) 2.57 .67 (.59)
investments
Total from investment operations
4.22 (1.38) .98 (.21) 2.64 .76 (.54)
Less Distributions
From net investment income
(.18) (.18) (.17) (.04) (.08) -- (.11)
In excess of net investment income
(.04) -- -- -- -- -- --
From net realized gain
-- -- (.14)(diamond) -- -- -- --
In excess of net realized gain
(.05) -- -- -- -- -- --
Total distributions
(.27) (.18) (.31) (.04) (.08) -- (.11)
Net asset value, end of period
$ 15.48 $ 11.53 $ 13.09 $ 12.42 $ 12.67 $ 10.11 $ 9.35
TOTAL RETURN (double dagger) #
37.35% (10.72)% 8.00% (1.67)% 26.28% 8.13% (5.38)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted)
$ 777,961 $ 180,837 $ 126,490 $ 80,554 $ 25,865 $ 9,328 $ 6,568
Ratio of expenses to average net assets(dagger)
1.03% 1.14% 1.26% 1.41% 1.50% 1.50% 1.50%*
Ratio of expenses to average net assets before
1.03% 1.14% 1.26% 1.41% 1.98% 3.17% 3.94%*
expense reductions(dagger)
Ratio of net investment income to average net assets
1.21% 1.86% 2.33% 1.89% .66% .84% .78%*
Portfolio turnover rate
42% 61% 168% 100% 78% 95% 181%*
</TABLE>
* ANNUALIZED
(dagger) EFFECTIVE JANUARY 28, 1987, FMR VOLUNTARILY AGREED TO REIMBURSE
THE FUND'S OPERATING EXPENSES (EXCLUDING INTEREST, TAXES, BROKERAGE
COMMISSIONS AND EXTRAORDINARY EXPENSES) ABOVE AN ANNUAL RATE OF 1.50% OF
AVERAGE NET ASSETS.
(diamond) INCLUDES AMOUNTS DISTRIBUTED FROM NET REALIZED GAINS ON FOREIGN
CURRENCY RELATED TRANSACTIONS TAXABLE AS ORDINARY INCOME.
(double dagger) THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES
NOT BEEN REDUCED DURING THE PERIODS SHOWN.
# TOTAL RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED.
INVESTMENT GRADE BOND PORTFOLIO
Year Ended December 31, December 5,
1988
(commenceme
nt of
operations) to
December 31,
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1993 1992 1991 1990 1989 1988
SELECTED PER-SHARE
DATA
Net asset value, $ 10.970 $ 11.080 $ 9.920 $ 10.140 $ 10.000 $ 10.000
beginning of period
Income from Investment .641 .672 .455 .826 .827 .052
Operations
Net investment income
Net realized and .559 .058(dagger) 1.165 (.220) .160 --
unrealized
gain (loss) on
investments
Total from investment 1.200 .730 1.620 .606 .987 .052
operations
Less Distributions (.628) (.680) (.460) (.826) (.827) (.052)
From net investment
income
In excess of net (.002) -- -- -- -- --
investment income
From net realized gain (.050) (.160) -- -- (.020) --
on
investments
In excess of net (.010) -- -- -- -- --
realized
gain
Total distributions (.690) (.840) (.460) (.826) (.847) (.052)
Net asset value, end of $ 11.480 $ 10.970 $ 11.080 $ 9.920 $ 10.140 $ 10.000
period
TOTAL RETURN 10.96% 6.65% 16.38%* 6.21%* 10.26%* .52%*
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 122,376 $ 73,598 $ 44,835 $ 14,348 $ 6,053 $ 2,619
(000 omitted)
Ratio of expenses to .68% .76% .80% .80% .80% .80%**
average net assets#
Ratio of expenses to .68% .76% 1.16% 2.20% 3.53% 5.71%**
average net assets
before expense
reductions#
Ratio of net investment 6.85% 7.11% 7.73% 8.26% 8.19% 6.99%**
income to average net
assets
Portfolio turnover rate 70% 119% 128% 122% 67% --
</TABLE>
* THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN. TOTAL RETURNS FOR PERIODS OF LESS THAN
ONE YEAR ARE NOT ANNUALIZED.
** ANNUALIZED
(dagger) THE AMOUNT SHOWN FOR THE FISCAL YEAR ENDED DECEMBER 31, 1992 FOR A
SHARE OUTSTANDING THROUGHOUT THAT YEAR DOES NOT ACCORD WITH THE AGGREGATE
NET LOSSES ON INVESTMENTS FOR THAT YEAR BECAUSE OF THE TIMING OF SALES AND
PURCHASES OF THE FUND SHARES IN RELATION TO FLUCTUATING MARKET VALUES OF
THE INVESTMENTS OF THE FUND.
# EFFECTIVE DECEMBER 5, 1988 (COMMENCEMENT OF OPERATIONS), THE FUND'S
INVESTMENT ADVISOR VOLUNTARILY AGREED TO LIMIT EXPENSES TO .80% OF
AVERAGE NET ASSETS.
ASSET MANAGER PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year Ended December 31, September 6,
1989
(commenceme
nt of
operations) to
December 31,
1993 1992 1991 1990 1989
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 13.32 $ 12.55 $ 10.24 $ 9.97 $ 10.00
period
Income from Investment
Operations
Net investment income .33 .32 .35 .41 .09
Net realized and unrealized 2.39 1.09 1.96 .26 (.01)
gain
(loss) on investments
Total from investment 2.72 1.41 2.31 .67 .08
operations
Less Distributions
From net investment income (.33) (.31) -- (.40) (.09)
In excess of net investment (.04) -- -- -- --
income
From net realized gain (.25) (.33) -- -- (.02)
Total distributions (.62) (.64) -- (.40) (.11)
Net asset value, end of period $ 15.42 $ 13.32 $ 12.55 $ 10.24 $ 9.97
TOTAL RETURN(dagger) 21.23% 11.71% 22.56% 6.72%(double dagger) .81%
(double dagger)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 $ 2,422,692 $ 731,724 $ 193,518 $ 35,858 $ 7,271
omitted)
Ratio of expenses to average net .88% .91% 1.08% 1.25% 2.50%*
assets#
Ratio of expenses to average net .88% .91% 1.08% 1.54% 4.39%*
assets before expense
reductions#
Ratio of net investment income 3.64% 4.89% 5.89% 5.92% 4.77%*
to average net assets
Portfolio turnover rate 113% 92% 110% 117% 158%*
</TABLE>
* ANNUALIZED
(dagger) TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT
ANNUALIZED.
(double dagger) THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES
NOT BEEN REDUCED DURING THE PERIODS SHOWN.
# EFFECTIVE JANUARY 1, 1990, THE FUND'S INVESTMENT ADVISOR
VOLUNTARILY AGREED TO LIMIT EXPENSES TO 1.25% OF AVERAGE NET ASSETS. FOR
THE PERIOD SEPTEMBER 6, 1989 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31,
1989, EXPENSES WERE VOLUNTARILY LIMITED BY THE INVESTMENT ADVISOR TO
2.50% OF AVERAGE NET ASSETS.
INDEX 500 PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended August 27,
December 31, 1992
(commenceme
nt of
operations) to
December 31,
1993 1992
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 52.60 $ 50.00
Income from Investment Operations
Net investment income 1.31 .44
Net realized and unrealized gain (loss) on investments 3.80 2.71
Total from investment operations 5.11 3.15
Less Distributions
From net investment income (1.28) (.47)
From net realized gain (.60) (.08)
In excess of net realized gain (.09) --
Total distributions (1.97) (.55)
Net asset value, end of period $ 55.74 $ 52.60
TOTAL RETURN(dagger)(double dagger) 9.74% 6.31%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 25,153 $ 17,961
Ratio of expenses to average net assets# .28% .28%*
Ratio of expenses to average net assets before expense .95% 1.77%*
reductions#
Ratio of net investment income to average net assets 2.65% 2.89%*
Portfolio turnover rate 9% --
</TABLE>
* ANNUALIZED
(dagger) TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT
ANNUALIZED.
(double dagger) THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES
NOT BEEN REDUCED DURING THE PERIODS SHOWN.
# EFFECTIVE AUGUST 27, 1992 (COMMENCEMENT OF OPERATIONS) THE FUND'S
INVESTMENT ADVISER VOLUNTARILY AGREED TO LIMIT EXPENSES TO .28% OF AVERAGE
NET ASSETS.
Financial information for funds of Variable Insurance Products Fund has
been audited by Coopers & Lybrand and financial information for funds
of Variable Insurance Products Fund II has been audited by Price
Waterhouse, each independent accountants. Their unqualified reports are
included in each Trust's Annual Report which is incorporated by
reference into the Statement of Additional Information.
At least twice a year, financial statements with a summary of each fund's
composition and performance will be distributed to each Trust's
participating insurance companies, which in turn will send the
financial statements to you.
HOW THE TRUSTS WORK
INVESTMENT OBJECTIVES AND POLICIES
Each Trust is an open-end, diversified management investment company
offering insurance companies a selection of investment vehicles for
variable annuity and variable life insurance contracts. Each Trust offers a
variety of funds with different investment objectives which are described
below. Fidelity Management & Research Company (FMR) manages the
investments of each fund. For a discussion of the management fees paid to
FMR by each fund, please see MANAGEMENT, DISTRIBUTION AND SERVICE FEES
beginning on page .
Various levels of risk are involved with each fund. Investments in money
market instruments are subject to the ability of the issuer to make payment
at maturity. Investments in high-yielding bonds normally involve
lower-rated securities which have a greater risk of default and have prices
which fluctuate more than those of higher-rated securities. With any equity
investment, in addition to the usual uncertainties involved, an investor
should be aware that each of the equity funds has risks particular to it.
Please refer to MATCHING THE FUNDS TO YOUR INVESTMENT NEEDS beginning on
page for a discussion of these risks. Each of the funds abides by various
insurance regulations. Please read your INSURANCE COMPANY'S SEPARATE
ACCOUNT PROSPECTUS AND CONTRACT for discussions relating to insurance
regulations and instructions on how to invest in and redeem from each fund.
A general discussion may be found on page .
Each fund's investment objective is fundamental and can be changed only by
vote of a majority of the outstanding shares of the respective fund. There
is no assurance that each fund will achieve its investment objective.
MONEY MARKET PORTFOLIO seeks to obtain as high a level of current income as
is consistent with preserving capital and providing liquidity. FMR will
invest the fund's assets in the following types of high-quality, U.S.
dollar-denominated money market securities of domestic and foreign issuers:
(bullet) obligations of financial institutions, such as banks, savings and
loan institutions, insurance companies and mortgage bankers. These
obligations include certificates of deposit, bankers' acceptances and time
deposits.
(bullet) obligations of governments and their agencies or
instrumentalities.
(bullet) short-term obligations, including high-quality debt obligations
such as commercial paper, notes and bonds with remaining maturities of 397
days or less.
(bullet) other short-term debt obligations with remaining maturities of 397
days or less.
Many of the fund's investments are described in the APPENDIX.
The fund may invest in obligations of U.S. banks, foreign branches of U.S.
banks (Eurodollars), U.S. branches and agencies of foreign banks (Yankee
dollars), and foreign branches of foreign banks. Euro and Yankee dollar
investments involve risks that are different from investments in securities
of U.S. banks. These risks may include future unfavorable political and
economic developments, possible withholding of taxes, seizure of foreign
deposits, currency controls, interest limitations or other governmental
restrictions which might affect payment of principal or interest.
Additionally, there may be less public information available about foreign
banks and their branches. Foreign branches of foreign banks are not
regulated by U.S. banking authorities, and generally are not bound by
accounting, auditing and financial reporting standards comparable to U.S.
banks. Although FMR carefully considers these factors when making
investments, the fund does not limit the amount of its assets which can be
invested in any one type of instrument or in any foreign country.
QUALITY. Pursuant to procedures adopted by the Board of Trustees, Money
Market Portfolio may purchase only high quality securities that FMR
believes present minimal credit risks. To be considered high quality, a
security must be a U.S. government security; rated in accordance with
applicable rules in one of the two highest categories for short-term
securities by at least two nationally recognized rating services (or by
one, if only one rating service has rated the security); or, if unrated,
judged to be of equivalent quality by FMR.
High quality securities are divided into "first tier" and "second tier"
securities. FIRST TIER SECURITIES have received the highest rating (e.g.,
Standard & Poor's A-1 rating) from at least two rating services (or
one, if only one has rated the security). SECOND TIER SECURITIES have
received ratings within the two highest categories (e.g., Standard &
Poor's A-1 or A-2) from at least two rating services (or one, if only one
has rated the security), but do not qualify as first tier securities. If a
security has been assigned different ratings by different rating services,
at least two rating services must have assigned the higher rating in order
for FMR to determine eligibility on the basis of that higher rating. Based
on procedures adopted by the Board of Trustees, FMR may determine that an
unrated security is of equivalent quality to a rated first or second tier
security.
DIVERSIFICATION. The fund may not invest more than 5% of its total assets
in second tier securities. In addition, the fund may not invest more than
1% of its total assets or $1 million (whichever is greater) in the second
tier securities of a single issuer.
MATURITY POLICIES. The fund must limit its investments to securities with
remaining maturities of 397 days or less and must maintain a
dollar-weighted average maturity of 90 days or less.
HIGH INCOME PORTFOLIO seeks to obtain a high level of current income by
investing primarily in high-yielding, lower-rated, fixed-income securities,
while also considering growth of capital. FMR will seek high current income
normally by investing the fund's total assets as follows:
(bullet) at least 65% in income-producing debt securities and preferred
stocks of all types, including convertible securities, zero coupon
securities, and mortgage-backed and asset-backed securities;
(bullet) up to 20% in common stocks and other equity securities when
consistent with the fund's primary objective or when acquired as part of a
unit combining fixed-income and equity securities.
The fund may invest up to 15% of its assets in securities for which there
is no readily available market. These illiquid securities may include
privately placed restricted securities for which no institutional market
exists. The absence of a trading market can make it difficult to ascertain
a market value for illiquid securities. Disposing of illiquid securities
may involve time-consuming negotiation and legal expenses, and it may be
difficult or impossible for the fund to sell them promptly at an acceptable
price. SEE THE APPENDIX FOR MORE INFORMATION.
The fund may also invest a portion of its assets in debt securities that
are not paying current income in anticipation of possible future income
from the securities. The purchase of defaulted bonds and their future
benefit to the fund depend upon FMR's ability to predict future prospects
of an issuer.
Higher yields are usually available on securities that have a longer-term
maturity and are lower-rated or are unrated. Lower-rated securities
(sometimes referred to as "junk bonds") are usually defined as those
rated Ba or lower by Moody's Investors Service, Inc. (Moody's) or BB or
lower by Standard & Poor's Corporation (S&P) and may be deemed to
be of a speculative nature. Lower-rated securities involve greater risk of
default or price changes than securities assigned a higher quality rating.
Unrated securities are not necessarily of lower quality than rated
securities but they may not be attractive to as many buyers. FOR A FURTHER
DISCUSSION OF LOWER-RATED SECURITIES, PLEASE SEE THE "RISKS OF LOWER-RATED
DEBT SECURITIES" SECTION ON PAGE .
In considering investments for the fund, FMR will look for high-yielding
securities of companies whose financial condition is adequate to meet
future obligations or has improved or is expected to improve in the future.
Among other things, yield is a function of the relative financial strength
of the issuing company and of debt maturity schedules. In evaluating these
factors, FMR will not rely solely on ratings assigned by Moody's and
S&P but will do its own credit analysis. This is because (1) Moody's
and S&P assign ratings based largely on historical financial
information and the ratings may not accurately reflect the current
financial outlook of companies and (2) there can be large differences
between the current financial conditions of issuers within the same rating
category.
The prices of high-yielding, lower-rated, fixed-income securities may
decline significantly in periods of general economic difficulty or rising
interest rates. The fund will try to recognize these periods and then may
adopt a defensive approach (i.e., temporarily invest up to 100% of its
assets in high quality debt securities and preferred stocks).
OTHER INVESTMENT PRACTICES. The fund may invest in foreign securities. For
information on the fund's foreign investments, see the section entitled
"International Investments: Special Considerations" on page . Refer to the
Appendix for information on other investments the fund may make, including
options and futures contracts, put options and short sales, repurchase
agreements and securities loans, interfund borrowing transactions,
government securities, zero-coupon bonds and pay-in-kind securities,
delayed-delivery transactions, asset-backed securities and indexed
securities. The fund may also invest in warrants.
EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities FMR will
also consider the potential for capital appreciation. The fund's goal is to
achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's 500 Composite Stock Price Index.
FMR normally will invest at least 65% of the fund's total assets in
income-producing common or preferred stock. The remainder of the fund's
assets will tend to be invested in debt obligations, many of which are
expected to be convertible into common stock (if convertible securities
present favorable investment opportunities). FMR expects to invest, as is
consistent with the fund's objective, in securities of varying quality but
does not intend to invest in securities of companies without proven
earnings or credit.
In addition, the fund may invest in high-yielding, lower-rated debt
securities (sometimes referred to as "junk bonds") which are subject
to greater risk than investments in higher quality securities and the fund
may invest in foreign securities. FOR A FURTHER DISCUSSION OF LOWER-RATED
SECURITIES AND FOREIGN INVESTING, PLEASE SEE THE "RISKS OF LOWER-RATED DEBT
SECURITIES" SECTION AND "INTERNATIONAL INVESTMENTS: SPECIAL CONSIDERATIONS"
ON PAGES AND , RESPECTIVELY.
OTHER INVESTMENT PRACTICES. See the Appendix for more information on other
investment practices including repurchase agreements and securities loans,
illiquid investments, restricted securities, loans and other direct debt
instruments, options and futures contracts, short sales, swap agreements,
indexed securities, asset-backed securities and interfund borrowing
transactions. The fund may also invest in warrants and mortgage-backed
securities.
GROWTH PORTFOLIO seeks to achieve capital appreciation. FMR normally will
purchase common stocks for the fund, although its investments are not
restricted to any one type of security. Capital appreciation may also be
found in other types of securities, including bonds and preferred stocks.
The emphasis on a particular security will depend on FMR's interpretation
of underlying economic, financial, and security trends. The fund does not
place any emphasis on dividend income from its investments except when FMR
believes this income will have a favorable influence on the market value of
the security.
In addition, the fund may invest in high-yielding, lower-rated debt
securities which are subject to greater risk than investments in higher
quality securities and the fund may invest in foreign securities. FOR A
FURTHER DISCUSSION OF LOWER-RATED SECURITIES AND FOREIGN INVESTING, PLEASE
SEE THE "RISKS OF LOWER-RATED DEBT SECURITIES" SECTION AND "INTERNATIONAL
INVESTMENTS: SPECIAL CONSIDERATIONS" ON PAGES AND , RESPECTIVELY.
OTHER INVESTMENT PRACTICES. Refer to the Appendix for more information on
investments the fund may make, including options and futures contracts,
short sales, swap agreements, indexed securities, interfund borrowing
transactions, repurchase agreements and securities loans, warrants,
restricted securities, and illiquid investments.
OVERSEAS PORTFOLIO seeks long term growth of capital primarily through
investments in foreign securities. The fund provides a means for investors
to diversify their own portfolios by participating in companies and
economies outside of the United States.
Foreign securities are defined as securities of issuers whose principal
activities are outside of the United States. In determining whether an
issuer's principal activities and interests are outside the United States,
FMR will look at such factors as the location of its assets, personnel,
sales and earnings.
Normally, at least 65% of the fund's total assets will be invested in
securities of issuers from at least three different countries outside of
North America. Although the fund may invest up to 35% in securities of
issuers from Canada, Mexico and the United States, FMR currently does not
expect to invest a significant part of this amount in securities of U.S.
issuers.
When allocating the fund's investments among geographic regions and
individual countries, FMR considers various criteria, such as prospects for
relative economic growth among countries, expected levels of inflation,
government policies influencing business conditions, and the outlook for
currency relationships. FMR expects to invest most of the fund's assets in
securities of issuers located in developed countries in these general
geographic areas: the Americas (other than the United States), the Far East
and Pacific Basin, Scandinavia and Western Europe.
FMR may invest the fund's assets in all types of securities, most of which
are denominated in foreign currencies. FMR expects that opportunities for
long term growth of capital will come primarily from common stock,
securities such as warrants or rights that are convertible into common
stock, preferred stock, and depositary receipts for those
securities. The fund may also invest in high-yielding, lower-rated debt
securities (sometimes referred to as "junk bonds") of any type if
FMR believes that doing so may result in long term growth. FOR A FURTHER
DISCUSSION OF LOWER-RATED SECURITIES, PLEASE SEE THE "RISKS OF LOWER-RATED
DEBT SECURITIES" SECTION ON PAGE . The fund does not place any emphasis on
dividends or interest income except when FMR believes this income will have
a favorable influence on the market value of the security. The fund may
invest in indexed securities whose value depends on the price of foreign
currencies, commodities, securities indices, or other financial indicators.
In the normal course of managing the fund, FMR may invest a portion of the
fund's assets in U.S. and foreign government obligations and money market
securities (including repurchase agreements) when the fund has monies not
yet invested, it has sold one security and is waiting to buy another one,
so that it will be prepared to meet redemption requests, or to earn a
return on available cash balances. When market conditions warrant, FMR can
make temporary defensive investments without limit in U.S.
government obligations or investment-grade obligations of companies
incorporated in and having principal business activities in the United
States.
OTHER INVESTMENT PRACTICES. Refer to the Appendix for further information
on the fund's investments, including options and futures contracts,
warrants, illiquid investments, restricted securities, swap agreements,
indexed securities, loans and other direct debt instruments, repurchase
agreements and securities loans, and interfund borrowing transactions.
INVESTMENT GRADE BOND PORTFOLIO'S investment objective is to seek as high a
level of current income as is consistent with the preservation of capital.
Under normal conditions, FMR invests at least 65% of the fund's total
assets in investment-grade fixed-income securities such as bonds, notes and
debentures. The fund's dollar-weighted average portfolio maturity may not
exceed ten years. The fund may purchase individual securities with
maturities of more than ten years, as long as its average maturity remains
within this limit.
Fixed-income securities held by the fund may include bonds, notes, mortgage
securities, domestic and foreign government and government agency
obligations, zero coupon securities and convertible securities, and very
short-term obligations such as bankers' acceptances, certificates of
deposit, repurchase agreements and securities lending, prime commercial
paper and other short-term corporate obligations. Refer to the APPENDIX on
page for more information on these and other types of investments the fund
may make including stripped mortgage-backed and asset-backed securities,
foreign securities, options and futures contracts, delayed-delivery
transactions, swap agreements, indexed securities, loans and other direct
debt instruments, interfund borrowing transactions, illiquid investments,
and restricted securities.
To achieve the fund's goal of preserving capital, the fund will not
purchase fixed-income securities unless they are investment-grade or
better. Investment-grade securities are those rated Baa or better by
Moody's Investors Service, Inc. (Moody's) or BBB or better by Standard
& Poor's Corporation (S&P), or if unrated, judged by FMR to be of
equivalent quality. Investment grade securities have adequate to strong
protection of principal and interest payments according to the rating
agencies. Bonds rated in the lower end of the investment grade category
(bonds rated Baa/BBB) may possess speculative characteristics in credit
quality and may be more sensitive to economic changes and changes in the
financial condition of issuers.
ASSET MANAGER PORTFOLIO'S investment objective is to seek to obtain high
total return with reduced risk over the long-term by allocating its assets
among domestic and foreign stocks, bonds and short-term fixed-income
instruments. FMR will normally allocate the fund's assets among the three
asset classes within the following investment parameters: 0-70% in
short-term instruments; 20-60% in bonds (intermediate to long-term debt
securities); and 10-60% in stocks (equities). The expected "neutral" mix
will consist of 20% in short-term instruments, 40% in bonds and 40% in
stocks. The "neutral" mix represents the expected allocation when FMR's
projections of relative returns for the three asset classes are equivalent
to what FMR would expect over the long-term. FMR does not anticipate
altering the neutral mix although it may be revised from time to time. As
of February 28, 1994, the fund's asset mix consisted of approximately
12 % short-term instruments, 44 % bonds and 44 % stocks.
This example illustrates the fund's asset mix at one point in
time and does not necessarily indicate its current or future allocation.
FMR regularly reviews the fund's investment allocations, and will gradually
vary them over time to favor asset classes that, in FMR's current judgment,
provide the most favorable total return outlook. In making allocation
decisions, FMR will evaluate projections of risk, market and economic
conditions, volatility, yields and expected return. In addition, FMR seeks
to reduce risk relative to an investment in common stocks by emphasizing
the bond and short-term classes when stocks appear overvalued. FMR's
management will include use of database systems to help analyze past
situations and trends, research specialists in each of the asset classes to
help in securities selection, portfolio management professionals to
determine asset allocation and to select individual securities, and its own
credit analysis as well as credit analysis provided by rating services.
Because the fund seeks high total return over the long-term, it will not
try to pinpoint the precise moment when major reallocations should be made.
Rather, asset shifts among classes will be made gradually over time and,
under normal conditions, a single reallocation decision will not involve
more than 10% of the fund's total assets. The fund may make
temporary investments without limit in cash and money market
instruments for defensive purposes when, in FMR's judgment, market
conditions warrant.
To provide the fund with maximum flexibility within the three asset
classes, FMR will purchase portfolio securities from among a wide range of
investment instruments as described in the following paragraphs. FMR
believes that diversification of the fund's investments among the asset
classes listed below, as opposed to investment in any one class, will,
under most market conditions, better enable the fund to reduce risk while
seeking high total return over the long-term.
SHORT-TERM CLASS. This class includes all types of domestic and foreign
securities and money market instruments with remaining maturities of three
years or less. FMR will seek to maximize total return within the short-term
asset class by taking advantage of yield differentials between different
instruments, issuers and currencies. Short-term instruments may include
corporate debt securities such as commercial paper and notes; government
securities issued by U.S. or foreign governments or their agencies or
instrumentalities; bank deposits and other financial institution
obligations; repurchase agreements involving any type of security; and
other similar short-term instruments. These instruments may be denominated
in U.S. dollars or foreign currency.
BOND CLASS. The bond class includes all varieties of domestic and foreign
fixed-income securities with maturities greater than three years. FMR seeks
to maximize total returns within the bond class by adjusting the fund's
investments in securities with different credit qualities, maturities, and
coupon or dividend rates, as well as by exploiting yield differentials
between securities. Securities in this class may include bonds, notes,
adjustable rate preferred stocks, convertible bonds, mortgage-related and
asset-backed securities, domestic and foreign government and government
agency securities, zero coupon bonds, and other intermediate and long-term
securities (see the Appendix for a further discussion of these
instruments). As with the short-term class, these securities may be
denominated in U.S. dollars or foreign currency.
The fund may invest in securities of any quality, including lower-rated,
high-yielding debt securities ( sometimes referred to as "junk
bonds") as well as higher quality securities; however, no more than 35% of
the fund's assets may be invested in lower-rated debt securities (those
rated Ba or lower by Moody's or BB or lower by S&P, and unrated
securities judged by FMR to be of equivalent quality). However, the fund
does not currently intend to invest more than 20% of its total assets in
securities judged by FMR to be below investment-grade quality. Please see
the section entitled "RISKS OF LOWER-RATED DEBT SECURITIES" and the
APPENDIX for more information.
STOCK CLASS. The stock class includes domestic and foreign equity
securities of all types (other than adjustable rate preferred stocks
included in the bond class). FMR seeks to maximize total return within this
asset class by actively allocating assets to industries and economic
sectors expected to benefit from major trends, and to individual stocks
that it believes to have superior growth potential. Securities in
the stock class may include common stocks, fixed-rate preferred stocks
(including convertible preferred stocks), warrants, rights, depositary
receipts, and other equity securities issued by companies of any size,
located anywhere in the world.
OTHER INVESTMENT PRACTICES. The fund may invest in options and futures
contracts, currency management strategies, indexed securities, short
sales, swap agreements, delayed-delivery transactions, illiquid
investments, restricted securities, loans and other direct debt instruments
and interfund borrowings. Refer to the Appendix for more information on
these investments. The fund may also invest in foreign securities. See
the section entitled "International Investments: Special Considerations"
for more information.
INDEX 500 PORTFOLIO seeks investment results that correspond to the total
return (i.e., the combination of capital changes and income) of common
stocks publicly traded in the United States, as represented by the Standard
& Poor's 500 Composite Stock Price Index (the S&P 500 or Index),
while keeping transaction costs and other expenses low.
Index 500 Portfolio is not managed according to traditional methods of
"active" investment management, which involve the buying and selling of
securities based upon economic, financial, and market analyses and
investment judgment. Instead, the fund, utilizing a "passive" or "indexing"
investment approach, attempts to duplicate the performance of the S&P
500.
The S&P 500 includes 500 selected common stocks, most of which are
listed on the New York Stock Exchange. Different stocks have different
weightings in the Index, depending on the amount of stock outstanding and
its current price.
Under normal conditions, the fund will invest at least 80% of its assets
(65% if fund assets are below $20 million) in equity securities of
companies which compose the S&P 500. In seeking to duplicate the
performance of the S&P 500, FMR will attempt over time to allocate the
fund's investments among common stocks in approximately the same weightings
as the S&P 500, beginning with the heaviest-weighted stocks that make
up a larger portion of the Index's value. Over the long term, FMR seeks a
correlation between the performance of the fund and that of the S&P 500
of .98 or better (.95 or better so long as fund asset levels are below $20
million). A figure of 1.00 would indicate perfect correlation. FMR monitors
the correlation between the performance of the fund and the S&P 500 on
a regular basis. In the unlikely event that the correlation is not
achieved, the Board of Trustees will consider alternative arrangements.
While the fund seeks to duplicate the performance of the S&P 500, its
stock portfolio may not match the Index exactly. FMR generally will seek to
match the composition of the S&P 500 as much as possible, but may not
always invest the fund's stock portfolio to mirror the Index exactly.
Because of the difficulty and expense of executing relatively small stock
transactions, the fund may not always be invested in the less heavily
weighted S&P 500 stocks and may at times have its portfolio weighted
differently from the S&P 500, particularly if the fund has a low level
of assets. When the fund's size is greater, FMR expects to purchase more of
the stocks in the S&P 500 and to match the relative weighting of the
S&P 500 more closely, and anticipates that the fund will be able to
mirror the performance of the S&P with little variance at asset levels
of $20 million or more. In addition, the fund may omit or remove an S&P
500 stock from its portfolio if, following objective criteria, FMR judges
the stock to be insufficiently liquid or believes the merit of the
investment has been substantially impaired by extraordinary events or
financial conditions. FMR may purchase stocks that are not included in the
S&P 500 to compensate for these differences if it believes that their
prices will move together with the prices of S&P 500 stocks omitted
from the portfolio.
Under normal conditions, FMR will attempt to invest as much of the fund's
assets as is practical in common stocks, including S&P 500 stocks and
other stocks held to compensate for differences between the S&P 500 and
the fund's investments. However, the fund will maintain a reasonable
position in high-quality short-term debt securities and money market
instruments to meet redemption requests or to invest in common stocks. If
FMR believes that market conditions warrant a temporary defensive posture,
the fund may invest without limit in high-quality short-term debt
securities and money market instruments. These securities and money market
instruments may include domestic and foreign commercial paper, certificates
of deposit, bankers' acceptances and time deposits, U.S. government
securities, and repurchase agreements.
The fund may also invest a portion of its portfolio in instruments whose
return depends on stock market prices. These may include debt securities
whose prices or interest rates are indexed to the return of the S&P
500, interest rate swap or similar agreements linked to the S&P 500,
and stock index futures contracts. The fund would invest in these types of
instruments in order to seek to match the total return of the Index in
accordance with its investment objective. However, instruments linked to
stock market returns may not track the return of the Index in all cases,
and may involve additional credit risks.
OTHER INVESTMENT PRACTICES. Refer to the Appendix for information on stock
index futures contracts, illiquid investments, indexed securities, swap
agreements, repurchase agreements and securities loans, and interfund
loans. The fund may also invest in warrants and foreign securities. See
the section entitled "International Investments: Special Considerations"
for more information on foreign securities.
MATCHING THE FUNDS TO YOUR INVESTMENT NEEDS
Each fund's shares may be used only as the investment vehicle for insurance
companies' variable contracts. You may enjoy certain tax benefits by
purchasing a variable annuity or variable life insurance contract. (Refer
to the prospectus of your insurance company's separate account for a
discussion of the tax benefits.)
No single fund constitutes a balanced investment plan. As described in the
following paragraphs, each fund stresses a different objective. Each fund's
share price (with the exception of Money Market Portfolio), yield and total
return will fluctuate and an investment in a fund (except Money Market
Portfolio) may be worth more or less than your original cost when
shares are redeemed.
Investments in MONEY MARKET PORTFOLIO earn income at current money market
rates. The fund's ability to achieve its investment objective depends on
the quality and maturity of its investments. Although its policies are
designed to help maintain a stable $1.00 share price, all money market
instruments can change in value when interest rates or issuers'
creditworthiness change, or if an issuer or guarantor of a security fails
to pay interest or principal when due. If these changes in value were large
enough, the fund's share price could deviate from $1.00. In general,
securities with longer maturities are more vulnerable to price changes,
although they may provide higher yields.
Money Market Portfolio will invest more than 25% of its total assets
in the securities of the financial services industry, under normal
conditions. Companies in the financial services industry are subject to
various risks related to that industry, such as government regulation,
changes in interest rates, and exposure on loans, including loans to
foreign borrowers. The fund's performance may be affected by conditions
affecting the financial services industry.
HIGH INCOME PORTFOLIO stresses earning high income by investing in
lower-rated, fixed-income securities and in equity securities. High Income
Portfolio offers the potential to earn a high yield; however, since the
fund has an aggressive approach to income investing, only investors who can
accept the greater price movements and credit risk associated with lower
quality bonds should consider this fund. Fixed-income securities are
generally considered to be interest-rate sensitive, which means that their
value (and the fund's share price) will tend to decrease when interest
rates rise and increase when interest rates fall. In general, securities
with shorter maturities offer lower yields, while providing greater price
stability than longer-term securities. Longer-term securities generally are
more affected by changes in interest rates; however, the lower-quality
securities in which the fund invests may not be as interest-rate sensitive
as higher-quality securities with equivalent maturities and are more
subject to credit risks.
EQUITY-INCOME PORTFOLIO stresses providing reasonable income, although the
fund will also consider the potential for capital appreciation. Since
capital appreciation is only a secondary consideration for the fund, you
should not expect a total return comparable to funds that have capital
appreciation as a primary objective. The fund may be appropriate for you if
you can afford to ride out changes in the stock market, because it invests
primarily in common and preferred stock. FMR also can make temporary
investments without limit in securities such as investment-grade
bonds, high-quality preferred stocks and short-term notes, for defensive
purposes when it believes market conditions warrant.
GROWTH PORTFOLIO seeks to achieve capital appreciation. This fund will
invest in the securities of both well-known and established companies, and
smaller, less well-known companies which may have a narrow product line or
whose securities are thinly traded. These latter securities will often
involve greater risk than may be found in the ordinary investment security.
FMR's analysis and expertise plays an integral role in the selection of
securities and, therefore, the performance of the fund. Many securities
which FMR believes would have the greatest growth potential may be
regarded as speculative, and an investment in the fund may involve greater
risk than is inherent in other mutual funds. It is also important to point
out that the fund may be appropriate for you if you can afford to ride out
changes in the stock market, because it invests primarily in common stocks.
FMR also can make temporary investments without limit in securities
such as investment-grade bonds, high-quality preferred stocks and
short-term notes, for defensive purposes when it believes market conditions
warrant.
OVERSEAS PORTFOLIO seeks long term growth of capital and any income return
is incidental to that objective. By investing in foreign securities, FMR
attempts to take advantage of differences between economic trends and the
performance of securities markets in various countries. To date, the market
values of securities of issuers located in many countries have moved
relatively independently of each other and during certain periods the
return on equity investments in some countries has exceeded the return on
similar investments in the United States. At other times, the return has
been less than that of similar U.S. securities. FMR believes that it may be
possible to obtain significant appreciation from a portfolio of foreign
investments and also achieve increased diversification in comparison to a
mutual fund that invests solely in U.S. securities. The fund obtains
increased diversification by combining securities from various countries
that offer different investment opportunities and are affected by different
economic trends. International diversification reduces the effect that
events in any one country or geographic area will have on the fund's
investments. Of course, negative movement by the fund's investments in one
foreign market represented in the portfolio may offset potential gains from
the fund's investments in another country's markets.
Although the fund will normally invest primarily in issuers located in
developed countries, the fund may also invest in developing countries.
Compared to the United States and other developed countries, developing
countries may have relatively unstable governments, economies based on only
a few industries, and securities markets which trade a small number of
securities. Prices on these exchanges tend to be volatile and, in the past,
these exchanges have offered greater potential for gain (as well as loss)
than exchanges in developed countries. See International Investments on
page 23 for further information on foreign securities.
INVESTMENT GRADE BOND PORTFOLIO stresses earning income by investing in
investment grade, fixed-income securities. Fixed-income securities (except
for securities with floating or variable interest rates) are generally
considered to be interest rate sensitive, which means that their value (and
the fund's share price) will tend to decrease when interest rates rise and
increase when interest rates fall. Securities with shorter maturities,
while offering lower yields, generally provide greater price stability than
longer-term securities and are less affected by changes in interest rates.
The fund is for investors who seek income but want a portfolio of short to
intermediate term investment grade debt securities. FMR will adjust the
fund's investments in particular securities or in types of debt securities
in response to its appraisal of changing economic conditions and trends.
FMR may sell securities in anticipation of a market decline or purchase
securities in anticipation of a market rise. In addition, FMR may sell one
security and purchase another security of comparable quality and maturity
to take advantage of what FMR believes to be short-term differentials in
market values or yield disparities. The fund may invest in foreign
securities, which may be less liquid or more volatile than domestic
investments. The fund's investments may be denominated in foreign
currencies and the value of these investments will fluctuate with changes
in the exchange rates between those currencies and the U.S. dollar. See
I NTERNATIONAL INVESTMENT S on page for further information on
investing in foreign securities. The fund's investments, other than those
backed by the U.S. government, are subject to the ability of the issuer to
make payment at maturity.
The fund's share price and yield also depend on the quality of its
investments. Investment grade bonds generally are of medium to high
quality, but investment grade bonds rated Baa/BBB have more
uncertain protection of interest and principal payments and may have
speculative characteristics. Unrated bonds may be of any quality, but
usually are not attractive to as many buyers. The fund relies on FMR's
credit analysis when purchasing unrated bonds.
ASSET MANAGER PORTFOLIO stresses high total return over the long-term. The
fund's performance may be affected by many different factors, depending on
its portfolio emphasis. Short-term instruments are generally the most
stable of the fund's three principal asset classes. Their returns depend
primarily on current short-term interest rates, though currency
fluctuations can also be significant with respect to foreign securities.
The bond class is affected primarily by interest rates. In general, prices
of fixed-income securities tend to rise when interest rates fall, and fall
when interest rates rise. Interest rate changes will have a greater impact
on the fund if it is heavily invested in long-term or zero-coupon bonds.
Fixed-income securities may also be affected by changes in the credit
quality of their investments. The fund may invest in fixed-income
securities that present the risk of default, whose prices may be as
volatile as or more volatile than common stocks. Because the fund has no
limitation on the quality of debt securities in which it may invest, the
debt securities in its portfolio may be of poor quality, considered
speculative and present the risk of default.
The stock class is subject to the risks of stock market investing,
including the possibility of sudden or prolonged market declines as well as
the risks associated with individual companies. These risks may be
intensified for investments in smaller or less well-known companies or in
foreign securities. In general, stock prices can be volatile and have
inherently more risk than fixed-income instruments. No assurance can be
made that allocation decisions will be advantageous to the fund.
INDEX 500 PORTFOLIO may be appropriate for investors seeking a relatively
low-cost means to diversify their investment portfolios using an index of
securities that is representative of the stock market as a whole. The fund
is intended as a long term investment. Because it invests predominately in
common stock, the fund may be appropriate for you only if you can afford to
ride out changes in the stock market.
You should be aware that the performance of the S&P 500 is a
hypothetical number which assumes reinvestment of dividends but does not
take into account brokerage commissions and other costs of investing, which
the fund bears. Since the fund seeks to track the S&P 500, it is not
managed for growth or income in the same manner as other mutual funds, and
FMR generally will not attempt to judge the merits of any particular stock
as an investment. Accordingly, you should not expect to achieve the
potentially greater results that could be obtained by a fund that
aggressively seeks growth.
ABOUT THE S&P 500 . The S&P 500 is a well-known stock market
index that includes common stocks of companies representing a significant
portion of the market value of all common stocks publicly traded in the
United States. Stocks in the S&P 500 are weighted according to their
market capitalization (i.e., the number of shares outstanding multiplied by
the stock's current price), with the 51 largest stocks currently composing
50% of the S&P 500's value. FMR believes that the performance of
the S&P 500 is representative of the performance of publicly traded
common stocks in general. The composition of the S&P 500 is
determined by Standard & Poor's Corporation and is based on such
factors as the market capitalization and trading activity of each stock,
and its adequacy as a representation of stocks in a particular industry
group. Standard & Poor's Corporation may change the Index's composition
from time to time. "S&P(registered trademark)", "S&P 500(registered
trademark)", and "500" are service marks of Standard & Poor's
Corporation and have been licensed for use herein.
However, including a stock in the S&P 500 in no way implies an opinion
by Standard & Poor's Corporation as to its attractiveness as an
investment, nor is Standard & Poor's Corporation a sponsor of or in any
way affiliated with the fund.
RISKS OF LOWER-RATED DEBT SECURITIES
Lower-rated debt securities ( sometimes referred to as "junk bonds")
are usually defined as securities rated Ba or lower by Moody's or BB or
lower by S&P. Lower-rated debt securities are considered speculative
and involve greater risk of loss than higher-rated debt securities, and are
more sensitive to changes in the issuer's capacity to pay. This is an
aggressive approach to income investing.
The 1980s saw a dramatic increase in the use of lower-rated debt securities
to finance highly leveraged corporate acquisitions and restructurings. Past
experience may not provide an accurate indication of the future performance
of lower-rated debt securities, especially during periods of economic
recession. In fact, from 1989 to 1991, the percentage of lower-rated debt
securities that defaulted rose significantly above prior levels, although
the default rate decreased in 1992 and 1993.
Lower-rated debt securities may be thinly traded, which can adversely
affect the prices at which these securities can be sold and can result in
high transaction costs. If market quotations are not available, lower-rated
debt securities will be valued in accordance with standards set by the
Board of Trustees, including the use of outside pricing services. Judgment
plays a greater role in valuing lower-rated debt securities than securities
for which more extensive quotations and last sale information are
available. Adverse publicity and changing investor perceptions may affect
the ability of outside pricing services to value lower-rated debt
securities, and each fund's ability to dispose of these securities.
The market prices of lower-rated debt securities may decline significantly
in periods of general economic difficulty which may follow periods of
rising interest rates. During an economic downturn or a prolonged period of
rising interest rates, the ability of issuers of lower-rated debt to
service their payment obligations, meet projected goals, or obtain
additional financing may be impaired.
Each fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder
to seek to protect the interests of security holders if it determines this
to be in the interest of its shareholders.
The considerations discussed above for lower-rated debt securities also
apply to lower-quality, unrated debt instruments of all types, including
loans and other direct indebtedness of businesses with poor credit
standing. Unrated debt instruments are not necessarily of lower quality
than rated instruments, but they may not be attractive to as many buyers.
Each fund relies more on FMR's credit analysis when investing in debt
instruments that are unrated.
Please refer to the Appendix for a discussion of Moody's and S&P
ratings.
INTERNATIONAL INVESTMENTS: SPECIAL CONSIDERATIONS
The information contained in these paragraphs is of particular importance
to Overseas Portfolio; however, each fund can make foreign investments. FMR
limits the amount of High Income, Equity-Income, Growth, Investment Grade
Bond, Asset Manager and Index 500 Portfolio's net assets that may be
invested in foreign securities to 50%, respectively. However, each fund,
including Overseas Portfolio, may not invest more than 20% of its
assets in any one country. Each fund may have an additional 15%
invested in securities of issuers located in any one (but only one) of the
following countries: Australia, Canada, France, Japan, the United Kingdom
or Germany. A fund must be diversified in at least three different
countries if it exceeds 20% in any one country.
Investing outside the U.S. involves different opportunities and different
risks from U.S. investments. FMR believes that it may be possible to obtain
significant returns from a portfolio of foreign investments, or a
combination of foreign investments and U.S. investments, and to achieve
increased diversification in comparison to a portfolio invested solely in
U.S. securities. By including international investments in your investment
portfolio, you may gain increased diversification by combining securities
from several countries and geographic areas that offer
various investment opportunities and are affected by
particular economic trends. At the same time, these opportunities
and trends involve risks that may not be encountered in U.S. investments.
International investing in general may involve greater risks than U.S.
investments. There is generally less publicly available information about
foreign issuers, and there may be less government regulation and
supervision of foreign stock exchanges, brokers, and listed companies.
There may be difficulty in enforcing legal rights outside the United
States. Foreign companies generally are not subject to uniform accounting,
auditing, and financial reporting standards, practices, and requirements
comparable to those that apply to U.S. companies. Security trading
practices abroad may offer less protection to investors such as the funds.
Settlement of transactions in some foreign markets may be delayed or may be
less frequent than in the U.S., which could affect the liquidity of a
fund's portfolio. Additionally, in some foreign countries, there is the
possibility of expropriation or confiscatory taxation; limitations on the
removal of securities, property, or other assets of a fund; political or
social instability; or diplomatic developments which could affect U.S.
investments in foreign countries. FMR will take these factors into
consideration in managing each fund's foreign investments.
Each fund may invest a portion of its assets in developing countries, or in
countries with new or developing capital markets; for example, nations in
Eastern Europe. The considerations noted above are generally intensified
for these investments. These countries may have relatively unstable
governments, economies based on only a few industries, and securities
markets that trade a small number of securities. Securities of issuers
located in these countries tend to have volatile prices and may offer
significant potential for loss as well as gain.
FOREIGN CURRENCIES. The value of each fund's foreign investments and
the value of its dividends and earned interest , may be
significantly affected by changes in currency exchange rates. Some foreign
currency values may be volatile, and there is the possibility of
governmental controls on currency exchange or governmental intervention in
currency markets, which could adversely affect the funds. Although FMR may
attempt to manage currency exchange rate risks, there is no assurance that
FMR will do so at an appropriate time or that FMR will be able to predict
exchange rates accurately. For example, if FMR increases a fund's exposure
to a foreign currency, and that currency's value subsequently falls, FMR's
currency management may result in increased losses to the fund. Similarly,
if FMR hedges a fund's exposure to a foreign currency, and that currency's
value rises, the fund will lose the opportunity to participate in the
currency's appreciation.
CURRENCY MANAGEMENT. The relative performance of foreign currencies is an
important factor in each fund's performance. FMR may manage each fund's
exposure to various currencies to take advantage of yield, risk, and
return characteristics that foreign currencies can provide for U.S.
investors.
To manage exposure to currency fluctuations, the funds may enter into
currency forward contracts (agreements to exchange one currency for another
at a future date) or currency swap agreements, buy and sell options and
futures contracts relating to foreign currencies, and purchase securities
indexed to foreign currencies. The funds will use currency forward
contracts in the normal course of business to lock in an exchange rate in
connection with purchases and sales of securities denominated in foreign
currencies. Other currency management strategies allow FMR to hedge
portfolio securities, to shift investment exposure from one currency to
another, or to attempt to profit from anticipated declines in the value of
a foreign currency relative to the U.S. dollar. There is no overall
limitation on the amount of the funds' assets that may be committed to
currency management strategies.
LIMITING INVESTMENT RISKS
The following summarizes the funds' principal investment limitations. A
complete listing is contained in the Statement of Additional Information.
The following limitations and the policies discussed in "HOW THE TRUSTS
WORK" are considered at the time of purchase; the sale of securities is not
required in the event of a subsequent change in circumstances.
1. Money Market Portfolio (a) normally may not invest more than 5% of its
total assets in the securities of any single issuer. Under certain
conditions, however, the fund may invest up to 10% of its total assets in
the first tier securities of a single issuer for up to three business days;
and (b) will not purchase a security if, as a result more than 25% of its
total assets would be in a particular industry, except that the fund will
invest more than 25% of its total assets in the financial services
industry, under normal conditions. These limitations do not apply to
obligations issued or guaranteed as to principal and interest by the United
States government, its agencies or instrumentalities.
2. Neither High Income, Equity-Income, Growth, Overseas, Investment Grade
Bond, Asset Manager nor Index 500 Portfolio will purchase a security if, as
a result; (a) (with respect to 75% its total assets) more than 5% of its
total assets would be invested in the securities of any single issuer or it
would hold more than 10% of the outstanding voting securities of that
issuer; (b) more than 25% of its total assets would be invested in a
particular industry; or (c) more than 10% (15% for High Income and Overseas
Portfolios) of its net assets would be invested in illiquid securities.
Limitations (a) and (b) do not apply to U.S. government securities.
3. Each fund may borrow money or engage in reverse repurchase agreements
(as described in the Appendix) for temporary or emergency purposes (except
for Money Market Portfolio which may do so for investment purposes as
described in the Appendix), but not in an amount exceeding 25% of its net
assets.
4. Each fund may temporarily lend any security or make any other loan
provided that not more than 33 1/3% of a fund's total assets would be lent
to other parties.
Except for each fund's investment objective and limitations, 1(b), 2(a),
2(b), and 4, the policies described in this prospectus are not fundamental.
Non-fundamental policies can be changed at any time without the consent of
shareholders.
Each fund may borrow money only from banks or other funds advised by FMR
and will not purchase securities when borrowings exceed 5% of its total
assets (excluding reverse repurchase agreements for Money Market
Portfolio) . If a fund borrows money, its share price (except for
Money Market Portfolio) may be subject to greater fluctuation until the
borrowing is paid off. To this extent, (for all funds except Money Market
Portfolio) purchasing securities when borrowings are outstanding may
involve an element of leverage. Each fund may temporarily lend its
portfolio securities to broker-dealers and institutions, but only when the
loans are fully collateralized. Each fund may also make cash loans to other
funds advised by FMR in an amount not exceeding 5% of net assets for
Equity-Income, Growth, Overseas Asset Manager and Index 500 Portfolios,
7.5% of net assets for High Income and Investment Grade Bond Portfolios and
10% of net assets for Money Market Portfolio (see APPENDIX).
INTERNAL REVENUE SERVICE (IRS) LIMITATIONS. In addition to the above, each
fund also follows certain limitations imposed by the IRS on separate
accounts of insurance companies relating to the tax-deferred status of
variable contracts. More specific information may be contained in your
insurance company's separate account prospectus.
PORTFOLIO TRANSACTIONS
FMR chooses broker-dealers by judging professional ability and quality of
service and uses various brokerage firms to carry out a fund's equity
transactions. A fund's debt obligations and money market obligations are
generally traded in the over-the-counter market through broker-dealers. A
broker-dealer is a securities firm or bank which makes a market for
securities by offering to buy at one price and sell at a slightly higher
price. The difference between the prices is known as a spread. Overseas
Portfolio normally trades its securities in foreign countries since the
best available market for foreign securities is often on foreign markets.
In transactions on foreign stock exchanges, except in Canada, brokers'
commissions are generally fixed and are often higher than in the United
States, where commissions are negotiated. Since FMR places (directly or
through affiliated sub-advisors) a large number of transactions, including
those of Fidelity's other funds, the funds generally pay lower commissions
and incur lower costs, and broker-dealers are willing to work on a more
favorable spread than would be possible for most individual investors.
Each fund has authorized FMR to allocate transactions to some
broker-dealers who help distribute the fund's shares or shares of
Fidelity's other funds, and on an agency basis, to Fidelity Brokerage
Services, Inc. (FBSI) and Fidelity Brokerage Services, Ltd. (FBSL),
affiliates of FMR. FMR will make such allocations if commissions are
comparable to those charged by non-affiliated, qualified broker-dealers for
similar services. FMR may also allocate brokerage transactions to a fund's
custodian, acting as a broker-dealer, or to other broker-dealers, so long
as transaction quality and commission rates are comparable to those of
other broker-dealers, where the broker dealers will allocate a portion of
the commissions paid toward payment of a fund's expenses. These expenses
currently include transfer agent and custodian fees. The Custodian may
credit a portion of the commissions paid toward payment of the funds'
custodian charges.
Higher commissions may be paid to those firms that provide research,
valuation and other services, to the extent permitted by law. FMR also is
authorized to allocate brokerage transactions to FBSI in order to secure
from FBSI research services produced by third party, independent entities.
FMR may use this research information in managing a fund's assets, as well
as assets of other clients.
A fund may engage in short-term trading when consistent with its objective.
Also, a security may be sold and another of comparable quality
simultaneously purchased to take advantage of what FMR believes to be a
temporary disparity in the normal yield relationship of the two securities.
The majority of portfolio transactions for Index 500 (other than those made
in response to shareholder activity) will be made to adjust the portfolio
to track the S&P 500 or to reflect occasional changes in the Index's
composition. The frequency of portfolio transactions - a fund's turnover
rate - for each fund will vary from year to year depending on market
conditions. FMR buys and sells securities for the funds after considering a
company's ability to repay, future business conditions, interest rate
levels and the availability of new investments or higher relative yields.
For fiscal year 1993, High Income, Equity-Income, Growth, Overseas,
Investment Grade Bond, Asset Manager and Index 500 Portfolios had turnover
rates of 155%, 120%, 159%, 42%, 70%, 113% and 9%, respectively. Because a
higher turnover rate increases transaction costs and may have certain tax
consequences, FMR carefully weighs the anticipated benefits of short-term
investment against this consequence.
PERFORMANCE
Each fund's performance may be quoted in advertising in terms of yield and
total return if accompanied by performance of your insurance
company's separate account. Performance is based on historical results and
is not intended to indicate future performance.
Money Market Portfolio's YIELD refers to the income generated by an
investment in the fund over a specified seven day period, expressed as an
annual percentage rate. Its EFFECTIVE YIELD is calculated similarly, but
assumes that the income earned from investments is reinvested. Money Market
Portfolio's effective yield will tend to be slightly higher than its yield
because of this compounding effect.
For High Income Portfolio and Investment Grade Bond Portfolio , YIELD
is a way of showing the rate of income a fund earns on its
investments as a percentage of the fund's share price. To calculate yield,
a portfolio takes the dividend and interest income, if any, it earned from
its portfolio of investments for a specified 30-day period (net of
expenses), divides it by the number of its shares entitled to receive
dividends and expresses the result as an annualized percentage rate based
on the portfolio's share price at the end of the 30-day period. Yields are
calculated according to accounting methods that are standardized for all
stock and bond funds. Because yield accounting methods differ from the
methods used for other accounting purposes, the portfolio's yield may not
equal its distribution rate, the income paid to an account or the income
reported in the portfolio's financial statements.
TOTAL RETURNS are based on the overall dollar or percentage change in value
of a hypothetical investment in each fund, including changes in share price
(except for Money Market Portfolio) and assuming each fund's dividends and
capital gain distributions, if any, are reinvested. A CUMULATIVE
TOTAL RETURN reflects a portfolio's performance over a stated period of
time. An AVERAGE ANNUAL TOTAL RETURN reflects the hypothetical annually
compounded return that would have produced the same cumulative total return
if a portfolio's performance had been constant over the entire period.
Because average annual returns tend to smooth out variations in a
portfolio's return, you should recognize that they are not the same as
actual year-by-year results. To illustrate the components of overall
performance, a portfolio may separate its cumulative and average annual
returns into income results and capital gain or loss.
A fund may quote its ADJUSTED NET ASSET VALUES, including all distributions
paid. These adjusted NAV's may be averaged over specified periods.
Equity-Income, Growth, Overseas, Asset Manager, and Index 500 Portfolios
may use these averages to calculate its MOMENTUM INDICATOR, which tracks
changes in adjusted net asset values over specified periods.
The table below shows the record of the S&P 500 for the ten years from
1984 through 1993. Numbers for the S&P 500 show the change in value of
the S&P 500 and assume reinvestment of all dividends paid by the
S&P 500 stocks. Tax consequences are not included in the illustration,
nor are brokerage or other fees calculated in the S&P 500 figures. The
results shown should not be considered representative of the income or
capital gain or loss which may be generated by the S&P 500 or Index 500
Portfolio in the future.
STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX
Year Price Change
Ended Year End in Index Dividend Total
12/31 Index Value for Year Reinvestment Return
1993 466.45 7.06% 3.02% 10.08%
1992 435.71 4.46% 3.16% 7.62%
1991 417.09 26.31% 4.16% 30.47%
1990 330.22 -6.56% 3.46% -3.10%
1989 353.40 27.25% 4.44% 31.69%
1988 277.72 12.40% 4.21% 16.61%
1987 247.08 2.03% 3.07% 5.10%
1986 242.17 14.62% 3.94% 18.56%
1985 211.28 26.33% 5.24% 31.57%
1984 167.24 1.40% 4.70% 6.10%
YIELDS AND TOTAL RETURNS QUOTED FOR THE FUNDS INCLUDE THE EFFECT OF
DEDUCTING EACH FUND'S EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES
ATTRIBUTABLE TO ANY PARTICULAR INSURANCE PRODUCT. SINCE SHARES OF THE FUNDS
MAY ONLY BE PURCHASED THROUGH A VARIABLE ANNUITY OR VARIABLE LIFE CONTRACT,
YOU SHOULD CAREFULLY REVIEW THE PROSPECTUS OF THE INSURANCE PRODUCT YOU
HAVE CHOSEN FOR INFORMATION ON RELEVANT CHARGES AND EXPENSES. Excluding
these charges from quotations of each fund's performance has the effect of
increasing the performance quoted. You should bear in mind the effect of
these charges when comparing a fund's performance to that of other mutual
funds. For additional performance information, contact your insurance
company for a free annual report.
DISTRIBUTIONS AND TAXES
For a discussion of the tax status of your variable contract, refer to the
prospectus of your insurance company's separate account. It is suggested
you keep all statements you receive to assist in your personal
recordkeeping.
It is expected that shares of the funds will be held under the terms of
variable annuity or variable life insurance contracts. Under current tax
law, dividends or capital gain distributions from any fund are not
currently taxable when left to accumulate within a variable annuity or
variable life insurance contract. Depending on the variable contract,
withdrawals from the contracts may be subject to ordinary income tax and,
in addition, a 10% penalty tax on withdrawals before age 59 1/2.
Each fund is treated as a separate entity for federal income tax purposes.
Each fund intends to pay out all of its net investment income and net
realized capital gains for each year. Dividends from Money Market Portfolio
are declared daily and paid monthly. Equity-Income distributes its
dividends quarterly and High Income, Growth, Overseas, Investment Grade
Bond, Asset Manager and Index 500 Portfolios distribute any dividends each
year. Normally, net realized capital gains, if any, are distributed each
year for the funds. Such income and capital gains are automatically
reinvested in additional shares for the funds.
High Income, Equity-Income, Growth, Overseas, Investment Grade Bond, Asset
Manager and Index 500 Portfolios make dividend and capital gain
distributions on a per-share basis. After every distribution from each of
these funds, the fund's share price drops by the amount of the
distribution. Because dividends and capital gain distributions are
reinvested, the total value of an account will not be affected because,
although the shares will have a lower price, there will be correspondingly
more of them.
THE TRUSTS AND THE FIDELITY ORGANIZATION
Each Trust is an open-end, diversified, management investment company.
Variable Insurance Products Fund and Variable Insurance Products Fund II
were organized as Massachusetts business trusts on November 13, 1981 and
March 21, 1988, respectively. Currently, there are five portfolios in
Variable Insurance Products Fund (Money Market Portfolio, High Income
Portfolio, Equity-Income Portfolio, Growth Portfolio and Overseas
Portfolio) and three portfolios in Variable Insurance Products Fund II
(Investment Grade Bond Portfolio, Asset Manager Portfolio and Index 500
Portfolio). Each Trust has its own Board of Trustees, which
supervises its activities and reviews contractual arrangements with
companies that provide each fund with services. Each Trust is not required
to hold annual shareholder meetings, although special meetings may be
called for a specific fund, or each Trust as a whole, for purposes such as
electing or removing Trustees, changing fundamental policies or approving a
management contract. An insurance company issuing a variable contract that
participates in each Trust will vote shares in the separate account as
required by law and interpretations thereof, as may be amended or changed
from time to time. In accordance with current law and interpretations
thereof, a participating insurance company is required to request voting
instructions from policyowners and must vote shares in the separate account
in proportion to the voting instructions received. For a further
discussion, please refer to your insurance company's separate account
prospectus.
Fidelity Investments is one of America's largest investment management
organizations and has its principal business address at 82 Devonshire
Street, Boston, Massachusetts. It includes a number of different companies,
which provide a variety of financial services and products. Each fund
employs various Fidelity companies to perform certain activities required
for its operation.
Fidelity Management & Research Company, the funds' manager, is the
original Fidelity company, founded in 1946. It provides a number of mutual
funds and other clients with investment research and portfolio management
services. It maintains a large staff of experienced investment personnel
and a full complement of related support facilities. Fidelity Management
& Research (U.K.) Inc. (FMR U.K.), Fidelity Management & Research
(Far East) Inc. (FMR Far East), Fidelity International Investment Advisors
(FIIA) and FMR Texas Inc. (FMR Texas) are wholly owned subsidiaries of FMR
that provide research, investment advice and portfolio management services
for certain funds advised by FMR with respect to foreign securities (FMR
U.K., FMR Far East, FIIA) and money market instruments (FMR Texas). FMR
U.K., FMR Far East, FIIA, and FMR Texas maintain their principal business
offices in London, Tokyo, Bermuda, and Dallas, respectively. As of December
31, 1993, FMR advised funds having more than 15 million shareholder
accounts with a total value of more than $ 225 billion. Fidelity
Distributors Corporation (Distributors) distributes shares for the Fidelity
funds. FMR Corp. is the holding company for the Fidelity companies. Through
ownership of voting common stock, Edward C. Johnson 3d, President and a
Trustee of the Trust, Johnson family members, and various trusts for the
benefit of the Johnson family form a controlling group with respect to FMR
Corp.
Each fund has an investment objective similar to that of an existing
Fidelity retail fund. Money Market Portfolio is most similar to Fidelity
Cash Reserves, High Income Portfolio to Spartan High Income Fund,
Equity-Income Portfolio to Fidelity Equity-Income Fund, Growth Portfolio to
Fidelity Retirement Growth Fund, Overseas Portfolio to Fidelity Overseas
Fund, Investment Grade Bond Portfolio to Fidelity Intermediate Bond Fund,
Asset Manager Portfolio to Fidelity Asset Manager, and Index 500 Portfolio
to Fidelity Market Index Fund. Performance of these funds is not expected
to be the same as the performance of the corresponding retail fund due in
part to dissimilarities in their investments. Various insurance related
costs at the insurance company's separate account level will also affect
performance.
Bettina Doulton is the manager of Equity-Income Portfolio, which she has
managed since July 1993. Ms. Doulton is also manager of Fidelity Advisor
Equity Portfolio Income. Previously, she managed Fidelity Select Automotive
Portfolio and assisted on Fidelity Magellan Fund and Fidelity Equity-Income
Fund. Ms. Doulton also served as an analyst following the domestic and
European automotive and tire manufacturing industry as well as the gaming
and lodging industry. She joined Fidelity in 1985.
Barry Jay Coffman is vice president and manager of High Income Portfolio,
which he has managed since August 1990. Mr. Coffman also assists on
Fidelity Puritan Fund. Previously, he served as an assistant manager and
analyst for the high yield bond group. Before joining Fidelity in 1986, Mr.
Coffman was an analyst for Equitable Capital Management and was a senior
auditor at Arthur Anderson & Company.
Lawrence Greenberg is vice president and manager of Growth Portfolio, which
he has managed since April 1991. He also manages Emerging Growth.
Previously, Mr. Greenberg managed Select Environmental Services and Select
Medical Delivery. He also assisted on Fidelity Magellan Fund. Mr. Greenberg
joined Fidelity in 1986.
John R. Hickling is manager and vice president of Overseas Portfolio, which
he has managed since January 1993. Mr. Hickling also manages Fidelity
Overseas Fund, International Growth & Income, Advisor Overseas Fund,
and Japan Fund. Previously, he managed Emerging Markets, Europe,
International Opportunities and Pacific Basin. Mr. Hickling joined Fidelity
in 1982.
Donald Taylor is manager and vice president of Investment Grade Bond
Portfolio, which he has managed since September 1989. Mr. Taylor also
manages Advisor Short Fixed Income, Fidelity Short-Term Bond Portfolio and
Spartan Short-Term Income. In addition, Mr. Taylor manages Income Plus for
Fidelity International. Previously, he managed Corporate Trust, Qualified
Dividend, Zero Coupon Bond Fund, and Utilities Income. Mr. Taylor joined
Fidelity in 1986.
Robert Beckwitt is manager and vice president of Asset Manager Portfolio,
which he has managed since October 1989. Mr. Beckwitt also manages Fidelity
Asset Manager, Asset Manager: Growth, and Asset Manager: Income. In
addition, he serves as chief investment strategist for Fidelity Portfolio
Advisory Service. Previously, he managed Spartan Government Income, Spartan
Long-Term Government Bond, and was director of quantitative research. Mr.
Beckwitt joined Fidelity in 1985.
Each fund sells its shares to separate accounts of insurance companies
which are both affiliated and unaffiliated with FMR. Each fund currently
does not foresee any disadvantages to policyowners arising out of the fact
that each fund offers its shares to separate accounts of various insurance
companies to serve as the investment medium for their variable products.
Nevertheless, the Board of Trustees intends to monitor events in order to
identify any material irreconcilable conflicts which may possibly arise,
and to determine what action, if any, should be taken in response to such
conflicts. If such a conflict were to occur, one or more insurance
companies' separate accounts might be required to withdraw its investments
in one or more funds and shares of another fund may be substituted. This
might force a fund to sell securities at disadvantageous prices. In
addition, the Board of Trustees may refuse to sell shares of any fund to
any separate account or may suspend or terminate the offering of shares of
any fund if such action is required by law or regulatory authority or is in
the best interests of the shareholders of the fund.
MANAGEMENT, DISTRIBUTION AND SERVICE FEES
For managing each fund's investments and business affairs, each fund pays
FMR a monthly fee.
MONEY MARKET PORTFOLIO'S fee is made up of two components: (a) a basic fee
rate and (b) an income-based component. The basic fee rate is the
sum of the following two components:
1. A group fee rate based on the monthly average net assets of all the
mutual funds advised by FMR. This rate cannot rise above .37%, and it drops
(to as low as a marginal rate of .1325%) as total assets in all these funds
rise. The effective group fee rate for December 1993 was .1621%.
2. An individual fund fee rate of .03%.
One-twelfth of the combined annual fee rate is applied to the fund's net
assets averaged over the most recent month, giving a dollar amount which is
the fee for that month. If the fund's gross yield is 5% or less, the basic
fee is the total management fee. The income-based component is added to the
basic fee only when the fund's yield is greater than 5%. The
income-based fee is 6% of that portion of the fund's yield that represents
a gross yield of more than 5% per year. The maximum income-based component
is .24%.
For fiscal 1993, the fund's management fee was .14% of the average net
assets of the fund - approximately $1.40 for every $1,000 of the fund's
average net assets.
INVESTMENT GRADE BOND AND HIGH INCOME PORTFOLIO'S annual fee rates are the
sum of two components:
1. A group fee rate based on the monthly average net assets of all the
mutual funds advised by FMR. This rate cannot rise above .37%, and it drops
(to as low as a marginal rate of .14%* for Investment Grade Bond Portfolio
and .1325% for High Income Portfolio) as total assets in all these funds
rise. The effective group fee rate for December 1993 was .1621%.
2. An individual fund fee rate of .30% and .45% for Investment Grade Bond
Portfolio and High Income Portfolio, respectively.
*FMR voluntarily agreed to adopt a revised group fee rate schedule for
Investment Grade Bond Portfolio which provides for a marginal rate as low
as .1325% when average group net assets exceed $336 billion. A new
management contract with a revised group fee rate schedule will be
presented for approval at the next shareholder meeting.
One-twelfth of the combined annual fee rate is applied to each fund's net
assets averaged over the most recent month, giving a dollar amount which is
the fee for that month.
In fiscal year 1993, FMR's fee was .47% and .51% of Investment Grade Bond
and High Income Portfolios' average net assets, respectively, or $4.70 and
$5.10 for every $1,000 of each fund's respective average net assets. The
fee for High Income Portfolio is based on an individual fund fee rate of
.35%. Shareholders of the fund voted to increase the individual fund fee
rate to .45% on December 15, 1993.
EQUITY-INCOME, GROWTH, OVERSEAS AND ASSET MANAGER PORTFOLIOS' annual fee
rates are the sum of two components:
1. A group fee rate based on the monthly average net assets of all the
mutual funds advised by FMR. This rate cannot rise above .52%, and it drops
(to as low as a marginal rate of .30%*) as total assets in all these funds
rise. The effective group fee rate for December 1993 was .3243%.
2. An individual fund fee rate of .20% for Equity-Income Portfolio, .30%
for Growth Portfolio, .40% for Asset Manager Portfolio and .45% for
Overseas Portfolio.
*FMR voluntarily agreed to adopt a revised group fee rate schedule for
these funds which provides for a marginal rate as low as .285% when
average group net assets exceed $336 billion. A new management contract for
each fund with a revised group fee rate schedule will be presented for
approval at the next shareholder meeting.
One-twelfth of the combined annual fee rate is applied to each fund's net
assets averaged over the most recent month, giving a dollar amount which is
the fee for that month.
In fiscal year 1993, FMR's fee was .53%, .63%, .72% and .77% of
Equity-Income, Growth, Asset Manager and Overseas Portfolios' average net
assets, or $5.30, $6.30, $7.20 and $7.70 for every $1,000 of each
fund's average net assets , respectively . Due to the greater
complexity, expense and commitment of resources involved in international
investing, Overseas Portfolio's management fee rate is higher than those of
most domestic mutual funds, but not necessarily higher than those of the
typical international fund.
INDEX 500 PORTFOLIO pays a monthly management fee to FMR at the annual rate
of .28% of the fund's average net assets. One-twelfth of this annual fee
rate is applied to the net assets averaged over the most recent month,
giving a dollar amount which is the management fee for that month.
Each fund has adopted a Distribution and Service Plan (the Plans) pursuant
to Rule 12b-1 under the Investment Company Act of 1940. No separate
payments are authorized to be made by the funds under the Plans. Rather,
each Plan recognizes that FMR may use its management fee or other resources
to pay expenses associated with activities primarily intended to result in
the sale of each fund's shares. Each Plan also provides that FMR may make
payments from these sources to third parties, although the Board has not
authorized these payments to date.
On behalf of High Income and Asset Manager Portfolios, FMR has entered into
sub-advisory agreements with FMR U.K. and FMR Far East. On behalf of
Overseas Portfolio, FMR has entered into sub-advisory agreements with FMR
U.K., FMR Far East, and FIIA. FIIA, in turn, has entered into a
sub-advisory agreement with its wholly owned subsidiary Fidelity
International Investment Advisors (U.K.) Limited (FIIAL U.K.). Under the
sub-advisory agreements, FMR may receive investment advice and research
services with respect to companies based outside the U.S. and (except for
Asset Manager Portfolio) may grant the sub-advisors investment
management authority as well as the authority to buy and sell securities if
FMR believes it would be beneficial to the fund.
Currently, FMR U.K., FMR Far East, FIIA and FIIAL U.K. each focus on
companies other than the U.S., including countries in Europe, Asia and the
Pacific Basin.
Under the sub-advisory agreements FMR pays the fees of FMR U.K., FMR Far
East, and FIIA. FIIA, in turn, pays the fees of FIIAL U.K.
For providing investment advice and research services the sub-advisors are
compensated as follows:
(bullet) FMR pays FMR U.K. and FMR Far East fees equal to 110% and 105%,
respectively, of FMR U.K.'s and FMR Far East's costs incurred in connection
with providing investment advice and research services.
(bullet) FMR pays FIIA 30% of its monthly management fee with respect to
the average market value of investments held by the fund for which FIIA has
provided FMR with investment advice.
(bullet) FIIA pays FIIAL U.K. a fee equal to 110% of FIIAL U.K.'s costs
incurred in connection with providing investment advice and research
services.
For providing investment management services, the sub-advisors are
compensated according to the following formulas:
(bullet) FMR pays FMR U.K., FMR Far East, and FIIA 50% of its monthly
management fee with respect to the fund's average net assets managed by the
sub-advisor on a discretionary basis.
(bullet) FIIA pays FIIAL U.K. 110% of FIIAL U.K.'s costs incurred in
connection with providing investment management.
On behalf of Money Market Portfolio, FMR has entered into a sub-advisory
agreement with FMR Texas, a Texas corporation with principal offices at 400
East Las Colinas Boulevard in Irving, Texas. Pursuant to the agreement, FMR
Texas has primary responsibility for providing investment management
services.
Under the sub-advisory agreement, FMR, and not the fund, pays FMR Texas a
fee equal to 50% of the management fee payable to FMR under its management
contract with the fund. (The fees paid to FMR Texas are not reduced by any
voluntary or mandatory management fee waivers or expense reimbursements
which may be in effect from time to time). In fiscal 1993, FMR paid FMR
Texas a fee of $207,606 which was equivalent to .07 % of Money
Market Portfolio's average net assets.
Each fund utilizes Fidelity Investments Institutional Operations Company
(FIIOC), an affiliate of FMR, to maintain the master accounts of the
participating insurance companies. Under the transfer agent agreement with
FIIOC, each fund pays fees based on the type, size, and number of accounts
in each fund and the number of transactions made by shareholders of each
fund. For fiscal year 1993, Money Market, High Income, Equity-Income,
Growth, Overseas, Investment Grade Bond, Asset Manager and Index 500
Portfolios paid FIIOC $87,208, $108,432, $111,756, $140,122, $143,222,
$71,119, $115,600 and $33,911, respectively, for these services.
Each fund also has an agreement with Fidelity Service Co. (FSC), an
affiliate of FMR under which each fund pays FSC to calculate its daily
share price and to maintain the portfolio and general accounting records of
each fund and to administer each fund's securities lending program. The
fees for pricing and bookkeeping services are based on each fund's average
net assets, but must fall within a range of $20,000 to $750,000 per year
for Money Market Portfolio and $45,000 to $750,000 for High Income,
Equity-Income, Growth, Overseas, Investment Grade Bond, Asset Manager, and
Index 500 Portfolios. The fees for securities lending services are based on
the number and duration of individual securities loans. For fiscal year
1993, the fees paid to FSC (including securities lending, if any, and
related out-of-pocket expenses) amounted to $87,208, $108,432, $111,756,
$140,122, $143,222, $46,426, $583,404, and $45,074 for Money Market,
High Income, Equity-Income, Growth, Overseas, Investment Grade Bond, Asset
Manager, and Index 500 Portfolios, respectively.
Total expenses for fiscal year 1993 amounted to .22%, .64%, .62%, .71%,
1.03%, .68%, .88% and .28 %, respectively of Money Market, High Income,
Equity-Income, Growth, Overseas, Investment Grade Bond, Asset Manager, and
Index 500 Portfolios' average net assets.
FMR may, from time to time, agree to reimburse a fund for management fees
and other expenses above a specified percentage of average net assets.
Reimbursement arrangements, which may be terminated at any time without
notice, will increase a fund's yield. If FMR discontinues a reimbursement
arrangement, each fund's expenses will go up and its yield will be reduced.
FMR retains the ability to be repaid by a fund for expense reimbursements
if expenses fall below the limit prior to the end of the fiscal year.
Repayment by a fund will lower its yield. FMR has voluntarily agreed to
reimburse the total operating expenses (excluding taxes, interest
and extraordinary expenses) of Index 500 Portfolio in excess of .28% of its
average net assets, Investment Grade Bond Portfolio in excess of .80% of
its average net assets, High Income Portfolio in excess of 1.00% of its
average net assets, Asset Manager in excess of 1.25% of its average net
assets and of Equity-Income, Growth and Overseas Portfolios in excess of
1.50% of their average net assets.
SHAREHOLDER'S MANUAL
OPENING AN ACCOUNT
SINCE YOU MAY NOT PURCHASE THE PORTFOLIOS' SHARES DIRECTLY, YOU SHOULD READ
THE PROSPECTUS OF THE INSURANCE COMPANY'S SEPARATE ACCOUNT TO OBTAIN
INSTRUCTIONS FOR PURCHASING A VARIABLE ANNUITY OR VARIABLE LIFE INSURANCE
CONTRACT.
SHARE PRICE
The term "net asset value" or NAV refers to the worth of one share. The NAV
is computed by adding the value of each fund's investments, cash and other
assets, deducting liabilities and dividing the result by the number of
shares outstanding. Each fund is open for business each day the New York
Stock Exchange is open. The price of one share is its NAV which FSC
normally calculates as of the close of business of the New York Stock
Exchange (normally 4:00 p.m. Eastern time).
Money Market Portfolio's securities are valued on the basis of amortized
cost. This means of valuation assumes a steady rate of amortization of any
premium or discount from the date of purchase until maturity instead of
looking at actual changes in market value.
High Income, Equity-Income, Growth, Investment Grade Bond, Asset Manager
and Index 500 Portfolios' securities are valued primarily on the basis of
market quotations. A fund's foreign securities are valued based on
quotations from the primary market in which they are traded, and are
translated from the local currency into U.S. dollars using current exchange
rates.
For all funds, other assets and securities for which market quotations are
not readily available will be valued by a method which the Trust's Board
believes accurately reflects fair value.
INVESTMENTS
Investments in each fund may be made only by separate accounts established
and maintained by insurance companies for the purpose of funding variable
contracts. Please refer to the prospectus of your insurance company's
separate account for information on how to invest in each fund.
Investments by separate accounts in each fund are expressed in terms of
full and fractional shares of each fund. All investments in the funds are
credited to an insurance company's separate account immediately upon
acceptance of the investment by a fund. Investments will be processed at
the next NAV calculated after an order is received and accepted by a fund.
The offering of shares of any fund may be suspended for a period of time
and each fund reserves the right to reject any specific purchase order.
Purchase orders may be refused if, in FMR's opinion, they are of a size
that would disrupt the management of a fund.
REDEMPTIONS
Shares of any fund may be redeemed on any business day. Redemptions are
effected at the per share NAV next determined after receipt of the
redemption request has been accepted by a fund. Redemption proceeds will
normally be wired to the insurance company on the next business day after
receipt of the redemption instructions by a fund but in no event later than
7 days following receipt of instructions. Each fund may suspend redemptions
or postpone payment dates on days when the New York Stock Exchange is
closed (other than weekend or holidays), when trading on the New York Stock
Exchange is restricted, or as permitted by the Securities and Exchange
Commission.
Please refer to the prospectus of your insurance company's separate account
for information on how to redeem from each fund.
APPENDIX
The following paragraphs provide a brief description of securities in which
the funds may invest and transactions they may make. Each fund is not
limited by this discussion, however, and may purchase other types of
securities and enter into other types of transactions if they are
consistent with the its investment objective and policies.
MONEY MARKET refers to the marketplace where short-term, high grade debt
securities are traded and includes U.S. government obligations,
commercial paper, certificates of deposit and bankers' acceptances, time
deposits and short-term corporate obligations. Money market instruments may
carry fixed rates of return or have variable or floating interest rates.
COMMERCIAL PAPER represents short-term obligations issued by banks,
broker-dealers, corporations and other entities for purposes such as
financing their current operations.
CERTIFICATES OF DEPOSIT represent a commercial bank's obligations to repay
funds deposited with it earning specified rates of interest over given
periods.
BANKERS' ACCEPTANCES are obligations of a bank to pay a draft which has
been drawn on it by a customer. These obligations are backed by large banks
and usually backed by goods in international trade.
TIME DEPOSITS are non-negotiable deposits in a banking institution earning
a specified interest rate over a given period of time.
U.S. GOVERNMENT OBLIGATIONS are debt securities issued or guaranteed as to
principal and interest by the U.S. Treasury or by an agency or
instrumentality of the U.S. government. Not all U.S. government obligations
are backed by the full faith and credit of the United States. For example,
securities issued by the Federal Farm Credit Bank or by the Federal
National Mortgage Association are supported by the agency's right to borrow
money from the U.S. Treasury under certain circumstances. Securities issued
by the Federal Home Loan Bank are supported only by the credit of the
agency. There is no guarantee that the government will support these types
of securities, and therefore they involve more risk than other government
obligations.
DELAYED DELIVERY TRANSACTIONS. Money Market , Investment Grade Bond
and High Income Portfolios may buy and sell securities on a when-issued
or delayed-delivery basis, with payment and delivery taking place at a
future date. The market value of securities purchased in this way may
change before the delivery date, which could affect the market value of
Money Market Portfolio's assets, and could increase fluctuations in
High Income and Investment Grade Bond Portfolio s' yield.
Ordinarily, the funds will not earn interest on securities purchased until
they are delivered.
VARIABLE OR FLOATING RATE OBLIGATIONS, including certain participation
interests in municipal obligations, have interest rate adjustment formulas
that help stabilize their market values. Many variable and floating rate
instruments also carry demand features that permit a fund to sell them at
par value plus accrued interest on short notice. When determining the
maturity of a variable or floating rate instrument, Money Market Portfolio
may look to the date the demand feature can be exercised, or to the date
the interest rate is readjusted, rather than to the final maturity of the
instrument.
CREDIT ENHANCEMENT AGREEMENTS may be purchased simultaneously with a money
market instrument for guaranteeing principal and/or interest and may be
considered with the instrument for purposes of determining the quality of
the instruments. These include irrevocable note repurchase agreements or
letters of credit issued by banks and guarantees provided by creditworthy
institutions. A fund will purchase these agreements to enhance the
creditworthiness of instruments when FMR (through yield and credit
analysis) believes it is in the fund's best interest.
CORPORATE OBLIGATIONS are bonds and notes issued by corporations and other
business organizations in order to finance their long-term credit needs.
OPTIONS AND FUTURES CONTRACTS are a way for a fund to manage its exposure
to changing interest rates, security prices, and currency exchange rates.
Some options and futures strategies, including selling futures, buying
puts, and writing calls, tend to hedge a fund's investments against price
fluctuations. Other strategies, including buying futures, writing puts, and
buying calls, tend to increase market exposure. Options and futures may be
combined with each other or with forward contracts in order to adjust the
risk and return characteristics of the overall strategy. A fund may invest
in options and futures based on any type of security, index, or currency,
including options and futures traded on foreign exchanges and options not
traded on exchanges.
Options and futures can be volatile investments, and involve certain risks.
If FMR applies a hedge at an inappropriate time or judges market conditions
incorrectly, options and futures strategies may lower a fund's return. A
fund could also experience losses if the prices of its options and futures
positions were poorly correlated with its other investments, or if it could
not close out its positions because of an illiquid secondary market.
A fund will not hedge more than 25% (35% for Index 500) of their total
assets by selling futures, buying puts, and writing calls under normal
conditions. In addition, each fund will not buy futures or write puts whose
underlying value exceeds 25% (15% for Index 500) of its total assets, and
each fund will not buy calls with a value exceeding 5% of its total assets.
SHORT SALES. A fund may enter into short sales with respect to stocks
underlying its convertible security holdings. These transactions may help
to hedge against the effect of stock price declines, but may result in
losses if a convertible security's price does not track the price of its
underlying equity. Convertible securities hedged with short sales are not
currently expected to exceed 15% of a fund's total assets under normal
conditions.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS are interests in amounts owed by a
corporate, governmental, or other borrower to another party. They may
represent amounts owed to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or other
receivables), or to other parties. Direct debt instruments involve risk of
loss in case of default or insolvency of the borrower and may offer less
legal protection to a fund in the event of fraud or misrepresentation. In
addition, loan participations involve a risk of insolvency of the lending
bank or other financial intermediary. Direct debt instruments may also
include standby financing commitments that obligate a fund to supply
additional cash to the borrower on demand.
ILLIQUID INVESTMENTS. Each fund (other than Money Market Portfolio) may
invest up to 10% of its assets (15% for High Income and Overseas
Portfolios) in illiquid investments. Money Market Portfolio will invest
less than 10% of its assets in illiquid investments. Under the supervision
of the Board of Trustees, FMR determines the liquidity of each fund's
investments. The absence of a trading market can make it difficult to
ascertain a market value for illiquid investments. Disposing of illiquid
investments may involve time-consuming negotiation and legal expenses, and
it may be difficult or impossible for a fund to sell them promptly at an
acceptable price.
RESTRICTED SECURITIES. Each fund may purchase securities which cannot be
sold to the public without registration under the Securities Act of 1933
(restricted securities). Unless registered for sale, these securities can
only be sold in privately negotiated transactions or pursuant to an
exemption from registration.
INDEXED SECURITIES values are linked to currencies, interest rates,
commodities, indices, or other financial indicators. Most indexed
securities are short to intermediate term fixed-income securities whose
values at maturity or interest rates rise or fall according to the change
in one or more specified underlying instruments. Indexed securities may be
positively or negatively indexed (i.e., their value may increase or
decrease if the underlying instrument appreciates), and may have return
characteristics similar to direct investments in the underlying instrument
or to one or more options on the underlying instrument. Indexed securities
may be more volatile than the underlying instrument itself.
SWAP AGREEMENTS. As one way of managing its exposure to different types of
investments, a fund may enter into interest rate swaps, currency swaps, and
other types of swap agreements such as caps, collars, and floors. In a
typical interest rate swap, one party agrees to make regular payments equal
to a floating interest rate multiplied by a "notional principal amount," in
return for payments equal to a fixed rate multiplied by the same amount,
for a specified period of time. If a swap agreement provides for payments
in different currencies, the parties might agree to exchange the notional
principal amount as well. Swaps may also depend on other prices or rates,
such as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate
exceeds an agreed-upon level, while the seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate
falls below an agreed-upon level. An interest rate collar combines elements
of buying a cap and selling a floor.
Swap agreements will tend to shift a fund's investment exposure from one
type of investment to another. For example, if a fund agreed to exchange
payments in dollars for payments in foreign currency, the swap agreement
would tend to decrease a fund's exposure to U.S. interest rates and
increase its exposure to foreign currency and interest rates. Caps and
floors have an effect similar to buying or writing options. Depending on
how they are used, swap agreements may increase or decrease the overall
volatility of a fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks
assumed. As a result, swaps can be highly volatile and may have a
considerable impact on a fund's performance. Swap agreements are subject to
risks related to the counterparty's ability to perform, and may decline in
value if the counterparty's creditworthiness deteriorates. A fund may also
suffer losses if it is unable to terminate outstanding swap agreements or
reduce its exposure through offsetting transactions.
WARRANTS. High Income, Equity-Income, Growth, Overseas, Asset Manager and
Index 500 Portfolios may invest in warrants, which entitle the holder to
buy equity securities at a specific price for a specific period of time.
Warrants may be considered more speculative than certain other types of
investments in that they do not entitle a holder to dividends or voting
rights with respect to the securities which may be purchased nor do they
represent any rights in the assets of the issuing company. The value of a
warrant may be more volatile than the value of the warrant's underlying
securities. Also, the value of the warrant does not necessarily change with
the value of the underlying securities and a warrant ceases to have value
if it is not exercised prior to the expiration date.
MORTGAGE-BACKED SECURITIES are securities issued by government and
non-government entities such as banks, mortgage lenders, or other financial
institutions. A mortgage-backed security may be an obligation of the issuer
backed by a mortgage or pool of mortgages or a direct interest in an
underlying pool of mortgages. Some mortgage-backed securities, such as
collateralized mortgage obligations or CMOs, make payments of both
principal and interest at a variety of intervals; others make semiannual
interest payments at a predetermined rate and repay principal at maturity
(like a typical bond). Mortgage-backed securities are based on different
types of mortgages including those on commercial real estate or residential
properties. Other types of mortgage-backed securities will likely be
developed in the future, and a fund may invest in them if FMR determines
they are consistent with its investment objective and policies.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment
risk. Prepayment, which occurs when unscheduled or early payments are made
on the underlying mortgages, may shorten the effective maturities of these
securities and may lower their total returns.
STRIPPED MORTGAGE-BACKED SECURITIES are created when a U.S. government
agency or a financial institution separates the interest and principal
components of a mortgage-backed security and sells them as individual
securities. The holder of the "principal-only" security (PO) receives the
principal payments made by the underlying mortgage-backed security, while
the holder of the "interest-only" security (IO) receives interest payments
from the same underlying security.
The prices of stripped mortgage-backed securities may be particularly
affected by changes in interest rates. As interest rates fall, prepayment
rates tend to increase, which tends to reduce prices of IOs and increase
prices of POs. Rising interest rates can have the opposite effect.
ASSET-BACKED SECURITIES may include pools of mortgages, loans, receivables
or other assets. Payment of principal and interest may be largely dependent
upon the cash flows generated by the assets backing the securities.
ZERO COUPON BONDS do not make interest payments; instead, they are sold at
a deep discount from their face value and are redeemed at face value when
they mature. Because zero coupon bonds do not pay current income, their
prices can be very volatile when interest rates change. In calculating its
daily dividend, a fund takes into account as income a portion of the
difference between a zero coupon bond's purchase price and its face value.
A broker-dealer creates a derivative zero by separating the interest and
principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury
Securities), TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury
Receipts) are examples of derivative zeros.
The Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and
principal components of an outstanding U.S. Treasury bond and selling them
as individual securities. Bonds issued by the Resolution Funding
Corporation (REFCORP) and the Financing Corporation (FICO) can also be
separated in this fashion. Original issue zeros are zero coupon securities
originally issued by the U.S. government, a government agency, or a
corporation in zero coupon form.
REPURCHASE AGREEMENTS AND SECURITIES LOANS. In a repurchase agreement, a
fund buys a security at one price and simultaneously agrees to sell it back
to the seller at a higher price. Each fund may also make securities loans
to broker-dealers and institutional investors, including FBSI. In the event
of the bankruptcy of the other party to a repurchase agreement or a
securities loan, each fund could experience delays in recovering its cash
or the securities it lent. To the extent that, in the meantime, the value
of the securities purchased had decreased, or the value of the securities
lent had increased, each fund could experience a loss. A fund may enter
into a FOREIGN REPURCHASE AGREEMENT with respect to foreign securities and
repurchase agreements denominated in foreign currencies. Foreign repurchase
agreements may be less well secured than repurchase agreements in U.S.
markets, and may involve greater risks of default. In all cases, FMR must
find the creditworthiness of the other party to the transaction
satisfactory.
REVERSE REPURCHASE AGREEMENTS are transactions when a fund temporarily
transfers possession of a portfolio instrument to another party, such as a
bank or broker-dealer, in return for cash. At the same time, the fund
agrees to repurchase the instrument at an agreed-upon price and time. Each
fund expects that it will engage in reverse repurchase agreements for
temporary purposes (except Money Market Portfolio, which may do so for
any purpose) such as to fund redemptions or when it is able to invest
the cash so acquired at a rate higher than the cost of the agreement, which
would increase the income earned by the fund. Reverse repurchase agreements
may increase the risk of fluctuation in the market value of each fund's
assets or in its yield.
INTERFUND BORROWING PROGRAM. Each fund has received permission from the
Securities and Exchange Commission to lend money to and borrow money from
other funds advised by FMR or its affiliates. Interfund loans and
borrowings normally will extend overnight, but can have a maximum duration
of seven days. Each fund will lend through the program only when the
returns are higher than those available at the same time from other
short-term instruments (such as repurchase agreements), and will borrow
through the program only when the costs are equal to or lower than the cost
of bank loans. Equity-Income, Growth and Overseas Portfolios cannot lend
more than 5% of net assets, High Income Portfolio cannot lend more than
7.5% of net assets and Money Market Portfolio cannot lend more than 10% of
net assets to other funds. Each fund will not borrow through the program
if, after doing so, total outstanding borrowings would exceed 15% of its
total assets. Loans may be called on one day's notice, and each fund may
have to borrow from a bank at a higher interest rate if an interfund loan
is called or not renewed. Any delay in repayment to a lending fund could
result in a lost investment opportunity or additional borrowing costs.
DEBT OBLIGATIONS. The following tables provide a summary of ratings
assigned to debt holdings (not including money market instruments) held by
High Income, Equity-Income, Investment Grade Bond and Asset Manager
Portfolios. These percentages are dollar-weighted averages of month-end
portfolio holdings during the thirteen months ended December 31, 1993,
presented as a percentage of total investments. These percentages are
historical and not necessarily indicative of the quality of current or
future portfolio holdings, which may vary.
HIGH EQUITY- ASSET INVESTMENT
RATED BY INCOME INCOME MANAGER GRADE BOND
S&P PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
AAA, AA, A 0.00% 1.28% 12.83% 71.42%
BBB 0.86% 1.05% 0.93% 14.88%
BB 10.13% 0.91% 2.68% 0.54%
B 41.74% 1.39% 3.37% 0.06%
CCC 5.03% 0.03% 0.04% 0.01%
CC, C 0.25% 0.00% 0.00% 0.00%
D 1.32% 0.02% 0.09% 0.00%
HIGH EQUITY- ASSET INVESTMENT
RATED BY INCOME INCOME MANAGER GRADE BOND
MOODY'S PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
AAA, AA, A 0.00% 1.45% 12.49% 64.14%
BBB 0.82% 0.73% 0.41% 20.02%
BB 10.93% 1.26% 6.31% 1.84%
B 37.56% 1.06% 5.67% 0.00%
CCC 6.26% 0.03% 0.06% 0.01%
CC, C 1.61% 0.00% 0.02% 0.00%
D 0.00% 0.00% 0.00% 0.00%
The dollar-weighted average of debt securities not rated by either S&P
or Moody's amounted to 21.50%, 0.28%, 4.20%, and 0.91% , for High
Income, Equity-Income, Asset Manager and Investment Grade Bond Portfolios,
respectively.*
* MAY INCLUDE SECURITIES RATED BY OTHER NATIONALLY RECOGNIZED RATING
ORGANIZATIONS, AS WELL AS UNRATED SECURITIES. UNRATED SECURITIES ARE NOT
NECESSARILY LOWER-QUALITY SECURITIES.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:
The descriptions that follow are examples of eligible ratings for the
funds. Money Market Portfolio may, however, consider the ratings for other
types of investments and the ratings assigned by other rating organizations
when determining the eligibility of a particular investment.
AAA - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such issues.
AA - Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A - Bonds rated A possess many favorable investment attributes and are to
be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA - Bonds rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA - Bonds rated Ba are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of
other terms of the contract over any long period of time may be small.
CAA - Bonds rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
CA - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked
short-comings.
C - Bonds rated C are the lowest-rated class of bonds and issued so rated
can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S CORPORATE BOND RATINGS:
AAA - Debt rated AAA has the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal
is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher-rated
categories.
BB - Debt rate BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
B - Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it is
not likely to have the capacity to pay interest and repay principal.
CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed but
debt service payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The D rating will
also be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
The ratings from AA to CCC may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.
VARIABLE INSURANCE PRODUCTS FUND: MONEY MARKET PORTFOLIO, HIGH INCOME
PORTFOLIO
EQUITY-INCOME PORTFOLIO, GROWTH PORTFOLIO AND OVERSEAS PORTFOLIO AND
VARIABLE INSURANCE PRODUCTS FUND II: INVESTMENT GRADE BOND PORTFOLIO
ASSET MANAGER PORTFOLIO AND INDEX 500 PORTFOLIO (THE TRUSTS)
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1994
This Statement is not a prospectus but should be read in conjunction with
each Trust's current Prospectus (dated April 30, 1994). Shares of each
Trust may only be purchased by the separate accounts of insurance
companies. Please retain this Statement for future reference. The Annual
Report to shareholders of each Trust for the year ended December 31, 1993
is incorporated herein by reference. To obtain additional copies of the
Prospectuses or Annual Reports, please call Fidelity Distributors
Corporation at 1-800-544-8888.
TABLE OF CONTENTS PAGE
Investment Policies and Limitations 2
Portfolio Transactions 12
Valuation of Fund Securities 14
Performance 15
General Information 21
Additional Purchase and Redemption Information 22
Taxes 22
FMR 23
Trustees and Officers 23
Management Contracts 26
Distribution and Service Plans 30
Contracts With Companies Affiliated With FMR 30
Summary of the Funds' Expenses 31
Description of the Trust 32
Financial Statements 33
Appendix 33
INVESTMENT ADVISOR
Fidelity Management & Research Company
SUB-ADVISORS
Money Market Portfolio:
FMR Texas Inc.
High Income and Asset Manager Portfolios:
Fidelity Management & Research (U.K.) Inc.
Fidelity Management & Research (Far East) Inc.
Overseas Portfolio:
Fidelity Management & Research (U.K.) Inc.
Fidelity Management & Research (Far East) Inc.
Fidelity International Investment Advisors
Fidelity International Investment Advisors (U.K.) Limited
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
Fidelity Investments Institutional Operations Company (FIIOC)
VIP-comb/ptB-- 4/94
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of a fund's assets that may be
invested in any security or other asset, or sets forth a policy regarding
quality standards, such standard or percentage limitation will be
determined immediately after and as a result of the fund's acquisition of
such security or other asset. Accordingly, any subsequent change in
values, net assets, or other circumstances will not be considered when
determining whether the investment complies with the fund's investment
policies and limitations.
Each fund's fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940) of each
fund. However, except for the fundamental investment limitations set forth
below, the investment policies and limitations described in this Statement
of Additional Information are not fundamental and may be changed without
shareholder approval.
MONEY MARKET PORTFOLIO
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS. THE FUND
MAY NOT:
(1) purchase the securities of any issuer (other than obligations issued or
guaranteed as to principal and interest by the United States, its agencies
or instrumentalities) if, as a result, more than 5% of its total assets
would be invested in the securities of such issuer, provided, however, that
with respect to 25% of its total assets, 10% of its assets may be invested
in the securities of any single issuer;
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(3) borrow money, except that the fund may (i) borrow money for temporary
or emergency purposes (not for leveraging or investment) and (ii) engage in
reverse repurchase agreements for any purpose; provided that (i) and (ii)
in combination do not exceed 33 1/3% of the fund's total assets (including
the amount borrowed) less liabilities (other than borrowings). Any
borrowings that come to exceed this amount will be reduced within three
days (not including Sundays and holidays) to the extent necessary to comply
with the 33 1/3% limitation;
(4) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(5) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the fund's total
assets would be invested in the securities of companies whose principal
business activities are in the same industry, except that the fund will
invest more than 25% of its total assets in the financial services
industry;
(6) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments;
(8) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements; or
(9) invest in companies for the purpose of exercising control or
management.
THE FOLLOWING INVESTMENT LIMITATIONS FOR MONEY MARKET PORTFOLIO ARE NOT
FUNDAMENTAL AND MAY BE CHANGED WITHOUT SHAREHOLDER NOTIFICATION.
(i) The fund does not currently intend to purchase a security (other than a
security issued or guaranteed by the U.S. government or any of its agencies
or instrumentalities) if, as a result, more than 5% of its total assets
would be invested in the securities of a single issuer; provided that the
fund may invest up to 10% of its total assets in the first tier securities
of a single issuer for up to three business days.
(ii) The fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(iii) The fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment advisor or (b) by engaging in reverse repurchase agreements with
any party. The fund will not borrow money in excess of 25% of net assets
so long as this limitation is required for certification by certain state
insurance departments. The fund will not purchase any security while
borrowings (excluding reverse repurchase agreements) representing more than
5% of its total assets are outstanding. The fund will not borrow from
other funds advised by FMR or its affiliates if total outstanding
borrowings immediately after such borrowing would exceed 15% of the fund's
total assets.
(v) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(vi) The fund does not currently intend to purchase or sell futures
contracts or call options. This limitation does not apply to options
attached to, or acquired or traded together with, their underlying
securities, and does not apply to securities that incorporate features
similar to options or futures contracts.
(vii) The fund does not currently intend to lend assets other than
securities to other parties, except by lending money (up to 10% of the
fund's net assets) to a registered investment company or portfolio for
which FMR or an affiliate serves as investment advisor. (This limit does
not apply to purchases of debt securities or to repurchase agreements.)
(viii) The fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission
except the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.
(Due to certain state insurance regulations, the fund does not currently
intend to purchase the securities of other investment companies.)
(ix) The fund does not currently intend to invest in oil, gas, or other
mineral exploration or development programs or leases.
Investments may be made in U.S. dollar-denominated time deposits,
certificates of deposit and bankers' acceptances of U.S. banks and their
branches located outside of the U.S., U.S. branches and agencies of foreign
banks, and foreign branches of foreign banks. The fund may also invest in
U.S. dollar-denominated securities issued or guaranteed by other U.S. or
foreign issuers, including U.S. and foreign corporations or other business
organizations, foreign governments and foreign government agencies or
instrumentalities, and U.S. and foreign financial institutions, including
savings and loan institutions, insurance companies, mortgage bankers and
real estate investment trusts, as well as banks. The fund may purchase
obligations of banks, savings and loan institutions and other financial
institutions whose creditworthiness might not otherwise meet the fund's
standards, provided that (i) the principal amount of the instrument
acquired by the fund is insured in full by the Federal Deposit Insurance
Corporation and (ii) the aggregate investment made in any one such bank or
institution does not exceed $100,000.
The obligations of foreign branches of U.S. banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by federal and state
regulation. Payment of interest and principal upon these obligations may
also be affected by governmental action in the country of domicile of the
branch (generally referred to as sovereign risk). In addition, evidences
of ownership of portfolio securities may be held outside of the U.S. and
the fund may be subject to the risks associated with the holding of such
property overseas. Various provisions of federal law governing the
establishment and operation of domestic branches do not apply to foreign
branches of domestic banks.
Obligations of U.S. branches and agencies of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by federal and state
regulation as well as by governmental action in the country in which the
foreign bank has its head office.
Obligations of foreign issuers also involve certain additional risks.
Foreign issuers may be subject to less governmental regulation and
supervision than U.S. issuers. Foreign issuers also generally are not
bound by uniform accounting, auditing and financial reporting requirements
comparable to those applicable to U.S. issuers.
HIGH INCOME, EQUITY-INCOME, GROWTH, OVERSEAS, INVESTMENT
GRADE BOND, ASSET MANAGER AND INDEX 500 PORTFOLIOS
THE FOLLOWING ARE HIGH INCOME, EQUITY-INCOME, GROWTH, OVERSEAS, INVESTMENT
GRADE BOND, ASSET MANAGER AND INDEX 500 PORTFOLIOS' FUNDAMENTAL INVESTMENT
LIMITATIONS. EACH FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, purchase the securities
of any issuer (other than securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities) if, as a result,
(a) more than 5% of the fund's total assets would be invested in the
securities of that issuer, or (b) the fund would hold more than 10% of the
outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(3) (for High Income, Equity-Income, Growth and Overseas Portfolios) borrow
money, except that the fund (i) may borrow money for temporary or emergency
purposes (not for leveraging or investment) or (ii) engage in reverse
repurchase agreements, provided that (i) and (ii) in combination
(borrowings) do not exceed 33 1/3% of its total assets (including the
amount borrowed) less liabilities (other than borrowings). Any borrowings
that come to exceed 33 1/3% of the value of the fund's total assets by
reason of a decline in net assets will be reduced within three days
(exclusive of Sundays and holidays) to the extent necessary to comply with
the 33 1/3% limitation;
(for Investment Grade Bond, Asset Manager and Index 500 Portfolios) borrow
money, except that the fund may borrow money for temporary or emergency
purposes (not for leveraging or investment) in an amount not exceeding 33
1/3% of its total assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings that come to exceed this amount
will be reduced within three days (not including Sundays and holidays) to
the extent necessary to comply with the 33 1/3% limitation;
(4) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(5) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of its total assets would
be invested in the securities of companies whose principal business
activities are in the same industry;
(6) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities); or
(8) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.
THE FOLLOWING INVESTMENT LIMITATIONS FOR HIGH INCOME, EQUITY-INCOME,
GROWTH, OVERSEAS, INVESTMENT GRADE BOND, ASSET MANAGER AND INDEX 500
PORTFOLIOS ARE NOT FUNDAMENTAL AND MAY BE CHANGED WITHOUT SHAREHOLDER
NOTIFICATION.
(i) Each fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(ii) Each fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iii) Each fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment advisor or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (3)). Each fund will not
borrow money in excess of 25% of net assets so long as this limitation is
required for certification by certain state insurance departments. Any
borrowings that come to exceed this amount will be reduced within seven
days (not including Sundays and holidays) to the extent necessary to comply
with the 25% limitation. Each fund will not purchase any security while
borrowings representing more than 5% of its total assets are outstanding.
Each fund will not borrow from other funds advised by FMR or its affiliates
if total outstanding borrowings immediately after such borrowing would
exceed 15% of the fund's total assets.
(iv) Each fund does not currently intend to purchase any security if, as a
result, more than 10% of Equity-Income, Growth, Investment Grade Bond,
Asset Manager and Index 500 Portfolios' net assets and 15% of High Income
and Overseas Portfolio's net assets would be invested in securities that
are deemed to be illiquid because they are subject to legal or contractual
restrictions on resale or because they cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they are
valued.
(v) Each fund does not currently intend to lend assets other than
securities to other parties, except by: (a) lending money (up to 5% of net
assets for Equity-Income, Growth, Overseas, Asset Manager and Index 500
Portfolios and 7.5% of net assets for High Income and Investment Grade Bond
Portfolios) to a registered investment company or portfolio for which FMR
or an affiliate serves as investment advisor or (b) acquiring loans, loan
participations, or other forms of direct debt instruments and, in
connection therewith, assuming any associated unfunded commitments of the
sellers. (This limitation does not apply to purchases of debt securities
or to repurchase agreements.)
(vi) Each fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission
except the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.
(Due to certain state insurance regulations, each fund does not currently
intend to purchase the securities of other investment companies.)
(vii) Each fund does not currently intend to invest in oil, gas, or other
mineral exploration or development programs or leases.
(viii) Growth and Overseas Portfolios do not currently intend to purchase a
security if, as a result, greater than 5% of its net assets would be
invested in debt securities rated Ba or lower by Moody's Investors Service,
Inc. or BB or lower by Standard & Poor's Corporation.
For each fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions." For
limitations on short sales, see the section entitled "Short Sales."
Higher yielding, fixed-income securities of the type in which High Income
Portfolio invests will at times be purchased at a discount from or a
premium over par value. The total return on such securities includes the
potential for a capital gain or loss. High Income Portfolio generally does
not intend to hold securities for the purpose of achieving capital gains,
however, unless current yields on these securities remain attractive.
Capital gain or loss may also be realized upon the sale of portfolio
securities.
The U.S. government has from time to time in the past imposed restrictions,
through taxation and otherwise, on foreign investments by U.S. investors
such as the funds. If such restrictions should be reinstituted, it might
become necessary for Overseas Portfolio to invest all or substantially all
of its assets in U.S. securities. In such event, the Board of Trustees
would reevaluate the fund's investment objective and policies.
In accordance with the funds' fundamental investment policies, there are no
limitations on the percentage of the funds' assets which may be invested in
any one type of instrument. Nor are there limitations (except those
imposed by certain state insurance regulations) on the percentage of the
funds' assets which may be invested in any foreign country. However, in
order to comply with diversification requirements under Section 817(h) of
the Internal Revenue Code of 1986, as amended, in connection with FMR
serving as investment advisor, each fund has agreed to certain
non-fundamental limitations. Please refer to your insurance company's
separate account prospectus for more information.
AFFILIATED BANK TRANSACTIONS. A fund may engage in transactions with
financial institutions that are, or may be considered to be, "affiliated
persons" of the fund under the Investment Company Act of 1940. These
transactions may include repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50 largest
U.S. banks (measured by deposits); municipal securities; U.S. government
securities with affiliated financial institutions that are primary dealers
in these securities; short-term currency transactions; and short-term
borrowings. In accordance with exemptive orders issued by the Securities
and Exchange Commission (SEC), the Board of Trustees has established and
periodically reviews procedures applicable to transactions involving
affiliated financial institutions.
FUNDS' RIGHTS AS A SHAREHOLDER. Each fund does not intend to direct or
administer the day-to-day operations of any company. Each fund, however,
may exercise its rights as a shareholder and may communicate its views on
important matters of policy to management, the Board of Directors, and
shareholders of a company when FMR determines that such matters could have
a significant effect on the value of each fund's investment in the company.
The activities that each fund may engage in, either individually or in
conjunction with others, may include, among others, supporting or opposing
proposed changes in a company's corporate structure or business activities;
seeking changes in a company's directors or management; seeking changes in
a company's direction or policies; seeking the sale or reorganization of
the company or a portion of its assets; or supporting or opposing third
party takeover efforts. This area of corporate activity is increasingly
prone to litigation and it is possible that each fund could be involved in
lawsuits related to such activities. FMR will monitor such activities with
a view to mitigating, to the extent possible, the risk of litigation
against each fund and the risk of actual liability if each fund is involved
in litigation. No guarantee can be made, however, that litigation against
each fund will not be undertaken or liabilities incurred.
ASSET-BACKED SECURITIES may include pools of mortgages, loans, receivables
or other assets. Payment of principal and interest may be largely
dependent upon the cash flows generated by the assets backing the
securities, and, in certain cases, supported by letters of credit, surety
bonds, or other credit enhancements. The value of asset-backed securities
may also be affected by the creditworthiness of the servicing agent for the
pool, the originator of the loans or receivables, or the financial
institution(s) providing the credit support.
VARIABLE OR FLOATING RATE OBLIGATIONS bear variable or floating interest
rates and carry rights that permit holders to demand payment of the unpaid
principal balance plus accrued interest from the issuers or certain
financial intermediaries. Floating rate instruments have interest rates
that change whenever there is a change in a designated base rate while
variable rate instruments provide for a specified periodic adjustment in
the interest rate. These formulas are designed to result in a market value
for the instrument that approximates its par value.
A demand instrument with a conditional demand feature must have received
both a short-term and a long-term high-quality rating or, if unrated, have
been determined to be of comparable quality pursuant to procedures adopted
by the Board of Trustees. A demand instrument with an unconditional demand
feature may be acquired solely in reliance upon a short-term high-quality
rating or, if unrated, upon a finding of comparable short-term quality
pursuant to procedures adopted by the Board of Trustees.
Money Market Portfolio may invest in variable or floating rate instruments
that ultimately mature in more than 397 days, if the fund acquires a right
to sell the instruments that meets certain requirements set forth in Rule
2a-7. Variable rate instruments (including instruments subject to a demand
feature) that mature in 397 days or less and U.S. government securities
with a variable rate of interest adjusted no less frequently than 762 days
may be deemed to have maturities equal to the period remaining until the
next readjustment of the interest rate. Other variable rate instruments
with demand features may be deemed to have a maturity equal to the period
remaining until the next adjustment of the interest rate or the period
remaining until the principal amount can be recovered through demand. A
floating rate instrument subject to a demand feature may be deemed to have
a maturity equal to the period remaining until the principal amount can be
recovered through demand.
REPURCHASE AGREEMENTS are transactions in which a fund purchases a
security and simultaneously commits to resell that security to the seller
at an agreed upon price upon demand on an agreed upon date within a
specified number of days from the date of purchase. The resale price
reflects the purchase price plus an agreed upon incremental amount which is
unrelated to the coupon rate or maturity of the purchased security. A
repurchase agreement involves the obligation of the seller to pay the
agreed upon price, which obligation is in effect secured by the value (at
least equal to the amount of the agreed upon resale price and marked to
market daily) of the underlying security. Each fund may engage in a
repurchase agreement with respect to any security in which it is authorized
to invest even though the underlying security's maturity may be more than
one year. While it does not presently appear possible to eliminate all
risks from these transactions (particularly the possibility of a decline in
the market value of the underlying securities, as well as delay and costs
to each fund in connection with bankruptcy proceedings), it is the policy
of each fund to limit repurchase transactions to those whose
creditworthiness has been reviewed and found satisfactory by FMR.
Pursuant to an Exemptive Order issued by the SEC, the Money Market
Portfolio, along with other registered investment companies having
management contracts with FMR, may invest in a pool of one or more large
overnight repurchase agreements. The repurchase agreements' underlying
securities are U.S. government securities in which the fund is permitted to
invest.
FOREIGN REPURCHASE AGREEMENTS may include agreements to purchase and sell
foreign securities in exchange for fixed U.S. dollar amounts, or in
exchange for specified amounts of foreign currency. Unlike typical U.S.
repurchase agreements, foreign repurchase agreements may not be fully
collateralized at all times. The value of the security purchased by a fund
may be more or less than the price at which the counterparty has agreed to
repurchase the security. In the event of a default by the counterparty, a
fund may suffer a loss if the value of the security purchased is less than
the agreed-upon repurchase price, or if a fund is unable to successfully
assert a claim to the collateral under foreign laws. As a result, foreign
repurchase agreements may involve higher credit risks than repurchase
agreements in U.S. markets, as well as risks associated with currency
fluctuations. In addition, as with other emerging market investments,
repurchase agreements with counterparties located in emerging markets or
relating to emerging market securities may involve issuers or
counterparties with lower credit ratings than typical U.S. repurchase
agreements.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a fund
sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the instrument
at a particular price and time. While a reverse repurchase agreement is
outstanding, a fund will maintain appropriate liquid assets in a segregated
custodial account to cover its obligation under the agreement. A fund will
enter into reverse repurchase agreements only with parties whose
creditworthiness has been reviewed and found satisfactory by FMR. Such
transactions may increase fluctuations in the market value of a fund's
assets and may be viewed as a form of leverage.
SECURITIES LENDING. Each fund may lend securities to parties such as
broker-dealers or institutional investors, including Fidelity Brokerage
Services, Inc. (FBSI). FBSI is a member of the New York Stock Exchange
(NYSE) and a subsidiary of FMR Corp.
Securities lending allows a fund to retain ownership of the securities
loaned and, at the same time, to earn additional income. Since there may
be delays in the recovery of loaned securities, or even a loss of rights in
collateral supplied should the borrower fail financially, loans will be
made only to parties deemed by FMR to be of good standing. Furthermore,
they will only be made if, in FMR's judgment, the consideration to be
earned from such loans would justify the risk.
FMR understands that it is the current view of the SEC Staff that a fund
may engage in loan transactions only under the following conditions: (1)
the fund must receive 100% collateral in the form of cash or cash
equivalents (e.g., U.S. Treasury bills or notes) from the borrower; (2) the
borrower must increase the collateral whenever the market value of the
securities loaned (determined on a daily basis) rises above the value of
the collateral; (3) after giving notice, the fund must be able to terminate
the loan at any time; (4) the fund must receive reasonable interest on the
loan or a flat fee from the borrower, as well as amounts equivalent to any
dividends, interest, or other distributions on the securities loaned and to
any increase in market value; (5) the fund may pay only reasonable
custodian fees in connection with the loan; and (6) the Board of Trustees
must be able to vote proxies on the securities loaned, either by
terminating the loan or by entering into an alternative arrangement with
the borrower.
Cash received through loan transactions may be invested in any security in
which the fund is authorized to invest. Investing this cash subjects that
investment, as well as the security loaned, to market forces (i.e., capital
appreciation or depreciation).
DELAYED DELIVERY TRANSACTIONS are transactions that involve a commitment by
fund to purchase or sell specific securities at a predetermined price
and/or yield, with payment and delivery taking place after the customary
settlement period for that type of security (and more than seven days in
the future). Typically, no interest accrues to the purchaser until the
security is delivered. High Income Portfolio may receive fees for entering
into delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, each fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. Because each fund is not required to pay for securities
until the delivery date, these risks are in addition to the risks
associated with each fund's other investments. If each fund remains
substantially fully invested at a time when delayed-delivery purchases are
outstanding, the delayed-delivery purchases may result in a form of
leverage. When delayed-delivery purchases are outstanding, each fund will
set aside appropriate liquid assets in a segregated custodial account to
cover its purchase obligations. When a fund has sold a security on a
delayed-delivery basis, that fund does not participate in further gains or
losses with respect to the security. If the other party to a
delayed-delivery transaction fails to deliver or pay for the securities,
each fund could miss a favorable price or yield opportunity, or could
suffer a loss. Each fund may renegotiate delayed-delivery transactions
after they are entered into, and may sell underlying securities before they
are delivered, which may result in capital gains or losses.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they
are valued. Under the supervision of the Board of Trustees, FMR determines
the liquidity of each fund's investments and, through reports from FMR, the
Board monitors investments in illiquid instruments. In determining the
liquidity of each fund's investments, FMR may consider various factors,
including (1) the frequency of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for
trades (including the ability to assign or offset each fund's rights and
obligations relating to the investment).
Investments currently considered by Money Market Portfolio to be illiquid
include repurchase agreements not entitling the holder to payment of
principal and interest within seven days. Also, FMR may determine some
restricted securities and time deposits to be illiquid. Investments
currently considered by each fund other than Money Market Portfolio to be
illiquid include repurchase agreements not entitling the holder to payment
of principal and interest within seven days, over-the-counter options and
non-government stripped fixed-rate mortgage-backed securities. Also, FMR
may determine some restricted securities, government-stripped fixed-rate
mortgage-backed securities, loans and other direct debt instruments, and
swap agreements to be illiquid. However, with respect to over-the-counter
options a fund writes, all or a portion of the value of the underlying
instrument may be illiquid depending on the assets held to cover the option
and the nature and terms of any agreement each fund may have to close out
the option before expiration.
In the absence of market quotations, illiquid investments for Money
Market Portfolio are valued for purposes of monitoring amortized cost
valuation at fair value as determined in good faith by a committee
appointed by the Board of Trustees. For all other funds, illiquid
investments are priced at fair value as determined in good faith by a
committee appointed by the Board of Trustees. If through a change in
values, net assets, or other circumstances, each fund were in a position
where 10% or more than Money Market Portfolio's net assets and more than
10% of Equity-Income, Growth, Investment Grade Bond, Asset Manager and
Index 500 Portfolios' net assets and more than 15% of High Income and
Overseas Portfolio's net assets were invested in illiquid securities, each
fund would seek to take appropriate steps to protect liquidity.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, each fund may be obligated to pay all or part of
the registration expense and a considerable period may elapse between the
time it decides to seek registration and the time each fund may be
permitted to sell a security under an effective registration statement.
If, during such a period, adverse market conditions were to develop, each
fund might obtain a less favorable price than prevailed when it decided to
seek registration of the security. However, in general, Money Market
Portfolio anticipates holding restricted securities to maturity or selling
them in an exempt transaction.
SWAP AGREEMENTS. (excludes Money Market Portfolio) Swap agreements
can be individually negotiated and structured to include exposure to a
variety of different types of investments or market factors. Depending on
their structure, swap agreements may increase or decrease a fund's exposure
to long or short-term interest rates (in the U.S. or abroad), foreign
currency values, mortgage securities, corporate borrowing rates, or other
factors such as security prices or inflation rates. Swap agreements can
take many different forms and are known by a variety of names. The funds
are not limited to any particular form of swap agreement if FMR determines
it is consistent with a fund's investment objective and policies.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains
the right to receive payments to the extent that a specified interest rate
exceeds an agreed-upon level, while the seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate
falls below an agreed-upon level. An interest rate collar combines
elements of buying a cap and selling a floor.
Swap agreements will tend to shift a fund's investment exposure from one
type of investment to another. For example, if a fund agreed to exchange
payments in dollars for payments in foreign currency, the swap agreements
would tend to decrease the portfolio's exposure to U.S. interest rates and
increase exposure to foreign currency and interest rates. Caps and floors
have an effect similar to buying or writing options. Depending on how they
are used, swap agreements may increase or decrease the overall volatility
of a fund's investments and its share price and yield.
The most significant factor in the performance of swap agreements is the
change in the specific interest rate, currency, or other factors that
determine the amounts of payments due to and from a fund. If a swap
agreement calls for payments by a fund, it must be prepared to make such
payments when due. In addition, if the counterparty's creditworthiness
declined, the value of a swap agreement would be likely to decline,
potentially resulting in losses. A fund expects to be able to eliminate
its exposure under swap agreements either by assignment or other
disposition, or by entering into an offsetting swap agreement with the same
party or a similarly creditworthy party.
Each fund will maintain appropriate liquid assets in a segregated custodial
account to cover its current obligations under swap agreements. If a fund
enters into a swap agreement on a net basis, it will segregate assets with
a daily value at least equal to the excess, if any, of its accrued
obligations under the swap agreement over the accrued amount it is entitled
to receive under the agreement. If a fund enters into a swap agreement on
other than a net basis, it will segregate assets with a value equal to the
full amount of its accrued obligations under the agreement.
INDEXED SECURITIES. Each fund may purchase securities whose prices are
indexed to the prices of other securities, securities indices, currencies,
precious metals or other commodities, or other financial indicators.
Indexed securities typically, but not always, are debt securities or
deposits whose value at maturity or coupon rate is determined by reference
to a specific instrument or statistic. Gold-indexed securities, for
example, typically provide for a maturity value that depends on the price
of gold, resulting in a security whose price tends to rise and fall
together with gold prices. Currency-indexed securities typically are
short-term to intermediate-term debt securities whose maturity values or
interest rates are determined by reference to the values of one or more
specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed
securities may be positively or negatively indexed; that is, their maturity
value may increase when the specified currency value increases, resulting
in a security that performs similarly to a foreign-denominated instrument,
or their maturity value may decline when foreign currencies increase,
resulting in a security whose price characteristics are similar to a put on
the underlying currency. Currency-indexed securities may also have prices
that depend on the values of a number of different foreign currencies
relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they
are indexed, and may also be influenced by interest rate changes in the
U.S. and abroad. At the same time, indexed securities are subject to the
credit risks associated with the issuer of the security, and their values
may decline substantially if the issuer's creditworthiness deteriorates.
Recent issuers of indexed securities have included banks, corporations, and
certain U.S. government agencies. FMR will use its judgment in
determining whether indexed securities should be treated as short-term
instruments, bonds, stocks, or as a separate asset class for purposes of a
fund's investment allocations, depending on the individual characteristics
of the securities. Indexed securities may be more volatile than the
underlying instruments.
WARRANTS. (excludes Money Market Portfolio) Warrants are securities
that give a fund the right to purchase equity securities from the issuer at
a specific price (the strike price) for a limited period of time. The
strike price of warrants typically is much lower than the current market
price of the underlying securities, yet they are subject to similar price
fluctuations. As a result, warrants may be more volatile investments than
the underlying securities and may offer greater potential for capital
appreciation as well as capital loss.
Warrants do not entitle a holder to dividends or voting rights with respect
to the underlying securities and do not represent any rights in the assets
of the issuing company. Also, the value of the warrant does not
necessarily change with the value of the underlying securities and a
warrant ceases to have value if it is not exercised prior to the expiration
date. These factors can make warrants more speculative than other types of
investments.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. (excludes Money Market Portfolio)
Direct debt instruments are interests in amounts owed by a corporate,
governmental, or other borrower to lenders or lending syndicates (loans and
loan participations), to suppliers of goods or services (trade claims or
other receivables), or to other parties. Direct debt instruments are
subject to a fund's policies regarding the quality of debt securities.
Purchasers of loans and other forms of direct indebtedness depend primarily
upon the creditworthiness of the borrower for payment of principal and
interest. Direct debt instruments may not be rated by any nationally
recognized rating service. If a fund does not receive scheduled interest or
principal payments on such indebtedness, a fund's share price and yield
could be adversely affected. Loans that are fully secured offer a fund more
protections than an unsecured loan in the event of non-payment of scheduled
interest or principal. However, there is no assurance that the liquidation
of collateral from a secured loan would satisfy the borrower's obligation,
or that the collateral could be liquidated. Indebtedness of borrowers whose
creditworthiness is poor involves substantially greater risks, and may be
highly speculative. Borrowers that are in bankruptcy or restructuring may
never pay off their indebtedness, or may pay only a small fraction of the
amount owed. Direct indebtedness of developing countries also involves a
risk that the governmental entities responsible for the repayment of the
debt may be unable, or unwilling, to pay interest and repay principal when
due.
Investments in loans through direct assignment of a financial institution's
interests with respect to a loan may involve additional risks to a fund.
For example, if a loan is foreclosed, a fund could become part owner of any
collateral, and would bear the costs and liabilities associated with owning
and disposing of the collateral. In addition, it is conceivable that under
emerging legal theories of lender liability, a fund could be held liable as
a co-lender. Direct debt instruments may also involve a risk of insolvency
of the lending bank or other intermediary. Direct debt instruments that are
not in the form of securities may offer less legal protection to a fund in
the event of fraud or misrepresentation. In the absence of definitive
regulatory guidance, a fund relies on FMR's research in an attempt to avoid
situations where fraud or misrepresentation could adversely affect a fund.
A loan is often administered by a bank or other financial institution that
acts as agent for all holders. The agent administers the terms of the
loan, as specified in the loan agreement. Unless, under the terms of the
loan or other indebtedness, a fund has direct recourse against the
borrower, it may have to rely on the agent to apply appropriate credit
remedies against a borrower. If assets held by the agent for the benefit of
a fund were determined to be subject to the claims of the agent's general
creditors, a fund might incur certain costs and delays in realizing payment
on the loan or loan participation and could suffer a loss of principal or
interest.
Direct indebtedness purchased by a fund may include letters of credit,
revolving credit facilities, or other standby financing commitments
obligating a fund to pay additional cash on demand. These commitments may
have the effect of requiring a fund to increase its investment in a
borrower at a time when it would not otherwise have done so, even if the
borrower's condition makes it unlikely that the amount will ever be repaid.
A fund will set aside appropriate liquid assets in a segregated custodial
account to cover its potential obligations under standby financing
commitments.
A fund limits the amount of total assets that it will invest in any one
issuer or in issuers within the same industry (see limitations 1 and 5).
For purposes of these limitations, a fund generally will treat the borrower
as the "issuer" of indebtedness held by a fund. In the case of loan
participations where a bank or other lending institution serves as
financial intermediary between a fund and the borrower, if the
participation does not shift to a fund the direct debtor-creditor
relationship with the borrower, SEC interpretations require a fund, in
appropriate circumstances, to treat both the lending bank or other lending
institution and the borrower as "issuers" for these purposes. Treating a
financial intermediary as an issuer of indebtedness may restrict a fund's
ability to invest in indebtedness related to a single financial
intermediary, or a group of intermediaries engaged in the same industry,
even if the underlying borrowers represent many different companies and
industries.
FOREIGN INVESTMENTS. Foreign investments can involve significant risks in
addition to the risks inherent in U.S. investments. The value of
securities denominated in or indexed to foreign currencies, and of
dividends and interest from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar.
Foreign securities markets generally have less trading volume and less
liquidity than U.S. markets, and prices on some foreign markets can be
highly volatile. Many foreign countries lack uniform accounting and
disclosure standards comparable to those applicable to U.S. companies, and
it may be more difficult to obtain reliable information regarding an
issuer's financial condition and operations. In addition, the costs of
foreign investing, including withholding taxes, brokerage commissions, and
custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including
those involving the release of assets in advance of payment, may involve
increased risks in the event of a failed trade or the insolvency of a
broker-dealer, and may involve substantial delays. It may also be
difficult to enforce legal rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments
adverse to the interests of U.S. investors, including the possibility of
expropriation or nationalization of assets, confiscatory taxation,
restrictions on U.S. investment or on the ability to repatriate assets or
convert currency into U.S. dollars, or other government intervention.
There may be a greater possibility of default by foreign governments or
foreign government-sponsored enterprises. Investments in foreign countries
also involve a risk of local political, economic, or social instability,
military action or unrest, or adverse diplomatic developments. There is no
assurance that FMR will be able to anticipate these potential events or
counter their effects.
The considerations noted above generally are intensified for investments
in developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities
markets that trade a small number of securities.
Each fund may invest in foreign securities that impose restrictions on
transfer within the U.S. or to U.S. persons. Although securities subject
to transfer restrictions may be marketable abroad, they may be less liquid
than foreign securities of the same class that are not subject to such
restrictions.
American Depositary Receipts and European Depositary Receipts (ADRs and
EDRs) are certificates evidencing ownership of shares of a foreign-based
issuer held in trust by a bank or similar financial institution. Designed
for use in U.S. and European securities markets, respectively, ADRs and
EDRs are alternatives to the purchase of the underlying securities in their
national markets and currencies.
FOREIGN CURRENCY TRANSACTIONS. The following information is of particular
importance to Overseas Portfolio. Each fund may conduct foreign currency
transactions on a spot (i.e., cash) basis or by entering into forward
contracts to purchase or sell foreign currencies at a future date and
price. The funds will convert currency on a spot basis from time to time,
and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers generally do not charge a fee for
conversion, they do realize a profit based on the difference between the
prices at which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to a fund at one rate, while
offering a lesser rate of exchange should the fund desire to resell that
currency to the dealer. Forward contracts are generally traded in an
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. The parties to a forward contract
may agree to offset or terminate the contract before its maturity, or may
hold the contract to maturity and complete the contemplated currency
exchange.
Each fund may use currency forward contracts for any purpose consistent
with its investment objective. The following discussion summarizes some,
but not all, of the possible currency management strategies involving
forward contracts that could be used by the funds. The funds (except for
Money Market Portfolio) may also use options and futures contracts relating
to foreign currencies for the same purposes.
When a fund agrees to buy or sell a security denominated in a foreign
currency, it may desire to "lock in" the U.S. dollar price of the security.
By entering into a forward contract for the purchase or sale, for a fixed
amount of U.S. dollars, of the amount of foreign currency involved in the
underlying security transaction, the fund will be able to protect itself
against an adverse change in foreign currency values between the date the
security is purchased or sold and the date on which payment is made or
received. This technique is sometimes referred to as a "settlement hedge"
or "transaction hedge." The funds may also enter into forward contracts to
purchase or sell a foreign currency in anticipation of future purchases or
sales of securities denominated in foreign currency, even if the specific
investments have not yet been selected by FMR.
The funds may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. For
example, if a fund owned securities denominated in pounds sterling, the
fund could enter into a forward contract to sell pounds sterling in return
for U.S. dollars to hedge against possible declines in the pound's value.
Such a hedge, sometimes referred to as a "position hedge," would tend to
offset both positive and negative currency fluctuations, but would not
offset changes in security values caused by other factors. A fund could
also hedge the position by selling another currency expected to perform
similarly to the pound sterling -- for example, by entering into a forward
contract to sell Deutschemarks or European Currency Units in return for
U.S. dollars. This type of hedge, sometimes referred to as a "proxy
hedge," could offer advantages in terms of cost, yield or efficiency, but
generally will not hedge currency exposure as effectively as a simple hedge
into U.S. dollars. Proxy hedges may result in losses if the currency used
to hedge does not perform similarly to the currency in which the hedged
securities are denominated.
Each fund may enter into forward contracts to shift its investment exposure
from one currency into another currency that is expected to perform better
relative to the U.S. dollar. For example, if a fund held investments
denominated in Deutschemarks, the fund could enter into forward contracts
to sell Deutschemarks and purchase Swiss Francs. This type of strategy,
sometimes known as a "cross-hedge," will tend to reduce or eliminate
exposure to the currency that is sold, and increase exposure to the
currency that is purchased, much as if the fund had sold a security
denominated in one currency and purchased an equivalent security
denominated in another. Cross-hedges protect against losses resulting from
a decline in the hedged currency, but will cause the fund to assume the
risk of fluctuations in the value of the currency it purchases.
Under certain conditions, SEC guidelines require mutual funds to set aside
appropriate liquid assets in a segregated custodial account to cover
currency forward contracts. As required by SEC guidelines, the funds will
segregate assets to cover currency forward contracts, if any, whose purpose
is essentially speculative. The funds will not segregate assets to cover
forward contracts entered into for hedging purposes, including settlement
hedges, position hedges, and proxy hedges.
Successful use of currency forward contracts will depend on FMR's skill in
analyzing and predicting currency values. Forward contracts may
substantially change a fund's investment exposure to changes in currency
exchange rates, and could result in losses to the fund if currencies do not
perform as FMR anticipates. For example, if a currency's value rose at a
time when FMR had hedged a fund by selling that currency in exchange for
dollars, the fund would be unable to participate in the currency's
appreciation. If FMR hedges currency exposure through proxy hedges, a fund
could realize currency losses from the hedge and the security position at
the same time if the two currencies do not move in tandem. Similarly, if
FMR increases a fund's exposure to a foreign currency, and that currency's
value declines, the fund will realize a loss. There is no assurance that
FMR's use of currency forward contracts will be advantageous to the funds
or that they will hedge at an appropriate time .
SHORT SALES "AGAINST THE BOX". Money Market Portfolio may sell securities
short when it owns or has the right to obtain securities equivalent in kind
or amount to the securities sold short. Short sales could be used to
protect the net asset value per share of the fund in anticipation of
increased interest rates, without sacrificing the current yield of the
securities sold short. SHORT SALES. A fund may enter into short sales with
respect to stocks underlying its convertible security holdings. For
example, if FMR anticipates a decline in the price of the stock underlying
a convertible security it holds, it may sell the stock short. If the stock
price subsequently declines, the proceeds of the short sale could be
expected to offset all or a portion of the effect of the stock's decline on
the value of the convertible security. Each fund currently intends to
hedge no more than 15% of its total assets with short sales on equity
securities underlying its convertible security holdings under normal
circumstances.
When a fund enters into a short sale or short sale against the box, it will
be required to set aside securities equivalent in kind and amount to those
sold short (or securities convertible or exchangeable into such securities)
and will be required to continue to hold them while the short sale is
outstanding. Each fund will incur transaction costs, including interest
expense, in connection with opening, maintaining, and closing short sales
and short sales against the box.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. Each fund (other than
Money Market Portfolio) has filed a notice of eligibility for exclusion
from the definition of the term "commodity pool operator" with the
Commodity Futures Trading Commission (CFTC) and the National Futures
Association, which regulate trading in the futures markets. The funds
intend to comply with Section 4.5 of the regulations under the Commodity
Exchange Act, which limits the extent to which a fund can commit assets to
initial margin deposits and option premiums.
In addition, each fund (excluding Index 500 Portfolio) will not: (a) sell
futures contracts, purchase put options, or write call options if, as a
result, more than 25% of each fund's total assets would be hedged with
futures and options under normal conditions; (b) purchase futures contracts
or write put options if, as a result, each fund's total obligations upon
settlement or exercise of purchased futures contracts and written put
options would exceed 25% of its total assets; or (c) purchase call options
if, as a result, the current value of option premiums for call options
purchased by each fund would exceed 5% of each fund's total assets. INDEX
500 PORTFOLIO also intends to follow certain other limitations on its
futures and options activities. The fund will not purchase any option if,
as a result, more than 5% of its total assets would be invested in option
premiums. Under normal conditions, the fund will not enter into any
futures contract or option if, as a result, the sum of (i) the current
value of assets hedged in the case of strategies involving the sale of
securities, and (ii) the current value of the indices or other instruments
underlying the fund's other futures or options positions, would exceed 35%
of the fund's total assets. These limitations for each fund do not apply
to options attached to or acquired or traded together with their underlying
securities, and do not apply to securities that incorporate features
similar to options.
FUTURES CONTRACTS. When each fund purchases a futures contract, it agrees
to purchase a specified underlying instrument at a specified future date.
When each fund sells a futures contract, it agrees to sell the underlying
instrument at a specified future date. The price at which the purchase and
sale will take place is fixed when each fund enters into the contract.
Some currently available futures contracts are based on specific
securities, such as U.S. Treasury bonds or notes, and some are based on
indices of securities prices, such as the Standard & Poor's 500
Composite Stock Price Index (S&P 500) and the Bond Buyer Index of
municipal bonds. Futures can be held until their delivery dates, or can be
closed out before then if a liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase each fund's exposure to positive and
negative price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When each fund sells a
futures contract, by contrast, the value of its futures position will tend
to move in a direction contrary to the market. Selling futures contracts,
therefore, will tend to offset both positive and negative market price
changes, much as if the underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and
seller are required to deposit "initial margin" with a futures broker,
known as a futures commission merchant (FCM), when the contract is entered
into. Initial margin deposits are typically equal to a percentage of the
contract's value. If the value of either party's position declines, that
party will be required to make additional "variation margin" payments to
settle the change in value on a daily basis. The party that has a gain may
be entitled to receive all or a portion of this amount. Initial and
variation margin payments do not constitute purchasing securities on margin
for purposes of each fund's investment limitations. In the event of the
bankruptcy of an FCM that holds margin on behalf of each fund, each fund
may be entitled to return of margin owed to it only in proportion to the
amount received by the FCM's other customers, potentially resulting in
losses to each fund.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, each fund
obtains the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, each fund
pays the current market price for the option (known as the option premium).
Options have various types of underlying instruments, including specific
securities, indices of securities prices, and futures contracts. Each fund
may terminate its position in a put option it has purchased by allowing it
to expire or by exercising the option. If the option is allowed to expire,
each fund will lose the entire premium it paid. If each fund exercises the
option, it completes the sale of the underlying instrument at the strike
price. Each fund may also terminate a put option position by closing it
out in the secondary market at its current price, if a liquid secondary
market exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price
does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium
paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's
strike price. A call buyer typically attempts to participate in potential
price increases of the underlying instrument with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can
expect to suffer a loss if security prices do not rise sufficiently to
offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When each fund writes a put option, it takes
the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, each fund assumes the obligation to pay
the strike price for the option's underlying instrument if the other party
to the option chooses to exercise it. When writing an option on a futures
contract each fund will be required to make margin payments to an FCM as
described above for futures contracts. Each fund may seek to terminate its
position in a put option it writes before exercise by closing out the
option in the secondary market at its current price. If the secondary
market is not liquid for a put option each fund has written, however, each
fund must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to set aside
assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that
the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from
purchasing the underlying instrument directly, however, because the premium
received for writing the option should mitigate the effects of the decline.
Writing a call option obligates each fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those
of writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is
greater, a call writer gives up some ability to participate in security
price increases.
COMBINED POSITIONS. Each fund may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, each fund may purchase a put option and write a
call option on the same underlying instrument, in order to construct a
combined position whose risk and return characteristics are similar to
selling a futures contract. Another possible combined position would
involve writing a call option at one strike price and buying a call option
at a lower price, in order to reduce the risk of the written call option in
the event of a substantial price increase. Because combined options
positions involve multiple trades, they result in higher transaction costs
and may be more difficult to open and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match each fund's current or
anticipated investments exactly. Each fund may invest in options and
futures contracts based on securities with different issuers, maturities,
or other characteristics from the securities in which it typically invests,
which involves a risk that the options or futures position will not track
the performance of each fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match each
fund's investments well. Options and futures prices are affected by such
factors as current and anticipated short-term interest rates, changes in
volatility of the underlying instrument, and the time remaining until
expiration of the contract, which may not affect security prices the same
way. Imperfect correlation may also result from differing levels of demand
in the options and futures markets and the securities markets, from
structural differences in how options and futures and securities are
traded, or from imposition of daily price fluctuation limits or trading
halts. Each fund may purchase or sell options and futures contracts with a
greater or lesser value than the securities it wishes to hedge or intends
to purchase in order to attempt to compensate for differences in volatility
between the contract and the securities, although this may not be
successful in all cases. If price changes in each fund's options or
futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that
are not offset by gains in other investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
secondary market will exist for any particular options or futures contract
at any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily
price fluctuation limits for options and futures contracts, and may halt
trading if a contract's price moves upward or downward more than the limit
in a given day. On volatile trading days when the price fluctuation limit
is reached or a trading halt is imposed, it may be impossible for each fund
to enter into new positions or close out existing positions. If the
secondary market for a contract is not liquid because of price fluctuation
limits or otherwise, it could prevent prompt liquidation of unfavorable
positions, and potentially could require each fund to continue to hold a
position until delivery or expiration regardless of changes in its value.
As a result, each fund's access to other assets held to cover its options
or futures positions could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter options (options not traded on
exchanges) generally are established through negotiation with the other
party to the option contract. While this type of arrangement allows each
fund greater flexibility to tailor an option to its needs, OTC options
generally involve greater credit risk than exchange-traded options, which
are guaranteed by the clearing organization of the exchanges where they are
traded.
OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency futures
contracts are similar to forward currency exchange contracts, except that
they are traded on exchanges (and have margin requirements) and are
standardized as to contract size and delivery date. Most currency futures
contracts call for payment or delivery in U.S. dollars. The underlying
instrument of a currency option may be a foreign currency, which generally
is purchased or delivered in exchange for U.S. dollars, or may be a futures
contract. The purchaser of a currency call obtains the right to purchase
the underlying currency, and the purchaser of a currency put obtains the
right to sell the underlying currency.
The uses and risks of currency options and futures are similar to options
and futures relating to securities or indices, as discussed above. Each
fund may purchase and sell currency futures and may purchase and write
currency options to increase or decrease its exposure to different foreign
currencies. Each fund may also purchase and write currency options in
conjunction with each other or with currency futures or forward contracts.
Currency futures and options values can be expected to correlate with
exchange rates, but may not reflect other factors that affect the value of
each fund's investments. A currency hedge, for example, should protect a
Yen-denominated security from a decline in the Yen, but will not protect
each fund against a price decline resulting from deterioration in the
issuer's creditworthiness. Because the value of each fund's
foreign-denominated investments changes in response to many factors other
than exchange rates, it may not be possible to match the amount of currency
options and futures to the value of each fund's investments exactly over
time.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. Each fund will comply
with guidelines established by the SEC with respect to coverage of options
and futures strategies by mutual funds, and if the guidelines so require
will set aside appropriate liquid assets in a segregated custodial account
in the amount prescribed. Securities held in a segregated account cannot
be sold while the futures or option strategy is outstanding, unless they
are replaced with other suitable assets. As a result, there is a
possibility that segregation of a large percentage of each fund's assets
could impede portfolio management or each fund's ability to meet redemption
requests or other current obligations.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of a fund by FMR (either directly or through affiliated
sub-advisors) pursuant to authority contained in each fund's Management
Contract. FMR is also responsible for the placement of transaction orders
for other investment companies and accounts for which it or its affiliates
act as investment advisor. Money market securities purchased and sold by a
fund generally will be traded on a net basis (i.e., without commission).
In selecting broker-dealers subject to applicable limitations of the
federal securities laws, FMR will consider various relevant factors,
including, but not limited to, the size and type of the transaction; the
nature and character of the markets for the security to be purchased or
sold; the execution efficiency, settlement capability, and financial
condition of the broker-dealer firm; the broker-dealer's execution services
rendered on a continuing basis; and the reasonableness of any commissions;
and arrangements for payment of fund expenses. FMR may allocate brokerage
transactions to broker-dealers who have entered into arrangements with FMR
under which the broker-dealer allocates a portion of the commissions paid
by a fund toward payment of a fund's expenses, such as transfer agent fees
or custodian fees. The transaction quality must, however, be comparable to
those of other qualified broker-dealers. Commissions for foreign
investments traded on foreign exchanges will generally be higher than for
U.S. investments and may not be subject to negotiation.
Each fund may execute portfolio transactions with broker-dealers who
provide research and execution services to a fund or other accounts over
which FMR or its affiliates exercise investment discretion. Such services
may include advice concerning the value of securities; the advisability of
investing in, purchasing or selling securities; the availability of
securities or the purchasers or sellers of securities; furnishing analyses
and reports concerning issuers, industries, securities, economic factors
and trends, portfolio strategy and performance of accounts; and effecting
securities transactions and performing functions incidental thereto (such
as clearance and settlement). FMR maintains a listing of broker-dealers
who provide such services on a regular basis. However, as many
transactions on behalf of a fund's money market securities are placed with
dealers (including broker-dealers on the list) without regard to the
furnishing of such services, it is not possible to estimate the proportion
of such transactions directed to such dealers solely because such services
were provided. The selection of such broker-dealers is generally made by
FMR (to the extent possible consistent with execution considerations) in
accordance with a ranking of broker-dealers determined periodically by
FMR's investment staff based upon the quality of research and execution
services provided.
The receipt of research from broker-dealers that execute transactions on
behalf of a fund may be useful to FMR in rendering investment management
services to a fund or its other clients, and conversely, such information
provided by broker-dealers who have executed transaction orders on behalf
of other FMR clients may be useful to FMR in carrying out its obligations
to a fund. The receipt of such research has not reduced FMR's normal
independent research activities; however, it enables FMR to avoid
additional expenses that could be incurred if FMR tried to develop
comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research or execution services. In order to cause a
fund to pay such higher commissions, FMR must determine in good faith that
such commissions are reasonable in relation to the value of the brokerage
and research services provided by such executing broker-dealers viewed in
terms of a particular transaction or FMR's overall responsibilities to a
fund and its other clients. In reaching this determination, FMR will not
attempt to place a specific dollar value on the brokerage and research
services provided or to determine what portion of the compensation should
be related to those services.
FMR is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided assistance
in the distribution of shares of each fund or shares of other Fidelity
funds to the extent permitted by law. FMR may use research services
provided by and place agency transactions with Fidelity Brokerage Services,
Inc. (FBSI) and Fidelity Brokerage Services, Ltd. (FBSL), subsidiaries of
FMR Corp., if the commissions are fair, reasonable, and comparable to
commissions charged by non-affiliated, qualified brokerage firms for
similar services. Prior to September 4, 1992, FBSL operated under the name
Fidelity Portfolio Services, Ltd. (FPSL) as a wholly owned subsidiary of
Fidelity International Limited (FIL). Edward C. Johnson 3d is Chairman of
FIL. Mr. Johnson 3d, together with various trusts for the benefit of
Johnson family members, owns directly or indirectly more than 25% of the
voting common stock of FIL.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members of
national securities exchanges from executing exchange transactions for
accounts which they or their affiliates manage, except if certain
requirements are satisfied. Pursuant to such requirements, the Board of
Trustees has authorized FBSI to execute fund portfolio transactions on
national securities exchanges in accordance with approved procedures and
applicable SEC rules.
The Trustees periodically review FMR's performance of its responsibilities
in connection with the placement of portfolio transactions on behalf of
each fund and review the commissions, if any paid by the funds over
representative periods of time to determine if they are reasonable in
relation to the benefits to the funds.
Because a high turnover rate increases brokerage costs, FMR carefully
weighs the added costs of short-term investment against anticipated gain.
For fiscal year ended December 31, each fund had the following turnover
rates:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
HIGH EQUITY- INVESTMENT ASSET
INCOME INCOME GROWTH OVERSEAS GRADE BOND MANAGER INDEX 500
1993 155% 120% 159% 42% 70% 113% 9%
1992 160 74 262 61 119 92 N/A
</TABLE>
BROKERAGE COMMISSIONS. The chart below lists the percentage of the
brokerage commissions paid to brokerage firms which provided research
services; the total brokerage commissions paid; the commissions paid to
FBSI and FBSL in dollars and as a percentage of the dollar value of all
transactions in which brokerage commissions were paid for the fiscal
periods ended December 31, 1993, 1992 and 1991 for each of the funds. Of
the commissions paid to brokerage firms which provided research services,
the providing of such services was not necessarily a factor in the
placement of all this business with such firms. The funds pay both
commissions and spreads in connection with the placement of portfolio
transactions. The difference in the percentage of brokerage commissions
paid to, and the percentage of the dollar amount of transactions effected
through FBSI and FBSL, are the results of the low commission rates charged
by FBSI and FBSL.
HIGH INCOME PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% Paid to % %
Firms Transaction Transaction
s s
Period Providing To To % to through through
Ended TOTAL Research FBSI FBSL % to FBSI FBSL FBSI FBSL
</TABLE>
1993 $25,198 99% $0 -- -- -- -- --
1992 9,568 100 7 -- 0.1% -- 0.1% --
1991 6,211 74 -- -- -- -- -- --
EQUITY-INCOME PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% Paid to % %
Firms Transaction Transaction
s s
Period Providing To To % to through through
Ended TOTAL Research FBSI FBSL % to FBSI FBSL FBSI FBSL
</TABLE>
1993 $2,658,979 68% $712,270 -- 27% -- 42% --
1992 752,271 65 263,440 -- 35 -- 46 --
1991 462,428 55 167,858 -- 36 -- 45 --
GROWTH PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% Paid to % %
Firms Transaction Transacti
s ons
Period Providing To To % to through through
Ended TOTAL Research To FBSI FBSL % to FBSI FBSL FBSI FBSL
</TABLE>
1993 $2,137,399 49% $750,137 -- 35% -- 48% --
1992 2,073,624 59 599,019 -- 29 -- 37 --
1991 1,005,493 54 344,150 -- 34 -- 44 --
OVERSEAS PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% Paid to % %
Firms Transaction Transaction
s s
Period Providing To % to through through
Ended TOTAL Research To FBSI FBSL % to FBSI FBSL FBSI FBSL
</TABLE>
1993 $1,541,385 92% $3,119 -- .20% -- 0.92% --
1992 602,862 85 -- $4,314 -- 0.7% -- 1.4%
1991 710,018 91 -- 8,816 -- 1.0 -- 2.0
ASSET MANAGER PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% Paid to % %
Firms Transaction Transaction
s s
Period Providing To To % to through through
Ended TOTAL Research FBSI FBSL % to FBSI FBSL FBSI FBSL
</TABLE>
1993 $2,839,401 73% $398,687 -- 14% -- 29% --
1992 544,613 68 100,724 179 19 -- 28 --
1991 143,076 57 44,048 -- 31 -- 45 --
INDEX 500 PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% Paid to % %
Firms Transaction Transaction
s s
Period Providing To To % to through through
Ended TOTAL Research FBSI FBSL % to FBSI FBSL FBSI FBSL
</TABLE>
1993 $3,870 4% $123 -- 3% -- 3% --
1992 5,980 -- 112 -- 2 -- 2 --
________
From time to time each Trust's Trustees will review whether the recapture
for the benefit of the funds of some portion of the brokerage commissions
or similar fees paid by the funds on portfolio transactions is legally
permissible and advisable. The funds seek to recapture soliciting
broker-dealer fees on the tender of portfolio securities, but at present no
other recapture arrangements are in effect. The Trustees intend to
continue to review whether recapture opportunities are available and are
legally permissible and, if so, to determine in the exercise of their
business judgment whether it would be advisable for the funds to seek such
recapture.
Although each Trust's Trustees and officers are substantially the same as
those of other funds managed by FMR, investment decisions for the funds are
made independently from those of other funds managed by FMR or accounts
managed by FMR affiliates. It sometimes happens that the same security is
held in the portfolio of more than one of these funds or accounts.
Simultaneous transactions are inevitable when several funds are managed by
the same investment advisor, particularly when the same security is
suitable for the investment objective of more than one fund.
When two or more funds, or portfolios, are simultaneously engaged in the
purchase or sale of the same security, the prices and amounts are allocated
in accordance with a formula considered by the officers of the funds
involved to be equitable to each fund or portfolio. In some cases this
system could have a detrimental effect on the price or volume of the
security as far as the funds are concerned. In other cases, however, the
ability of the fund or portfolio to participate in volume transactions will
produce better executions and prices for the funds. It is the current
opinion of the Trustees that the desirability of retaining FMR as
investment advisor to the funds outweighs any disadvantages that may be
said to exist from exposure to simultaneous transactions.
VALUATION OF FUND SECURITIES
MONEY MARKET PORTFOLIO
Like most money market funds, the fund values its investments on the basis
of amortized cost. This technique involves initially valuing an instrument
at its cost and thereafter assuming a constant amortization to maturity of
any discount or premium, regardless of the market value of the instrument.
The amortized-cost value of an instrument may be higher or lower than the
price the fund would receive if it sold the instrument.
During periods of declining interest rates, the fund's yield based on
amortized cost may be higher than a yield based on market prices and
estimates of market prices. Under these circumstances, a new investor in
the fund would be able to obtain a somewhat higher yield than would result
from investment in a fund solely utilizing market quotations to determine
its NAV, and existing shareholders would receive less investment income.
The converse would apply in a period of rising interest rates.
Valuing the fund's instruments on the basis of amortized cost and use of
the term "money market fund" are permitted by Rule 2a-7 under the
Investment Company Act of 1940 (the 1940 Act). The fund must adhere to
certain conditions under Rule 2a-7.
The Board of Trustees of the fund oversees FMR's adherence to SEC rules
concerning money market funds, and has established procedures designed to
stabilize the fund's NAV calculated on the basis of amortized cost. At
such intervals as they deem appropriate, the Trustees review reports used
to determine whether NAV calculated by using available market quotations
would deviate from $1.00. If such a deviation would result in material
dilution or otherwise would be unfair to shareholders, the Trustees have
agreed to take such corrective action, if any, as they deem necessary and
appropriate. This may include selling portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity, withholding dividends, redeeming shares in kind, or establishing
NAV by using available market quotations.
HIGH INCOME AND INVESTMENT GRADE BOND PORTFOLIOS
Securities and other assets for which market quotations are readily
available are valued at market values determined by their most recent bid
prices (sales prices if the principal market is an exchange) in the
principal market in which such securities normally are traded. Securities
and other assets for which market quotations are not readily available
(including restricted securities, if any) are appraised at their fair value
as determined in good faith under consistently applied procedures under the
general supervision of the Board of Trustees.
Securities may also be valued on the basis of valuations furnished by a
pricing service that uses both dealer-supplied valuations and evaluations
based on expert analysis of market data and other factors if such
valuations are believed to reflect more accurately the fair value of such
securities. Use of a pricing service has been approved by the Board of
Trustees. There are a number of pricing services available, and the
Trustees, or officers acting on behalf of the Trustees, on the basis of
ongoing evaluation of these pricing services, may use other pricing
services or may discontinue the use of any pricing service in whole or in
part.
Securities not valued by the pricing service, and for which quotations are
readily available, are valued at market values determined on the basis of
their latest available bid prices as furnished by recognized dealers in
such securities.
EQUITY-INCOME, GROWTH, ASSET MANAGER, INDEX 500 AND OVERSEAS PORTFOLIOS
Portfolio securities are valued by various methods depending on the primary
market or exchange on which they trade. Some equity securities for
which the primary market is the U.S. are valued at last sale price or, if
no sale has occurred, at the closing bid price. Some equity
securities for which the primary market is outside the U.S. are valued
using the official closing price or the last sale price in the principal
market where they are traded. If the last sale price (on the local
exchange) is unavailable, the last evaluated quote or last bid price is
normally used. Short-term securities are valued either at amortized cost
or at original cost plus accrued interest, both of which approximate
current value. Convertible and fixed-income securities are valued
primarily by a pricing service that uses a vendor security valuation matrix
which incorporates both dealer-supplied valuations and electronic data
processing techniques. This twofold approach is believed to more
accurately reflect fair value because it takes into account appropriate
factors such as institutional trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading
characteristics, and other market data, without exclusive reliance upon
quoted, exchange, or over-the counter prices. Use of pricing services has
been approved by the Board of Trustees.
Securities and other assets for which there is no readily available market
are valued in good faith by a committee appointed by the Board of Trustees.
The procedures set forth above need not be used to determine the value of
the securities owned by the fund if, in the opinion of a committee
appointed by the Board of Trustees, some other method (e.g., closing
over-the-counter bid prices in the case of debt instruments traded on an
exchange) would more accurately reflect the fair market value of such
securities.
Generally, the valuation of foreign and domestic equity securities, as well
as corporate bonds, U.S. government securities, money market instruments,
and repurchase agreements, is substantially completed each day at the close
of the NYSE. The values of any such securities held by the fund are
determined as of such time for the purpose of computing the fund's net
asset value. Foreign security prices are furnished by independent brokers
or quotation services which express the value of securities in their local
currency. Fidelity Service Co. (FSC) gathers all exchange rates daily at
the close of the NYSE using the last quoted price on the local currency and
then translates the value of foreign securities from their local currency
into U.S. dollars. Any changes in the value of forward contracts due to
exchange rate fluctuations and days to maturity are included in the
calculation of net asset value. If an extraordinary event that is expected
to materially affect the value of a portfolio security occurs after the
close of an exchange on which that security is traded, then the security
will be valued as determined in good faith by a committee appointed by the
Board of Trustees.
PERFORMANCE
The funds may quote their performance in various ways. All performance
information supplied by the funds in advertising is historical and is not
intended to indicate future returns. The funds' share prices (except
for Money Market Portfolio) , yields and total returns fluctuate in
response to market conditions and other factors, and the value of fund
shares (except for Money Market Portfolio) when redeemed may be more
or less than their original cost.
YIELD CALCULATIONS. Yields (except for Money Market Portfolio) for the
funds used in advertising are computed by dividing a fund's interest and
dividend income for a given 30-day or one month period, net of expenses, by
the average number of shares entitled to receive dividends during the
period, dividing this figure by the fund's NAV per share at the end of the
period and annualizing the result (assuming compounding of income) in order
to arrive at an annual percentage rate. Income is calculated for purposes
of yield quotations in accordance with standardized methods applicable to
all stock and bond funds. Dividends from equity investments are treated as
if they were accrued on a daily basis, solely for the purposes of yield
calculations. In general, interest income is reduced with respect to bonds
trading at a premium over their par value by subtracting a portion of the
premium from income on a daily basis, and is increased with respect to
bonds trading at a discount by adding a portion of the discount to daily
income. Capital gains and losses, if any, generally are excluded from the
calculation.
Income calculated for the purpose of determining the funds' yields differs
from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed
in yield calculations, the yields quoted for the funds may differ from the
income the funds paid over the same period or the rate of income reported
in the funds' financial statements.
In computing the current yield for Money Market Portfolio for a 7-day
period, the net change in value of a hypothetical account containing one
share exclusive of capital gains reflects the value of additional shares
purchased with dividends from the one original share and dividends declared
on both the original share and any additional shares. The net change is
then divided by the value of the account at the beginning of the period to
obtain a base period return. This base period return is annualized to
obtain a current annualized yield. Money Market Portfolio may also
calculate an effective yield by annualizing the base period return through
daily compounding. In addition to the current yield, the fund may quote
yields in advertising based on any historical seven-day period(s).
Yield information may be useful in reviewing Money Market Portfolio's
performance and for providing a basis for comparison with other investment
alternatives. However, yields fluctuate, unlike investments which pay a
fixed interest rate for a stated period of time. Yields for the Money
Market Portfolio are calculated on the same basis as other money market
funds as required by applicable regulations. Investors should give
consideration to the quality and maturity of the portfolio securities of
the respective investment companies they have chosen to consider when
comparing investment alternatives. In addition, investors should recognize
that the fees associated with the separate account are not reflected in the
yield quotation.
Should Money Market Portfolio incur or anticipate any unusual expense, or
loss or depreciation which would adversely affect its NAV per share or
income for a particular period, the Trustees would at that time consider
whether to adhere to the present dividend policy above or to revise it in
light of the then prevailing circumstances. For example, if the fund's NAV
per share was reduced or was anticipated to be reduced below $1.00, the
Trustees may suspend further dividend payments until the NAV returned to
$1.00. Thus, such expenses, losses or depreciation may result in a
redemption price per share lower than that which was paid.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of each fund's return, including the effect of reinvesting any
dividends and capital gain distributions, and any change in each fund's NAV
over the period. Average annual returns are calculated by determining the
growth or decline in value of a hypothetical historical investment in each
fund over a stated period, and then calculating the annually compounded
percentage rate that would have produced the same result if the rate of
growth or decline in value had been constant over the period. For example,
a cumulative return of 100% over ten years would produce an average annual
return of 7.18%, which is the steady annual rate that would equal 100%
growth on a compounded basis in ten years. While average annual returns
are a convenient means of comparing investment alternatives, investors
should realize that each fund's performance is not constant over time, but
changes from year to year, and that average annual returns represent
averaged figures as opposed to the actual year-to-year performance of each
fund.
In addition to average annual returns, the funds may quote unaveraged or
cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, and/or a
series of redemptions, over any time period. Total returns may be broken
down into their components of income and capital (including capital gains
and changes in share price) in order to illustrate the relationship of
these factors and their contributions to total return. An example of this
type of illustration is given below. Total returns, yields and other
performance information may be quoted numerically or in a table, graph, or
similar illustration.
NET ASSET VALUE. Charts and graphs using a fund's net asset values or an
insurance company's sub-account unit values, adjusted net asset values, and
benchmark indices may be used to exhibit performance. An adjusted NAV
includes any distributions paid by a fund and reflects all elements of its
return. Unless otherwise indicated, a fund's adjusted NAVs (or an
insurance company's sub-account unit values) are not adjusted for sales
charges, if any.
MOVING AVERAGES. A fund may illustrate performance using moving averages.
A long-term moving average is the average of each week's adjusted closing
NAV for a specified period. A short-term moving average is the average of
each day's adjusted closing NAV for a specified period. Moving Average
Activity Indicators combine adjusted closing NAVs from the last business
day of each week with moving averages for a specified period to produce
indicators showing when an NAV has crossed, stayed above, or stayed below
its moving average. On December 31,1993, the 13-week and 39-week long-term
moving averages were 15.28 and 14.82, for Equity-Income Portfolio, 22.87
and 21.91, for Growth Portfolio, 15.09 and 14.29, for Overseas Portfolio,
14.95 and 14.27, for Asset Manager Portfolio, and 55.36 and 53.84 for Index
500 Portfolio, respectively.
HISTORICAL FUND RESULTS. The following chart shows each fund's total
returns, High Income and Investment Grade Bond Portfolios' 30-day
yield and Money Market Portfolio's 7-day yield for the period ended
12/31/93. Performance is net of each fund's expenses, but does not include
charges and expenses attributable to an insurance company's separate
account. If these charges were included, the returns would be lower.
Average Annual Total Returns Cumulative Total Returns
7-Day 30 Day One Five Ten Life of* Life of*
Yield Yield Year Year Year Fund Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market Portfolio 3.23% N.A. 3.23% 6.05% 6.92% 7.45% 132.96%
High Income Portfolio N.A. 8.82% 20.40% 13.42% N.A. 12.50% 165.46%
Equity-Income Portfolio N.A. N.A. 18.29% 12.56% N.A. 11.48% 119.61%
Growth Portfolio N.A. N.A. 19.37% 17.13% N.A. 14.41% 164.90%
Overseas Portfolio N.A. N.A. 37.35% 10.46% N.A. 7.80% 68.26%
Investment Grade Bond N.A. 5.59% 10.96% 10.03% N.A. 9.99% 62.13%
Portfolio
Asset Manager Portfolio N.A. N.A. 21.23% N.A. N.A. 14.35% 78.57%
Index 500 Portfolio N.A. N.A. 9.74% N.A. N.A. 12.11% 16.66%
</TABLE>
* Money Market Portfolio commenced operations April 1, 1982; High Income
Portfolio commenced operations September 19, 1985; Equity-Income and Growth
Portfolios commenced operations October 9, 1986; Overseas Portfolio
commenced operations January 28, 1987;Investment Grade Bond Portfolio
commenced operations December 5, 1988; Asset Manager Portfolio commenced
operations September 6, 1989 and Index 500 Portfolio commenced operations
August 27, 1992. If FMR had not reimbursed certain fund expenses during
these periods, the total returns would have been lower.
The following charts show the income and capital elements of each fund's
total return from the date it commenced operations through the year ended
December 31, 1993. The charts compare the funds' returns to the record of
the Standard & Poor's 500 Composite Stock Price Index (S&P), the
Dow Jones Industrial Average (DJIA), the cost of living (measured by the
Consumer Price Index, or CPI) over the same period, and (for Asset Manager
Portfolio) a benchmark "Fidelity Composite Index" (created by FMR), over
the same period. The Fidelity Composite Index is a hypothetical historical
representation which simulates Asset Manager Portfolio's neutral mix (20%
money market instruments, 40% bonds, and 40% stocks) by combining the
following indices based on their weighting in the neutral mix: the Salomon
Brothers 3-month T-Bill Total Rate of Return Index, representing the
average of T-Bill rates for each of the prior three months, adjusted to a
bond equivalent yield basis (money market); the Lehman Brothers Treasury
Bond Index, a widely utilized benchmark of bond market performance which
includes virtually all long-term public obligations of the U.S. Treasury
(bonds); and the S&P 500 (a registered trademark of Standard &
Poor's Corporation), which represents common stock prices (stocks).
The comparison to the S&P shows how the funds' total returns compared
to the record of a broad average of common stock prices, and the comparison
to the DJIA shows how the funds' total returns compared to the record of a
narrower set of stocks of major industrial companies. Each fund has the
ability to invest in securities not included in either index, and its
investment portfolio may or may not be similar in composition to the
indices. The S&P and DJIA comparisons for Investment Grade Bond and
High Income Portfolios are provided to show how each fund's return compared
to the return of common stocks over the same period. Of course, since
Investment Grade Bond and High Income Portfolios invest in fixed-income
securities, common stocks represent a different type of investment from the
fund. The indices do not include fixed-income securities. In general,
common stocks generally offer greater potential growth a bond fund, but
generally are more volatile in value and may offer greater potential for
loss. In addition, common stocks generally provide lower income than a
mutual fund which focuses on fixed-income securities. The S&P, DJIA
and The Fidelity Composite Index are based on the prices of unmanaged
groups of stocks and, unlike the funds' returns, their returns do not
include the effect of paying brokerage commissions and other costs of
investing.
MONEY MARKET PORTFOLIO: During the period from December 31, 1982 to
December 31, 1993, a hypothetical $10,000 investment in the fund would have
grown to $19,532, assuming all distributions were reinvested. This was a
period of widely fluctuating interest rates and should not necessarily be
considered a representation of the income or capital gain or loss that
could be realized from an investment in the fund today.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Value of Value of INDEX
Value of Reinvested Reinvested
Period Initial $10,000 Dividend Capital Gain Cost of
Ended Investment Distributions Distributions Total Value Living
12/31/93 $10,000 $9,532 $0 $19,532 $14,393
12/31/92 $10,000 8,920 0 18,920 14,008
12/31/91 $10,000 8,211 0 18,211 13,613
12/31/90 $10,000 7,165 0 17,165 13,208
12/31/89 $10,000 5,888 0 15,888 12,448
12/31/88 $10,000 4,560 0 14,560 11,895
12/31/87 $10,000 3,559 0 13,559 11,392
12/31/86 $10,000 2,738 0 12,738 10,908
12/31/85 $10,000 1,939 0 11,939 10,790
12/31/84 $10,000 1,043 0 11,043 10,395
</TABLE>
Explanatory Notes: With an initial investment of $10,000 made on December
31, 1982, the net amount invested in shares of the fund was $10,000. The
cost of the initial investment ($10,000), together with the aggregate cost
of reinvested dividends for the period covered (that is, their cash value
at the time they were reinvested), amounted to $19,532. If distributions
had not been reinvested, the amount of distributions earned from the fund
over time would have been smaller and the cash payments (dividends) for the
period would have amounted to $6,715. There were no capital gain
distributions during this period. The fund's annualized net yield for the
seven days ending December 31, 1993 was 3.23% and the compound effective
yield was 3.28%. The fund's yield will fluctuate daily. Tax consequences
of different investments have not been factored into the above figures.
HIGH INCOME PORTFOLIO: During the period from September 19, 1985 to
December 31, 1993, a hypothetical $10,000 investment in the fund would have
grown to $26,546, assuming all distributions were reinvested. This was a
period of widely fluctuating interest rates and bond prices and should not
necessarily be considered a representation of the income or capital gain or
loss that could be realized from an investment in the fund today.
INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Value of Value of Value of
Initial Reinvested Reinvested
Period $10,000 Dividend Capital Gain Cost of
Ended Investment Distributions Distributions Total Value S&P DJIA Living**
12/31/93 $11,990 $14,223 $333 $26,546 $33,797 $38,211 $13,463
12/31/92 10,820 11,057 172 22,049 30,702 32,661 13,102
12/31/91 9,550 8,200 152 17,902 28,522 30,440 12,733
12/31/90 7,070 6,070 112 13,253 21,859 24,481 12,355
12/31/89 8,110 5,317 129 13,556 22,562 24,613 11,644
12/31/88 9,660 4,332 154 14,146 17,133 18,680 11,127
12/31/87 9,680 2,837 154 12,671 14,693 16,114 10,656
12/31/86 10,830 1,689 0 12,519 13,958 15,284 10,203
12/31/85* 10,310 328 0 10,638 11,761 12,031 10,092
</TABLE>
* From September 19, 1985 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on September
19, 1985, the net amount invested in shares of the fund was $10,000. The
cost of the initial investment ($10,000), together with the aggregate cost
of reinvested distributions for the period covered (that is, their cash
value at the time they were reinvested), amounted to $21,489. If
distributions had not been reinvested, the amount of distributions earned
from the fund over time would have been smaller and the cash payments for
the period would have amounted to $7,510 for income dividends and $210 for
capital gain distributions. If FMR had not reimbursed certain fund
expenses during the period shown above, the fund's returns would have been
lower. Tax consequences of different investments have not been
factored into the above figures.
EQUITY-INCOME PORTFOLIO: During the period from October 9, 1986 to
December 31, 1993, a hypothetical $10,000 investment in the fund would have
grown to $21,961, assuming all distributions were reinvested. This was a
period of widely fluctuating stock and bond prices and should not
necessarily be considered a representation of the income or capital gain or
loss that could be realized from an investment in the fund today.
INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Value of Value of Value of
Initial Reinvested Reinvested
Period $10,000 Dividend Capital Gain Cost of
Ended Investment Distributions Distributions Total Value S&P DJIA Living**
12/31/93 $15,440 $5,529 $992 $21,961 $24,966 $26,491 $13,230
12/31/92 13,400 4,304 861 18,565 22,680 22,644 12,877
12/31/91 11,850 3,272 761 15,883 21,070 21,104 12,514
12/31/90 9,510 1,963 611 12,084 16,147 16,972 12,142
12/31/89 12,290 1,682 293 14,265 16,667 17,064 11,443
12/31/88 11,010 979 167 12,156 12,657 12,951 10,935
12/31/87 9,420 343 143 9,907 10,854 11,172 10,472
12/31/86* 10,020 0 0 10,020 10,311 10,596 10,027
</TABLE>
* From October 9, 1986 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on October
9, 1986, the net amount invested in shares of the fund was $10,000. The
cost of the initial investment ($10,000), together with the aggregate cost
of reinvested distributions for the period covered (that is, their cash
value at the time they were reinvested), amounted to $14,859. If
distributions had not been reinvested, the amount of distributions earned
from the fund over time would have been smaller and the cash payments for
the period would have amounted to $3,440 for income dividends and $620 for
capital gain distributions. If FMR had not reimbursed certain fund
expenses during the period shown above, the fund's returns would have been
lower. Tax consequences of different investments have not been factored
into the above figures.
GROWTH PORTFOLIO: During the period from October 9, 1986 to December 31,
1993, a hypothetical $10,000 investment in the fund would have grown to
$26,490, assuming all distributions were reinvested. This was a period of
widely fluctuating stock prices and should not necessarily be considered a
representation of the income or capital gain or loss that could be realized
from an investment in the fund today.
INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Value of Value of Value of
Initial Reinvested Reinvested
Period $10,000 Dividend Capital Gain Cost of
Ended Investment Distributions Distributions Total Value S&P DJIA Living**
12/31/93 $23,080 $1,546 $1,864 $26,490 $24,966 $26,491 $13,230
12/31/92 19,760 1,202 1,230 22,192 22,680 22,644 12,877
12/31/91 18,510 1,075 715 20,300 21,070 21,104 12,514
12/31/90 12,910 542 499 13,950 16,147 16,972 12,142
12/31/89 15,180 400 225 15,805 16,667 17,064 11,443
12/31/88 11,720 124 174 12,018 12,657 12,951 10,935
12/31/87 10,140 107 150 10,398 10,854 11,172 10,472
12/31/86* 10,030 0 0 10,030 10,311 10,956 10,027
</TABLE>
* From October 9, 1986 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on October
9, 1986, the net amount invested in shares of the fund was $10,000. The
cost of the initial investment ($10,000), together with the aggregate cost
of reinvested distributions for the period covered (that is, their cash
value at the time they were reinvested), amounted to $12,255. If
distributions had not been reinvested, the amount of distributions earned
from the fund over time would have been smaller and the cash payments for
the period would have amounted to $880 for income dividends and $1,230 for
capital gain distributions. If FMR had not reimbursed certain fund
expenses during the period shown above, the fund's returns would have been
lower. Tax consequences of different investments have not been factored
into the above figures.
OVERSEAS PORTFOLIO: During the period from January 28, 1987 to December
31, 1993, a hypothetical $10,000 investment in the fund would have grown to
$16,826, assuming all distributions were reinvested. This was a period of
widely fluctuating stock prices and should not necessarily be considered a
representation of the income or capital gain or loss that could be realized
from an investment in the fund today.
INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Value of Value of Value of
Initial Reinvested Reinvested
Period $10,000 Dividend Capital Gain Cost of
Ended Investment Distributions Distributions Total Value S&P DJIA Living**
12/31/93 $15,480 $1,276 $70 $16,826 $21,371 $21,996 $13,112
12/31/92 11,530 720 0 12,250 19,414 18,801 12,761
12/31/91 13,090 631 0 13,721 18,036 17,522 12,401
12/31/90 12,420 285 0 12,705 13,822 14,092 12,032
12/31/89 12,670 250 0 12,920 14,267 14,168 11,340
12/31/88 10,110 121 0 10,231 10,834 10,753 10,836
12/31/87* 9,350 112 0 9,462 9,291 9,276 10,378
</TABLE>
* From January 28, 1987 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on January
28, 1987, the net amount invested in shares of the fund was $10,000. The
cost of the initial investment ($10,000), together with the aggregate cost
of reinvested dividends for the period covered (that is, their cash value
at the time they were reinvested), amounted to $11,024. If distributions
had not been reinvested, the amount of distributions earned from the fund
over time would have been smaller and the cash payments for the period
would have amounted to $940 for income dividends and $50 for capital gain
distributions. If FMR had not reimbursed certain fund expenses during the
period shown above, the fund's returns would have been lower. Tax
consequences of different investments have not been factored into the above
figures.
INVESTMENT GRADE BOND PORTFOLIO: During the period from December 5, 1988
to December 31, 1993, a hypothetical $10,000 investment in the fund would
have grown to $16,213, assuming all distributions were reinvested. This
was a period of widely fluctuating interest rates and bond prices and
should not necessarily be considered a representation of the income or
capital gain or loss that could be realized from an investment in the fund
today.
INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Value of Value of Value of
Initial Reinvested Reinvested
Period $10,000 Dividend Capital Gain Cost of
Ended Investment Distributions Distributions Total Value S&P DJIA Living**
12/31/93 $11,480 $4,420 $313 $16,213 $20,203 $21,257 $12,120
12/31/92 10,970 3,419 223 14,611 18,353 18,170 11,796
12/31/91 11,080 2,596 24 13,700 17,050 16,934 11,463
12/31/90 9,920 1,831 21 11,772 13,067 13,619 11,122
12/31/89 10,140 921 22 11,083 13,487 13,692 10,482
12/31/88* 10,000 52 0 10,052 10,242 10,392 10,017
</TABLE>
* From December 5, 1988 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on December
5, 1988, the net amount invested in shares of the fund was $10,000. The
cost of the initial investment ($10,000), together with the aggregate cost
of reinvested distributions for the period covered (that is, their cash
value at the time they were reinvested), amounted to $14,382. If
distributions had not been reinvested, the amount of distributions earned
from the fund over time would have been smaller and the cash payments for
the period would have amounted to $3,474 for income dividends and $240 for
capital gain distributions. If FMR had not reimbursed expenses during the
period shown above, the fund's returns would have been lower. Tax
consequences of different investments have not been factored into the above
figures.
ASSET MANAGER PORTFOLIO: During the period from September 6, 1989 to
December 31, 1993, a hypothetical $10,000 investment in the fund would have
grown to $17,857, assuming all distributions were reinvested. This was a
period of widely fluctuating stock and bond prices and should not
necessarily be considered a representation of the income or capital gain or
loss that could be realized from an investment in the fund today.
INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Value of Value of Value of
Initial Reinvested Reinvested Fidelity
Period $10,000 Dividend Capital Gain Total Cost of Composite
Ended Investment Distributions Distributions Value S& DJIA Living** Index***
P
12/31/93 $15,420 $1,642 $795 $17,857 $15,172 $15,758 $11,701 $14,714
12/31/92 13,320 1,004 406 14,730 13,783 13,470 11,388 13,507
12/31/91 12,550 610 25 13,185 12,804 12,554 11,067 12,654
12/31/90 10,240 498 21 10,758 9,813 10,096 10,738 10,819
12/31/89* 9,970 91 20 10,081 10,128 10,151 10,120 10,302
</TABLE>
* From September 6, 1989 (commencement of operations).
** From month-end closest to initial investment date.
*** From month-end closest to initial investment date. The money market,
bond, and stock indices that compose the Fidelity Composite Index returned
3.09%, 10.68%, and 10.08%, respectively, during the 1993 fiscal year.
These indices are unmanaged, include reinvestment of income and/or
dividends, and are not indicative of the fund's past or future performance.
Explanatory Notes: With an initial investment of $10,000 made on September
6, 1989, the net amount invested in shares of the fund was $10,000. The
cost of the initial investment ($10,000), together with the aggregate cost
of reinvested dividends for the period covered (that is, their cash value
at the time they were reinvested), amounted to $11,872. If distributions
had not been reinvested, the amount of distributions earned from the fund
over time would have been smaller and the cash payments for the period
would have amounted to $1,170 for income dividends and $1,872 for capital
gain distributions. If FMR had not reimbursed expenses during the period
shown above, the fund's returns would have been lower. Tax consequences of
different investments have not been factored into the above figures.
INDEX 500 PORTFOLIO: During the period from August 27, 1992 to December
31, 1993, a hypothetical $10,000 investment in the fund would have grown to
$11,666, assuming all distributions were reinvested. This was a period of
widely fluctuating stock and bond prices and should not necessarily be
considered a representation of the income or capital gain or loss that
could be realized from an investment in the fund today.
INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Value of Value of Value of
Initial Reinvested Reinvested
Period $10,000 Dividend Capital Gain Cost of
Ended Investment Distributions Distributions Total Value S&P DJIA Living**
12/31/93 $11,148 $360 $158 $11,666 $11,722 $12,021 $10,348
12/31/92* 10,520 95 16 10,631 10,648 10,275 10,071
</TABLE>
* From August 27, 1992 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on August
27, 1992, the net amount invested in shares of the fund was $10,000. The
cost of the initial investment ($10,000), together with the aggregate cost
of reinvested distributions for the period covered (that is, their cash
value at the time they were reinvested), amounted to $10,509. If
distributions had not been reinvested, the amount of distributions earned
from the fund over time would have been smaller and the cash payments for
the period would have amounted to $350 for income dividends and $154 for
capital gain distributions. If FMR had not reimbursed expenses during the
period shown above, the fund's returns would have been lower. Tax
consequences of different investments have not been factored into the above
figures.
A yield for the S&P 500 is calculated by dividing the dollar value of
dividends paid by the S&P stocks during the period by the average
monthly value of the S&P over the period. The S&P yield is
calculated differently from the fund's yield; among other things, the
fund's yield calculation treats dividends as accrued in anticipation of
payment, rather than recording them when paid, and uses an ending price
rather than an average price as the basis of the percentage calculation.
The funds are only available for purchase through variable annuity or
variable life insurance contracts offering deferral of income taxes on
earnings, which may produce superior after-tax returns over time. For
example, a $1,000 investment earning a taxable return of 10% annually would
have an after-tax value of $1,949 after ten years, assuming tax was
deducted from the return each year at a 31% rate. An equivalent
tax-deferred investment would have an after-tax value of $2,100 after 10
years, assuming tax was deducted at the 31% rate from the deferred earnings
at the end of the ten year period. Individuals holding shares of the funds
through a variable annuity or variable life insurance contract may receive
additional tax benefits from the deferral of income taxes associated with
variable contracts. Individuals should consult their tax advisors to
determine the effect of holding variable contracts on their individual tax
situations.
YIELDS AND TOTAL RETURNS QUOTED FOR A FUND INCLUDE THE EFFECT OF DEDUCTING
THE FUND'S EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE
TO ANY PARTICULAR INSURANCE PRODUCT. SINCE YOU CAN ONLY PURCHASE SHARES OF
A FUND THROUGH A VARIABLE ANNUITY AND/OR A VARIABLE LIFE INSURANCE
CONTRACT, YOU SHOULD CAREFULLY REVIEW THE PROSPECTUS OF THE INSURANCE
PRODUCT YOU HAVE CHOSEN FOR INFORMATION ON RELEVANT CHARGES AND EXPENSES.
Excluding these charges from quotations of a fund's performance has the
effect of increasing the performance quoted.
GENERAL INFORMATION
A fund's performance may be compared to the performance of other mutual
funds in general, or to the performance of particular types of mutual
funds. These comparisons may be expressed as mutual fund rankings
prepared by Lipper Analytical Services, Inc. (Lipper), an independent
service located in Summit, New Jersey that monitors the performance of
mutual funds. Lipper generally ranks funds on the basis of total return,
assuming reinvestment of distributions, but does not take sales charges or
redemption fees into consideration, and is prepared without regard to tax
consequences. Lipper may also rank funds based on yield. In addition to
the mutual fund rankings, a fund's performance may be compared to mutual
fund performance indices prepared by Lipper. High Income Portfolio may
compare its performance to the Salomon Brothers High Yield Composite Index,
an index of high-yielding utility and corporate bonds with a minimum
maturity of seven years and with total debt outstanding of at least $50
million. Issues included in the index are rated Baa or lower by Moody's
Investors Service or BBB or lower by Standard & Poor's Corporation.
Overseas Portfolio may quote its performance in advertising and other types
of literature as compared to the performance of the Morgan Stanley Capital
International EAFE Index, an unmanaged index of over 820 foreign common
stocks. Investment Grade Bond Portfolio may compare its performance to the
Shearson Lehman Brothers Inc. Government/Corporate Intermediate Bond index.
Asset Manager may compare its performance against the Fidelity Composite
Index. A fund may also compare its performance against the Consumer Price
Index (CPI) and the funds in Lipper Annuity & Closed-End Survey
(LACES). LACES consists of periodic reports that track the performance of
closed-end mutual funds and variable annuities at the separate account
level. A fund will compare itself only to annuities, not to closed-end
funds in LACES.Index 500 Portfolio may quote its performance in advertising
and other types of literature as compared to the performance of the S&P
500, (a registered trademark of Standard & Poor's Corporation). The
S&P 500 is an unmanaged index of common stock prices.The performance of
the S&P 500 Index is based on changes in the prices of stocks composing
the Index and assumes the reinvestment of all dividends paid on such
stocks. Taxes, brokerage commissions and other fees are disregarded in
computing the level of the S&P 500 Index.
From time to time, a fund's performance may also be compared to other
mutual funds tracked by financial or business publications and periodicals.
For example, a fund may quote Morningstar, Inc. in its advertising
materials. Morningstar, Inc. is a mutual fund rating service that rates
mutual funds on the basis of risk-adjusted performance. Rankings that
compare the performance of Fidelity funds to one another in appropriate
categories over specific periods of time may also be quoted in advertising.
Fidelity may provide information designed to help individuals understand
their investment goals and explore various financial strategies. For
example, Fidelity's FundMatchsm Program includes a workbook describing
general principles of investing, such as asset allocation, diversification,
risk tolerance, and goal setting; a questionnaire designed to help create a
personal financial profile; and an action plan offering investment
alternatives. Materials may also include discussions of Fidelity's three
asset allocation funds and other Fidelity funds, products, and services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical
returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury
bills, the U.S. rate of inflation (based on the CPI), and combinations of
various capital markets. The performance of these capital markets is based
on the returns of different indices.
Fidelity funds may use the performance of these capital markets in order to
demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any
of these capital markets. The risks associated with the security types in
any capital market may or may not correspond directly to those of the
funds. Ibbotson calculates total returns in the same method as the funds.
The funds may also compare performance to that of other compilations or
indices that may be developed and made available in the future.
Money Market, High Income and Investment Grade Bond Portfolios each may
compare its performance or the performance of securities in which it may
invest to averages published by IBC USA (Publications), Inc. of Ashland,
Massachusetts. These averages assume reinvestment of distributions. The
IBC/Donoghue's MONEY FUND AVERAGES(trademark)/taxable money market funds,
which is reported in the MONEY FUND REPORT(registered trademark), covers
money market funds. The Bond Fund Report AverageS(trademark)/taxable bond
funds, which is reported in the BOND FUND REPORT(registered trademark),
covers bond funds. When evaluating comparisons to money market funds,
investors should consider the relevant differences in investment objectives
and policies. Specifically, money market funds invest in short-term,
high-quality instruments and seek to maintain a stable $1.00 share price.
Bond funds however, typically invest in longer-term instruments and their
share price changes daily in response to a variety of factors.
In advertising materials, Fidelity may reference or discuss its products
and services, which may include: other Fidelity funds and insurance
products; retirement investing; brokerage products and services; the
effects of periodic investment plans and dollar cost averaging; saving for
college; charitable giving; and the Fidelity credit card. In addition,
Fidelity may quote financial or business publications and periodicals,
including model portfolios or allocations, as they relate to fund
management, investment philosophy, and investment techniques. Fidelity may
also reprint, and use as advertising and sales literature, articles from
Fidelity Focus, a quarterly magazine provided free of charge to Fidelity
fund shareholders.
Each fund may present its fund number, Quotron(trademark) number, and CUSIP
number, and discuss or quote its current portfolio manager.
VOLATILITY. A fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, a fund may compare these measures
to those of other funds. Measures of volatility seek to compare a fund's
historical share price fluctuations or total returns to those of a
benchmark. Measures of benchmark correlation indicate how valid a
comparative benchmark may be. All measures of volatility and correlation
are calculated using averages of historical data.
MOMENTUM INDICATORS indicate a fund's price movements over specific periods
of time. Each point on the momentum indicator represents a fund's
percentage change in price movements over that period.
The funds may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a
program, a policyowner invests a fixed dollar amount in an insurance
company's sub-account at periodic intervals which in turn invests in a
fund, thereby purchasing fewer units when prices are high and more units
when prices are low. While such a strategy does not assure a profit nor
guard against loss in a declining market, the policyowner's average cost
per unit can be lower than if fixed numbers of units had been purchased at
those intervals. In evaluating such a plan, policyowners should consider
their ability to continue purchasing units through periods of low price
levels.
Each fund has an investment objective similar to an existing Fidelity
retail fund. Money Market Portfolio is most similar to its corresponding
retail fund, Fidelity Cash Reserves. High Income Portfolio is most similar
to its corresponding retail fund, Spartan High Income Fund. Equity-Income
Portfolio is most similar to its corresponding retail fund, Fidelity
Equity-Income Fund. Growth Portfolio is most similar to its corresponding
retail fund, Fidelity Retirement Growth Fund. Overseas Portfolio is most
similar to its corresponding retail fund, Fidelity Overseas Fund.
Investment Grade Bond Portfolio is most similar to Fidelity Intermediate
Bond Fund; Asset Manager Portfolio is most similar to Fidelity Asset
Manager; and Index 500 Portfolio is most similar to Fidelity Market Index
Fund. Performance will differ between the funds and their corresponding
retail funds due in part to differences in investment policies and the
effect of insurance charges.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each fund (except for Money Market Portfolio) is open for business and its
NAV is calculated each day the NYSE is open for trading. The NYSE has
designated the following holiday closings for 1994: President's Day, Good
Friday, Memorial Day, Independence Day (observed), Labor Day, Thanksgiving
Day, and Christmas Day (observed). Money Market Portfolio is open for
business and its NAV is calculated each day that both the Federal Reserve
Bank of New York City (the New York City Fed) and the NYSE are open for
trading. In addition to the above holidays, the following holiday closings
have been scheduled for Money Market Portfolio for 1994: Dr. Martin Luther,
King, Jr. Day (observed), Columbus Day (observed), and Veteran's Day.
Although FMR expects the same holiday schedule, with the addition of New
Year's Day, to be observed in the future, the New York City Fed or the NYSE
may modify its holiday schedule at any time. On any day that the New York
City Fed or the NYSE close early or as permitted by the SEC , the
right is reserved to advance the time on that day by which purchase and
redemption orders must be received. To the extent that each fund's
securities are traded in other markets on days when the New York City Fed
or the NYSE is closed, each fund's NAV may be affected on days when
investors do not have access to each fund to purchase or redeem shares.
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are valued in
computing the NAV of each fund. Shareholders receiving securities or other
property on redemption may realize a gain or loss for tax purposes, and
will incur any costs of sale, as well as the associated inconveniences.
TAXES
For a discussion of tax consequences of variable contracts, please refer to
your insurance company's separate account prospectus.
Variable contracts purchased through insurance company separate accounts
provide for the accumulation of all earnings from interest, dividends, and
capital appreciation without current federal income tax liability to the
owner. Depending on the variable contract, distributions from the contract
may be subject to ordinary income tax and a 10% penalty tax on
distributions before age 59 1/2. Only the portion of a distribution
attributable to income is subject to federal income tax. Investors should
consult with competent tax advisors for a more complete discussion of
possible tax consequences in a particular situation.
Section 817(h) of the Internal Revenue Code provides that the investments
of a separate account underlying a variable insurance contract (or the
investments of a mutual fund, the shares of which are owned by the variable
separate account) must be "adequately diversified" in order for the
contract to be treated as an annuity or life insurance for tax purposes.
The Treasury Department has issued regulations prescribing these
diversification requirements. Each fund intends to comply with these
requirements.
Each fund intends to qualify each year as a "regulated investment company"
for tax purposes, so that it will not be liable for federal tax on income
and capital gains distributed to shareholders. In order to qualify as a
regulated investment company and avoid being subject to federal income or
excise taxes, each fund intends to distribute substantially all its net
taxable income and net realized capital gains within each calendar year as
well as on a fiscal year basis. The funds also intend to comply with other
tax rules applicable to regulated investment companies including a
requirement that gross capital gains from selling securities held less than
three months must constitute less than 30% of the funds' gross income for
each fiscal year. Income and capital gain distributions are reinvested in
additional shares of each fund. This is done to preserve the tax
advantaged status of the variable contracts. Each fund is treated as a
separate entity for tax purposes.
MONEY MARKET PORTFOLIO. This fund may distribute any net realized
short-term gains once each year, or more frequently if necessary, in order
to maintain the fund's NAV at $1.00 per share and to comply with tax
regulations.
As of December 31, 1993, Money Market Portfolio had an aggregate capital
loss carryover of approximately $13,800 arising from capital losses
realized in the past, of which $4,100 will expire in 1995, $500 will expire
in 1996, $4,900 will expire in 1997, and $4,300 will expire in 2000. This
capital loss carryover may be used to offset future capital gains realized
by the fund.
HIGH INCOME AND INVESTMENT GRADE BOND PORTFOLIOS. Income from these
funds is primarily derived from interest rather than dividends. As of
December 31, 1993 High Income and Investment Grade Bond Portfolios had no
unused capital loss carryover.
OVERSEAS PORTFOLIO. Withholding or other taxes that the fund paid to
foreign governments (if any), will reduce the fund's dividends. Foreign
tax withholding from dividends and interest (if any) is typically at a rate
between 10% and 35%. Shareholders will bear the cost of foreign tax
withholding, but generally not be able to claim a foreign tax credit or
deduction for foreign taxes paid by the fund by reason of the tax-deferred
status of investments through separate accounts. As of December 31, 1993,
Overseas Portfolio had an aggregate capital loss carryover of approximately
$8,614,000, which may be used to offset future capital gains realized by
the fund.
EQUITY-INCOME, GROWTH, ASSET MANAGER AND INDEX 500 PORTFOLIOS . As
of December 31, 1993, each fund had no aggregate capital loss carryover.
FMR
FMR is a wholly owned subsidiary of FMR Corp., a parent company organized
in 1972. At present, the principal operating activities of FMR Corp. are
those conducted by three of its divisions as follows: FSC, which is the
transfer and shareholder servicing agent for certain of the funds advised
by FMR; FIIOC, which performs shareholder servicing functions for certain
institutional customers; and Fidelity Investments Retail Marketing Company,
which provides marketing services to various companies within the Fidelity
organization.
Several affiliates of FMR are also engaged in the investment advisory
business. Fidelity Management Trust Company provides trustee, investment
advisory, and administrative services to retirement plans and corporate
employee benefit accounts. Fidelity Management & Research (U.K.) Inc.
(FMR U.K.) and Fidelity Management & Research (Far East) Inc. (FMR Far
East), both wholly owned subsidiaries of FMR formed in 1986, supply
investment research, and may supply portfolio management services, to FMR
in connection with certain funds advised by FMR. Analysts employed by FMR,
FMR U.K., and FMR Far East research and visit thousands of domestic and
foreign companies each year. FMR Texas Inc., a wholly owned subsidiary of
FMR formed in 1989, supplies portfolio management and research services in
connection with certain money market funds advised by FMR.
TRUSTEES AND OFFICERS
Each Trust's Trustees and executive officers are listed below. Except as
indicated, each individual has held the office shown or other offices in
the same company for the last five years. All persons named as Trustees
and officers also serve in similar capacities for other funds advised by
FMR. Unless otherwise noted, the business address of each Trustee and
officer is 82 Devonshire Street, Boston, Massachusetts, 02109, which is
also the address of FMR. Those Trustees who are "interested persons" (as
defined in the Investment Company Act of 1940) by virtue of their
affiliation with each Trust or FMR, are indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d, Trustee and President, is Chairman, Chief Executive
Officer and a Director of FMR Corp.; a Director and Chairman of the Board
and of the Executive Committee of FMR; Chairman and a Director of FMR Texas
Inc. (1989), Fidelity Management & Research (U.K.) Inc., and Fidelity
Management & Research (Far East) Inc.
*J. GARY BURKHEAD, Trustee and Senior Vice President, is President of FMR;
and President and a Director of FMR Texas Inc. (1989), Fidelity Management
& Research (U.K.) Inc., and Fidelity Management & Research (Far
East) Inc.
RALPH F. COX, 200 Rivercrest Drive, Fort Worth, TX, Trustee (1991), is a
consultant to Western Mining Corporation (1994). Prior to February 1994, he
was President of Greenhill Petroleum Corporation (petroleum exploration and
production, 1990). Until March 1990, Mr. Cox was President and Chief
Operating Officer of Union Pacific Resources Company (exploration and
production). He is a Director of Bonneville Pacific Corporation
(independent power, 1989), Sanifill Corporation (non-hazardous waste,
1993), and CH2M Hill Companies (engineering). In addition, he served on
the Board of Directors of the Norton Company (manufacturer of industrial
devices, 1983-1990) and continues to serve on the Board of Directors of the
Texas State Chamber of Commerce, and is a member of advisory boards of
Texas A&M University and the University of Texas at Austin.
PHYLLIS BURKE DAVIS, P.O. Box 264, Bridgehampton, NY, Trustee (1992).
Prior to her retirement in September 1991, Mrs. Davis was the Senior Vice
President of Corporate Affairs of Avon Products, Inc. She is currently a
Director of BellSouth Corporation (telecommunications), Eaton Corporation
(manufacturing, 1991), and the TJX Companies, Inc. (retail stores, 1990),
and previously served as a Director of Hallmark Cards, Inc. (1985-1991) and
Nabisco Brands, Inc. In addition, she serves as a Director of the New York
City Chapter of the National Multiple Sclerosis Society, and is a member of
the Advisory Council of the International Executive Service Corps. and the
President's Advisory Council of The University of Vermont School of
Business Administration.
RICHARD J. FLYNN, 77 Fiske Hill, Sturbridge, MA, Trustee, is a financial
consultant. Prior to September 1986, Mr. Flynn was Vice Chairman and a
Director of the Norton Company (manufacturer of industrial devices). He is
currently a Director of Mechanics Bank and a Trustee of College of the Holy
Cross and Old Sturbridge Village, Inc.
E. BRADLEY JONES, 3881-2 Lander Road, Chagrin Falls, OH, Trustee (1990).
Prior to his retirement in 1984, Mr. Jones was Chairman and Chief Executive
Officer of LTV Steel Company. Prior to May 1990, he was Director of
National City Corporation (a bank holding company) and National City Bank
of Cleveland. He is a Director of TRW Inc. (original equipment and
replacement products), Cleveland-Cliffs Inc (mining), NACCO Industries,
Inc. (mining and marketing), Consolidated Rail Corporation, Birmingham
Steel Corporation, Hyster-Yale Materials Handling, Inc. (1989), and RPM,
Inc. (manufacturer of chemical products, 1990). In addition, he serves as
a Trustee of First Union Real Estate Investments, Chairman of the Board of
Trustees and a member of the Executive Committee of the Cleveland Clinic
Foundation, a Trustee and a member of the Executive Committee of University
School (Cleveland), and a Trustee of Cleveland Clinic Florida.
DONALD J. KIRK, 680 Steamboat Road, Apartment #1-North, Greenwich, CT,
Trustee, is a Professor at Columbia University Graduate School of Business
and a financial consultant. Prior to 1987, he was Chairman of the
Financial Accounting Standards Board. Mr. Kirk is a Director of General Re
Corporation (reinsurance) and Valuation Research Corp. (appraisals and
valuations, 1993). In addition, he serves as Vice Chairman of the Board of
Directors of the National Arts Stabilization Fund and Vice Chairman of the
Board of Trustees of the Greenwich Hospital Association.
*PETER S. LYNCH, Trustee (1990) is Vice Chairman of FMR (1992). Prior to
his retirement on May 31, 1990, he was a Director of FMR (1989) and
Executive Vice President of FMR (a position he held until March 31, 1991);
Vice President of Fidelity Magellan Fund and FMR Growth Group Leader; and
Managing Director of FMR Corp. Mr. Lynch was also Vice President of
Fidelity Investments Corporate Services (1991-1992). He is a Director of
W.R. Grace & Co. (chemicals, 1989) and Morrison Knudsen Corporation
(engineering and construction). In addition, he serves as a Trustee of
Boston College, Massachusetts Eye & Ear Infirmary, Historic Deerfield
(1989) and Society for the Preservation of New England Antiquities, and as
an Overseer of the Museum of Fine Arts of Boston (1990).
GERALD C. McDONOUGH, 135 Aspenwood Drive, Cleveland, OH, Trustee (1989), is
Chairman of G.M. Management Group (strategic advisory services). Prior to
his retirement in July 1988, he was Chairman and Chief Executive Officer of
Leaseway Transportation Corp. (physical distribution services). Mr.
McDonough is a Director of ACME-Cleveland Corp. (metal working,
telecommunications and electronic products), Brush-Wellman Inc. (metal
refining), York International Corp. (air conditioning and refrigeration,
1989), Commercial Intertech Corp. (water treatment equipment, 1992), and
Associated Estates Realty Corporation (a real estate investment trust,
1993).
EDWARD H. MALONE, 5601 Turtle Bay Drive #2104, Naples, FL, Trustee. Prior
to his retirement in 1985, Mr. Malone was Chairman, General Electric
Investment Corporation and a Vice President of General Electric Company.
He is a Director of Allegheny Power Systems, Inc. (electric utility),
General Re Corporation (reinsurance) and Mattel Inc. (toy manufacturer).
He is also a Trustee of Rensselaer Polytechnic Institute and of Corporate
Property Investors and a member of the Advisory Boards of Butler Capital
Corporation Funds and Warburg, Pincus Partnership Funds.
MARVIN L. MANN, 55 Railroad Avenue, Greenwich, CT, Trustee (1993) is
Chairman of the Board, President, and Chief Executive Officer of Lexmark
International, Inc. (office machines, 1991). Prior to 1991, he held the
positions of Vice President of International Business Machines Corporation
("IBM") and President and General Manager of various IBM divisions and
subsidiaries. Mr. Mann is a Director of M.A. Hanna Company (chemicals,
1993) and Infomart (marketing services, 1991), a Trammell Crow Co. In
addition, he serves as the Campaign Vice Chairman of the Tri-State United
Way (1993) and is a member of the University of Alabama President's Cabinet
(1990).
THOMAS R. WILLIAMS, 21st Floor, 191 Peachtree Street, N.E., Atlanta, GA,
Trustee, is President of The Wales Group, Inc. (management and financial
advisory services). Prior to retiring in 1987, Mr. Williams served as
Chairman of the Board of First Wachovia Corporation (bank holding company),
and Chairman and Chief Executive Officer of The First National Bank of
Atlanta and First Atlanta Corporation (bank holding company). He is
currently a Director of BellSouth Corporation (telecommunications),
ConAgra, Inc. (agricultural products), Fisher Business Systems, Inc.
(computer software), Georgia Power Company (electric utility), Gerber Alley
& Associates, Inc. (computer software), National Life Insurance Company
of Vermont, American Software, Inc. (1989), and AppleSouth, Inc.
(restaurants, 1992).
GARY L. FRENCH, Treasurer (1991). Prior to becoming Treasurer of the
Fidelity funds, Mr. French was Senior Vice President, Fund Accounting -
Fidelity Accounting & Custody Services Co. (1991); Vice President, Fund
Accounting - Fidelity Accounting & Custody Services Co. (1990); and
Senior Vice President, Chief Financial and Operations Officer - Huntington
Advisers, Inc. (1985-1990).
ARTHUR S. LORING, Secretary, is Senior Vice President and General Counsel
of FMR, Vice President-Legal of FMR Corp., and Vice President and Clerk of
FDC.
THOMAS D. MAHER, Assistant Vice President (1990), is Associate General
Counsel of FMR Texas Inc. (1990).
ROBERT LITTERST, Vice President of Money Market Portfolio (1992), is an
employee of FMR.
BARRY COFFMAN, Vice President of High Income Portfolio (1992), is an
employee of FMR.
ROBERT BECKWITT, Vice President of Asset Manager Portfolio (1990), is an
employee of FMR.
DONALD TAYLOR, Vice President of Investment Grade Bond Portfolio (1992), is
an employee of FMR.
ROBERT H. MORRISON, Manager, Security Transactions, is an employee of FMR.
Under a retirement program that became effective on November 1, 1989,
Trustees, upon reaching age 72, become eligible to participate in a defined
benefit retirement program under which they receive payments during their
lifetime from the fund based on their basic trustee fees and length of
service. Currently, Messrs. Robert L. Johnson, William R. Spaulding,
Bertram H. Witham, and David L. Yunich participate in the program.
As of March 31, 1994, the Trustees and officers of each Trust owned 0% of
the outstanding shares of the funds.
As of February 28, 1994, significant shares of the funds were held by the
following companies with the figures beneath each fund representing that
company's holdings as a percentage of each fund's total outstanding shares.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
Money High Equity- Grade Asset
Market Income Income Growth Overseas Bond Manager Index 500
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
American United -- -- -- -- -- -- -- 12.96%
Life Insurance
Company
(Indianapolis, IN)
Ameritas Variable 9.08% -- -- -- -- 14.77% -- --
Life Insurance
Company
(Lincoln, NE)
Fidelity 47.43% 21.43% 27.98% 19.47% 21.48% 45.63% 33.06% 63.08%
Investments Life
Insurance
Company
(Boston, MA)
Integrity Life -- -- -- -- -- 5.06% -- --
Insurance
Company (New
York, NY)
The Life Insurance 6.30% -- -- -- 5.31% -- 12.50% --
Company of
Virginia
(Richmond, VA)
Northwestern -- -- -- -- -- 8.90% -- 6.11%
National Life
Insurance
Company
(Minneapolis, MN)
PFL Life Insurance 21.59% 12.92% 10.27% 6.14% 7.43% 13.56% 5.93% --
Company
(Cedar Rapids, IA)
Nationwide Life -- 36.82% 30.11% 31.47% 43.21% -- 23.71% --
Insurance
Company
(Columbus, OH)
State Mutual Life -- 6.70% 9.30% 7.78% 6.20% -- -- --
Assurance
Company
(Worcester, MA)
The Travelers -- 5.51% -- 9.12% -- -- 9.15% --
Insurance
Company
(Hartford, CT)
</TABLE>
* Less than 5%.
- - - Company does not offer shares of the portfolio.
A shareholder owning more than 25% of a particular fund's shares may be
considered to be a "controlling person" of that fund. Accordingly, its
vote could have a more significant effect on matters presented to
shareholders for approval than the votes of the fund's other shareholders.
Messrs. Edward C. Johnson 3d and J. Gary Burkhead, Trustees of the fund and
directors of FMR, together with Messrs. Francis D. Cabour, Richard B.
Fentin, Barry A. Greenfield, Richard C. Habermann, William J. Hayes,
Michael M. Kassen, Alan Leifer, Peter S. Lynch, and George A. Vanderheiden,
officers or employees of FMR, are members of the Equity-Income, Growth and
Overseas Portfolios' Investment Committee, which reviews recommendations of
the research staff of FMR.
MANAGEMENT CONTRACTS
Each fund employs FMR to furnish it with investment advisory and other
services. Under FMR's Management Contract with each fund, FMR acts as
investment advisor and, subject to the supervision of the Board of
Trustees, directs the investments of each fund in accordance with its
investment objective, policies and limitations. FMR also provides each
fund with all necessary office facilities and personnel for servicing each
fund's investments, and compensates all officers of each Trust, all
Trustees who are "interested persons" of each Trust or of FMR and all
personnel of each Trust or FMR performing services relating to research,
statistical and investment activities. In addition, FMR or its affiliates,
subject to the supervision of the Board of Trustees, provide the management
and administrative services necessary for the operation of each fund.
These services include providing facilities for maintaining each fund's
organization, supervising relations with custodians, transfer and pricing
agents, accountants, underwriters and other persons dealing with each fund,
preparing all general shareholder communications and conducting shareholder
relations, maintaining each fund's records and the registration of each
fund's shares under federal and state law, developing management and
shareholder services for each fund and furnishing reports, evaluations and
analyses on a variety of subjects to each Trust's Board of Trustees.
In addition to the management fee payable to FMR and the fees payable to
FSC and FIIOC, each fund pays all its expenses, without limitation, that
are not assumed by those parties. Each fund pays for typesetting, printing
and mailing its Prospectuses, Statements of Additional Information, reports
and proxy material to existing shareholders, legal expenses and the fees of
the custodian, auditor and non-interested Trustees. Other charges paid by
each fund include interest, taxes, brokerage commissions, each fund's
proportionate share of insurance premiums and Investment Company Institute
dues, and the costs of registering shares under federal and state
securities laws. Each fund is also liable for such nonrecurring expenses
as may arise, including costs of litigation to which each fund may be a
party and any obligation they may have to indemnify the officers and
Trustees of each Trust with respect to litigation.
MONEY MARKET PORTFOLIO. FMR is the fund's manager pursuant to a management
contract dated January 1, 1994, which was approved by shareholders on
December 15, 1993. For the services of FMR under the contract, the fund
pays FMR a monthly management fee calculated by adding a basic fee, which
consists of a group fee rate and an individual fund fee rate (.03% of the
fund's average net assets), to an income-based component of 6% of the
fund's gross income in excess of a 5% yield, and multiplying the result by
the fund's average net assets. A discussion of the group fee rate is
below.
INVESTMENT GRADE BOND PORTFOLIO AND HIGH INCOME PORTFOLIO. FMR is
Investment Grade Bond Portfolio's manager pursuant to a Management Contract
dated January 1, 1993, which was approved by shareholders on December 16,
1992. FMR is High Income Portfolio's manager pursuant to a Management
Contract dated January 1, 1994 which was approved by shareholders on
December 15, 1993. For the services of FMR under each Contract, each fund
pays FMR a monthly management fee composed of the sum of two elements: a
group fee rate and an individual fund fee rate.
THE GROUP FEE RATE. The group fee rate for Money Market, Investment Grade
Bond* and High Income Portfolios is based on the monthly average net assets
of all of the registered investment companies with which FMR has management
contracts and is calculated on a cumulative basis pursuant to the graduated
fee rate schedule shown on the left of the chart below. On the right, the
effective fee rate schedule shows the results of cumulatively applying the
annualized rates at varying asset levels. For example, the effective
annual fee rate at $232 billion of group net assets--their approximate
level for the month of December 1993 was .1621%, which is the weighted
average of the respective fee rates for each level of group net assets up
to that level.
GROUP FEE RATE EFFECTIVE ANNUAL
SCHEDULE* FEE RATES
Rate Group Effective
Asset Levels Net Annual
Assets Fee Rate
0 - $ 3 billion .3700% $ 25 billion .2664%
3 - 6 .3400 50 .2188
6 - 9 .3100 75 .1986
9 - 12 .2800 100 .1869
12 - 15 .2500 125 .1793
15 - 18 .2200 150 .1736
18 - 21 .2000 175 .1695
21 - 24 .1900 200 .1658
24 - 30 .1800 225 .1629
30 - 36 .1750 250 .1604
36 - 42 .1700 275 .1583
42 - 48 .1650 300 .1565
48 - 66 .1600 325 .1548
66 - 84 .1550 350 .1533
84 - 120 .1500 375 .1519
120 - 174 .1450 400 .1507
174 - 228 .1400
228 - 282 .1375
282 - 336 .1350
Over - 336 .1325
*The rates shown for average group assets in excess of $174 billion were
adopted for Investment Grade Bond Portfolio by FMR on a voluntary basis on
November 1, 1993. The schedule was adopted for the fund pending shareholder
approval of a new management contract reflecting the extended schedule.
The extended schedule provides for lower management fees as total assets
under management increase.
The individual fund fee rate for Money Market Portfolio is .03%. Based on
the average net assets of funds advised by FMR for December 1993, the basic
fee rate would be calculated as follows:
Group Fee Rate Individual Fund Fee Rate Basic Fee Rate
.1621% + .03% = .1921%
If the fund's gross yield is 5% or less, the basic fee is the total
management fee. The income-based component of the fee is added to the
basic fee when the fund's yield is greater than 5%. The income-based fee
equals 6% of that portion of the fund's gross income that represents a
gross yield of more than 5% per year. The maximum income-based component
is .24% (annualized) of average net assets, at a fund gross yield of 9%.
Gross income for this purpose, includes interest accrued and/or discount
earned (including both original issue discount and market discount) on
portfolio obligations, less amortization of premium. Realized and
unrealized gains and losses, if any, are not included in gross income. One
twelfth (1/12) of the basic fee plus the income-based component is applied
to the fund's average net assets for the current month, giving a dollar
amount which is the fee for that month.
The individual fund fee rate for Investment Grade Bond Portfolio is .30%.
Based on the average net assets of funds advised by FMR for December 1993,
the basic fee rate would be calculated as follows:
Group Fee Rate Individual Fund Fee Rate Management Fee Rate
.1621% + .30% = .4621%
The individual fund fee rate for High Income Portfolio is .45%. Based on
the average net assets of funds advised by FMR for December 1993, the basic
fee rate would be calculated as follows:
Group Fee Rate Individual Fund Fee Rate Management Fee Rate
.1621% + .45% = .6121%
One twelfth (1/12) of this annual management fee rate is then applied to
each fund's average net assets for the current month, giving a dollar
amount which is the fee for that month.
MONEY MARKET PORTFOLIO. For the 1993, 1992 and 1991 fiscal years, FMR's
fee as investment advisor was $415,213, $487,024 and $710,490,
respectively, which was equivalent to an annualized rate of .14%, .17% and
.28%, respectively of the fund's average net assets.
INVESTMENT GRADE BOND PORTFOLIO. For fiscal years ended 1993, 1992 and
1991, FMR received $460,983, $272,562, and $108,191, respectively, for its
services as investment advisor before reimbursement. These fees were
equivalent to .47%, .47%, and .48% of the fund's average net assets for
those respective periods.
HIGH INCOME PORTFOLIO. During the fiscal years ended 1993, 1992 and 1991,
FMR received $1,764,257, $784,904 and $266,207, respectively, for its
services as investment advisor. These fees, were equivalent to .51%, .52%
and .53% of the fund's average net assets for those respective periods.
Prior to January 1, 1994, Money Market Portfolio's management fee was
calculated as a percentage of the fund's gross income, calculated and paid
monthly, and varied together with the fund's yield. The fee equaled 4% of
that portion of the fund's gross income (before expenses) that was
equivalent to a gross yield of 5% or less, plus 6% of the fund's gross
income that was equivalent to a gross yield of more than 5%. The fee was
subject to a maximum fee rate, which varied between 0.50% and 0.40%
(annualized) of average net assets depending on the fund's size.
On behalf of Investment Grade Bond Portfolio, the schedule shown above
(minus the breakpoints added November 1, 1993) was voluntarily adopted by
FMR on January 1, 1992 and approved by shareholders of the fund on December
16, 1992. Prior to January 1, 1992, the funds' group fee rate was based on
a schedule with breakpoints ending at .310% for average group assets in
excess of $102 billion. This shorter schedule was included in the fund's
prior management contract with FMR dated January 1, 1990.
On behalf of High Income Portfolio, on November 1, 1993, FMR voluntarily
adopted a revised schedule providing for extended breakpoints for group
assets in excess of $174 billion. The extended schedule was approved by
shareholders of the fund December 15, 1993. The schedule shown above
(minus the breakpoints approved by shareholders on December 15, 1993) was
voluntarily adopted by FMR on January 1, 1992. On December 16, 1992,
shareholders approved the extended schedule and revised management contract
dated January 1, 1993. Prior to January 1, 1992, the fund's group fee rate
was based on a schedule with breakpoints ending at .150% for average group
assets in excess of $120 billion. This shorter schedule was included a
prior management contract with FMR dated January 1, 1990. Prior to
January 1, 1994, High Income Portfolio's individual fund fee rate was .35%
of the fund's average net assets.
EQUITY-INCOME, GROWTH, OVERSEAS AND ASSET MANAGER PORTFOLIOS. FMR is each
fund's manager pursuant to Management Contracts dated January 1, 1993,
which were approved by shareholders on December 16, 1992. For the services
of FMR under the Contracts, each fund pays FMR a monthly management fee
composed of the sum of two elements: a group fee rate and an individual
fund fee rate.
THE GROUP FEE RATE. Each fund's group fee rate is based on the monthly
average net assets of all of the registered investment companies with which
FMR has management contracts and is calculated on a cumulative basis
pursuant to the graduated fee rate schedule shown on the left of the chart
below. On the right, the effective fee rate schedule shows the results of
cumulatively applying the annualized rates at varying asset levels. For
example, the effective annual fee rate at $232 billion of group net
assets--their approximate level for the month of December 1993 was .3243%,
which is the weighted average of the respective fee rates for each level of
group net assets up to that level.
GROUP FEE RATE EFFECTIVE ANNUAL
SCHEDULE* FEE RATES
Rate Group Effective
Asset Levels Net Annual
Assets Fee Rate
0 - $ 3 billion .520% $ 0.5 billion .5200%
3 - 6 .490 10 .4840
6 - 9 .460 20 .4398
9 - 12 .430 30 .4115
12 - 15 .400 40 .3944
15 - 18 .385 50 .3823
18 - 21 .370 60 .3728
21 - 24 .360 70 .3656
24 - 30 .350 80 .3599
30 - 36 .345 90 .3552
36 - 42 .340 100 .3512
42 - 48 .335 110 .3475
48 - 66 .325 120 .3444
66 - 84 .320 130 .3417
84 - 102 .315 140 .3394
102 - 138 .310 150 .3371
138 - 174 .305 160 .3351
174 - 228 .300 170 .3333
228 - 282 .295 180 .3316
282 - 336 .290 190 .3299
Over 336 .285 200 .3284
*The rates shown for average group assets in excess of $174 billion were
adopted by FMR on a voluntary basis on November 1, 1993. The schedule was
adopted for each fund pending shareholder approval of new management
contracts reflecting the extended schedule. The extended schedule provides
for lower management fees as total assets under management increase.
Based on the average net assets of the funds advised by FMR for December
1993, the annual management fee rate was calculated as follows:
The individual fund fee rate for Equity-Income Portfolio is .20%.
Group Fee Rate Individual Fund Fee Rate Management Fee Rate
.3243% + .20% = .5243%
The individual fund fee rate for Growth Portfolio is .30%.
Group Fee Rate Individual Fund Fee Rate Management Fee Rate
.3243% + .30% = .6243%
The individual fund fee rate for Overseas Portfolio is .45%.
Group Fee Rate Individual Fund Fee Rate Management Fee Rate
.3243% + .45% = .7743%
The individual fund fee rate for Asset Manager Portfolio is .40%.
Group Fee Rate Individual Fund Fee Rate Management Fee Rate
.3243% + .40% = .7243%
One twelfth (1/12) of this annual management fee rate is then applied to
each fund's average net assets for the current month, giving a dollar
amount which is the fee for that month.
The schedule shown above (minus the breakpoints added November 1, 1993) was
voluntarily adopted by FMR on January 1, 1992 and approved by shareholders
of each fund on December 16, 1992. Prior to January 1, 1992, the funds'
group fee rate was based on a schedule with breakpoints ending at .310% for
average group assets in excess of $102 billion. This shorter schedule was
included in each fund's prior management contract with FMR dated January 1,
1990.
EQUITY-INCOME. During the fiscal years ended 1993, 1992 and 1991, FMR
received $2,179,187, $1,132,875 and $840,430, respectively, for its
services as investment advisor. These fees were equivalent to .53%, .54%
and .55% of the fund's average net assets for those respective periods.
GROWTH. During the fiscal years ended 1993, 1992 and 1991, FMR received
$3,305,050, $1,468,574 and $695,364, respectively, for its services as
investment advisor. These fees were equivalent to .63%, .64% and .65% of
the fund's average net assets for those respective periods.
OVERSEAS. During the fiscal years ended 1993, 1992 and 1991, FMR received
$1,231,227, $799,438 and $465,118, respectively, for its services as
investment advisor. These fees were equivalent to .78%, .79% and .80% of
the fund's average net assets for those respective periods.
ASSET MANAGER. During the fiscal years ended 1993, 1992 and 1991, FMR
received $10,365,454, $3,065,065, and $693,187, respectively, for its
services as investment advisor prior to any reimbursement. These fees were
equivalent to .72%, .73%, and .74% of the fund's average net assets for the
respective periods.
INDEX 500 PORTFOLIO
FMR is the fund's manager pursuant to a Management Contract dated
January 1, 1993, which was approved by shareholders on December 16,
1992. For the services of FMR under the Contract, the fund pays a
monthly management fee to FMR at the annual rate of .28% of the average net
assets of the fund as determined as of the close of business on each day
throughout the month.
FMR may, from time to time, agree to voluntarily reimburse the fund for
expenses above a specified percentage of average net assets. FMR retains
the ability to be repaid for these expense reimbursements in the amount
that expenses fall below the limit prior to the end of the fiscal year.
For the fiscal year ended 1993 and the period August 27, 1992 (commencement
of operations) to December 31, 1992, the fee before reimbursement of
expenses, amounted to $58,243 and $11,715, respectively.
FMR has voluntarily agreed to reimburse the fund if, and to the extent
that, the fund's aggregate operating expenses (including the management
fee, but generally excluding interest, taxes, brokerage commissions, and
extraordinary expenses) exceed an annual rate of .28% of the average net
assets of the fund for any fiscal year, or for a portion of such year if
FMR's agreement is terminated or revised.
SUB-ADVISORS. On behalf of HIGH INCOME AND ASSET MANAGER PORTFOLIOS, FMR
has entered into sub-advisory agreements with Fidelity Management &
Research (U.K.) Inc. (FMR U.K.) and Fidelity Management & Research (Far
East) Inc. (FMR Far East). On behalf of OVERSEAS PORTFOLIO, FMR has
entered into sub-advisory agreements with Fidelity Management &
Research (U.K.) Inc. (FMR U.K.), Fidelity Management & Research (Far
East) Inc. (FMR Far East), and Fidelity International Investment Advisors
(FIIA). FIIA, in turn, has entered into a sub-advisory agreement with its
wholly owned subsidiary Fidelity International Investment Advisors (U.K.)
Limited (FIIAL U.K.). Pursuant to the sub-advisory agreements, FMR may
receive investment advice and research services with respect to companies
based outside the U.S. from the sub-advisors and may grant the sub-advisors
investment management authority as well as the authority to buy and sell
securities if FMR believes it would be beneficial to the fund.
Currently, FMR U.K., FMR Far East, FIIA and FIIAL U.K. each focus on
companies in countries other than the United states including countries in
Europe, Asia, and the Pacific Basin.
FMR U.K. and FMR Far East are wholly owned subsidiaries of FMR. FIIA is a
wholly owned subsidiary of Fidelity International Limited (FIL), a Bermuda
company formed in 1968 which primarily provides investment advisory
services to non-U.S. investment companies and institutional investors
investing in securities of issuers throughout the world. FIIA was
organized in Bermuda in 1983 and FIIAL U.K. was organized in the United
Kingdom in 1984.
Under the sub-advisory agreements FMR pays the fees of FMR U.K., FMR Far
East, and FIIA. FIIA, in turn, pays the fees of FIIAL U.K.
For providing investment advice and research services the sub-advisors are
compensated as follows:
FMR pays FMR U.K. and FMR Far East fees equal to 110% and 105%,
respectively, of FMR U.K.'s and FMR Far East's costs incurred in connection
with providing investment advice and research services.
FMR pays FIIA 30% of FMR's monthly management fee with respect to the
average market value of investments held by a fund for which FIIA has
provided FMR with investment advice.
FIIA pays FIIAL U.K. a fee equal to 110% of FIIAL U.K.'s costs incurred in
connection with providing investment advice and research services.
For providing investment management and executing portfolio transactions,
the sub-advisors are compensated as follows:
FMR pays FMR U.K., FMR Far East, and FIIA 50% of its monthly management
fee (including any performance adjustment) with respect to a fund's average
net assets managed by the sub-advisor on a discretionary basis.
FIIA pays FIIAL U.K. 110% of FIIAL U.K.'s costs incurred with providing
investment management services.
FMR entered into the sub-advisory agreements described above with respect
to HIGH INCOME PORTFOLIO AND OVERSEAS PORTFOLIO on January 1, 1994 and
April 1, 1992, respectively, following shareholder approval of the
agreements on December 15, 1993 and March 25, 1992, respectively.
Prior to April 1, 1992, FMR had sub-advisory agreements with FMR Far East
and FMR U.K. on behalf of OVERSEAS PORTFOLIO pursuant to which FMR Far East
and FMR U.K. provided FMR with investment advice and research services.
Under those agreements, FMR Far East and FMR U.K. were compensated for
their services according to the same formulas as they are compensated
currently for providing investment advice and research services.
For fiscal years ended December 31, 1993, 1992 and 1991, FMR paid $63,133,
$41,512 and $66,930, respectively to FMR (U.K.) and $125,264, $34,267 and
$65,440, respectively to FMR Far East on behalf of Overseas Portfolio. For
fiscal years ended December 31, 1993, 1992 and 1991, FMR paid FMR (U.K.)
and FMR Far East fees of $89,285 and $191,520; $17,823 and $14,942; and
$4,050 and $4,000, respectively, on behalf of Asset Manager Portfolio.
F MR entered into a sub-advisory agreement with FMR Texas Inc. (FMR
Texas), pursuant to which FMR Texas has primary responsibility for
providing investment management services to the MONEY MARKET PORTFOLIO.
FMR Texas, a wholly owned subsidiary of FMR was formed in 1989 and
registered under the Investment Advisers Act of 1940 on June 9, 1989 to
provide investment management services to money market mutual funds; to
advise FMR generally with respect to money market instruments; and to
manage or provide advice with respect to cash flow management.
The sub-advisory agreement provides that FMR and not the fund, will pay
fees to FMR Texas equal to 50% of the management fee payable to FMR under
its current Management Contract with the fund. The fees paid to FMR Texas
are not reduced by any voluntary or mandatory fee waivers or expense
reimbursements that may be in effect from time to time. For fiscal years
ended December 31, 1993, 1992 and 1991, FMR paid $207,606, $243,512 and
$355,245, respectively, to FMR Texas on behalf of Money Market Portfolio.
DISTRIBUTION AND SERVICE PLANS
Each fund has adopted a distribution and service plan (the Plans) under
Rule 12b-1 under the Investment Company Act of 1940 (the Rule). The Rule
provides, in substance, that a mutual fund may not engage directly or
indirectly in financing any activity that is primarily intended to result
in the sale of shares of the fund except pursuant to a plan adopted by the
fund under the Rule. Each Trust's Board of Trustees has adopted the Plans
to allow each of these funds and FMR to incur certain expenses that might
be considered to constitute indirect payment by the funds of distribution
expenses. Under the Plans, if the payment by a fund to FMR of management
fees should be deemed to be indirect financing by a fund of the
distribution of its shares, such payment is authorized by the Plans.
The Plans specifically recognize that FMR, either directly or through FDC,
may use its management fee revenue, past profits or other resources,
without limitation, to pay promotional and administrative expenses in
connection with the offer and sale of shares of the funds. In addition,
the Plans provide that FMR may use its resources, including its management
fee revenues, to make payments to third parties that provide assistance in
selling shares of the funds or to third parties including banks, that
render shareholder support services. However, no such payments to third
parties are currently contemplated.
Each fund's Plan has been approved by the Trustees. As required by the
Rule, the Trustees carefully considered all pertinent factors relating to
the implementation of each Plan prior to its approval, and have determined
that there is a reasonable likelihood that the Plan will benefit the
respective fund and its shareholders. In particular, the Trustees noted
that the Plan does not authorize payments by the fund other than those made
to FMR under the Management Contract with each fund. To the extent that a
Plan gives FMR and FDC greater flexibility in connection with the
distribution of shares of a fund, additional sales of the fund's shares may
result. Additionally, certain shareholder support services may be provided
more effectively under a Plan by local entities with whom shareholders have
other relationships. Money Market, High Income, Equity-Income and Growth
Portfolios' Plans were approved by shareholders of their respective fund on
December 11, 1986. Overseas Portfolio's Plan was approved by shareholders
on November 18, 1987. The Plans for Investment Grade Bond Portfolio and
Asset Manager Portfolio were approved by the funds' shareholders on
December 13, 1989. Index 500 Portfolio's Plan was approved by the
Portfolio's shareholders on December 16, 1992.
CONTRACTS WITH COMPANIES AFFILIATED WITH FMR
Each fund has an agreement with FSC, an affiliate of FMR Corp., under which
FSC determines the NAV per share and dividends of each fund and maintains
the portfolio and general accounting records of each fund. Prior to July
1, 1991, the annual fee for these pricing and bookkeeping services was
based on two schedules, one pertaining to each fund's average net assets,
and one pertaining to the type and number of transactions each fund made.
The fee rates in effect as of July 1, 1991, are based on each fund's
average net assets as follows: for Money Market Portfolio, .0175% for the
first $500 million of average net assets and .0075% for average net assets
in excess of $500 million. The fee is limited to a minimum of $20,000 and
a maximum of $750,000 per year; for High Income and Investment Grade Bond
Portfolios, .04% for the first $500 million of average net assets and .02%
for average net assets in excess of $500 million. For Equity-Income,
Growth, Overseas, Asset Manager, and Index 500 Portfolios, .06% for the
first $500 million of average net assets and .03% for average net assets in
excess of $500 million. The fee for High Income, Equity Income, Growth and
Overseas Portfolios is limited to a minimum of $45,000 and a maximum of
$750,000 per year.
The following are the fees paid by each fund to FSC for the last three
fiscal years:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money High Equity- Oversea Investment Asset
Market Income Income Growth s Grade Bond Manager Index 500
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
12/31/93 $53,769 $138,642 $439,891 $456,795 $230,456 $46,426 $583,404 $45,074
12/31/92 $52,389 $62,305 $242,745 $303,007 $109,649 $46,187 $243,598 $15,547
12/31/91 $74,243 $54,512 $143,655 $162,678 $105,226 $46,430 $95,718 N/A
</TABLE>
Each fund utilizes FIIOC, an affiliate of FMR Corp., to maintain the master
accounts of the participating insurance companies. Under the contract,
each fund pays a fee of $95 per shareholder account per year and a fee of
$20 for each monetary transaction. In addition to providing transfer agent
and shareholder servicing functions, FIIOC pays all transfer agent
out-of-pocket expenses and also pays for typesetting, printing and mailing
Prospectuses, Statements of Additional Information, reports, notices and
statements to shareholders allocable to the master account of participating
insurance companies.
The following are the fees paid by each fund to FIIOC (including
reimbursement for out-of-pocket expenses) for the last three fiscal years:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money High Equity- Oversea Investment Asset
Market Income Income Growth s Grade Bond Manager Index 500
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
12/31/93 $87,208 $108,432 $111,756 $140,122 $143,222 $71,119 $115,600 $33,911
12/31/92 $59,118 $61,198 $68,260 $79,504 $65,240 $39,809 $63,976 $1,205
12/31/91 $42,462 $45,665 $49,893 $53,613 $49,268 $17,023 $36,988 N/A
</TABLE>
If a portion of each fund's brokerage commissions had not been allocated
toward payment of these fees, the transfer agent fees for the last three
fiscal years would have been as follows (not applicable for Money Market,
High Income and Investment Grade Bond Portfolios):
Equity- Oversea Asset
Income Growth s Manager Index 500
Portfolio Portfolio Portfolio Portfolio Portfolio
12/31/93 $171,916 $228,419 -- $168,919 --
12/31/92 -- -- -- -- --
12/31/91 -- -- -- -- N/A
Each fund has a Distribution Agreement with FDC, a Massachusetts
corporation organized July 18, 1960. FDC is a broker-dealer registered
under the Securities Exchange Act of 1934 and a member of the National
Association of Securities Dealers, Inc. The Distribution Agreement calls
for FDC to use all reasonable efforts, consistent with its other business,
to secure purchasers for shares of the funds which are continuously offered
at net asset value. Promotional and administrative expenses, in connection
with the offer and sale of shares, are paid for by FMR.
SUMMARY OF THE FUNDS' EXPENSES
The expense summary format below was developed for use by all mutual funds
to help you make your investment decisions. Of course you should consider
this expense information along with other important information in the
Prospectus and Statement of Additional Information and the funds'
investment objectives. This table does not include any charges or expenses
which are attributable to any particular insurance product. You should
carefully review the Prospectus of the insurance product you have chosen
for information or relevant charges and expenses.
A. SHAREHOLDER TRANSACTION EXPENSES
Money High Equity-
Market Income Income Growth Overseas
Portfolio Portfolio Portfolio Portfolio Portfolio
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Sales Load on Purchases................................... None None None None None
Sales Load on Reinvested Dividends............... None None None None None
Deferred Sales Load Imposed on Redemptions. None None None None None
Exchange Fees None None None None None
</TABLE>
(as a percentage of average net assets after expense
reimbursement)
B. ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Management Fees .20% .61% .53% .63% .77%
12b-1 Fees None None None None None
Other Expenses .08% .13% .09% .08% .26%
Total Fund Operating Expenses .28% .74% .62% .71% 1.03%
</TABLE>
C. EXAMPLE: You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1 $3 $8 $6 $7 $11
Year...........................................................
3 9 24 20 23 33
Years.........................................................
5 16 41 35 40 57
Years.........................................................
10 36 92 77 88 126
Years........................................................
</TABLE>
A. SHAREHOLDER TRANSACTION EXPENSES
Investment Asset
Grade Bond Manager Index 500
Portfolio Portfolio Portfolio
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Sales Load on Purchases................................... None None None
Sales Load on Reinvested Dividends............... None None None
Deferred Sales Load Imposed on Redemptions. None None None
Exchange Fees None None None
</TABLE>
(as a percentage of average net assets after expense
reimbursement)
B. ANNUAL FUND OPERATING EXPENSES
Management Fees .47% .72% .00%*
12b-1 Fees None None None
Other Expenses .21% .16% .28%
Total Fund Operating Expenses .68% .88% .28%
* net of reimbursement
C. EXAMPLE: You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 $7 $9 $3
Year...........................................................
3 22 28 9
Years.........................................................
5 38 49 16
Years.........................................................
10 85 108 36
Years........................................................
</TABLE>
EXPLANATION OF TABLE: The purpose of this table is to assist you in
understanding the various costs and expenses that an investor in the funds
would bear directly or indirectly.
A. SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or
sell shares of a fund. There are none for these funds, other than charges
which may be imposed by a particular insurance product.
B. ANNUAL FUND OPERATING EXPENSES are based on each fund's historical
expenses adjusted to reflect the current management contract for Money
Market and High Income Portfolios. Management Fees are paid by each
fund to Fidelity Management & Research Company (FMR) for managing its
investments and business affairs. The funds incur Other Expenses for
maintaining shareholder records, furnishing shareholder statements and
reports and other services. FMR has voluntarily agreed to limit the Annual
Fund Operating Expenses of Index 500, Investment Grade Bond, High Income,
Asset Manager, Equity-Income, Growth and Overseas Portfolios (excluding
interest, taxes, brokerage commissions and extraordinary expenses) to an
annual rate of .28%, .80%, 1.00%, 1.25%, 1.50%, 1.50% and 1.50%,
respectively. If the funds' expenses exceed these rates, FMR reimburses
the fund to the extent necessary to reduce expenses to the above levels.
A Special Meeting of Shareholders of Money Market and High Income
Portfolios was held December 15, 1993. All expenses in connection with the
meeting, including preparation of the proxy statement, its enclosures and
all solicitations were reimbursed by FMR. If FMR had not reimbursed these
expenses, management fee, expenses and total expenses under the former
contracts would have been .14%, .09% and .23% for Money Market Portfolio
and .51%, .15% and .66% for High Income Portfolio.
C. EXAMPLE OF EXPENSES. The hypothetical examples illustrate the expenses
associated with a $1,000 investment over periods of 1, 3, 5 and 10 years
for each of the funds. These examples are based on the annual fund
operating expenses detailed above and an assumed annual rate of return of
5%. The return of 5% and expenses should not be considered indications of
actual or expected fund performance or expenses, both of which may vary.
DESCRIPTION OF THE TRUSTS
TRUST ORGANIZATION. Money Market Portfolio, High Income Portfolio,
Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio are funds
of Variable Insurance Products Fund, an open-end management investment
company. In July 1985, pursuant to shareholder approval, the Declaration
of Trust was amended to change the name of the Trust from Fidelity Cash
Reserves II to Variable Insurance Products Fund. Investment Grade Bond
Portfolio, Asset Manager Portfolio and Index 500 Portfolio are funds of
Variable Insurance Products Fund II, an open-end management investment
company, organized March 21, 1988. Each Declaration of Trust permits the
Trustees to create additional funds.
Investments in each Trust may be made only by the separate accounts of
insurance companies for the purpose of funding variable annuity and
variable life insurance contracts issued by insurance companies.
In the event that FMR ceases to be the investment advisor to a Trust or a
fund, the right of the Trust or fund to use the identifying name "Fidelity"
may be withdrawn. There is a remote possibility that one fund might become
liable for any misstatement in its prospectus or statement of additional
information about another fund.
The assets of each Trust received for the issue or sale of shares of each
of its funds and all income, earnings, profits, and proceeds thereof,
subject only to the rights of creditors, are especially allocated to such
fund, and constitute the underlying assets of such fund. The underlying
assets of each fund are segregated on the books of account, and are to be
charged with the liabilities with respect to such fund and with a share of
the general liabilities of their respective Trusts. Expenses with respect
to each Trust are to be allocated in proportion to the asset value of their
respective funds, except where allocations of direct expense can otherwise
be fairly made. The officers of each Trust, subject to the general
supervision of the Boards of Trustees, have the power to determine which
expenses are allocable to a given fund, or which are general or allocable
to all of the funds of a certain Trust. In the event of the dissolution or
liquidation of a Trust, shareholders of each fund of that Trust are
entitled to receive as a class the underlying assets of such fund available
for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY. Each Trust is an entity of the type
commonly known as "Massachusetts business trust." Under Massachusetts law,
shareholders of such a Trust may, under certain circumstances, be held
personally liable for the obligations of the Trust. Each Declaration of
Trust provides that the Trust shall not have any claim against shareholders
except for the payment of the purchase price of shares and requires that
each agreement, obligation, or instrument entered into or executed by the
Trust or its Trustees shall include a provision limiting the obligations
created thereby to the Trust and its assets. Each Declaration of Trust
provides for indemnification out of each fund's property of any shareholder
held personally liable for the obligations of the fund. Each Declaration of
Trust also provides that its funds shall, upon request, assume the defense
of any claim made against any shareholder for any act or obligation of the
fund and satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the fund itself would be unable to meet its
obligations. FMR believes that, in view of the above, the risk of personal
liability to shareholders is remote.
Each Declaration of Trust further provides that the Trustees, if they have
exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declarations of Trust protect Trustees
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of their office.
VOTING RIGHTS. Each fund's capital consists of shares of beneficial
interest. The shares have no preemptive or conversion rights; the voting
and dividend rights, the right of redemption, and the privilege of exchange
are described in the Prospectus. Shares are fully paid and nonassessable,
except as set forth under the heading "Shareholder and Trustee Liability"
above. Shareholders representing 10% or more of a Trust or fund may, as set
forth in the Declarations of Trust, call meetings of a Trust or fund for
any purpose related to the Trust or fund, as the case may be, including, in
the case of a meeting of an entire Trust, the purpose of voting on removal
of one or more Trustees. Each Trust or fund may be terminated upon the sale
of its assets to another open-end management investment company, or upon
liquidation and distribution of its assets, if approved by vote of the
holders of a majority of the outstanding shares of the Trust or the fund.
If not so terminated, each Trust or fund will continue indefinitely.
CUSTODIAN. Morgan Guaranty Trust Company, 60 Wall Street, New York, New
York is custodian of Money Market Portfolio's assets; The Bank of New York,
110 Washington Street, New York New York, is custodian of High Income and
Investment Grade Bond Portfolios' assets; The Chase Manhattan Bank, N.A.,
1211 Avenue of the Americas, New York, New York 10036, is custodian of
Equity-Income and Asset Manager Portfolios' assets; and Brown Brothers
Harriman & Co., 40 Water Street, Boston, Massachusetts, is custodian of
Growth, Overseas and Index 500 Portfolios' assets. The custodians take no
part in determining the investment policies of the funds or in deciding
which securities are purchased or sold by the funds. The funds, however,
may invest in obligations of the custodians and may purchase or sell
securities from or to the custodians. Investors should understand that the
expense ratio for the Overseas Portfolio may be higher than that of
investment companies which invest exclusively in domestic securities since
the cost of maintaining the custody of foreign securities is higher.
FMR, its officers and directors and its affiliated companies from time to
time have transactions with various banks, including the custodian banks
for certain of the funds advised by FMR. The Boston branch of Brown
Brothers Harriman & Co. leases its office space from an affiliate of
FMR at a lease payment which, when entered into, was consistent with
prevailing market rates. Other transactions that have occurred to date
include mortgages and personal and general business loans. In the judgment
of FMR, the terms and conditions of those transactions were not influenced
by existing or potential custodial or other fund relationships.
AUDITOR. Coopers & Lybrand, One Post Office Square, Boston,
Massachusetts, serves as the independent accountant for Variable Insurance
Products Fund and Price Waterhouse, 160 Federal Street, Boston,
Massachusetts serves as the independent accountant of Variable Insurance
Products Fund II, each providing audit services including (1) audit of
annual financial statements, (2) assistance and consultation in connection
with SEC filings and (3) review of the annual federal income tax returns
filed on behalf of each fund.
FINANCIAL STATEMENTS
The Annual Report to shareholders for each Trust's 1993 fiscal year is a
separate report and is incorporated herein by reference and is supplied
with this Statement of Additional Information.
APPENDIX
The DOLLAR-WEIGHTED AVERAGE MATURITY of a fund's fixed-income holdings is
derived by multiplying the value of each fixed-income investment held by a
fund by the number of days remaining to its maturity, adding these
calculations, and then dividing the total by the value the fund's
fixed-income holdings. An obligation's maturity is typically determined on
a stated final maturity basis, although there are some exceptions to this
rule.
For example, if it is probable that the issuer of an instrument will take
advantage of a maturity-shortening device, such as a call, refunding, or
redemption provision, the date on which the instrument will probably be
called, refunded, or redeemed may be considered to be its maturity date.
Also, the maturities of mortgage-backed securities and some asset-backed
securities. such as collateralized mortgage obligations, are determined on
a weighted average life basis, which is the average time for principal to
be repaid. For a mortgage security, this average time is calculated by
assuming a constant prepayment rate for the life of the mortgage. The
weighted average life of these securities is likely to be substantially
shorter than their stated final maturity.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S COMMERCIAL PAPER RATINGS:
PRIME-1 (or related institutions) have a superior capacity for repayment of
short-term
promissory obligations. Prime-1 repayment capacity will normally be
evidenced by the following characteristics:
- - Leading market positions in well established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
- - Broad margins in earnings coverage of fixed financial charges with high
internal cash generation.
- - Well established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2 (or related supporting institution) have a strong capacity for
repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S COMMERCIAL PAPER
RATINGS:
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus (+)
sign designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated A-1.
DESCRIPTION OF FITCH INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS:
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded
as having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than the strongest issues.
DESCRIPTION OF FITCH INVESTORS SERVICE, INC. CORPORATE BOND RATINGS:
AAA--rated bonds are considered to be investment grade and of the highest
quality. The obligor has an extraordinary ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA--rated bonds are considered to be investment grade and of high quality.
The obligor's ability to pay interest and repay principal, while very
strong, is somewhat less than for AAA rated securities or more subject to
possible change over the term of the issue.
DESCRIPTION OF DUFF & PHELPS INC. COMMERCIAL PAPER RATINGS:
DUFF 1--Very high certainty of timely payment. Liquidity factors are
excellent and supported by strong fundamental protection factors. Risk
factors are minor.
DUFF 2--Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing internal funds needs may enlarge
total financing requirements, access to capital markets is good. Risk
factors are small.
DESCRIPTION OF DUFF & PHELPS INC. CORPORATE BOND RATINGS:
DUFF 1--Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
DUFF 2,3,4--High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic
conditions.
ABOUT THE S&P 500 INDEX (Index 500 Portfolio)
The S&P 500 is a well-known stock market index that includes common
stocks of companies representing a significant portion of the market value
of all common stocks publicly traded in the United States. FMR believes
that the performance of the S&P 500 is representative of the
performance of publicly traded common stocks in general. The composition
of the S&P 500 is determined by Standard & Poor's Corporation, and
is based on such factors as the market capitalization and trading activity
of each stock and its adequacy as representative of stocks in a particular
industry group, and may be changed from time to time. Stocks in the
S&P 500 are weighted according to their market capitalization (i.e.,
the number of shares outstanding multiplied by the stock's current price),
with the 51 largest stocks currently composing 50% of the Index's value.
The following refers to an agreement between Standard & Poor's
Corporation and FDC whereby FDC has the right to the use of certain marks
that are the property of S&P. Although S&P obtains information for
inclusion in or for use in the calculation of the S&P 500 from sources
which S&P considers reliable, S&P does not guarantee the accuracy
and/or the completeness of the S&P 500 or any data included therein and
S&P shall have no liability for any errors, omissions, or interruptions
therein. S&P makes no warranty, express or implied, as to results to
be obtained by the licensee, owners of the fund, or any other person or
entity from the use of the S&P 500 or any data included therein in
connection with the rights licensed hereunder or for any other use.
S&P makes no express or implied warranties, and hereby expressly
disclaims all warranties of merchantability or fitness for a particular
purpose with respect to the S&P 500 or any data included therein.
THE 500 STOCKS IN THE S&P 500 INDEX. The following is a list of the
500 Stocks in the S&P 500 Index as of February 28, 1994.
Abbott Labs
Advanced Micro Devices
Aetna Life & Casualty
Ahmanson (H.F.) & Co.
Air Products & Chemicals
Alberto-Culver
Albertson's
Alcan Aluminum
Alco Standard
Alexander & Alexander
Allergan, Inc.
Allied-Signal
Aluminum Co. of America
ALZA Corp. CI.A
Amdahl Corp.
Amerada Hess
American Barrick Res.
American Brands Inc.
American Cyanamid
American Electric Power
American Express
American General
American Greetings CI A
American Home Products
American Int'l. Group
American Stores
American Tel. & Tel.
Ameritech
Amgen
Amoco
AMP Inc.
AMR Corp.
Andrew Corp.
Anheuser-Busch
Apple Computer
Archer-Daniels Midland
Arkla Inc.
Armco Inc.
Armstrong World
ASARCO Inc.
Ashland Oil
Atlantic Richfield
Autodesk, Inc.
Automatic Data Processing Inc.
Avery Dennison Corp.
Avon Products
Baker Hughes
Ball Corp.
Bally Manufacturing Corp.
Baltimore Gas & Electric
Banc One Corp.
Bank of Boston
BankAmerica Corp.
Bankers Trust N.Y.
Bard (C.R.) Inc.
Barnett Banks Inc.
Bassett Furniture
Bausch & Lomb
Baxter International Inc.
Becton, Dickinson
Bell Atlantic
BellSouth
Bemis Company
Beneficial Corp.
Bethlehem Steel
Beverly Enterprises
Biomet, Inc.
Black & Decker Corp.
Block H&R
Blockbuster Entertainment
Boatmen's Bancshares
Boeing Company
Boise Cascade
Borden, Inc.
Briggs & Stratton
Bristol-Myers Squibb
Brown Group
Browning-Ferris Ind.
Brown-Forman Inc.
Bruno's Inc.
Brunswick Corp.
Burlington Northern
Burlington Resources
Campbell Soup
Capital Cities/ABC
Capital Holding
Carolina Power & Light
Caterpillar Inc.
CBS Inc.
Centex Corp.
Central & SouthWest
Ceridian Corp.
Champion International
Charming Shoppes
Chase Manhattan
Chemical Banking Corp.
Chevron Corp.
Chrysler Corp.
Chubb Corp.
CIGNA Corp.
Cincinnati Milacron
Circuity City Stores
cicso Systems
Citicorp
Clark Equipment
Clorox Co.
Coastal Corp.
Coca Cola Co.
Colgate-Palmolive
Columbia Gas System
Columbia/HCA Healthcare Corp.
Comcast Class A Special
Commonwealth Edison
Community Psych Centers
Compaq Computer
Computer Associates Intl.
Computer Sciences Corp.
ConAgra Inc.
Consolidated Edison
Consolidated Freightways
Consolidated Natural Gas
Consolidated Rail
Continental Corp.
Cooper Industries
Cooper Tire & Rubber
Coors (Adolph)
CoreStates Financial
Corning Inc.
CPC International
Crane Company
Cray Research
Crown Cork & Seal
CSX Corp.
Cummins Engine Co., Inc.
Cyprus Minerals Co.
Dana Corp.
Data General
Dayton Hudson
Dean Witter, Discover & Co.
Deere & Co.
Delta Air Lines
Deluxe Corp.
Detroit Edison
Dial Corp.
Digital Equipment
Dillard Department Stores
Dominion Resources
Donnelley (R.R.) & Sons
Dover Corp.
Dow Chemical
Dow Jones & Co.
Dresser Industries
DSC Communications
Du Pont (E.I.)
Duke Power
Dun & Bradstreet
E G & G Inc.
Eastern Enterprises
Eastman Chemical
Eastman Kodak
Eaton Corp.
Echlin Inc.
Echo Bay Mines Ltd.
Ecolab Inc.
Emerson Electric
Engelhard Corp.
Enron Corp.
Enserch
Entergy Corp.
Exxon Corp.
E-Systems
Fedders Corp.
Federal Express
Federal Home Loan Mtg.
Federal Natl. Mtge.
Federal Paper Board
First Chicago Corp.
First Fidelity Bancorp
First Interstate Bancorp
First Mississippi Corp.
First Union Corp.
Fleet Financial Group
Fleetwood Enterprises
Fleming Cos. Inc.
Fluor Corp.
FMC Corp.
Ford Motor
Foster Wheeler
FPL Group
Gannett Co.
Gap (The)
Gemeral Dynamics
General Electric
General Mills
Gemeral Motors
General Re Corp.
General Signal
Genesco Inc.
Genuine Parts
Georgia-Pacific
Gerber Products
Giant Food CI. A
Giddings & Lewis
Gillette Co.
Golden West Financial
Goodrich (B.F.)
Goodyear Tire & Rubber
Grace (W.R.) & Co.
Grainger (W.W.) Inc.
Great A & P
Great Lakes Chemical
Great Western Financial
Grumman Corp.
GTE Corp.
Halliburton Co.
Handleman Co.
Harcourt General Inc.
Harland (J.H.)
Harnischfeger Indus.
Harris Corp.
Hartmarx Corp.
Hasbro Inc.
Heinz (H.J.)
Helmerich & Payne
Hercules, Inc.
Hershey Foods
Hewlett-Packard
Hilton Hotels
Home Depot
Homestake Mining
Honeywell
Household International
Houston Industries
Illinois Tool Works
Inco, Ltd.
Ingersoll-Rand
Inland Steel Ind. Inc.
Intel Corp.
Interpublic Group
Intergraph Corp.
International Bus. Machines
International Flav/Frag
International Paper
ITT Corp.
James River
Jefferson-Pilot
Johnson Controls
Johnson & Johnson
Jostens Inc.
K Mart
Kaufman & Broad Home Corp.
Kellogg Co.
Kerr-McGee
KeyCorp
Kimberly-Clark
King World Productions
Knight-Ridder Inc.
Kroger Co.
Lilly (Eli) & Co.
Limited, The
Lincoln National
Liz Claiborne, Inc.
Lockheed Corp.
Longs Drug Stores
Loral Corp.
Lotus Development
Louisiana Land & Exploration
Louisiana Pacific
Lowe's Cos.
Luby's Cafeterias
Maillinckrodt Group Inc.
Manor Care
Marriott Int'l
Marsh & McLennan
Martin Marietta
Masco Corp.
Mattel, Inc.
Maxus Energy
May Dept. Stores
Maytag Co.
MBNA Corp.
McCaw Cellular Commun.
McDermott International
McDonald's Corp.
McDonnell Douglas
McGraw-Hill
MCI Communications
McKesson Corp.
Mead Corp.
Medtronic Inc.
Mellon Bank Corp.
Melville Corp.
Mercantile Stores
Merck & Co.
Meredith Corp.
Merrill Lynch
Millipore Corp.
Minn. Mining & Mfg.
Mobil Corp.
Monsanto Company
Moore Corp. Ltd.
Morgan (J.P.) & Co.
Morrison Knudsen
Morton International
Motorola Inc.
M/A Com. Inc.
Nacco Ind. CI. A
Nalco Chemical
National Education
National Intergroup
National Medical Enterprise
National Semiconductor
National Service Ind.
NationsBank
Navistar International Corp.
NBD Bancorp Inc.
New York Times CI. A
Newell Co.
Newmont Mining
Niagara Mohawk Power
NICOR Inc.
Nike Inc.
Nordstrom
Norfolk Southern Corp.
Northern States Power
Northern Telecom
Northrop Corp.
Norwest Corp.
Novell Inc.
Nucor Corp.
Nynex
Occidental Petroleum
Ogden Corp.
Ohio Edison
ONEOK Inc.
Oracle Systems
Oryx Energy
Oshkosh B'Gosh
Outboard Marine
Owens-Corning Fiberglas
PACCAR Inc.
Pacific Enterprises
Pacific Gas & Electric
Pacific Telesis
PacifiCorp
Pall Corp.
Panhandle Eastern
Parker-Hannifin
Penney (J.C.)
Pennzoil Co.
Peoples Energy
Pep Boys
PepsiCo Inc.
Perkin-Elmer
Pet Inc.
Pfizer, Inc.
Phelps Dodge
PECO Energy Co.
Philip Morris
Phillips Petroleum
Pioneer Hi-Bred Int'l
Pitney-Bowes
Pittston Services Group
Placer Dome Inc.
PNC Bank Corp.
Polaroid Corp.
Potlatch Corp.
PPG Inc.
Praxair, Inc.
Premark International
Price/Costco
Procter & Gamble
Promus Inc.
PSI Resources Inc.
Public Serv. Enterprise Inc.
Pulte Corp
Quaker Oats
Ralston Purina
Raychem Corp.
Raytheon Co.
Reebok International
Reynolds Metals
Rite Aid
Roadway Service
Rockwell International
Rohm & Haas
Rollins Environmental
Rowan Cos.
Royal Dutch Petroleum
Rubbermaid inc.
Russell Corp.
Ryan's Family Steak Hse
Ryder System
SAFECO Corp.
Safety-Kleen
Salomon Inc.
Santa Fe Energy Resources
Santa Fe Pacific Corp.
Sara Lee Corp.
SCE Corp.
Schering-Plough
Schlumberger Ltd.
Scientific-Atlanta
Scott Paper
Seagram Ltd.
Sears, Roebuck & Co.
Service Corp. International
Shared Medical Systems
Shawmut National
Sherwin-Williams
Shoney's Inc.
Skyline Corp.
Snap-On Tools
Sonat Inc.
Southern Co.
Southwest Bell Corp.
Springs Industries Inc.
Sprint Corp.
SPX Corp.
Stanley Works
Stone Container
Stride Rite
St. Jude Medical
St. Paul Cos.
Sun Co., Inc.
Sun Microsystems
SunTrust Banks
Supervalu Inc.
Syntex Corp.
Sysco Corp.
Tandem Computers Inc.
Tandy Corp.
Tektronix Inc.
Teledyne Inc.
Tele-Communications
Temple-Inland
Tenneco Inc.
Texaco Inc.
Texas Instruments
Texas Utilities
Textron Inc.
Thomas & Betts
Time Warner nc.
Times Mirror
Timken Co.
TJX Companies Inc.
Torchmark Corp.
Toys R Us
Transamerica Corp.
Transco Energy
Travelers Inc.
Tribune Co.
Trinova Corp.
TRW Inc.
Tyco Int'l Limited
UAL Corp.
Unilever N.V.
Union Camp
Union Carbide
Union Electric Co.
Union Pacific
Unisys Corp.
United Technologies
Unocal Corp.
UNUM Corp.
Upjohn Co.
US West Inc.
USAir Group
USF&G Corp.
USLIFE Corp.
UST Inc.
USX-Marathon Group
USX-U.S. Steel Group
U.S. Bancorp
U.S. Surgical
Varity Corp.
V.F. Corp.
Wachovia Corp.
Walgreen Co.
Walt Disney Co.
Wal-Mart Stores
Warner-Lambert
WMX Technologies
Wells Fargo & Co.
Wendy's International
Western Atlas
Westinghouse Electric
Westvaco Corp.
Weyerhaeuser Corp.
Whirlpool Corp.
Whitman Corp.
Williams Cos.
Winn-Dixie
Woolworth Corp.
Worthington Ind.
Wrigley (Wm) Jr.
Xerox Corp.
Yellow Freight Systems
Zenith Electronics
Zurn Industries
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a)(1) Financial Statements - Financial Statements for Variable Insurance
Products Fund for the fiscal year ended December 31, 1993, are incorporated
herein by reference to the Statements of Additional Information and are
filed herein as Exhibit 24(a)(1).
(a)(2) Financial Statements - Financial Statements for Variable Insurance
Products Fund II (File No. 33-20773) for the fiscal year ended December 31,
1993, are incorporated herein by reference to the Statement of Additional
Information and are filed herein as Exhibit 24(a)(1).
(b) Exhibits:
(1) (a) Declaration of Trust dated November 13, 1981 is incorporated herein
by reference to Exhibit 1 to the initial Registration Statement.
(b) Amended and Restated Declaration of Trust dated July 31, 1985 is
incorporated herein by reference to Exhibit 1 to Post-Effective Amendment
No. 8.
(c) Supplement to the Declaration of Trust dated January 2, 1987 is
incorporated herein by reference to Exhibit 1(c) to Post-Effective
Amendment No. 12.
(d) Supplement to the Declaration of Trust dated January 1, 1990 is
incorporated herein by reference to Exhibit 1(d) to Post-Effective
Amendment No. 20.
(2) (a) Amendment to Bylaws of the Trust dated December 20, 1985 is
incorporated herein by reference to Exhibit 2(a) to Post-Effective
Amendment No. 12.
(b) Bylaws of the Trust are incorporated herein by reference to Exhibit
2(b) to Post-Effective Amendment No. 12.
(3) Not applicable.
(4) Not applicable.
(5) (a) Management Contract between Money Market Portfolio and Fidelity
Management & Research Company dated January 1, 1987 is incorporated
herein by reference to Exhibit 5(a) to Post-Effective Amendment No. 12.
(b) Management Contract between High Income Portfolio and Fidelity
Management & Research Company dated January 1, 1990 is incorporated
herein by reference to Exhibit 5(b) to Post-Effective Amendment No. 21.
(c) Management Contract between Equity-Income Portfolio and Fidelity
Management & Research Company dated January 1, 1990 is incorporated
herein by reference to Exhibit 5(c) to Post-Effective Amendment No. 21.
(d) Management Contract between Growth Portfolio and Fidelity Management
& Research Company dated January 1, 1990 is incorporated herein by
reference to Exhibit 5(d) to Post-Effective Amendment No. 21.
(e) Management Contract between Overseas Portfolio and Fidelity
Management & Research Company dated January 1, 1990 is incorporated
herein by reference to Exhibit 5(e) to Post-Effective Amendment No. 21.
(f) Sub-Advisory Agreement between Fidelity Management & Research
Company and Fidelity Management & Research (U.K.) Inc. on behalf of
Overseas Portfolio dated January 1, 1990 is incorporated herein by
reference to Exhibit 5(f) to Post-Effective Amendment No. 21.
(g) Sub-Advisory Agreement between Fidelity Management & Research
Company and Fidelity Management & Research (Far East) Inc. on behalf of
Overseas Portfolio dated January 1, 1990 is incorporated herein by
reference to Exhibit 5(g) to Post-Effective Amendment No. 21.
(h) Sub-Advisory Agreement between Fidelity Management & Research
Company and FMR Texas Inc. on behalf of Money Market Portfolio dated
January 1, 1990 is incorporated herein by reference to Exhibit 5(h) to
Post-Effective Amendment No. 21.
(i) Form of Sub-Advisory Agreement among Fidelity Management &
Research Company, Fidelity Management & Research (U.K.) Inc. and
Variable Insurance Products Fund on behalf of Overseas Portfolio was filed
as Exhibit 5(i) to Post-Effective Amendment No. 24.
(j) Form of Sub-Advisory Agreement among Fidelity Management &
Research Company, Fidelity Management & Research (Far East) Inc. and
Variable Insurance Products Fund on behalf of Overseas Portfolio was filed
as Exhibit 5(j) to Post-Effective Amendment No. 24
(k) Form of Sub-Advisory Agreement among Fidelity Management &
Research Company, Fidelity International Investment Advisors and Variable
Insurance Products Fund on behalf of Overseas Portfolio was filed as
Exhibit 5(k) to Post-Effective Amendment No. 24.
(l) Form of Sub-Advisory Agreement between Fidelity International
Investment Advisors and Fidelity International Investment Advisors (U.K.)
Limited on behalf of Overseas Portfolio was filed as Exhibit 5(l) to
Post-Effective Amendment No. 24.
(m) Form of Management Contract between High Income Portfolio and
Fidelity Management & Research Company was filed as Exhibit 5(m) to
Post-Effective Amendment No. 26.
(n) Form of Management Contract between Equity-Income Portfolio and
Fidelity Management & Research Company was filed as Exhibit 5(n) to
Post-Effective Amendment No. 26.
(o) Form of Management Contract between Growth Portfolio and Fidelity
Management & Research Company was filed as Exhibit 5(o) to
Post-Effective Amendment No. 26.
(p) Form of Management Contract between Overseas Portfolio and Fidelity
Management & Research Company was filed as Exhibit 5(p) to
Post-Effective Amendment No. 26.
(q) Management Contract between Money Market Portfolio and Fidelity
Management & Research Company dated January 1, 1994, is incorporated
herein by reference to Exhibit 5(q) to Post-Effective Amendment No. 28.
(r) Management Contract between High Income Portfolio and Fidelity
Management & Research Company dated January 1, 1994, is incorporated
herein by reference to Exhibit 5(r) to Post-Effective Amendment No. 28.
(s) Sub-Advisory Agreement between Fidelity Management & Research
Company and Fidelity Management & Research (U.K.) Inc. on behalf of
High Income Portfolio dated January 1, 1994, is incorporated herein by
reference to Exhibit 5(s) to Post-Effective No. 28.
(t) Sub-Advisory Agreement between Fidelity Management & Research
Company and Fidelity Management & Research (Far East) Inc. on behalf of
High Income Portfolio dated January 1, 1994, is incorporated herein by
reference to Exhibit 5(t) to Post-Effective No. 28.
(6) (a) Amended General Distribution Agreement between Money Market
Portfolio and Fidelity Distributors Corporation, dated April 1, 1987, is
incorporated herein by reference to Exhibit 6(a) to Post-Effective
Amendment No. 22.
(b) Amended General Distribution Agreement between High Income Portfolio
and Fidelity Distributors Corporation, dated April 1, 1987, is incorporated
herein by reference to Exhibit 6(b) to Post-Effective Amendment No. 22.
(c) Amended General Distribution Agreement between Equity-Income Portfolio
and Fidelity Distributors Corporation, dated April 1, 1987, is incorporated
herein by reference to Exhibit 6(c) to Post-Effective Amendment No. 22.
(d) Amended General Distribution Agreement between Growth Portfolio and
Fidelity Distributors Corporation, dated April 1, 1987, is incorporated
herein by reference to Exhibit 6(d) to Post-Effective Amendment No. 22.
(e) Amended General Distribution Agreement between Overseas Portfolio and
Fidelity Distributors Corporation dated April 1, 1987, is incorporated
herein by reference to Exhibit 6(e) to Post-Effective Amendment No. 22.
(f) Amendment to General Distribution Agreement between Money Market, High
Income, Equity-Income, Growth and Overseas Portfolios and Fidelity
Distributors Corporation, dated January 1, 1988, is incorporated herein by
reference to Exhibit 6(f) to Post-Effective Amendment No. 18.
(7) Retirement Plan for Non-Interested Person Trustees, Directors or
General Partners, effective November 1, 1989, is incorporated herein by
reference to Exhibit 7 to Post-Effective Amendment No. 24.
(8) (a) Custodian Agreement between Registrant, for Money Market Portfolio,
High Income Portfolio, Equity-Income Portfolio and Growth Portfolio, and
Shawmut Bank of Boston, N.A., dated August 19, 1982, is incorporated herein
by reference to Exhibit 8 to Post-Effective Amendment No. 2.
(b) Custodian Agreement between Registrant, for the Overseas Portfolio and
Brown Brothers Harriman & Co. of Boston, MA, dated November 21, 1987,
is incorporated herein by reference to Exhibit 8(b) to Post-Effective
Amendment No. 20.
(c) Subcustodian Agreement between Shawmut Bank of Boston, N.A. and Brown
Brothers Harriman & Co. of Boston, MA, dated January 29, 1988 is
incorporated herein by reference to Exhibit 8(c) to Post-Effective
Amendment No. 22.
(d) Custodian Agreement between Registrant, for Money Market Portfolio and
Morgan Guaranty Trust Company of New York, dated July 18, 1991, is
incorporated herein by reference to Exhibit 8(d) to Post-Effective
Amendment No. 24.
(e) Custodian Agreement between Registrant, for High Income Portfolio and
The Bank of New York, dated July 18, 1991, is incorporated herein by
reference to Exhibit 8(e) to Post-Effective Amendment No. 24.
(f) Custodian Agreement between Registrant, for Equity-Income and Overseas
Portfolios and The Chase Manhattan Bank, N.A., dated July 18, 1991, is
incorporated herein by reference to Exhibit 8(f) to Post-Effective
Amendment No. 24.
(g) Custodian Agreement between Registrant, for Growth Portfolio and Brown
Brothers & Harriman of Boston, MA, dated July 18, 1991, is incorporated
herein by reference to Exhibit 8(g) to Post-Effective Amendment No. 24.
(9) (a) Amended Service Agreement between the Registrant and Fidelity
Service Company including Schedules B (pricing and bookkeeping) and C
(securities lending) to that Agreement for the Money Market Portfolio, High
Income Portfolio, Equity-Income Portfolio, Growth Portfolio and Overseas
Portfolio dated June 1, 1989, are incorporated herein by reference to
Exhibit 9(a) to Post-Effective Amendment No. 20.
(b) Amended Transfer Agent Agreement between the Registrant and Fidelity
Investments Institutional Operations Company including Schedule A to that
Agreement for the Money Market Portfolio, High Income Portfolio,
Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio dated June
1, 1989, are incorporated herein by reference to Exhibit 9(b) to
Post-Effective Amendment No. 20.
(c) Form of Amended Schedule B to the Service Agreement between the
Registrant and Fidelity Service Co. for the Money Market Portfolio, High
Income Portfolio, Equity-Income Portfolio, Growth Portfolio and Overseas
Portfolio was filed as Exhibit 9(c) to Post-Effective Amendment No. 26.
(10) Not applicable.
(11)(a) Consent of Coopers & Lybrand is filed herein as Exhibit 11(a).
(11)(b) Consent of Price Waterhouse on behalf of Variable Insurance
Products Fund II is filed herein as Exhibit 11(b).
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15) (a) Distribution and Service Plan pursuant to Rule 12b-1 for
Equity-Income Portfolio is incorporated herein by reference to Exhibit
15(a) to Post-Effective Amendment No. 8.
(b) Distribution and Service Plan pursuant to Rule 12b-1 for Growth
Portfolio is incorporated by reference to Exhibit 15(b) to Post-Effective
Amendment No. 8.
(c) Distribution and Service Plan pursuant to Rule 12b-1 for Money Market
Portfolio is incorporated herein by reference to Exhibit 15(c) to
Post-Effective Amendment No. 12.
(d) Distribution and Service Plan pursuant to Rule 12b-1 for High Income
Portfolio is incorporated herein by reference to Exhibit 15(d) to
Post-Effective Amendment No. 12.
(e) Distribution and Service Plan pursuant to Rule 12b-1 for Overseas
Portfolio is incorporated herein by reference to Exhibit 15(e) to
Post-Effective Amendment No. 12.
(16) Schedule for Computation of performance quotations is incorporated
herein by reference to Exhibit 16 to Post-Effective Amendment No. 26.
(a) Backup for the computation of a moving average (using Equity-Income
as an example) is filed herein as Exhibit 16(a).
Item 25. Persons Controlled by or Under Common Control with Registrant
The Board of Trustees of Registrant is the same as the Board of Trustees
of other funds advised by Fidelity Management & Research Company
("FMR"). In addition, the officers of these portfolios are substantially
identical.
Registrant takes the position that it is not under common control with any
of the above portfolios since the power residing in the respective
companies, boards and officers arises in each instance as the result of an
official position with the respective funds.
Item 26. Number of Holders of Securities
March 31, 1994
Title of Securities Number of Record Holders
Shares of Beneficial Interest
Money Market Portfolio: 38
High Income Portfolio: 40
Equity-Income Portfolio: 46
Growth Portfolio: 52
Overseas Portfolio: 44
Item 27. Indemnification
Article XI, Section 2 of the Declaration of Trust sets forth the
reasonable and fair means for determining whether indemnification shall be
provided to any past or present Trustee or officer. It states that the
Registrant shall indemnify any present or past Trustee or officer to the
fullest extent permitted by law against liability and all expenses
reasonably incurred by him in connection with any claim action, suit or
proceeding in which he is involved by virtue of his service as a trustee,
an officer or both. Additionally, amounts paid or incurred in settlement
of such matters are covered by this indemnification. Indemnification will
not be provided in certain circumstances, however. These include instances
of willful misfeasance, bad faith, gross negligence and reckless disregard
of the duties involved in the conduct of the particular office involved.
Item 28. Business and Other Connections of Investment Adviser
(1) FIDELITY MANAGEMENT & RESEARCH COMPANY
FMR serves as investment adviser to a number of other investment
companies. The directors and officers of the Adviser have held, during the
past two fiscal years, the following positions of a substantial nature.
<TABLE>
<CAPTION>
<S> <C>
Edward C. Johnson 3d Chairman of the Executive Committee of FMR; President and
Chief Executive Officer of FMR Corp.; Chairman of the Board
and a Director of FMR, FMR Corp., FMR Texas Inc., Fidelity
Management & Research (U.K.) Inc. and Fidelity
Management & Research (Far East) Inc.; President and
Trustee of funds advised by FMR;
J. Gary Burkhead President of FMR; Managing Director of FMR Corp.; President
and a Director of FMR Texas Inc., Fidelity Management &
Research (U.K.) Inc. and Fidelity Management & Research
(Far East) Inc.; Senior Vice President and Trustee of funds advised
by FMR.
Peter S. Lynch Vice Chairman of FMR (1992).
David Breazzano Vice President of FMR (1993) and of a fund advised by FMR.
Stephan Campbell Vice President of FMR (1993).
Rufus C. Cushman, Jr. Vice President of FMR and of funds advised by FMR; Corporate
Preferred Group Leader.
Will Danof Vice President of FMR (1993) and of a fund advised by FMR.
Scott DeSano Vice President of FMR (1993).
Penelope Dobkin Vice President of FMR and of a fund advised by FMR.
Larry Domash Vice President of FMR (1993).
George Domolky Vice President of FMR (1993) and of a fund advised by FMR.
Charles F. Dornbush Senior Vice President of FMR; Chief Financial Officer of the
Fidelity funds; Treasurer of FMR Texas Inc., Fidelity Management
& Research (U.K.) Inc., and Fidelity Management &
Research (Far East) Inc.
Robert K. Duby Vice President of FMR.
Margaret L. Eagle Vice President of FMR and of a fund advised by FMR.
Kathryn L. Eklund Vice President of FMR.
Richard B. Fentin Senior Vice President of FMR (1993) and of a fund advised by
FMR.
Daniel R. Frank Vice President of FMR and of funds advised by FMR.
Gary L. French Vice President of FMR and Treasurer of the funds advised by
FMR. Prior to assuming the position as Treasurer he was Senior
Vice President, Fund Accounting - Fidelity Accounting &
Custody Services Co.
Michael S. Gray Vice President of FMR and of funds advised by FMR.
Barry A. Greenfield Vice President of FMR and of a fund advised by FMR.
William J. Hayes Senior Vice President of FMR; Income/Growth Group Leader and
International Group Leader.
Robert Haber Vice President of FMR and of funds advised by FMR.
Daniel Harmetz Vice President of FMR and of a fund advised by FMR.
Ellen S. Heller Vice President of FMR.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
John Hickling Vice President of FMR (1993) and of funds advised by FMR.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Robert F. Hill Vice President of FMR; and Director of Technical Research.
Stephan Jonas Vice President of FMR (1993).
David B. Jones Vice President of FMR (1993).
Steven Kaye Vice President of FMR (1993) and of a fund advised by FMR.
Frank Knox Vice President of FMR (1993).
Robert A. Lawrence Senior Vice President of FMR (1993); and High Income Group
Leader.
Alan Leifer Vice President of FMR and of a fund advised by FMR.
Harris Leviton Vice President of FMR (1993) and of a fund advised by FMR.
Bradford E. Lewis Vice President of FMR and of funds advised by FMR.
Robert H. Morrison Vice President of FMR and Director of Equity Trading.
David Murphy Vice President of FMR and of funds advised by FMR.
Jacques Perold Vice President of FMR.
Brian Posner Vice President of FMR (1993) and of a fund advised by FMR.
Anne Punzak Vice President of FMR and of funds advised by FMR.
Richard A. Spillane Vice President of FMR and of funds advised by FMR; and
Director of Equity Research.
Robert E. Stansky Senior Vice President of FMR (1993) and of funds advised by
FMR.
Thomas Steffanci Senior Vice President of FMR (1993); and Fixed-Income Division
Head.
Gary L. Swayze Vice President of FMR and of funds advised by FMR; and
Tax-Free Fixed-Income Group Leader.
Donald Taylor Vice President of FMR (1993) and of funds advised by FMR.
Beth F. Terrana Senior Vice President of FMR (1993) and of funds advised by
FMR.
Joel Tillinghast Vice President of FMR (1993) and of a fund advised by FMR.
Robert Tucket Vice President of FMR (1993).
George A. Vanderheiden Senior Vice President of FMR; Vice President of funds advised by
FMR; and Growth Group Leader.
Jeffrey Vinik Senior Vice President of FMR (1993) and of a fund advised by
FMR.
Guy E. Wickwire Vice President of FMR and of a fund advised by FMR.
Arthur S. Loring Senior Vice President (1993), Clerk and General Counsel of FMR;
Vice President, Legal of FMR Corp.; and Secretary of funds
advised by FMR.
</TABLE>
(2) FIDELITY MANAGEMENT & RESEARCH (U.K.) INC. (FMR U.K.)
FMR U.K. provides investment advisory services to Fidelity Management
& Research Company and Fidelity Management Trust Company. The
directors and officers of the Sub-Adviser have held the following positions
of a substantial nature during the past two fiscal years.
<TABLE>
<CAPTION>
<S> <C>
Edward C. Johnson 3d Chairman and Director of FMR U.K.; Chairman of the Executive
Committee of FMR; Chief Executive Officer of FMR Corp.;
Chairman of the Board and a Director of FMR, FMR Corp., FMR
Texas Inc., and Fidelity Management & Research (Far East)
Inc.; President and Trustee of funds advised by FMR.
J. Gary Burkhead President and Director of FMR U.K.; President of FMR; Managing
Director of FMR Corp.; President and a Director of FMR Texas Inc.
and Fidelity Management & Research (Far East) Inc.; Senior
Vice President and Trustee of funds advised by FMR.
Richard C. Habermann Senior Vice President of FMR U.K.; Senior Vice President of
Fidelity Management & Research (Far East) Inc.; Director of
Worldwide Research of FMR.
Charles F. Dornbush Treasurer of FMR U.K.; Treasurer of Fidelity Management &
Research (Far East) Inc.; Treasurer of FMR Texas Inc., Senior Vice
President and Chief Financial Officer of the Fidelity funds.
David Weinstein Clerk of FMR U.K.; Clerk of Fidelity Management & Research
(Far East) Inc.; Secretary of FMR Texas Inc.
</TABLE>
(3) FIDELITY MANAGEMENT & RESEARCH (FAR EAST) INC. (FMR Far East)
FMR Far East provides investment advisory services to Fidelity Management
& Research Company and Fidelity Management Trust Company. The
directors and officers of the Sub-Adviser have held the following positions
of a substantial nature during the past two fiscal years.
<TABLE>
<CAPTION>
<S> <C>
Edward C. Johnson 3d Chairman and Director of FMR Far East; Chairman of the
Executive Committee of FMR; Chief Executive Officer of
FMR Corp.; Chairman of the Board and a Director of FMR,
FMR Corp., FMR Texas Inc. and Fidelity Management &
Research (U.K.) Inc.; President and Trustee of funds advised by
FMR.
J. Gary Burkhead President and Director of FMR Far East; President of FMR;
Managing Director of FMR Corp.; President and a Director of
FMR Texas Inc. and Fidelity Management & Research
(U.K.) Inc.; Senior Vice President and Trustee of funds advised
by FMR.
Richard C. Habermann Senior Vice President of FMR Far East; Senior Vice President
of Fidelity Management & Research (U.K.) Inc.; Director
of Worldwide Research of FMR.
William R. Ebsworth Vice President of FMR Far East.
Bill Wilder Vice President of FMR Far East (1993).
Charles F. Dornbush Treasurer of FMR Far East; Treasurer of Fidelity Management
& Research (U.K.) Inc.; Treasurer of FMR Texas Inc.;
Senior Vice President and Chief Financial Officer of the
Fidelity funds.
David C. Weinstein Clerk of FMR Far East; Clerk of Fidelity Management &
Research (U.K.) Inc.; Secretary of FMR Texas Inc.
</TABLE>
(4) FMR TEXAS INC. (FMR Texas)
FMR Texas provides investment advisory services to Fidelity Management
& Research Company. The directors and officers of the Sub-Adviser have
held the following positions of a substantial nature during the past two
fiscal years.
<TABLE>
<CAPTION>
<S> <C>
Edward C. Johnson 3d Chairman and Director of FMR Texas; Chairman of the
Executive Committee of FMR; President and Chief Executive
Officer of FMR Corp.; Chairman of the Board and a Director
of FMR, FMR Corp., Fidelity Management & Research
(Far East) Inc. and Fidelity Management & Research
(U.K.) Inc.; President and Trustee of funds advised by FMR.
J. Gary Burkhead President and Director of FMR Texas; President of FMR;
Managing Director of FMR Corp.; President and a Director of
Fidelity Management & Research (Far East) Inc. and
Fidelity Management & Research (U.K.) Inc.; Senior
Vice President and Trustee of funds advised by FMR.
Frederic L. Henning Jr. Senior Vice President of FMR Texas; Money Market Group
Leader.
Leland Baron Vice President of FMR Texas and of funds advised by FMR.
Thomas D. Maher Vice President of FMR Texas.
Burnell Stehman Vice President of FMR Texas and of funds advised by FMR.
John Todd Vice President of FMR Texas and of funds advised by FMR.
Sarah H. Zenoble Vice President of FMR Texas and of funds advised by FMR.
Charles F. Dornbush Treasurer of FMR Texas; Treasurer of Fidelity Management
& Research (U.K.) Inc.; Treasurer of Fidelity
Management & Research (Far East) Inc.; Senior Vice
President and Chief Financial Officer of the Fidelity funds.
David C. Weinstein Secretary of FMR Texas; Clerk of Fidelity Management
& Research (U.K.) Inc.; Clerk of Fidelity Management
& Research (Far East) Inc.
</TABLE>
(5) FIDELITY INTERNATIONAL INVESTMENT ADVISORS
Pembroke Hall, 42 Crow Lane, Pembroke, Bermuda
The directors and officers of Fidelity International Investment Advisors
(FIIA) have held, during the past two fiscal years, the following positions
of a substantial nature.
<TABLE>
<CAPTION>
<S> <C>
Anthony Bolton Director of FIIA and FIIAL (U.K.); Director of Fidelity
International Management Holdings Limited.
Martin P. Cambridge Director of FIIAand FIIAL (U.K.); Chief Financial Officer of
Fidelity International Ltd. and Fidelity Investment Services
Ltd..
Kirk Caza Vice President of FIIA.
Charles T. M. Collis Director and Secretary of FIIA; Partner in Conyers, Dill
& Pearman, Hamilton, Bermuda; Secretary to many
companies in the Fidelity international group of companies.
Stephen A. DeSilva Treasurer of FIIA and Fidelity International Limited.
Geoffrey J. Mansfield Director of FIIA.
Frank Mutch Assistant Secretary of FIIA.
David J. Saul President, Director, and Controller of FIIA; Director of
Fidelity International Limited.
Michael Sommerville Vice President of FIIA; Vice President of Fidelity
International Limited.
Toshiaki Wakabayashi Director of FIIA.
</TABLE>
(6) FIDELITY INTERNATIONAL INVESTMENT ADVISORS (U.K.) LIMITED
27-28 Lovat Lane, London, England
The directors and officers of Fidelity International Investment Advisors
(U.K.) Limited (FIIAL (U.K.)) have held, during the past two fiscal years,
the following positions of a substantial nature.
<TABLE>
<CAPTION>
<S> <C>
Anthony Bolton Director of FIIAL (U.K.) and FIIA; Director of Fidelity
International Management Holdings Limited.
Martin P. Cambridge Director and Secretary of FIIAL (U.K.) and FIIA; Chief
Financial Officer of Fidelity International Ltd. and Fidelity
Investment Services Ltd..
C. Bruce Johnstone Director of FIIAL (U.K.).
</TABLE>
Item 29. Principal Underwriters
(a) Fidelity Distributors Corporation (FDC) acts as distributor for most
funds advised by FMR and the following other funds:
CrestFunds, Inc.
The Victory Funds
ARK Funds
(b)
Name and Principal Positions and Offices Positions and Offices
Business Address* With Underwriter With Registrant
Edward C. Johnson 3d Director Trustee and President
Nita B. Kincaid Director None
W. Humphrey Bogart Director None
Kurt A. Lange President and Treasurer None
William L. Adair Senior Vice President None
Thomas W. Littauer Senior Vice President None
Arthur S. Loring Vice President and Clerk Secretary
* 82 Devonshire Street, Boston, MA
(c) Not applicable.
Item 30. Location of Accounts and Records
All accounts, books, and other documents required to be maintained by
Section 31a of the 1940 Act and the Rules promulgated thereunder are
maintained by Fidelity Management & Research Company or Fidelity
Service Co., 82 Devonshire Street, Boston, MA 02109, or the funds'
respective custodian: The Bank of New York, 110 Washington Street, New
York, N.Y., The Chase Manhattan Bank, 1211 Avenue of the Americas, New
York, N.Y., Brown Brothers Harriman & Co., 40 Water Street, Boston,
MA., and Morgan Guaranty Trust Company of New York, 61 Wall Street, 37th
Floor, New York, N.Y.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
The Registrant on behalf of High Income Portfolio, Equity-Income
Portfolio, Growth Portfolio and Overseas Portfolio undertakes, provided the
information required by Item 5A is contained in the annual report, to
furnish each person to whom a prospectus has been delivered, upon their
request and without charge, a copy of the Registrant's latest annual report
to shareholders.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for the effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Post-Effective Amendment No. 29 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Boston, and Commonwealth of Massachusetts, on the 28 day of
April 1994.
VARIABLE INSURANCE PRODUCTS FUND
By /s/Edward C. Johnson 3d (dagger)
Edward C. Johnson 3d, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
(Signature) (Title) (Date)
<TABLE>
<CAPTION>
<S> <C> <C>
/s/Edward C. Johnson 3d(dagger) President and Trustee April 28, 1994
Edward C. Johnson 3d (Principal Executive Officer)
</TABLE>
/s/Gary L. French Treasurer April 28, 1994
Gary L. French
/s/J. Gary Burkhead Trustee April 28, 1994
J. Gary Burkhead
/s/Ralph F. Cox * Trustee April 28, 1994
Ralph F. Cox
/s/Phyllis Burke Davis * Trustee April 28, 1994
Phyllis Burke Davis
/s/Richard J. Flynn * Trustee April 28, 1994
Richard J. Flynn
/s/E. Bradley Jones * Trustee April 28, 1994
E. Bradley Jones
/s/Donald J. Kirk * Trustee April 28, 1994
Donald J. Kirk
/s/Peter S. Lynch * Trustee April 28, 1994
Peter S. Lynch
/s/Edward H. Malone * Trustee April 28, 1994
Edward H. Malone
/s/Marvin L. Mann_____* Trustee April 28, 1994
Marvin L. Mann
/s/Gerald C. McDonough* Trustee April 28, 1994
Gerald C. McDonough
/s/Thomas R. Williams * Trustee April 28, 1994
Thomas R. Williams
(dagger) Signatures affixed by J. Gary Burkhead pursuant to a power of
attorney dated October 20, 1993 and filed herewith.
* Signature affixed by Robert C. Hacker pursuant to a power of attorney
dated October 20, 1993 and filed herewith.
POWER OF ATTORNEY
We, the undersigned Directors, Trustees or General Partners, as the case
may be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Advisor Series I Fidelity Institutional Trust
Fidelity Advisor Series II Fidelity Investment Trust
Fidelity Advisor Series III Fidelity Magellan Fund
Fidelity Advisor Series IV Fidelity Massachusetts Municipal Trust
Fidelity Advisor Series V Fidelity Money Market Trust
Fidelity Advisor Series VI Fidelity Mt. Vernon Street Trust
Fidelity Advisor Series VII Fidelity Municipal Trust
Fidelity Advisor Series VIII Fidelity New York Municipal Trust
Fidelity California Municipal Trust Fidelity Puritan Trust
Fidelity Capital Trust Fidelity School Street Trust
Fidelity Charles Street Trust Fidelity Securities Fund
Fidelity Commonwealth Trust Fidelity Select Portfolios
Fidelity Congress Street Fund Fidelity Sterling Performance Portfolio, L.P.
Fidelity Contrafund Fidelity Summer Street Trust
Fidelity Corporate Trust Fidelity Trend Fund
Fidelity Court Street Trust Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Destiny Portfolios Fidelity U.S. Investments-Government Securities
Fidelity Deutsche Mark Performance Fund, L.P.
Portfolio, L.P. Fidelity Union Street Trust
Fidelity Devonshire Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Exchange Fund Spartan U.S. Treasury Money Market
Fidelity Financial Trust Fund
Fidelity Fixed-Income Trust Variable Insurance Products Fund
Fidelity Government Securities Fund Variable Insurance Products Fund II
Fidelity Hastings Street Trust
Fidelity Income Fund
</TABLE>
plus any other investment company for which Fidelity Management &
Research Company acts as investment adviser and for which the undersigned
individuals serve as Board Members (collectively, the "Funds"), hereby
severally constitute and appoint Arthur J. Brown, Arthur C. Delibert,
Robert C. Hacker, Richard M. Phillips, Dana L. Platt and Stephanie A.
Xupolos, each of them singly, our true and lawful attorneys-in-fact, with
full power of substitution, and with full power to each of them, to sign
for us and in our names in the appropriate capacities, all Pre-Effective
Amendments to any Registration Statements of the Funds, any and all
subsequent Post-Effective Amendments to said Registration Statements, any
Registration Statements on Form N-14, and any supplements or other
instruments in connection therewith, and generally to do all such things in
our names and behalf in connection therewith as said attorneys-in-fact deem
necessary or appropriate, to comply with the provisions of the Securities
Act of 1933 and Investment Company Act of 1940, and all related
requirements of the Securities and Exchange Commission, hereby ratifying
and confirming all that said attorneys-in-fact or their substitutes may do
or cause to be done by virtue hereof.
WITNESS our hands on this twentieth day of October, 1993.
/s/Edward C. Johnson 3d /s/Peter S. Lynch
Edward C. Johnson 3d Peter S. Lynch
/s/J. Gary Burkhead /s/Edward H. Malone
J. Gary Burkhead Edward H. Malone
/s/Richard J. Flynn /s/Gerald C. McDonough
Richard J. Flynn Gerald C. McDonough
/s/E. Bradley Jones /s/Thomas R. Williams
E. Bradley Jones Thomas R. Williams
/s/Donald J. Kirk
Donald J. Kirk
POWER OF ATTORNEY
I, the undersigned President and Director, Trustee or General Partner, as
the case may be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Advisor Series I Fidelity Institutional Trust
Fidelity Advisor Series II Fidelity Investment Trust
Fidelity Advisor Series III Fidelity Magellan Fund
Fidelity Advisor Series IV Fidelity Massachusetts Municipal Trust
Fidelity Advisor Series V Fidelity Money Market Trust
Fidelity Advisor Series VI Fidelity Mt. Vernon Street Trust
Fidelity Advisor Series VII Fidelity Municipal Trust
Fidelity Advisor Series VIII Fidelity New York Municipal Trust
Fidelity California Municipal Trust Fidelity Puritan Trust
Fidelity Capital Trust Fidelity School Street Trust
Fidelity Charles Street Trust Fidelity Securities Fund
Fidelity Commonwealth Trust Fidelity Select Portfolios
Fidelity Congress Street Fund Fidelity Sterling Performance Portfolio, L.P.
Fidelity Contrafund Fidelity Summer Street Trust
Fidelity Corporate Trust Fidelity Trend Fund
Fidelity Court Street Trust Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Destiny Portfolios Fidelity U.S. Investments-Government Securities
Fidelity Deutsche Mark Performance Fund, L.P.
Portfolio, L.P. Fidelity Union Street Trust
Fidelity Devonshire Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Exchange Fund Spartan U.S. Treasury Money Market
Fidelity Financial Trust Fund
Fidelity Fixed-Income Trust Variable Insurance Products Fund
Fidelity Government Securities Fund Variable Insurance Products Fund II
Fidelity Hastings Street Trust
Fidelity Income Fund
</TABLE>
plus any other investment company for which Fidelity Management &
Research Company acts as investment adviser and for which the undersigned
individual serves as President and Board Member (collectively, the
"Funds"), hereby severally constitute and appoint J. Gary Burkhead, my true
and lawful attorney-in-fact, with full power of substitution, and with full
power to sign for me and in my name in the appropriate capacity, all
Pre-Effective Amendments to any Registration Statements of the Funds, any
and all subsequent Post-Effective Amendments to said Registration
Statements, any Registration Statements on Form N-14, and any supplements
or other instruments in connection therewith, and generally to do all such
things in my name and behalf in connection therewith as said
attorney-in-fact deem necessary or appropriate, to comply with the
provisions of the Securities Act of 1933 and Investment Company Act of
1940, and all related requirements of the Securities and Exchange
Commission. I hereby ratify and confirm all that said attorneys-in-fact or
their substitutes may do or cause to be done by virtue hereof.
WITNESS my hand on the date set forth below.
/s/Edward C. Johnson 3d October 20, 1993
Edward C. Johnson 3d
POWER OF ATTORNEY
I, the undersigned Director, Trustee or General Partner, as the case may
be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Advisor Series I Fidelity Magellan Fund
Fidelity Advisor Series III Fidelity Massachusetts Municipal Trust
Fidelity Advisor Series IV Fidelity Money Market Trust
Fidelity Advisor Series VI Fidelity Mt. Vernon Street Trust
Fidelity Advisor Series VIII Fidelity New York Municipal Trust
Fidelity California Municipal Trust Fidelity Puritan Trust
Fidelity Capital Trust Fidelity School Street Trust
Fidelity Charles Street Trust Fidelity Select Portfolios
Fidelity Commonwealth Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Congress Street Fund Fidelity Summer Street Trust
Fidelity Contrafund Fidelity Trend Fund
Fidelity Deutsche Mark Performance Fidelity Union Street Trust
Portfolio, L.P. Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Devonshire Trust Fidelity U.S. Investments-Government Securities
Fidelity Financial Trust Fund, L.P.
Fidelity Fixed-Income Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Government Securities Fund Spartan U.S. Treasury Money Market
Fidelity Hastings Street Trust Fund
Fidelity Income Fund Variable Insurance Products Fund
Fidelity Institutional Trust Variable Insurance Products Fund II
Fidelity Investment Trust
</TABLE>
plus any other investment company for which Fidelity Management &
Research Company acts as investment adviser and for which the undersigned
individual serves as a Board Member (collectively, the "Funds"), hereby
severally constitute and appoint Arthur J. Brown, Arthur C. Delibert,
Robert C. Hacker, Richard M. Phillips, Dana L. Platt and Stephanie A.
Xupolos, each of them singly, my true and lawful attorneys-in-fact, with
full power of substitution, and with full power to each of them, to sign
for me and in my name in the appropriate capacity, all Pre-Effective
Amendments to any Registration Statements of the Funds, any and all
subsequent Post-Effective Amendments to said Registration Statements, any
Registration Statements on Form N-14, and any supplements or other
instruments in connection therewith, and generally to do all such things in
my name and behalf in connection therewith as said attorneys-in-fact deem
necessary or appropriate, to comply with the provisions of the Securities
Act of 1933 and Investment Company Act of 1940, and all related
requirements of the Securities and Exchange Commission, hereby ratifying
and confirming all that said attorneys-in-fact or their substitutes may do
or cause to be done by virtue hereof.
WITNESS my hand on the date set forth below.
/s/Ralph F. Cox October 20, 1993
Ralph F. Cox
POWER OF ATTORNEY
I, the undersigned Director, Trustee or General Partner, as the case may
be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Advisor Series I Fidelity Investment Trust
Fidelity Advisor Series III Fidelity Mt. Vernon Street Trust
Fidelity Advisor Series IV Fidelity School Street Trust
Fidelity Advisor Series VI Fidelity Select Portfolios
Fidelity Advisor Series VIII Fidelity Sterling Performance Portfolio, L.P.
Fidelity Beacon Street Trust Fidelity Trend Fund
Fidelity Capital Trust Fidelity Union Street Trust
Fidelity Commonwealth Trust Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Contrafund Fidelity U.S. Investments-Government Securities
Fidelity Deutsche Mark Performance Fund, L.P.
Portfolio, L.P. Fidelity Yen Performance Portfolio, L.P.
Fidelity Devonshire Trust Spartan U.S. Treasury Money Market
Fidelity Financial Trust Fund
Fidelity Fixed-Income Trust Variable Insurance Products Fund
Fidelity Government Securities Fund Variable Insurance Products Fund II
Fidelity Hastings Street Trust
Fidelity Institutional Trust
</TABLE>
plus any other investment company for which Fidelity Management &
Research Company acts as investment adviser and for which the undersigned
individual serves as a Board Member (collectively, the "Funds"), hereby
severally constitute and appoint Arthur J. Brown, Arthur C. Delibert,
Robert C. Hacker, Richard M. Phillips, Dana L. Platt and Stephanie A.
Xupolos, each of them singly, my true and lawful attorneys-in-fact, with
full power of substitution, and with full power to each of them, to sign
for me and in my name in the appropriate capacity, all Pre-Effective
Amendments to any Registration Statements of the Funds, any and all
subsequent Post-Effective Amendments to said Registration Statements, any
Registration Statements on Form N-14, and any supplements or other
instruments in connection therewith, and generally to do all such things in
my name and behalf in connection therewith as said attorneys-in-fact deem
necessary or appropriate, to comply with the provisions of the Securities
Act of 1933 and Investment Company Act of 1940, and all related
requirements of the Securities and Exchange Commission, hereby ratifying
and confirming all that said attorneys-in-fact or their substitutes may do
or cause to be done by virtue hereof.
WITNESS my hand on the date set forth below.
/s/Phyllis Burke Davis October 20, 1993
Phyllis Burke Davis
POWER OF ATTORNEY
I, the undersigned Director, Trustee or General Partner, as the case may
be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Advisor Series I Fidelity Investment Trust
Fidelity Advisor Series III Fidelity Special Situations Fund
Fidelity Advisor Series IV Fidelity Sterling Performance Portfolio, L.P.
Fidelity Advisor Series VI Fidelity Trend Fund
Fidelity Advisor Series VII Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Advisor Series VIII Fidelity U.S. Investments-Government Securities
Fidelity Contrafund Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity Yen Performance Portfolio, L.P.
Portfolio, L.P. Spartan U.S. Treasury Money Market
Fidelity Fixed-Income Trust Fund
Fidelity Government Securities Fund Variable Insurance Products Fund
Fidelity Hastings Street Trust Variable Insurance Products Fund II
Fidelity Institutional Trust
</TABLE>
plus any other investment company for which Fidelity Management &
Research Company acts as investment adviser and for which the undersigned
individual serves as a Board Member (collectively, the "Funds"), hereby
severally constitute and appoint Arthur J. Brown, Arthur C. Delibert,
Robert C. Hacker, Richard M. Phillips, Dana L. Platt and Stephanie A.
Xupolos, each of them singly, my true and lawful attorneys-in-fact, with
full power of substitution, and with full power to each of them, to sign
for me and in my name in the appropriate capacity, all Pre-Effective
Amendments to any Registration Statements of the Funds, any and all
subsequent Post-Effective Amendments to said Registration Statements, any
Registration Statements on Form N-14, and any supplements or other
instruments in connection therewith, and generally to do all such things in
my name and behalf in connection therewith as said attorneys-in-fact deem
necessary or appropriate, to comply with the provisions of the Securities
Act of 1933 and Investment Company Act of 1940, and all related
requirements of the Securities and Exchange Commission, hereby ratifying
and confirming all that said attorneys-in-fact or their substitutes may do
or cause to be done by virtue hereof.
WITNESS my hand on the date set forth below.
/s/Marvin L. Mann October 20, 1993
Marvin L. Mann
Exhibit 24(a)(1)
ANNUAL REPORT FOR THE PERIOD ENDED DECEMBER 31, 1993
VARIABLE
INSURANCE
PRODUCTS FUND
TABLE OF CONTENTS
VARIABLE INSURANCE PRODUCTS FUND
PAGE
Performance Update VIPF-1
Market Environment VIPF-6
Schedule of Investments and Financial Statements:
Money Market Portfolio VIPF-13
High Income Portfolio VIPF-18
Equity-Income Portfolio VIPF-28
Growth Portfolio VIPF-37
Overseas Portfolio VIPF-47
Notes to Financial Statements VIPF-58
Report of Independent Accountants VIPF-63
VARIABLE INSURANCE PRODUCTS FUND: MONEY MARKET PORTFOLIO
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED DECEMBER 31, 1993
One Year Five Years Ten Years
MONEY MARKET PORTFOLIO 3.23% 6.05% 6.92%
PERFORMANCE DATA IS HISTORICAL AND INCLUDES CHANGES IN SHARE PRICE AND
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS. WHILE MONEY MARKET PORTFOLIO
SEEKS TO MAINTAIN A STABLE $1.00 SHARE PRICE, THERE IS NO ASSURANCE THAT IT
WILL BE ABLE TO DO SO. AN INVESTMENT IN A SUB-ACCOUNT INVESTING IN MONEY
MARKET PORTFOLIO IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, IT WOULD HAVE BEEN LOWER. IF THE ADVISOR HAD NOT REIMBURSED
CERTAIN FUND EXPENSES DURING THE PERIODS SHOWN, THE TOTAL RETURNS WOULD
HAVE BEEN LOWER.
VARIABLE INSURANCE PRODUCTS FUND: HIGH INCOME PORTFOLIO
PERFORMANCE UPDATE
$10,000 OVER LIFE OF FUND
VIP High Income (045) Merrill Lynch High Yield Master
09/30/85 10000.00 10000.00
10/31/85 10124.78 10113.10
11/30/85 10270.82 10303.28
12/31/85 10614.12 10604.89
01/31/86 10745.59 10676.11
02/28/86 11109.08 11130.19
03/31/86 11383.11 11373.99
04/30/86 11576.25 11551.61
05/31/86 11753.02 11685.66
06/30/86 11900.73 11804.62
07/31/86 11864.54 11648.79
08/31/86 11912.44 11864.11
09/30/86 12013.61 11962.13
10/31/86 12372.55 12172.42
11/30/86 12412.21 12272.12
12/31/86 12490.70 12338.30
01/31/87 12946.07 12686.83
02/28/87 13170.09 12896.28
03/31/87 13290.06 13038.71
04/30/87 12874.73 12754.69
05/31/87 12755.04 12696.88
06/30/87 13030.51 12872.82
07/31/87 13044.44 12942.36
08/31/87 13152.50 13072.22
09/30/87 12694.50 12771.45
10/31/87 12087.45 12430.46
11/30/87 12443.46 12744.64
12/31/87 12642.62 12913.87
01/31/88 13058.27 13267.43
02/29/88 13449.23 13627.68
03/31/88 13352.60 13605.06
04/30/88 13456.68 13644.44
05/31/88 13436.67 13715.65
06/30/88 13718.28 13977.88
07/31/88 13861.09 14125.34
08/31/88 13794.88 14171.41
09/30/88 13905.47 14314.68
10/31/88 14056.83 14537.53
11/30/88 14003.17 14591.99
12/31/88 14114.44 14653.99
01/31/89 14453.61 14873.49
02/28/89 14524.71 14973.19
03/31/89 14338.07 14959.79
04/30/89 14179.28 15004.19
05/31/89 14441.27 15280.66
06/30/89 14854.89 15496.82
07/31/89 14757.09 15570.54
08/31/89 14671.50 15647.62
09/30/89 14158.15 15498.32
10/31/89 13551.17 15253.18
11/30/89 13562.59 15287.37
12/31/89 13525.41 15273.54
01/31/90 13226.43 14975.03
02/28/90 13022.77 14756.95
03/31/90 12885.37 14956.43
04/30/90 12923.55 15032.42
05/31/90 13189.09 15303.95
06/30/90 13396.84 15600.45
07/31/90 13603.77 15930.13
08/31/90 13376.20 15320.29
09/30/90 13059.03 14653.99
10/31/90 12742.14 14281.08
11/30/90 13041.02 14402.06
12/31/90 13223.37 14609.58
01/31/91 13503.93 14816.10
02/28/91 14252.07 15915.80
03/31/91 14757.06 16600.03
04/30/91 15280.76 17191.27
05/31/91 15505.20 17275.22
06/30/91 15841.86 17622.74
07/31/91 16440.38 18044.99
08/31/91 16664.82 18424.26
09/30/91 17038.89 18658.93
10/31/91 17618.70 19213.39
11/30/91 17768.32 19435.32
12/31/91 17861.84 19661.11
01/31/92 18815.72 20348.53
02/29/92 19498.88 20853.89
03/31/92 20129.18 21144.86
04/30/92 20271.51 21298.76
05/31/92 20515.50 21638.49
06/30/92 20739.16 21907.34
07/31/92 21145.81 22351.21
08/31/92 21593.13 22647.12
09/30/92 21816.78 22905.16
10/31/92 21491.46 22615.87
11/30/92 21755.79 22936.16
12/31/92 21999.78 23231.48
01/31/93 22589.42 23803.54
02/28/93 22974.74 24254.11
03/31/93 23504.93 24674.60
04/30/93 23659.57 24851.63
05/31/93 24013.03 25186.24
06/30/93 24631.58 25659.43
07/31/93 24874.58 25935.24
08/31/93 25139.67 26182.47
09/30/93 25228.04 26311.66
10/31/93 25824.50 26807.31
11/30/93 26067.50 26953.92
12/31/93 26487.23 27223.44
$10,000 OVER LIFE OF FUND: LET'S SAY $10,000 WAS INVESTED IN HIGH INCOME
PORTFOLIO ON SEPTEMBER 30, 1985, SHORTLY AFTER THE FUND STARTED. BY
DECEMBER 31, 1993, THE VALUE OF THE INVESTMENT WITH DIVIDENDS REINVESTED
WOULD HAVE GROWN TO $26,487 - A 164.87% INCREASE ON THE INITIAL INVESTMENT.
FOR COMPARISON, LOOK AT HOW A $10,000 INVESTMENT IN THE MERRILL LYNCH HIGH
YIELD MASTER, (WITH DIVIDENDS REINVESTED) DID OVER THE SAME PERIOD. IT
WOULD HAVE GROWN TO $27,223 - A 172.23% INCREASE.
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED DECEMBER 31, 1993
One Year Five Years Life of
Fund
HIGH INCOME PORTFOLIO 20.40% 13.42% 12.50%
MERRILL LYNCH HIGH YIELD
MASTER INDEX 17.18% 13.19% n/a
THE CHARTS ABOVE SHOW HIGH INCOME PORTFOLIO'S TOTAL RETURNS, WHICH INCLUDE
CHANGES IN SHARE PRICE, AND REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS.
THE MERRILL LYNCH HIGH YIELD MASTER INDEX, AN UNMANAGED INDEX, IS A BROAD
MEASURE OF THE HIGH YIELD BOND MARKET. IT INCLUDES REINVESTED DIVIDENDS AND
CAPITAL GAINS, IF ANY.
FIGURES FOR MORE THAN ONE YEAR ASSUME A STEADY COMPOUNDED RATE OF RETURN
AND ARE NOT THE FUND'S YEAR-BY-YEAR RESULTS, WHICH FLUCTUATED OVER THE
PERIODS SHOWN. THE LIFE OF FUND FIGURES ARE FROM COMMENCEMENT OF
OPERATIONS, SEPTEMBER 19, 1985.
IF THE ADVISER HAD NOT REIMBURSED CERTAIN FUND EXPENSES DURING THE PERIODS
SHOWN, THE TOTAL RETURNS WOULD HAVE BEEN LOWER. PERFORMANCE NUMBERS ARE NET
OF ALL FUND OPERATING EXPENSES, BUT DO NOT INCLUDE ANY INSURANCE CHARGES
IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. IF PERFORMANCE
INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL CHARGES, IT WOULD HAVE
BEEN LOWER.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. PRINCIPAL AND
INVESTMENT RETURN WILL VARY AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU
WITHDRAW YOUR MONEY. THE FUND INCLUDES HIGH YIELDING, LOWER-RATED
SECURITIES WHICH ARE SUBJECT TO GREATER PRICE VOLATILITY AND MAY INVOLVE
GREATER RISK OF DEFAULT. THE MARKET FOR THESE SECURITIES MAY BE LESS
LIQUID.
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
PERFORMANCE UPDATE
$10,000 OVER LIFE OF FUND
VIP Equity Income (211) S&P 500
10/09/86 10000.00 10000.00
10/31/86 10110.00 10329.97
11/30/86 10330.00 10580.99
12/31/86 10020.00 10311.18
01/31/87 11170.00 11700.09
02/28/87 11430.00 12162.25
03/31/87 11720.18 12513.74
04/30/87 11428.43 12402.36
05/31/87 11498.85 12510.26
06/30/87 11738.55 13142.03
07/31/87 12185.74 13808.33
08/31/87 12521.12 14323.38
09/30/87 12258.33 14009.70
10/31/87 9866.21 10992.01
11/30/87 9424.75 10086.27
12/31/87 9906.53 10853.84
01/31/88 10611.14 11310.78
02/29/88 11136.96 11837.86
03/31/88 10943.09 11472.07
04/30/88 11124.23 11599.41
05/31/88 11273.40 11700.33
06/30/88 11914.78 12237.37
07/31/88 11893.19 12190.87
08/31/88 11688.14 11776.38
09/30/88 12035.44 12278.06
10/31/88 12243.13 12619.39
11/30/88 12046.37 12438.93
12/31/88 12156.34 12656.61
01/31/89 12907.14 13583.07
02/28/89 12840.89 13244.86
03/31/89 13119.03 13553.46
04/30/89 13625.34 14256.89
05/31/89 14030.38 14834.29
06/30/89 14040.00 14749.73
07/31/89 14858.52 16081.64
08/31/89 15097.26 16396.84
09/30/89 14927.54 16329.61
10/31/89 14066.33 15950.76
11/30/89 14146.71 16276.16
12/31/89 14264.77 16666.78
01/31/90 13301.40 15548.44
02/28/90 13380.23 15749.02
03/31/90 13402.29 16166.37
04/30/90 12937.62 15762.21
05/31/90 13793.60 17299.02
06/30/90 13656.26 17181.39
07/31/90 13322.27 17126.41
08/31/90 12258.47 15578.18
09/30/90 11307.56 14819.52
10/31/90 11019.23 14755.80
11/30/90 11809.01 15709.03
12/31/90 12083.78 16147.31
01/31/91 12731.80 16851.33
02/28/91 13608.54 18056.20
03/31/91 13890.84 18493.16
04/30/91 13955.75 18537.54
05/31/91 14721.69 19338.37
06/30/91 14119.75 18452.67
07/31/91 14920.21 19312.56
08/31/91 15235.15 19770.27
09/30/91 15130.58 19440.11
10/31/91 15382.54 19700.60
11/30/91 14719.50 18906.67
12/31/91 15882.72 21069.59
01/31/92 16097.17 20677.70
02/29/92 16619.89 20946.51
03/31/92 16416.23 20538.05
04/30/92 16930.51 21141.87
05/31/92 17065.84 21245.47
06/30/92 16916.43 20928.91
07/31/92 17434.83 21784.90
08/31/92 17052.85 21338.31
09/30/92 17229.88 21590.10
10/31/92 17436.14 21665.67
11/30/92 18068.68 22404.47
12/31/92 18564.86 22680.04
01/31/93 19119.03 22870.55
02/28/93 19548.52 23181.59
03/31/93 20131.08 23670.73
04/30/93 20047.37 23097.89
05/31/93 20410.09 23716.92
06/30/93 20650.16 23785.70
07/31/93 20931.12 23690.55
08/31/93 21731.84 24588.43
09/30/93 21648.75 24399.09
10/31/93 21846.72 24904.16
11/30/93 21464.93 24667.57
12/31/93 21961.08 24966.04
$10,000 OVER LIFE OF FUND: LET'S SAY $10,000 WAS INVESTED IN EQUITY-INCOME
PORTFOLIO ON OCTOBER 9, 1986, WHEN THE FUND STARTED. BY DECEMBER 31, 1993,
THE VALUE OF THE INVESTMENT WITH DIVIDENDS REINVESTED WOULD HAVE GROWN TO
$21,961 - A 119.61% INCREASE ON THE INITIAL INVESTMENT. FOR COMPARISON,
LOOK AT HOW A $10,000 INVESTMENT IN THE S&P 500 (WITH DIVIDENDS
REINVESTED) DID OVER THE SAME PERIOD. IT WOULD HAVE GROWN TO $24,966 - A
149.66% INCREASE.
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED DECEMBER 31, 1993
One Year Five Years Life of
Fund
EQUITY-INCOME 18.29% 12.56% 11.48%
PORTFOLIO
S&P 500(Registered trademark) 10.08% 14.55% 13.48%
THE CHARTS ABOVE SHOW EQUITY-INCOME PORTFOLIO'S TOTAL RETURNS, WHICH
INCLUDE CHANGES IN SHARE PRICE, AND REINVESTMENT OF DIVIDENDS AND CAPITAL
GAINS. FIGURES FOR THE S&P 500, AN UNMANAGED INDEX OF COMMON STOCKS,
INCLUDE REINVESTMENT OF DIVIDENDS. S&P 500 IS A REGISTERED TRADEMARK OF
STANDARD & POOR'S CORPORATION.
FIGURES FOR MORE THAN ONE YEAR ASSUME A STEADY COMPOUNDED RATE OF RETURN
AND ARE NOT THE FUND'S YEAR-BY-YEAR RESULTS, WHICH FLUCTUATED OVER THE
PERIODS SHOWN. THE LIFE OF FUND FIGURES ARE FROM COMMENCEMENT OF
OPERATIONS, OCTOBER 9, 1986.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, IT WOULD HAVE BEEN LOWER.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. PRINCIPAL AND
INVESTMENT RETURN WILL VARY AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU
WITHDRAW YOUR MONEY. THE FUND INCLUDES HIGH YIELDING, LOWER-RATED
SECURITIES WHICH ARE SUBJECT TO GREATER PRICE VOLATILITY AND MAY INVOLVE
GREATER RISK OF DEFAULT. THE MARKET FOR THESE SECURITIES MAY BE LESS
LIQUID.
VARIABLE INSURANCE PRODUCTS FUND: GROWTH PORTFOLIO
PERFORMANCE UPDATE
$10,000 OVER LIFE OF FUND
VIP Growth (212) S&P 500
10/09/86 10000.00 10000.00
10/31/86 10000.00 10329.97
11/30/86 10220.00 10580.99
12/31/86 10030.00 10311.18
01/31/87 11100.00 11700.09
02/28/87 11650.00 12162.25
03/31/87 11839.96 12513.74
04/30/87 11839.96 12402.36
05/31/87 11920.10 12510.26
06/30/87 12270.69 13142.03
07/31/87 12761.52 13808.33
08/31/87 13142.16 14323.38
09/30/87 12991.91 14009.70
10/31/87 10137.09 10992.01
11/30/87 9425.89 10086.27
12/31/87 10397.54 10853.84
01/31/88 10623.12 11310.78
02/29/88 11484.46 11837.86
03/31/88 11381.92 11472.07
04/30/88 11525.47 11599.41
05/31/88 11422.93 11700.33
06/30/88 11997.16 12237.37
07/31/88 11935.63 12190.87
08/31/88 11648.52 11776.38
09/30/88 11976.65 12278.06
10/31/88 12007.41 12619.39
11/30/88 11894.62 12438.93
12/31/88 12017.66 12656.61
01/31/89 12879.00 13583.07
02/28/89 12612.40 13244.86
03/31/89 12993.69 13553.46
04/30/89 13680.86 14256.89
05/31/89 14170.20 14834.29
06/30/89 13982.79 14749.73
07/31/89 15232.19 16081.64
08/31/89 15492.48 16396.84
09/30/89 15627.83 16329.61
10/31/89 15190.54 15950.76
11/30/89 15440.42 16276.16
12/31/89 15804.82 16666.78
01/31/90 14888.60 15548.44
02/28/90 15030.81 15749.02
03/31/90 15214.51 16166.37
04/30/90 14771.47 15762.21
05/31/90 16078.97 17299.02
06/30/90 16413.95 17181.39
07/31/90 16154.61 17126.41
08/31/90 14490.52 15578.18
09/30/90 12999.33 14819.52
10/31/90 12534.68 14755.80
11/30/90 13550.42 15709.03
12/31/90 13950.24 16147.31
01/31/91 14879.53 16851.33
02/28/91 15989.61 18056.20
03/31/91 16472.15 18493.16
04/30/91 16318.61 18537.54
05/31/91 17283.69 19338.37
06/30/91 16000.58 18452.67
07/31/91 17524.96 19312.56
08/31/91 18303.61 19770.27
09/30/91 18446.17 19440.11
10/31/91 19016.45 19700.60
11/30/91 17930.73 18906.67
12/31/91 20299.57 21069.59
01/31/92 21538.81 20677.70
02/29/92 21989.40 20946.51
03/31/92 20641.73 20538.05
04/30/92 19833.13 21141.87
05/31/92 19664.68 21245.47
06/30/92 18901.00 20928.91
07/31/92 19630.98 21784.90
08/31/92 19091.92 21338.31
09/30/92 19428.83 21590.10
10/31/92 20181.28 21665.67
11/30/92 21528.95 22404.47
12/31/92 22191.55 22680.04
01/31/93 22629.54 22870.55
02/28/93 22163.03 23181.59
03/31/93 23046.80 23670.73
04/30/93 22805.77 23097.89
05/31/93 24504.44 23716.92
06/30/93 24756.95 23785.70
07/31/93 24688.08 23690.55
08/31/93 25927.65 24588.43
09/30/93 26409.70 24399.09
10/31/93 26662.21 24904.16
11/30/93 25583.33 24667.57
12/31/93 26490.05 24966.04
$10,000 OVER LIFE OF FUND: LET'S SAY $10,000 WAS INVESTED IN GROWTH
PORTFOLIO ON OCTOBER 9, 1986, WHEN THE FUND STARTED. BY DECEMBER 31, 1993,
THE VALUE OF THE INVESTMENT WITH DIVIDENDS REINVESTED WOULD HAVE GROWN TO
$26,490 - A 164.90% INCREASE ON THE INITIAL INVESTMENT. FOR COMPARISON,
LOOK AT HOW A $10,000 INVESTMENT IN THE S&P 500 (WITH DIVIDENDS
REINVESTED) DID OVER THE SAME PERIOD. IT WOULD HAVE GROWN TO $24,966 - A
149.66% INCREASE.
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED DECEMBER 31, 1993
One Year Five Years Life of
Fund
GROWTH PORTFOLIO 19.37% 17.13% 14.41%
S&P 500(Registered trademark) 10.08% 14.55% 13.48%
THE CHARTS ABOVE SHOW GROWTH PORTFOLIO'S TOTAL RETURNS, WHICH INCLUDE
CHANGES IN SHARE PRICE, AND REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS.
FIGURES FOR THE S&P 500, AN UNMANAGED INDEX OF COMMON STOCKS, INCLUDE
REINVESTMENT OF DIVIDENDS. S&P 500 IS A REGISTERED TRADEMARK OF
STANDARD & POOR'S CORPORATION.
FIGURES FOR MORE THAN ONE YEAR ASSUME A STEADY COMPOUNDED RATE OF RETURN
AND ARE NOT THE FUND'S YEAR-BY-YEAR RESULTS, WHICH FLUCTUATED OVER THE
PERIODS SHOWN. THE LIFE OF FUND FIGURES ARE FROM COMMENCEMENT OF
OPERATIONS, OCTOBER 9, 1986.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, IT WOULD HAVE BEEN LOWER.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. PRINCIPAL AND
INVESTMENT RETURN WILL VARY AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU
WITHDRAW YOUR MONEY.
VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO
PERFORMANCE UPDATE
$10,000 OVER LIFE OF FUND
VIP Overseas (221) Morgan Stanley EAFE
01/28/87 10000.00 10000.00
01/31/87 10000.00 9997.46
02/28/87 10010.00 10296.66
03/31/87 10460.00 11140.41
04/30/87 11220.00 12319.18
05/31/87 11060.00 12319.14
06/30/87 10520.00 11926.66
07/31/87 10400.00 11905.82
08/31/87 11320.00 12798.54
09/30/87 11070.00 12597.05
10/31/87 8760.00 10777.00
11/30/87 8840.00 10938.65
12/31/87 9462.16 11263.46
01/31/88 9138.32 11464.55
02/29/88 9381.20 12228.75
03/31/88 9806.24 12980.64
04/30/88 9968.16 13169.27
05/31/88 9786.00 12747.12
06/30/88 9613.96 12411.13
07/31/88 9543.12 12800.51
08/31/88 9209.16 11968.24
09/30/88 9603.84 12491.19
10/31/88 10028.88 13559.96
11/30/88 10211.04 14367.68
12/31/88 10231.28 14447.79
01/31/89 10534.88 14701.99
02/28/89 10717.04 14777.56
03/31/89 10707.39 14487.53
04/30/89 11023.51 14621.89
05/31/89 10615.61 13826.42
06/30/89 10574.82 13593.67
07/31/89 11563.98 15300.67
08/31/89 11482.40 14612.54
09/30/89 12196.22 15278.16
10/31/89 11533.38 14664.33
11/30/89 12155.43 15401.50
12/31/89 12920.25 15969.77
01/31/90 12746.89 15375.56
02/28/90 12449.36 14302.43
03/31/90 12919.92 12812.46
04/30/90 12991.53 12710.78
05/31/90 13840.58 14161.09
06/30/90 14147.47 14036.37
07/31/90 14863.54 14234.08
08/31/90 13349.56 12851.83
09/30/90 12081.10 11060.74
10/31/90 13206.35 12784.21
11/30/90 12797.17 12030.10
12/31/90 12705.10 12224.98
01/31/91 12827.86 12620.40
02/28/91 13260.02 13973.29
03/31/91 12872.18 13134.44
04/30/91 13155.20 13263.42
05/31/91 13186.65 13401.82
06/30/91 12463.37 12417.04
07/31/91 13081.82 13027.11
08/31/91 13123.75 12762.56
09/30/91 13658.35 13481.84
10/31/91 13752.69 13672.96
11/30/91 13260.02 13034.64
12/31/91 13721.24 13707.79
01/31/92 13888.95 13415.00
02/29/92 13599.53 12934.85
03/31/92 13323.29 12080.93
04/30/92 14152.01 12138.36
05/31/92 14768.24 12950.85
06/30/92 14492.00 12336.56
07/31/92 13567.65 12020.83
08/31/92 13450.78 12774.79
09/30/92 12908.93 12522.52
10/31/92 12027.08 11865.66
11/30/92 11963.33 11977.32
12/31/92 12250.20 12039.27
01/31/93 12600.81 12037.79
02/28/93 12847.63 12401.41
03/31/93 13738.92 13482.39
04/30/93 14651.95 14761.90
05/31/93 14967.16 15073.67
06/30/93 14597.60 14838.49
07/31/93 15173.68 15357.91
08/31/93 15988.89 16186.97
09/30/93 15901.93 15822.62
10/31/93 16478.01 16310.23
11/30/93 15782.37 14884.55
12/31/93 16825.83 15959.32
$10,000 OVER LIFE OF FUND: LET'S SAY $10,000 WAS INVESTED IN OVERSEAS
PORTFOLIO ON JANUARY 28, 1987, WHEN THE FUND STARTED. BY DECEMBER 31,
1993, THE VALUE OF THE INVESTMENT WITH DIVIDENDS REINVESTED WOULD HAVE
GROWN TO $16,826 - A 68.26% INCREASE ON THE INITIAL INVESTMENT. FOR
COMPARISON, LOOK AT HOW A $10,000 INVESTMENT IN THE MORGAN STANLEY EAFE
INDEX (WITH DIVIDENDS REINVESTED) DID OVER THE SAME PERIOD. IT WOULD HAVE
GROWN TO $15,959 - A 59.59% INCREASE.
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED DECEMBER 31, 1993
One Year Five Years Life of
Fund
OVERSEAS PORTFOLIO 37.35% 10.46% 7.80%
EAFE 32.56% 2.01% 6.98%
THE CHARTS ABOVE SHOW OVERSEAS PORTFOLIO'S TOTAL RETURNS, WHICH INCLUDE
CHANGES IN SHARE PRICE, AND REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS.
THE MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALIA, FAR EAST INDEX
(EAFE INDEX) IS AN UNMANAGED INDEX OF FOREIGN COMMON STOCK PRICES
TRANSLATED INTO U.S. DOLLARS AND COMPOSED OF MORE THAN 900 COMPANIES FROM
EUROPE, AUSTRALIA AND THE FAR EAST.
FIGURES FOR MORE THAN ONE YEAR ASSUME A STEADY COMPOUNDED RATE OF RETURN
AND ARE NOT THE FUND'S YEAR-BY-YEAR RESULTS, WHICH FLUCTUATED OVER THE
PERIODS SHOWN. THE LIFE OF FUND FIGURES ARE FROM COMMENCEMENT OF OPERATIONS
JANUARY 28, 1987.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, IT WOULD HAVE BEEN LOWER.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. PRINCIPAL AND
INVESTMENT RETURN WILL VARY AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU
WITHDRAW YOUR MONEY.
MARKET ENVIRONMENT
In 1993, investors could have put their money into just about any type of
stock or bond investment portfolio and not lost money. For the first time
since 1986, all 31 investment categories tracked by Lipper Analytical
Services produced positive total returns. Despite posting strong numbers,
U.S. stock and bond markets generally lagged many of their overseas
counterparts, which turned in unusually high returns.
U.S. STOCK MARKETS
The Standard & Poor's 500 Composite Stock Price Index - a broad measure
of U.S. stock performance - rose 10.08% in the 12 months ended December 31,
1993, in line with the market's long-term average annual return. The NASDAQ
Composite Index - a measure of small stock performance - rose 14.75%. It
was outpaced by the Dow Jones Industrial Average - an index of 30 blue-chip
stocks - which was up 17.04%. In mid-November, the Dow closed above 3700
for the first time and finished the year at 3754.
Low inflation, falling interest rates and a gradually improving economy
boosted U.S. stocks. Technology was one of the best performing sectors,
although semiconductors gave back part of their gains in the fall.
Communications stocks soared as traditional telephone utilities, cellular
companies and entertainment firms scrambled to form alliances. Investors
speculated about what role technology companies would play in the building
of the so-called information superhighway, which will link the technologies
of computers, telephones and televisions. Financial stocks, notably
securities dealers,
were among the market leaders before falling off somewhat late in the year.
Also, economically-sensitive sectors like autos and steel took off as the
economy showed steady growth. The entertainment sector, especially casinos,
posted impressive gains. Heavy machinery and precious metals stocks also
performed well.
Market laggards included the health-care and consumer non-durable sectors,
although both showed signs of life near year-end. In 1993, consumers
shunned familiar brand-name products for cheaper generic or off-
brand items, which hurt many traditional big-name growth stocks.
Uncertainty over President Clinton's health-care reform plan scared many
investors away from that sector. Drug company stocks suffered as investors
feared these companies would lose the ability to raise prices.
FOREIGN STOCK MARKETS
1993's rally in international stocks was a dramatic turnaround for many
foreign markets that had previously fallen out of favor. The Morgan Stanley
EAFE (Europe, Australia, Far East) index was up 33%. Slowly falling
interest rates and investors' hopes of economic recovery combined to lift
stock prices in Europe. The Morgan Stanley Europe index rose 29% in 1993.
Falling interest rates, a strengthening yen, and government spending aimed
at stimulating economic growth fueled a furious market rally in Japan
through late spring, before political instability dragged the market back
down. Still, the TOPIX, an index that includes stocks from Japan's larger,
better known companies,
was up 24% for the year. Emerging markets reaped the biggest international
returns. The Morgan Stanley Emerging Markets Index shot up 73% in 1993.
Returns in markets like Hong Kong (up 117%), Malaysia (up 110%), and Brazil
(up 78%) reflected a favorable outlook for increases in corporate profits
as economic reforms began to take hold in these areas.
U.S. BOND MARKETS
Most all bond markets around the world richly rewarded investors in 1993.
The U.S. bond market posted relatively strong numbers on a historical
basis. Falling interest rates through most of the year fueled gains. The
yield on the benchmark 30-year Treasury bond hit a three decade low in
mid-October, yielding 5.79%. By year-end, mild inflation fears, fueled by a
strengthening economy, had pushed up the yield on the 30-year bond to
6.35%, which slightly dampened overall 1993 results for investors. The
Lehman Brothers Aggregate Bond Index - a broad
measure of taxable bonds in the U.S. market - returned 9.75% for the year.
Falling interest rates and a strengthening economy helped high-yield issues
post impressive results. The Merrill Lynch High Yield Master Index rose
17.18%. Mortgage-backed securities continued to be hurt by refinancings;
the Lehman Brothers mortgage index was up 6.84% in '93.
FOREIGN BOND MARKETS
In general, bond investors landed more impressive returns overseas than
here at home. Falling interest rates and low inflation fueled strong
returns in both developed nations and, more notably, in emerging markets.
The Salomon Brothers World Government Bond Index - which measures bond
market performance in developed nations including the United States - rose
13.27% for the year. That figure was dwarfed by the J.P. Morgan Emerging
Markets Bond Index, which was up 44.17%.
A MESSAGE FROM BOB LITTERST,
PORTFOLIO MANAGER OF
MONEY MARKET PORTFOLIO
After a fairly volatile first six months, short-term interest rates were
stable and trendless during the second half of the year. For example,
yields on six-month Treasury bills ranged between just 3.0% and 3.3%. Also,
the Federal Reserve kept the federal funds rate - the interest rate banks
charge each other for overnight loans - at 3%, where it's been since
September 1992. The economy grew at a moderate pace in '93. That, combined
with low inflation, is exactly what the Fed likes. That said, the fund's
yield closely traced short-term rates. A very stable rate environment meant
there weren't too many opportunities to take advantage of moving rates.
Within those confines, I made a few changes in the way in which I
positioned the fund. Over the summer, it became clear that yield spreads
were tightening. That meant there was less difference between the yields of
corporate and Treasury issues with similar maturities. When yields on
corporates fell relative to Treasuries, they were no longer as attractive
when weighed against their higher risk. So I increased the percentage of
the fund in Treasury and government agency debt - from about 10% at the end
of May, to about 20% by the beginning of November. The fund's emphasis on
government securities might have caused a slight reduction in yield.
However, I felt the small yield loss was offset by far greater quality and
liquidity. Lately, I've begun buying corporate issues again, as supply has
increased and spreads have widened. As for the fund's average maturity, I
kept it within a range of 60 to 80 days through most of the last six
months. That way I was ready to go shorter if interest rates started to
rise, but still benefited from higher rates on securities with longer
maturities.
Looking ahead, I believe the economy is showing stable upward momentum that
is sustainable. Labor market gains and low long-term interest rates are the
oil that's keeping the engine running. However, there are still many
factors keeping economic growth in check: corporate downsizing, higher
taxes and uncertainty over health care among them. I think the next
significant move in short-term interest rates will be up. The Fed could
trigger a rise in short-term rates by raising the federal funds rate if it
perceives inflation is no longer falling. But inflationary pressures appear
quite tame. If the Fed acts at all, I think it'll be a gentle nudge.
One way I'm preparing the fund for a possible rise in rates is by
purchasing variable and floating rate instruments, now 22% of the fund.
These issues are higher yielding because they have longer final maturities.
However, what makes them unique is a feature that resets their coupons
(stated interest rates) at fixed intervals - for example, weekly, monthly
or quarterly. When rates are rising, the fund can get a higher coupon on
these issues at their reset intervals. To minimize the risk of exposure to
longer maturities, our research staff carefully reviews each issue.
Also, I expect to keep the fund's average maturity in a neutral range of 60
to 75 days. That will allow for flexibility if rates do start creeping up.
The fund's longer-maturity issues are almost exclusively Treasuries and
government agency issues, which are extremely liquid. They'll be easy to
sell quickly if rates rise and I need to shorten the average maturity.
A MESSAGE FROM BARRY COFFMAN, PORTFOLIO MANAGER OF
HIGH INCOME PORTFOLIO
For the 12 months ended December 31, the fund finished ahead of the Merrill
Lynch High Yield Master Index, which rose 17.18%. Interest rates fell,
inflation remained low and the economy strengthened, which helped companies
improve their balance sheets and the credit quality of their high-yield
debt.
I decreased the fund's investment in supermarkets and food wholesalers in
the second half of the year, from 10% on June 30 to 7% on December 31.
Supermarkets had a tough year. Low inflation prevented them from raising
prices, and they faced ever-increasing competition. Instead, I shifted into
cyclicals - companies that rise and fall in tandem with the economy. For
example, 1993's home-building boom led me to invest in the bonds of
national home builders like U.S. Homes and regional builders like UDC Homes
(out of Phoenix). Also companies that supply building materials and home
furnishings did well. These included Color Tile and Wickes Lumber. Steel
producers, like Inland Steel and WCI Steel, are further examples of
cyclicals whose fortunes improved last year.
At year-end, media and leisure was the fund's largest sector investment at
25%. In the last six months of '93, I lessened the fund's stake in cable TV
companies whose bonds had already had solid price gains due to merger and
acquisition activity, and emphasized entertain-
ment companies. For example, Live Entertainment was one of the fund's
largest investments on December 31. The company contracts with independent
movie studios such as Carolco Pictures ("Basic Instinct" and "Terminator")
and Miramax Films ("The Crying Game" and "The Piano") to distribute videos
of feature films. SCI Television - which owns several TV stations
nationwide - was another recent investment. SCI received $100 million in
new equity upon emerging from bankruptcy in '93 and I feel is poised to
become a significant entertainment company.
Other top investments on December 31 included Mesa Capital, Insilco and IMC
Fertilizer. Mesa is a large natural gas exploration and production company
that recently restructured its debt. The company is rich in assets and well
positioned, based on the increasing demand for natural gas. Insilco is a
conglomerate that manufactures electrical products and automotive parts,
but the company is best known for its office products. Its Rolodex business
is up for sale and I expect the proceeds to substantially lower the
company's debt. IMC Fertilizer is another company with valuable assets. IMC
is benefiting from rising prices for its fertilizer products which, in
turn, boosted its stock price. That gave IMC the flexibility to improve its
balance sheet.
As for disappointments, Revlon was the biggest. I decreased the fund's
investment in the company after it reported disappointing sales and
earnings. Although, Revlon seems to be doing better than many other
cosmetics companies, the whole industry is in a slump. I also cut back on
bonds issued by Computervision. The company had disappointing sales,
primarily because of economic weakness in Europe.
Going forward, I have a cautiously optimistic outlook. Falling interest
rates helped the high-yield market substantially in '93, but rates appear
to have leveled out, and may be on the way up. A stronger than expected
economy in '94 could fuel a rise in rates, but that would not necessarily
be negative for the market. The business prospects of companies that issue
high yield bonds would likely improve in a better economy, which could
boost their credit ratings. That would help offset price losses on bonds
due to rising interest rates.
A MESSAGE FROM BETTINA
DOULTON, PORTFOLIO MANAGER OF
EQUITY-INCOME PORTFOLIO
Over the last six months, the fund continued to build upon its strong
performance in the first half of 1993. It ended the year comfortably ahead
of the total return of the Standard & Poor's 500 index.
The fund did well by avoiding consumer non-durable stocks - including
tobacco, food and drugs - which performed poorly through most of the year.
Low inflation kept companies from raising prices and consumers rebelled
against paying full price for brand-name items, flocking to generic or
off-brand products. The most dramatic example was Philip Morris, which was
forced to lower prices on its premium-brand cigarettes to compete with
cheaper brands. I avoided the stock until its price had dropped
substantially, and the company's premium-brand market share had stabilized.
Philip Morris was the fund's third largest holding at year-end. As the
stock prices of many consumer non-durables dropped, I increased the fund's
stake to 4.0% on December 31, from 1.5% on June 30.
Financial stocks performed well, mostly during the first half of the year.
Falling interest rates helped banks like Citicorp, NationsBank and Wells
Fargo boost their profit margins, while the improving economy brought down
credit costs. In October, interest rates rose and many of these stocks
quickly became less attractive. Investors sold in a hurry and my biggest
disappointment in the last six months was not reacting quickly enough. Some
financial stocks, which I held onto for too long, hurt the fund. The
finance sector still was 11.8% of the fund's total investments at year-end,
but that's down from 19.6% at the end of June.
Cyclical stocks - those that rise and fall in tandem with the economy - did
particularly well in the past six months as economic numbers picked up. The
auto stocks - Chrysler (up 12.7% from June 30 to December 31) and Ford (up
23.4%) - helped the fund. I shied away from General Motors, mainly because
of the company's huge pension liability. That was a mistake, as G.M.'s
stock came along for the ride (up 23.3%). Many industrial companies cut
costs, sold off unprofitable businesses and improved their balance sheets
in the second half of the year. General Electric performed well, up 9.5% in
the last six months. The company has improved its balance sheet, run a
profitable financial services business and grown its presence in the
developing world. Manufacturers of farm equipment - Deere, Tenneco and
Caterpillar - also provided strong returns.
As for other sectors, energy remained 8.7% of the fund at year-end. I
bought more energy stocks after prices fell in November. I think they'll
benefit from increasing worldwide demand and a supply that's proven shaky
at times. I kept the fund's stake in utilities relatively low, 9.2% on
December 31. I'm concerned about high stock prices, compared to other
measures like earnings, and I'm not convinced there'll be any strong
dividend growth in utilities. Retail stocks - 3.8% of the fund at year- end
- - suffered through most of the year, but there were exceptions. Both J.C.
Penney and Sears made internal changes that helped improve their
competitive positions. Both stocks helped the fund.
I'm not about to make guesses on how the stock market will perform in '94.
But it wouldn't take much to upset what has been a strong market. Many
stocks are expensive, so I'll likely stay very focused on value. If a stock
is cheap, then it's not likely to fall as far as more expensive securities
if the market does stumble.
A MESSAGE FROM
LAWRENCE GREENBERG,
PORTFOLIO MANAGER OF
GROWTH PORTFOLIO
Despite predictions of a stock market correction in '93, both the market
and the fund continued to provide strong returns. For the 12 months ended
December 31, the fund beat the Standard & Poor's 500 index, which rose
10.08%. The biggest factor behind the fund's success was its emphasis on
technology stocks, which were up over 14% in 1993. Despite a sell-off in
the fall, the sector's solid performance this year had a lot to do with the
economy. In the slow growth environment we had in '93, the only way many
businesses could increase their earnings was through greater productivity.
Because interest rates were so low and the cost of technology products was
coming down, technology investments offered a more cost-effective means of
improving productivity than hiring more workers. This boosted demand for
technology and telecommunications products and drove up the stock prices of
many companies that produce them.
At the end of December, the fund had a 18.6% stake in technology. Included
were companies that specialize in computer networking - like Cisco Systems
and Wellfleet Communications. These companies help businesses to downsize
their computer networks by making the move from mainframe systems to
personal computers. Both stocks did well. Companies that develop and market
the software used in these new downsized networks also helped the fund.
Examples included Oracle Systems and Sybase. In the wireless communications
field, Motorola was a big contributor to the fund's return. It was the
fund's eighth largest investment at the end of December.
The fund had a 5.7% stake in the retail sector at year-end. Many of these
stocks had a tough year; people still didn't feel safe enough in their jobs
to do a lot of shopping. Lately, the numbers show consumer confidence is
picking up as the economy has strengthened. Lowe's is an example of a
retail stock that has done well recently. It's the second largest chain of
home improvement stores in the United States, behind Home Depot. Lowe's has
increased the size of its stores and its earnings are growing rapidly. I
think this shows there is finally some business to be had in retail.
I increased the fund's investment in the media and leisure sector during
the year. One of the biggest opportunities here resulted from the merger of
Tele-Communications, Inc. and Bell Atlantic. As the nation's largest cable
television company, TCI now appears able to become a prime service provider
on the so-called information superhighway, which will merge televisions,
telephones and computers.
My biggest disappointment this year was failing to take better advantage of
the run-up in international stocks. The fund had a 5.2% stake in foreign
investments at the end of the year. However, I could have participated more
in emerging markets, which had very strong returns. Many foreign stocks
have become expensive, but there are still opportunities overseas which
I'll be looking for in '94.
As for the next six months, I'm a bit cautious. We've gone through three
years now without a 10% correction in the U.S. stock market, the longest
such period this century. I think it's very reasonable to assume that a
correction of this size could come sometime soon. This may not be all bad;
it would bring price-to-earnings ratios for some stocks down to a level
that would make them more attractive.
A MESSAGE FROM JOHN HICKLING, PORTFOLIO MANAGER OF
OVERSEAS PORTFOLIO
It was a banner year for international funds. The fund's total return
easily topped the EAFE index, which rose 32.56% for the 12 months ended
December 31.
The fund's performance was due as much to avoiding certain sectors as
focusing on others. For example, in Europe, many countries rejected the
European Rate Mechanism (ERM) and allowed their currencies to find a level
relative to the deutsche mark that more accurately reflected local economic
activity. As a result, interest rates started to come down. European stock
markets did extremely well in local currencies - and well enough in dollars
too - despite continued economic weakness. However, as the year progressed,
I became less optimistic about the prospects for an imminent global
recovery. That's why I shifted away from European companies whose fortunes
are tied to the local economies. Instead, I looked for companies with
earnings stability and managements that have adjusted to the reality of a
deep and prolonged recessionary environment in Europe.
More specifically, I moved out of stocks in the technology and basic
industry sectors. Instead, I focused on those that would respond to
declining interest rates. Throughout the second half of the year, my
largest investment was in Stet, an Italian telephone utility. In addition
to meeting my earnings and interest rate criteria, it stood to benefit from
the government's move toward privatizing the industry. The stock had a
tremendous year. In the United Kingdom, I focused on banks and financial
stocks such as National Westminster and Barclays. I also emphasized bank
and insurance stocks in France, Germany, the Netherlands, and Scandinavia.
But my biggest allocation to financials was in Switzerland. Zurich
Versicherung, an insurance company, and C.S. Holdings, a bank, were among
the fund's largest investments and best performers.
Japanese stocks made a strong contribution to the fund's performance in the
first few months of the year. I emphasized brokerage firms and trust banks,
which did well. Stocks such as Nomura Securities and Murata Manufacturing
remain among the fund's largest investments, because I believe they still
have room to improve. However, the government's stop-gap measures that
rescued the Japanese financial system were not enough to bail out the
economy. I expect the economy to remain weak for some time. That's why I
cut back on my Japanese investments, from 22.8% six months ago to 14.7% at
the end of the year. Over the last six months, a stake in Japanese
government bonds also helped the fund.
As for disappointments, I turned somewhat bearish on Hong Kong too early. A
combination of factors in the Hong Kong market - including increasing
participation by retail investors, growing political risk and a general
sense of euphoria - led me to look for other opportunities in the Pacific
Basin. I turned to markets such as Malaysia, Singapore and Thailand, all
good performers. However, I missed out on a 20% upturn in the Hong Kong
market last fall by cutting back on my investments prematurely.
Looking ahead, I think any economic recovery in Europe or Japan will be
muted. That makes stock selection more important than ever. I expect to
remain focused on companies whose managements have correctly assessed the
current slow growth environment. After such an impressive year for foreign
stocks, anything resembling a repeat would be very unlikely.
VARIABLE INSURANCE PRODUCTS FUND: MONEY MARKET PORTFOLIO
INVESTMENTS/DECEMBER 31, 1993
(Showing Percentage of Total Value of Investments)
ANNUALIZED ANNUALIZED
YIELD AT YIELD AT
DUE TIME OF PRINCIPAL VALUE DUE TIME OF PRINCIPAL VALUE
DATE PURCHASE AMOUNT (NOTE 1) DATE PURCHASE AMOUNT (NOTE 1)
Bank Notes - 1.3%
Bank of New York
3/6/94 3.49%(a) $ 5,000,000 $ 5,000,000 06499AAJ
Certificates of Deposit - 23.3%
DOMESTIC CERTIFICATES OF DEPOSIT - 1.3%
Old Kent Bank & Trust Company
3/31/94 3.40 5,000,000 5,000,000 679999CL
NEW YORK BRANCH, YANKEE DOLLAR, FOREIGN BANKS - 18.8%
Canadian Imperial Bank of Commerce
1/6/94 3.60 1,000,000 999,952 136990EA
Dai-Ichi Kangyo Bank, Ltd.
2/9/94 3.28 3,000,000 3,000,480 2379983K
Fuji Bank, Ltd.
1/28/94 3.46 5,000,000 5,000,000 35999DGU
1/31/94 3.45 5,000,000 5,000,000 35999DGT
Kingdom of Sweden
3/23/94 3.28(a) 13,000,000 13,000,000 998999AV
Industrial Bank of Japan, Ltd.
1/20/94 3.44 5,000,000 5,000,000 4559905P
Mitsubishi Bank, Ltd.
2/28/94 3.33 10,000,000 10,000,079 610998TW
Sakura Bank, Ltd.
1/5/94 3.52 5,000,000 5,000,000 793999JK
2/7/94 3.40 5,000,000 5,000,000 793999JN
Skandinaviska Enskilda Banken
2/17/94 3.39 5,000,000 5,000,000 880992FY
Societe Generale
4/25/94 3.43 5,000,000 5,000,000 833991SK
Sumitomo Bank, Ltd.
2/24/94 3.45 5,000,000 5,000,000 86699EBL
Swedish National Housing Finance Corp.
11/23/94 3.52(a) 3,000,000 3,000,000 956995AM
70,000,511
LONDON BRANCH, EURODOLLAR, FOREIGN BANKS - 3.2%
Mitsubishi Bank, Ltd.
4/29/94 3.49 5,000,000 4,999,973 610998UD
Sumitomo Bank, Ltd.
1/10/94 3.43 7,000,000 6,999,943 86699EAM
11,999,916
Total Certificates of Deposit 87,000,427
Commercial Paper - 47.3%
American Brands, Inc.
2/28/94 3.34% $ 5,000,000 $ 4,973,256 024990ES
B.B.V. Finance (Delaware), Inc.
1/6/94 3.51 2,900,000 2,898,591 063999AJ
Bankers Trust Corporation
2/16/94 3.37 6,000,000 5,974,624 06699FAQ
Bear Stearns Companies Inc.
3/18/94 3.31 5,000,000 4,965,378 073999WS
Bell Atlantic Financial Services
2/25/94 3.43 5,000,000 4,974,028 077994AM
Bradford & Bingley Building Society
3/23/94 3.32 5,200,000 5,161,390 107993BQ
CIT Group Holdings, Inc.
3/30/94 3.59 4,000,000 3,965,778 172990PJ
CoreStates Capital Corp.
4/8/94 3.36(a) 5,000,000 5,000,000 2186939C
Corporate Asset Funding Company, Inc.
1/25/94 3.51 800,000 798,133 176992YY
1/26/94 3.51 600,000 598,541 1769922A
Dean Witter, Discover & Co.
1/31/94 3.44 5,000,000 4,985,750 24299AAC
Electronic Data Systems Corporation
2/10/94 3.43 8,200,000 8,169,022 285998DQ
2/17/94 3.45 1,500,000 1,493,303 285998DS
GTE Corporation
1/11/94 3.45 1,500,000 1,498,562 362991CG
1/21/94 3.51 5,000,000 4,990,278 362991CF
General Electric Capital Corporation
9/6/94 3.37(a) 5,000,000 5,000,000 369998LE
General Motors Acceptance Corporation
1/10/94 3.51 2,000,000 1,998,263 638998NP
1/12/94 3.51 5,000,000 4,994,691 638998NR
2/14/94 3.55 5,000,000 4,978,459 638998NV
3/9/94 3.45 2,000,000 1,987,344 638998MY
Goldman Sachs Group, L.P. (The)
3/11/94 3.40 5,000,000 4,967,752 696992KA
Grand Metropolitan Finance
4/28/94 3.55 680,000 672,265 386993AC
5/23/94 3.45 5,000,000 4,933,141 386993AD
ANNUALIZED ANNUALIZED
YIELD AT YIELD AT
DUE TIME OF PRINCIPAL VALUE DUE TIME OF PRINCIPAL VALUE
DATE PURCHASE AMOUNT (NOTE 1) DATE PURCHASE AMOUNT (NOTE 1)
Commercial Paper - CONTINUED
IBM Corporation
1/31/94 3.45% $ 5,000,000 $ 4,985,708 4592009X
Kingdom of Denmark
2/10/94 3.38 10,000,000 9,963,000 249998BA
Merrill Lynch & Co., Inc.
2/14/94 3.27 1,000,000 996,027 59099A8U
Morgan Stanley Group, Inc.
2/22/94 3.42 5,000,000 4,975,516 61799EHP
2/28/94 3.38 5,000,000 4,973,013 61799EHT
NYNEX Corporation
3/7/94 3.36 5,000,000 4,969,938 67099CAA
Nationwide Building Society
3/3/94 3.45 9,000,000 8,947,845 638993HB
New Center Asset Trust
3/7/94 3.41 5,000,000 4,969,486 643995AS
3/8/94 3.41 5,000,000 4,969,017 643995AV
New South Wales Treasury Corp.
3/8/94 3.39 3,000,000 2,981,520 648992AM
Nordbanken North America, Inc.
1/18/94 3.44 10,000,000 9,983,850 684999BX
Prudential Funding Corporation
2/14/94 3.36 5,000,000 4,979,833 743994KA
Sears Credit Corp. B
1/26/94 3.47 5,000,000 4,988,021 81299GAD
Sears Roebuck Acceptance Corp.
1/27/94 3.54 3,000,000 2,992,373 81299EBX
Whirlpool Financial Corporation
1/4/94 3.44 677,000 676,808 9633289T
1/13/94 3.49 10,000,000 9,988,433 9633289N
Total Commercial Paper 176,318,937
Federal Agencies - 1.9%
FEDERAL HOME LOAN BANK - DISCOUNT NOTES
6/16/94 3.37 7,000,000 6,997,446 567995GP
U.S. Treasury Obligations - 1.3%
U. S. TREASURY BILLS
5/26/94 3.35 5,000,000 4,933,541 99399H5F
Medium-Term Notes (a) - 7.3%
Abbey National PLC, UK
6/24/94 3.31 1,000,000 1,000,000 007994GK
Abbey National Treasury Service
9/30/94 3.37 13,000,000 13,000,000 010998AJ
Goldman Sachs Group, L.P. (The)
6/16/94 3.49% $ 4,000,000 $ 4,000,000 696992KE
9/1/94 3.49 3,000,000 3,000,000 696992KB
Norwest Corporation
3/15/94 3.39 6,000,000 6,000,000 66899CBK
Total Medium-Term Notes 27,000,000
Short-Term Notes (a) - 6.2%
J.P. Morgan Securities
4/19/94 3.27 3,000,000 3,000,000 616998AW
5/23/94 3.25 6,000,000 6,000,000 616998EC
SMM Trust Company (1993 A) (b)
3/18/94 3.36 5,000,000 5,000,000 7845689Y
SMM Trust Company (1993 D) (b)
1/28/94 3.49 3,000,000 3,000,000 7845689S
SMM Trust Company (1993 F) (b)
2/15/94 3.53 6,000,000 6,000,000 7845689T
Total Short-Term Notes 23,000,000
Foreign Government Obligations
(United states dollars) - 1.3%
Canadian Treasury Bills
5/26/94 3.42 5,000,000 4,932,334 136992SS
Municipal Bonds - 7.7%
Massachusetts General Obligation
1/3/94 4.25 9,000,000 9,000,000 575825WM
New Orleans Aviation Board (MBIA Insured)
1/7/94 3.51 1,800,000 1,800,000 64763H9B
New York Public Housing Authority
1/3/94 4.75 18,000,000 18,000,000 649660JR
Total Municipal Bonds 28,800,000
MATURITY
AMOUNT
Repurchase Agreements - 2.4%
In a joint trading account
(U.S. Treasury Obligations)
dated 12/31/93, due 1/3/94
(Note 2)
At 3.23% $ 61,016 61,000 99799MMX
At 3.29% 8,782,406 8,780,000 99799MMU
Total Repurchase Agreements 8,841,000
Total Investments - 100% $ 372,823,685
Total cost for income tax purposes - $372,823,685
LEGEND:
(a) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(b) Restricted securities - investment in securities not registered under
the Securities Act of 1933 (see Note 2 of Notes to Financial Statements).
Additional information on each holding is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
SMM Trust Company:
(1993 A) 3/18/93 $5,000,000 7845689Y
(1993 D) 10/28/93 $3,000,000 7845689S
(1993 F) 11/15/93 $6,000,000
INCOME TAX INFORMATION:
At December 31, 1993, the fund had a capital loss carryforward of
approximately $13,800 of which $4,100, $500, $4,900, and $4,300 will expire
on December 31, 1995, 1996, 1997, and 2000, respectively.
MONEY MARKET PORTFOLIO
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, 1993
ASSETS
Investment in securities, at value (including repurchase agreements of $8,841,000) (Notes 1 and 2) - $ 372,823,685
See accompanying schedule
Interest receivable 678,856
TOTAL ASSETS 373,502,541
LIABILITIES
Payable to custodian bank $ 20,327,146
Accrued management fee 40,677
Other payables and accrued expenses 31,090
TOTAL LIABILITIES 20,398,913
NET ASSETS $ 353,103,628
Net Assets consist of:
Paid in capital $ 353,102,377
Accumulated net realized gain (loss) on investments 1,251
NET ASSETS, for 353,102,377 shares outstanding $ 353,103,628
NET ASSET VALUE, offering price and redemption price per share ($353,103,628 (divided by) 353,102,377 shares) $1.00
</TABLE>
Statement of Operations
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31, 1993
INTEREST INCOME $ 10,372,557
EXPENSES
Management fee (Note 3) $ 415,213
Transfer agent fees (Note 3) 87,208
Accounting fees and expenses (Note 3) 53,769
Non-interested trustees' compensation 2,884
Custodian fees and expenses 45,947
Registration fees 13,458
Reports to shareholders (Note 4) 47,668
Audit 18,530
Legal 3,509
Miscellaneous 4,264
Total expenses before 692,450
reductions
Expense reductions (Note 4) (24,100) 668,350
NET INTEREST INCOME 9,704,207
NET REALIZED GAIN (LOSS) ON 4,544
INVESTMENTS (NOTE 1)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 9,708,751
</TABLE>
Statement of Changes in Net Assets
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
YEARS ENDED DECEMBER
31,
1993 1992
INCREASE (DECREASE) IN NET ASSETS
Operations $ 9,704,207 $ 11,360,247
Net interest income
Net realized gain (loss) on investments 4,544 (4,346)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 9,708,751 11,355,901
Dividends to shareholders from net interest income (9,704,207) (11,360,247)
Share transactions at net asset value of $1.00 per share 531,400,504 297,977,891
Proceeds from sales of shares
Reinvestment of dividends from net interest income 9,797,785 11,287,338
Cost of shares redeemed (489,101,476) (279,381,460)
Net increase (decrease) in net assets and shares resulting from
share transactions 52,096,813 29,883,769
TOTAL INCREASE (DECREASE) IN NET ASSETS 52,101,357 29,879,423
NET ASSETS
Beginning of period 301,002,271 271,122,848
End of period $ 353,103,628 $ 301,002,271
The accompanying notes are an integral part of the financial statements.
</TABLE>
Financial Highlights
DRAFT
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31,
1993 1992 1991 1990 1989
SELECTED PER-SHARE DATA
Net asset value, beginning of period
$ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Income from Investment Operations
.032 .038 .059 .078 .087
Net interest income
Dividends from net interest income
(.032) (.038) (.059) (.078) (.087)
Net asset value, end of period
$ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
TOTAL RETURN
3.23% 3.90% 6.09% 8.04% 9.12%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted)
$ 353,104 $ 301,002 $ 271,123 $ 254,585 $ 142,970
Ratio of expenses to average net assets
.22% .24% .38% .56% .67%
(dagger)
Ratio of expenses to average net assets before expense reduct
.23% .24% .38% .56% .67%
ions
(dagger)
Ratio of net interest income to average net assets
3.16% 3.85% 5.93% 7.76% 8.70%
</TABLE>
(dagger) SEE NOTE 4 OF NOTES TO FINANCIAL STATEMENTS.
VARIABLE INSURANCE PRODUCTS FUND: HIGH INCOME PORTFOLIO
INVESTMENTS/DECEMBER 31, 1993
(Showing Percentage of Total Value of Investments)
MOODY'S MOODY'S
RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE
(UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1)
CORPORATE BONDS - 88.2%
CONVERTIBLE BONDS - 2.2%
BASIC INDUSTRIES - 0.4%
IRON & STEEL - 0.4%
Stelco, Inc. 7 3/4%, 8/31/98 - CAD 3,000,000 $ 1,883,866 858525AB
HEALTH - 0.7%
MEDICAL FACILITIES MANAGEMENT - 0.7%
Abbey Healthcare Group, Inc.
6 1/2%, 12/1/02 (g) B2 2,140,000 3,017,400 002786AA
MEDIA & LEISURE - 0.3%
LODGING & GAMING - 0.3%
Bally Manufacturing Corp. 10%,
12/15/06 Caa 1,210,000 1,149,500 058732AJ
RESTAURANTS - 0.0%
Chi-Chi's, Inc. 9%, 10/15/09 B2 105,000 94,500 167060AB
TOTAL MEDIA & LEISURE 1,244,000
RETAIL & WHOLESALE - 0.0%
GROCERY STORES - 0.0%
Farm Fresh, Inc. 7 1/2%, 3/1/10 B3 186,000 124,620 307669AA
UTILITIES - 0.8%
TELEPHONE SERVICES - 0.8%
ALC Communications Corp. 9%,
5/15/03 B2 3,400,000 3,468,000 0015759A
TOTAL CONVERTIBLE BONDS 9,737,886
NONCONVERTIBLE BONDS - 86.0%
AEROSPACE & DEFENSE - 1.1%
AEROSPACE & DEFENSE - 0.1%
Fairchild Corp. 12 1/4%, 3/15/06 B3 485,000 480,150 303698AC
DEFENSE ELECTRONICS - 1.0%
Tracor, Inc. 10 7/8%, 8/15/01 B2 4,300,000 4,504,250 892349AC
TOTAL AEROSPACE & DEFENSE 4,984,400
BASIC INDUSTRIES - 8.7%
CHEMICALS & PLASTICS - 3.7%
American Pacific Corp. 11%,
12/15/02 (g) - 850,000 850,000 0287409C
IMC Fertilizer Group, Inc.:
9 1/4%, 10/1/00 B3 5,000,000 5,025,000 449669AH
10 1/8%, 6/15/01 B3 1,500,000 1,560,000 449669AF
10 3/4%, 6/15/03 B3 1,950,000 2,057,250 449669AG
9.45%, 12/15/11 B3 1,710,000 1,710,000 449669AB
Methanex Corp. 8 7/8%, 11/15/01 Ba3 $ 2,690,000 $ 2,770,700 59151KAA
OSI Specialties, Inc. 9 1/4%,
10/1/02 B1 930,000 953,250 671042AA
Trans Resources, Inc.:
11 7/8%, 7/1/02 B2 910,000 914,550 893320AD
14 1/2%, 9/1/96 B2 580,000 643,800 893320AB
16,484,550
IRON & STEEL - 3.4%
Inland Steel Industries, Inc.
12 3/4%, 12/15/02 Ba3 4,950,000 5,692,500 457472AB
Republic Engineered Steels, Inc.
9 7/8%, 12/15/01 B2 5,700,000 5,799,750 760391AA
WCI Steel, Inc. 10 1/2%, 3/1/02 B1 3,500,000 3,648,750 92923JAB
15,141,000
METALS & MINING - 0.1%
Renco Metals, Inc. 12%,
7/15/00 B3 600,000 597,000 759677AA
PACKAGING & CONTAINERS - 0.7%
All-American Bottling Corp.
secured 13%, 8/15/01 (g) Caa 3,000,000 3,090,000 016431AA
PAPER & FOREST PRODUCTS - 0.8%
Crown Packaging 10 3/4%, 11/1/00 B3 3,500,000 3,587,500 228444AA
TOTAL BASIC INDUSTRIES 38,900,050
CONGLOMERATES - 3.6%
Insilco Corp.:
10 3/8%, 7/1/97 - 4,000,000 4,010,000 4576599A
9 1/2%, 7/1/97 Ca 2,710,000 2,689,675 457659AC
9 1/2%, 7/1/97 (f) Ca 3,960,000 3,945,150 4576599C
Jordan Industries, Inc. 11 3/4%,
12/15/03 Caa 7,135,000 4,245,325 480695AD
Sequa Corp. 9 3/8%, 12/15/03 B3 1,470,000 1,475,512 817320AG
16,365,662
CONSTRUCTION & REAL ESTATE - 6.4%
BUILDING MATERIALS - 3.8%
Adience, Inc. 11%, 6/15/02 - 745,921 604,196 006905AA
DAL Tile International, Inc. secured
coupon, 0%, 7/15/98 Caa 11,605,000 6,919,481 23426RAA
Pace Industries, Inc. 10 5/8%,
12/1/02 B1 2,330,000 2,388,250 693724AA
USG Corp. 10 1/4%, 12/15/02 B2 7,000,000 7,175,000 903293AK
17,086,927
MOODY'S MOODY'S
RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE
(UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1)
CORPORATE BONDS - CONTINUED
NONCONVERTIBLE BONDS - CONTINUED
CONSTRUCTION & REAL ESTATE - CONTINUED
CONSTRUCTION - 2.0%
MDC Holdings, Inc. 8 3/4%,
12/15/05 - $ 1,100,000 $ 1,100,000 552676AJ
Robertson CECO Corp. 10%,
11/30/99 (h) - 870,640 626,861 770539AA
Ryland Group, inc. 9 5/8%, 6/1/04 Ba3 1,330,000 1,341,637 783764AC
UDC Homes 11 3/4%, 4/30/03 B2 2,000,000 2,115,000 93599DAA
US Home Corp. 9 3/4%, 6/15/03 Ba3 3,760,000 3,863,400 911920AB
9,046,898
REAL ESTATE - 0.6%
Baldwin Co., 10 3/8% 8/1/03 (g) B2 2,660,000 2,553,600 057826AA
TOTAL CONSTRUCTION & REAL ESTATE 28,687,425
DURABLES - 2.4%
TEXTILES & APPAREL - 2.4%
Acme Boot Co. 11 1/2%, 12/15/00 B2 3,000,000 3,015,000 004622AC
Dan River, Inc. 10 1/8%, 12/15/03 B1 1,150,000 1,162,937 235773AA
Fortsmann & Co., Inc.
14 3/4%, 4/15/99 (h) Caa 500,000 590,000 346592AD
Hat Brands, Inc. 12 5/8%, 9/15/02 - 1,520,000 1,634,000 418730AA
Leslie Fay Companies, Inc.(f):
9.53%, 1/15/00 - 676,319 515,693 5270109H
10.54%, 1/15/02 - 611,353 403,522 5270109J
Westpoint Stevens 9 3/8%,
12/15/05 B3 3,300,000 3,333,000 961238AB
10,654,152
ENERGY - 5.3%
ENERGY SERVICES - 2.4%
TransTexas Gas Corp. 10 1/2%,
9/1/00 B1 10,270,000 10,886,200 893895AA
OIL & GAS - 2.9%
Mesa Capital Corp.:
0%, 6/30/96 - 2,009,000 1,599,666 590910AD
0%, 6/30/98 - 10,599,000 8,956,155 590910AF
Nuevo Energy Co. 12 1/2%,
6/15/02 B3 1,320,000 1,458,600 670509AA
Triton Energy Corp. 0%, 11/1/97 B1 1,600,000 1,112,000 896750AG
13,126,421
TOTAL ENERGY 24,012,621
FINANCE - 5.3%
CREDIT & OTHER FINANCE - 0.3%
Tiphook Finance Corp. 8%,
3/15/00 B3 $ 1,810,000 $ 1,470,625 887795AB
INSURANCE - 3.9%
American Annuity Group, Inc.:
11 1/8%, 2/1/03 B2 2,630,000 2,820,675 023840AA
9 1/2%, 8/15/01 Ba3 3,000,000 3,067,500 023840AB
American Financial Corp. s.f.
13 1/2%, 9/14/04 B 2,000,000 2,060,000 026087BB
Americo Life, Inc. 9 1/4%, 6/1/05 BB+ 4,900,000 4,863,250 03060NAB
Life Partners Group, Inc. 12 3/4%,
7/15/02 Ba3 2,250,000 2,621,250 532157AA
Nacolah, Inc. 9 1/2%, 12/1/03 B1 2,100,000 2,126,250 629667AA
17,558,925
SAVINGS & LOANS - 0.2%
Chevy Chase Savings Bank
9 1/4%, 12/1/05 B2 900,000 909,000 166784AE
MORTGAGE-BACKED SECURITIES - 0.6%
Mutual Benefit Overseas (c):
9 3/8%, 2/1/96 - 2,475,900 1,043,790 651995AD
9.37%, 2/1/96 - 6,301,870 1,729,907 651995AC
2,773,697
SECURITIES INDUSTRY - 0.3%
ECM Corp. extendible 14%,
6/1/02 (g) - 994,772 1,115,638 273996AA
TOTAL FINANCE 23,827,885
HEALTH - 2.6%
MEDICAL FACILITIES MANAGEMENT - 2.6%
American Medical International, Inc.
9 1/2%, 4/15/06 B 4,000,000 4,180,000 027429AZ
Hallmark Healthcare Corp.
10 5/8%, 11/15/03 B3 790,000 795,925 40624GAA
Hospital Corp. America 11 1/4%,
12/1/15 Ba2 1,150,000 1,230,500 441065AQ
Quorum Health Group, Inc.
11 7/8%, 12/15/02 B- 4,850,000 5,444,125 749084AA
11,650,550
MOODY'S MOODY'S
RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE
(UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1)
CORPORATE BONDS - CONTINUED
NONCONVERTIBLE BONDS - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - 5.1%
ELECTRICAL EQUIPMENT - 1.9%
Ampex, Inc.:
unit bond 14%, 1/15/98
(6 warrants each Series A & B
and .09 warrant N.H.
Holdings, Inc.) (e)(f) - $ 2,340,000 $ 1,450,800 0320929F
20%, 3/15/94 - 343,000 343,000 0320929K
Specialty Equipment Cos., Inc.
11 3/8%, 12/1/03 B3 6,000,000 6,090,000 847497AB
Telex Communications Group
14 1/2%, 6/1/99 - 850,000 901,000 87999AAA
8,784,800
INDUSTRIAL MACHINERY & EQUIPMENT - 3.2%
Joy Technologies, Inc. 10 1/4%,
9/1/03 B1 3,800,000 3,961,500 481206AD
Rexnord Corp. 10 3/4%, 7/1/02 Ba3 2,000,000 2,440,000 76168RAB
Rexnord Holdings, Inc.:
11 7/8%, 3/1/09 B2 2,160,000 2,224,800 76168TAA
11 7/8%, 3/1/99. (f) - 550,000 566,500 76168T9A
Thermadyne Industries, Inc. (h):
15%, 5/1/99 Ca 4,118,947 4,324,895 883436AD
10 1/2%, 11/1/99 Ca 1,172,623 874,097 883436AE
14,391,792
TOTAL INDUSTRIAL MACHINERY
& EQUIPMENT 23,176,592
MEDIA & LEISURE - 23.5%
BROADCASTING - 6.2%
Century Communications Corp.
0%, 3/15/03 Ba3 15,130,000 6,808,500 156503AF
Cooke Media Group, Inc. 11 5/8%,
4/1/99 - 350,000 353,500 216276AB
Helicon Group LP/Helicon Capital
Corp. 9 1/2%, 10/15/03 Caa 5,750,000 5,591,875 423265AB
Robin Media Group, Inc.
11 1/8%, 4/1/97 - 2,790,000 2,866,725 770685AA
SCI Television, Inc. secured
11%, 6/30/05 - 8,100,000 8,403,750 783895AJ
SPI Holding, Inc. reset notes
pay-in-kind 11 1/2%, 12/1/02 B+ 3,899,503 3,967,744 78462GAF
27,992,094
ENTERTAINMENT - 3.9%
Bally's Health & Tennis Corp. 13%,
1/15/03 B3 $ 585,000 $ 604,012 05873KAB
Carolco Pictures, Inc. 11 1/2%,
10/15/00 - 5,176,079 4,813,753 143763AF
Kloster Cruise, Ltd. 13%, 5/1/03 B2 2,300,000 2,547,250 498760AC
Live Entertainment, Inc.:
10%, 9/1/98 - 2,197,200 1,999,452 538032AC
12%, 9/15/94 (f) - 7,250,000 7,250,000 5380329B
Westwood Group, Inc. 14 1/4%,
8/15/97 (c) Caa 1,000,000 400,000 961754AA
17,614,467
LEISURE DURABLES & TOYS - 0.4%
Coleman Holdings 0%, 5/27/98 B 2,560,000 1,664,000 193551AC
LODGING & GAMING - 8.3%
Bally Gaming International, Inc.
10 3/8%, 7/29/98 - 3,000,000 3,000,000 0587319C
Bally's Casino Holdings, 10 1/2%,
6/15/98 (g) B3 10,450,000 6,688,000 05873EAA
Bally's Grand, Inc. 10 3/8%,
12/15/03 (g) B2 8,000,000 8,050,000 05873JAD
Boyd Gaming Corp. 10 3/4%,
9/1/03 (g) - 5,000,000 5,250,000 1033049A
Embassy Suites, Inc. 10 7/8%,
4/15/02 B1 2,000,000 2,240,000 290807AF
GNS Finance Corporation 9 1/4%,
3/15/03 B2 2,000,000 2,080,000 361916AK
Host Marriott Corp.:
10 1/2%, 5/1/06 B1 1,000,000 1,027,500 441080AH
11%, 5/1/06 B1 3,040,000 3,123,600 441080AJ
9 1/8%, 12/1/00 B1 1,500,000 1,526,250 441080AD
Resorts International, Inc.
secured pay-in-kind:
6%, 4/15/94 Ca 2,409,044 1,525,720 761185AG
15%, 4/15/94 Ca 1,292,030 809,676 761185AH
Trump Plaza Funding, Inc. gtd.
mtg. 10 7/8%,6/15/01 B3 2,300,000 2,288,500 898171AC
37,609,246
PUBLISHING - 2.2%
GACC Holding Co. 9 1/2%,
12/31/00 (c) - 4,080,000 3,855,600 3613549A
General Media, Inc. 10 5/8%,
12/31/00 - 1,310,000 1,332,925 370295AA
Marvel Holdings 0%,4/15/98 B3 7,000,000 4,550,000 573845AA
9,738,525
MOODY'S MOODY'S
RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE
(UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1)
CORPORATE BONDS - CONTINUED
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
RESTAURANTS - 2.5%
American Restaurant Group 12%,
9/15/98 B2 $ 3,170,000 $ 3,154,150 029309AC
Cafeteria Operated LP 11%,
6/30/98 (e)(f) - 7,000,000 5,600,000 127998AC
Restaurant Enterprises Group,
Inc. 12 1/4%, 12/15/96 (c) - 2,520,000 2,469,600 761255AA
11,223,750
TOTAL MEDIA & LEISURE 105,842,082
NONDURABLES - 2.4%
BEVERAGES - 0.7%
Canandaigua Wine, Inc. 8 3/4%,
12/15/03 B1 3,300,000 3,316,500 137219AB
FOODS - 0.4%
Doskocil Companies, Inc. 9 3/4%,
7/15/00 B2 1,800,000 $ 1,782,000 258486AD
HOUSEHOLD PRODUCTS - 1.3%
Revlon Consumer Products Corp.
9 3/8%, 4/1/01 B2 2,080,000 2,012,400 761519AF
Revlon World Wide secured 0%,
3/15/98 B3 7,950,000 4,034,625 76154KAB
6,047,025
TOTAL NONDURABLES 11,145,525
RETAIL & WHOLESALE - 9.9%
APPAREL STORES - 0.6%
Apparel Retailers, Inc. 12 3/4%,
8/15/05 Caa 1,590,000 906,300 037795AB
Lamonts Apparel, Inc. 11 1/2%,
11/1/99 - 2,067,000 1,999,822 5136289A
2,906,122
GENERAL MERCHANDISE STORES - 1.1%
Hills Stores Co. 10 1/4%,
9/30/03 - 5,038,000 5,226,925 431692AA
GROCERY STORES - 6.8%
Farm Fresh Holdings Corp.
14 1/4%, 10/1/02 (g) - 3,953,768 4,190,995 301923AB
Farm Fresh, Inc. 12 1/4%,
10/1/00 (g) B2 2,300,000 2,432,250 307669AD
Food 4 Less Holdings, Inc.
0%, 12/15/94 Caa 4,810,000 3,090,425 344753AC
Food 4 Less Supemarkets, Inc.
13 3/4%, 6/15/01 B2 $ 2,500,000 $ 2,787,500 344754AD
Megafoods Stores, Inc.
10 1/4%, 10/15/00 B2 5,800,000 5,771,000 584951AA
Penn Traffic Co.:
1 10 3/8%, 10/1/04 Ba3 1,500,000 1,623,750 707832AC
9 5/8%, 4/15/05 B2 6,000,000 6,180,000 707832AD
Super Rite Foods, Inc. 10 5/8%,
4/1/02 B3 4,160,000 4,430,400 868011AB
30,506,320
RETAIL & WHOLESALE, MISC - 1.4%
Color Tile, Inc. 10 3/4%, 12/15/01 B2 3,500,000 3,517,500 196267AD
Wickes Lumber Co. 11 5/8%,
12/15/03 B3 2,660,000 2,713,200 967446AA
6,230,700
TOTAL RETAIL & WHOLESALE 44,870,067
SERVICES - 3.5%
ADVERTISING - 0.9%
Lamar Advertising Co. 11%,
5/15/03 B2 1,000,000 1,050,000 512815AA
Outdoor Systems, Inc. 10 3/4%,
8/15/03 B2 2,900,000 3,023,250 690057AA
4,073,250
LEASING & RENTAL - 0.3%
Acme Holdings, Inc. 11 3/4%,
6/1/00 B3 1,420,000 1,263,800 004684AA
SERVICES - 2.3%
Comdata Network, Inc. 13 1/4%,
12/15/02 B3 4,300,000 4,826,750 200324AF
La Petite Holdings Corp. secured
9 5/8%, 8/1/01 B3 5,610,000 5,624,025 503754AA
10,450,775
TOTAL SERVICES 15,787,825
TECHNOLOGY - 1.9%
COMPUTER SERVICES & SOFTWARE - 0.3%
Computervision Corp. 11 3/8%,
8/15/99 B3 1,500,000 1,260,000 20557TAB
COMPUTERS & OFFICE EQUIPMENT - 0.9%
Bell & Howell Holdings Co.,
11 1/2%, 3/1/05 - 7,610,000 4,223,550 077905AB
ELECTRONICS - 0.7%
Berg Electronics, 11 3/8%,
5/1/03 (h) B3 3,130,000 3,270,850 083727AB
TOTAL TECHNOLOGY 8,754,400
MOODY'S
RATINGS PRINCIPAL VALUE VALUE
(UNAUDITED) (D) AMOUNT (A) (NOTE 1) SHARES (NOTE 1)
CORPORATE BONDS - CONTINUED
NONCONVERTIBLE BONDS - CONTINUED
TRANSPORTATION - 1.2%
RAILROADS - 1.0%
Transtar Holding Corp. 0%,
12/15/03 (e)(g) - $ 8,732,000 $ 4,322,340 89388QAA
TRUCKING & FREIGHT - 0.2%
Trism, Inc. 10 3/4%, 12/15/00 B2 1,060,000 1,094,450 896925AA
TOTAL TRANSPORTATION 5,416,790
UTILITIES - 3.1%
CELLULAR - 1.9%
Dial Call Communications, Inc. 0%,
12/15/05 (e)(g) - 2,800,000 1,736,000 25246PAB
Horizon Cellular Telephone Corp.
0%, 10/1/00 Caa 3,100,000 2,216,500 440415AA
Mobilmedia Communications, Inc.
0%, 12/1/03 (e) B3 2,750,000 1,684,375 607414AA
Pagemart, Inc. 0%, 11/1/00
(unit bond) (10, 12 1/4% sr.
discount notes due 11/1/03 and
46 warrants to purchase common
stock ) (g) 46,500 2,743,500 695534AA
8,380,375
ELECTRIC UTILITY - 1.2%
CMS Energy Corp. 9 7/8%,
10/1/99 Ba3 5,830,000 5,290,725 125896AC
TOTAL UTILITIES 13,671,100
TOTAL NONCONVERTIBLE BONDS 387,747,126
TOTAL CORPORATE BONDS
(Cost $384,874,600) 397,485,012
SHARES
COMMON STOCKS - 2.4%
BASIC INDUSTRIES - 0.1%
IRON & STEEL - 0.1%
Geneva Steel Co. (warrants) (b) 70,750 636,750
CONSTRUCTION & REAL ESTATE - 0.4%
BUILDING MATERIALS - 0.0%
Adience, Inc. 84,365 105,456 00690510
Southdown, Inc. (warrants) (b) 7,500 60,000 84129793
165,456
CONSTRUCTION - 0.4%
Robertson Ceco Corp. (b) 32,974 152,340 77053920
U.S. Home Corp. (b) 59,600 1,571,950 91192010
1,724,290
TOTAL CONSTRUCTION & REAL ESTATE 1,889,746
DURABLES - 0.3%
AUTOS, TIRES, & ACCESSORIES - 0.0%
Lear Holdings Corp. (warrants) (b) 485 $ 218,250 52187111
TEXTILES & APPAREL - 0.3%
Acme Boot Co. Unit Stock 1,000 1,000,500 00462220
Hat Brands, Inc. (warrants) (b)(f) 9,153 315,779
1,316,279
TOTAL DURABLES 1,534,529
ENERGY - 0.4%
ENERGY SERVICES - 0.2%
Petrolane, Inc. Class B (b) 82,516 835,475 71654J10
OIL & GAS - 0.2%
Mesa, Inc. (b) 133,210 749,306 59091110
TOTAL ENERGY 1,584,781
FINANCE - 0.1%
CREDIT & OTHER FINANCE - 0.0%
Vestar/ LPA Investment Corp. 5,177 129,425 92545210
SECURITIES INDUSTRY - 0.1%
ECM Corp. LP (b)(g) 3,000 300,000 27399692
TOTAL FINANCE 429,425
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
Terex Corp. (rights) (b) 3,150 6,300 88077993
Thermadyne Industries, Inc. (warrants) (b) 540 27,011 88343612
33,311
MEDIA & LEISURE - 0.6%
ENTERTAINMENT - 0.1%
Live Entertainment, Inc. (warrants) (b):
$2.00 232,000 232,000 53803292
$2.72 221,765 139,712 53803293
371,712
LODGING & GAMING - 0.5%
Bally Gaming International, Inc.
(warrants) (b)(f) 90,000 720,000 05873194
Bally Manufacturing Corp. 127,017 1,079,645 05873210
Boyd Gaming Corp. 12,000 160,500 10330410
Trump Plaza Holding Associates
(warrants) (b) 270 213,300 89817E11
2,173,445
PUBLISHING - 0.0%
General Media, Inc. (warrants) (b) 1,310 19,650 37029511
TOTAL MEDIA & LEISURE 2,564,807
RETAIL & WHOLESALE - 0.5%
GENERAL MERCHANDISE STORES - 0.2%
Hills Stores Co. (b) 31,483 641,466 43169210
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
RETAIL & WHOLESALE - CONTINUED
GROCERY STORES - 0.3%
FF Holdings Corp. (b) 1,695 $ 68,224 30192310
Food 4 Less Holdings, Inc. (warrants) (b) 9,349 283,742 34475311
Grand Union Co. (warrants) (b) 342 232,560 38653295
Penn Traffic Co. (b) 20,000 725,000 70783210
1,309,526
RETAIL & WHOLESALE, MISC - 0.0%
Finlay Enterprises, Inc. 3,750 56,250 31788410
TOTAL RETAIL & WHOLESALE 2,007,242
UTILITIES - 0.0%
ELECTRIC UTILITY - 0.0%
Eastern Utilities Associates 3 84 27717310
Northeast Utilities Associates (warrants) (b) 21,789 54,473 66439711
54,557
GAS - 0.0%
UGI Corp. (warrants) (b) 14,033 22,804 90268612
TOTAL UTILITIES 77,361
TOTAL COMMON STOCKS
(Cost $8,241,697) 10,757,952
PREFERRED STOCKS - 5.2%
CONVERTIBLE PREFERRED STOCKS - 1.0%
BASIC INDUSTRIES - 0.4%
IRON & STEEL - 0.4%
Ico, Inc. $1.6875 76,000 1,843,000 44929440
MEDIA & LEISURE - 0.1%
LODGING & GAMING - 0.1%
Bally Manufacturing Corp. exchangeable $4.00 16,005 680,213 05873220
RETAIL & WHOLESALE - 0.0%
APPAREL STORES - 0.0%
Lamont's Apparel, Inc. (b) 17,935 35,870 51362830
SERVICES - 0.5%
La Petite Holdings Corp. (b) 78,800 2,044,860 50375420
TOTAL CONVERTIBLE PREFERRED STOCKS 4,603,943
NONCONVERTIBLE PREFERRED STOCKS - 4.2%
BASIC INDUSTRIES - 0.9%
IRON & STEEL - 0.8%
Geneva Steel Co. 14%, exchangeable (b) 25,000 3,087,500 37225240
Stelco, Inc. 7.76% 26,501 478,692
3,566,192
PAPER & FOREST PRODUCTS - 0.1%
Stone Savannah River Pulp & Paper
Corp. exchangeable $15.375 8,973 $ 493,515 86173520
TOTAL BASIC INDUSTRIES 4,059,707
CONSTRUCTION & REAL ESTATE - 0.7%
CONSTRUCTION - 0.7%
UDC Homes, Inc. prime exchangeable 287,152 3,230,460 90264640
ENERGY - 1.1%
OIL & GAS - 1.1%
Gulf Canada Resources Ltd. (f):
COR 76,940 77,523
40218L40AR 1,844,811 4,726,855
4,804,378
FINANCE - 0.1%
BANKS - 0.1%
Riggs National Corp. (Washington, D.C.) (b)(f) 25,423 667,354 76657092
MEDIA & LEISURE - 0.8%
ENTERTAINMENT - 0.8%
Live Entertainment, Inc. pay-in-kind (b) 494,583 3,585,727 53803230
SERVICES - 0.0%
Town & Country Corp. exchangeable (b) 4,000 36,000 89202730
TECHNOLOGY - 0.6%
ELECTRONICS - 0.6%
Berg Electronics Holding Corp. $3.4687 105,475 2,668,517 08372640
TOTAL NONCONVERTIBLE STOCKS 19,052,143
TOTAL PREFERRED STOCKS
(Cost $22,610,220) 23,656,086
OTHER SECURITIES - 0.6%
PURCHASED BANK DEBT - 0.6%
Barry's Jewelers, Inc.:
funded revolver 7 3/8%, 6/15/96 1,354,946 1,219,452 0688919A
term loan 8%, 6/14/96 590,523 531,471 0688919C
Leslie Fay Cos., Inc.:
funded revolver 0%, 1/15/96 79,941 64,802 5270109K
funded revolver 0%, 1/15/96 605,914 472,614 5270109E
term loan 1/15/96 777,600 606,528 5270109A
TOTAL OTHER SECURITIES
(Cost $2,692,388) 2,894,867
MATURITY VALUE
AMOUNT (NOTE 1)
Repurchase Agreements - 3.6%
Investments in repurchase agreements,
(U.S. Treasury obligations), in a
joint trading account at 3.23%
dated 12/31/93 due 1/3/94 $ 16,026,314 $ 16,022,000
TOTAL INVESTMENTS - 100%
(Cost $434,440,905) $ 450,815,917
CURRENCY TYPE ABBREVIATIONS:
CAD - Canadian dollar
LEGEND:
(a) Principal amount is stated in United States dollars unless otherwise
noted.
(b) Non-income producing
(c) Non-income producing - issuer filed for protection under the Federal
Bankruptcy Code or is in default of interest payment.
(d) Standard & Poor's Corporation credit ratings are used in the
absence of a rating by Moody's Investors Service, Inc.
(e) Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
(f) Restricted securities - Investment in securities not registered under
the Securities Act of 1933 (see Note 2 of Notes to Financial Statements).
Additional information on each holding is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
Ampex, Inc. unit bond 14%, 1/15/98
(6 warrants each Series A & B
and .09 warrant N.H. Holdings, Inc.) 7/22/92 $1,630,797
Bally's Gaming International, Inc.
(warrants) 11/1/93 -
Cafeteria Operated LP 11%, 6/30/98 6/24/93 5,600,000
Gulf Canada Resources Ltd 10/15/93 76,940
Hat Brands, Inc. (warrants) 9/2/92 -
Insilco Corp. 9 1/2%,7/1/97 7/14/93 3,964,950
Leslie Fay Companies, Inc.:
9.53%, 1/15/00 7/19/93 512,312
10.54%, 1/15/02 7/19/93 404,156
Live Entertainment, Inc.:
(warrants) $2.00 3/23/93 220,717
(warrants) $2.72 3/23/93 131,863
12%, 9/15/94 3/23/93 6,897,420
Rexnord Holdings, Inc. 11 7/8%,
3/1/99 10/15/92 495,000
Riggs National Corp. (Washington, D.C.) 10/14/93 635,575
(g) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $46,339,723 or 10.0% of net
assets.
(h) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
OTHER INFORMATION:
Purchases and sales of securities, other than short-term securities,
aggregated $702,467,854 and $484,642,721, respectively.
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S S&P
RATINGS RATINGS
Aaa, Aa, A 0.0% AAA, AA, A 0.0%
Baa 0.0% BBB 0.0%
Ba 8.2% BB 9.0%
B 43.3% B 46.7%
Caa 6.2% CCC 3.9%
Ca, C 3.1% CC, C 0.3%
D 1.5%
The percentage not rated by either S&P or Moody's amounted to 24.1%
including long-term debt categorized as other securities.
INCOME TAX INFORMATION:
At December 31, 1993, the aggregate cost of investment securities for
income tax purposes was $434,481,747. Net unrealized appreciation
aggregated $16,334,170, of which $20,201,848 related to appreciated
investment securities and $3,867,678 related to depreciated investment
securities.
The fund hereby designates $2,089,000 as a capital gain dividend for the
purpose of the dividend paid deduction.
HIGH INCOME PORTFOLIO
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, 1993
ASSETS
Investment in securities, at value (including repurchase agreements of $16,022,000) (cost $434,440,905) $ 450,815,917
(Notes 1 and 2) - See accompanying schedule
Cash 73,059
Receivable for investments sold 3,569,968
Receivable for fund shares sold 3,097,197
Dividends receivable 103,682
Interest receivable 6,885,074
Other receivables 918,519
Total assets 465,463,416
LIABILITIES
Payable for investments purchased $ 709,760
Payable for fund shares redeemed 485,558
Accrued management fee 195,556
Other payables and accrued expenses 141,237
Total liabilities 1,532,111
NET ASSETS $ 463,931,305
Net Assets consist of (Note 1):
Paid in capital $ 401,849,970
Undistributed net investment income 29,661,902
Accumulated undistributed net realized gain (loss) on investments 16,044,421
Net unrealized appreciation (depreciation) on investment securities 16,375,012
NET ASSETS, for 38,709,162 shares outstanding $ 463,931,305
NET ASSET VALUE, offering price and redemption price per share ($463,931,305 (divided by) 38,709,162 shares) $11.99
</TABLE>
Statement of Operations
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31, 1993
INVESTMENT INCOME $ 1,433,559
Dividends
Interest 30,590,018
Total income 32,023,577
EXPENSES
Management fee (Note 3) $ 1,764,257
Transfer agent fees (Note 3) 108,432
Accounting fees and expenses (Note 3) 138,642
Non-interested trustees' compensation 2,456
Custodian fees and expenses 63,009
Registration fees 69,922
Audit 30,106
Legal 7,522
Miscellaneous 66,797
Total expenses before reductions 2,251,143
Expense reductions (Note 4) (55,600) 2,195,543
Net investment income 29,828,034
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 1) 16,098,896
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) on investment securities 14,925,422
Net gain (loss) 31,024,318
Net increase (decrease) in net assets resulting from operations $ 60,852,352
</TABLE>
Statement of Changes in Net Assets
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
YEARS ENDED DECEMBER 31,
1993 1992
INCREASE (DECREASE) IN NET ASSETS
Operations $ 29,828,034 $ 16,542,178
Net investment income
Net realized gain (loss) on investments 16,098,896 8,889,174
Change in net unrealized appreciation (depreciation) on investments 14,925,422 103,627
Net increase (decrease) in net assets resulting from operations 60,852,352 25,534,979
Distributions to shareholders from: (16,615,684) (6,948,312)
Net investment income
In excess of net investment income (748,060) -
Net realized gain (1,255,210) -
Total distributions (18,618,954) (6,948,312)
Share transactions 445,327,008 222,574,390
Net proceeds from sales of shares
Reinvestment of distributions from: 17,363,744 6,948,312
Net investment income
Net realized gain 1,255,210 -
Cost of shares redeemed (242,839,207) (117,577,934)
Net increase (decrease) in net assets resulting from share transactions 221,106,755 111,944,768
Total increase (decrease) in net assets 263,340,153 130,531,435
NET ASSETS
Beginning of period 200,591,152 70,059,717
End of period (including undistributed net investment income of
$29,661,902 and $16,119,103, $ 463,931,305 $ 200,591,152
respectively)
OTHER INFORMATION
Shares
Sold 40,016,073 21,754,334
Issued in reinvestment of distributions from: 1,687,438 747,130
Net investment income
Net realized gain 121,983 -
Redeemed (21,658,432) (11,294,558)
Net increase (decrease) 20,167,062 11,206,906
</TABLE>
FINANCIAL HIGHLIGHTS
DRAFT
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31,
1993 1992 1991 1990 1989
SELECTED PER-SHARE DATA
Net asset value, beginning of period
$ 10.820 $ 9.550 $ 7.070 $ 8.110 $ 9.660
Income from Investment Operations
.728 .790 .890 .858 1.202
Net investment income
Net realized and unrealized gain (loss) on investments
1.332 1.290 1.590 (1.040) (1.550)
Total from investment operations
2.060 2.080 2.480 (.182) (.348)
Less Distributions
(.794) (.810) - (.858) (1.202)
From net investment income
In excess of net investment income
(.036) - - - -
From net realized gain on investments
(.060) - - - -
Total distributions
(.890) (.810) - (.858) (1.202)
Net asset value, end of period
$ 11.990 $ 10.820 $ 9.550 $ 7.070 $ 8.110
TOTAL RETURN
20.40%(dagger) 23.17% 35.08% (2.23)%(dagger) (4.17)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted)
$ 463,931 $ 200,591 $ 70,060 $ 29,990 $ 33,747
Ratio of expenses to average net assets
.64%(double dagger) .67% .97% 1.00%(double dagger) .93%
Ratio of expenses to average net assets before expense
.66%(double dagger) .67% .97% 1.12%(double dagger) .93%
reductions
Ratio of net investment income to average net assets
8.69% 10.98% 12.94% 11.36% 12.94%
Portfolio turnover rate
155% 160% 154% 156% 124%
</TABLE>
(dagger) THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 4 OF NOTES TO FINANCIAL
STATEMENTS).
(double dagger) SEE NOTE 4 OF NOTES TO FINANCIAL STATEMENTS.
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
INVESTMENTS/DECEMBER 31, 1993
(Showing Percentage of Total Value of Investments)
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - 70.6%
AEROSPACE & DEFENSE - 1.0%
AEROSPACE & DEFENSE - 0.0%
Aviall, Inc. (b) 27,050 $ 412,513 05366B10
DEFENSE ELECTRONICS - 1.0%
Loral Corp. 281,000 10,607,750 54385910
Raytheon Co. 38,400 2,534,400 75511110
13,142,150
TOTAL AEROSPACE & DEFENSE 13,554,663
BASIC INDUSTRIES - 7.6%
CHEMICALS & PLASTICS - 4.4%
Akzo NV Ord. 73,800 7,129,702 01019910
Betz Laboratories, Inc. 135,800 5,958,225 08777910
GEON 189,800 4,484,025 37246W10
Hercules, Inc. 88,700 10,023,100 42705610
Imperial Chemical Industries PLC:
ADR 61,000 2,882,250 45270450
Ord 360,700 4,256,704 45270440
Lyondell Petrochemical Co. 118,700 2,522,375 55207810
OM Group, Inc. (b) 167,800 3,460,875 67087210
Union Carbide Corp. 556,200 12,444,975 90558110
Vigoro Corp. 165,200 4,997,300 92675410
58,159,531
IRON & STEEL - 0.9%
Lukens, Inc. 88,800 3,241,200 54986610
Mannesmann AG (Rfd. 7/1/93) 3,275 780,031 56311595
Mannesmann AG Ord. 26,200 6,368,370 56377510
USX-U.S. Steel Group 44,400 1,925,850 90337T10
12,315,451
METALS & MINING - 1.3%
Alcan Aluminium Ltd. 167,700 3,520,843 01371610
Aluminum Co. of America 35,874 2,488,759 02224910
Outokumpu Oy Class A (b) 84,000 991,261 69099992
Reynolds Metals Co. 222,500 10,095,938 76176310
17,096,801
PAPER & FOREST PRODUCTS - 1.0%
Georgia-Pacific Corp. 77,000 5,293,750 37329810
International Paper Co. 115,700 7,838,675 46014610
13,132,425
TOTAL BASIC INDUSTRIES 100,704,208
CONGLOMERATES - 4.5%
Allied-Signal, Inc. 115,800 9,148,200 01951210
Canadian Pacific Ltd. Ord. 437,800 7,162,798 13644030
Dial Corp. (The) 252,500 10,194,688 25247010
ITT Corp. 107,800 9,836,750 45067910
Textron, Inc. 170,600 $ 9,937,450 88320310
Tomkins PLC Ord. 836,600 2,903,797 89003010
United Technologies Corp. 162,600 10,081,200 91301710
59,264,883
CONSTRUCTION & REAL ESTATE - 1.5%
BUILDING MATERIALS - 0.8%
Armstrong World Industries, Inc. 191,600 10,202,700 04247610
REAL ESTATE INVESTMENT TRUSTS - 0.7%
Federal Realty Investment Trust 83,400 2,085,000 31374720
Nationwide Health Properties, Inc. 60,600 2,151,300 63862010
Property Trust of America (SBI) 3 60 74344510
Simon Properties Group, Inc. (b) 118,200 2,674,275 82880510
Vornado Realty Trust 58,100 1,946,350 92904210
8,856,985
TOTAL CONSTRUCTION & REAL ESTATE 19,059,685
DURABLES - 1.9%
AUTOS, TIRES, & ACCESSORIES - 1.5%
Peugeot SA Ord. (b) 18,900 2,516,168 71682510
TRW, Inc. 81,000 5,609,250 87264910
Valeo SA 30,000 6,543,335 91899010
Volkswagen AG (b) 17,400 4,404,556 92866210
19,073,309
TEXTILES & APPAREL - 0.4%
Unifi, Inc. 220,400 5,923,250 90467710
TOTAL DURABLES 24,996,559
ENERGY - 8.5%
ENERGY SERVICES - 1.3%
Baker Hughes, Inc. 190,900 3,818,000 05722410
Halliburton Co. 186,100 5,931,947 40621610
McDermott International, Inc. 121,400 3,217,100 58003710
Schlumberger Ltd. 72,000 4,257,000 80685710
17,224,047
OIL & GAS - 7.2%
Amerada Hess Corp. 246,300 11,114,288 02355110
British Petroleum PLC ADR 525,000 33,600,000 11088940
Chevron Corp. 106,300 9,261,388 16675110
Kerr-McGee Corp. 88,900 4,011,613 49238610
Louisiana Land & Exploration Co. 198,200 7,952,775 54626810
Murphy Oil Corp. 98,700 3,948,000 62671710
Repsol SA:
sponsored ADR 188,400 5,816,850 76026T20
Ord. (b) 126,300 3,926,196 76026T10
Royal Dutch Petroleum Co. 47,000 4,905,625 78025770
Total Compagnie Francaise des Petroles
Class B (b) 70,000 3,816,354 20434510
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
ENERGY - CONTINUED
OIL & GAS - CONTINUED
YPF Sociedad Anonima sponsored ADR
representing Class D shares 247,500 $ 6,435,000 98424510
94,788,089
TOTAL ENERGY 112,012,136
FINANCE - 8.4%
BANKS - 4.2%
Bank of New York Co., Inc. 268,000 15,276,000 06405710
BanPonce Corp. 110,700 3,487,050 06670410
Chase Manhattan Corp. 61,693 2,089,850 16161010
Chemical Banking Corp. 125,300 5,027,663 16372210
First Chicago Corp. 122,200 5,285,150 31945510
First Fidelity Bancorporation 21 956 32019510
First Union Corp. 169,981 7,011,716 33735810
Mellon Bank Corp. 78,715 4,171,895 58550910
Midlantic Corp. (b) 40,500 1,032,750 59780E10
Paribas SA (Cie Financiere) Class A (b) 72,500 6,074,125 73999192
Signet Banking Corp. 98,864 3,435,524 82668110
Westpac Banking Corp. 943,500 2,966,364 96121410
55,859,043
CREDIT & OTHER FINANCE - 2.8%
American Express Co. 199,200 6,150,300 02581610
Argentaria Corporacion Bancaria
de Espana SA (b):
Ord. 158,200 6,675,012 21991392
sponsored ADR (b) 59,600 1,259,050 21991310
Beneficial Corp. 129,600 4,957,200 08172110
GFC Financial Corp. 241,750 7,010,750 36160910
Household International, Inc. 271,278 8,850,445 44181510
Primerica Corp. 62,633 2,434,871 74158910
37,337,628
INSURANCE - 1.1%
American Bankers Insurance Group, Inc. 70,537 1,851,596 02445610
Capital Holding Corp. 62,600 2,324,025 14018610
NWNL Companies, Inc. 62,400 1,996,800 62945T10
St. Paul Companies, Inc. (The) 87,600 7,873,050 79286010
14,045,471
SAVINGS & LOANS - 0.3%
Ahmanson (H.F.) & Co. 198,900 3,903,413 00867710
TOTAL FINANCE 111,145,555
HEALTH - 5.8%
DRUGS & PHARMACEUTICALS - 3.5%
Allergan, Inc. 388,900 8,798,863 01849010
American Cyanamid Co. 159,600 8,019,900 02532110
IMCERA Group, Inc. 230,900 $ 7,764,013 45245410
Pfizer, Inc. 93,500 6,451,500 71708110
Schering-Plough Corp. 136,000 9,316,000 80660510
Warner-Lambert Co. 85,300 5,757,750 93448810
46,108,026
MEDICAL EQUIPMENT & SUPPLIES - 1.5%
Bergen Brunswig Corp. Class A 254,700 4,489,088 08373910
Johnson & Johnson 220,200 9,853,950 47816010
McKesson Corp. 110,800 5,983,200 58155610
20,326,238
MEDICAL FACILITIES MANAGEMENT - 0.8%
HCA - Hospital Corporation of America
Class A (b) 309,600 10,565,100 40412010
TOTAL HEALTH 76,999,364
INDUSTRIAL MACHINERY & EQUIPMENT - 6.2%
ELECTRICAL EQUIPMENT - 3.8%
Alcatel Alsthom CGE 42,600 6,060,010 01390492
General Electric Co. 341,300 35,793,838 36960410
General Signal Corp. 124,400 4,276,250 37083810
Philips NV (b) 206,600 4,261,125 71833750
50,391,223
INDUSTRIAL MACHINERY & EQUIPMENT - 2.4%
Caterpillar, Inc. 110,200 9,807,800 14912310
Deere & Co. 123,000 9,102,000 24419910
Parker-Hannifin Corp. 143,000 5,398,250 70109410
Tenneco, Inc. 146,000 7,683,250 88037010
31,991,300
TOTAL INDUSTRIAL MACHINERY
& EQUIPMENT 82,382,523
MEDIA & LEISURE - 3.9%
ENTERTAINMENT - 0.3%
Cedar Fair LP 131,100 4,604,888 15018510
LEISURE DURABLES & TOYS - 1.0%
Brunswick Corp. 499,900 8,998,200 11704310
Outboard Marine Corp. 169,300 3,788,088 69002010
12,786,288
PUBLISHING - 2.6%
Gannett Co., Inc. 154,400 8,839,400 36473010
Harcourt General, Inc. 52,200 1,892,250 41163G10
Maclean Hunter Ltd. 392,800 3,751,920 55474980
McGraw-Hill, Inc. 101,400 6,857,175 58064510
Reader's Digest Association, Inc. (The)
Class A (non-vtg.) 99,000 4,455,000 75526710
Times Mirror Co., Series A 249,900 8,340,413 88736010
34,136,158
TOTAL MEDIA & LEISURE 51,527,334
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
NONDURABLES - 4.0%
BEVERAGES - 0.2%
Seagram Co. Ltd. 90,600 $ 2,381,956 81185010
FOODS - 0.2%
ConAgra, Inc. 97,400 2,568,925 20588710
HOUSEHOLD PRODUCTS - 1.1%
Colgate-Palmolive Co. 66,800 4,166,650 19416210
Gillette Company 132,500 7,900,313 37576610
Premark International, Inc. 38,400 3,081,600 74045910
15,148,563
TOBACCO - 2.5%
Phillip Morris Companies, Inc. 588,500 32,808,875 71815410
TOTAL NONDURABLES 52,908,319
RETAIL & WHOLESALE - 3.1%
APPAREL STORES - 0.2%
Charming Shoppes, Inc. 205,200 2,436,750 16113310
GENERAL MERCHANDISE STORES - 2.0%
Bradlees, Inc. 33,600 449,400 10449910
Carter Hawley Hale Stores, Inc. (b) 260,300 2,472,850 14622730
Dayton Hudson Corp. 66,000 4,405,500 23975310
May Department Stores Co. (The) 67,900 2,673,563 57777810
Penney (J.C.) Co., Inc. 165,200 8,652,350 70816010
Sears, Roebuck & Co. 139,100 7,337,525 81238710
25,991,188
GROCERY STORES - 0.2%
Fleming Companies, Inc. 41,700 1,032,075 33913010
Promodes SA Ord. (b) 11,200 2,106,031 74699692
3,138,106
RETAIL & WHOLESALE, MISC - 0.7%
Duty Free International, Inc. 136,000 2,703,000 26708410
Pinault Printemps SA 18,400 3,121,068 72199393
Sotheby's Holdings, Inc. Class A 199,500 3,067,313 83589810
8,891,381
TOTAL RETAIL & WHOLESALE 40,457,425
SERVICES - 1.9%
ADVERTISING - 0.2%
Foote Cone & Belding Communications, Inc. 44,000 2,112,000 34487210
LEASING & RENTAL - 1.0%
GATX Corp. 253,500 10,330,125 36144810
Ryder Systems, Inc. 108,200 2,867,300 78354910
13,197,425
PRINTING - 0.4%
Alco Standard Corp. 105,300 5,765,175 01378810
SERVICES - 0.3%
Pittston Company Services Group 140,900 4,068,488 72570110
TOTAL SERVICES 25,143,088
TECHNOLOGY - 1.7%
COMPUTERS & OFFICE EQUIPMENT - 1.1%
Xerox Corp. 159,000 $ 14,210,625 98412110
PHOTOGRAPHIC EQUIPMENT - 0.6%
Eastman Kodak Co. 142,500 7,980,000 27746110
TOTAL TECHNOLOGY 22,190,625
TRANSPORTATION - 1.4%
AIR TRANSPORTATION - 0.4%
UAL Corp. (b) 40,025 5,843,650 90254910
RAILROADS - 1.0%
CSX Corp. 123,000 9,963,000 12640810
Union Pacific Corp. 41,700 2,611,463 90781810
12,574,463
TOTAL TRANSPORTATION 18,418,113
UTILITIES - 9.2%
ELECTRIC UTILITY - 4.0%
American Electric Power Co., Inc. 75,800 2,814,075 02553710
DPL, Inc. 192,125 3,962,578 23329310
Entergy Corp. 369,100 13,287,600 29364F10
FPL Group, Inc. 50,500 1,975,813 30257110
Houston Industries, Inc. 137,600 6,553,200 44216110
Illinois Power Co. 374,700 8,290,238 45209210
PacifiCorp. 105,700 2,034,725 69511410
Philadelphia Electric Co. 186,300 5,635,575 71753710
Texas Utilities Co. 532 23,009 88284810
Veba Vereinigte Elektrizetaets & Bergwerks
AG Ord. 27,400 8,228,512 92239110
52,805,325
GAS - 1.6%
Coastal Corp. (The) 237,000 6,665,625 19044110
Consolidated Natural Gas Co. 73,700 3,463,900 20961510
Pacific Enterprises 108,700 2,581,625 69423210
Panhandle Eastern Corp. 313,500 7,406,438 69846210
20,117,588
TELEPHONE SERVICES - 3.6%
Ameritech Corp. 102,900 7,897,575 03095410
Bell Atlantic Corp. 145,100 8,560,900 07785310
BellSouth Corp. 126,300 7,309,613 07986010
Pacific Telesis Group 132,800 7,171,200 69489010
Southwestern Bell Corp. 206,700 8,578,050 84533310
U.S. West, Inc. 181,300 8,317,138 91288910
47,834,476
TOTAL UTILITIES 120,757,389
TOTAL COMMON STOCKS
(Cost $832,483,654) 931,521,869
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
PREFERRED STOCKS - 9.0%
CONVERTIBLE PREFERRED STOCKS - 8.8%
BASIC INDUSTRIES - 0.4%
METALS & MINING - 0.4%
Alumax, Inc., Series A, $4.00 20,566 $ 2,025,751 02219720
Cyprus Amax Minerals Co.,
Series A, $4.00 41,133 2,673,645 23280920
4,699,396
CONSTRUCTION & REAL ESTATE - 0.1%
REAL ESTATE - 0.1%
Rouse Co. Series A 17,800 956,750 77927320
DURABLES - 1.4%
AUTOS, TIRES, & ACCESSORIES - 1.4%
Chrysler Corp., Series A, $4.625 (e) 65,300 9,795,000 17119670
Ford Motor Co. (Del.), Series A, $4.20 83,600 9,070,600 34537020
18,865,600
ENERGY - 0.2%
ENERGY SERVICES - 0.2%
Chiles Offshore Corp. $1.50 119,100 2,709,525 16888720
FINANCE - 2.3%
BANKS - 2.3%
Citicorp $5.375 (e) 278,200 30,602,000 17303451
MEDIA & LEISURE - 0.3%
BROADCASTING - 0.3%
CBS, Inc. $10.00 Series B 20,000 4,250,000 12484593
NONDURABLES - 0.5%
TOBACCO - 0.5%
RJR Nabisco Holdings Corp.,
Series A, depositary shares
representing 1/4 share 1,024,000 7,168,000 74960K40
RETAIL & WHOLESALE - 0.7%
APPAREL STORES - 0.7%
TJX Companies, Inc., Series C, $3.125 141,800 9,589,225 87254020
SERVICES - 0.3%
LEASING & RENTAL - 0.1%
Gatx Corp. exchangeable $3.875 26,000 1,443,000 36144840
PRINTING - 0.2%
Alco Standard Corp., Series AA $2.30 42,200 2,927,625 01378850
TOTAL SERVICES 4,370,625
TECHNOLOGY - 0.3%
COMPUTER SERVICES & SOFTWARE - 0.3%
Ceridian Corp. (b) 66,800 3,373,400 15677T40
TRANSPORTATION - 2.3%
AIR TRANSPORTATION - 1.5%
AMR Corp. $3.00 (b) (e) 236,600 $ 12,658,100 00176588
UAL, Inc. 6 1/4% . (e) 67,600 7,444,450 90254930
20,102,550
RAILROADS - 0.8%
Burlington Northern Railroad Co. 6.2% 148,600 10,141,950 12189760
TOTAL TRANSPORTATION 30,244,500
TOTAL CONVERTIBLE PREFERRED STOCKS 116,829,021
Nonconvertible PREFERRED STOCKS - 0.2%
FINANCE - 0.2%
BANKS - 0.2%
Mellon Bank Corp. 80,000 2,190,000 58550986
MEDIA & LEISURE - 0.0%
ENTERTAINMENT - 0.0%
Live Entertainment, Inc. Series B PIk (b) 8,555 62,024 53803230
UTILITIES - 0.0%
ELECTRIC UTILITY - 0.0%
Gulf States Utilities Co., Series B, adj. rate 677 34,527 40255075
TOTAL NONCONVERTIBLE PREFERRED STOCKS 2,286,551
TOTAL PREFERRED STOCKS
(Cost $105,277,924) 119,115,572
MOODY'S
RATINGS (D) PRINCIPAL
(UNAUDITED) AMOUNT (A)
CORPORATE BONDS - 4.1%
NONCONVERTIBLE BONDS - 2.7%
AEROSPACE & DEFENSE - 0.1%
DEFENSE ELECTRONICS - 0.1%
Tracor, Inc. 10 7/8%, 8/15/01 B2 $ 1,220,000 1,277,950 892349AC
BASIC INDUSTRIES - 0.8%
CHEMICALS & PLASTICS - 0.8%
IMC Fertilizer Group, Inc. 9 1 /4,
10/1/00 B3 10,540,000 10,592,700 449669AH
PACKAGING & CONTAINERS - 0.0%
Owens Illinois, Inc. 10 1/4%,
4/1/99 B2 350,000 370,996 690768AG
TOTAL BASIC INDUSTRIES 10,963,696
CONGLOMERATES - 0.1%
Coltec Industries, Inc. 10 1/4 %,
4/1/02 Ba2 910,000 969,150 196879AB
MOODY'S MOODY'S
RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE
(UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1)
CORPORATE BONDS - CONTINUED
NONCONVERTIBLE BONDS - CONTINUED
DURABLES - 0.5%
TEXTILES & APPAREL - 0.5%
Westpoint Stevens:
9 3/8%, 12/15/05 B3 $ 4,250,000 $ 4,292,500 961238AB
8 3/4%, 12/15/01 B3 2,660,000 2,679,950 961238AA
6,972,450
FINANCE - 0.3%
BANKS - 0.0%
Signet Banking Corp. (f):
5 1/4%, 5/15/97 Baa2 340,000 340,850 065446AP
5 1/4%, 4/15/98 Baa2 190,000 190,475 065446AN
531,325
CREDIT & OTHER FINANCE - 0.3%
Chrysler Financial Corp. 9 1/2%,
12/15/99 Baa2 2,990,000 3,452,075 171205CY
TOTAL FINANCE 3,983,400
INDUSTRIAL MACHINERY & EQUIPMENT - 0.2%
Joy Technologies, Inc. 10 1/4%,
9/1/03 B1 3,020,000 3,148,350 481206AD
MEDIA & LEISURE - 0.2%
BROADCASTING - 0.0%
Turner Broadcasting System, Inc.
12%, 10/15/01 B1 60,000 65,245 900262AN
ENTERTAINMENT - 0.0%
Live Entertainment, Inc. 10%,
9/1/98 - 56,900 51,779 538032AC
LODGING & GAMING - 0.1%
Bally's Grand, Inc. 1st mtg 12%,
8/20/01 D 163,000 168,297 05873JAC
Host Marriott Corp. (f):
10 1/2%, 5/1 /06 B1 630,000 647,325 441080AH
9 1/8%, 12 /1/00 B1 840,000 854,700 441080AD
9 7/8%, 5/ 1/01 B1 290,000 295,437 441080AE
1,965,759
TOTAL MEDIA & LEISURE 2,082,783
NONDURABLES - 0.4%
BEVERAGES - 0.4%
Canandaigua Wine, Inc. 8 3/4%,
12/15/03 B1 5,700,000 5,728,500 137219AB
UTILITIES - 0.1%
GAS - 0.1%
Columbia Gas Systems Inc. 9.91%,
5/28/20 (c) - $ 170,000 $ 195,010 19765ABN
Ferrellgas, Inc. 12%, 8/1/96 - 110,000 121,000 315290AD
SFP Pipeline Holdings, Inc.
exchangeable variable rate 0%,
8/15/10 (f) Baa3 470,000 611,000 784163AA
927,010
TOTAL NONCONVERTIBLE BONDS 36,053,289
CONVERTIBLE BONDS - 1.4%
CONSTRUCTION & REAL ESTATE - 0.2%
REAL ESTATE INVESTMENT TRUSTS - 0.2%
Centerpoint Properties 8.220%,
1/15/04 - 1,510,000 1,510,000 151895AA
Sizeler Property Investors, Inc.
8%, 7/15/03 - 1,500,000 1,492,500 830137AA
3,002,500
DURABLES - 0.2%
TEXTILES & APPAREL - 0.2%
Interface, Inc. 8%, 9/15/13 Ba 1,179,000 1,243,845 458665AA
Unifi, Inc. 6%, 3/15/02 Baa 1,040,000 1,154,400 904677AC
2,398,245
ENERGY - 0.0%
ENERGY SERVICES - 0.0%
Lone Star Technologies, Inc. euro
8%, 8/27/02 - 290,000 252,300 5423129A
FINANCE - 0.6%
BANKS - 0.5%
Bank of Boston Corp. 7 3/4%,
6/15/11 Baa 1,242,000 1,415,880 060716AF
Bank of New York Co., Inc. 7 1/2%,
8/15/01 Baa 1,150,000 1,874,500 064057AK
CS Holdings Euro 4 7/8%,
11/19/02 A 1,865,000 2,844,125 175997AC
6,134,505
INSURANCE - 0.2%
SCOR US Corp. conv. 5 1/4%,
4/1/00 (e) A 2,500,000 2,337,500 784027AB
TOTAL FINANCE 8,472,005
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
ELECTRICAL EQUIPMENT - 0.1%
Liebert Corp. 8%, 11/15/10 Aa 449,000 1,014,740 531735AA
MOODY'S
RATINGS (D) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (A) (NOTE 1)
CORPORATE BONDS - CONTINUED
CONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - 0.2%
APPAREL STORES - 0.2%
Petrie Stores Corp. sinking fund 8%,
12/15/10 Ba $ 1,540,000 $ 2,048,200 716434AC
RETAIL & WHOLESALE, MISC - 0.0%
Fabri-Centers of America, Inc.
6 1/4%, 3/1/02 B 250,000 222,500 302846AB
TOTAL RETAIL & WHOLESALE 2,270,700
TECHNOLOGY - 0.1%
COMPUTER SERVICES & SOFTWARE - 0.1%
Sterling Software, Inc. 5 3/4%,
2/01/03 B 850,000 1,009,375 859547AD
TOTAL CONVERTIBLE BONDS 18,419,865
TOTAL CORPORATE BONDS
(Cost $52,589,437) 54,473,154
FOREIGN GOVERNMENT OBLIGATIONS - 1.7%
French Government OAT
8 1/2%, 4/25/03 Aaa FRF 91,000,000 18,564,361 351996AQ
Spanish Government 10.9%,
8/30/03 Aa ESP 450,000,000 3,707,820 84699AAL
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $20,827,996) 22,272,181
U.S. TREASURY OBLIGATIONS - 7.5%
Bills, yield at date of purchase
3.13% to 3.15%, 2/24/94 to
3/13/94
(Cost $99,519,286) 100,000,000 99,544,000 99399H5H
Repurchase Agreements - 7.1%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a
joint trading account at 3.23%
dated 12/31/93 due 1/3/94 $ 93,469,152 93,444,000
TOTAL INVESTMENTS - 100%
(Cost $1,204,142,297) $ 1,320,370,776
CURRENCY TYPE ABBREVIATIONS:
FRF - French franc
ESP - Spanish peseta
LEGEND:
(a) Principal amount is stated in United States dollars unless otherwise
noted.
(b) Non-income producing
(c) Non-income producing - issuer filed for protection under the Federal
Bankruptcy Code or is in default of interest payment.
(d) Standard & Poor's Corporation credit ratings are used in the
absence of a rating by Moody's Investors Service, Inc.
(e) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $62,837,050 or 4.8% of net
assets.
(f) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
OTHER INFORMATION:
Purchases and sales of securities, other than short-term securities,
aggregated $1,475,273,032 and $977,359,163, respectively,.
INCOME TAX INFORMATION:
At December 31, 1993, the aggregate cost of investment securities for
income tax purposes was $1,205,152,060. Net unrealized appreciation
aggregated $115,218,716, of which $129,043,982 related to appreciated
investment securities and $13,825,266 related to depreciated investment
securities.
The fund hereby designates $55,774,000 as a capital gain dividend for the
purpose of the dividend paid deduction.
EQUITY-INCOME PORTFOLIO
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, 1993
ASSETS
Investment in securities, at value (including repurchase agreements of $93,444,000) (cost $ 1,320,370,776
$1,204,142,297) (Notes 1 and 2) - See accompanying schedule
Cash 158
Receivable for investments sold 34,834,242
Receivable for fund shares sold 4,479,596
Dividends receivable 2,841,179
Interest receivable 1,712,092
Other receivables 149,984
Total assets 1,364,388,027
LIABILITIES
Payable for investments purchased $ 44,283,588
Payable for fund shares redeemed 697,739
Accrued management fee 557,464
Other payables and accrued expenses 348,787
Total liabilities 45,887,578
NET ASSETS $ 1,318,500,449
Net Assets consist of (Note 1):
Paid in capital $ 1,138,682,953
Distributions in excess of net investment income (Note 1) (823,095)
Accumulated undistributed net realized gain (loss) on investments 64,412,112
Net unrealized appreciation (depreciation) on investment securities 116,228,479
NET ASSETS, for 85,409,862 shares outstanding $ 1,318,500,449
NET ASSET VALUE, offering price and redemption price per share ($1,318,500,449 (divided by) 85,409,862 shares) $15.44
</TABLE>
Statement of Operations
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31, 1993
INVESTMENT INCOME $ 26,016,832
Dividends
Interest 7,150,467
Total income 33,167,299
EXPENSES
Management fee (Note 3) $ 5,004,191
Transfer agent fees (Note 3) 111,756
Accounting fees and expenses (Note 3) 439,891
Non-interested trustees' compensation 6,107
Custodian fees and expenses 104,732
Registration fees 210,396
Audit 37,082
Legal 9,551
Miscellaneous 17,784
Total expenses before reductions 5,941,490
Expense reductions (Note 4) (60,160) 5,881,330
Net investment income 27,285,969
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 1)
Net realized gain (loss) on:
Investment securities 76,059,688
Foreign currency contracts (5,317,598) 70,742,090
Change in net unrealized appreciation (depreciation) on investment securities 46,208,348
Net gain (loss) 116,950,438
Net increase (decrease) in net assets resulting from operations $ 144,236,407
</TABLE>
Statement of Changes in Net Assets
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
YEARS ENDED DECEMBER 31,
1993 1992
INCREASE (DECREASE) IN NET ASSETS
Operations $ 27,285,969 $ 14,340,690
Net investment income
Net realized gain (loss) on investments 70,742,090 14,435,781
Change in net unrealized appreciation (depreciation) on investments 46,208,348 38,750,692
Net increase (decrease) in net assets resulting from operations 144,236,407 67,527,163
Distributions to shareholders (23,402,249) (14,263,249)
From net investment income
In excess of net investment income (2,791,192) -
Total Distributions (26,193,441) (14,263,249)
Share transactions 665,403,591 272,723,382
Net proceeds from sales of shares
Reinvestment of distributions from net investment income 26,157,025 14,263,248
Cost of shares redeemed (83,982,840) (29,541,879)
Net increase (decrease) in net assets resulting from share transactions 607,577,776 257,444,751
Total increase (decrease) in net assets 725,620,742 310,708,665
NET ASSETS
Beginning of period 592,879,707 282,171,042
End of period (including undistributed net investment income (loss) of
($823,095) and $955,059, $ 1,318,500,449 $ 592,879,707
respectively)
OTHER INFORMATION
Shares
Sold 45,052,691 21,693,895
Issued in reinvestment of distributions from net investment income 1,761,238 1,123,843
Redeemed (5,646,913) (2,382,927)
Net increase (decrease) 41,167,016 20,434,811
</TABLE>
Financial Highlights
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31,
1993 1992 1991 1990 1989
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 13.40 $ 11.85 $ 9.51 $ 12.29 $ 11.01
Income from Investment Operations
Net investment income .37 .40 .50 .58 .60
Net realized and unrealized gain (loss) on investments 2.06 1.57 2.43 (2.38) 1.29
Total from investment operations 2.43 1.97 2.93 (1.80) 1.89
Less Distributions
From net investment income (.35) (.42) (.59) (.59) (.52)
In excess of net investment income (.04) - - - -
From net realized gain - - - (.39) (.09)
Total distributions (.39) (.42) (.59) (.98) (.61)
Net asset value, end of period $ 15.44 $ 13.40 $ 11.85 $ 9.51 $ 12.29
TOTAL RETURN 18.29% 16.89% 31.44% (15.29)% 17.34%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 1,318,500 $ 592,880 $ 282,171 $ 154,080 $ 142,572
Ratio of expenses to average net assets .62% .65% .74% .78% .85%
Ratio of net investment income to average net assets 2.87% 3.52% 4.83% 6.01% 5.82%
Portfolio turnover rate 120% 74% 107% 94% 78%
</TABLE>
VARIABLE INSURANCE PRODUCTS FUND: GROWTH PORTFOLIO
INVESTMENTS/DECEMBER 31, 1993
(Showing Percentage of Total Value of Investments)
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - 79.7%
AEROSPACE & DEFENSE - 0.6%
AEROSPACE & DEFENSE - 0.2%
Orbital Sciences Corporation (a) 58,000 $ 1,189,000 68556410
Rockwell International Corp. 50,000 1,856,250 77434710
3,045,250
DEFENSE ELECTRONICS - 0.4%
Loral Corp. 100,000 3,775,000 54385910
Raytheon Co. 35,000 2,310,000 75511110
6,085,000
TOTAL AEROSPACE & DEFENSE 9,130,250
BASIC INDUSTRIES - 2.1%
CHEMICALS & PLASTICS - 1.0%
Airgas, Inc. (a) 165,000 3,588,750 00936310
Akzo N V sponsored ADR 30,000 1,451,250 01019930
du Pont (E.I.) de Nemours & Co. 55,000 2,653,750 26353410
GEON 64,900 1,533,263 37246W10
Hanna (M.A.) Co. 40,000 1,305,000 41052210
Imperial Chemical Industries PLC ADR 30,000 1,417,500 45270450
Morton International, Inc. 15,000 1,402,500 61933110
Union Carbide Corp. 55,000 1,230,625 90558110
14,582,638
IRON & STEEL - 0.6%
Geneva Steel Class A (a) 91,600 1,557,200 37225210
Inland Steel Industries, Inc. (a) 140,000 4,637,500 45747210
LTV Corp. (a) 100,000 1,612,500 50192110
Nucor Corp. 18,000 954,000 67034610
8,761,200
METALS & MINING - 0.1%
Reynolds Metals Co. 25,000 1,134,375 76176310
PAPER & FOREST PRODUCTS - 0.4%
Bowater, Inc. 60,000 1,380,000 10218310
International Paper Co. 50,000 3,387,500 46014610
Weyerhaeuser Co. 25,000 1,115,625 96216610
5,883,125
TOTAL BASIC INDUSTRIES 30,361,338
CONGLOMERATES - 0.9%
Allied-Signal, Inc. 60,000 4,740,000 01951210
ITT Corp. 60,000 5,475,000 45067910
Textron, Inc. 35,000 2,038,750 88320310
12,253,750
CONSTRUCTION & REAL ESTATE - 3.2%
BUILDING MATERIALS - 0.4%
Armstrong World Industries, Inc. 50,000 2,662,500 04247610
Lafarge Corp. 100,100 2,289,788 50586210
Puerto Rican Cement, Inc. 40,000 980,000 74507510
5,932,288
CONSTRUCTION - 2.4%
Centex Corp. 100,000 $ 4,200,000 15231210
Clayton Homes, Inc. (a) 187,500 4,546,875 18419010
Continental Homes Holding Corp. 80,700 1,856,100 21148C10
Kaufman & Broad Home Corp. 100,000 2,375,000 48616810
Lennar Corp. 50,000 1,706,250 52605710
Oakwood Homes Corp. 229,700 6,201,900 67409810
Pulte Corp. 98,800 3,581,500 74586710
Redman Industries (a) 81,000 1,640,250 75764210
Schuler Homes, Inc. (a) 180,000 5,040,000 80818810
Southern Energy Homes, Inc. (a) 100,000 1,887,500 84281410
Standard Pacific Corp. 25,000 278,125 85375C10
Toll Brothers, Inc. (a) 15,000 256,875 88947810
33,570,375
ENGINEERING - 0.3%
Foster Wheeler Corp. 30,000 1,005,000 35024410
Glenayre Technologies, Inc. 65,000 2,827,500 37789910
3,832,500
REAL ESTATE INVESTMENT TRUSTS - 0.1%
G&L Realty Corp. 50,000 843,750 36127110
Simon Properties Group, Inc. (a) 50,000 1,131,250 82880510
1,975,000
TOTAL CONSTRUCTION & REAL ESTATE 45,310,163
DURABLES - 6.4%
AUTOS, TIRES, & ACCESSORIES - 4.1%
Chrysler Corp. 200,000 10,650,000 17119610
Dana Corp. 45,000 2,694,375 23581110
Echlin, Inc. 40,000 1,330,000 27874910
Federal-Mogul Corp. 75,000 2,175,000 31354910
Ford Motor Co. 200,000 12,900,000 34537010
General Motors Corp. 290,000 15,913,741 37044210
Goodyear Tire & Rubber Co. 74,100 3,390,075 38255010
Mascotech, Inc. 150,000 4,181,250 57467010
Smith (A.O.) Corp. Class B 139,400 4,983,550 83186520
58,217,991
CONSUMER DURABLES - 0.2%
Forschner Group, Inc. (a) 115,000 1,753,750 34659010
Oneida Ltd. 25,000 343,750 68250510
2,097,500
CONSUMER ELECTRONICS - 0.9%
Duracraft Corp. (a) 21,000 519,750 26633210
Harman International Industries, Inc. (a) 125,000 3,593,750 41308610
Newell Co. 30,000 1,211,250 65119210
Universal Electronics, Inc. (a) 150,000 2,962,500 91348310
Whirlpool Corp. 55,000 3,657,500 96332010
11,944,750
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
DURABLES - CONTINUED
HOME FURNISHINGS - 0.4%
Heilig-Meyers Co. 50,000 $ 1,950,000 42289310
LADD Furniture, Inc. 100,000 1,000,000 50573910
Leggett & Platt, Inc. 40,000 2,000,000 52466010
4,950,000
TEXTILES & APPAREL - 0.8%
Interface, Inc. Class A 27,500 419,375 45866510
Jones Apparel Group, Inc. (a) 65,000 1,941,875 48007410
Kellwood Co. 115,000 4,614,375 48804410
Nine West Group, Inc. (a) 75,000 2,212,500 65440D10
Tommy Hilfiger (a) 40,000 1,250,000 89299B92
Westpoint Stevens, Inc. Class A (a) 75,000 1,406,250 96123810
11,844,375
TOTAL DURABLES 89,054,616
ENERGY - 2.2%
ENERGY SERVICES - 0.2%
Halliburton Co. 40,000 1,275,000 40621610
Schlumberger Ltd. 20,000 1,182,500 80685710
2,457,500
INDEPENDENT POWER - 0.1%
Thermo Electron Corp. 30,000 1,260,000 88355610
OIL & GAS - 1.9%
Basin Exploration, Inc. (a) 70,000 796,250 07010710
Beau Canada Exp. 501,300 891,286 07428010
Burlington Resources, Inc. 65,000 2,754,375 12201410
Canadian Natural Resources Ltd. (a) 163,300 2,223,870 13638510
Encal Energy Ltd. (a) 758,000 2,609,347 29250D10
Grad & Walker Energy Corp. 107,000 1,011,916 38391010
Inverness Petroleum Ltd. (a) 250,000 1,844,145 46190810
Murphy Oil Corp. 110,000 4,400,000 62671710
Noble Affiliates, Inc. 60,000 1,590,000 65489410
Northstar Energy Corp. 49,300 969,775 66703R10
Petromet Resources Ltd. Ord. 205,000 969,359 71673110
Renaissance Energy Ltd. 52,900 1,130,641 75966610
Rio Alto Exploration Ltd. 184,400 1,150,975 76689210
Summit Resources Ltd. 175,000 1,141,952 86624610
Tarragon Oil & Gas Ltd. 66,700 870,494 87629E20
Tide West Oil Co. (a) 37,500 393,750 88635540
YPF Sociedad Anonima sponsored ADR
representing Class D shares 74,600 1,939,600 98424510
26,687,735
TOTAL ENERGY 30,405,235
FINANCE - 3.8%
BANKS - 1.7%
Bank of Boston Corp. 135,519 $ 3,116,937 06071610
Bank of New York Co., Inc. 65,000 3,705,000 06405710
BanPonce Corp. 41,800 1,316,700 06670410
Citicorp (a) 150,000 5,512,500 17303410
First Interstate Bancorp 40,000 2,565,000 32054810
Norwest Corp. 135,000 3,290,625 66938010
Shawmut National Corp. 125,000 2,718,750 82048410
Signet Banking Corp. 60,996 2,119,611 82668110
24,345,123
CREDIT & OTHER FINANCE - 0.5%
Arbor National Holdings, Inc. (a) 123,600 2,224,800 03876110
Foothill Group, Inc., Class A 100,000 1,662,500 34510920
Green Tree Acceptance, Inc. 60,000 2,880,000 39350510
6,767,300
FEDERAL SPONSORED CREDIT - 1.1%
Federal Home Loan Mortgage Corporation 85,000 4,239,375 31340030
Federal National Mortgage Association 140,000 10,990,000 31358610
15,229,375
SAVINGS & LOANS - 0.5%
Collective Bancorp, Inc. 75,000 1,631,250 19390110
Great Western Financial Corp. 111,472 2,229,440 39144210
Standard Federal Bank 90,300 2,709,000 85338910
6,569,690
TOTAL FINANCE 52,911,488
HEALTH - 5.2%
DRUGS & PHARMACEUTICALS - 2.9%
Amgen, Inc. (a) 65,000 3,217,500 03116210
Biogen, Inc. (a) 55,000 2,193,125 09059710
COR Therapeutics, Inc. (a) 5,000 75,313 21775310
Cephalon, Inc. (a) 49,400 808,925 15670810
Chiron Corp. (a) 60,000 5,040,000 17004010
Collagen Corp. (a) 35,000 971,250 19419410
Elan PLC ADR. (a) 70,000 2,966,250 28413120
Genetics Institute, Inc. depositary share. (a) 25,000 1,206,250 37185530
Immune Response Corp.. (a) 125,000 1,281,250 45252T10
IMCERA Group, Inc. 50,000 1,681,250 45245410
IVAX Corp. 35,000 1,006,250 46582310
Merck & Co., Inc. 120,000 4,125,000 58933110
Nature's Bounty, Inc. 100,000 2,075,000 63901730
Perspective Biosystems, Inc. 8,300 238,625 71527110
Pfizer, Inc. 105,600 7,286,400 71708110
Schering-Plough Corp. 90,000 6,165,000 80660510
40,337,388
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
HEALTH - CONTINUED
MEDICAL EQUIPMENT & SUPPLIES - 0.8%
Cardinal Distribution, Inc. 17,200 $ 817,000 14148710
Cordis Corp. (a) 20,000 987,500 21852510
Johnson & Johnson 65,000 2,908,750 47816010
Medtronic, Inc. 60,000 4,927,500 58505510
Owens & Minor, Inc. 53,500 1,230,500 69073010
Sunrise Medical, Inc. (a) 35,000 1,050,000 86791010
11,921,250
MEDICAL FACILITIES MANAGEMENT - 1.5%
Columbia Healthcare Corp. 190,625 6,338,281 19767910
Healthsouth Rehabilitation Corp. (a) 300,000 7,575,000 42192410
Relife, Inc. 65,000 1,023,750 75952N10
U.S. Healthcare, Inc. 110,000 6,338,750 91191010
21,275,781
TOTAL HEALTH 73,534,419
INDUSTRIAL MACHINERY & EQUIPMENT - 4.2%
ELECTRICAL EQUIPMENT - 2.6%
Amphenol Corp. Class A (a) 85,000 1,402,500 03209420
Antec Corp. (a) 75,000 1,875,000 03664P10
Duracell International, Inc. 40,000 1,435,000 26633L10
General Electric Co. 225,000 23,596,875 36960410
Itel Corp. (a) 44,900 1,257,200 46564210
Roper Industries, Inc. 89,100 2,895,750 77669610
Scientific-Atlanta, Inc. 110,000 3,630,000 80865510
36,092,325
INDUSTRIAL MACHINERY & EQUIPMENT - 1.6%
AGCO Corp. 158,700 5,415,638 00108410
Briggs & Stratton Corp. 30,000 2,475,000 10904310
Caterpillar, Inc. 125,000 11,125,000 14912310
Deere & Co. 35,000 2,590,000 24419910
Perspective Technologies Corp. (a) 27,500 625,625 71527520
22,231,263
POLLUTION CONTROL - 0.0%
Envirotest Systems Corp. (a) 10,000 215,000 29409W10
TOTAL INDUSTRIAL MACHINERY &
EQUIPMENT 58,538,588
MEDIA & LEISURE - 11.2%
BROADCASTING - 4.4%
CBS, Inc. 10,000 2,885,000 12484510
Capital Cities/ABC, Inc. 6,000 3,717,000 13985910
Century Communications Corp. Class A 107,300 1,233,950 15650310
Chris-Craft Industries, Inc. 20,000 732,500 17052010
Clear Channel Communications, Inc. (a) 55,000 $ 2,530,000 18450210
Comcast Corp. Class A 145,000 5,220,000 20030020
EZ Communications, Inc. (a) 75,900 1,195,425 26928810
Home Shopping Network, Inc. 185,000 2,751,875 43735110
Infinity Broadcasting Corp. (a) 50,072 1,514,678 45662610
International Cabletel, Inc. 65,000 1,527,500 45921610
Jacor Communications, Inc. Class A 42,300 608,063 46985840
Liberty Media Corp. Class A (a) 25,000 728,125 53071530
Multimedia, Inc. (a) 30,000 1,027,500 62545K10
NTN Communications, Inc. (a) 75,100 751,000 62941030
Peoples Choice TV Corp. (a) 48,500 1,497,438 71084710
Saga Communications, Inc. Class A (a) 33,500 573,688 78659810
Tele-Communications, Inc. Class A (a) 675,000 20,418,750 87924010
Time Warner, Inc. 175,872 7,782,336 88731510
Turner Broadcasting System, Inc. Class B 100,000 2,700,000 90026250
Viacom, Inc. (non-vtg.) (a) 65,000 2,916,875 92552430
62,311,703
ENTERTAINMENT - 1.1%
Carnival Cruise Lines, Inc. Class A 45,000 2,131,875 14365810
Disney (Walt) Co. 110,000 4,688,750 25468710
MGM Grand, Inc. (a) 25,000 978,125 55295310
Paramount Communications, Inc. 25,000 1,934,375 69921610
Players International, Inc. (a) 86,000 2,128,500 72790310
Royal Carribean Cruises Ltd. 115,000 3,076,250 78015392
Savoy Pictures Entertainment, Inc. (a) 25,000 525,000 80537510
15,462,875
LEISURE DURABLES & TOYS - 1.1%
Callaway Golf Co. 40,000 2,135,000 13119310
Champion Enterprises, Inc. (a) 176,200 3,083,500 15849610
Coachmen Industries, Inc. 200,000 3,250,000 18987310
Cobra Industries, Inc. (a) 100,000 800,000 19104E10
Fleetwood Enterprises, Inc. 223,900 5,317,625 33909910
Thor Industries, Inc. 46,400 1,194,800 88516010
15,780,925
LODGING & GAMING - 2.5%
Boyd Gaming Corp. (a) 85,000 1,136,875 10330410
Caesars World, Inc. (a) 50,077 2,672,860 12769510
Hilton Hotels Corp. 35,000 2,126,250 43284810
Hospitality Franchise Systems, Inc. (a) 108,600 5,769,375 44091210
International Game Technology 115,000 3,392,500 45990210
La Quinta Motor Inns, Inc. 30,000 1,057,500 50419510
Marriott International, Inc. 60,000 1,740,000 57190010
Mirage Resorts, Inc. (a) 210,000 5,013,750 60462E10
President Riverboat Casinos, Inc. (a) 150,750 3,316,500 74084810
Promus Companies, Inc. (a) 135,000 6,176,250 74342A10
Sholodge, Inc. 141,000 3,243,000 82503410
35,644,860
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
MEDIA & LEISURE - CONTINUED
PUBLISHING - 1.1%
American Greetings Corp. Class A 85,000 $ 2,890,000 02637510
Dow Jones & Co Inc. 20,000 715,000 26056110
Dun & Bradstreet Corp. 25,000 1,540,625 26483010
Gannett Co., Inc. 45,000 2,576,250 36473010
Houghton Mifflin Co. 34,400 1,672,700 44156010
Lee Enterprises, Inc. 40,000 1,400,000 52376810
MaClean Hunter Ltd. 292,700 2,795,791 55474980
Times Mirror Co., Series A 60,000 2,002,500 88736010
15,592,866
RESTAURANTS - 1.0%
Back Bay Restaurant Group, Inc. 120,800 2,038,500 05635V10
Bertucci's, Inc. (a) 83,400 2,043,300 08606310
McDonald's Corp. 110,000 6,270,000 58013510
Quantum Restaurant Group, Inc. (a) 304,600 3,731,350 74763T10
14,083,150
TOTAL MEDIA & LEISURE 158,876,379
NONDURABLES - 2.6%
BEVERAGES - 1.6%
Coca-Cola Company (The) 250,000 11,218,750 19121610
COTT Corp. 50,000 1,229,430 22163N10
PepsiCo, Inc. 200,000 8,175,000 71344810
Snapple Beverage Corp. (a) 75,000 1,968,750 83303710
22,591,930
FOODS - 0.2%
IBP, Inc. 100,000 2,587,500 44922310
HOUSEHOLD PRODUCTS - 0.2%
Safeskin Corp. (a) 72,400 1,158,400 78645410
Unilever NV ADR 20,000 2,310,000 90478450
3,468,400
TOBACCO - 0.6%
Philip Morris Companies, Inc. 150,000 8,362,500 71815410
TOTAL NONDURABLES 37,010,330
PRECIOUS METALS - 0.3%
American Barrick Resources Corp. 115,000 3,273,596 02451E10
Homestake Mining Co. 50,000 1,100,000 43761410
4,373,596
RETAIL & WHOLESALE - 5.7%
APPAREL STORES - 0.8%
Catherines Stores Corp. (a) 90,000 1,575,000 14916F10
Cato Corp. Class A 140,000 2,800,000 14920510
Charter Golf, Inc. (a) 60,000 645,000 16122P10
Designs, Inc. (a) 51,000 $ 854,250 25057L10
Gap, Inc. 75,000 2,953,125 36476010
One Price Clothing Stores, Inc. (a) 115,000 2,702,500 68241110
11,529,875
APPLIANCE STORES - 0.2%
Cellstar Corp. (a) 200,000 3,350,000 15092510
DRUG STORES - 0.0%
General Nutrition Companies, Inc. (a) 20,000 570,000 37047F10
GENERAL MERCHANDISE STORES - 1.2%
May Department Stores Co. (The) 50,000 1,968,750 57777810
Penney (J.C.) Co., Inc. 85,000 4,451,875 70816010
Price/Costco, Inc. 100,000 1,925,000 74143W10
Proffitts, Inc. (a) 50,000 1,093,750 74292510
Sears, Roebuck & Co. 80,000 4,220,000 81238710
Wal-Mart Stores, Inc. 100,000 2,500,000 93114210
16,159,375
GROCERY STORES - 0.1%
Safeway, Inc. (a) 75,000 1,593,750 78651420
RETAIL & WHOLESALE, MISC - 3.4%
Best Buy Co., Inc. (a) 30,000 1,395,000 08651610
CML Group, Inc. 250,000 5,906,250 12582010
Futures Shops Ltd. 30,900 724,721 36091310
Home Depot, Inc. (The) 135,166 5,339,057 43707610
Little Switzerland, Inc. (a) 5,200 48,100 53752810
Lowe's Companies, Inc. 180,600 10,700,550 54866110
Micro Warehouse, Inc. (a) 55,000 2,289,375 59501B10
Musicland Stores Corp. (a) 80,000 1,660,000 62758B10
Office Depot, Inc. (a) 75,000 2,521,875 67622010
Rex Stores Corp. (a) 150,000 3,393,750 76162410
Spiegel, Inc. Class A 50,000 1,125,000 84845710
Sport Supply Group, Inc (warrants) (a) 31,350 148,913 84891512
Sport Supply Group, Inc. 125,400 2,413,950 84891510
Staples, Inc. 25,000 637,500 85503010
Sun Television & Appliances, Inc. 105,000 2,231,250 86688110
Sunglass Hut International, Inc. (a) 73,600 2,318,400 86736F10
Toys "R" Us, Inc. (a) 100,000 4,087,500 89233510
Ultimate Electronics, Inc. (a) 44,700 603,450 90384910
47,544,641
TOTAL RETAIL & WHOLESALE 80,747,641
SERVICES - 1.1%
LEASING & RENTAL - 0.2%
Blockbuster Entertainment Corp. 100,000 3,062,500 09367610
PRINTING - 0.5%
Cryk, Inc. (a) 25,000 575,000 23281710
Reynolds & Reynolds Co. Class A 110,000 5,018,750 76169510
Wallace Computer Services, Inc. 33,400 1,131,425 93227010
6,725,175
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
SERVICES - CONTINUED
SERVICES - 0.4%
Franklin Quest Co. (a) 33,900 $ 1,194,975 35459610
Medaphis Corp. (a) 110,000 3,630,000 58402810
Zebra Technologies Corp. Class A (a) 25,000 1,415,625 98920710
6,240,600
TOTAL SERVICES 16,028,275
TECHNOLOGY - 18.6%
COMMUNICATIONS EQUIPMENT - 6.5%
ADC Telecommunications, Inc. (a) 25,000 890,625 00088610
Cabletron Systems, Inc. (a) 80,000 9,000,000 12692010
Centigram Communications Corp. (a) 185,000 6,567,500 15231710
Cisco Systems, Inc. (a) 140,000 9,047,500 17275R10
DSC Communications Corp. (a) 425,000 26,137,500 23331110
General Instrument Corp. (a) 90,000 5,051,250 37012110
Inter-Tel, Inc. (a) 89,000 778,750 45837210
MB Communications, Inc. (a) 300,000 6,375,000 55262M10
Newbridge Networks Corp. (a) 170,000 9,307,500 65090110
Wellfleet Communications, Inc. (a) 165,000 10,642,500 94949710
Xircom, Inc. (a) 50,000 850,000 98392210
3Com Corp. (a) 154,400 7,256,800 88553510
91,904,925
COMPUTER SERVICES & SOFTWARE - 5.3%
Adobe Systems, Inc. 80,000 1,780,000 00724F10
America Online, Inc. (a) 10,000 585,000 02364J10
BancTec, Inc .(a) 103,000 2,497,750 05978410
CUC International, Inc. (a) 185,000 6,660,000 12654510
Ceridian Corp. (a) 50,000 950,000 15677T10
Chipcom Corp. (a) 120,000 6,060,000 16961710
Electronic Arts (a) 40,000 1,200,000 28551210
Electronics For Imaging Incorporated (a) 127,600 2,105,400 28608210
Equifax Inc. 100,000 2,737,500 29442910
Fiserv, Inc. (a) 50,000 962,500 33773810
IMRS, Inc. (a) 115,000 2,932,500 44969610
Informix Corp. (a) 200,000 4,250,000 45677910
Intelligent Electronics, Inc. 110,000 3,011,250 45815710
Lotus Development Corp. (a) 70,000 3,850,000 54570010
Microsoft Corp. (a) 80,000 6,450,000 59491810
Oracle Systems Corp. (a) 360,000 10,350,000 68389X10
Parametric Technology Corp. (a) 120,000 4,650,000 69917310
Recognition Equipment, Inc. (a) 50,900 763,500 75623110
Sierra On-Line, Inc. (a) 60,000 1,102,500 82640910
SunGard Data Systems, Inc. (a) 35,000 1,443,750 86736310
Sybase, Inc. (a) 150,000 6,300,000 87113010
Synopsys, Inc. (a) 50,000 $ 2,262,500 87160710
Viewlogic Systems, Inc. (a) 95,000 2,161,250 92672110
75,065,400
COMPUTERS & OFFICE EQUIPMENT - 5.0%
ADAPTEC, Inc. (a) 100,000 3,975,000 00651F10
AST Research, Inc. (a) 40,000 910,000 00190710
Compaq Computer Corp. (a) 150,000 11,100,000 20449310
Creative Technologies, Corp. (a) 285,000 9,048,750 22599992
Danka Business Systems PLC
sponsored ADR 26,500 1,060,000 23627710
Dell Computer Corporation (a) 43,000 972,875 24702510
EMC Corp. (a) 210,000 3,465,000 26864810
Hewlett-Packard Co. 45,000 3,555,000 42823610
Hutchinson Technology, Inc. (a) 25,000 731,250 44840710
International Business Machines Corp. 225,000 12,712,500 45920010
International Imaging Materials, Inc. (a) 70,000 1,391,250 45968C10
Media Vision Technology, Inc. (a) 75,000 3,281,250 58445H10
Quantum Corp. (a) 40,800 576,300 74790610
Seagate Technology (a) 25,000 593,750 81180410
Silicon Graphics, Inc. (a) 375,000 9,281,250 82705610
Sun Microsystems, Inc. (a) 55,000 1,601,875 86681010
SynOptics Communications, Inc. (a) 25,000 696,875 87160910
Tech Data Corp. (a) 157,200 5,659,200 87823710
70,612,125
ELECTRONIC INSTRUMENTS - 0.3%
ASECO Corp. (a) 59,200 384,800 04365910
Applied Materials, Inc. (a) 20,000 775,000 03822210
Megatest Corp. (a) 150,000 1,931,250 58495810
Novellus System, Inc. (a) 20,000 685,000 67000810
3,776,050
ELECTRONICS - 1.5%
Intel Corp. 80,000 4,960,000 45814010
Motorola, Inc. 125,000 11,546,875 62007610
Sanmina Corp. (a) 62,300 1,666,525 80090710
Texas Instruments, Inc. 55,000 3,492,500 88250810
Zero Corp. 30,000 483,750 98948410
22,149,650
TOTAL TECHNOLOGY 263,508,150
TRANSPORTATION - 2.7%
AIR TRANSPORTATION - 1.1%
AMR Corp. (a) 30,000 2,010,000 00176510
Atlantic Southeast Airlines, Inc. 65,000 2,226,250 04886910
Comair Holdings, Inc. 150,050 3,432,394 19978910
Mesa Airlines, Inc. (a) 188,700 3,349,425 59048110
SkyWest, Inc. 70,000 2,415,000 83087910
UAL Corp. (a) 12,000 1,752,000 90254910
15,185,069
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
TRANSPORTATION - CONTINUED
RAILROADS - 1.3%
Burlington Northern, Inc. 35,000 $ 2,025,625 12189710
Conrail, Inc. 55,000 3,678,125 20836810
CSX Corp. 60,000 4,860,000 12640810
Illinois Central Corp., Series A 41,900 1,503,163 45184110
Norfolk Southern Corp. 35,000 2,467,500 65584410
Santa Fe Pacific Corp. 137,600 3,061,600 80218310
Southern Pacific Rail Corp. (a) 75,000 1,481,250 84358410
19,077,263
TRUCKING & FREIGHT - 0.3%
Federal Express Corp. (a) 40,000 2,835,000 31330910
Landstar System, Inc. (a) 44,000 973,500 51509810
3,808,500
TOTAL TRANSPORTATION 38,070,832
UTILITIES - 8.9%
CELLULAR - 2.1%
Cencall Communications Corp. (a) 85,000 2,380,000 15129710
IDB Communications Group, Inc. (a) 115,000 6,325,000 44935510
LIN Broadcasting Corp. (a) 20,000 2,210,000 53276310
McCaw Cellular Communications, Inc.
Class A (a) 125,000 6,312,500 57946810
Pactel Corp. (a) 125,000 3,109,375 69525210
Qualcomm, Inc. (a) 15,000 795,000 74752510
Rogers Communications, Inc. Class B (a) 325,000 5,378,760 77510920
Vodafone Group PLC sponsored ADR 40,000 3,570,000 92857T10
30,080,635
ELECTRIC UTILITY - 0.1%
Consolidated Electric Power Asia Ltd.
sponsored ADR (b) 30,500 518,500 20855210
Meralco Class B (a) 50,000 913,200 58799A92
1,431,700
TELEPHONE SERVICES - 6.7%
ACC Corp. 60,000 1,132,500 03095410
ALC Communications Corp. (a) 50,000 1,437,500 03095410
Ameritech Corp. 105,000 8,058,750 03095410
Bell Atlantic Corp. 100,000 5,900,000 07785310
BellSouth Corp. 160,000 9,260,000 07986010
British Telecommunications PLC ADR. 50,000 3,556,250 11102140
Cable & Wireless PLC ADR 100,000 2,400,000 12683020
Davel Communications GRP, Inc. (a) 8,600 132,225 23833810
GTE Corp. 225,000 7,875,000 36232010
LCI International, Inc. (a) 90,000 3,330,000 50181310
LDDS Communications, Inc. (a) 75,045 3,620,921 50182L10
MCI Communications Corp. 210,000 5,932,500 55267310
NYNEX Corp. 110,000 4,413,750 67076810
Pacific Telesis Group 100,000 $ 5,400,000 69489010
Philippine Long Distance Telephone Co. 7,400 600,325 71825210
Southwestern Bell Corp. 240,000 9,960,000 84533310
Sprint Corporation 165,000 5,733,750 85206110
Telefonos de Mexico SA sponsored ADR
representing shares Ord. Class L 30,000 2,025,000 87940378
Telephone & Data Systems, Inc. 118,772 6,190,990 87943310
U.S. West, Inc. 180,000 8,257,500 91288910
95,216,961
TOTAL UTILITIES 126,729,296
TOTAL COMMON STOCKS
(Cost $928,541,017) 1,126,844,346
PRINCIPAL
AMOUNT
US TREASURY OBLIGATIONS - 7.1%
U.S. Treasury Bills, yields at date of
purchase 3.13% to 3.15%,
2/24/94 to 3/3/94
(Cost $99,519,285) $ 100,000,000 99,544,000 99399H5Q
MATURITY
AMOUNT
REPURCHASE AGREEMENTS - 13.2%
Investments in repurchase agreements
(U.S. Treasury obligations), in a
joint trading account at 3.23%
dated 12/31/93 due 1/3/94, $187,046,340 186,996,000
TOTAL INVESTMENTS - 100.0%
(Cost $1,215,056,302) $1,413,384,346
LEGEND:
(a) Non-income producing
(b) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $518,500 or .04% of net
assets.
OTHER INFORMATION:
Purchases and sales of securities, other than short-term securities,
aggregated $1,782,855,465 and $1,475,462,863, respectively.
INCOME TAX INFORMATION:
At December 31, 1993, the aggregate cost of investment securities for
income tax purposes was $1,222,085,677. Net unrealized appreciation
aggregated $191,298,669, of which $209,380,263 related to appreciated
investment securities and $18,081,594 related to depreciated investment
securities.
The fund hereby designates $34,580,000 as a capital gain dividend for the
purpose of the dividend paid deduction.
GROWTH PORTFOLIO
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, 1993
ASSETS
Investment in securities, at value (including repurchase agreements of $186,996,000) (cost $ 1,413,384,346
$1,215,056,302) (Notes 1 and 2) - See accompanying schedule
Cash 131
Receivable for investments sold 14,293,378
Receivable for fund shares sold 3,637,072
Dividends receivable 1,128,873
Other receivables 115,162
Total assets 1,432,558,962
LIABILITIES
Payable for investments purchased $ 42,295,216
Payable for fund shares redeemed 5,490,705
Accrued management fee 691,954
Other payables and accrued expenses 231,739
Total liabilities 48,709,614
NET ASSETS $ 1,383,849,348
Net Assets consist of (Note 1):
Paid in capital $ 1,105,822,344
Undistributed net investment income 7,251,541
Accumulated undistributed net realized gain (loss) on investments 72,447,419
Net unrealized appreciation (depreciation) on investment securities 198,328,044
NET ASSETS, for 59,947,383 shares outstanding $ 1,383,849,348
NET ASSET VALUE, offering price and redemption price per share ($1,383,849,348 (divided by) 59,947,383 shares) $23.08
</TABLE>
Statement of Operations
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31, 1993
INVESTMENT INCOME $ 9,210,149
Dividends
Interest 5,323,222
Total income 14,533,371
EXPENSES
Management fee (Note 3) $ 6,358,701
Transfer agent fees (Note 3) 140,122
Accounting fees and expenses (Note 3) 456,795
Non-interested trustees' compensation 6,589
Custodian fees and expenses 74,222
Registration fees 159,722
Audit 30,080
Legal 10,334
Miscellaneous 20,207
Total expenses before reductions 7,256,772
Expense reductions (Note 4) (88,297) 7,168,475
Net investment income 7,364,896
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 1) 77,232,971
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) on investment securities 86,481,802
Net gain (loss) 163,714,773
Net increase (decrease) in net assets resulting from operations $ 171,079,669
</TABLE>
Statement of Changes in Net Assets
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
YEARS ENDED DECEMBER 31,
1993 1992
INCREASE (DECREASE) IN NET ASSETS
Operations $ 7,364,896 $ 4,307,187
Net investment income
Net realized gain (loss) on investments 77,232,971 8,662,755
Change in net unrealized appreciation (depreciation) on investments 86,481,802 47,619,060
Net increase (decrease) in net assets resulting from operations 171,079,669 60,589,002
Distributions to shareholders from: (4,411,941) (1,078,184)
Net investment income
Net realized gain (8,449,098) (9,272,379)
In excess of net realized gain (4,786,725) -
Total distributions (17,647,764) (10,350,563)
Share transactions 798,421,513 492,499,404
Net proceeds from sales of shares
Reinvestment of distributions from: 4,411,941 1,078,184
Net investment income
Net realized gain 13,235,823 9,272,379
Cost of shares redeemed (335,488,823) (174,713,000)
Net increase (decrease) in net assets resulting from share transactions 480,580,454 328,136,967
Total increase (decrease) in net assets 634,012,359 378,375,406
NET ASSETS
Beginning of period 749,836,989 371,461,583
End of period (including undistributed net investment income of $7,251,541
and $5,248,552, $ 1,383,849,348 $ 749,836,989
respectively)
OTHER INFORMATION
Shares
Sold 37,006,075 27,004,989
Issued in reinvestment of distributions from: 220,487 54,017
Net investment income
Net realized gain 661,460 464,548
Redeemed (15,878,913) (9,652,468)
Net increase (decrease) 22,009,109 17,871,086
</TABLE>
Financial Highlights
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31,
1993 1992 1991 1990 1989
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 19.76 $ 18.51 $ 12.91 $ 15.18 $ 11.72
Income from Investment Operations
Net investment income .12 .09 .09(dagger) .24 .24
Net realized and unrealized gain (loss) on
investments 3.64 1.64 5.72 (1.98) 3.41
Total from investment operations 3.76 1.73 5.81 (1.74) 3.65
Less Distributions
From net investment income (.11) (.05) (.21) (.21) (.19)
From net realized gain (.21) (.43) - (.32) -
In excess of net realized gain (.12) - - - -
Total distributions (.44) (.48) (.21) (.53) (.19)
Net asset value, end of period $ 23.08 $ 19.76 $ 18.51 $ 12.91 $ 15.18
TOTAL RETURN 19.37% 9.32% 45.51% (11.73)% 31.51%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 1,383,849 $ 749,837 $ 371,462 $ 135,487 $ 77,261
Ratio of expenses to average net assets .71% .75% .84% .88% 1.02%
Ratio of net investment income to average net assets .72% .83% .56% 2.69% 2.83%
Portfolio turnover rate 159% 262% 261% 88% 111%
</TABLE>
(dagger) NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON
AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO
INVESTMENTS/DECEMBER 31, 1993
(Showing Percentage of Total Value of Investments)
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - 72.5%
AUSTRALIA - 2.7%
Ampolex Ltd. Ord. 1,088,100 $ 4,100,829 03212792
FAI Insurance Ltd. Ord. 1,531,900 1,102,646 30239330
Lend Lease Corp. Ltd. 81,000 973,554 52599292
TNT Ltd. (b) 1,658,800 2,140,184 93599292
Westpac Banking Corp. 2,866,300 9,011,647 96121410
Westpac Banking Corp. sponsored ADR 8,000 127,000 96121430
Woolworths, Ltd. 1,800,000 3,935,772 98088892
21,391,632
AUSTRIA - 0.4%
Verbund Gesellschaft 47,100 2,866,368 92299999
BERMUDA - 0.4%
Consolidated Electric Power Asia Ltd.
sponsored ADR (c) 30,000 510,000 20855210
Jardine Strategic Holdings Ord. 748,000 3,508,898 47199020
4,018,898
BRAZIL - 0.5%
Telebras PN (Pfd. Reg.) 118,632,600 4,044,185 95499792
CANADA - 0.6%
Abitibi-Price Inc. 126,900 1,500,142 00368010
Noranda, Inc. 150,600 2,948,194 65542210
4,448,336
CHILE - 0.1%
Maderas Y Sinteticos Sociedad Anonima
Masisa, sponsored ADR 24,700 691,600 55646510
DENMARK - 0.3%
Den Danske Bank Group AS 36,900 2,085,329 24820692
FINLAND - 0.8%
America Group Ltd. Class A 119,300 2,181,721 02351210
Huhtamaki Ord. 41,200 1,286,556 44499392
Kansallis-Osake-Pankki 127,400 290,132 48199210
Outokumpu Oy Class A (b) 125,700 1,483,352 69099992
Repola OY 35,000 544,059 75999A92
Unitas Bank Ltd. B Free shares 31,900 77,050 90499123
5,862,870
FRANCE - 4.4%
Assurances Generales (Reg.) 26,400 3,180,132 04557510
BNP CI Ord. 102,140 4,961,184 05599996
Bail Investissement (b) 3,400 660,585 05699092
Credit Lyonnais CI 16,500 2,132,539 22799392
Elf Aquitaine 18,100 1,274,247 28627199
Financiere Bank de Suez Cie 45,900 $ 2,767,648 31799110
GAN (Groupe Des Assur Natl.) 40,400 3,678,932 36599792
Klepierre SA (b) 5,700 733,806 49899822
Lafarge Coppee 24,900 1,962,889 50586310
Paribas SA (Cie Financiere) Class A (b) 37,400 3,133,411 73999192
Pechiney SA CIP 15,550 1,016,701 70599310
Societe Generale Class A 37,600 4,865,957 83357799
Sophia SA 5,700 512,316 84199C22
Total Compagnie Francaise des Petroles
Class B (b) 12,800 697,848 20434510
UFB Locabail SA (b) 10,700 780,943 90599B92
Unibail 20,300 2,071,498 90499592
34,430,636
GERMANY - 6.2%
Allianz Versich Holdings Ord. (Reg.) (b) 3,150 5,342,423 01882495
Bayer AG 35,100 7,471,522 07273010
Bayerische Vereinsbank AG Ord. 4,200 1,408,699 07276110
BHF Bank:
(warrants) (b) 2,200 253,135 05549995
(Bank Berlin Hand) 10,400 3,141,181 05549991
Commerzbank AG 8,100 1,826,717 20259710
Computer 2000 AG (b) 1,600 777,816 20599492
Continental Gummi-Werke AG (b) 7,400 1,179,266 21199010
Deutsche Bank AG 15,300 7,803,159 25152592
Deutsche Bank AG (warrants) (b) 21,300 751,174 25299992
Hoechst AG Ord. 16,200 2,963,756 43439010
Munich Reinsurance (Reg.) (b) 2,300 5,021,574 62699492
Sixt AG ord (b) 1,200 386,607 83002199
Thyssen AG Ord. 15,300 2,425,009 88629110
Veba Vereinigte Elektrizetaets &
Bergwerks AG Ord. 27,400 8,228,512 92239110
48,980,550
HONG KONG - 1.2%
Cathay Pacific Airways Ltd. 874,000 1,696,539 14890610
Dickson Concept 1,933,000 2,026,171 25399210
Hong Kong Land Holdings Ltd. 1,210,000 4,290,394 43858292
Semi-Tech Microelectronics 100,000 208,347 81699192
Swire Pacific Class A 97,000 872,403 87079410
9,093,854
INDIA - 0.1%
ITC Ltd.:
(warrants) (b) (c) 8,000 108,000 45031811
GDR (b) (c) 24,000 684,000 45031810
792,000
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
INDONESIA - 0.9%
Astra International
(rights) 8,000 $ 6,403 04699895
(For. Reg.) 40,000 422,448 04699894
Bank International Indonesia Ord 643,500 3,154,263 06199B92
Jakarta International Hotels &
Development Ord. (b) 1,047,000 3,185,874 47399693
6,768,988
IRELAND - 0.6%
Anglo Irish Bank 196,600 177,131 03599592
Bank of Ireland U.S. Holdings, Inc. 440,300 1,885,937 06278793
Irish Life PLC 728,200 2,312,436 46299B92
4,375,504
ITALY - 1.1%
Assicurazioni Generali Spa 226,100 5,170,070 04542910
SAI (Soc Assicur Industriale) 95,000 1,095,282 78399110
SIP Spa 1,268,400 2,657,247 78401792
8,922,599
JAPAN - 14.7%
ADO Electronic Industrial Co. 23,000 396,960 00699992
Amadasonoike Co. Ltd. 38,000 210,686 02499492
Aoyama Trading Co. Ord. 15,000 858,484 03799092
Asahi Glass (warrants) (b) 50 33,125 04339392
Canon, Inc. 375,000 5,164,320 13780199
Chudenko Corporation 12,000 375,587 17123410
Cosmo Oil Company Ltd. 96,000 685,929 22199092
Daiwa House Industry Co. Ltd. (b) 28,000 375,587 23406299
East Japan Railway Ord. (b) 700 2,629,108 27399722
Fujitsu Ltd. 511,000 3,856,778 35959010
Hitachi Maxell Ltd. (b) 165,000 2,375,587 43358990
Hitachi, Ltd. (b) 923,000 6,784,761 43357810
Honda Motor Co. Ltd. 233,000 3,167,092 43812810
IO Data Device, Inc. 6,000 464,118 45099A92
Izumi Co. Ord. 42,000 837,559 46399292
Joshin Denki Co. Ltd. Ord. (b) 20,000 207,467 48199999
Konica Corp. 382,000 2,148,697 50046M10
Kyocera Corporation (b) 17,000 896,937 50155610
Marubeni Corp. 216,000 855,695 57381010
Marukyo Corp. 16,000 393,472 57899792
Matsushita Electric Industrial Co. Ltd. 278,000 3,704,180 57687910
Minebea Co. 349,000 1,513,658 60299392
Mitsubishi Bank of Japan 78,000 1,855,399 60674210
Mitsubishi Heavy Industry (b) 221,000 1,215,425 60699310
Mitsubishi Trust & Banking 305,000 $ 3,272,970 60699410
Murata Manufacturing Co. (b) 211,000 7,226,737 62699110
Nichido Fire & Marine Insurance Co. 404,000 2,312,185 65399920
Nikko Securities 68,000 662,821 65399010
Nippon Sheet Glass (warrants) (b) 100 13,750 65461393
Nippon Shinpan Ltd. 74,000 610,794 65461710
Nippon Telegraph & Telephone Ord. (b) 400 2,661,301 65462492
Nomura Securities Co. Ltd. 201,000 3,217,437 65536130
Oji Paper Ltd. (b) 88,000 696,445 67811810
Orix Corp. 178,000 4,854,907 68616710
Pioneer Electronic Corp. 107,000 2,688,755 72365710
Sankyo Co. Ltd. 2,000 114,465 82299792
Sanwa Bank (b) 170,000 3,146,882 80399410
Sony Corp. 169,400 8,346,917 83569999
Sumitomo Realty & Development Co. Ltd. 123,000 681,959 86562310
Sumitomo Trust & Banking Co. 186,000 1,846,277 86599310
Suzuki Motor Corp. 391,000 3,671,361 86958592
TDK Corp. 143,000 4,833,803 87235110
Tobu Railway (b) 80,000 450,704 88739110
Tohoku Electric Power Inc. (b) 92,000 2,427,006 88906099
Tokio Marine & Fire Insurance Co. Ltd. (The) 300,000 3,272,970
88909099
Tokyo Electric Power Co., Inc. 74,000 2,038,185 88910710
Tokyo Style Co. Ltd. 213,000 3,066,667 88999410
Toshiba Corp. (b) 1,028,000 6,251,196 89149310
Toyota Motor Corporation 376,000 5,985,066 89399999
115,358,171
KOREA (SOUTH) - 1.2%
Cho Hing Bank Co. Ltd. 157,000 2,022,920 17099E22
Korea Electric Power Corp. 147,470 4,001,230 50099B92
Korea First Securities Co. (b) 5,000 119,556 50099K22
Kyungki Bank Ltd. (b) 135,000 1,973,611 61999922
Seoul Securities Co. (b) 71,000 1,574,552 83599P22
9,691,869
LUXEMBOURG - 0.0%
Arbed SA 1,200 133,721 03899030
MALAYSIA - 1.4%
Ekran Berhad Ord. (b) 133,000 839,303 28299792
Magnum Corp. BHD 262,500 779,538 55999392
Renong BHD 191,000 303,455 75999H22
Resorts World BHD 148,000 950,444 76199592
Tanjong PLC (Reg) 114,500 722,558 87599993
Telekom Malaysia BHD 417,000 3,420,951 94099892
Tenega Nasional BHD 527,000 3,775,602 92099992
10,791,851
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
MEXICO - 1.4%
Grupo Dina (Consorcio G) ADR 34,800 $ 970,050 21030610
Grupo Financiero Bancomer SA de CV
sponsored ADR, Series C (c) 70,200 2,930,850 40048610
Telefonos de Mexico SA sponsored ADR
representing share Ord. Class L 100,600 6,790,500 87940378
10,691,400
NETHERLANDS - 5.1%
ABN-AMRO Holdings NV 129,182 4,746,410 00399192
Aegon NV Ord. 75,650 4,101,272 00792493
Akzo NV Ord. 53,700 5,187,873 01019910
Amev NV CVA 2,900 128,160 03199092
Hoogovens en Staalfabrieken (b) 57,900 1,431,136 43888410
International Nederlanden Groep CVA
(warrants) (b) 100,000 215,313 46099893
International Nederlanden Groep CVA 98,000 4,678,417 46099892
KBB NV Ord. 18,400 993,751 48130092
Oce Van Der Grinten NV 86,700 3,051,876 67462710
Philips Electronics 269,800 5,545,734 71833799
Pirelli Tyre Holdings NV Ord. (b) 852,600 6,352,876 72499092
Stad Rotterdam 50,100 1,225,468 85299822
Wereldhave NV 36,300 2,210,457 95199E22
39,868,743
NEW ZEALAND - 0.0%
Brierley Investments Ltd. 330,800 255,073 10901410
NORWAY - 1.4%
Bergesen Group Class B 83,200 1,617,882 08399011
Christiania Bank Free shares Ord (b) 860,000 1,558,174 17100792
Den Norske Bank Class A Free shares (b) 477,800 1,220,851 25299792
Mosvold Shipping AS 'B' 26,400 161,194 62099294
Norske Skogindustrier A Free shares (b) 39,300 918,102 66499594
Olav Thon Eiendomsselskp Ord. 36,100 551,050 67941099
Orkla AS
Class A Free shares 6,450 252,562 39299193
Class B (non-vtg.) 39,500 1,457,565 39299192
Smedvig AS 24,400 453,423 79799892
Unitor AS 149,600 2,521,861 91699392
10,712,664
SINGAPORE - 1.0%
Kim Eng Holdings Ltd (rights) (b) 90,800 90,321 49499D93
Kim Eng Holdings Ltd. 454,000 1,072,552 49499D92
Neptune Orient Lines Ltd. (b) 2,902,000 5,358,369 64099610
Singapore Aerospace (For. Reg.) (b) 22,000 44,588 83999793
United Overseas Bank (warrants) (b) 237,375 1,180,604 91199E92
7,746,434
SOUTH AFRICA - 0.2%
De Beers Consolidated Mines Ltd. ADR 24,000 $ 582,000 24025330
Driefontein Consolidated Ltd. ADR 47,300 608,988 26202640
1,190,988
SPAIN - 4.0%
Acerinox SA (Reg.) 13,750 1,064,268 00499192
Argentaria Corp. Bancaria de Esp (b) 47,350 1,997,862 21991392
Banco Bilbao Vizcaya SA Ord. (Reg.) 182,500 4,035,015 05945891
Banco Central SA (Reg.) 13,700 330,178 05947010
Banco Intercontinental Espanol 49,350 4,036,944 24699592
Banesto (Reg.) 86,800 909,536 05981699
Corporacion Mapfre International
Reas (Reg.) (b) 93,100 4,877,750 16899192
Iberdrola SA 220,500 1,578,851 45499892
Repsol SA Ord. (b) 105,400 3,276,493 76026T10
Telefonica de Espana SA Ord. 463,850 6,043,172 87938210
Union Electrica Fenosa (b) 679,500 2,852,805 90659510
Vallehermoso SA (b) 54,250 1,051,650 91899210
32,054,524
SWEDEN - 2.2%
Aktiebolaget Electrolux (b) 114,400 3,894,048 01019810
Foreningsbanken AB, Class A, ord (b) 157,000 352,825 34599E22
Frontline (b) 152,000 400,795 35999F22
ICB Shipping (b) 25,000 281,660 44999B92
Marieberg Tidnings 'A' (b) 36,600 679,939 56799392
OM Gruppen AB Ord. (b) 17,200 439,102 68199E22
SKF AB Ord. (b) 217,400 3,517,630 78437530
Scribona AB B Free shares (b) 8,700 31,282 81199B92
Securitas B Free Shares 6,000 169,715 81399792
Skandia International Holding Co. AB ADR 35,400 717,046 83055510
Skandinaviska Enskilda Banken
Class A Free shares 429,100 2,905,788 88099222
Skanska Class B (b) 196,800 4,198,576 93899392
17,588,406
SWITZERLAND - 8.2%
Alusuisse Lonza (Reg.) 8,105 3,518,703 02239994
Baloise Holding (Reg.) (b) 4,800 8,870,968 05899195
C.S. Holdings:
(Bearer) (b) 1,000 495,296 17599792
(Reg.) 101,000 9,977,822 17599795
Ciba-Geigy AG (Reg.) 12,980 7,850,806 17199492
Globus Magazine Part. Cert 4,669 3,686,878 37957792
Holderbank Financiere AG PC (Bearer) 8,800 5,500,000 43479593
Sulzer Gebrueder A G, Class B
(warrants) (b) 6,240 31,032 86557692
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
SWITZERLAND- CONTINUED
Surveillance, Societe Generale (Bearer) (b) 410 $ 515,255 86901193
Swiss Bank Corp. (Bearer) (b) 21,600 6,909,677 87083610
Swiss Reinsurance Corp.:
(Bearer)(b) 3,200 1,677,419 87099392
(Reg.) (b) 1,250 617,440 87099393
Class A (warrants) (b) 4,450 34,392 87099D22
Class B (warrants) (b) 4,450 30,654 87099399
Winterthur Schweiz (Reg.) 11,750 6,483,031 97629994
Zurich Versicherung (Reg.) 8,450 8,603,327 99499597
64,802,700
TAIWAN (FREE CHINA) - 0.1%
Taiwan Fund, Inc. 25,800 1,009,425 87403610
THAILAND - 0.3%
Ruam Pattana Fund II (For.) 1,117,000 766,117 76999523
Ruang Khao Unit Trust (For. Reg.) (b) 836,800 614,931 77399393
Telecomasia Corp. Public Ltd. 185,000 1,109,347 87928D92
2,490,395
UNITED KINGDOM - 11.0%
BET Public Ltd. Co. Ord. 1,529,800 3,027,750 05538H10
Barclays PLC Ord. 617,000 5,786,812 06738E10
Bass PLC Ord. 304,800 2,415,269 06990492
British Petroleum PLC Ord. 407,600 2,170,303 11088910
British Steel PLC Ord. 2,040,100 3,811,743 11101510
British Vita Ord. 534,300 1,968,960 11199192
Burton Group PLC Ord. 2,014,700 2,068,130 12304910
Dixons Group PLC 536,400 2,242,104 25587592
English China Clay PLC (b) 157,100 1,072,010 29321792
First National Finance Corporation PLC 549,500 482,912 33599392
Great Universal Stores PLC Ord Class A 381,600 3,657,915 39133420
Ladbroke Group PLC Ord. 1,765,500 4,224,382 50572799
Midlands Electricity PLC 361,400 3,837,934 59780293
Mirror Group Newspaper PLC (b) 1,002,700 2,488,060 60499792
National Westminster Bank PLC Ord. 707,000 6,474,282 63853930
North West Water Ord. 337,700 2,917,880 67299195
Rolls Royce Ltd. Ord. 874,433 2,092,291 77577910
Royale Insurance Co. Ltd. 773,900 3,880,660 78074910
Saatchi & Saatchi PLC Ord. (b) 733,200 1,440,305 78514310
Sainsbury J PLC Ord. 664,300 4,356,400 78710310
Sedgwick Group 223,000 597,513 81482610
Storehouse PLC 373,900 1,303,311 86211210
TSB Group PLC 296,600 1,055,768 87199010
Taylor Woodrow PLC 322,500 688,302 87667410
Tesco PLC Ord. (b) 1,490,500 4,689,128 88157510
Tomkins PLC Ord. 429,200 1,489,732 89003010
Trafalgar House PLC Ord. 260,600 $ 361,812 89270710
Vickers PLC Ord. Unit 1,933,650 4,998,002 92549310
Vodafone Group PLC 150,000 1,314,900 92857T92
Warburg (SG) Group PLC Ord. 231,000 3,176,451 81799099
Whitbread Class A 565,000 4,844,304 96341499
Willis Coroon PLC Ord. (b) 419,100 1,392,774 97062410
86,328,099
TOTAL COMMON STOCKS
(Cost $486,102,933) 569,487,812
PREFERRED STOCKS - 3.4%
CONVERTIBLE PREFERRED STOCKS - 0.0%
NETHERLANDS - 0.0%
ABN-AMRO Holdings NV 6% (b) 6,552 240,734 00399194
NONCONVERTIBLE PREFERRED STOCKS - 3.4%
AUSTRIA - 0.9%
Creditanstaldt Bank 92,500 6,069,305 22539210
MaCulan Holding Ord. 6,700 673,709 55699594
6,743,014
GERMANY - 0.4%
Boss (Hugo) AG 1,700 860,660 44451094
RWE AG (b) 10,200 2,447,014 76204599
3,307,674
ITALY - 1.9%
Banco Ambro Veneto N/C Risp 734,200 1,304,578 06399592
SAI (Sta Assicur Industriale) N/C Risp 500,500 2,672,345 78399192
SIP (Societa Ital Per L'Eser)
Spa Di Risp N/C Ord. 150,000 273,085 78401796
Stet Societa Finanziaria Telefonica Spa 5,126,900 10,349,365 85982592
Unicem Di Risp 143,900 465,275 91199792
15,064,648
KOREA (SOUTH) - 0.2%
Korea First Securities Co. (b) 66,140 1,499,550 50099K23
TOTAL NONCONVERTIBLE PREFERRED STOCKS 26,614,886
TOTAL PREFERRED STOCKS
(Cost $22,239,956) 26,855,620
MOODY'S MOODY'S
RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE
(UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1)
Corporate BONDS - 0.9%
CONVERTIBLE BONDS - 0.3%
GRAND CAYMAN - 0.0%
CTII Overseas Finance
4 1/4%, 11/18/98 (c) - XEU 265,000 $ 280,900 126995AA
HONG KONG - 0.1%
Hon Kwok Land Treasury Ltd.
4 7/8%, 12/15/00 - XEU 540,000 561,600 43899JAA
INDIA - 0.1%
Jindal Strip euro 4 1/4%
3/31/99 (c) - XEU 355,000 457,950 642994AA
THAILAND - 0.1%
Asia Credit 3 3/4%, 11/17/03 (c) - 635,000 933,450 044909AA
TOTAL CONVERTIBLE BONDS 2,233,900
NONCONVERTIBLE BONDS - 0.6%
BRAZIL - 0.6%
Brazil Federative Republic IDU euro
8 3/4%, 1/1/01 B2 5,250,000 4,364,062 1057569E
TOTAL CORPORATE BONDS
(Cost $5,860,514) 6,597,962
GOVERNMENT OBLIGATIONS - 4.8%
ARGENTINA - 0.5%
Argentina Republic BOCON
3 1/4%, 4/1/01 B1 5,570,980 4,827,811 039995AF
DENMARK - 0.5%
Danish Government Bullet
7%, 12/15/04 Aa1 DKK 25,000,000 3,935,672 249998AV
FRANCE - 0.6%
French Government Strips 4/25/23 Aaa FRF 168,000,000 4,473,185 351996BL
UNITED STATES OF AMERICA - 3.2%
U.S. Treasury Bills, yield at date of
purchase 3.153%, 2/24/94 25,000,000 24,872,250 99399H5H
TOTAL GOVERNMENT OBLIGATIONS
(Cost $36,593,799) 38,108,918
PRINCIPAL VALUE
AMOUNT (A) (NOTE 1)
Indexed SECURITIES - 1.4%
UNITED STATES OF AMERICA - 1.4%
Bankers Trust Company note
8.1425%, 10/28/94
(coupon inversely indexed to
JPY LIBOR and principal
indexed to value of 9-year
Japanese securities, both
multiplied by 3) $ 4,900,000 $ 5,440,470 0669918T
Bankers Trust Company note
11.595%, 8/19/97
(coupon inversely indexed
to JPY LIBOR, multiplied by 7) 3,600,000 4,766,760 0669918C
Citibank Nassau 4.625%, 7/30/96
(inversely indexed to 1-year
SEK swap rate, multiplied by 10) 900,000 942,570 223991AH
TOTAL indexed securities
(Cost $9,400,000) 11,149,800
MATURITY
AMOUNT
REPURCHASE AGREEMENTS - 17.0%
Investments in repurchase agreements
(U.S. Treasury obligations), in a
joint trading account at 3.23%
dated 12/31/93 due 1/3/94, $ 133,640,967 133,605,000
TOTAL INVESTMENTS - 100%
(Cost $693,802,202) $ 785,805,112
Forward Foreign Currency Contracts
SETTLEMENT UNREALIZED
CONTRACTS TO BUY DATE(S) VALUE GAIN/(LOSS)
16,900 DKK 2/9/94 $ 2,477,196 $ 13,082
(Payable amount $2,464,114)
THE VALUE OF CONTRACTS TO BUY AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 0.3%.
CONTRACTS TO SELL
271,221,570 BEF 2/1/94 $ 7,455,095 $ 9,019
33,888,672 DKK 2/9/94 4,967,389 104,474
24,045,200 FIM 2/15/94 4,135,220 (41,444)
228,920,092 FRF 2/10/94 38,525,419 412,835
1,467,000,000 ESP 2/1/94 10,188,962 815,463
49,776,600 CHF 2/8/94 to 2/10/94 33,411,760 (411,760)
TOTAL CONTRACTS TO SELL
(Receivable amount $99,572,432) $98,683,845 $ 888,587
THE VALUE OF CONTRACTS TO SELL AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 12.6%
CURRENCY TYPE ABBREVIATIONS:
XEU - European currency unit
BEF - Belgian franc
DKK - Danish krone
FIM - Finnish markka
FRF - French franc
ESP - Spanish peseta
CHF - Swiss franc
LEGEND:
(a) Principal amount is stated in United States dollars unless otherwise
noted.
(b) Non-income producing
(c) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $5,905,150 or 0.8% of net
assets.
(d) Standard & Poor's Corporation credit ratings are used in the
absence of a rating by Moody's Investors Service, Inc.
OTHER INFORMATION:
Purchases and sales of securities, other than short-term securities,
aggregated $504,578,066 and $144,313,315, respectively.
INCOME TAX INFORMATION:
At December 31,1993, the aggregate cost of investment securities for income
tax purposes was $694,278,825. Net unrealized appreciation aggregated
$91,526,287, of which $107,169,263 related to appreciated investment
securities and $15,642,976 related to depreciated investment securities.
At December 31, 1993, the fund had a capital loss carryforward of
approximately $8,614,000, all of which will expire on December 31, 2001.
INDUSTRY DIVERSIFICATION
AS A PERCENTAGE OF TOTAL VALUE OF INVESTMENTS
Aerospace and Defense - 0.3%
Basic Industries - 5.3%
Chemicals and Plastics 2.2%
Iron and Steel 1.2
Nonferrous Metals and Mining 1.3
Paper and Forest Products 0.6
Conglomerates - 0.7%
Construction and Real Estate - 3.7%
Building Materials 1.0
Construction 0.9
Engineering 0.1
Real Estate 1.6
Real Estate Investment Trusts 0.1
Durables - 6.3%
Autos, Tires, and Accessories 3.4
Textiles and Apparel 0.5
Consumer Electronics 2.4
Consumer Durables 0.0
Energy - 1.6%
Energy Services 0.1
Oil and Gas 1.5
Finance - 31.0%
Banks 17.5
Closed End Investment Company 0.5
Credit and Other Finance 0.7
Insurance 10.7
Securities industry 1.6
Government Obligations - 5.4%
Health - 1.0%
Drugs and Pharmaceuticals 1.0
Industrial Machinery and Equipment - 2.3%
Electrical Equipment 1.7
Industrial Machinery and Equipment 0.6
Media and Leisure - 1.7%
Lodging and Gaming 1.3
Publishing 0.4
Nondurables - 1.4%
Beverages 0.9
Foods 0.2
Tobacco 0.1
Household Products 0.2
Precious Metals - 0.0%
Repurchase Agreements - 17.0%
Retail and Wholesale - 4.0%
Apparel Stores 0.6%
General Merchandise Stores 1.1
Grocery Stores 1.3
Retail, Miscellaneous 1.0
Services - 1.7%
Advertising 0.2
Leasing & Rental 0.6
Services 0.9
Technology - 5.0%
Computer Services and Software 0.1
Computers and Office Equipment 1.6
Photographic Equipment 0.3
Electronics 3.0
Transportation - 2.0%
Air Transportation 0.3
Shipping 1.0
Trucking and Freight 0.3
Railroads 0.4
Utilities - 9.6%
Cellular 0.1
Electric Utility 4.4
Telephone Services 4.8
Water 0.3
100.0%
OVERSEAS PORTFOLIO
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, 1993
ASSETS
Investment in securities, at value (including repurchase agreements of $133,605,000) (cost $ 785,805,112
$693,802,202) (Notes 1 and 2) - See accompanying schedule
Net long foreign currency contracts held, at value (cost $2,464,114) (Note 2) 2,477,196
Short foreign currency contracts (Note 2) $ (98,683,845)
Contracts held, at value
Receivable for contracts held 99,572,432 888,587
Receivable for investments sold 2,772,102
Receivable for fund shares sold 11,107,198
Dividends receivable 996,396
Interest receivable 522,510
Total assets 804,569,101
LIABILITIES
Payable to custodian bank 75,751
Payable for foreign currency contracts held (Note 2) 2,464,114
Payable for investments purchased 18,933,216
Payable for fund shares redeemed 4,282,949
Accrued management fee 453,537
Other payables and accrued expenses 398,963
Total liabilities 26,608,530
NET ASSETS $ 777,960,571
Net Assets consist of (Note 1):
Paid in capital $ 692,949,364
Undistributed net investment income 4,331,859
Accumulated undistributed net realized gain (loss) on investments (12,225,231)
Net unrealized appreciation (depreciation) on:
Investment securities 92,002,910
Foreign currency contracts 901,669
NET ASSETS, for 50,263,845 shares outstanding $ 777,960,571
NET ASSET VALUE, offering price and redemption price per share ($777,960,571 (divided by) 50,263,845 shares) $15.48
</TABLE>
Statement of Operations
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31, 1993
INVESTMENT INCOME $ 7,674,983
Dividends
Interest 2,511,532
Foreign exchange gain (loss) (80,985)
10,105,530
Less foreign taxes withheld (1,161,704)
Total income 8,943,826
EXPENSES
Management fee (Note 3) $ 3,078,432
Transfer agent fees (Note 3) 143,222
Accounting fees and expenses (Note 3) 230,456
Non-interested trustees' compensation 2,581
Custodian fees and expenses 427,774
Registration fees 192,304
Audit 29,570
Legal 3,524
Miscellaneous 17,785
Total expenses 4,125,648
Net investment income 4,818,178
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 1)
Net realized gain (loss) on:
Investment securities (4,067,835)
Foreign currency contracts (3,247,227) (7,315,062)
Change in net unrealized appreciation (depreciation) on:
Investment securities 109,010,629
Foreign currency contracts 901,669 109,912,298
Net gain (loss) 102,597,236
Net increase (decrease) in net assets resulting from operations $ 107,415,414
</TABLE>
Statement of Changes in Net Assets
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
YEARS ENDED DECEMBER 31,
1993 1992
INCREASE (DECREASE) IN NET ASSETS
Operations $ 4,818,178 $ 2,915,760
Net investment income
Net realized gain (loss) on investments (7,315,062) (1,610,618)
Change in net unrealized appreciation (depreciation) on investments 109,912,298 (21,875,864)
Net increase (decrease) in net assets resulting from operations 107,415,414 (20,570,722)
Distributions to shareholders from: (2,858,933) (1,776,419)
Net investment income
In excess of net investment income (696,125) -
Net realized gain (807,968) -
Total distributions (4,363,026) (1,776,419)
Share transactions 601,451,901 117,253,224
Net proceeds from sales of shares
Reinvestment of distributions from: 3,555,058 1,776,419
Net investment income
Net realized gain 807,968 -
Cost of shares redeemed (111,743,493) (42,336,032)
Net increase (decrease) in net assets resulting from share transactions 494,071,434 76,693,611
Total increase (decrease) in net assets 597,123,822 54,346,470
NET ASSETS
Beginning of period 180,836,749 126,490,279
End of period (including undistributed net investment income of $4,331,859 and
$3,403,350, $ 777,960,571 $ 180,836,749
respectively)
OTHER INFORMATION
Shares
Sold 42,197,124 9,287,695
Issued in reinvestment of distributions from: 303,332 134,069
Net investment income
Net realized gain 68,939 -
Redeemed (7,983,962) (3,402,818)
Net increase (decrease) 34,585,433 6,018,946
</TABLE>
Financial Highlights
DRAFT
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31,
1993 1992 1991 1990 1989
SELECTED PER-SHARE DATA
Net asset value, beginning of period
$ 11.53 $ 13.09 $ 12.42 $ 12.67 $ 10.11
Income from Investment Operations
Net investment income
.06 .16 .24 .18 .07
Net realized and unrealized gain (loss) on investments
4.16 (1.54) .74 (.39) 2.57
Total from investment operations
4.22 (1.38) .98 (.21) 2.64
Less Distributions
From net investment income
(.18) (.18) (.17) (.04) (.08)
In excess of net investment income
(.04) - - - -
From net realized gain
- - - (.14)# - -
In excess of net realized gain
(.05) - - - -
Total distributions
(.27) (.18) (.31) (.04) (.08)
Net asset value, end of period
$ 15.48 $ 11.53 $ 13.09 $ 12.42 $ 12.67
TOTAL RETURN
37.35% (10.72)% 8.00% (1.67)% 26.28%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted)
$ 777,961 $ 180,837 $ 126,490 $ 80,554 $ 25,865
Ratio of expenses to average net assets
1.03% 1.14% 1.26% 1.41% 1.50%(double dagger)
Ratio of expenses to average net assets before expense reductions
1.03% 1.14% 1.26% 1.41% 1.98%(double dagger)
Ratio of net investment income to average net assets
1.21% 1.86% 2.33% 1.89% .66%
Portfolio turnover rate
42% 61% 168% 100% 78%
</TABLE>
(double dagger) SEE NOTE 4 OF NOTES TO FINANCIAL STATEMENTS.
# INCLUDES AMOUNTS DISTRIBUTED FROM NET REALIZED GAINS ON FOREIGN CURRENCY
RELATED TRANSACTIONS TAXABLE AS ORDINARY INCOME.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 1993
1. SIGNIFICANT ACCOUNTING POLICIES.
The Money Market Portfolio, High income Portfolio, Equity-Income Portfolio,
Growth Portfolio and Overseas Portfolio (the funds) are funds of Variable
Insurance Products Fund (the trust). The trust is registered under the
Investment Company Act of 1940, as amended (the 1940 Act), as an open-end
management investment company organized as a Massachusetts business trust.
Each fund is authorized to issue an unlimited number of shares. The
following summarizes the significant accounting policies of the funds:
SECURITY VALUATION.
MONEY MARKET PORTFOLIO. As permitted under Rule 2a-7 of the 1940 Act, and
certain conditions therein, securities are valued initially at cost and
thereafter assume a constant amortization to maturity of any discount or
premium.
HIGH INCOME PORTFOLIO. Securities for which quotations are readily
available are valued by a pricing service at their market values as
determined by their most recent bid prices in the principal market (sales
prices if the principal market is an exchange) in which such securities are
normally traded. Securities (including restricted securities) for which
market quotations are not readily available are valued at their fair value
as determined in good faith under consistently applied procedures under the
general supervision of the Board of Trustees. Short-term securities
maturing within sixty days are valued at amortized cost or original cost
plus accrued interest, both of which approximate current value.
EQUITY-INCOME AND GROWTH PORTFOLIOS. Securities for which exchange
quotations are readily available are valued at the last sale price, or if
no sale price, at the closing bid price. Securities (including restricted
securities) for which exchange quotations are not readily available (and in
certain cases debt securities which trade on an exchange), are valued
primarily using dealer-supplied valuations or at their fair value as
determined in good faith under consistently applied procedures under the
general supervision of the Board of Trustees. Short-term securities
maturing within sixty days are valued at amortized cost or original cost
plus accrued interest, both of which approximate current value.
OVERSEAS PORTFOLIO. Securities for which quotations are readily available
are valued at the last sale price, or if no sale price, at the closing bid
price in the principal market in which such securities are normally traded.
Securities for which quotations are not readily available are valued
primarily using dealer-supplied valuations or at their fair value as
determined in good faith under consistently applied procedures under the
general supervision of the Board of Trustees. Short-term securities
maturing within sixty days are valued at amortized cost or original cost
plus accrued interest, both of which approximate current value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the funds are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the current exchange rate. Purchases and sales of securities,
income receipts and expense payments are translated into U.S. dollars at
the exchange rate on the dates of the transactions.
It is not practical to identify the portion of each amount shown in the
funds' Statement of Operations under the caption "Realized and Unrealized
Gain (Loss) on Investments" that arises from changes in foreign currency
exchange rates. Investment income includes net realized and unrealized
currency gains and losses recognized between accrual and payment dates.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, each fund is not subject to income taxes to
the extent that it distributes all of its taxable income for the fiscal
year. The schedules of investments include information regarding income
taxes under the caption "Income Tax Information."
INVESTMENT INCOME.
MONEY MARKET PORTFOLIO. Interest income, which includes amortization of
premium and accretion of original issue discount, is accrued as earned.
HIGH INCOME, EQUITY-INCOME, GROWTH AND OVERSEAS PORTFOLIOS. Dividend income
is recorded on the ex-dividend date, except certain dividends from foreign
securities where the ex-dividend date may have passed, are recorded as soon
as the funds are informed of the ex-dividend date. Interest income is
accrued as earned. Dividend and interest income is recorded net of foreign
taxes where recovery of such taxes is not assured.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Dividends are declared daily and paid
monthly from net interest income for the Money Market Portfolio.
Distributions are recorded on the ex-dividend date for all other funds.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
foreign currency transactions, market discount, partnerships, non-taxable
dividends, and losses deferred due to wash sales and certain foreign
investments.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
CHANGE IN ACCOUNTING FOR DISTRIBUTIONS TO SHAREHOLDERS. Effective January
1, 1993, the funds adopted Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain,
and Return of Capital Distributions by Investment Companies. As a result,
the funds changed the classification of distributions to shareholders to
better disclose the differences between financial statement amounts and
distributions determined in accordance with income tax regulations.
Accordingly, amounts as of December 31, 1992 have been restated as follows:
INCREASE (DECREASE) INCREASE (DECREASE) INCREASE (DECREASE) (INCREASE)
DECREASE
FUND IN PAID IN CAPITAL IN UNDISTRIBUTED NET INVESTMENT INCOME IN
ACCUMULATED NET REALIZED GAIN IN ACCUMULATED NET REALIZED LOSS
High Income $162,034 $330,448 $(492,482) $ --
Equity-Income 7,969 (607,841) -- 599,872
Growth 695,219 (999,375) 304,156 --
Overseas (66,781) (510,272) -- 577,053
No adjustments were necessary for the Money Market Portfolio.
2. OPERATING POLICIES.
FORWARD FOREIGN CURRENCY CONTRACTS. The funds may enter into forward
foreign currency contracts. These contracts involve market risk in excess
of the amount reflected in the fund's Statement of Assets and Liabilities.
The face or contract amount in U.S. dollars reflects the total exposure
each fund has in that particular currency contract. The U.S. dollar value
of forward foreign currency contracts is determined using forward currency
exchange rates supplied by a quotation service. Losses may arise due to
changes in the value of the foreign currency or if the counterparty does
not perform under the contract.
Purchases and sales of forward foreign currency contracts having the same
settlement date and broker are offset and presented net on the Statement of
Assets and Liabilities. Gain (loss) on the purchase or sale of forward
foreign currency contracts having the same settlement date and broker is
recognized on the date of offset, otherwise gain (loss) is recognized on
settlement date.
REPURCHASE AGREEMENTS. The funds, through their custodian, receive delivery
of the underlying securities, whose market value is required to be at least
102% of the resale price at the time of purchase. The funds' investment
adviser, Fidelity Management & Research Company (FMR), is responsible
for determining that the value of these underlying securities remains at
least equal to the resale price.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the funds, along with other registered
investment companies having management contracts with FMR, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by
U.S. Treasury or Federal Agency obligations.
RESTRICTED SECURITIES. Each fund is permitted to invest in privately placed
restricted securities. These securities may be resold in transactions
exempt from registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations and
expense, and prompt sale at an acceptable price may be difficult. At the
end of the period, restricted securities (excluding 144A issues) for the
Money Market and High Income Portfolios amounted to $14,000,000 and
$21,884,000 or 4.0% and 4.7% of net assets, respectively.
3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As each fund's investment adviser, FMR receives a monthly
fee.
For the Money Market Portfolio, the monthly fee is computed daily and paid
monthly, based on the fund's gross income at the rate of 4% of the gross
income equivalent to an annualized yield of 5% or less, and at the rate of
6% of the gross income in excess of an annualized yield of 5%. For this
purpose, gross income includes interest accrued or discount earned
(including both original issue and market discount), less amortization of
premium. The amount of management fee paid is limited to a weighted average
of a graduated series of annual limitation rates ranging from .50% of the
fund's average net assets up to $1.5 billion to .40% of the fund's average
net assets in excess of $6 billion. For the period, the management fee was
equivalent to an annual rate of .14% of average net assets.
For all other funds, FMR receives a monthly fee that is calculated on the
basis of a group fee rate plus a fixed individual fund fee rate applied to
the average net assets of each fund. The group fee rate is the weighted
average of a series of rates which range from .14% to .37% for the High
Income Portfolio and .30% to .52% for the Equity-Income, Growth, and
Overseas Portfolios and is based on the monthly average net assets of all
the mutual funds advised by FMR. The annual individual fund fee rates are
.35%, .20%, .30% and .45% for the High Income Portfolio, Equity-Income,
Growth, and Overseas Portfolios, respectively. For the period, the
management fee was equivalent to an annual rate of .51%, .53%, .63 %, and
.77% of average net assets for the High Income Portfolio, Equity-Income,
Growth, and Overseas Portfolios, respectively.
3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
The Board of Trustees approved a new group fee rate schedule with rates
ranging from .1325% to .3700% for the High Income Portfolio and .2850% to
.5200% for the Equity-Income, Growth, and Overseas Portfolios. Effective
November 1, 1993, FMR has voluntarily agreed to implement this new group
fee rate schedule as it results in the same or a lower management fee.
SUB-ADVISER FEES.
As Money Market Portfolio's investment sub-adviser, FMR Texas Inc., a
wholly owned subsidiary of FMR, receives a fee from FMR of 50% of the
management fee payable to FMR. The fee is paid prior to any voluntary
expense reimbursements which may be in effect, and after reducing the fee
for any payments by FMR pursuant to the fund's Distribution and Service
Plan.
FMR, on behalf of the Overseas Portfolio, entered into sub-advisory
agreements with affiliates of FMR. In addition, one of the sub-advisers,
Fidelity International Investment Advisors (FIIA), entered into a
sub-advisory agreement with its subsidiary,
Fidelity International Investment Advisors (U.K.) Limited (FIIAL U.K.).
Under the sub-advisory arrangements, FMR may receive investment advice and
research services and may grant the sub-advisers investment management
authority to buy and sell securities. FMR pays its sub-advisers either a
portion of its management fee or a fee based on costs incurred for these
services. FIIA pays FIIAL U.K. and FIIAL Japan a fee based on costs
incurred for either service.
TRANSFER AGENT FEE. Fidelity Investments Institutional Operations Company
(FIIOC), an affiliate of FMR, is the funds' transfer, dividend disbursing
and shareholder servicing agent. FIIOC receives fees based on the type,
size, number of accounts and the number of transactions made by
shareholders. FIIOC pays for typesetting, printing and mailing of all
shareholder reports, except proxy statements.
ACCOUNTING FEE. Fidelity Service Co. (FSC), an affiliate of FMR, maintains
the funds' accounting records. The fee is based on the level of average net
assets for the month plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. Some of the funds placed a portion of their
portfolio transactions with brokerage firms which are affiliates of FMR.
The commissions paid to these affiliated firms were $712,270, $750,137, and
$3,119 for the Equity-Income, Growth and Overseas Portfolios, respectively
for the period.
4. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse the funds' operating expenses
(excluding interest, taxes, brokerage commissions and extraordinary
expenses) above an annual rate of 1.00% for the High Income Portfolio and
1.50% for the Equity-Income, Growth and Overseas Portfolios of average net
assets. During the period, there was no reimbursement under this agreement.
For the period January 1, 1993 to December 31, 1993, FMR directed certain
portfolio trades of the Equity income and Growth Portfolios to brokers who
paid a portion of the funds' expenses. For the period, the funds' expenses
were reduced by $60,160 and $88,297, respectively.
A special meeting of shareholders of the Money Market Portfolio and the
High Income Portfolio was held December 15, 1993. All expenses in
connection with this meeting, including the preparation of the proxy
statement, its enclosures and all solicitations were reimbursed by FMR.
5. BENEFICIAL INTEREST.
At the end of the period, Fidelity Investments Life Insurance Company
(FILI) , an affiliate of FMR, was record owner of more than 5% of the
outstanding shares of the funds and certain unaffiliated insurance
companies were record owners of more than 10% of the outstanding shares:
FILI UNAFFILIATED INSURANCE COMPANIES
FUND % OF OWNERSHIP # OF % OF OWNERSHIP
Money Market 42 1 23
High Income 21 2 53
Equity-Income 29 2 41
Growth 20 1 32
Overseas 20 1 47
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL INFORMATION OF THE
SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS
PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. NEITHER THE FUND NOR
FIDELITY DISTRIBUTORS CORPORATION IS A
BANK AND FUND SHARES ARE NOT BACKED OR GUARANTEED BY ANY BANK OR INSURED BY
THE FDIC.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Variable Insurance Products Trust and the Shareholders
of Money Market Portfolio, High Income Portfolio, Equity-Income Portfolio,
Growth Portfolio and Overseas Portfolio:
We have audited the accompanying statements of assets and liabilities of
Variable Insurance Products Trust: Money Market Portfolio, High Income
Portfolio, Equity-Income Portfolio, Growth Portfolio and Overseas
Portfolio, including the schedules of portfolio investments, as of December
31,1993, and the related statements of operations for the year then ended,
the statements of changes in 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. These financial statements and financial
highlights are the responsibility of the funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1993 by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Variable Insurance Products Trust: Money Market Portfolio, High Income
Portfolio, Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio
as of December 31,1993, the results of their operations for the year then
ended, the changes in their 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.
COOPERS & LYBRAND
Boston, Massachusetts
February 8, 1994
DISTRIBUTIONS
The Board of Trustees of Variable Insurance Products Fund voted to pay on
February 4, 1994 to shareholders of record at the opening of business on
February 4, 1994, the following distributions derived from capital gains
realized from sales of portfolio securities, and dividends derived from net
investment income:
Fund Dividends Capital Gains
High Income $ .73 $ .37
Equity-Income $ - $ .77
Growth $ .12 $ 1.27
Overseas $ .08 $ -
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, PRESIDENT
J. Gary Burkhead, SENIOR VICE PRESIDENT
Gary L. French, TREASURER
John H. Costello, ASSISTANT TREASURER
Arthur S. Loring, SECRETARY
Robert H. Morrison, MANAGER, SECURITY TRANSACTIONS
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox
Phyllis Burke Davis
Richard J. Flynn
Edward C. Johnson 3d
E. Bradley Jones
Donald J. Kirk
Peter S. Lynch
Edward H. Malone
Marvin L. Mann
Gerald C. McDonough
Thomas R. Williams
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Investments Institutional Operations Co.
Boston, MA
CUSTODIAN
Money Market Portfolio: Morgan Guaranty Trust Company of New York, New
York, NY
High Income Portfolio: The Bank of New York, New York, NY
Equity-Income Portfolio: The Chase Manhattan Bank, N.A., New York, NY
Growth & Overseas Portfolios: Brown Brothers Harriman & Co.,
Boston, MA
VIPI-2-94A
EXHIBIT 24(a)(2)
ANNUAL REPORT FOR THE PERIOD ENDED DECEMBER 31, 1993
VARIABLE
INSURANCE
PRODUCTS FUND II
(Registered trademark)
TABLE OF CONTENTS
VARIABLE INSURANCE PRODUCTS FUND II
PAGE
Performance Updates VIPFII-1
Portfolio Managers' Messages VIPFII-4
Schedule of Investments and Financial Statements:
Investment Grade Bond Portfolio VIPFII-7
Asset Manager Portfolio VIPFII-16
Index 500 Portfolio VIPFII-44
Notes to Financial Statements VIPFII-55
Report of Independent Accountants VIPFII-59
DISTRIBUTIONS
The Board of Trustees of Variable Insurance Products Fund II voted to pay
on February 4, 1994, to shareholders of record at the opening of business
on February 4, 1994, the following distributions derived from capital gains
realized from sales of portfolio securities, and dividends derived from net
investment income:
Portfolio Dividends Capital Gains
Investment Grade Bond $ 0.00 $ 0.03
Asset Manager $ 0.28 $ 0.46
Index 500 $ 0.00 $ 0.10
MARKET ENVIRONMENT
In 1993, investors could have put their money into just about any type of
stock or bond investment portfolio and not lost money. For the first time
since 1986, all 31 investment categories tracked by Lipper Analytical
Services produced positive total returns. Despite posting strong numbers,
U.S. stock and bond markets generally lagged many of their overseas
counterparts, which turned in unusually high returns.
U.S. STOCK MARKETS
The Standard & Poor's 500 Composite Stock Price Index - a broad measure
of U.S. stock performance - rose 10.08% in the 12 months ended December 31,
1993, in line with the market's long-term average annual return. The NASDAQ
Composite Index - a measure of small stock performance - rose 14.75%. It
was outpaced by the Dow Jones Industrial Average - an index of 30 blue-chip
stocks - which was up 17.04%. In mid-November, the Dow closed above 3700
for the first time and finished the year at 3754.
Low inflation, falling interest rates and a gradually improving economy
boosted U.S. stocks. Technology was one of the best performing sectors,
although semiconductors gave back part of their gains in the fall.
Communications stocks soared as traditional telephone utilities, cellular
companies and entertainment firms scrambled to form alliances. Investors
speculated about what role technology companies would play in the building
of the so-called information superhighway, which will link the technologies
of computers, telephones and
televisions. Financial stocks, notably securities dealers, were among the
market leaders before falling off somewhat late in the year. Also,
economically-sensitive sectors like autos and steel took off as the economy
showed steady growth. The entertainment sector, especially casinos, posted
impressive gains. Heavy machinery and precious metals stocks also performed
well.
Market laggards included the health-care and consumer non-durable sectors,
although both showed signs of life near year-end. In 1993, consumers
shunned familiar brand-name products for cheaper generic or off-
brand items, which hurt many traditional big-name growth stocks.
Uncertainty over President Clinton's health-care reform plan scared many
investors away from that sector. Drug company stocks suffered as investors
feared these companies would lose the ability to raise prices.
FOREIGN STOCK MARKETS
1993's rally in international stocks was a dramatic turnaround for many
foreign markets that had previously fallen out of favor. The Morgan Stanley
EAFE (Europe, Australia, Far East) index was up 33%. Slowly falling
interest rates and investors' hopes of economic recovery combined to lift
stock prices in Europe. The Morgan Stanley Europe index rose 29% in 1993.
Falling interest rates, a strengthening yen, and government spending aimed
at stimulating economic growth fueled a furious market rally in Japan
through late spring, before political instability dragged the market back
down. Still, the TOPIX, an index that includes stocks from Japan's larger,
better known companies, was up 24% for the year.
Emerging markets reaped the biggest international returns. The Morgan
Stanley Emerging Markets Index shot up 73% in 1993. Returns in markets like
Hong Kong up 117%, Malaysia up 110%, and Brazil up 78% reflected a
favorable outlook for increases in corporate profits as economic reforms
began to take hold in these areas.
U.S. BOND MARKETS
Most all bond markets around the world richly rewarded investors in 1993.
The U.S. bond market posted relatively strong numbers on a historical
basis. Falling interest rates through most of the year fueled gains. The
yield on the benchmark 30-year Treasury bond hit a three decade low in
mid-October, yielding 5.79%. By year-end, mild inflation fears, fueled by a
strengthening economy, had pushed up the yield on the 30-year bond to
6.35%, which slightly dampened overall 1993 results for investors. The
Lehman Brothers Aggregate Bond Index - a broad measure of taxable
bonds in the U.S. market - returned 9.75% for the year. Falling interest
rates and a strengthening economy helped high-yield issues post impressive
results. The Merrill Lynch High Yield Master Index rose 17.18%.
Mortgage-backed securities continued to be hurt by refinancings; the Lehman
Brothers mortgage index was up 6.84% in '93.
FOREIGN BOND MARKETS
In general, bond investors landed more impressive returns overseas than
here at home. Falling interest rates and low inflation fueled strong
returns in both developed nations and, more notably, in emerging markets.
The Salomon Brothers World Government Bond Index - which measures bond
market performance in developed nations including the United States - rose
13.27% for the year. That figure was dwarfed by the J.P. Morgan Emerging
Markets Bond Index, which was up 44.17%.
VARIABLE INSURANCE PRODUCTS FUND II: INVESTMENT GRADE BOND PORTFOLIO
PERFORMANCE UPDATE
$10,000 OVER LIFE OF FUND
VIP II: Invest. Grade Bond (227) LB Gov't/Corp Int. Bond Index
12/31/88 10000.00 10000.00
01/31/89 10086.91 10105.00
02/28/89 10109.24 10063.57
03/31/89 10172.01 10106.84
04/30/89 10285.31 10308.98
05/31/89 10399.90 10513.10
06/30/89 10600.00 10778.03
07/31/89 10765.35 10998.98
08/31/89 10679.56 10857.09
09/30/89 10721.68 10908.12
10/31/89 10887.68 11139.37
11/30/89 10981.36 11245.19
12/31/89 11026.20 11276.68
01/31/90 11001.10 11204.51
02/28/90 11063.51 11245.97
03/31/90 11097.10 11260.59
04/30/90 11101.81 11221.17
05/31/90 11276.10 11468.04
06/30/90 11364.06 11621.71
07/31/90 11476.87 11783.25
08/31/90 11475.77 11734.94
09/30/90 11520.64 11825.30
10/31/90 11521.36 11962.48
11/30/90 11590.75 12144.31
12/31/90 11711.41 12310.68
01/31/91 11735.02 12436.25
02/28/91 11853.08 12535.74
03/31/91 12053.78 12620.98
04/30/91 12230.87 12758.55
05/31/91 12325.32 12836.38
06/30/91 12348.93 12845.37
07/31/91 12455.18 12989.23
08/31/91 12714.91 13237.33
09/30/91 12951.03 13465.01
10/31/91 13092.70 13618.51
11/30/91 13234.37 13775.12
12/31/91 13629.41 14111.24
01/31/92 13494.10 13982.82
02/29/92 13567.95 14037.36
03/31/92 13543.25 13982.61
04/30/92 13642.02 14105.66
05/31/92 13851.90 14324.30
06/30/92 14012.39 14536.30
07/31/92 14296.34 14825.57
08/31/92 14382.76 14973.82
09/30/92 14555.60 15177.47
10/31/92 14370.42 14980.16
11/30/92 14333.38 14923.24
12/31/92 14536.35 15123.21
01/31/93 14841.12 15416.60
02/28/93 15093.06 15660.18
03/31/93 15159.37 15722.82
04/30/93 15252.21 15848.60
05/31/93 15278.73 15813.74
06/30/93 15570.52 16062.01
07/31/93 15676.62 16100.56
08/31/93 15955.14 16356.56
09/30/93 16034.71 16423.62
10/31/93 16114.29 16467.97
11/30/93 16034.71 16375.75
12/31/93 16129.92 16451.07
$10,000 OVER LIFE OF FUND: LET'S SAY $10,000 WAS INVESTED IN INVESTMENT
GRADE BOND PORTFOLIO ON DECEMBER 31, 1988, SHORTLY AFTER THE FUND STARTED.
BY DECEMBER 31, 1993, THE VALUE OF THE INVESTMENT WITH DIVIDENDS REINVESTED
WOULD HAVE GROWN TO $16,130 - A 61.30% INCREASE ON THE INITIAL INVESTMENT.
FOR COMPARISON, LOOK AT HOW A $10,000 INVESTMENT IN THE LEHMAN BROTHERS
INTERMEDIATE GOVERNMENT - CORPORATE BOND INDEX (WITH DIVIDENDS REINVESTED)
DID OVER THE SAME PERIOD. IT WOULD HAVE GROWN TO $16,451 - A 64.51%
INCREASE.
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED DECEMBER 31, 1993
One Year Five Years Life of
Fund
INVESTMENT GRADE BOND
PORTFOLIO 10.96% 10.03% 9.99%
LEHMAN BROTHERS
INTERMED. GOV'T/CORP 8.79% 10.47% n/a
BOND INDEX
THE CHARTS ABOVE SHOW INVESTMENT GRADE BOND PORTFOLIO'S TOTAL RETURNS,
WHICH INCLUDE CHANGES IN SHARE PRICE, AND REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS. FIGURES FOR THE LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT/CORPORATE BOND INDEX, A BROAD MEASURE OF THE PERFORMANCE OF THE
U.S. BOND MARKET, INCLUDE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS.
FIGURES FOR MORE THAN ONE YEAR ASSUME A STEADY COMPOUNDED RATE OF RETURN
AND ARE NOT THE FUND'S YEAR-BY-YEAR RESULTS, WHICH FLUCTUATED OVER THE
PERIODS SHOWN. THE LIFE OF FUND FIGURES ARE FROM COMMENCEMENT OF
OPERATIONS, DECEMBER 5, 1988.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, IT WOULD BE LOWER.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. PRINCIPAL AND
INVESTMENT RETURN WILL VARY AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU
WITHDRAW YOUR MONEY.
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO
PERFORMANCE UPDATE
$10,000 OVER LIFE OF FUND
VIP II: Asset Mgr (228) S&P 500 Fidelity Composite (Asset
Alloc.)
09/30/89 10000.00 10000.00
10000.00
10/31/89 10020.02 9768.00
10057.20
11/30/89 10060.06 9967.27
10176.98
12/31/89 10091.10 10206.48
10276.92
01/31/90 9868.42 9521.63
10029.14
02/28/90 9969.64 9644.46
10093.23
03/31/90 10050.61 9900.03
10192.55
04/30/90 9919.03 9652.53
10098.47
05/31/90 10425.10 10593.65
10527.96
06/30/90 10506.08 10521.62
10593.55
07/31/90 10485.83 10487.95
10658.17
08/31/90 10141.70 9539.84
10328.51
09/30/90 9929.15 9075.25
10236.17
10/31/90 9979.76 9036.22
10309.57
11/30/90 10465.59 9619.96
10618.75
12/31/90 10769.23 9888.36
10792.69
01/31/91 11284.56 10319.49
10998.50
02/28/91 11726.27 11057.34
11273.90
03/31/91 11915.57 11324.93
11396.34
04/30/91 12094.35 11352.11
11471.10
05/31/91 12367.79 11842.52
11653.26
06/30/91 12146.94 11300.13
11502.23
07/31/91 12451.93 11826.72
11733.43
08/31/91 12704.33 12107.01
11942.28
09/30/91 12777.95 11904.82
11999.01
10/31/91 12862.08 12064.35
12105.80
11/30/91 12651.75 11578.15
12022.39
12/31/91 13198.62 12902.69
12614.73
01/31/92 13366.89 12662.70
12476.86
02/29/92 13626.48 12827.32
12556.58
03/31/92 13593.27 12577.19
12465.80
04/30/92 13792.52 12946.96
12619.13
05/31/92 13936.42 13010.40
12743.05
06/30/92 13925.36 12816.54
12748.65
07/31/92 14157.81 13340.74
13094.91
08/31/92 14113.54 13067.25
13044.62
09/30/92 14202.09 13221.45
13188.90
10/31/92 14224.23 13267.72
13136.41
11/30/92 14534.17 13720.15
13311.65
12/31/92 14744.49 13888.91
13474.85
01/31/93 15010.16 14005.57
13643.28
02/28/93 15150.93 14196.05
13833.47
03/31/93 15579.84 14495.59
13975.40
04/30/93 15672.57 14144.79
13890.43
05/31/93 15939.19 14523.87
14039.61
06/30/93 16066.71 14565.99
14188.71
07/31/93 16263.77 14507.73
14206.88
08/31/93 16739.05 15057.57
14556.36
09/30/93 16750.64 14941.63
14541.52
10/31/93 17202.74 15250.92
14691.00
11/30/93 17179.55 15106.04
14577.88
12/31/93 17875.08 15288.82
14678.76
$10,000 OVER LIFE OF FUND: LET'S SAY $10,000 WAS INVESTED IN ASSET MANAGER
PORTFOLIO ON SEPTEMBER 30, 1989, SHORTLY AFTER THE FUND STARTED. BY
DECEMBER 31, 1993, THE VALUE OF THE INVESTMENT WITH DIVIDENDS REINVESTED
WOULD HAVE GROWN TO $17,875 - A 78.75% INCREASE ON THE INITIAL INVESTMENT.
FOR COMPARISON, LOOK AT HOW A $10,000 INVESTMENT IN THE S&P 500 (WITH
DIVIDENDS REINVESTED) DID OVER THE SAME PERIOD. IT WOULD HAVE GROWN TO
$15,289 - A 52.89% INCREASE. YOU CAN ALSO LOOK AT HOW THE ASSET ALLOCATION
COMPOSITE INDEX, A HYPOTHETICAL COMBINATION OF UNMANAGED INDICES, DID OVER
THE SAME PERIOD. REFLECTING THE FUND'S NEUTRAL MIX OF 40% STOCKS, 40%
BONDS, AND 20% SHORT-TERM INSTRUMENTS, THIS INDEX COMBINES RETURNS FROM THE
S&P 500 52.89%, LEHMAN BROTHERS TREASURY BOND INDEX 54.22%, AND THE
SALOMON BROTHERS 3-MONTH T-BILL TOTAL RATE OF RETURN INDEX 24.29%. WITH
DIVIDENDS AND INTEREST, IF ANY, REINVESTED, A $10,000 INVESTMENT IN THE
INDEX WOULD HAVE GROWN TO $14, 679 - A 46.79% INCREASE.
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED DECEMBER 31, 1993
One Year Life of
Fund
ASSET MANAGER PORTFOLIO 21.23% 14.35%
S&P 500(Registered trademark) 10.08% 10.12%
THE CHARTS ABOVE SHOW ASSET MANAGER PORTFOLIO'S TOTAL RETURNS, WHICH
INCLUDE CHANGES IN SHARE PRICE AND REINVESTMENT OF DIVIDENDS AND CAPITAL
GAINS. FIGURES FOR THE S&P 500, AN UNMANAGED INDEX OF COMMON STOCKS,
INCLUDE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS. S&P 500 IS A
REGISTERED TRADEMARK OF STANDARD & POOR'S CORPORATION.
FIGURES FOR MORE THAN ONE YEAR ASSUME A STEADY COMPOUNDED RATE OF RETURN
AND ARE NOT THE FUND'S YEAR-BY-YEAR RESULTS, WHICH FLUCTUATED OVER THE
PERIODS SHOWN. THE LIFE OF FUND FIGURES ARE FROM COMMENCEMENT OF
OPERATIONS, SEPTEMBER 6, 1989.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, IT WOULD BE LOWER.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. PRINCIPAL AND
INVESTMENT RETURN WILL VARY AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU
WITHDRAW YOUR MONEY.
VARIABLE INSURANCE PRODUCTS FUND II: INDEX 500 PORTFOLIO
PERFORMANCE UPDATE
$10,000 OVER LIFE OF FUND
VIP II: Index 500 (157) S&P 500
08/27/92 10000.00 10000.00
08/31/92 10014.00 10018.36
09/30/92 10130.00 10136.58
10/31/92 10152.00 10172.06
11/30/92 10498.00 10518.92
12/31/92 10630.67 10648.31
01/31/93 10707.47 10737.75
02/28/93 10856.71 10883.79
03/31/93 11095.85 11113.43
04/30/93 10822.26 10844.49
05/31/93 11103.96 11135.12
06/30/93 11132.33 11167.41
07/31/93 11081.67 11122.74
08/31/93 11501.18 11544.30
09/30/93 11407.96 11455.40
10/31/93 11641.02 11692.53
11/30/93 11527.53 11581.45
12/31/93 11666.05 11721.59
$10,000 OVER LIFE OF FUND: LET'S SAY $10,000 WAS INVESTED IN INDEX 500
PORTFOLIO ON AUGUST 27, 1992, WHEN THE FUND STARTED. BY DECEMBER 31, 1993,
THE VALUE OF THE INVESTMENT WITH DIVIDENDS REINVESTED WOULD HAVE GROWN TO
$11,666 - A 16.66% INCREASE ON THE INITIAL INVESTMENT. FOR COMPARISON,
LOOK AT HOW A $10,000 INVESTMENT IN THE S&P 500 (WITH DIVIDENDS
REINVESTED) DID OVER THE SAME PERIOD. IT WOULD HAVE GROWN TO $11,722 - A
17.22% INCREASE.
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED DECEMBER 31, 1993
One Year Life of
Fund
INDEX 500 PORTFOLIO 9.74% 12.11%
S&P 500(Registered trademark) 10.08% 12.51%
THE CHARTS ABOVE SHOW INDEX 500 PORTFOLIO'S TOTAL RETURNS, WHICH INCLUDE
CHANGES IN SHARE PRICE, AND REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS.
FIGURES FOR THE S&P 500 INDEX, A BROAD MEASURE OF THE PERFORMANCE OF
THE U.S. BOND MARKET, INCLUDE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS.
FIGURES FOR MORE THAN ONE YEAR ASSUME A STEADY COMPOUNDED RATE OF RETURN
AND ARE NOT THE FUND'S YEAR-BY-YEAR RESULTS, WHICH FLUCTUATED OVER THE
PERIODS SHOWN. THE LIFE OF FUND FIGURES ARE FROM COMMENCEMENT OF
OPERATIONS, AUGUST 27, 1992.
THE ADVISER HAS VOLUNTARILY AGREED TO LIMIT THE EXPENSES OF THE FUND TO
.28% OF THE FUND'S AVERAGE NET ASSETS. IF EXPENSES HAD NOT BEEN LIMITED,
RETURNS WOULD HAVE BEEN LOWER.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, IT WOULD BE LOWER.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. PRINCIPAL AND
INVESTMENT RETURN WILL VARY AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU
WITHDRAW YOUR MONEY.
A MESSAGE FROM DONALD TAYLOR,
PORTFOLIO MANAGER OF
INVESTMENT GRADE
BOND PORTFOLIO
The fund finished well ahead of the average intermediate-term
investment-grade bond fund, which returned 9.52%, according to Lipper
Analytical Services. Several factors helped. First, when interest rates
fell in '93, the yields of intermediate- and longer-maturity bonds dropped
more than their shorter-term counterparts, which meant the longer bonds had
stronger price gains. This helped the fund, which had increased its
investment in bonds with maturities of 20 years or longer from 4.2% at the
end of June to 7.7% at the end of December. Second, as rates fell, the fund
benefited from a barbell structure. That meant balancing the longer bonds
with a heavy investment in short-term issues. The fund's stake in bonds
with maturities of three years or less was 40.5% on December 31.
Third, during the period, I increased the fund's stake in longer-term
Treasuries and reduced its investment in corporate bonds, from 53.7% at the
end of June to 47.2% by year's end. Banks and financial issues remained the
bulk of the corporates. Low interest rates and an improving economy helped
the balance sheets of banks. Corporate bonds were cheap relative to
Treasuries of comparable maturities through most of the year, but by
year-end, the disparity had lessened, and corporates were no longer as
attractive.
Mortgage-backed securities had disappointing results as homeowners took
advantage of low interest rates to refinance mortgages. That led to
prepayment of many mortgage bonds, which hurt investors. Now I think the
worst is over. As rates level out, possibly on the way back up,
refinancings have slowed. Plus, mortgage bonds are usually higher-yielding
than Treasury issues. Both of those reasons led me to increase the fund's
stake in mortgages from 13.7% on June 30 to 17.7% on December 31.
Overseas investments often offered better opportunities than those here at
home in '93. By year end, the fund's stake in foreign bonds was 26.6%: 9.7%
in dollar-denominated securities and 16.9% in non-dollar denominated
securities. The fund concentrated on government issues in Mexico, Europe
and Japan. Mexican Cetes - short-term issues that are the Mexican
equivalent of U.S. Treasury bills - provided double-digit returns for much
of the year. In Europe, bonds issued by the governments of France, Denmark
and Sweden, among others, had price gains when interest rates fell. Also,
10-year government issues from Japan helped the fund before I sold them in
late fall. Among the dollar-denominated investments, I bought a mix of
corporate and government issues. Because these bonds are issued by foreign
countries and companies in the U.S. bond market, they don't carry the same
currency risk as the non-dollar denominated issues.
I think the double-digit returns we've seen in the bond market this year
will be hard to repeat in '94. The bulk of the drop in interest rates
appears to be over. In the near term, short-term interest rates look like
they may be heading back up. But I don't see signs of a serious inflation
threat. Plus, long-term rates should move within a narrow range - 6 to 6.5%
- - and may again fall below 6%. Though it should be more difficult to
achieve the price gains we saw in '93 due to the falling rates, there are
reasons to remain optimistic about '94.
A MESSAGE FROM BOB BECKWITT, PORTFOLIO MANAGER OF
ASSET MANAGER PORTFOLIO
The fund enjoyed a strong year for three reasons. First was its large stake
in foreign stocks, 17% of investments at the end of December. The EAFE
index - which tracks stocks in Europe, Australia and the Far East - rose
32.56% during the year ended December 31, 1993, three times the growth in
the S&P 500. I emphasized Japan, where stocks were undervalued in the
wake of the 1991 and 1992 broad market decline; France, where the
government has been lowering taxes and the inflation outlook is good; and
the United Kingdom, which has led the rest of Europe in emerging from
recession. In August, I began taking profits in Japan and investing more
heavily in Korean companies like Korea Electric, a fast-growing utility. I
also invested heavily in Mexican stocks in anticipation of NAFTA's passage.
Second were emerging market bonds, about 14% of the fund at the end of
December. These are bonds issued by governments or corporations in
developing countries. In the fund's case, that means mainly Mexico and
Argentina, but sometimes also Brazil, Morocco and others. Lately these
bonds have outperformed comparable domestic bonds by a factor of three.
Third was the fund's low cash position, about 15% at the end of the period,
compared to 46% stocks and 38% bonds. Stocks and bonds easily outperformed
cash during the period.
Junk bonds - those rated BB or lower by one of the bond rating agencies -
also contributed to the fund's performance. Lately, 10-year Treasuries have
been yielding about 5.25%. If I can get 9.75% on a junk bond of comparable
maturity, and diversify among issuers, I can offset a good chunk of the
added credit risk. Finally, the fund's 6% stake in structured notes, which
are like customized bonds, helped.
As for U.S. stocks, I emphasized finance and technology. When interest
rates are low, banks profit because of the wide gap between the cost of
funds and the interest earned on loans. Among the fund's largest
investments was Citicorp - up more than 65% in 1993 - which stands to
profit from an improving economy. Technology, on the other hand, has
profited from the trend in industry to replace labor with capital. More and
more companies are laying off employees and seeking ways to produce more
goods or services at lower cost, often by investing in computers. The fund
has large stakes in Compaq, whose strong computer sales in the U.S. and the
Far East have offset weakness in Europe; Oracle Systems, a database
software company; and Cabletron and Cisco Systems, both computer
networkers. All made money for the fund in 1993.
Most of the fund's health stocks underperformed the broader market,
although at about 3% of the fund's investments during the period, the
damage was slight. I also missed a chance to profit from the gold rally
since the fund's stake in precious metals stocks was never more than 1%.
Looking ahead, I see moderate movement in the U.S. stock market over the
next few months. Stock prices probably can't fall far as long as interest
rates remain low, and will rise as corporate earnings improve. Returns are
likely to be more in line with the stock market's historical average of
10%. What happens with U.S. bonds depends on interest rates. I think rates
may have bottomed out, which limits the upside potential of bonds and
increases their risk. What's left, then, are foreign investments, which
could continue to grow.
A MESSAGE FROM JONATHAN WEED AND JENNIFER
FARRELLY, PORTFOLIO MANAGERS OF INDEX 500 PORTFOLIO
JENNIFER FARRELLY BEGAN MANAGING THE INDEX 500 PORTFOLIO ON JANUARY 1,
1994. SINCE JOINING FIDELITY IN 1988, SHE HAS MANAGED STOCK AND INDEXED
STOCK FUNDS FOR INSTITUTIONAL CLIENTS.
JONATHAN WEED: The fund closely tracked the performance of the S&P 500
Index, a broad measure of the performance of U.S. stocks, which was up
10.08% for 1993. Management expenses accounted for the slight difference
between the fund's and the index's performance.
Automobile companies were one of the biggest contributors to the index's
performance, posting gains of 54.8% during the year. The auto sector, which
made up 2.7% of the index at year end, benefited from improving consumer
confidence. Reassured that the U.S. economy had finally started showing
signs of recovery, consumers bumped auto sales up 8.5% over 1992. The
rising Japanese yen and improving U.S. quality also encouraged many drivers
to "buy American."
Semiconductor companies were up 45.5% during 1993, the group's best
performance in nearly five years. Semiconductor chip manufacturers - like
National Semiconductor - enjoyed a 29% jump in sales, driven mainly by
increased demand for personal computers. At year end, semiconductor stocks
made up 1.8% of the S&P 500.
The year's biggest S&P 500 gainers were gold and precious metal stocks
which were up 78.8% for 1993. The group - which includes companies such as
American Barrick, Newmont Mining and Placer Dome - made up 0.7% of index at
year end. Buoyed by rising gold prices, cost cutting by mining companies
and more political stability in South Africa, gold stocks turned in their
best performance in nearly a decade. Other precious metals benefited from a
sense that the economy was improving and that prices would rise.
The potential effects of health-care reform translated into big losses for
some groups. Investors abandoned tobacco stocks - down 32.8% for 1993 -
when talk surfaced that a tax on cigarettes might be used to fund
health-care reform. Tobacco stocks represented 1.9% of the Index on
December 31. Hospital supply companies - which make up about 0.5% of the
index and include companies such as Baxter International and Medtronic Inc.
- - were also down 35% for the year. Separately, Americans increased
recycling awareness hurt pollution control stocks, which made up about 0.5%
of the S&P 500. These stocks - like WMX Technologies - were the worst
performing group in the index, down 35.8% for 1993.
JENNIFER FARRELLY: There has been a lot of discussion lately about how high
the U.S. stock market is. As long as earnings remain strong, and interest
rates are stable, I believe stocks could continue to do well in the
near-term.
It's difficult to predict what will happen. On average, there's been a 10%
market correction every two years. We haven't seen a 10% drop in the market
since October 1990. I think it's important to remember that over any period
as short as a year, there are a wide range of possibilities. Diversifying
investments over a broad range of industries and stocks can help smooth out
some market volatility. History shows that over the long-term, stocks have
been one of the best performing asset classes.
VARIABLE INSURANCE PRODUCTS FUND II: INVESTMENT GRADE BOND PORTFOLIO
INVESTMENTS/DECEMBER 31, 1993
(Showing Percentage of Total Value of Investment in Securities)
MOODY'S MOODY'S
RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE
(UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1)
CORPORATE BONDS - 47.2%
CONVERTIBLE BONDS - 0.7%
ENERGY - 0.4%
ENERGY SERVICES - 0.4%
Halliburton Co. liquid yield option
0%, 3/31/06 A3 $ 1,000,000 $ 485,000 406216AJ
RETAIL AND WHOLESALE - 0.3%
DRUG STORES - 0.3%
Rite Aid Corp. liquid yield option
0%, 7/24/06 A3 1,000,000 427,500 767754AE
TOTAL CONVERTIBLE BONDS 912,500
NONCONVERTIBLE BONDS - 46.5%
BASIC INDUSTRIES - 1.2%
CHEMICALS AND PLASTICS - 0.8%
du Pont (E.I.) de Nemours & Co.
7 1/2%, 6/11/99 Aa2 950,000 1,017,260 263991AR
IRON AND STEEL - 0.4%
Pohang Iron & Steel Ltd.
6 5/8%, 7/1/03 (e) A2 500,000 488,635 730450AB
TOTAL BASIC INDUSTRIES 1,505,895
CONSTRUCTION AND REAL ESTATE - 0.4%
BUILDING MATERIALS - 0.4%
Westinghouse Credit Corp.:
8 3/4%, 10/20/94 Baa3 100,000 103,500 9603969D
9.15%, 7/12/95 Baa3 75,000 78,937 960396ER
8 3/4%, 11/15/96 Baa3 258,000 276,795 960396NF
459,232
ENERGY - 1.7%
ENERGY SERVICES - 1.1%
McDermott International, Inc.:
10 1/4%, 6/1/95 Baa3 305,000 324,371 580033AK
9 3/8%, 3/15/02 Baa3 450,000 506,884 580033AL
Petroliam Nasional Berhad
6 7/8%, 7/1/03 (e) A2 500,000 509,705 716708AA
1,340,960
OIL AND GAS - 0.6%
PDV America, Inc. 7 1/4%,
8/1/98 Baa3 260,000 262,275 69329RAA
Societe Nationale Elf Aquitaine
7 3/4%, 5/1/99 Aa3 500,000 542,920 833658AC
805,195
TOTAL ENERGY 2,146,155
FINANCE - 32.6%
ASSET-BACKED SECURITIES - 4.5%
Capital Auto Receivables Asset Trust:
4.70%, 5/15/97 A2 $ 500,000 $ 496,094 139732AR
5.85%, 1/15/98 Aaa 289,836 293,278 139732AE
Concord Leasing, Inc. 5.04%,
7/15/98 AAA 569,011 565,499 206993AC
Discover Card Trust:
8 3/8%, 6/16/96 Aaa 374,999 378,750 25466LAE
7 1/5%, 4/16/98 Aaa 500,000 521,250 25466LAJ
6 1/8%, 5/15/98 A2 200,000 203,720 25466LAT
Ford Credit Auto Loan Master Trust
7 3/8%, 4/15/99 Aaa 500,000 534,850 34527LAB
Ford Credit 1991-B Grantor Trust
6 1/2%, 11/15/96 Aaa 16,674 16,924 34527JAA
General Motors Acceptance Corp.
Grantor Trust 5.70%, 12/15/96 Aaa 17,051 17,232 36187LAA
Railcar Trust 7 3/4%, 6/1/04 Aaa 955,620 1,045,209 750755AA
Standard Credit Card Master Trust:
9%, 3/10/95 Aaa 1,000,000 1,054,060 853333AB
5 7/8%, 7/7/96 Aaa 500,000 511,562 85333JAS
5,638,428
BANKS - 16.9%
Bank of Boston Corp.:
9 1/2%, 8/15/97 Baa2 75,000 84,475 060716AM
3.55%, 8/26/98 (c) Baa2 450,000 439,591 060716AK
6 5/8%, 12/1/05 Baa2 1,000,000 990,000 060716BQ
Bank of New York, Inc. 7 5/8%,
7/15/02 Baa1 400,000 427,840 064057AG
BankAmerica Corp. 7 3/4%,
7/15/02 A3 500,000 538,830 066050BS
Chemical New York NV euro:
0%, 2/16/00 Baa1 1,800,000 1,219,500 1637229C
0%, 2/16/02 Baa1 1,100,000 639,375 1637229E
0%, 2/16/03 A3 946,000 508,475 165993AA
Citicorp:
9.47%, 5/22/96 Baa2 750,000 823,492 17303LFD
euro 5%, 1/30/98 (c) Baa2 500,000 500,000 71699DAB
Citizens & Southern Corp.
5 1/4%, 12/19/97 (c) A3 700,000 707,700 173124AC
Continental Bank Corp. 4 1/2%,
5/18/00 (c) Baa3 500,000 499,375 211113AC
Czech National Bank Prague euro
7%, 4/6/96 Baa3 175,000 178,937 232840AA
Export-Import Bank Korea 7.85%,
11/1/96 A1 275,000 293,645 30215MAA
First Bank System, Inc. euro
5 1/4%, 11/30/10 (c) Baa1 900,000 900,000 319279AK
MOODY'S MOODY'S
RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE
(UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1)
CORPORATE BONDS - CONTINUED
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
BANKS - CONTINUED
First Fidelity Bancorporation:
9 3/4%, 5/25/95 Baa1 $ 50,000 $ 53,463 320195AA
9 5/8%, 8/15/99 Baa1 500,000 581,165 320195AB
First Hawaiian Bank secured
6.93%, 12/1/03 (e) A1 800,000 801,040 320500AA
First Maryland Bancorp:
10 3/8%, 8/1/99 Baa1 500,000 602,075 320806AE
8 3/8%, 5/15/02 Baa1 300,000 336,000 320806AF
Kansallis-Osake-Pankki euro
10%, 3/7/96 A3 500,000 544,250 481992AB
KeyCorp 8.40%, 4/1/99 A3 310,000 341,787 493263AC
Korea Development Bank:
8.67%, 3/15/95 A1 225,000 236,333 50063HAC
8.68%, 3/15/95 A1 100,000 105,048 50063HAH
8.90%, 3/12/96 A1 200,000 215,646 50063HAG
7%, 7/15/99 A1 300,000 310,854 500630AE
MBNA American Bank, NA
7 1/4%, 9/15/02 A3 700,000 736,897 55262FLN
Marine Midland Banks, Inc.
8 5/8%, 3/1/97 Baa2 250,000 272,300 568287AE
Mellon Financial Co.:
6 1/8%, 11/15/95 A3 225,000 231,320 585510BY
6 1/2%, 12/1/97 A3 200,000 208,010 585510BZ
Mercantile Bancorporation, Inc.
7 5/8%, 10/15/02 Baa1 700,000 751,625 587342AC
Meridian Bancorp, Inc.
5 1/4%, 12/1/96 (c) Baa1 900,000 901,125 589580AA
Midland American Capital Corp.
gtd.12 3/4%, 11/15/03 A2 815,000 1,045,645 597418AA
Moore Financial Group, Inc.
5 1/4%, 11/30/97 (c) Baa1 250,000 250,000 615756AC
NCNB Corp. 9 1/8%, 10/15/01 A3 500,000 582,035 628855AP
National City Corp. 5 1/4%,
1/31/97 (c) A2 850,000 848,937 635405AE
Security Pacific Corp. 10.05%,
5/1/95 A2 300,000 322,632 81482E9A
Siam Commerce Bank Co. Ltd.
6 3/4%, 11/29/94 - THB 20,000,000 784,794 7885109M
Signet Banking Corp. 5 1/4%,
5/15/97 (c) Baa2 100,000 100,250 065446AP
Sovran Financial Corp. 9 3/4%,
6/15/99 A3 $ 550,000 $ 642,284 846104AE
Summit Bancorporation 11 7/8%,
2/1/95 Baa2 210,000 226,235 866008AA
Union Commerce Corp. 7 7/8%,
4/15/98 A3 98,000 98,000 906042AB
Wells Fargo & Co. euro 5 1/4%,
2/28/97 (c) Baa2 400,000 400,000 949740BA
21,280,985
CREDIT AND OTHER FINANCE - 7.6%
Aristar, Inc. 8.55%, 6/1/95 Baa1 125,000 131,750 040420AK
Associates Corp. North America
12 1/2%, 9/15/94 A1 800,000 845,264 046003BH
Beneficial Corp.:
9 3/8%, 6/2/95 A2 300,000 320,460 081990VN
9.40%, 2/7/96 A2 150,000 163,290 08172LHA
Caterpillar Financial Services Corp.
7.14%, 4/10/95 (e) A3 150,000 154,935 14912LHP
Chrysler Financial Corp.:
6%, 4/15/96 Baa2 500,000 505,440 171205CX
6.40%, 6/17/97 Baa3 1,000,000 1,030,770 17120QBA
Fleet Mortgage Group 6 1/2%,
9/15/99 A3 1,000,000 1,024,000 339012AB
Ford Motor Credit Co.:
6 1/2%, 1/17/95 A2 350,000 358,869 345401GN
euro 9 5/8%, 2/27/96 A2 250,000 273,125 3453979H
General Electric Capital Corp. Peso
13.31%, 10/29/96 (c)(e) Aaa 900,000 900,000 369995YN
General Motors Acceptance Corp.:
8.40%, 2/22/94 Baa1 350,000 352,005 37042LSU
6 1/4%, 2/25/94 Baa1 100,000 100,328 37042MGU
7.40%, 4/3/95 Baa1 200,000 207,006 37042MKU
8.60%, 4/5/95 Baa1 300,000 314,850 37042LWE
9.40%, 5/18/95 Baa1 200,000 212,732 37042KZN
Greyhound Financial Corp. 8 1/4%,
3/11/97 Baa2 460,000 492,384 398037AK
Household Finance Corp.:
9 1/4%, 2/15/95 A2 350,000 368,756 441812DQ
7.80%, 11/1/96 A2 350,000 374,955 441812EB
Industrial Finance Corp.
7 1/4%, 12/2/96 - THB 10,000,000 392,397 457998AB
Margaretten Financial Corp.
6 3/4%, 6/15/00 Baa3 975,000 998,107 566576AA
Maryland National Corp. 5 1/4%,
9/5/97 (c) A3 100,000 100,000 574162AE
9,621,423
MOODY'S MOODY'S
RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE
(UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1)
CORPORATE BONDS - CONTINUED
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
INSURANCE - 1.7%
ITT Hartford Group, Inc. 8 1/5%,
10/15/98 A1 $ 650,000 $ 716,241 45068HAA
Metropolitan Life Insurance Co.
6 3/10%, 11/1/03 (e) Aa3 1,000,000 989,500 592173AA
New York Life Insurance Co.
6 2/5%, 12/15/03 (e) Aa2 500,000 500,200 64952GAA
2,205,941
SAVINGS AND LOANS - 1.9%
Golden West Financial Corp.:
10 1/4%, 5/15/97 A3 350,000 397,838 381317AB
7 7/8%, 1/15/02 A3 500,000 545,050 381317AE
Great Western Bank F.S.B.
9 1/2%, 8/22/94 A3 100,000 103,492 391417XC
Household Bank 8.45%, 12/10/02 A3 1,000,000 1,119,900 441800GF
World Savings & Loan Association
(Oakland CA) 9.90%, 7/1/00 A2 200,000 234,930 981507AB
2,401,210
TOTAL FINANCE 41,147,987
MEDIA AND LEISURE - 2.3%
BROADCASTING - 1.4%
Telecommunications, Inc. 6.58%,
2/15/05 Baa3 700,000 735,000 87924FAU
Time Warner, Inc. 6.05%,
7/1/95 (e) Ba1 1,000,000 1,015,200 887315AR
1,750,200
PUBLISHING - 0.9%
News America Holdings, Inc.:
gtd. 9 1/8%, 10/15/99 Ba1 500,000 556,075 652478AD
8 5/8%, 2/1/03 Ba1 600,000 655,908 652478AG
1,211,983
TOTAL MEDIA AND LEISURE 2,962,183
NONDURABLES - 1.9%
BEVERAGES - 0.9%
Coca-Cola Enterprises, Inc.:
7 7/8%, 2/1/02 A3 500,000 552,840 191219AM
8 1/2%, 2/1/22 A3 500,000 571,250 191219AP
1,124,090
TOBACCO - 1.0%
Philip Morris Companies, Inc.:
8 7/8%, 7/1/96 A2 $ 100,000 $ 108,847 718154AY
8 5/8%, 3/1/99 A2 1,000,000 1,114,900 718154BL
1,223,747
TOTAL NONDURABLES 2,347,837
RETAIL AND WHOLESALE - 1.2%
GENERAL MERCHANDISE STORES - 0.5%
Dayton Hudson Corp. 8.94%,
6/30/94 A3 100,000 102,517 239992BV
Sears Roebuck & Company 9%,
9/15/96 Baa1 475,000 522,310 812387AU
624,827
GROCERY STORES - 0.7%
Great Atlantic & Pacific Tea, Inc.
9 1/8%, 1/15/98 Baa3 475,000 521,821 390064AA
Supervalu, Inc. 7.80%, 11/15/02 A3 400,000 430,472 868536AB
952,293
TOTAL RETAIL AND WHOLESALE 1,577,120
SERVICES - 0.2%
LEASING AND RENTAL - 0.2%
Ryder System, Inc. 9 1/4%,
5/15/01 Baa1 200,000 231,188 783549AY
TECHNOLOGY - 1.1%
COMPUTERS AND OFFICE EQUIPMENT - 0.8%
Comdisco, Inc.:
9 3/4%, 1/15/97 Baa2 200,000 222,640
7 3/4%, 1/29/97 Baa2 700,000 20033RBV 736,624 200336AF
959,264
ELECTRONICS - 0.3%
Toshiba Corp. euro 10 3/4%,
12/5/95 A1 400,000 438,500 8914939B
TOTAL TECHNOLOGY 1,397,764
TRANSPORTATION - 1.3%
AIR TRANSPORTATION - 1.3%
AMR Corp. (Del.) 9.76%, 1/11/96 Baa2 100,000 107,128 00176LAV
Delta Air Lines, Inc. 8.54%, 1/2/07 Baa3 480,000 472,464 247361XK
Qantas Airways Ltd. 6 5/8%,
6/30/98 (e) Baa2 500,000 505,180 74726MAA
Southwest Airlines Co. 8 3/4%,
10/15/03 Baa1 500,000 572,700 844741AE
1,657,472
MOODY'S MOODY'S
RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE
(UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1)
CORPORATE BONDS - CONTINUED
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - 2.6%
ELECTRIC UTILITY - 2.2%
Castle Peak Power Ltd. 6.87%,
8/1/03 (h) A3 $ 1,000,000 $ 995,000 537994AA
Iberdrola International BV gtd.
7 1/8%, 6/1/03 (e) A1 1,300,000 1,347,125 450733AB
Long Island Lighting Co. 10 1/4%,
6/15/94 Baa3 450,000 461,484 542671CB
2,803,609
GAS - 0.4%
Houston Natural Gas Corp.
12 1/8%, 4/15/95 Baa2 150,000 163,435 442272AL
Panhandle Eastern Pipe Line Co.
9 7/8%, 10/15/96 Baa2 250,000 264,000 698465AW
427,435
TOTAL UTILITIES 3,231,044
TOTAL NONCONVERTIBLE BONDS 58,663,877
TOTAL CORPORATE BONDS
(Cost $57,399,488) 59,576,377
U.S. TREASURY OBLIGATIONS - 9.2%
8%, 11/15/21 Aaa 7,500,000 8,878,125 912810EL
Stripped Coupon (d):
0%, 8/15/06 Aaa 3,300,000 1,478,664 912833CQ
0%, 5/15/11 Aaa 4,100,000 1,274,116 912833JW
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $11,121,715) 11,630,905
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES - 17.7%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 1.6%
7.95%, 1/15/17 Aaa 2,000,000 2,049,360 312905GJ
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 2.9%
7.00%, 6/1/19 Aaa 500,000 506,875 31358HQV
7.50%, 2/1/05 to 2/1/21 Aaa 3,000,000 3,068,440
12%, 3/1/17 Aaa 87,645 99,204 31362TU2
3,674,519
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 13.2%
7.50%, 2/15/23 to 12/15/23 Aaa 2,928,997 3,036,083 36203N3L
8.00%, 2/15/17 to 5/15/23 Aaa 3,111,103 3,275,406 36203AMK
9.50%, 12/15/20 (g) Aaa $ 2,700,000 $ 2,921,076 36216T9X
10.00%, 1/15/19 (g) Aaa 2,000,000 2,205,620 36216T9X
10.00%, 7/15/13 to 6/15/20 Aaa 4,656,193 5,131,969 3621033Y
16,570,154
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(Cost $22,368,848) 22,294,033
FOREIGN GOVERNMENT OBLIGATIONS - 18.0%
Alberta Province 9 1/4%, 4/1/00 Aa 1,400,000 1,647,394 013051BA
Bank Negara Malaysia:
0%, 3/9/94 - MYR 750,000 274,853 06399DAE
0%, 5/11/94 - MYR 1,600,000 579,378 06399DAF
0%, 6/22/94 - MYR 1,800,000 651,471 06399DAQ
0%, 6/24/94 - MYR 340,000 123,523 06399DAM
0%, 9/7/94 - MYR 880,000 313,645 06399DAP
Bank of Indonesia (SBI) 0%,
5/19/94 (f) - IDR 1,650,000 751,080 06099MAC
British Columbia Province 7%,
1/1/03 Aa1 500,000 528,160 110709BA
Canadian Government 8 1/4%,
3/1/97 Aaa CAD 590,000 485,213 136992JW
Danish Government Bullet:
8%, 5/15/03 Aa1 DKK 3,765,000 626,401 249998AG
7%, 12/15/04 Aa1 DKK 11,395,000 1,793,880 249998AV
French Government OAT:
8 1/2%, 11/25/02 Aaa FRF 1,800,000 365,048 3517779U
8 1/2%, 4/25/03 Aaa FRF 10,380,000 2,117,563 351996AQ
Government of New Zealand 8%,
4/15/04 Aa3 NZD 1,930,000 1,254,596 6501629K
Kingdom of Sweden 10 3/4%,
1/23/97 Aa2 SEK 4,500,000 602,236 8702009Q
Malaysian Government:
0%, 4/29/94 - MYR 700,000 256,105 5609049J
0%, 6/24/94 - MYR 600,000 217,981 5609049R
9 7/8%, 9/27/00 - 1,000,000 1,200,240 560904AC
Manitoba Province Canada
6 3/4%, 3/1/03 A1 500,000 514,500 563469DG
Mexican Government:
Adjustabanos 5.30%, 7/14/94 AA- MXN 2,533,300 1,074,450 597998SV
Bondes 8.627%, 9/29/94 (c) AA- MXN 330,000 106,632 597998SX
Cetes 0%, 1/6/94 to 10/13/95 - MXN 16,565,070 4,885,856 597998TC
Providence Quebec:
8.24%, 2/28/96 Aa3 500,000 534,565 74815HAH
7 1/2%, 7/15/02 Aa3 500,000 534,375 748148NS
MOODY'S
RATINGS PRINCIPAL VALUE
(UNAUDITED)(B) AMOUNT (A) (NOTE 1)
FOREIGN GOVERNMENT OBLIGATIONS - CONTINUED
United Kingdom Great Britain &
Northern Ireland 12%,
11/20/98 Aaa GBP 386,000 $ 717,997 9107689R
Victorian Public Authorities
Finance Agency 8.45%,
10/1/01 A1 500,000 565,715 926391AC
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $22,247,217) 22,722,857
COLLATERALIZED MORTGAGE OBLIGATIONS - 1.1%
MBNA Trust 9 1/2%, 10/25/20 Aaa 63,476 64,826 574112AA
Prudential Home Mortgage Securities
6 3/4%, 8/25/08 AAA 1,000,000 1,009,380 74434TQW
Ryland Mortgage Securities Corp.
7 1/2%, 8/1/23 Aaa 374,106 374,808 783766NT
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $1,480,713) 1,449,014
OTHER SECURITIES - 2.0%
COMMERCIAL PAPER - 2.0%
Bancomer 0%, 12/21/95 MXN 3,850,772 999,762 05999KBJ
Nacional Financiera SNC:
0%, 5/19/94 MXN 1,506,744 464,054 66299CAE
0%, 8/3/95 MXN 3,730,500 1,007,333 66299CAK
TOTAL OTHER SECURITIES
(Cost $2,472,835) 2,471,149
MATURITY
AMOUNT
REPURCHASE AGREEMENTS - 4.8%
Investments in repurchase agreements,
(U.S. Treasury obligations), in a
joint trading account at 3.23%
dated 12/31/93 due 1/3/94 $ 6,087,638 $ 6,086,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $123,176,816) $ 126,230,335
Forward Foreign Currency Contracts
SETTLEMENT UNREALIZED
CONTRACTS TO BUY DATE(S) VALUE GAIN/(LOSS)
1,210,132 FIM 2/17/94 $ 207,143 -
118,942,488 JPY 1/10/94 to 1/20/94 1,063,943 $ (41,757)
TOTAL CONTRACTS TO Buy
(Payable amount $1,312,843) $ 1,271,086 $ (41,757)
THE VALUE OF CONTRACTS TO BUY AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 1.0%
SETTLEMENT UNREALIZED
CONTRACTS TO SELL DATE(S) VALUE GAIN/(LOSS)
616,653 CAD 2/8/94 $ 466,255 $ 3,935
206,988 DEM 2/28/94 118,537 1,463
16,455,675 DKK 2/2/94 to 2/7/94 2,412,605 14,256
1,210,132 FIM 2/17/94 207,143 (1,339)
14,545,033 FRF 1/27/94 to 2/28/94 2,450,311 (2,560)
444,795 GBP 3/14/94 654,355 7,054
131,960,088 JPY 1/10/94 to 2/28/94 1,180,579 65,510
5,105,101 NOK 2/25/94 608,107 15,060
20,058,100 THB 2/17/94 784,684 5,316
TOTAL CONTRACTS TO SELL
(Receivable amount $8,991,271) $ 8,882,576 $ 108,695
THE VALUE OF CONTRACTS TO SELL AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 7.0%
CURRENCY TYPE ABBREVIATIONS:
GBP - British pound
CAD - Canadian dollar
DKK - Danish krone
FIM - Finnish markka
FRF - French franc
DEM - German Deutsche mark
IDR - Indonesian rupiah
JPY - Japanese yen
MYR - Malaysian ringgit
MXN - Mexican peso
NZD - New Zealand dollar
NOK - Norwegian krone
SEK - Swedish krona
THB - Thai baht
LEGEND:
(e) Principal amount is stated in United States dollars unless otherwise
noted.
(f) Standard & Poor's Corporation credit ratings are used in the
absence of a rating by Moody's Investors Service, Inc.
(g) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(h) Interest Only Strips represent the right to receive the monthly
interest payments on an underlying pool of mortgage loans. These securities
are subject to the risk of accelerated principal paydowns. The principal
amount represents the notional amount on which current interest is
calculated.
(i) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $7,211,520 or 5.9% of net
assets.
(j) Principal amount in thousands.
(k) Security purchased on a delayed delivery basis (see Note 2 of Notes to
Financial Statements).
(l) Restricted securities - Investment in securities not registered under
the Securities Act of 1933 (see Note 2 of Notes to Financial Statements).
Additional information on each holding is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
Castle Peak Power Ltd.
6.87%, 8/1/03 6/29/93 $1,000,000
OTHER INFORMATION:
Purchases and sales of securities, other than short-term securities,
aggregated $104,301,896 and $62,153,336, respectively, of which U.S.
government and government agency obligations aggregated $57,465,563 and
$38,480,206, respectively.
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S S&P
RATINGS RATINGS
Aaa, Aa, A 62.7% AAA, AA, A 67.0%
Baa 18.2% BBB 16.0%
Ba 3.2% BB 1.3%
B 0.0% B 0.0%
Caa 0.0% CCC 0.0%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by either S&P or Moody's amounted to 0.9%.
Distribution of investments by country, as a percentage of total value of
investment in securities, is as follows:
United States 71.8%
Mexico 9.3
Canada 3.5
Malaysia 3.1
France 2.5
Denmark 2.0
Korea 1.3
New Zealand 1.0
Australia 1.0
Others (individually less than 1%) 4.5
TOTAL 100.0%
INCOME TAX INFORMATION:
At December 31, 1993, the aggregate cost of investment securities for
income tax purposes was $123,212,675. Net unrealized appreciation
aggregated $3,017,660, of which $3,728,849 related to appreciated
investment securities and $711,189 related to depreciated investment
securities.
The fund hereby designates $201,000 as a capital gain dividend for the
purpose of the dividend paid deduction.
INVESTMENT GRADE BOND PORTFOLIO
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, 1993
ASSETS
Investment in securities, at value (including repurchase agreements of $6,086,000) (cost $123,176,816) (Notes 1 $ 126,230,335
and 2) - See accompanying schedule
Long foreign currency contracts held, at value (cost $1,312,843) (Notes 2 and 7) 1,271,086
Short foreign currency contracts (Notes 2 and 7) $ (8,882,576)
Contracts held, at value
Receivable for contracts held 8,991,271 108,695
Cash 2,077
Receivable for investments sold 853,533
Receivable for fund shares sold 221,919
Interest receivable 1,693,645
Total assets 130,381,290
LIABILITIES
Payable for foreign currency contracts held (Notes 1 and 7) 1,312,843
Payable for investments purchased 996,717
Regular delivery
Delayed delivery (Note 2) 5,139,509
Net payable for closed foreign currency contracts 2,805
Payable for fund shares redeemed 470,765
Accrued management fee 46,379
Other payables and accrued expenses 35,867
Total liabilities 8,004,885
NET ASSETS $ 122,376,405
Net Assets consist of:
Paid in capital $ 119,095,668
Distribution in excess of net investment income (Note 1) (90,327)
Accumulated undistributed net realized gain (loss) on investments 250,607
Net unrealized appreciation (depreciation) on:
Investment securities 3,053,519
Foreign currency contracts 66,938
NET ASSETS, for 10,659,715 shares outstanding $ 122,376,405
NET ASSET VALUE, offering price and redemption price per share ($122,376,405 (divided by) 10,659,715 shares) $11.48
</TABLE>
Statement of Operations
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31, 1993
INVESTMENT INCOME $ 7,455,839
Interest
EXPENSES
Management fee (Note 3) $ 460,983
Transfer agent fees (Note 3) 71,119
Accounting fees and expenses (Note 3) 46,426
Non-interested trustees' compensation 683
Custodian fees and expenses 40,454
Registration fees 12,251
Audit 32,536
Legal 1,018
Miscellaneous 11,622
Total expenses 677,092
Net investment income 6,778,747
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 3)
Net realized gain (loss) on:
Investment securities 365,358
Foreign currency contracts 100,775 466,133
Change in net unrealized appreciation (depreciation) on:
Investment securities 2,362,561
Foreign currency contracts (36,225) 2,326,336
Net gain (loss) 2,792,469
Net increase (decrease) in net assets resulting from operations $ 9,571,216
</TABLE>
Statement of Changes in Net Assets
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
YEARS ENDED DECEMBER 31,
1993 1992
INCREASE (DECREASE) IN NET ASSETS
Operations $ 6,778,747 $ 4,110,300
Net investment income
Net realized gain (loss) on investments 466,133 638,655
Change in net unrealized appreciation (depreciation) on investments 2,326,336 (1,077,703)
Net increase (decrease) in net assets resulting from operations 9,571,216 3,671,252
Distributions to shareholders: (6,271,862) (4,178,712)
From net investment income
In excess of net investment income (20,655) -
From net realized gain (466,133) (893,630)
In excess of net realized gain (136,034) -
Total distributions (6,894,684) (5,072,342)
Share transactions 79,979,898 55,197,425
Net proceeds from sales of shares
Reinvestment of distributions from: 6,292,517 4,178,712
Net investment income
Net realized gain 602,167 893,630
Cost of shares redeemed (40,773,056) (30,105,535)
Net increase (decrease) in net assets resulting from share transactions 46,101,526 30,164,232
Total increase (decrease) in net assets 48,778,058 28,763,142
NET ASSETS
Beginning of period 73,598,347 44,835,205
End of period (including distributions in excess of net investment income
of $(90,327) and $(89,383), $ 122,376,405 $ 73,598,347
respectively)
OTHER INFORMATION
Shares
Sold 6,824,727 4,856,508
Issued in reinvestment of distributions from: 549,679 383,017
Net investment income
Net realized gain 52,591 81,818
Redeemed (3,478,667) (2,655,787)
Net increase (decrease) 3,948,330 2,665,556
</TABLE>
Financial Highlights
DRAFT
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31,
1993 1992 1991 1990 1989
SELECTED PER-SHARE DATA
Net asset value, beginning of period
$ 10.970 $ 11.080 $ 9.920 $ 10.140 $ 10.000
Income from Investment Operations
.641 .672 .455 .826 .827
Net investment income
Net realized and unrealized gain (loss) on investments
.559 .058(dagger)(dagger) 1.165 (.220) .160
Total from investment operations
1.200 .730 1.620 .606 .987
Less Distributions
(.628) (.680) (.460) (.826) (.827)
From net interest income
In excess of net investment income
(.002) - - - -
From net realized gain on investments
(.050) (.160) - - (.020)
In excess of net realized gain on investments
(.010) - - - -
Total distributions
(.690) (.840) (.460) (.826) (.847)
Net asset value, end of period
$ 11.480 $ 10.970 $ 11.080 $ 9.920 $ 10.140
TOTAL RETURN
10.96% 6.65% 16.38%# 6.21%# 10.26%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted)
$ 122,376 $ 73,598 $ 44,835 $ 14,348 $ 6,053
Ratio of expenses to average net assets *
.68% .76% .80% .80% .80%
Ratio of expenses to average net assets before expense
.68% .76% 1.16% 2.20% 3.53%
reductions *
Ratio of net interest income to average net assets
6.85% 7.11% 7.73% 8.26% 8.19%
Portfolio turnover rate
70% 119% 128% 122% 67%
</TABLE>
# THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
* SEE NOTE 4 OF NOTES TO FINANCIAL STATEMENTS.
(dagger)(dagger) THE AMOUNT SHOWN FOR THE FISCAL YEAR ENDED DECEMBER 31,
1992 FOR A SHARE OUTSTANDING THROUGHOUT THAT YEAR DOES NOT ACCORD WITH THE
AGGREGATE NET LOSSES ON INVESTMENTS FOR THAT YEAR BECAUSE OF THE TIMING OF
SALES AND PUCHASES OF THE FUND SHARES IN RELATION TO FLUCTUATING MARKET
VALUES OF THE INVESTMENTS OF THE FUND.
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO
INVESTMENTS/DECEMBER 31, 1993
(Showing Percentage of Total Value of Investment in Securities)
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - 42.4%
AEROSPACE & DEFENSE - 0.5%
AEROSPACE & DEFENSE - 0.2%
Aviall, Inc. (b) 825 $ 12,581 05366B10
Boeing Co. 4,800 207,600 09702310
British Aerospace PLC 28,453 173,984 11042010
Flightsafety International, Inc. 41,300 1,414,525 33942310
Martin Marietta Corp. 43,000 1,913,500 57290010
McDonnell Douglas Corp. 1,500 160,500 58016910
Oerlikon-Buhrle Holding Ltd. (Reg.) (b) 1,100 103,495 67199092
Rolls Royce Ltd. Ord. 406,027 971,517 77577910
Samsung Aerospace Industries (b) 4,500 192,343 80399C22
Sundstrand Corp. 8,300 348,600 86732310
Wyman-Gordon Co. (b) 7,600 35,150 98308510
5,533,795
DEFENSE ELECTRONICS - 0.3%
E-Systems, Inc. 27,300 1,184,138 26915730
Loral Corp. 107,000 4,039,250 54385910
Raytheon Co. 38,400 2,534,400 75511110
Watkins-Johnson Co. 4,100 81,488 94248610
7,839,276
TOTAL AEROSPACE & DEFENSE 13,373,071
BASIC INDUSTRIES - 2.9%
CHEMICALS & PLASTICS - 1.0%
Airgas, Inc. (b) 88,300 1,920,525 00936310
Akzo NV Ord. 20,500 1,980,473 01019910
BOC Group 35,825 347,642 09676210
Bayer AG 5,400 1,149,465 07273010
Cabot Corp. 14,800 797,350 12705510
Dongsung Chemical Industry Co. (b) 6,165 161,925 25799V22
Ferro Corp. 15,000 480,000 31540510
GEON 16,400 387,450 37246W10
Georgia Gulf Corp. (b) 40,700 910,663 37320020
Grace (W.R.) & Co. 65,400 2,656,875 38388310
Han Wha 3,000 40,513 40999B22
Hanyang Chemical Corp. (b) 4,500 53,243 41199E22
Hercules, Inc. 8,800 994,400 42705610
Hoechst AG Ord. 2,500 457,370 43439010
IMC Fertilizer Group, Inc. 83,700 3,797,888 44966910
Imperial Chemical Industries Ord. 54,353 641,432 45270440
Lucky Co. Ltd. (b) 64,320 1,243,129 54999E22
Lyondell Petrochemical Co. 21,200 450,500 55207810
Monsanto Co. 21,100 1,548,213 61166210
Oriental Chemical Industry Co. (b) 22,386 668,404 68999C22
Perez Companc Class B (b) 95,600 598,667 71399723
Union Carbide Corp. 63,900 1,429,763 90558110
Vigoro Corp. 37,000 1,119,250 92675410
23,835,140
IRON & STEEL - 0.6%
Allegheny Ludlum Industries, Inc. 57,600 $ 1,375,200 01690010
Bethlehem Steel Corp. (b) 38,400 782,400 08750910
British Steel PLC:
ADR 33,100 612,350 11101530
Ord. 1,800,765 3,364,558 11101510
Dongkuk Steel Mill Co. (b) 1,500 51,477 25799S22
Geneva Steel Co.:
Class A (b) 30,500 518,500 37225210
(warrants) (b) 22,640 203,760 37225212
Hyundai Pipe Co. Ltd. (b) 20,850 410,723 42399D22
Inland Steel Industries, Inc. (b) 46,100 1,527,063 45747210
LTV Corp. (b) 101,200 1,631,850 50192110
Oregon Steel Mills, Inc. 1,000 25,125 68607910
Steel of West Virginia, Inc. (b) 25,100 320,025 85815410
Thyssen AG Ord. 2,000 316,995 88629110
USX-U.S. Steel Group 50,400 2,186,100 90337T10
Wheeling Pittsburgh Corp. (b) 52,100 892,213 96314210
14,218,339
METALS & MINING - 0.7%
Alcan Aluminium Ltd. 132,600 2,783,922 01371610
Alumax, Inc. 40,650 873,975 02219710
Aluminum Co. of America 25,900 1,796,813 02224910
Cyprus Amax Minerals Co. 28,500 737,438 23280910
Dae Chang Industrial Co. (b) 6,300 167,032 23399M22
De Beers Consolidated Mines Ltd. ADR 45,900 1,113,075 24025330
Iljin Corp. (b) 7,190 222,697 45199E22
Korea Tungsten Mining Co. (b) 9,682 331,070 50599S22
Noranda, Inc. 204,000 3,993,569 65542210
Poong San Corp. 14,250 259,524 73299522
RTZ Corp. PLC Ord. (b) 80,093 960,575 74974K50
Reynolds Metals Co. 103,200 4,682,700 76176310
Sam Sun Industry (b) 3,360 34,967 81799G22
17,957,357
PACKAGING & CONTAINERS - 0.1%
Caradon PLC 44,643 272,982 14091092
Carnaudmetalbox SA (b) 30,500 1,019,758 20999092
Owens-Illinois, Inc. (b) 133,100 1,647,113 69076840
2,939,853
PAPER & FOREST PRODUCTS - 0.5%
Arjo Wiggins Appleton PLC 61,208 214,258 04199592
Bowater, Inc. 6,900 158,700 10218310
Bowater PLC Ord. 37,556 251,558 10220010
Champion International Corp. 21,000 700,875 15852510
Chesapeake Corp. 2,900 73,950 16515910
Eagon Industrial Co. Ltd. (b) 4,050 101,357 27099922
Georgia-Pacific Corp. 13,600 935,000 37329810
International Paper Co. 39,000 2,642,250 46014610
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
BASIC INDUSTRIES - CONTINUED
PAPER & FOREST PRODUCTS - CONTINUED
Kimberly Clark de Mexico Class A 229,800 $ 4,305,976 49499392
Repola OY 49,900 775,672 75999A92
Stone Consolidated Corp. (b) 40,000 453,944 86158K10
Sung Chang Enterprise Co. (b) 4,070 206,740 82699B22
Temple-Inland, Inc. 10,100 508,788 87986810
11,329,068
TOTAL BASIC INDUSTRIES 70,279,757
CONGLOMERATES - 1.4%
Alexander & Baldwin, Inc. 19,100 510,925 01448210
Allied-Signal, Inc. 15,100 1,192,900 01951210
America Group Ltd. Class A 25,000 457,192 02351210
Brierley Investments Ltd. 3,581,200 2,761,451 10901410
Canadian Pacific Ltd. Ord. 521,800 8,537,112 13644030
Cydsa SA Class A 26,100 113,357 23299892
Dial Corp. (The) 14,400 581,400 25247010
Grupo Carso SA de CV Class A-1 (b) 880,100 9,605,728 40099594
Hanson Trust PLC:
Ord. 381,439 1,512,692 41135210
sponsored ADR 108,300 2,166,000 41135230
Litton Industries, Inc. (b) 52,900 3,405,438 53802110
Mark IV Industries, Inc. 15,148 272,680 57038710
Suncor, Inc. 69,400 1,621,127 86722910
Textron, Inc. 23,600 1,374,700 88320310
Tomkins PLC Ord. 96,088 333,517 89003010
United Technologies Corp. 12,500 775,000 91301710
35,221,219
CONSTRUCTION & REAL ESTATE - 1.9%
BUILDING MATERIALS - 1.3%
Armstrong World Industries, Inc. 46,600 2,481,450 04247610
Blue Circle Industries plc 52,086 257,719 09534210
Carlisle Companies, Inc. 16,000 534,000 14233910
Cementos Apasco SA de CV Class A (b) 635,700 6,610,791 15299392
Cemex SA (b):
A (Reg.) 20,200 569,060 15299292
Series B 226,400 6,749,722 15299293
Chosun Refractories Co. (b) 2,200 80,679 28099322
Elcor Corp. (b) 12,100 223,850 28444310
Florida Rock Industries, Inc. 19,200 568,800 34114010
Holderbank Financiere AG PC (Bearer) 730 456,250 43479593
Interceramic SA de CV Class A-2 (b) 13,800 82,196 46399593
Lafarge Corp. 133,600 3,056,100 50586210
Medusa Corp. 56,150 1,817,856 58507230
RMC Industries, Inc. (b) 14,816 203,842 74960910
Redland PLC Ord. (b) 38,842 335,612 75799095
Southdown, Inc. (b) 2,300 $ 56,350 84129710
Tecumseh Products Co. Class A 15,800 730,750 87889520
Texas Industries, Inc. 9,300 299,925 88249110
Tolmex B2 SA (b) 506,200 7,048,663 94399492
Williams Holdings Ord. (b) 36,878 203,713 96991091
Wolseley Ord. 20,010 249,738 97799092
32,617,066
CONSTRUCTION - 0.3%
Bufete Industrial SA sponsored ADR
representing 3 Ord. Certificate Banco 12,500 512,500 11942H10
Centex Corp. 24,500 1,029,000 15231210
DR Horton, Inc. (b) 29,190 510,825 23331A10
Daelim Industrial Co. 33,900 688,794 23699F22
Dongbu Construction Co. 2,300 53,001 25799M22
Grupo Mexicano de Desarrollo (b):
Class B ADR 17,800 427,200 40048G10
Class L ADR 17,800 438,325 40048G20
Lennar Corp. 14,300 487,988 52605710
Lucky Development Co. Ltd. (b) 3,470 74,374 54999822
Pulte Corp. 33,900 1,228,875 74586710
Redman Industries (b) 10,300 208,575 75764210
Samsung Construction Co. Ltd. 1,575 51,739 90499J22
Schuler Homes, Inc. (b) 19,900 557,200 80818810
Standard Pacific Corp. 40,900 455,013 85375C10
Taylor Woodrow PLC 440,926 941,055 87667410
Webb (Del E.) Corp. 5,000 80,000 94742310
7,744,464
ENGINEERING - 0.1%
EG&G, Inc. 28,000 514,500 26845710
Hanil Development Co. 27,871 576,670 41099822
Kyonghyang Construction Co. (b) 4,500 97,565 74799J22
Rust International, Inc. (b) 9,900 225,225 78307510
Stone & Webster, Inc. 9,700 267,963 86157210
1,681,923
REAL ESTATE - 0.1%
Fondo Opcion SA de CV Class 2, Series B (b) 130,800 366,375 34499892
Hwa Sung Industrial Co. (b) 1,100 43,883 44899G22
Hwa Sung Industrial Co. (New) (b) 2,850 112,990 44899G24
Immeubles de France, Ste Des (b) 2,500 470,941 44999C22
Land Securities 38,092 443,344 51499010
MEPC PLC 30,863 248,436 62949999
Mundicenter Soc Imobil SA 1,300 26,073 62699592
1,712,042
REAL ESTATE INVESTMENT TRUSTS - 0.1%
Banyan Strategic Land Trust (SBI) 3,900 16,088 06683M10
Crown American Realty Trust (SBI) 32,700 490,500 22818610
Developers Diversified Realty 40,000 1,170,000 25159110
Federal Realty Investment Trust 12,500 312,500 31374720
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
CONSTRUCTION & REAL ESTATE - CONTINUED
REAL ESTATE INVESTMENT TRUSTS - CONTINUED
General Growth Properties, Inc. 2,500 $ 53,750 37002110
Health Care Property Investors, Inc. 1,700 46,113 42191510
Kimco Realty Corporation 5,900 207,238 49446R10
Lend Lease Corp. Ltd. 31,400 377,403 52599292
Vornado Realty Trust 11,400 381,900 92904210
3,055,492
TOTAL CONSTRUCTION & REAL ESTATE 46,810,987
DURABLES - 2.9%
AUTOS, TIRES, & ACCESSORIES - 1.9%
Asia Motors Co., Inc. (b) 16,830 333,618 04499B22
Automotive Industries Holding, Inc. (b) 6,800 198,050 05329E10
Brilliance China Auto Holding Ltd. (b) 1,800 35,325 10999592
Chrysler Corp. 154,500 8,227,125 17119610
Cooper Tire & Rubber Co. 7,200 180,662 21683110
Discount Auto Parts, Inc. (b) 36,900 1,014,750 25464210
Donnelly Corp. Class A 5,300 102,025 25787010
Federal-Mogul Corp. 16,700 484,300 31354910
Ford Motor Co. 43,300 2,792,850 34537010
General Motors Corp. 193,100 10,596,363 37044210
Goodyear Tire & Rubber Co. 61,300 2,804,475 38255010
Grupo Dina (Consorcio G) ADR (b) 183,700 5,120,638 21030610
Heung-ah Tire & Rubber Co. (b) 3,000 75,822 42899D22
Hyundai Motor Service Co. (b) 1,200 66,456 42199422
Johnson Controls, Inc. 13,600 722,500 47836610
Kia Precision Works Co. (b) 17,544 378,202 48599K22
Lonrho Ltd. Ord. 784,712 1,495,135 54337410
Magna International, Inc. Class A 36,900 1,821,619 55922240
Monro Muffler Brake, Inc. (b) 7,500 123,750 61023610
NACCO Industries, Inc. Class A 9,200 473,800 62957910
Pirelli Tyre Holdings NV Ord. (b) 24,600 183,299 72499092
Raymond Corp. (The) (b) 17,000 284,750 75468810
Smith (A.O.) Corp.:
Class A 900 32,288 83186510
Class B 26,600 950,950 83186520
Snap-on Tools Corp. 13,100 496,163 83303410
Spartan Motors, Inc. 16,400 278,800 84681910
Standard Products Co. 10,125 354,375 85383610
Suzuki Motor Corp. 147,000 1,380,281 86958592
TRW, Inc. 7,700 533,225 87264910
Toyota Motor Corporation 130,000 2,069,305 89399999
Vickers PLC Ord. 604,300 1,561,964 92549310
Volkswagen AG (b) 1,700 430,330 92866210
45,603,195
CONSUMER DURABLES - 0.0%
Sankyo Co. Ltd. 1,000 $ 57,232 82299792
Syratech Corp. (b) 2,700 50,625 87182410
107,857
CONSUMER ELECTRONICS - 0.4%
Aktiebolaget Electrolux (b) 12,900 439,102 01019810
BIC 1,724 384,470 08899292
Fedders USA, Inc. (b) 59,200 377,400 31313510
Fossil, Inc. 200 3,800 34988210
Harman International Industries, Inc. (b) 41,700 1,198,875 41308610
Jeewon Industrial Co. (b) 3,000 81,397 47299G22
Matsushita Electric Industrial Co. Ltd. 225,000 2,997,988 57687910
Newell Co. 2,500 100,938 65119210
Pioneer Electronic Corp. 17,000 427,185 72365710
Sony Corp. 49,300 2,429,180 83569999
Universal Electronics, Inc. (b) 5,900 116,525 91348310
Whirlpool Corp. 29,400 1,955,100 96332010
10,511,960
HOME FURNISHINGS - 0.2%
Chromcraft Revington, Inc. (b) 11,300 248,600 17111710
LADD Furniture, Inc. 105,500 1,055,000 50573910
Leggett & Platt, Inc. 22,300 1,115,000 52466010
Miller (Herman), Inc. 88,700 2,716,438 60054410
5,135,038
TEXTILES & APPAREL - 0.4%
Burlington Industries Equity, Inc. (b) 42,500 658,750 12169010
Coats Viyella PLC (b) 50,516 192,126 19099110
Courtaulds PLC Ord. (b) 30,256 217,631 22268710
Fruit of the Loom, Inc. Class A (b) 28,400 685,150 35941610
Interface, Inc. Class A 2,600 39,650 45866510
Justin Industries, Inc. 50,700 747,825 48217110
Korea Moolsan Co. (b) 15,140 371,396 50599P22
Mohawk Industries, Inc. (b) 23,800 815,150 60819010
Nam Yeung Corp. (b) 700 113,176 62999D22
Reebok International Ltd. 8,100 243,000 75811010
Shaw Industries, Inc. 20,200 512,575 82028610
Shu Kwang Corp. (b) 2,351 42,239 82599J22
Stride Rite Corp. 41,600 681,200 86331410
Timberland Co. Class A (b) 8,000 427,000 88710010
Tokyo Style Co. Ltd. 72,000 1,036,620 88999410
Unifi, Inc. 121,900 3,276,063 90467710
VF Corp. 5,100 235,238 91820410
Westpoint Stevens, Inc. Class A (b) 8,100 151,875 96123810
Youngone Corp. (b) 416 7,782 99599C22
10,454,446
TOTAL DURABLES 71,812,496
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
ENERGY - 2.7%
COAL - 0.0%
Pittston Co. Minerals Group 2,600 $ 62,075 72570120
ENERGY SERVICES - 0.4%
BJ Services Co. (b) 24,300 467,775 05548210
Baker Hughes, Inc. 20,500 410,000 05722410
Commercial Del Plata (b) 101,700 713,291 20199392
Enterra Corp. (b) 17,600 360,800 29380510
Global Marine, Inc. (b) 45,000 185,625 37935240
Halliburton Co. 56,100 1,788,188 40621610
Helmerich & Payne, Inc. 8,800 245,300 42345210
Marine Drilling Cos., Inc. (b) 12,500 71,875 56824020
Schlumberger Ltd. 100,600 5,947,975 80685710
Smith International, Inc. (b) 8,300 72,625 83211010
Tidewater, Inc. 9,300 186,000 88642310
Tuboscope Vetco Corp. (b) 15,000 91,875 89860010
Weatherford International, Inc. (b) 19,500 207,188 94707610
Wheatley TXT Corp. 8,000 91,000 96271810
10,839,517
INDEPENDENT POWER - 0.0%
Thermo Electron Corp. 9,650 405,300 88355610
OIL & GAS - 2.3%
Amerada Hess Corp. 61,500 2,775,188 02355110
American Exploration Co. (b) 5,000 6,563 02576210
Ampolex Ltd. Ord. 125,600 473,352 03212792
Anadarko Petroleum Corp. 14,300 648,863 03251110
Apache Corp. 12,300 287,513 03741110
British Petroleum PLC:
ADR 254,700 16,300,800 11088940
Ord. 1,248,660 6,648,603 11088910
Burlington Resources, Inc. 53,000 2,245,875 12201410
Burmah Oil 14,673 180,528 12216910
Cabot Oil & Gas Corp. Class A 7,013 148,150 12709710
Chauvco Resources Ltd. Class A (b) 17,800 232,306 16260010
Chevron Corp. 32,600 2,840,275 16675110
Cosmo Oil Company Ltd. 89,000 635,913 22199092
Enron Oil & Gas Co. 5,200 202,800 29356210
Enterprise Oil PLC 37,039 245,086 29399110
Exxon Corp. 2,700 170,100 30229010
Isu Chemical Co. (b) 32,331 524,742 46599E22
Kerr-McGee Corp. 29,400 1,326,675 49238610
Louisiana Land & Exploration Co. 40,300 1,617,038 54626810
Mesa, Inc. (b) 18,000 101,250 59091110
Mobil Corp. 21,100 1,666,900 60705910
Morrison Petroleums Ltd. 65,300 487,867 61847310
Murphy Oil Corp. 31,000 1,240,000 62671710
Newfield Exploration Co. (b) 8,400 148,050 65129010
Noble Affiliates, Inc. 20,200 $ 535,300 65489410
Occidental Petroleum Corp. 13,500 231,188 67459910
Petroleum Heat & Power, Inc. Class A 13,000 113,750 71660030
Renaissance Energy Ltd. (b) 109,000 2,329,677 75966610
Repsol SA sponsored ADR 27,100 836,713 76026T20
Royal Dutch Petroleum Co. 17,400 1,816,125 78025770
Shell Transport & Trading PLC 249,579 2,676,241 82270310
Snyder Oil Corp. 2,600 46,150 83348210
Tide West Oil Co. 3,900 40,950 88635540
Tosco Corp. 67,300 1,960,113 89149030
Total Compagnie Francaise des Petroles
Class B (b) 27,688 1,509,531 20434510
Total SA sponsored ADR (b) 23,800 645,575 89151E10
Unocal Corp. 55,500 1,547,063 91528910
Western Gas Resources, Inc. 6,200 203,050 95825910
YPF Sociedad Anonima sponsored ADR
representing Class D shares 17,000 442,000 98424510
Yukong Ltd. 3,500 128,353 98899K22
56,216,216
TOTAL ENERGY 67,523,108
FINANCE - 7.5%
BANKS - 3.9%
ABN-AMRO Holdings NV 36,874 1,354,826 00399192
Akita Bank 165,000 1,049,095 00999692
BHF Bank (Bank Berlin Hand) 2,600 785,295 05549991
BNP CI Ord. 21,200 1,029,735 05599996
Banacci SA de CV:
Class C 490,000 4,259,496 06399893
Class L Ord. (b) 14,100 108,496 06399895
Banc One Corp. 13,300 520,363 05943810
Banco Bilbao Vizcaya SA Ord. (Reg.) 28,600 632,337 05945891
Banco de Galicia Y Buenos Aires SA
sponsored ADR representing Class B
shares 78,695 3,167,474 05953820
Banco Frances Del Rio PL (Reg.) 149,706 1,904,980 21199692
Banco Intercontinental Espanol 5,500 449,913 24699592
Bank of Boston Corp. 231,940 5,334,620 06071610
Bank of Ireland U.S. Holdings, Inc. 9,800 41,976 06278793
Bank of New York Co., Inc. 50,504 2,878,728 06405710
Bank of Scotland 87,411 289,198 06405810
Bank International Indonesia Ord.
(For. Reg.) (b) 151,500 742,612 06199B92
BankAmerica Corp. 43,500 2,017,313 06605010
BanPonce Corp. 11,960 376,740 06670410
Barclays PLC Ord. 320,691 3,007,745 06738E10
Bayerische Vereinsbank AG Ord. 1,400 469,566 07276110
Boram Bank (b) 28,520 501,746 09999322
C.S. Holdings (Bearer) (b) 4,500 2,228,831 17599792
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
FINANCE - CONTINUED
BANKS - CONTINUED
Centura Banks, Inc. 2,700 $ 54,338 15640T10
Chemical Banking Corp. 79,900 3,206,653 16372210
Cho Hing Bank Co. Ltd. 55,750 718,330 17099E22
Citicorp (b) 352,000 12,936,000 17303410
Comerica, Inc. 40,800 1,086,300 20034010
Deutsche Bank AG 2,100 1,071,022 25152592
Fidelity NY F.S.B. Garden City (b) 19,000 306,375 31633610
Financiere Bank de Suez Cie 11,014 664,115 31799110
First Chicago Corp. 26,600 1,150,450 31945510
First Fidelity Bancorporation 10,000 455,000 32019510
First Interstate Bancorp 38,200 2,449,575 32054810
First Union Corp. 81,167 3,348,173 33735810
Grupo Financiero Bancomer SA de CV
sponsored ADR, Series C (b)(f) 229,600 9,585,800 40048610
HSBC Holdings PLC:
Ord. 61,797 888,554 42199194
(Reg.) 128,520 1,879,258 42199195
KeyCorp. 11,900 420,963 49326310
Kyung Nam Bank 13,500 190,671 61499222
Kyungki Bank Ltd. (b) 20,000 292,387 61999922
Lloyds Bank PLC 96,658 939,386 53999192
Mellon Bank Corp. 8,672 459,616 58550910
Mercantile Bancorporation, Inc. 3,700 166,963 58734210
Midlantic Corp. (b) 9,600 244,800 59780E10
National Westminster Bank PLC Ord. 314,257 2,877,777 63853930
NationsBank Corp. 27,100 1,327,900 63858510
North Fork Bancorporation, Inc. (b) 2,700 34,763 65942410
Panin Bank (For. Reg.) 298,000 628,038 69899823
Paribas SA (Cie Financiere) Class A (b) 1,912 160,189 73999192
Peoples Heritage Financial Group, Inc. (b) 37,900 454,800 71114710
Royal Bank of Scotland Ord. 59,780 401,743 78009792
Safra Republic Holdings SA Ord. 2,600 239,200 78510099
Shawmut National Corp. 223,700 4,865,475 82048410
Signet Banking Corp. 25,263 877,889 82668110
Societe Generale Class A 10,139 1,312,126 83357799
Standard Chartered Bank 17,904 327,379 85256810
Swiss Bank Corp. (Bearer) (b) 4,800 1,535,484 87083610
TR Financial Corp. (b) 15,900 204,713 87263010
TSB Group PLC 114,276 406,773 87199010
West One Bancorp 2,500 71,250 95482810
Westpac Banking Corp. 1,449,068 4,555,870 96121410
95,947,183
CLOSED END INVESTMENT COMPANY - 0.1%
ASA Ltd. 20,700 $ 1,019,475 00205010
Free State Consolidated Gold Mines Ltd. ADR 66,000 1,122,000 35614220
Jardine Strategic Holdings Ord. 165,500 776,367 47199020
2,917,842
CREDIT & OTHER FINANCE - 0.5%
Abbey National PLC Ord. 98,693 744,882 00281099
American Express Co. 95,600 2,951,650 02581610
Argentaria Corp. Bancaria de Espana SA 17,400 734,167 21991392
Argentaria Corp. Bancaria de Espana SA
sponsored ADR 26,900 568,263 21991310
Beneficial Corp. 31,700 1,212,525 08172110
Central Invest & Finance 6,000 124,884 15499422
Credit Foncier de France 1,184 234,440 22532792
Dean Witter Discover & Co. 14,150 489,944 24240V10
GFC Financial Corp. 12,000 348,000 36160910
Granite Industries BHD 59,000 339,471 38799522
Green Tree Acceptance, Inc. 26,700 1,281,600 39350510
Grupo Financiero Serfin sponsored ADR CV 15,000 442,500 40049A10
Guangdong Investments Co. Ltd. Ord. 552,000 414,315 40199492
Household International, Inc. 77 2,512 44181510
Korea Investment & Finance 4,500 114,291 50599092
Primerica Corp. 20,600 800,825 74158910
Pusan Invest & Finance 1,440 86,527 74699B22
Schroders PLC:
(non-vtg.) 2,106 39,038 80799193
Ord. 7,604 153,529 80799192
Shin Han Securities Co. 4,500 100,911 82499G92
11,184,274
FEDERAL SPONSORED CREDIT - 1.0%
Federal Home Loan Mortgage Corporation 102,200 5,097,225 31340030
Federal National Mortgage Association 262,100 20,574,850 31358610
25,672,075
INSURANCE - 0.9%
ACE Ltd. 11,700 364,163 00499G92
Aegon NV Ord. 19,300 1,046,326 00792493
Allstate Corp. (b) 105,900 3,124,050 02000210
American Bankers Insurance Group, Inc. 53,500 1,404,375 02445610
American Reinsurance Corp. (b) 1,800 51,075 02916310
Assicurazioni Generali Spa 52,600 1,202,767 04542910
Assurances Generales (Reg.) 16,300 1,963,491 04557510
Axa SA 3,543 957,729 05299792
Capital Holding Corp. 8,400 311,850 14018610
Commercial Union PLC (b) 41,858 400,003 20299993
Corporacion Mapfre International Reas
(Reg.) (b) 19,500 1,021,656 16899192
Exel Ltd. 6,100 270,688 30161610
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
FINANCE - CONTINUED
INSURANCE - CONTINUED
GAN (Groupe Des Assur Natl.) 11,300 $ 1,029,008 36599792
General Accident Fire & Life 33,951 358,541 36871110
Guardian Royal Exchange Assurance 65,349 222,480 36809992
International Nederlanden Groep CVA 17,387 830,037 46099892
Kemper Corp. 67 2,429 48839610
Legal & General Group Ltd. Ord. (b) 36,807 273,451 52439810
Loews Corp. 6,200 576,600 54042410
MBIA, Inc. 7,500 471,563 55262C10
Mutual Assurance, Inc. 689 15,004 62823T10
Penncorp. Financial Group, Inc. 2,300 45,138 70809410
Progressive Corp. (Ohio) 6,300 255,150 74331510
Prudential Corp. 142,372 759,123 74399992
Royale Insurance Co. Ltd. 323,255 1,620,936 78074910
St. Paul Companies, Inc. (The) 17,200 1,545,850 79286010
Sun Alliance 60,744 346,315 86599020
Swiss Reinsurance Corp. (b):
A (warrants) 2,350 18,162 87099D22
B (warrants) 2,350 16,188 87099399
(Bearer) 2,350 1,231,855 87099392
Tokio Marine & Fire Insurance Co. Ltd. (The) 36,000 392,756 88909099
Torchmark Corp. 11,900 535,500 89102710
22,664,259
SAVINGS & LOANS - 0.5%
Ahmanson (H.F.) & Co. 136,674 2,682,227 00867710
Anchor Bancorp Inc. 37,500 464,063 03283710
Bay View Capital, Inc. 22,200 468,975 07262L10
Charter One Financial Corp. 33,850 668,538 16090310
Coast Savings Financial, Inc. (b) 24,800 353,400 19039M10
Crossland Federal Savings Bank, Brooklyn (b) 25,000 700,000 22764B10
D&N Financial Corp. (b) 2,500 19,375 23286410
Dime Savings Bank of New York, FSB (b) 25,000 203,125 25432R10
Eastern Bancorp 4,500 79,875 27626910
FirstFed Financial Corp. (b) 1,400 22,400 33790710
FirstFed Michigan Corp. 5,100 130,050 33761R10
Golden West Financial Corp. 95,700 3,732,300 38131710
Great Western Financial Corp. 10,502 210,040 39144210
Metropolitan Financial Corp. 15,700 259,050 59190810
North Side Savings Bank (Bronx, NY) 2,500 46,250 66248810
Standard Federal Bank 40,000 1,200,000 85338910
11,239,668
SECURITIES INDUSTRY - 0.6%
Boram Securities Co. Ltd. (b) 15,060 343,312 18599622
Coryo Securities 11,200 244,217 22199822
Daehan Korean Blue-Chip Investment
Trust (b) 475,000 7,552,500 23699E22
Daiwa Securities 94,000 $ 1,050,749 23499010
Hyundai Securities Co. Ltd. (b) 4,800 141,535 42699A22
Korea First Securities Co. (b) 24,400 583,435 50099K22
Merrill Lynch & Co., Inc. 32,900 1,381,800 59018810
Midland Walwyn, Inc. (b) 4,100 43,427 59780110
Morgan Stanley Group, Inc. 22,100 1,563,575 61744610
Nomura Securities Co. Ltd. 82,000 1,312,586 65536130
Paine Webber Group, Inc. 11,800 318,600 69562910
Seoul Securities Co. (b) 15,060 333,982 83599P22
Sunkyong Securities Co. (b) 25,800 594,536 96199D22
Warburg (SG) Group PLC Ord. 46,333 637,119 81799099
16,101,373
TOTAL FINANCE 185,726,674
HEALTH - 3.0%
DRUGS & PHARMACEUTICALS - 1.4%
Allergan, Inc. 115,200 2,606,400 01849010
American Cyanamid Co. 10,200 512,550 02532110
Amgen, Inc. (b) 52,300 2,588,850 03116210
Biogen, Inc. (b) 30,600 1,220,175 09059710
Bristol-Myers Squibb Co. 19,800 1,150,875 11012210
Cellpro, Inc. (b) 4,100 142,475 15115610
Celtrix Laboratories, Inc. (b) 12,200 134,200 15118610
Cephalon, Inc. (b) 6,400 104,800 15670810
Chiron Corp. (b) 6,000 504,000 17004010
Creative Biomolecules, Inc. (b) 2,300 23,863 22527010
Elan PLC (b):
ADR 35,300 1,495,838 28413120
(1 Advanced Therapeutic System Common
& 1 ADR warrant) 3,762 121,325 28413140
Genentech, Inc. (b) 7,300 368,650 36871020
Glaxo Holdings PLC Ord. 228,944 2,448,208 37732710
IMCERA Group, Inc. 73,100 2,457,988 45245410
Korea Green Cross Corp. (b) 3,005 232,729 50099J22
Mylan Laboratories, Inc. 36,300 921,113 62853010
Nature's Bounty, Inc. (b) 2,300 47,725 63901730
Pfizer, Inc. 66,300 4,574,700 71708110
Rhone Poulenc Rorer, Inc. 21,200 777,226 76242T92
Rhone Poulenc Rorer, Inc. Free shares 17,600 642,400 76242T10
Schering 2,100 1,388,160 80658510
Schering-Plough Corp. 45,900 3,144,150 80660510
Smithkline Beecham PLC:
Ord. A 103,137 608,139 83237810
(5 Ord. B & 1 participating pfd. $2.25) 98,621 528,108 83237850
Upjohn Co. 12,500 364,063 91530210
Warner-Lambert Co. 65,100 4,394,250 93448810
Wellcome PLC 65,277 635,369 94947810
Zeneca Group PLC Ord. (b) 71,150 882,744 98934D92
35,021,073
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
HEALTH - CONTINUED
MEDICAL EQUIPMENT & SUPPLIES - 0.6%
Ballard Medical Products 18,400 $ 239,200 05856610
Bergen Brunswig Corp. Class A 53,300 939,413 08373910
Boston Scientific Corp. (b) 77,000 962,500 10113710
Cardinal Distribution, Inc. 29,300 1,391,750 14148710
Cordis Corp. (b) 22,500 1,110,938 21852510
Johnson & Johnson 38,100 1,704,975 47816010
Kendall International, Inc. (b) 15,600 717,600 48875110
McKesson Corp. 8,800 475,200 58155610
Medtronic, Inc. 38,280 3,143,745 58505510
Mentor Corp. 9,600 127,200 58718810
Owens & Minor, Inc. 37,050 852,150 69073010
Smith & Nephew PLC 77,683 170,386 83113610
Sofamor/Danek Group, Inc. (b) 37,700 1,253,525 83400510
Spacelabs Medical, Inc. (b) 11,900 288,575 84624710
Steris Corporation (b) 3,900 73,125 85915210
Thermedics, Inc. (b) 9,650 145,956 88390110
Utah Medical Products, Inc. 29,100 229,163 91748810
Zoll Medical Corp. (b) 300 9,000 98992210
13,834,401
MEDICAL FACILITIES MANAGEMENT - 1.0%
Columbia Healthcare Corp. 165,850 5,514,513 19767910
HCA - Hospital Corporation of America
Class A (b) 385,700 13,162,013 40412010
HEALTHSOUTH Rehabilitation Corp. (b) 49,000 1,237,250 42192410
Health Management Associates, Inc.
Class A (b) 29,700 868,725 42193310
Homedco Group, Inc. (b) 15,300 470,475 43739A10
Lincare Holdings, Inc. (b) 57,600 1,432,800 53279110
National Medical Enterprises, Inc. 18,900 264,600 63688610
U.S. Healthcare, Inc. 12,500 720,313 91191010
United HealthCare Corp. 12,500 948,438 91058110
24,619,127
TOTAL HEALTH 73,474,601
INDUSTRIAL MACHINERY & EQUIPMENT - 1.8%
ELECTRICAL EQUIPMENT - 1.1%
AMETEK, Inc. 23,000 293,250 03110510
Alcatel Alsthom CGE 47,609 6,772,559 01390492
Avid Technology, Inc. (b) 300 6,413 05367P10
General Electric Co. 57,300 6,009,338 36960410
General Electric PLC Ord. 205,918 1,038,642 36963940
ICOM, Inc. 15,000 162,307 44999A92
Il Jin Electric & Machinery (b) 3,000 78,424 45099G22
Itel Corp. 18,900 529,200 46564210
Murata Manufacturing Co. (b) 143,000 4,897,741 62699110
Philips Electronics (b) 71,900 $ 1,477,903 71833799
Philips NV 167,200 3,448,500 71833750
Roper Industries, Inc. 20,300 659,750 77669610
Siebe PLC (b) 32,219 270,297 82619999
Star Paging International Holdings Ltd. 690,000 294,664 85599692
Westinghouse Electric Corp. 42,100 594,663 96040210
Yurtec Corp. (b) 900 20,604 97299492
26,554,255
INDUSTRIAL MACHINERY & EQUIPMENT - 0.6%
Briggs & Stratton Corp. 4,500 371,250 10904310
Caterpillar, Inc. 56,900 5,064,100 14912310
CMI Corp. Oklahoma Class A 3,900 26,813 12576130
Cincinnati Milacron, Inc. 18,800 413,600 17217210
Deere & Co. 30,900 2,286,600 24419910
Duerr Beteiligungs AG 1,150 390,346 26499292
Finning Ltd. 94,000 1,351,239 31807140
Flow International Corp. (b) 2,600 20,963 34346810
Indresco, Inc. (b) 30,000 465,000 45590510
Joy Technologies, Inc. Class A (b) 40,400 484,800 48120610
Korea Machinery Co. Ltd. (b) 15,000 183,981 50599H22
Manitowoc Co., Inc. 26,800 864,300 56357110
Parker-Hannifin Corp. 12,500 471,875 70109410
Regal-Beloit Corp. 27,400 722,675 75875010
SKF AB Ord. (b) 58,800 951,410 78437530
TI Group PLC Ord. (b) 35,004 207,321 87247250
TRINOVA Corp. 39,600 1,242,450 89667810
Tenneco, Inc. 8,900 468,363 88037010
15,987,086
POLLUTION CONTROL - 0.1%
American Ecology Corp. (b) 3,700 31,450 02553310
Attwoods PLC:
ADR 50,000 500,000 04987020
Ord. 100,000 202,349 04987010
Envirotest Systems Corp. (b) 3,900 83,850 29409W10
Harding Associates, Inc. (b) 2,500 22,500 41226410
OHM Corp. 3,700 43,013 67083910
Thermo Instrument Systems, Inc. (b) 3,900 136,013 88355910
United Waste Systems, Inc. (b) 4,100 63,550 91317410
Wheelabrator Technologies, Inc. 76,700 1,361,425 96290130
Zurn Industries, Inc. 10,500 287,438 98982410
2,731,588
TOTAL INDUSTRIAL MACHINERY &
EQUIPMENT 45,272,929
MEDIA & LEISURE - 1.7%
BROADCASTING - 0.3%
BET Holdings, Inc. Class A (b) 3,700 73,075 08658510
CBS, Inc. 3,400 980,900 12484510
Capital Cities/ABC, Inc. 1,900 1,177,050 13985910
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Carlton Communications 14,976 $ 209,583 14399999
Grupo Televisa GDS (b)(f) 9,500 665,000 40049J20
Home Shopping Network, Inc. 73,010 1,086,024 43735110
Multimedia, Inc. (b) 300 10,275 62545K10
Scandinavian Broadcasting Corp. (b) 16,300 342,300 80699E92
SFX Broadcasting, Inc. 4,800 62,400 78417410
Tele-Communications, Inc. Class A (b) 82,200 2,486,550 87924010
TF-1 5,700 472,833 90399999
7,565,990
ENTERTAINMENT - 0.1%
Carnival Cruise Lines, Inc. Class A 28,600 1,354,925 14365810
Cedar Fair LP 1,200 42,150 15018510
Granada Group 35,236 270,627 38480310
Rank Organization PLC 24,615 357,019 75304110
Royal Carribean Cruises Ltd. 27,600 738,300 78015392
Sega Enterprises 7,600 589,242 81599792
3,352,263
LEISURE DURABLES & TOYS - 0.2%
Brunswick Corp. 6,000 108,000 11704310
Callaway Golf Co. 21,100 1,126,213 13119310
Fleetwood Enterprises, Inc. 9,100 216,125 33909910
Mattel, Inc. 12,500 345,313 57708110
Outboard Marine Corp. 49,600 1,109,800 69002010
Salomon SA 1,500 499,240 93099292
Samick Musical Instruments (b) 3,065 74,048 79599L22
Thor Industries, Inc. 12,900 332,175 88516010
3,810,914
LODGING & GAMING - 0.5%
Bally Manufacturing Corp. (b) 14,435 122,698 05873210
Caesars World, Inc. (b) 1,300 69,550 12769510
Forte PLC (b) 64,885 250,609 34999592
Four Seasons Hotels, Inc. 60,400 594,061 35100E10
Grupo Posadas SA de CV Class L (b) 129,200 124,790 40048992
Grupo Situr SA de CV Class B (b) 1,498,333 4,563,503 40049292
Host Marriott Corp. 44,841 409,174 44107810
La Quinta Motor Inns, Inc. 31,200 1,099,800 50419510
Ladbroke Group PLC Ord. 494,994 1,184,392 50572799
Marriott International, Inc. 44,841 1,300,389 57190010
Mirage Resorts, Inc. (b) 20,000 477,500 60462E10
President Riverboat Casinos, Inc. (b) 26,550 584,100 74084810
Promus Companies, Inc. (b) 20,100 919,575 74342A10
Trump Plaza Holding Associates (warrants) (b) 60 47,400 89817E11
Video Lottery Technologies, Inc. (b) 53,800 914,600 92656M10
12,662,141
PUBLISHING - 0.5%
American Greetings Corp. Class A 25,200 $ 856,800 02637510
Central Newspapers, Inc. Class A 13,400 371,850 15464710
Dow Jones & Co., Inc. 6,000 214,500 26056110
Enquirer/Star Group, Inc. Class A 25,900 492,100 29355410
Gannett Co., Inc. 35,500 2,032,375 36473010
MaClean Hunter Ltd. 154,400 1,474,787 55474980
Meredith Corp. 18,800 752,000 58943310
Mirror Group Newspaper PLC (b) 97,900 242,925 60499792
Pearson PLC 41,394 369,891 70509991
Reed International (b) 42,233 558,908 75821210
Scripps (E.W.) Co. Class A 13,600 374,000 81103910
Thomson Corp. 44,600 548,326 88490310
Times Mirror Co., Series A 37,700 1,258,238 88736010
Torstar Corp. Class B 69,400 1,260,148 89147420
VNU Ord. (b) 9,400 839,044 92399010
11,645,892
RESTAURANTS - 0.1%
Bertucci's, Inc. (b) 13,400 328,300 08606310
McDonald's Corp. 41,300 2,354,100 58013510
Morrison Restaurants, Inc. 12,500 328,125 61847710
Ryan's Family Steak Houses, Inc. (b) 23,200 208,800 78351910
Uno Restaurant Corp. (b) 2,700 26,325 91490010
3,245,650
TOTAL MEDIA & LEISURE 42,282,850
NONDURABLES - 2.3%
AGRICULTURE - 0.1%
Delta & Pine Land Co. (b) 12,800 224,000 24735710
Molinos Rio de La Plata (Reg.) 68,369 876,833 60899C22
Pioneer Hi-Bred International, Inc. 10,300 401,700 72368610
1,502,533
BEVERAGES - 0.5%
Allied Lyons PLC 66,616 666,113 01925510
Bass PLC Ord. 104,849 830,835 06990492
Cadbury-Schweppes PLC Ord. 62,404 468,227 12720910
Coca-Cola Femsa SA de CV sponsored ADR (b) 12,000 393,000 19124110
Comp Cervecerias Unidas SA ADR 14,000 404,250 20442910
Dr. Pepper/Seven-Up Companies, Inc. (b) 29,400 705,600 25613130
Fomento Economico Mexicano SA
(FEMSA) B 511,900 3,370,365 34441892
Grupo Embotellador de Mexico Class B ADS (f) 52,300 1,895,875 40048J10
Guinness PLC Ord. 151,172 1,065,051 40203310
Panamerican Beverages, Inc. Class A 19,300 738,225 69829W10
Scottish & Newcastle Brewers PLC 39,895 314,070 80987810
South African Breweries, Inc. ADR 17,500 380,625 83621620
Whitbread Class A 173,645 1,488,830 96341499
12,721,066
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
NONDURABLES - CONTINUED
FOODS - 0.5%
ConAgra, Inc. 84,600 $ 2,231,325 20588710
Dole Food, Inc. 32,100 858,675 25660510
Grand Metropolitan PLC 155,991 1,095,547 38559099
Grupo Ind Maseca SA de CV Class B 751,000 1,165,432 57899894
Herdez SA de CV Class A (b) 1,166,800 1,296,023 42799F22
IBP, Inc. 146,993 3,803,444 44922310
Miwon Co. Ltd. (b) 13,287 246,924 61299693
Miwon Co. Ltd. (New) 3,501 56,387 61299695
Samyang Foods Co. 3,000 102,211 84699F22
United Biscuits 39,520 210,428 90960210
Viscofan Envolturas Celulo SA 29,100 460,436 92899999
Weston George Ltd. 33,500 988,462 96114850
12,515,294
HOUSEHOLD PRODUCTS - 0.3%
Avon Products, Inc. 27,100 1,317,738 05430310
BTR PLC Ord 261,931 1,441,100 05586510
Hartstone Group PLC Ord. (b) 747,500 607,232 41722610
Premark International, Inc. 11,200 898,800 74045910
Procter & Gamble Co. 40,900 2,331,300 74271810
Reckitt & Colman Ltd. Ord. 28,221 300,113 75621410
Stanhome, Inc. 8,000 271,000 85442510
Unilever PLC Ord. 61,047 1,083,800 90476710
8,251,083
TOBACCO - 0.9%
B.A.T. Industries PLC Ord. 231,729 1,894,431 05527010
Philip Morris Companies, Inc. 275,900 15,381,425 71815410
RJR Nabisco Holdings Corp. (b) 452,900 2,887,238 74960K10
UST, Inc. 46,600 1,293,150 90291110
21,456,244
TOTAL NONDURABLES 56,446,220
PRECIOUS METALS - 0.1%
Hecla Mining Co. (b) 6,700 77,888 42270410
Homestake Mining Co. 85,800 1,887,600 43761410
Placer Dome, Inc. 32,500 808,351 72590610
2,773,839
RETAIL & WHOLESALE - 3.2%
APPAREL STORES - 0.3%
Burton Group PLC Ord. 1,267,800 1,301,422 12304910
Charming Shoppes, Inc. 28,500 338,438 16113310
Claire's Stores, Inc. 28,400 514,750 17958410
Gap, Inc. 39,500 1,555,313 36476010
Limited, Inc. (The) 55,000 941,875 53271610
Ross Stores, Inc. (b) 35,500 $ 461,500 77829610
Sportmart, Inc. (b) 2,700 47,925 84892210
TJX Companies, Inc. 35,400 1,031,025 87254010
6,192,248
DRUG STORES - 0.1%
General Nutrition Companies, Inc. (b) 44,600 1,271,100 37047F10
GENERAL MERCHANDISE STORES - 1.9%
Aoyama Trading Co. Ord. 37,000 2,117,594 03799092
Cifra SA Class C (b) 1,961,100 5,884,555 17178594
Controladora Commercial Mexicana SA
B-1 (b) 1,892,400 3,972,450 21299692
Dayton Hudson Corp. 83,600 5,580,300 23975310
Dillard Department Stores, Inc. Class A 36,300 1,379,400 25406310
Federared Department Stores, Inc. (b) 277,700 5,762,275 31410J10
Hudsons Bay Co. Ord. 50,800 1,518,139 44420410
Keum Kang Dev. Industries Co. (b) 2,250 37,075 49299F22
Marks & Spencer Ltd. Ord. (b) 208,399 1,394,358 57069710
May Department Stores Co. (The) 12,500 492,188 57777810
Midopa Co. (b) 17,267 348,699 59899E22
Penney (J.C.) Co., Inc. 55,700 2,917,288 70816010
Proffitts, Inc. (b) 18,100 395,938 74292510
Sears PLC 113,687 214,093 81213310
Sears Roebuck de Mexico SA (b) 229,200 4,412,801 81240K92
Sears Roebuck de Mexico SA de CV ADR
representing Series B-1 (b)(f) 30,600 1,170,450 81240K10
Sears, Roebuck & Co. 95,800 5,053,450 81238710
Service Merchandise Co., Inc. (b) 6,400 64,000 81758710
Value City Department Stores, Inc. (b) 30,800 450,450 92038710
Wal-Mart Stores, Inc. 109,100 2,727,500 93114210
Woolworth Holdings PLC Ord. 50,051 572,182 98088610
46,465,185
GROCERY STORES - 0.5%
American Stores Co. 12,600 541,800 03009610
Argyll 84,466 343,080 04099210
Asda Group PLC (b) 218,252 180,521 04399110
Associated British Foods Ltd. Ord. (b) 33,790 280,981 04551910
Bruno's, Inc. 107,400 953,175 11688110
Comptoirs Modernes 839 251,798 20470099
Food Lion, Inc. Class A 258,200 1,678,300 34477520
Giant Food, Inc. Class A 14,000 360,500 37447810
Great Atlantic & Pacific Tea Co., Inc. 18,800 507,600 39006410
Kroger Co. (The) (b) 16,000 322,000 50104410
Loblaw Companies, Ltd. 32,000 553,811 53948110
Penn Traffic Co. (b) 2,500 90,625 70783210
Rykoff-Sexton, Inc. 3,900 85,313 78375910
Safeway, Inc. (b) 85,000 1,806,250 78651420
Sainsbury J PLC Ord. 134,393 881,333 78710310
Stop & Shop Companies, Inc. (b) 103,600 2,097,900 86209910
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
RETAIL & WHOLESALE - CONTINUED
GROCERY STORES - CONTINUED
Tae Gu Department Store Co. (b) 1,480 $ 44,557 90599G22
Tesco PLC Ord. (b) 283,280 891,202 88157510
Whole Foods Market, Inc. (b) 17,400 391,500 96683710
12,262,246
RETAIL & WHOLESALE, MISC - 0.4%
Amway Asia Pacific Ltd. (b) 4,000 142,500 03299H22
Barnes & Noble, Inc. 17,500 435,313 06777410
Best Buy Co., Inc. (b) 11,200 520,800 08651610
Boots Co. plc. (The) 78,219 689,711 09999410
CML Group, Inc. 12,500 295,313 12582010
Duty Free International, Inc. 2,700 53,663 26708410
Futures Shops Ltd. 4,100 96,160 36091310
Good Guys, Inc. (b) 44,100 573,300 38209110
Great Universal Stores PLC Ord. Class A 75,738 726,004 39133420
Grupo Casa Autrey SA sponsored ADR (b) 26,000 633,750 40048P10
Hancock Fabrics, Inc. 8,900 84,550 40990010
Little Switzerland, Inc. (b) 32,400 299,700 53752810
Lowe's Companies, Inc. 56,200 3,329,850 54866110
Micro Wharehouse, Inc. (b) 4,100 170,663 59501B10
North West Company, Inc. 26,800 364,971 66329F10
Pinault Printemps SA 1,700 288,360 72199393
Redoute 10,710 1,845,616 75799492
Sotheby's Holdings, Inc. Class A 41,100 631,913 83589810
Spiegel, Inc. Class A 3,700 83,250 84845710
Toys "R" Us, Inc. (b) 20,200 825,675 89233510
Williams-Sonoma, Inc. (b) 300 12,375 96990410
12,103,437
TRADING COMPANIES - 0.0%
Hyundai Corp. (b) 12,000 334,510 40999922
Inchcape Berhad Ord. 39,449 322,212 45325010
Nam Sung Corp. (b) 4,711 102,145 63299D22
Sunkyong Ltd. (b) 7,030 243,870 96199C22
1,002,737
TOTAL RETAIL & WHOLESALE 79,296,953
SERVICES - 0.4%
LEASING & RENTAL - 0.1%
Blockbuster Entertainment Corp. 44,600 1,365,875 09367610
GATX Corp. 7,200 293,400 36144810
Orix Corp. 36,000 981,891 68616710
Thorn EMI PLC Ord. 31,987 468,196 88519991
3,109,362
PRINTING - 0.1%
Cadmus Communications Corp. 5,300 74,200 12758710
Moore Corporation Ltd. 15,800 304,823 61578510
Reynolds & Reynolds Co. Class A 34,900 $ 1,592,313 76169510
Wallace Computer Services, Inc. 2,700 91,463 93227010
2,062,799
SERVICES - 0.2%
Borg Warner Securities Corp. (b) 26,100 535,050 09973310
CPI Corp. 23,200 400,200 12590210
Chemed Corp. 6,100 186,050 16359610
Craig (Jenny), Inc. 15,300 174,038 22420610
Ecolab, Inc. 10,700 481,500 27886510
Pinkertons, Inc. (b) 17,100 333,450 72342910
Rentokil Group PLC (b) 73,399 262,353 76099692
Robert Half International, Inc. (b) 3,400 89,250 77032310
Service Corp. International 44,700 1,173,375 81756510
Supercuts, Inc. (b) 15,100 224,613 86805710
Zebra Technologies Corp. Class A (b) 9,300 526,613 98920710
4,386,492
TOTAL SERVICES 9,558,653
TECHNOLOGY - 4.4%
COMMUNICATIONS EQUIPMENT - 1.0%
Cabletron Systems, Inc. (b) 55,100 6,198,750 12692010
Cisco Systems, Inc. (b) 119,200 7,703,300 17275R10
DSC Communications Corp. (b) 23,800 1,463,700 23331110
Daewoo Telecommunication 6,592 145,373 27999192
Ericsson (L.M.) Telephone Co. Class B ADR 24,300 981,113 29482140
Network General Corp. (b) 47,300 845,488 64121010
Newbridge Networks Corp. (b) 15,400 843,150 65090110
Wellfleet Communications, Inc. (b) 74,700 4,818,150 94949710
3Com Corp. (b) 23,800 1,118,600 88553510
24,117,624
COMPUTER SERVICES & SOFTWARE - 0.9%
ACT Group PLC 189,907 398,300 00499592
Adobe Systems, Inc. 23,900 531,775 00724F10
Ceridian Corp. (b) 60,000 1,140,000 15677T10
Cerner Corp. 6,300 274,050 15678210
Cheyenne Software, Inc. (b) 12,500 345,313 16688810
CompUSA, Inc. (b) 66,800 1,336,000 20493210
ECI Telecom Ltd. 8,100 207,563 26825810
Electronic Information Systems, Inc. (b) 4,700 62,275 28573810
Fourth Dimension Software (b) 21,100 503,763 35199792
Informix Corp. (b) 139,400 2,962,250 45677910
Intelligent Electronics, Inc. 24,400 667,950 45815710
MDL Information Systems, Inc. (b) 2,500 22,188 55267R10
Micrografx, Inc. (b) 32,400 293,625 59507710
Microsoft Corp. (b) 79,900 6,441,938 59491810
Oracle Systems Corp. (b) 100,100 2,877,875 68389X10
Recognition Equipment, Inc. (b) 1,700 25,500 75623110
Reuters Holdings PLC Ord. (b) 31,309 826,138 76132410
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
TECHNOLOGY - CONTINUED
COMPUTER SERVICES & SOFTWARE - CONTINUED
Systems Software Associates, Inc. 65,300 $ 995,825 87183910
Viewlogic Systems, Inc. (b) 73,000 1,660,750 92672110
Wall Data, Inc. (b) 6,300 252,788 93204510
21,825,866
COMPUTERS & OFFICE EQUIPMENT - 1.5%
Amdahl Corp. 64,500 387,000 02390510
Canon, Inc. 79,000 1,087,950 13780199
Cherry Corp. (b) 33,600 705,600 16454110
Compaq Computer Corp. (b) 180,600 13,364,400 20449310
Diebold, Inc. 22,800 1,373,700 25365110
Guilbert 2,625 784,972 40199792
Hewlett-Packard Co. 14,800 1,169,200 42823610
International Business Machines Corp. (b) 129,900 7,339,350 45920010
International Imaging Materials, Inc. 5,600 111,300 45968C10
Media Vision Technology, Inc. 12,700 555,625 58445H10
Merisel, Inc. (b) 63,800 1,172,325 58984910
Netframe Systems, Inc. (b) 56,400 972,900 64110610
SCI Systems, Inc. (b) 68,200 1,202,025 78389010
Stratus Computer, Inc. (b) 34,600 1,085,575 86315510
Sun Microsystems, Inc. (b) 9,100 267,313 86681010
Supermac Technology, Inc. (b) 2,500 26,875 86843310
SynOptics Communications, Inc. (b) 20,700 577,013 87160910
Tandem Computers, Inc. (b) 49,600 539,400 87537010
Tech Data Corp. (b) 2,700 97,200 87823710
Tricord Systems, Inc. (b) 32,400 858,600 89612110
Xerox Corp. 38,600 3,449,875 98412110
37,128,198
ELECTRONIC INSTRUMENTS - 0.1%
Kulicke & Soffa Industries, Inc. (b) 16,600 232,400 50124210
Lam Research Corp. (b) 18,900 614,250 51280710
Megatest Corp. (b) 15,900 204,713 58495810
Teradyne, Inc. (b) 13,730 381,008 88077010
Varian Associates, Inc. 7,000 420,000 92220410
1,852,371
ELECTRONICS - 0.8%
AMP, Inc. 13,300 839,563 03189710
Advanced Micro Devices, Inc. (b) 6,100 109,800 00790310
Anthem Electronics, Inc. (b) 46,800 1,351,350 03673210
Daewoo Electronics Components Co. (b) 4,665 101,721 23799E22
GTI Corp. (b) 6,300 174,038 36236010
Hitachi Ltd. (b) 283,000 2,080,268 43357810
Integrated Device Technology, Inc. (b) 22,300 381,888 45811810
Intel Corp. 21,200 1,314,400 45814010
LSI Logic Corp. (b) 48,100 769,600 50216110
Maxim Integrated Products, Inc. (b) 33,500 $ 1,603,813 57772K10
Methode Electronics, Inc. Class A 15,900 228,563 59152020
Molex, Inc. 40,000 1,350,000 60855420
Motorola, Inc. 15,500 1,431,813 62007610
Samsung Electronics Co. Ltd.:
GDR (New) (b)(f) 950 32,072 79605030
GDR reprsenting shares (non-vtg.) (b)(f) 18,800 949,400 79605040
sponsored NV GDR (f) 1,500 76,500 79605050
Solectron Corp. (b) 80,700 2,289,863 83418210
Texas Instruments, Inc. 60,100 3,816,350 88250810
Toshiba Corp. (b) 243,000 1,477,666 89149310
20,378,668
PHOTOGRAPHIC EQUIPMENT - 0.1%
Eastman Kodak Co. 13,000 728,000 27746110
Fuji Photo Film Co. Ltd. 21,000 463,850 35958610
Polaroid Corp. 38,200 1,289,250 73109510
2,481,100
TOTAL TECHNOLOGY 107,783,827
TRANSPORTATION - 1.7%
AIR TRANSPORTATION - 0.6%
AMR Corp. (b) 66,300 4,442,100 00176510
BAA PLC Ord. 38,395 599,986 10999999
British Airways PLC Ord. (b) 71,668 475,812 11041910
Comair Holdings, Inc. 40,800 933,300 19978910
Korean Air (b) 24,468 539,590 52299522
UAL Corp. (b) 52,300 7,635,800 90254910
14,626,588
RAILROADS - 0.9%
Burlington Northern, Inc. 30,300 1,753,613 12189710
CSX Corp. 49,100 3,977,100 12640810
Chicago & North Western Holdings Corp. (b) 115,900 2,897,500
16715510
Conrail, Inc. 16,100 1,076,688 20836810
Illinois Central Corp., Series A 68,000 2,439,500 45184110
Santa Fe Pacific Corp. 304,000 6,764,000 80218310
Southern Pacific Rail Corp. (b) 89,100 1,759,725 84358410
Trinity Industries, Inc. 5,600 241,500 89652210
Union Pacific Corp. 7,000 438,375 90781810
Wisconsin Central Transportation Corp. (b) 7,600 454,100 97659210
21,802,101
SHIPPING - 0.1%
Han Jin Transportation Co. (b) 10,500 262,776 40999722
Ned Lloyd (b) 29,100 882,271 63983210
Overseas Shipholding Group, Inc. 11,000 259,875 69036810
Peninsular & Oriental Steam Navigation Co. 44,946 428,185 70719030
Transportacion Maritima Mexicana SA de CV
ADR representing L shares (b) 64,000 712,000 89386820
2,545,107
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
TRANSPORTATION - CONTINUED
TRUCKING & FREIGHT - 0.1%
Airborne Freight Corp. 2,700 $ 94,838 00926610
Arkansas Best Corp. 1,400 21,875 04079010
Federal Express Corp. (b) 21,900 1,552,163 31330910
MS Carriers, Inc. (b) 2,700 57,375 55353310
Werner Enterprises, Inc. 2,700 82,350 95075510
Yellow Corp. 10,300 256,213 98550910
2,064,814
TOTAL TRANSPORTATION 41,038,610
UTILITIES - 4.0%
CELLULAR - 0.4%
IDB Communications Group, Inc. (b) 5,300 291,500 44935510
Nextel Communications, Inc. Class A (b) 22,600 841,850 65332V10
Pactel Corp. (b) 2,600 64,675 69525210
Rogers Cantel Mobile Communications, Inc.
Class B (non-vtg.) (b) 28,000 752,033 77510210
Vodafone Group PLC 258,518 2,266,169 92857T92
Vodafone Group PLC sponsored ADR 65,800 5,872,650 92857T10
10,088,877
ELECTRIC UTILITY - 1.8%
American Electric Power Co., Inc. 38,100 1,414,463 02553710
Baltimore Gas & Electric Co. 42,700 1,083,513 05916510
Carolina Power & Light Co. 24,200 729,025 14414110
Central & South West Corp. 31,500 952,875 15235710
Central Costanera SA ADR (f) 4,300 131,150 15324M10
Central Puerto SA ADR (f) 1,500 51,375 15503810
Commonwealth Edison Co. 38,000 1,073,500 20279510
Consolidated Edison Co. of New York, Inc. 25,600 822,400 20911110
Detroit Edison Company 23,200 696,000 25084710
Dominion Resources, Inc. 13,100 594,413 25747010
Duke Power Co. 16,500 699,188 26439910
Eastern Electric PLC Ord. 20,313 202,516 27637D95
Entergy Corp. 153,200 5,515,200 29364F10
FPL Group, Inc. 14,900 582,963 30257110
General Public Utilities Corp. 36,700 1,133,113 37055010
Hong Kong Electric Holdings Ord. 758,500 3,165,531 43858010
Houston Industries, Inc. 23,100 1,100,138 44216110
Iberdrola SA 124,000 887,880 45499892
Illinois Power Co. 34,400 761,100 45209210
Korea Electric Power Corp. 89,200 2,420,219 50099B92
Long Island Lighting Co. 21,700 528,938 54267110
NIPSCO Industries, Inc. 41,900 1,377,463 62914010
National Power PLC 96,212 689,210 63719496
Niagara Mohawk Power Corp. 34,800 704,700 65352210
Northern States Power Co. (Minn.) 15,000 646,875 66577210
Ohio Edison Co. 33,500 $ 762,125 67734710
PSI Resources, Inc. 57,300 1,518,450 69363210
Pacific Gas & Electric Co. 28,700 1,008,088 69430810
PacifiCorp. 61,100 1,176,175 69511410
Philadelphia Electric Co. 68,800 2,081,200 71753710
Powergen PLC Ord. 59,012 474,590 73890594
Public Service Enterprise Group, Inc. 30,300 969,600 74457310
Rhein West Electric 1,200 369,348 78349910
SCEcorp 50,100 1,002,000 78388210
Scottish Hydro-Electric PLC Ord. 28,899 190,797 81013395
Scottish Power PLC 61,350 412,293 81013T96
Southern Co. 24,500 1,081,063 84258710
Southern Electric PLC 20,403 213,357 84280994
Texas Utilities Co. 34,100 1,474,825 88284810
Union Electric Co. 10,200 400,350 90654810
Veba Vereinigte Elektrizetaets & Bergwerks
AG Ord. 8,200 2,462,547 92239110
Verbund Gesellschaft 5,100 310,371 92299999
43,870,927
GAS - 0.4%
Arkla, Inc. 44,600 351,225 04123710
British Gas PLC Ord. 325,780 1,645,626 11090199
Coastal Corp. (The) 18,700 525,938 19044110
Columbia Gas System, Inc. (The) (b) 68,000 1,521,500 19764810
Consolidated Natural Gas Co. 17,100 803,700 20961510
ENSERCH Corp. 13,000 211,250 29356710
Enron Corp. 10,000 290,000 29356110
Pacific Enterprises 9,000 213,750 69423210
Panhandle Eastern Corp. 56,800 1,341,900 69846210
Sonat, Inc. 49,100 1,417,763 83541510
Westcoat Energy, Inc. 43,100 717,382 95751D10
Williams Companies, Inc. 46,800 1,140,750 96945710
10,180,784
TELEPHONE SERVICES - 1.3%
Ameritech Corp. 19,900 1,527,325 03095410
British Telecommunications PLC Ord. 467,331 3,257,970 11102110
Cable & Wireless PLC Ord. 164,274 1,264,116 12699910
LDDS Communications, Inc. (b) 23,603 1,138,845 50182L10
Premier Page Co. 25,000 250,000 74058E10
SIP Spa 568,600 1,191,194 78401792
Southwestern Bell Corp. 58,700 2,436,050 84533310
Sprint Corporation 86,600 3,009,350 85206110
Telebras PN (Pfd. Reg.) 89,999,000 3,068,066 95499792
Telecom Argentina Stet France (b) 501,900 3,158,090 90899992
Telefonica Argentina Class B 216,300 1,588,576 87999D92
Telefonos de Mexico SA sponsored ADR
representing shares Ord. Class L 137,500 9,281,250 87940378
31,170,832
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
UTILITIES - CONTINUED
WATER - 0.1%
Anglian Water Ord. 22,277 $ 194,787 03499595
Generale des Eaux 3,914 1,932,864 37099210
North West Water Ord. 28,078 242,607 67299195
Severn Trent PLC Ord. (b) 27,025 243,088 82999895
Thames Water PLC Ord. 29,506 251,459 88399595
2,864,805
TOTAL UTILITIES 98,176,225
TOTAL COMMON STOCKS
(Cost $926,513,879) 1,046,852,019
PREFERRED STOCKS - 0.9%
CONVERTIBLE PREFERRED STOCKS - 0.5%
BASIC INDUSTRIES - 0.0%
METALS & MINING - 0.0%
Alumax, Inc., Series A, $4.00 100 9,850 02219720
Cyprus Amax Minerals Co., Series A, $4.00 1,600 104,000 23280920
113,850
DURABLES - 0.1%
AUTOS, TIRES, & ACCESSORIES - 0.1%
Chrysler Corp., Series A, $4.625 (f) 10,000 1,500,000 17119670
Ford Motor Co. (Del.), Series A, $4.20 12,800 1,388,800 34537020
2,888,800
ENERGY - 0.1%
ENERGY SERVICES - 0.0%
Chiles Offshore Corp. $1.50 (b) 27,400 623,350 16888720
OIL & GAS - 0.1%
Unocal Corp. $3.50 (b)(f) 25,000 1,412,500 91528920
TOTAL ENERGY 2,035,850
FINANCE - 0.0%
BANKS - 0.0%
ABN-AMRO Holdings NV 6% 3,151 115,774 00399194
MEDIA & LEISURE - 0.0%
LODGING & GAMING - 0.0%
Bally Manufacturing Corp., Series D, $4.00
exchangeable 895 38,038 05873220
NONDURABLES - 0.1%
TOBACCO - 0.1%
RJR Nabisco Holdings Corp., Series A,
depositary shares representing 1/4 shares 304,400 2,130,800 74960K40
RETAIL & WHOLESALE - 0.0%
APPAREL STORES - 0.0%
Lamonts Apparel, Inc., Series A (b) 22,958 45,916 51362830
TECHNOLOGY - 0.0%
COMPUTER SERVICES & SOFTWARE - 0.0%
Ceridian Corp. depositary shares
representing 1/100 (b) 7,500 $ 378,750 15677T40
TRANSPORTATION - 0.2%
AIR TRANSPORTATION - 0.2%
AMR Corp. $3.00 (f) 44,000 2,354,000 00176588
UAL, Inc. cumulative 6 1/4% (b)(f) 15,200 1,673,900 90254930
4,027,900
TOTAL CONVERTIBLE PREFERRED STOCKS 11,775,678
NONCONVERTIBLE PREFERRED STOCKS - 0.4%
BASIC INDUSTRIES - 0.1%
CHEMICALS & PLASTICS - 0.0%
Henkel KGAA 2,500 913,301 42509392
IRON & STEEL - 0.1%
Danieli & C Spa N/C Risp (b) 40,200 135,577 23599610
Dongbu Steel Co. Ltd. (b) 10,500 318,714 25799L23
Geneva Steel Co., Series B, 14%
exchangeable (b) 8,000 988,000 37225240
1,442,291
TOTAL BASIC INDUSTRIES 2,355,592
CONSTRUCTION & REAL ESTATE - 0.0%
CONSTRUCTION - 0.0%
Dongbu Construction (b) 800 14,867 25799M23
DURABLES - 0.0%
AUTOS, TIRES, & ACCESSORIES - 0.0%
Hyundai Motor Service Co. (b) 1,900 94,629 42199424
FINANCE - 0.0%
CREDIT & OTHER FINANCE - 0.0%
Tong Yang Securities (b) 24,400 526,000 93999B23
UTILITIES - 0.3%
ELECTRIC UTILITY - 0.1%
Long Island Lighting Co. $7.95 43,000 1,139,500 54267177
Public Service Co. of New Hampshire Co.,
Series A 6,000 168,750 74448283
1,308,250
TELEPHONE SERVICES - 0.2%
Stet Societa Finanziaria Telefonica Spa 2,802,100 5,656,431 85982592
TOTAL UTILITIES 6,964,681
TOTAL NONCONVERTIBLE PREFERRED STOCKS 9,955,769
TOTAL PREFERRED STOCKS
(Cost $19,821,641) 21,731,447
MOODY'S MOODY'S
RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE
(UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1)
CORPORATE BONDS - 12.2%
CONVERTIBLE BONDS - 0.1%
BASIC INDUSTRIES - 0.0%
PAPER & FOREST PRODUCTS - 0.0%
Stone Consolidated Corp.
8%, 12/31/03 - $ 560,000 $ 493,588 86158KAA
DURABLES - 0.1%
TEXTILES & APPAREL - 0.1%
Alpargatas SAIC 9%,
3/15/98 (f) - 1,350,000 1,289,250 020545AA
Shinwon Corp. euro 0.50%,
12/31/08 - 120,000 138,000 98499DAA
1,427,250
NONDURABLES - 0.0%
BEVERAGES - 0.0%
Jinro Ltd. euro 0.25%, 9/30/09 - 120,000 137,400 732994AA
RETAIL & WHOLESALE - 0.0%
TRADING COMPANIES - 0.0%
Daewoo Corp. euro 0.25%,
12/31/08 - 90,000 112,950 23799BAB
TECHNOLOGY - 0.0%
COMMUNICATIONS EQUIPMENT - 0.0%
Ericsson (L.M.) Telephone Co.
4 1/4%, 6/30/00 - 27,800 43,090 294821AA
COMPUTERS & OFFICE EQUIPMENT - 0.0%
Tae Il Media Co. Ltd. 0.50%,
12/31/98 - 50,000 38,138 90799KAA
Unisys Corp. 8 1/4%, 8/1/00 B2 350,000 479,500 909214AX
517,638
TOTAL TECHNOLOGY 560,728
TOTAL CONVERTIBLE BONDS 2,731,916
NONCONVERTIBLE BONDS - 12.1%
AEROSPACE & DEFENSE - 0.0%
DEFENSE ELECTRONICS - 0.0%
Trancor, Inc. 10 7/8%, 8/15/01 B2 470,000 492,325 892349AC
BASIC INDUSTRIES - 1.1%
CHEMICALS & PLASTICS - 0.8%
Agricultural Mineral & Chemicals Corp.
10 3/4%, 9/30/03 B2 480,000 504,000 008522AA
Desc (Soc. De Fomento Indust.):
euro 11%, 12/15/97 - $ 1,450,000 $ 1,645,750 252996AB
11%, 12/15/97 (f) - 1,400,000 1,589,000 252996AA
G-I Holdings, Inc. 0%, 10/1/98 Ba3 7,480,000 4,787,200 36172FAB
Harris Chemical Corp. 10 3/4%,
10/15/03 B3 320,000 335,200 413868AB
IMC Fertilizer Group, Inc.:
9 1/4, 10/1/00 B3 1,600,000 1,608,000 449669AH
10 1/8, 6/15/01 B3 1,920,000 1,996,800 449669AF
Methanex Corp. 8 7/8%,
11/15/01 Ba3 700,000 721,000 59151KAA
NL Industires, Inc. 11 3/4%,
10/15/03 B1 580,000 603,200 629156AE
OSI Specialties, Inc. 9 1/4%,
10/1/02 B1 370,000 379,250 671042AA
UCC Corp. 9%, 9/1/00 B1 3,300,000 3,366,000 90915TAA
UCC Investors Holding, Inc.
10 1/2%, 5/1/02 B2 950,000 1,035,500 90263EAB
18,570,900
IRON & STEEL - 0.1%
Acindar euro 9 1/2%, 10/23/95 - 1,400,000 1,372,000 0045149G
Acindar Industria Argentina de
Aceros 10 1/2%, 12/10/94 (f) - 500,000 490,000 004514AA
WCI Steel, Inc. 10 1/2%, 3/1/02 B1 640,000 667,200 92923JAB
2,529,200
PAPER & FOREST PRODUCTS - 0.2%
Container Corp. America:
14%, 12/1/01 B3 3,000,000 3,341,250 210741AG
9 3/4%, 4/1/03 B2 1,125,000 1,161,562 210741AJ
Valcor, Inc. 9 5/8%, 11/1/03 B1 310,000 311,550 918884AA
4,814,362
TOTAL BASIC INDUSTRIES 25,914,462
CONGLOMERATES - 0.1%
American Standard, Inc.:
9 7/8%, 6/1/01 B1 358,000 373,215 029717AH
12 3/4%, 12/31/03 B3 1,600,000 1,636,000 029717AK
Sequa Corp. 9 3/8%, 12/15/03 B3 440,000 441,650 817320AG
2,450,865
CONSTRUCTION & REAL ESTATE - 2.1%
BUILDING MATERIALS - 1.8%
Adience, Inc. 11%, 6/15/02 - 1,000,000 810,000 006905AA
Cemex SA and Tolmex SA de CV:
euro 8 7/8%, 6/10/98 Ba2 4,760,000 5,122,950 1512909F
10%, 11/5/99 Ba2 1,030,000 1,165,187 1512909D
Cemex SA 8 7/8%, 6/10/98 (f) Ba2 12,800,000 13,776,000 151290AG
Tolmex SA de CV 8 3/8%, 11/1/03 Ba2 7,480,000 7,854,000 889557AA
MOODY'S MOODY'S
RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE
(UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1)
CORPORATE BONDS - CONTINUED
NONCONVERTIBLE BONDS - CONTINUED
CONSTRUCTION & REAL ESTATE - CONTINUED
BUILDING MATERIALS - CONTINUED
Triangle Pacific Corp. 10 1/2%,
8/1/03 B2 $ 1,580,000 $ 1,659,000 895912AC
USG Corp.:
8%, 12/15/95 B3 2,240,000 2,240,000 903293AH
8%, 12/15/96 B3 2,590,000 2,590,000 903293AA
8%, 3/15/97 B3 2,590,000 2,590,000 903293AD
9%, 12/15/98 B3 1,920,000 1,920,000 903293AJ
10 1/4%, 12/15/02 B2 3,988,000 4,087,700 903293AL
43,814,837
CONSTRUCTION - 0.3%
Blount, Inc. 9%, 6/15/03 B2 925,000 953,906 095173AB
Empresas ICA Sociedad
Controladora SA de CV:
euro 9 3/4%, 2/11/98 - 2,253,000 2,489,565 2924489A
9 3/4%, 2/11/98 (f) - 990,000 1,093,950 292448AA
Kaufman & Broad Home Corp.
9 3/8%, 5/1/03 Ba3 306,000 313,650 486168AC
MDC Holdings, Inc. 11 1/8%,
12/15/03 - 510,000 512,550 552676AH
Ryland Group, Inc. 9 5/8%, 6/1/04 Ba3 900,000 907,875 783764AC
US Home Corp. 9 3/4%, 6/15/03 Ba3 1,615,000 1,659,412 911920AB
7,930,908
REAL ESTATE - 0.0%
Baldwin Co. 10 3/8%, 8/1/03 (f) B2 90,000 86,400 057826AA
TOTAL CONSTRUCTION & REAL ESTATE 51,832,145
DURABLES - 0.3%
AUTOS, TIRES, & ACCESSORIES - 0.2%
Grupo Dina (Consorcio G):
euro 10 1/2%, 11/18/97 - 500,000 550,000 210996AB
10 1/2%, 11/18/97 (f) - 2,120,000 2,332,000 210996AA
Grupo Imsa SA de CV euro 8 3/4%,
7/7/98 (f) - 750,000 770,625 40048TAA
Navistar Financial Corp. 8 7/8%,
11/15/98 B2 1,410,000 1,424,100 638902AH
5,076,725
TEXTILES & APPAREL - 0.1%
Westpoint Stevens, Inc.:
8 3/4%, 12/15/01 B3 1,120,000 1,128,400 961238AA
9 3/8%, 12/15/05 B3 770,000 777,700 961238AB
1,906,100
TOTAL DURABLES 6,982,825
ENERGY - 0.3%
ENERGY SERVICES - 0.2%
Baroid Corp. 8%, 4/15/03 Ba1 $ 1,200,000 $ 1,281,000 068277AA
TransTexas Gas Corp. 10 1/2%,
9/1/00 B1 2,860,000 3,031,600 893895AA
4,312,600
INDEPENDENT POWER - 0.0%
Consolidated Hydro, Inc. 0%,
7/15/03 (e)(f) - 1,585,000 935,150 209349AB
OIL & GAS - 0.1%
HS Resources, Inc. 9 7/8%,
12/1/03 B1 710,000 710,000 404297AA
Mesa Capital Corp. secured 0%,
6/30/98 (e) - 240,000 202,800 590910AF
Oryx Energy Co. deb. 9 3/4%,
9/15/1998 Ba2 540,000 561,600 68763FAA
1,474,400
TOTAL ENERGY 6,722,150
FINANCE - 2.3%
BANKS - 1.0%
Bancomer SA:
euro 8%, 7/7/98 (f) Ba2 8,000,000 8,400,000 059682AB
9%, 6/1/00 (f) - 5,000,000 5,375,000 059682AA
Bancomer SNC euro 8%, 7/7/98 - 3,850,000 4,042,500 05999KAT
Banco Nacional de Comercio
Exterior SNC:
euro 7 1/2%, 7/1/00 Ba2 1,675,000 1,695,938
8%, 4/14/00 Ba2 1,300,000 1,335,750 0596129A
8%, 8/5/03 Ba2 2,915,000 2,995,162 0596129C
Midlantic Corp. 9 1/4%, 9/1/99 Baa3 340,000 384,183 59780EAC
Signet Banking Corp. 9 5/8%,
6/01/99 Baa2 790,000 915,705 826681AA
25,144,238
CREDIT & OTHER FINANCE - 0.2%
Lomas Mortgage USA, Inc.
10 1/4%, 10/1/02 Ba1 4,930,000 5,127,200 54154LAB
INSURANCE - 1.0%
American Annuity Group, Inc.:
9 1/2%, 8/15/01 Ba3 2,680,000 2,740,300 023840AB
11 1/8%, 2/01/03 B2 3,850,000 4,129,125 023840AA
American Financial Corp. s.f. 12%,
9/3/99 - 3,170,000 3,233,400 026087AR
Americo Life, Inc. 9 1/4%, 6/1/05 BB+ 1,600,000 1,588,000 03060NAB
Conseco, Inc. 8 1/8%, 2/15/03 Ba1 1,875,000 1,945,331 208464AD
Nacolah, Inc. 9 1/2%, 12/1/03 B1 760,000 769,500 629667AA
Penncorp Financial Group, Inc.
9 1/4%, 12/15/03 B1 930,000 939,300 708094AA
MOODY'S MOODY'S
RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE
(UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1)
CORPORATE BONDS - CONTINUED
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
INSURANCE - CONTINUED
Reliance Financial Services:
9.273%, 11/1/00 BBB $ 1,930,000 $ 1,775,600 759462AD
10.36%, 12/1/00 BBB 4,030,000 4,100,525 759462AF
Reliance Group 9%, 11/15/00 Ba3 2,230,000 2,246,725 759464AG
23,467,806
SAVINGS & LOANS - 0.1%
Gentra, Inc. euro 9 1/8%, 12/29/95 B3 32,000 32,080 37245E9A
Webster Financial Corp. 8 3/4%,
6/30/00 B1 800,000 828,400 947890AA
Western Financial Savings Bank
(Orange, CA) 8 1/2%, 7/1/03 Ba3 1,600,000 1,600,256 958202FK
2,460,736
TOTAL FINANCE 56,199,980
HEALTH - 0.2%
MEDICAL FACILITIES MANAGEMENT - 0.2%
American Medical International, Inc.
9 1/2%, 4/15/06 B 1,280,000 1,337,600 027429AZ
HealthTrust, Inc. - The Hospital Co.
8 3/4%, 3/15/05 B1 2,245,000 2,312,350 42221HAG
Hospital Corp. America 8%,
4/15/96 Ba2 1,000,000 1,050,000 441065AS
4,699,950
INDUSTRIAL MACHINERY & EQUIPMENT MENT - 0.1%
ELECTRICAL EQUIPMENT - 0.1%
Panamasat LP/Panamasat Capital
Corp. secured 9 3/4%, 8/1/00 Ba3 495,000 524,700 69830CAA
Specialty Equipment Cos., Inc.
11 3/8%, 12/1/03 B3 1,780,000 1,806,700 847497AB
2,331,400
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
Rexnord Corp. 10 3/4%, 7/1/02 Ba3 480,000 585,600 76168RAB
TOTAL INDUSTRIAL MACHINERY
& EQUIPMENT 2,917,000
MEDIA & LEISURE - 2.7%
BROADCASTING - 0.7%
Act III Broadcasting, Inc.
9 5/8%, 12/15/03 B3 400,000 405,000 00503KAA
Continental Cablevision, Inc.:
8 5/8%, 8/15/03 Ba2 400,000 431,000 211177AF
9%, 9/1/08 Ba2 576,000 633,600 211177AG
Cook Inlet Communications Corp.
10 3/4%, 9/10/98 (f) - $ 3,110,000 $ 3,110,000 2161719C
Great America TV 9 1/2%,
12/31/99 - 2,980,000 2,831,000 389990AA
Helicon Group LP/Helicon Capital
Corp. secured 9 1/2%, 11/1/03 Caa 1,120,000 1,089,200 423265AB
SCI Television, Inc. secured:
7 1/2%, 6/30/98 (g) - 1,088,174 1,063,690 783895AK
11%, 6/30/05 - 5,048,000 5,237,300 783895AJ
SPI Holding, Inc. pay-in-kind
11 1/2%, 12/1/02 B- 1,820,000 1,851,850 78462GAF
16,652,640
LEISURE DURABLES & TOYS - 0.1%
Coleman Holdings 0%, 5/27/98 B 2,299,000 1,494,350 193551AC
LODGING & GAMING - 1.5%
Bally's Grand, Inc. 1st mtg. 12%,
8/20/01 D 2,610,000 2,694,825 05873JAC
Ballys Casino Holdings, Inc. 0%,
6/15/98 (f) B3 4,450,000 2,848,000 05873EAA
California Hotel Finance Corp. gtd.
11%, 12/1/02 B2 9,265,000 9,844,063 13032RAG
Embassy Suites, Inc.:
gtd. 8 3/4%, 3/15/00 (f) B1 4,900,000 5,022,500 290807AH
10 7/8%, 4/15/02 B1 4,750,000 5,320,000 290807AF
First Mexican Acceptance Corp.
euro 10 3/4%, 9/15/96 - 600,000 625,968 321998AA
GNS Finance Corporation 9 1/4%,
3/15/03 B2 480,000 499,200 361916AK
Grand Casino Resorts, Inc. gtd.
1st mtg. 12 1/2%, 2/1/00 - 1,920,000 2,073,600 385268AA
Host Marriott Hospitality, Inc.:
10 5/8%, 2/1/00 B1 430,000 441,825 441080AC
9 1/8%, 12/1/00 B1 180,000 183,150 441080AD
11 1/4%, 7/18/05 B1 694,000 714,820 441080AG
10 1/2%, 5/1/06 B1 3,061,000 3,145,177 441080AH
11%, 5/1/07 B1 530,000 544,575 441080AJ
Ocean Showboat Financial 9 1/4%,
5/1/08 - 1,120,000 1,136,800 6750219A
Red Roof Inns 9 5/8%,
12/15/03 (f) B3 720,000 732,600 757005AA
Resorts International, Inc. secured
pay-in-kind 15%, 4/15/94 Ca 577,275 361,761 761185AH
Showboat, Inc. 9 1/4%, 5/1/08 Ba3 200,000 206,000 825390AB
Trump Plaza Holding Association
pay-in-kind 12 1/2%, 6/15/03 Caa 300,000 283,332 89817EAB
36,678,196
MOODY'S MOODY'S
RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE
(UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1)
CORPORATE BONDS - CONTINUED
NONCONVERTIBLE BONDS - CONTINUED
PUBLISHING - 0.3%
Marvel Parent Holdings, Inc. 0%,
4/15/98 B3 $ 870,000 $ 565,500 573845AA
News America Holdings, Inc.
8 1/2%, 2/15/05 Ba1 6,000,000 6,571,800 652478AJ
7,137,300
RESTAURANTS - 0.1%
American Restaurant Group, Inc.
12%, 9/15/98 B2 125,000 124,375 029309AB
Restaurant Enterprises Group, Inc.
12 1/4%, 12/15/96 (c) - 3,590,000 3,518,200 761255AA
3,642,575
TOTAL MEDIA & LEISURE 65,605,061
NONDURABLES - 1.1%
BEVERAGES - 0.2%
Canandaigua Wine, Inc. 8 3/4%,
12/15/03 B1 1,140,000 1,145,700 137219AB
Dr. Pepper/Seven-Up Companies, Inc.
0%, 11/1/02 (e) B3 800,000 616,000 256131AD
Fomento Economico Mexicano SA
de CV euro 9 1/2%, 7/22/97 - 1,780,000 1,935,750 3444189A
Grupo Embotellador de Mexico SA
de CV:
euro 10 3/4%, 11/19/97 Ba2 1,620,000 1,814,400 40048J9A
10 3/4%, 11/19/97 (f) Ba2 200,000 224,000 40048JAA
5,735,850
FOODS - 0.0%
Doskocil Cos., Inc. 9 3/4%,
7/15/00 B2 1,069,000 1,058,310 258486AD
Specialty Foods Corp. 10 1/4%,
8/15/01 (f) B2 800,000 814,000 847499AC
1,872,310
HOUSEHOLD PRODUCTS - 0.7%
Revlon Consumer Products Corp.:
9 1/2%, 6/1/99 B2 2,235,000 2,207,062 761519AG
9 3/8%, 4/1/01 B2 4,295,000 4,155,412 761519AF
10 1/2%, 2/15/03 B3 3,460,000 3,356,200 761519AE
Revlon World Wide secured 0%,
3/15/98 B3 13,390,000 6,795,425 76154KAB
16,514,099
TOBACCO - 0.2%
Empresas La Moderna SA
10 1/4%, 11/12/97 (f) - 3,430,000 3,738,700 292449AA
TOTAL NONDURABLES 27,860,959
RETAIL & WHOLESALE - 1.3%
APPAREL STORES - 0.2%
AnnTaylor, Inc. 8 3/4%, 6/15/00 B1 $ 760,000 $ 760,000 036117AC
Apparel Retailers, Inc. 12 3/4%,
8/15/05 (f) Baa 1,920,000 1,094,400 037795AB
Lamonts Apparel, Inc. 11 1/2%,
11/1/99 - 2,645,000 2,559,037 5136289A
4,413,437
DRUG STORES - 0.0%
Eckerd Jack Corp. 9 1/4%,
2/15/04 B2 350,000 357,000 278763AE
GENERAL MERCHANDISE STORES - 0.3%
Controladora Comercial Mexicana
SA de CV:
euro 8 3/4%, 4/21/98 - 1,000,000 1,051,250 212996AA
8 3/4%, 4/21/98 (f) - 1,900,000 1,997,375 21238AAA
Hills Stores Co. 10 1/4%, 9/30/03 - 900,000 933,750 431692AA
Parisian, Inc. 9 7/8%, 7/15/03 B3 1,820,000 1,820,000 700147AB
Service Merchandise, Inc. 9%,
12/15/04 Ba3 1,875,000 1,884,375 817587AC
7,686,750
GROCERY STORES - 0.6%
General Nutrition, Inc. 11 3/8%,
3/1/00 B3 2,220,000 2,453,100 370471AC
Grand Union Company 11 1/4%,
7/15/00 B2 1,210,000 1,264,450 386532AC
Penn Traffic Co. 9 5/8%, 4/15/05 B2 1,975,000 2,034,250 707832AD
Ralph's Grocery Co. 9%, 4/1/03 B2 625,000 625,000 751253AD
Rykoff Sexton, Inc. 8 7/8%,
11/1/03 Ba2 160,000 164,000 783759AC
Secured Finance, Inc. 11.18%,
12/15/04 - 8,000,000 8,680,000 81371F9A
15,220,800
RETAIL & WHOLESALE, MISCELLANEOUS - 0.2%
Color Tile, Inc. 10 3/4%, 12/15/01 B2 630,000 633,150 196267AD
Finlay Fine Jewelry Corp. 10 5/8%,
5/1/03 B1 1,025,000 1,058,312 317887AA
Musicland Group, Inc. 9%,
6/15/03 B1 390,000 395,850 627578AA
Sifto Canada, Inc. 8 1/2%, 7/15/00 B1 1,600,000 1,610,000 826549AA
Trinidad & Tobago 9 3/4%,
11/3/00 (f) Ba2 750,000 774,375 896292AB
4,471,687
TOTAL RETAIL & WHOLESALE 32,149,674
MOODY'S MOODY'S
RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE
(UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1)
CORPORATE BONDS - CONTINUED
NONCONVERTIBLE BONDS - CONTINUED
SERVICES - 0.0%
ADVERTISING - 0.0%
Outdoor Systems, Inc. 10 3/4%,
8/15/03 B2 $ 910,000 $ 948,675 690057AA
TECHNOLOGY - 0.2%
COMPUTER SERVICES & SOFTWARE - 0.0%
Computervision Corp. 11 3/8%,
8/15/99 B3 1,000,000 840,000 20557TAB
COMPUTERS & OFFICE EQUIPMENT - 0.1%
Unisys Corp. 9 3/4%, 9/15/96 Ba3 2,725,000 2,847,625 909214AY
ELECTRONICS - 0.1%
Berg Electronics 11 3/8%, 5/1/03 B3 430,000 449,350 083727AB
Grupo Condumex SA de CV
7 3/8%, 7/27/98 (f) - 1,000,000 1,010,000 399904AC
1,459,350
TOTAL TECHNOLOGY 5,146,975
TRANSPORTATION - 0.1%
RAILROADS - 0.1%
Southern Pacific Rail Corp. 9 3/8%,
8/15/05 Ba3 2,350,000 2,496,875 843584AA
SHIPPING - 0.0%
Eletson Holdings, Inc. 9 1/4%,
11/15/03 Ba2 300,000 306,000 286204AA
International Shipholding Corp.
9%, 7/1/03 B1 300,000 303,750 460321AA
609,750
TOTAL TRANSPORTATION 3,106,625
UTILITIES - 0.2%
CELLULAR - 0.0%
Centennial Cell Corp. 8 7/8%,
11/1/01 B 810,000 810,000 15133VAA
ELECTRIC UTILITY - 0.2%
AES Corp. 9 3/4%, 6/15/00 Ba2 2,025,000 2,100,937 00130HAB
Midland Funding Corp. 10.33%,
7/23/02 (f) Ba3 1,280,000 1,324,800 597519AB
Texas New Mexico Power Company
1st mtg. 9 1/4%, 9/15/00 Ba3 320,000 337,600 882587AT
Toledo Edison Co. 8.70%, 9/1/08 Ba3 1,130,000 1,100,688 889175BB
4,864,025
TOTAL UTILITIES 5,674,025
TOTAL NONCONVERTIBLE BONDS 298,703,696
TOTAL CORPORATE BONDS
(Cost $292,098,617) 301,435,612
U.S. TREASURY OBLIGATIONS - 5.2%
3.13%, 2/24/94 Aaa $ 75,000,000 $ 74,616,750 99399H5H
3.13%, 3/3/94 Aaa 50,000,000 49,799,500
3.00% - 3.08%, 3/17/94 Aaa 2,250,000 2,236,305 99399H5Q
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $126,642,634) 126,652,555
U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES - 0.0%
Federal National Mortgage Association (h)
8 1/2%, 4/1/17 Aaa 663,271 104,047 31364HBX
8 1/2%, 8/1/22 Aaa 3,478,404 620,652 31364HRJ
724,699
Government National Mortgage Association
8 1/2%, 12/15/16 Aaa 212,279 225,414 36217F3L
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $2,034,101) 950,113
FOREIGN GOVERNMENT OBLIGATIONS - 22.5%
Argentina Republic:
BOCON 3 1/4%, 4/1/01 (g) B1 45,688,310 39,593,490 039995AF
Brady:
euro 4%, 3/31/23 (g) B1 27,750,000 19,043,437 039995AD
4%, 3/31/23 (g) - 1,655,000 1,135,744 0401149Y
4%, 3/31/23 (e)(f) - 3,500,000 2,410,625 0401149G
4.1875%, 3/31/05 (f)(g) - 837,114 734,568 039995AT
4.1875%, 3/31/05 (g) B1 4,500,000 3,948,750 039995AS
Bank Negara Malaysia:
0%, 5/11/94 - MYR 5,000,000 1,810,557 06399DAF
0%, 6/8/94 - MYR 5,000,000 1,802,571 06399DAA
Brazil Federative Republic IDU euro
8 3/4%, 1/1/01 B2 30,500,000 25,353,125 1057569E
Danish Government Bullet:
9%, 11/15/96 Aa1 DKK 7,000,000 1,118,471 249998AK
9%, 11/15/98 Aa1 DKK 26,000,000 4,341,051 249998AQ
9%, 11/15/00 Aa1 DKK 45,300,000 7,780,116 2485059A
8%, 5/15/03 Aa1 DKK 364,000,000 60,560,427 249998AG
7%, 12/15/04 Aa1 DKK 388,450,000 61,152,479 249998AV
Ecuador Republic amortizing loan
participating 0%, 8/15/06 - 2,000,000 1,310,000 88399HAA
French Government OAT:
8 1/2%, 4/25/03 Aaa FRF 332,200,000 67,770,162 351996AQ
6 3/4%, 10/25/03 Aaa FRF 104,650,000 19,138,978 351996BC
MOODY'S
RATINGS PRINCIPAL VALUE PRINCIPAL VALUE
(UNAUDITED)(D) AMOUNT (A) (NOTE 1) AMOUNT (A) (NOTE 1)
FOREIGN GOVERNMENT OBLIGATIONS - CONTINUED
Government of New Zealand
8%, 4/15/04 Aa3 NZD 21,000,000 $ 13,651,046 6501629K
Mexican Government:
Adjustabanos:
4.80%, 9/1/94 - MXN 3,000,000 1,251,858 597998SD
7 1/4%, 2/17/94 - MXN 87,500 39,320 597998SA
6.70%, 5/4/94 - MXN 3,512,500 1,527,870 597998RV
Brady:
4.1875%, 12/31/19 (g) Ba3 15,300,000 14,668,875 597998QD
4.3125%, 12/31/19 (g) Ba3 77,050,000 73,871,687 597998RJ
6 1/4%, 12/31/19 Ba3 89,000,000 74,315,000 597998MM
Cetes 0%, 1/20/94 to 3/30/94 - MXN 148,170,430 46,762,727 597998TG
Mexico Value Recovery
(rights 6/30/03) - 206,198,000 2,062 59304893
Morocco Trust 4.3125%,
1/3/09 (f)(g) - 3,500,000 2,830,625 617727AA
Siderurgica Brasileiras SA inflation
indexed 6%, 8/15/99 - BRC 22,372,700 3,484,427 82599PAA
United Kingdom Treasury 9 3/4%,
8/27/02 Aaa GBP 2,800,000 5,098,419 467991AR
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $531,021,579) 556,508,467
OTHER SECURITIES - 8.7%
INDEXED SECURITIES - 5.9%
AIG Matched Funding Corp. (g)(i):
note 3.586%, 9/14/94 (coupon
inversely indexed to HELIBOR
and principal indexed to value
of 2-year Finnish securities,
both multiplied by 6) 2,875,000 3,174,575 012994AK
note 4.4655%, 9/16/94 (coupon
inversely indexed to HELIBOR
and principal indexed to value
of 3-year Finnish securities,
both multiplied by 4) 950,000 1,022,485 012994AJ
Bankers Trust Company notes (g):
4.2075%, 8/31/94 (coupon
inversely indexed to 6-month
HELIBOR rate, multiplied
by 6) 850,000 933,300 0669918F
22.8887%, 8/31/94 (coupon
inversely indexed to 6-month
HELIBOR rate, multiplied
by 6) $ 7,100,000 $ 8,448,290 0669918E
4.2715%, 9/2/94 (coupon
inversely indexed to HELIBOR
and principal indexed to value of
3-year Finnish securities, both
multiplied by 4) (i) 1,000,000 1,077,200 0669918H
2.0186%, 11/3/94 (coupon
inversely indexed to HELIBOR
and principal indexed to value
of 2-year Finnish securities,
both multiplied by 8) (i) 1,700,000 1,832,600 0669918V
0%, 11/3/94 (coupon inversely
indexed to ITL LIBOR and
principal indexed to value of
2-year Italian securities, both
multiplied by 8) (i) 1,700,000 1,712,920 0669918X
2.482%, 11/4/94 (coupon
inversely indexed to HELIBOR
and principal indexed to value of
2-year Finnish securities, both
multiplied by 8) (i) 800,000 861,840 0669918Y
2.322%, 11/9/94 (coupon
inversely indexed to HELIBOR
and principal indexed to value of
2-year Finnish securities, both
multiplied by 8) (i) 1,250,000 1,323,250 0669919B
1.1386%, 11/14/94 (coupon
inversely indexed to HELIBOR
and principal indexed to value of
2-year Finnish securities, both
multiplied by 8) (i) 700,000 722,540 0669919C
0%, 11/16/94 (coupon inversely
indexed to HELIBOR and
principal indexed to value of
2-year Finnish securities, both
multiplied by 8) (i) 2,400,000 2,477,280 0669919F
0%, 11/16/94 (coupon inversely
indexed to ITL LIBOR and
principal indexed to value of
2-year Italian securities, both
multiplied by 8.50) (i) 5,000,000 5,367,500 0669919D
PRINCIPAL VALUE PRINCIPAL VALUE
AMOUNT (A) (NOTE 1) AMOUNT (A) (NOTE 1)
OTHER SECURITIES - CONTINUED
INDEXED SECURITIES - CONTINUED
Bankers Trust Company notes (g) - CONTINUED
0%, 12/5/94 (coupon inversely
indexed to ITL LIBOR and
principal indexed to value of
2-year Italian securities, both
multiplied by 8) (i) $ 1,700,000 $ 1,926,270 0669919G
3.282%, 12/5/94 (coupon
inversely indexed to HELIBOR
and principal indexed to value of
2-year Finnish securities, both
multiplied by 8) (i) 1,500,000 1,534,500 0669919H
2.77%, 12/6/94 (coupon
inversely indexed to HELIBOR
and principal indexed to value of
2-year Finnish securities, both
multiplied by 8) (i) 700,000 716,660 0669919J
0%, 12/7/94 (coupon inversely
indexed to CAD Banker's
Acceptance rate and principal
indexed to value of 1-year
Canadian securities, both
multiplied by 13) (i) 1,100,000 1,193,830 0669919L
3.09%, 12/7/94 (coupon
inversely indexed to HELIBOR
and principal indexed to value of
2-year Finnish securities, both
multiplied by 8) (i) 2,800,000 2,873,640 0669919K
0%, 12/8/94 (coupon inversely
indexed to CAD Banker's
Acceptance rate and principal
indexed to value of 1-year
Canadian securities, both
multiplied by 13) (i) 900,000 960,750 0669919P
3.3125%, 12/8/94 (coupon
inversely indexed to HELIBOR
and principal indexed to value of
2-year Finnish securities, both
multiplied by 8) (i) 3,800,000 3,898,040 0669919M
5.781%, 12/8/94 (coupon inversely
indexed to GBP LIBOR and
principal indexed to value of
3-year United Kingdom securities,
both multiplied by 10) (i) 4,100,000 4,235,710 0669919Q
0%, 12/8/94 (coupon inversely
indexed to ITL LIBOR and
principal indexed to value of
2-year Italian securities, both
multiplied by 8.50) (i) $ 1,900,000 $ 2,234,590 0669919N
Citibank Nassau:
0%, 8/30/94 ( coupon inversely
indexed to CAD Banker's
Acceptance rate and principal
indexed to value of 1-year
Canadian securities, both
multiplied by 11) (g)(i) 2,500,000 2,995,000 223991AL
22.01337%, 8/31/94 (coupon
inversely indexed to CAD
Banker's Acceptance rate and
principal indexed to value of
1-year Canadian securities,
both multiplied by 11) (g)(i) 7,250,000 8,613,000 223991AM
0%, 11/3/94 (coupon inversely
indexed to ITL LIBOR and
principal indexed to value of
2-year Italian securities, both
multiplied by 8) (g)(i) 4,250,000 4,299,300 223991AV
0%, 11/4/94 (coupon inversely
indexed to ITL LIBOR and
principal indexed to value of
2-year Italian securities, both
multiplied by 8) (g)(i) 2,400,000 2,490,480 223991AW
0%, 11/15/94 (coupon inversely
indexed to ITL LIBOR and
principal indexed to value of
2-year Italian securities, both
multiplied by 8.50) (g)(i) 5,000,000 5,391,500 223991BA
0%, 12/8/94 (coupon inversely
indexed to ITL LIBOR and
principal indexed to value of
2-year Italian securities, both
multiplied by 8.50) (g)(i) 2,800,000 3,248,280 223991BJ
7.315%, 12/8/94 (coupon inversely
indexed to GBP LIBOR and
principal indexed to value of
3-year United Kingdom securities,
both multiplied by 10) (g)(i) 3,600,000 3,711,600 223991BL
17.647%, 12/8/94 (coupon
inversely indexed to CAD
Banker's Acceptance rate and
principal indexed to value of
1-year Canadian securities,
both multiplied by 11) (g)(i) 700,000 756,210 223991BK
PRINCIPAL VALUE PRINCIPAL VALUE
AMOUNT (A) (NOTE 1) AMOUNT (A) (NOTE 1)
OTHER SECURITIES - CONTINUED
INDEXED SECURITIES - CONTINUED
Citibank Nassau - CONTINUED
4 5/8%, 7/30/96 (inversely
indexed to 1-year SEK swap
rate, multiplied by 10) $ 7,350,000 $ 7,697,655 223991AH
Disney Corp. note 6.9386%,
12/9/94 (inversely indexed to
6 month GBP swap rate,
multiplied by 10) (g) 4,400,000 4,583,920 25469HBF
Emerson Electric Company (g)(i):
22.353%, 8/30/94 (coupon
inversely indexed to CAD Banker's
Acceptance rate and principal
indexed to 1-year Canadian
securities, both multiplied
by 11) 4,250,000 4,897,700 29101LAQ
6.115%, 10/24/94 (coupon
inversely indexed to LIBOR and
principal indexed to 2-year United
Kingdom securities, both multiplied
by 10) 4,700,000 5,315,230 29101LAR
Goldman Sachs Group, L.P. notes:
3.50%, 8/27/94 (inversely indexed
to 1-month and 12-month
CAD Banker's Acceptance rates,
multiplied by 11) (g)(i) 4,900,000 5,897,640 38142T9F
25.657%, 9/27/94 (inversely
indexed to CAD Banker's
Acceptance rate and principal
indexed to value of 1-year
Canadian securities, both
multiplied by 13) (g)(i) 3,400,000 4,064,700 38142T9H
3.0747%, 3/28/94 (indexed to
silver price) 225,000 224,887 540992AD
3.1273%, 3/28/94 (indexed to
silver price) 90,000 90,873 540992AA
3.0812%, 4/20/94 (indexed to
cocoa price) 225,000 221,130 540992AB
3.1859%, 4/20/94 (indexed to
cocoa price) 90,000 82,017 38142T9U
3.18%, 4/20/94 (indexed to
coffee price) 260,000 242,632 540992AN
3.1859%, 4/20/94 (indexed to
coffee price) $ 350,000 $ 326,620 38142T9T
3.21%, 7/5/94 (indexed to
soybean price) 2,800,000 2,863,000 38142T9K
3.2576%, 7/5/94 (indexed to
soybean price) 2,175,000 2,186,527 540992AH
3.29%, 7/5/94 (indexed to
soybean price) 900,000 898,020 540992AM
3.2235%, 8/19/94 (indexed to
alminum price) 850,000 836,910 38142T9L
3.327%, 8/19/94 (indexed to
aluminum price) 425,000 410,847 38142T9V
3.37%, 8/19/94 (indexed to
aluminum price) 425,000 419,645 540992AQ
3.2235%, 8/19/94 (indexed to
cattle price) 1,750,000 1,721,125 38142T9J
3.269%, 8/19/94 (indexed to
cattle price) 1,400,000 1,400,000 540992AR
3.327%, 8/19/94 (indexed to
cattle price) 2,450,000 2,403,450 38142T9S
3.2198%, 8/19/94 (indexed to
gold price) 1,500,000 1,503,900 540992AE
3.2235%, 8/19/94 (indexed to
gold price) 600,000 607,260 38142T9R
3.2235%, 8/19/94 (indexed to
lead price) 250,000 250,925 38142T9M
3.27%, 8/19/94 (indexed to
lead price) 245,000 249,900 540992AL
3.327%, 8/19/94 (indexed to
lead price) 125,000 124,337 38142T9W
3.2198%, 8/19/94 (indexed to
nickel price) 250,000 253,825 540992AG
3.37%, 8/19/94 (indexed to
nickel price) 250,000 248,725 540992AP
3.219%, 8/19/94 (indexed to
platinum price) 225,000 227,812 540992AC
3.223%, 8/19/94 (indexed to
platinum price) 90,000 92,286 38142T9P
3.2235%, 8/19/94 (indexed to
zinc price) 350,000 339,535 38142T9N
3.2717%, 8/19/94 (indexed to
zinc price) 875,000 873,162 540992AJ
3.327%, 8/19/94 (indexed to
zinc price) 175,000 168,945 38142T9X
PRINCIPAL VALUE PRINCIPAL VALUE
AMOUNT (A) (NOTE 1) AMOUNT (A) (NOTE 1)
OTHER SECURITIES - CONTINUED
INDEXED SECURITIES - CONTINUED
Goldman Sachs Group, L.P. notes - CONTINUED
3.27%, 8/24/94 (indexed to
oil price) $ 3,500,000 $ 3,427,550 540992AK
3.26%, 8/24/94 (indexed to
oil price) 2,200,000 2,200,000 540992AS
3.26%, 8/24/94 (indexed to
oil price) 4,700,000 4,664,750 540992AF
Morgan Guaranty Trust Co. cert .
of dep. 0%, 6/6/94 (indexed to
$482 par of Westport Investments
Ltd. sr. notes, collateralized by
Mexican gov't. securities, per
$100 par) 930,528 892,376 61799FAE
Sara Lee Corp. 0%, 11/4/94
(inversely indexed to ITL LIBOR
and principal indexed to 2-year
Italian securities, both multiplied
by 8) (g)(i) 1,350,000 1,406,700 8031119V
144,349,656
COMMERCIAL PAPER - 2.8%
Banca Serfin SA 0%, 3/24/94 MXN 9,362,685 2,935,862 065997BM
Banco Nacional de Mexico SA 0%,
12/8/94 MXN 66,600,000 19,274,972 0596179M
Bancomer:
0%, 3/17/94 MXN 4,490,070 1,411,452 05999KBH
0%, 2/24/94 MXN 74,475,809 23,572,577 05999KBG
0%, 9/7/94 MXN 22,500,000 8,019,342 06399DAP
Citibank Mexico:
0%, 3/24/94 MXN 3,875,697 1,215,304 17699AAJ
0%, 4/27/94 MXN 10,454,315 3,242,016 17699AAH
Nacional Financiera:
0%, 2/17/94 MXN 11,791,160 3,739,460 66299CAJ
0%, 3/17/94 MXN 21,137,237 6,644,424 66299CAF
70,055,409
TOTAL OTHER SECURITIES
(Cost $195,369,344) 214,405,065
MUNICIPAL SECURITIES - 0.0%
Louisiana Housing financial
Agency mortgage Revenue
8.61%, 8/1/96 (c) $ 320,000 $ 255,600 546265PL
Louisiana State Agricultural Financial
Auth. Agricultural Revenue,
8 1/4%, 10/1/96 (c) 1,183,000 934,570 546418AB
TOTAL MUNICIPAL SECURITIES
(Cost $1,166,303) 1,190,170
MATURITY
AMOUNT
Repurchase Agreements - 8.1%
Investments in repurchase agreements
(U.S. Treasury obligations), in a
joint trading account at 3.23%
dated 12/31/93 due 1/3/94 $ 200,150,859 200,097,000
Put Option - 0.0%
1,910 S&P 500 Futures Index
(Cost $2,165,673) 924,440 85399987
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $2,296,930,771) $ 2,470,746,888
Futures Contracts
EXPIRATION UNDERLYING FACE UNREALIZED
PURCHASED DATE AMOUNT AT VALUE GAIN/(LOSS)
240 Midcap 400
Stock Index Futures
Contracts March 1994 $ 21,516,000 $ 332,600
210 S&P 500 Futures
Contracts March 1994 49,029,750 (301,250)
$ 70,545,750 $ 31,350
THE VALUE OF FUTURES CONTRACTS PURCHASED AS A PERCENTAGE OF TOTAL
INVESTMENT IN SECURITIES - 2.9%
Forward Foreign Currency Contracts
SETTLEMENT UNREALIZED
CONTRACTS TO BUY DATE(S) VALUE GAIN/(LOSS)
891,090,410 ESP 2/23/94 $ 6,166,345 $ (459,354)
6,958,459 FRF 1/21/94 1,173,057 118
1,451,692,696 JPY 1/21/94 12,978,133 (731,050)
6,748,750 MYR 1/18/94 2,500,000 -
TOTAL CONTRACTS TO BUY
(Payable amount $24,007,821) $ 22,817,535 $ (1,190,286)
THE VALUE OF CONTRACTS TO BUY AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 0.9%
SETTLEMENT UNREALIZED
CONTRACTS TO SELL DATE(S) VALUE GAIN/(LOSS)
919,344,960 DKK 1/12/94 to 3/1/94 $ 134,944,634 $ 2,513,404
1,894,428,562 ESP 2/23/94 13,114,104 905,511
718,481,939 FRF 1/21/94 to 2/22/94 121,049,349 2,141,067
30,916,179 GBP 2/15/94 45,539,017 468,476
4,570,022,894 JPY 1/21/94 to 2/10/94 40,896,408 2,634,302
3,896,000 NOK 1/19/94 465,839 12,738
TOTAL CONTRACTS TO SELL
(Receivable amount $364,684,849) $ 356,009,351 $ 8,675,498
THE VALUE OF CONTRACTS TO SELL AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 14.4%
CURRENCY TYPE ABBREVIATIONS:
BRC - Brazilian cruzeiro
GBP - British pound
CAD - Canadian dollar
DKK - Danish krone
FRF - French franc
ITL - Italian lira
JPY - Japanese yen
MYR - Malaysian ringgit
MXN - Mexican peso
NZD - New Zealand dollar
NOK - Norwegian krone
ESP - Spanish peseta
SEK - Swedish krona
LEGEND:
(a) Principal amount is stated in United States dollars unless otherwise
noted.
(b) Non-income producing
(c) Non-income producing - issuer filed for protection under the Federal
Bankruptcy Code or is in default of interest payment.
(d) Standard & Poor's Corporation credit ratings are used in the
absence of a rating by Moody's Investors Service, Inc.
(e) Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
(f) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $86,301,965 or 3.7% of net
assets.
(g) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(h) Interest Only Strips represent the right to receive the monthly
interest payments on an underlying pool of mortgage loans. These securities
are subject to the risk of accelerated principal paydowns. The principal
amount represents the notional amount on which current interest is
calculated.
(i) Inverse floating rate security is a security where the coupon is
inversely indexed to a floating interest rate multiplied by a specified
factor. If the floating rate is high enough, the coupon rate may be zero or
be a negative amount that is carried forward to reduce future interest
and/or principal payments. The price may be considerably more volatile than
the price of a comparable fixed rate security.
OTHER INFORMATION:
Purchases and sales of securities, other than short-term securities,
aggregated $2,524,936,415 and $1,280,769,573, respectively, of which U.S.
government and government agency obligations aggregated $461,221,851 and
$261,377,446, respectively.
The face value of futures contracts opened and closed amounted to
$253,118,554 and $182,604,154, respectively.
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S S&P
RATINGS RATINGS
Aaa, Aa, A 9.6% AAA, AA, A 9.5%
Baa 0.1% BBB 0.6%
Ba 9.6% BB 5.1%
B 7.8% B 4.1%
Caa 0.1% CCC 0.1%
Ca, C 0.0% CC, C 0.0%
D 0.2%
The percentage not rated by either S&P or Moody's amounted to 3.4%.
Distribution of investments by country, as a percentage of total value of
investment in securities, is as follows:
United States 53.5%
Mexico 18.5
Denmark 5.6
United Kingdom 4.7
France 4.7
Argentina 3.4
Canada 1.5
Brazil 1.3
Japan 1.2
Korea 1.2
Others (individually less than 1%) 4.4
TOTAL 100.0%
INCOME TAX INFORMATION:
At December 31, 1993, the aggregate cost of investment securities for
income tax purposes was $2,297,359,117. Net unrealized appreciation
aggregated $173,387,771 of which $201,346,085 related to appreciated
investment securities and $27,958,314 related to depreciated investment
securities.
The fund hereby designates $23,290,000 as a capital gain dividend for the
purpose of the dividend paid deduction.
ASSET MANAGER PORTFOLIO
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, 1993
ASSETS
Investment in securities, at value (including repurchase agreements of $200,097,000) (cost $ 2,470,746,888
$2,296,930,771)
(Notes 1 and 2) - See accompanying schedule
Long foreign currency contracts held, at value (cost $24,007,821) (Note 2) 22,817,535
Short foreign currency contracts (Note 2) $ (356,009,351)
Contracts held, at value
Receivable for contracts held 364,684,849 8,675,498
Cash 1,985,418
Receivable for investments sold 10,606,776
Net receivable for closed foreign currency contracts 333,139
Receivable for fund shares sold 18,472,164
Dividends receivable 1,381,072
Interest receivable 18,484,803
Other receivables 41,966
Total assets 2,553,545,259
LIABILITIES
Payable for foreign currency contracts held (Notes 1 and 2) 24,007,821
Payable for investments purchased 100,269,636
Payable for fund shares redeemed 4,183,532
Accrued management fee 1,375,813
Payable for daily variation on futures contracts 262,389
Other payables and accrued expenses 753,685
Total liabilities 130,852,876
NET ASSETS $ 2,422,692,383
Net Assets consist of:
Paid in capital $ 2,119,072,914
Undistributed net investment income 51,341,945
Accumulated undistributed net realized gain (loss) on investments 70,944,845
Net unrealized appreciation (depreciation) on:
Investment securities 173,816,117
Foreign currency contracts 7,485,212
Futures contracts 31,350
NET ASSETS, for 157,096,490 shares outstanding $ 2,422,692,383
NET ASSET VALUE, offering price and redemption price per share ($2,422,692,383 (divided by) 157,096,490 shares) $15.42
</TABLE>
Statement of Operations
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31, 1993
INVESTMENT INCOME $ 11,039,965
Dividends
Interest 53,681,337
Total income 64,721,302
EXPENSES
Management fee (Note 3) $ 10,365,454
Transfer agent fees (Note 3) 115,600
Accounting fees and expenses (Note 3) 583,404
Non-interested trustees' compensation 10,778
Custodian fees and expenses 829,525
Registration fees 572,294
Audit 89,341
Legal 14,418
Miscellaneous 27,259
Total expenses before reductions 12,608,073
Expense reductions (Note 4) (53,319) 12,554,754
Net investment income 52,166,548
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 2)
Net realized gain (loss) on:
Investment securities 79,338,494
Foreign currency contracts (8,556,499)
Futures contracts 845,172 71,627,167
Change in net unrealized appreciation (depreciation) on:
Investment securities 157,984,897
Foreign currency contracts 6,860,349
Futures contracts 31,350 164,876,596
Net gain (loss) 236,503,763
Net increase (decrease) in net assets resulting from operations $ 288,670,311
</TABLE>
Statement of Changes in Net Assets
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
YEARS ENDED DECEMBER 31,
1993 1992
INCREASE (DECREASE) IN NET ASSETS
Operations $ 52,166,548 $ 20,447,414
Net investment income
Net realized gain (loss) on investments 71,627,167 17,133,983
Change in net unrealized appreciation (depreciation) on investments 164,876,596 10,321,532
Net increase (decrease) in net assets resulting from operations 288,670,311 47,902,929
Distributions to shareholders: (20,492,703) (5,424,840)
From net investment income
In excess of net investment income (2,321,789) -
From net realized gain (15,415,197) (5,774,830)
Total distributions (38,229,689) (11,199,670)
Share transactions 1,430,436,639 504,822,611
Net proceeds from sales of shares
Reinvestment of distributions from: 22,814,492 5,424,840
Net investment income
Net realized gain 15,415,197 5,774,830
Cost of shares redeemed (28,138,506) (14,519,348)
Net increase (decrease) in net assets resulting from share transactions 1,440,527,822 501,502,933
Total increase (decrease) in net assets 1,690,968,444 538,206,192
NET ASSETS
Beginning of period 731,723,939 193,517,747
End of period (including undistributed net investment income of $51,341,945 and
$20,572,046, $ 2,422,692,383 $ 731,723,939
respectively)
OTHER INFORMATION
Shares
Sold 101,223,825 39,717,498
Issued in reinvestment of distributions from: 1,737,585 445,389
Net investment income
Net realized gain 1,174,044 474,124
Redeemed (1,958,476) (1,140,784)
Net increase (decrease) 102,176,978 39,496,227
</TABLE>
FINANCIAL HIGHLIGHTS
DRAFT
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C>
SEPTEMBER 6,
1989
(COMMENCEMENT
OF
OPERATIONS) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
1993 1992 1991 1990 1989
SELECTED PER-SHARE DATA
Net asset value, beginning of period
$ 13.32 $ 12.55 $ 10.24 $ 9.97 $ 10.00
Income from Investment Operations
Net investment income
.33 .32 .35 .41 .09
Net realized and unrealized gain (loss) on investments
2.39 1.09 1.96 .26 (.01)
Total from investment operations
2.72 1.41 2.31 .67 .08
Less Distributions
From net investment income
(.33) (.31) - (.40) (.09)
In excess of net investment income
(.04) - - - -
From net realized gain
(.25) (.33) - - (.02)
Total distributions
(.62) (.64) - (.40) (.11)
Net asset value, end of period
$ 15.42 $ 13.32 $ 12.55 $ 10.24 $ 9.97
TOTAL RETURN (double dagger)
21.23% 11.71% 22.56% 6.72%# .81%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted)
$ 2,422,692 $ 731,724 $ 193,518 $ 35,858 $ 7,271
Ratio of expenses to average net assets (dagger)
.88% .91% 1.08% 1.25% 2.50%*
Ratio of expenses to average net assets before expense reductions (dagger)
.88% .91% 1.08% 1.54% 4.39%*
Ratio of net investment income to average net assets
3.64% 4.89% 5.89% 5.92% 4.77%*
Portfolio turnover rate
113% 92% 110% 117% 158%*
</TABLE>
* ANNUALIZED
(double dagger) TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT
ANNUALIZED.
# THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
(dagger) SEE NOTE 4 OF NOTES TO FINANCIAL STATEMENTS.
VARIABLE INSURANCE PRODUCTS FUND II: INDEX 500 PORTFOLIO
INVESTMENTS/DECEMBER 31, 1993
(Showing Percentage of Total Value of Investment in Securities)
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - 95.1%
AEROSPACE AND DEFENSE - 1.5%
AEROSPACE AND DEFENSE - 1.1%
Aviall, Inc. (a) 100 $ 1,525 05366B10
Boeing Co. 2,500 108,125 09702310
Grumman Corp. 200 7,900 40018110
Lockheed Corp. 500 34,125 53982110
Martin Marietta Corp. 600 26,700 57290010
McDonnell Douglas Corp. 200 21,400 58016910
Northrop Corp. 300 11,213 66680710
Rockwell International Corp. 1,500 55,688 77434710
266,676
DEFENSE ELECTRONICS - 0.3%
E-Systems, Inc. 200 8,675 26915730
Loral Corp. 500 18,875 54385910
Raytheon Co. 900 59,400 75511110
86,950
SHIP BUILDING AND REPAIR - 0.1%
General Dynamics Corp. 300 27,675 36955010
TOTAL AEROSPACE AND DEFENSE 381,301
BASIC INDUSTRIES - 6.7%
CHEMICALS AND PLASTICS - 3.8%
Air Products & Chemicals, Inc. 900 39,825 00915810
Avery Dennison Corp. 500 14,688 05361110
Dow Chemical Co. 1,900 107,825 26054310
du Pont (E.I.) de Nemours & Co. 4,800 231,600 26353410
Engelhard Corp. 600 14,625 29284510
Ethyl Corp. 800 14,000 29765910
FMC Corp. (a) 200 9,425 30249130
First Mississippi Corp. 100 1,313 32089110
Goodrich (B.F.) Company 100 4,025 38238810
Grace (W.R.) & Co. 600 24,375 38388310
Great Lakes Chemical Corp. 600 44,775 39056810
Hercules, Inc. 400 45,200 42705610
Minnesota Mining & Manufacturing Co. 1,500 163,125 60405910
Monsanto Co. 800 58,700 61166210
Morton International, Inc. 300 28,050 61933110
NL Industries, Inc. (a) 300 1,350 62915640
Nalco Chemical Co. 400 15,000 62985310
PPG Industries, Inc. 700 53,113 69350610
Praxair, Inc. 900 14,963 74005P10
Raychem Corp. 300 11,250 75460310
Rohm & Haas Co. 400 23,800 77537110
Union Carbide Corp. 1,000 22,375 90558110
943,402
IRON AND STEEL - 0.3%
Armco, Inc. (a) 700 $ 4,200 04217010
Bethlehem Steel Corp. (a) 600 12,225 08750910
Inland Steel Industries, Inc. (a) 200 6,625 45747210
Nucor Corp. 700 37,100 67034610
USX-U.S. Steel Group 400 17,350 90337T10
Worthington Industries, Inc. 550 11,275 98181110
88,775
METALS AND MINING - 0.7%
ASARCO, Inc. 200 4,575 04341310
Alcan Aluminium Ltd. 1,513 31,765 01371610
Alumax, Inc. 250 5,375 02219710
Aluminum Co. of America 700 48,563 02224910
Cyprus Amax Minerals Co. 750 19,406 23280910
Inco Ltd. 707 18,989 45325840
Phelps Dodge Corp. 600 29,250 71726510
Reynolds Metals Co. 500 22,688 76176310
180,611
PACKAGING AND CONTAINERS - 0.2%
Ball Corp. 300 9,075 05849810
Bemis Co., Inc. 300 7,088 08143710
Crown Cork & Seal Co., Inc. (a) 700 29,313 22825510
45,476
PAPER AND FOREST PRODUCTS - 1.7%
Boise Cascade Corp. 200 4,700 09738310
Champion International Corp. 600 20,025 15852510
Federal Paper Board Co., Inc. 400 8,500 31369310
Georgia-Pacific Corp. 700 48,125 37329810
International Paper Co. 800 54,200 46014610
James River Corp. of Virginia 500 9,625 47034910
Kimberly-Clark Corp. 1,100 57,063 49436810
Louisiana-Pacific Corp. 700 28,875 54634710
Mead Corp. 500 22,500 58283410
Potlatch Corp. 300 14,138 73762810
Scott Paper Co. 600 24,675 80987710
Stone Container Corp. (a) 600 5,775 86158910
Temple-Inland, Inc. 300 15,113 87986810
Union Camp Corp. 600 28,575 90553010
Westvaco Corp. 400 14,250 96154810
Weyerhaeuser Co. 1,400 62,475 96216610
418,614
TOTAL BASIC INDUSTRIES 1,676,878
CONGLOMERATES - 1.4%
Allied-Signal, Inc. 1,100 86,900 01951210
Crane Co. 300 7,425 22439910
Dial Corp. (The) 400 16,150 25247010
Hanson Trust PLC sponsored ADR 117 2,340 41135230
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
CONGLOMERATES - CONTINUED
Harris Corp. 200 $ 9,100 41387510
ITT Corp. 800 73,000 45067910
Litton Industries, Inc. (a) 400 25,750 53802110
Teledyne, Inc. 300 7,800 87933510
Textron, Inc. 700 40,775 88320310
Tyco Laboratories, Inc. 400 20,650 90212010
United Technologies Corp. 800 49,600 91301710
Whitman Corp. 700 11,375 96647K10
350,865
CONSTRUCTION AND REAL ESTATE - 0.6%
BUILDING MATERIALS - 0.4%
Armstrong World Industries, Inc. 200 10,650 04247610
Masco Corp. 1,000 37,000 57459910
Owens-Corning Fiberglas Corp. (a) 400 17,750 69073420
Sherwin-Williams Co. 700 25,025 82434810
90,425
CONSTRUCTION - 0.1%
Centex Corp. 300 12,600 15231210
Kaufman & Broad Home Corp. (a) 300 7,125 48616810
Morrison-Knudsen Corp. 300 7,538 61844710
Pulte Corp. 200 7,250 74586710
34,513
ENGINEERING - 0.1%
EG & G, Inc. 500 9,188 26845710
Fluor Corp. 500 20,250 34386110
Foster Wheeler Corp. 200 6,700 35024410
36,138
TOTAL CONSTRUCTION AND REAL ESTATE 161,076
DURABLES - 4.5%
AUTOS, TIRES, AND ACCESSORIES - 3.7%
Chrysler Corp. 2,600 138,450 17119610
Cooper Tire & Rubber Co. 600 15,000 21683110
Cummins Engine Co., Inc. 200 10,750 23102110
Dana Corp. 400 23,950 23581110
Eaton Corp. 600 30,300 27805810
Echlin, Inc. 500 16,625 27874910
Ford Motor Co. 3,500 225,750 34537010
General Motors Corp. 5,200 285,350 37044210
Genuine Parts Company 800 30,100 37246010
Goodyear Tire & Rubber Co. 1,000 45,750 38255010
Johnson Controls, Inc. 200 10,625 47836610
Navistar International Corp. (a) 470 11,104 63934E10
PACCAR, Inc. 300 18,375 69371810
Pep Boys - Manny, Moe & Jack 400 10,500 71327810
SPX Corp. 100 $ 1,775 78463510
Snap-on Tools Corp. 400 15,150 83303410
TRW, Inc. 400 27,700 87264910
917,254
CONSUMER ELECTRONICS - 0.4%
Black & Decker Corp. 700 13,825 09179710
Fedders USA, Inc. (a) 100 638 31313510
Maytag Co. 700 12,600 57859210
Newell Co. 500 20,188 65119210
Stanley Works 400 17,800 85461610
Whirlpool Corp. 600 39,900 96332010
104,951
HOME FURNISHINGS - 0.0%
Bassett Furniture Industries, Inc. 125 4,375 07020310
TEXTILES AND APPAREL - 0.4%
Hartmarx Corp. (a) 200 1,400 41711910
Liz Claiborne, Inc. 500 11,375 53932010
NIKE, Inc. Class B 500 23,188 65410610
Oshkosh B'Gosh, Inc. Class A 200 3,900 68822220
Reebok International Ltd. 700 21,000 75811010
Russell Corp. 200 5,650 78235210
Springs Industries, Inc. Class A 200 7,550 85178310
Stride Rite Corp. 300 4,913 86331410
VF Corp. 400 18,450 91820410
97,426
TOTAL DURABLES 1,124,006
ENERGY - 9.5%
COAL - 0.0%
Eastern Enterprises Co. 100 2,550
Pittston Co. Minerals Group 40 955 27637F10 3,505
ENERGY SERVICES - 0.8%
Baker Hughes, Inc. 1,100 22,000 05722410
Dresser Industries, Inc. 900 18,675 26159710
Halliburton Co. 900 28,688 40621610
Helmerich & Payne, Inc. 200 5,575 42345210
McDermott International, Inc. 300 7,950 58003710
Rowan Companies, Inc. (a) 700 6,300 77938210
Schlumberger Ltd. 1,800 106,425 80685710
195,613
OIL AND GAS - 8.7%
Amerada Hess Corp. 600 27,075 02355110
Amoco Corp. 3,500 185,063 03190510
Ashland Oil, Inc. 500 17,063 04454010
Atlantic Richfield Co. 1,200 126,300 04882510
Burlington Resources, Inc. 1,000 42,375 12201410
Chevron Corp. 2,400 209,100 16675110
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
ENERGY - CONTINUED
OIL AND GAS - CONTINUED
Exxon Corp. 9,000 $ 567,000 30229010
Kerr-McGee Corp. 300 13,538 49238610
Louisiana Land & Exploration Co. 300 12,038 54626810
Maxus Energy Corp. (a) 900 4,950 57773010
Mobil Corp. 2,800 221,200 60705910
Occidental Petroleum Corp. 2,100 35,963 67459910
Oryx Energy Co. 600 10,350 68763F10
Pennzoil Co. 400 21,300 70990310
Phillips Petroleum Co. 1,800 52,200 71850710
Royal Dutch Petroleum Co. 3,800 396,625 78025770
Santa Fe Energy Resources, Inc. 600 5,400 80201210
Sun Company, Inc. 700 20,563 86676210
Texaco, Inc. 1,800 116,325 88169410
USX-Marathon Group 2,000 33,000 90290582
Unocal Corp. 1,800 50,175 91528910
2,167,603
TOTAL ENERGY 2,366,721
FINANCE - 10.6%
BANKS - 4.9%
Banc One Corp. 2,400 93,900 05943810
Bank of Boston Corp. 700 16,100 06071610
Bankers Trust New York Corp. 500 39,563 06636510
BankAmerica Corp. 2,500 115,938 06605010
Barnett Banks, Inc. 600 24,900 06805510
Boatmen's Bancshares, Inc. 800 23,900 09665010
Chase Manhattan Corp. 1,400 47,425 16161010
Chemical Banking Corp. 1,900 76,238 16372210
Citicorp (a) 2,700 99,225 17303410
CoreStates Financial Corp. 800 20,900 21869510
First Chicago Corp. 500 21,625 31945510
First Fidelity Bancorporation 500 22,750 32019510
First Interstate Bancorp 500 32,063 32054810
First Union Corp. 1,300 53,625 33735810
Fleet Financial Group, Inc. 900 30,038 33891510
Mellon Bank Corp. 400 21,200 58550910
Morgan (J.P.) & Co., Inc. 1,300 90,188 61688010
NBD Bancorp, Inc. 1,100 32,450 62890010
NationsBank Corp. 2,000 98,000 63858510
Norwest Corp. 2,000 48,750 66938010
PNC Financial Corp. 1,600 46,400 69347510
Shawmut National Corp. 600 13,050 82048410
SunTrust Banks, Inc. 800 36,000 86791410
U.S. Bancorp 800 20,000 91159610
Wachovia Corp. 1,300 $ 43,550 92977110
Wells Fargo & Co. 400 51,750 94974010
1,219,528
CREDIT AND OTHER FINANCE - 1.2%
American Express Co. 3,400 104,975 02581610
Beneficial Corp. 400 15,300 08172110
Dean Witter Discover & Co. 1,158 40,096 24240V10
Household International, Inc. 600 19,575 44181510
MBNA Corp. 800 26,700 55262L10
Primerica Corp. 1,633 63,483 74158910
Transamerica Corporation 500 28,375 89348510
298,504
FEDERAL SPONSORED CREDIT - 0.8%
Federal Home Loan Mortgage Corporation 1,200 59,850 31340030
Federal National Mortgage Association 1,900 149,150 31358610
209,000
INSURANCE - 3.1%
Aetna Life & Casualty Co. 900 54,338 00814010
Alexander & Alexander Services, Inc. 200 3,900 01447610
American General Corp. 1,500 42,938 02635110
American International Group, Inc. 2,350 206,213 02687410
CIGNA Corp. 600 37,650 12550910
CNA Financial Corp. (a) 500 38,750 12611710
Capital Holding Corp. 800 29,700 14018610
Chubb Corp. (The) 700 54,513 17123210
Continental Corp. 300 8,288 21132710
General Re Corp. 700 74,900 37056310
Jefferson Pilot Corp. 300 14,063 47507010
Lincoln National Corp. 600 26,100 53418710
Marsh & McLennan Companies, Inc. 600 48,750 57174810
SAFECO Corp. 400 22,000 78642910
St. Paul Companies, Inc. (The) 400 35,950 79286010
Torchmark Corp. 600 27,000 89102710
Travelers Corp. (The) 1,100 34,238 89418010
USF&G Corp. 700 10,325 90329010
USLIFE Corp. 250 9,594 91731810
779,210
SAVINGS AND LOANS - 0.2%
Ahmanson (H.F.) & Co. 700 13,738 00867710
Golden West Financial Corp. 400 15,600 38131710
Great Western Financial Corp. 900 18,000 39144210
47,338
SECURITIES INDUSTRY - 0.4%
Merrill Lynch & Co., Inc. 1,600 67,200 59018810
Salomon, Inc. 700 33,338 79549B10
100,538
TOTAL FINANCE 2,654,118
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
HEALTH - 7.8%
DRUGS AND PHARMACEUTICALS - 5.2%
ALZA Corp. Class A (a) 500 $ 14,000 02261510
Allergan, Inc. 400 9,050 01849010
American Cyanamid Co. 600 30,150 02532110
American Home Products Corp. 2,300 148,925 02660910
Amgen, Inc. (a) 900 44,550 03116210
Bristol-Myers Squibb Co. 3,800 220,875 11012210
IMCERA Group, Inc. 500 16,813 45245410
Lilly (Eli) & Co. 2,200 130,625 53245710
Merck & Co., Inc. 9,300 319,688 58933110
Pfizer, Inc. 2,200 151,800 71708110
Schering-Plough Corp. 1,300 89,050 80660510
Syntex Corporation 1,500 23,813 87161610
Upjohn Co. 1,200 34,950 91530210
Warner-Lambert Co. 900 60,750 93448810
1,295,039
MEDICAL EQUIPMENT AND SUPPLIES - 2.3%
Abbott Laboratories 5,900 174,050 00282410
Bard (C.R.), Inc. 300 7,575 06738310
Bausch & Lomb, Inc. 500 25,625 07170710
Baxter International, Inc. 1,900 46,313 07181310
Becton Dickinson & Co. 500 17,938 07588710
Biomet, Inc. (a) 900 9,225 09061310
Johnson & Johnson 4,600 205,850 47816010
McKesson Corp. 200 10,800 58155610
Medtronic, Inc. 500 41,063 58505510
Millipore Corp. 200 8,000 60107310
Pall Corp. 800 14,700 69642930
St. Jude Medical, Inc. 400 10,600 79084910
U.S. Surgical Corp. 500 11,250 91270710
582,989
MEDICAL FACILITIES MANAGEMENT - 0.3%
Beverly Enterprises, Inc. (a) 500 6,625 08785110
Columbia Healthcare Corp. 975 32,419 19767910
Community Psychiatric Centers 400 5,600 20401510
Manor Care, Inc. 500 12,188 56405410
National Medical Enterprises, Inc. 1,100 15,400 63688610
72,232
TOTAL HEALTH 1,950,260
INDUSTRIAL MACHINERY AND EQUIPMENT - 5.8%
ELECTRICAL EQUIPMENT - 3.6%
Corning, Inc. 1,400 39,200 21935010
Emerson Electric Co. 1,700 102,425 29101110
General Electric Co. 6,200 650,225 36960410
General Signal Corp. 400 13,750 37083810
Grainger (W.W.), Inc. 300 $ 17,250 38480210
Honeywell, Inc. 900 30,825 43850610
Scientific-Atlanta, Inc. 200 6,600 80865510
Westinghouse Electric Corp. 2,600 36,725 96040210
Zenith Electronics Corp. (a) 200 1,400 98934910
898,400
INDUSTRIAL MACHINERY AND EQUIPMENT -1.6%
Briggs & Stratton Corp. 200 16,500 10904310
Caterpillar, Inc. 800 71,200 14912310
Cincinnati Milacron, Inc. 300 6,600 17217210
Clark Equipment Co. (a) 200 10,475 18139610
Cooper Industries, Inc. 900 44,325 21666910
Deere & Co. 700 51,800 24419910
Dover Corp. 500 30,375 26000310
Giddings & Lewis, Inc. 200 5,150 37504810
Harnischfeger Industries, Inc. 200 4,500 41334510
Illinois Tool Works, Inc. 900 35,100 45230810
Ingersoll-Rand Co. 700 26,775 45686610
Parker-Hannifin Corp. 300 11,325 70109410
TRINOVA Corp. 300 9,413 89667810
Tenneco, Inc. 1,300 68,413 88037010
Timken Co. 300 10,088 88738910
Varity Corp. (a) 200 8,950 92224R60
410,989
POLLUTION CONTROL - 0.6%
Browning-Ferris Industries, Inc. 1,200 30,900 11588510
Ogden Corp. 400 9,100 67634610
Rollins Environmental Services, Inc. 400 2,300 77570910
Safety Kleen Corp. 500 8,125 78648410
WMX Technologies, Inc. 3,400 89,675 92929Q10
Zurn Industries, Inc. 100 2,738 98982410
142,838
TOTAL INDUSTRIAL MACHINERY
AND EQUIPMENT 1,452,227
MEDIA AND LEISURE - 5.2%
BROADCASTING - 1.7%
CBS, Inc. 200 57,700 12484510
Capital Cities/ABC, Inc. 200 123,900 13985910
Comcast Corp.:
Class A 800 29,100 20030010
Class A (Special) 300 10,800 20030020
Tele-Communications, Inc. Class A (a) 3,300 99,825 87924010
Time Warner, Inc. 2,600 115,050 88731510
436,375
ENTERTAINMENT - 0.8%
Disney (Walt) Co. 3,900 166,238 25468710
GC Cos., Inc. (a) 40 1,385 36155Q10
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
MEDIA AND LEISURE - CONTINUED
BROADCASTING - CONTINUED
King World Productions, Inc. 200 $ 7,675 49566710
Paramount Communications, Inc. 200 15,475 69921610
190,773
LEISURE DURABLES AND TOYS - 0.3%
Brunswick Corp. 600 10,800 11704310
Fleetwood Enterprises, Inc. 400 9,500 33909910
Hasbro, Inc. 700 25,375 41805610
Mattel, Inc. 900 24,863 57708110
Outboard Marine Corp. 200 4,475 69002010
75,013
LODGING AND GAMING - 0.4%
Bally Manufacturing Corp. (a) 300 2,550 05873210
Hilton Hotels Corp. 400 24,300 43284810
Host Marriott Corp. 600 5,475 44107810
Marriott INTL, Inc. 900 26,100 57190010
Promus Companies, Inc. (a) 800 36,600 74342A10
95,025
PUBLISHING - 1.3%
American Greetings Corp. Class A 600 20,400 02637510
Dow Jones & Co Inc. 800 28,600 26056110
Dun & Bradstreet Corp. 1,200 73,950 26483010
Gannett Co., Inc. 1,000 57,250 36473010
Harcourt Genenal, Inc. 500 18,125 41163G10
Knight-Ridder, Inc. 300 17,925 49904010
McGraw-Hill, Inc. 300 20,288 58064510
Meredith Corp. 200 8,000 58943310
New York Times Co. (The) Class A 700 18,375 65011110
Times Mirror Co., Series A 1,000 33,375 88736010
Tribune Co. 400 24,050 89604710
320,338
RESTAURANTS - 0.7%
Luby's Cafeterias, Inc. 100 2,250 54928210
McDonald's Corp. 2,600 148,200 58013510
Ryan's Family Steak Houses, Inc. (a) 300 2,700 78351910
Shoney's, Inc. (a) 200 4,625 82503910
Wendy's International, Inc. 800 13,900 95059010
171,675
TOTAL MEDIA AND LEISURE 1,289,199
NONDURABLES - 11.1%
AGRICULTURE - 0.1%
Pioneer Hi-Bred International, Inc. 600 23,400 72368610
BEVERAGES - 3.4%
Anheuser-Busch Companies, Inc. 2,000 $ 98,250 03522910
Brown-Forman Corp. Class B 200 17,450 11563720
Coca-Cola Company (The) 9,400 421,825 19121610
Coors (Adolph) Co. Class B 200 3,250 21701610
PepsiCo, Inc. 5,600 228,900 71344810
Seagram Co. Ltd. 2,600 68,356 81185010
838,031
FOODS - 3.0%
Archer-Daniels-Midland Co. 2,300 52,325 03948310
Borden, Inc. 1,100 18,700 09959910
CPC International, Inc. 1,000 47,625 12614910
Campbell Soup Co. 1,900 77,900 13442910
ConAgra, Inc. 1,900 50,113 20588710
General Mills, Inc. 1,200 72,900 37033410
Gerber Products Co. 400 11,350 37371210
Heinz (H.J.) Co. 1,900 68,163 42307410
Hershey Foods Corp. 600 29,400 42786610
Kellogg Co. 1,700 96,475 48783610
Pet, Inc. 700 12,250 71582510
Quaker Oats Co. 400 28,400 74740210
Ralston Continental Baking Group 120 1,005 75126210
Ralston Purina Co. 700 27,825 75127730
SYSCO Corp. 1,400 40,950 87182910
Sara Lee Corp. 3,400 85,000 80311110
Wrigley (Wm.) Jr. Company 900 39,713 98252610
760,094
HOUSEHOLD PRODUCTS - 2.9%
Alberto Culver Co. Class B cv 300 6,938 01306810
Avon Products, Inc. 600 29,175 05430310
Clorox Co. 300 16,275 18905410
Colgate-Palmolive Co. 1,200 74,850 19416210
Gillette Company 1,500 89,438 37576610
International Flavors & Fragrances, Inc. 200 22,750 45950610
Premark International, Inc. 300 24,075 74045910
Procter & Gamble Co. 5,000 285,000 74271810
Rubbermaid, Inc. 1,100 38,225 78108810
Unilever NV ADR 1,100 127,050 90478450
713,776
TOBACCO - 1.7%
American Brands, Inc. 1,400 46,550 02470310
Philip Morris Companies, Inc. 6,200 345,650 71815410
UST, Inc. 1,400 38,850 90291110
431,050
TOTAL NONDURABLES 2,766,351
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
PRECIOUS METALS - 0.6%
Amax Gold, Inc. 122 $ 839 02312010
American Barrick Resources Corp. 2,000 56,932 02451E10
Echo Bay Mines Ltd. 900 11,661 27875110
Homestake Mining Co. 900 19,800 43761410
Newmont Mining Corp. 400 23,050 65163910
Placer Dome, Inc. 1,800 44,770 72590610
157,052
RETAIL AND WHOLESALE - 6.3%
APPAREL STORES - 0.6%
Brown Group, Inc. 200 6,925 11565710
Charming Shoppes, Inc. 700 8,313 16113310
Gap, Inc. 1,100 43,313 36476010
Genesco, Inc. (a) 100 525 37153210
Limited, Inc. (The) 2,700 46,238 53271610
Melville Corp. 700 28,438 58574510
TJX Companies, Inc. 600 17,475 87254010
151,227
DRUG STORES - 0.2%
Long Drug Stores, Inc. 100 3,288 54316210
Rite Aid Corporation 600 9,525 76775410
Walgreen Co. 800 32,700 93142210
45,513
GENERAL MERCHANDISE STORES - 3.7%
Dayton Hudson Corp. 600 40,050 23975310
Dillard Department Stores, Inc Class A 900 34,200 25406310
K mart Corp. 3,000 63,750 48258410
May Department Stores Co. (The) 1,700 66,938 57777810
Mercantile Stores Co., Inc. 200 7,250 58753310
Nordstrom, Inc. 500 16,500 65566410
Penney (J.C.) Co., Inc. 1,600 83,800 70816010
Price/Costco, Inc. 1,639 31,551 74143W10
Sears, Roebuck & Co. 2,600 137,150 81238710
Wal-Mart Stores, Inc. 16,600 415,000 93114210
Woolworth Corp. 900 22,838 98088310
919,027
GROCERY STORES - 0.7%
Albertson's, Inc. 1,900 50,825 01310410
American Stores Co. 600 25,800 03009610
Bruno's, Inc. 500 4,438 11688110
Fleming Companies, Inc. 200 4,950 33913010
Giant Food, Inc. Class A 500 12,875 37447810
Great Atlantic & Pacific Tea Co., Inc. 200 5,400 39006410
Kroger Co. (The) (a) 700 14,088 50104410
Supervalue, Inc. 600 21,750 86853610
Winn-Dixie Stores, Inc. 600 32,175 97428010
172,301
RETAIL AND WHOLESALE, MISCELLANEOUS - 1.1%
Circuit City Stores, Inc. 600 $ 13,050 17273710
Handleman Co. (Del.) 200 2,650 41025210
Home Depot, Inc. (The) 3,300 130,350 43707610
Lowe's Companies, Inc. 600 35,550 54866110
Tandy Corp. 400 19,800 87538210
Toys "R" Us, Inc. (a) 2,000 81,750 89233510
283,150
TOTAL RETAIL AND WHOLESALE 1,571,218
SERVICES - 1.1%
ADVERTISING - 0.1%
Interpublic Group of Companies, Inc. 500 16,000 46069010
LEASING AND RENTAL - 0.3%
Blockbuster Entertainment Corp. 1,700 52,063 09367610
Ryder Systems, Inc. 500 13,250 78354910
65,313
PRINTING - 0.4%
Alco Standard Corp. 300 16,425 01378810
Deluxe Corp. 500 18,125 24801910
Donnelley (R.R.) & Sons Co. 1,200 37,350 25786710
Harland (John H.) Co. 300 6,488 41269310
Moore Corporation Ltd. 800 15,434 61578510
93,822
SERVICES - 0.3%
Block (H&R), Inc. 700 28,525 09367110
Ecolab, Inc. 300 13,500 27886510
Jostens, Inc. 400 7,900 48108810
National Education Corp. (a) 200 1,250 63577110
National Service Industries, Inc. 300 7,688 63765710
Pittston Company Services Group 200 5,775 72570110
Service Corp. International 700 18,375 81756510
83,013
TOTAL SERVICES 258,148
TECHNOLOGY - 6.6%
COMMUNICATIONS EQUIPMENT - 0.5%
Andrew Corp. (a) 200 7,700 03442510
Cisco Systems, Inc. (a) 500 32,313 17275R10
DSC Communications Corp. (a) 300 18,450 23331110
M/A-Com, Inc. (a) 100 863 55261810
Northern Telecom Ltd. 1,900 58,757 66581510
118,083
COMPUTER SERVICES AND SOFTWARE - 1.0%
Autodesk, Inc. 100 4,500 05276910
Automatic Data Processing, Inc. 1,100 60,775 05301510
Ceridian Corp. (a) 400 7,600 15677T10
Computer Associates International, Inc. 1,100 44,000 20491210
Computer Sciences Corp. (a) 200 19,900 20536310
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
TECHNOLOGY - CONTINUED
COMPUTER SERVICES AND SOFTWARE - CONTINUED
Lotus Development Corp. (a) 200 $ 11,000 54570010
Novell, Inc. (a) 2,200 45,650 67000610
Oracle Systems Corp. (a) 2,000 57,500 68389X10
Shared Medical Systems Corp. 100 2,488 81948610
253,413
COMPUTERS AND OFFICE EQUIPMENT - 2.6%
Amdahl Corp. 900 5,400 02390510
Apple Computer, Inc. 900 26,550 03783310
Compaq Computer Corp. (a) 500 37,000 20449310
Cray Research, Inc. (a) 100 2,563 22522410
Data General Corp. (a) 200 1,875 23768810
Digital Equipment Corp. (a) 900 30,825 25384910
Hewlett-Packard Co. 1,900 150,100 42823610
Intergraph Corp. (a) 300 3,188 45868310
International Business Machines Corp. 4,100 231,650 45920010
Pitney Bowes, Inc. 1,200 49,650 72447910
Sun Microsystems, Inc. (a) 800 23,300 86681010
Tandem Computers, Inc. (a) 900 9,788 87537010
Unisys Corp. (a) 1,100 13,888 90921410
Xerox Corp. 700 62,563 98412110
648,340
ELECTRONIC INSTRUMENTS - 0.1%
Perkin-Elmer Corp. 400 15,400 71404110
Tektronix, Inc. 300 7,050 87913110
22,450
ELECTRONICS - 1.9%
AMP, Inc. 700 44,188 03189710
Advanced Micro Devices, Inc. (a) 600 10,650 00790310
Intel Corp. 2,900 179,800 45814010
Motorola, Inc. 1,900 175,513 62007610
National Semiconductor Corp. (a) 700 11,288 63764010
Texas Instruments, Inc. 600 38,100 88250810
Thomas & Betts Corp. 200 11,700 88431510
471,239
PHOTOGRAPHIC EQUIPMENT - 0.5%
Eastman Kodak Co. 2,300 128,800 27746110
Polaroid Corp. 400 13,500 73109510
142,300
TOTAL TECHNOLOGY 1,655,825
TRANSPORTATION - 1.8%
AIR TRANSPORTATION - 0.4%
AMR Corp. (a) 600 40,200 00176510
Delta Air Lines, Inc. 300 16,388 24736110
UAL Corp. (a) 200 $ 29,200 90254910
USAir Group, Inc. (a) 400 5,150 91190510
90,938
RAILROADS - 1.2%
Burlington Northern, Inc. 700 40,513 12189710
CSX Corp. 700 56,700 12640810
Conrail, Inc. 500 33,438 20836810
Norfolk Southern Corp. 900 63,450 65584410
Santa Fe Pacific Corp. 1,400 31,150 80218310
Union Pacific Corp. 1,400 87,675 90781810
312,926
TRUCKING AND FREIGHT - 0.2%
Consolidated Freightways, Inc. (a) 200 4,725 20923710
Federal Express Corp. (a) 300 21,263 31330910
Roadway Services, Inc. 200 12,000 76974810
Yellow Corp. 300 7,463 98550910
45,451
TOTAL TRANSPORTATION 449,315
UTILITIES - 14.0%
CELLULAR - 0.3%
McCaw Cellular Communications, Inc.
Class A (a) 1,400 70,700 57946810
ELECTRIC UTILITY - 4.6%
American Electric Power Co., Inc. 1,400 51,975 02553710
Baltimore Gas & Electric Co. 1,100 27,913 05916510
Carolina Power & Light Co. 1,100 33,138 14414110
Central & South West Corp. 1,300 39,325 15235710
Commonwealth Edison Co. 1,600 45,200 20279510
Consolidated Edison Co. of New York, Inc. 1,600 51,400 20911110
Detroit Edison Company 1,000 30,000 25084710
Dominion Resources, Inc. (Va.) 1,300 58,988 25747010
Duke Power Co. 1,400 59,325 26439910
Entergy Corp. 1,200 43,200 29364F10
FPL Group, Inc. 1,300 50,863 30257110
Houston Industries, Inc. 1,000 47,625 44216110
Niagara Mohawk Power Corp. 1,100 22,275 65352210
Northern States Power Co. (Minn.) 400 17,250 66577210
Ohio Edison Co. 1,000 22,750 67734710
PSI Resources, Inc. 500 13,250 69363210
Pacific Gas & Electric Co. 3,200 112,400 69430810
PacifiCorp. 2,100 40,425 69511410
Philadelphia Electric Co. 1,500 45,375 71753710
Public Service Enterprise Group, Inc. 1,800 57,600 74457310
SCE Corp. 3,300 66,000 78388210
Southern Co. 2,200 97,075 84258710
Texas Utilities Co. 1,700 73,525 88284810
Union Electric Co. 800 31,400 90654810
1,138,277
VALUE
SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
UTILITIES - CONTINUED
GAS - 0.8%
Arkla, Inc. 800 $ 6,300 04123710
Coastal Corp. (The) 700 19,688 19044110
Columbia Gas System, Inc. (The) (a) 300 6,713 19764810
Consolidated Natural Gas Co. 600 28,200 20961510
ENSERCH Corp. 400 6,500 29356710
Enron Corp. 1,800 52,200 29356110
NICOR, Inc. 300 8,400 65408610
ONEOK, Inc. 100 1,888 68267810
Pacific Enterprises 700 16,625 69423210
Panhandle Eastern Corp. 800 18,900 69846210
Peoples Energy Corp. 200 6,100 71103010
Sonat, Inc. 700 20,213 83541510
Transco Energy Co. 200 2,825 89353210
Williams Companies, Inc. 700 17,063 96945710
211,615
TELEPHONE SERVICES - 8.3%
American Telephone & Telegraph Co. 9,800 514,500 03017710
Ameritech Corp. 1,900 145,825 03095410
Bell Atlantic Corp. 3,200 188,800 07785310
BellSouth Corp. 3,500 202,563 07986010
GTE Corp. 6,700 234,500 36232010
MCI Communications Corp. 3,800 107,350 55267310
NYNEX Corp. 2,900 116,363 67076810
Pacific Telesis Group 2,900 156,600 69489010
Southwestern Bell Corp. 4,400 182,600 84533310
Sprint Corporation 2,400 83,400 85206110
U.S. West, Inc. 3,100 142,213 91288910
2,074,714
TOTAL UTILITIES 3,495,306
TOTAL COMMON STOCKS
(Cost $22,094,415) 23,759,866
PREFERRED STOCKS - 0.0%
FINANCE - 0.0%
CREDIT AND OTHER FINANCE - 0.0%
National Intergroup, Inc., Series A, $4.20
exchangeable (Cost $1,377) 50 1,550 63654030
PRINCIPAL
AMOUNT
U.S. treasury OBLIGATIONS - 1.1%
8 1/2%, 5/15/95 (b) $ 50,000 53,000 912827YQ
8 5/8%, 10/15/95 (b) 100,000 107,594 912827WT
8 1/2%, 11/15/95 (b) 100,000 107,558 912827ZG
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $274,719) 268,152
MATURITY VALUE
AMOUNT (NOTE 1)
REPURCHASE AGREEMENTS - 3.8%
Investments in repurchase agreements,
(U.S. Treasury obligations), in a
joint trading account at 3.23%
dated 12/31/93 due 1/3/94 $ 942,254 $ 942,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $23,312,511) $ 24,971,568
Futures Contracts
EXPIRATION UNDERLYING FACE UNREALIZED
PURCHASED DATE AMOUNT AT VALUE GAIN/(LOSS)
5 S&P 500 Stock
Index Futures March 1994 $ 1,167,375 $ 3,625
THE VALUE OF FUTURES CONTRACTS PURCHASED AS A PERCENTAGE OF TOTAL
INVESTMENT IN SECURITIES - 4.7%
LEGEND:
(a) Non-income producing
(b) Securities were pledged to cover margin requirements for futures
contracts. At the period end, the value of securities pledged amounted to
$268,152.
OTHER INFORMATION:
Purchases and sales of securities, other than short-term securities,
aggregated $10,177,619 and $1,828,704, respectively.
The market value of futures contracts opened and closed amounted to
$7,082,085 and $9,598,680, respectively.
INCOME TAX INFORMATION:
At December 31, 1993, the aggregate cost of investment securities for
income tax purposes was $23,312,511. Net unrealized appreciation aggregated
$1,659,057, of which $2,696,500 related to appreciated investment
securities and $1,037,443 related to depreciated investment securities.
The fund hereby designates $28,000 as a capital gain dividend for the
purpose of the dividend paid deduction.
INDEX 500 PORTFOLIO
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, 1993
ASSETS
Investment in securities, at value (including repurchase agreements of $942,000) (cost $23,312,511) $ 24,971,568
(Notes 1 and 2) - See accompanying schedule
Cash 22,724
Receivable for fund shares sold 206,100
Dividends receivable 51,659
Interest receivable 3,445
Receivable from investment adviser for expense reductions (Note 4) 12,422
Total assets 25,267,918
LIABILITIES
Payable for investments purchased $ 32,813
Payable for fund shares redeemed 51,928
Accrued management fee 5,702
Payable for daily variation on futures contracts 7,000
Other payables and accrued expenses 17,797
Total liabilities 115,240
NET ASSETS $ 25,152,678
Net Assets consist of:
Paid in capital $ 23,448,999
Undistributed net investment income 1,165
Accumulated undistributed net realized gain (loss) on investments 39,832
Net unrealized appreciation (depreciation) on:
Investment securities 1,659,057
Futures contracts 3,625
NET ASSETS, for 451,252 shares outstanding $ 25,152,678
NET ASSET VALUE, offering price and redemption price per share ($25,152,678 (divided by) 451,252 shares) $55.74
</TABLE>
Statement of Operations
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31, 1993
INVESTMENT INCOME $ 535,722
Dividends
Interest 75,187
Total income 610,909
EXPENSES
Management fee (Note 3) $ 58,243
Transfer agent fees (Note 3) 33,911
Accounting fees and expenses (Note 3) 45,074
Non-interested trustees' compensation 137
Custodian fees and expenses 15,022
Registration fees 1,611
Audit 41,994
Legal 243
Miscellaneous 656
Total expenses before reductions 196,891
Expense reductions (Note 4) (138,597) 58,294
Net investment income 552,615
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 2)
Net realized gain (loss) on:
Investment securities 86,278
Futures contracts 228,480 314,758
Change in net unrealized appreciation (depreciation) on:
Investment securities 1,080,816
Futures contracts (36,055) 1,044,761
Net gain (loss) 1,359,519
Net increase (decrease) in net assets resulting from operations $ 1,912,134
</TABLE>
Statement of Changes in Net Assets
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED AUGUST 27, 1992
DECEMBER 31, (COMMENCEMENT
1993 OF
OPERATIONS) TO
DECEMBER 31,
1992
INCREASE (DECREASE) IN NET ASSETS
Operations $ 552,615 $ 123,025
Net investment income
Net realized gain (loss) on investments 314,758 47,155
Change in net unrealized appreciation (depreciation) on investments 1,044,761 617,921
Net increase (decrease) in net assets resulting from operations 1,912,134 788,101
Distributions to shareholders (551,427) (132,173)
From net investment income
From net realized gain (250,780) (22,498)
In excess of net realized gain (39,680) -
Total distributions (841,887) (154,671)
Share transactions 21,442,174 17,818,136
Net proceeds from sales of shares
Reinvestment of distributions from: 551,427 132,173
Net investment income
Net realized gain 290,460 22,498
Cost of shares redeemed (16,162,443) (645,424)
Net increase (decrease) in net assets resulting from share transactions 6,121,618 17,327,383
Total increase (decrease) in net assets 7,191,865 17,960,813
NET ASSETS
Beginning of period 17,960,813 -
End of period (including under (over) distributions of net investment income of $1,165 and
$(9,148), $ 25,152,678 $ 17,960,813
respectively)
OTHER INFORMATION
Shares
Sold 392,103 350,950
Issued in reinvestment of distributions from: 9,912 2,528
Net investment income
Net realized gain 5,250 430
Redeemed (297,446) (12,475)
Net increase (decrease) 109,819 341,433
</TABLE>
Financial Highlights
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED AUGUST 27, 1992
DECEMBER 31, (COMMENCEMENT OF
OPERATIONS) TO
DECEMBER 31,
1993 1992
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 52.60 $ 50.00
Income from Investment Operations
Net investment income 1.31 .44
Net realized and unrealized gain (loss) on investments 3.80 2.71
Total from investment operations 5.11 3.15
Less Distributions
From net investment income (1.28) (.47)
From net realized gain (.60) (.08)
In excess of net realized gain (.09) -
Total distributions (1.97) (.55)
Net asset value, end of period $ 55.74 $ 52.60
TOTAL RETURN (double dagger)(dagger) 9.74% 6.31%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 25,153 $ 17,961
Ratio of expenses to average net assets (s diamond) .28% .28%*
Ratio of expenses to average net assets before expense reductions (s diamond) .95% 1.77%*
Ratio of net investment income to average net assets 2.65% 2.89%*
Portfolio turnover rate 9% -%
</TABLE>
* ANNUALIZED
(double dagger) TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT
ANNUALIZED.
(dagger) THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
(s diamond) SEE NOTE 4 OF NOTES TO FINANCIAL STATEMENTS.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 1993
6. SIGNIFICANT ACCOUNTING POLICIES.
Investment Grade Bond Portfolio, Asset Manager Portfolio, and Index 500
Portfolio (the funds) are Portfolios of Variable Insurance Products Fund II
(the trust). The trust is registered under the Investment Company Act of
1940, as amended (the 1940 Act), as an open-end management investment
company organized as a Massachusetts business trust. Each fund is
authorized to issue an unlimited number of shares. Shares of each fund may
only be purchased by insurance companies for the purpose of funding
variable annuity or variable life insurance contracts. The following
summarizes the significant accounting policies of the funds:
SECURITY VALUATION.
INVESTMENT GRADE BOND PORTFOLIO. Securities are valued based upon a
computerized matrix system and/or appraisals by a pricing service, both of
which consider market transactions and dealer-supplied valuations.
Short-term securities maturing within sixty days are valued either at
amortized cost or original cost plus accrued interest, both of which
approximate current value. Securities (including restricted securities) for
which market quotations are not readily available are valued at their fair
value as determined in good faith under consistently applied procedures
under the general supervision of the Board of Trustees.
ASSET MANAGER PORTFOLIO AND INDEX 500 PORTFOLIO. Securities for which
exchange quotations are readily available are valued at the last sale
price, or if no sale price, at the closing bid price. Securities for which
exchange quotations are not readily available (and in certain cases debt
securities which trade on an exchange), are valued primarily using
dealer-supplied valuations or at their fair value as determined in good
faith under consistently applied procedures under the general supervision
of the Board of Trustees. Short-term securities maturing within sixty days
are valued at amortized cost or original cost plus accrued interest, both
of which approximate current value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the funds are
maintained in U.S. dollars. Investment securities, other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the current exchange rate. Purchases and sales of securities,
income receipts and expense payments are translated into U.S. dollars at
the exchange rate on the dates of the transactions.
It is not practical to identify the portion of each amount shown in the
fund's Statement of Operations under the caption "Realized and Unrealized
Gain (Loss) on Investments" that arises from changes in foreign currency
exchange rates. Investment income includes net realized and unrealized
currency gains and losses recognized between accrual and payment dates.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, each fund is not subject to income taxes to
the extent that it distributes all of its taxable income for the fiscal
year. The schedules of investments include information regarding income
taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date,
except certain dividends from foreign securities where the ex-dividend date
may have passed, are recorded as soon as the funds are informed of the
ex-dividend date. Interest income, which includes accretion of original
issue discount, is accrued as earned. Investment income is recorded net of
foreign taxes where recovery of such taxes is not assured.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
mortgage-backed securities, futures and options transactions, foreign
currency transactions, market discount, non-taxable dividends, expiring
capital loss carryforwards and losses deferred due to wash sales and excise
tax regulations. The funds also utilized earnings and profits distributed
to shareholders on redemption of shares as a part of the dividends paid
deduction for income tax purposes. Permanent book and tax basis differences
relating to shareholder distributions will result in reclassifications to
paid in capital.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
CHANGE IN ACCOUNTING FOR DISTRIBUTIONS TO SHAREHOLDERS. Effective January
1, 1993, the funds adopted Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain,
and Return of Capital Distributions by Investment Companies. As a result,
the funds changed the classification of distributions to shareholders to
better disclose the differences between financial statement amounts and
distributions determined in accordance with income tax regulations.
Accordingly, amounts as of December 31, 1992 have been restated to reflect
a decrease in paid in capital of $6,410, an increase in distributions in
excess of net investment income of $38,372 and a decrease in accumulated
net realized loss on investments of $44,782 for Investment Grade Bond; an
increase in paid in capital of $97,837, a decrease in undistributed net
investment income of $645,325 and an increase in accumulated net realized
gain of $547,488 for Asset Manager; a decrease in paid in capital and a
decrease in distributions in excess of net investment income of $17 for
Index 500.
7. OPERATING POLICIES.
FORWARD FOREIGN CURRENCY CONTRACTS. The funds may enter into forward
foreign currency contracts. These contracts involve market risk in excess
of the amount reflected in the fund's Statement of Assets and Liabilities.
The face or contract amount in U.S. dollars reflects the total exposure the
funds have in that particular currency contract. The U.S. dollar value of
forward foreign currency contracts is determined using forward currency
exchange rates supplied by a quotation service. Losses may arise due to
changes in the value of the foreign currency or if the counterparty does
not perform under the contract.
Purchases and sales of forward foreign currency contracts having the same
settlement date and broker are offset and presented net on the Statement of
Assets and Liabilities. Gain (loss) on the purchase or sale of forward
foreign currency contracts having the same settlement date and broker is
recognized on the date of offset, otherwise gain (loss) is recognized on
settlement date.
REPURCHASE AGREEMENTS. The funds, through their custodian, receive delivery
of the underlying securities, whose market value is required to be at least
102% of the resale price at the time of purchase. The funds' investment
adviser, Fidelity Management & Research Company (FMR), is responsible
for determining that the value of these underlying securities remains at
least equal to the resale price.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the funds, along with other
registered investment companies having management contracts with FMR, may
transfer uninvested cash balances into a joint trading account. These
balances are invested in one or more repurchase agreements that are
collateralized by U.S. Treasury or Federal Agency obligations.
DELAYED DELIVERY TRANSACTIONS. Each fund may purchase or sell securities on
a when-issued or forward commitment basis. Payment and delivery may take
place a month or more after the date of the transaction. The price of the
underlying securities and the date when the securities will be delivered
and paid for are fixed at the time the transaction is negotiated. Each fund
identifies securities as segregated in its custodial records with a value
at least equal to the amount of the purchase commitment.
2. OPERATING POLICIES - CONTINUED
FUTURES CONTRACTS AND OPTIONS. Each fund may invest in futures contracts
and write options. These investments involve, to varying degrees, elements
of market risk and risks in excess of the amount recognized in the
Statement of Assets and Liabilities. The face or contract amounts reflect
the extent of the involvement the funds have in the particular classes of
instruments. Risks may be caused by an imperfect correlation between
movements in the price of the instruments and the price of the underlying
securities and interest rates. Risks also may arise if there is an illiquid
secondary market for the instruments, or due to the inability of
counterparties to perform.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. Options traded
on an exchange are valued using the last sale price or, in the absence of a
sale, the last offering price. Options traded over-the-counter are valued
using dealer-supplied valuations.
RESTRICTED SECURITIES. The funds are permitted to invest in privately
placed restricted securities. These securities may be resold in
transactions exempt from registration or to the public if the securities
are registered. Disposal of these securities may involve time-consuming
negotiations and expense, and prompt sale at an acceptable price may be
difficult. At the end of the period, restricted securities (excluding 144A
issues) amounted to $995,000 or 0.8% of net assets of Investment Grade Bond
Portfolio.
INDEXED SECURITIES. The funds may invest in indexed securities whose value
is linked either directly or inversely to changes in foreign currencies,
interest rates, commodities, indices, or other reference instruments.
Indexed securities may be more volatile than the reference instrument
itself, but any loss is limited to the amount of the original investment.
8. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE.
INVESTMENT GRADE BOND PORTFOLIO AND ASSET MANAGER PORTFOLIO. As each fund's
investment adviser, FMR receives a monthly fee that is calculated on the
basis of a group fee rate plus a fixed individual fund fee rate applied to
the average net assets of each fund. The group fee rate is the weighted
average of a series of rates based on the monthly average net assets of all
the mutual funds advised by FMR. The group fee rates range from .14% to
.37% for the Investment Grade Bond Portfolio and .30% to .52% for the Asset
Manager Portfolio. The annual individual fund fee rate is .30% and .40% for
the Investment Grade Bond Portfolio and the Asset Manager Portfolio,
respectively. For the period, the management fees were equivalent to annual
rates of .47% and .72% of average net assets, respectively.
INDEX 500 PORTFOLIO. As the fund's investment adviser, FMR receives a fee
that is computed daily at an annual rate of .28% of the fund's average net
assets.
The Board of Trustees approved a new group fee rate schedule with rates
ranging from .1325% to .3700% for Investment Grade Bond Portfolio and
.2850% to .5200% for Asset Manager Portfolio. Effective November 1, 1993,
FMR has voluntarily agreed to implement this new group fee rate schedule as
it results in the same or a lower management fee.
TRANSFER AGENT FEE. Fidelity Investments Institutional Operations Company
(FIIOC), an affiliate of FMR, is the funds' transfer, dividend disbursing
and shareholder servicing agent. FIIOC receives fees based on the type,
size, number of accounts and the number of transactions made by
shareholders. FIIOC pays for typesetting, printing and mailing of all
shareholder reports, except proxy statements.
ACCOUNTING FEE. Fidelity Service Co. (FSC), an affiliate of FMR, maintains
the funds' accounting records. The fee is based on the level of average net
assets for the month plus out-of-pocket expenses.
3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
BROKERAGE COMMISSIONS. The Asset Manager Portfolio and Index 500 Portfolio
each placed a portion of its portfolio transactions with brokerage firms
which are affiliates of FMR. The commissions paid to these affiliated firms
were $398,687 and $123 for the Asset Manager Portfolio and the Index 500
Portfolio, respectively.
9. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse the funds' for total operating expenses
(excluding interest, taxes, brokerage commissions and extraordinary
expenses) above an annual rate of .80%, 1.25% and .28% of average net
assets for Investment Grade Bond Portfolio, the Asset Manager Portfolio and
the Index 500 Portfolio, respectively. For the period, the reimbursement
reduced expenses by $138,597 for the Index 500 Portfolio.
For the period ended December 31, 1993, FMR directed certain portfolio
trades to brokers who paid a portion of Asset Manager Portfolio's expenses.
For the period, the expenses of Asset Manager Portfolio were reduced by
$53,319 under this arrangement.
10. BENEFICIAL INTEREST.
At the end of the period, FMR and Fidelity Investments Life Insurance
Company (FILI), an affiliate of FMR, were record owners of more than 5% of
the outstanding shares of the funds and certain unaffiliated insurance
companies were record owners of more than 10% of the outstanding shares of
the following funds:
FMR FILI UNAFFILIATED INSURANCE COMPANIES
PORTFOLIO % OF OWNERSHIP % OF OWNERSHIP # OF % OF OWNERSHIP
Investment Grade Bond 0% 47% 2 28%
Asset Manager 0% 34% 2 36%
Index 500 0% 70% 0 0%
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL INFORMATION OF THE
SHAREHOLDERS OF THE FUNDS. THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS IN THE FUNDS UNLESS
PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. NEITHER THE FUNDS NOR
FIDELITY DISTRIBUTORS CORPORATION IS A
BANK AND FUND SHARES ARE NOT BACKED OR GUARANTEED BY ANY BANK OR INSURED BY
THE FDIC.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and the Shareholders of Variable Insurance Products Fund
II:
In our opinion, the accompanying statements of assets and liabilities,
including the schedules of investments (except for Moody's and Standard
& Poor's ratings), 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 each of the three portfolios
constituting Variable Insurance Products Fund II (the "Trust") at December
31, 1993, the results of their operations for the year then ended, and the
changes in their net assets and the financial highlights for the periods
indicated in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the trust'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 audits 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, 1993 by correspondence with the custodian and brokers, and the
application of alternative auditing procedures where confirmations from
brokers were not received, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE
Boston, Massachusetts
February 10, 1994
DISTRIBUTIONS
The Board of Trustees of Variable Insurance Products Fund II voted to pay
on February 4, 1994, to shareholders of record at the opening of business
on February 4, 1994, the following distributions derived from capital gains
realized from sales of portfolio securities, and dividends derived from net
investment income:
Portfolio Dividends Capital Gains
Investment Grade Bond $ 0.00 $ 0.03
Asset Manager $ 0.28 $ 0.46
Index 500 $ 0.00 $ 0.10
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, PRESIDENT
J. Gary Burkhead, SENIOR VICE PRESIDENT
Gary L. French, TREASURER
John H. Costello, ASSISTANT TREASURER
Arthur S. Loring, SECRETARY
Robert H. Morrison, MANAGER, SECURITY TRANSACTIONS
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox
Phyllis Burke Davis
Richard J. Flynn
Edward C. Johnson 3d
E. Bradley Jones
Donald J. Kirk
Peter S. Lynch
Edward H. Malone
Marvin L. Mann
Gerald C. McDonough
Thomas R. Williams
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Investments Institutional Operations Co.
Boston, MA
CUSTODIAN
INVESTMENT GRADE BOND PORTFOLIO:
The Bank of New York
New York, NY
ASSET MANAGER PORTFOLIO:
The Chase Manhattan Bank, N.A.
New York, NY
INDEX 500 PORTFOLIO:
Brown Brothers Harriman & Co.
Boston, MA
VIP II-2-94A
Exhibit 11(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference into the Statements of
Additional Information constituting part of this Post-Effective Amendment
No. 29 to the Registration Statement on Form N-1A (the "Registration
Statement") of Variable Insurance Products Fund: Money Market Portfolio,
High Income Portfolio, Equity-Income Portfolio, Growth Portfolio and
Overseas Portfolio, of our report dated February 8, 1994, relating to the
financial statements and financial highlights which is incorporated by
reference in such Registration Statement.
We further consent to the references to our Firm in the Prospectuses and
Statements of Additional Information under the headings "Financial
Highlights" and "Auditor".
/s/COOPERS & LYBRAND
COOPERS & LYBRAND
Boston, Massachusetts
April 25, 1994
Exhibit 11(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post
Effective Amendment No. 29 to the registration statement on Form N-1A (the
"Registration Statement") of our report dated February 10, 1994, relating
to the financial statements and financial highlights appearing in the
December 31, 1993 Annual Report to Shareholders of Variable Insurance
Products Fund II, which is incorporated by reference in such Registration
Statement. We further consent to the references to us under the headings
"Auditor" in the Statement of Additional Information and "Financial
Highlights" in the Prospectus.
/s/ PRICE WATERHOUSE
PRICE WATERHOUSE
Boston, Massachusetts
April 22, 1994
VIP EQUITY INCOME (N/A) Exhibit 16(a)
Factor Adj. NAV
08-Oct-93 1.005886 15.33
11-Oct-93 1.005886 15.33
12-Oct-93 1.005886 15.36
13-Oct-93 1.005886 15.35
14-Oct-93 1.005886 15.38
15-Oct-93 1.005886 15.43
18-Oct-93 1.005886 15.36
19-Oct-93 1.005886 15.29
20-Oct-93 1.005886 15.31
21-Oct-93 1.005886 15.30
22-Oct-93 1.005886 15.31
25-Oct-93 1.005886 15.32
26-Oct-93 1.005886 15.29
27-Oct-93 1.005886 15.29
28-Oct-93 1.005886 15.37
29-Oct-93 1.005886 15.36
01-Nov-93 1.005886 15.42
02-Nov-93 1.005886 15.42
03-Nov-93 1.005886 15.28
04-Nov-93 1.005886 15.15
05-Nov-93 1.005886 15.14
08-Nov-93 1.005886 15.17
09-Nov-93 1.005886 15.18
10-Nov-93 1.005886 15.23
11-Nov-93 1.005886 15.19
12-Nov-93 1.005886 15.28
15-Nov-93 1.005886 15.24
16-Nov-93 1.005886 15.28
17-Nov-93 1.005886 15.25
18-Nov-93 1.005886 15.19
19-Nov-93 1.005886 15.14
22-Nov-93 1.005886 15.02
23-Nov-93 1.005886 15.04
24-Nov-93 1.005886 15.09
25-Nov-93 1.005886 15.09
26-Nov-93 1.005886 15.12
29-Nov-93 1.005886 15.10
30-Nov-93 1.005886 15.09
01-Dec-93 1.005886 15.13
02-Dec-93 1.005886 15.14
03-Dec-93 1.005886 15.17
06-Dec-93 1.005886 15.21
07-Dec-93 1.005886 15.22
08-Dec-93 1.005886 15.24
09-Dec-93 1.005886 15.23
10-Dec-93 1.005886 15.24
13-Dec-93 1.005886 15.28
14-Dec-93 1.005886 15.22
15-Dec-93 1.005886 15.16
16-Dec-93 1.005886 15.20
17-Dec-93 1.000000 15.29
20-Dec-93 1.000000 15.31
21-Dec-93 1.000000 15.31
22-Dec-93 1.000000 15.37
23-Dec-93 1.000000 15.41
24-Dec-93 1.000000 15.41
27-Dec-93 1.000000 15.49
28-Dec-93 1.000000 15.51
29-Dec-93 1.000000 15.49
30-Dec-93 1.000000 15.46
31-Dec-93 1.000000 15.44
