VARIABLE INSURANCE PRODUCTS
FUND: EQUITY-INCOME PORTFOLIO
SEMIANNUAL REPORT
JUNE 30, 1999
(2_FIDELITY_LOGOS)(registered trademark)
CONTENTS
MARKET ENVIRONMENT 3 A review of what happened in
world markets during the
past six months.
PERFORMANCE AND INVESTMENT 4 How the fund has done over
SUMMARY time, and an overview of the
fund's investments at the
end of the period.
FUND TALK 5 The manager's review of fund
performance, strategy and
outlook.
INVESTMENTS 6 A complete list of the fund's
investments with their
market values.
FINANCIAL STATEMENTS 14 Statements of assets and
liabilities, operations, and
changes in net assets, as
well as financial highlights.
NOTES 17 Notes to the financial
statements.
Standard & Poor's, S&P and S&P 500 are registered service marks of The
McGraw-Hill Companies, Inc. and have been licensed for use by Fidelity
Distributors Corporation.
Other third party marks appearing herein are the property of their
respective owners.
All other marks appearing herein are registered or unregistered
trademarks or service marks of FMR Corp. or an affiliated company.
This report is printed on recycled paper using soy-based inks.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE FUND'S
PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS
STATED ON THE COVER AND DO NOT NECESSARILY REPRESENT THE VIEWS OF
FIDELITY OR ANY OTHER PERSON IN THE FIDELITY ORGANIZATION. ANY SUCH
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER
CONDITIONS AND FIDELITY DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH
VIEWS. THESE VIEWS MAY NOT BE RELIED ON AS INVESTMENT ADVICE AND,
BECAUSE INVESTMENT DECISIONS FOR A FIDELITY FUND ARE BASED ON NUMEROUS
FACTORS, MAY NOT BE RELIED ON AS AN INDICATION OF TRADING INTENT ON
BEHALF OF ANY FIDELITY FUND.
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.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT
INSURED BY THE FDIC, FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND
ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
MARKET ENVIRONMENT
An investor-friendly equity environment characterized the first half
of the year, as the majority of domestic and international stock
markets turned in positive performances for the six-month period
ending June 30, 1999. The bulk of debt sectors received a colder
shoulder, however, as wary bond investors shied away from the
combination of higher inflation expectations and the U.S. Federal
Reserve Board's tighter monetary policy. Notably, the period's last
day was an eventful one: On June 30, for the first time in two years,
the Fed increased key short-term interest rates with a quarter-point
hike to 5.00%. At the same time, it also announced a shift to a
"neutral" position - meaning the Fed's next move is as likely to be a
rate decrease as it is another hike - sparking a rally in the bond
market and sending several equity indexes into record-high territory.
U.S. STOCK MARKETS
The Standard & Poor's 500 Index - a broad measure of U.S. stock market
performance - rose 12.38% for the six months that ended June 30, 1999.
At this pace, the S&P 500(registered trademark) is well on its way to
tacking on another year to its record of four consecutive annual
double-digit percentage gains. Meanwhile, the Dow Jones Industrial
Average - an index of 30 blue-chip stocks - posted a lofty 20.39%
increase for the first half of the year. After several years on the
sidelines, small-cap stocks finally rebounded, particularly in the
second quarter of 1999, as the Russell 2000(registered trademark)
Index - a popular measure of small-cap stock performance - returned
9.29% for the first half of the year. But it was the technology-laden
NASDAQ Composite Index that posted the highest return of these popular
equity performance measures, with a 22.70% increase for the six months
ending June 30, 1999.
At the period's outset, the economic climate and investment
environment were similar to the previous several years: high levels of
employment, low inflation and strong consumer confidence, with a
handful of large-cap growth stocks - particularly in the technology
sector - continuing to set the pace for bullish equity market
performance. By the beginning of the second quarter, however, market
conditions began to change. The global economy began to improve, due
in large part to the willingness of central banks worldwide to lower
interest rates, resulting in a broadening of corporate earnings. This
environment proved favorable for small- and mid-cap value stocks and
the economically sensitive cyclical stocks. The relatively low
valuations of these issues proved quite alluring compared to their
expensive, large-cap growth counterparts. Consequently, a dramatic
rotation into value and cyclical names dominated the second quarter of
1999.
FOREIGN STOCK MARKETS
Over 165 interest-rate cuts in more than 75 countries since the
worldwide economic crisis last October helped foreign stock markets
post generally positive performances in the first half of 1999. The
Morgan Stanley Capital International (MSCI) EAFE(registered trademark)
Index - which measures stock performance in Europe, Australia and the
Far East - returned 4.08% for the six months ending June 30, 1999.
Europe's performance was disappointing, as prospects for economic
growth and corporate profits declined, and its new common currency -
the euro - struggled since its inception in January. For the period,
the MSCI Europe Index fell 2.30%. Conversely, the previously faltering
Japanese stock market roared ahead. New corporate restructuring
reforms and government economic intervention helped the Tokyo Stock
Exchange Index (TOPIX) - a measure of the Japanese market - notch a
first-half return of 21.93%. Emerging markets also rebounded. Despite
Brazil's currency devaluation in January, and fears of a similar move
by Argentina and Colombia late in the period, Latin America was a
strong performer as the Morgan Stanley Capital International Emerging
Markets Free-Latin America Index returned 31.03%. Southeast Asia, too,
bounced back, but the period's most remarkable recovery was in Russia,
which was the first half's best-performing emerging market, with a
return of approximately 133.70%.
U.S. BOND MARKETS
Despite good news at the close of the period, signs of continued
strength and emerging inflationary pressures in the U.S. economy,
along with improving conditions abroad, hampered the taxable-bond
market during the six-month period. The Lehman Brothers Aggregate Bond
Index - a widely followed measure of taxable bond performance - fell
1.37% during that time. A sharp rise in consumer prices sparked the
worst Treasury bond sell-off in three years, pushing their prices down
and bringing yields up to the pre-crisis levels of last summer. The
resulting negative market sentiment was further fueled by the Fed's
shift in bias toward raising interest rates in mid-May. The Lehman
Brothers Treasury Index returned -2.50% for the six-month period
ending June 30, 1999. As investors fled Treasuries for more attractive
alternatives, spread sector securities - such as corporate and
mortgage securities - rallied in response. However, the emergence of
rising rates and inflation fears soon slowed the rise in spread
products. For the six-month period, the Lehman Brothers Corporate Bond
Index and the Lehman Brothers Mortgage-Backed Securities Index had
returns of -2.26% and 0.53%, respectively. Based on performance,
high-yield bonds were among the most attractive domestic debt
offerings, as the Merrill Lynch High Yield Master II Index returned
2.49% during the first half of 1999.
FOREIGN BOND MARKETS
Like its U.S. Treasury counterparts, world government bond performance
was hindered by the U.S. Federal Reserve Board's adoption of a
tightening bias - an inclination to raise interest rates - during the
first half of the year. For the six months ending June 30, 1999, the
Salomon Brothers World Government Bond Index - a measure of government
bond market performance in developed nations - fell 7.17%. Despite
rising U.S. interest rates, emerging-market debt enjoyed positive
performance in the first half of 1999, as the J.P. Morgan Emerging
Markets Bond Index Plus - which tracks total returns for traded
external debt instruments in the emerging markets - returned 10.57%
during the period. A significantly important development in the strong
emerging-market performance was the dramatic increase in the price of
oil, which benefited Venezuela, the second-best performing country
year-to-date, as well as Russia and Mexico.
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
VIP: EQUITY-INCOME - "INITIAL 13.86% 21.38% 15.34%
CLASS"
Russell 3000 Value 14.39% 23.66% 16.72%
S&P 500 22.76% 27.87% 18.78%
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's returns to the performance of the Russell
3000 Value Index - a market capitalization-weighted index of
value-oriented stocks of U.S. domiciled corporations and the
performance of the Standard & Poor's 500 Index - a market
capitalization-weighted index of common stocks. These benchmarks
reflect the reinvestment of 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.
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, THE TOTAL RETURNS 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.
(checkmark)UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for
example, has a history of long-term growth and
short-term volatility. In turn, the share price and
return of a fund that invests in stocks will vary.
That means if you sell your shares during a
market downturn, you might lose money. But if
you can ride out the market's ups and downs,
you may have a gain.
$10,000 OVER 10 YEARS
VIP EQUITY-INCOME RUSSELL 3000 VALUE
00150 RS008
1989/06/30 10000.00 10000.00
1989/07/31 10583.00 10647.37
1989/08/31 10753.04 10907.00
1989/09/30 10632.15 10806.29
1989/10/31 10018.76 10398.84
1989/11/30 10076.01 10512.57
1989/12/31 10160.09 10726.06
1990/01/31 9473.93 10051.51
1990/02/28 9530.07 10304.44
1990/03/31 9545.79 10425.07
1990/04/30 9214.82 10021.06
1990/05/31 9824.50 10830.99
1990/06/30 9726.68 10600.26
1990/07/31 9488.80 10487.68
1990/08/31 8731.10 9545.64
1990/09/30 8053.81 9066.19
1990/10/31 7848.45 8917.99
1990/11/30 8410.97 9532.62
1990/12/31 8606.67 9777.32
1991/01/31 9068.23 10236.66
1991/02/28 9692.69 10938.98
1991/03/31 9893.76 11131.60
1991/04/30 9939.99 11214.12
1991/05/31 10485.53 11638.23
1991/06/30 10056.79 11145.19
1991/07/31 10626.93 11600.13
1991/08/31 10851.24 11820.32
1991/09/30 10776.77 11740.10
1991/10/31 10956.22 11930.42
1991/11/30 10483.97 11326.52
1991/12/31 11312.48 12261.67
1992/01/31 11465.22 12346.30
1992/02/29 11837.53 12668.73
1992/03/31 11692.48 12488.37
1992/04/30 12058.77 12975.28
1992/05/31 12155.17 13059.53
1992/06/30 12048.75 12954.41
1992/07/31 12417.98 13453.77
1992/08/31 12145.91 13053.78
1992/09/30 12272.00 13239.70
1992/10/31 12418.91 13275.13
1992/11/30 12869.44 13741.55
1992/12/31 13222.84 14088.69
1993/01/31 13617.55 14525.82
1993/02/28 13923.45 14999.14
1993/03/31 14338.38 15451.39
1993/04/30 14278.76 15239.24
1993/05/31 14537.11 15559.58
1993/06/30 14708.10 15886.42
1993/07/31 14908.21 16072.53
1993/08/31 15478.52 16657.09
1993/09/30 15419.35 16717.41
1993/10/31 15560.35 16742.11
1993/11/30 15288.42 16389.03
1993/12/31 15641.81 16716.45
1994/01/31 16330.70 17345.43
1994/02/28 15910.15 16803.76
1994/03/31 15244.55 16166.35
1994/04/30 15769.86 16461.41
1994/05/31 15919.95 16630.29
1994/06/30 15821.59 16228.77
1994/07/31 16350.06 16712.05
1994/08/31 17191.29 17210.64
1994/09/30 16909.65 16679.88
1994/10/31 17256.73 16854.88
1994/11/30 16692.72 16174.01
1994/12/31 16747.01 16391.33
1995/01/31 17008.86 16834.20
1995/02/28 17657.41 17495.55
1995/03/31 18267.11 17849.20
1995/04/30 18775.18 18409.83
1995/05/31 19340.97 19147.18
1995/06/30 19618.85 19445.11
1995/07/31 20373.87 20125.22
1995/08/31 20629.41 20440.96
1995/09/30 21314.29 21136.19
1995/10/31 21069.03 20863.16
1995/11/30 21980.00 21897.68
1995/12/31 22623.95 22460.41
1996/01/31 23281.42 23107.21
1996/02/29 23359.62 23299.44
1996/03/31 23605.51 23704.02
1996/04/30 23912.87 23847.05
1996/05/31 24171.05 24174.47
1996/06/30 23949.75 24164.90
1996/07/31 22781.77 23212.13
1996/08/31 23248.96 23911.96
1996/09/30 24244.82 24830.64
1996/10/31 24638.25 25720.03
1996/11/30 26285.71 27535.57
1996/12/31 25855.41 27310.59
1997/01/31 26863.56 28540.03
1997/02/28 27161.15 28944.22
1997/03/31 26151.65 27930.13
1997/04/30 27079.30 29026.27
1997/05/31 28757.26 30716.06
1997/06/30 30094.18 32057.67
1997/07/31 32290.53 34363.85
1997/08/31 30776.27 33309.23
1997/09/30 32467.88 35342.52
1997/10/31 31281.03 34357.39
1997/11/30 32426.95 35761.96
1997/12/31 33122.69 36822.47
1998/01/31 33040.84 36287.11
1998/02/28 35170.33 38705.64
1998/03/31 36799.39 40995.58
1998/04/30 36799.39 41262.97
1998/05/31 36203.04 40569.99
1998/06/30 36610.30 41019.33
1998/07/31 35708.50 40073.33
1998/08/31 30254.05 34083.42
1998/09/30 32028.56 36036.90
1998/10/31 34399.43 38684.63
1998/11/30 35853.95 40426.19
1998/12/31 36973.93 41793.71
1999/01/31 36857.57 42026.48
1999/02/28 36408.91 41259.45
1999/03/31 37739.26 42026.45
1999/04/30 41088.09 45945.47
1999/05/31 39971.81 45574.45
1999/06/30 41684.46 46921.32
IMATRL PRASUN SHR__CHT 19990630 19990723 102659 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund: Equity-Income Portfolio
on June 30, 1989. As the chart shows, by June 30, 1999, the value of
the investment would have grown to $41,684 - a 316.84% increase on the
initial investment. For comparison, look at how the Russell 3000 Value
Index did over the same period. With dividends and capital gains, if
any, reinvested, the same $10,000 investment would have grown to
$46,921 - a 369.21% increase. Beginning with this report, the fund
will compare its performance to that of the Russell 3000 Value Index,
rather than the Standard & Poor's 500 Index. The Russell 3000 Value
Index more closely reflects the fund's investment strategy.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE
30, 1999
% OF FUND'S INVESTMENTS
General Electric Co. 3.7
Citigroup, Inc. 2.9
BP Amoco PLC sponsored ADR 2.4
Fannie Mae 2.0
Bank One Corp. 1.9
TOP FIVE MARKET SECTORS AS OF
JUNE 30, 1999
% OF FUND'S INVESTMENTS
FINANCE 24.4
ENERGY 12.4
UTILITIES 12.0
INDUSTRIAL MACHINERY & 8.9
EQUIPMENT
BASIC INDUSTRIES 6.7
ASSET ALLOCATION AS OF JUNE
30, 1999*
% OF FUND'S INVESTMENTS
Stocks 96.9%
Bonds 1.5%
Short-term Investments 1.6%
* FOREIGN INVESTMENTS 9.1%
Row: 1, Col: 1, Value: 96.90000000000001
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 1.5
Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 1.6
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
(photograph of Steve Petersen)
An interview with
Steve Petersen,
Portfolio Manager of
Equity-Income Portfolio
Q. HOW DID THE FUND PERFORM, STEVE?
A. For the six-month period that ended June 30, 1999, the fund
outperformed both the Russell 3000 Value Index, which returned 12.27%,
and the Standard & Poor's 500 Index, which returned 12.38%. For the
12-month period that ended June 30, 1999, the fund slightly
underperformed the Russell 3000 Value Index, which returned 14.39%,
and underperformed the S&P 500 Index, which returned 22.76%.
Q. WHY DOES THE FUND NOW COMPARE ITS PERFORMANCE TO THE RUSSELL 3000
VALUE INDEX?
A. The fund focuses on stocks with "value" characteristics, and
invests primarily in stocks that pay higher dividends on average than
those in the Standard & Poor's 500 Index. The Russell 3000 Value
Index, which focuses on large-, mid- and small-cap companies with
value characteristics - rather than growth stocks - more closely
reflects the fund's investment strategy than the S&P 500 index, which
measures the performance of both growth and value stocks.
Q. HOW DID THE INVESTING ENVIRONMENT AFFECT THE FUND'S PERFORMANCE?
A. Beginning in the early part of 1999, there was a marked change in
investor perception about the prospects for future corporate earnings
growth. Value stocks regained favor in the face of growing evidence
that the earnings outlook in many cyclical industries showed signs of
improving. Many value stocks, which were beaten down over the last
couple of years as economic growth slowed throughout the world,
performed well as it became apparent that Asian economies were no
longer declining and were beginning to recover. It also became
apparent that concerns about economic problems in Russia and Eastern
Europe affecting the performance of U.S. companies were overblown, and
problems in Brazil were not as severe as originally anticipated. Given
their previous relative underperformance, many dividend-paying
companies had very attractive valuations, and performed well during
the period.
Q. ENERGY STOCKS DID VERY WELL. WHAT ACCOUNTED FOR THEIR STRONG
SHOWING?
A. Energy was the most important sector of the marketplace in terms of
its contribution to overall fund performance. Oil companies, given the
low prices they received over the past year or so for oil, cut back on
the development of new properties as well as their reinvestment in
existing wells. When world demand for oil began to rebound,
particularly in Asia, oil prices jumped. There was also a fair amount
of consolidation in the industry, with British Petroleum buying Amoco,
Exxon buying Mobil, and Total Fina attempting to buy Elf Aquitaine,
which could benefit stock prices. Toward the end of the period, OPEC's
move to limit oil production also helped push oil prices up. Fund
holdings BP Amoco, Total Fina and energy services company Halliburton
all performed well.
Q. FINANCIAL STOCKS ALSO PERFORMED WELL . . .
A. Yes, they made a pretty dramatic recovery from last fall, when many
financial services firms suffered with the decline in U.S. and global
financial markets. During the period, financial stocks benefited from
lower reserves and write-offs that banks were required to take,
because default rates and bankruptcies were lower. And, with low
interest rates, financial services companies that had investment
banking operations found a favorable environment in which to issue
corporate debt and undertake merger and acquisition activity. Although
there were some market jitters due to the anticipation of an increase
in interest rates, when the Fed finally acted at the end of June - and
shifted its stance to neutral - investors were relieved. Fund holdings
Chase Manhattan, American Express, Bank One and Bank of America all
performed well in this environment. Citigroup also performed well, its
merger with Travelers helping to broaden and diversify its operations.
Q. WERE THERE DISAPPOINTMENTS?
A. Sure. Philip Morris was a poor performer. Ongoing lawsuits and
recent declines in international tobacco volumes hurt the company's
performance. However, Philip Morris has very attractive valuations,
and I'm still holding the stock. Fannie Mae suffered from investors'
perception that higher interest rates are not good for mortgage
origination volumes. In addition, 1998 was a record year for mortgage
refinancing, and investors also feared that those volumes would slow
during 1999. The fund is still holding the stock, and I believe Fannie
Mae is a solid company. Another disappointment, Bank of New York,
increased its non-lending activities to over 60% of its business.
Unlike many other banks, its performance was sluggish, perhaps due to
the perception that the growth rate of its custodial and trustee
business may have slowed somewhat during 1999.
Q. STEVE, WHAT'S YOUR OUTLOOK?
A. I'm optimistic. The underlying business fundamentals for basic
industries look pretty good in that we're seeing better results coming
from many more companies than in recent years. Overall business trends
also look much better today than they did 12 months ago. My strategy
will be to continue to look for companies with excellent underlying
financials and interesting business fundamentals, which I believe can
perform well over time.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET OR OTHER CONDITIONS. FOR MORE INFORMATION, SEE PAGE 2.
(checkmark)FUND FACTS
GOAL: seeks reasonable income while maintaining
a yield that exceeds the composite dividend yield
of the S&P 500; also considers the potential
for achieving capital appreciation
START DATE: October 9, 1986
SIZE: as of June 30, 1999, more than $12.5
billion
MANAGER: Stephen Petersen, since 1997; joined
Fidelity in 1980
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
INVESTMENTS JUNE 30, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 93.5%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 4.6%
AEROSPACE & DEFENSE - 3.0%
AlliedSignal, Inc. 1,571,300 $ 98,991,900
Boeing Co. 789,100 34,868,356
Harsco Corp. 583,300 18,665,600
Northrop Grumman Corp. 194,300 12,884,519
Rockwell International Corp. 76,400 4,641,300
Textron, Inc. 1,122,400 92,387,550
United Technologies Corp. 1,639,500 117,531,656
379,970,881
DEFENSE ELECTRONICS - 1.3%
Litton Industries, Inc. (a) 642,500 46,099,375
Raytheon Co.:
Class A 19,131 1,317,648
Class B 1,601,800 112,726,675
160,143,698
SHIP BUILDING & REPAIR - 0.3%
General Dynamics Corp. 505,700 34,640,450
TOTAL AEROSPACE & DEFENSE 574,755,029
BASIC INDUSTRIES - 6.6%
CHEMICALS & PLASTICS - 3.0%
Arch Chemicals, Inc. 292,600 7,113,837
Dexter Corp. 501,400 20,463,388
Dow Chemical Co. 116,500 14,780,938
E.I. du Pont de Nemours and 818,300 55,900,119
Co.
Eastman Chemical Co. 218,600 11,312,550
Engelhard Corp. 287,500 6,504,688
Great Lakes Chemical Corp. 896,200 41,281,213
Hanna (M.A.) Co. 979,200 16,095,600
Hercules, Inc. 856,100 33,655,431
Hoechst AG 491,100 22,327,408
IMC Global, Inc. 1,626,800 28,672,350
Lyondell Chemical Co. 611,700 12,616,313
Millennium Chemicals, Inc. 749,200 17,653,025
Monsanto Co. 445,600 17,573,350
Praxair, Inc. 292,500 14,314,219
Solutia, Inc. 1,144,100 24,383,631
Union Carbide Corp. 497,000 24,228,750
Witco Corp. 682,700 13,654,000
382,530,810
IRON & STEEL - 0.5%
AK Steel Holding Corp. 148,400 3,339,000
Allegheny Teledyne, Inc. 511,800 11,579,475
Dofasco, Inc. 749,800 12,225,836
Nucor Corp. 521,200 24,724,425
USX-U.S. Steel Group 340,900 9,204,300
61,073,036
METALS & MINING - 1.5%
Alcan Aluminium Ltd. 858,000 27,422,917
Alcoa, Inc. 1,849,858 114,459,964
SHARES VALUE (NOTE 1)
Kaiser Aluminum Corp. (a) 250,000 $ 2,218,750
Olin Corp. 585,200 7,717,325
Phelps Dodge Corp. 339,200 21,009,200
Ryerson Tull, Inc. 753,323 16,996,850
189,825,006
PACKAGING & CONTAINERS - 0.3%
Ball Corp. 150,000 6,337,500
Crown Cork & Seal Co., Inc. 183,700 5,235,450
Owens-Illinois, Inc. (a) 413,400 13,513,013
Tupperware Corp. 576,500 14,700,750
39,786,713
PAPER & FOREST PRODUCTS - 1.3%
Bowater, Inc. 271,800 12,842,550
Champion International Corp. 776,700 37,184,513
Domtar, Inc. 1,072,400 10,190,989
Fort James Corp. 99,400 3,764,775
Georgia-Pacific Corp. 913,400 43,272,325
Kimberly-Clark Corp. 643,900 36,702,300
Weyerhaeuser Co. 240,100 16,506,875
160,464,327
TOTAL BASIC INDUSTRIES 833,679,892
CONSTRUCTION & REAL ESTATE -
1.8%
BUILDING MATERIALS - 0.5%
American Standard Companies, 49,500 2,376,000
Inc. (a)
Caradon PLC 1,228,100 2,895,938
Fortune Brands, Inc. 91,200 3,773,400
Masco Corp. 2,090,800 60,371,850
69,417,188
ENGINEERING - 0.2%
EG & G, Inc. 587,500 20,929,688
REAL ESTATE INVESTMENT TRUSTS
- - 1.1%
Alexandria Real Estate 109,600 3,425,000
Equities, Inc.
Crescent Real Estate Equities 853,600 20,273,000
Co.
Duke Realty Investments, Inc. 175,700 3,964,231
Equity Office Properties Trust 416,800 10,680,500
Equity Residential Properties 548,700 24,725,794
Trust (SBI)
Public Storage, Inc. 415,400 11,631,200
Reckson Associates Realty 62,800 1,475,800
Corp.
Spieker Properties, Inc. 277,000 10,768,375
Starwood Hotels & Resorts 1,465,981 44,804,044
Worldwide, Inc.
Weeks Corp. 231,900 7,072,950
138,820,894
TOTAL CONSTRUCTION & REAL 229,167,770
ESTATE
DURABLES - 2.6%
AUTOS, TIRES, & ACCESSORIES -
1.6%
DaimlerChrysler AG (Reg.) 178,837 15,894,135
Delphi Automotive Systems 293,900 5,455,519
Corp.
Eaton Corp. 426,500 39,238,000
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
DURABLES - CONTINUED
AUTOS, TIRES, & ACCESSORIES -
CONTINUED
Federal-Mogul Corp. 67,500 $ 3,510,000
Ford Motor Co. 906,100 51,138,019
Meritor Automotive, Inc. 629,900 16,062,450
Navistar International Corp. 76,500 3,825,000
(a)
Pep Boys-Manny, Moe & Jack 581,100 12,566,288
TRW, Inc. 852,300 46,769,963
194,459,374
CONSUMER DURABLES - 0.6%
Minnesota Mining & 350,200 30,445,513
Manufacturing Co.
Snap-On, Inc. 1,102,000 39,878,625
70,324,138
HOME FURNISHINGS - 0.2%
Newell Rubbermaid, Inc. 553,100 25,719,150
TEXTILES & APPAREL - 0.2%
Liz Claiborne, Inc. 161,700 5,902,050
NIKE, Inc. Class B 374,700 23,723,194
29,625,244
TOTAL DURABLES 320,127,906
ENERGY - 12.3%
ENERGY SERVICES - 1.4%
Baker Hughes, Inc. 337,200 11,296,200
Halliburton Co. 2,407,900 108,957,475
Schlumberger Ltd. 906,200 57,713,613
177,967,288
OIL & GAS - 10.9%
Amerada Hess Corp. 709,400 42,209,300
Anadarko Petroleum Corp. 587,900 21,642,069
Apache Corp. 263,000 10,257,000
Atlantic Richfield Co. 183,600 15,342,075
BP Amoco PLC sponsored ADR 2,834,819 307,577,862
Burlington Resources, Inc. 922,100 39,880,825
Chevron Corp. 1,409,471 134,164,021
Conoco, Inc. Class A 721,200 20,103,450
Elf Aquitaine SA sponsored ADR 943,100 69,376,794
Exxon Corp. 1,940,100 149,630,213
Mobil Corp. 446,100 44,163,900
Occidental Petroleum Corp. 1,854,000 39,165,750
Phillips Petroleum Co. 575,300 28,944,781
Royal Dutch Petroleum Co. (NY 2,218,600 133,670,650
Registry Gilder 1.25)
Santa Fe Snyder Corp. (a) 248,353 1,893,692
Texaco, Inc. 660,000 41,250,000
Tosco Corp. 449,800 11,666,688
Total Fina SA:
Class B 831,600 107,172,440
sponsored ADR 865,100 55,744,881
Ultramar Diamond Shamrock 490,300 10,694,669
Corp.
Union Pacific Resources 734,700 11,984,794
Group, Inc.
SHARES VALUE (NOTE 1)
Unocal Corp. 463,983 $ 18,385,326
USX-Marathon Group 1,621,100 52,787,069
1,367,708,249
TOTAL ENERGY 1,545,675,537
FINANCE - 23.3%
BANKS - 9.4%
Bank of America Corp. 3,173,890 232,685,811
Bank of New York Co., Inc. 4,631,400 169,914,488
Bank of Nova Scotia 178,900 3,913,858
Bank One Corp. 4,054,238 241,480,551
Chase Manhattan Corp. 1,377,300 119,308,613
Comerica, Inc. 1,278,300 75,978,956
Credit Suisse Group (Reg.) 141,100 24,484,518
Mellon Bank Corp. 390,700 14,211,713
National Bank of Canada 2,211,200 29,176,290
U.S. Bancorp 2,928,094 99,555,196
Wells Fargo & Co. 3,967,200 169,597,800
1,180,307,794
CREDIT & OTHER FINANCE - 7.5%
American Express Co. 1,853,072 241,130,994
Associates First Capital 3,421,056 151,595,549
Corp. Class A
Citigroup, Inc. 7,733,699 367,350,679
Fleet Financial Group, Inc. 1,373,600 60,953,500
Household International, Inc. 2,527,647 119,747,277
940,777,999
FEDERAL SPONSORED CREDIT - 2.3%
Fannie Mae 3,727,300 254,854,138
Freddie Mac 217,400 12,609,200
SLM Holding Corp. 412,700 18,906,819
286,370,157
INSURANCE - 2.4%
Allstate Corp. 787,198 28,240,728
Berkshire Hathaway, Inc. 109 7,510,100
Class A (a)
Chubb Corp. (The) 52,700 3,662,650
Financial Security Assurance 417,871 21,729,292
Holdings Ltd.
Fremont General Corp. 1,398,448 26,395,706
Hartford Financial Services 1,508,600 87,970,238
Group, Inc.
Highlands Insurance Group, 371,100 3,896,550
Inc. (a)
PMI Group, Inc. 469,800 29,509,313
Reliastar Financial Corp. 1,042,895 45,626,656
Torchmark Corp. 743,700 25,378,763
Travelers Property Casualty 620,000 24,257,500
Corp. Class A
304,177,496
SAVINGS & LOANS - 0.8%
Washington Mutual, Inc. 2,898,482 102,533,801
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - CONTINUED
SECURITIES INDUSTRY - 0.9%
Cendant Corp. (a) 946,100 $ 19,395,050
First Marathon, Inc. Class A 526,700 9,002,188
(non-vtg.)
Franklin Resources, Inc. 496,600 20,174,375
Lehman Brothers Holdings, 449,800 28,000,050
Inc.
Nomura Securities Co. Ltd. 1,561,000 18,246,543
Waddell & Reed Financial, Inc.:
Class A 394,416 10,821,789
Class B 182,132 4,917,564
110,557,559
TOTAL FINANCE 2,924,724,806
HEALTH - 5.3%
DRUGS & PHARMACEUTICALS - 3.7%
American Home Products Corp. 300,900 17,301,750
Bristol-Myers Squibb Co. 1,792,400 126,252,175
Lilly (Eli) & Co. 953,600 68,301,600
Merck & Co., Inc. 1,665,900 123,276,600
Schering-Plough Corp. 2,540,830 134,663,990
469,796,115
MEDICAL EQUIPMENT & SUPPLIES
- - 1.0%
Baxter International, Inc. 375,800 22,782,875
Becton, Dickinson & Co. 828,800 24,864,000
Johnson & Johnson 662,700 64,944,600
Pall Corp. 417,600 9,265,500
121,856,975
MEDICAL FACILITIES MANAGEMENT
- - 0.6%
Beverly Enterprises, Inc. (a) 1,722,000 13,883,625
Columbia/HCA Healthcare Corp. 2,259,150 51,536,859
Tenet Healthcare Corp. (a) 459,100 8,522,044
73,942,528
TOTAL HEALTH 665,595,618
INDUSTRIAL MACHINERY &
EQUIPMENT - 8.6%
ELECTRICAL EQUIPMENT - 4.8%
Emerson Electric Co. 781,000 49,105,375
General Electric Co. 4,147,000 468,610,970
Honeywell, Inc. 244,600 28,343,025
Loral Space & Communications 298,700 5,376,600
Ltd. (a)
Siemens AG 671,400 52,082,784
603,518,754
INDUSTRIAL MACHINERY &
EQUIPMENT - 2.6%
Case Corp. 421,000 20,260,625
Caterpillar, Inc. 134,800 8,088,000
Coltec Industries, Inc. (a) 1,371,600 29,746,575
Deere & Co. 871,300 34,525,263
Ingersoll-Rand Co. 498,000 32,183,250
SHARES VALUE (NOTE 1)
Kennametal, Inc. 393,700 $ 12,204,700
Parker-Hannifin Corp. 525,000 24,018,750
Tyco International Ltd. 1,705,923 161,636,204
322,663,367
POLLUTION CONTROL - 1.2%
Allied Waste Industries, Inc. 592,200 11,695,950
(a)
Browning-Ferris Industries, 988,598 42,509,714
Inc.
Ogden Corp. 508,300 13,692,331
Republic Services, Inc. Class 588,200 14,557,950
A
Waste Management, Inc. 1,197,447 64,362,776
146,818,721
TOTAL INDUSTRIAL MACHINERY & 1,073,000,842
EQUIPMENT
MEDIA & LEISURE - 4.1%
BROADCASTING - 1.8%
CBS Corp. (a) 1,626,900 70,668,469
Infinity Broadcasting Corp. 466,300 13,872,425
Class A
Time Warner, Inc. 1,948,599 143,222,027
227,762,921
ENTERTAINMENT - 1.3%
Disney (Walt) Co. 1,088,300 33,533,244
King World Productions, Inc. 457,000 15,909,313
(a)
Mandalay Resort Group (a) 464,400 9,810,450
Viacom, Inc. Class B 2,261,400 99,501,600
(non-vtg.) (a)
158,754,607
LEISURE DURABLES & TOYS - 0.1%
Brunswick Corp. 569,800 15,883,175
LODGING & GAMING - 0.0%
Mirage Resorts, Inc. (a) 309,100 5,177,425
PUBLISHING - 0.5%
Harcourt General, Inc. 657,900 33,922,969
Reader's Digest Association, 548,700 21,810,825
Inc. Class A (non-vtg.)
55,733,794
RESTAURANTS - 0.4%
McDonald's Corp. 1,310,800 54,152,425
TOTAL MEDIA & LEISURE 517,464,347
NONDURABLES - 4.0%
AGRICULTURE - 0.3%
Edperbrascan Corp. Class A 2,699,800 41,437,417
(ltd. vtg.)
BEVERAGES - 0.4%
Anheuser-Busch Companies, 144,000 10,215,000
Inc.
PepsiCo, Inc. 300,500 11,625,594
Seagram Co. Ltd. 395,600 19,838,149
Whitman Corp. 428,400 7,711,200
49,389,943
FOODS - 0.7%
Corn Products International, 401,625 12,224,461
Inc.
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NONDURABLES - CONTINUED
FOODS - CONTINUED
Goodman Fielder Ltd. 4,642,110 $ 4,172,262
Heinz (H.J.) Co. 498,200 24,972,275
Nabisco Group Holdings Corp. 449,000 8,783,563
Nabisco Holdings Corp. Class A 779,200 33,700,400
83,852,961
HOUSEHOLD PRODUCTS - 1.1%
Procter & Gamble Co. 307,200 27,417,600
Unilever NV 11,071 748,414
Unilever NV (NY shares) 714,285 49,821,379
Unilever PLC 6,090,714 56,719,999
134,707,392
TOBACCO - 1.5%
Philip Morris Companies, Inc. 4,833,300 194,238,244
TOTAL NONDURABLES 503,625,957
PRECIOUS METALS - 0.1%
Newmont Mining Corp. 605,600 12,036,300
RETAIL & WHOLESALE - 3.2%
APPAREL STORES - 0.9%
Charming Shoppes, Inc. (a) 612,800 3,734,250
Footstar, Inc. (a) 551,800 20,520,063
Limited, Inc. (The) 1,317,700 59,790,638
Payless ShoeSource, Inc. (a) 385,000 20,597,500
TJX Companies, Inc. 350,200 11,666,038
116,308,489
GENERAL MERCHANDISE STORES -
2.2%
Consolidated Stores Corp. (a) 2,020,156 54,544,219
Dayton Hudson Corp. 920,700 59,845,500
Federated Department Stores, 1,104,400 58,464,175
Inc. (a)
Hudson's Bay Co. 185,000 2,086,894
Hudson's Bay Co. (d) 302,500 3,412,354
Wal-Mart Stores, Inc. 2,073,200 100,031,900
278,385,042
GROCERY STORES - 0.1%
Albertson's, Inc. 152,700 7,873,594
TOTAL RETAIL & WHOLESALE 402,567,125
SERVICES - 0.8%
LEASING & RENTAL - 0.2%
Ryder Systems, Inc. 766,600 19,931,600
PRINTING - 0.2%
Donnelley (R.R.) & Sons Co. 568,400 21,066,325
Wallace Computer Services, 347,900 8,697,500
Inc.
29,763,825
SERVICES - 0.4%
ACNielsen Corp. (a) 636,000 19,239,000
Dun & Bradstreet Corp. 313,800 11,120,288
SHARES VALUE (NOTE 1)
Manpower, Inc. 364,500 $ 8,246,813
Modis Professional Services, 477,700 6,568,375
Inc. (a)
45,174,476
TOTAL SERVICES 94,869,901
TECHNOLOGY - 3.8%
COMPUTER SERVICES & SOFTWARE
- - 2.2%
Ask Jeeves, Inc. 2,200 30,800
Clarent Corp. 8,200 123,000
Electronic Data Systems Corp. 706,800 39,978,375
International Business 860,200 111,180,850
Machines Corp.
NCR Corp. (a) 168,300 8,215,144
Unisys Corp. (a) 3,018,317 117,525,718
277,053,887
COMPUTERS & OFFICE EQUIPMENT
- - 1.0%
Compaq Computer Corp. 351,400 8,323,788
Pitney Bowes, Inc. 1,582,000 101,643,500
Xerox Corp. 122,000 7,205,625
117,172,913
ELECTRONIC INSTRUMENTS - 0.1%
Thermo Electron Corp. (a) 614,900 12,336,431
ELECTRONICS - 0.5%
Motorola, Inc. 561,300 53,183,175
Texas Instruments, Inc. 83,200 12,064,000
65,247,175
TOTAL TECHNOLOGY 471,810,406
TRANSPORTATION - 1.3%
AIR TRANSPORTATION - 0.2%
AMR Corp. (a) 336,700 22,979,775
Viad Corp. 275,800 8,532,563
31,512,338
RAILROADS - 1.1%
Burlington Northern Santa Fe 2,153,400 66,755,400
Corp.
CSX Corp. 1,024,600 46,427,188
Union Pacific Corp. 409,400 23,873,138
137,055,726
TOTAL TRANSPORTATION 168,568,064
UTILITIES - 11.1%
CELLULAR - 0.3%
ALLTEL Corp. 508,900 36,386,350
ELECTRIC UTILITY - 2.9%
Allegheny Energy, Inc. 1,148,700 36,830,194
American Electric Power Co., 997,100 37,453,569
Inc.
Avista Corp. 707,500 11,496,875
Central & South West Corp. 444,000 10,378,500
CILCORP, Inc. 128,200 8,012,500
Cinergy Corp. 415,000 13,280,000
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
UTILITIES - CONTINUED
ELECTRIC UTILITY - CONTINUED
CMS Energy Corp. 379,200 $ 15,879,000
Consolidated Edison, Inc. 473,450 21,423,613
DPL, Inc. 1,059,850 19,474,744
Duke Energy Corp. 424,600 23,087,625
Entergy Corp. 2,579,800 80,618,750
Niagara Mohawk Holdings, Inc. 1,434,200 23,036,838
(a)
PG&E Corp. 1,551,878 50,436,035
Pinnacle West Capital Corp. 237,000 9,539,250
360,947,493
GAS - 0.3%
Questar Corp. 955,200 18,268,200
Sempra Energy 1,152,084 26,065,901
44,334,101
TELEPHONE SERVICES - 7.6%
Ameritech Corp. 1,792,700 131,763,450
AT&T Corp. 4,262,300 237,889,619
Bell Atlantic Corp. 2,749,540 179,751,178
BellSouth Corp. 1,227,600 57,543,750
GTE Corp. 1,251,500 94,801,125
MCI WorldCom, Inc. (a) 1,289,777 111,001,433
Pathnet, Inc. warrants 520 5,200
4/15/08 (a)(d)
SBC Communications, Inc. 2,018,400 117,067,200
Sprint Corp. (FON Group) 513,400 27,113,938
956,936,893
TOTAL UTILITIES 1,398,604,837
TOTAL COMMON STOCKS 11,736,274,337
(Cost $7,994,773,121)
PREFERRED STOCKS - 3.4%
CONVERTIBLE PREFERRED STOCKS
- - 3.4%
BASIC INDUSTRIES - 0.1%
CHEMICALS & PLASTICS - 0.1%
Monsanto Co. $1.625 ACES 460,000 18,457,500
DURABLES - 0.0%
AUTOS, TIRES, & ACCESSORIES -
0.0%
Automatic Common Exchangeable 219,200 3,945,600
Securities Trust II
(Republic Industries) $1.55
ACES
ENERGY - 0.1%
OIL & GAS - 0.1%
Apache Corp. $2.015 ACES 183,100 6,683,150
FINANCE - 1.1%
CREDIT & OTHER FINANCE - 0.6%
Federal-Mogul Financing Trust 490,300 28,927,700
$3.50
SHARES VALUE (NOTE 1)
Union Pacific Capital Trust $:
3.125 403,200 $ 20,714,400
3.125 TIDES (d) 384,500 19,753,688
69,395,788
INSURANCE - 0.5%
Aetna, Inc. Class C, $4.7578 760,000 56,430,000
PRIDES
Conseco, Inc. $3.50 PRIDES 296,800 11,927,650
68,357,650
SECURITIES INDUSTRY - 0.0%
Merrill Lynch & Co., Inc. 77,600 1,585,950
(IMC Global) $2.39 STRYPES
TOTAL FINANCE 139,339,388
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.3%
ELECTRICAL EQUIPMENT - 0.2%
Loral Space & Communications
Ltd. Series C:
$3.00 (d) 183,200 9,251,600
$3.00 141,700 7,155,850
16,407,450
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.1%
Ingersoll Rand Co./Ingersoll 530,100 14,809,669
Rand Finance $0.195 Growth
PRIDES
TOTAL INDUSTRIAL MACHINERY & 31,217,119
EQUIPMENT
MEDIA & LEISURE - 1.0%
BROADCASTING - 0.7%
Evergreen Media Corp. $3.00 128,300 14,145,075
(d)
MediaOne Group, Inc. 249,900 22,615,950
(Vodafone AirTouch PLC)
$3.63 PIES
MediaOne Group, Inc. Class D 374,200 55,334,825
$2.25
92,095,850
ENTERTAINMENT - 0.1%
Premier Parks, Inc. $4.05 PIES 273,300 18,584,400
PUBLISHING - 0.2%
Readers Digest Automatic 464,700 16,874,419
Common Exchange Trust $1.93
TRACES
Tribune Co. (The Learning 102,300 2,877,188
Co., Inc.) $1.75 DECS
19,751,607
TOTAL MEDIA & LEISURE 130,431,857
NONDURABLES - 0.2%
BEVERAGES - 0.2%
Seagram Co. Ltd. $3.76 473,400 23,699,588
RETAIL & WHOLESALE - 0.0%
GENERAL MERCHANDISE STORES -
0.0%
K mart Financing I $3.875 100,000 5,850,000
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
CONVERTIBLE PREFERRED STOCKS
- - CONTINUED
UTILITIES - 0.6%
ELECTRIC UTILITY - 0.6%
Houston Industries, Inc. 285,500 $ 34,045,875
(Time Warner) $3.216 ACES
NiSource, Inc. $3.875 PIES 299,300 14,777,938
Texas Utilities Co. $1.6575 465,200 20,643,250
growth PRIDES
69,467,063
TOTAL CONVERTIBLE PREFERRED 429,091,265
STOCKS
NONCONVERTIBLE PREFERRED
STOCKS - 0.0%
CONSTRUCTION & REAL ESTATE -
0.0%
REAL ESTATE INVESTMENT TRUSTS
- - 0.0%
California Federal Preferred 31,590 821,340
Capital Corp. $2.2812
MEDIA & LEISURE - 0.0%
BROADCASTING - 0.0%
CSC Holdings, Inc. 11.125% 21,167 2,317,787
pay-in-kind
PUBLISHING - 0.0%
PRIMEDIA, Inc. 8.625% 5,975 543,725
TOTAL MEDIA & LEISURE 2,861,512
TOTAL NONCONVERTIBLE 3,682,852
PREFERRED STOCKS
TOTAL PREFERRED STOCKS 432,774,117
(Cost $342,734,797)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS - 1.5%
MOODY'S RATINGS (UNAUDITED) (E) PRINCIPAL AMOUNT (F)
CONVERTIBLE BONDS - 1.1%
CONSTRUCTION & REAL ESTATE -
0.3%
REAL ESTATE INVESTMENT TRUSTS
- - 0.3%
Liberty Property LP 8.3% Ba2 $ 27,985,000 34,841,325
7/1/01
DURABLES - 0.1%
CONSUMER ELECTRONICS - 0.1%
Matsushita Electric Aa2 JPY 209,000,000 2,586,100
Industrial Co. Ltd. 1.4%
3/31/04
Sunbeam Corp. 0% 3/25/18 (d) Caa2 60,290,000 10,098,575
12,684,675
MOODY'S RATINGS (UNAUDITED) (E) PRINCIPAL AMOUNT (F) VALUE (NOTE 1)
FINANCE - 0.0%
INSURANCE - 0.0%
Loews Corp. 3.125% 9/15/07 A2 $ 4,320,000 $ 3,493,800
MEDIA & LEISURE - 0.3%
BROADCASTING - 0.0%
Jacor Communications, Inc. 0% Ba3 3,370,000 1,891,413
2/9/18 liquid yield option
notes
PUBLISHING - 0.3%
News America Holdings, Inc. Baa3 48,470,000 35,261,925
liquid yield option notes 0%
3/11/13
TOTAL MEDIA & LEISURE 37,153,338
NONDURABLES - 0.0%
FOODS - 0.0%
Chiquita Brands B3 820,000 774,900
International, Inc. 7%
3/28/01
RETAIL & WHOLESALE - 0.0%
DRUG STORES - 0.0%
Rite Aid Corp. 5.25% 9/15/02 Baa2 250,000 247,969
(d)
TECHNOLOGY - 0.3%
COMPUTER SERVICES & SOFTWARE
- - 0.0%
Softkey International, Inc. - 1,340,000 1,309,850
5.5% 11/1/00 (d)
COMPUTERS & OFFICE EQUIPMENT
- - 0.1%
Quantum Corp. 7% 8/1/04 B2 7,730,000 7,266,200
ELECTRONICS - 0.2%
Micron Technology, Inc. 7% B2 17,163,000 17,634,983
7/1/04
Solectron Corp. 0% 1/27/19 Baa3 15,490,000 9,081,013
(d)
26,715,996
TOTAL TECHNOLOGY 35,292,046
UTILITIES - 0.1%
TELEPHONE SERVICES - 0.1%
Telefonos de Mexico SA de CV BB 9,430,000 9,736,475
4.25% 6/15/04
TOTAL CONVERTIBLE BONDS 134,224,528
NONCONVERTIBLE BONDS - 0.4%
BASIC INDUSTRIES - 0.0%
CHEMICALS & PLASTICS - 0.0%
Lyondell Chemical Co. 9.875% Ba3 1,340,000 1,363,450
5/1/07 (d)
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (E) PRINCIPAL AMOUNT (F) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
ENERGY - 0.0%
ENERGY SERVICES - 0.0%
RBF Finance Co. 11.375% Ba3 $ 1,520,000 $ 1,573,200
3/15/09 (d)
FINANCE - 0.0%
CREDIT & OTHER FINANCE - 0.0%
Macsaver Financial Services, Ba1 1,000,000 852,500
Inc. 7.875% 8/1/03
HEALTH - 0.0%
MEDICAL FACILITIES MANAGEMENT
- - 0.0%
Tenet Healthcare Corp. 8.125% Ba3 2,220,000 2,097,900
12/1/08
MEDIA & LEISURE - 0.2%
BROADCASTING - 0.2%
Adelphia Communications Corp.:
7.75% 1/15/09 B1 3,340,000 3,097,850
9.875% 3/1/07 B1 1,970,000 2,056,188
Century Communications Corp., Ba3 960,000 422,400
Series B, 0% 1/15/08
Charter Communications B2 1,670,000 1,596,938
Holdings LLC/Charter
Communications Holdings
Capital Corp. 8.625% 4/1/09
(d)
CSC Holdings, Inc. 7.875% Ba2 600,000 571,116
2/15/18
Falcon Holding Group B2 1,840,000 1,285,700
LP/Falcon Funding Corp. 0%
4/15/10 (c)
NTL Communications Corp. B3 6,470,000 7,084,650
11.5% 10/1/08
Telewest PLC 0% 10/1/07 (c) B1 1,780,000 1,593,100
17,707,942
ENTERTAINMENT - 0.0%
Regal Cinemas, Inc. 8.875% B3 2,170,000 1,974,700
12/15/10
LODGING & GAMING - 0.0%
HMH Properties, Inc. 7.875% Ba2 1,070,000 984,400
8/1/08
RESTAURANTS - 0.0%
Domino's, Inc. 10.375% 1/15/09 B3 1,120,000 1,131,200
TOTAL MEDIA & LEISURE 21,798,242
MOODY'S RATINGS (UNAUDITED) (E) PRINCIPAL AMOUNT (F) VALUE (NOTE 1)
NONDURABLES - 0.0%
HOUSEHOLD PRODUCTS - 0.0%
Revlon Consumer Products B2 $ 1,960,000 $ 1,940,400
Corp. 9% 11/1/06
UTILITIES - 0.2%
CELLULAR - 0.1%
Nextel Communications, Inc.:
0% 10/31/07 (c) B2 4,635,000 3,256,088
12% 11/1/08 B2 2,090,000 2,351,250
5,607,338
TELEPHONE SERVICES - 0.1%
GST Network Funding, Inc. 0% - 1,620,000 923,400
5/1/08 (c)(d)
ICG Services, Inc. 0% 5/1/08 - 1,395,000 753,300
(c)
Intermedia Communications, B2 770,000 716,100
Inc. 8.6% 6/1/08
Level 3 Communications, Inc. B3 2,490,000 1,550,025
0% 12/1/08 (c)
McLeodUSA, Inc. 9.5% 11/1/08 B2 990,000 992,475
NEXTLINK Communications, Inc. B3 2,780,000 2,696,600
9.625% 10/1/07
Pathnet, Inc. 12.25% 4/15/08 - 520,000 286,000
Rhythms NetConnections, Inc. B3 1,670,000 1,561,450
12.75% 4/15/09 (d)
Teligent, Inc. 0% 3/1/08 (c) Caa1 3,160,000 1,864,400
WinStar Communications, Inc.:
0% 10/15/05 (c) Caa1 660,000 577,500
15% 3/1/07 CCC 840,000 966,000
12,887,250
TOTAL UTILITIES 18,494,588
TOTAL NONCONVERTIBLE BONDS 48,120,280
TOTAL CORPORATE BONDS 182,344,808
(Cost $175,647,333)
CASH EQUIVALENTS - 1.6%
SHARES
Taxable Central Cash Fund (b) 197,022,830 197,022,830
(Cost $197,022,830)
TOTAL INVESTMENT IN $ 12,548,416,092
SECURITIES - 100%
(Cost $8,710,178,081)
</TABLE>
SECURITY TYPE ABBREVIATIONS
ACES - Automatic Common
Exchange Securities
DECS - Dividend Enhanced
Convertible Stock/Debt
Exchangeable for Common
Stock
PIES - Premium Income Equity
Securities
PRIDES - Preferred Redeemable
Increased Dividend
Equity Securities
STRYPES - Structured Yield
Product Exchangeable for
Common Stock
TIDES - Term Income Deferred
Equity Securities
TRACES - Trust Automatic
Common Exchange Securities
CURRENCY ABBREVIATIONS
JPY - Japanese yen
LEGEND
(a) Non-income producing
(b) At period end, the seven-day yield on the Taxable Central Cash
Fund was 4.84%. The yield refers to the income earned by investing in
the fund over the seven-day period, expressed as an annual percentage.
(c) Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date. The rate shown
is the rate at period end.
(d) 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 $74,323,762 or 0.6% of net assets.
(e) Standard & Poor's credit ratings are used in absence of a rating
by Moody's Investors Service, Inc.
(f) Principal amount is stated in United States dollars unless
otherwise noted.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $1,387,987,794 and $1,717,759,112, respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company.
The commissions paid to these affiliated firms were $216,327 for the
period.
INCOME TAX INFORMATION
At June 30, 1999, the aggregate cost of investment securities for
income tax purposes was $8,717,979,460. Net unrealized appreciation
aggregated $3,830,436,632, of which $4,111,599,498 related to
appreciated investment securities and $281,162,866 related to
depreciated investment securities.
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 12,548,416,092
value (cost $8,710,178,081)
- - See accompanying schedule
Cash 10,114
Receivable for investments 52,384,900
sold
Receivable for fund shares 3,080,442
sold
Dividends receivable 19,484,709
Interest receivable 3,564,442
Other receivables 1,007,578
TOTAL ASSETS 12,627,948,277
LIABILITIES
Payable for investments $ 44,331,406
purchased
Payable for fund shares 9,675,629
redeemed
Accrued management fee 4,933,561
Distribution fees payable 28,132
Other payables and accrued 901,233
expenses
TOTAL LIABILITIES 59,869,961
NET ASSETS $ 12,568,078,316
Net Assets consist of:
Paid in capital $ 8,276,118,743
Undistributed net investment 97,274,883
income
Accumulated undistributed 356,506,786
net realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation 3,838,177,904
(depreciation) on
investments and assets and
liabilities in foreign
currencies
NET ASSETS $ 12,568,078,316
INITIAL CLASS: NET ASSET $27.26
VALUE, offering price and
redemption price per share
($12,210,029,445 (divided
by) 447,974,992 shares)
SERVICE CLASS: NET ASSET $27.21
VALUE, offering price and
redemption price per share
($358,048,871 (divided by)
13,157,148 shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30,
1999 (UNAUDITED)
INVESTMENT INCOME $ 123,274,610
Dividends
Interest 9,575,975
132,850,585
Less foreign taxes withheld (3,262,753)
TOTAL INCOME 129,587,832
EXPENSES
Management fee $ 28,572,858
Transfer agent fees 3,905,974
Distribution fees - Service 139,714
Class
Accounting fees and expenses 497,956
Non-interested trustees' 27,083
compensation
Custodian fees and expenses 177,582
Registration fees 28,755
Audit 42,149
Miscellaneous 114,076
Total expenses before 33,506,147
reductions
Expense reductions (441,990) 33,064,157
NET INVESTMENT INCOME 96,523,675
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities 366,346,440
Foreign currency transactions (10,866) 366,335,574
Change in net unrealized
appreciation (depreciation)
on:
Investment securities 958,811,984
Assets and liabilities in (163,094) 958,648,890
foreign currencies
NET GAIN (LOSS) 1,324,984,464
NET INCREASE (DECREASE) IN $ 1,421,508,139
NET ASSETS RESULTING FROM
OPERATIONS
OTHER INFORMATION $ 441,990
Expense reductions Directed
brokerage arrangements
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
ASSETS 1999 (UNAUDITED)
Operations Net investment $ 96,523,675 $ 175,118,232
income
Net realized gain (loss) 366,335,574 377,421,064
Change in net unrealized 958,648,890 617,114,451
appreciation (depreciation)
NET INCREASE (DECREASE) IN 1,421,508,139 1,169,653,747
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (170,985,891) (143,408,236)
From net investment income
From net realized gain (377,968,810) (510,364,604)
TOTAL DISTRIBUTIONS (548,954,701) (653,772,840)
Share transactions - net 60,468,325 1,007,105,749
increase (decrease)
TOTAL INCREASE (DECREASE) 933,021,763 1,522,986,656
IN NET ASSETS
NET ASSETS
Beginning of period 11,635,056,553 10,112,069,897
End of period (including $ 12,568,078,316 $ 11,635,056,553
undistributed net investment
income of $97,274,883 and
$172,284,861, respectively)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OTHER INFORMATION:
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
1999 (UNAUDITED)
SHARES DOLLARS SHARES DOLLARS
Share transactions Initial 22,827,373 $ 590,692,684 64,328,671 $ 1,568,020,907
Class Sold
Reinvested 22,601,688 537,468,129 27,884,679 652,780,343
Redeemed (46,332,859) (1,177,217,609) (59,592,607) (1,424,580,460)
Net increase (decrease) (903,798) $ (49,056,796) 32,620,743 $ 796,220,790
Service Class Sold 3,919,814 100,917,363 8,703,524 212,310,778
Reinvested 483,645 11,486,571 42,396 992,496
Redeemed (112,907) (2,878,813) (98,817) (2,418,315)
Net increase (decrease) 4,290,552 $ 109,525,121 8,647,103 $ 210,884,959
Distributions From net $ 167,408,106 $ 143,190,527
investment income Initial
Class
Service Class 3,577,785 217,709
Total $ 170,985,891 $ 143,408,236
From net realized gain $ 370,060,023 $ 509,589,817
Initial Class
Service Class 7,908,787 774,787
Total $ 377,968,810 $ 510,364,604
$ 548,954,701 $ 653,772,840
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 1996 1995
Net asset value, beginning of $ 25.42 $ 24.28 $ 21.03 $ 19.27 $ 15.35
period
Income from Investment
Operations
Net investment income .21 D .38 D .36 D .35 .41
Net realized and unrealized 2.85 2.31 5.06 2.30 4.69
gain (loss)
Total from investment 3.06 2.69 5.42 2.65 5.10
operations
Less Distributions
From net investment income (.38) (.34) (.36) (.03) (.40)
From net realized gain (.84) (1.21) (1.81) (.86) (.78)
Total distributions (1.22) (1.55) (2.17) (.89) (1.18)
Net asset value, end of period $ 27.26 $ 25.42 $ 24.28 $ 21.03 $ 19.27
TOTAL RETURN B, C 12.74% 11.63% 28.11% 14.28% 35.09%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 12,210,029 $ 11,409,912 $ 10,106,742 $ 6,961,090 $ 4,879,435
(000 omitted)
Ratio of expenses to average .57% A .58% .58% .58% .61%
net assets
Ratio of expenses to average .57% A .57% F .57% F .56% F .61%
net assets after expense
reductions
Ratio of net investment 1.66% A 1.58% 1.65% 1.97% 2.56%
income to average net assets
Portfolio turnover 24% A 28% 44% 186% 87%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA 1994
Net asset value, beginning of $ 15.44
period
Income from Investment
Operations
Net investment income .41
Net realized and unrealized .64
gain (loss)
Total from investment 1.05
operations
Less Distributions
From net investment income (.37)
From net realized gain (.77)
Total distributions (1.14)
Net asset value, end of period $ 15.35
TOTAL RETURN B, C 7.07%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 2,284,412
(000 omitted)
Ratio of expenses to average .60%
net assets
Ratio of expenses to average .58% F
net assets after expense
reductions
Ratio of net investment 2.83%
income to average net assets
Portfolio turnover 134%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - SERVICE CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 E
Net asset value, beginning of $ 25.39 $ 24.27 $ 23.44
period
Income from Investment
Operations
Net investment income D .19 .36 .05
Net realized and unrealized 2.85 2.31 .78
gain (loss)
Total from investment 3.04 2.67 .83
operations
Less Distributions
From net investment income (.38) (.34) -
From net realized gain (.84) (1.21) -
Total distributions (1.22) (1.55) -
Net asset value, end of period $ 27.21 $ 25.39 $ 24.27
TOTAL RETURNB, C 12.67% 11.54% 3.54%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 358,049 $ 225,145 $ 5,328
(000 omitted)
Ratio of expenses to average .68% A .68% .68% A
net assets
Ratio of expenses to average .67% A, F .67% F .65% A, F
net assets after expense
reductions
Ratio of net investment 1.56% A 1.51% 1.63% A
income to average net assets
Portfolio turnover 24% A 28% 44%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE
TO YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. INCLUSION
OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN. TOTAL RETURNS FOR PERIODS OF LESS THAN ONE
YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED
BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF SALE
OF SERVICE CLASS SHARES) TO DECEMBER 31, 1997.
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS
WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A
PORTION OF THE CLASS' EXPENSES.
NOTES TO FINANCIAL STATEMENTS
For the period ended June 30, 1999 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Equity-Income Portfolio (the fund) is a fund of Variable Insurance
Products Fund (the trust) and is authorized to issue an unlimited
number of shares. 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. Shares
of the fund may only be purchased by insurance companies for the
purpose of funding variable annuity or variable life insurance
contracts. The fund offers two classes of shares: the fund's original
class of shares (Initial Class shares) and Service Class shares. Both
classes have equal rights and voting privileges, except for matters
affecting a single class. Investment income, realized and unrealized
capital gains and losses, the common expenses of the fund, and certain
fund-level expense reductions, if any, are allocated on a pro rata
basis to each class based on the relative net assets of each class to
the total net assets of the fund. Each class of shares differs in its
respective distribution plan.
The financial statements have been prepared in conformity with
generally accepted accounting principles which require management to
make certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. 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 with remaining maturities of sixty days or less
for which quotations are not readily available 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 fund 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 prevailing rates of exchange at period end. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
and settlement date on purchases and sales of securities. The effects
of changes in foreign currency exchange rates on investments in
securities are included with the net realized and unrealized gain or
loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes 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 fund is
informed of the ex-dividend date. Non-cash dividends included in
dividend income, if any, are recorded at the fair market value of the
securities received. Interest income, which includes accretion of
original issue discount, is accrued as earned. Investment income is
recorded net of foreign taxes withheld where recovery of such taxes is
uncertain.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
DEFERRED TRUSTEE COMPENSATION. Under a Deferred Compensation Plan (the
Plan) non-interested Trustees must defer receipt of a portion of, and
may elect to defer receipt of an additional portion of, their annual
compensation. Deferred amounts are treated as though equivalent dollar
amounts had been invested in a cross-section of other Fidelity funds.
Deferred amounts remain in the fund until distributed in accordance
with the Plan.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date. Income dividends and capital gain distributions are
declared separately for each class.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for passive foreign investment companies (PFIC), litigation
proceeds, foreign currency transactions, non-taxable dividends and
losses deferred due to wash sales.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments and foreign currency transactions
may include temporary book and tax basis differences that will reverse
in a subsequent period. Any taxable income or gain remaining at fiscal
year end is distributed in the following year.
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.
2. OPERATING POLICIES.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
terms. The U.S. dollar value of foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the fund, along with
other affiliated entities of Fidelity Management & Research Company
(FMR), may transfer uninvested cash balances into one or more joint
trading accounts. These balances are invested in one or more
repurchase agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
TAXABLE CENTRAL CASH FUND. Pursuant to an Exemptive Order issued by
the SEC, the fund may invest in the Taxable Central Cash Fund (the
Cash Fund) managed by Fidelity Investments Money Management, Inc., an
affiliate of FMR. The Cash Fund is an open-end money market fund
available only to investment companies and other accounts managed by
FMR and its affiliates. The Cash Fund seeks preservation of capital,
liquidity, and current income by investing in U.S. Treasury securities
and repurchase agreements for these securities. Income distributions
from the Cash Fund are declared daily and paid monthly from net
interest income. Income distributions earned by the fund are recorded
as interest income in the accompanying financial statements.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally 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 the fund had no investments in restricted
securities (excluding 144A issues).
3. PURCHASES AND SALES OF INVESTMENTS.
Information regarding purchases and sales of securities (other than
short-term securities), is included under the caption "Other
Information" at the end of the fund's schedule of investments.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the 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
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .2500% to .5200% for the
period. The annual individual fund fee rate is .20%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annualized rate of .49% of average net
assets.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the
1940 Act, the Board of Trustees has adopted separate distribution
plans with respect to each class of shares (collectively referred to
as "the Plans"). Under the Service Class Plan, the class pays Fidelity
Distributors Corporation (FDC), an affiliate of FMR, a distribution
and service fee (12b-1 fee). This fee is based on an annual rate of
.10% of Service Class average net assets. Initial Class shares are not
subject to a 12b-1 fee.
For the period, Service Class paid FDC $139,714, all of which was
reallowed to insurance companies, for the distribution of shares and
providing shareholder support services.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations
Company, Inc. (FIIOC), an affiliate of FMR, is the fund's transfer,
dividend disbursing and shareholder servicing agent. FIIOC receives
account fees and asset-based fees that vary according to account size
and type of account. FIIOC pays a portion of the expenses related to
the typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees of
the fund were equivalent to an annualized rate of .07% of average net
assets.
ACCOUNTING FEES. Fidelity Service Company, Inc. (FSC), an affiliate of
FMR, maintains the fund's accounting records. The fee is based on the
level of average net assets for the month plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms are shown under the caption
"Other Information" at the end of the fund's schedule of investments.
5. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a
portion of the fund's expenses.
For the period, the reductions under this arrangement are shown under
the caption "Other Information" on the fund's Statement of Operations.
6. BENEFICIAL INTEREST.
At the end of the period, Fidelity Investments Life Insurance Company
(FILI) and its subsidiaries, affiliates of FMR, were the record owners
of approximately 14% of the outstanding shares of the fund. In
addition, one unaffiliated insurance company was record owner of 29%
of the total outstanding shares of the fund.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, PRESIDENT
Robert C. Pozen, SENIOR VICE PRESIDENT
Richard A. Spillane, Jr., VICE PRESIDENT
Stephen R. Petersen, VICE PRESIDENT
Eric D. Roiter, SECRETARY
Richard A. Silver, TREASURER
Matthew N. Karstetter, DEPUTY TREASURER
John H. Costello, ASSISTANT TREASURER
Leonard M. Rush, ASSISTANT TREASURER
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
* INDEPENDENT TRUSTEES
VIPEI-SANN-0899 81781
1.705693.101
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER SERVICING AGENT
Fidelity Investments Institutional Operations Company, Inc.
Boston, MA
CUSTODIAN
The Chase Manhattan Bank
New York, NY
VARIABLE INSURANCE PRODUCTS
FUND: GROWTH PORTFOLIO
SEMIANNUAL REPORT
JUNE 30, 1999
(2_FIDELITY_LOGOS)(registered trademark)
CONTENTS
MARKET ENVIRONMENT 3 A review of what happened in
world markets during the
past six months.
PERFORMANCE AND INVESTMENT 4 How the fund has done over
SUMMARY time, and an overview of the
fund's investments at the
end of the period.
FUND TALK 5 The manager's review of fund
performance, strategy and
outlook.
INVESTMENTS 6 A complete list of the fund's
investments with their
market values.
FINANCIAL STATEMENTS 11 Statements of assets and
liabilities, operations, and
changes in net assets, as
well as financial highlights.
NOTES 14 Notes to the financial
statements.
Standard & Poor's, S&P and S&P 500 are registered service marks of The
McGraw-Hill Companies, Inc. and have been licensed for use by Fidelity
Distributors Corporation.
Other third party marks appearing herein are the property of their
respective owners.
All other marks appearing herein are registered or unregistered
trademarks or service marks of FMR Corp. or an affiliated company.
This report is printed on recycled paper using soy-based inks.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE FUND'S
PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS
STATED ON THE COVER AND DO NOT NECESSARILY REPRESENT THE VIEWS OF
FIDELITY OR ANY OTHER PERSON IN THE FIDELITY ORGANIZATION. ANY SUCH
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER
CONDITIONS AND FIDELITY DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH
VIEWS. THESE VIEWS MAY NOT BE RELIED ON AS INVESTMENT ADVICE AND,
BECAUSE INVESTMENT DECISIONS FOR A FIDELITY FUND ARE BASED ON NUMEROUS
FACTORS, MAY NOT BE RELIED ON AS AN INDICATION OF TRADING INTENT ON
BEHALF OF ANY FIDELITY FUND.
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.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT
INSURED BY THE FDIC, FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND
ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
MARKET ENVIRONMENT
An investor-friendly equity environment characterized the first half
of the year, as the majority of domestic and international stock
markets turned in positive performances for the six-month period
ending June 30, 1999. The bulk of debt sectors received a colder
shoulder, however, as wary bond investors shied away from the
combination of higher inflation expectations and the U.S. Federal
Reserve Board's tighter monetary policy. Notably, the period's last
day was an eventful one: On June 30, for the first time in two years,
the Fed increased key short-term interest rates with a quarter-point
hike to 5.00%. At the same time, it also announced a shift to a
"neutral" position - meaning the Fed's next move is as likely to be a
rate decrease as it is another hike - sparking a rally in the bond
market and sending several equity indexes into record-high territory.
U.S. STOCK MARKETS
The Standard & Poor's 500 Index - a broad measure of U.S. stock market
performance - rose 12.38% for the six months that ended June 30, 1999.
At this pace, the S&P 500(registered trademark) is well on its way to
tacking on another year to its record of four consecutive annual
double-digit percentage gains. Meanwhile, the Dow Jones Industrial
Average - an index of 30 blue-chip stocks - posted a lofty 20.39%
increase for the first half of the year. After several years on the
sidelines, small-cap stocks finally rebounded, particularly in the
second quarter of 1999, as the Russell 2000(registered trademark)
Index - a popular measure of small-cap stock performance - returned
9.29% for the first half of the year. But it was the technology-laden
NASDAQ Composite Index that posted the highest return of these popular
equity performance measures, with a 22.70% increase for the six months
ending June 30, 1999.
At the period's outset, the economic climate and investment
environment were similar to the previous several years: high levels of
employment, low inflation and strong consumer confidence, with a
handful of large-cap growth stocks - particularly in the technology
sector - continuing to set the pace for bullish equity market
performance. By the beginning of the second quarter, however, market
conditions began to change. The global economy began to improve, due
in large part to the willingness of central banks worldwide to lower
interest rates, resulting in a broadening of corporate earnings. This
environment proved favorable for small- and mid-cap value stocks and
the economically sensitive cyclical stocks. The relatively low
valuations of these issues proved quite alluring compared to their
expensive, large-cap growth counterparts. Consequently, a dramatic
rotation into value and cyclical names dominated the second quarter of
1999.
FOREIGN STOCK MARKETS
Over 165 interest-rate cuts in more than 75 countries since the
worldwide economic crisis last October helped foreign stock markets
post generally positive performances in the first half of 1999. The
Morgan Stanley Capital International (MSCI) EAFE(registered trademark)
Index - which measures stock performance in Europe, Australia and the
Far East - returned 4.08% for the six months ending June 30, 1999.
Europe's performance was disappointing, as prospects for economic
growth and corporate profits declined, and its new common currency -
the euro - struggled since its inception in January. For the period,
the MSCI Europe Index fell 2.30%. Conversely, the previously faltering
Japanese stock market roared ahead. New corporate restructuring
reforms and government economic intervention helped the Tokyo Stock
Exchange Index (TOPIX) - a measure of the Japanese market - notch a
first-half return of 21.93%. Emerging markets also rebounded. Despite
Brazil's currency devaluation in January, and fears of a similar move
by Argentina and Colombia late in the period, Latin America was a
strong performer as the Morgan Stanley Capital International Emerging
Markets Free-Latin America Index returned 31.03%. Southeast Asia, too,
bounced back, but the period's most remarkable recovery was in Russia,
which was the first half's best-performing emerging market, with a
return of approximately 133.70%.
U.S. BOND MARKETS
Despite good news at the close of the period, signs of continued
strength and emerging inflationary pressures in the U.S. economy,
along with improving conditions abroad, hampered the taxable-bond
market during the six-month period. The Lehman Brothers Aggregate Bond
Index - a widely followed measure of taxable bond performance - fell
1.37% during that time. A sharp rise in consumer prices sparked the
worst Treasury bond sell-off in three years, pushing their prices down
and bringing yields up to the pre-crisis levels of last summer. The
resulting negative market sentiment was further fueled by the Fed's
shift in bias toward raising interest rates in mid-May. The Lehman
Brothers Treasury Index returned -2.50% for the six-month period
ending June 30, 1999. As investors fled Treasuries for more attractive
alternatives, spread sector securities - such as corporate and
mortgage securities - rallied in response. However, the emergence of
rising rates and inflation fears soon slowed the rise in spread
products. For the six-month period, the Lehman Brothers Corporate Bond
Index and the Lehman Brothers Mortgage-Backed Securities Index had
returns of -2.26% and 0.53%, respectively. Based on performance,
high-yield bonds were among the most attractive domestic debt
offerings, as the Merrill Lynch High Yield Master II Index returned
2.49% during the first half of 1999.
FOREIGN BOND MARKETS
Like its U.S. Treasury counterparts, world government bond performance
was hindered by the U.S. Federal Reserve Board's adoption of a
tightening bias - an inclination to raise interest rates - during the
first half of the year. For the six months ending June 30, 1999, the
Salomon Brothers World Government Bond Index - a measure of government
bond market performance in developed nations - fell 7.17%. Despite
rising U.S. interest rates, emerging-market debt enjoyed positive
performance in the first half of 1999, as the J.P. Morgan Emerging
Markets Bond Index Plus - which tracks total returns for traded
external debt instruments in the emerging markets - returned 10.57%
during the period. A significantly important development in the strong
emerging-market performance was the dramatic increase in the price of
oil, which benefited Venezuela, the second-best performing country
year-to-date, as well as Russia and Mexico.
VARIABLE INSURANCE PRODUCTS FUND: GROWTH PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
VIP: GROWTH - "INITIAL CLASS" 33.98% 27.63% 19.21%
Russell 3000 Growth 25.58% 28.27% 19.05%
S&P 500 22.76% 27.87% 18.78%
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's returns to the performance of the Russell
3000 Growth Index - a market capitalization-weighted index of
growth-oriented stocks of U.S. domiciled corporations and the
performance of the Standard & Poor's 500 Index - a market
capitalization-weighted index of common stocks. These benchmarks
reflect the reinvestment of 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.
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, THE TOTAL RETURNS 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.
(checkmark)UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for
example, has a history of long-term growth and
short-term volatility. In turn, the share price and
return of a fund that invests in stocks will vary.
That means if you sell your shares during a
market downturn, you might lose money. But if
you can ride out the market's ups and downs,
you may have a gain.
$10,000 OVER 10 YEARS
VIP GROWTH RUSSELL 3000 GROWTH
00151 RS007
1989/06/30 10000.00 10000.00
1989/07/31 10893.52 10969.08
1989/08/31 11079.67 11160.18
1989/09/30 11176.47 11216.75
1989/10/31 10863.74 10987.80
1989/11/30 11042.44 11261.19
1989/12/31 11303.05 11465.66
1990/01/31 10647.80 10525.79
1990/02/28 10749.51 10622.47
1990/03/31 10880.89 11049.92
1990/04/30 10564.04 10892.77
1990/05/31 11499.12 12013.66
1990/06/30 11738.68 12139.35
1990/07/31 11553.21 12002.96
1990/08/31 10363.12 10819.33
1990/09/30 9296.67 10212.49
1990/10/31 8964.37 10221.55
1990/11/30 9690.79 10922.39
1990/12/31 9976.72 11315.29
1991/01/31 10641.32 11919.03
1991/02/28 11435.21 12887.70
1991/03/31 11780.31 13417.40
1991/04/30 11670.50 13349.10
1991/05/31 12360.69 13947.09
1991/06/30 11443.05 13269.08
1991/07/31 12533.24 13974.86
1991/08/31 13090.10 14449.43
1991/09/30 13192.06 14223.97
1991/10/31 13599.90 14467.32
1991/11/30 12823.43 14075.86
1991/12/31 14517.54 16028.63
1992/01/31 15403.81 15732.62
1992/02/29 15726.05 15765.54
1992/03/31 14762.25 15305.37
1992/04/30 14183.97 15355.36
1992/05/31 14063.49 15459.86
1992/06/30 13517.34 15037.13
1992/07/31 14039.39 15698.06
1992/08/31 13653.87 15480.02
1992/09/30 13894.82 15675.23
1992/10/31 14432.95 15936.07
1992/11/30 15396.75 16680.11
1992/12/31 15870.62 16865.65
1993/01/31 16183.86 16699.85
1993/02/28 15850.23 16390.47
1993/03/31 16482.27 16713.43
1993/04/30 16309.89 16054.35
1993/05/31 17524.72 16644.52
1993/06/30 17705.30 16505.67
1993/07/31 17656.05 16247.92
1993/08/31 18542.55 16923.25
1993/09/30 18887.30 16854.75
1993/10/31 19067.88 17325.20
1993/11/30 18296.30 17158.58
1993/12/31 18944.75 17488.53
1994/01/31 19420.84 17898.09
1994/02/28 19220.53 17594.26
1994/03/31 18347.27 16722.89
1994/04/30 18460.79 16797.56
1994/05/31 18032.89 16994.84
1994/06/30 17115.96 16473.37
1994/07/31 17709.78 17004.50
1994/08/31 18714.04 17981.40
1994/09/30 18486.99 17767.26
1994/10/31 19237.99 18163.45
1994/11/30 18469.52 17567.52
1994/12/31 18941.08 17873.82
1995/01/31 18583.05 18180.12
1995/02/28 19352.62 18949.66
1995/03/31 20055.08 19504.04
1995/04/30 20731.19 19917.51
1995/05/31 21539.01 20570.63
1995/06/30 23444.42 21424.10
1995/07/31 25762.52 22393.19
1995/08/31 26078.63 22444.00
1995/09/30 26754.74 23418.02
1995/10/31 26482.54 23313.11
1995/11/30 26464.98 24231.38
1995/12/31 25639.59 24409.93
1996/01/31 26043.50 25123.53
1996/02/29 26916.68 25649.93
1996/03/31 27020.57 25729.74
1996/04/30 28078.35 26538.37
1996/05/31 28956.68 27511.78
1996/06/30 28390.01 27351.94
1996/07/31 26217.79 25569.50
1996/08/31 27001.68 26350.15
1996/09/30 28815.01 28211.38
1996/10/31 28748.90 28241.83
1996/11/30 30345.01 30232.65
1996/12/31 29410.01 29751.51
1997/01/31 31100.57 31707.36
1997/02/28 30393.57 31333.59
1997/03/31 28690.36 29592.06
1997/04/30 30070.55 31355.67
1997/05/31 32155.52 33817.18
1997/06/30 33476.98 35152.57
1997/07/31 35992.65 38136.45
1997/08/31 34602.67 36218.19
1997/09/30 36609.33 38114.04
1997/10/31 35229.14 36612.47
1997/11/30 36237.36 37917.03
1997/12/31 36315.67 38302.18
1998/01/31 36805.10 39287.65
1998/02/28 39570.06 42289.89
1998/03/31 40958.69 43983.91
1998/04/30 41760.25 44560.74
1998/05/31 40687.74 43112.60
1998/06/30 43261.77 45555.76
1998/07/31 44142.35 44943.59
1998/08/31 36939.59 37900.84
1998/09/30 40755.47 40882.85
1998/10/31 43634.32 44078.18
1998/11/30 46671.23 47435.92
1998/12/31 50656.46 51714.16
1999/01/31 54754.58 54698.02
1999/02/28 52066.37 52014.99
1999/03/31 54968.80 54691.85
1999/04/30 55158.92 55090.59
1999/05/31 54411.13 53529.47
1999/06/30 57959.96 57208.39
IMATRL PRASUN SHR__CHT 19990630 19990723 110750 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund: Growth Portfolio on June
30, 1989. As the chart shows, by June 30, 1999, the value of the
investment would have grown to $57,960 - a 479.60% increase on the
initial investment. For comparison, look at how the Russell 3000
Growth Index did over the same period. With dividends and capital
gains, if any, reinvested, the same $10,000 investment would have
grown to $57,208 - a 472.08% increase. Beginning with this report, the
fund will compare its performance to that of the Russell 3000 Growth
Index, rather than the Standard & Poor's 500 Index. The Russell 3000
Growth Index more closely reflects the fund's investment strategy.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE
30, 1999
% OF FUND'S INVESTMENTS
Philip Morris Companies, Inc. 2.7
Warner-Lambert Co. 2.6
Cisco Systems, Inc. 2.6
Microsoft Corp. 2.5
Lilly (Eli) & Co. 2.3
TOP FIVE MARKET SECTORS AS OF
JUNE 30, 1999
% OF FUND'S INVESTMENTS
TECHNOLOGY 27.1
HEALTH 17.1
FINANCE 10.8
MEDIA & LEISURE 10.6
RETAIL & WHOLESALE 9.5
ASSET ALLOCATION AS OF JUNE
30, 1999*
% OF FUND'S INVESTMENTS
Stocks 98.5%
Short-term Investments 1.5%
* FOREIGN INVESTMENTS 8.2%
Row: 1, Col: 1, Value: 98.5
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 0.0
Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 1.5
VARIABLE INSURANCE PRODUCTS FUND: GROWTH PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
(photograph of Jennifer Uhrig)
An interview with
Jennifer Uhrig,
Portfolio Manager
of Growth Portfolio
Q. HOW DID THE FUND PERFORM, JENNIFER?
A. The fund performed well over the most recent six-month period that
ended June 30, 1999, and provided higher returns than both the Russell
3000 Growth Index and the Standard & Poor's 500 Index, which returned
10.62% and 12.38%, respectively. For the most recent 12-month period
that ended June 30, 1999, the fund easily outpaced both the Russell
and S&P indexes, which returned 25.58% and 22.76%, respectively,
during that time.
Q. EARLIER IN THE PERIOD, THE FUND CHANGED ITS BENCHMARK INDEX TO THE
RUSSELL 3000 GROWTH INDEX. WHY?
A. Given the fund's focus on stocks with "growth" characteristics, the
Russell 3000 Growth Index conforms more closely with the fund's
investment strategy than the S&P 500 index, which is not
style-specific and thus measures the performance of both value and
growth stocks. We believe that the new index more accurately reflects
how the fund is performing relative to its universe of stocks. By
making the change, we present shareholders with a better yardstick
against which they can evaluate the fund's performance.
Q. OVERALL, WHAT FACTORS CONTRIBUTED TO THE FUND'S SOUND PERFORMANCE
RELATIVE TO ITS BENCHMARK?
A. Much of the fund's success can be attributed to strong stock
picking within the media/leisure and technology sectors. Cable stocks
and certain large-cap tech stocks, such as Microsoft, were strong
contributors. Also fueling performance was the fund's overweighting in
oil-sensitive energy stocks, especially relative to the growth
universe, during the recovery in oil prices. An underweighting in
nondurables also helped as many of these companies confronted
disappointing earnings overseas.
Q. WHAT WERE YOUR PRINCIPAL STRATEGIES DURING THE SIX-MONTH PERIOD?
HOW DID YOU POSITION THE FUND IN LIGHT OF THE DRAMATIC RISE IN
CYCLICAL STOCKS DURING THE SECOND QUARTER?
A. Most notably, I decreased the fund's weighting in technology,
specifically among the larger-caps, as I became increasingly concerned
about their high valuation levels. In health care, I added to the
fund's positions in the fastest-growing drug stocks, such as Eli Lilly
and Warner-Lambert, as they sold off. I also increased the fund's
weighting in financial stocks, which had underperformed in 1998.
Lastly, I managed to expose the portfolio to the Internet by buying
more AT&T, and its newly acquired broadband capabilities, without
having to pay the stratospheric prices characteristic of many stocks
in this industry. Since this is a growth fund, I'm not going to have
huge cyclical exposure. I did, however, add some cyclical, or
economically sensitive, stocks along the way.
Q. WHICH STOCKS PERFORMED WELL FOR THE FUND?
A. Microsoft was up strongly over the past six months, driven by a
robust product cycle including the much-anticipated releases of both
Office 2000 and Windows 2000. Also helping performance was MCI
WorldCom, an industry leader in data, Internet and international
communications services, which enjoyed strong revenue growth and the
cost benefits associated with acquisitions. Cisco Systems' shares also
soared as the firm continued to reap the benefits of its dominant
market share in providing data network equipment required to meet the
growing demands of the Internet and various telecommunications
networks.
Q. WHICH STOCKS DETRACTED FROM PERFORMANCE?
A. Philip Morris, in spite of its attractive valuation and impressive
fundamentals, suffered from the potential for further litigation. Drug
stocks in general - including Warner-Lambert and Eli Lilly - underwent
severe corrections as the market rotated away from these expensive
stocks in favor of attractively valued cyclical stocks during the
period.
Q. WHAT'S YOUR OUTLOOK?
A. I'll continue to pursue growth prospects that tend to thrive
irrespective of the economy's ebbs and flows. I may, however, consider
limited exposure to cyclicals if it appears the worldwide economy is
accelerating. Under these circumstances, certain traditional cyclicals
may show better growth than the average growth stock. However, I feel
that a lot of the valuation discrepancy between growth and value has
already been corrected, and I remain confident in the availability of
attractive opportunities in the growth universe. The biggest risk to
growth stocks today is higher interest rates, which pose a threat to
high price-to-earnings ratios. If the economy can stay healthy without
generating appreciable inflation and, hence, higher rates, growth
stocks should continue to perform well.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET OR OTHER CONDITIONS. FOR MORE INFORMATION, SEE PAGE 2.
(checkmark)FUND FACTS
GOAL: to increase the value of the fund's shares
over the long term by investing in companies with
above-average growth potential
START DATE: October 9, 1986
SIZE: as of June 30, 1999, more than $14.2
billion
MANAGER: Jennifer Uhrig, since
1997; joined Fidelity in 1987
VARIABLE INSURANCE PRODUCTS FUND: GROWTH PORTFOLIO
INVESTMENTS JUNE 30, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMMON STOCKS - 98.5%
SHARES VALUE (NOTE 1)
BASIC INDUSTRIES - 3.2%
CHEMICALS & PLASTICS - 1.8%
Cytec Industries, Inc. (a) 1,240,100 $ 39,528,188
Dow Chemical Co. 210,200 26,669,125
Eastman Chemical Co. 904,800 46,823,400
Great Lakes Chemical Corp. 1,258,500 57,969,656
NOVA Chemicals Corp. 1,958,500 46,194,196
Solutia, Inc. 970,300 20,679,519
Union Carbide Corp. 599,900 29,245,125
267,109,209
METALS & MINING - 1.0%
Alcoa, Inc. 956,200 59,164,875
Commscope, Inc. (a) 1,072,200 32,970,150
Falconbridge Ltd. 578,200 8,241,929
Inco Ltd. 2,201,400 39,582,156
139,959,110
PACKAGING & CONTAINERS - 0.4%
Bemis Co., Inc. 193,500 7,691,625
Owens-Illinois, Inc. (a) 1,449,900 47,393,606
55,085,231
TOTAL BASIC INDUSTRIES 462,153,550
CONSTRUCTION & REAL ESTATE -
0.2%
BUILDING MATERIALS - 0.1%
Owens-Corning 350,700 12,055,313
ENGINEERING - 0.1%
Stolt Comex Seaway SA 974,000 10,592,250
Stolt Comex Seaway SA 199,250 2,141,938
sponsored ADR Class A
12,734,188
TOTAL CONSTRUCTION & REAL 24,789,501
ESTATE
DURABLES - 0.6%
AUTOS, TIRES, & ACCESSORIES -
0.2%
Eaton Corp. 217,100 19,973,200
CONSUMER ELECTRONICS - 0.4%
Matsushita Electric 643,000 12,751,495
Industrial Co. Ltd.
Sony Corp. 441,400 48,719,528
61,471,023
TOTAL DURABLES 81,444,223
ENERGY - 5.0%
ENERGY SERVICES - 1.9%
Baker Hughes, Inc. 1,271,970 42,610,995
BJ Services Co. (a) 730,100 21,492,319
Coflexip SA sponsored ADR (c) 928,500 40,389,750
Halliburton Co. 1,504,900 68,096,725
SHARES VALUE (NOTE 1)
Schlumberger Ltd. 892,300 $ 56,828,356
Smith International, Inc. (a) 806,750 35,043,203
264,461,348
OIL & GAS - 3.1%
Apache Corp. 818,700 31,929,300
Exxon Corp. 1,790,000 138,053,750
Newfield Exploration Co. (a) 1,617,400 45,994,813
Noble Affiliates, Inc. 1,544,900 43,546,869
Tosco Corp. 2,517,000 65,284,688
USX-Marathon Group 1,765,200 57,479,325
Vastar Resources, Inc. 255,400 13,392,538
Weatherford International, 1,223,740 44,819,478
Inc. (a)
440,500,761
TOTAL ENERGY 704,962,109
FINANCE - 10.8%
BANKS - 1.3%
Bank of Ireland, Inc. (Great 1,849,111 31,221,649
Britain)
Chase Manhattan Corp. 839,800 72,747,675
State Street Corp. 530,050 45,253,019
U.S. Bancorp 1,129,000 38,386,000
187,608,343
CREDIT & OTHER FINANCE - 2.3%
American Express Co. 992,200 129,110,025
Associates First Capital 1,231,400 54,566,413
Corp. Class A
Citigroup, Inc. 1,349,550 64,103,625
Household International, Inc. 1,365,738 64,701,838
Providian Financial Corp. 206,200 19,279,700
331,761,601
FEDERAL SPONSORED CREDIT - 2.6%
Fannie Mae 4,060,700 277,650,363
Freddie Mac 1,754,900 101,784,200
379,434,563
INSURANCE - 3.7%
Aetna, Inc. 591,000 52,857,563
Allmerica Financial Corp. 657,910 40,009,152
Ambac Financial Group, Inc. 560,500 32,018,563
American International Group, 1,644,665 192,528,597
Inc.
CIGNA Corp. 1,136,500 101,148,500
Mutual Risk Management Ltd. 123,100 4,108,463
Progressive Corp. 330,700 47,951,500
UNUM Corp. 656,800 35,959,800
Xl Capital Ltd. 287,700 16,255,050
522,837,188
SECURITIES INDUSTRY - 0.9%
Daiwa Securities Co. Ltd. 4,292,000 28,324,192
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - CONTINUED
SECURITIES INDUSTRY - CONTINUED
Nikko Securities Co. Ltd. 5,933,000 $ 38,223,743
Nomura Securities Co. Ltd. 4,901,000 57,287,832
123,835,767
TOTAL FINANCE 1,545,477,462
HEALTH - 17.1%
DRUGS & PHARMACEUTICALS - 13.5%
Alpharma, Inc. Class A 305,100 10,850,119
American Home Products Corp. 879,600 50,577,000
Amgen, Inc. (a) 961,600 58,537,400
Biogen, Inc. (a) 544,800 35,037,450
Bristol-Myers Squibb Co. 3,851,900 271,318,206
Chiron Corp. (a) 1,648,170 34,199,528
Elan Corp. PLC sponsored ADR 3,150,800 87,434,700
(a)
Genzyme Corp. 203,732 897,694
Genzyme Corp. (General 1,231,400 59,722,900
Division)
Lilly (Eli) & Co. 4,451,300 318,824,363
Medimmune, Inc. (a) 248,000 16,802,000
Merck & Co., Inc. 3,989,500 295,223,000
PE Corp.:
(Biosystems Group) 410,400 47,093,400
(Celera Genomics Group) 205,200 3,321,675
Pfizer, Inc. 797,200 87,492,700
Quintiles Transnational Corp. 1,083,500 45,507,000
(a)
Schering-Plough Corp. 1,832,070 97,099,710
Sepracor, Inc. (a) 60,300 4,899,375
Takeda Chemical Industries 346,000 16,012,045
Ltd.
Warner-Lambert Co. 5,397,300 374,437,688
1,915,287,953
MEDICAL EQUIPMENT & SUPPLIES
- - 2.4%
Boston Scientific Corp. (a) 1,647,000 72,365,063
Guidant Corp. 337,500 17,360,156
Johnson & Johnson 2,623,000 257,054,000
346,779,219
MEDICAL FACILITIES MANAGEMENT
- - 1.2%
Columbia/HCA Healthcare Corp. 1,988,900 45,371,781
Health Management Associates, 2,503,450 28,163,813
Inc. Class A (a)
HEALTHSOUTH Corp. (a) 2,418,400 36,124,850
Tenet Healthcare Corp. (a) 560,700 10,407,994
United HealthCare Corp. 792,000 49,599,000
169,667,438
TOTAL HEALTH 2,431,734,610
SHARES VALUE (NOTE 1)
INDUSTRIAL MACHINERY &
EQUIPMENT - 1.9%
ELECTRICAL EQUIPMENT - 1.1%
General Electric Co. 1,142,200 $ 129,068,600
Mitsubishi Electric Corp. 7,879,000 30,222,604
159,291,204
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.8%
ASM Lithography Holding N V 911,300 54,108,438
(a)
Case Corp. 931,400 44,823,625
Deere & Co. 120,200 4,762,925
Ingersoll-Rand Co. 60,100 3,883,963
107,578,951
TOTAL INDUSTRIAL MACHINERY & 266,870,155
EQUIPMENT
MEDIA & LEISURE - 10.6%
BROADCASTING - 5.6%
AT&T Corp. (Liberty Media 1,192,840 43,836,870
Group) Class A (a)
Cablevision Systems Corp. 779,600 54,572,000
Class A (a)
CBS Corp. (a) 2,148,600 93,329,813
Clear Channel Communications, 632,800 43,623,650
Inc. (a)
Comcast Corp. Class A 3,582,400 137,698,500
(special)
Cox Communications, Inc. 2,353,400 86,634,538
Class A (a)
MediaOne Group, Inc. 2,471,700 183,832,688
NTL, Inc. (a) 529,000 45,593,188
Time Warner, Inc. 1,312,779 96,489,257
United International 42,300 2,860,538
Holdings, Inc. Class A (a)
USA Networks, Inc. (a) 106,100 4,257,263
792,728,305
ENTERTAINMENT - 0.9%
Disney (Walt) Co. 3,059,120 94,259,135
King World Productions, Inc. 466,700 16,246,994
(a)
Royal Carribean Cruises Ltd. 601,000 26,293,750
136,799,879
LEISURE DURABLES & TOYS - 0.2%
Harley-Davidson, Inc. 644,100 35,022,938
PUBLISHING - 0.3%
Reader's Digest Association, 1,042,000 41,419,500
Inc. Class A (non-vtg.)
RESTAURANTS - 3.6%
Brinker International, Inc. 1,793,400 48,758,063
(a)
Darden Restaurants, Inc. 2,242,800 48,921,075
McDonald's Corp. 4,997,700 206,467,481
Outback Steakhouse, Inc. (a) 1,919,150 75,446,584
Papa John's International, 309,800 13,844,188
Inc. (a)
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
MEDIA & LEISURE - CONTINUED
RESTAURANTS - CONTINUED
Tricon Global Restaurants, 1,631,060 $ 88,281,123
Inc. (a)
Wendy's International, Inc. 977,000 27,661,313
509,379,827
TOTAL MEDIA & LEISURE 1,515,350,449
NONDURABLES - 4.7%
FOODS - 0.5%
American Italian Pasta Co. 642,000 19,500,750
Class A (a)
Keebler Foods Co. (a) 606,200 18,413,325
Nabisco Holdings Corp. Class A 902,000 39,011,500
76,925,575
HOUSEHOLD PRODUCTS - 1.5%
Avon Products, Inc. 1,426,300 79,159,650
Gillette Co. 1,292,400 52,988,400
Procter & Gamble Co. 921,100 82,208,175
214,356,225
TOBACCO - 2.7%
Philip Morris Companies, Inc. 9,450,700 379,799,982
TOTAL NONDURABLES 671,081,782
PRECIOUS METALS - 0.6%
Barrick Gold Corp. 1,434,000 27,842,757
Homestake Mining Co. 2,249,300 18,416,144
Newmont Mining Corp. 1,472,000 29,256,000
Placer Dome, Inc. 1,426,100 16,672,120
92,187,021
RETAIL & WHOLESALE - 9.5%
APPAREL STORES - 1.0%
Abercrombie & Fitch Co. Class 1,248,780 59,941,440
A (a)
TJX Companies, Inc. 1,998,800 66,585,025
World Co. Ltd. 159,400 11,571,211
138,097,676
DRUG STORES - 1.1%
CVS Corp. 2,010,410 102,028,308
Walgreen Co. 2,040,060 59,926,763
161,955,071
GENERAL MERCHANDISE STORES -
4.4%
Consolidated Stores Corp. (a) 276,600 7,468,200
Costco Companies, Inc. (a) 668,700 53,537,794
Dayton Hudson Corp. 1,829,250 118,901,250
Federated Department Stores, 1,935,900 102,481,706
Inc. (a)
Ito-Yokado Co. Ltd. 337,000 22,517,634
Nordstrom, Inc. 3,265,500 109,394,250
Ryohin Keikaku Co. Ltd. 181,000 45,464,634
SHARES VALUE (NOTE 1)
Saks, Inc. (a) 1,275,389 $ 36,826,857
Wal-Mart Stores, Inc. 2,781,700 134,217,025
630,809,350
GROCERY STORES - 0.6%
Safeway, Inc. (a) 1,588,200 78,615,900
RETAIL & WHOLESALE,
MISCELLANEOUS - 2.4%
Circuit City Stores, Inc. - 793,400 73,786,200
Circuit City Group
Home Depot, Inc. 1,658,500 106,869,594
Lowe's Companies, Inc. 1,562,100 88,551,544
Office Depot, Inc. (a) 1,894,200 41,790,788
Staples, Inc. (a) 885,550 27,396,703
338,394,829
TOTAL RETAIL & WHOLESALE 1,347,872,826
TECHNOLOGY - 27.1%
COMMUNICATIONS EQUIPMENT - 5.8%
ADC Telecommunications, Inc. 1,479,000 67,386,938
(a)
Cisco Systems, Inc. (a) 5,670,850 365,415,397
Copper Mountain Networks, 3,300 254,925
Inc.
Lucent Technologies, Inc. 2,989,610 201,611,824
Newbridge Networks Corp. (a) 1,226,100 35,206,262
Nokia AB sponsored ADR 1,129,000 103,374,063
Tellabs, Inc. (a) 816,700 55,178,294
828,427,703
COMPUTER SERVICES & SOFTWARE
- - 10.1%
Adobe Systems, Inc. 264,100 21,697,466
Amdocs Ltd. 700,600 15,938,650
Ask Jeeves, Inc. 2,600 36,400
At Home Corp. Series A (a) 1,306,138 70,449,818
Automatic Data Processing, 1,190,100 52,364,400
Inc.
Brocade Communications 2,500 241,094
Systems, Inc.
Cadence Design Systems, Inc. 3,059,000 39,002,250
(a)
Citrix Systems, Inc. (a) 1,222,000 69,043,000
Clarent Corp. Delaware 9,200 138,000
Compuware Corp. (a) 1,697,500 54,001,719
DST Systems, Inc. (a) 344,200 21,641,575
Electronic Arts, Inc. (a) 858,500 46,573,625
Electronic Data Systems Corp. 1,797,200 101,654,125
Electronics for Imaging, Inc. 1,168,300 60,021,413
(a)
First Data Corp. 1,502,200 73,513,913
High Speed Access Corp. 31,800 814,875
IMS Health, Inc. 1,164,800 36,400,000
International Business 451,100 58,304,675
Machines Corp.
Intuit, Inc. (a) 570,600 51,425,325
Keane, Inc. (a) 1,142,700 25,853,588
Legato Systems, Inc. (a) 871,800 50,346,450
Microsoft Corp. (a) 3,956,600 356,835,863
Oracle Corp. (a) 1,614,150 59,925,319
Policy Management Systems 721,700 21,651,000
Corp. (a)
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TECHNOLOGY - CONTINUED
COMPUTER SERVICES & SOFTWARE
- - CONTINUED
SAP AG (Systeme Anwendungen 848,000 $ 29,362,000
Produkte) sponsored ADR
Siebel Systems, Inc. (a) 474,300 31,481,663
Synopsys, Inc. (a) 760,700 41,981,131
Veritas Software Corp. (a) 508,100 48,237,744
1,438,937,081
COMPUTERS & OFFICE EQUIPMENT
- - 4.2%
Adaptec, Inc. (a) 1,877,100 66,285,094
CDW Computer Centers, Inc. (a) 1,198,600 52,738,400
EMC Corp. (a) 2,101,800 115,599,000
Hewlett-Packard Co. 1,096,900 110,238,450
Ingram Micro, Inc. Class A (a) 830,900 21,395,675
Lexmark International Group, 532,000 35,145,250
Inc. Class A (a)
Maxtor Corp. 1,880,600 9,461,769
Network Appliance, Inc. (a) 850,500 47,521,688
Pitney Bowes, Inc. 826,100 53,076,925
Redback Networks, Inc. 1,700 213,456
SCI Systems, Inc. 248,600 11,808,500
Tech Data Corp. (a) 913,300 34,933,725
Xerox Corp. 568,200 33,559,313
591,977,245
ELECTRONIC INSTRUMENTS - 1.3%
JDS Fitel, Inc. (a) 505,600 42,689,273
KLA-Tencor Corp. (a) 257,250 16,689,094
Novellus Systems, Inc. (a) 703,200 47,993,400
Teradyne, Inc. (a) 704,100 50,519,175
Waters Corp. (a) 520,600 27,656,875
185,547,817
ELECTRONICS - 5.7%
Altera Corp. (a) 1,079,500 39,739,094
Broadcom Corp. Class A (a) 112,100 16,205,456
Intel Corp. 2,321,800 138,147,100
Linear Technology Corp. 808,000 54,338,000
Maker Communications, Inc. 2,000 62,000
Micron Technology, Inc. (a) 3,094,800 124,759,125
Motorola, Inc. 2,225,300 210,847,175
Taiwan Semiconductor 1,561,900 53,104,600
Manufacturing Co. Ltd. ADR
Texas Instruments, Inc. 845,600 122,612,000
Vitesse Semiconductor Corp. 348,300 23,488,481
(a)
Xilinx, Inc. (a) 549,300 31,447,425
814,750,456
TOTAL TECHNOLOGY 3,859,640,302
TRANSPORTATION - 1.0%
RAILROADS - 1.0%
Burlington Northern Santa Fe 483,100 14,976,100
Corp.
SHARES VALUE (NOTE 1)
Canadian National Railway Co. 815,440 $ 55,135,719
Union Pacific Corp. 891,900 52,008,919
Wisconsin Central 1,038,400 19,599,800
Transportation Corp. (a)
141,720,538
UTILITIES - 6.2%
CELLULAR - 0.4%
Vodafone AirTouch PLC 270,550 53,298,350
sponsored ADR
ELECTRIC UTILITY - 0.2%
AES Corp. (a) 574,400 33,387,000
Illinova Corp. 22,500 613,125
34,000,125
GAS - 0.0%
Dynegy, Inc. 25,400 517,525
TELEPHONE SERVICES - 5.6%
AT&T Corp. 4,324,390 241,355,017
DDI Corp. 3,482 21,628,758
Global TeleSystems Group, 346,818 28,092,258
Inc. (a)
MCI WorldCom, Inc. (a) 3,017,570 259,699,618
McLeodUSA, Inc. Class A (a) 1,090,600 59,983,000
Metromedia Fiber Network, 1,290,600 46,380,938
Inc. Class A (a)
NEXTLINK Communications, Inc. 679,200 50,515,500
Class A (a)
Sprint Corp. (FON Group) 668,200 35,289,313
Time Warner Telecom, Inc. 515,100 14,937,900
WinStar Communications, Inc. 858,200 41,837,250
(a)
799,719,552
TOTAL UTILITIES 887,535,552
TOTAL COMMON STOCKS 14,032,820,080
(Cost $10,238,762,070)
CASH EQUIVALENTS - 1.5%
Taxable Central Cash Fund (b) 214,397,126 214,397,126
(Cost $214,397,126)
TOTAL INVESTMENT IN $ 14,247,217,206
SECURITIES - 100%
(Cost $10,453,159,196)
</TABLE>
LEGEND
(a) Non-income producing
(b) At period end, the seven-day yield on the Taxable Central Cash
Fund was 4.84%. The yield refers to the income earned by investing in
the fund over the seven-day period, expressed as an annual percentage.
(c) Transactions during the period with companies which are or were
affiliates are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PURCHASES SALES DIVIDEND VALUE
AFFILIATE COST COST INCOME
Coflexip SA sponsored ADR $ 4,002,766 $ - $ 691,321 $ 40,389,750
</TABLE>
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $7,400,719,408 and $5,546,026,535, respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company.
The commissions paid to these affiliated firms were $778,021 for the
period.
INCOME TAX INFORMATION
At June 30, 1999, the aggregate cost of investment securities for
income tax purposes was $10,504,731,866. Net unrealized appreciation
aggregated $3,742,485,340, of which $4,028,273,964 related to
appreciated investment securities and $285,788,624 related to
depreciated investment securities.
VARIABLE INSURANCE PRODUCTS FUND: GROWTH PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 14,247,217,206
value (cost
$10,453,159,196) - See
accompanying schedule
Receivable for investments 114,072,602
sold
Receivable for fund shares 29,895,347
sold
Dividends receivable 12,120,864
Interest receivable 904,121
Other receivables 1,503,905
TOTAL ASSETS 14,405,714,045
LIABILITIES
Payable to custodian bank $ 11,365
Payable for investments 173,780,066
purchased
Payable for fund shares 4,476,557
redeemed
Accrued management fee 6,573,295
Distribution fees payable 28,713
Other payables and accrued 652,497
expenses
TOTAL LIABILITIES 185,522,493
NET ASSETS $ 14,220,191,552
Net Assets consist of:
Paid in capital $ 9,194,164,863
Undistributed net investment 13,164,071
income
Accumulated undistributed net 1,218,896,761
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation 3,793,965,857
(depreciation) on
investments and assets and
liabilities in foreign
currencies
NET ASSETS $ 14,220,191,552
INITIAL CLASS: NET ASSET $45.73
VALUE, offering price and
redemption price per share
($13,834,287,802 (divided
by) 302,507,962 shares)
SERVICE CLASS: NET ASSET $45.65
VALUE, offering price and
redemption price per share
($385,903,750 (divided by)
8,453,639 shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30,
1999 (UNAUDITED)
INVESTMENT INCOME $ 43,967,402
Dividends (including $691,321
received from affiliated
issuers)
Interest 12,408,464
TOTAL INCOME 56,375,866
EXPENSES
Management fee $ 37,313,383
Transfer agent fees 4,299,795
Distribution fees - Service 122,330
Class
Accounting fees and expenses 502,862
Non-interested trustees' 32,463
compensation
Custodian fees and expenses 276,822
Registration fees 67,335
Audit 38,239
Miscellaneous 8,039
Total expenses before 42,661,268
reductions
Expense reductions (977,617) 41,683,651
NET INVESTMENT INCOME 14,692,215
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities 1,287,454,231
Foreign currency transactions 626,892 1,288,081,123
Change in net unrealized
appreciation (depreciation)
on:
Investment securities 397,538,644
Assets and liabilities in (124,092) 397,414,552
foreign currencies
NET GAIN (LOSS) 1,685,495,675
NET INCREASE (DECREASE) IN $ 1,700,187,890
NET ASSETS RESULTING FROM
OPERATIONS
OTHER INFORMATION $ 972,301
Expense reductions Directed
brokerage arrangements
Custodian credits 5,316
$ 977,617
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
ASSETS 1999 (UNAUDITED)
Operations Net investment $ 14,692,215 $ 18,972,063
income
Net realized gain (loss) 1,288,081,123 1,259,813,273
Change in net unrealized 397,414,552 1,830,051,769
appreciation (depreciation)
NET INCREASE (DECREASE) IN 1,700,187,890 3,108,837,105
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (20,716,861) (39,552,560)
From net investment income
From net realized gain (1,302,572,637) (1,034,611,705)
TOTAL DISTRIBUTIONS (1,323,289,498) (1,074,164,265)
Share transactions - net 2,463,327,477 1,616,145,892
increase (decrease)
TOTAL INCREASE (DECREASE) 2,840,225,869 3,650,818,732
IN NET ASSETS
NET ASSETS
Beginning of period 11,379,965,683 7,729,146,951
End of period (including $ 14,220,191,552 $ 11,379,965,683
undistributed net investment
income of $13,164,071 and
$18,972,632, respectively)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OTHER INFORMATION:
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
1999 (UNAUDITED)
SHARES DOLLARS SHARES DOLLARS
Share transactions Initial 44,814,245 $ 1,979,156,734 59,666,196 $ 2,260,308,481
Class Sold
Reinvested 31,299,165 1,303,923,239 31,899,319 1,073,412,088
Redeemed (24,176,675) (1,056,953,197) (49,261,439) (1,831,294,638)
Net increase (decrease) 51,936,735 $ 2,226,126,776 42,304,076 $ 1,502,425,931
Service Class Sold 5,286,827 $ 232,119,508 3,032,492 $ 115,566,215
Reinvested 465,535 19,366,259 22,360 752,178
Redeemed (336,178) (14,285,066) (71,737) (2,598,432)
Net increase (decrease) 5,416,184 $ 237,200,701 2,983,115 $ 113,719,961
Distributions From net $ 20,413,671 $ 39,524,864
investment income Initial
Class
Service Class 303,190 27,696
Total $ 20,716,861 $ 39,552,560
From net realized gain $ 1,283,509,568 $ 1,033,887,224
Initial Class
Service Class 19,063,069 724,481
Total $ 1,302,572,637 $ 1,034,611,705
$ 1,323,289,498 $ 1,074,164,265
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 1996 1995
Net asset value, beginning of $ 44.87 $ 37.10 $ 31.14 $ 29.20 $ 21.69
period
Income from Investment
Operations
Net investment income .05 D .08 D .20 D .22 .08
Net realized and unrealized 5.92 12.85 6.91 3.82 7.55
gain (loss)
Total from investment 5.97 12.93 7.11 4.04 7.63
operations
Less Distributions
From net investment income (.08) (.19) (.21) (.08) (.12)
From net realized gain (5.03) (4.97) (.94) (2.02) -
Total distributions (5.11) (5.16) (1.15) (2.10) (.12)
Net asset value, end of period $ 45.73 $ 44.87 $ 37.10 $ 31.14 $ 29.20
TOTAL RETURN B, C 14.42% 39.49% 23.48% 14.71% 35.36%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 13,834,288 $ 11,243,824 $ 7,727,132 $ 6,086,424 $ 4,162,702
(000 omitted)
Ratio of expenses to average .67% A .68% .69% .69% .70%
net assets
Ratio of expenses to average .66% A, F .66% F .67% F .67% F .70%
net assets after expense
reductions
Ratio of net investment .23% A .21% .58% .81% .37%
income to average net assets
Portfolio turnover 92% A 123% 113% 81% 108%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA 1994
Net asset value, beginning of $ 23.08
period
Income from Investment
Operations
Net investment income .12
Net realized and unrealized (.12)
gain (loss)
Total from investment -
operations
Less Distributions
From net investment income (.12)
From net realized gain (1.27)
Total distributions (1.39)
Net asset value, end of period $ 21.69
TOTAL RETURN B, C (0.02)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 2,141,869
(000 omitted)
Ratio of expenses to average .70%
net assets
Ratio of expenses to average .69% F
net assets after expense
reductions
Ratio of net investment .69%
income to average net assets
Portfolio turnover 122%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - SERVICE CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 E
Net asset value, beginning of $ 44.82 $ 37.09 $ 36.92
period
Income from Investment
Operations
Net investment income D .03 .06 .03
Net realized and unrealized 5.91 12.83 .14
gain (loss)
Total from investment 5.94 12.89 .17
operations
Less Distributions
From net investment income (.08) (.19) -
From net realized gain (5.03) (4.97) -
Total distributions (5.11) (5.16) -
Net asset value, end of period $ 45.65 $ 44.82 $ 37.09
TOTAL RETURN B, C 14.36% 39.38% 0.46%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 385,904 $ 136,142 $ 2,015
(000 omitted)
Ratio of expenses to average .78% A .80% .79% A
net assets
Ratio of expenses to average .76% A, F .75% F .77% A, F
net assets after expense
reductions
Ratio of net investment .13% A .15% .70% A
income to average net assets
Portfolio turnover 92% A 123% 113%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE
TO YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. INCLUSION
OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN. TOTAL RETURNS FOR PERIODS OF LESS THAN ONE
YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED
BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF SALE
OF SERVICE CLASS SHARES) TO DECEMBER 31, 1997.
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS
WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A
PORTION OF THE CLASS' EXPENSES.
NOTES TO FINANCIAL STATEMENTS
For the period ended June 30, 1999 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Growth Portfolio (the fund) is a fund of Variable Insurance Products
Fund(the trust) and is authorized to issue an unlimited number of
shares. 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. Shares of the
fund may only be purchased by insurance companies for the purpose of
funding variable annuity or variable life insurance contracts. The
fund offers two classes of shares: the fund's original class of shares
(Initial Class shares) and Service Class shares. Both classes have
equal rights and voting privileges, except for matters affecting a
single class. Investment income, realized and unrealized capital gains
and losses, the common expenses of the fund, and certain fund-level
expense reductions, if any, are allocated on a pro rata basis to each
class based on the relative net assets of each class to the total net
assets of the fund. Each class of shares differs in its respective
distribution plan.
The financial statements have been prepared in conformity with
generally accepted accounting principles which require management to
make certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. 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 with
remaining maturities of sixty days or less for which quotations are
not readily available 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 fund 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 prevailing rates of exchange at period end. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
and settlement date on purchases and sales of securities. The effects
of changes in foreign currency exchange rates on investments in
securities are included with the net realized and unrealized gain or
loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes 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 fund is
informed of the ex-dividend date. Non-cash dividends included in
dividend income, if any, are recorded at the fair market value of the
securities received. Interest income is accrued as earned. Investment
income is recorded net of foreign taxes withheld where recovery of
such taxes is uncertain.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
DEFERRED TRUSTEE COMPENSATION. Under a Deferred Compensation Plan (the
Plan) non-interested Trustees must defer receipt of a portion of, and
may elect to defer receipt of an additional portion of, their annual
compensation. Deferred amounts are treated as though equivalent dollar
amounts had been invested in a cross-section of other Fidelity funds.
Deferred amounts remain in the fund until distributed in accordance
with the Plan.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date. Income dividends and capital gain distributions are
declared separately for each class.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for litigation proceeds, foreign currency transactions and
losses deferred due to wash sales.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments and foreign currency transactions
may include temporary book and tax basis differences which will
reverse in a subsequent period. Any taxable income or gain remaining
at fiscal year end is distributed in the following year.
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.
2. OPERATING POLICIES.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
2. OPERATING POLICIES - CONTINUED
FOREIGN CURRENCY CONTRACTS - CONTINUED
terms. The U.S. dollar value of foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the fund, along with
other affiliated entities of Fidelity Management & Research Company
(FMR), may transfer uninvested cash balances into one or more joint
trading accounts. These balances are invested in one or more
repurchase agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
TAXABLE CENTRAL CASH FUND. Pursuant to an Exemptive Order issued by
the SEC, the fund may invest in the Taxable Central Cash Fund (the
Cash Fund) managed by Fidelity Investments Money Management, Inc., an
affiliate of FMR. The Cash Fund is an open-end money market fund
available only to investment companies and other accounts managed by
FMR and its affiliates. The Cash Fund seeks preservation of capital,
liquidity, and current income by investing in U.S. Treasury securities
and repurchase agreements for these securities. Income distributions
from the Cash Fund are declared daily and paid monthly from net
interest income. Income distributions earned by the fund are recorded
as interest income in the accompanying financial statements.
3. PURCHASES AND SALES OF INVESTMENTS.
Information regarding purchases and sales of securities (other than
short-term securities), is included under the caption "Other
Information" at the end of the fund's schedule of investments.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the 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
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .2500% to .5200% for the
period. The annual individual fund fee rate is .30%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annualized rate of .59% of average net
assets.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the
1940 Act, the Board of Trustees has adopted separate distribution
plans with respect to each class of shares (collectively referred to
as "the Plans"). Under the Service Class Plan, the class pays Fidelity
Distributors Corporation (FDC), an affiliate of FMR, a distribution
and service fee (12b-1 fee). This fee is based on an annual rate of
.10% of Service Class average net assets. Initial Class shares are not
subject to a 12b-1 fee.
For the period, Service Class paid FDC $122,330, all of which was
reallowed to insurance companies, for the distribution of shares and
providing shareholder support services.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations
Company, Inc. (FIIOC), an affiliate of FMR, is the fund's transfer,
dividend disbursing and shareholder servicing agent. FIIOC receives
account fees and asset-based fees that vary according to account size
and type of account. FIIOC pays a portion of the expenses related to
the typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees of
the fund were equivalent to an annualized rate of .07% of average net
assets.
ACCOUNTING FEES. Fidelity Service Company, Inc. (FSC), an affiliate of
FMR, maintains the fund's accounting records. The fee is based on the
level of average net assets for the month plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms are shown under the caption
"Other Information" at the end of the fund's schedule of investments.
5. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a
portion of the fund's expenses.
In addition, the fund has entered into an arrangement with its
custodian whereby credits realized on uninvested cash balances were
used to offset a portion of the fund's expenses.
For the period, the reductions under these arrangements are shown
under the caption "Other Information" on the fund's Statement of
Operations.
6. TRANSACTIONS WITH AFFILIATED COMPANIES.
An affiliated company is a company which the fund has ownership of at
least 5% of the voting securities. Information regarding transactions
with affiliated companies is included under the caption "Legend" at
the end of the fund's schedule of investments.
7. BENEFICIAL INTEREST.
At the end of the period, Fidelity Investments Life Insurance Company
(FILI) and its subsidiaries, affiliates of FMR, were the record owners
of approximately 14% of the outstanding shares of the fund. In
addition, one unaffiliated insurance company was record owner of 29%
of the total outstanding shares of the fund.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, PRESIDENT
Robert C. Pozen, SENIOR VICE PRESIDENT
Abigail P. Johnson, VICE PRESIDENT
Jennifer Uhrig, VICE PRESIDENT
Eric D. Roiter, SECRETARY
Richard A. Silver, TREASURER
Matthew N. Karstetter, DEPUTY TREASURER
John H. Costello, ASSISTANT TREASURER
Leonard M. Rush, ASSISTANT TREASURER
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
* INDEPENDENT TRUSTEES
VIPGRWT-SANN-0899 81782
1.705692.101
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER SERVICING AGENT
Fidelity Investments Institutional Operations Co., Inc.
Boston, MA
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
VARIABLE INSURANCE PRODUCTS
FUND: HIGH INCOME PORTFOLIO
SEMIANNUAL REPORT
JUNE 30, 1999
(2_FIDELITY_LOGOS)(registered trademark)
CONTENTS
MARKET ENVIRONMENT 3 A review of what happened in
world markets during the
past six months.
PERFORMANCE AND INVESTMENT 4 How the fund has done over
SUMMARY time, and an overview of the
fund's investments at the
end of the period.
FUND TALK 5 The manager's review of fund
performance, strategy and
outlook.
INVESTMENTS 6 A complete list of the fund's
investments with their
market values.
FINANCIAL STATEMENTS 16 Statements of assets and
liabilities, operations, and
changes in net assets, as
well as financial highlights.
NOTES 19 Notes to the financial
statements.
Standard & Poor's, S&P and S&P 500 are registered service marks of The
McGraw-Hill Companies, Inc. and have been licensed for use by
Fidelity Distributors Corporation.
Third party marks appearing herein are the property of their
respective owners.
All other marks appearing herein are registered or unregistered
trademarks or service marks of FMR Corp. or an affiliated company.
This report is printed on recycled paper using soy-based inks.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE FUND'S
PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS
STATED ON THE COVER AND DO NOT NECESSARILY REPRESENT THE VIEWS OF
FIDELITY OR ANY OTHER PERSON IN THE FIDELITY ORGANIZATION. ANY SUCH
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER
CONDITIONS AND FIDELITY DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH
VIEWS. THESE VIEWS MAY NOT BE RELIED ON AS INVESTMENT ADVICE AND,
BECAUSE INVESTMENT DECISIONS FOR A FIDELITY FUND ARE BASED ON NUMEROUS
FACTORS, MAY NOT BE RELIED ON AS AN INDICATION OF TRADING INTENT ON
BEHALF OF ANY FIDELITY FUND.
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.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT
INSURED BY THE FDIC, FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND
ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
MARKET ENVIRONMENT
An investor-friendly equity environment characterized the first half
of the year, as the majority of domestic and international stock
markets turned in positive performances for the six-month period
ending June 30, 1999. The bulk of debt sectors received a colder
shoulder, however, as wary bond investors shied away from the
combination of higher inflation expectations and the U.S. Federal
Reserve Board's tighter monetary policy. Notably, the period's last
day was an eventful one: On June 30, for the first time in two years,
the Fed increased key short-term interest rates with a quarter-point
hike to 5.00%. At the same time, it also announced a shift to a
"neutral" position - meaning the Fed's next move is as likely to be a
rate decrease as it is another hike - sparking a rally in the bond
market and sending several equity indexes into record-high territory.
U.S. STOCK MARKETS
The Standard & Poor's 500 Index - a broad measure of U.S. stock market
performance - rose 12.38% for the six months that ended June 30, 1999.
At this pace, the S&P 500(registered trademark) is well on its way to
tacking on another year to its record of four consecutive annual
double-digit percentage gains. Meanwhile, the Dow Jones Industrial
Average - an index of 30 blue-chip stocks - posted a lofty 20.39%
increase for the first half of the year. After several years on the
sidelines, small-cap stocks finally rebounded, particularly in the
second quarter of 1999, as the Russell 2000(registered trademark)
Index - a popular measure of small-cap stock performance - returned
9.29% for the first half of the year. But it was the technology-laden
NASDAQ Composite Index that posted the highest return of these popular
equity performance measures, with a 22.70% increase for the six months
ending June 30, 1999.
At the period's outset, the economic climate and investment
environment were similar to the previous several years: high levels of
employment, low inflation and strong consumer confidence, with a
handful of large-cap growth stocks - particularly in the technology
sector - continuing to set the pace for bullish equity market
performance. By the beginning of the second quarter, however, market
conditions began to change. The global economy began to improve, due
in large part to the willingness of central banks worldwide to lower
interest rates, resulting in a broadening of corporate earnings. This
environment proved favorable for small- and mid-cap value stocks and
the economically sensitive cyclical stocks. The relatively low
valuations of these issues proved quite alluring compared to their
expensive, large-cap growth counterparts. Consequently, a dramatic
rotation into value and cyclical names dominated the second quarter of
1999.
FOREIGN STOCK MARKETS
Over 165 interest-rate cuts in more than 75 countries since the
worldwide economic crisis last October helped foreign stock markets
post generally positive performances in the first half of 1999. The
Morgan Stanley Capital International (MSCI) EAFE(registered trademark)
Index - which measures stock performance in Europe, Australia and the
Far East - returned 4.08% for the six months ending June 30, 1999.
Europe's performance was disappointing, as prospects for economic
growth and corporate profits declined, and its new common currency -
the euro - struggled since its inception in January. For the period,
the MSCI Europe Index fell 2.30%. Conversely, the previously faltering
Japanese stock market roared ahead. New corporate restructuring
reforms and government economic intervention helped the Tokyo Stock
Exchange Index (TOPIX) - a measure of the Japanese market - notch a
first-half return of 21.93%. Emerging markets also rebounded. Despite
Brazil's currency devaluation in January, and fears of a similar move
by Argentina and Colombia late in the period, Latin America was a
strong performer as the Morgan Stanley Capital International Emerging
Markets Free-Latin America Index returned 31.03%. Southeast Asia, too,
bounced back, but the period's most remarkable recovery was in Russia,
which was the first half's best-performing emerging market, with a
return of approximately 133.70%.
U.S. BOND MARKETS
Despite good news at the close of the period, signs of continued
strength and emerging inflationary pressures in the U.S. economy,
along with improving conditions abroad, hampered the taxable-bond
market during the six-month period. The Lehman Brothers Aggregate Bond
Index - a widely followed measure of taxable bond performance - fell
1.37% during that time. A sharp rise in consumer prices sparked the
worst Treasury bond sell-off in three years, pushing their prices down
and bringing yields up to the pre-crisis levels of last summer. The
resulting negative market sentiment was further fueled by the Fed's
shift in bias toward raising interest rates in mid-May. The Lehman
Brothers Treasury Index returned -2.50% for the six-month period
ending June 30, 1999. As investors fled Treasuries for more attractive
alternatives, spread sector securities - such as corporate and
mortgage securities - rallied in response. However, the emergence of
rising rates and inflation fears soon slowed the rise in spread
products. For the six-month period, the Lehman Brothers Corporate Bond
Index and the Lehman Brothers Mortgage-Backed Securities Index had
returns of -2.26% and 0.53%, respectively. Based on performance,
high-yield bonds were among the most attractive domestic debt
offerings, as the Merrill Lynch High Yield Master II Index returned
2.49% during the first half of 1999.
FOREIGN BOND MARKETS
Like its U.S. Treasury counterparts, world government bond performance
was hindered by the U.S. Federal Reserve Board's adoption of a
tightening bias - an inclination to raise interest rates - during the
first half of the year. For the six months ending June 30, 1999, the
Salomon Brothers World Government Bond Index - a measure of government
bond market performance in developed nations - fell 7.17%. Despite
rising U.S. interest rates, emerging-market debt enjoyed positive
performance in the first half of 1999, as the J.P. Morgan Emerging
Markets Bond Index Plus - which tracks total returns for traded
external debt instruments in the emerging markets - returned 10.57%
during the period. A significantly important development in the strong
emerging-market performance was the dramatic increase in the price of
oil, which benefited Venezuela, the second-best performing country
year-to-date, as well as Russia and Mexico.
VARIABLE INSURANCE PRODUCTS FUND: HIGH INCOME PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). If Fidelity had not reimbursed certain fund
expenses, the past 10 year total returns would have been lower.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
VIP: HIGH INCOME - "INITIAL -1.53% 10.78% 11.36%
CLASS"
ML High Yield Master II 0.90% 10.28% 10.87%
ML High Yield Master 0.94% 10.06% 10.65%
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's returns to the performance of the Merrill
Lynch High Yield Master II Index - a market value-weighted index of
all domestic and yankee high-yield bonds, including deferred interest
bonds and payment-in-kind securities. You can also compare the fund's
returns to the performance of the Merrill Lynch High Yield Master
Index - a market value-weighted index of all domestic and yankee
high-yield bonds. Issues included in both benchmarks have maturities
of one year or more and have a credit rating lower than BBB-/Baa3, but
are not in default. These benchmarks reflect the reinvestment of
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.
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, THE TOTAL RETURNS 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.
(checkmark)UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of
how it will do tomorrow. Bond prices, for
example, generally move in the opposite direction
of interest rates. In turn, the share price, return and
yield of a fund that invests in bonds will vary.
That means if you sell your shares during a
market downturn, you might lose money. But if
you can ride out the market's ups and downs,
you may have a gain.
$10,000 OVER 10 YEARS
VIP HIGH INCOME ML HIGH YIELD MASTER II
00152 ML012
1989/06/30 10000.00 10000.00
1989/07/31 9934.17 10040.39
1989/08/31 9876.55 10087.25
1989/09/30 9530.97 9980.81
1989/10/31 9122.37 9733.33
1989/11/30 9130.05 9747.97
1989/12/31 9105.03 9708.43
1990/01/31 8903.76 9446.07
1990/02/28 8766.66 9303.33
1990/03/31 8674.16 9472.43
1990/04/30 8699.86 9537.64
1990/05/31 8878.62 9696.87
1990/06/30 9018.48 9943.12
1990/07/31 9157.78 10190.06
1990/08/31 9004.58 9724.00
1990/09/30 8791.07 9317.36
1990/10/31 8577.74 9050.99
1990/11/30 8778.94 9146.02
1990/12/31 8901.70 9284.99
1991/01/31 9090.56 9475.05
1991/02/28 9594.19 10297.04
1991/03/31 9934.15 10797.33
1991/04/30 10286.69 11180.15
1991/05/31 10437.78 11223.70
1991/06/30 10664.41 11471.64
1991/07/31 11067.32 11786.49
1991/08/31 11218.41 12054.63
1991/09/30 11470.22 12228.35
1991/10/31 11860.54 12643.32
1991/11/30 11961.26 12776.50
1991/12/31 12024.22 12922.02
1992/01/31 12666.35 13358.49
1992/02/29 13126.24 13692.37
1992/03/31 13550.55 13888.83
1992/04/30 13646.36 13960.82
1992/05/31 13810.61 14159.20
1992/06/30 13961.17 14330.46
1992/07/31 14234.92 14609.01
1992/08/31 14536.04 14795.06
1992/09/30 14686.61 14951.91
1992/10/31 14467.61 14755.45
1992/11/30 14645.54 14985.36
1992/12/31 14809.79 15176.11
1993/01/31 15206.73 15529.19
1993/02/28 15466.12 15806.96
1993/03/31 15823.03 16084.35
1993/04/30 15927.13 16194.72
1993/05/31 16165.07 16392.26
1993/06/30 16581.47 16711.27
1993/07/31 16745.05 16874.59
1993/08/31 16923.51 17033.36
1993/09/30 16982.99 17108.97
1993/10/31 17384.52 17425.74
1993/11/30 17548.10 17525.40
1993/12/31 17830.66 17709.68
1994/01/31 18425.51 18092.50
1994/02/28 18403.42 17966.80
1994/03/31 17783.44 17386.12
1994/04/30 17603.98 17169.85
1994/05/31 17636.61 17132.32
1994/06/30 17571.35 17210.63
1994/07/31 17636.61 17314.52
1994/08/31 17636.61 17451.79
1994/09/30 17767.13 17448.32
1994/10/31 17603.98 17494.34
1994/11/30 17457.14 17343.81
1994/12/31 17538.72 17526.55
1995/01/31 17734.50 17772.65
1995/02/28 18343.18 18342.30
1995/03/31 18571.59 18590.17
1995/04/30 19116.26 19061.17
1995/05/31 19608.22 19659.49
1995/06/30 19660.93 19791.67
1995/07/31 20135.33 20049.40
1995/08/31 20293.46 20154.61
1995/09/30 20627.29 20388.84
1995/10/31 20820.56 20561.17
1995/11/30 20925.98 20764.96
1995/12/31 21171.96 21112.87
1996/01/31 21663.92 21465.56
1996/02/29 22021.74 21531.15
1996/03/31 21963.89 21443.13
1996/04/30 22291.71 21473.19
1996/05/31 22600.25 21627.95
1996/06/30 22715.95 21714.12
1996/07/31 22638.81 21856.86
1996/08/31 22966.63 22123.46
1996/09/30 23641.56 22643.47
1996/10/31 23564.42 22840.01
1996/11/30 23815.11 23293.20
1996/12/31 24142.93 23492.36
1997/01/31 24470.75 23668.86
1997/02/28 24914.61 24032.73
1997/03/31 24140.60 23702.16
1997/04/30 24517.15 24006.06
1997/05/31 25542.18 24511.51
1997/06/30 26002.40 24890.32
1997/07/31 26943.76 25550.07
1997/08/31 27173.87 25519.32
1997/09/30 28136.15 25978.37
1997/10/31 27885.12 26111.02
1997/11/30 28094.31 26343.63
1997/12/31 28408.09 26608.91
1998/01/31 29056.58 27032.97
1998/02/28 29276.39 27142.49
1998/03/31 29889.26 27400.31
1998/04/30 30007.12 27518.00
1998/05/31 29794.97 27683.47
1998/06/30 29771.40 27826.45
1998/07/31 29936.40 28003.79
1998/08/31 26235.60 26590.18
1998/09/30 25976.31 26659.40
1998/10/31 25269.15 26084.12
1998/11/30 27343.49 27443.77
1998/12/31 27178.48 27394.60
1999/01/31 27979.93 27759.16
1999/02/28 27861.46 27575.42
1999/03/31 28563.19 27895.73
1999/04/30 29992.65 28406.12
1999/05/31 29186.96 28145.53
1999/06/30 29316.91 28075.78
IMATRL PRASUN SHR__CHT 19990630 19990716 111430 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund: High Income Portfolio on
June 30, 1989. As the chart shows, by June 30, 1999, the value of the
investment would have grown to $29,317 - a 193.17% increase on the
initial investment. For comparison, look at how the Merrill Lynch High
Yield Master II Index did over the same period. With dividends and
capital gains, if any, reinvested, the same $10,000 investment would
have grown to $28,076 - a 180.76% increase. Beginning with this
report, the fund will compare its performance to that of the Merrill
Lynch High Yield Master II Index, rather than the Merrill Lynch High
Yield Master Index. The Merrill Lynch High Yield Master II Index
contains deferred interest bonds and payment-in-kind securities and is
therefore a better representation of the high yield bond universe.
INVESTMENT SUMMARY
TOP FIVE HOLDINGS AS OF JUNE
30, 1999
(BY ISSUER, EXCLUDING CASH % OF FUND'S INVESTMENTS
EQUIVALENTS)
Nextel Communications, Inc. 4.4
WinStar Communications, Inc. 3.3
NEXTLINK Communications, Inc. 2.6
CSC Holdings, Inc. 2.5
Millicom International 2.3
Cellular SA
TOP FIVE MARKET SECTORS AS OF
JUNE 30, 1999
% OF FUND'S INVESTMENTS
UTILITIES 33.8
MEDIA & LEISURE 22.2
BASIC INDUSTRIES 6.9
ENERGY 5.7
HEALTH 4.2
QUALITY DIVERSIFICATION AS OF
JUNE 30, 1999
(MOODY'S RATINGS) % OF FUND'S INVESTMENTS
Aaa, Aa, A 0.0
Baa 0.0
Ba 5.6
B 45.9
Caa, Ca, C 17.3
Not Rated 9.3
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P RATINGS. UNRATED DEBT SECURITIES THAT ARE
EQUIVALENT TO BA AND BELOW AT JUNE 30, 1999 ACCOUNT FOR 9.3% OF THE
FUND'S INVESTMENTS.
VARIABLE INSURANCE PRODUCTS FUND: HIGH INCOME PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
(photograph of Barry Coffman)
An interview with
Barry Coffman,
Portfolio Manager
of High Income Portfolio
Q. HOW DID THE FUND PERFORM, BARRY?
A. For the six-month period that ended June 30, 1999, the fund
significantly outpaced the 1.76% return of the Merrill Lynch High
Yield Master Index. Also, the fund beat its new benchmark, the Merrill
Lynch High Yield Master II Index, which returned 2.49%. For the
12-month period that ended June 30, 1999, the fund lagged the 0.94%
return of the Merrill Lynch High Yield Master Index and the 0.90% for
the Merrill Lynch High Yield Master II Index.
Q. WHY DID THE FUND'S BENCHMARK CHANGE?
A. The fund changed its benchmark because the Merrill Lynch High Yield
Master Index does not include deferred-interest bonds (DIBs) and
pay-in-kind securities (PIKs), which have emerged as important
components of the market in recent years. DIBs do not pay cash
interest for a set period of the bond's life, typically for three to
five years, and therefore sell at a significant discount. At the end
of the deferred-interest period, the interest accrues and begins to be
paid (it is a variation on the zero coupon bond structure). PIKs pay
interest in the form of additional bonds or preferred stock. As of
June 30, 1999, DIBs and PIKs represented approximately 17% of the
fund's new benchmark, the Merrill Lynch High Yield Master II Index.
Q. WHY DID THE FUND BEAT THE NEW BENCHMARK DURING THE PAST SIX MONTHS?
A. The fund's large weighting - compared to the Merrill Lynch High
Yield Master II Index - in telecommunications companies was an
important contributor to its outperformance. After falling to
depressed levels last fall, many of the fund's telecom companies
bounced back during the past six months. The stocks of both Covad
Communications and Rhythms NetConnections - which the fund received in
conjunction with its original purchase of the bonds - soared in value
after both companies completed initial public offerings, or IPOs,
during the period. Both companies provide dedicated, high-speed
digital communications services using digital subscriber line (DSL)
technology that allows for high-speed data transmission over
traditional copper lines. Other telecom winners included the bonds of
WinStar, Teligent and NEXTLINK, which benefited from the same theme of
providing high-speed data transmission utilizing new technologies.
These three companies provide local, long distance and data services
utilizing fixed wireless technology in addition to conventional
wireline networks, allowing small and medium businesses access to
high-speed, fiber-quality data transmission.
Q. OUTSIDE THE TELECOM SECTOR, WHICH OF THE FUND'S HOLDINGS WERE
STANDOUTS DURING THE PAST SIX MONTHS?
A. Excitement about the cable industry's expanding role in delivering
telephone and high-speed Internet services to residences boosted that
sector, with NTL and Cablevision (CSC Holdings) performing
particularly well. In addition, cable company United International
Holdings (now called UnitedGlobalCom) - which provides cable, Internet
and telephony services in Europe, South America, Australia and New
Zealand - rose in response to Microsoft's investment in the company's
European subsidiary, which also completed a very successful IPO during
the period. I'd also add that the fund's performance was helped by its
relatively light weightings in the poor-performing health care and
energy sectors.
Q. WERE THERE DISAPPOINTMENTS DURING THE PAST SIX MONTHS?
A. Iridium, which operates a network of satellites that transmit calls
globally, was the biggest disappointment when it did not meet
subscriber targets, causing the company to come up short of its
financial targets. Customers complained that Iridium's service was too
expensive and that the special phone needed for its service was too
clunky and didn't work inside buildings.
Q. WHAT'S YOUR OUTLOOK FOR THE HIGH-YIELD MARKET?
A. In general, the outlook for the high-yield market continues to be
favorable relative to other fixed-income markets due to attractive
absolute yields, continued economic strength and modest inflation.
However, we are seeing default rates increase and the dispersion of
yields within the marketplace has widened out considerably from 18
months ago. This type of "bond picker's" market historically has been
favorable for the fund because of Fidelity's credit research
strengths.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET OR OTHER CONDITIONS. FOR MORE INFORMATION, SEE PAGE 2.
(checkmark)FUND FACTS
GOAL: to seek high current income by investing
primarily in all types of income-producing debt
securities with an emphasis on lower-quality
securities
START DATE: September 19, 1985
SIZE: as of June 30, 1999, more than $2.5 billion
MANAGER: Barry Coffman, since 1990;
joined Fidelity in 1986
VARIABLE INSURANCE PRODUCTS FUND: HIGH INCOME PORTFOLIO
INVESTMENTS JUNE 30, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS - 75.7%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
CONVERTIBLE BONDS - 1.2%
HEALTH - 0.4%
MEDICAL FACILITIES MANAGEMENT
- - 0.4%
Total Renal Care Holdings, B1 $ 12,680,000 $ 10,270,800
Inc. 7% 5/15/09 (f)
MEDIA & LEISURE - 0.8%
LODGING & GAMING - 0.4%
Signature Resorts, Inc. 5.75% Caa1 15,105,000 10,724,550
1/15/07
RESTAURANTS - 0.4%
CKE Restaurants, Inc. 4.25% B1 12,000,000 9,000,000
3/15/04
TOTAL MEDIA & LEISURE 19,724,550
UTILITIES - 0.0%
TELEPHONE SERVICES - 0.0%
GST Telecommunications, Inc. - 630,000 606,375
0% 12/15/05 (d)(f)
TOTAL CONVERTIBLE BONDS 30,601,725
NONCONVERTIBLE BONDS - 74.5%
BASIC INDUSTRIES - 6.8%
CHEMICALS & PLASTICS - 3.8%
Acetex Corp. yankee 9.75% B1 2,000,000 1,840,000
10/1/03
General Chemical Industrial B3 5,350,000 5,390,125
Products, Inc. 10.625%
5/1/09 (f)
Huntsman Corp.:
9.5% 7/1/07 (f) B2 34,620,000 32,975,550
Huntsman ICI Chemicals LLC B2 10,040,000 10,127,850
10.125% 7/1/09 (f)
Koppers Industries, Inc. B2 7,745,000 7,783,725
9.875% 12/1/07
Lyondell Chemical Co.:
9.625% 5/1/07 (f) Ba3 4,260,000 4,355,850
9.875% 5/1/07 (f) Ba3 14,340,000 14,590,950
10.875% 5/1/09 (f) B2 9,590,000 9,901,675
Zeneca Specialty Chemicals B2 9,810,000 9,883,575
PLC 11% 7/1/09 (f)
96,849,300
METALS & MINING - 0.5%
Kaiser Aluminum & Chemical
Corp.:
9.875% 2/15/02 B1 1,860,000 1,873,950
12.75% 2/1/03 B3 3,710,000 3,774,925
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Metals USA, Inc. 8.625% B2 $ 7,085,000 $ 6,571,338
2/15/08
12,220,213
PACKAGING & CONTAINERS - 0.9%
Gaylord Container Corp. Caa1 9,910,000 9,340,175
9.375% 6/15/07
Packaging Corp. of America B3 13,330,000 13,563,275
9.625% 4/1/09 (f)
22,903,450
PAPER & FOREST PRODUCTS - 1.6%
APP Finance II Mauritius Ltd. B3 10,505,000 6,723,200
12% 3/15/04
Container Corp. of America B2 1,690,000 1,740,700
gtd. 9.75% 4/1/03
Indah Kiat Finance Mauritius
Ltd.:
10% 7/1/07 Caa1 8,320,000 5,740,800
Indah Kiat International Caa1 1,700,000 1,292,000
Finance Co. BV 12.5% 6/15/06
Millar Western Forest B3 11,475,000 11,159,438
Products Ltd. 9.875% 5/15/08
Pindo Deli Finance Mauritius Caa1 3,740,000 2,655,400
Ltd. 10.25% 10/1/02
Stone Container Corp.:
10.75% 10/1/02 B1 6,965,000 7,208,775
12.58% 8/1/16 (g) B2 1,150,000 1,242,000
Tjiwi Kimia Finance Mauritius Caa1 3,110,000 2,208,100
Ltd. 10% 8/1/04
39,970,413
TOTAL BASIC INDUSTRIES 171,943,376
CONSTRUCTION & REAL ESTATE -
2.0%
BUILDING MATERIALS - 0.5%
International Utility Caa1 9,200,000 9,223,000
Structures, Inc. 10.75%
2/1/08
Schuff Steel Co. 10.5% 6/1/08 B3 2,850,000 2,565,000
11,788,000
CONSTRUCTION - 0.3%
Del Webb Corp. 10.25% 2/15/10 B2 8,100,000 8,019,000
Great Lakes Dredge & Dock B3 240,000 247,200
Corp. 11.25% 8/15/08
8,266,200
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
CONSTRUCTION & REAL ESTATE -
CONTINUED
ENGINEERING - 0.1%
URS Corp. 12.25% 5/1/09 (f) B2 $ 1,520,000 $ 1,539,000
REAL ESTATE - 0.8%
LNR Property Corp.:
9.375% 3/15/08 B1 14,395,000 13,603,275
10.5% 1/15/09 B1 7,040,000 7,040,000
20,643,275
REAL ESTATE INVESTMENT TRUSTS
- - 0.3%
Ocwen Asset Investment Corp. - 9,880,000 8,595,600
11.5% 7/1/05
TOTAL CONSTRUCTION & REAL 50,832,075
ESTATE
DURABLES - 1.4%
AUTOS, TIRES, & ACCESSORIES -
0.3%
Blue Bird Body Co. 10.75% B2 7,405,000 7,849,300
11/15/06
CONSUMER DURABLES - 0.2%
Corning Consumer Products Co. B3 5,300,000 4,597,750
9.625% 5/1/08
HOME FURNISHINGS - 0.2%
Omega Cabinets Ltd. 10.5% B3 5,060,000 5,060,000
6/15/07
TEXTILES & APPAREL - 0.7%
Synthetic Industries, Inc. B2 11,770,000 11,917,125
9.25% 2/15/07
Worldtex, Inc. 9.625% 12/15/07 B1 6,235,000 5,455,625
17,372,750
TOTAL DURABLES 34,879,800
ENERGY - 4.4%
COAL - 0.6%
P&L Coal Holdings Corp.:
8.875% 5/15/08 Ba3 2,560,000 2,566,400
9.625% 5/15/08 B2 11,130,000 11,074,350
13,640,750
ENERGY SERVICES - 1.0%
Ocean Rig Norway AS 10.25% B3 4,650,000 3,255,000
6/1/08
R&B Falcon Corp.:
9.5% 12/15/08 Ba3 8,350,000 7,515,000
12.25% 3/15/06 (f) Ba3 4,940,000 5,112,900
RBF Finance Co.:
11% 3/15/06 (f) Ba3 6,520,000 6,715,600
11.375% 3/15/09 (f) Ba3 3,120,000 3,229,200
25,827,700
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
OIL & GAS - 2.8%
Belden & Blake Corp. 9.875% Caa1 $ 2,155,000 $ 1,637,800
6/15/07
Chesapeake Energy Corp.:
7.875% 3/15/04 B3 1,610,000 1,420,825
8.5% 3/15/12 B3 840,000 676,200
9.125% 4/15/06 B3 1,440,000 1,288,800
9.625% 5/1/05 B3 16,046,000 15,003,010
Comstock Resources, Inc. B2 3,880,000 3,967,300
11.25% 5/1/07 (f)
Flores & Rucks, Inc. 9.75% B1 2,050,000 2,101,250
10/1/06
Great Lakes Carbon Corp.:
0% 5/15/09 (d) Caa1 17,115,000 9,242,100
10.25% 5/15/08 pay-in-kind B3 10,330,000 10,175,050
Gulf Canada Resources Ltd.:
8.35% 8/1/06 Ba1 520,000 499,200
8.375% 11/15/05 Ba1 3,150,000 3,094,875
HS Resources, Inc. 9.25% B2 530,000 522,050
11/15/06
Kelley Oil & Gas Corp. 14% B3 3,000,000 3,030,000
4/15/03 (f)
Ocean Energy, Inc.:
8.375% 7/1/08 B1 1,860,000 1,794,900
8.875% 7/15/07 B1 1,350,000 1,329,750
10.375% 10/15/05 B2 1,280,000 1,340,800
Plains Resources, Inc.:
Series B 10.25% 3/15/06 B2 8,140,000 8,262,100
Series D, 10.25% 3/15/06 B2 2,770,000 2,811,550
Seven Seas Petroleum, Inc. Caa1 4,210,000 2,147,100
12.5% 5/15/05
70,344,660
TOTAL ENERGY 109,813,110
FINANCE - 2.6%
CREDIT & OTHER FINANCE - 2.6%
AMRESCO, Inc.:
9.875% 3/15/05 Caa3 11,420,000 8,736,300
10% 3/15/04 Caa3 2,364,000 1,820,280
ContiFinancial Corp.:
8.125% 4/1/08 Caa1 2,110,000 1,603,600
8.375% 8/15/03 Caa1 4,500,000 3,240,000
Delta Financial Corp. 9.5% B3 2,090,000 1,797,400
8/1/04
Imperial Credit Capital Trust B2 4,870,000 3,993,400
I 10.25% 6/14/02
Imperial Credit Industries B3 17,470,000 14,325,400
9.875% 1/15/07
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
FINANCE - CONTINUED
CREDIT & OTHER FINANCE -
CONTINUED
Macsaver Financial Services,
Inc.:
7.4% 2/15/02 Ba1 $ 2,720,000 $ 2,284,800
7.6% 8/1/07 Ba1 5,480,000 4,507,300
7.875% 8/1/03 Ba1 6,900,000 5,882,250
MFN Financial Corp. 10% - 10,000,000 9,525,000
3/23/01
PX Escrow Corp. 0% 2/1/06 (d) B3 3,720,000 2,269,200
WinStar Equipment II Corp. CCC+ 3,370,000 3,504,800
12.5% 3/15/04
63,489,730
SECURITIES INDUSTRY - 0.0%
ECM Corp. LP 14% 6/10/02 (f) - 16,948 16,927
TOTAL FINANCE 63,506,657
HEALTH - 3.1%
DRUGS & PHARMACEUTICALS - 0.3%
Global Health Sciences, Inc. Caa1 10,080,000 7,585,200
11% 5/1/08
MEDICAL EQUIPMENT & SUPPLIES
- - 0.4%
Wright Medical Technology, Caa3 18,650,000 10,257,500
Inc. 11.75% 7/1/00 (g)
MEDICAL FACILITIES MANAGEMENT
- - 2.4%
Express Scripts, Inc. 9.625% Ba2 4,940,000 5,014,100
6/15/09 (f)
Fountain View, Inc. 11.25% Caa1 7,330,000 5,937,300
4/15/08
Hanger Orthopedic Group, Inc. B3 2,520,000 2,557,800
11.25% 6/15/09 (f)
Harborside Healthcare Corp. B3 10,250,000 3,997,500
0% 8/1/08 (d)
Integrated Health Services,
Inc.:
9.25% 1/15/08 B2 4,933,000 3,453,100
9.5% 9/15/07 B2 2,510,000 1,819,750
Mariner Post-Acute Network, B3 11,630,000 1,860,800
Inc. 9.5% 11/1/07
Oxford Health Plans, Inc. 11% Caa1 11,100,000 11,211,000
5/15/05 (f)
Tenet Healthcare Corp.:
7.625% 6/1/08 Ba1 2,210,000 2,082,925
7.875% 1/15/03 Ba1 11,140,000 10,972,900
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
8% 1/15/05 Ba1 $ 1,870,000 $ 1,823,250
8.125% 12/1/08 Ba3 9,740,000 9,204,300
59,934,725
TOTAL HEALTH 77,777,425
INDUSTRIAL MACHINERY &
EQUIPMENT - 2.0%
ELECTRICAL EQUIPMENT - 0.8%
Motors & Gears, Inc. 10.75% B3 14,810,000 14,884,050
11/15/06
Telex Communications, Inc. B2 7,490,000 5,692,400
10.5% 5/1/07
20,576,450
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.8%
Applied Power, Inc. 8.75% B1 4,380,000 4,248,600
4/1/09
Thermadyne Holdings Corp. 0% Caa1 11,470,000 5,562,950
6/1/08 (d)
Thermadyne Manufacturing LLC B3 5,460,000 4,818,450
9.875% 6/1/08
Tokheim Corp. 11.375% 8/1/08 B3 5,790,000 5,529,450
(f)
20,159,450
POLLUTION CONTROL - 0.4%
Envirosource, Inc.:
Series B 9.75% 6/15/03 B3 4,900,000 3,013,500
9.75% 6/15/03 Caa3 9,496,000 5,840,040
8,853,540
TOTAL INDUSTRIAL MACHINERY & 49,589,440
EQUIPMENT
MEDIA & LEISURE - 17.5%
BROADCASTING - 11.0%
Ascent Entertainment Group, B3 12,445,000 8,960,400
Inc. 0% 12/15/04 (d)
Benedek Communications Corp. B3 5,000,000 4,150,000
0% 5/15/06 (d)
Central European Media Caa1 2,690,000 2,299,950
Enterprises Ltd. 9.375%
8/15/04
Century Communications Corp.:
8.875% 1/15/07 Ba3 6,270,000 6,246,488
Series B, 0% 1/15/08 Ba3 12,530,000 5,513,200
Charter Communications
Holdings LLC/Charter
Communications Holdings
Capital Corp.:
0% 4/1/11 (d)(f) B2 8,610,000 5,295,150
8.625% 4/1/09 (f) B2 10,570,000 10,107,563
CSC Holdings, Inc. 9.875% B1 4,000,000 4,270,000
5/15/06
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Diamond Cable Communications B3 $ 7,990,000 $ 6,312,100
PLC 0% 2/15/07 (d)
EchoStar DBS Corp. 9.375% B2 20,700,000 20,958,750
2/1/09 (f)
Golden Sky DBS, Inc. 0% Caa1 6,070,000 3,520,600
3/1/07 (d)(f)
International Cabletel, Inc. B3 31,625,000 27,592,813
0% 2/1/06 (d)
Iridium Operating LLC/Iridium
Capital Corp.:
10.875% 7/15/05 Caa3 8,830,000 1,766,000
11.25% 7/15/05 Caa3 10,360,000 2,072,000
LIN Holdings Corp. 0% 3/1/08 B3 7,398,000 4,938,165
(d)
NTL Communications Corp. B3 14,080,000 15,417,600
11.5% 10/1/08
NTL, Inc.:
0% 4/1/08 (d) B3 32,525,000 21,791,750
10% 2/15/07 B3 11,300,000 11,582,500
Olympus Communications B1 10,585,000 11,590,575
LP/Olympus Capital Corp.
10.625% 11/15/06
Satelites Mexicanos SA de CV:
8.75% 6/30/04 (f)(g) B1 15,235,000 14,168,550
10.125% 11/1/04 B3 25,420,000 20,081,800
Sinclair Broadcast Group, B2 1,130,000 1,114,463
Inc. 9% 7/15/07
Telewest PLC 0% 10/1/07 (d) B1 31,492,000 28,185,340
UIH Australia/Pacific, Inc.:
Series B 0% 5/15/06 (d) B2 28,065,000 19,926,150
Series D 0% 5/15/06 (d) B2 5,520,000 3,919,200
United International B3 23,040,000 15,321,600
Holdings, Inc. 0% 2/15/08 (d)
277,102,707
ENTERTAINMENT - 2.0%
AMC Entertainment, Inc.:
9.5% 3/15/09 B3 8,180,000 7,689,200
9.5% 2/1/11 B3 6,680,000 6,262,500
Carmike Cinemas, Inc. 9.375% B2 940,000 914,150
2/1/09 (f)
Harrahs Operating Co., Inc. Ba2 10,000,000 9,700,000
7.875% 12/15/05
Hollywood Entertainment Corp. B3 9,600,000 9,432,000
10.625% 8/15/04
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Premier Parks, Inc.:
0% 4/1/08 (d) B3 $ 12,660,000 $ 8,387,250
9.25% 4/1/06 B3 2,640,000 2,613,600
Town Sports International, B2 5,620,000 5,367,100
Inc. 9.75% 10/15/04 (f)
50,365,800
LEISURE DURABLES & TOYS - 0.4%
Marvel Enterprises, Inc. 12% - 8,750,000 8,925,000
6/15/09 (f)
LODGING & GAMING - 3.3%
Circus Circus Enterprises, Ba2 7,110,000 6,256,800
Inc. 7.625% 7/15/13
Coast Hotels & Casinos, Inc. B3 4,710,000 4,533,375
9.5% 4/1/09 (f)
Florida Panthers Holdings, B2 8,750,000 8,246,875
Inc. 9.875% 4/15/09
Horseshoe Gaming LLC:
8.625% 5/15/09 (f) B2 14,600,000 14,125,500
9.375% 6/15/07 B2 2,690,000 2,743,800
KSL Recreation Group, Inc. B3 8,280,000 8,404,200
10.25% 5/1/07
Prime Hospitality Corp.:
9.25% 1/15/06 Ba2 1,630,000 1,638,150
9.75% 4/1/07 B1 2,960,000 2,904,500
Signature Resorts, Inc.:
9.25% 5/15/06 B2 12,280,000 11,788,800
9.75% 10/1/07 B3 19,080,000 17,172,000
Sun International Hotels Ba3 5,510,000 5,523,775
Ltd./Sun International North
America, Inc. yankee 9%
3/15/07
83,337,775
RESTAURANTS - 0.8%
AFC Enterprises, Inc. 10.25% B3 9,890,000 9,988,900
5/15/07
CKE Restaurants, Inc. 9.125% B1 4,250,000 3,995,000
5/1/09
NE Restaurant, Inc. 10.75% B3 6,390,000 5,846,850
7/15/08
19,830,750
TOTAL MEDIA & LEISURE 439,562,032
NONDURABLES - 0.7%
FOODS - 0.3%
International Home Foods, B2 7,150,000 7,543,250
Inc. 10.375% 11/1/06
HOUSEHOLD PRODUCTS - 0.4%
AKI Holding Corp. 0% 7/1/09 Caa1 9,120,000 3,465,600
(d)
AKI, Inc. 10.5% 7/1/08 B2 6,960,000 6,716,400
10,182,000
TOTAL NONDURABLES 17,725,250
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
RETAIL & WHOLESALE - 2.3%
APPAREL STORES - 1.1%
Mothers Work, Inc. 12.625% B3 $ 7,440,000 $ 7,737,600
8/1/05
Specialty Retailers, Inc.:
8.5% 7/15/05 B1 18,870,000 13,963,800
9% 7/15/07 B3 9,850,000 6,107,000
27,808,400
GROCERY STORES - 0.8%
Fleming Companies, Inc.:
Series B, 10.625% 7/31/07 B3 910,000 846,300
10.5% 12/1/04 B3 5,830,000 5,480,200
Jitney-Jungle Stores of
America, Inc.:
10.375% 9/15/07 Caa1 12,115,000 4,361,400
12% 3/1/06 B3 2,590,000 2,110,850
Pueblo Xtra International,
Inc.:
Series C, 9.5% 8/1/03 B3 4,590,000 4,268,700
9.5% 8/1/03 B3 2,860,000 2,659,800
19,727,250
RETAIL & WHOLESALE,
MISCELLANEOUS - 0.4%
Guitar Center, Inc. 11% 7/1/06 B1 5,177,000 5,254,655
TM Group Holdings PLC 11% B3 6,140,000 6,216,750
5/15/08
11,471,405
TOTAL RETAIL & WHOLESALE 59,007,055
SERVICES - 3.6%
LEASING & RENTAL - 0.6%
Anthony Crane Rentals B3 6,370,000 6,115,200
LP/Anthony Credit Capital
Corp. 10.375% 8/1/08
Rent-A-Center, Inc. 11% B2 8,680,000 8,723,400
8/15/08
14,838,600
PRINTING - 1.7%
Big Flower Press Holdings, B2 13,900,000 13,066,000
Inc. 8.875% 7/1/07
Sullivan Graphics, Inc. Caa1 21,340,000 22,193,600
12.75% 8/1/05
World Color Press, Inc. 7.75% B1 8,060,000 7,495,800
2/15/09
42,755,400
SERVICES - 1.3%
AP Holdings, Inc. 0% 3/15/08 Caa2 2,470,000 1,284,400
(d)
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Apcoa, Inc. 9.25% 3/15/08 Caa1 $ 13,590,000 $ 12,231,000
Medaphis Corp. 9.5% 2/15/05 Caa1 13,713,000 10,147,620
SITEL Corp. 9.25% 3/15/06 B3 2,630,000 2,228,925
Spin Cycle, Inc. 0% 5/1/05 (d) - 25,335,000 7,347,150
33,239,095
TOTAL SERVICES 90,833,095
TECHNOLOGY - 3.3%
COMMUNICATIONS EQUIPMENT - 0.3%
Jordan Telecommunication
Products, Inc.:
0% 8/1/07 (d) B3 3,810,000 3,238,500
9.875% 8/1/07 B3 2,990,000 2,930,200
6,168,700
COMPUTER SERVICES & SOFTWARE
- - 0.5%
Concentric Network Corp. - 12,760,000 13,334,200
12.75% 12/15/07
DecisionOne Corp. 9.75% B3 7,220,000 361,000
8/1/07 (c)
DecisionOne Holdings Corp. 0% Caa1 2,005,000 10,025
8/1/08 unit (c)(d)
13,705,225
ELECTRONIC INSTRUMENTS - 0.8%
Telecommunications Techniques B3 19,995,000 19,395,150
Co. LLC 9.75% 5/15/08
ELECTRONICS - 1.7%
Communications Instruments, B3 4,460,000 4,014,000
Inc. 10% 9/15/04
Fairchild Semiconductor Corp.:
10.125% 3/15/07 B3 1,640,000 1,594,900
10.375% 10/1/07 (f) B3 12,700,000 12,509,500
Hadco Corp. 9.5% 6/15/08 B2 14,645,000 14,278,875
Insilco Corp. 12% 8/15/07 B3 7,380,000 7,306,200
Micron Technology, Inc. 6.5% B3 5,000,000 3,950,000
9/30/05 (h)
43,653,475
TOTAL TECHNOLOGY 82,922,550
TRANSPORTATION - 0.6%
AIR TRANSPORTATION - 0.4%
Kitty Hawk, Inc. 9.95% B1 10,959,000 10,876,808
11/15/04
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
TRANSPORTATION - CONTINUED
SHIPPING - 0.2%
Holt Group, Inc. 9.75% Caa1 $ 5,240,000 $ 3,563,200
1/15/06 (f)
TOTAL TRANSPORTATION 14,440,008
UTILITIES - 24.2%
CELLULAR - 10.7%
Cellnet Data Systems, Inc. 0% - 69,670,000 30,654,800
10/1/07 (d)
Dial Call Communications, B2 4,080,000 4,161,600
Inc. 10.25% 12/15/05
McCaw International Ltd. 0% Caa1 44,305,000 26,804,525
4/15/07 (d)
Metrocall, Inc.:
10.375% 10/1/07 B3 5,670,000 4,394,250
11% 9/15/08 (f) B3 3,410,000 2,693,900
Millicom International Caa1 79,940,000 58,356,194
Cellular SA 0% 6/1/06 (d)
Nextel Communications, Inc.:
0% 9/15/07 (d) B2 950,000 688,750
0% 10/31/07 (d) B2 6,990,000 4,910,475
0% 2/15/08 (d) B2 36,980,000 25,516,200
Nextel International, Inc. 0% Caa1 18,900,000 9,544,500
4/15/08 (d)
Orbital Imaging Corp.:
11.625% 3/1/05 - 9,075,000 8,349,000
11.625% 3/1/05 (f) - 3,680,000 3,348,800
Orion Network Systems, Inc.:
0% 1/15/07 (d) B2 28,870,000 15,734,150
11.25% 1/15/07 B2 4,995,000 4,395,600
PageMart Nationwide, Inc. 0% B3 12,820,000 11,473,900
2/1/05 (d)
PageMart Wireless, Inc. 0% Caa2 34,440,000 14,292,600
2/1/08 (d)
Rogers Communications, Inc. B2 18,780,000 18,967,800
8.875% 7/15/07
Spectrasite Holdings, Inc. 0% - 14,000,000 7,910,000
4/15/09 (d)(f)
Telesystem International
Wireless, Inc.:
0% 6/30/07 (d) Caa1 17,940,000 9,149,400
0% 11/1/07 (d) Caa1 17,800,000 7,832,000
269,178,444
TELEPHONE SERVICES - 13.5%
Alestra S. de R.L. de CV B2 5,670,000 5,471,550
12.625% 5/15/09 (f)
Allegiance Telecom, Inc. 0% - 4,770,000 2,981,250
2/15/08 (d)
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Call-Net Enterprises, Inc. B2 $ 9,710,000 $ 9,297,325
9.375% 5/15/09
Covad Communications Group,
Inc.:
0% 3/15/08 (d) B3 14,660,000 8,026,350
12.5% 2/15/09 B3 8,090,000 7,786,625
GCI, Inc. 9.75% 8/1/07 B2 4,420,000 4,364,750
GST Network Funding, Inc. 0% - 14,980,000 8,538,600
5/1/08 (d)(f)
GST Equipment Funding, Inc. - 4,870,000 5,198,725
13.25% 5/1/07
GST Telecommunications, Inc. - 18,870,000 20,473,950
12.75% 11/15/07
Hermes Europe Railtel BV B3 7,350,000 7,478,625
10.375% 1/15/09
ICG Holdings, Inc. 0% 9/15/05 - 10,490,000 9,100,075
(d)
ICG Services, Inc.:
0% 2/15/08 (d) - 38,590,000 21,513,925
0% 5/1/08 (d) - 3,030,000 1,636,200
Intermedia Communications, B3 14,530,000 8,282,100
Inc. 0% 3/1/09 (d)
IXC Communications, Inc. 9% B3 15,335,000 14,568,250
4/15/08
KMC Telecom Holdings, Inc.:
0% 2/15/08 (d) Caa2 19,400,000 10,330,500
13.5% 5/15/09 (f) Caa2 7,200,000 7,218,000
Logix Communications - 10,910,000 9,655,350
Enterprises, Inc. 12.25%
6/15/08
Metromedia Fiber Network, B2 11,310,000 11,649,300
Inc. 10% 11/15/08
NEXTLINK Communications, Inc.:
0% 6/1/09 (d) B3 14,570,000 8,578,088
10.75% 6/1/09 B3 7,810,000 8,024,775
Ono Finance PLC 13% 5/1/09 - 5,140,000 5,294,200
unit (f)
Optel Communications Corp. - 12,900,000 12,083,688
15% 12/29/04 (h)
Pathnet, Inc. 12.25% 4/15/08 - 12,390,000 6,814,500
Rhythms NetConnections, Inc.:
0% 5/15/08 (d) B3 17,735,000 9,443,888
12.75% 4/15/09 (f) B3 7,480,000 6,993,800
Teligent, Inc.:
0% 3/1/08 (d) Caa1 20,510,000 12,100,900
11.5% 12/1/07 Caa1 10,425,000 10,268,625
WinStar Communications, Inc.:
0% 10/15/05 (d) Caa1 7,050,000 6,168,750
0% 10/15/05 (d) Caa1 30,160,000 41,620,800
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
WinStar Communications, Inc.
- - continued
0% 3/15/08 (d) CCC $ 18,755,000 $ 16,410,625
10% 3/15/08 CCC 14,750,000 12,980,000
15% 3/1/07 CCC 2,240,000 2,576,000
WinStar Equipment Corp. 12.5% B3 6,655,000 6,921,200
3/15/04
339,851,289
TOTAL UTILITIES 609,029,733
TOTAL NONCONVERTIBLE BONDS 1,871,861,606
TOTAL CORPORATE BONDS 1,902,463,331
(Cost $2,035,747,341)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
ASSET-BACKED SECURITIES - 0.2%
Airplanes Pass Through Trust Ba2 4,610,000 4,356,450
10.875% 3/15/19 (Cost
$5,138,363)
COMMERCIAL MORTGAGE
SECURITIES - 0.9%
Commercial Mortgage BB+ 4,500,000 2,723,203
Acceptance Corp. pass
through certificates Series
1998-C2 Class F, 5.44%
5/15/13 (f)(g)
Commercial Mortgage Asset Ba1 4,750,000 3,062,266
Trust pass through
certificates Series 1999-C1
Class F, 6.25% 11/17/13 (f)
LB Multifamily Mortgage Trust Caa1 2,714,587 1,900,211
Series 1991 4 Class A1,
6.973% 4/25/21 (g)
Meritor Mortgage Security - 1,350,000 162,000
Corp. Series 1987 1 Class B,
9.4% 2/1/00 (f)
Mortgage Capital Funding, Ba1 4,500,000 3,682,969
Inc. Series 1998-MC3 Class
F, 0% 11/18/31 (f)(g)
Nationslink Funding Corp. BB 4,500,000 3,369,375
Commercial Mortgage pass
through certificates Series
1998-2 Class F, 7.105%
8/20/30
Nomura Depositor Trust Series - 4,000,000 3,562,500
1998-ST1A Class B1A, 7.7375%
1/15/03 (f)(g)
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Structured Asset Securities
Corp.:
Series 1994 - C1 Class F, B $ 2,600,000 $ 1,996,313
6.87% 8/25/26
Series 1995-C1 Class F, - 2,000,000 1,550,625
7.375% 9/25/24 (f)
TOTAL COMMERCIAL MORTGAGE 22,009,462
SECURITIES
(Cost $22,167,690)
</TABLE>
COMMON STOCKS - 5.5%
SHARES
BASIC INDUSTRIES - 0.0%
CHEMICALS & PLASTICS - 0.0%
Sterling Chemicals Holdings, 340 5,100
Inc. warrants 8/15/08 (a)
CONSTRUCTION & REAL ESTATE -
0.4%
BUILDING MATERIALS - 0.1%
International Utility 2,500 2,425,000
Structures, Inc. unit
REAL ESTATE - 0.2%
LNR Property Corp. 312,100 6,671,138
REAL ESTATE INVESTMENT TRUSTS
- - 0.1%
Ocwen Asset Investment Corp. 368,000 1,656,000
TOTAL CONSTRUCTION & REAL 10,752,138
ESTATE
DURABLES - 0.3%
TEXTILES & APPAREL - 0.3%
Arena Brands Holdings Corp. 48,889 1,222,225
Class B (a)
Polymer Group, Inc. (a) 450,600 5,294,550
6,516,775
ENERGY - 1.2%
ENERGY SERVICES - 0.6%
R&B Falcon Corp. unit (a)(f) 13,988 14,267,760
OIL & GAS - 0.6%
Chesapeake Energy Corp. 277,800 816,038
Plains Resources, Inc. (a) 775,400 14,732,600
15,548,638
TOTAL ENERGY 29,816,398
FINANCE - 0.3%
CREDIT & OTHER FINANCE - 0.0%
Olympic Financial Ltd. 498 498
warrants 3/15/07 (a)
SAVINGS & LOANS - 0.3%
Golden State Bancorp, Inc. 300,000 6,600,000
SECURITIES INDUSTRY - 0.0%
ECM Corp. LP (f) 3,000 270,000
TOTAL FINANCE 6,870,498
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
HEALTH - 0.0%
MEDICAL EQUIPMENT & SUPPLIES
- - 0.0%
Wright Medical Technology, 3,212 $ 32
Inc. warrants 6/30/03 (a)
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.7%
POLLUTION CONTROL - 0.7%
Allied Waste Industries, Inc. 900,000 17,775,000
(a)
MEDIA & LEISURE - 0.9%
BROADCASTING - 0.0%
Benedek Communications Corp. 57,600 115,200
warrants 7/1/07 (a)
CS Wireless Systems, Inc. 1,024 10
(a)(f)
NTL, Inc. warrants 12/31/08 23,146 1,157,300
(a)
Teletrac Holdings, Inc. 3,940 1,970
warrants 8/1/07 (a)
UIH Australia/Pacific, Inc. 26,805 53,610
warrants 5/15/06 (a)
1,328,090
ENTERTAINMENT - 0.0%
Alliance Gaming Corp. (a)(h) 2,028 6,084
LODGING & GAMING - 0.9%
Motels of America, Inc. (a) 3,000 57,000
Sunterra Corp. (a) 1,541,400 21,483,263
21,540,263
TOTAL MEDIA & LEISURE 22,874,437
NONDURABLES - 0.0%
TOBACCO - 0.0%
North Atlantic Trading, Inc. 210 2
warrants 6/15/07 (a)
RETAIL & WHOLESALE - 0.2%
APPAREL STORES - 0.2%
Mothers Work, Inc. (a)(e) 299,100 3,888,300
Mothers Work, Inc. (a)(h) 2,952 38,376
3,926,676
SERVICES - 0.0%
Spin Cycle, Inc. warrants 25,335 253
5/1/05 (a)(f)
TECHNOLOGY - 0.0%
COMPUTERS & OFFICE EQUIPMENT
- - 0.0%
Ampex Corp. Class A (a) 7,167 36,283
ELECTRONICS - 0.0%
Insilco Corp. warrants 7,380 74
8/15/07 (a)
TOTAL TECHNOLOGY 36,357
TRANSPORTATION - 0.1%
AIR TRANSPORTATION - 0.1%
Kitty Hawk, Inc. (a) 349,400 2,751,525
SHARES VALUE (NOTE 1)
UTILITIES - 1.4%
CELLULAR - 0.4%
Cellnet Data Systems, Inc. 18,000 $ 72,000
warrants 10/1/07 (a)(f)
Loral Orion Network Systems,
Inc.:
warrants 1/15/07 (CV ratio 45,930 241,133
.47) (a)
warrants 1/15/07 (CV ratio 5,585 40,491
.6) (a)
McCaw International Ltd. 42,305 105,763
warrants 4/15/07 (a)(f)
Microcell Telecommunications, 47,716 375,151
Inc. Class B (a)
Orbital Imaging Corp. 4,815 144,450
warrants 3/1/05 (a)(f)
PageMart Wireless, Inc. Class 1,241,700 9,390,356
A (a)
10,369,344
TELEPHONE SERVICES - 1.0%
GST Telecommunications, Inc. 441,300 5,736,900
(a)
Intermedia Communications, 150,000 4,500,000
Inc. (a)
KMC Telecom Holdings, Inc. 12,650 31,625
warrants 4/15/08 (a)(f)
Optel Communications Corp. 2,559,515 25,595
warrants 12/29/04 (a)(h)
Pathnet, Inc. warrants 12,390 123,900
4/15/08 (a)(f)
Rhythms NetConnections, Inc. 89,560 15,058,618
warrants 5/15/08 (a)(f)
25,476,638
TOTAL UTILITIES 35,845,982
TOTAL COMMON STOCKS 137,171,173
(Cost $128,024,815)
PREFERRED STOCKS - 13.8%
CONVERTIBLE PREFERRED STOCKS
- - 0.1%
ENERGY - 0.1%
OIL & GAS - 0.1%
Chesapeake Energy Corp.:
$3.50 (f) 63,700 1,656,200
$3.50 42,500 1,105,000
2,761,200
NONCONVERTIBLE PREFERRED
STOCKS - 13.7%
BASIC INDUSTRIES - 0.1%
PACKAGING & CONTAINERS - 0.1%
Packaging Corp. of America 20,210 2,079,730
$12.375 pay-in-kind (f)
CONSTRUCTION & REAL ESTATE -
0.3%
BUILDING MATERIALS - 0.0%
International Utility 334 317,300
Structures, Inc. 13%
pay-in-kind (f)
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NONCONVERTIBLE PREFERRED
STOCKS - CONTINUED
CONSTRUCTION & REAL ESTATE -
CONTINUED
REAL ESTATE INVESTMENT TRUSTS
- - 0.3%
Swerdlow Real Estate Group,
Inc.:
Class A (h) 79,800 $ 11,132
Class B (h) 19,817 2,760
junior (h) 19,817 2,760
mezzanine (h) 79,800 78,520
senior (h) 79,800 7,618,828
7,714,000
TOTAL CONSTRUCTION & REAL 8,031,300
ESTATE
FINANCE - 0.4%
INSURANCE - 0.4%
American Annuity Group 8,910 8,845,135
Capital Trust II 8.875%
HEALTH - 0.7%
MEDICAL FACILITIES MANAGEMENT
- - 0.7%
Fresenius Medical Care 15,424 14,600,744
Capital Trust II 7.875%
Harborside Healthcare Corp. 4,420 1,989,000
13.50% pay-in-kind
16,589,744
MEDIA & LEISURE - 3.0%
BROADCASTING - 3.0%
Citadel Broadcasting Co. 74,736 8,669,376
Series B, 13.25% pay-in-kind
CSC Holdings, Inc.:
11.125% pay-in-kind 331,316 36,279,102
Series H, 11.75% pay-in-kind 206,162 22,523,199
Granite Broadcasting Corp. 9,309 9,122,820
12.75% pay-in-kind
76,594,497
NONDURABLES - 0.2%
TOBACCO - 0.2%
North Atlantic Trading, Inc. 265,760 5,780,280
12% pay-in-kind
TECHNOLOGY - 0.8%
COMPUTER SERVICES & SOFTWARE
- - 0.8%
Concentric Network Corp. 21,227 20,165,650
13.5% pay-in-kind
COMPUTERS & OFFICE EQUIPMENT
- - 0.0%
Ampex Corp. 8% non-cumulative 480 748,800
(a)
TOTAL TECHNOLOGY 20,914,450
SHARES VALUE (NOTE 1)
UTILITIES - 8.2%
CELLULAR - 3.2%
Nextel Communications, Inc.:
11.125% pay-in-kind 45,065 $ 45,290,325
Series D, 13% pay-in-kind 32,979 34,792,845
80,083,170
TELEPHONE SERVICES - 5.0%
e.spire Communications, Inc.:
$127.50 pay-in-kind 16,945 6,015,475
14.75% pay-in-kind 3,915 1,683,450
ICG Holdings, Inc. 14.25% 23,376 23,259,120
pay-in-kind
Intermedia Communications, 27,468 26,987,310
Inc. 13.5% pay-in-kind
IXC Communications, Inc. 13,125 12,600,000
12.5% pay-in-kind
NEXTLINK Communications, Inc. 980,799 49,530,350
14% pay-in-kind
WinStar Communications, Inc. 7,810 6,287,050
14.25%
126,362,755
TOTAL UTILITIES 206,445,925
TOTAL NONCONVERTIBLE 345,281,061
PREFERRED STOCKS
TOTAL PREFERRED STOCKS 348,042,261
(Cost $371,145,887)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PURCHASED BANK DEBT - 1.3%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT
Huntsman ICI Chemicals LLC
sr. secured:
term B loan 8.3125% 6/30/07 - $ 4,500,000 4,494,375
(g)
term C loan 8.5625% 6/30/08 - 4,500,000 4,494,375
(g)
Lyondell Chemical Co. sr. - 16,000,000 16,080,000
secured Tranche E term loan
8.875% 5/17/06 (g)
Oxford Health Plans, Inc. sr. B3 7,000,000 7,035,000
secured term loan 9.335%
5/13/03 (g)
TOTAL PURCHASED BANK DEBT 32,103,750
(Cost $32,018,750)
CASH EQUIVALENTS - 2.6%
MATURITY AMOUNT
Investments in repurchase $ 65,779,843 65,771,000
agreements (U.S. Treasury
obligations), in a joint
trading account at 4.84%,
dated 6/30/99 due 7/1/99
(Cost $65,771,000)
TOTAL INVESTMENT IN $ 2,511,917,427
SECURITIES - 100%
(Cost $2,660,013,846)
</TABLE>
LEGEND
(a) Non-income producing
(b) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(c) Non-income producing - issuer filed for protection under the
Federal Bankruptcy Code or is in default of interest payment.
(d) Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date. The rate shown
is the rate at period end.
(e) Transactions during the period with companies which are or were
affiliates are as follows:
AFFILIATE PURCHASE COST SALES COST DIVIDEND INCOME VALUE
Hat Brands, Inc. $ - $ 340,000 $ - $ -
Mothers Work, Inc. - 347,350 - 3,888,300
TOTALS $ - $ 687,350 $ - $ 3,888,300
(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
$359,917,762 or 14.2% of net assets.
(g) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(h) Restricted securities - Investment in securities not registered
under the Securities Act of 1933.
Additonal information on each holding is as follows:
<TABLE>
<CAPTION>>
<S> <C> <C>
ACQUISITION ACQUISITION
SECURITY DATE COST
Alliance Gaming Corp. 7/28/98 $ 0
Micron Technology, Inc. 6.5% 3/3/99 $ 3,869,500
9/30/05
Mothers Work, Inc. 6/18/98 $ 26,172
Optel Communications Corp. 12/31/97 $ 759,408
warrants 12/29/04
Optel Communications Corp. 12/31/97 - 1/12/99 $ 12,140,640
15% 12/29/04
Swerdlow Real Estate Group, 1/15/99 $ 11,132
Inc. Class A
Swerdlow Real Estate Group, 1/15/99 $ 2,760
Inc. Class B
Swerdlow Real Estate Group, 1/15/99 $ 2,760
Inc. junior
Swerdlow Real Estate Group, 1/15/99 $ 78,520
Inc. mezzanine
Swerdlow Real Estate Group, 1/15/99 $ 7,618,828
Inc. senior
</TABLE>
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $1,202,813,190 and $1,220,184,530, respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company.
The commissions paid to these affiliated firms were $685 for the
period.
The fund participated in the interfund lending program as a borrower.
The average daily loan balance during the period for which loans were
outstanding amounted to $22,684,750. The weighted average interest
rate was 4.87%. Interest expense includes $12,264 paid under the
interfund lending program.
The fund participated in the bank borrowing program. The average daily
loan balance during the period for which loans were outstanding
amounted to $29,137,500. The weighted average interest rate was 5.08%.
Interest expense includes $8,221 paid under the bank borrowing
program.
The composition of long-term debt holdings as a percentage of total
value of investments in securities, is as follows (ratings are
unaudited):
Aaa, Aa, A 0.0% AAA, AA, A 0.0%
Baa 0.0% BBB 0.0%
Ba 5.4% BB 7.6%
B 45.8% B 48.2%
Caa 15.9% CCC 9.8%
Ca, C 0.0% CC, C 0.2%
D 0.1%
The percentage not rated by Moody's or S&P amounted to 9.3%. FMR has
determined that unrated debt securities that are lower quality account
for 9.3% of the total value of investment in securities.
Distribution of investments by country of issue, as a percentage of
total value of investments in securities, is as follows:
United States of America 89.0%
Canada 4.0
Luxembourg 2.3
United Kingdom 1.7
Mexico 1.6
Others (individually less 1.4
than 1%)
100.0%
INCOME TAX INFORMATION
At June 30, 1999, the aggregate cost of investment securities for
income tax purposes was $2,661,537,264. Net unrealized depreciation
aggregated $149,619,837, of which $79,391,590 related to appreciated
investment securities and $229,011,427 related to depreciated
investment securities.
VARIABLE INSURANCE PRODUCTS FUND: HIGH INCOME PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 2,511,917,427
value (including repurchase
agreements of $65,771,000)
(cost $2,660,013,846) - See
accompanying schedule
Cash 856,315
Receivable for investments 8,019,676
sold
Receivable for fund shares 7,514,021
sold
Dividends receivable 4,347,155
Interest receivable 38,239,574
Other receivables 396,679
TOTAL ASSETS 2,571,290,847
LIABILITIES
Payable for investments $ 25,570,338
purchased
Payable for fund shares 1,041,323
redeemed
Accrued management fee 1,209,970
Distribution fees payable 15,185
Other payables and accrued 241,460
expenses
TOTAL LIABILITIES 28,078,276
NET ASSETS $ 2,543,212,571
Net Assets consist of:
Paid in capital $ 2,613,635,447
Undistributed net investment 122,571,356
income
Accumulated undistributed net (44,897,883)
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation (148,096,349)
(depreciation) on
investments and assets and
liabilities in foreign
currencies
NET ASSETS $ 2,543,212,571
INITIAL CLASS: NET ASSET $11.28
VALUE, offering price and
redemption price per share
($2,349,796,862 (divided
by) 208,234,080 shares)
SERVICE CLASS: NET ASSET $11.26
VALUE, offering price and
redemption price per share
($193,415,709 (divided by)
17,179,888 shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30,
1999 (UNAUDITED)
INVESTMENT INCOME $ 19,214,021
Dividends
Interest 112,825,651
TOTAL INCOME 132,039,672
EXPENSES
Management fee $ 7,470,818
Transfer agent fees 854,606
Distribution fees - Service 79,801
Class
Accounting fees and expenses 406,075
Non-interested trustees' 3,999
compensation
Custodian fees and expenses 36,113
Registration fees 9,543
Audit 12,986
Interest 20,485
Miscellaneous 3,301
Total expenses before 8,897,727
reductions
Expense reductions (26,676) 8,871,051
NET INVESTMENT INCOME 123,168,621
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities (41,131,566)
(including realized loss of
$478,294 on sales of
investments in affiliated
issuers)
Foreign currency transactions 936 (41,130,630)
Change in net unrealized
appreciation (depreciation)
on:
Investment securities 114,458,276
Assets and liabilities in 70 114,458,346
foreign currencies
NET GAIN (LOSS) 73,327,716
NET INCREASE (DECREASE) IN $ 196,496,337
NET ASSETS RESULTING FROM
OPERATIONS
OTHER INFORMATION $ 19,572
Expense reductions Directed
brokerage arrangements
Custodian credits 7,104
$ 26,676
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
ASSETS 1999 (UNAUDITED)
Operations Net investment $ 123,168,621 $ 230,104,995
income
Net realized gain (loss) (41,130,630) 6,911,145
Change in net unrealized 114,458,346 (342,139,590)
appreciation (depreciation)
NET INCREASE (DECREASE) IN 196,496,337 (105,123,450)
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (230,986,253) (174,513,221)
From net investment income
From net realized gain (6,657,693) (109,261,101)
In excess of net realized (1,977,307) -
gain
TOTAL DISTRIBUTIONS (239,621,253) (283,774,322)
Share transactions - net 107,796,135 535,004,180
increase (decrease)
TOTAL INCREASE (DECREASE) 64,671,219 146,106,408
IN NET ASSETS
NET ASSETS
Beginning of period 2,478,541,352 2,332,434,944
End of period (including $ 2,543,212,571 $ 2,478,541,352
undistributed net investment
income of $122,571,356 and
$228,599,042, respectively)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OTHER INFORMATION:
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
1999 (UNAUDITED)
SHARES DOLLARS SHARES DOLLARS
Share transactions Initial 57,354,894 $ 644,024,273 105,294,967 $ 1,274,568,026
Class Sold
Reinvested 20,936,841 226,536,621 22,841,432 282,776,922
Redeemed (73,710,924) (828,294,214) (96,026,533) (1,157,142,331)
Net increase (decrease) 4,580,811 $ 42,266,680 32,109,866 $ 400,202,617
Service Class Sold 6,502,761 $ 72,659,761 11,710,091 $ 142,335,404
Reinvested 1,211,540 13,084,632 80,565 997,399
Redeemed (1,788,090) (20,214,938) (752,013) (8,531,240)
Net increase (decrease) 5,926,211 $ 65,529,455 11,038,643 $ 134,801,563
Distributions
From net investment income $ 218,373,139 $ 173,899,848
Initial Class
Service Class 12,613,114 613,373
Total $ 230,986,253 $ 174,513,221
From net realized gain $ 6,294,147 $ 108,877,075
Initial Class
Service Class 363,546 384,026
Total $ 6,657,693 $ 109,261,101
In excess of net realized $ 1,869,335 $ -
gain Initial Class
Service Class 107,972 -
Total $ 1,977,307 $ -
$ 239,621,253 $ 283,774,322
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 1996 1995
Net asset value, beginning of $ 11.530 $ 13.580 $ 12.520 $ 12.050 $ 10.750
period
Income from Investment
Operations
Net investment income .538 D 1.111 D 1.124 D .927 .856
Net realized and unrealized .322 (1.591) .936 .643 1.224
gain (loss)
Total from investment .860 (.480) 2.060 1.570 2.080
operations
Less Distributions
From net investment income (1.070) (.970) F (.890) (.920) (.780)
From net realized gain (.030) (.600) F (.110) (.180) -
In excess of net realized gain (.010) - - - -
Total distributions (1.110) (1.570) (1.000) (1.100) (.780)
Net asset value, end of period $ 11.280 $ 11.530 $ 13.580 $ 12.520 $ 12.050
TOTAL RETURN B, C 7.87% (4.33)% 17.67% 14.03% 20.72%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 2,349,797 $ 2,348,954 $ 2,329,516 $ 1,588,822 $ 1,040,000
(000 omitted)
Ratio of expenses to average .69% A .70% .71% .71% .71%
net assets
Ratio of net investment 9.66% A 9.14% 8.88% 9.09% 9.32%
income to average net assets
Portfolio turnover rate 98% A 92% 118% 123% 132%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA 1994
Net asset value, beginning of $ 11.990
period
Income from Investment
Operations
Net investment income .770
Net realized and unrealized (.910)
gain (loss)
Total from investment (.140)
operations
Less Distributions
From net investment income (.730)
From net realized gain (.370)
In excess of net realized gain -
Total distributions (1.100)
Net asset value, end of period $ 10.750
TOTAL RETURN B, C (1.64)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 569,417
(000 omitted)
Ratio of expenses to average .71%
net assets
Ratio of net investment 8.75%
income to average net assets
Portfolio turnover rate 122%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - SERVICE CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 E
Net asset value, beginning of $ 11.520 $ 13.570 $ 13.380
period
Income from Investment
Operations
Net investment income D .527 1.082 .203
Net realized and unrealized .323 (1.562) (.013)
gain (loss)
Total from investment .850 (.480) .190
operations
Less Distributions
From net investment income (1.070) (.970) F -
From net realized gain (.030) (.600) F -
In excess of net realized gain (.010) - -
Total distributions (1.110) (1.570) -
Net asset value, end of period $ 11.260 $ 11.520 $ 13.570
TOTAL RETURN B, C 7.79% (4.34)% 1.42%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 193,416 $ 129,587 $ 2,919
(000 omitted)
Ratio of expenses to average .80% A .82% .81% A
net assets
Ratio of expenses to average .79% A, G .82% .80% A, G
net assets after expense
reductions
Ratio of net investment 9.55% A 9.51% 10.75% A
income to average net assets
Portfolio turnover rate 98% A 92% 118%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE
TO YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. INCLUSION
OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN. TOTAL RETURNS FOR PERIODS OF LESS THAN ONE
YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED
BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD NOVEMBER 3, 1997(COMMENCEMENT OF SALE OF
SERVICE CLASS SHARES) TO DECEMBER 31, 1997.
F THE AMOUNTS SHOWN REFLECT CERTAIN RECLASSIFICATIONS
RELATED TO BOOK TO TAX DIFFERENCES.
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS
WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A
PORTION OF THE CLASS' EXPENSES.
NOTES TO FINANCIAL STATEMENTS
For the period ended June 30, 1999 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
High Income Portfolio (the fund) is a fund of Variable Insurance
Products Fund (the trust) and is authorized to issue an unlimited
number of shares. 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. Shares
of the fund may only be purchased by insurance companies for the
purpose of funding variable annuity or variable life insurance
contracts. The fund offers two classes of shares: the fund's original
class of shares (Initial Class shares) and Service Class shares. Both
classes have equal rights and voting privileges, except for matters
affecting a single class. Investment income, realized and unrealized
capital gains and losses, the common expenses of the fund, and certain
fund-level expense reductions, if any, are allocated on a pro rata
basis to each class based on the relative net assets of each class to
the total net assets of the fund. Each class of shares differs in its
respective distribution plan.
The financial statements have been prepared in conformity with
generally accepted accounting principles which require management to
make certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. Debt 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. Equity securities for which 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 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 with remaining maturities of
sixty days or less for which quotations are not readily available 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 fund 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 prevailing rates of exchange at period end. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
and settlement date on purchases and sales of securities. The effects
of changes in foreign currency exchange rates on investments in
securities are included with the net realized and unrealized gain or
loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes 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 fund is
informed of the ex-dividend date. Non-cash dividends included in
dividend income, if any, are recorded at the fair market value of the
securities received. Interest income, which includes accretion of
original issue discount, is accrued as earned. Investment income is
recorded net of foreign taxes withheld where recovery of such taxes is
uncertain.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date. Income dividends and capital gain distributions are
declared separately for each class.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for foreign currency transactions, market discount,
partnerships and losses deferred due to wash sales.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments and foreign currency transactions
may include temporary book and tax basis differences which will
reverse in a subsequent period. Any taxable income or gain remaining
at fiscal year end is distributed in the following year.
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.
2. OPERATING POLICIES.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
terms. The U.S. dollar value of foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade.
2. OPERATING POLICIES - CONTINUED
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the fund, along with
other affiliated entities of Fidelity Management & Research Company
(FMR), may transfer uninvested cash balances into one or more joint
trading accounts. These balances are invested in one or more
repurchase agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
INTERFUND LENDING PROGRAM. Pursuant to an Exemptive Order issued by
the SEC, the fund, along with other registered investment companies
having management contracts with FMR, may participate in an interfund
lending program. This program provides an alternative credit facility
allowing the funds to borrow from, or lend money to, other
participating funds. Information regarding the fund's participation in
the program is included under the caption "Other Information" at the
end of the fund's schedule of investments.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally 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 $23,817,743 or 0.9% of net assets.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. The fund is permitted to
invest in loans and loan participations, trade claims or other
receivables. These investments may include standby financing
commitments that obligate the fund to supply additional cash to the
borrower on demand. Loan participations involve a risk of insolvency
of the lending bank or other financial intermediary. At the end of the
period, these investments amounted to $32,103,750 or 1.3% of net
assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Information regarding purchases and sales of securities (other than
short-term securities) is included under the caption "Other
Information" at the end of the fund's schedule of investments.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the 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
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .1100% to .3700% for the
period. The annual individual fund fee rate is .45%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annualized rate of .59% of average net
assets.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the
1940 Act, the Board of Trustees has adopted separate distribution
plans with respect to each class of shares (collectively referred to
as "the Plans"). Under the Service Class Plan, the class pays Fidelity
Distributors Corporation (FDC), an affiliate of FMR, a distribution
and service fee (12b-1 fee). This fee is based on an annual rate of
.10% of Service Class average net assets. Initial Class shares are not
subject to a 12b-1 fee.
For the period, Service Class paid FDC $79,801, all of which was
reallowed to insurance companies, for the distribution of shares and
providing shareholder support services.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations
Company, Inc. (FIIOC), an affiliate of FMR, is the fund's transfer,
dividend disbursing and shareholder servicing agent. FIIOC receives
account fees and asset-based fees that vary according to account size
and type of account. FIIOC pays a portion of the expenses related to
the typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees of
the fund were equivalent to an annualized rate of .07% of average net
assets.
ACCOUNTING FEES. Fidelity Service Company, Inc. (FSC), an affiliate of
FMR, maintains the fund's accounting records. The fee is based on the
level of average net assets for the month plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms are shown under the caption
"Other Information" at the end of the fund's schedule of investments.
5. BANK BORROWINGS.
The fund is permitted to have bank borrowings for temporary or
emergency purposes to fund shareholder redemptions. The fund has
established borrowing arrangements with certain banks. The interest
rate on the borrowings is the bank's base rate, as revised from time
to time. Information regarding the fund's participation in the program
is included under the caption "Other Information" at the end of the
fund's schedule of investments.
6. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a
portion of the fund's expenses.
In addition, the fund has entered into an arrangement with its
custodian whereby credits realized on uninvested cash balances were
used to offset a portion of the fund's expenses.
For the period, the reductions under these arrangements are shown
under the caption "Other Information" on the fund's Statement of
Operations.
7. BENEFICIAL INTEREST.
At the end of the period, Fidelity Investments Life Insurance Company
(FILI) and its subsidiaries, affiliates of FMR, were the record owners
of approximately 12% of the outstanding shares of the fund. In
addition, two unaffiliated insurance companies were record owners of
60% of the total outstanding shares of the fund.
8. TRANSACTIONS WITH AFFILIATED COMPANIES.
An affiliated company is a company which the fund has ownership of at
least 5% of the voting securities. Information regarding transactions
with affiliated companies is included under the caption "Legend" at
the end of the fund's schedule of investments.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research (U.K.) Inc.,
London, England
Fidelity Management & Research (Far East) Inc.,
Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, PRESIDENT
Robert C. Pozen, SENIOR VICE PRESIDENT
Bart A. Grenier, VICE PRESIDENT
Barry J. Coffman, VICE PRESIDENT
Eric D. Roiter, SECRETARY
Richard A. Silver, TREASURER
Matthew N. Karstetter, DEPUTY VICE PRESIDENT
John H. Costello, ASSISTANT TREASURER
Leonard M. Rush, ASSISTANT TREASURER
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
* INDEPENDENT TRUSTEES
VIPHI-SANN-0899 81783
1.705694.101
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER SERVICING AGENT
Fidelity Investments Institutional
Operations Co., Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
VARIABLE INSURANCE PRODUCTS
FUND: MONEY MARKET PORTFOLIO
SEMIANNUAL REPORT
JUNE 30, 1999
(2_FIDELITY_LOGOS)(registered trademark)
CONTENTS
PERFORMANCE 3 How the fund has done over
time.
FUND TALK 4 The manager's review of fund
performance, strategy and
outlook.
INVESTMENTS 5 A complete list of the fund's
investments.
FINANCIAL STATEMENTS 9 Statements of assets and
liabilities, operations, and
changes in net assets, as
well as financial highlights.
NOTES 11 Notes to the financial
statements.
Third party marks appearing herein are the property of their
respective owners.
All marks appearing herein are registered or unregistered trademarks
or service marks of FMR Corp. or an affiliated company.
This report is printed on recycled paper using soy-based inks.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE FUND'S
PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS
STATED ON THE COVER AND DO NOT NECESSARILY REPRESENT THE VIEWS OF
FIDELITY OR ANY OTHER PERSON IN THE FIDELITY ORGANIZATION. ANY SUCH
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER
CONDITIONS AND FIDELITY DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH
VIEWS. THESE VIEWS MAY NOT BE RELIED ON AS INVESTMENT ADVICE AND,
BECAUSE INVESTMENT DECISIONS FOR A FIDELITY FUND ARE BASED ON NUMEROUS
FACTORS, MAY NOT BE RELIED ON AS AN INDICATION OF TRADING INTENT ON
BEHALF OF ANY FIDELITY FUND.
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.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT
INSURED BY THE FDIC, FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND
ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
VARIABLE INSURANCE PRODUCTS FUND: MONEY MARKET PORTFOLIO
PERFORMANCE
To measure a money market fund's performance, you can look at either
total return or yield. Total return reflects the change in value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). Yield measures the income paid by a fund. Since
a money market fund tries to maintain a $1 share price, yield is an
important measure of performance.
If Fidelity had not reimbursed certain fund expenses, the past 10
years total return would have been lower. Yield will vary.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
VIP: MONEY MARKET 5.17% 5.43% 5.45%
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had achieved that return
by performing at a constant rate each year.
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.
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, THE TOTAL RETURNS WOULD HAVE BEEN LOWER.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YIELD
6/30/99 3/31/99 12/30/98 9/30/98 7/1/98
VIP: MONEY MARKET 4.85% 4.80% 5.08% 5.40% 5.42%
MMDA 2.03% 2.10% 2.23% 2.51% 2.51%
</TABLE>
Money Market
MMDA
6% -
5% -
4% -
3% -
2% -
1% -
0%
Row: 1, Col: 1, Value: 4.85
Row: 1, Col: 2, Value: 2.03
Row: 2, Col: 1, Value: 4.8
Row: 2, Col: 2, Value: 2.1
Row: 3, Col: 1, Value: 5.08
Row: 3, Col: 2, Value: 2.23
Row: 4, Col: 1, Value: 5.4
Row: 4, Col: 2, Value: 2.51
Row: 5, Col: 1, Value: 5.42
Row: 5, Col: 2, Value: 2.51
YIELD refers to the income paid by the fund over a given period.
Yields for money market funds are usually for seven-day periods,
expressed as annual percentage rates. A yield that assumes income
earned is reinvested or compounded is called an effective yield. The
chart above shows the fund's current seven-day yield at quarterly
intervals over the past year. You can compare these yields to the bank
money market deposit account (MMDA) average. The MMDA average is
supplied by BANK RATE MONITOR.(trademark)
(checkmark)COMPARING PERFORMANCE
There are some important differences between a
bank money market deposit account (MMDA) and
a money market fund. First, the U.S. government
neither insures nor guarantees a money market
fund. In fact, there is no assurance that a money
fund will maintain a $1 share price. Second, a
money market fund returns to its shareholders
income earned by the fund's investments after
expenses. This is in contrast to banks, which set
their MMDA rates periodically based on current
interest rates, competitors' rates, and internal
criteria.
VARIABLE INSURANCE PRODUCTS FUND: MONEY MARKET PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
(photograph of Robert Duby)
An interview with
Robert Duby,
Portfolio Manager
of Money Market Portfolio
Q. BOB, WHAT WAS THE INVESTING ENVIRONMENT LIKE DURING THE FIRST HALF
OF 1999?
A. The past six months have been very challenging in the money market
area, with wide fluctuations in both money market yields and market
sentiment. In January, just when it seemed as if the turmoil in
emerging markets was behind us, the Brazilian markets experienced a
slight hiccup and market sentiment turned positive once again, as
expectations grew that the Federal Reserve Board would cut short-term
interest rates as they had done in the fall of 1998. Shortly
thereafter, however, market sentiment changed as economic data showed
that the U.S. economy continued to exhibit strength and was not about
to slow. In addition, it became evident that the problems in Brazil
were not going to spread to other emerging markets. Throughout the
first half of 1999, consumer and market sentiment remained at record
levels, U.S. economic growth continued to astonish the market with its
strength, unemployment remained at record low levels and inflation was
virtually nonexistent. Growth in Gross Domestic Product (GDP) also
continued to surpass expectations. By the end of the first quarter,
Fed officials were beginning to voice concern that the easing of
monetary policy in the fall may have overstimulated the economy.
Q. WHAT HAPPENED DURING THE SECOND QUARTER?
A. During the spring, the unemployment rate fell to a 29-year low of
about 4.2% and economic data continued to reflect strong growth linked
both to consumer demand and an improvement in manufacturing activity.
The release in mid-May of the April consumer price index (CPI) showed
an advance of 0.7% that shocked the market. Short-term interest rates
adjusted upward in anticipation of a shift by the Fed to a tightening
monetary policy - increases in short-term rates to slow the economy
and head off inflation. The Fed adopted a bias toward tightening at
its meeting in May and - after preparing the market as it had never
done in the past - formally tightened monetary policy on June 30 with
a 0.25 percentage point increase in the federal funds rate to 5.00%.
The statement released with the increase in the funds rate indicated
that the Fed was concerned "that inflationary forces might emerge
which would undermine future economic growth." It appeared that the
Fed felt that a portion of the 0.75 percentage point rate cut in the
fall needed to be taken back. Nevertheless, the Fed announced at the
same time as it hiked rates on June 30 that the future bias of
monetary policy would be neutral, meaning that interest rates could be
either raised or lowered in the future.
Q. WHAT STRATEGY DID YOU PURSUE WITH THE FUND?
A. Over the past six months, I followed a strategy that was quite
similar to those I have pursued in the past. The fund's average
maturity was lengthened on market weakness and shortened on market
strength. During the first quarter of 1999, the average maturity was
lengthened to 71 days as market uncertainty prevailed. As economic
strength continued in the second quarter, the fund's average maturity
was allowed to decline. As I said, the Fed's rate hike on June 30 was
probably the most widely expected move in its history. In fact, after
the tightening the markets rallied on the belief that the Fed was on
hold for the foreseeable future. The fund was extended during the
later half of June as the market priced in a 0.50 percentage point Fed
rate hike, making longer-term investments relatively attractive when
compared to the actual 5.00% Fed funds target rate that came to pass.
Q. WHAT IS YOUR OUTLOOK?
A. I believe we'll see at least one more rate hike by the Fed in the
next few months, unless growth subsides dramatically or another crisis
develops in the world. The market has already begun to price in the
possibility of another move in the near future, as economic data
remains robust. The other wild card in this equation is the Year 2000
issue and how financial market participants will prepare for it.
Issuers have already begun to bring securities to market that come to
maturity in and beyond late January 2000, to avoid any unforeseen
problems over the turn of the year. The fourth quarter of 1999 will
present many challenges in the management of the portfolio, as supply
will be minimal and it will be necessary to manage the fund with an
eye toward meeting shareholder flows. The liquidity needs of
shareholders will have to be assessed and decisions made to address
those needs early in the period. It is expected that the Fed will
maintain an even keel with its policy during the fourth quarter, and
has already announced that it will be ready to provide any additional
liquidity should the need arise. A cautious approach will be followed
to meet our shareholder needs and necessary steps will be taken to
insure that all funds are fully invested at year-end.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET OR OTHER CONDITIONS. FOR MORE INFORMATION, SEE PAGE 2.
(checkmark)FUND FACTS
GOAL: income and share-price stability by
investing in high-quality, short-term investments
START DATE: April 1, 1982
SIZE: as of June 30, 1999, more than $1.7
billion
MANAGER: Robert Duby, since 1997; joined
Fidelity in 1982
VARIABLE INSURANCE PRODUCTS FUND: MONEY MARKET PORTFOLIO
INVESTMENTS JUNE 30, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CERTIFICATES OF DEPOSIT - 35.0%
DUE DATE ANNUALIZED YIELD AT TIME OF PRINCIPAL AMOUNT VALUE (NOTE 1)
PURCHASE
DOMESTIC CERTIFICATES OF
DEPOSIT - 0.7%
First Union National Bank of
North Carolina
7/30/99 4.87% $ 5,000,000 $ 5,000,000
Fleet National Bank
8/3/99 5.00 (b) 7,000,000 6,996,431
11,996,431
LONDON BRANCH, EURODOLLAR,
FOREIGN BANKS - 14.9%
Abbey National Treasury
Services PLC
7/6/99 4.90 5,000,000 5,000,000
8/9/99 4.90 20,000,000 20,000,211
9/24/99 5.15 15,000,000 15,000,000
12/17/99 5.30 15,000,000 15,000,000
Barclays Bank PLC
9/7/99 5.03 30,000,000 29,999,996
9/7/99 5.04 25,000,000 25,000,000
Credit Agricole Indosuez
8/16/99 4.95 10,000,000 9,999,609
12/2/99 5.14 10,000,000 10,000,625
Halifax PLC
8/12/99 4.92 5,000,000 5,000,000
11/8/99 4.95 25,000,000 25,000,000
11/17/99 4.95 10,000,000 10,000,000
12/13/99 5.00 25,000,000 25,000,000
Lloyds Bank PLC
8/31/99 4.88 15,000,000 15,000,000
Morgan Guaranty Trust Co., NY
7/14/99 4.87 10,000,000 10,000,054
National Westminster Bank PLC
7/19/99 4.88 10,000,000 9,999,993
Norddeutsche Landesbank
Girozentrale
8/25/99 4.95 25,000,000 25,000,373
Svenska Handelsbanken
8/23/99 4.92 10,000,000 10,000,000
265,000,861
NEW YORK BRANCH, YANKEE
DOLLAR, FOREIGN BANKS - 19.4%
Bank of Scotland Treasury
Services
7/2/99 4.86 (b) 5,000,000 4,998,327
Barclays Bank PLC
7/1/99 4.88 (b) 5,000,000 4,997,688
3/1/00 5.30 10,000,000 9,996,141
6/14/00 5.66 10,000,000 9,995,417
Bayerische Hypo-und
Vereinsbank AG
7/26/99 5.01 (b) 10,000,000 9,995,556
Canadian Imperial Bank of
Commerce
2/23/00 5.17 5,000,000 4,998,436
Commerzbank AG
9/1/99 5.03 10,000,000 10,000,000
Credit Communale de Belgique
9/14/99 5.09 15,000,000 15,000,000
12/29/99 5.40 10,000,000 10,000,000
DUE DATE ANNUALIZED YIELD AT TIME OF PRINCIPAL AMOUNT VALUE (NOTE 1)
PURCHASE
Deutsche Bank AG
7/1/99 4.89% (b) $ 25,000,000 $ 24,987,049
8/9/99 5.00 23,000,000 23,011,853
8/10/99 4.93 10,000,000 10,000,000
2/16/00 5.12 15,000,000 14,995,445
Dresdner Bank AG
8/10/99 5.00 20,000,000 20,000,000
Landesbank Hessen-Thuringen
8/24/99 5.10 15,000,000 15,000,223
3/1/00 5.22 5,000,000 4,998,391
Merita Bank PLC
9/10/99 5.05 20,000,000 20,000,000
RaboBank Nederland Coop.
Central
9/2/99 5.00 5,000,000 5,000,000
Royal Bank of Canada
2/28/00 5.26 5,000,000 4,998,564
6/5/00 5.55 15,000,000 14,994,638
Societe Generale, France
12/6/99 5.21 15,000,000 15,000,000
Toronto Dominion Bank
11/10/99 5.10 3,000,000 2,997,786
12/8/99 5.20 20,000,000 20,001,732
2/18/00 5.15 12,000,000 11,997,428
UBS AG
5/18/00 5.35 10,000,000 9,994,910
6/2/00 5.52 20,000,000 19,992,909
6/5/00 5.55 25,000,000 24,991,063
342,943,556
TOTAL CERTIFICATES OF DEPOSIT 619,940,848
COMMERCIAL PAPER - 49.0%
Abbey National Treasury
Services PLC
8/9/99 4.93 5,000,000 4,973,946
ABN-AMRO North America, Inc.
12/6/99 5.20 4,000,000 3,911,081
Aspen Funding Corp.
7/12/99 4.94 7,000,000 6,989,477
Asset Securitization Coop.
Corp.
7/26/99 4.95 4,000,000 3,986,333
9/18/99 5.05 (b) 10,000,000 10,000,000
Associates Corp. of North
America
8/12/99 5.04 4,000,000 3,976,667
Associates First Capital BV
7/20/99 4.91 5,000,000 4,987,228
Associates First Capital Corp.
12/13/99 5.39 5,000,000 4,879,688
Bank of Scotland Treasury
Services
9/9/99 5.27 10,000,000 9,898,500
COMMERCIAL PAPER - CONTINUED
DUE DATE ANNUALIZED YIELD AT TIME OF PRINCIPAL AMOUNT VALUE (NOTE 1)
PURCHASE
Bear Stearns Companies, Inc.
9/9/99 5.11% $ 5,000,000 $ 4,950,903
Centric Capital Corp.
7/2/99 4.94 16,580,000 16,577,734
7/8/99 4.94 5,000,000 4,995,217
7/9/99 5.02 15,000,000 14,983,333
7/12/99 4.96 20,000,000 19,969,811
Citibank Credit Card Master
Trust I (Dakota Certificate
Program)
7/12/99 4.95 10,000,000 9,984,967
7/20/99 4.87 5,000,000 4,987,254
8/11/99 4.89 5,000,000 4,972,496
9/8/99 5.16 7,000,000 6,931,575
ConAgra, Inc.
7/12/99 5.11 11,000,000 10,982,926
7/21/99 5.22 2,000,000 1,994,222
CXC, Inc.
7/20/99 4.88 10,000,000 9,974,508
11/10/99 5.04 10,200,000 10,015,992
Daimler-Chrysler North
America Corp.
7/15/99 5.02 10,000,000 9,980,556
7/28/99 5.08 25,000,000 24,905,313
8/10/99 5.04 5,000,000 4,972,222
8/31/99 5.26 20,000,000 19,823,439
Delaware Funding Corp.
7/7/99 4.94 15,000,000 14,987,700
7/8/99 5.02 4,720,000 4,715,411
7/26/99 4.87 3,000,000 2,989,979
Den Danske Corp., Inc.
7/22/99 4.88 9,000,000 8,974,695
Enterprise Funding Corp.
7/8/99 5.02 3,749,000 3,745,355
7/14/99 4.95 10,000,000 9,982,233
7/15/99 4.95 5,662,000 5,651,167
7/26/99 5.08 8,018,000 7,989,881
8/5/99 4.90 3,093,000 3,078,446
8/9/99 5.21 25,000,000 24,859,708
8/24/99 5.05 4,919,000 4,882,108
8/26/99 4.90 4,400,000 4,366,941
8/26/99 5.03 11,263,000 11,175,925
Falcon Asset Securitization
7/8/99 4.96 10,000,000 9,990,394
7/15/99 4.95 20,000,000 19,961,733
7/27/99 5.10 20,000,000 19,926,622
9/15/99 5.14 10,000,000 9,892,967
Finova Capital Corp.
7/12/99 4.98 3,000,000 2,995,453
Fleet Funding Corp.
7/19/99 5.02 10,000,000 9,975,000
Ford Motor Credit Co.
7/16/99 4.86 10,000,000 9,979,958
7/19/99 4.86 25,000,000 24,939,875
DUE DATE ANNUALIZED YIELD AT TIME OF PRINCIPAL AMOUNT VALUE (NOTE 1)
PURCHASE
GE Capital International
Funding, Inc.
8/24/99 5.12% $ 20,000,000 $ 19,847,900
General Electric Capital Corp.
8/18/99 4.93 20,000,000 19,871,733
9/1/99 4.94 5,000,000 4,958,581
General Electric Co.
7/19/99 4.89 5,000,000 4,988,050
General Motors Acceptance Corp.
8/18/99 4.88 10,000,000 9,935,867
Halifax PLC
12/2/99 5.28 6,000,000 5,867,945
Household Finance Corp.
12/13/99 5.31 10,000,000 9,763,042
JC Penney Funding Corp.
7/21/99 5.28 2,000,000 1,994,167
7/22/99 5.28 1,000,000 996,932
Kitty Hawk Funding Corp.
8/9/99 5.21 11,000,000 10,938,272
8/23/99 5.11 4,695,000 4,660,025
8/31/99 5.02 10,000,000 9,916,125
Lehman Brothers Holdings, Inc.
7/14/99 5.05 5,000,000 4,990,918
7/21/99 5.09 5,000,000 4,985,931
MCI WorldCom, Inc.
7/7/99 5.15 6,000,000 5,994,920
8/16/99 5.38 (b) 10,000,000 10,000,000
8/24/99 5.31 1,000,000 992,110
Merrill Lynch & Co., Inc.
7/15/99 4.87 5,000,000 4,990,628
Morgan (JP) & Co., Inc.
9/22/99 5.23 10,000,000 9,881,033
Nationwide Building Society
8/5/99 4.87 5,000,000 4,976,618
Newport Funding Corp.
7/15/99 5.04 (b) 10,000,000 10,000,000
Norddeutsche Landesbank
Girozentrale
8/5/99 4.91 15,000,000 14,930,146
Norfolk Southern Corp.
7/8/99 5.11 2,000,000 1,998,024
7/13/99 5.16 2,000,000 1,996,580
7/14/99 5.18 1,000,000 998,140
PHH Corp.
7/1/99 5.33 3,000,000 3,000,000
7/15/99 5.05 2,000,000 1,996,103
Preferred Receivables Funding
Corp.
7/15/99 5.02 10,000,000 9,980,556
8/3/99 5.09 7,000,000 6,967,596
Salomon Smith Barney
Holdings, Inc.
7/8/99 4.87 5,000,000 4,995,304
7/12/99 4.87 15,000,000 14,977,908
7/20/99 4.95 5,000,000 4,987,017
COMMERCIAL PAPER - CONTINUED
DUE DATE ANNUALIZED YIELD AT TIME OF PRINCIPAL AMOUNT VALUE (NOTE 1)
PURCHASE
Societe Generale North
America, Inc.
8/10/99 4.92% $ 10,000,000 $ 9,946,667
Three Rivers Funding Corp.
7/16/99 5.05 15,261,000 15,229,015
7/19/99 5.07 10,000,000 9,974,750
9/13/99 5.10 5,354,000 5,298,643
Triple A One Funding Corp.
7/26/99 5.07 4,304,000 4,288,906
Tyco International Group SA
7/12/99 5.13 1,000,000 998,442
7/15/99 5.15 4,582,000 4,572,877
9/16/99 5.37 2,000,000 1,977,328
UBS Finance (Delaware), Inc.
8/9/99 4.91 10,000,000 9,948,108
8/9/99 4.92 10,000,000 9,948,000
12/7/99 5.27 10,000,000 9,773,425
Unifunding, Inc.
7/9/99 4.90 10,000,000 9,989,244
9/2/99 5.05 15,000,000 14,870,850
Westpac Capital Corp.
8/16/99 4.95 5,000,000 4,969,142
Windmill Funding Corp.
7/13/99 5.02 10,000,000 9,983,333
7/14/99 4.87 6,000,000 5,989,535
7/16/99 4.88 15,000,000 14,969,875
7/21/99 4.87 6,000,000 5,983,933
7/22/99 5.06 10,000,000 9,970,600
7/23/99 4.88 6,603,000 6,583,551
8/4/99 4.88 19,748,000 19,658,103
8/18/99 4.93 5,000,000 4,967,533
TOTAL COMMERCIAL PAPER 866,936,970
BANK NOTES - 6.5%
American Express Centurion Bank
7/12/99 4.91 (b) 10,000,000 10,000,000
Comerica Bank, Detroit
8/9/99 5.01 (b) 2,000,000 1,999,713
First Union National Bank of
North Carolina
7/1/99 5.15 (b) 10,000,000 10,000,000
7/21/99 5.02 (b) 15,000,000 15,000,000
Fleet National Bank, Providence
8/4/99 5.00 (b) 7,000,000 6,998,792
Key Bank NA
7/21/99 4.90 (b) 5,000,000 4,999,795
Mellon Bank NA, Pittsburgh
7/1/99 4.88 (b) 4,000,000 3,998,040
8/10/99 4.92 15,000,000 15,000,000
NationsBank NA
7/1/99 4.90 (b) 5,000,000 4,998,142
7/1/99 4.91 (b) 5,000,000 4,998,314
9/1/99 4.90 10,000,000 10,000,000
DUE DATE ANNUALIZED YIELD AT TIME OF PRINCIPAL AMOUNT VALUE (NOTE 1)
PURCHASE
PNC Bank NA, Pittsburgh
8/3/99 5.01% (b) $ 7,000,000 $ 6,999,646
US Bank NA
7/15/99 4.85 (b) 20,000,000 19,998,979
TOTAL BANK NOTES 114,991,421
MASTER NOTES - 1.4%
Goldman Sachs Group L.P.
9/1/99 5.18 (b) 10,000,000 10,000,000
J.P. Morgan Securities, Inc.
7/8/99 4.92 (b) 15,000,000 15,000,000
TOTAL MASTER NOTES 25,000,000
MEDIUM-TERM NOTES - 4.7%
Abbey National Treasury
Services PLC
8/17/99 4.85 (a)(b) 5,000,000 4,999,440
Bishops Gate Resources
Mortgage Trust
7/1/99 5.14 (b) 4,000,000 4,000,000
CIT Group, Inc.
7/1/99 4.95 (b) 10,000,000 9,994,884
GE Life & Annuity Assurance Co.
7/1/99 5.04 (b)(c) 14,000,000 14,000,000
General Electric Capital Corp.
7/12/99 4.95 (b) 4,000,000 4,000,000
8/3/99 4.95 (b) 10,000,000 10,000,000
Goldman Sachs Group L.P.
7/7/99 5.20 (b)(c) 7,000,000 7,000,000
8/10/99 5.05 (a)(b) 4,000,000 4,000,000
Morgan Guaranty Trust Co., NY
7/27/99 5.09 (b) 10,000,000 9,998,830
Norwest Corp.
7/22/99 5.02 (b) 6,000,000 6,000,000
RACERS
7/2/99 4.94 (a)(b) 9,000,000 9,000,000
TOTAL MEDIUM-TERM NOTES 82,993,154
SHORT-TERM NOTES - 2.8%
Capital One Funding Corp.
Series 1994 B,
7/7/99 5.18 (b) 2,906,000 2,906,000
Capital One Funding Corp.
Series 1995 E,
7/7/99 5.18 (b) 5,380,000 5,380,000
Capital One Funding Corp.
Series 1996 I,
7/7/99 5.18 (b) 3,762,000 3,762,000
Monumental Life Insurance Co.
7/1/99 5.07 (b)(c) 5,000,000 5,000,000
7/1/99 5.11 (b)(c) 5,000,000 5,000,000
SHORT-TERM NOTES - CONTINUED
DUE DATE ANNUALIZED YIELD AT TIME OF PRINCIPAL AMOUNT VALUE (NOTE 1)
PURCHASE
New York Life Insurance Co.
7/1/99 5.12% (b)(c) $ 4,000,000 $ 4,000,000
7/7/99 5.00 (b) 5,000,000 5,000,000
SMM Trust Series 1999 E,
7/1/99 4.98 (a)(b) 3,000,000 3,000,000
SMM Trust Series 1999 I,
7/1/99 5.05 (a)(b) 3,000,000 3,000,000
Strategic Money Market Trust
Series 1998 A,
9/16/99 5.26 (b) 14,000,000 14,000,000
TOTAL SHORT-TERM NOTES 51,048,000
REPURCHASE AGREEMENTS - 0.6%
MATURITY AMOUNT
In a joint trading account $ 10,218,449 10,217,000
(U.S. Treasury Obligations)
dated 6/30/99 due 7/1/99 At
5.1% (Cost $10,217,000)
TOTAL INVESTMENT IN $ 1,771,127,393
SECURITIES - 100%
Total Cost for Income Tax Purposes $ 1,771,127,393
</TABLE>
LEGEND
(a) 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 $23,999,440 or 1.4% of net assets.
(b) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end. The due dates on these types of
securities reflects the next interest rate reset date or, when
applicable, the final maturity date.
(c) Restricted securities - Investment in securities not registered
under the Securities Act of 1933.
SECURITY ACQUISITION DATE COST
GE Life & Annuity Assurance 4/8/99 $ 14,000,000
Co. 5.04% 7/1/99
Goldman Sachs Group L.P. 12/7/98 $ 7,000,000
5.20% 7/7/99
Monumental Life Insurance Co: 9/17/98 $ 5,000,000
5.07% 7/1/99
5.11% 7/1/99 3/12/99 $ 5,000,000
New York Life Insurance Co 12/21/98 $ 4,000,000
5.12% 7/1/99
INCOME TAX INFORMATION
At December 31, 1998, the fund had a capital loss carryforward of
approximately $29,000 of which $1,000 and $28,000 will expire on
December 31, 2002 and 2005, respectively.
VARIABLE INSURANCE PRODUCTS FUND: MONEY MARKET PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 1,771,127,393
value - See accompanying
schedule
Receivable for investments 333,000
sold
Receivable for fund shares 846,791
sold
Interest receivable 8,413,043
Prepaid expenses 35,553
TOTAL ASSETS 1,780,755,780
LIABILITIES
Payable to custodian bank $ 50,814
Payable for fund shares 49,522,885
purchased
Accrued management fee 264,206
Other payables and accrued 141,908
expenses
TOTAL LIABILITIES 49,979,813
NET ASSETS $ 1,730,775,967
Net Assets consist of:
Paid in capital $ 1,730,789,452
Accumulated net realized gain (13,485)
(loss) on investments
NET ASSETS, for 1,730,774,396 $ 1,730,775,967
shares outstanding
NET ASSET VALUE, offering $1.00
price and redemption price
per share ($1,730,775,967
(divided by) 1,730,774,396
shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30,
1999 (UNAUDITED)
INTEREST INCOME $ 41,625,009
EXPENSES
Management fee $ 1,356,863
Transfer agent fees 569,567
Accounting fees and expenses 82,987
Non-interested trustees' 2,590
compensation
Custodian fees and expenses 15,035
Registration fees 881
Audit 13,022
Legal 1,515
Miscellaneous 35,553
Total expenses before 2,078,013
reductions
Expense reductions (2,445) 2,075,568
NET INTEREST INCOME 39,549,441
NET REALIZED GAIN (LOSS) ON 15,235
INVESTMENTS
NET INCREASE IN NET ASSETS $ 39,564,676
RESULTING FROM OPERATIONS
OTHER INFORMATION
Expense reductions
Custodian credits $ 2,445
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
ASSETS 1999 (UNAUDITED)
Operations Net interest income $ 39,549,441 $ 73,329,985
Net realized gain (loss) 15,235 30,030
NET INCREASE (DECREASE) IN 39,564,676 73,360,015
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (39,549,441) (73,329,985)
from net interest income
Share transactions at net 1,842,537,411 2,992,850,183
asset value of $1.00 per
share Proceeds from sales of
shares
Reinvestment of 39,549,441 73,314,040
distributions from net
interest income
Cost of shares redeemed (1,658,815,536) (2,579,498,939)
NET INCREASE (DECREASE) IN 223,271,316 486,665,284
NET ASSETS AND SHARES
RESULTING FROM SHARE
TRANSACTIONS
TOTAL INCREASE (DECREASE) 223,286,551 486,695,314
IN NET ASSETS
NET ASSETS
Beginning of period 1,507,489,416 1,020,794,102
End of period $ 1,730,775,967 $ 1,507,489,416
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 1996 1995
Net asset value, beginning of $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
period
Income from Investment .024 .053 .053 .052 .057
Operations Net interest
income
Less Distributions
From net interest income (.024) (.053) (.053) (.052) (.057)
Net asset value, end of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
TOTAL RETURN B 2.43% 5.46% 5.51% 5.41% 5.87%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 1,730,776 $ 1,507,489 $ 1,020,794 $ 1,126,155 $ 808,874
(000 omitted)
Ratio of expenses to average .25% A .30% .31% .30% .33%
net assets
Ratio of net interest income 4.84% A 5.33% 5.32% 5.28% 5.72%
to average net assets
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA 1994
Net asset value, beginning of $ 1.000
period
Income from Investment .042
Operations Net interest
income
Less Distributions
From net interest income (.042)
Net asset value, end of period $ 1.000
TOTAL RETURN B 4.25%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 748,606
(000 omitted)
Ratio of expenses to average .27%
net assets
Ratio of net interest income 4.32%
to average net assets
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED
AND DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE COMPANY'S
SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE THE TOTAL
RETURNS SHOWN.
NOTES TO FINANCIAL STATEMENTS
For the period ended June 30, 1999 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Money Market Portfolio (the fund) is a fund of Variable Insurance
Products Fund (the trust) and is authorized to issue an unlimited
number of shares. 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. Shares
of the fund may only be purchased by insurance companies for the
purpose of funding variable annuity or variable life insurance
contracts. The financial statements have been prepared in conformity
with generally accepted accounting principles which require management
to make certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. 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.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INTEREST INCOME. Interest income, which includes amortization of
premium and accretion of discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Dividends are declared daily and paid
monthly from net interest income.
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.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the fund, along with
other affiliated entities of Fidelity Management & Research Company
(FMR), may transfer uninvested cash balances into one or more joint
trading accounts. These balances are invested in one or more
repurchase agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally 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 $35,000,000 or 2.0% of net assets.
3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. For the fund, 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 the fund and an
income-based fee. The group fee rate is the weighted average of a
series of rates and is based on the monthly average net assets of all
the mutual funds advised by FMR. The rates ranged from .1100% to
.3700% for the period. The annual individual fund fee rate is .03%. In
the event that these rates were lower than the contractual rates in
effect during the period, FMR voluntarily implemented the above rates,
as they resulted in the same or a lower management fee. The
income-based fee is added only when the fund's gross yield exceeds 5%.
At that time the income-based fee would equal 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% of average net
assets. For the period, the total management fee was equivalent to an
annualized rate of .17%. The income-based portion of this fee was
equal to $46,996, or an annualized rate of .01% of the fund's average
net assets.
SUB-ADVISER FEE. As the fund's investment sub-adviser, Fidelity
Investments Money Management, 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.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the
1940 Act, the Board of Trustees have adopted a Distribution and
Service Plan (the Plan) on behalf of the fund. Under the Plan, FMR may
use its resources to pay administrative and promotional expenses
related to the sale of the fund's shares. Subject to the approval of
the Board of Trustees, the Plan also authorizes payments to third
parties that assist in the sale of fund shares or render shareholder
support services.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations
Company, Inc. (FIIOC), an affiliate of FMR, is the fund's transfer,
dividend disbursing and shareholder servicing agent. FIIOC receives
account fees and asset-based fees that vary according to account size
and type of account. FIIOC pays a portion of the expenses related to
the typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees of
the fund were equivalent to an annualized rate of .07% of average net
assets.
ACCOUNTING FEES. Fidelity Service Company, Inc. maintains the fund's
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
MONEY MARKET INSURANCE. Pursuant to an Exemptive Order issued by the
SEC, the fund, along with other money market funds advised by FMR or
its affiliates, has entered into insurance agreements with FIDFUNDS
Mutual Limited (FIDFUNDS), an affiliated mutual insurance company,
effective January 1, 1999. FIDFUNDS provides limited coverage for
certain loss events including issuer default as to payment of
principal or interest and bankruptcy or insolvency of a credit
enhancement provider. The insurance does not cover losses resulting
from changes in interest rates, ratings downgrades or other market
conditions. The fund may be subject to a special assessment of up to
approximately 2.5 times the fund's annual gross premium if covered
losses exceed certain levels. During the period, the fund paid
premiums of $71,105 to FIDFUNDS, which are being amortized over one
year.
4. EXPENSE REDUCTIONS.
The fund has entered into an arrangement with its custodian whereby
credits realized on uninvested cash balances were used to offset a
portion of certain funds' expenses.
For the period, the reductions under this arrangement are shown under
the caption "Other Information" on the fund's Statement of Operations.
5. BENEFICIAL INTEREST.
At the end of the period, Fidelity Investments Life Insurance Company
(FILI) and its subsidiaries, affiliates of FMR, were the record owners
of approximately 51% of the outstanding shares of the fund.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISER
Fidelity Investments Money Management, Inc.
Merrimack, NH
OFFICERS
Edward C. Johnson 3d, PRESIDENT
Robert C. Pozen, SENIOR VICE PRESIDENT
Robert K. Duby, VICE PRESIDENT
Fred L. Henning, Jr., VICE PRESIDENT
Boyce I. Greer, VICE PRESIDENT
Stanley N. Griffith, ASSISTANT VICE PRESIDENT
Eric D. Roiter, SECRETARY
Richard A. Silver, TREASURER
Matthew N. Karstetter, DEPUTY TREASURER
John H. Costello, ASSISTANT TREASURER
Leonard M. Rush, ASSISTANT TREASURER
Thomas J. Simpson, ASSISTANT TREASURER
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER SERVICING AGENT
Fidelity Investments Institutional Operations Co., Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
* INDEPENDENT TRUSTEES
VIPMM-SANN-0899 81785
1.705628.101
VARIABLE INSURANCE PRODUCTS
FUND: OVERSEAS PORTFOLIO
SEMIANNUAL REPORT
JUNE 30, 1999
(2_FIDELITY_LOGOS)(registered trademark)
CONTENTS
MARKET ENVIRONMENT 3 A review of what happened in
world markets during the
past six months.
PERFORMANCE AND INVESTMENT 4 How the fund has done over
SUMMARY time, and an overview of the
fund's investments at the
end of the period.
FUND TALK 5 The manager's review of fund
performance, strategy and
outlook.
INVESTMENTS 6 A complete list of the fund's
investments with their
market values.
FINANCIAL STATEMENTS 12 Statements of assets and
liabilities, operations, and
changes in net assets, as
well as financial highlights.
NOTES 15 Notes to the financial
statements.
Standard & Poor's, S&P and S&P 500 are registered service marks of The
McGraw-Hill Companies, Inc. and have been licensed for use by
Fidelity Distributors Corporation.
Third party marks appearing herein are the property of their
respective owners.
All other marks appearing herein are registered or unregistered
trademarks or service marks of FMR Corp. or an affiliated company.
This report is printed on recycled paper using soy-based inks.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE FUND'S
PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS
STATED ON THE COVER AND DO NOT NECESSARILY REPRESENT THE VIEWS OF
FIDELITY OR ANY OTHER PERSON IN THE FIDELITY ORGANIZATION. ANY SUCH
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER
CONDITIONS AND FIDELITY DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH
VIEWS. THESE VIEWS MAY NOT BE RELIED ON AS INVESTMENT ADVICE AND,
BECAUSE INVESTMENT DECISIONS FOR A FIDELITY FUND ARE BASED ON NUMEROUS
FACTORS, MAY NOT BE RELIED ON AS AN INDICATION OF TRADING INTENT ON
BEHALF OF ANY FIDELITY FUND.
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.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT
INSURED BY THE FDIC, FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND
ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
MARKET ENVIRONMENT
An investor-friendly equity environment characterized the first half
of the year, as the majority of domestic and international stock
markets turned in positive performances for the six-month period
ending June 30, 1999. The bulk of debt sectors received a colder
shoulder, however, as wary bond investors shied away from the
combination of higher inflation expectations and the U.S. Federal
Reserve Board's tighter monetary policy. Notably, the period's last
day was an eventful one: On June 30, for the first time in two years,
the Fed increased key short-term interest rates with a quarter-point
hike to 5.00%. At the same time, it also announced a shift to a
"neutral" position - meaning the Fed's next move is as likely to be a
rate decrease as it is another hike - sparking a rally in the bond
market and sending several equity indexes into record-high territory.
U.S. STOCK MARKETS
The Standard & Poor's 500 Index - a broad measure of U.S. stock market
performance - rose 12.38% for the six months that ended June 30, 1999.
At this pace, the S&P 500(registered trademark) is well on its way to
tacking on another year to its record of four consecutive annual
double-digit percentage gains. Meanwhile, the Dow Jones Industrial
Average - an index of 30 blue-chip stocks - posted a lofty 20.39%
increase for the first half of the year. After several years on the
sidelines, small-cap stocks finally rebounded, particularly in the
second quarter of 1999, as the Russell 2000(registered trademark)
Index - a popular measure of small-cap stock performance - returned
9.29% for the first half of the year. But it was the technology-laden
NASDAQ Composite Index that posted the highest return of these popular
equity performance measures, with a 22.70% increase for the six months
ending June 30, 1999.
At the period's outset, the economic climate and investment
environment were similar to the previous several years: high levels of
employment, low inflation and strong consumer confidence, with a
handful of large-cap growth stocks - particularly in the technology
sector - continuing to set the pace for bullish equity market
performance. By the beginning of the second quarter, however, market
conditions began to change. The global economy began to improve, due
in large part to the willingness of central banks worldwide to lower
interest rates, resulting in a broadening of corporate earnings. This
environment proved favorable for small- and mid-cap value stocks and
the economically sensitive cyclical stocks. The relatively low
valuations of these issues proved quite alluring compared to their
expensive, large-cap growth counterparts. Consequently, a dramatic
rotation into value and cyclical names dominated the second quarter of
1999.
FOREIGN STOCK MARKETS
Over 165 interest-rate cuts in more than 75 countries since the
worldwide economic crisis last October helped foreign stock markets
post generally positive performances in the first half of 1999. The
Morgan Stanley Capital International (MSCI) EAFE(registered trademark)
Index - which measures stock performance in Europe, Australia and the
Far East - returned 4.08% for the six months ending June 30, 1999.
Europe's performance was disappointing, as prospects for economic
growth and corporate profits declined, and its new common currency -
the euro - struggled since its inception in January. For the period,
the MSCI Europe Index fell 2.30%. Conversely, the previously faltering
Japanese stock market roared ahead. New corporate restructuring
reforms and government economic intervention helped the Tokyo Stock
Exchange Index (TOPIX) - a measure of the Japanese market - notch a
first-half return of 21.93%. Emerging markets also rebounded. Despite
Brazil's currency devaluation in January, and fears of a similar move
by Argentina and Colombia late in the period, Latin America was a
strong performer as the Morgan Stanley Capital International Emerging
Markets Free-Latin America Index returned 31.03%. Southeast Asia, too,
bounced back, but the period's most remarkable recovery was in Russia,
which was the first half's best-performing emerging market, with a
return of approximately 133.70%.
U.S. BOND MARKETS
Despite good news at the close of the period, signs of continued
strength and emerging inflationary pressures in the U.S. economy,
along with improving conditions abroad, hampered the taxable-bond
market during the six-month period. The Lehman Brothers Aggregate Bond
Index - a widely followed measure of taxable bond performance - fell
1.37% during that time. A sharp rise in consumer prices sparked the
worst Treasury bond sell-off in three years, pushing their prices down
and bringing yields up to the pre-crisis levels of last summer. The
resulting negative market sentiment was further fueled by the Fed's
shift in bias toward raising interest rates in mid-May. The Lehman
Brothers Treasury Index returned -2.50% for the six-month period
ending June 30, 1999. As investors fled Treasuries for more attractive
alternatives, spread sector securities - such as corporate and
mortgage securities - rallied in response. However, the emergence of
rising rates and inflation fears soon slowed the rise in spread
products. For the six-month period, the Lehman Brothers Corporate Bond
Index and the Lehman Brothers Mortgage-Backed Securities Index had
returns of -2.26% and 0.53%, respectively. Based on performance,
high-yield bonds were among the most attractive domestic debt
offerings, as the Merrill Lynch High Yield Master II Index returned
2.49% during the first half of 1999.
FOREIGN BOND MARKETS
Like its U.S. Treasury counterparts, world government bond performance
was hindered by the U.S. Federal Reserve Board's adoption of a
tightening bias - an inclination to raise interest rates - during the
first half of the year. For the six months ending June 30, 1999, the
Salomon Brothers World Government Bond Index - a measure of government
bond market performance in developed nations - fell 7.17%. Despite
rising U.S. interest rates, emerging-market debt enjoyed positive
performance in the first half of 1999, as the J.P. Morgan Emerging
Markets Bond Index Plus - which tracks total returns for traded
external debt instruments in the emerging markets - returned 10.57%
during the period. A significantly important development in the strong
emerging-market performance was the dramatic increase in the price of
oil, which benefited Venezuela, the second-best performing country
year-to-date, as well as Russia and Mexico.
VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). If Fidelity had not reimbursed certain fund
expenses, the fund's past 10 year total return would have been lower.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
VIP: OVERSEAS - "INITIAL CLASS" 5.12% 10.76% 10.58%
MSCI EAFE 7.86% 8.33% 6.66%
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's returns to the performance of the Morgan
Stanley Capital International Europe, Australasia, Far East (EAFE)
Index - a market capitalization-weighted index that is designed to
represent the performance of developed stock markets outside the
United States and Canada. As of June 30, 1999, the index included over
1,000 equity securities of companies domiciled in 21 countries.
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.
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, THE TOTAL RETURNS 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. Foreign investments involve greater risks and
potential rewards than U.S. investments. These risks include political
and economic uncertainties of foreign countries, as well as the risk
of currency fluctuations.
(checkmark)UNDERSTANDING PERFORMANCE
Many markets around the globe offer the
potential for significant growth over time;
however, investing in foreign markets means
assuming greater risks than investing in the
United States. Factors like changes in a country's
financial markets, its local political and
economic climate, and the fluctuating value of
its currency create these risks. For these reasons
an international fund's performance may be
more volatile than a fund that invests exclusively
in the United States.
$10,000 OVER 10 YEARS
VIP OVERSEAS MS EAFE (NET MA TAX)
00154 MS001
1989/06/30 10000.00 10000.00
1989/07/31 10935.39 11255.73
1989/08/31 10858.24 10749.52
1989/09/30 11533.27 11239.18
1989/10/31 10906.46 10787.62
1989/11/30 11494.70 11329.90
1989/12/31 12217.94 11747.95
1990/01/31 12054.00 11310.82
1990/02/28 11772.65 10521.39
1990/03/31 12217.63 9425.31
1990/04/30 12285.35 9350.51
1990/05/31 13088.25 10417.42
1990/06/30 13378.45 10325.66
1990/07/31 14055.60 10471.11
1990/08/31 12623.92 9454.28
1990/09/30 11424.41 8136.68
1990/10/31 12488.49 9404.53
1990/11/30 12101.55 8849.78
1990/12/31 12014.49 8993.14
1991/01/31 12130.57 9284.03
1991/02/28 12539.25 10279.26
1991/03/31 12172.49 9662.17
1991/04/30 12440.12 9757.06
1991/05/31 12469.86 9858.87
1991/06/30 11785.90 9134.43
1991/07/31 12370.74 9583.22
1991/08/31 12410.39 9388.60
1991/09/30 12915.92 9917.74
1991/10/31 13005.13 10058.33
1991/11/30 12539.25 9588.76
1991/12/31 12975.40 10083.95
1992/01/31 13134.00 9868.56
1992/02/29 12860.30 9515.35
1992/03/31 12599.07 8887.18
1992/04/30 13382.75 8929.42
1992/05/31 13965.48 9527.12
1992/06/30 13704.26 9075.23
1992/07/31 12830.16 8842.96
1992/08/31 12719.64 9397.60
1992/09/30 12207.24 9212.02
1992/10/31 11373.33 8728.81
1992/11/30 11313.04 8810.95
1992/12/31 11584.32 8856.52
1993/01/31 11915.87 8855.44
1993/02/28 12149.27 9122.93
1993/03/31 12992.11 9918.14
1993/04/30 13855.51 10859.39
1993/05/31 14153.59 11088.74
1993/06/30 13804.12 10915.74
1993/07/31 14348.88 11297.84
1993/08/31 15119.78 11907.73
1993/09/30 15037.55 11639.70
1993/10/31 15582.31 11998.40
1993/11/30 14924.48 10949.62
1993/12/31 15911.23 11740.26
1994/01/31 16949.36 12732.84
1994/02/28 16650.42 12697.58
1994/03/31 16237.26 12150.67
1994/04/30 16774.37 12666.22
1994/05/31 16567.79 12593.49
1994/06/30 16392.20 12771.47
1994/07/31 16826.02 12894.29
1994/08/31 17022.27 13199.56
1994/09/30 16578.12 12783.84
1994/10/31 16918.98 13209.54
1994/11/30 16278.58 12574.68
1994/12/31 16185.62 12653.42
1995/01/31 15514.23 12167.34
1995/02/28 15555.05 12132.42
1995/03/31 16033.99 12889.13
1995/04/30 16492.10 13373.87
1995/05/31 16721.16 13214.45
1995/06/30 16877.33 12982.71
1995/07/31 17626.97 13790.96
1995/08/31 17137.63 13264.89
1995/09/30 17387.51 13523.95
1995/10/31 17043.92 13160.43
1995/11/30 17241.74 13526.60
1995/12/31 17762.33 14071.59
1996/01/31 18095.50 14129.36
1996/02/29 18135.35 14177.13
1996/03/31 18412.72 14478.19
1996/04/30 18924.77 14899.12
1996/05/31 18935.44 14624.95
1996/06/30 19074.12 14707.26
1996/07/31 18508.73 14277.40
1996/08/31 18647.41 14308.69
1996/09/30 19191.47 14688.81
1996/10/31 18999.45 14538.50
1996/11/30 19991.56 15116.96
1996/12/31 20098.24 14922.50
1997/01/31 20098.24 14403.20
1997/02/28 20563.89 14642.29
1997/03/31 20750.73 14697.93
1997/04/30 20925.89 14778.77
1997/05/31 22233.75 15743.38
1997/06/30 23401.49 16613.99
1997/07/31 24195.56 16885.13
1997/08/31 22373.88 15626.35
1997/09/30 24020.40 16504.08
1997/10/31 22338.85 15239.70
1997/11/30 22233.75 15087.31
1997/12/31 22420.59 15221.74
1998/01/31 23156.27 15920.71
1998/02/28 24459.73 16945.21
1998/03/31 25569.25 17470.17
1998/04/30 26287.91 17611.34
1998/05/31 26250.08 17529.09
1998/06/30 25997.92 17664.94
1998/07/31 26199.65 17847.24
1998/08/31 21433.79 15639.36
1998/09/30 21408.57 15163.30
1998/10/31 23362.83 16747.41
1998/11/30 24737.11 17608.72
1998/12/31 25291.87 18306.73
1999/01/31 25644.89 18256.02
1999/02/28 24964.97 17824.27
1999/03/31 25976.71 18571.82
1999/04/30 27132.99 19327.32
1999/05/31 25884.74 18335.26
1999/06/30 27330.08 19053.27
IMATRL PRASUN SHR__CHT 19990630 19990714 113134 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund: Overseas Portfolio on
June 30, 1989. As the chart shows, by June 30, 1999, the value of the
investment would have grown to $27,330 - a 173.30% increase on the
initial investment. For comparison, look at how the Morgan Stanley
Capital International EAFE Index did over the same period. With
dividends and capital gains, if any, reinvested, the same $10,000
investment would have grown to $19,053 - a 90.53% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE 30, 1999
% OF FUND'S INVESTMENTS
Elf Aquitaine (France) 1.8
Nokia AB (Finland) 1.7
BP Amoco PLC (United Kingdom) 1.6
Shell Transport & Trading Co. 1.5
PLC (Reg.) (United Kingdom)
SmithKline Beecham PLC 1.4
(United Kingdom)
TOP FIVE MARKET SECTORS AS OF JUNE 30, 1999
% OF FUND'S INVESTMENTS
FINANCE 21.2
UTILITIES 17.4
HEALTH 8.0
ENERGY 7.1
TECHNOLOGY 7.0
TOP FIVE COUNTRIES AS OF JUNE 30, 1999
(EXCLUDING CASH EQUIVALENTS) % OF FUND'S INVESTMENTS
Japan 22.7
United Kingdom 19.3
France 12.1
Germany 8.3
Netherlands 6.7
TOP COUNTRIES ARE BASED ON THE LOCATION OF THE ISSUER OF EACH
SECURITY, INDICATING WHERE THE FUND IS EXPOSED TO POLITICAL AND CREDIT
RISKS. PERCENTAGES ARE ADJUSTED FOR THE EFFECT OF OPEN FUTURES
CONTRACTS, IF APPLICABLE.
VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
(photograph of Richard Mace)
An interview with
Richard Mace,
Portfolio Manager
of Overseas Portfolio
Q. HOW DID THE FUND PERFORM COMPARED TO ITS BENCHMARK, RICK?
A. The fund fared well. For the six months that ended June 30, 1999,
the fund's return topped the 4.08% return of the Morgan Stanley
Capital International EAFE Index, which tracks the performance of
stocks in Europe, Australasia and the Far East. For the 12 months that
ended June 30, 1999, the fund's return lagged the 7.86% return of the
EAFE index.
Q. WHAT FACTORS CONTRIBUTED POSITIVELY TO THE FUND'S PERFORMANCE
DURING THE PERIOD?
A. Good stock selection in several industries - including
telecommunications - helped performance. The telecommunications
industry has undergone a major transformation, sparked primarily by
worldwide privatization, deregulation and technological advances. This
spawned a rash of mergers, acquisitions and alliances among industry
participants seeking to expand their global market shares and defend
their positions at home. The fund's stakes in companies such as
Japan's NTT Mobile Communications and DDI Corp., and the United
Kingdom's British Telecommunications and Vodafone AirTouch, performed
very well. The fund's energy-related investments - including France's
Elf Aquitaine, and the U.K.'s BP Amoco and Shell Transport & Trading -
also performed well as the price of oil rebounded sharply.
Q. WHICH OTHER INVESTMENTS STOOD OUT AMONG THE FUND'S TOP
CONTRIBUTORS?
A. The fund's longstanding position in Finnish telecom company Nokia
generated good results. When I looked at the stock a year and a half
ago, it was trading at a price-to-earnings (P/E) ratio of 20 and the
company was growing its earnings at a 30% to 40% clip. On that basis,
when I compared Nokia to its counterpart growth stocks in the U.S.,
the stock should have been trading at a higher P/E multiple. Thus, I
felt the valuation was attractive.
Q. WHAT FACTORS HINDERED THE FUND'S PERFORMANCE?
A. A major underweighting - relative to the EAFE index - in Japanese
banks detracted from performance. Bank shares in general soared
following the Japanese government's unveiling of a plan to inject
capital into the country's troubled banking system. I could find no
great benefit to the shareholders of these banks, so I decided to
avoid them. In addition, the fund's food and household products
positions declined during the period, namely Swiss-based Nestle and
the U.K.-based Unilever. These companies were hit particularly hard,
as investors became concerned that economic weakness would erode sales
growth.
Q. THE FUND'S COMBINED INVESTMENTS IN JAPAN, THE U.K. AND FRANCE
TOTALED AROUND 54% AT THE CLOSE OF THE PERIOD. HOW DID YOU POSITION
THE FUND WITHIN THESE MARKETS AND HOW DID EACH PERFORM?
A. The fund was underweighted - at approximately 23% and 19%,
respectively - in both Japan and the U.K. relative to the EAFE index
during the period. At 12%, the fund was overweighted in France. The
underweighting in Japan hurt somewhat, as the Japanese market turned
the corner and beat the EAFE's return over the past six months. The
fund's U.K. positions, while moderately underweighted relative to the
index, outperformed it. The fund's investments in France performed
well for the most part, but the weak performance of the euro muted
much of that performance. It's important to note that the fund's
country weightings are accumulated strictly as a result of my stock
selection process. If our research team uncovers more stocks that meet
my investing criteria in a particular country, the fund may be
overweighted in that market.
Q. WHAT'S YOUR OUTLOOK?
A. I'm optimistic that Europe's economies can continue to improve.
Since the beginning of 1999, the European Central Bank has cut
interest rates and the euro has depreciated 12% against the dollar.
This could bode well for European exporters. Consumer spending is also
expected to be fairly strong, and stronger domestic growth could allow
more small-company stocks to perform well. My outlook on Japan is a
bit more tentative. We've begun to see signs of gradual improvement,
but nothing to write home about yet. I'd like to see more concrete
evidence of a turnaround in Japan before I commit to that market.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET OR OTHER CONDITIONS. FOR MORE INFORMATION, SEE PAGE 2.
(checkmark)FUND FACTS
GOAL: seeks long-term growth of capital primarily
by investments in foreign securities
START DATE: January 28, 1987
SIZE: as of June 30, 1999, more than $2.2
billion
MANAGER: Richard Mace, since 1996; joined
Fidelity in 1987
VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO
INVESTMENTS JUNE 30, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 91.7%
SHARES VALUE (NOTE 1)
AUSTRALIA - 2.6%
AMP Ltd. 222,400 $ 2,450,915
Australia & New Zealand 910,042 6,745,668
Banking Group Ltd.
Brambles Industries Ltd. 50,600 1,343,761
Broken Hill Proprietary Co. 497,654 5,811,044
Ltd. (The)
Cable & Wireless Optus Ltd. 1,277,200 2,931,608
(a)
Coles Myer Ltd. 420,326 2,465,266
Commonwealth Bank of Australia 116,600 1,871,122
CSR Ltd. 248,800 717,171
Fosters Brewing Group Ltd. 541,900 1,539,619
Goodman Fielder Ltd. 1,101,900 990,372
National Australia Bank Ltd. 418,100 6,974,431
News Corp. Ltd. 652,382 5,611,041
News Corp. Ltd. sponsored ADR 44,200 1,395,063
(ltd. vtg.)
Rio Tinto Ltd. 235,600 3,894,260
WMC Ltd. 2,027,296 8,779,109
Woolworths Ltd. 571,300 1,915,530
55,435,980
BELGIUM - 0.4%
Electrabel SA 12,900 4,176,799
Fortis B 128,700 4,053,922
8,230,721
BERMUDA - 0.0%
Pacific Century Insurance 194,000 157,026
Holdings Ltd.
CANADA - 1.0%
BCE, Inc. 295,600 14,500,103
Celestica, Inc. (sub-vtg.) 50,500 2,199,255
Cinar Films, Inc. Class B 136,500 3,344,250
(sub. vtg.) (a)
Newbridge Networks Corp. (a) 33,000 947,563
Noranda, Inc. 108,400 1,437,725
22,428,896
DENMARK - 0.6%
Carlsberg AS Class B 58,800 2,444,229
Den Danske Bank Group AS 30,400 3,285,576
Ratin AS Class B 15,100 1,767,978
Tele Danmark AS Class B 39,000 1,912,983
Unidanmark AS Class A 43,200 2,873,216
12,283,982
FINLAND - 2.5%
Asko OY Class A 32,100 524,984
Helsinki Telephone Corp. 53,400 2,541,023
Class E
Nokia AB 404,600 37,046,179
Sampo Insurance Co. Ltd. 97,800 2,842,855
Sonera Group PLC (e) 74,500 1,633,810
UPM-Kymmene Corp. 269,100 8,351,115
Valmet OY 45,800 521,156
53,461,122
SHARES VALUE (NOTE 1)
FRANCE - 11.9%
Alcatel Alsthom Compagnie 45,550 $ 6,462,407
Generale d'Electricite SA
(RFD)
AXA SA de CV (a) 136,726 16,731,904
Banque Nationale de Paris 205,800 17,201,497
Canal Plus SA 9,000 2,533,265
Cap Gemini SA 34,800 5,486,226
Castorama Dubois 22,900 5,448,448
Investissements SA
Club Mediterranee SA (a) 22,000 2,341,788
Coflexip SA sponsored ADR 83,400 3,627,900
Compagnie de St. Gobain 27,600 4,411,102
Compagnie Financiere de 51,200 5,757,169
Paribas Class A (Reg.) (a)
Elf Aquitaine 268,637 39,523,204
France Telecom SA 206,000 15,609,333
Groupe Danone 36,700 9,491,079
L'Oreal SA 5,000 3,390,410
Lafarge SA 29,821 2,844,216
Lagardere S.C.A. (Reg.) 67,400 2,516,962
Michelin SA (Compagnie 66,519 2,729,716
Generale des Etablissements)
Class B
Pechiney SA Class A 15,996 689,682
Pinault Printemps SA 17,000 2,926,252
Rhone-Poulenc SA Class A 148,172 6,834,432
Sanofi-Synthelabo SA (a) 264,968 11,279,056
Scor SA 96,500 4,801,555
Seita 29,700 1,720,497
Societe Generale, France 53,000 9,369,738
Class A (a)
Suez Lyonnaise des Eaux 72,000 13,026,622
Television Francaise 1 SA 34,900 8,159,121
(T.F.1)
Total Fina SA Class B 158,954 20,485,195
Union Assurances Federales SA 48,499 5,769,526
Valeo SA 28,700 2,375,097
Vivendi SA 308,800 25,091,867
258,635,266
GERMANY - 7.6%
Allianz AG (Reg.) 42,800 11,965,173
BASF AG 315,100 14,081,264
Bayer AG 206,600 8,644,868
Bayerische Hypo-und 53,500 3,485,507
Vereinsbank AG
Continental Gummi-Werke AG 36,600 871,179
DaimlerChrysler AG (Reg.) 153,011 13,598,849
Deutsche Bank AG 156,900 9,579,253
Deutsche Lufthansa AG (Reg.) 107,600 1,966,792
Deutsche Telekom AG 571,200 23,930,553
FAG Kugelfischer Georg 131,900 1,352,160
Schaefer AG
Fresenius Medical Care AG 31,100 1,857,898
Hoechst AG 39,000 1,773,099
Holzmann (Phillip) AG (a) 2,100 360,609
Mannesmann AG 190,600 28,727,111
Metro AG 46,100 2,913,746
Munich Reinsurance
AG: (Reg.) 29,946 5,563,584
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
GERMANY - CONTINUED
Munich Reinsurance AG: -
continued
(RFD) 15,646 $ 2,879,312
RWE AG 101,200 4,699,370
Schering AG (a) 18,300 1,935,637
Siemens AG 123,600 9,588,073
Veba AG 164,200 9,715,803
Viag AG 11,800 5,622,319
165,112,159
HONG KONG - 0.5%
Cheung Kong Holdings Ltd. 276,000 2,454,535
Dah Sing Financial Holdings 774,000 2,947,878
Ltd.
Dao Heng Bank Group Ltd. 630,000 2,825,731
Wing Hang Bank Ltd. 578,000 1,858,701
10,086,845
HUNGARY - 0.1%
Matav RT sponsored ADR 38,400 1,056,000
IRELAND - 0.8%
Bank of Ireland, Inc. (Great 575,719 9,720,832
Britain)
CRH PLC 164,195 2,921,446
Elan Corp. PLC sponsored ADR 172,800 4,795,200
(a)
17,437,478
ITALY - 3.5%
Assicurazioni Generali Spa 350,200 12,186,574
Banca Commerciale Italiana Spa 761,800 5,584,080
Banca di Roma 1,486,150 2,150,750
Eni Spa sponsored ADR 1,837,900 10,874,954
Italgas Spa 342,300 1,439,031
Olivetti & Co. Spa 1,883,500 4,545,586
San Paolo-IMI Spa 479,100 6,554,872
Telecom Italia Mobile Spa 1,313,900 7,874,995
Telecom Italia Spa 1,932,324 20,325,539
Unicredito Italiano Spa 1,065,800 4,702,234
76,238,615
JAPAN - 20.9%
Aiful Corp. 27,200 3,325,255
Aiful Corp. (e) 65,200 7,970,832
Aiwa Co. Ltd. 42,300 1,395,752
Alps Electric Co. Ltd. 46,000 1,075,768
Aoyama Trading Co. Ltd. 50,900 1,603,943
Asahi Chemical Industry Co. 328,000 1,815,533
Ltd.
Bank of Tokyo-Mitsubishi Ltd. 103,000 1,463,964
Banyu Pharmaceutical Co. Ltd. 315,000 5,196,948
Canon, Inc. 180,000 5,242,500
Dai Nippon Printing Co. Ltd. 140,000 2,234,688
Dai-Ichi Kangyo Bank Ltd. 476,000 3,062,735
Dainippon Screen 224,000 1,154,877
Manufacturing Co. Ltd.
Daiwa Securities Co. Ltd. 989,000 6,526,707
DDI Corp. 3,828 23,777,968
SHARES VALUE (NOTE 1)
Fancl Corp. 13,000 $ 2,359,249
Fuji Bank Ltd. 902,000 6,279,959
Fuji Machine Manufacturing 36,000 1,107,692
Co. Ltd.
Fuji Photo Film Co. Ltd. 137,000 5,175,995
Furukawa Electric Co. Ltd. 1,590,000 7,279,439
Hirose Electric Co. Ltd. 11,500 1,191,503
Hitachi Ltd. 1,352,000 12,767,951
Honda Motor Co. Ltd. 393,000 17,046,376
Hoya Corp. 29,000 1,633,904
Ito-Yokado Co. Ltd. 320,000 21,381,729
Kao Corp. 242,000 6,787,379
Kirin Brewery Co. Ltd. 1,715,000 20,513,509
Koa Denko Co. Ltd. 64,000 697,942
Kobe Steel Ltd. Ord. 571,000 508,707
Kokusai Denshin Denwa 99,800 7,154,152
Kyocera Corp. 150,000 8,785,317
Matsushita Electric 869,000 17,233,357
Industrial Co. Ltd.
Matsushita Electric Works Co. 105,000 1,011,673
Ltd.
Matsushita-Kotobuk 73,000 2,059,476
Electronics Industries Ltd.
Minolta Co. Ltd. 871,000 4,454,692
Mitsubishi Electric Corp. 2,602,000 9,980,863
Mitsubishi Estate Co. Ltd. 646,000 6,293,471
Mitsubishi Trust & Banking 427,000 4,142,314
Corp.
Mitsui Fudosan Co. Ltd. 288,000 2,328,233
NEC Corp. 291,000 3,612,745
Nichicon Corp. 167,000 2,431,471
Nikko Securities Co. Ltd. 1,688,000 10,875,051
Nintendo Co. Ltd. 44,900 6,300,260
Nippon Computer Systems Corp. 132,000 2,139,658
Nippon Telegraph & Telephone 1,368 15,911,570
Corp.
Nippon Zeon Co. Ltd. 153,000 1,111,924
Nomura Securities Co. Ltd. 916,000 10,707,132
NTT Mobile Communication 756 10,102,867
Network, Inc.
Omron Corp. 1,524,000 26,400,496
Orix Corp. 60,900 5,425,614
Ricoh Co. Ltd. 465,000 6,390,514
Rohm Co. Ltd. 13,000 2,032,172
Ryohin Keikaku Co. Ltd. 12,200 3,064,467
Sankyo Co. Ltd. 108,000 2,717,261
Secom Ltd. 58,000 6,028,460
Sekisui Chemical Co. Ltd. 5,000 28,954
Sharp Corp. 759,000 8,953,352
Shin-Etsu Chemical Co. Ltd. 141,000 4,710,662
Shohkoh Fund & Co. Ltd. 6,600 4,725,758
Softbank Corp. 55,700 11,261,762
Sony Corp. 60,000 6,622,500
Sumitomo Realty & 474,000 1,775,178
Development Co. Ltd.
Takeda Chemical Industries 582,000 26,933,555
Ltd.
Takefuji Corp. 73,100 7,543,667
Takefuji Corp. (e) 36,400 3,756,354
Terumo Corp. 202,000 4,490,741
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
JAPAN - CONTINUED
THK Co. Ltd. 348,400 $ 8,047,185
Toyota Motor Corp. 125,000 3,949,268
Yahoo Japan Corp. 6 2,242,112
Yamaha Motor Co. Ltd. 242,000 2,243,828
Yamanouchi Pharmaceutical Co. 141,000 5,385,276
Ltd.
451,944,166
LUXEMBOURG - 0.1%
Stolt Comex Seaway SA 103,100 1,121,213
MALAYSIA - 0.1%
Oriental Holdings BHD 1,116,000 3,054,316
MEXICO - 0.8%
Banacci SA de CV Class O (a) 1,236,000 3,152,657
Empresas ICA Sociedad 255,400 1,723,950
Controladora SA de CV
sponsored ADR
Grupo Elektra SA de CV:
ADR 96,400 566,350
Unit 584,000 342,796
Grupo Financiero Bancomer SA 22,638,000 8,262,749
de CV Series A
Tubos de Acero de Mexico SA 326,700 3,552,863
sponsored ADR
17,601,365
NETHERLANDS - 6.6%
ABN AMRO Holding NV 323,000 7,016,674
Aegon NV 69,500 5,057,762
Ahrend (KON) NV 50,890 887,037
Akzo Nobel NV 202,600 8,550,846
CSM NV 38,400 1,924,574
Equant NV (Reg.) 45,200 4,254,450
Exact Holding NV (a)(e) 100 2,591
Fortis Amev NV 336,800 10,434,663
Heineken NV 94,600 4,858,698
ING Groep NV 372,086 20,207,479
Koninklijke (Royal) Philips 197,996 19,590,742
Electronics NV
Koninklijke Ahold NV 225,477 7,790,372
Koninklijke KPN NV 196,500 9,248,759
Nutreco Holding NV 69,433 2,470,779
Royal Dutch Petroleum Co. 80,980 4,879,044
(Hague Registry)
Samas Groep NV 78,200 1,160,829
STMicroelectronics NV 77,000 5,341,875
TNT Post Group NV 81,500 1,951,723
Unilever NV 169,817 11,479,851
Vedior NV 192,700 3,289,085
Vendex NV CVA 172,400 4,618,985
Vnu NV 138,000 5,531,721
Wolters Kluwer NV 59,500 2,375,821
142,924,360
NEW ZEALAND - 0.1%
Lion Nathan Ltd. 495,600 1,194,988
SHARES VALUE (NOTE 1)
PORTUGAL - 0.1%
Electricidade de Portugal SA 149,600 $ 2,702,000
SINGAPORE - 0.5%
Development Bank of Singapore 362,000 4,427,874
Ltd. (For. Reg.)
Oversea-Chinese Banking Corp. 220,000 1,837,107
(For. Reg.)
Overseas Union Bank Ltd. 387,300 1,867,604
United Overseas Bank Ltd. 312,000 2,183,358
(For. Reg.)
10,315,943
SPAIN - 2.9%
Argentaria Caja Postal y 118,600 2,710,129
Banco Hipotecario de Espana
SA
Banco Bilbao Vizcaya SA (Reg.) 255,100 3,697,074
Banco Santander Central 1,158,168 12,100,476
Hispano SA
Endesa SA 314,700 6,732,196
Iberdrola SA 336,700 5,144,381
Tabacalera SA Series A 96,900 1,964,669
Telefonica SA (a) 624,600 30,180,147
Union Electrica Fenosa SA 71,400 936,541
63,465,613
SWEDEN - 2.0%
ABB Ltd. 37,263 3,508,196
Electrolux AB 236,400 4,983,178
Ericsson (L.M.) Telefon AB 401,300 13,217,819
Class B
Nordbanken Holding AB 532,200 3,132,349
Skandia Foersaekrings AB 176,100 3,315,854
Skandinaviska Enskilda Banken 178,400 2,091,553
Class A
Svenska Handelsbanken 236,800 2,860,361
Swedish Match Co. 1,572,900 5,643,943
Volvo AB Class B 137,600 4,041,999
42,795,252
SWITZERLAND - 5.8%
ABB Ltd. (Reg.) 50,251 4,748,917
Credit Suisse Group (Reg.) 71,454 12,399,127
Gretag Imaging Holding AG 23,500 2,277,690
(Reg.)
Holderbank Financiere Glarus 1,040 1,231,067
AG (Bearer)
Julius Baer Holding AG 1,392 3,977,913
Nestle SA (Reg.) 14,400 26,018,836
Novartis AG (Reg.) 19,100 27,968,649
Roche Holding AG 1,290 13,297,768
participation certificates
Swatch Group AG (The) (Reg.) 18,000 2,577,732
Swiss Reinsurance Co. (Reg.) 3,000 5,728,293
Swisscom AG 24,700 9,321,055
UBS AG 55,834 16,712,022
126,259,069
TAIWAN - 0.5%
Taiwan Semiconductor 3,093,450 11,827,897
Manufacturing Co. Ltd.
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
UNITED KINGDOM - 19.3%
Abbey National PLC 260,900 $ 4,901,174
Allied Domecq PLC 323,200 3,119,874
Allied Zurich PLC 1,063,500 13,377,732
Amvescap PLC 466,400 4,152,760
Asda Group PLC 857,300 2,937,696
Ashtead Group PLC 790,900 2,183,102
AstraZeneca Group PLC 137,700 5,396,125
BG PLC 618,100 3,777,850
Boots Co. PLC 230,700 2,741,859
BP Amoco PLC 1,955,393 35,359,902
British Aerospace PLC 308,234 2,007,913
British American Tobacco PLC 537,100 5,053,356
British Energy PLC 357,000 3,040,719
British Telecommunications PLC 1,356,300 23,226,721
BTP PLC 144,800 992,368
BTR Siebe PLC 870,700 4,123,499
Cadbury Schweppes PLC 669,600 4,266,887
Caradon PLC 5,074,280 11,965,474
CGU PLC 328,600 4,750,227
Cookson Group PLC 1,151,238 3,885,914
Courtaulds Textiles PLC 552,200 1,419,706
Diageo PLC 770,300 8,049,337
Dixons Group PLC 128,800 2,407,401
Gallaher Group PLC 182,900 1,127,989
General Electric Co. PLC 550,100 5,613,843
Glaxo Wellcome PLC 839,800 23,776,867
Hays PLC 156,400 1,649,121
Hilton Group PLC 382,600 1,517,740
Kingfisher PLC 713,400 8,214,294
Lloyds TSB Group PLC 1,473,800 19,991,773
Marks & Spencer PLC 93,700 542,400
National Grid Group PLC 563,390 3,923,324
National Westminster Bank PLC 146,400 3,105,830
Orange PLC (a) 408,700 5,995,175
Pearson PLC 269,800 5,485,411
Peninsular & Oriental Steam 124,100 1,864,451
Navigation Co.
Prudential Corp. PLC 454,200 6,691,266
Rentokil Initial PLC 3,144,500 12,275,554
Reuters Group PLC 618,600 8,142,365
Rio Tinto PLC (Reg.) 197,500 3,312,981
Royal & Sun Alliance 421,280 3,780,919
Insurance Group PLC
Royal Bank of Scotland Group 254,000 5,176,194
PLC
Sainsbury (J.) PLC 392,700 2,477,623
Schroders PLC 39,300 803,363
Scottish & Newcastle PLC 318,300 3,316,071
Scottish & Southern Energy PLC 356,300 3,647,328
Shell Transport & Trading Co. 4,304,300 33,268,981
PLC (Reg.)
Smith (David S.) Holdings PLC 511,600 1,198,316
SmithKline Beecham PLC 2,317,042 30,614,077
South African Breweries PLC 355,400 3,043,908
(a)
SHARES VALUE (NOTE 1)
Standard Chartered PLC 8,373 $ 136,822
Tarmac PLC 3,569,159 6,699,265
Tomkins PLC 396,800 1,721,150
Unilever PLC 1,494,910 13,921,405
Vodafone AirTouch PLC 1,340,144 26,400,842
Vodafone AirTouch PLC 59,650 11,751,050
sponsored ADR
WPP Group PLC 315,300 2,668,136
416,993,430
UNITED STATES OF AMERICA - 0.5%
Ask Jeeves, Inc. 400 5,600
Baker Hughes, Inc. 69,800 2,338,300
Clarent Corp. 1,400 21,000
Halliburton Co. 65,600 2,968,400
Kaiser Aluminum Corp. (a) 8,200 72,775
McDermott International, Inc. 20,500 579,125
Newmont Mining Corp. 136,800 2,718,900
Noble Drilling Corp. (a) 43,600 858,375
Smith International, Inc. (a) 13,300 577,719
Weatherford International, 39,100 1,432,038
Inc. (a)
11,572,232
TOTAL COMMON STOCKS 1,984,335,934
(Cost $1,517,977,494)
PREFERRED STOCKS - 1.0%
CONVERTIBLE PREFERRED STOCKS
- - 0.3%
AUSTRALIA - 0.3%
WBK STRYPES Trust (Westpac 174,300 5,642,963
Banking Corp.) $3.135
NONCONVERTIBLE PREFERRED
STOCKS - 0.7%
GERMANY - 0.5%
Dyckerhoff AG 7,000 2,121,657
SAP AG (Systeme Anwendungen 15,300 6,205,800
Produkte)
Wella AG 4,300 3,091,454
11,418,911
ITALY - 0.2%
Telecom Italia Spa Risp 742,025 4,049,025
TOTAL NONCONVERTIBLE 15,467,936
PREFERRED STOCKS
TOTAL PREFERRED STOCKS 21,110,899
(Cost $15,760,716)
INVESTMENT COMPANIES - 0.9%
EMERGING MARKETS - 0.2%
Asia Tigers Fund, Inc. 142,400 1,352,800
Templeton Dragon Fund, Inc. 310,500 3,434,906
4,787,706
INVESTMENT COMPANIES -
CONTINUED
SHARES VALUE (NOTE 1)
GERMANY - 0.2%
New Germany Fund, Inc. (The) 370,600 $ 4,516,688
HONG KONG - 0.1%
Asia Pacific Fund, Inc. 209,100 2,051,794
MULTI-NATIONAL - 0.4%
European Warrant Fund, Inc. 118,700 1,884,363
Morgan Stanley Asia-Pacific 670,800 6,456,450
Fund, Inc.
8,340,813
TOTAL INVESTMENT COMPANIES 19,697,001
(Cost $19,802,736)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CONVERTIBLE BONDS - 0.7%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D)
FRANCE - 0.2%
Groupe Danone 3% 1/1/02 A1 EUR 1,547,358 2,617,159
Suez Lyonnaise des Eaux 4% A+ EUR 1,189,102 2,715,431
1/1/06
TOTAL FRANCE 5,332,590
NETHERLANDS - 0.1%
Koninklijke Ahold NV 3% Baa1 NLG 4,750,000 2,864,064
9/30/03
UNITED STATES OF AMERICA - 0.4%
Nestle Holdings, Inc. 3% - 5,480,000 6,432,150
6/17/02
Roche Holdings, Inc. liquid - 3,160,000 1,777,500
yield option note 0%
4/20/10 (e)
TOTAL UNITED STATES OF AMERICA 8,209,650
TOTAL CONVERTIBLE BONDS 16,406,304
(Cost $18,437,429)
GOVERNMENT OBLIGATIONS - 0.7%
UNITED STATES OF AMERICA - 0.7%
U.S. Treasury Bills, yield at - 15,000,000 14,917,721
date of purchase 4.34% to
4.78% 7/1/99 to 9/30/99 (f)
(Cost $14,915,527)
CASH EQUIVALENTS - 5.0%
SHARES
Taxable Central Cash Fund (c) 108,338,727 108,338,727
(Cost $108,338,727)
TOTAL INVESTMENT IN $ 2,164,806,586
SECURITIES - 100%
(Cost $1,695,232,629)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FUTURES CONTRACTS
EXPIRATION DATE UNDERLYING FACE AMOUNT UNREALIZED GAIN/(LOSS)
PURCHASED
253 Nikkei 225 Index Sept. 1999 $ 22,460,075 $ 1,494,740
Contracts (Japan)
149 Topix Index Contracts Sept. 1999 17,196,379 1,054,349
(Japan)
$ 39,656,454 $ 2,549,089
</TABLE>
THE FACE VALUE OF FUTURES PURCHASED AS A PERCENTAGE OF INVESTMENT IN
SECURITIES - 1.8%
CURRENCY ABBREVIATIONS
EUR - European Monetary Unit
NLG - Dutch guilder
SECURITY TYPE ABBREVIATIONS
STRYPES - Structured Yield Product
Exchangeable for Common Stock
LEGEND
(a) Non-income producing
(b) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(c) At period end, the seven-day yield on the Taxable Central Cash
Fund was 4.84%. The yield refers to the income earned by investing in
the fund over the seven-day period, expressed as an annual percentage.
(d) Principal amount is stated in United States dollars unless
otherwise noted.
(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 $15,141,087 or 0.7% of net assets.
(f) Security or a portion of the security was pledged to cover margin
requirements for futures contracts. At the period end, the value of
securities pledged amounted to $5,700,000.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $813,754,126 and $840,324,471, respectively.
The market value of futures contracts opened and closed during the
period amounted to $109,159,004 and $142,544,989, respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company.
The commissions paid to these affiliated firms were $825 for the
period.
INCOME TAX INFORMATION
At June 30, 1999, the aggregate cost of investment securities for
income tax purposes was $1,707,366,742. Net unrealized appreciation
aggregated $457,439,844, of which $531,467,130 related to appreciated
investment securities and $74,027,286 related to depreciated
investment securities.
MARKET SECTOR DIVERSIFICATION (UNAUDITED)
As a Percentage of Total Value of Investment in Securities
AEROSPACE & DEFENSE 0.1%
BASIC INDUSTRIES 3.8
CASH EQUIVALENTS 5.0
CONSTRUCTION & REAL ESTATE 2.4
DURABLES 4.5
ENERGY 7.1
FINANCE 21.2
GOVERNMENT OBLIGATIONS 0.7
HEALTH 8.0
HOLDING COMPANIES 0.3
INDUSTRIAL MACHINERY & 5.4
EQUIPMENT
INVESTMENT COMPANIES 0.9
MEDIA & LEISURE 2.3
NONDURABLES 6.6
PRECIOUS METALS 0.5
RETAIL & WHOLESALE 3.5
SERVICES 2.9
TECHNOLOGY 7.0
TRANSPORTATION 0.4
UTILITIES 17.4
100.0%
VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 2,164,806,586
value (cost $1,695,232,629)
- - See accompanying schedule
Receivable for investments 52,491,547
sold
Receivable for fund shares 33,878,668
sold
Dividends receivable 6,352,043
Interest receivable 489,592
Other receivables 55,105
TOTAL ASSETS 2,258,073,541
LIABILITIES
Payable to custodian bank $ 1,109,260
Payable for investments 46,326,496
purchased
Payable for fund shares 460,624
redeemed
Accrued management fee 1,285,467
Distribution fees payable 4,658
Payable for daily variation 366,336
on futures contracts
Other payables and accrued 418,210
expenses
TOTAL LIABILITIES 49,971,051
NET ASSETS $ 2,208,102,490
Net Assets consist of:
Paid in capital $ 1,622,113,054
Undistributed net investment 5,415,058
income
Accumulated undistributed net 108,549,962
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation 472,024,416
(depreciation) on
investments and assets and
liabilities in foreign
currencies
NET ASSETS $ 2,208,102,490
INITIAL CLASS: NET ASSET $20.80
VALUE, offering price and
redemption price per share
($2,144,918,224 (divided
by) 103,130,270 shares)
SERVICE CLASS: NET ASSET $20.77
VALUE, offering price and
redemption price per share
($63,184,266 (divided by)
3,042,463 shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30,
1999 (UNAUDITED)
INVESTMENT INCOME $ 30,054,894
Dividends
Interest 3,305,018
33,359,912
Less foreign taxes withheld (3,571,758)
TOTAL INCOME 29,788,154
EXPENSES
Management fee $ 7,714,595
Transfer agent fees 691,895
Distribution fees - Service 22,738
Class
Accounting fees and expenses 484,949
Non-interested trustees' 5,276
compensation
Custodian fees and expenses 710,068
Registration fees 8,712
Audit 23,977
Miscellaneous 30,875
Total expenses before 9,693,085
reductions
Expense reductions (522,927) 9,170,158
NET INVESTMENT INCOME 20,617,996
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities 112,336,696
Foreign currency transactions 40,488
Futures contracts 3,848,156 116,225,340
Change in net unrealized
appreciation (depreciation)
on:
Investment securities 29,187,214
Assets and liabilities in 72,114
foreign currencies
Futures contracts 5,102,727 34,362,055
NET GAIN (LOSS) 150,587,395
NET INCREASE (DECREASE) IN $ 171,205,391
NET ASSETS RESULTING FROM
OPERATIONS
OTHER INFORMATION $ 521,891
Expense reductions Directed
brokerage arrangements
Custodian credits 1,036
$ 522,927
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
ASSETS 1999 (UNAUDITED)
Operations Net investment $ 20,617,996 $ 24,821,303
income
Net realized gain (loss) 116,225,340 46,470,387
Change in net unrealized 34,362,055 174,010,260
appreciation (depreciation)
NET INCREASE (DECREASE) IN 171,205,391 245,301,950
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (31,839,749) (37,913,851)
From net investment income
From net realized gain (51,354,434) (111,746,087)
TOTAL DISTRIBUTIONS (83,194,183) (149,659,938)
Share transactions - net 10,528,562 86,667,359
increase (decrease)
TOTAL INCREASE (DECREASE) 98,539,770 182,309,371
IN NET ASSETS
NET ASSETS
Beginning of period 2,109,562,720 1,927,253,349
End of period (including $ 2,208,102,490 $ 2,109,562,720
undistributed net investment
income of $5,415,058 and
$15,374,087, respectively)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OTHER INFORMATION:
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
1999 (UNAUDITED)
SHARES DOLLARS SHARES DOLLARS
Share transactions Initial 70,526,229 $ 1,408,673,445 83,667,719 $ 1,630,270,593
Class Sold
Reinvested 4,250,326 81,691,268 7,943,861 149,503,507
Redeemed (75,092,389) (1,505,806,021) (88,486,169) (1,726,300,500)
Net increase (decrease) (315,834) $ (15,441,308) 3,125,411 $ 53,473,600
Service Class Sold 3,330,146 $ 66,705,230 1,950,594 $ 38,211,430
Reinvested 78,277 1,502,916 8,320 156,588
Redeemed (2,098,635) (42,238,276) (274,725) (5,174,259)
Net increase (decrease) 1,309,788 $ 25,969,870 1,684,189 $ 33,193,759
Distributions From net $ 31,264,559 $ 37,874,182
investment income Initial
Class
Service Class 575,190 39,669
Total $ 31,839,749 $ 37,913,851
From net realized gain $ 50,426,708 $ 111,629,169
Initial Class
Service Class 927,726 116,918
Total $ 51,354,434 $ 111,746,087
$ 83,194,183 $ 149,659,938
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 1996 1995
Net asset value, beginning of $ 20.06 $ 19.20 $ 18.84 $ 17.06 $ 15.67
period
Income from Investment
Operations
Net investment income .20 D .23 D .30 D .32 D, E .17
Net realized and unrealized 1.35 2.13 1.70 1.88 1.34
gain (loss)
Total from investment 1.55 2.36 2.00 2.20 1.51
operations
Less Distributions
From net investment income (.31) (.38) (.33) (.20) (.06)
From net realized gain (.50) (1.12) (1.31) (.22) (.02)
In excess of net realized gain - - - - (.04)
Total distributions (.81) (1.50) (1.64) (.42) (.12)
Net asset value, end of period $ 20.80 $ 20.06 $ 19.20 $ 18.84 $ 17.06
TOTAL RETURN B, C 8.06% 12.81% 11.56% 13.15% 9.74%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 2,144,918 $ 2,074,843 $ 1,926,322 $ 1,667,601 $ 1,343,134
(000 omitted)
Ratio of expenses to average .93% A .91% .92% .93% .91%
net assets
Ratio of expenses to average .88% A, G .89% G .90% G .92% G .91%
net assets after expense
reductions
Ratio of net investment 1.99% A 1.19% 1.55% 1.84% 1.88%
income to average net assets
Portfolio turnover 85% A 84% 67% 92% 50%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA 1994
Net asset value, beginning of $ 15.48
period
Income from Investment
Operations
Net investment income .19
Net realized and unrealized .08
gain (loss)
Total from investment .27
operations
Less Distributions
From net investment income (.08)
From net realized gain -
In excess of net realized gain -
Total distributions (.08)
Net asset value, end of period $ 15.67
TOTAL RETURN B, C 1.72%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 1,297,701
(000 omitted)
Ratio of expenses to average .92%
net assets
Ratio of expenses to average .92%
net assets after expense
reductions
Ratio of net investment 1.28%
income to average net assets
Portfolio turnover 42%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - SERVICE CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 F
Net asset value, beginning of $ 20.04 $ 19.20 $ 19.36
period
Income from Investment
Operations
Net investment income D .18 .15 .01
Net realized and unrealized 1.36 2.19 (.17)
gain (loss)
Total from investment 1.54 2.34 (.16)
operations
Less Distributions
From net investment income (.31) (.38) -
From net realized gain (.50) (1.12) -
Total distributions (.81) (1.50) -
Net asset value, end of period $ 20.77 $ 20.04 $ 19.20
TOTAL RETURN B, C 8.02% 12.69% (0.83)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 63,184 $ 34,720 $ 931
(000 omitted)
Ratio of expenses to average 1.04% A 1.01% 1.02% A
net assets
Ratio of expenses to average .99% A, G .97% G 1.01% A, G
net assets after expense
reductions
Ratio of net investment 1.89% A .80% .31% A
income to average net assets
Portfolio turnover 85% A 84% 67%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE
TO YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. INCLUSION
OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN. TOTAL RETURNS FOR PERIODS OF LESS THAN ONE
YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED
BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
E INVESTMENT INCOME PER SHARE REFLECTS A SPECIAL DIVIDEND
WHICH AMOUNTED TO $.05 PER SHARE.
F FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF SALE
OF SERVICE CLASS SHARES) TO DECEMBER 31, 1997.
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS
WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A
PORTION OF THE CLASS' EXPENSES.
NOTES TO FINANCIAL STATEMENTS
For the period ended June 30, 1999 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Overseas Portfolio (the fund) is a fund of Variable Insurance Products
Fund(the trust) and is authorized to issue an unlimited number of
shares. 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. Shares of the
fund may only be purchased by insurance companies for the purpose of
funding variable annuity or variable life insurance contracts. The
fund offers two classes of shares: the fund's original class of shares
(Initial Class shares) and Service Class shares. Both classes have
equal rights and voting privileges, except for matters affecting a
single class. Investment income, realized and unrealized capital gains
and losses, the common expenses of the fund, and certain fund-level
expense reductions, if any, are allocated on a pro rata basis to each
class based on the relative net assets of each class to the total net
assets of the fund. Each class of shares differs in its respective
distribution plan.
The financial statements have been prepared in conformity with
generally accepted accounting principles which require management to
make certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. 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. If trading or events occurring in other markets
after the close of the principal market in which securities are traded
are expected to materially affect the value of those securities, then
they are valued at their fair value taking this trading or these
events into account. Fair value is determined in good faith under
consistently applied procedures under the general supervision of the
Board of Trustees. Securities (including restricted securities) for
which quotations are not readily available are valued primarily using
dealer-supplied valuations or at their fair value. Short-term
securities with remaining maturities of sixty days or less for which
quotations are not readily available 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 fund 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 prevailing rates of exchange at period end. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
and settlement date on purchases and sales of securities. The effects
of changes in foreign currency exchange rates on investments in
securities are included with the net realized and unrealized gain or
loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
U.S. federal income taxes to the extent that it distributes
substantially all of its taxable income for its fiscal year. The fund
may be subject to foreign taxes on income and gains on investments
which are accrued based upon the fund's understanding of the tax rules
and regulations that exist in the markets in which it invests. The
fund accrues such taxes as applicable. The schedule of investments
includes 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 fund is
informed of the ex-dividend date. Non-cash dividends included in
dividend income, if any, are recorded at the fair market value of the
securities received. Interest income, which includes accretion of
original issue discount, is accrued as earned. Investment income is
recorded net of foreign taxes withheld where recovery of such taxes is
uncertain.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
DEFERRED TRUSTEE COMPENSATION. Under a Deferred Compensation Plan (the
Plan) non-interested Trustees must defer receipt of a portion of, and
may elect to defer receipt of an additional portion of, their annual
compensation. Deferred amounts are treated as though equivalent dollar
amounts had been invested in a cross-section of other Fidelity funds.
Deferred amounts remain in the fund until distributed in accordance
with the Plan.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date. Income dividends and capital gain distributions are
declared separately for each class.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for futures transactions, foreign currency transactions,
passive foreign investment companies (PFIC) and losses deferred due to
wash sales. The fund 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.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments and foreign currency transactions
may include temporary book and tax basis differences which will
reverse in a subsequent period. Any taxable income or gain remaining
at fiscal year end is distributed in the following year.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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.
2. OPERATING POLICIES.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
terms. The U.S. dollar value of foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the fund, along with
other affiliated entities of Fidelity Management & Research Company
(FMR), may transfer uninvested cash balances into one or more joint
trading accounts. These balances are invested in one or more
repurchase agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
TAXABLE CENTRAL CASH FUND. Pursuant to an Exemptive Order issued by
the SEC, the fund may invest in the Taxable Central Cash Fund (the
Cash Fund) managed by Fidelity Investments Money Management, Inc., an
affiliate of FMR. The Cash Fund is an open-end money market fund
available only to investment companies and other accounts managed by
FMR and its affiliates. The Cash Fund seeks preservation of capital,
liquidity, and current income by investing in U.S. Treasury securities
and repurchase agreements for these securities. Income distributions
from the Cash Fund are declared daily and paid monthly from net
interest income. Income distributions earned by the fund are recorded
as interest income in the accompanying financial statements.
FUTURES CONTRACTS. The fund may use futures contracts to manage its
exposure to the stock market and to fluctuations in currency values.
Buying futures tends to increase the fund's exposure to the underlying
instrument, while selling futures tends to decrease the fund's
exposure to the underlying instrument or hedge other fund investments.
Futures contracts involve, to varying degrees, risk of loss in excess
of the futures variation margin reflected in the Statement of Assets
and Liabilities. The underlying face amount at value of any open
futures contracts at period end is shown in the schedule of
investments under the caption "Futures Contracts." This amount
reflects each contract's exposure to the underlying instrument at
period end. Losses may arise from changes in the value of the
underlying instruments or if the counterparties do not perform under
the contracts' terms. Gains (losses) are realized upon the expiration
or closing of the futures contracts. Futures contracts are valued at
the settlement price established each day by the board of trade or
exchange on which they are traded.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally 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, the fund had no investments in restricted
securities (excluding 144A issues).
3. PURCHASES AND SALES OF INVESTMENTS.
Information regarding purchases and sales of securities (other than
short-term securities), and the market value of future contracts
opened and closed, is included under the caption "Other Information"
at the end of the fund's schedule of investments.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the 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
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .2500% to .5200% for the
period. The annual individual fund fee rate is .45%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annualized rate of .75% of average net
assets.
SUB-ADVISER FEE. FMR, on behalf of the fund, entered into sub-advisory
agreements with Fidelity Management & Research (U.K.) Inc., Fidelity
Management & Research (Far East) Inc., and Fidelity International
Investment Advisors (FIIA). In addition, FIIA entered into a
sub-advisory agreement with its subsidiary, Fidelity International
Investment Advisors (U.K.) Limited (FIIA(U.K.)L). 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 FIIA(U.K.)L a fee based on costs incurred
for either service.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the
1940 Act, the Board of Trustees has adopted separate distribution
plans with respect to each class of shares (collectively referred to
as "the Plans"). Under the Service Class Plan, the class pays Fidelity
Distributors Corporation (FDC), an affiliate of FMR, a distribution
and service fee (12b-1 fee). This fee is based on an annual rate of
.10% of Service Class average net assets. Initial Class shares are not
subject to a 12b-1 fee.
For the period, Service Class paid FDC $22,738, all of which was
reallowed to insurance companies, for the distribution of shares and
providing shareholder support services.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations
Company, Inc. (FIIOC), an affiliate of FMR, is the fund's transfer,
dividend disbursing and shareholder servicing agent. FIIOC receives
account fees and asset-based fees that vary according to account size
and type of account. FIIOC pays a portion of the expenses related to
the typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees of
the fund were equivalent to an annualized rate of .07% of average net
assets.
ACCOUNTING FEES. Fidelity Service Company, Inc. (FSC), an affiliate of
FMR, maintains the fund's accounting records. The fee is based on the
level of average net assets for the month plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms are shown under the caption
"Other Information" at the end of the fund's schedule of investments.
5. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a
portion of the fund's expenses.
In addition, the fund has entered into an arrangement with its
custodian whereby credits realized on uninvested cash balances were
used to offset a portion of the fund's expenses.
For the period, the reductions under these arrangements are shown
under the caption "Other Information" on the fund's Statement of
Operations.
6. BENEFICIAL INTEREST.
At the end of the period, Fidelity Investments Life Insurance Company
(FILI) and its subsidiaries, affiliates of FMR, were the record owners
of approximately 13% of the outstanding shares of the fund. In
addition, one unaffiliated insurance company was record owner of 36%
of the total outstanding shares of the fund.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research (U.K.) Inc.,
London, England
Fidelity Management & Research (Far East) Inc.,
Tokyo, Japan
Fidelity International Investment Advisors,
Pembroke, Bermuda
Fidelity International Investment Advisors (U.K.) Limited,
Kent, England
OFFICERS
Edward C. Johnson 3d, PRESIDENT
Robert C. Pozen, SENIOR VICE PRESIDENT
Richard A. Spillane Jr., VICE PRESIDENT
Richard R. Mace Jr., VICE PRESIDENT
Eric D. Roiter, SECRETARY
Richard A. Silver, TREASURER
Matthew N. Karstetter, DEPUTY TREASURER
John H. Costello, ASSISTANT TREASURER
Leonard M. Rush, ASSISTANT TREASURER
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
* INDEPENDENT TRUSTEES
VIPOVRS-SANN-0899 81786
1.705696.101
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER SERVICING AGENT
Fidelity Investments Institutional Operations Co., Inc.
Boston, MA
CUSTODIAN
The Chase Manhattan Bank
New York, NY
VARIABLE INSURANCE PRODUCTS FUND
VARIABLE INSURANCE PRODUCTS FUND II
VARIABLE INSURANCE PRODUCTS FUND III
MONEY MARKET PORTFOLIO
INVESTMENT GRADE BOND PORTFOLIO
HIGH INCOME PORTFOLIO
ASSET MANAGER PORTFOLIO
BALANCED PORTFOLIO
ASSET MANAGER: GROWTH PORTFOLIO
EQUITY-INCOME PORTFOLIO
GROWTH & INCOME PORTFOLIO
INDEX 500 PORTFOLIO
GROWTH OPPORTUNITIES PORTFOLIO
CONTRAFUND(registered trademark) PORTFOLIO
GROWTH PORTFOLIO
MID CAP PORTFOLIO
OVERSEAS PORTFOLIO
SEMIANNUAL REPORT
JUNE 30, 1999
(2_FIDELITY_LOGOS)(registered trademark)
CONTENTS
MARKET ENVIRONMENT 4 A REVIEW OF WHAT HAPPENED IN
WORLD MARKETS DURING THE
PAST SIX MONTHS.
MONEY MARKET PORTFOLIO 5 PERFORMANCE
6 FUND TALK: THE
MANAGER'S OVERVIEW
7 INVESTMENTS
11 FINANCIAL STATEMENTS
INVESTMENT GRADE BOND PORTFOLIO 13 PERFORMANCE AND INVESTMENT
SUMMARY
14 FUND TALK: THE
MANAGER'S OVERVIEW
15 INVESTMENTS
21 FINANCIAL
STATEMENTS
HIGH INCOME PORTFOLIO 23 PERFORMANCE AND INVESTMENT
SUMMARY
25 FUND TALK: THE
MANAGER'S OVERVIEW
26 INVESTMENTS
36 FINANCIAL
STATEMENTS
ASSET MANAGER PORTFOLIO 39 PERFORMANCE AND INVESTMENT
SUMMARY
41 FUND TALK: THE
MANAGER'S OVERVIEW
42 INVESTMENTS
58 FINANCIAL
STATEMENTS
BALANCED PORTFOLIO 61 PERFORMANCE AND INVESTMENT
SUMMARY
63 FUND TALK: THE
MANAGERS' OVERVIEW
64 INVESTMENTS
77 FINANCIAL
STATEMENTS
ASSET MANAGER: GROWTH PORTFOLIO 80 PERFORMANCE AND INVESTMENT
SUMMARY
82 FUND TALK: THE
MANAGER'S OVERVIEW
83 INVESTMENTS
97 FINANCIAL
STATEMENTS
EQUITY-INCOME PORTFOLIO 100 PERFORMANCE AND INVESTMENT
SUMMARY
102 FUND TALK: THE
MANAGER'S OVERVIEW
103 INVESTMENTS
111 FINANCIAL
STATEMENTS
GROWTH & INCOME PORTFOLIO 114 PERFORMANCE AND INVESTMENT
SUMMARY
116 FUND TALK: THE
MANAGER'S OVERVIEW
117 INVESTMENTS
120 FINANCIAL
STATEMENTS
INDEX 500 PORTFOLIO 123 PERFORMANCE AND INVESTMENT
SUMMARY
124 FUND TALK: THE
MANAGER'S OVERVIEW
125 INVESTMENTS
133 FINANCIAL
STATEMENTS
GROWTH OPPORTUNITIES PORTFOLIO 135 PERFORMANCE AND INVESTMENT
SUMMARY
137 FUND TALK: THE
MANAGER'S OVERVIEW
138 INVESTMENTS
143 FINANCIAL
STATEMENTS
CONTRAFUND PORTFOLIO 146 PERFORMANCE AND INVESTMENT
SUMMARY
148 FUND TALK: THE
MANAGER'S OVERVIEW
149 INVESTMENTS
157 FINANCIAL
STATEMENTS
GROWTH PORTFOLIO 160 PERFORMANCE AND INVESTMENT
SUMMARY
162 FUND TALK: THE
MANAGER'S OVERVIEW
163 INVESTMENTS
168 FINANCIAL
STATEMENTS
MID CAP PORTFOLIO 171 PERFORMANCE AND INVESTMENT
SUMMARY
173 FUND TALK: THE
MANAGERS' OVERVIEW
174 INVESTMENTS
178 FINANCIAL
STATEMENTS
OVERSEAS PORTFOLIO 181 PERFORMANCE AND INVESTMENT
SUMMARY
183 FUND TALK: THE
MANAGER'S OVERVIEW
184 INVESTMENTS
190 FINANCIAL
STATEMENTS
NOTES TO FINANCIAL STATEMENTS 193 NOTES TO THE FINANCIAL
STATEMENTS
Each Portfolio, except Money Market, Investment Grade Bond, and Index
500, has two classes of shares. Throughout this report and the
financial statements, one class is referred to as the "Initial Class"
and the other class is referred to as the "Service Class." The Service
Class shares include an asset based distribution fee (12b-1 fee), and
the initial offering of "Service Class" shares took place November 3,
1997, at which time the 12b-1 fee was imposed. Please note, there are
two Performance and Investment Summary pages for each Portfolio that
offers "Initial Class" shares and the "Service Class" shares, and the
performance may be different.
NOTE TO SHAREHOLDERS OF VIPII: INDEX 500:
Effective June 4, 1999, Bankers Trust Corporation and all of its
subsidiaries, including Bankers Trust (BT) - the fund's sub-adviser -
merged with and into a subsidiary of Deutsche Bank AG. At a meeting
held on March 18, 1999, the fund's Board of Trustees approved a new
sub-advisory agreement among the fund, Fidelity Management & Research
Co. and BT or its successor by merger that became effective June 4,
1999. This new sub-advisory agreement will be presented to the fund's
shareholders for approval on September 15, 1999.
Standard & Poor's, S&P and S&P 500 are registered service marks of The
McGraw-Hill Companies, Inc. and have been licensed for use by Fidelity
Distributors Corporation.
Other third party marks appearing herein are the property of their
respective owners.
All other marks appearing herein are registered or unregistered
trademarks or service marks of FMR Corp. or an affiliated company.
This report is printed on recycled paper using soy-based inks.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF EACH FUND'S
PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS
STATED ON THE COVER AND DO NOT NECESSARILY REPRESENT THE VIEWS OF
FIDELITY OR ANY OTHER PERSON IN THE FIDELITY ORGANIZATION. ANY SUCH
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER
CONDITIONS AND FIDELITY DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH
VIEWS. THESE VIEWS MAY NOT BE RELIED ON AS INVESTMENT ADVICE AND,
BECAUSE INVESTMENT DECISIONS FOR A FIDELITY FUND ARE BASED ON NUMEROUS
FACTORS, MAY NOT BE RELIED ON AS AN INDICATION OF TRADING INTENT ON
BEHALF OF ANY FIDELITY FUND.
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.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
NEITHER THE FUNDS NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
MARKET ENVIRONMENT
An investor-friendly equity environment characterized the first half
of the year, as the majority of domestic and international stock
markets turned in positive performances for the six-month period
ending June 30, 1999. The bulk of debt sectors received a colder
shoulder, however, as wary bond investors shied away from the
combination of higher inflation expectations and the U.S. Federal
Reserve Board's tighter monetary policy. Notably, the period's last
day was an eventful one: On June 30, for the first time in two years,
the Fed increased key short-term interest rates with a quarter-point
hike to 5.00%. At the same time, it also announced a shift to a
"neutral" position - meaning the Fed's next move is as likely to be a
rate decrease as it is another hike - sparking a rally in the bond
market and sending several equity indexes into record-high territory.
U.S. STOCK MARKETS
The Standard & Poor's 500 Index - a broad measure of U.S. stock market
performance - rose 12.38% for the six months that ended June 30, 1999.
At this pace, the S&P 500(registered trademark) is well on its way to
tacking on another year to its record of four consecutive annual
double-digit percentage gains. Meanwhile, the Dow Jones Industrial
Average - an index of 30 blue-chip stocks - posted a lofty 20.39%
increase for the first half of the year. After several years on the
sidelines, small-cap stocks finally rebounded, particularly in the
second quarter of 1999, as the Russell 2000(registered trademark)
Index - a popular measure of small-cap stock performance - returned
9.29% for the first half of the year. But it was the technology-laden
NASDAQ Composite Index that posted the highest return of these popular
equity performance measures, with a 22.70% increase for the six months
ending June 30, 1999.
At the period's outset, the economic climate and investment
environment were similar to the previous several years: high levels of
employment, low inflation and strong consumer confidence, with a
handful of large-cap growth stocks - particularly in the technology
sector - continuing to set the pace for bullish equity market
performance. By the beginning of the second quarter, however, market
conditions began to change. The global economy began to improve, due
in large part to the willingness of central banks worldwide to lower
interest rates, resulting in a broadening of corporate earnings. This
environment proved favorable for small- and mid-cap value stocks and
the economically sensitive cyclical stocks. The relatively low
valuations of these issues proved quite alluring compared to their
expensive, large-cap growth counterparts. Consequently, a dramatic
rotation into value and cyclical names dominated the second quarter of
1999.
FOREIGN STOCK MARKETS
Over 165 interest-rate cuts in more than 75 countries since the
worldwide economic crisis last October helped foreign stock markets
post generally positive performances in the first half of 1999. The
Morgan Stanley Capital International (MSCI) EAFE(registered trademark)
Index - which measures stock performance in Europe, Australia and the
Far East - returned 4.08% for the six months ending June 30, 1999.
Europe's performance was disappointing, as prospects for economic
growth and corporate profits declined, and its new common currency -
the euro - struggled since its inception in January. For the period,
the MSCI Europe Index fell 2.30%. Conversely, the previously faltering
Japanese stock market roared ahead. New corporate restructuring
reforms and government economic intervention helped the Tokyo Stock
Exchange Index (TOPIX) - a measure of the Japanese market - notch a
first-half return of 21.93%. Emerging markets also rebounded. Despite
Brazil's currency devaluation in January, and fears of a similar move
by Argentina and Colombia late in the period, Latin America was a
strong performer as the Morgan Stanley Capital International Emerging
Markets Free-Latin America Index returned 31.03%. Southeast Asia, too,
bounced back, but the period's most remarkable recovery was in Russia,
which was the first half's best-performing emerging market, with a
return of approximately 133.70%.
U.S. BOND MARKETS
Despite good news at the close of the period, signs of continued
strength and emerging inflationary pressures in the U.S. economy,
along with improving conditions abroad, hampered the taxable-bond
market during the six-month period. The Lehman Brothers Aggregate Bond
Index - a widely followed measure of taxable bond performance - fell
1.37% during that time. A sharp rise in consumer prices sparked the
worst Treasury bond sell-off in three years, pushing their prices down
and bringing yields up to the pre-crisis levels of last summer. The
resulting negative market sentiment was further fueled by the Fed's
shift in bias toward raising interest rates in mid-May. The Lehman
Brothers Treasury Index returned -2.50% for the six-month period
ending June 30, 1999. As investors fled Treasuries for more attractive
alternatives, spread sector securities - such as corporate and
mortgage securities - rallied in response. However, the emergence of
rising rates and inflation fears soon slowed the rise in spread
products. For the six-month period, the Lehman Brothers Corporate Bond
Index and the Lehman Brothers Mortgage-Backed Securities Index had
returns of -2.26% and 0.53%, respectively. Based on performance,
high-yield bonds were among the most attractive domestic debt
offerings, as the Merrill Lynch High Yield Master II Index returned
2.49% during the first half of 1999.
FOREIGN BOND MARKETS
Like its U.S. Treasury counterparts, world government bond performance
was hindered by the U.S. Federal Reserve Board's adoption of a
tightening bias - an inclination to raise interest rates - during the
first half of the year. For the six months ending June 30, 1999, the
Salomon Brothers World Government Bond Index - a measure of government
bond market performance in developed nations - fell 7.17%. Despite
rising U.S. interest rates, emerging-market debt enjoyed positive
performance in the first half of 1999, as the J.P. Morgan Emerging
Markets Bond Index Plus - which tracks total returns for traded
external debt instruments in the emerging markets - returned 10.57%
during the period. A significantly important development in the strong
emerging-market performance was the dramatic increase in the price of
oil, which benefited Venezuela, the second-best performing country
year-to-date, as well as Russia and Mexico.
VARIABLE INSURANCE PRODUCTS FUND: MONEY MARKET PORTFOLIO
PERFORMANCE
To measure a money market fund's performance, you can look at either
total return or yield. Total return reflects the change in value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). Yield measures the income paid by a fund. Since
a money market fund tries to maintain a $1 share price, yield is an
important measure of performance.
If Fidelity had not reimbursed certain fund expenses, the past 10
years total return would have been lower. Yield will vary.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
VIP: MONEY MARKET 5.17% 5.43% 5.45%
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had achieved that return
by performing at a constant rate each year.
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.
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, THE TOTAL RETURNS WOULD HAVE BEEN LOWER.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YIELD
6/30/99 3/31/99 12/30/98 9/30/98 7/1/98
VIP: MONEY MARKET 4.85% 4.80% 5.08% 5.40% 5.42%
MMDA 2.03% 2.10% 2.23% 2.51% 2.51%
</TABLE>
Money Market
MMDA
6% -
5% -
4% -
3% -
2% -
1% -
0%
Row: 1, Col: 1, Value: 4.85
Row: 1, Col: 2, Value: 2.03
Row: 2, Col: 1, Value: 4.8
Row: 2, Col: 2, Value: 2.1
Row: 3, Col: 1, Value: 5.08
Row: 3, Col: 2, Value: 2.23
Row: 4, Col: 1, Value: 5.4
Row: 4, Col: 2, Value: 2.51
Row: 5, Col: 1, Value: 5.42
Row: 5, Col: 2, Value: 2.51
YIELD refers to the income paid by the fund over a given period.
Yields for money market funds are usually for seven-day periods,
expressed as annual percentage rates. A yield that assumes income
earned is reinvested or compounded is called an effective yield. The
chart above shows the fund's current seven-day yield at quarterly
intervals over the past year. You can compare these yields to the bank
money market deposit account (MMDA) average. The MMDA average is
supplied by BANK RATE MONITOR.(trademark)
(checkmark)COMPARING PERFORMANCE
There are some important differences between a
bank money market deposit account (MMDA) and
a money market fund. First, the U.S. government
neither insures nor guarantees a money market
fund. In fact, there is no assurance that a money
fund will maintain a $1 share price. Second, a
money market fund returns to its shareholders
income earned by the fund's investments after
expenses. This is in contrast to banks, which set
their MMDA rates periodically based on current
interest rates, competitors' rates, and internal
criteria.
VARIABLE INSURANCE PRODUCTS FUND: MONEY MARKET PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
(photograph of Robert Duby)
An interview with
Robert Duby,
Portfolio Manager
of Money Market Portfolio
Q. BOB, WHAT WAS THE INVESTING ENVIRONMENT LIKE DURING THE FIRST HALF
OF 1999?
A. The past six months have been very challenging in the money market
area, with wide fluctuations in both money market yields and market
sentiment. In January, just when it seemed as if the turmoil in
emerging markets was behind us, the Brazilian markets experienced a
slight hiccup and market sentiment turned positive once again, as
expectations grew that the Federal Reserve Board would cut short-term
interest rates as they had done in the fall of 1998. Shortly
thereafter, however, market sentiment changed as economic data showed
that the U.S. economy continued to exhibit strength and was not about
to slow. In addition, it became evident that the problems in Brazil
were not going to spread to other emerging markets. Throughout the
first half of 1999, consumer and market sentiment remained at record
levels, U.S. economic growth continued to astonish the market with its
strength, unemployment remained at record low levels and inflation was
virtually nonexistent. Growth in Gross Domestic Product (GDP) also
continued to surpass expectations. By the end of the first quarter,
Fed officials were beginning to voice concern that the easing of
monetary policy in the fall may have overstimulated the economy.
Q. WHAT HAPPENED DURING THE SECOND QUARTER?
A. During the spring, the unemployment rate fell to a 29-year low of
about 4.2% and economic data continued to reflect strong growth linked
both to consumer demand and an improvement in manufacturing activity.
The release in mid-May of the April consumer price index (CPI) showed
an advance of 0.7% that shocked the market. Short-term interest rates
adjusted upward in anticipation of a shift by the Fed to a tightening
monetary policy - increases in short-term rates to slow the economy
and head off inflation. The Fed adopted a bias toward tightening at
its meeting in May and - after preparing the market as it had never
done in the past - formally tightened monetary policy on June 30 with
a 0.25 percentage point increase in the federal funds rate to 5.00%.
The statement released with the increase in the funds rate indicated
that the Fed was concerned "that inflationary forces might emerge
which would undermine future economic growth." It appeared that the
Fed felt that a portion of the 0.75 percentage point rate cut in the
fall needed to be taken back. Nevertheless, the Fed announced at the
same time as it hiked rates on June 30 that the future bias of
monetary policy would be neutral, meaning that interest rates could be
either raised or lowered in the future.
Q. WHAT STRATEGY DID YOU PURSUE WITH THE FUND?
A. Over the past six months, I followed a strategy that was quite
similar to those I have pursued in the past. The fund's average
maturity was lengthened on market weakness and shortened on market
strength. During the first quarter of 1999, the average maturity was
lengthened to 71 days as market uncertainty prevailed. As economic
strength continued in the second quarter, the fund's average maturity
was allowed to decline. As I said, the Fed's rate hike on June 30 was
probably the most widely expected move in its history. In fact, after
the tightening the markets rallied on the belief that the Fed was on
hold for the foreseeable future. The fund was extended during the
later half of June as the market priced in a 0.50 percentage point Fed
rate hike, making longer-term investments relatively attractive when
compared to the actual 5.00% Fed funds target rate that came to pass.
Q. WHAT IS YOUR OUTLOOK?
A. I believe we'll see at least one more rate hike by the Fed in the
next few months, unless growth subsides dramatically or another crisis
develops in the world. The market has already begun to price in the
possibility of another move in the near future, as economic data
remains robust. The other wild card in this equation is the Year 2000
issue and how financial market participants will prepare for it.
Issuers have already begun to bring securities to market that come to
maturity in and beyond late January 2000, to avoid any unforeseen
problems over the turn of the year. The fourth quarter of 1999 will
present many challenges in the management of the portfolio, as supply
will be minimal and it will be necessary to manage the fund with an
eye toward meeting shareholder flows. The liquidity needs of
shareholders will have to be assessed and decisions made to address
those needs early in the period. It is expected that the Fed will
maintain an even keel with its policy during the fourth quarter, and
has already announced that it will be ready to provide any additional
liquidity should the need arise. A cautious approach will be followed
to meet our shareholder needs and necessary steps will be taken to
insure that all funds are fully invested at year-end.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET OR OTHER CONDITIONS. FOR MORE INFORMATION, SEE PAGE 3.
(checkmark)FUND FACTS
GOAL: income and share-price stability by
investing in high-quality, short-term investments
START DATE: April 1, 1982
SIZE: as of June 30, 1999, more than $1.7
billion
MANAGER: Robert Duby, since 1997; joined
Fidelity in 1982
VARIABLE INSURANCE PRODUCTS FUND: MONEY MARKET PORTFOLIO
INVESTMENTS JUNE 30, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CERTIFICATES OF DEPOSIT - 35.0%
DUE DATE ANNUALIZED YIELD AT TIME OF PRINCIPAL AMOUNT VALUE (NOTE 1)
PURCHASE
DOMESTIC CERTIFICATES OF
DEPOSIT - 0.7%
First Union National Bank of
North Carolina
7/30/99 4.87% $ 5,000,000 $ 5,000,000
Fleet National Bank
8/3/99 5.00 (b) 7,000,000 6,996,431
11,996,431
LONDON BRANCH, EURODOLLAR,
FOREIGN BANKS - 14.9%
Abbey National Treasury
Services PLC
7/6/99 4.90 5,000,000 5,000,000
8/9/99 4.90 20,000,000 20,000,211
9/24/99 5.15 15,000,000 15,000,000
12/17/99 5.30 15,000,000 15,000,000
Barclays Bank PLC
9/7/99 5.03 30,000,000 29,999,996
9/7/99 5.04 25,000,000 25,000,000
Credit Agricole Indosuez
8/16/99 4.95 10,000,000 9,999,609
12/2/99 5.14 10,000,000 10,000,625
Halifax PLC
8/12/99 4.92 5,000,000 5,000,000
11/8/99 4.95 25,000,000 25,000,000
11/17/99 4.95 10,000,000 10,000,000
12/13/99 5.00 25,000,000 25,000,000
Lloyds Bank PLC
8/31/99 4.88 15,000,000 15,000,000
Morgan Guaranty Trust Co., NY
7/14/99 4.87 10,000,000 10,000,054
National Westminster Bank PLC
7/19/99 4.88 10,000,000 9,999,993
Norddeutsche Landesbank
Girozentrale
8/25/99 4.95 25,000,000 25,000,373
Svenska Handelsbanken
8/23/99 4.92 10,000,000 10,000,000
265,000,861
NEW YORK BRANCH, YANKEE
DOLLAR, FOREIGN BANKS - 19.4%
Bank of Scotland Treasury
Services
7/2/99 4.86 (b) 5,000,000 4,998,327
Barclays Bank PLC
7/1/99 4.88 (b) 5,000,000 4,997,688
3/1/00 5.30 10,000,000 9,996,141
6/14/00 5.66 10,000,000 9,995,417
Bayerische Hypo-und
Vereinsbank AG
7/26/99 5.01 (b) 10,000,000 9,995,556
Canadian Imperial Bank of
Commerce
2/23/00 5.17 5,000,000 4,998,436
Commerzbank AG
9/1/99 5.03 10,000,000 10,000,000
Credit Communale de Belgique
9/14/99 5.09 15,000,000 15,000,000
12/29/99 5.40 10,000,000 10,000,000
DUE DATE ANNUALIZED YIELD AT TIME OF PRINCIPAL AMOUNT VALUE (NOTE 1)
PURCHASE
Deutsche Bank AG
7/1/99 4.89% (b) $ 25,000,000 $ 24,987,049
8/9/99 5.00 23,000,000 23,011,853
8/10/99 4.93 10,000,000 10,000,000
2/16/00 5.12 15,000,000 14,995,445
Dresdner Bank AG
8/10/99 5.00 20,000,000 20,000,000
Landesbank Hessen-Thuringen
8/24/99 5.10 15,000,000 15,000,223
3/1/00 5.22 5,000,000 4,998,391
Merita Bank PLC
9/10/99 5.05 20,000,000 20,000,000
RaboBank Nederland Coop.
Central
9/2/99 5.00 5,000,000 5,000,000
Royal Bank of Canada
2/28/00 5.26 5,000,000 4,998,564
6/5/00 5.55 15,000,000 14,994,638
Societe Generale, France
12/6/99 5.21 15,000,000 15,000,000
Toronto Dominion Bank
11/10/99 5.10 3,000,000 2,997,786
12/8/99 5.20 20,000,000 20,001,732
2/18/00 5.15 12,000,000 11,997,428
UBS AG
5/18/00 5.35 10,000,000 9,994,910
6/2/00 5.52 20,000,000 19,992,909
6/5/00 5.55 25,000,000 24,991,063
342,943,556
TOTAL CERTIFICATES OF DEPOSIT 619,940,848
COMMERCIAL PAPER - 49.0%
Abbey National Treasury
Services PLC
8/9/99 4.93 5,000,000 4,973,946
ABN-AMRO North America, Inc.
12/6/99 5.20 4,000,000 3,911,081
Aspen Funding Corp.
7/12/99 4.94 7,000,000 6,989,477
Asset Securitization Coop.
Corp.
7/26/99 4.95 4,000,000 3,986,333
9/18/99 5.05 (b) 10,000,000 10,000,000
Associates Corp. of North
America
8/12/99 5.04 4,000,000 3,976,667
Associates First Capital BV
7/20/99 4.91 5,000,000 4,987,228
Associates First Capital Corp.
12/13/99 5.39 5,000,000 4,879,688
Bank of Scotland Treasury
Services
9/9/99 5.27 10,000,000 9,898,500
COMMERCIAL PAPER - CONTINUED
DUE DATE ANNUALIZED YIELD AT TIME OF PRINCIPAL AMOUNT VALUE (NOTE 1)
PURCHASE
Bear Stearns Companies, Inc.
9/9/99 5.11% $ 5,000,000 $ 4,950,903
Centric Capital Corp.
7/2/99 4.94 16,580,000 16,577,734
7/8/99 4.94 5,000,000 4,995,217
7/9/99 5.02 15,000,000 14,983,333
7/12/99 4.96 20,000,000 19,969,811
Citibank Credit Card Master
Trust I (Dakota Certificate
Program)
7/12/99 4.95 10,000,000 9,984,967
7/20/99 4.87 5,000,000 4,987,254
8/11/99 4.89 5,000,000 4,972,496
9/8/99 5.16 7,000,000 6,931,575
ConAgra, Inc.
7/12/99 5.11 11,000,000 10,982,926
7/21/99 5.22 2,000,000 1,994,222
CXC, Inc.
7/20/99 4.88 10,000,000 9,974,508
11/10/99 5.04 10,200,000 10,015,992
Daimler-Chrysler North
America Corp.
7/15/99 5.02 10,000,000 9,980,556
7/28/99 5.08 25,000,000 24,905,313
8/10/99 5.04 5,000,000 4,972,222
8/31/99 5.26 20,000,000 19,823,439
Delaware Funding Corp.
7/7/99 4.94 15,000,000 14,987,700
7/8/99 5.02 4,720,000 4,715,411
7/26/99 4.87 3,000,000 2,989,979
Den Danske Corp., Inc.
7/22/99 4.88 9,000,000 8,974,695
Enterprise Funding Corp.
7/8/99 5.02 3,749,000 3,745,355
7/14/99 4.95 10,000,000 9,982,233
7/15/99 4.95 5,662,000 5,651,167
7/26/99 5.08 8,018,000 7,989,881
8/5/99 4.90 3,093,000 3,078,446
8/9/99 5.21 25,000,000 24,859,708
8/24/99 5.05 4,919,000 4,882,108
8/26/99 4.90 4,400,000 4,366,941
8/26/99 5.03 11,263,000 11,175,925
Falcon Asset Securitization
7/8/99 4.96 10,000,000 9,990,394
7/15/99 4.95 20,000,000 19,961,733
7/27/99 5.10 20,000,000 19,926,622
9/15/99 5.14 10,000,000 9,892,967
Finova Capital Corp.
7/12/99 4.98 3,000,000 2,995,453
Fleet Funding Corp.
7/19/99 5.02 10,000,000 9,975,000
Ford Motor Credit Co.
7/16/99 4.86 10,000,000 9,979,958
7/19/99 4.86 25,000,000 24,939,875
DUE DATE ANNUALIZED YIELD AT TIME OF PRINCIPAL AMOUNT VALUE (NOTE 1)
PURCHASE
GE Capital International
Funding, Inc.
8/24/99 5.12% $ 20,000,000 $ 19,847,900
General Electric Capital Corp.
8/18/99 4.93 20,000,000 19,871,733
9/1/99 4.94 5,000,000 4,958,581
General Electric Co.
7/19/99 4.89 5,000,000 4,988,050
General Motors Acceptance Corp.
8/18/99 4.88 10,000,000 9,935,867
Halifax PLC
12/2/99 5.28 6,000,000 5,867,945
Household Finance Corp.
12/13/99 5.31 10,000,000 9,763,042
JC Penney Funding Corp.
7/21/99 5.28 2,000,000 1,994,167
7/22/99 5.28 1,000,000 996,932
Kitty Hawk Funding Corp.
8/9/99 5.21 11,000,000 10,938,272
8/23/99 5.11 4,695,000 4,660,025
8/31/99 5.02 10,000,000 9,916,125
Lehman Brothers Holdings, Inc.
7/14/99 5.05 5,000,000 4,990,918
7/21/99 5.09 5,000,000 4,985,931
MCI WorldCom, Inc.
7/7/99 5.15 6,000,000 5,994,920
8/16/99 5.38 (b) 10,000,000 10,000,000
8/24/99 5.31 1,000,000 992,110
Merrill Lynch & Co., Inc.
7/15/99 4.87 5,000,000 4,990,628
Morgan (JP) & Co., Inc.
9/22/99 5.23 10,000,000 9,881,033
Nationwide Building Society
8/5/99 4.87 5,000,000 4,976,618
Newport Funding Corp.
7/15/99 5.04 (b) 10,000,000 10,000,000
Norddeutsche Landesbank
Girozentrale
8/5/99 4.91 15,000,000 14,930,146
Norfolk Southern Corp.
7/8/99 5.11 2,000,000 1,998,024
7/13/99 5.16 2,000,000 1,996,580
7/14/99 5.18 1,000,000 998,140
PHH Corp.
7/1/99 5.33 3,000,000 3,000,000
7/15/99 5.05 2,000,000 1,996,103
Preferred Receivables Funding
Corp.
7/15/99 5.02 10,000,000 9,980,556
8/3/99 5.09 7,000,000 6,967,596
Salomon Smith Barney
Holdings, Inc.
7/8/99 4.87 5,000,000 4,995,304
7/12/99 4.87 15,000,000 14,977,908
7/20/99 4.95 5,000,000 4,987,017
COMMERCIAL PAPER - CONTINUED
DUE DATE ANNUALIZED YIELD AT TIME OF PRINCIPAL AMOUNT VALUE (NOTE 1)
PURCHASE
Societe Generale North
America, Inc.
8/10/99 4.92% $ 10,000,000 $ 9,946,667
Three Rivers Funding Corp.
7/16/99 5.05 15,261,000 15,229,015
7/19/99 5.07 10,000,000 9,974,750
9/13/99 5.10 5,354,000 5,298,643
Triple A One Funding Corp.
7/26/99 5.07 4,304,000 4,288,906
Tyco International Group SA
7/12/99 5.13 1,000,000 998,442
7/15/99 5.15 4,582,000 4,572,877
9/16/99 5.37 2,000,000 1,977,328
UBS Finance (Delaware), Inc.
8/9/99 4.91 10,000,000 9,948,108
8/9/99 4.92 10,000,000 9,948,000
12/7/99 5.27 10,000,000 9,773,425
Unifunding, Inc.
7/9/99 4.90 10,000,000 9,989,244
9/2/99 5.05 15,000,000 14,870,850
Westpac Capital Corp.
8/16/99 4.95 5,000,000 4,969,142
Windmill Funding Corp.
7/13/99 5.02 10,000,000 9,983,333
7/14/99 4.87 6,000,000 5,989,535
7/16/99 4.88 15,000,000 14,969,875
7/21/99 4.87 6,000,000 5,983,933
7/22/99 5.06 10,000,000 9,970,600
7/23/99 4.88 6,603,000 6,583,551
8/4/99 4.88 19,748,000 19,658,103
8/18/99 4.93 5,000,000 4,967,533
TOTAL COMMERCIAL PAPER 866,936,970
BANK NOTES - 6.5%
American Express Centurion Bank
7/12/99 4.91 (b) 10,000,000 10,000,000
Comerica Bank, Detroit
8/9/99 5.01 (b) 2,000,000 1,999,713
First Union National Bank of
North Carolina
7/1/99 5.15 (b) 10,000,000 10,000,000
7/21/99 5.02 (b) 15,000,000 15,000,000
Fleet National Bank, Providence
8/4/99 5.00 (b) 7,000,000 6,998,792
Key Bank NA
7/21/99 4.90 (b) 5,000,000 4,999,795
Mellon Bank NA, Pittsburgh
7/1/99 4.88 (b) 4,000,000 3,998,040
8/10/99 4.92 15,000,000 15,000,000
NationsBank NA
7/1/99 4.90 (b) 5,000,000 4,998,142
7/1/99 4.91 (b) 5,000,000 4,998,314
9/1/99 4.90 10,000,000 10,000,000
DUE DATE ANNUALIZED YIELD AT TIME OF PRINCIPAL AMOUNT VALUE (NOTE 1)
PURCHASE
PNC Bank NA, Pittsburgh
8/3/99 5.01% (b) $ 7,000,000 $ 6,999,646
US Bank NA
7/15/99 4.85 (b) 20,000,000 19,998,979
TOTAL BANK NOTES 114,991,421
MASTER NOTES - 1.4%
Goldman Sachs Group L.P.
9/1/99 5.18 (b) 10,000,000 10,000,000
J.P. Morgan Securities, Inc.
7/8/99 4.92 (b) 15,000,000 15,000,000
TOTAL MASTER NOTES 25,000,000
MEDIUM-TERM NOTES - 4.7%
Abbey National Treasury
Services PLC
8/17/99 4.85 (a)(b) 5,000,000 4,999,440
Bishops Gate Resources
Mortgage Trust
7/1/99 5.14 (b) 4,000,000 4,000,000
CIT Group, Inc.
7/1/99 4.95 (b) 10,000,000 9,994,884
GE Life & Annuity Assurance Co.
7/1/99 5.04 (b)(c) 14,000,000 14,000,000
General Electric Capital Corp.
7/12/99 4.95 (b) 4,000,000 4,000,000
8/3/99 4.95 (b) 10,000,000 10,000,000
Goldman Sachs Group L.P.
7/7/99 5.20 (b)(c) 7,000,000 7,000,000
8/10/99 5.05 (a)(b) 4,000,000 4,000,000
Morgan Guaranty Trust Co., NY
7/27/99 5.09 (b) 10,000,000 9,998,830
Norwest Corp.
7/22/99 5.02 (b) 6,000,000 6,000,000
RACERS
7/2/99 4.94 (a)(b) 9,000,000 9,000,000
TOTAL MEDIUM-TERM NOTES 82,993,154
SHORT-TERM NOTES - 2.8%
Capital One Funding Corp.
Series 1994 B,
7/7/99 5.18 (b) 2,906,000 2,906,000
Capital One Funding Corp.
Series 1995 E,
7/7/99 5.18 (b) 5,380,000 5,380,000
Capital One Funding Corp.
Series 1996 I,
7/7/99 5.18 (b) 3,762,000 3,762,000
Monumental Life Insurance Co.
7/1/99 5.07 (b)(c) 5,000,000 5,000,000
7/1/99 5.11 (b)(c) 5,000,000 5,000,000
SHORT-TERM NOTES - CONTINUED
DUE DATE ANNUALIZED YIELD AT TIME OF PRINCIPAL AMOUNT VALUE (NOTE 1)
PURCHASE
New York Life Insurance Co.
7/1/99 5.12% (b)(c) $ 4,000,000 $ 4,000,000
7/7/99 5.00 (b) 5,000,000 5,000,000
SMM Trust Series 1999 E,
7/1/99 4.98 (a)(b) 3,000,000 3,000,000
SMM Trust Series 1999 I,
7/1/99 5.05 (a)(b) 3,000,000 3,000,000
Strategic Money Market Trust
Series 1998 A,
9/16/99 5.26 (b) 14,000,000 14,000,000
TOTAL SHORT-TERM NOTES 51,048,000
REPURCHASE AGREEMENTS - 0.6%
MATURITY AMOUNT
In a joint trading account $ 10,218,449 10,217,000
(U.S. Treasury Obligations)
dated 6/30/99 due 7/1/99 At
5.1% (Cost $10,217,000)
TOTAL INVESTMENT IN $ 1,771,127,393
SECURITIES - 100%
Total Cost for Income Tax Purposes $ 1,771,127,393
</TABLE>
LEGEND
(a) 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 $23,999,440 or 1.4% of net assets.
(b) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end. The due dates on these types of
securities reflects the next interest rate reset date or, when
applicable, the final maturity date.
(c) Restricted securities - Investment in securities not registered
under the Securities Act of 1933.
SECURITY ACQUISITION DATE COST
GE Life & Annuity Assurance 4/8/99 $ 14,000,000
Co. 5.04% 7/1/99
Goldman Sachs Group L.P. 12/7/98 $ 7,000,000
5.20% 7/7/99
Monumental Life Insurance Co: 9/17/98 $ 5,000,000
5.07% 7/1/99
5.11% 7/1/99 3/12/99 $ 5,000,000
New York Life Insurance Co 12/21/98 $ 4,000,000
5.12% 7/1/99
INCOME TAX INFORMATION
At December 31, 1998, the fund had a capital loss carryforward of
approximately $29,000 of which $1,000 and $28,000 will expire on
December 31, 2002 and 2005, respectively.
VARIABLE INSURANCE PRODUCTS FUND: MONEY MARKET PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 1,771,127,393
value - See accompanying
schedule
Receivable for investments 333,000
sold
Receivable for fund shares 846,791
sold
Interest receivable 8,413,043
Prepaid expenses 35,553
TOTAL ASSETS 1,780,755,780
LIABILITIES
Payable to custodian bank $ 50,814
Payable for fund shares 49,522,885
purchased
Accrued management fee 264,206
Other payables and accrued 141,908
expenses
TOTAL LIABILITIES 49,979,813
NET ASSETS $ 1,730,775,967
Net Assets consist of:
Paid in capital $ 1,730,789,452
Accumulated net realized gain (13,485)
(loss) on investments
NET ASSETS, for 1,730,774,396 $ 1,730,775,967
shares outstanding
NET ASSET VALUE, offering $1.00
price and redemption price
per share ($1,730,775,967
(divided by) 1,730,774,396
shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30,
1999 (UNAUDITED)
INTEREST INCOME $ 41,625,009
EXPENSES
Management fee $ 1,356,863
Transfer agent fees 569,567
Accounting fees and expenses 82,987
Non-interested trustees' 2,590
compensation
Custodian fees and expenses 15,035
Registration fees 881
Audit 13,022
Legal 1,515
Miscellaneous 35,553
Total expenses before 2,078,013
reductions
Expense reductions (2,445) 2,075,568
NET INTEREST INCOME 39,549,441
NET REALIZED GAIN (LOSS) ON 15,235
INVESTMENTS
NET INCREASE IN NET ASSETS $ 39,564,676
RESULTING FROM OPERATIONS
OTHER INFORMATION
Expense reductions
Custodian credits $ 2,445
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
ASSETS 1999 (UNAUDITED)
Operations Net interest income $ 39,549,441 $ 73,329,985
Net realized gain (loss) 15,235 30,030
NET INCREASE (DECREASE) IN 39,564,676 73,360,015
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (39,549,441) (73,329,985)
from net interest income
Share transactions at net 1,842,537,411 2,992,850,183
asset value of $1.00 per
share Proceeds from sales of
shares
Reinvestment of 39,549,441 73,314,040
distributions from net
interest income
Cost of shares redeemed (1,658,815,536) (2,579,498,939)
NET INCREASE (DECREASE) IN 223,271,316 486,665,284
NET ASSETS AND SHARES
RESULTING FROM SHARE
TRANSACTIONS
TOTAL INCREASE (DECREASE) 223,286,551 486,695,314
IN NET ASSETS
NET ASSETS
Beginning of period 1,507,489,416 1,020,794,102
End of period $ 1,730,775,967 $ 1,507,489,416
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 1996 1995
Net asset value, beginning of $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
period
Income from Investment .024 .053 .053 .052 .057
Operations Net interest
income
Less Distributions
From net interest income (.024) (.053) (.053) (.052) (.057)
Net asset value, end of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
TOTAL RETURN B 2.43% 5.46% 5.51% 5.41% 5.87%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 1,730,776 $ 1,507,489 $ 1,020,794 $ 1,126,155 $ 808,874
(000 omitted)
Ratio of expenses to average .25% A .30% .31% .30% .33%
net assets
Ratio of net interest income 4.84% A 5.33% 5.32% 5.28% 5.72%
to average net assets
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA 1994
Net asset value, beginning of $ 1.000
period
Income from Investment .042
Operations Net interest
income
Less Distributions
From net interest income (.042)
Net asset value, end of period $ 1.000
TOTAL RETURN B 4.25%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 748,606
(000 omitted)
Ratio of expenses to average .27%
net assets
Ratio of net interest income 4.32%
to average net assets
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED
AND DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE COMPANY'S
SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE THE TOTAL
RETURNS SHOWN.
VARIABLE INSURANCE PRODUCTS FUND II: INVESTMENT GRADE BOND PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). If Fidelity had not reimbursed certain fund
expenses, the past 10 year total returns would have been lower.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
VIP II: INVESTMENT GRADE BOND 2.99% 7.25% 7.54%
LB Aggregate Bond 3.15% 7.83% 8.15%
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare these figures to the Lehman Brothers Aggregate Bond
Index - a market value-weighted index of investment-grade fixed-rate
debt issues, including government, corporate, asset-backed, and
mortgage-backed securities, with maturities of one year or more. This
benchmark 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.
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, THE TOTAL RETURNS 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.
(checkmark)UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of
how it will do tomorrow. Bond prices, for
example, generally move in the opposite direction
of interest rates. In turn, the share price, return and
yield of a fund that invests in bonds will vary.
That means if you sell your shares during a
market downturn, you might lose money. But if
you can ride out the market's ups and downs,
you may have a gain.
$10,000 OVER 10 YEARS
VIP II INVESTMENT GRADE LB AGGREGATE BOND
00155 LB001
1989/06/30 10000.00 10000.00
1989/07/31 10155.99 10213.00
1989/08/31 10075.06 10061.85
1989/09/30 10114.80 10113.16
1989/10/31 10271.40 10361.95
1989/11/30 10359.77 10460.39
1989/12/31 10402.08 10488.63
1990/01/31 10378.41 10363.81
1990/02/28 10437.28 10396.98
1990/03/31 10468.96 10404.26
1990/04/30 10473.41 10308.54
1990/05/31 10637.84 10613.67
1990/06/30 10720.82 10784.55
1990/07/31 10827.25 10933.38
1990/08/31 10826.21 10786.87
1990/09/30 10868.55 10876.40
1990/10/31 10869.22 11014.53
1990/11/30 10934.69 11251.34
1990/12/31 11048.51 11426.86
1991/01/31 11070.79 11568.56
1991/02/28 11182.16 11666.89
1991/03/31 11371.50 11747.39
1991/04/30 11538.57 11874.26
1991/05/31 11627.67 11943.13
1991/06/30 11649.94 11937.16
1991/07/31 11750.18 12103.09
1991/08/31 11995.21 12364.52
1991/09/30 12217.96 12615.51
1991/10/31 12351.61 12755.55
1991/11/30 12485.27 12872.90
1991/12/31 12857.94 13255.22
1992/01/31 12730.29 13074.95
1992/02/29 12799.96 13159.94
1992/03/31 12776.67 13086.24
1992/04/30 12869.84 13180.46
1992/05/31 13067.84 13429.58
1992/06/30 13219.25 13614.90
1992/07/31 13487.13 13892.65
1992/08/31 13568.66 14032.96
1992/09/30 13731.72 14199.96
1992/10/31 13557.01 14011.10
1992/11/30 13522.07 14013.90
1992/12/31 13713.55 14236.72
1993/01/31 14001.07 14510.06
1993/02/28 14238.74 14763.99
1993/03/31 14301.30 14826.00
1993/04/30 14388.89 14929.78
1993/05/31 14413.91 14949.19
1993/06/30 14689.18 15219.77
1993/07/31 14789.27 15306.52
1993/08/31 15052.03 15574.39
1993/09/30 15127.10 15616.44
1993/10/31 15202.17 15674.22
1993/11/30 15127.10 15540.99
1993/12/31 15216.91 15624.91
1994/01/31 15389.23 15835.85
1994/02/28 15136.97 15560.30
1994/03/31 14791.44 15175.96
1994/04/30 14658.54 15054.55
1994/05/31 14618.67 15053.05
1994/06/30 14578.80 15019.93
1994/07/31 14818.02 15318.83
1994/08/31 14831.31 15337.21
1994/09/30 14671.83 15111.75
1994/10/31 14685.12 15098.15
1994/11/30 14711.70 15064.94
1994/12/31 14645.25 15168.89
1995/01/31 14857.88 15469.23
1995/02/28 15144.62 15837.40
1995/03/31 15240.99 15934.01
1995/04/30 15447.51 16157.08
1995/05/31 16067.06 16782.36
1995/06/30 16190.97 16904.87
1995/07/31 16135.90 16867.68
1995/08/31 16328.65 17071.78
1995/09/30 16480.10 17237.38
1995/10/31 16700.38 17461.46
1995/11/30 16948.20 17723.38
1995/12/31 17182.26 17971.51
1996/01/31 17292.40 18090.12
1996/02/29 16976.60 17775.36
1996/03/31 16846.23 17650.93
1996/04/30 16744.83 17552.08
1996/05/31 16715.86 17516.98
1996/06/30 16918.66 17751.71
1996/07/31 16962.11 17799.64
1996/08/31 16947.63 17769.38
1996/09/30 17222.84 18078.56
1996/10/31 17599.46 18479.91
1996/11/30 17889.16 18795.91
1996/12/31 17729.82 18621.11
1997/01/31 17773.28 18678.84
1997/02/28 17796.79 18725.54
1997/03/31 17612.05 18517.68
1997/04/30 17873.77 18795.45
1997/05/31 18012.32 18974.00
1997/06/30 18227.85 19199.79
1997/07/31 18720.50 19718.19
1997/08/31 18551.15 19550.58
1997/09/30 18828.26 19839.93
1997/10/31 19074.59 20127.61
1997/11/30 19120.77 20220.20
1997/12/31 19336.30 20424.42
1998/01/31 19582.63 20685.86
1998/02/28 19568.92 20669.31
1998/03/31 19650.12 20739.58
1998/04/30 19747.56 20847.43
1998/05/31 19926.20 21045.48
1998/06/30 20088.59 21224.01
1998/07/31 20137.31 21269.05
1998/08/31 20380.91 21615.24
1998/09/30 20884.34 22121.29
1998/10/31 20770.66 22004.58
1998/11/30 20949.30 22129.20
1998/12/31 21046.74 22195.74
1999/01/31 21225.38 22354.28
1999/02/28 20860.12 21963.98
1999/03/31 20997.13 22085.84
1999/04/30 21065.64 22155.85
1999/05/31 20791.62 21960.88
1999/06/30 20688.86 21894.00
IMATRL PRASUN SHR__CHT 19990630 19990712 151729 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund II: Investment Grade Bond
Portfolio on June 30, 1989. By June 30, 1999, the value of the
investment would have grown to $20,689 - a 106.89% increase on the
initial investment. For comparison, look at how the Lehman Brothers
Aggregate Bond Index did over the same period. With dividends and
capital gains, if any, reinvested, the same $10,000 investment would
have grown to $21,894 - a 118.94% increase.
INVESTMENT SUMMARY
QUALITY DIVERSIFICATION AS OF
JUNE 30, 1999
(MOODY'S RATINGS) % OF FUND'S INVESTMENTS
Aaa 54.3
Aa 2.2
A 14.2
Baa 23.4
Ba and Below 1.2
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P RATINGS.
AVERAGE YEARS TO MATURITY AS
OF JUNE 30, 1999
Years 9.1
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.
TOP FIVE MARKET SECTORS AS OF
JUNE 30, 1999
% OF FUND'S INVESTMENTS
FINANCE 14.9
UTILITIES 4.6
MEDIA & LEISURE 4.6
CONSTRUCTION & REAL ESTATE 2.3
NONDURABLES 2.3
VARIABLE INSURANCE PRODUCTS FUND: INVESTMENT GRADE BOND PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
(photograph of Kevin Grant)
An interview with
Kevin Grant, Portfolio Manager of Investment Grade Bond Portfolio
Q. HOW DID THE FUND PERFORM COMPARED TO ITS BENCHMARK, KEVIN?
A. For the six- and 12-month periods that ended June 30, 1999, the
fund performed in line with the Lehman Brothers Aggregate Bond Index,
which returned -1.37% over the past six months and 3.15% over the past
12 months.
Q. HOW WOULD YOU DESCRIBE THE INVESTMENT ENVIRONMENT OVER THE PAST SIX
MONTHS?
A. Essentially, we've completed a round trip from late last year's
massive flight to safety in the Treasury market as interest rates rose
steadily during the period. The story in the first quarter was one of
recovery in the spread sectors - mortgages, corporates and the like -
from the depressed levels of last fall. These bonds outperformed
Treasuries by wide margins, supported by strengthening global
economies. Yield spread levels tightened as investors favored
higher-yielding alternatives to Treasuries, which helped spread
sectors outperform their government counterparts during the period.
But investors' concerns about the possibility of an interest-rate
hike, as well as the high level of debt issuance, halted the rally in
spread sectors during the second quarter.
Q. WHAT STRATEGIES HELPED CONTRIBUTE TO PERFORMANCE?
A. Sector allocation was a major contributor to fund performance.
With its significant overweighting in corporates and mortgages, and
its underweighting in Treasuries relative to the Lehman index, the
fund was well-positioned to take advantage of favorable market
conditions. I reduced the fund's exposure to lower-coupon mortgages,
which suffered from excess supply. Strong security selection within
the corporate sector also helped as Yankee bonds, which are
dollar-denominated foreign debt, and non-cable media issues
outperformed much of the broader corporate universe. Yankee sectors
benefited in part due to South Korea's return to investment-grade
status during the period.
Q. MORTGAGE SECURITIES HAVE INCREASINGLY BECOME AN IMPORTANT PART OF
THE MARKET IN WHICH THIS FUND INVESTS. WHAT'S THE STORY BEHIND THIS
CHANGE?
A. It's certainly true that mortgages have become a more important
part of the investment equation for this fund and others like it. Two
years ago, the mortgage market accounted for about 30% of the
investment-grade world. By the end of this year, that share will grow
to around 35%. What's happening, in essence, is that the U.S.
Treasury is issuing fewer bonds because of the budget surplus, so that
the government component of the Lehman index is not growing as fast as
the mortgage segment. Much of the rise in mortgages was due to a
strong refinancing wave - resulting in larger, lower-coupon issues -
and the sustained robustness of the housing market - putting a steady
stream of new mortgages into play. The Lehman index, reflecting the
current market composition, carries a 33% mortgage position, and is
expected to grow further in the future.
Q. WHAT MOVES DETRACTED FROM PERFORMANCE?
A. Since the fund holds mostly intermediate-term securities, which are
five- to 10-year issues, it suffered as that part of the yield curve
struggled to get its footing during the period. Intermediate-term
yields rose more than longer-term yields in response to rising
interest rates. Toward the end of the period, spreads began to widen
over fear of mounting supply pressures heading into the third quarter.
The feeling was that companies did not want to be in the position to
have to issue bonds, or even commercial paper, in the fourth quarter
because of Year 2000 (Y2K) concerns. As a result, firms would issue
longer-term debt and issue it earlier in order to avoid having to come
to market at the end of the year.
Q. WHAT'S YOUR OUTLOOK?
A. I'm optimistic about the corporate and mortgage sectors. I feel
that the added supply of corporates in the market over the remaining
months of the year should provide some attractive opportunities for
the fund. More variety in the marketplace can equate to healthy
rewards for strong security selection. At the current level of
interest rates, the mortgage-refinancing window is technically closed.
And with little supply pressure to weigh it down, mortgages should
fare well in the coming months. What the market really needs is
stability. The Federal Reserve Board has done a good job of doing
what it needs to do and not going overboard one way or another. We're
going to have to wait and see whether the rise in rates we've had in
the past three to four months is enough to sufficiently cool the
domestic economy.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET OR OTHER CONDITIONS. FOR MORE INFORMATION, SEE PAGE 3.
(checkmark)FUND FACTS
GOAL: seeks to provide a high rate of income
consistent with reasonable risk by investing in a
broad range of investment-grade fixed-income
securities; in addition, the fund seeks to protect
capital
START DATE: December 5, 1988
SIZE: as of June 30, 1999, more than $707
million
MANAGER: Kevin Grant, since 1997; joined
Fidelity in 1993
VARIABLE INSURANCE PRODUCTS FUND II: INVESTMENT GRADE BOND PORTFOLIO
INVESTMENTS JUNE 30, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NONCONVERTIBLE BONDS - 36.6%
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT VALUE (NOTE 1)
AEROSPACE & DEFENSE - 0.1%
DEFENSE ELECTRONICS - 0.1%
Raytheon Co. 6.45% 8/15/02 Baa1 $ 830,000 $ 831,818
BASIC INDUSTRIES - 0.8%
CHEMICALS & PLASTICS - 0.7%
Monsanto Co. 5.75% 12/1/05 (b) A2 5,000,000 4,692,050
Rohm & Haas Co. 7.85% 7/15/29 A3 500,000 499,635
(b)
5,191,685
PAPER & FOREST PRODUCTS - 0.1%
Fort James Corp. 6.625% Baa2 350,000 349,587
9/15/04
TOTAL BASIC INDUSTRIES 5,541,272
CONSTRUCTION & REAL ESTATE -
2.3%
REAL ESTATE - 0.4%
Cabot Industrial Property LP Baa2 1,325,000 1,290,948
7.125% 5/1/04
Duke Realty LP 7.3% 6/30/03 Baa2 1,500,000 1,507,050
2,797,998
REAL ESTATE INVESTMENT TRUSTS
- - 1.9%
CenterPoint Properties Trust Baa2 510,000 487,040
6.75% 4/1/05
Equity Office Properties Trust:
6.5% 1/15/04 Baa1 5,000,000 4,870,700
6.625% 2/15/05 Baa1 4,500,000 4,340,610
6.75% 2/15/08 Baa1 4,020,000 3,801,312
ProLogis Trust 6.7% 4/15/04 Baa1 565,000 549,180
14,048,842
TOTAL CONSTRUCTION & REAL 16,846,840
ESTATE
ENERGY - 1.5%
ENERGY SERVICES - 0.1%
Baker Hughes, Inc. 6.875% A2 550,000 516,049
1/15/29 (b)
OIL & GAS - 1.4%
Anadarko Petroleum Corp. 7.2% Baa1 2,490,000 2,329,868
3/15/29
Apache Corp.:
7.625% 7/1/19 Baa1 1,500,000 1,490,625
7.7% 3/15/26 Baa1 550,000 545,870
Apache Finance Property Ltd. Baa1 940,000 893,940
6.5% 12/15/07
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT VALUE (NOTE 1)
Conoco, Inc.:
5.9% 4/15/04 A3 $ 850,000 $ 824,160
6.95% 4/15/29 A3 1,375,000 1,282,861
Petro-Canada 7% 11/15/28 A3 2,850,000 2,623,625
9,990,949
TOTAL ENERGY 10,506,998
FINANCE - 14.9%
BANKS - 6.0%
ABN-Amro Bank NV, Chicago A1 1,000,000 1,003,080
6.625% 10/31/01
Banc One Corp. 7.25% 8/1/02 A1 1,000,000 1,025,360
Bank of Montreal 6.1% 9/15/05 A1 3,000,000 2,864,490
BankAmerica Corp.:
6.625% 6/15/04 Aa2 1,910,000 1,908,806
10% 2/1/03 Aa3 200,000 221,596
BankBoston NA 6.375% 3/25/08 A2 6,000,000 5,678,160
Barclays Bank PLC yankee:
5.875% 7/15/00 A1 2,400,000 2,391,336
5.95% 7/15/01 A1 2,700,000 2,674,566
Capital One Bank:
6.375% 2/15/03 Baa2 1,130,000 1,103,163
6.42% 11/12/99 Baa3 2,000,000 2,004,040
Capital One Financial Corp. Baa3 1,290,000 1,234,246
7.125% 8/1/08
Chase Manhattan Corp. 8.5% A1 1,160,000 1,220,285
2/15/02
Citicorp 7.2% 6/15/07 A1 7,600,000 7,674,100
Kansallis-Osake-Pankki (NY A2 260,000 281,767
Branch) yankee 10% 5/1/02
Korea Development Bank:
6.625% 11/21/03 Baa3 1,635,000 1,570,058
7.125% 9/17/01 Baa3 485,000 480,509
MBNA Corp.:
6.34% 6/2/03 Baa2 350,000 340,340
6.875% 11/15/02 Baa2 1,750,000 1,739,465
NB Capital Trust IV 8.25% Aa2 1,990,000 2,047,770
4/15/27
Providian National Bank 6.75% Baa3 3,000,000 2,986,110
3/15/02
Sumitomo Bank International Baa1 1,480,000 1,505,160
Finance NV 8.5% 6/15/09
Union Planters Corp. 6.75% Baa2 400,000 390,168
11/1/05
Union Planters National Bank A3 500,000 503,425
6.81% 8/20/01
42,848,000
NONCONVERTIBLE BONDS -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT VALUE (NOTE 1)
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - 8.0%
Ahmanson Capital Trust I A3 $ 1,125,000 $ 1,143,383
8.36% 12/1/26 (b)
Associates Corp. of North
America:
6% 4/15/03 Aa3 1,150,000 1,133,889
6% 7/15/05 Aa3 5,000,000 4,830,500
AT&T Capital Corp. 7.5% Baa3 4,020,000 4,049,909
11/15/00
Bank of New York Co., Inc. A1 1,000,000 997,580
Capital I 7.97% 12/31/26
BankBoston Capital Trust II A2 580,000 555,251
7.75% 12/15/26
BanPonce Trust I 8.327% 2/1/27 A3 750,000 721,560
Chase Capital I 7.67% 12/1/26 Aa3 1,000,000 965,010
Chrysler Financial Corp. A1 4,400,000 4,340,952
5.69% 11/15/01
Citigroup, Inc. 5.8% 3/15/04 Aa2 3,340,000 3,229,980
ERP Operating LP:
6.55% 11/15/01 A3 1,150,000 1,145,469
7.1% 6/23/04 A3 1,000,000 1,000,710
Finova Capital Corp. 6.27% Baa1 400,000 399,712
9/29/00
First Security Capital I A3 510,000 519,940
8.41% 12/15/26
Fleet Capital Trust II 7.92% A2 400,000 392,988
12/11/26
Ford Motor Credit Co.:
5.125% 10/15/01 A1 3,910,000 3,800,911
6.5% 2/28/02 A1 3,090,000 3,097,540
GS Escrow Corp. 7.125% 8/1/05 Ba1 6,250,000 5,933,563
KeyCorp Institutional Capital A1 800,000 790,184
A 7.826% 12/1/26
PNC Institutional Capital A2 1,000,000 1,019,660
Trust 8.315% 5/15/27 (b)
Sears Credit Account Master Aaa 583,333 586,793
Trust II 7% 1/15/04
Spieker Properties LP:
6.75% 1/15/08 Baa2 7,000,000 6,555,010
6.8% 5/1/04 Baa2 705,000 690,583
Sprint Capital Corp.:
5.7% 11/15/03 Baa1 1,480,000 1,424,248
5.875% 5/1/04 Baa1 3,080,000 2,965,670
6.875% 11/15/28 Baa1 2,050,000 1,872,634
6.9% 5/1/19 Baa1 2,565,000 2,398,326
Trizec Finance Ltd. yankee Baa3 810,000 878,850
10.875% 10/15/05
57,440,805
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT VALUE (NOTE 1)
INSURANCE - 0.3%
Executive Risk Capital Trust Baa3 $ 1,750,000 $ 1,785,193
8.675% 2/1/27
Nationwide Mutual Insurance A1 130,000 127,334
Co. 6.5% 2/15/04 (b)
1,912,527
SAVINGS & LOANS - 0.2%
Great Western Finance Trust A3 1,000,000 988,800
II 8.206% 2/1/27
Long Island Savings Bank FSB Baa3 750,000 743,325
6.2% 4/2/01
1,732,125
SECURITIES INDUSTRY - 0.4%
Amvescap PLC yankee 6.6% A3 2,900,000 2,821,990
5/15/05
TOTAL FINANCE 106,755,447
INDUSTRIAL MACHINERY &
EQUIPMENT - 1.3%
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.9%
Tyco International Group SA:
6.125% 11/1/08 Baa1 5,000,000 4,653,300
yankee 6.125% 6/15/01 Baa1 1,500,000 1,492,065
6,145,365
POLLUTION CONTROL - 0.4%
WMX Technologies, Inc. 7.1% Baa2 3,000,000 3,058,770
8/1/26
TOTAL INDUSTRIAL MACHINERY & 9,204,135
EQUIPMENT
MEDIA & LEISURE - 4.6%
BROADCASTING - 2.3%
Clear Channel Communications, Baa3 6,000,000 5,506,020
Inc. 7.25% 10/15/27
Continental Cablevision, Inc.:
8.3% 5/15/06 Baa3 1,260,000 1,345,365
9% 9/1/08 Baa3 910,000 1,022,440
Nielsen Media Research, Inc. Baa2 1,190,000 1,203,197
7.6% 6/15/09
TCI Communications, Inc.:
8.25% 1/15/03 A2 90,000 95,351
8.75% 8/1/15 A2 2,600,000 2,945,618
9.8% 2/1/12 A2 1,255,000 1,533,384
TCI Communications Financing A3 1,500,000 1,717,500
III 9.65% 3/31/27
Time Warner, Inc. 8.18% Baa3 1,240,000 1,309,663
8/15/07
16,678,538
NONCONVERTIBLE BONDS -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT VALUE (NOTE 1)
MEDIA & LEISURE - CONTINUED
ENTERTAINMENT - 0.9%
Viacom, Inc. 7.75% 6/1/05 Baa3 $ 6,400,000 $ 6,555,136
PUBLISHING - 1.4%
News America, Inc. 6.625% Baa3 210,000 198,975
1/9/08
Time Warner Entertainment Co.
LP:
7.25% 9/1/08 Baa2 760,000 759,924
8.375% 3/15/23 Baa2 6,920,000 7,495,536
8.375% 7/15/33 Baa2 1,200,000 1,304,784
9,759,219
RESTAURANTS - 0.0%
Darden Restaurants, Inc. Baa1 20,000 18,466
6.375% 2/1/06
TOTAL MEDIA & LEISURE 33,011,359
NONDURABLES - 2.3%
BEVERAGES - 1.4%
Seagram Co. Ltd. yankee Baa3 350,000 309,750
6.875% 9/1/23
Seagram JE & Sons, Inc.:
6.625% 12/15/05 Baa3 7,250,000 7,032,500
7.6% 12/15/28 Baa3 3,000,000 2,898,900
10,241,150
FOODS - 0.2%
ConAgra, Inc. 7.125% 10/1/26 Baa1 1,270,000 1,258,405
TOBACCO - 0.7%
Philip Morris Companies, Inc. A2 3,000,000 3,031,500
6.95% 6/1/06
RJR Nabisco, Inc. 7.375% Baa2 1,800,000 1,777,626
5/15/03 (b)
4,809,126
TOTAL NONDURABLES 16,308,681
RETAIL & WHOLESALE - 1.5%
DRUG STORES - 0.5%
Rite Aid Corp. 6% 12/15/05 (b) Baa1 4,000,000 3,670,800
GENERAL MERCHANDISE STORES -
0.5%
Dayton Hudson Corp. 6.4% A3 500,000 497,675
2/15/03
Federated Department Stores, Baa2 3,000,000 3,176,070
Inc. 8.5% 6/15/03
3,673,745
GROCERY STORES - 0.1%
Kroger Co. 6% 7/1/00 Baa3 530,000 528,866
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT VALUE (NOTE 1)
RETAIL & WHOLESALE,
MISCELLANEOUS - 0.4%
USA Networks, Inc./USANI LLC Ba1 $ 3,000,000 $ 2,872,500
6.75% 11/15/05
TOTAL RETAIL & WHOLESALE 10,745,911
TECHNOLOGY - 1.4%
COMPUTERS & OFFICE EQUIPMENT
- - 1.4%
Comdisco, Inc.:
5.75% 2/15/01 Baa1 1,000,000 990,210
5.95% 4/30/02 Baa1 3,000,000 2,949,330
6.375% 11/30/01 Baa1 3,200,000 3,191,520
6.45% 11/13/00 Baa1 3,000,000 3,008,130
10,139,190
TRANSPORTATION - 1.3%
AIR TRANSPORTATION - 0.6%
Continental Airlines, Inc.
Pass Through Trust
Certificates:
7.434% 3/15/06 Baa1 550,000 552,145
7.73% 9/15/12 Baa1 355,000 356,598
Delta Air Lines, Inc. Baa1 375,392 389,203
equipment trust certificate
8.54% 1/2/07
Qantas Airways Ltd. 7.75% Baa1 2,000,000 1,995,000
6/15/09 (b)
United Air Lines, Inc. 9% Baa3 1,100,000 1,175,262
12/15/03
4,468,208
RAILROADS - 0.7%
Burlington Northern Santa Fe Baa2 3,000,000 2,932,290
Corp. 6.53% 7/15/37
Norfolk Southern Corp. 7.05% Baa1 1,700,000 1,727,506
5/1/37
4,659,796
TOTAL TRANSPORTATION 9,128,004
UTILITIES - 4.6%
CELLULAR - 1.1%
Cable & Wireless Baa1 7,825,000 7,714,276
Communications PLC 6.375%
3/6/03
ELECTRIC UTILITY - 1.2%
Avon Energy Partners Holdings:
6.46% 3/4/08 (b) Baa2 1,500,000 1,432,695
7.05% 12/11/07 (b) Baa2 3,000,000 2,997,480
DR Investments UK PLC yankee A2 1,500,000 1,513,470
7.1% 5/15/02 (b)
NONCONVERTIBLE BONDS -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT VALUE (NOTE 1)
UTILITIES - CONTINUED
ELECTRIC UTILITY - CONTINUED
Israel Electric Corp. Ltd. A3 $ 2,400,000 $ 2,139,000
7.75% 12/15/27 (b)
Texas Utilities Co. 6.375% Baa3 990,000 948,757
1/1/08
9,031,402
GAS - 0.7%
CMS Panhandle Holding Co.:
6.125% 3/15/04 (b) Baa3 1,350,000 1,313,145
7% 7/15/29 (b) Baa3 1,000,000 923,900
Mitchell Energy & Development Baa3 1,730,000 1,730,865
Corp. 8% 7/15/99
Southwest Gas Corp. 9.75% Baa2 1,000,000 1,076,410
6/15/02
5,044,320
TELEPHONE SERVICES - 1.6%
AT&T Corp. 6.5% 3/15/29 A1 2,000,000 1,805,480
MCI WorldCom, Inc. 6.4% A3 8,000,000 7,826,400
8/15/05
Telecomunicaciones de P R, Baa2 1,730,000 1,670,021
Inc. 6.65% 5/15/06 (b)
11,301,901
TOTAL UTILITIES 33,091,899
TOTAL NONCONVERTIBLE BONDS 262,111,554
(Cost $269,914,076)
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 12.9%
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 2.4%
Fannie Mae:
5.125% 2/13/04 Aaa 400,000 383,500
6.15% 1/13/00 Aaa 525,000 526,638
Federal Agricultural Mortgage Aaa 10,000 10,314
Corp. 7.01% 2/10/05
Federal Home Loan Bank:
6.46% 12/15/04 Aaa 1,745,000 1,753,446
7.31% 6/16/04 Aaa 4,155,000 4,341,310
7.36% 7/1/04 Aaa 3,100,000 3,243,871
7.38% 8/5/04 Aaa 110,000 115,207
7.46% 9/9/04 Aaa 50,000 52,531
7.56% 9/1/04 Aaa 310,000 326,467
7.59% 3/10/05 Aaa 10,000 10,584
7.7% 9/20/04 Aaa 40,000 42,425
8.09% 12/28/04 Aaa 10,000 10,858
Freddie Mac:
6.77% 9/15/02 Aaa 150,000 153,258
8% 1/26/05 Aaa 520,000 559,733
8.115% 1/31/05 Aaa 1,140,000 1,233,514
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT VALUE (NOTE 1)
Government Loan Trusts Aaa $ 1,632,423 $ 1,760,225
(assets of Trust guaranteed
by U.S. Government through
Agency for International
Development) Series 1 B,
8.5% 4/1/06
Government Trust Certificates
(assets of Trust guaranteed
by U.S. Government through
Defense Security Assistance
Agency):
Series 1 C, 9.25% 11/15/01 Aaa 627,545 654,755
Series 2 E, 9.4% 5/15/02 Aaa 514,116 534,907
Series T 3, 9.625% 5/15/02 Aaa 32,453 33,813
Guaranteed Export Trust
Certificates (assets of
Trust guaranteed by U.S.
Government through
Export-Import Bank):
Series 1993 C, 5.2% 10/15/04 Aaa 4,889 4,783
Series 1993 D, 5.23% 5/15/05 Aaa 10,213 9,951
Series 1994 A, 7.12% 4/15/06 Aaa 6,824 6,986
Series 1994 C, 6.61% 9/15/99 Aaa 4,947 4,950
Guaranteed Trade Trust Aaa 6,872 7,164
Certificates (assets of
Trust guaranteed by U.S.
Government through
Export-Import Bank) Series
1994 B, 7.5% 1/26/06
Israel Export Trust Aaa 9,412 9,532
Certificates (assets of
Trust guaranteed by U.S.
Government through
Export-Import Bank) Series
1994 1, 6.88% 1/26/03
Overseas Private Investment Aaa 115,675 116,160
Corp. U.S. Government
guaranteed participation
certificate Series 1994 195,
6.08% 8/15/04 (callable)
Private Export Funding Corp.
secured:
5.65% 3/15/03 Aaa 162,000 160,874
6.86% 4/30/04 Aaa 1,145,917 1,166,882
TOTAL U.S. GOVERNMENT AGENCY 17,234,638
OBLIGATIONS
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT VALUE (NOTE 1)
U.S. TREASURY OBLIGATIONS -
10.5%
U.S. Treasury Bonds:
8.75% 5/15/17 Aaa $ 9,910,000 $ 12,509,789
8.875% 8/15/17 Aaa 16,745,000 21,391,738
9.875% 11/15/15 Aaa 3,810,000 5,199,469
14% 11/15/11 Aaa 1,465,000 2,143,017
U.S. Treasury Notes:
6.5% 5/31/02 Aaa 14,165,000 14,485,979
7% 7/15/06 Aaa 6,996,000 7,410,303
U.S. Treasury Notes - coupon Aaa 26,700,000 12,394,140
STRIPS 0% 11/15/11
TOTAL U.S. TREASURY 75,534,435
OBLIGATIONS
TOTAL U.S. GOVERNMENT AND 92,769,073
GOVERNMENT AGENCY OBLIGATIONS
(Cost $96,290,601)
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES - 37.5%
FANNIE MAE - 32.0%
6% 2/1/11 to 2/1/29 Aaa 20,101,968 19,159,802
6.5% 2/1/10 to 7/1/29 Aaa 132,438,766 127,641,949
7% 12/1/24 to 7/1/29 Aaa 35,831,006 35,423,348
7.5% 3/1/28 to 7/1/29 Aaa 41,150,421 41,702,863
8% 3/1/24 to 12/1/27 Aaa 1,282,730 1,320,372
8.5% 3/1/25 to 12/1/26 Aaa 3,812,229 3,982,592
TOTAL FANNIE MAE 229,230,926
FREDDIE MAC - 0.4%
7% 5/1/01 Aaa 53,993 54,306
8.5% 3/1/20 to 1/1/28 Aaa 3,063,453 3,203,724
TOTAL FREDDIE MAC 3,258,030
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 5.1%
6% 8/15/08 to 5/15/09 Aaa 3,299,925 3,219,776
6.5% 12/15/28 to 5/15/29 Aaa 22,950,524 22,068,306
7.5% 3/15/06 to 7/15/29 Aaa 8,811,227 8,915,845
7.5% 7/15/29 (c) Aaa 1,000,000 1,013,438
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT VALUE (NOTE 1)
8% 2/15/17 Aaa $ 156,197 $ 161,809
10% 7/15/13 to 11/15/24 Aaa 787,389 839,956
TOTAL GOVERNMENT NATIONAL 36,219,130
MORTGAGE ASSOCIATION
TOTAL U.S. GOVERNMENT AGENCY 268,708,086
- - MORTGAGE SECURITIES
(Cost $275,184,257)
ASSET-BACKED SECURITIES - 4.1%
American Express Credit A1 1,500,000 1,478,203
Account Master Trust 6.1%
12/15/06
Capita Equipment Receivables Baa2 880,000 858,317
Trust 6.48% 10/15/06
Chevy Chase Auto Receivables Aaa 505,018 502,039
Trust 5.91% 12/15/04
Discover Card Master Trust I A2 4,000,000 3,900,000
5.85% 11/16/04
Ford Credit Auto Owner Trust:
6.2% 12/15/02 Baa3 830,000 817,542
6.4% 5/15/02 A1 960,000 962,832
6.4% 12/15/02 Baa3 480,000 471,360
Green Tree Financial Corp. Aaa 7,082 7,082
6.1% 4/15/27
JCP Master Credit Card Trust Aaa 7,000,000 6,728,750
5.5% 6/15/07
Key Auto Finance Trust:
6.3% 10/15/03 A2 634,531 633,539
6.65% 10/15/03 Baa3 182,928 183,757
MBNA Master Credit Card Trust Aaa 3,000,000 3,033,810
II 6.55% 1/15/07
PNC Student Loan Trust I Aaa 3,100,000 3,107,750
6.314% 1/25/01
Premier Auto Trust 5.59% Aaa 6,000,000 5,891,220
2/9/04
Railcar Trust 7.75% 6/1/04 Aaa 595,410 615,505
TOTAL ASSET-BACKED SECURITIES 29,191,706
(Cost $29,613,747)
COMMERCIAL MORTGAGE
SECURITIES - 1.7%
CS First Boston Mortgage
Securities Corp.:
Series 1997 C2 Class D, 7.27% Baa2 1,080,000 1,016,213
1/17/35
Series 1998 FLI:
Class D, 5.4013% 12/10/00 A2 2,100,000 2,077,031
(b)(d)
Class E, 5.7675% 1/10/13 Baa2 2,650,000 2,597,000
(b)(d)
COMMERCIAL MORTGAGE
SECURITIES - CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT VALUE (NOTE 1)
Equitable Life Assurance
Society of the United States
(The) Series 174:
Class B1, 7.33% 5/15/06 (b) Aa2 $ 500,000 $ 509,310
Class C1, 7.52% 5/15/06 (b) A2 500,000 510,210
Fannie Mae ACES REMIC Aaa 158,086 159,729
sequential pay Series 1996
M5 Class A1, 7.141% 7/25/10
GS Mortgage Securities Corp. Baa3 1,000,000 869,770
II Series 1998-GLII Class E,
6.9697% 4/13/31 (b)(d)
Morgan Stanley Capital I,
Inc. Series 1998 CF1:
Class D, 7.35% 1/15/12 Baa2 1,338,000 1,240,159
Class E, 7.35% 12/15/12 Baa3 459,000 387,568
Structured Asset Securities AAA 141,538 140,742
Corp. sequential pay Series
1996 Class A-2A, 7.75%
2/25/28
Thirteen Affiliates of Aaa 1,500,000 1,470,150
General Growth Properties,
Inc. sequential pay Series 1
Class A2, 6.602% 12/15/10 (b)
Wells Fargo Capital Markets Aaa 1,122,540 1,125,009
Apartment Financing Trust
Series APT Class 1, 6.56%
12/29/05 (b)
TOTAL COMMERCIAL MORTGAGE 12,102,891
SECURITIES
(Cost $12,443,784)
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS (E) - 1.9%
British Columbia Province Aa2 500,000 510,210
yankee 7% 1/15/03
Korean Republic yankee:
8.75% 4/15/03 Baa3 1,470,000 1,537,444
8.875% 4/15/08 Baa3 1,194,000 1,261,401
Manitoba Province yankee Aa3 500,000 507,175
6.75% 3/1/03
Quebec Province:
yankee:
7.125% 2/9/24 A2 250,000 243,398
7.5% 7/15/23 A2 8,550,000 8,692,443
7% 1/30/07 A2 1,000,000 1,006,700
TOTAL FOREIGN GOVERNMENT AND 13,758,771
GOVERNMENT AGENCY OBLIGATIONS
(Cost $14,608,741)
SUPRANATIONAL OBLIGATIONS -
0.6%
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT VALUE (NOTE 1)
Inter American Development Aaa $ 4,000,000 $ 3,966,760
Bank yankee 6.29% 7/16/27
(Cost $3,974,840)
CASH EQUIVALENTS - 4.7%
MATURITY AMOUNT
Investments in repurchase $ 33,896,806 33,892,000
agreements (U.S. Treasury
obligations), in a joint
trading account at 5.1%,
dated 6/30/99 due 7/1/99
(Cost $33,892,000)
TOTAL INVESTMENT IN $ 716,500,841
SECURITIES - 100%
(Cost $735,922,046)
</TABLE>
LEGEND
(a) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(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 $36,589,728 or 5.2% of net assets.
(c) Security purchased on a delayed delivery or when-issued basis.
(d) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(e) For foreign government obligations not individually rated by S&P
or Moody's, the ratings listed have been assigned by FMR, the fund's
investment adviser, based principally on S&P and Moody's ratings of
the sovereign credit of the issuing government.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total
value of investments in securities, is as follows (ratings are
unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 70.7% AAA, AA, A 69.3%
Baa 23.3% BBB 23.0%
Ba 1.2% 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%
Purchases and sales of securities, other than short-term securities,
aggregated $457,425,893 and $337,199,621, respectively, of which
long-term U.S. government and government agency obligations aggregated
$332,795,748 and $269,574,489, respectively.
INCOME TAX INFORMATION
At June 30, 1999, the aggregate cost of investment securities for
income tax purposes was $735,974,198. Net unrealized depreciation
aggregated $19,473,357, of which $2,491,796 related to appreciated
investment securities and $21,965,153 related to depreciated
investment securities.
VARIABLE INSURANCE PRODUCTS FUND: INVESTMENT GRADE BOND PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 716,500,841
value (including repurchase
agreements of $33,892,000)
(cost $735,922,046) - See
accompanying schedule
Cash 376
Receivable for investments 32,709,376
sold
Receivable for fund shares 677,745
sold
Interest receivable 7,563,766
TOTAL ASSETS 757,452,104
LIABILITIES
Payable for investments $ 46,177,739
purchased Regular delivery
Delayed delivery 1,016,875
Payable for fund shares 2,622,610
redeemed
Accrued management fee 253,665
Other payables and accrued 80,293
expenses
TOTAL LIABILITIES 50,151,182
NET ASSETS $ 707,300,922
Net Assets consist of:
Paid in capital $ 711,478,523
Undistributed net investment 21,063,584
income
Accumulated undistributed net (5,819,980)
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation (19,421,205)
(depreciation) on investments
NET ASSETS, for 58,527,952 $ 707,300,922
shares outstanding
NET ASSET VALUE, offering $12.08
price and redemption price
per share ($707,300,922
(divided by) 58,527,952
shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30,
1999 (UNAUDITED)
INVESTMENT INCOME $ 23,394,368
Interest
EXPENSES
Management fee $ 1,574,141
Transfer agent fees 253,444
Accounting fees and expenses 93,198
Non-interested trustees' 1,127
compensation
Custodian fees and expenses 13,394
Registration fees 1,343
Audit 16,473
Legal 195
Miscellaneous 1,461
Total expenses before 1,954,776
reductions
Expense reductions (5,595) 1,949,181
NET INVESTMENT INCOME 21,445,187
REALIZED AND UNREALIZED GAIN (5,730,338)
(LOSS)
Net realized gain (loss) on
investment securities
Change in net unrealized (27,644,528)
appreciation (depreciation)
on investment securities
NET GAIN (LOSS) (33,374,866)
NET INCREASE (DECREASE) IN $ (11,929,679)
NET ASSETS RESULTING FROM
OPERATIONS
OTHER INFORMATION
Expense reductions
Custodian credits $ 5,595
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
ASSETS 1999 (UNAUDITED)
Operations Net investment $ 21,445,187 $ 27,981,821
income
Net realized gain (loss) (5,730,338) 9,192,419
Change in net unrealized (27,644,528) 2,632,039
appreciation (depreciation)
NET INCREASE (DECREASE) IN (11,929,679) 39,806,279
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (28,513,399) (16,958,571)
From net investment income
From net realized gain (8,945,380) (2,012,034)
TOTAL DISTRIBUTIONS (37,458,779) (18,970,605)
Share transactions Net 191,842,974 501,565,840
proceeds from sales of shares
Reinvestment of distributions 37,458,779 18,970,605
Cost of shares redeemed (147,425,151) (191,084,324)
NET INCREASE (DECREASE) IN 81,876,602 329,452,121
NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) 32,488,144 350,287,795
IN NET ASSETS
NET ASSETS
Beginning of period 674,812,778 324,524,983
End of period (including $ 707,300,922 $ 674,812,778
undistributed net investment
income of $21,063,584 and
$27,875,128, respectively)
OTHER INFORMATION
Shares
Sold 15,297,118 39,825,938
Issued in reinvestment of 3,052,875 1,576,941
distributions
Redeemed (11,900,493) (15,158,174)
Net increase (decrease) 6,449,500 26,244,705
</TABLE>
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 1996 1995
Net asset value, beginning of $ 12.960 $ 12.560 $ 12.240 $ 12.480 $ 11.020
period
Income from Investment .361 C .725 C .759 C .670 .320
Operations Net investment
income
Net realized and unrealized (.571) .335 .291 (.290) 1.530
gain (loss)
Total from investment (.210) 1.060 1.050 .380 1.850
operations
Less Distributions
From net investment income (.510) (.590) (.730) (.620) (.390)
From net realized gain (.160) (.070) - - -
In excess of net realized gain - - - - -
Total distributions (.670) (.660) (.730) (.620) (.390)
Net asset value, end of period $ 12.080 $ 12.960 $ 12.560 $ 12.240 $ 12.480
TOTAL RETURN B (1.70)% 8.85% 9.06% 3.19% 17.32%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 707,301 $ 674,813 $ 324,525 $ 228,594 $ 181,546
(000 omitted)
Ratio of expenses to average .54% A .57% .58% .58% .59%
net assets
Ratio of net investment 5.91% A 5.85% 6.34% 6.49% 6.53%
income to average net assets
Portfolio turnover rate 103% A 239% 191% 81% 182%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA 1994
Net asset value, beginning of $ 11.480
period
Income from Investment .733
Operations Net investment
income
Net realized and unrealized (1.163)
gain (loss)
Total from investment (.430)
operations
Less Distributions
From net investment income -
From net realized gain (.010)
In excess of net realized gain (.020)
Total distributions (.030)
Net asset value, end of period $ 11.020
TOTAL RETURN B (3.76)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 111,381
(000 omitted)
Ratio of expenses to average .67%
net assets
Ratio of net investment 6.53%
income to average net assets
Portfolio turnover rate 143%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED
AND DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE COMPANY'S
SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE THE TOTAL
RETURNS SHOWN.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
VARIABLE INSURANCE PRODUCTS FUND: HIGH INCOME PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). If Fidelity had not reimbursed certain fund
expenses, the past 10 year total returns would have been lower.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
VIP: HIGH INCOME - "INITIAL -1.53% 10.78% 11.36%
CLASS"
ML High Yield Master II 0.90% 10.28% 10.87%
ML High Yield Master 0.94% 10.06% 10.65%
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's returns to the performance of the Merrill
Lynch High Yield Master II Index - a market value-weighted index of
all domestic and yankee high-yield bonds, including deferred interest
bonds and payment-in-kind securities. You can also compare the fund's
returns to the performance of the Merrill Lynch High Yield Master
Index - a market value-weighted index of all domestic and yankee
high-yield bonds. Issues included in both benchmarks have maturities
of one year or more and have a credit rating lower than BBB-/Baa3, but
are not in default. These benchmarks reflect the reinvestment of
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.
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, THE TOTAL RETURNS 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.
(checkmark)UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of
how it will do tomorrow. Bond prices, for
example, generally move in the opposite direction
of interest rates. In turn, the share price, return and
yield of a fund that invests in bonds will vary.
That means if you sell your shares during a
market downturn, you might lose money. But if
you can ride out the market's ups and downs,
you may have a gain.
$10,000 OVER 10 YEARS
VIP HIGH INCOME ML HIGH YIELD MASTER II
00152 ML012
1989/06/30 10000.00 10000.00
1989/07/31 9934.17 10040.39
1989/08/31 9876.55 10087.25
1989/09/30 9530.97 9980.81
1989/10/31 9122.37 9733.33
1989/11/30 9130.05 9747.97
1989/12/31 9105.03 9708.43
1990/01/31 8903.76 9446.07
1990/02/28 8766.66 9303.33
1990/03/31 8674.16 9472.43
1990/04/30 8699.86 9537.64
1990/05/31 8878.62 9696.87
1990/06/30 9018.48 9943.12
1990/07/31 9157.78 10190.06
1990/08/31 9004.58 9724.00
1990/09/30 8791.07 9317.36
1990/10/31 8577.74 9050.99
1990/11/30 8778.94 9146.02
1990/12/31 8901.70 9284.99
1991/01/31 9090.56 9475.05
1991/02/28 9594.19 10297.04
1991/03/31 9934.15 10797.33
1991/04/30 10286.69 11180.15
1991/05/31 10437.78 11223.70
1991/06/30 10664.41 11471.64
1991/07/31 11067.32 11786.49
1991/08/31 11218.41 12054.63
1991/09/30 11470.22 12228.35
1991/10/31 11860.54 12643.32
1991/11/30 11961.26 12776.50
1991/12/31 12024.22 12922.02
1992/01/31 12666.35 13358.49
1992/02/29 13126.24 13692.37
1992/03/31 13550.55 13888.83
1992/04/30 13646.36 13960.82
1992/05/31 13810.61 14159.20
1992/06/30 13961.17 14330.46
1992/07/31 14234.92 14609.01
1992/08/31 14536.04 14795.06
1992/09/30 14686.61 14951.91
1992/10/31 14467.61 14755.45
1992/11/30 14645.54 14985.36
1992/12/31 14809.79 15176.11
1993/01/31 15206.73 15529.19
1993/02/28 15466.12 15806.96
1993/03/31 15823.03 16084.35
1993/04/30 15927.13 16194.72
1993/05/31 16165.07 16392.26
1993/06/30 16581.47 16711.27
1993/07/31 16745.05 16874.59
1993/08/31 16923.51 17033.36
1993/09/30 16982.99 17108.97
1993/10/31 17384.52 17425.74
1993/11/30 17548.10 17525.40
1993/12/31 17830.66 17709.68
1994/01/31 18425.51 18092.50
1994/02/28 18403.42 17966.80
1994/03/31 17783.44 17386.12
1994/04/30 17603.98 17169.85
1994/05/31 17636.61 17132.32
1994/06/30 17571.35 17210.63
1994/07/31 17636.61 17314.52
1994/08/31 17636.61 17451.79
1994/09/30 17767.13 17448.32
1994/10/31 17603.98 17494.34
1994/11/30 17457.14 17343.81
1994/12/31 17538.72 17526.55
1995/01/31 17734.50 17772.65
1995/02/28 18343.18 18342.30
1995/03/31 18571.59 18590.17
1995/04/30 19116.26 19061.17
1995/05/31 19608.22 19659.49
1995/06/30 19660.93 19791.67
1995/07/31 20135.33 20049.40
1995/08/31 20293.46 20154.61
1995/09/30 20627.29 20388.84
1995/10/31 20820.56 20561.17
1995/11/30 20925.98 20764.96
1995/12/31 21171.96 21112.87
1996/01/31 21663.92 21465.56
1996/02/29 22021.74 21531.15
1996/03/31 21963.89 21443.13
1996/04/30 22291.71 21473.19
1996/05/31 22600.25 21627.95
1996/06/30 22715.95 21714.12
1996/07/31 22638.81 21856.86
1996/08/31 22966.63 22123.46
1996/09/30 23641.56 22643.47
1996/10/31 23564.42 22840.01
1996/11/30 23815.11 23293.20
1996/12/31 24142.93 23492.36
1997/01/31 24470.75 23668.86
1997/02/28 24914.61 24032.73
1997/03/31 24140.60 23702.16
1997/04/30 24517.15 24006.06
1997/05/31 25542.18 24511.51
1997/06/30 26002.40 24890.32
1997/07/31 26943.76 25550.07
1997/08/31 27173.87 25519.32
1997/09/30 28136.15 25978.37
1997/10/31 27885.12 26111.02
1997/11/30 28094.31 26343.63
1997/12/31 28408.09 26608.91
1998/01/31 29056.58 27032.97
1998/02/28 29276.39 27142.49
1998/03/31 29889.26 27400.31
1998/04/30 30007.12 27518.00
1998/05/31 29794.97 27683.47
1998/06/30 29771.40 27826.45
1998/07/31 29936.40 28003.79
1998/08/31 26235.60 26590.18
1998/09/30 25976.31 26659.40
1998/10/31 25269.15 26084.12
1998/11/30 27343.49 27443.77
1998/12/31 27178.48 27394.60
1999/01/31 27979.93 27759.16
1999/02/28 27861.46 27575.42
1999/03/31 28563.19 27895.73
1999/04/30 29992.65 28406.12
1999/05/31 29186.96 28145.53
1999/06/30 29316.91 28075.78
IMATRL PRASUN SHR__CHT 19990630 19990716 111430 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund: High Income Portfolio on
June 30, 1989. As the chart shows, by June 30, 1999, the value of the
investment would have grown to $29,317 - a 193.17% increase on the
initial investment. For comparison, look at how the Merrill Lynch High
Yield Master II Index did over the same period. With dividends and
capital gains, if any, reinvested, the same $10,000 investment would
have grown to $28,076 - a 180.76% increase. Beginning with this
report, the fund will compare its performance to that of the Merrill
Lynch High Yield Master II Index, rather than the Merrill Lynch High
Yield Master Index. The Merrill Lynch High Yield Master II Index
contains deferred interest bonds and payment-in-kind securities and is
therefore a better representation of the high yield bond universe.
INVESTMENT SUMMARY
TOP FIVE HOLDINGS AS OF JUNE
30, 1999
(BY ISSUER, EXCLUDING CASH % OF FUND'S INVESTMENTS
EQUIVALENTS)
Nextel Communications, Inc. 4.4
WinStar Communications, Inc. 3.3
NEXTLINK Communications, Inc. 2.6
CSC Holdings, Inc. 2.5
Millicom International 2.3
Cellular SA
TOP FIVE MARKET SECTORS AS OF
JUNE 30, 1999
% OF FUND'S INVESTMENTS
UTILITIES 33.8
MEDIA & LEISURE 22.2
BASIC INDUSTRIES 6.9
ENERGY 5.7
HEALTH 4.2
QUALITY DIVERSIFICATION AS OF
JUNE 30, 1999
(MOODY'S RATINGS) % OF FUND'S INVESTMENTS
Aaa, Aa, A 0.0
Baa 0.0
Ba 5.6
B 45.9
Caa, Ca, C 17.3
Not Rated 9.3
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P RATINGS. UNRATED DEBT SECURITIES THAT ARE
EQUIVALENT TO BA AND BELOW AT JUNE 30, 1999 ACCOUNT FOR 9.3% OF THE
FUND'S INVESTMENTS.
VARIABLE INSURANCE PRODUCTS FUND: HIGH INCOME PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). The initial offering of Service Class shares
took place on November 3, 1997. Performance for Service Class shares
reflects an asset based distribution fee (12b-1 fee), and returns
prior to November 3, 1997 are those of Initial Class and do not
include the effects of Service Class' 12b-1 fee. Had Service Class
shares' 12b-1 fee been reflected, returns prior to November 3, 1997
would have been lower. If Fidelity had not reimbursed certain fund
expenses, the past 10 year total return would have been lower.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
VIP: HIGH INCOME - SERVICE -1.61% 10.74% 11.34%
CLASS
ML High Yield Master II 0.90% 10.28% 10.87%
ML High Yield Master 0.94% 10.06% 10.65%
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's returns to the performance of the Merrill
Lynch High Yield Master II Index - a market value-weighted index of
all domestic and yankee high-yield bonds, including deferred interest
bonds and payment-in-kind securities. You can also compare the fund's
returns to the performance of the Merrill Lynch High Yield Master
Index - a market value-weighted index of all domestic and yankee
high-yield bonds. Issues included in both benchmarks have maturities
of one year or more and have a credit rating lower than BBB-/Baa3, but
are not in default. These benchmarks reflect the reinvestment of
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.
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, THE TOTAL RETURNS 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.
(checkmark)UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of
how it will do tomorrow. Bond prices, for
example, generally move in the opposite direction
of interest rates. In turn, the share price, return and
yield of a fund that invests in bonds will vary.
That means if you sell your shares during a
market downturn, you might lose money. But if
you can ride out the market's ups and downs,
you may have a gain.
$10,000 OVER 10 YEARS
VIP HIGH INCOME - SC ML HIGH YIELD MASTER II
00492 ML012
1989/06/30 10000.00 10000.00
1989/07/31 9934.17 10040.39
1989/08/31 9876.55 10087.25
1989/09/30 9530.97 9980.81
1989/10/31 9122.37 9733.33
1989/11/30 9130.05 9747.97
1989/12/31 9105.03 9708.43
1990/01/31 8903.76 9446.07
1990/02/28 8766.66 9303.33
1990/03/31 8674.16 9472.43
1990/04/30 8699.86 9537.64
1990/05/31 8878.62 9696.87
1990/06/30 9018.48 9943.12
1990/07/31 9157.78 10190.06
1990/08/31 9004.58 9724.00
1990/09/30 8791.07 9317.36
1990/10/31 8577.74 9050.99
1990/11/30 8778.94 9146.02
1990/12/31 8901.70 9284.99
1991/01/31 9090.56 9475.05
1991/02/28 9594.19 10297.04
1991/03/31 9934.15 10797.33
1991/04/30 10286.69 11180.15
1991/05/31 10437.78 11223.70
1991/06/30 10664.41 11471.64
1991/07/31 11067.32 11786.49
1991/08/31 11218.41 12054.63
1991/09/30 11470.22 12228.35
1991/10/31 11860.54 12643.32
1991/11/30 11961.26 12776.50
1991/12/31 12024.22 12922.02
1992/01/31 12666.35 13358.49
1992/02/29 13126.24 13692.37
1992/03/31 13550.55 13888.83
1992/04/30 13646.36 13960.82
1992/05/31 13810.61 14159.20
1992/06/30 13961.17 14330.46
1992/07/31 14234.92 14609.01
1992/08/31 14536.04 14795.06
1992/09/30 14686.61 14951.91
1992/10/31 14467.61 14755.45
1992/11/30 14645.54 14985.36
1992/12/31 14809.79 15176.11
1993/01/31 15206.73 15529.19
1993/02/28 15466.12 15806.96
1993/03/31 15823.03 16084.35
1993/04/30 15927.13 16194.72
1993/05/31 16165.07 16392.26
1993/06/30 16581.47 16711.27
1993/07/31 16745.05 16874.59
1993/08/31 16923.51 17033.36
1993/09/30 16982.99 17108.97
1993/10/31 17384.52 17425.74
1993/11/30 17548.10 17525.40
1993/12/31 17830.66 17709.68
1994/01/31 18425.51 18092.50
1994/02/28 18403.42 17966.80
1994/03/31 17783.44 17386.12
1994/04/30 17603.98 17169.85
1994/05/31 17636.61 17132.32
1994/06/30 17571.35 17210.63
1994/07/31 17636.61 17314.52
1994/08/31 17636.61 17451.79
1994/09/30 17767.13 17448.32
1994/10/31 17603.98 17494.34
1994/11/30 17457.14 17343.81
1994/12/31 17538.72 17526.55
1995/01/31 17734.50 17772.65
1995/02/28 18343.18 18342.30
1995/03/31 18571.59 18590.17
1995/04/30 19116.26 19061.17
1995/05/31 19608.22 19659.49
1995/06/30 19660.93 19791.67
1995/07/31 20135.33 20049.40
1995/08/31 20293.46 20154.61
1995/09/30 20627.29 20388.84
1995/10/31 20820.56 20561.17
1995/11/30 20925.98 20764.96
1995/12/31 21171.96 21112.87
1996/01/31 21663.92 21465.56
1996/02/29 22021.74 21531.15
1996/03/31 21963.89 21443.13
1996/04/30 22291.71 21473.19
1996/05/31 22600.25 21627.95
1996/06/30 22715.95 21714.12
1996/07/31 22638.81 21856.86
1996/08/31 22966.63 22123.46
1996/09/30 23641.56 22643.47
1996/10/31 23564.42 22840.01
1996/11/30 23815.11 23293.20
1996/12/31 24142.93 23492.36
1997/01/31 24470.75 23668.86
1997/02/28 24914.61 24032.73
1997/03/31 24140.60 23702.16
1997/04/30 24517.15 24006.06
1997/05/31 25542.18 24511.51
1997/06/30 26002.40 24890.32
1997/07/31 26943.76 25550.07
1997/08/31 27173.87 25519.32
1997/09/30 28136.15 25978.37
1997/10/31 27885.12 26111.02
1997/11/30 28073.39 26343.63
1997/12/31 28387.17 26608.91
1998/01/31 29056.58 27032.97
1998/02/28 29252.82 27142.49
1998/03/31 29889.26 27400.31
1998/04/30 30007.12 27518.00
1998/05/31 29771.40 27683.47
1998/06/30 29747.83 27826.45
1998/07/31 29912.83 28003.79
1998/08/31 26212.03 26590.18
1998/09/30 25952.74 26659.40
1998/10/31 25245.58 26084.12
1998/11/30 27296.34 27443.77
1998/12/31 27154.91 27394.60
1999/01/31 27909.21 27759.16
1999/02/28 27814.27 27575.42
1999/03/31 28516.13 27895.73
1999/04/30 29919.84 28406.12
1999/05/31 29114.00 28145.53
1999/06/30 29269.97 28075.78
IMATRL PRASUN SHR__CHT 19990630 19990714 151154 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund: High Income Portfolio -
Service Class on June 30, 1989. As the chart shows, by June 30, 1999,
the value of the investment would have grown to $29,270 - a 192.70%
increase on the initial investment. For comparison, look at how the
Merrill Lynch High Yield Master II Index did over the same period.
With dividends and capital gains, if any, reinvested, the same $10,000
investment would have grown to $28,076 - a 180.76% increase. Beginning
with this report, the fund will compare its performance to that of the
Merrill Lynch High Yield Master II Index, rather than the Merrill
Lynch High Yield Master Index. The Merrill Lynch High Yield Master II
Index contains deferred interest bonds and payment-in-kind securities
and is therefore a better representation of the high yield bond
universe.
INVESTMENT SUMMARY
TOP FIVE HOLDINGS AS OF JUNE
30, 1999
(BY ISSUER, EXCLUDING CASH % OF FUND'S INVESTMENTS
EQUIVALENTS)
Nextel Communications, Inc. 4.4
WinStar Communications, Inc. 3.3
NEXTLINK Communications, Inc. 2.6
CSC Holdings, Inc. 2.5
Millicom International 2.3
Cellular SA
TOP FIVE MARKET SECTORS AS OF
JUNE 30, 1999
% OF FUND'S INVESTMENTS
UTILITIES 33.8
MEDIA & LEISURE 22.2
BASIC INDUSTRIES 6.9
ENERGY 5.7
HEALTH 4.2
QUALITY DIVERSIFICATION AS OF
JUNE 30, 1999
(MOODY'S RATINGS) % OF FUND'S INVESTMENTS
Aaa, Aa, A 0.0
Baa 0.0
Ba 5.6
B 45.9
Caa, Ca, C 17.3
Not Rated 9.3
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P RATINGS. UNRATED DEBT SECURITIES THAT ARE
EQUIVALENT TO BA AND BELOW AT JUNE 30, 1999 ACCOUNT FOR 9.3% OF THE
FUND'S INVESTMENTS.
VARIABLE INSURANCE PRODUCTS FUND: HIGH INCOME PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
(photograph of Barry Coffman)
An interview with
Barry Coffman,
Portfolio Manager
of High Income Portfolio
Q. HOW DID THE FUND PERFORM, BARRY?
A. For the six-month period that ended June 30, 1999, the fund
significantly outpaced the 1.76% return of the Merrill Lynch High
Yield Master Index. Also, the fund beat its new benchmark, the Merrill
Lynch High Yield Master II Index, which returned 2.49%. For the
12-month period that ended June 30, 1999, the fund lagged the 0.94%
return of the Merrill Lynch High Yield Master Index and the 0.90% for
the Merrill Lynch High Yield Master II Index.
Q. WHY DID THE FUND'S BENCHMARK CHANGE?
A. The fund changed its benchmark because the Merrill Lynch High Yield
Master Index does not include deferred-interest bonds (DIBs) and
pay-in-kind securities (PIKs), which have emerged as important
components of the market in recent years. DIBs do not pay cash
interest for a set period of the bond's life, typically for three to
five years, and therefore sell at a significant discount. At the end
of the deferred-interest period, the interest accrues and begins to be
paid (it is a variation on the zero coupon bond structure). PIKs pay
interest in the form of additional bonds or preferred stock. As of
June 30, 1999, DIBs and PIKs represented approximately 17% of the
fund's new benchmark, the Merrill Lynch High Yield Master II Index.
Q. WHY DID THE FUND BEAT THE NEW BENCHMARK DURING THE PAST SIX MONTHS?
A. The fund's large weighting - compared to the Merrill Lynch High
Yield Master II Index - in telecommunications companies was an
important contributor to its outperformance. After falling to
depressed levels last fall, many of the fund's telecom companies
bounced back during the past six months. The stocks of both Covad
Communications and Rhythms NetConnections - which the fund received in
conjunction with its original purchase of the bonds - soared in value
after both companies completed initial public offerings, or IPOs,
during the period. Both companies provide dedicated, high-speed
digital communications services using digital subscriber line (DSL)
technology that allows for high-speed data transmission over
traditional copper lines. Other telecom winners included the bonds of
WinStar, Teligent and NEXTLINK, which benefited from the same theme of
providing high-speed data transmission utilizing new technologies.
These three companies provide local, long distance and data services
utilizing fixed wireless technology in addition to conventional
wireline networks, allowing small and medium businesses access to
high-speed, fiber-quality data transmission.
Q. OUTSIDE THE TELECOM SECTOR, WHICH OF THE FUND'S HOLDINGS WERE
STANDOUTS DURING THE PAST SIX MONTHS?
A. Excitement about the cable industry's expanding role in delivering
telephone and high-speed Internet services to residences boosted that
sector, with NTL and Cablevision (CSC Holdings) performing
particularly well. In addition, cable company United International
Holdings (now called UnitedGlobalCom) - which provides cable, Internet
and telephony services in Europe, South America, Australia and New
Zealand - rose in response to Microsoft's investment in the company's
European subsidiary, which also completed a very successful IPO during
the period. I'd also add that the fund's performance was helped by its
relatively light weightings in the poor-performing health care and
energy sectors.
Q. WERE THERE DISAPPOINTMENTS DURING THE PAST SIX MONTHS?
A. Iridium, which operates a network of satellites that transmit calls
globally, was the biggest disappointment when it did not meet
subscriber targets, causing the company to come up short of its
financial targets. Customers complained that Iridium's service was too
expensive and that the special phone needed for its service was too
clunky and didn't work inside buildings.
Q. WHAT'S YOUR OUTLOOK FOR THE HIGH-YIELD MARKET?
A. In general, the outlook for the high-yield market continues to be
favorable relative to other fixed-income markets due to attractive
absolute yields, continued economic strength and modest inflation.
However, we are seeing default rates increase and the dispersion of
yields within the marketplace has widened out considerably from 18
months ago. This type of "bond picker's" market historically has been
favorable for the fund because of Fidelity's credit research
strengths.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET OR OTHER CONDITIONS. FOR MORE INFORMATION, SEE PAGE 3.
(checkmark)FUND FACTS
GOAL: to seek high current income by investing primarily in all types
of income-producing debt securities with an emphasis on lower-quality
securities
START DATE: September 19, 1985
SIZE: as of June 30, 1999, more than $2.5
billion
MANAGER: Barry Coffman, since 1990; joined
Fidelity in 1986
VARIABLE INSURANCE PRODUCTS FUND: HIGH INCOME PORTFOLIO
INVESTMENTS JUNE 30, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS - 75.7%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
CONVERTIBLE BONDS - 1.2%
HEALTH - 0.4%
MEDICAL FACILITIES MANAGEMENT
- - 0.4%
Total Renal Care Holdings, B1 $ 12,680,000 $ 10,270,800
Inc. 7% 5/15/09 (f)
MEDIA & LEISURE - 0.8%
LODGING & GAMING - 0.4%
Signature Resorts, Inc. 5.75% Caa1 15,105,000 10,724,550
1/15/07
RESTAURANTS - 0.4%
CKE Restaurants, Inc. 4.25% B1 12,000,000 9,000,000
3/15/04
TOTAL MEDIA & LEISURE 19,724,550
UTILITIES - 0.0%
TELEPHONE SERVICES - 0.0%
GST Telecommunications, Inc. - 630,000 606,375
0% 12/15/05 (d)(f)
TOTAL CONVERTIBLE BONDS 30,601,725
NONCONVERTIBLE BONDS - 74.5%
BASIC INDUSTRIES - 6.8%
CHEMICALS & PLASTICS - 3.8%
Acetex Corp. yankee 9.75% B1 2,000,000 1,840,000
10/1/03
General Chemical Industrial B3 5,350,000 5,390,125
Products, Inc. 10.625%
5/1/09 (f)
Huntsman Corp.:
9.5% 7/1/07 (f) B2 34,620,000 32,975,550
Huntsman ICI Chemicals LLC B2 10,040,000 10,127,850
10.125% 7/1/09 (f)
Koppers Industries, Inc. B2 7,745,000 7,783,725
9.875% 12/1/07
Lyondell Chemical Co.:
9.625% 5/1/07 (f) Ba3 4,260,000 4,355,850
9.875% 5/1/07 (f) Ba3 14,340,000 14,590,950
10.875% 5/1/09 (f) B2 9,590,000 9,901,675
Zeneca Specialty Chemicals B2 9,810,000 9,883,575
PLC 11% 7/1/09 (f)
96,849,300
METALS & MINING - 0.5%
Kaiser Aluminum & Chemical
Corp.:
9.875% 2/15/02 B1 1,860,000 1,873,950
12.75% 2/1/03 B3 3,710,000 3,774,925
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Metals USA, Inc. 8.625% B2 $ 7,085,000 $ 6,571,338
2/15/08
12,220,213
PACKAGING & CONTAINERS - 0.9%
Gaylord Container Corp. Caa1 9,910,000 9,340,175
9.375% 6/15/07
Packaging Corp. of America B3 13,330,000 13,563,275
9.625% 4/1/09 (f)
22,903,450
PAPER & FOREST PRODUCTS - 1.6%
APP Finance II Mauritius Ltd. B3 10,505,000 6,723,200
12% 3/15/04
Container Corp. of America B2 1,690,000 1,740,700
gtd. 9.75% 4/1/03
Indah Kiat Finance Mauritius
Ltd.:
10% 7/1/07 Caa1 8,320,000 5,740,800
Indah Kiat International Caa1 1,700,000 1,292,000
Finance Co. BV 12.5% 6/15/06
Millar Western Forest B3 11,475,000 11,159,438
Products Ltd. 9.875% 5/15/08
Pindo Deli Finance Mauritius Caa1 3,740,000 2,655,400
Ltd. 10.25% 10/1/02
Stone Container Corp.:
10.75% 10/1/02 B1 6,965,000 7,208,775
12.58% 8/1/16 (g) B2 1,150,000 1,242,000
Tjiwi Kimia Finance Mauritius Caa1 3,110,000 2,208,100
Ltd. 10% 8/1/04
39,970,413
TOTAL BASIC INDUSTRIES 171,943,376
CONSTRUCTION & REAL ESTATE -
2.0%
BUILDING MATERIALS - 0.5%
International Utility Caa1 9,200,000 9,223,000
Structures, Inc. 10.75%
2/1/08
Schuff Steel Co. 10.5% 6/1/08 B3 2,850,000 2,565,000
11,788,000
CONSTRUCTION - 0.3%
Del Webb Corp. 10.25% 2/15/10 B2 8,100,000 8,019,000
Great Lakes Dredge & Dock B3 240,000 247,200
Corp. 11.25% 8/15/08
8,266,200
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
CONSTRUCTION & REAL ESTATE -
CONTINUED
ENGINEERING - 0.1%
URS Corp. 12.25% 5/1/09 (f) B2 $ 1,520,000 $ 1,539,000
REAL ESTATE - 0.8%
LNR Property Corp.:
9.375% 3/15/08 B1 14,395,000 13,603,275
10.5% 1/15/09 B1 7,040,000 7,040,000
20,643,275
REAL ESTATE INVESTMENT TRUSTS
- - 0.3%
Ocwen Asset Investment Corp. - 9,880,000 8,595,600
11.5% 7/1/05
TOTAL CONSTRUCTION & REAL 50,832,075
ESTATE
DURABLES - 1.4%
AUTOS, TIRES, & ACCESSORIES -
0.3%
Blue Bird Body Co. 10.75% B2 7,405,000 7,849,300
11/15/06
CONSUMER DURABLES - 0.2%
Corning Consumer Products Co. B3 5,300,000 4,597,750
9.625% 5/1/08
HOME FURNISHINGS - 0.2%
Omega Cabinets Ltd. 10.5% B3 5,060,000 5,060,000
6/15/07
TEXTILES & APPAREL - 0.7%
Synthetic Industries, Inc. B2 11,770,000 11,917,125
9.25% 2/15/07
Worldtex, Inc. 9.625% 12/15/07 B1 6,235,000 5,455,625
17,372,750
TOTAL DURABLES 34,879,800
ENERGY - 4.4%
COAL - 0.6%
P&L Coal Holdings Corp.:
8.875% 5/15/08 Ba3 2,560,000 2,566,400
9.625% 5/15/08 B2 11,130,000 11,074,350
13,640,750
ENERGY SERVICES - 1.0%
Ocean Rig Norway AS 10.25% B3 4,650,000 3,255,000
6/1/08
R&B Falcon Corp.:
9.5% 12/15/08 Ba3 8,350,000 7,515,000
12.25% 3/15/06 (f) Ba3 4,940,000 5,112,900
RBF Finance Co.:
11% 3/15/06 (f) Ba3 6,520,000 6,715,600
11.375% 3/15/09 (f) Ba3 3,120,000 3,229,200
25,827,700
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
OIL & GAS - 2.8%
Belden & Blake Corp. 9.875% Caa1 $ 2,155,000 $ 1,637,800
6/15/07
Chesapeake Energy Corp.:
7.875% 3/15/04 B3 1,610,000 1,420,825
8.5% 3/15/12 B3 840,000 676,200
9.125% 4/15/06 B3 1,440,000 1,288,800
9.625% 5/1/05 B3 16,046,000 15,003,010
Comstock Resources, Inc. B2 3,880,000 3,967,300
11.25% 5/1/07 (f)
Flores & Rucks, Inc. 9.75% B1 2,050,000 2,101,250
10/1/06
Great Lakes Carbon Corp.:
0% 5/15/09 (d) Caa1 17,115,000 9,242,100
10.25% 5/15/08 pay-in-kind B3 10,330,000 10,175,050
Gulf Canada Resources Ltd.:
8.35% 8/1/06 Ba1 520,000 499,200
8.375% 11/15/05 Ba1 3,150,000 3,094,875
HS Resources, Inc. 9.25% B2 530,000 522,050
11/15/06
Kelley Oil & Gas Corp. 14% B3 3,000,000 3,030,000
4/15/03 (f)
Ocean Energy, Inc.:
8.375% 7/1/08 B1 1,860,000 1,794,900
8.875% 7/15/07 B1 1,350,000 1,329,750
10.375% 10/15/05 B2 1,280,000 1,340,800
Plains Resources, Inc.:
Series B 10.25% 3/15/06 B2 8,140,000 8,262,100
Series D, 10.25% 3/15/06 B2 2,770,000 2,811,550
Seven Seas Petroleum, Inc. Caa1 4,210,000 2,147,100
12.5% 5/15/05
70,344,660
TOTAL ENERGY 109,813,110
FINANCE - 2.6%
CREDIT & OTHER FINANCE - 2.6%
AMRESCO, Inc.:
9.875% 3/15/05 Caa3 11,420,000 8,736,300
10% 3/15/04 Caa3 2,364,000 1,820,280
ContiFinancial Corp.:
8.125% 4/1/08 Caa1 2,110,000 1,603,600
8.375% 8/15/03 Caa1 4,500,000 3,240,000
Delta Financial Corp. 9.5% B3 2,090,000 1,797,400
8/1/04
Imperial Credit Capital Trust B2 4,870,000 3,993,400
I 10.25% 6/14/02
Imperial Credit Industries B3 17,470,000 14,325,400
9.875% 1/15/07
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
FINANCE - CONTINUED
CREDIT & OTHER FINANCE -
CONTINUED
Macsaver Financial Services,
Inc.:
7.4% 2/15/02 Ba1 $ 2,720,000 $ 2,284,800
7.6% 8/1/07 Ba1 5,480,000 4,507,300
7.875% 8/1/03 Ba1 6,900,000 5,882,250
MFN Financial Corp. 10% - 10,000,000 9,525,000
3/23/01
PX Escrow Corp. 0% 2/1/06 (d) B3 3,720,000 2,269,200
WinStar Equipment II Corp. CCC+ 3,370,000 3,504,800
12.5% 3/15/04
63,489,730
SECURITIES INDUSTRY - 0.0%
ECM Corp. LP 14% 6/10/02 (f) - 16,948 16,927
TOTAL FINANCE 63,506,657
HEALTH - 3.1%
DRUGS & PHARMACEUTICALS - 0.3%
Global Health Sciences, Inc. Caa1 10,080,000 7,585,200
11% 5/1/08
MEDICAL EQUIPMENT & SUPPLIES
- - 0.4%
Wright Medical Technology, Caa3 18,650,000 10,257,500
Inc. 11.75% 7/1/00 (g)
MEDICAL FACILITIES MANAGEMENT
- - 2.4%
Express Scripts, Inc. 9.625% Ba2 4,940,000 5,014,100
6/15/09 (f)
Fountain View, Inc. 11.25% Caa1 7,330,000 5,937,300
4/15/08
Hanger Orthopedic Group, Inc. B3 2,520,000 2,557,800
11.25% 6/15/09 (f)
Harborside Healthcare Corp. B3 10,250,000 3,997,500
0% 8/1/08 (d)
Integrated Health Services,
Inc.:
9.25% 1/15/08 B2 4,933,000 3,453,100
9.5% 9/15/07 B2 2,510,000 1,819,750
Mariner Post-Acute Network, B3 11,630,000 1,860,800
Inc. 9.5% 11/1/07
Oxford Health Plans, Inc. 11% Caa1 11,100,000 11,211,000
5/15/05 (f)
Tenet Healthcare Corp.:
7.625% 6/1/08 Ba1 2,210,000 2,082,925
7.875% 1/15/03 Ba1 11,140,000 10,972,900
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
8% 1/15/05 Ba1 $ 1,870,000 $ 1,823,250
8.125% 12/1/08 Ba3 9,740,000 9,204,300
59,934,725
TOTAL HEALTH 77,777,425
INDUSTRIAL MACHINERY &
EQUIPMENT - 2.0%
ELECTRICAL EQUIPMENT - 0.8%
Motors & Gears, Inc. 10.75% B3 14,810,000 14,884,050
11/15/06
Telex Communications, Inc. B2 7,490,000 5,692,400
10.5% 5/1/07
20,576,450
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.8%
Applied Power, Inc. 8.75% B1 4,380,000 4,248,600
4/1/09
Thermadyne Holdings Corp. 0% Caa1 11,470,000 5,562,950
6/1/08 (d)
Thermadyne Manufacturing LLC B3 5,460,000 4,818,450
9.875% 6/1/08
Tokheim Corp. 11.375% 8/1/08 B3 5,790,000 5,529,450
(f)
20,159,450
POLLUTION CONTROL - 0.4%
Envirosource, Inc.:
Series B 9.75% 6/15/03 B3 4,900,000 3,013,500
9.75% 6/15/03 Caa3 9,496,000 5,840,040
8,853,540
TOTAL INDUSTRIAL MACHINERY & 49,589,440
EQUIPMENT
MEDIA & LEISURE - 17.5%
BROADCASTING - 11.0%
Ascent Entertainment Group, B3 12,445,000 8,960,400
Inc. 0% 12/15/04 (d)
Benedek Communications Corp. B3 5,000,000 4,150,000
0% 5/15/06 (d)
Central European Media Caa1 2,690,000 2,299,950
Enterprises Ltd. 9.375%
8/15/04
Century Communications Corp.:
8.875% 1/15/07 Ba3 6,270,000 6,246,488
Series B, 0% 1/15/08 Ba3 12,530,000 5,513,200
Charter Communications
Holdings LLC/Charter
Communications Holdings
Capital Corp.:
0% 4/1/11 (d)(f) B2 8,610,000 5,295,150
8.625% 4/1/09 (f) B2 10,570,000 10,107,563
CSC Holdings, Inc. 9.875% B1 4,000,000 4,270,000
5/15/06
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Diamond Cable Communications B3 $ 7,990,000 $ 6,312,100
PLC 0% 2/15/07 (d)
EchoStar DBS Corp. 9.375% B2 20,700,000 20,958,750
2/1/09 (f)
Golden Sky DBS, Inc. 0% Caa1 6,070,000 3,520,600
3/1/07 (d)(f)
International Cabletel, Inc. B3 31,625,000 27,592,813
0% 2/1/06 (d)
Iridium Operating LLC/Iridium
Capital Corp.:
10.875% 7/15/05 Caa3 8,830,000 1,766,000
11.25% 7/15/05 Caa3 10,360,000 2,072,000
LIN Holdings Corp. 0% 3/1/08 B3 7,398,000 4,938,165
(d)
NTL Communications Corp. B3 14,080,000 15,417,600
11.5% 10/1/08
NTL, Inc.:
0% 4/1/08 (d) B3 32,525,000 21,791,750
10% 2/15/07 B3 11,300,000 11,582,500
Olympus Communications B1 10,585,000 11,590,575
LP/Olympus Capital Corp.
10.625% 11/15/06
Satelites Mexicanos SA de CV:
8.75% 6/30/04 (f)(g) B1 15,235,000 14,168,550
10.125% 11/1/04 B3 25,420,000 20,081,800
Sinclair Broadcast Group, B2 1,130,000 1,114,463
Inc. 9% 7/15/07
Telewest PLC 0% 10/1/07 (d) B1 31,492,000 28,185,340
UIH Australia/Pacific, Inc.:
Series B 0% 5/15/06 (d) B2 28,065,000 19,926,150
Series D 0% 5/15/06 (d) B2 5,520,000 3,919,200
United International B3 23,040,000 15,321,600
Holdings, Inc. 0% 2/15/08 (d)
277,102,707
ENTERTAINMENT - 2.0%
AMC Entertainment, Inc.:
9.5% 3/15/09 B3 8,180,000 7,689,200
9.5% 2/1/11 B3 6,680,000 6,262,500
Carmike Cinemas, Inc. 9.375% B2 940,000 914,150
2/1/09 (f)
Harrahs Operating Co., Inc. Ba2 10,000,000 9,700,000
7.875% 12/15/05
Hollywood Entertainment Corp. B3 9,600,000 9,432,000
10.625% 8/15/04
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Premier Parks, Inc.:
0% 4/1/08 (d) B3 $ 12,660,000 $ 8,387,250
9.25% 4/1/06 B3 2,640,000 2,613,600
Town Sports International, B2 5,620,000 5,367,100
Inc. 9.75% 10/15/04 (f)
50,365,800
LEISURE DURABLES & TOYS - 0.4%
Marvel Enterprises, Inc. 12% - 8,750,000 8,925,000
6/15/09 (f)
LODGING & GAMING - 3.3%
Circus Circus Enterprises, Ba2 7,110,000 6,256,800
Inc. 7.625% 7/15/13
Coast Hotels & Casinos, Inc. B3 4,710,000 4,533,375
9.5% 4/1/09 (f)
Florida Panthers Holdings, B2 8,750,000 8,246,875
Inc. 9.875% 4/15/09
Horseshoe Gaming LLC:
8.625% 5/15/09 (f) B2 14,600,000 14,125,500
9.375% 6/15/07 B2 2,690,000 2,743,800
KSL Recreation Group, Inc. B3 8,280,000 8,404,200
10.25% 5/1/07
Prime Hospitality Corp.:
9.25% 1/15/06 Ba2 1,630,000 1,638,150
9.75% 4/1/07 B1 2,960,000 2,904,500
Signature Resorts, Inc.:
9.25% 5/15/06 B2 12,280,000 11,788,800
9.75% 10/1/07 B3 19,080,000 17,172,000
Sun International Hotels Ba3 5,510,000 5,523,775
Ltd./Sun International North
America, Inc. yankee 9%
3/15/07
83,337,775
RESTAURANTS - 0.8%
AFC Enterprises, Inc. 10.25% B3 9,890,000 9,988,900
5/15/07
CKE Restaurants, Inc. 9.125% B1 4,250,000 3,995,000
5/1/09
NE Restaurant, Inc. 10.75% B3 6,390,000 5,846,850
7/15/08
19,830,750
TOTAL MEDIA & LEISURE 439,562,032
NONDURABLES - 0.7%
FOODS - 0.3%
International Home Foods, B2 7,150,000 7,543,250
Inc. 10.375% 11/1/06
HOUSEHOLD PRODUCTS - 0.4%
AKI Holding Corp. 0% 7/1/09 Caa1 9,120,000 3,465,600
(d)
AKI, Inc. 10.5% 7/1/08 B2 6,960,000 6,716,400
10,182,000
TOTAL NONDURABLES 17,725,250
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
RETAIL & WHOLESALE - 2.3%
APPAREL STORES - 1.1%
Mothers Work, Inc. 12.625% B3 $ 7,440,000 $ 7,737,600
8/1/05
Specialty Retailers, Inc.:
8.5% 7/15/05 B1 18,870,000 13,963,800
9% 7/15/07 B3 9,850,000 6,107,000
27,808,400
GROCERY STORES - 0.8%
Fleming Companies, Inc.:
Series B, 10.625% 7/31/07 B3 910,000 846,300
10.5% 12/1/04 B3 5,830,000 5,480,200
Jitney-Jungle Stores of
America, Inc.:
10.375% 9/15/07 Caa1 12,115,000 4,361,400
12% 3/1/06 B3 2,590,000 2,110,850
Pueblo Xtra International,
Inc.:
Series C, 9.5% 8/1/03 B3 4,590,000 4,268,700
9.5% 8/1/03 B3 2,860,000 2,659,800
19,727,250
RETAIL & WHOLESALE,
MISCELLANEOUS - 0.4%
Guitar Center, Inc. 11% 7/1/06 B1 5,177,000 5,254,655
TM Group Holdings PLC 11% B3 6,140,000 6,216,750
5/15/08
11,471,405
TOTAL RETAIL & WHOLESALE 59,007,055
SERVICES - 3.6%
LEASING & RENTAL - 0.6%
Anthony Crane Rentals B3 6,370,000 6,115,200
LP/Anthony Credit Capital
Corp. 10.375% 8/1/08
Rent-A-Center, Inc. 11% B2 8,680,000 8,723,400
8/15/08
14,838,600
PRINTING - 1.7%
Big Flower Press Holdings, B2 13,900,000 13,066,000
Inc. 8.875% 7/1/07
Sullivan Graphics, Inc. Caa1 21,340,000 22,193,600
12.75% 8/1/05
World Color Press, Inc. 7.75% B1 8,060,000 7,495,800
2/15/09
42,755,400
SERVICES - 1.3%
AP Holdings, Inc. 0% 3/15/08 Caa2 2,470,000 1,284,400
(d)
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Apcoa, Inc. 9.25% 3/15/08 Caa1 $ 13,590,000 $ 12,231,000
Medaphis Corp. 9.5% 2/15/05 Caa1 13,713,000 10,147,620
SITEL Corp. 9.25% 3/15/06 B3 2,630,000 2,228,925
Spin Cycle, Inc. 0% 5/1/05 (d) - 25,335,000 7,347,150
33,239,095
TOTAL SERVICES 90,833,095
TECHNOLOGY - 3.3%
COMMUNICATIONS EQUIPMENT - 0.3%
Jordan Telecommunication
Products, Inc.:
0% 8/1/07 (d) B3 3,810,000 3,238,500
9.875% 8/1/07 B3 2,990,000 2,930,200
6,168,700
COMPUTER SERVICES & SOFTWARE
- - 0.5%
Concentric Network Corp. - 12,760,000 13,334,200
12.75% 12/15/07
DecisionOne Corp. 9.75% B3 7,220,000 361,000
8/1/07 (c)
DecisionOne Holdings Corp. 0% Caa1 2,005,000 10,025
8/1/08 unit (c)(d)
13,705,225
ELECTRONIC INSTRUMENTS - 0.8%
Telecommunications Techniques B3 19,995,000 19,395,150
Co. LLC 9.75% 5/15/08
ELECTRONICS - 1.7%
Communications Instruments, B3 4,460,000 4,014,000
Inc. 10% 9/15/04
Fairchild Semiconductor Corp.:
10.125% 3/15/07 B3 1,640,000 1,594,900
10.375% 10/1/07 (f) B3 12,700,000 12,509,500
Hadco Corp. 9.5% 6/15/08 B2 14,645,000 14,278,875
Insilco Corp. 12% 8/15/07 B3 7,380,000 7,306,200
Micron Technology, Inc. 6.5% B3 5,000,000 3,950,000
9/30/05 (h)
43,653,475
TOTAL TECHNOLOGY 82,922,550
TRANSPORTATION - 0.6%
AIR TRANSPORTATION - 0.4%
Kitty Hawk, Inc. 9.95% B1 10,959,000 10,876,808
11/15/04
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
TRANSPORTATION - CONTINUED
SHIPPING - 0.2%
Holt Group, Inc. 9.75% Caa1 $ 5,240,000 $ 3,563,200
1/15/06 (f)
TOTAL TRANSPORTATION 14,440,008
UTILITIES - 24.2%
CELLULAR - 10.7%
Cellnet Data Systems, Inc. 0% - 69,670,000 30,654,800
10/1/07 (d)
Dial Call Communications, B2 4,080,000 4,161,600
Inc. 10.25% 12/15/05
McCaw International Ltd. 0% Caa1 44,305,000 26,804,525
4/15/07 (d)
Metrocall, Inc.:
10.375% 10/1/07 B3 5,670,000 4,394,250
11% 9/15/08 (f) B3 3,410,000 2,693,900
Millicom International Caa1 79,940,000 58,356,194
Cellular SA 0% 6/1/06 (d)
Nextel Communications, Inc.:
0% 9/15/07 (d) B2 950,000 688,750
0% 10/31/07 (d) B2 6,990,000 4,910,475
0% 2/15/08 (d) B2 36,980,000 25,516,200
Nextel International, Inc. 0% Caa1 18,900,000 9,544,500
4/15/08 (d)
Orbital Imaging Corp.:
11.625% 3/1/05 - 9,075,000 8,349,000
11.625% 3/1/05 (f) - 3,680,000 3,348,800
Orion Network Systems, Inc.:
0% 1/15/07 (d) B2 28,870,000 15,734,150
11.25% 1/15/07 B2 4,995,000 4,395,600
PageMart Nationwide, Inc. 0% B3 12,820,000 11,473,900
2/1/05 (d)
PageMart Wireless, Inc. 0% Caa2 34,440,000 14,292,600
2/1/08 (d)
Rogers Communications, Inc. B2 18,780,000 18,967,800
8.875% 7/15/07
Spectrasite Holdings, Inc. 0% - 14,000,000 7,910,000
4/15/09 (d)(f)
Telesystem International
Wireless, Inc.:
0% 6/30/07 (d) Caa1 17,940,000 9,149,400
0% 11/1/07 (d) Caa1 17,800,000 7,832,000
269,178,444
TELEPHONE SERVICES - 13.5%
Alestra S. de R.L. de CV B2 5,670,000 5,471,550
12.625% 5/15/09 (f)
Allegiance Telecom, Inc. 0% - 4,770,000 2,981,250
2/15/08 (d)
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Call-Net Enterprises, Inc. B2 $ 9,710,000 $ 9,297,325
9.375% 5/15/09
Covad Communications Group,
Inc.:
0% 3/15/08 (d) B3 14,660,000 8,026,350
12.5% 2/15/09 B3 8,090,000 7,786,625
GCI, Inc. 9.75% 8/1/07 B2 4,420,000 4,364,750
GST Network Funding, Inc. 0% - 14,980,000 8,538,600
5/1/08 (d)(f)
GST Equipment Funding, Inc. - 4,870,000 5,198,725
13.25% 5/1/07
GST Telecommunications, Inc. - 18,870,000 20,473,950
12.75% 11/15/07
Hermes Europe Railtel BV B3 7,350,000 7,478,625
10.375% 1/15/09
ICG Holdings, Inc. 0% 9/15/05 - 10,490,000 9,100,075
(d)
ICG Services, Inc.:
0% 2/15/08 (d) - 38,590,000 21,513,925
0% 5/1/08 (d) - 3,030,000 1,636,200
Intermedia Communications, B3 14,530,000 8,282,100
Inc. 0% 3/1/09 (d)
IXC Communications, Inc. 9% B3 15,335,000 14,568,250
4/15/08
KMC Telecom Holdings, Inc.:
0% 2/15/08 (d) Caa2 19,400,000 10,330,500
13.5% 5/15/09 (f) Caa2 7,200,000 7,218,000
Logix Communications - 10,910,000 9,655,350
Enterprises, Inc. 12.25%
6/15/08
Metromedia Fiber Network, B2 11,310,000 11,649,300
Inc. 10% 11/15/08
NEXTLINK Communications, Inc.:
0% 6/1/09 (d) B3 14,570,000 8,578,088
10.75% 6/1/09 B3 7,810,000 8,024,775
Ono Finance PLC 13% 5/1/09 - 5,140,000 5,294,200
unit (f)
Optel Communications Corp. - 12,900,000 12,083,688
15% 12/29/04 (h)
Pathnet, Inc. 12.25% 4/15/08 - 12,390,000 6,814,500
Rhythms NetConnections, Inc.:
0% 5/15/08 (d) B3 17,735,000 9,443,888
12.75% 4/15/09 (f) B3 7,480,000 6,993,800
Teligent, Inc.:
0% 3/1/08 (d) Caa1 20,510,000 12,100,900
11.5% 12/1/07 Caa1 10,425,000 10,268,625
WinStar Communications, Inc.:
0% 10/15/05 (d) Caa1 7,050,000 6,168,750
0% 10/15/05 (d) Caa1 30,160,000 41,620,800
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
WinStar Communications, Inc.
- - continued
0% 3/15/08 (d) CCC $ 18,755,000 $ 16,410,625
10% 3/15/08 CCC 14,750,000 12,980,000
15% 3/1/07 CCC 2,240,000 2,576,000
WinStar Equipment Corp. 12.5% B3 6,655,000 6,921,200
3/15/04
339,851,289
TOTAL UTILITIES 609,029,733
TOTAL NONCONVERTIBLE BONDS 1,871,861,606
TOTAL CORPORATE BONDS 1,902,463,331
(Cost $2,035,747,341)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
ASSET-BACKED SECURITIES - 0.2%
Airplanes Pass Through Trust Ba2 4,610,000 4,356,450
10.875% 3/15/19 (Cost
$5,138,363)
COMMERCIAL MORTGAGE
SECURITIES - 0.9%
Commercial Mortgage BB+ 4,500,000 2,723,203
Acceptance Corp. pass
through certificates Series
1998-C2 Class F, 5.44%
5/15/13 (f)(g)
Commercial Mortgage Asset Ba1 4,750,000 3,062,266
Trust pass through
certificates Series 1999-C1
Class F, 6.25% 11/17/13 (f)
LB Multifamily Mortgage Trust Caa1 2,714,587 1,900,211
Series 1991 4 Class A1,
6.973% 4/25/21 (g)
Meritor Mortgage Security - 1,350,000 162,000
Corp. Series 1987 1 Class B,
9.4% 2/1/00 (f)
Mortgage Capital Funding, Ba1 4,500,000 3,682,969
Inc. Series 1998-MC3 Class
F, 0% 11/18/31 (f)(g)
Nationslink Funding Corp. BB 4,500,000 3,369,375
Commercial Mortgage pass
through certificates Series
1998-2 Class F, 7.105%
8/20/30
Nomura Depositor Trust Series - 4,000,000 3,562,500
1998-ST1A Class B1A, 7.7375%
1/15/03 (f)(g)
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Structured Asset Securities
Corp.:
Series 1994 - C1 Class F, B $ 2,600,000 $ 1,996,313
6.87% 8/25/26
Series 1995-C1 Class F, - 2,000,000 1,550,625
7.375% 9/25/24 (f)
TOTAL COMMERCIAL MORTGAGE 22,009,462
SECURITIES
(Cost $22,167,690)
</TABLE>
COMMON STOCKS - 5.5%
SHARES
BASIC INDUSTRIES - 0.0%
CHEMICALS & PLASTICS - 0.0%
Sterling Chemicals Holdings, 340 5,100
Inc. warrants 8/15/08 (a)
CONSTRUCTION & REAL ESTATE -
0.4%
BUILDING MATERIALS - 0.1%
International Utility 2,500 2,425,000
Structures, Inc. unit
REAL ESTATE - 0.2%
LNR Property Corp. 312,100 6,671,138
REAL ESTATE INVESTMENT TRUSTS
- - 0.1%
Ocwen Asset Investment Corp. 368,000 1,656,000
TOTAL CONSTRUCTION & REAL 10,752,138
ESTATE
DURABLES - 0.3%
TEXTILES & APPAREL - 0.3%
Arena Brands Holdings Corp. 48,889 1,222,225
Class B (a)
Polymer Group, Inc. (a) 450,600 5,294,550
6,516,775
ENERGY - 1.2%
ENERGY SERVICES - 0.6%
R&B Falcon Corp. unit (a)(f) 13,988 14,267,760
OIL & GAS - 0.6%
Chesapeake Energy Corp. 277,800 816,038
Plains Resources, Inc. (a) 775,400 14,732,600
15,548,638
TOTAL ENERGY 29,816,398
FINANCE - 0.3%
CREDIT & OTHER FINANCE - 0.0%
Olympic Financial Ltd. 498 498
warrants 3/15/07 (a)
SAVINGS & LOANS - 0.3%
Golden State Bancorp, Inc. 300,000 6,600,000
SECURITIES INDUSTRY - 0.0%
ECM Corp. LP (f) 3,000 270,000
TOTAL FINANCE 6,870,498
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
HEALTH - 0.0%
MEDICAL EQUIPMENT & SUPPLIES
- - 0.0%
Wright Medical Technology, 3,212 $ 32
Inc. warrants 6/30/03 (a)
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.7%
POLLUTION CONTROL - 0.7%
Allied Waste Industries, Inc. 900,000 17,775,000
(a)
MEDIA & LEISURE - 0.9%
BROADCASTING - 0.0%
Benedek Communications Corp. 57,600 115,200
warrants 7/1/07 (a)
CS Wireless Systems, Inc. 1,024 10
(a)(f)
NTL, Inc. warrants 12/31/08 23,146 1,157,300
(a)
Teletrac Holdings, Inc. 3,940 1,970
warrants 8/1/07 (a)
UIH Australia/Pacific, Inc. 26,805 53,610
warrants 5/15/06 (a)
1,328,090
ENTERTAINMENT - 0.0%
Alliance Gaming Corp. (a)(h) 2,028 6,084
LODGING & GAMING - 0.9%
Motels of America, Inc. (a) 3,000 57,000
Sunterra Corp. (a) 1,541,400 21,483,263
21,540,263
TOTAL MEDIA & LEISURE 22,874,437
NONDURABLES - 0.0%
TOBACCO - 0.0%
North Atlantic Trading, Inc. 210 2
warrants 6/15/07 (a)
RETAIL & WHOLESALE - 0.2%
APPAREL STORES - 0.2%
Mothers Work, Inc. (a)(e) 299,100 3,888,300
Mothers Work, Inc. (a)(h) 2,952 38,376
3,926,676
SERVICES - 0.0%
Spin Cycle, Inc. warrants 25,335 253
5/1/05 (a)(f)
TECHNOLOGY - 0.0%
COMPUTERS & OFFICE EQUIPMENT
- - 0.0%
Ampex Corp. Class A (a) 7,167 36,283
ELECTRONICS - 0.0%
Insilco Corp. warrants 7,380 74
8/15/07 (a)
TOTAL TECHNOLOGY 36,357
TRANSPORTATION - 0.1%
AIR TRANSPORTATION - 0.1%
Kitty Hawk, Inc. (a) 349,400 2,751,525
SHARES VALUE (NOTE 1)
UTILITIES - 1.4%
CELLULAR - 0.4%
Cellnet Data Systems, Inc. 18,000 $ 72,000
warrants 10/1/07 (a)(f)
Loral Orion Network Systems,
Inc.:
warrants 1/15/07 (CV ratio 45,930 241,133
.47) (a)
warrants 1/15/07 (CV ratio 5,585 40,491
.6) (a)
McCaw International Ltd. 42,305 105,763
warrants 4/15/07 (a)(f)
Microcell Telecommunications, 47,716 375,151
Inc. Class B (a)
Orbital Imaging Corp. 4,815 144,450
warrants 3/1/05 (a)(f)
PageMart Wireless, Inc. Class 1,241,700 9,390,356
A (a)
10,369,344
TELEPHONE SERVICES - 1.0%
GST Telecommunications, Inc. 441,300 5,736,900
(a)
Intermedia Communications, 150,000 4,500,000
Inc. (a)
KMC Telecom Holdings, Inc. 12,650 31,625
warrants 4/15/08 (a)(f)
Optel Communications Corp. 2,559,515 25,595
warrants 12/29/04 (a)(h)
Pathnet, Inc. warrants 12,390 123,900
4/15/08 (a)(f)
Rhythms NetConnections, Inc. 89,560 15,058,618
warrants 5/15/08 (a)(f)
25,476,638
TOTAL UTILITIES 35,845,982
TOTAL COMMON STOCKS 137,171,173
(Cost $128,024,815)
PREFERRED STOCKS - 13.8%
CONVERTIBLE PREFERRED STOCKS
- - 0.1%
ENERGY - 0.1%
OIL & GAS - 0.1%
Chesapeake Energy Corp.:
$3.50 (f) 63,700 1,656,200
$3.50 42,500 1,105,000
2,761,200
NONCONVERTIBLE PREFERRED
STOCKS - 13.7%
BASIC INDUSTRIES - 0.1%
PACKAGING & CONTAINERS - 0.1%
Packaging Corp. of America 20,210 2,079,730
$12.375 pay-in-kind (f)
CONSTRUCTION & REAL ESTATE -
0.3%
BUILDING MATERIALS - 0.0%
International Utility 334 317,300
Structures, Inc. 13%
pay-in-kind (f)
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NONCONVERTIBLE PREFERRED
STOCKS - CONTINUED
CONSTRUCTION & REAL ESTATE -
CONTINUED
REAL ESTATE INVESTMENT TRUSTS
- - 0.3%
Swerdlow Real Estate Group,
Inc.:
Class A (h) 79,800 $ 11,132
Class B (h) 19,817 2,760
junior (h) 19,817 2,760
mezzanine (h) 79,800 78,520
senior (h) 79,800 7,618,828
7,714,000
TOTAL CONSTRUCTION & REAL 8,031,300
ESTATE
FINANCE - 0.4%
INSURANCE - 0.4%
American Annuity Group 8,910 8,845,135
Capital Trust II 8.875%
HEALTH - 0.7%
MEDICAL FACILITIES MANAGEMENT
- - 0.7%
Fresenius Medical Care 15,424 14,600,744
Capital Trust II 7.875%
Harborside Healthcare Corp. 4,420 1,989,000
13.50% pay-in-kind
16,589,744
MEDIA & LEISURE - 3.0%
BROADCASTING - 3.0%
Citadel Broadcasting Co. 74,736 8,669,376
Series B, 13.25% pay-in-kind
CSC Holdings, Inc.:
11.125% pay-in-kind 331,316 36,279,102
Series H, 11.75% pay-in-kind 206,162 22,523,199
Granite Broadcasting Corp. 9,309 9,122,820
12.75% pay-in-kind
76,594,497
NONDURABLES - 0.2%
TOBACCO - 0.2%
North Atlantic Trading, Inc. 265,760 5,780,280
12% pay-in-kind
TECHNOLOGY - 0.8%
COMPUTER SERVICES & SOFTWARE
- - 0.8%
Concentric Network Corp. 21,227 20,165,650
13.5% pay-in-kind
COMPUTERS & OFFICE EQUIPMENT
- - 0.0%
Ampex Corp. 8% non-cumulative 480 748,800
(a)
TOTAL TECHNOLOGY 20,914,450
SHARES VALUE (NOTE 1)
UTILITIES - 8.2%
CELLULAR - 3.2%
Nextel Communications, Inc.:
11.125% pay-in-kind 45,065 $ 45,290,325
Series D, 13% pay-in-kind 32,979 34,792,845
80,083,170
TELEPHONE SERVICES - 5.0%
e.spire Communications, Inc.:
$127.50 pay-in-kind 16,945 6,015,475
14.75% pay-in-kind 3,915 1,683,450
ICG Holdings, Inc. 14.25% 23,376 23,259,120
pay-in-kind
Intermedia Communications, 27,468 26,987,310
Inc. 13.5% pay-in-kind
IXC Communications, Inc. 13,125 12,600,000
12.5% pay-in-kind
NEXTLINK Communications, Inc. 980,799 49,530,350
14% pay-in-kind
WinStar Communications, Inc. 7,810 6,287,050
14.25%
126,362,755
TOTAL UTILITIES 206,445,925
TOTAL NONCONVERTIBLE 345,281,061
PREFERRED STOCKS
TOTAL PREFERRED STOCKS 348,042,261
(Cost $371,145,887)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PURCHASED BANK DEBT - 1.3%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT
Huntsman ICI Chemicals LLC
sr. secured:
term B loan 8.3125% 6/30/07 - $ 4,500,000 4,494,375
(g)
term C loan 8.5625% 6/30/08 - 4,500,000 4,494,375
(g)
Lyondell Chemical Co. sr. - 16,000,000 16,080,000
secured Tranche E term loan
8.875% 5/17/06 (g)
Oxford Health Plans, Inc. sr. B3 7,000,000 7,035,000
secured term loan 9.335%
5/13/03 (g)
TOTAL PURCHASED BANK DEBT 32,103,750
(Cost $32,018,750)
</TABLE>
CASH EQUIVALENTS - 2.6%
MATURITY AMOUNT
Investments in repurchase $ 65,779,843 65,771,000
agreements (U.S. Treasury
obligations), in a joint
trading account at 4.84%,
dated 6/30/99 due 7/1/99
(Cost $65,771,000)
TOTAL INVESTMENT IN $ 2,511,917,427
SECURITIES - 100%
(Cost $2,660,013,846)
LEGEND
(a) Non-income producing
(b) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(c) Non-income producing - issuer filed for protection under the
Federal Bankruptcy Code or is in default of interest payment.
(d) Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date. The rate shown
is the rate at period end.
(e) Transactions during the period with companies which are or were
affiliates are as follows:
AFFILIATE PURCHASE COST SALES COST DIVIDEND INCOME VALUE
Hat Brands, Inc. $ - $ 340,000 $ - $ -
Mothers Work, Inc. - 347,350 - 3,888,300
TOTALS $ - $ 687,350 $ - $ 3,888,300
(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
$359,917,762 or 14.2% of net assets.
(g) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(h) Restricted securities - Investment in securities not registered
under the Securities Act of 1933.
Additional information on each holding is as follows:
<TABLE>
<CAPTION>>
<S> <C> <C>
ACQUISITION ACQUISITION
SECURITY DATE COST
Alliance Gaming Corp. 7/28/98 $ 0
Micron Technology, Inc. 6.5% 3/3/99 $ 3,869,500
9/30/05
Mothers Work, Inc. 6/18/98 $ 26,172
Optel Communications Corp. 12/31/97 $ 759,408
warrants 12/29/04
Optel Communications Corp. 12/31/97 - 1/12/99 $ 12,140,640
15% 12/29/04
Swerdlow Real Estate Group, 1/15/99 $ 11,132
Inc. Class A
Swerdlow Real Estate Group, 1/15/99 $ 2,760
Inc. Class B
Swerdlow Real Estate Group, 1/15/99 $ 2,760
Inc. junior
Swerdlow Real Estate Group, 1/15/99 $ 78,520
Inc. mezzanine
Swerdlow Real Estate Group, 1/15/99 $ 7,618,828
Inc. senior
</TABLE>
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $1,202,813,190 and $1,220,184,530, respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company.
The commissions paid to these affiliated firms were $685 for the
period.
The fund participated in the interfund lending program as a borrower.
The average daily loan balance during the period for which loans were
outstanding amounted to $22,684,750. The weighted average interest
rate was 4.87%. Interest expense includes $12,264 paid under the
interfund lending program.
The fund participated in the bank borrowing program. The average daily
loan balance during the period for which loans were outstanding
amounted to $29,137,500. The weighted average interest rate was 5.08%.
Interest expense includes $8,221 paid under the bank borrowing
program.
The composition of long-term debt holdings as a percentage of total
value of investments in securities, is as follows (ratings are
unaudited):
Aaa, Aa, A 0.0% AAA, AA, A 0.0%
Baa 0.0% BBB 0.0%
Ba 5.4% BB 7.6%
B 45.8% B 48.2%
Caa 15.9% CCC 9.8%
Ca, C 0.0% CC, C 0.2%
D 0.1%
The percentage not rated by Moody's or S&P amounted to 9.3%. FMR has
determined that unrated debt securities that are lower quality account
for 9.3% of the total value of investment in securities.
Distribution of investments by country of issue, as a percentage of
total value of investments in securities, is as follows:
United States of America 89.0%
Canada 4.0
Luxembourg 2.3
United Kingdom 1.7
Mexico 1.6
Others (individually less 1.4
than 1%)
100.0%
INCOME TAX INFORMATION
At June 30, 1999, the aggregate cost of investment securities for
income tax purposes was $2,661,537,264. Net unrealized depreciation
aggregated $149,619,837, of which $79,391,590 related to appreciated
investment securities and $229,011,427 related to depreciated
investment securities.
VARIABLE INSURANCE PRODUCTS FUND: HIGH INCOME PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 2,511,917,427
value (including repurchase
agreements of $65,771,000)
(cost $2,660,013,846) - See
accompanying schedule
Cash 856,315
Receivable for investments 8,019,676
sold
Receivable for fund shares 7,514,021
sold
Dividends receivable 4,347,155
Interest receivable 38,239,574
Other receivables 396,679
TOTAL ASSETS 2,571,290,847
LIABILITIES
Payable for investments $ 25,570,338
purchased
Payable for fund shares 1,041,323
redeemed
Accrued management fee 1,209,970
Distribution fees payable 15,185
Other payables and accrued 241,460
expenses
TOTAL LIABILITIES 28,078,276
NET ASSETS $ 2,543,212,571
Net Assets consist of:
Paid in capital $ 2,613,635,447
Undistributed net investment 122,571,356
income
Accumulated undistributed net (44,897,883)
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation (148,096,349)
(depreciation) on
investments and assets and
liabilities in foreign
currencies
NET ASSETS $ 2,543,212,571
INITIAL CLASS: NET ASSET $11.28
VALUE, offering price and
redemption price per share
($2,349,796,862 (divided
by) 208,234,080 shares)
SERVICE CLASS: NET ASSET $11.26
VALUE, offering price and
redemption price per share
($193,415,709 (divided by)
17,179,888 shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30,
1999 (UNAUDITED)
INVESTMENT INCOME $ 19,214,021
Dividends
Interest 112,825,651
TOTAL INCOME 132,039,672
EXPENSES
Management fee $ 7,470,818
Transfer agent fees 854,606
Distribution fees - Service 79,801
Class
Accounting fees and expenses 406,075
Non-interested trustees' 3,999
compensation
Custodian fees and expenses 36,113
Registration fees 9,543
Audit 12,986
Interest 20,485
Miscellaneous 3,301
Total expenses before 8,897,727
reductions
Expense reductions (26,676) 8,871,051
NET INVESTMENT INCOME 123,168,621
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities (41,131,566)
(including realized loss of
$478,294 on sales of
investments in affiliated
issuers)
Foreign currency transactions 936 (41,130,630)
Change in net unrealized
appreciation (depreciation)
on:
Investment securities 114,458,276
Assets and liabilities in 70 114,458,346
foreign currencies
NET GAIN (LOSS) 73,327,716
NET INCREASE (DECREASE) IN $ 196,496,337
NET ASSETS RESULTING FROM
OPERATIONS
OTHER INFORMATION $ 19,572
Expense reductions Directed
brokerage arrangements
Custodian credits 7,104
$ 26,676
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
ASSETS 1999 (UNAUDITED)
Operations Net investment $ 123,168,621 $ 230,104,995
income
Net realized gain (loss) (41,130,630) 6,911,145
Change in net unrealized 114,458,346 (342,139,590)
appreciation (depreciation)
NET INCREASE (DECREASE) IN 196,496,337 (105,123,450)
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (230,986,253) (174,513,221)
From net investment income
From net realized gain (6,657,693) (109,261,101)
In excess of net realized (1,977,307) -
gain
TOTAL DISTRIBUTIONS (239,621,253) (283,774,322)
Share transactions - net 107,796,135 535,004,180
increase (decrease)
TOTAL INCREASE (DECREASE) 64,671,219 146,106,408
IN NET ASSETS
NET ASSETS
Beginning of period 2,478,541,352 2,332,434,944
End of period (including $ 2,543,212,571 $ 2,478,541,352
undistributed net investment
income of $122,571,356 and
$228,599,042, respectively)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OTHER INFORMATION:
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
1999 (UNAUDITED)
SHARES DOLLARS SHARES DOLLARS
Share transactions Initial 57,354,894 $ 644,024,273 105,294,967 $ 1,274,568,026
Class Sold
Reinvested 20,936,841 226,536,621 22,841,432 282,776,922
Redeemed (73,710,924) (828,294,214) (96,026,533) (1,157,142,331)
Net increase (decrease) 4,580,811 $ 42,266,680 32,109,866 $ 400,202,617
Service Class Sold 6,502,761 $ 72,659,761 11,710,091 $ 142,335,404
Reinvested 1,211,540 13,084,632 80,565 997,399
Redeemed (1,788,090) (20,214,938) (752,013) (8,531,240)
Net increase (decrease) 5,926,211 $ 65,529,455 11,038,643 $ 134,801,563
Distributions
From net investment income $ 218,373,139 $ 173,899,848
Initial Class
Service Class 12,613,114 613,373
Total $ 230,986,253 $ 174,513,221
From net realized gain $ 6,294,147 $ 108,877,075
Initial Class
Service Class 363,546 384,026
Total $ 6,657,693 $ 109,261,101
In excess of net realized $ 1,869,335 $ -
gain Initial Class
Service Class 107,972 -
Total $ 1,977,307 $ -
$ 239,621,253 $ 283,774,322
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 1996 1995
Net asset value, beginning of $ 11.530 $ 13.580 $ 12.520 $ 12.050 $ 10.750
period
Income from Investment
Operations
Net investment income .538 D 1.111 D 1.124 D .927 .856
Net realized and unrealized .322 (1.591) .936 .643 1.224
gain (loss)
Total from investment .860 (.480) 2.060 1.570 2.080
operations
Less Distributions
From net investment income (1.070) (.970) F (.890) (.920) (.780)
From net realized gain (.030) (.600) F (.110) (.180) -
In excess of net realized gain (.010) - - - -
Total distributions (1.110) (1.570) (1.000) (1.100) (.780)
Net asset value, end of period $ 11.280 $ 11.530 $ 13.580 $ 12.520 $ 12.050
TOTAL RETURN B, C 7.87% (4.33)% 17.67% 14.03% 20.72%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 2,349,797 $ 2,348,954 $ 2,329,516 $ 1,588,822 $ 1,040,000
(000 omitted)
Ratio of expenses to average .69% A .70% .71% .71% .71%
net assets
Ratio of net investment 9.66% A 9.14% 8.88% 9.09% 9.32%
income to average net assets
Portfolio turnover rate 98% A 92% 118% 123% 132%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA 1994
Net asset value, beginning of $ 11.990
period
Income from Investment
Operations
Net investment income .770
Net realized and unrealized (.910)
gain (loss)
Total from investment (.140)
operations
Less Distributions
From net investment income (.730)
From net realized gain (.370)
In excess of net realized gain -
Total distributions (1.100)
Net asset value, end of period $ 10.750
TOTAL RETURN B, C (1.64)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 569,417
(000 omitted)
Ratio of expenses to average .71%
net assets
Ratio of net investment 8.75%
income to average net assets
Portfolio turnover rate 122%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - SERVICE CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 E
Net asset value, beginning of $ 11.520 $ 13.570 $ 13.380
period
Income from Investment
Operations
Net investment income D .527 1.082 .203
Net realized and unrealized .323 (1.562) (.013)
gain (loss)
Total from investment .850 (.480) .190
operations
Less Distributions
From net investment income (1.070) (.970) F -
From net realized gain (.030) (.600) F -
In excess of net realized gain (.010) - -
Total distributions (1.110) (1.570) -
Net asset value, end of period $ 11.260 $ 11.520 $ 13.570
TOTAL RETURN B, C 7.79% (4.34)% 1.42%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 193,416 $ 129,587 $ 2,919
(000 omitted)
Ratio of expenses to average .80% A .82% .81% A
net assets
Ratio of expenses to average .79% A, G .82% .80% A, G
net assets after expense
reductions
Ratio of net investment 9.55% A 9.51% 10.75% A
income to average net assets
Portfolio turnover rate 98% A 92% 118%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE
TO YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. INCLUSION
OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN. TOTAL RETURNS FOR PERIODS OF LESS THAN ONE
YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED
BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD NOVEMBER 3, 1997(COMMENCEMENT OF SALE OF
SERVICE CLASS SHARES) TO DECEMBER 31, 1997.
F THE AMOUNTS SHOWN REFLECT CERTAIN RECLASSIFICATIONS
RELATED TO BOOK TO TAX DIFFERENCES.
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS
WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A
PORTION OF THE CLASS' EXPENSES.
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). If Fidelity had not reimbursed certain fund
expenses, the life of fund total return would have been lower.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
VIP II: ASSET MANAGER - 10.81% 14.30% 12.87%
"INITIAL CLASS"
Fidelity Composite 13.43% 16.32% n/a
S&P 500 22.76% 27.87% 17.95%
LB Aggregate Bond 3.15% 7.83% 8.19%
LB 3 Month T-Bill 4.89% 5.42% n/a
Variable Annuity Flexible 10.46% 16.25% n/a
Portfolio Funds Average
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's returns to those of the Fidelity Asset
Allocation Composite Index, a hypothetical combination of unmanaged
indices. The composite index combines the total returns of the
Standard & Poor's 500 Index, the Lehman Brothers Aggregate Bond Index
and the Lehman Brothers 3 Month Treasury Bill Index weighted according
to the fund's neutral mix.
You can also compare the fund's returns to the variable annuity
flexible portfolio funds average, which reflects the performance of
mutual funds with similar objectives tracked by Lipper Inc. The past
one year average represents a peer group of 92 mutual funds. The
benchmarks listed in the table above include 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 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, THE TOTAL RETURNS 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.
(checkmark)UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for example,
has a history of long-term growth and short-term
volatility. In turn, the share price and return of a
fund that invests in stocks will vary. That means if
you sell your shares during a market downturn,
you might lose money. But if you can ride out the
market's ups and downs, you may have a gain.
$10,000 OVER LIFE OF FUND
VIP II ASSET MANAGER 50 S&P/40 LBAGG/10 LB 3MO
S&P 500 LB AGGREGATE BOND
00156 F0001
SP001 LB001
1989/09/30 10000.00 10000.00
10000.00 10000.00
1989/10/31 10020.02 10057.70
9768.00 10246.00
1989/11/30 10060.06 10178.69
9967.27 10343.34
1989/12/31 10091.09 10277.43
10206.48 10371.26
1990/01/31 9868.42 10029.64
9521.63 10247.85
1990/02/28 9969.64 10094.03
9644.46 10280.64
1990/03/31 10050.61 10193.35
9900.03 10287.84
1990/04/30 9919.03 10098.66
9652.53 10193.19
1990/05/31 10425.10 10529.97
10593.65 10494.91
1990/06/30 10506.07 10595.89
10521.62 10663.87
1990/07/31 10485.83 10662.11
10487.95 10811.04
1990/08/31 10141.70 10332.65
9539.84 10666.17
1990/09/30 9929.15 10241.83
9075.25 10754.70
1990/10/31 9979.76 10314.96
9036.22 10891.28
1990/11/30 10465.59 10624.61
9619.96 11125.44
1990/12/31 10769.23 10802.47
9888.36 11299.00
1991/01/31 11284.56 11009.44
10319.49 11439.11
1991/02/28 11726.26 11285.45
11057.34 11536.34
1991/03/31 11915.56 11410.72
11324.93 11615.94
1991/04/30 12094.35 11486.94
11352.11 11741.39
1991/05/31 12367.79 11669.35
11842.52 11809.49
1991/06/30 12146.94 11518.12
11300.13 11803.59
1991/07/31 12451.92 11749.63
11826.72 11967.66
1991/08/31 12704.33 11959.83
12107.01 12226.16
1991/09/30 12777.94 12018.08
11904.82 12474.35
1991/10/31 12862.08 12126.84
12064.35 12612.82
1991/11/30 12651.74 12046.56
11578.15 12728.85
1991/12/31 13198.62 12642.99
12902.69 13106.90
1992/01/31 13366.89 12504.31
12662.70 12928.65
1992/02/29 13626.47 12583.84
12827.32 13012.68
1992/03/31 13593.27 12492.10
12577.19 12939.81
1992/04/30 13792.52 12648.75
12946.96 13032.98
1992/05/31 13936.42 12772.62
13010.40 13279.30
1992/06/30 13925.35 12778.88
12816.54 13462.56
1992/07/31 14157.81 13127.82
13340.74 13737.19
1992/08/31 14113.53 13077.17
13067.25 13875.94
1992/09/30 14202.09 13224.45
13221.45 14041.06
1992/10/31 14224.22 13162.82
13267.72 13854.32
1992/11/30 14534.17 13329.99
13720.15 13857.09
1992/12/31 14744.49 13487.52
13888.91 14077.42
1993/01/31 15010.15 13656.87
14005.57 14347.70
1993/02/28 15150.92 13847.00
14196.05 14598.79
1993/03/31 15579.83 13989.68
14495.59 14660.10
1993/04/30 15672.57 13904.65
14144.79 14762.72
1993/05/31 15939.19 14053.79
14523.87 14781.91
1993/06/30 16066.70 14203.33
14565.99 15049.47
1993/07/31 16263.77 14221.73
14507.73 15135.25
1993/08/31 16739.04 14571.76
15057.57 15400.11
1993/09/30 16750.64 14557.48
14941.63 15441.70
1993/10/31 17202.73 14707.13
15250.92 15498.83
1993/11/30 17179.54 14594.03
15106.04 15367.09
1993/12/31 17875.07 14696.31
15288.82 15450.07
1994/01/31 18443.09 14985.71
15808.64 15658.65
1994/02/28 17857.33 14699.72
15380.23 15386.19
1994/03/31 17017.99 14320.11
14709.65 15006.15
1994/04/30 17030.15 14356.11
14897.93 14886.10
1994/05/31 17176.13 14452.82
15142.26 14884.61
1994/06/30 16847.69 14310.02
14771.27 14851.86
1994/07/31 17139.63 14613.05
15255.77 15147.42
1994/08/31 17541.06 14864.31
15881.26 15165.59
1994/09/30 17334.15 14646.64
15492.17 14942.66
1994/10/31 17419.36 14787.36
15840.74 14929.21
1994/11/30 17163.73 14571.08
15263.82 14896.37
1994/12/31 16786.37 14708.25
15490.18 14999.15
1995/01/31 16676.82 14984.44
15891.84 15296.13
1995/02/28 16946.97 15360.16
16511.15 15660.18
1995/03/31 17170.77 15595.91
16998.39 15755.71
1995/04/30 17444.31 15876.83
17498.99 15976.29
1995/05/31 17668.12 16403.71
18198.43 16594.57
1995/06/30 17817.32 16624.93
18621.18 16715.71
1995/07/31 18451.43 16836.80
19238.66 16678.94
1995/08/31 18675.24 16948.46
19286.95 16880.75
1995/09/30 18911.47 17314.75
20100.85 17044.50
1995/10/31 18662.80 17413.45
20029.09 17266.07
1995/11/30 19147.71 17842.83
20908.37 17525.07
1995/12/31 19632.62 18102.59
21311.07 17770.42
1996/01/31 20055.36 18411.16
22036.50 17887.70
1996/02/29 20001.35 18343.08
22240.77 17576.46
1996/03/31 20213.99 18364.54
22454.95 17453.42
1996/04/30 20426.62 18441.71
22785.94 17355.68
1996/05/31 20586.10 18636.38
23373.59 17320.97
1996/06/30 20772.16 18775.74
23462.64 17553.07
1996/07/31 20426.62 18478.56
22426.06 17600.46
1996/08/31 20466.49 18636.07
22899.03 17570.54
1996/09/30 21210.73 19195.30
24187.79 17876.27
1996/10/31 21755.62 19593.26
24854.88 18273.12
1996/11/30 22832.10 20338.11
26733.66 18585.59
1996/12/31 22499.85 20111.10
26204.07 18412.75
1997/01/31 23177.64 20773.56
27841.30 18469.83
1997/02/28 23377.96 20883.87
28059.58 18516.00
1997/03/31 22488.67 20370.86
26906.61 18310.47
1997/04/30 23257.38 21111.13
28512.93 18585.13
1997/05/31 24372.77 21845.17
30248.80 18761.69
1997/06/30 25020.90 22446.35
31603.95 18984.95
1997/07/31 26467.89 23593.69
34118.67 19497.55
1997/08/31 25744.40 22863.47
32207.35 19331.82
1997/09/30 26573.40 23635.45
33971.34 19617.93
1997/10/31 26136.29 23387.99
32836.70 19902.39
1997/11/30 26739.20 23982.39
34356.71 19993.94
1997/12/31 27146.17 24295.48
34946.61 20195.88
1998/01/31 27236.61 24565.89
35333.12 20454.39
1998/02/28 28462.90 25452.97
37881.35 20438.02
1998/03/31 29288.41 26151.27
39821.25 20507.51
1998/04/30 29254.02 26348.97
40221.85 20614.15
1998/05/31 29099.24 26234.49
39530.44 20809.99
1998/06/30 29666.77 26867.61
41136.17 20986.52
1998/07/31 29477.59 26759.17
40698.07 21031.06
1998/08/31 26794.69 25011.28
34813.94 21373.37
1998/09/30 27688.99 26059.86
37044.12 21873.76
1998/10/31 28892.86 27074.89
40057.29 21758.35
1998/11/30 29993.54 27965.93
42485.16 21881.58
1998/12/31 31231.80 28816.18
44933.16 21947.38
1999/01/31 31971.32 29512.00
46812.26 22104.15
1999/02/28 31239.30 28856.13
45357.34 21718.21
1999/03/31 31518.06 29509.75
47172.08 21838.71
1999/04/30 32224.24 30129.20
48999.06 21907.94
1999/05/31 31759.65 29679.22
47842.19 21715.15
1999/06/30 32874.67 30476.41
50497.43 21645.80
IMATRL PRASUN SHR__CHT 19990630 19990714 122427 R00000000000120
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund II: Asset Manager
Portfolio on September 30, 1989, shortly after the fund started. By
June 30, 1999, the value of the investment would have grown to $32,875
- - a 228.75% increase. With reinvested dividends and capital gains, if
any, a $10,000 investment in the Standard & Poor's 500 Index would
have grown to $50,497 over the same period - a 404.97% increase on the
initial investment. If $10,000 was invested in the Lehman Brothers
Aggregate Bond Index, it would have grown to $21,646 - a 116.46%
increase.
You can also look at how the Fidelity Asset Allocation Composite Index
did over the same period. The composite index combines the cumulative
total returns of three unmanaged indexes - the S&P 500 (404.97%),
Lehman Brothers Aggregate Bond Index (116.46%), and the Lehman
Brothers 3 Month Treasury Bill Index (65.05%) - according to the
fund's neutral mix,* assuming monthly rebalancing. With reinvested
dividends and capital gains, if any, a $10,000 investment in the index
would have grown to $30,476 - a 204.76% increase.
* 50% STOCKS, 40% BONDS AND 10% SHORT-TERM INSTRUMENTS EFFECTIVE
JANUARY 1, 1997; 40%, 40% AND 20%, RESPECTIVELY, BETWEEN JUNE 1, 1992
AND DECEMBER 31, 1996; 30%, 40% AND 30%, RESPECTIVELY, PRIOR TO JUNE
1, 1992.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE 30, 1999
% OF FUND'S INVESTMENTS
Wal-Mart Stores, Inc. 1.9
Lucent Technologies, Inc. 1.6
General Electric Co. 1.5
Microsoft Corp. 1.5
Ameritech Corp. 1.4
TOP FIVE BOND ISSUERS AS OF JUNE 30, 1999
(WITH MATURITIES MORE THAN % OF FUND'S INVESTMENTS
ONE YEAR)
Fannie Mae 8.3
U.S. Treasury Obligations 3.7
Government National Mortgage 1.7
Association
Ford Motor Credit Co. 0.5
Federal Home Loan Bank 0.4
ASSET ALLOCATION AS OF JUNE
30, 1999*
Stock class 57.5%
Bond class 36.6%
Short-term/ Money Market
class 5.9%
* FOREIGN INVESTMENTS 4.5%
Row: 1, Col: 1, Value: 54.9
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 37.3
Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 7.8
ASSET ALLOCATION IN THE PIE CHART REFLECTS THE CATEGORIZATION OF
ASSETS AS DEFINED IN THE FUND'S PROSPECTUS. FINANCIAL STATEMENT
CATEGORIZATIONS CONFORM TO ACCOUNTING STANDARDS AND WILL DIFFER FROM
THE PIE CHART.
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). The initial offering of Service Class shares
took place on November 3, 1997. Performance for Service Class shares
reflects an asset based distribution fee (12b-1 fee), and returns
prior to November 3, 1997 are those of Initial Class and do not
include the effects of Service Class' 12b-1 fee. Had Service Class
shares' 12b-1 fee been reflected, returns prior to November 3, 1997
would have been lower. If Fidelity had not reimbursed certain fund
expenses, the life of fund total return would have been lower.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
VIP II: ASSET MANAGER - 10.72% 14.22% 12.83%
SERVICE CLASS
Fidelity Composite 13.43% 16.32% n/a
S&P 500 22.76% 27.87% 17.95%
LB Aggregate Bond 3.15% 7.83% 8.19%
LB 3 Month T-Bill 4.89% 5.42% n/a
Variable Annuity Flexible 10.46% 16.25% n/a
Portfolio Funds Average
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's returns to those of the Fidelity Asset
Allocation Composite Index, a hypothetical combination of unmanaged
indices. The composite index combines the total returns of the
Standard & Poor's 500 Index, the Lehman Brothers Aggregate Bond Index
and the Lehman Brothers 3 Month Treasury Bill Index weighted according
to the fund's neutral mix.
You can also compare the fund's returns to the variable annuity
flexible portfolio funds average, which reflects the performance of
mutual funds with similar objectives tracked by Lipper Inc. The past
one year average represents a peer group of 92 mutual funds. The
benchmarks listed in the table above include 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 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, THE TOTAL RETURNS 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.
(checkmark)UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for example,
has a history of long-term growth and short-term
volatility. In turn, the share price and return of a
fund that invests in stocks will vary. That means if
you sell your shares during a market downturn,
you might lose money. But if you can ride out the
market's ups and downs, you may have a gain.
$10,000 OVER LIFE OF FUND
VIP II ASSET MANAGER - SC 50 S&P/40 LBAGG/10 LB 3MO
S&P 500 LB AGGREGATE BOND
00467 F0001
SP001 LB001
1989/09/30 10000.00 10000.00
10000.00 10000.00
1989/10/31 10020.02 10057.70
9768.00 10246.00
1989/11/30 10060.06 10178.69
9967.27 10343.34
1989/12/31 10091.09 10277.43
10206.48 10371.26
1990/01/31 9868.42 10029.64
9521.63 10247.85
1990/02/28 9969.64 10094.03
9644.46 10280.64
1990/03/31 10050.61 10193.35
9900.03 10287.84
1990/04/30 9919.03 10098.66
9652.53 10193.19
1990/05/31 10425.10 10529.97
10593.65 10494.91
1990/06/30 10506.07 10595.89
10521.62 10663.87
1990/07/31 10485.83 10662.11
10487.95 10811.04
1990/08/31 10141.70 10332.65
9539.84 10666.17
1990/09/30 9929.15 10241.83
9075.25 10754.70
1990/10/31 9979.76 10314.96
9036.22 10891.28
1990/11/30 10465.59 10624.61
9619.96 11125.44
1990/12/31 10769.23 10802.47
9888.36 11299.00
1991/01/31 11284.56 11009.44
10319.49 11439.11
1991/02/28 11726.26 11285.45
11057.34 11536.34
1991/03/31 11915.56 11410.72
11324.93 11615.94
1991/04/30 12094.35 11486.94
11352.11 11741.39
1991/05/31 12367.79 11669.35
11842.52 11809.49
1991/06/30 12146.94 11518.12
11300.13 11803.59
1991/07/31 12451.92 11749.63
11826.72 11967.66
1991/08/31 12704.33 11959.83
12107.01 12226.16
1991/09/30 12777.94 12018.08
11904.82 12474.35
1991/10/31 12862.08 12126.84
12064.35 12612.82
1991/11/30 12651.74 12046.56
11578.15 12728.85
1991/12/31 13198.62 12642.99
12902.69 13106.90
1992/01/31 13366.89 12504.31
12662.70 12928.65
1992/02/29 13626.47 12583.84
12827.32 13012.68
1992/03/31 13593.27 12492.10
12577.19 12939.81
1992/04/30 13792.52 12648.75
12946.96 13032.98
1992/05/31 13936.42 12772.62
13010.40 13279.30
1992/06/30 13925.35 12778.88
12816.54 13462.56
1992/07/31 14157.81 13127.82
13340.74 13737.19
1992/08/31 14113.53 13077.17
13067.25 13875.94
1992/09/30 14202.09 13224.45
13221.45 14041.06
1992/10/31 14224.22 13162.82
13267.72 13854.32
1992/11/30 14534.17 13329.99
13720.15 13857.09
1992/12/31 14744.49 13487.52
13888.91 14077.42
1993/01/31 15010.15 13656.87
14005.57 14347.70
1993/02/28 15150.92 13847.00
14196.05 14598.79
1993/03/31 15579.83 13989.68
14495.59 14660.10
1993/04/30 15672.57 13904.65
14144.79 14762.72
1993/05/31 15939.19 14053.79
14523.87 14781.91
1993/06/30 16066.70 14203.33
14565.99 15049.47
1993/07/31 16263.77 14221.73
14507.73 15135.25
1993/08/31 16739.04 14571.76
15057.57 15400.11
1993/09/30 16750.64 14557.48
14941.63 15441.70
1993/10/31 17202.73 14707.13
15250.92 15498.83
1993/11/30 17179.54 14594.03
15106.04 15367.09
1993/12/31 17875.07 14696.31
15288.82 15450.07
1994/01/31 18443.09 14985.71
15808.64 15658.65
1994/02/28 17857.33 14699.72
15380.23 15386.19
1994/03/31 17017.99 14320.11
14709.65 15006.15
1994/04/30 17030.15 14356.11
14897.93 14886.10
1994/05/31 17176.13 14452.82
15142.26 14884.61
1994/06/30 16847.69 14310.02
14771.27 14851.86
1994/07/31 17139.63 14613.05
15255.77 15147.42
1994/08/31 17541.06 14864.31
15881.26 15165.59
1994/09/30 17334.15 14646.64
15492.17 14942.66
1994/10/31 17419.36 14787.36
15840.74 14929.21
1994/11/30 17163.73 14571.08
15263.82 14896.37
1994/12/31 16786.37 14708.25
15490.18 14999.15
1995/01/31 16676.82 14984.44
15891.84 15296.13
1995/02/28 16946.97 15360.16
16511.15 15660.18
1995/03/31 17170.77 15595.91
16998.39 15755.71
1995/04/30 17444.31 15876.83
17498.99 15976.29
1995/05/31 17668.12 16403.71
18198.43 16594.57
1995/06/30 17817.32 16624.93
18621.18 16715.71
1995/07/31 18451.43 16836.80
19238.66 16678.94
1995/08/31 18675.24 16948.46
19286.95 16880.75
1995/09/30 18911.47 17314.75
20100.85 17044.50
1995/10/31 18662.80 17413.45
20029.09 17266.07
1995/11/30 19147.71 17842.83
20908.37 17525.07
1995/12/31 19632.62 18102.59
21311.07 17770.42
1996/01/31 20055.36 18411.16
22036.50 17887.70
1996/02/29 20001.35 18343.08
22240.77 17576.46
1996/03/31 20213.99 18364.54
22454.95 17453.42
1996/04/30 20426.62 18441.71
22785.94 17355.68
1996/05/31 20586.10 18636.38
23373.59 17320.97
1996/06/30 20772.16 18775.74
23462.64 17553.07
1996/07/31 20426.62 18478.56
22426.06 17600.46
1996/08/31 20466.49 18636.07
22899.03 17570.54
1996/09/30 21210.73 19195.30
24187.79 17876.27
1996/10/31 21755.62 19593.26
24854.88 18273.12
1996/11/30 22832.10 20338.11
26733.66 18585.59
1996/12/31 22499.85 20111.10
26204.07 18412.75
1997/01/31 23177.64 20773.56
27841.30 18469.83
1997/02/28 23377.96 20883.87
28059.58 18516.00
1997/03/31 22488.67 20370.86
26906.61 18310.47
1997/04/30 23257.38 21111.13
28512.93 18585.13
1997/05/31 24372.77 21845.17
30248.80 18761.69
1997/06/30 25020.90 22446.35
31603.95 18984.95
1997/07/31 26467.89 23593.69
34118.67 19497.55
1997/08/31 25744.40 22863.47
32207.35 19331.82
1997/09/30 26573.40 23635.45
33971.34 19617.93
1997/10/31 26136.29 23387.99
32836.70 19902.39
1997/11/30 26724.13 23982.39
34356.71 19993.94
1997/12/31 27116.03 24295.48
34946.61 20195.88
1998/01/31 27206.46 24565.89
35333.12 20454.39
1998/02/28 28415.66 25452.97
37881.35 20438.02
1998/03/31 29206.89 26151.27
39821.25 20507.51
1998/04/30 29189.69 26348.97
40221.85 20614.15
1998/05/31 29034.89 26234.49
39530.44 20809.99
1998/06/30 29585.31 26867.61
41136.17 20986.52
1998/07/31 29396.10 26759.17
40698.07 21031.06
1998/08/31 26712.78 25011.28
34813.94 21373.37
1998/09/30 27607.22 26059.86
37044.12 21873.76
1998/10/31 28811.28 27074.89
40057.29 21758.35
1998/11/30 29912.12 27965.93
42485.16 21881.58
1998/12/31 31133.38 28816.18
44933.16 21947.38
1999/01/31 31855.81 29512.00
46812.26 22104.15
1999/02/28 31122.25 28856.13
45357.34 21718.21
1999/03/31 31401.13 29509.75
47172.08 21838.71
1999/04/30 32126.20 30129.20
48999.06 21907.94
1999/05/31 31642.82 29679.22
47842.19 21715.15
1999/06/30 32758.31 30476.41
50497.43 21645.80
IMATRL PRASUN SHR__CHT 19990630 19990714 155353 R00000000000120
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund II: Asset Manager
Portfolio - Service Class on September 30, 1989, shortly after the
fund started. By June 30, 1999, the value of the investment would have
grown to $32,758 - a 227.58% increase. With reinvested dividends and
capital gains, if any, a $10,000 investment in the Standard & Poor's
500 Index would have grown to $50,497 over the same period - a 404.97%
increase on the initial investment. If $10,000 was invested in the
Lehman Brothers Aggregate Bond Index, it would have grown to $21,646 -
a 116.46% increase. You can also look at how the Fidelity Asset
Allocation Composite Index did over the same period. The composite
index combines the cumulative total returns of three unmanaged indexes
- - the S&P 500 (404.97%), Lehman Brothers Aggregate Bond Index
(116.46%), and the Lehman Brothers 3 Month Treasury Bill Index
(65.05%) - according to the fund's neutral mix,* assuming monthly
rebalancing. With reinvested dividends and capital gains, if any, a
$10,000 investment in the index would have grown to $30,476 - a
204.76% increase.
* 50% STOCKS, 40% BONDS AND 10% SHORT-TERM INSTRUMENTS EFFECTIVE
JANUARY 1, 1997; 40%, 40% AND 20%, RESPECTIVELY, BETWEEN JUNE 1, 1992
AND DECEMBER 31, 1996; 30%, 40% AND 30%, RESPECTIVELY, PRIOR TO JUNE
1, 1992.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE 30, 1999
% OF FUND'S INVESTMENTS
Wal-Mart Stores, Inc. 1.9
Lucent Technologies, Inc. 1.6
General Electric Co. 1.5
Microsoft Corp. 1.5
Ameritech Corp. 1.4
TOP FIVE BOND ISSUERS AS OF JUNE 30, 1999
(WITH MATURITIES MORE THAN % OF FUND'S INVESTMENTS
ONE YEAR)
Fannie Mae 8.3
U.S. Treasury Obligations 3.7
Government National Mortgage 1.7
Association
Ford Motor Credit Co. 0.5
Federal Home Loan Bank 0.4
ASSET ALLOCATION AS OF JUNE
30, 1999*
Stock class 57.5%
Bond class 36.6%
Short-term/ Money Market
class 5.9%
* FOREIGN INVESTMENTS 4.5%
Row: 1, Col: 1, Value: 54.9
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 37.3
Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 7.8
ASSET ALLOCATION IN THE PIE CHART REFLECTS THE CATEGORIZATION OF
ASSETS AS DEFINED IN THE FUND'S PROSPECTUS. FINANCIAL STATEMENT
CATEGORIZATIONS CONFORM TO ACCOUNTING STANDARDS AND WILL DIFFER FROM
THE PIE CHART.
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
(photograph of Richard Habermann)
An interview with Richard Habermann, Portfolio Manager of Asset
Manager Portfolio
Q. HOW DID THE FUND PERFORM COMPARED TO ITS BENCHMARK, DICK?
A. For the six months that ended June 30, 1999, the fund lagged the
5.76% return of the Fidelity Asset Allocation Composite Index. For the
12 months that ended June 30, 1999, the fund again trailed the 13.43%
return of the index.
Q. HOW DID YOU POSITION THE FUND FROM AN ASSET ALLOCATION STANDPOINT
DURING THE PERIOD? WHAT FACTORS CAUSED IT TO UNDERPERFORM ITS
BENCHMARK?
A. As I've said in the past, the two primary components to the fund's
performance engine are asset allocation and security selection. In
terms of asset allocation, I gradually increased the fund's exposure
to equities during the second half of the period as that segment of
the market continued to broaden and perform well. In fact, at the end
of the period, the fund's equity subportfolio - which is managed by
Steve Snider - accounted for around 58% of total investments,
exceeding the 50% level in the composite index. While this
overweighting helped, several individual stock positions - namely in
the health care and finance sectors - performed poorly and brought
performance down. As for the bond portion of the fund, I sought
increased exposure in higher-yielding bonds as several factors made
that an attractive area. I kept the fund underweighted relative to its
composite index in both investment-grade bonds and short-term
securities, as investors generally tended to favor more aggressive
investments during the period.
Q. CAN YOU GO INTO MORE DETAIL ON THE PERFORMANCE OF THE STOCK
SUBPORTFOLIO DURING THE PERIOD?
A. It was almost a tale of two periods: the first three months of
1999, in which we continued to see a select group of large-cap stocks
perform exceptionally well; and the second three months, in which we
finally began to see a broadening of the equity market. The early
narrowness proved somewhat restrictive to the fund, while the later
broadening played to our stock research strengths. Many of the best
individual contributors came from the technology and retail sectors.
Hewlett-Packard, for example, benefited from solid growth in its
European and Asian businesses, while retailer Best Buy - which
specializes in high-end audio and video equipment - reaped the
benefits of increased consumer attraction to digital products. Two
main laggards during the period were health-care stock Guidant and
software company Oracle. Guidant, which manufactures cardiac systems,
was hurt by a recall in its product line as well as stronger
competition. Oracle, on the other hand, fell victim to a slowdown in
overall sales. The fund no longer owned Oracle at the end of the
period.
Q. CAN YOU PROVIDE SOME MORE SPECIFICS ON THE BOND PORTION OF THE
FUND?
A. The fund's high-yield bond investments - managed by Fred Hoff -
performed extremely well during the period. Despite rising interest
rates, several of the fund's high-yielding investments - including
those in the telecommunications, retail and health care areas -
performed nicely as spreads tightened relative to U.S. Treasuries. In
addition, investor perceptions of default risk, a key performance
instigator within this group, were kept in check.The fund's positions
in Nextel Communications performed well, as Nextel continued to add
wireless subscribers at a rapid rate during the period. The company
also received an equity infusion from Microsoft. The fund's
investment-grade bond exposure - managed by Charlie Morrison - had a
relatively neutral effect on performance over the past six months. At
the beginning of the period, risk-conscious investors favored more
conservative investments such as Treasuries. After the Federal Reserve
Board cut interest rates three times in the fall, however, investor
confidence resurfaced and the fund's positions in spread sectors such
as mortgage-backed and corporate bonds regained their footing.
Q. WHAT WAS YOUR STRATEGY WITH RESPECT TO THE FUND'S SHORT-TERM/MONEY
MARKET INVESTMENTS?
A. The fund's short-term/money market investments - managed by John
Todd - performed relatively well thanks to an effective mixture of
both long- and short-term maturities. We bought longer-term securities
- - mainly six months to one year - to capitalize on attractive yield
spreads within the short-term universe. On the other hand, the overall
flight to quality we witnessed in late 1998 created a premium on
liquidity, and shorter-term securities became attractive. By buying
long, we locked in some of those favorable spreads and, by buying
short, we were able to take advantage of the liquidity premium. While
the Fed did ease rates during the period, the market had already
largely discounted these moves and the overall effect was mostly flat.
Q. WHAT'S YOUR OUTLOOK FOR THE REMAINDER OF 1999?
A. Through the last couple months of the period, the dominance of
large-cap stocks was interrupted by strong showings from both small-
and medium-cap stocks. This type of broad participation - if it can be
sustained - should be beneficial to the fund. However, if world
economies can continue to improve, this would inevitably heighten
concerns over inflation and higher interest rates. In terms of
portfolio positioning, these issues will become increasingly important
in determining the asset mix for the rest of the year.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET OR OTHER CONDITIONS. FOR MORE INFORMATION, SEE PAGE 3.
(checkmark)FUND FACTS
GOAL: high total return with reduced risk over
the long term by allocating assets among stocks,
bonds and short-term instruments anywhere in the
world
START DATE: September 6, 1989
SIZE: as of June 30, 1999, more than $4.9
billion
MANAGER: Richard Habermann, since 1996;
joined Fidelity in 1968
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO
INVESTMENTS JUNE 30, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 53.5%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 2.3%
AEROSPACE & DEFENSE - 2.1%
AlliedSignal, Inc. 503,700 $ 31,733,100
Cordant Technologies, Inc. 142,800 6,452,775
Northrop Grumman Corp. 197,400 13,090,088
United Technologies Corp. 786,406 56,375,480
107,651,443
DEFENSE ELECTRONICS - 0.2%
Litton Industries, Inc. (a) 108,100 7,756,175
TOTAL AEROSPACE & DEFENSE 115,407,618
BASIC INDUSTRIES - 1.3%
CHEMICALS & PLASTICS - 0.8%
Dow Chemical Co. 143,100 18,155,813
E.I. du Pont de Nemours and 112,700 7,698,819
Co.
Engelhard Corp. 125,900 2,848,488
FMC Corp. (a) 146,400 10,000,950
Solutia, Inc. 126,300 2,691,769
41,395,839
PAPER & FOREST PRODUCTS - 0.5%
Georgia-Pacific Corp. 173,400 8,214,825
Louisiana-Pacific Corp. 285,000 6,768,750
Weyerhaeuser Co. 130,100 8,944,375
23,927,950
TOTAL BASIC INDUSTRIES 65,323,789
CONSTRUCTION & REAL ESTATE -
0.4%
BUILDING MATERIALS - 0.1%
Fortune Brands, Inc. 160,000 6,620,000
CONSTRUCTION - 0.3%
Centex Corp. 151,400 5,686,963
D.R. Horton, Inc. 189,224 3,145,849
Kaufman & Broad Home Corp. 260,500 6,479,938
15,312,750
TOTAL CONSTRUCTION & REAL 21,932,750
ESTATE
DURABLES - 1.6%
AUTOS, TIRES, & ACCESSORIES -
1.1%
Delphi Automotive Systems 361,200 6,704,775
Corp.
Ford Motor Co. 873,800 49,315,088
56,019,863
CONSUMER ELECTRONICS - 0.3%
Maytag Corp. 225,000 15,679,688
HOME FURNISHINGS - 0.2%
Ethan Allen Interiors, Inc. 142,350 5,373,713
Furniture Brands 153,400 4,276,025
International, Inc. (a)
9,649,738
SHARES VALUE (NOTE 1)
TEXTILES & APPAREL - 0.0%
Arena Brands Holdings Corp. 8,445 $ 211,125
Class B (a)
TOTAL DURABLES 81,560,414
ENERGY - 2.9%
OIL & GAS - 2.9%
Apache Corp. 151,900 5,924,100
Atlantic Richfield Co. 368,900 30,826,206
Chevron Corp. 134,500 12,802,719
Coastal Corp. (The) 377,800 15,112,000
Exxon Corp. 630,100 48,596,463
Mobil Corp. 338,500 33,511,500
146,772,988
FINANCE - 9.5%
BANKS - 3.4%
Bank of America Corp. 411,900 30,197,419
BankBoston Corp. 361,200 18,466,350
Chase Manhattan Corp. 765,100 66,276,788
Comerica, Inc. 71,400 4,243,838
Firstar Corp. 210,000 5,880,000
National City Corp. 161,412 10,572,486
SunTrust Banks, Inc. 236,500 16,421,969
Wells Fargo & Co. 433,600 18,536,400
170,595,250
CREDIT & OTHER FINANCE - 1.6%
American Express Co. 130,100 16,929,263
Citigroup, Inc. 715,800 34,000,500
Equitable Companies (The), 202,000 13,534,000
Inc.
Fleet Financial Group, Inc. 196,500 8,719,688
Providian Financial Corp. 85,950 8,036,325
81,219,776
FEDERAL SPONSORED CREDIT - 1.8%
Fannie Mae 911,490 62,323,129
Freddie Mac 496,100 28,773,800
91,096,929
INSURANCE - 1.5%
Allmerica Financial Corp. 87,300 5,308,931
American International Group, 190,545 22,305,674
Inc.
Conseco, Inc. 728,900 22,185,894
Financial Security Assurance 37,300 1,939,600
Holdings Ltd.
Lincoln National Corp. 147,600 7,721,325
Marsh & McLennan Companies, 173,600 13,106,800
Inc.
72,568,224
SECURITIES INDUSTRY - 1.2%
Kansas City Southern 173,500 11,071,469
Industries, Inc.
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - CONTINUED
SECURITIES INDUSTRY - CONTINUED
Lehman Brothers Holdings, 499,500 $ 31,093,875
Inc.
Morgan Stanley, Dean Witter & 173,400 17,773,500
Co.
59,938,844
TOTAL FINANCE 475,419,023
HEALTH - 4.9%
DRUGS & PHARMACEUTICALS - 2.7%
Amgen, Inc. (a) 310,100 18,877,338
Bristol-Myers Squibb Co. 954,500 67,232,594
Schering-Plough Corp. 956,700 50,705,100
136,815,032
MEDICAL EQUIPMENT & SUPPLIES
- - 1.9%
Abbott Laboratories 260,400 11,848,200
Boston Scientific Corp. (a) 260,300 11,436,931
Guidant Corp. 294,500 15,148,344
Johnson & Johnson 564,100 55,281,800
93,715,275
MEDICAL FACILITIES MANAGEMENT
- - 0.3%
Lincare Holdings, Inc. (a) 200,000 5,000,000
PacifiCare Health Systems, 169,200 12,171,825
Inc. Class A (a)
17,171,825
TOTAL HEALTH 247,702,132
INDUSTRIAL MACHINERY &
EQUIPMENT - 3.2%
ELECTRICAL EQUIPMENT - 1.7%
General Electric Co. 682,700 77,145,100
General Instrument Corp. (a) 188,900 8,028,250
85,173,350
INDUSTRIAL MACHINERY &
EQUIPMENT - 1.5%
Coltec Industries, Inc. (a) 96,700 2,097,181
Ingersoll-Rand Co. 463,200 29,934,300
Tyco International Ltd. 473,600 44,873,600
76,905,081
TOTAL INDUSTRIAL MACHINERY & 162,078,431
EQUIPMENT
MEDIA & LEISURE - 1.8%
BROADCASTING - 0.5%
NTL, Inc. warrants 12/31/08 3,742 187,100
(a)
Time Warner, Inc. 325,150 23,898,525
24,085,625
ENTERTAINMENT - 0.3%
Alliance Gaming Corp. (a)(h) 865 2,595
Mandalay Resort Group (a) 260,200 5,496,725
Viacom, Inc. Class B 260,200 11,448,800
(non-vtg.) (a)
16,948,120
SHARES VALUE (NOTE 1)
PUBLISHING - 0.9%
Gannet, Inc. 324,500 $ 23,161,188
Knight-Ridder, Inc. 128,700 7,070,456
New York Times Co. (The) 219,200 8,069,300
Class A
Tribune Co. 65,000 5,663,125
World Color Press, Inc. (a) 68,100 1,872,750
45,836,819
RESTAURANTS - 0.1%
Brinker International, Inc. 93,800 2,550,188
(a)
TOTAL MEDIA & LEISURE 89,420,752
NONDURABLES - 2.8%
BEVERAGES - 0.6%
Anheuser-Busch Companies, 248,800 17,649,250
Inc.
Canandaigua Wine, Inc. Class 51,600 2,705,775
A (a)
Coors (Adolph) Co. Class B 106,800 5,286,600
PepsiCo, Inc. 159,400 6,166,788
31,808,413
FOODS - 1.0%
Heinz (H.J.) Co. 596,200 29,884,525
Quaker Oats Co. 284,000 18,850,500
48,735,025
HOUSEHOLD PRODUCTS - 0.7%
Avon Products, Inc. 131,300 7,287,150
Clorox Co. 115,000 12,283,438
Premark International, Inc. 34,500 1,293,750
Procter & Gamble Co. 170,200 15,190,350
36,054,688
TOBACCO - 0.5%
Philip Morris Companies, Inc. 578,100 23,232,394
TOTAL NONDURABLES 139,830,520
RETAIL & WHOLESALE - 5.6%
APPAREL STORES - 0.8%
Gap, Inc. 258,525 13,023,197
TJX Companies, Inc. 747,700 24,907,756
United Stationers, Inc. (a) 88,100 1,938,200
39,869,153
GENERAL MERCHANDISE STORES -
2.4%
Dayton Hudson Corp. 147,500 9,587,500
Federated Department Stores, 311,300 16,479,444
Inc. (a)
Wal-Mart Stores, Inc. 1,934,600 93,344,450
119,411,394
GROCERY STORES - 0.4%
Safeway, Inc. (a) 458,000 22,671,000
RETAIL & WHOLESALE,
MISCELLANEOUS - 2.0%
Best Buy Co., Inc. (a) 496,600 33,520,500
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
RETAIL & WHOLESALE - CONTINUED
RETAIL & WHOLESALE,
MISCELLANEOUS - CONTINUED
Home Depot, Inc. 722,700 $ 46,568,981
Lowe's Companies, Inc. 358,600 20,328,138
100,417,619
TOTAL RETAIL & WHOLESALE 282,369,166
SERVICES - 0.2%
PRINTING - 0.2%
Valassis Communications, Inc. 224,400 8,218,650
(a)
TECHNOLOGY - 11.2%
COMMUNICATIONS EQUIPMENT - 2.3%
Cisco Systems, Inc. (a) 537,800 34,654,488
Globalstar Telecommunications 1,410 77,550
Ltd. warrants 2/15/04 (a)(e)
Lucent Technologies, Inc. 1,174,000 79,171,625
113,903,663
COMPUTER SERVICES & SOFTWARE
- - 4.5%
Adobe Systems, Inc. 195,200 16,036,900
BMC Software, Inc. 510,400 27,561,600
Computer Associates 208,300 11,456,500
International, Inc.
Electronics for Imaging, Inc. 86,700 4,454,213
(a)
First Data Corp. 303,800 14,867,213
International Business 473,600 61,212,800
Machines Corp.
Microsoft Corp. (a) 830,000 74,855,625
NCR Corp. (a) 16,600 810,288
Unisys Corp. (a) 397,400 15,473,763
226,728,902
COMPUTERS & OFFICE EQUIPMENT
- - 2.3%
Adaptec, Inc. (a) 433,900 15,322,094
Comverse Technology, Inc. (a) 156,200 11,793,100
Hewlett-Packard Co. 503,100 50,561,550
Lexmark International Group, 593,200 39,188,275
Inc. Class A (a)
116,865,019
ELECTRONIC INSTRUMENTS - 0.6%
Applied Materials, Inc. (a) 433,900 32,054,363
ELECTRONICS - 1.5%
Intel Corp. 800,000 47,600,000
Motorola, Inc. 270,800 25,658,300
73,258,300
TOTAL TECHNOLOGY 562,810,247
TRANSPORTATION - 0.8%
AIR TRANSPORTATION - 0.8%
Comair Holdings, Inc. 292,650 6,090,778
Southwest Airlines Co. 1,134,150 35,300,419
41,391,197
SHARES VALUE (NOTE 1)
UTILITIES - 5.0%
CELLULAR - 0.0%
McCaw International Ltd. 8,150 $ 20,375
warrants 4/15/07 (a)(e)
ELECTRIC UTILITY - 1.3%
DTE Energy Co. 210,000 8,400,000
Edison International 270,500 7,235,875
Energy East Corp. 664,800 17,284,800
GPU, Inc. 212,300 8,956,406
Public Service Enterprise 170,100 6,952,838
Group, Inc.
Reliant Energy, Inc. 377,800 10,436,725
Unicom Corp. 130,100 5,016,981
64,283,625
TELEPHONE SERVICES - 3.7%
Ameritech Corp. 923,400 67,869,900
AT&T Corp. 924,600 51,604,238
BellSouth Corp. 887,300 41,592,188
Pathnet, Inc. warrants 4,970 49,700
4/15/08 (a)(e)
SBC Communications, Inc. 435,000 25,230,000
186,346,026
TOTAL UTILITIES 250,650,026
TOTAL COMMON STOCKS 2,690,887,703
(Cost $1,971,659,329)
NONCONVERTIBLE PREFERRED
STOCKS - 1.4%
CONSTRUCTION & REAL ESTATE -
0.1%
REAL ESTATE INVESTMENT TRUSTS
- - 0.1%
California Federal Preferred 231,349 6,015,074
Capital Corp. $2.2812
Walden Residential 19,700 426,013
Properties, Inc. $2.30
6,441,087
FINANCE - 0.1%
INSURANCE - 0.1%
American Annuity Group 1,490 1,479,153
Capital Trust II 8.875%
SIG Capital Trust I 9.5% (a) 2,174 1,710,816
3,189,969
HEALTH - 0.0%
MEDICAL FACILITIES MANAGEMENT
- - 0.0%
Fresenius Medical Care 1,053 996,796
Capital Trust II 7.875%
MEDIA & LEISURE - 0.5%
BROADCASTING - 0.4%
Adelphia Communications Corp. 15,763 1,800,923
$13.00
Capstar Communications, Inc. 15,238 1,767,608
$12.625 pay-in-kind
CSC Holdings, Inc. 11.125% 95,578 10,465,791
pay-in-kind
NONCONVERTIBLE PREFERRED
STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Granite Broadcasting Corp. 2,485 $ 2,435,300
12.75% pay-in-kind
Sinclair Capital 11.625% 28,380 2,958,615
19,428,237
PUBLISHING - 0.1%
PRIMEDIA, Inc.:
$9.20 30,214 2,817,456
Series D, $10.00 31,050 3,050,663
5,868,119
TOTAL MEDIA & LEISURE 25,296,356
RETAIL & WHOLESALE - 0.0%
GROCERY STORES - 0.0%
Supermarkets General Holdings 18,200 691,600
Corp. $3.52 pay-in-kind
UTILITIES - 0.7%
CELLULAR - 0.3%
Nextel Communications, Inc.:
11.125% pay-in-kind 14,312 14,383,560
Series D, 13% pay-in-kind 268 282,740
14,666,300
TELEPHONE SERVICES - 0.4%
Hyperion Telecommunication, 4,655 4,142,950
Inc. 12.875% pay-in-kind
Intermedia Communications, 4,475 4,396,688
Inc. 13.5% pay-in-kind
IXC Communications, Inc. 1,771 1,700,160
12.5% pay-in-kind
NEXTLINK Communications, Inc. 155,113 7,833,207
14% pay-in-kind
WinStar Communications, Inc. 2,621 2,109,905
14.25%
20,182,910
TOTAL UTILITIES 34,849,210
TOTAL NONCONVERTIBLE 71,465,018
PREFERRED STOCKS
(Cost $71,169,614)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS - 18.9%
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT VALUE (NOTE 1)
CONVERTIBLE BONDS - 0.2%
HEALTH - 0.1%
MEDICAL FACILITIES MANAGEMENT
- - 0.1%
Tenet Healthcare Corp. 6% B1 $ 5,810,000 $ 4,807,775
12/1/05
Total Renal Care Holdings, B1 2,690,000 2,178,900
Inc. 7% 5/15/09 (e)
6,986,675
MEDIA & LEISURE - 0.0%
RESTAURANTS - 0.0%
CKE Restaurants, Inc. 4.25% B1 230,000 172,500
3/15/04
NONDURABLES - 0.1%
FOODS - 0.1%
Chiquita Brands B3 2,330,000 2,201,850
International, Inc. 7%
3/28/01
RETAIL & WHOLESALE - 0.0%
RETAIL & WHOLESALE,
MISCELLANEOUS - 0.0%
Sports Authority, Inc. (The) B3 770,000 539,000
5.25% 9/15/01
TOTAL CONVERTIBLE BONDS 9,900,025
NONCONVERTIBLE BONDS - 18.7%
AEROSPACE & DEFENSE - 0.2%
DEFENSE ELECTRONICS - 0.1%
Raytheon Co. 5.95% 3/15/01 Baa1 4,500,000 4,485,105
SHIP BUILDING & REPAIR - 0.1%
Newport News Shipbuilding, B1 3,830,000 3,964,050
Inc. 9.25% 12/1/06
TOTAL AEROSPACE & DEFENSE 8,449,155
BASIC INDUSTRIES - 0.5%
CHEMICALS & PLASTICS - 0.3%
Acetex Corp. yankee 9.75% B1 300,000 276,000
10/1/03
Huntsman Corp. 9.5% 7/1/07 (e) B2 2,100,000 2,000,250
Huntsman ICI Chemicals LLC B2 3,010,000 3,036,338
10.125% 7/1/09 (e)
Lyondell Chemical Co.:
9.625% 5/1/07 (e) Ba3 800,000 818,000
9.875% 5/1/07 (e) Ba3 4,540,000 4,619,450
10.875% 5/1/09 (e) B2 810,000 836,325
Rohm & Haas Co. 7.4% 7/15/09 A3 1,400,000 1,399,664
(e)
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
BASIC INDUSTRIES - CONTINUED
CHEMICALS & PLASTICS -
CONTINUED
Sterling Chemicals, Inc.:
11.25% 4/1/07 Caa3 $ 480,000 $ 369,600
11.75% 8/15/06 Caa3 2,060,000 1,565,600
14,921,227
METALS & MINING - 0.0%
Kaiser Aluminum & Chemical B3 990,000 1,007,325
Corp. 12.75% 2/1/03
Metals USA, Inc. 8.625% B2 1,810,000 1,678,775
2/15/08
2,686,100
PACKAGING & CONTAINERS - 0.1%
Corning, Inc. 6.85% 3/1/29 A3 2,350,000 2,197,250
Gaylord Container Corp. Caa1 1,110,000 1,046,175
9.375% 6/15/07
3,243,425
PAPER & FOREST PRODUCTS - 0.1%
Potlatch Corp. 6.25% 3/15/02 Baa1 3,320,000 3,289,257
TOTAL BASIC INDUSTRIES 24,140,009
CONSTRUCTION & REAL ESTATE -
0.5%
BUILDING MATERIALS - 0.0%
American Standard Companies, Ba3 1,810,000 1,728,550
Inc. 7.375% 4/15/05
CONSTRUCTION - 0.1%
U.S. Home Corp. 8.875% 2/15/09 B1 2,970,000 2,806,650
ENGINEERING - 0.0%
Anteon Corp. 12% 5/15/09 (e) B3 1,330,000 1,310,050
REAL ESTATE - 0.1%
LNR Property Corp.:
9.375% 3/15/08 B1 2,680,000 2,532,600
10.5% 1/15/09 B1 2,630,000 2,630,000
5,162,600
REAL ESTATE INVESTMENT TRUSTS
- - 0.3%
CenterPoint Properties Trust:
6.75% 4/1/05 Baa2 1,590,000 1,518,418
7.125% 3/15/04 Baa2 4,200,000 4,061,652
Equity Office Properties
Trust:
6.375% 2/15/03 Baa1 3,600,000 3,518,496
6.75% 2/15/08 Baa1 1,590,000 1,503,504
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT VALUE (NOTE 1)
Weeks Realty LP 6.875% 3/15/05 Baa2 $ 2,950,000 $ 2,862,739
13,464,809
TOTAL CONSTRUCTION & REAL 24,472,659
ESTATE
DURABLES - 0.4%
AUTOS, TIRES, & ACCESSORIES -
0.2%
Blue Bird Body Co. 10.75% B2 1,765,000 1,870,900
11/15/06
Delphi Automotive Systems Baa2 3,130,000 3,050,310
Corp. 6.125% 5/1/04
Federal-Mogul Corp. 7.875% Ba2 5,220,000 4,828,500
7/1/10
Oshkosh Truck Co. 8.75% 3/1/08 B2 1,500,000 1,492,500
11,242,210
CONSUMER DURABLES - 0.0%
Corning Consumer Products Co. B3 2,040,000 1,769,700
9.625% 5/1/08
TEXTILES & APPAREL - 0.2%
Jones Apparel Group, Inc. Baa2 5,070,000 5,063,663
7.875% 6/15/06 (e)
Worldtex, Inc. 9.625% 12/15/07 B1 2,760,000 2,415,000
7,478,663
TOTAL DURABLES 20,490,573
ENERGY - 0.9%
COAL - 0.1%
P&L Coal Holdings Corp. B2 2,370,000 2,358,150
9.625% 5/15/08
ENERGY SERVICES - 0.2%
Baker Hughes, Inc. 5.8% A2 3,980,000 3,875,326
2/15/03 (e)
R&B Falcon Corp. 6.5% 4/15/03 Ba3 1,785,000 1,526,175
RBF Finance Co.:
11% 3/15/06 (e) Ba3 4,590,000 4,727,700
11.375% 3/15/09 (e) Ba3 1,470,000 1,521,450
11,650,651
OIL & GAS - 0.6%
Apache Corp. 7.625% 7/1/19 Baa1 1,980,000 1,967,625
Chesapeake Energy Corp. B3 2,140,000 2,000,900
9.625% 5/1/05
Comstock Resources, Inc. B2 720,000 736,200
11.25% 5/1/07 (e)
Conoco, Inc.:
5.9% 4/15/04 A3 1,650,000 1,599,840
6.95% 4/15/29 A3 2,710,000 2,528,403
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Gulf Canada Resources Ltd. Ba1 $ 1,450,000 $ 1,424,625
8.375% 11/15/05
Occidental Petroleum Corp.:
6.39% 11/9/00 Baa3 1,000,000 998,570
10.94% 5/17/00 Baa3 2,700,000 2,804,409
Ocean Energy, Inc. 8.875% B1 2,010,000 1,979,850
7/15/07
Oryx Energy Co.:
8% 10/15/03 Baa1 3,055,000 3,131,100
8.125% 10/15/05 Baa1 4,935,000 5,161,517
8.375% 7/15/04 Baa1 2,335,000 2,448,294
Petro-Canada 7% 11/15/28 A3 5,920,000 5,449,774
32,231,107
TOTAL ENERGY 46,239,908
FINANCE - 5.2%
BANKS - 1.7%
Bank One Corp. 5.625% 2/17/04 Aa3 4,770,000 4,562,600
BankAmerica Corp.:
5.04% 10/15/99 (g) 3,000,000 3,001,108
6.625% 6/15/04 Aa2 2,295,000 2,293,566
BankBoston Corp. 6.625% 2/1/04 A3 1,700,000 1,695,937
BankBoston NA 6.375% 3/25/08 A2 1,400,000 1,324,904
BanPonce Corp. 6.665% 3/5/01 A3 4,450,000 4,450,000
Barclays Bank PLC yankee A1 9,250,000 9,162,865
5.95% 7/15/01
Capital One Bank:
6.26% 5/7/01 Baa2 3,160,000 3,142,525
6.375% 2/15/03 Baa2 3,570,000 3,485,213
6.48% 6/28/02 Baa2 1,740,000 1,727,837
6.65% 3/15/04 Baa3 2,320,000 2,264,320
Capital One Financial Corp. Baa3 5,040,000 4,822,171
7.125% 8/1/08
Den Danske Bank AS 6.375% A1 8,340,000 8,028,293
6/15/08 (e)(g)
Fleet/Norstar Financial A3 2,400,000 2,560,728
Group, Inc. 9.9% 6/15/01
Huntington National Bank A1 2,560,000 2,543,539
5.875% 1/15/01
Korea Development Bank:
6.625% 11/21/03 Baa3 4,165,000 3,999,566
7.125% 9/17/01 Baa3 1,330,000 1,317,684
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT VALUE (NOTE 1)
National Westminster Bancorp Aa3 $ 2,725,000 $ 3,008,482
9.375% 11/15/03
NB Capital Trust IV 8.25% Aa2 2,650,000 2,726,930
4/15/27
Popular, Inc. 6.2% 4/30/01 A3 1,840,000 1,822,925
Provident Bank 6.125% 12/15/00 A3 1,740,000 1,732,588
Providian National Bank 6.7% Baa3 3,060,000 2,989,345
3/15/03
Sumitomo Bank International Baa1 2,980,000 3,030,660
Finance NV 8.5% 6/15/09
Summit Bancorp 8.625% 12/10/02 BBB+ 1,730,000 1,836,914
Union Planters National Bank A3 3,500,000 3,523,975
6.81% 8/20/01
Wachovia Corp. 6.7% 6/21/04 Aa3 3,970,000 3,997,790
85,052,465
CREDIT & OTHER FINANCE - 2.5%
Ahmanson Capital Trust I A3 4,250,000 4,319,445
8.36% 12/1/26 (e)
AMRESCO, Inc.:
9.875% 3/15/05 Caa3 2,730,000 2,088,450
10% 3/15/04 Caa3 1,980,000 1,524,600
AT&T Capital Corp.:
6.25% 5/15/01 Baa3 5,200,000 5,140,980
7.5% 11/15/00 Baa3 5,450,000 5,490,548
BankAmerica Capital II Series Aa2 2,980,000 2,999,489
2, 8% 12/15/26
BanPonce Trust I 8.327% 2/1/27 A3 3,925,000 3,776,164
ContiFinancial Corp.:
8.125% 4/1/08 Caa1 820,000 623,200
8.375% 8/15/03 Caa1 510,000 367,200
Countrywide Funding Corp. A3 3,950,000 3,930,606
6.45% 2/27/03
ERP Operating LP:
6.55% 11/15/01 A3 1,500,000 1,494,090
7.1% 6/23/04 A3 3,980,000 3,982,826
Farmers Insurance Exchange A2 2,740,000 2,515,238
Capital 7.05% 7/15/28 (e)
Finova Capital Corp.:
6.11% 2/18/03 Baa1 4,320,000 4,251,053
6.12% 5/28/02 Baa1 2,000,000 1,968,440
6.44% 11/6/01 Baa1 5,500,000 5,477,230
First Security Capital I A3 1,690,000 1,722,938
8.41% 12/15/26
Ford Motor Credit Co.:
global 7% 9/25/01 A1 12,500,000 12,671,000
6.5% 2/28/02 A1 7,980,000 7,999,471
GS Escrow Corp.:
7% 8/1/03 Ba1 2,140,000 2,069,680
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
FINANCE - CONTINUED
CREDIT & OTHER FINANCE -
CONTINUED
GS Escrow Corp.: - continued
7.125% 8/1/05 Ba1 $ 7,600,000 $ 7,215,212
Heller Financial, Inc.:
6% 3/19/04 A3 5,050,000 4,888,451
6.25% 3/1/01 A3 4,940,000 4,942,272
KeyCorp Institutional Capital A1 3,600,000 3,555,828
A 7.826% 12/1/26
Macsaver Financial Services,
Inc.:
7.4% 2/15/02 Ba1 2,240,000 1,881,600
7.6% 8/1/07 Ba1 4,190,000 3,446,275
7.875% 8/1/03 Ba1 690,000 588,225
Mellon Capital I 7.72% 12/1/26 A2 2,000,000 1,962,860
Money Store, Inc. 7.3% 12/1/02 A2 2,550,000 2,614,260
PNC Funding Corp. 6.875% A3 2,020,000 2,022,889
3/1/03
Sprint Capital Corp.:
5.7% 11/15/03 Baa1 1,830,000 1,761,064
5.875% 5/1/04 Baa1 3,975,000 3,827,448
6.875% 11/15/28 Baa1 3,985,000 3,640,218
TXU Eastern Funding 6.15% Baa1 2,510,000 2,479,554
5/15/02 (e)
U.S. Bancorp 8.09% 11/15/26 A1 2,980,000 2,933,095
UNICCO Service Co./UNICCO B3 2,390,000 2,282,450
Finance Corp. 9.875% 10/15/07
Yorkshire Power Finance Ltd. Baa2 2,385,000 2,234,268
yankee 6.496% 2/25/08
126,688,617
SAVINGS & LOANS - 0.4%
Chevy Chase Savings Bank FSB B1 1,560,000 1,579,500
9.25% 12/1/08
Great Western Finance Trust A3 3,780,000 3,737,664
II 8.206% 2/1/27
Great Western Financial Corp. A3 2,000,000 2,100,540
8.6% 2/1/02
Home Savings of America FSB A3 2,830,000 2,778,070
6.5% 8/15/04
Long Island Savings Bank FSB:
6.2% 4/2/01 Baa3 3,770,000 3,736,447
7% 6/13/02 Baa3 3,400,000 3,399,354
Sovereign Bancorp, Inc. Ba1 4,300,000 4,282,671
6.625% 3/15/01
21,614,246
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT VALUE (NOTE 1)
SECURITIES INDUSTRY - 0.6%
Amvescap PLC yankee:
6.375% 5/15/03 A3 $ 2,200,000 $ 2,165,636
6.6% 5/15/05 A3 4,410,000 4,291,371
Goldman Sachs Group L.P. A1 12,900,000 12,943,326
5.295% 7/27/00 (g)(h)
Lehman Brothers Holdings 6.2% Baa1 12,000,000 12,031,873
12/23/99
31,432,206
TOTAL FINANCE 264,787,534
HEALTH - 0.2%
DRUGS & PHARMACEUTICALS - 0.0%
Global Health Sciences, Inc. Caa1 270,000 203,175
11% 5/1/08
MEDICAL EQUIPMENT & SUPPLIES
- - 0.0%
Graham-Field Health Products, Caa1 1,570,000 1,075,450
Inc. 9.75% 8/15/07
MEDICAL FACILITIES MANAGEMENT
- - 0.2%
Fountain View, Inc. 11.25% Caa1 2,330,000 1,887,300
4/15/08
Integrated Health Services,
Inc.:
9.25% 1/15/08 B2 1,057,000 739,900
9.5% 9/15/07 B2 880,000 638,000
Tenet Healthcare Corp. 8.625% Ba3 3,700,000 3,607,500
1/15/07
6,872,700
TOTAL HEALTH 8,151,325
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.6%
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.4%
Bucyrus International, Inc. B1 3,430,000 3,129,875
9.75% 9/15/07
Dunlop Standard Aero Holdings B3 2,490,000 2,527,350
PLC 11.875% 5/15/09 (e)
Roller Bearing Holding, Inc. - 3,550,000 1,562,000
0% 6/15/09 (c)(e)
Tokheim Corp. 11.375% 8/1/08 B3 1,930,000 1,843,150
(e)
Tyco International Group SA
yankee:
6.875% 1/15/29 Baa1 3,410,000 3,120,491
6.125% 6/15/01 Baa1 6,860,000 6,823,711
6.375% 6/15/05 Baa1 2,665,000 2,606,716
21,613,293
POLLUTION CONTROL - 0.2%
Envirosource, Inc. Series B B3 650,000 399,750
9.75% 6/15/03
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
INDUSTRIAL MACHINERY &
EQUIPMENT - CONTINUED
POLLUTION CONTROL - CONTINUED
IT Group, Inc. (The) 11.25% B3 $ 1,150,000 $ 1,098,250
4/1/09 (e)
WMX Technologies, Inc.:
6.25% 10/15/00 Baa2 2,100,000 2,102,793
7.1% 8/1/26 Baa2 4,610,000 4,700,310
8.25% 11/15/99 Baa2 1,320,000 1,332,302
9,633,405
TOTAL INDUSTRIAL MACHINERY & 31,246,698
EQUIPMENT
MEDIA & LEISURE - 4.4%
BROADCASTING - 2.9%
ACME Television LLC/ACME B3 1,740,000 1,426,800
Financial Corp. 0% 9/30/04
(c)
Adelphia Communications Corp.:
7.75% 1/15/09 B1 6,960,000 6,455,400
9.875% 3/1/07 B1 4,630,000 4,832,563
Ascent Entertainment Group, B3 1,990,000 1,432,800
Inc. 0% 12/15/04 (c)
Avalon Cable Michigan, B3 1,680,000 1,709,400
Inc./Avalon Cable New
England/Avalon Cable Finance
9.375% 12/1/08 (e)
Benedek Communications Corp. B3 630,000 522,900
0% 5/15/06 (c)
Bresnan Communications Group B2 1,780,000 1,161,450
LLC/Bresnan Capital Corp. 0%
2/1/09 (c)(e)
Century Communications Corp.:
8.75% 10/1/07 Ba3 1,170,000 1,158,300
Series B, 0% 1/15/08 Ba3 5,430,000 2,389,200
Chancellor Media Corp. 9% B1 3,705,000 3,751,313
10/1/08
Charter Communications
Holdings LLC/Charter
Communications Holdings
Capital Corp.:
0% 4/1/11 (c)(e) B2 3,100,000 1,906,500
8.625% 4/1/09 (e) B2 2,780,000 2,658,375
Classic Cable, Inc. 9.875% B3 800,000 828,000
8/1/08 (e)
Clear Channel Communications,
Inc.:
6.875% 6/15/18 Baa3 3,450,000 3,109,485
7.25% 10/15/27 Baa3 4,550,000 4,175,399
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT VALUE (NOTE 1)
Comcast UK Cable Partners B2 $ 3,360,000 $ 2,990,400
Ltd. 0% 11/15/07 (c)
Continental Cablevision, Inc.:
8.3% 5/15/06 Baa3 9,225,000 9,849,994
8.625% 8/15/03 Baa3 2,790,000 2,974,921
9% 9/1/08 Baa3 1,690,000 1,898,816
CSC Holdings, Inc.:
9.25% 11/1/05 B1 1,370,000 1,421,375
9.875% 5/15/06 B1 1,600,000 1,708,000
10.5% 5/15/16 B1 1,850,000 2,127,500
Diamond Cable Communications
PLC:
0% 2/15/07 (c) B3 4,600,000 3,634,000
yankee 0% 12/15/05 (c) B3 1,480,000 1,298,700
EchoStar DBS Corp. 9.375% B2 3,560,000 3,604,500
2/1/09 (e)
Falcon Holding Group B2 11,520,000 8,049,600
LP/Falcon Funding Corp. 0%
4/15/10 (c)
FrontierVision Holdings Caa1 3,520,000 3,044,800
LP/FrontierVision Holdings
Capital Corp. 0% 9/15/07 (c)
FrontierVision Operating B3 1,910,000 2,096,225
Partners LP/ FrontierVision
Capital Corp. 11% 10/15/06
Golden Sky DBS, Inc. 0% Caa1 3,690,000 2,140,200
3/1/07 (c)(e)
Granite Broadcasting Corp. B3 2,955,000 2,932,838
9.375% 12/1/05
Hearst-Argyle Television, Baa3 3,260,000 3,064,693
Inc. 7.5% 11/15/27
Intermedia Capital Partners B2 1,362,000 1,505,010
IV LP / Intermedia Partners
IV Capital Corp. 11.25%
8/1/06
International Cabletel, Inc. B3 1,850,000 1,614,125
0% 2/1/06 (c)
Knology Holding, Inc. 0% - 4,910,000 2,810,975
10/15/07 (c)
Lenfest Communications, Inc. B1 430,000 437,525
8.25% 2/15/08
Nielsen Media Research, Inc. Baa2 2,395,000 2,421,561
7.6% 6/15/09
NTL Communications Corp. B3 3,730,000 4,084,350
11.5% 10/1/08
NTL, Inc.:
0% 4/1/08 (c) B3 3,625,000 2,428,750
10% 2/15/07 B3 2,310,000 2,367,750
Olympus Communications B1 1,160,000 1,270,200
LP/Olympus Capital Corp.
10.625% 11/15/06
Pegasus Communications Corp. B3 1,345,000 1,318,100
9.625% 10/15/05
Rogers Cablesystems Ltd. B2 1,800,000 2,079,000
yankee 11% 12/1/15
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
TCI Communications, Inc.:
8.75% 8/1/15 A2 $ 4,160,000 $ 4,712,989
9.25% 4/15/02 A2 3,000,000 3,227,940
9.8% 2/1/12 A2 4,550,000 5,559,281
TeleWest Communications PLC:
0% 4/15/09 (c)(e) B1 860,000 576,200
11.25% 11/1/08 B1 710,000 802,300
Telewest PLC:
yankee 9.625% 10/1/06 B1 680,000 693,600
0% 10/1/07 (c) B1 8,930,000 7,992,350
Time Warner, Inc.:
8.18% 8/15/07 Baa3 1,255,000 1,325,506
9.125% 1/15/13 Baa3 5,355,000 6,062,181
United International B3 7,180,000 4,774,700
Holdings, Inc. 0% 2/15/08 (c)
148,418,840
ENTERTAINMENT - 0.5%
Bally Total Fitness Holding B3 5,640,000 5,470,800
Corp. 9.875% 10/15/07
Cinemark USA, Inc. 8.5% 8/1/08 B2 3,255,000 3,027,150
Paramount Communications, Baa3 1,785,000 1,824,145
Inc. 7.5% 1/15/02
Regal Cinemas, Inc. 8.875% B3 3,880,000 3,530,800
12/15/10
United Artists Theatre Co. Caa1 1,080,000 831,600
9.75% 4/15/08
Viacom, Inc.:
6.75% 1/15/03 Baa3 4,430,000 4,403,066
7.75% 6/1/05 Baa3 6,277,000 6,429,154
25,516,715
LODGING & GAMING - 0.4%
Circus Circus Enterprises, Ba2 1,040,000 915,200
Inc. 7.625% 7/15/13
Coast Hotels & Casinos, Inc. B3 1,110,000 1,068,375
9.5% 4/1/09 (e)
Courtyard by Marriott II B- 1,900,000 1,938,000
LP/Courtyard II Finance Co.
10.75% 2/1/08
HMH Properties, Inc.:
7.875% 8/1/05 Ba2 780,000 737,100
7.875% 8/1/08 Ba2 8,250,000 7,590,000
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT VALUE (NOTE 1)
Host Marriott LP 8.375% Ba2 $ 3,740,000 $ 3,599,750
2/15/06 (e)
Signature Resorts, Inc. 9.75% B3 1,890,000 1,701,000
10/1/07
17,549,425
PUBLISHING - 0.3%
Big Flower Press Holdings, B2 690,000 634,800
Inc. 8.625% 12/1/08
Garden State Newspapers, Inc. B1 4,670,000 4,366,450
Series B, 8.75% 10/1/09
News America Holdings, Inc.:
7.7% 10/30/25 Baa3 4,300,000 4,165,152
8.625% 2/1/03 Baa3 2,180,000 2,310,865
Time Warner Entertainment Co.
LP:
7.25% 9/1/08 Baa2 1,455,000 1,454,855
8.375% 3/15/23 Baa2 2,500,000 2,707,925
15,640,047
RESTAURANTS - 0.3%
CKE Restaurants, Inc. 9.125% B1 1,210,000 1,137,400
5/1/09
Domino's, Inc. 10.375% 1/15/09 B3 5,190,000 5,241,900
Host Marriott Travel Plazas, Ba3 5,040,000 5,153,400
Inc. 9.5% 5/15/05
NE Restaurant, Inc. 10.75% B3 2,760,000 2,525,400
7/15/08
14,058,100
TOTAL MEDIA & LEISURE 221,183,127
NONDURABLES - 0.7%
BEVERAGES - 0.3%
Seagram Co. Ltd.:
8.35% 1/15/22 Baa3 390,000 405,600
yankee 6.875% 9/1/23 Baa3 620,000 548,700
Seagram JE & Sons, Inc.:
5.79% 4/15/01 Baa3 4,595,000 4,549,647
6.4% 12/15/03 Baa3 5,840,000 5,714,440
6.625% 12/15/05 Baa3 2,940,000 2,851,800
7.6% 12/15/28 Baa3 2,940,000 2,840,922
16,911,109
FOODS - 0.1%
ConAgra, Inc. 7.125% 10/1/26 Baa1 3,200,000 3,170,784
HOUSEHOLD PRODUCTS - 0.1%
Revlon Consumer Products
Corp.:
8.625% 2/1/08 B3 2,490,000 2,328,150
9% 11/1/06 B2 2,160,000 2,138,400
4,466,550
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
NONDURABLES - CONTINUED
TOBACCO - 0.2%
Philip Morris Companies, Inc.:
6.95% 6/1/06 A2 $ 4,420,000 $ 4,466,410
7% 7/15/05 A2 3,710,000 3,712,041
7.25% 9/15/01 A2 1,450,000 1,474,404
RJR Nabisco, Inc. 7.375% Baa2 3,500,000 3,456,495
5/15/03 (e)
13,109,350
TOTAL NONDURABLES 37,657,793
RETAIL & WHOLESALE - 0.7%
DRUG STORES - 0.1%
Rite Aid Corp. 6% 12/15/05 (e) Baa1 5,500,000 5,047,350
GENERAL MERCHANDISE STORES -
0.3%
Dayton Hudson Corp. 7.5% A3 3,500,000 3,587,605
7/15/06
Federated Department Stores,
Inc.:
6.79% 7/15/27 Baa2 3,000,000 2,964,120
8.5% 6/15/03 Baa2 2,580,000 2,731,420
K mart Corp. 12.5% 3/1/05 Ba1 2,510,000 2,993,175
12,276,320
GROCERY STORES - 0.3%
Kroger Co. 6% 7/1/00 Baa3 4,480,000 4,470,413
Pathmark Stores, Inc. 9.625% Caa1 9,150,000 9,287,250
5/1/03
Pueblo Xtra International,
Inc.:
Series C, 9.5% 8/1/03 B3 820,000 762,600
9.5% 8/1/03 B3 1,820,000 1,692,600
16,212,863
TOTAL RETAIL & WHOLESALE 33,536,533
SERVICES - 0.1%
PRINTING - 0.0%
Sullivan Graphics, Inc. Caa1 1,430,000 1,487,200
12.75% 8/1/05
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT VALUE (NOTE 1)
SERVICES - 0.1%
La Petite Academy, Inc./La B3 $ 2,880,000 $ 2,743,200
Petite Academy Holding Co.
10% 5/15/08
Medaphis Corp. 9.5% 2/15/05 Caa1 1,770,000 1,309,800
4,053,000
TOTAL SERVICES 5,540,200
TECHNOLOGY - 0.4%
COMPUTER SERVICES & SOFTWARE
- - 0.1%
Federal Data Corp. 10.125% B3 3,720,000 3,524,700
8/1/05
COMPUTERS & OFFICE EQUIPMENT
- - 0.2%
Comdisco, Inc. 6.375% 11/30/01 Baa1 8,300,000 8,278,005
ELECTRONICS - 0.1%
Fairchild Semiconductor Corp.:
10.125% 3/15/07 B3 1,415,000 1,376,088
10.375% 10/1/07 (e) B3 2,190,000 2,157,150
11.74% 3/15/08 pay-in-kind (h) - 3,345,803 3,063,952
6,597,190
TOTAL TECHNOLOGY 18,399,895
TRANSPORTATION - 0.9%
AIR TRANSPORTATION - 0.4%
Atlas Air, Inc. 9.25% 4/15/08 B3 4,810,000 4,593,550
Continental Airlines, Inc.
Pass Through Trust
Certificates:
7.434% 3/15/06 Baa1 1,110,000 1,114,329
7.73% 9/15/12 Baa1 725,000 728,263
Delta Air Lines, Inc. 9.875% Baa3 1,500,000 1,542,600
5/15/00
Kitty Hawk, Inc. 9.95% B1 3,125,000 3,101,563
11/15/04
Qantas Airways Ltd. 7.75% Baa1 4,370,000 4,359,075
6/15/09 (e)
US Airways Group, Inc. Ba2 2,480,000 2,542,000
10.375% 3/1/13
17,981,380
RAILROADS - 0.5%
Burlington Northern Santa Fe
Corp.:
6.125% 3/15/09 Baa2 6,450,000 6,033,653
7.29% 6/1/36 Baa2 3,000,000 3,016,500
Canadian National Railway Co. Baa2 3,390,000 3,148,700
6.9% 7/15/28
CSX Corp.:
6.25% 10/15/08 Baa2 2,385,000 2,229,570
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
TRANSPORTATION - CONTINUED
RAILROADS - CONTINUED
CSX Corp.: - continued
6.46% 6/22/05 Baa2 $ 5,120,000 $ 4,951,296
Norfolk Southern Corp. 7.05% Baa1 6,610,000 6,716,950
5/1/37
Wisconsin Central Baa2 1,810,000 1,720,423
Transportation Corp. 6.625%
4/15/08
27,817,092
SHIPPING - 0.0%
Holt Group, Inc. 9.75% Caa1 840,000 571,200
1/15/06 (e)
TOTAL TRANSPORTATION 46,369,672
UTILITIES - 3.0%
CELLULAR - 0.7%
Cable & Wireless Baa1 7,995,000 7,881,871
Communications PLC 6.375%
3/6/03
McCaw International Ltd. 0% Caa1 8,350,000 5,051,750
4/15/07 (c)
Millicom International Caa1 3,290,000 2,401,700
Cellular SA 0% 6/1/06 (c)
Nextel Communications, Inc.:
0% 10/31/07 (c) B2 11,930,000 8,380,825
12% 11/1/08 B2 1,370,000 1,541,250
Nextel International, Inc. 0% Caa1 3,420,000 1,727,100
4/15/08 (c)
Rogers Cantel, Inc. 8.8% B2 1,200,000 1,200,000
10/1/07
Rogers Communications, Inc. B2 4,630,000 4,676,300
8.875% 7/15/07
Spectrasite Holdings, Inc. 0% - 1,150,000 649,750
4/15/09 (c)(e)
Tritel Pcs, Inc. 0% 5/15/09 B3 2,400,000 1,308,000
(c)(e)
34,818,546
ELECTRIC UTILITY - 0.4%
Avon Energy Partners Holdings:
6.46% 3/4/08 (e) Baa2 3,960,000 3,782,315
6.73% 12/11/02 (e) Baa2 4,910,000 4,895,123
Hydro-Quebec yankee 7.4% A2 2,620,000 2,858,944
3/28/25 (d)
Israel Electric Corp. Ltd.:
7.75% 12/15/27 (e) A3 4,670,000 4,162,138
yankee 7.875% 12/15/26 (e) A3 1,960,000 1,813,333
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT VALUE (NOTE 1)
Texas Utilities Co. 6.375% Baa3 $ 1,930,000 $ 1,849,596
1/1/08
19,361,449
GAS - 0.1%
CMS Panhandle Holding Co. Baa3 2,550,000 2,480,385
6.125% 3/15/04 (e)
TELEPHONE SERVICES - 1.8%
AT&T Corp. 6.5% 3/15/29 A1 3,800,000 3,430,412
Covad Communications Group,
Inc.:
0% 3/15/08 (c) B3 2,370,000 1,297,575
12.5% 2/15/09 B3 1,370,000 1,318,625
GST Network Funding, Inc. 0% - 3,310,000 1,886,700
5/1/08 (c)(e)
GST Equipment Funding, Inc. - 1,685,000 1,798,738
13.25% 5/1/07
GST Telecommunications, Inc. - 930,000 1,009,050
12.75% 11/15/07
GTE Corp. 5.135% 6/12/00 (g) - 7,650,000 7,645,183
ICG Services, Inc. 0% 5/1/08 - 5,205,000 2,810,700
(c)
Intermedia Communications, B2 1,880,000 1,748,400
Inc. 8.6% 6/1/08
IXC Communications, Inc. 9% B3 4,320,000 4,104,000
4/15/08
KMC Telecom Holdings, Inc. Caa2 3,240,000 3,248,100
13.5% 5/15/09 (e)
Level 3 Communications, Inc. B3 3,490,000 2,172,525
0% 12/1/08 (c)
Logix Communications - 4,730,000 4,186,050
Enterprises, Inc. 12.25%
6/15/08
MCI WorldCom, Inc.:
6.4% 8/15/05 A3 4,560,000 4,461,048
8.875% 1/15/06 A3 3,139,000 3,341,842
McLeodUSA, Inc.:
0% 3/1/07 (c) B2 1,845,000 1,416,038
8.125% 2/15/09 (e) B2 3,430,000 3,198,475
9.25% 7/15/07 B2 1,330,000 1,320,025
9.5% 11/1/08 B2 3,140,000 3,147,850
NEXTLINK Communications, Inc.:
9.625% 10/1/07 B3 4,870,000 4,723,900
10.75% 11/15/08 B3 1,350,000 1,387,125
Ono Finance PLC 13% 5/1/09 - 1,740,000 1,792,200
unit (e)
Pathnet, Inc. 12.25% 4/15/08 - 4,970,000 2,733,500
Rhythms NetConnections, Inc. B3 6,310,000 5,899,850
12.75% 4/15/09 (e)
Telecomunicaciones de P R, Baa2 3,460,000 3,340,042
Inc. 6.65% 5/15/06 (e)
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
Teligent, Inc.:
0% 3/1/08 (c) Caa1 $ 8,295,000 $ 4,894,050
11.5% 12/1/07 Caa1 4,250,000 4,186,250
WinStar Communications, Inc.:
0% 10/15/05 (c) Caa1 880,000 770,000
0% 10/15/05 (c) Caa1 1,200,000 1,656,000
0% 3/15/08 (c) CCC 8,150,000 7,131,250
15% 3/1/07 CCC 420,000 483,000
92,538,503
TOTAL UTILITIES 149,198,883
TOTAL NONCONVERTIBLE BONDS 939,863,964
TOTAL CORPORATE BONDS 949,763,989
(Cost $972,363,586)
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 4.7%
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 0.8%
Fannie Mae:
6.25% 5/15/29 Aaa 9,755,000 9,268,811
6.5% 4/29/09 Aaa 5,950,000 5,753,829
Farm Credit Systems Financial Aaa 2,000,000 2,242,180
Assistance Corp. 8.8% 6/10/05
Federal Home Loan Bank:
5.195% 9/11/01 Aaa 9,500,000 9,391,605
7.31% 6/16/04 Aaa 2,500,000 2,612,100
7.59% 3/10/05 Aaa 3,850,000 4,074,994
Freddie Mac 6.75% 8/1/05 Aaa 2,500,000 2,551,550
U.S. Department of Housing Aaa 2,825,000 2,950,317
and Urban Development
government guaranteed
participation certificates
Series 1996-A, 7.63% 8/1/14
TOTAL U.S. GOVERNMENT AGENCY 38,845,386
OBLIGATIONS
U.S. TREASURY OBLIGATIONS -
3.9%
U.S. Treasury Bills, yield at - 12,550,000 12,474,744
date of purchase 4.25% to
4.78% 7/1/99 to 9/30/99 (j)
U.S. Treasury Bonds:
6.875% 8/15/25 Aaa 18,935,000 20,526,676
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT VALUE (NOTE 1)
7.625% 2/15/25 Aaa $ 17,790,000 $ 20,983,839
8.875% 8/15/17 Aaa 5,937,000 7,584,518
11.75% 2/15/10 (callable) Aaa 15,045,000 19,057,802
12% 8/15/13 Aaa 3,740,000 5,251,184
13.875% 5/15/11 (callable) Aaa 21,150,000 30,280,878
U.S. Treasury Notes:
6.25% 10/31/01 Aaa 820,000 831,660
6.625% 6/30/01 Aaa 9,600,000 9,793,536
7% 7/15/06 Aaa 66,979,000 70,945,496
7.25% 8/15/04 Aaa 1,404,000 1,493,505
TOTAL U.S. TREASURY 199,223,838
OBLIGATIONS
TOTAL U.S. GOVERNMENT AND 238,069,224
GOVERNMENT AGENCY OBLIGATIONS
(Cost $247,069,943)
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES - 9.8%
FANNIE MAE - 8.0%
6% 1/1/11 to 1/1/29 Aaa 62,763,583 59,856,450
6.5% 7/1/14 to 7/1/29 Aaa 158,904,928 153,727,836
7% 8/1/13 to 7/1/29 Aaa 183,900,768 181,968,397
7.5% 7/1/16 to 4/1/29 Aaa 6,468,585 6,537,671
402,090,354
FREDDIE MAC - 0.1%
7% 4/1/01 to 8/1/01 Aaa 1,076,431 1,081,908
7.5% 7/1/29 Aaa 4,597,500 4,663,589
8.5% 7/1/21 to 6/1/23 Aaa 55,328 57,935
5,803,432
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 1.7%
6% 12/15/08 to 6/15/09 Aaa 2,843,883 2,774,932
6.5% 6/15/08 to 5/15/29 Aaa 43,384,645 42,153,500
7% 7/15/28 Aaa 19,559,683 19,296,800
7.5% 9/15/22 to 7/15/29 Aaa 18,150,068 18,363,502
7.5% 7/15/29 (l) Aaa 3,000,000 3,040,313
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT VALUE (NOTE 1)
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - CONTINUED
8% 5/15/25 Aaa $ 107,592 $ 110,684
8.5% 12/15/16 Aaa 26,383 27,784
85,767,515
TOTAL U.S. GOVERNMENT AGENCY 493,661,301
- - MORTGAGE SECURITIES
(Cost $501,428,478)
ASSET-BACKED SECURITIES - 1.4%
Airplanes Pass Through Trust Ba2 3,160,000 2,986,200
10.875% 3/15/19
ARG Funding Corp. 5.88% Aaa 5,830,000 5,758,036
5/20/03 (e)
BankAmerica Manufacturing Aaa 3,730,000 3,684,541
Housing Contract 6.2% 4/10/09
Capita Equipment Receivables Baa2 2,950,000 2,877,312
Trust 6.48% 10/15/06
Chevy Chase Auto Receivables Aaa 1,754,273 1,743,925
Trust 5.91% 12/15/04
CIT Marine Trust 5.8% 4/15/10 Aaa 5,920,000 5,706,880
CPS Auto Grantor Trust:
6.09% 11/15/03 Aaa 2,430,134 2,422,540
6.55% 8/15/02 Aaa 1,280,388 1,284,389
CPS Auto Receivables Trust 6% Aaa 3,938,434 3,917,511
8/15/03
CSXT Trade Receivables Master Aaa 4,600,000 4,522,804
Trust 6% 7/25/04
Ford Credit Auto Owner Trust:
6.2% 12/15/02 Baa3 2,680,000 2,639,773
6.4% 5/15/02 A1 3,120,000 3,129,204
6.4% 12/15/02 Baa3 1,480,000 1,453,360
Green Tree Financial Corp.:
6.68% 1/15/29 AAA 6,680,000 6,711,262
6.8% 6/15/27 Aaa 1,340,754 1,344,937
Key Auto Finance Trust:
5.83% 1/15/07 Aaa 4,790,000 4,736,113
6.3% 10/15/03 A2 2,132,253 2,128,921
Olympic Automobile
Receivables Trust:
6.4% 9/15/01 Aaa 1,424,708 1,437,620
6.7% 3/15/02 Aaa 1,343,566 1,353,979
Petroleum Enhanced Trust Baa2 2,535,754 2,519,906
Receivables Offering
Petroleum Trust 6.125%
2/5/03 (e)(g)
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT VALUE (NOTE 1)
UAF Auto Grantor Trust 6.1% Aaa $ 3,503,158 $ 3,493,305
1/15/03 (e)
WFS Financial Owner Trust Aaa 4,430,000 4,452,150
6.55% 10/20/04
TOTAL ASSET-BACKED SECURITIES 70,304,668
(Cost $71,104,937)
COLLATERALIZED MORTGAGE
OBLIGATIONS - 0.0%
PRIVATE SPONSOR - 0.0%
Credit-Based Asset Servicing Ba3 1,140,906 516,260
and Securitization LLC
Series 1997 2 Class 2-B,
7.1917% 12/29/25 (e)(f)(g)
(Cost $606,463)
COMMERCIAL MORTGAGE
SECURITIES - 2.2%
Bankers Trust REMIC Trust Ba2 1,000,000 930,938
1988-1 Series 1998-S1A Class
G, 7.6558% 11/28/02 (e)(g)
Berkeley Federal Bank & Trust - 1,900,000 1,316,938
FSB Series 1994 Class 1-B
7.5777% 8/1/24 (e)(g)
BKB Commercial Mortgage Trust BBB 1,800,000 1,803,938
Series 1997-C1 Class D,
7.83% 2/25/43 (e)(g)
CBM Funding Corp. sequential
pay Series 1996-1:
Class A-3PI, 7.08% 11/1/07 AA 3,000,000 3,000,000
Class B, 7.48% 2/1/08 A 2,320,000 2,324,350
CS First Boston Mortgage
Securities Corp.:
Series 1997 C2 Class D, 7.27% Baa2 5,730,000 5,391,572
1/17/35
Series 1998 C1 Class D, 7.17% BBB 5,050,000 4,660,203
1/17/12
Series 1998 FLI Class E, Baa2 5,490,000 5,380,200
5.7675% 1/10/13 (e)(g)
Deutsche Mortgage & Asset Baa2 4,260,000 3,988,092
Receiving Corp. Series
1998-C1 Class D, 7.231%
7/15/12
DLJ Mortgage Acceptance Corp. - 600,000 581,250
Series 1993-MF12 Class B-2,
10.1% 9/18/03 (e)
COMMERCIAL MORTGAGE
SECURITIES - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT VALUE (NOTE 1)
Equitable Life Assurance
Society of the United States
(The):
sequential pay Series 174 Aaa $ 7,680,000 $ 7,863,782
Class A1, 7.24% 5/15/06 (e)
Series 174:
Class B1, 7.33% 5/15/06 (e) Aa2 3,500,000 3,565,170
Class C1, 7.52% 5/15/06 (e) A2 2,300,000 2,346,966
Class D1, 7.77% 5/15/06 (e) Baa2 2,200,000 2,228,094
First Chicago/Lennar Trust I
Series 1997-CHL1:
Class D, 8.0547% 4/13/39 (g) - 1,100,000 894,438
Class E, 8.0547% 4/1/39 (g) - 1,600,000 1,168,000
First Union-Lehman Brothers Aa2 8,640,000 8,425,350
Commercial MortgageTrust
sequential pay Series
1997-C2 Class B, 6.79%
11/18/29
FMAC Loan Receivables Trust:
Series 1997-A Class E, - 500,000 363,594
8.1088% 4/15/19 (e)(g)
Series 1997-B Class E, - 750,000 510,938
7.8912% 9/15/19 (e)(g)
GAFCO Franchisee Loan Trust - 1,300,000 1,081,031
Series 1998-1 Class D, 14%
6/1/16 (e)(g)
General Motors Acceptance Ba3 750,000 608,475
Corp. Commercial Mortgage
Securities, Inc. Series
1996-C1 Class F, 7.86%
10/15/28 (e)
GS Mortgage Securities Corp.
II:
Series 1997-GL Class A2-B, Aaa 5,080,000 5,124,552
6.86% 7/13/30
Series 1998-GLII:
Class D, 6.9697% 4/13/31 Baa2 1,470,000 1,347,755
(e)(g)
Class E, 6.9697% 4/13/31 Baa3 4,930,000 4,287,966
(e)(g)
LTC Commercial Mortgage Pass AAA 3,127,548 2,989,154
Through Certificates Series
1998-1 Class A, 6.029%
5/30/30 (e)
Morgan Stanley Capital I,
Inc.:
Series 1996-MBL1 Class E, - 1,750,484 1,711,098
8.1666% 5/25/21 (e)(g)
Series 1998 CF1:
Class D, 7.35% 1/15/12 Baa2 4,189,000 3,882,679
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT VALUE (NOTE 1)
Class E, 7.35% 12/15/12 Baa3 $ 1,445,000 $ 1,220,122
Series 1998-HF1 Class D, 7.1% BBB 5,790,000 5,600,921
2/15/30 (g)
Nomura Asset Securities Corp. Baa2 4,260,000 3,952,648
Series 1998-D6 Class A-4,
7.5965% 3/17/28 (g)
Nomura Depositor Trust - 800,000 704,750
floater Series 1998-ST1A
Class B-2, 9.2375% 1/15/03
(e)(g)
Penn Mutual Life Insurance
Co. (The)/Penn Insurance &
Annuity Co. Series 1996-PML:
Class K, 7.9% 11/15/26 (e) - 1,473,000 934,795
Class L, 7.9% 11/15/26 (e) - 1,133,000 583,268
Resolution Trust Corp. Series Ba3 358,419 290,319
1991 M2 Class A3, 7.2498%
9/25/20 (g)
Structured Asset Securities
Corp.:
sequential pay Series 1996 AAA 225,373 224,105
Class A-2A, 7.75% 2/25/28
Series 1995-C1 Class E, BB 1,200,000 1,106,625
7.375% 9/25/24 (e)
Series 1996 CFL:
Class E, 7.75% 2/25/28 BB+ 2,390,000 2,308,591
Class G, 7.75% 2/25/28 (e) B 1,000,000 885,000
Thirteen Affiliates of
General Growth Properties,
Inc.:
sequential pay Series 1 Class Aaa 4,200,000 4,116,420
A2, 6.602% 12/15/10 (e)
Series D-2, 6.992% 12/15/10 Baa2 4,120,000 3,971,186
(e)
Series E-2, 7.224% 12/15/10 Baa3 2,450,000 2,311,673
(e)
Wells Fargo Capital Markets Aaa 2,676,825 2,682,714
Apartment Financing Trust
Series APT Class 1, 6.56%
12/29/05 (e)
TOTAL COMMERCIAL MORTGAGE 108,669,660
SECURITIES
(Cost $112,683,878)
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS (K) - 0.2%
Israeli State euro 6.375% A3 3,350,000 3,332,647
12/19/01
Korean Republic yankee:
8.75% 4/15/03 Baa3 2,300,000 2,405,524
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS (K) - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT VALUE (NOTE 1)
Korean Republic yankee: -
continued
8.875% 4/15/08 Baa3 $ 1,868,000 $ 1,973,449
Newfoundland Province yankee Baa1 2,000,000 2,582,000
11.625% 10/15/07
TOTAL FOREIGN GOVERNMENT AND 10,293,620
GOVERNMENT AGENCY OBLIGATIONS
(Cost $10,341,348)
SUPRANATIONAL OBLIGATIONS -
0.1%
Inter American Development Aaa 4,750,000 4,710,528
Bank yankee 6.29% 7/16/27
(Cost $4,720,123)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
BANK NOTES - 0.2%
Key Bank NA 4.96% 8/20/99 (g) 10,500,000 10,497,731
(Cost $10,485,878)
CERTIFICATES OF DEPOSIT - 2.2%
Barclays Bank PLC euro 5.03% 12,500,000 12,492,833
9/7/99
Bayerische Hypo-und 13,000,000 12,891,485
Vereinsbank AG yankee 4.92%
5/15/00 (g)
Canadian Imperial Bank of 11,000,000 10,993,101
Commerce yankee 4.88%
4/13/00 (g)
Commerzbank AG yankee 5.58% 11,600,000 11,574,799
6/12/00
Credit Agricole Indosuez 12,600,000 12,592,647
yankee 5% 9/1/99
Deutsche Bank AG yankee 5.1% 12,000,000 11,949,773
2/11/00
Fleet National Bank 5.1388% 12,000,000 12,012,823
5/5/00 (g)
Halifax PLC euro 4.98% 8/31/99 12,600,000 12,593,225
Societe Generale, France 12,500,000 12,450,364
yankee 5.16% 2/22/00
TOTAL CERTIFICATES OF DEPOSIT 109,551,050
(Cost $109,769,350)
COMMERCIAL PAPER - 2.0%
Abbey National North America 11,000,000 10,747,024
yankee 5.07% 12/6/99
BankAmerica Corp. 4.82% 8,000,000 7,946,106
8/17/99
CIESCO L.P. 5.82% 7/1/99 13,000,000 12,997,898
Citibank Credit Card Master 6,000,000 5,963,783
Trust I (Dakota Certificate
Program) 4.83% 8/11/99
PRINCIPAL AMOUNT VALUE (NOTE 1)
General Electric Capital $ 11,600,000 $ 11,500,626
Corp. 4.94% 8/30/99
Generale de Banque SA yankee 10,000,000 9,909,700
4.92% 9/2/99
Morgan (JP) & Co., Inc. 5.07% 13,000,000 12,699,136
12/7/99
New Center Asset Trust 4.95% 12,000,000 11,921,186
8/16/99
Three Rivers Funding Corp. 13,000,000 12,962,733
5.07% 7/21/99
Triple A One Funding Corp. 5,000,000 4,982,361
5.05% 7/26/99
TOTAL COMMERCIAL PAPER 101,630,553
(Cost $101,654,627)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CASH EQUIVALENTS - 3.4%
MATURITY AMOUNT
Investments in repurchase $ 256,036 256,000
agreements (U.S. Treasury
obligations), in a joint
trading account at 5.1%,
dated 6/30/99 due 7/1/99
SHARES
Taxable Central Cash Fund (b) 173,562,124 173,562,124
TOTAL CASH EQUIVALENTS 173,818,124
(Cost $173,818,124)
TOTAL INVESTMENT IN $ 5,033,839,429
SECURITIES - 100%
(Cost $4,358,875,678)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FUTURES CONTRACTS
EXPIRATION DATE UNDERLYING FACE AMOUNT UNREALIZED GAIN/(LOSS)
PURCHASED
296 S&P 500 Stock Index Sept. 1999 $ 102,245,800 $ 3,593,297
Contracts
</TABLE>
THE FACE VALUE OF FUTURES PURCHASED AS A PERCENTAGE OF INVESTMENT IN
SECURITIES - 2.0%
LEGEND
(a) Non-income producing
(b) At period end, the seven-day yield on the Taxable Central Cash
Fund was 4.84%. The yield refers to the income earned by investing in
the fund over the seven-day period, expressed as an annual percentage.
(c) Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date. The rate shown
is the rate at period end.
(d) Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date. The rate shown is the rate at
period end.
(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
$198,445,877 or 4.0% of net assets.
(f) Partial interest payment received on the last interest payment
date.
(g) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(h) Restricted securities - Investment in securities not registered
under the Securities Act of 1933.
Additional information on each holding is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST
Alliance Gaming Corp. 7/28/98 $ 259,200
Fairchild Semiconductor Corp. 4/3/97 - 3/15/99 $ 2,779,500
11.74% 3/15/08 pay-in-kind
Goldman Sachs Group L.P. 1/25/99 $ 12,900,000
5.295% 7/27/00
(i) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(j) Security or a portion of the security was pledged to cover margin
requirements for futures contracts. At the period end, the value of
securities pledged amounted to $6,317,500.
(k) For foreign government obligations not individually rated by S&P
or Moody's, the ratings listed have been assigned by FMR, the fund's
investment advisor, based principally on S&P and Moody's ratings of
the soveign credit of the issuing government.
(l) Security purchased as a delayed delivery or when-issued basis.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $2,384,804,403 and $2,266,764,669, respectively, of which
long-term U.S. government and government agency obligations aggregated
$908,361,381 and $682,769,676, respectively.
The market value of futures contracts opened and closed during the
period amounted to $209,513,471 and $185,948,110, respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company.
The commissions paid to these affiliated firms were $52,700 for the
period.
The fund participated in the bank borrowing program. The average daily
loan balance during the period for which the loan was outstanding
amounted to $11,430,000. The weighted average interest rate was 5.1%.
The composition of long-term debt holdings as a percentage of total
value of investments in securities, is as follows (ratings are
unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 20.4% AAA, AA, A 19.4%
Baa 7.3% BBB 7.3%
Ba 1.5% BB 2.0%
B 5.0% B 4.8%
Caa 1.1% CCC 1.0%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by Moody's or S&P amounted to 0.7%. FMR has
determined that unrated debt securities that are lower quality account
for 0.5% of the total value of investment in securities.
INCOME TAX INFORMATION
At June 30, 1999, the aggregate cost of investment securities for
income tax purposes was $4,359,257,554. Net unrealized appreciation
aggregated $674,581,875, of which $779,081,682 related to appreciated
investment securities and $104,499,807 related to depreciated
investment securities.
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 5,033,839,429
value (including repurchase
agreements of $256,000)
(cost $4,358,875,678) - See
accompanying schedule
Cash 48,114
Receivable for investments 7,966,923
sold
Receivable for fund shares 2,009,322
sold
Dividends receivable 2,128,934
Interest receivable 27,338,824
Receivable for daily 1,850,000
variation on futures
contracts
Other receivables 150,915
TOTAL ASSETS 5,075,332,461
LIABILITIES
Payable for investments $ 89,442,894
purchased Regular delivery
Delayed delivery 3,050,625
Payable for fund shares 2,727,654
redeemed
Accrued management fee 2,150,496
Distribution fees payable 1,156
Other payables and accrued 378,180
expenses
TOTAL LIABILITIES 97,751,005
NET ASSETS $ 4,977,581,456
Net Assets consist of:
Paid in capital $ 4,022,762,237
Undistributed net investment 80,907,466
income
Accumulated undistributed net 195,353,592
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation 678,558,161
(depreciation) on
investments and assets and
liabilities in foreign
currencies
NET ASSETS $ 4,977,581,456
INITIAL CLASS: NET ASSET $17.69
VALUE, offering price and
redemption price per share
($4,962,349,046 (divided by)
280,515,406 shares)
SERVICE CLASS: NET ASSET $17.62
VALUE, offering price and
redemption price per share
($15,232,410 (divided by)
864,650 shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30,
1999 (UNAUDITED)
INVESTMENT INCOME $ 18,547,577
Dividends
Interest 77,416,051
TOTAL INCOME 95,963,628
EXPENSES
Management fee $ 13,106,567
Transfer agent fees 1,637,253
Distribution fees - Service 4,736
Class
Accounting fees and expenses 473,427
Non-interested trustees' 13,646
compensation
Custodian fees and expenses 53,421
Registration fees 19,125
Audit 20,449
Interest 1,619
Miscellaneous 50,162
Total expenses before 15,380,405
reductions
Expense reductions (206,576) 15,173,829
NET INVESTMENT INCOME 80,789,799
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities 200,068,666
Foreign currency transactions (3,601)
Futures contracts 2,027,184 202,092,249
Change in net unrealized
appreciation (depreciation)
on:
Investment securities (30,349,500)
Assets and liabilities in (13)
foreign currencies
Futures contracts 366,380 (29,983,133)
NET GAIN (LOSS) 172,109,116
NET INCREASE (DECREASE) IN $ 252,898,915
NET ASSETS RESULTING FROM
OPERATIONS
OTHER INFORMATION $ 191,937
Expense reductions Directed
brokerage arrangements
Custodian credits 14,639
$ 206,576
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
ASSETS 1999 (UNAUDITED)
Operations Net investment $ 80,789,799 $ 160,471,734
income
Net realized gain (loss) 202,092,249 201,707,185
Change in net unrealized (29,983,133) 287,626,860
appreciation (depreciation)
NET INCREASE (DECREASE) IN 252,898,915 649,805,779
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (161,497,855) (139,636,837)
From net investment income
From net realized gain (204,563,949) (418,910,515)
TOTAL DISTRIBUTIONS (366,061,804) (558,547,352)
Share transactions - net 179,476,167 420,062,178
increase (decrease)
TOTAL INCREASE (DECREASE) 66,313,278 511,320,605
IN NET ASSETS
NET ASSETS
Beginning of period 4,911,268,178 4,399,947,573
End of period (including $ 4,977,581,456 $ 4,911,268,178
undistributed net investment
income of $80,907,466 and
$159,730,084, respectively)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OTHER INFORMATION:
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
1999 (UNAUDITED)
SHARES DOLLARS SHARES DOLLARS
Share transactions Initial 11,272,919 $ 195,602,339 23,406,455 $ 397,953,748
Class Sold
Reinvested 21,655,706 365,548,318 34,542,119 558,546,057
Redeemed (22,552,618) (391,075,196) (32,078,907) (541,870,122)
Net increase (decrease) 10,376,007 $ 170,075,461 25,869,667 $ 414,629,683
Service Class Sold 551,723 $ 9,538,282 330,869 $ 5,609,677
Reinvestment 30,528 513,486 80 1,295
Redeemed (38,114) (651,062) (11,004) (178,477)
Net increase (decrease) 544,137 $ 9,400,706 319,945 $ 5,432,495
Distributions From net $ 161,271,317 $ 139,636,513
investment income Initial
Class
Service Class 226,538 324
Total $ 161,497,855 $ 139,636,837
From net realized gain $ 204,277,001 $ 418,909,543
Initial Class
Service Class 286,948 972
Total $ 204,563,949 $ 418,910,515
$ 366,061,804 $ 558,547,352
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 1996 1995
Net asset value, beginning of $ 18.16 $ 18.01 $ 16.93 $ 15.79 $ 13.79
period
Income from Investment
Operations
Net investment income .29 D .59 D .57 D .63 .30
Net realized and unrealized .60 1.84 2.58 1.55 1.99
gain (loss)
Total from investment .89 2.43 3.15 2.18 2.29
operations
Less Distributions
From net investment income (.60) (.57) (.59) (.57) (.29)
From net realized gain (.76) (1.71) (1.48) (.47) -
Total distributions (1.36) (2.28) (2.07) (1.04) (.29)
Net asset value, end of period $ 17.69 $ 18.16 $ 18.01 $ 16.93 $ 15.79
TOTAL RETURN B, C 5.26% 15.05% 20.65% 14.60% 16.96%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 4,962,349 $ 4,905,468 $ 4,399,937 $ 3,641,194 $ 3,332,844
(000 omitted)
Ratio of expenses to average .64% A .64% .65% .74% .81%
net assets
Ratio of expenses to average .63% A, F .63% F .64% F .73% F .79% F
net assets after expense
reductions
Ratio of net investment 3.34% A 3.46% 3.43% 3.60% 3.54%
income to average net assets
Portfolio turnover 102% A 113% 101% 168% 256%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA 1994
Net asset value, beginning of $ 15.42
period
Income from Investment
Operations
Net investment income .45
Net realized and unrealized (1.33)
gain (loss)
Total from investment (.88)
operations
Less Distributions
From net investment income (.29)
From net realized gain (.46)
Total distributions (.75)
Net asset value, end of period $ 13.79
TOTAL RETURN B, C (6.09)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 3,290,527
(000 omitted)
Ratio of expenses to average .81%
net assets
Ratio of expenses to average .80% F
net assets after expense
reductions
Ratio of net investment 4.07%
income to average net assets
Portfolio turnover 85%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - SERVICE CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 E
Net asset value, beginning of $ 18.10 $ 17.99 $ 17.60
period
Income from Investment
Operations
Net investment income D .27 .57 .10
Net realized and unrealized .61 1.82 .29
gain (loss)
Total from investment .88 2.39 .39
operations
Less Distributions
From net investment income (.60) (.57) -
From net realized gain (.76) (1.71) -
Total distributions (1.36) (2.28) -
Net asset value, end of period $ 17.62 $ 18.10 $ 17.99
TOTAL RETURN B, C 5.22% 14.82% 2.22%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 15,232 $ 5,801 $ 10
(000 omitted)
Ratio of expenses to average .75% A .78% .75% A
net assets
Ratio of expenses to average .74% A, F .77% F .75% A
net assets after expense
reductions
Ratio of net investment 3.23% A 3.49% 3.52% A
income to average net assets
Portfolio turnover 102% A 113% 101%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE
TO YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. INCLUSION
OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN. TOTAL RETURNS FOR PERIODS OF LESS THAN ONE
YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED
BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF SALE
OF SERVICE CLASS SHARES) TO DECEMBER 31, 1997.
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS
WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A
PORTION OF THE CLASS' EXPENSES.
VARIABLE INSURANCE PRODUCTS FUND III: BALANCED PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). If Fidelity had not reimbursed certain fund
expenses, the life of fund total return would have been lower.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 1 YEAR LIFE OF FUND
VIP III: BALANCED - "INITIAL 10.06% 15.23%
CLASS"
Fidelity Balanced Composite 15.21% 21.32%
S&P 500 (registered trademark) 22.76% 30.11%
LB Aggregate Bond 3.15% 8.55%
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show what would have happened if the fund had performed at a constant
rate each year.
You can compare the fund's returns to the performance of the Fidelity
Balanced Composite Index - a hypothetical combination of unmanaged
indices. The composite index combines the total returns of the
Standard & Poor's 500 Index and the Lehman Brothers Aggregate Bond
Index.
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 3, 1995.
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, THE TOTAL RETURNS 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.
(checkmark)UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for example,
has a history of long-term growth and short-term
volatility. In turn, the share price and return of a
fund that invests in stocks will vary. That means if
you sell your shares during a market downturn,
you might lose money. But if you can ride out the
market's ups and downs, you may have a gain.
$10,000 OVER LIFE OF FUND
VIP III BALANCED 60 S&P/40 LB AGG
S&P 500 LB AGGREGATE BOND
00616 F0021
SP001 LB001
1995/01/03 10000.00 10000.00
10000.00 10000.00
1995/01/31 9990.00 10242.08
10261.28 10213.32
1995/02/28 10190.00 10579.07
10661.16 10456.40
1995/03/31 10260.00 10792.19
10975.77 10520.18
1995/04/30 10390.00 11043.33
11299.00 10667.46
1995/05/31 10610.00 11479.12
11750.63 11080.29
1995/06/30 10740.00 11672.64
12023.59 11161.18
1995/07/31 10880.00 11894.60
12422.30 11136.63
1995/08/31 10920.00 11970.09
12453.48 11271.38
1995/09/30 11020.00 12319.61
12979.01 11380.71
1995/10/31 10890.00 12357.29
12932.68 11528.66
1995/11/30 11210.00 12756.92
13500.42 11701.59
1995/12/31 11391.59 12975.78
13760.44 11865.41
1996/01/31 11473.17 13275.05
14228.85 11943.72
1996/02/29 11319.47 13256.49
14360.75 11735.90
1996/03/31 11227.28 13295.97
14499.04 11653.75
1996/04/30 11258.01 13383.78
14712.76 11588.49
1996/05/31 11380.93 13580.17
15092.20 11565.31
1996/06/30 11452.64 13684.00
15149.70 11720.29
1996/07/31 11227.28 13336.05
14480.39 11751.93
1996/08/31 11298.98 13495.73
14785.78 11731.96
1996/09/30 11780.44 14045.39
15617.92 11936.09
1996/10/31 12098.00 14402.53
16048.66 12201.07
1996/11/30 12733.12 15154.26
17261.78 12409.71
1996/12/31 12528.25 14917.76
16919.83 12294.30
1997/01/31 12927.76 15495.50
17976.98 12332.41
1997/02/28 13144.66 15583.88
18117.92 12363.24
1997/03/31 12777.20 15130.49
17373.45 12226.01
1997/04/30 13260.15 15763.24
18410.65 12409.40
1997/05/31 13785.10 16398.94
19531.49 12527.29
1997/06/30 14289.05 16917.81
20406.50 12676.37
1997/07/31 15086.97 17908.21
22030.24 13018.63
1997/08/31 14383.54 17245.39
20796.11 12907.97
1997/09/30 14960.98 17914.20
21935.11 13099.01
1997/10/31 14646.01 17659.10
21202.48 13288.94
1997/11/30 15002.98 18182.06
22183.94 13350.07
1997/12/31 15307.44 18442.83
22564.84 13484.91
1998/01/31 15475.43 18659.64
22814.41 13657.52
1998/02/28 16051.56 19461.11
24459.78 13646.59
1998/03/31 16655.17 20085.54
25712.37 13692.99
1998/04/30 16789.31 20248.55
25971.03 13764.19
1998/05/31 16789.31 20116.65
25524.59 13894.95
1998/06/30 17169.36 20675.20
26561.40 14012.83
1998/07/31 17158.18 20560.63
26278.52 14042.56
1998/08/31 15302.64 18910.90
22479.17 14271.13
1998/09/30 16174.52 19814.85
23919.19 14605.24
1998/10/31 16766.95 20740.08
25864.77 14528.18
1998/11/30 17392.92 21541.30
27432.44 14610.46
1998/12/31 18007.71 22311.94
29013.09 14654.40
1999/01/31 18208.91 22935.54
30226.42 14759.07
1999/02/28 17885.34 22347.65
29286.98 14501.38
1999/03/31 18332.47 22933.73
30458.76 14581.84
1999/04/30 18920.81 23495.74
31638.42 14628.06
1999/05/31 18497.20 23080.20
30891.44 14499.33
1999/06/30 18897.27 23819.28
32605.92 14453.03
IMATRL PRASUN SHR__CHT 19990630 19990716 120128 R00000000000057
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund III: Balanced Portfolio
on January 3, 1995, when the fund started. As the chart shows, by June
30, 1999, the value of the investment would have grown to $18,897 - an
88.97% increase on the initial investment. For comparison, look at how
the both the Standard & Poor's 500 Index, a market
capitalization-weighted index of common stocks, and the Lehman
Brothers Aggregate Bond Index, a market value-weighted index of
investment-grade fixed-rate debt issues, including government,
corporate, asset-backed, and mortgage-backed securities, with
maturities of one year or more, did over the same period. With
dividends and capital gains, if any, reinvested, the same $10,000
investment in the Standard & Poor's 500 Index would have grown to
$32,606 - a 226.06% increase. If $10,000 was put in the Lehman
Brothers Aggregate Bond Index, it would have grown to $14,453 - a
44.53% increase. You can also look at how the Fidelity Balanced
Composite Index did over the same period. The composite index combines
the total returns of the Standard & Poor's 500 Index (60%) and the
Lehman Brothers Aggregate Bond Index (40%). With dividends and
interest, if any, reinvested, the same $10,000 would have grown to
$23,819 - a 138.19% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE
30, 1999
% OF FUND'S INVESTMENTS
MCI WorldCom, Inc. 3.1
International Business 2.2
Machines Corp.
Exxon Corp. 1.9
SBC Communications, Inc. 1.7
General Electric Co. 1.7
TOP FIVE MARKET SECTORS AS OF
JUNE 30, 1999
% OF FUND'S INVESTMENTS
FINANCE 14.4
UTILITIES 12.7
ENERGY 8.6
TECHNOLOGY 8.1
HEALTH 6.5
ASSET ALLOCATION AS OF JUNE
30, 1999*
% OF FUND'S INVESTMENTS
Stocks 65.7%
Bonds 27.8%
Short-term Investments 6.5%
* FOREIGN INVESTMENTS 4.1%
Row: 1, Col: 1, Value: 65.7
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 27.8
Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 6.5
VARIABLE INSURANCE PRODUCTS FUND III: BALANCED PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). The initial offering of Service Class shares
took place on November 3, 1997. Performance for Service Class shares
reflects an asset based distribution fee (12b-1 fee), and returns
prior to November 3, 1997 are those of Initial Class and do not
include the effects of Service Class' 12b-1 fee. Had Service Class
shares' 12b-1 fee been reflected, returns prior to November 3, 1997
would have been lower. If Fidelity had not reimbursed certain fund
expenses, the life of fund total returns would have been lower.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 1 YEAR LIFE OF FUND
VIP III: BALANCED - SERVICE 9.95% 15.15%
CLASS
Fidelity Balanced Composite 15.21% 21.32%
S&P 500 22.76% 30.11%
LB Aggregate Bond 3.15% 8.55%
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show what would have happened if the fund had performed at a constant
rate each year.
You can compare the fund's returns to the performance of the Fidelity
Balanced Composite Index - a hypothetical combination of unmanaged
indices. The composite index combines the total returns of the
Standard & Poor's 500 Index and the Lehman Brothers Aggregate Bond
Index.
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 3, 1995.
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, THE TOTAL RETURNS 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.
(checkmark)UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for example,
has a history of long-term growth and short-term
volatility. In turn, the share price and return of a
fund that invests in stocks will vary. That means if
you sell your shares during a market downturn,
you might lose money. But if you can ride out the
market's ups and downs, you may have a gain.
$10,000 OVER LIFE OF FUND
VIP III BALANCED - SC 60 S&P/40 LB AGG
S&P 500 LB AGGREGATE BOND
00469 F0021
SP001 LB001
1995/01/03 10000.00 10000.00
10000.00 10000.00
1995/01/31 9990.00 10242.08
10261.28 10213.32
1995/02/28 10190.00 10579.07
10661.16 10456.40
1995/03/31 10260.00 10792.19
10975.77 10520.18
1995/04/30 10390.00 11043.33
11299.00 10667.46
1995/05/31 10610.00 11479.12
11750.63 11080.29
1995/06/30 10740.00 11672.64
12023.59 11161.18
1995/07/31 10880.00 11894.60
12422.30 11136.63
1995/08/31 10920.00 11970.09
12453.48 11271.38
1995/09/30 11020.00 12319.61
12979.01 11380.71
1995/10/31 10890.00 12357.29
12932.68 11528.66
1995/11/30 11210.00 12756.92
13500.42 11701.59
1995/12/31 11391.59 12975.78
13760.44 11865.41
1996/01/31 11473.17 13275.05
14228.85 11943.72
1996/02/29 11319.47 13256.49
14360.75 11735.90
1996/03/31 11227.28 13295.97
14499.04 11653.75
1996/04/30 11258.01 13383.78
14712.76 11588.49
1996/05/31 11380.93 13580.17
15092.20 11565.31
1996/06/30 11452.64 13684.00
15149.70 11720.29
1996/07/31 11227.28 13336.05
14480.39 11751.93
1996/08/31 11298.98 13495.73
14785.78 11731.96
1996/09/30 11780.44 14045.39
15617.92 11936.09
1996/10/31 12098.00 14402.53
16048.66 12201.07
1996/11/30 12733.12 15154.26
17261.78 12409.71
1996/12/31 12528.25 14917.76
16919.83 12294.30
1997/01/31 12927.76 15495.50
17976.98 12332.41
1997/02/28 13144.66 15583.88
18117.92 12363.24
1997/03/31 12777.20 15130.49
17373.45 12226.01
1997/04/30 13260.15 15763.24
18410.65 12409.40
1997/05/31 13785.10 16398.94
19531.49 12527.29
1997/06/30 14289.05 16917.81
20406.50 12676.37
1997/07/31 15086.97 17908.21
22030.24 13018.63
1997/08/31 14383.54 17245.39
20796.11 12907.97
1997/09/30 14960.98 17914.20
21935.11 13099.01
1997/10/31 14646.01 17659.10
21202.48 13288.94
1997/11/30 15002.98 18182.06
22183.94 13350.07
1997/12/31 15317.94 18442.83
22564.84 13484.91
1998/01/31 15464.93 18659.64
22814.41 13657.52
1998/02/28 16029.90 19461.11
24459.78 13646.59
1998/03/31 16633.54 20085.54
25712.37 13692.99
1998/04/30 16756.50 20248.55
25971.03 13764.19
1998/05/31 16756.50 20116.65
25524.59 13894.95
1998/06/30 17136.57 20675.20
26561.40 14012.83
1998/07/31 17125.39 20560.63
26278.52 14042.56
1998/08/31 15280.94 18910.90
22479.17 14271.13
1998/09/30 16130.51 19814.85
23919.19 14605.24
1998/10/31 16734.14 20740.08
25864.77 14528.18
1998/11/30 17348.96 21541.30
27432.44 14610.46
1998/12/31 17963.77 22311.94
29013.09 14654.40
1999/01/31 18164.98 22935.54
30226.42 14759.07
1999/02/28 17841.40 22347.65
29286.98 14501.38
1999/03/31 18288.61 22933.73
30458.76 14581.84
1999/04/30 18877.05 23495.74
31638.42 14628.06
1999/05/31 18453.37 23080.20
30891.44 14499.33
1999/06/30 18841.74 23819.28
32605.92 14453.03
IMATRL PRASUN SHR__CHT 19990630 19990716 120128 R00000000000057
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund III: Balanced Portfolio -
Service Class on January 3, 1995, when the fund started. As the chart
shows, by June 30, 1999, the value of the investment would have grown
to $18,842 - an 88.42% increase on the initial investment. For
comparison, look at how both the Standard & Poor's 500 Index, a market
capitalization-weighted index of common stocks, and the Lehman
Brothers Aggregate Bond Index, a market value-weighted index of
investment-grade fixed-rate debt issues, including government,
corporate, asset-backed, and mortgage-backed securities, with
maturities of one year or more, did over the same period. With
dividends and capital gains, if any, reinvested, the same $10,000
investment in the S&P 500 would have grown to $32,606 - a 226.06%
increase. If $10,000 was put in the Lehman Brothers Aggregate Bond
Index, it would have grown to $14,453 - a 44.53% increase. You can
also look at how the Fidelity Balanced Composite Index did over the
same period. The composite index combines the total returns of the
Standard & Poor's 500 Index (60%) and the Lehman Brothers Aggregate
Bond Index (40%). With dividends and interest, if any, reinvested, the
same $10,000 would have grown to $23,819 - a 138.19% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE
30, 1999
% OF FUND'S INVESTMENTS
MCI WorldCom, Inc. 3.1
International Business 2.2
Machines Corp.
Exxon Corp. 1.9
SBC Communications, Inc. 1.7
General Electric Co. 1.7
TOP FIVE MARKET SECTORS AS OF
JUNE 30, 1999
% OF FUND'S INVESTMENTS
FINANCE 14.4
UTILITIES 12.7
ENERGY 8.6
TECHNOLOGY 8.1
HEALTH 6.5
ASSET ALLOCATION AS OF JUNE
30, 1999*
% OF FUND'S INVESTMENTS
Stocks 65.7%
Bonds 27.8%
Short-term Investments 6.5%
* FOREIGN INVESTMENTS 4.1%
Row: 1, Col: 1, Value: 65.7
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 27.8
Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 6.5
VARIABLE INSURANCE PRODUCTS FUND III: BALANCED PORTFOLIO
FUND TALK: THE MANAGERS' OVERVIEW
(photograph of Kevin Grant)
(photograph of John Avery)
An interview with John Avery (right), Lead Portfolio Manager of
Balanced Portfolio, and Kevin Grant, manager for fixed-income
investments
Q. HOW DID THE FUND PERFORM, JOHN?
J. A. Given the fund's mix of equities and fixed-income securities,
its returns typically fall somewhere between those of its two
benchmark indexes - the Standard & Poor's 500 Index and the Lehman
Brothers Aggregate Bond Index. That was the case for the six months
that ended June 30, 1999, as the fund's return trailed the 12.38%
return of the S&P 500 but topped the -1.37% return of the Lehman
index. The fund's return also fell between the 22.76% return of the
S&P and the 3.15% of the Lehman Brothers index for the 12 months that
ended June 30, 1999.
Q. OVERALL, WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
J. A. The fund's equity subportfolio benefited from its broad exposure
to telecommunications stocks due to growing interest in the Internet
and in voice and data solutions. A sizable overweighting in energy,
specifically in oil-sensitive stocks such as Exxon, delivered strong
returns amid the recovery in oil prices. The fund also was
well-positioned in the industrial machinery sector, which benefited
from a rotation toward cyclical stocks late in the second quarter. The
fund maintained its traditional underweighting in technology
throughout a volatile period, which detracted from performance despite
its strong holdings there. In addition, weakness in finance holdings
amid deteriorating interest-rate conditions detracted from relative
performance.
Q. WHAT WERE SOME OF YOUR INVESTMENT STRATEGIES OVER THE SIX-MONTH
PERIOD?
J. A. I increased the equity weighting of the fund late in the period
to capitalize on some strong investment opportunities. I also made a
couple of sector shifts, reducing our holdings in financial stocks
because of the uncertainty in the interest-rate picture, and paring
down our weighting in health care, specifically pharmaceuticals, as
earnings slackened on concerns over patent expirations and the threat
of government regulation. I added some cyclical names during the
rotation, but, as a rule, the fund has limited exposure to cyclical
companies because many of them do not fit my long-term growth profile.
I broadened the fund's exposure to the strong growth of the Internet
by investing in stocks such as AT&T, MCI WorldCom and IBM.
Q. WHICH STOCKS WERE POSITIVE CONTRIBUTORS? WHICH HURT PERFORMANCE?
J. A. Top holding MCI WorldCom soared as investors viewed the company
as ideally positioned to capture the benefits of data delivery and the
Internet. The market rewarded stock in Alcoa, one of the best-managed
commodity metal companies in the world, that doubly benefited from the
cyclical rotation and the cost efficiencies gained from various
mergers and acquisitions. Also, Motorola benefited from a strong
product pipeline and a massive restructuring effort. Switching to
detractors, Philip Morris had a poor six months, suffering from
concern of further litigation against it. Freddie Mac, an otherwise
strong stock, was depressed in light of the deteriorating
interest-rate environment and the negative psychology that pervaded
the financial sector during the period.
Q. TURNING TO YOU, KEVIN, HOW DID THE BOND SUBPORTFOLIO FARE?
K. G. The first half of the period was marked by the rebound in spread
securities - mortgages, corporates and the like - from the depressed
levels of last fall. Supported by recovering global markets over the
period, these bonds outperformed Treasuries by wide margins. The
fund's bond subportfolio was well-positioned to take advantage of
these favorable conditions, with its significant overweighting in
corporates and mortgages, and underweighting in Treasuries relative to
the Lehman index. Although investors' concerns about the possibility
of an interest-rate hike, as well as the high level of debt issuance,
halted the rally in spread sectors during the second quarter, our
overweighting in this area was critical to the overall success of the
subportfolio over the six-month period.
Q. JOHN, WHAT'S YOUR OUTLOOK?
J. A. I'm optimistic, although a bit cautious. I remain concerned
about growth stocks if interest rates begin to climb again. I plan to
maintain the fund's technology underweighting until after the Year
2000 changeover because some companies may choose to abandon
purchasing and installing new technology until the second quarter of
the new year. I still don't see much inflation anywhere on the
horizon. What I'm hoping is that we're in a stock picker's market now,
as opposed to one that's driven by style shifts. I plan to keep
talking to the companies and managing the portfolio from the bottom
up, all the while staying reasonably close to the 60/40
asset-allocation model.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGERS ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET OR OTHER CONDITIONS. FOR MORE INFORMATION, SEE PAGE 3.
(checkmark)FUND FACTS
GOAL: both income and growth of capital by investing in a diversified
portfolio of stocks and bonds
START DATE: January 3, 1995
SIZE: as of June 30, 1999, more than $375
million
MANAGER: John Avery, since 1998, and Kevin Grant, since 1996; John
Avery joined Fidelity in 1995; Kevin Grant joined Fidelity in 1993
VARIABLE INSURANCE PRODUCTS FUND III: BALANCED PORTFOLIO
INVESTMENTS JUNE 30, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 64.9%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 2.4%
AEROSPACE & DEFENSE - 1.0%
Textron, Inc. 46,000 $ 3,786,375
DEFENSE ELECTRONICS - 0.8%
Raytheon Co. Class B 41,800 2,941,675
SHIP BUILDING & REPAIR - 0.6%
General Dynamics Corp. 35,200 2,411,200
TOTAL AEROSPACE & DEFENSE 9,139,250
BASIC INDUSTRIES - 4.2%
CHEMICALS & PLASTICS - 3.5%
Air Products & Chemicals, 46,400 1,867,600
Inc.
E.I. du Pont de Nemours and 15,600 1,065,675
Co.
Eastman Chemical Co. 30,700 1,588,725
Hoechst AG 26,700 1,213,891
IMC Global, Inc. 39,373 693,949
Lyondell Chemical Co. 53,900 1,111,688
Praxair, Inc. 87,300 4,272,244
Union Carbide Corp. 36,000 1,755,000
13,568,772
METALS & MINING - 0.7%
Alcoa, Inc. 41,500 2,567,813
TOTAL BASIC INDUSTRIES 16,136,585
CONSTRUCTION & REAL ESTATE -
0.2%
BUILDING MATERIALS - 0.2%
Masco Corp. 31,000 895,125
DURABLES - 2.1%
AUTOS, TIRES, & ACCESSORIES -
0.8%
Federal-Mogul Corp. 22,400 1,164,800
Ford Motor Co. 38,000 2,144,625
3,309,425
CONSUMER DURABLES - 0.8%
Minnesota Mining & 33,800 2,938,488
Manufacturing Co.
HOME FURNISHINGS - 0.5%
Leggett & Platt, Inc. 70,100 1,949,656
TOTAL DURABLES 8,197,569
ENERGY - 7.9%
ENERGY SERVICES - 1.4%
Baker Hughes, Inc. 29,300 981,550
Halliburton Co. 33,900 1,533,975
McDermott International, Inc. 30,400 858,800
R&B Falcon Corp. unit (a)(g) 100 102,000
Schlumberger Ltd. 32,900 2,095,319
5,571,644
OIL & GAS - 6.5%
Apache Corp. 15,600 608,400
SHARES VALUE (NOTE 1)
Atlantic Richfield Co. 10,400 $ 869,050
BP Amoco PLC 211,581 3,826,077
Chevron Corp. 20,800 1,979,900
Conoco, Inc. Class A 36,300 1,011,863
Exxon Corp. 96,900 7,473,413
Mobil Corp. 35,300 3,494,700
Texaco, Inc. 21,900 1,368,750
Total Fina SA Class B 11,500 1,482,062
USX-Marathon Group 94,100 3,064,131
25,178,346
TOTAL ENERGY 30,749,990
FINANCE - 11.2%
BANKS - 3.3%
Bank of America Corp. 57,400 4,208,138
Bank of New York Co., Inc. 110,500 4,053,969
Bank One Corp. 1,500 89,344
Chase Manhattan Corp. 44,400 3,846,150
Wells Fargo & Co. 14,500 619,875
12,817,476
CREDIT & OTHER FINANCE - 3.1%
American Express Co. 35,500 4,619,438
Associates First Capital 64,034 2,837,507
Corp. Class A
Citigroup, Inc. 91,725 4,356,938
11,813,883
FEDERAL SPONSORED CREDIT - 3.0%
Fannie Mae 77,500 5,299,063
Freddie Mac 109,200 6,333,600
11,632,663
INSURANCE - 1.8%
American International Group, 41,200 4,822,975
Inc.
Hartford Financial Services 39,400 2,297,513
Group, Inc.
7,120,488
TOTAL FINANCE 43,384,510
HEALTH - 6.4%
DRUGS & PHARMACEUTICALS - 4.4%
American Home Products Corp. 19,400 1,115,500
Bristol-Myers Squibb Co. 46,000 3,240,125
Lilly (Eli) & Co. 39,000 2,793,375
Merck & Co., Inc. 44,800 3,315,200
Pfizer, Inc. 6,300 691,425
Schering-Plough Corp. 70,900 3,757,700
Warner-Lambert Co. 31,300 2,171,438
17,084,763
MEDICAL EQUIPMENT & SUPPLIES
- - 2.0%
Abbott Laboratories 28,100 1,278,550
Cardinal Health, Inc. 27,028 1,733,171
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
HEALTH - CONTINUED
MEDICAL EQUIPMENT & SUPPLIES
- - CONTINUED
Johnson & Johnson 37,900 $ 3,714,200
St. Jude Medical, Inc. (a) 27,800 990,375
7,716,296
TOTAL HEALTH 24,801,059
INDUSTRIAL MACHINERY &
EQUIPMENT - 5.5%
ELECTRICAL EQUIPMENT - 2.0%
Emerson Electric Co. 20,800 1,307,800
General Electric Co. 58,500 6,610,500
7,918,300
INDUSTRIAL MACHINERY &
EQUIPMENT - 2.4%
Case Corp. 10,400 500,500
Caterpillar, Inc. 45,600 2,736,000
Ingersoll-Rand Co. 14,400 930,600
Tyco International Ltd. 55,885 5,295,104
9,462,204
POLLUTION CONTROL - 1.1%
Browning-Ferris Industries, 20,900 898,700
Inc.
Waste Management, Inc. 60,100 3,230,375
4,129,075
TOTAL INDUSTRIAL MACHINERY & 21,509,579
EQUIPMENT
MEDIA & LEISURE - 2.6%
BROADCASTING - 1.8%
CBS Corp. (a) 37,900 1,646,281
NTL, Inc. warrants 12/31/08 199 9,950
(a)
Teletrac Holdings, Inc. 20 10
warrants 8/1/07 (a)
Time Warner, Inc. 70,213 5,160,656
UIH Australia/Pacific, Inc. 150 300
warrants 5/15/06 (a)
6,817,197
ENTERTAINMENT - 0.2%
Disney (Walt) Co. 29,500 908,969
PUBLISHING - 0.4%
McGraw-Hill Companies, Inc. 26,800 1,445,525
RESTAURANTS - 0.2%
McDonald's Corp. 17,000 702,313
TOTAL MEDIA & LEISURE 9,874,004
NONDURABLES - 2.6%
BEVERAGES - 0.2%
PepsiCo, Inc. 25,200 974,925
FOODS - 0.8%
Heinz (H.J.) Co. 25,100 1,258,138
SHARES VALUE (NOTE 1)
Nabisco Group Holdings Corp. 30,500 $ 596,656
Nabisco Holdings Corp. Class A 26,500 1,146,125
3,000,919
HOUSEHOLD PRODUCTS - 0.6%
Clorox Co. 8,400 897,225
Unilever NV NY shares 20,982 1,463,495
Unilever NV 26,300 141,471
2,502,191
TOBACCO - 1.0%
Philip Morris Companies, Inc. 91,900 3,693,231
TOTAL NONDURABLES 10,171,266
RETAIL & WHOLESALE - 1.4%
APPAREL STORES - 0.1%
Mothers Work, Inc. (a)(j) 3 39
TJX Companies, Inc. 17,392 579,371
579,410
DRUG STORES - 0.3%
CVS Corp. 22,000 1,116,500
GENERAL MERCHANDISE STORES -
0.8%
Dayton Hudson Corp. 22,800 1,482,000
Wal-Mart Stores, Inc. 31,100 1,500,575
2,982,575
RETAIL & WHOLESALE,
MISCELLANEOUS - 0.2%
Toys R Us, Inc. (a) 37,200 769,575
TOTAL RETAIL & WHOLESALE 5,448,060
TECHNOLOGY - 7.7%
COMPUTER SERVICES & SOFTWARE
- - 3.4%
International Business 65,600 8,478,800
Machines Corp.
Microsoft Corp. (a) 46,600 4,202,738
Unisys Corp. (a) 16,309 635,032
13,316,570
COMPUTERS & OFFICE EQUIPMENT
- - 2.6%
Compaq Computer Corp. 38,800 919,075
Hewlett-Packard Co. 35,100 3,527,550
Pitney Bowes, Inc. 76,100 4,889,425
Xerox Corp. 15,000 885,938
10,221,988
ELECTRONICS - 1.7%
Insilco Corp. warrants 60 1
8/15/07 (a)
Motorola, Inc. 34,900 3,306,775
Texas Instruments, Inc. 21,300 3,088,500
6,395,276
TOTAL TECHNOLOGY 29,933,834
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TRANSPORTATION - 0.6%
RAILROADS - 0.6%
Burlington Northern Santa Fe 41,600 $ 1,289,600
Corp.
Union Pacific Corp. 19,300 1,125,431
2,415,031
UTILITIES - 10.1%
CELLULAR - 0.8%
ALLTEL Corp. 33,600 2,402,400
Loral Orion Network Systems,
Inc.:
warrants 1/15/07 (CV ratio 290 1,523
.47) (a)
warrants 1/15/07 (CV ratio 50 363
.6) (a)
McCaw International Ltd. 290 725
warrants 4/15/07 (a)(g)
Vodafone AirTouch PLC 3,000 591,000
sponsored ADR
2,996,011
ELECTRIC UTILITY - 0.8%
CMS Energy Corp. 27,800 1,164,125
Entergy Corp. 24,300 759,375
PG&E Corp. 40,900 1,329,250
3,252,750
GAS - 0.9%
Williams Companies, Inc. 79,600 3,387,975
TELEPHONE SERVICES - 7.6%
AT&T Corp. 83,304 4,649,404
BellSouth Corp. 28,800 1,350,000
Cincinnati Bell, Inc. 87,900 2,192,006
KMC Telecom Holdings, Inc. 70 175
warrants 4/15/08 (a)(g)
MCI WorldCom, Inc. (a) 138,126 11,887,448
Pathnet, Inc. warrants 20 200
4/15/08 (a)(g)
Rhythms NetConnections, Inc. 400 67,256
warrants 5/15/08 (a)(g)
SBC Communications, Inc. 116,700 6,768,600
Sprint Corp. (FON Group) 49,900 2,635,344
29,550,433
TOTAL UTILITIES 39,187,169
TOTAL COMMON STOCKS 251,843,031
(Cost $196,581,118)
PREFERRED STOCKS - 0.8%
CONVERTIBLE PREFERRED STOCKS
- - 0.5%
BASIC INDUSTRIES - 0.1%
CHEMICALS & PLASTICS - 0.1%
Monsanto Co. $1.625 ACES 10,500 421,313
SHARES VALUE (NOTE 1)
DURABLES - 0.0%
AUTOS, TIRES, & ACCESSORIES -
0.0%
Automatic Common Exchangeable 3,700 $ 66,600
Securities Trust II
(Republic Industries) $1.55
ACES
ENERGY - 0.0%
OIL & GAS - 0.0%
Apache Corp. $2.015 ACES 5,000 182,500
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.1%
ELECTRICAL EQUIPMENT - 0.1%
Loral Space & Communications 3,700 186,850
Ltd. Series C, $3.00 (g)
MEDIA & LEISURE - 0.3%
BROADCASTING - 0.3%
MediaOne Group, Inc. 12,300 1,113,150
(Vodafone AirTouch PLC)
$3.63 PIES
LODGING & GAMING - 0.0%
Host Marriott Financial Trust 2,800 115,500
$3.375 QUIPS (g)
TOTAL MEDIA & LEISURE 1,228,650
TOTAL CONVERTIBLE PREFERRED 2,085,913
STOCKS
NONCONVERTIBLE PREFERRED
STOCKS - 0.3%
FINANCE - 0.0%
INSURANCE - 0.0%
American Annuity Group 50 49,636
Capital Trust II 8.875%
HEALTH - 0.0%
MEDICAL FACILITIES MANAGEMENT
- - 0.0%
Fresenius Medical Care 40 37,865
Capital Trust II 7.875%
MEDIA & LEISURE - 0.1%
BROADCASTING - 0.1%
Adelphia Communications Corp. 300 34,275
$13.00
Citadel Broadcasting Co. 401 46,516
Series B, 13.25% pay-in-kind
CSC Holdings, Inc.:
11.125% pay-in-kind 1,915 209,693
Series H, 11.75% pay-in-kind 335 36,599
327,083
PUBLISHING - 0.0%
PRIMEDIA, Inc.:
8.625% 580 52,780
Series D, $10.00 600 58,950
111,730
TOTAL MEDIA & LEISURE 438,813
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NONCONVERTIBLE PREFERRED
STOCKS - CONTINUED
UTILITIES - 0.2%
CELLULAR - 0.1%
Nextel Communications, Inc.:
11.125% pay-in-kind 100 $ 100,500
Series D, 13% pay-in-kind 119 125,545
226,045
TELEPHONE SERVICES - 0.1%
NEXTLINK Communications, Inc. 5,228 264,014
14% pay-in-kind
WinStar Communications, Inc. 73 58,765
14.25%
322,779
TOTAL UTILITIES 548,824
TOTAL NONCONVERTIBLE 1,075,138
PREFERRED STOCKS
TOTAL PREFERRED STOCKS 3,161,051
(Cost $3,076,395)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS - 12.6%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT
CONVERTIBLE BONDS - 0.1%
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.0%
POLLUTION CONTROL - 0.0%
WMX Technologies, Inc. 2% Baa3 $ 75,000 81,000
1/24/05
TECHNOLOGY - 0.1%
COMPUTER SERVICES & SOFTWARE
- - 0.1%
Amazon.com, Inc. 4.75% 2/1/09 Caa3 243,000 235,710
(g)
TOTAL CONVERTIBLE BONDS 316,710
NONCONVERTIBLE BONDS - 12.5%
AEROSPACE & DEFENSE - 0.1%
DEFENSE ELECTRONICS - 0.1%
Raytheon Co. 6.45% 8/15/02 Baa1 280,000 280,613
BASIC INDUSTRIES - 0.6%
CHEMICALS & PLASTICS - 0.4%
Huntsman Corp.:
9.5% 7/1/07 (g) B2 450,000 428,625
Huntsman ICI Chemicals LLC B2 90,000 90,788
10.125% 7/1/09 (g)
Koppers Industries, Inc. B2 290,000 291,450
9.875% 12/1/07
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Lyondell Chemical Co.:
9.625% 5/1/07 (g) Ba3 $ 120,000 $ 122,700
9.875% 5/1/07 (g) Ba3 130,000 132,275
10.875% 5/1/09 (g) B2 180,000 185,850
Rohm & Haas Co. 7.85% 7/15/29 A3 200,000 199,854
(g)
Zeneca Specialty Chemicals B2 80,000 80,600
PLC 11% 7/1/09 (g)
1,532,142
METALS & MINING - 0.1%
Kaiser Aluminum & Chemical
Corp.:
9.875% 2/15/02 B1 160,000 161,200
12.75% 2/1/03 B3 10,000 10,175
Metals USA, Inc. 8.625% B2 340,000 315,350
2/15/08
486,725
PACKAGING & CONTAINERS - 0.0%
Gaylord Container Corp. Caa1 50,000 47,125
9.375% 6/15/07
Packaging Corp. of America B3 60,000 61,050
9.625% 4/1/09 (g)
108,175
PAPER & FOREST PRODUCTS - 0.1%
APP Finance II Mauritius Ltd. B3 75,000 48,000
12% 3/15/04
Container Corp. of America B2 10,000 10,300
gtd. 9.75% 4/1/03
Fort James Corp. 6.625% Baa2 45,000 44,947
9/15/04
Indah Kiat Finance Mauritius Caa1 30,000 20,700
Ltd. 10% 7/1/07
Millar Western Forest B3 100,000 97,250
Products Ltd. 9.875% 5/15/08
Pindo Deli Finance Mauritius Caa1 20,000 14,200
Ltd. 10.25% 10/1/02
Stone Container Corp. 10.75% B1 50,000 51,750
10/1/02
Tjiwi Kimia Finance Mauritius Caa1 10,000 7,100
Ltd. 10% 8/1/04
294,247
TOTAL BASIC INDUSTRIES 2,421,289
CONSTRUCTION & REAL ESTATE -
0.7%
CONSTRUCTION - 0.1%
Del Webb Corp. 10.25% 2/15/10 B2 60,000 59,400
Great Lakes Dredge & Dock B3 70,000 72,100
Corp. 11.25% 8/15/08
131,500
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
CONSTRUCTION & REAL ESTATE -
CONTINUED
ENGINEERING - 0.0%
URS Corp. 12.25% 5/1/09 (g) B2 $ 10,000 $ 10,125
REAL ESTATE - 0.2%
Duke Realty LP 7.3% 6/30/03 Baa2 500,000 502,350
LNR Property Corp.:
9.375% 3/15/08 B1 360,000 340,200
10.5% 1/15/09 B1 60,000 60,000
902,550
REAL ESTATE INVESTMENT TRUSTS
- - 0.4%
CenterPoint Properties Trust Baa2 100,000 95,498
6.75% 4/1/05
Equity Office Properties
Trust:
6.5% 1/15/04 Baa1 1,000,000 974,140
6.625% 2/15/05 Baa1 200,000 192,916
6.75% 2/15/08 Baa1 300,000 283,680
ProLogis Trust 6.7% 4/15/04 Baa1 70,000 68,040
1,614,274
TOTAL CONSTRUCTION & REAL 2,658,449
ESTATE
DURABLES - 0.1%
AUTOS, TIRES, & ACCESSORIES -
0.0%
Blue Bird Body Co. 10.75% B2 35,000 37,100
11/15/06
CONSUMER DURABLES - 0.0%
Corning Consumer Products Co. B3 70,000 60,725
9.625% 5/1/08
HOME FURNISHINGS - 0.0%
Omega Cabinets Ltd. 10.5% B3 110,000 110,000
6/15/07
TEXTILES & APPAREL - 0.1%
Polymer Group, Inc. 9% 7/1/07 B2 90,000 86,175
Synthetic Industries, Inc. B2 40,000 40,500
9.25% 2/15/07
Worldtex, Inc. 9.625% B1 40,000 35,000
12/15/07
161,675
TOTAL DURABLES 369,500
ENERGY - 0.7%
COAL - 0.0%
P&L Coal Holdings Corp. B2 145,000 144,275
9.625% 5/15/08
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
ENERGY SERVICES - 0.1%
Baker Hughes, Inc. 6.875% A2 $ 50,000 $ 46,914
1/15/29 (g)
Ocean Rig Norway AS 10.25% B3 40,000 28,000
6/1/08
R&B Falcon Corp.:
9.5% 12/15/08 Ba3 50,000 45,000
12.25% 3/15/06 (g) Ba3 40,000 41,400
RBF Finance Co.:
11% 3/15/06 (g) Ba3 50,000 51,500
11.375% 3/15/09 (g) Ba3 10,000 10,350
223,164
OIL & GAS - 0.6%
Anadarko Petroleum Corp. 7.2% Baa1 385,000 360,241
3/15/29
Apache Corp.:
7.625% 7/1/19 Baa1 500,000 496,875
7.7% 3/15/26 Baa1 65,000 64,512
Apache Finance Property Ltd. Baa1 100,000 95,100
6.5% 12/15/07
Belden & Blake Corp. 9.875% Caa1 10,000 7,600
6/15/07
Chesapeake Energy Corp.:
9.125% 4/15/06 B3 10,000 8,950
9.625% 5/1/05 B3 40,000 37,400
Comstock Resources, Inc. B2 290,000 296,525
11.25% 5/1/07 (g)
Conoco, Inc.:
5.9% 4/15/04 A3 125,000 121,200
6.95% 4/15/29 A3 170,000 158,608
Flores & Rucks, Inc. 9.75% B1 70,000 71,750
10/1/06
Great Lakes Carbon Corp. B3 155,000 152,675
10.25% 5/15/08 pay-in-kind
Gulf Canada Resources Ltd. Ba1 20,000 19,650
8.375% 11/15/05
Ocean Energy, Inc.:
8.375% 7/1/08 B1 30,000 28,950
8.875% 7/15/07 B1 10,000 9,850
Plains Resources, Inc.:
Series B 10.25% 3/15/06 B2 300,000 304,500
Series D, 10.25% 3/15/06 B2 20,000 20,300
Seven Seas Petroleum, Inc. Caa1 20,000 10,200
12.5% 5/15/05
2,264,886
TOTAL ENERGY 2,632,325
FINANCE - 3.2%
BANKS - 1.0%
ABN-Amro Bank NV, Chicago A1 500,000 501,540
6.625% 10/31/01
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
FINANCE - CONTINUED
BANKS - CONTINUED
Banco Latinoamericano Baa2 $ 100,000 $ 100,063
Exportaciones SA euro 6.9%
12/4/99 (g)
BankAmerica Corp.:
6.625% 6/15/04 Aa2 180,000 179,888
10% 2/1/03 Aa3 50,000 55,399
BankBoston Corp. 6.625% 2/1/04 A3 200,000 199,522
Barclays Bank PLC yankee:
5.875% 7/15/00 A1 350,000 348,737
5.95% 7/15/01 A1 450,000 445,761
Capital One Bank 6.375% Baa2 250,000 244,063
2/15/03
Capital One Financial Corp. Baa3 210,000 200,924
7.125% 8/1/08
First Chicago NBD A1 500,000 484,405
Institutional Capital B
7.75% 12/1/26 (g)
Korea Development Bank:
6.625% 11/21/03 Baa3 170,000 163,248
7.125% 9/17/01 Baa3 45,000 44,583
MBNA Corp.:
6.34% 6/2/03 Baa2 100,000 97,240
6.875% 11/15/02 Baa2 300,000 298,194
NB Capital Trust IV 8.25% Aa2 330,000 339,580
4/15/27
Sumitomo Bank International Baa1 225,000 228,825
Finance NV 8.5% 6/15/09
Summit Bancorp 8.625% 12/10/02 BBB+ 100,000 106,180
4,038,152
CREDIT & OTHER FINANCE - 2.1%
Ahmanson Capital Trust I A3 250,000 254,085
8.36% 12/1/26 (g)
AMRESCO, Inc.:
9.875% 3/15/05 Caa3 10,000 7,650
10% 3/15/04 Caa3 10,000 7,700
Associates Corp. of North Aa3 500,000 483,050
America 6% 7/15/05
AT&T Capital Corp. 7.5% Baa3 340,000 342,530
11/15/00
Chase Capital I 7.67% 12/1/26 Aa3 765,000 738,233
Citigroup, Inc. 5.8% 3/15/04 Aa2 320,000 309,459
ContiFinancial Corp. 8.125% Caa1 10,000 7,600
4/1/08
ERP Operating LP:
6.55% 11/15/01 A3 50,000 49,803
7.1% 6/23/04 A3 200,000 200,142
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Fleet Capital Trust II 7.92% A2 $ 100,000 $ 98,247
12/11/26
Ford Motor Credit Co. 6.5% A1 1,000,000 1,002,440
2/28/02
GS Escrow Corp. 7.125% 8/1/05 Ba1 400,000 379,748
Imperial Credit Capital Trust B2 20,000 16,400
I 10.25% 6/14/02
Imperial Credit Industries B3 330,000 270,600
9.875% 1/15/07
KeyCorp Institutional Capital A1 1,000,000 987,730
A 7.826% 12/1/26
Macsaver Financial Services,
Inc.:
7.4% 2/15/02 Ba1 10,000 8,400
7.6% 8/1/07 Ba1 20,000 16,450
7.875% 8/1/03 Ba1 30,000 25,575
PNC Institutional Capital A2 600,000 611,796
Trust 8.315% 5/15/27 (g)
PX Escrow Corp. 0% 2/1/06 (e) B3 30,000 18,300
Spieker Properties LP:
6.8% 5/1/04 Baa2 90,000 88,160
6.875% 2/1/05 Baa2 1,000,000 969,870
Sprint Capital Corp.:
5.7% 11/15/03 Baa1 160,000 153,973
5.875% 5/1/04 Baa1 375,000 361,080
6.875% 11/15/28 Baa1 250,000 228,370
6.9% 5/1/19 Baa1 310,000 289,856
Trizec Finance Ltd. yankee Baa3 100,000 108,500
10.875% 10/15/05
WinStar Equipment II Corp. CCC+ 30,000 31,200
12.5% 3/15/04
8,066,947
SAVINGS & LOANS - 0.1%
Long Island Savings Bank FSB Baa3 500,000 495,550
6.2% 4/2/01
TOTAL FINANCE 12,600,649
HEALTH - 0.1%
DRUGS & PHARMACEUTICALS - 0.0%
Global Health Sciences, Inc. Caa1 30,000 22,575
11% 5/1/08
MEDICAL EQUIPMENT & SUPPLIES
- - 0.0%
Wright Medical Technology, Caa3 40,000 22,000
Inc. 11.75% 7/1/00 (h)
MEDICAL FACILITIES MANAGEMENT
- - 0.1%
Express Scripts, Inc. 9.625% Ba2 40,000 40,600
6/15/09 (g)
Fountain View, Inc. 11.25% Caa1 20,000 16,200
4/15/08
Hanger Orthopedic Group, Inc. B3 20,000 20,300
11.25% 6/15/09 (g)
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
HEALTH - CONTINUED
MEDICAL FACILITIES MANAGEMENT
- - CONTINUED
Harborside Healthcare Corp. B3 $ 50,000 $ 19,500
0% 8/1/08 (e)
Integrated Health Services,
Inc.:
9.25% 1/15/08 B2 10,000 7,000
9.5% 9/15/07 B2 10,000 7,250
Mariner Post-Acute Network, B3 80,000 12,800
Inc. 9.5% 11/1/07
Oxford Health Plans, Inc. 11% Caa1 30,000 30,300
5/15/05 (g)
Tenet Healthcare Corp.:
7.625% 6/1/08 Ba1 20,000 18,850
7.875% 1/15/03 Ba1 80,000 78,800
8% 1/15/05 Ba1 30,000 29,250
8.125% 12/1/08 Ba3 60,000 56,700
337,550
TOTAL HEALTH 382,125
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.5%
ELECTRICAL EQUIPMENT - 0.0%
Motors & Gears, Inc. 10.75% B3 40,000 40,200
11/15/06
Telex Communications, Inc. B2 45,000 34,200
10.5% 5/1/07
74,400
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.4%
Applied Power, Inc. 8.75% B1 10,000 9,700
4/1/09
Tenneco, Inc. 8.075% 10/1/02 Baa1 300,000 310,074
Thermadyne Holdings Corp. 0% Caa1 90,000 43,650
6/1/08 (e)
Thermadyne Manufacturing LLC B3 80,000 70,600
9.875% 6/1/08
Tyco International Group SA Baa1 1,000,000 994,710
yankee 6.125% 6/15/01
1,428,734
POLLUTION CONTROL - 0.1%
Envirosource, Inc. 9.75% Caa3 40,000 24,600
6/15/03
IT Group, Inc. (The) 11.25% B3 30,000 28,650
4/1/09 (g)
WMX Technologies, Inc. 7.1% Baa2 400,000 407,836
8/1/26
461,086
TOTAL INDUSTRIAL MACHINERY & 1,964,220
EQUIPMENT
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
MEDIA & LEISURE - 2.0%
BROADCASTING - 1.4%
Adelphia Communications Corp.:
7.75% 1/15/09 B1 $ 100,000 $ 92,750
9.875% 3/1/05 B1 220,000 229,900
9.875% 3/1/07 B1 30,000 31,313
Ascent Entertainment Group, B3 300,000 216,000
Inc. 0% 12/15/04 (e)
Century Communications Corp.:
8.875% 1/15/07 Ba3 40,000 39,850
Series B, 0% 1/15/08 Ba3 90,000 39,600
Charter Communications
Holdings LLC/Charter
Communications Holdings
Capital Corp.:
0% 4/1/11 (e)(g) B2 70,000 43,050
8.625% 4/1/09 (g) B2 80,000 76,500
Continental Cablevision, Inc.:
8.3% 5/15/06 Baa3 215,000 229,566
9% 9/1/08 Baa3 540,000 606,722
Diamond Cable Communications B3 60,000 47,400
PLC 0% 2/15/07 (e)
EchoStar DBS Corp. 9.375% B2 930,000 941,625
2/1/09 (g)
Golden Sky DBS, Inc. 0% Caa1 50,000 29,000
3/1/07 (e)(g)
International Cabletel, Inc. B3 250,000 218,125
0% 2/1/06 (e)
Iridium Operating LLC/Iridium Caa3 80,000 16,000
Capital Corp. 10.875% 7/15/05
LIN Holdings Corp. 0% 3/1/08 B3 50,000 33,375
(e)
Nielsen Media Research, Inc. Baa2 150,000 151,664
7.6% 6/15/09
NTL Communications Corp. B3 80,000 87,600
11.5% 10/1/08
NTL, Inc.:
0% 4/1/08 (e) B3 360,000 241,200
10% 2/15/07 B3 80,000 82,000
Olympus Communications B1 60,000 65,700
LP/Olympus Capital Corp.
10.625% 11/15/06
Satelites Mexicanos SA de CV:
8.75% 6/30/04 (g)(h) B1 88,000 81,840
10.125% 11/1/04 B3 100,000 79,000
Sinclair Broadcast Group, B2 10,000 9,863
Inc. 9% 7/15/07
TCI Communications, Inc. A2 220,000 249,245
8.75% 8/1/15
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
TCI Communications Financing A3 $ 180,000 $ 206,100
III 9.65% 3/31/27
Telewest PLC 0% 10/1/07 (e) B1 190,000 170,050
Time Warner, Inc. 8.18% Baa3 910,000 961,124
8/15/07
UIH Australia/Pacific, Inc.:
Series B 0% 5/15/06 (e) B2 150,000 106,500
Series D 0% 5/15/06 (e) B2 30,000 21,300
United International B3 250,000 166,250
Holdings, Inc. 0% 2/15/08 (e)
5,570,212
ENTERTAINMENT - 0.2%
AMC Entertainment, Inc.:
9.5% 3/15/09 B3 170,000 159,800
9.5% 2/1/11 B3 40,000 37,500
Harrahs Operating Co., Inc. Ba2 170,000 164,900
7.875% 12/15/05
Hollywood Entertainment Corp. B3 110,000 108,075
10.625% 8/15/04
Premier Parks, Inc. 0% B3 320,000 212,000
4/1/08 (e)
Town Sports International, B2 40,000 38,200
Inc. 9.75% 10/15/04 (g)
720,475
LEISURE DURABLES & TOYS - 0.0%
Marvel Enterprises, Inc. 12% - 80,000 81,600
6/15/09 (g)
LODGING & GAMING - 0.2%
Circus Circus Enterprises, Ba2 30,000 26,400
Inc. 7.625% 7/15/13
Coast Hotels & Casinos, Inc. B3 30,000 28,875
9.5% 4/1/09 (g)
Horseshoe Gaming LLC:
8.625% 5/15/09 (g) B2 100,000 96,750
9.375% 6/15/07 B2 20,000 20,400
KSL Recreation Group, Inc. B3 90,000 91,350
10.25% 5/1/07
Prime Hospitality Corp. 9.75% B1 20,000 19,625
4/1/07
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Signature Resorts, Inc.:
9.25% 5/15/06 B2 $ 270,000 $ 259,200
9.75% 10/1/07 B3 40,000 36,000
Sun International Hotels Ba3 30,000 30,075
Ltd./Sun International North
America, Inc. yankee 9%
3/15/07
608,675
PUBLISHING - 0.1%
News America, Inc. 6.625% Baa3 145,000 137,388
1/9/08
Time Warner Entertainment Co.
LP:
7.25% 9/1/08 Baa2 90,000 89,991
8.375% 3/15/23 Baa2 180,000 194,971
422,350
RESTAURANTS - 0.1%
AFC Enterprises, Inc. 10.25% B3 190,000 191,900
5/15/07
CKE Restaurants, Inc. 9.125% B1 80,000 75,200
5/1/09
NE Restaurant, Inc. 10.75% B3 20,000 18,300
7/15/08
285,400
TOTAL MEDIA & LEISURE 7,688,712
NONDURABLES - 0.4%
BEVERAGES - 0.3%
Seagram Co. Ltd. yankee Baa3 40,000 35,400
6.875% 9/1/23
Seagram JE & Sons, Inc.:
6.625% 12/15/05 Baa3 585,000 567,450
7.6% 12/15/28 Baa3 300,000 289,890
892,740
FOODS - 0.0%
Aurora Foods, Inc. 8.75% B1 20,000 19,650
7/1/08
HOUSEHOLD PRODUCTS - 0.0%
AKI Holding Corp. 0% 7/1/09 Caa1 20,000 7,600
(e)
AKI, Inc. 10.5% 7/1/08 B2 10,000 9,650
17,250
TOBACCO - 0.1%
Philip Morris Companies, Inc. A2 250,000 252,625
6.95% 6/1/06
RJR Nabisco, Inc. 7.375% Baa2 200,000 197,514
5/15/03 (g)
450,139
TOTAL NONDURABLES 1,379,779
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
RETAIL & WHOLESALE - 0.7%
APPAREL STORES - 0.0%
Specialty Retailers, Inc.:
8.5% 7/15/05 B1 $ 120,000 $ 88,800
9% 7/15/07 B3 55,000 34,100
122,900
DRUG STORES - 0.1%
Rite Aid Corp. 6% 12/15/05 (g) Baa1 500,000 458,850
GENERAL MERCHANDISE STORES -
0.2%
Dayton Hudson Corp. 6.4% A3 400,000 398,140
2/15/03
Federated Department Stores, Baa2 500,000 494,020
Inc. 6.79% 7/15/27
892,160
GROCERY STORES - 0.1%
Fleming Companies, Inc. 10.5% B3 10,000 9,400
12/1/04
Jitney-Jungle Stores of
America, Inc.:
10.375% 9/15/07 Caa1 560,000 201,600
12% 3/1/06 B3 10,000 8,150
Kroger Co. 6% 7/1/00 Baa3 200,000 199,572
418,722
RETAIL & WHOLESALE,
MISCELLANEOUS - 0.3%
Guitar Center, Inc. 11% B1 19,000 19,285
7/1/06
TM Group Holdings PLC 11% B3 30,000 30,375
5/15/08
USA Networks, Inc./USANI LLC Ba1 1,000,000 957,500
6.75% 11/15/05
1,007,160
TOTAL RETAIL & WHOLESALE 2,899,792
SERVICES - 0.2%
LEASING & RENTAL - 0.0%
Anthony Crane Rentals B3 20,000 19,200
LP/Anthony Credit Capital
Corp. 10.375% 8/1/08
Rent-A-Center, Inc. 11% B2 60,000 60,300
8/15/08
79,500
PRINTING - 0.1%
Big Flower Press Holdings, B2 120,000 112,800
Inc. 8.875% 7/1/07
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Sullivan Graphics, Inc. Caa1 $ 40,000 $ 41,600
12.75% 8/1/05
World Color Press, Inc. 7.75% B1 60,000 55,800
2/15/09
210,200
SERVICES - 0.1%
AP Holdings, Inc. 0% 3/15/08 Caa2 20,000 10,400
(e)
Apcoa, Inc. 9.25% 3/15/08 Caa1 40,000 36,000
Medaphis Corp. 9.5% 2/15/05 Caa1 72,000 53,280
SITEL Corp. 9.25% 3/15/06 B3 250,000 211,875
311,555
TOTAL SERVICES 601,255
TECHNOLOGY - 0.3%
COMMUNICATIONS EQUIPMENT - 0.0%
Jordan Telecommunication
Products, Inc.:
0% 8/1/07 (e) B3 30,000 25,500
9.875% 8/1/07 B3 30,000 29,400
54,900
COMPUTER SERVICES & SOFTWARE
- - 0.0%
Concentric Network Corp. - 50,000 52,250
12.75% 12/15/07
DecisionOne Corp. 9.75% B3 250,000 12,500
8/1/07 (d)
DecisionOne Holdings Corp. 0% Caa1 20,000 100
8/1/08 unit (d)(e)
64,850
COMPUTERS & OFFICE EQUIPMENT
- - 0.2%
Comdisco, Inc.:
5.95% 4/30/02 Baa1 300,000 294,933
6.1% 6/5/01 Baa1 250,000 247,720
542,653
ELECTRONIC INSTRUMENTS - 0.0%
Telecommunications Techniques B3 140,000 135,800
Co. LLC 9.75% 5/15/08
ELECTRONICS - 0.1%
Communications Instruments, B3 10,000 9,000
Inc. 10% 9/15/04
Fairchild Semiconductor Corp. B3 130,000 128,050
10.375% 10/1/07 (g)
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
TECHNOLOGY - CONTINUED
ELECTRONICS - CONTINUED
Hadco Corp. 9.5% 6/15/08 B2 $ 140,000 $ 136,500
Insilco Corp. 12% 8/15/07 B3 60,000 59,400
332,950
TOTAL TECHNOLOGY 1,131,153
TRANSPORTATION - 0.5%
AIR TRANSPORTATION - 0.2%
Atlas Air, Inc.:
8.77% 1/2/11 Ba3 90,000 88,200
9.375% 11/15/06 B3 220,000 212,025
Continental Airlines, Inc.
Pass Through Trust
Certificates:
7.434% 3/15/06 Baa1 70,000 70,273
7.73% 9/15/12 Baa1 45,000 45,203
Kitty Hawk, Inc. 9.95% B1 260,000 258,050
11/15/04
673,751
RAILROADS - 0.3%
Burlington Northern Santa Fe
Corp.:
6.875% 12/1/27 Baa2 1,000,000 924,490
7.29% 6/1/36 Baa2 150,000 150,825
Norfolk Southern Corp. 7.05% Baa1 340,000 345,501
5/1/37
1,420,816
SHIPPING - 0.0%
Holt Group, Inc. 9.75% Caa1 40,000 27,200
1/15/06 (g)
TOTAL TRANSPORTATION 2,121,767
UTILITIES - 2.4%
CELLULAR - 0.8%
Cable & Wireless Baa1 1,120,000 1,104,152
Communications PLC 6.375%
3/6/03
Cellnet Data Systems, Inc. 0% - 300,000 132,000
10/1/07 (e)
Dial Call Communications, B2 30,000 30,600
Inc. 10.25% 12/15/05
McCaw International Ltd. 0% Caa1 260,000 157,300
4/15/07 (e)
Metrocall, Inc.:
10.375% 10/1/07 B3 40,000 31,000
11% 9/15/08 (g) B3 30,000 23,700
Millicom International Caa1 630,000 459,900
Cellular SA 0% 6/1/06 (e)
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Nextel Communications, Inc.:
0% 10/31/07 (e) B2 $ 40,000 $ 28,100
0% 2/15/08 (e) B2 260,000 179,400
9.75% 8/15/04 B2 50,000 51,000
Nextel International, Inc. Caa1 180,000 90,900
0% 4/15/08 (e)
Orange PLC 9% 6/1/09 (g) Ba3 100,000 100,750
Orbital Imaging Corp.:
11.625% 3/1/05 - 10,000 9,200
11.625% 3/1/05 (g) - 30,000 27,300
Orion Network Systems, Inc.:
0% 1/15/07 (e) B2 180,000 98,100
11.25% 1/15/07 B2 30,000 26,400
PageMart Nationwide, Inc. 0% B3 80,000 71,600
2/1/05 (e)
PageMart Wireless, Inc. 0% Caa2 230,000 95,450
2/1/08 (e)
Rogers Communications, Inc. B2 240,000 242,400
8.875% 7/15/07
Spectrasite Holdings, Inc. 0% - 20,000 11,300
4/15/09 (e)(g)
Telesystem International
Wireless, Inc.:
0% 6/30/07 (e) Caa1 120,000 61,200
0% 11/1/07 (e) Caa1 100,000 44,000
3,075,752
ELECTRIC UTILITY - 0.3%
Avon Energy Partners Holdings Baa2 300,000 286,539
6.46% 3/4/08 (g)
Israel Electric Corp. Ltd. A3 795,000 708,544
7.75% 12/15/27 (g)
Texas Utilities Co. 6.375% Baa3 200,000 191,668
1/1/08
1,186,751
GAS - 0.2%
CMS Panhandle Holding Co.:
6.125% 3/15/04 (g) Baa3 150,000 145,905
7% 7/15/29 (g) Baa3 150,000 138,585
Columbia Gas System, Inc. A3 379,000 378,481
6.61% 11/28/02
662,971
TELEPHONE SERVICES - 1.1%
Alestra S. de R.L. de CV B2 40,000 38,600
12.625% 5/15/09 (g)
Allegiance Telecom, Inc. 0% - 40,000 25,000
2/15/08 (e)
Call-Net Enterprises, Inc. B2 100,000 95,750
9.375% 5/15/09
Covad Communications Group,
Inc.:
0% 3/15/08 (e) B3 50,000 27,375
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
Covad Communications Group,
Inc.: - continued
12.5% 2/15/09 B3 $ 60,000 $ 57,750
GCI, Inc. 9.75% 8/1/07 B2 10,000 9,875
GST Network Funding, Inc. 0% - 60,000 34,200
5/1/08 (e)(g)
GST Telecommunications, Inc. - 90,000 97,650
12.75% 11/15/07
Hermes Europe Railtel BV B3 60,000 61,050
10.375% 1/15/09
ICG Holdings, Inc. 0% - 80,000 69,400
9/15/05 (e)
ICG Services, Inc. 0% - 300,000 167,250
2/15/08 (e)
Intermedia Communications, B3 80,000 45,600
Inc. 0% 3/1/09 (e)
IXC Communications, Inc. 9% B3 110,000 104,500
4/15/08
KMC Telecom Holdings, Inc.:
0% 2/15/08 (e) Caa2 110,000 58,575
13.5% 5/15/09 (g) Caa2 60,000 60,150
Logix Communications - 70,000 61,950
Enterprises, Inc. 12.25%
6/15/08
MCI WorldCom, Inc.:
6.4% 8/15/05 A3 810,000 792,423
8.875% 1/15/06 A3 184,000 195,890
Metromedia Fiber Network, B2 270,000 278,100
Inc. 10% 11/15/08
NEXTLINK Communications, Inc.:
0% 6/1/09 (e) B3 110,000 64,763
10.75% 11/15/08 B3 340,000 349,350
10.75% 6/1/09 B3 60,000 61,650
Ono Finance PLC 13% 5/1/09 - 40,000 41,200
unit (g)
Pathnet, Inc. 12.25% 4/15/08 - 20,000 11,000
Rhythms NetConnections, Inc.:
0% 5/15/08 (e) B3 90,000 47,925
12.75% 4/15/09 (g) B3 50,000 46,750
Telecomunicaciones de P R, Baa2 220,000 212,373
Inc. 6.65% 5/15/06 (g)
Teligent, Inc.:
0% 3/1/08 (e) Caa1 180,000 106,200
11.5% 12/1/07 Caa1 310,000 305,350
WinStar Communications, Inc.:
0% 10/15/05 (e) Caa1 40,000 35,000
0% 10/15/05 (e) Caa1 520,000 717,600
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
0% 3/15/08 (e) CCC $ 85,000 $ 74,375
10% 3/15/08 CCC 90,000 79,200
15% 3/1/07 CCC 10,000 11,500
4,445,324
TOTAL UTILITIES 9,370,798
TOTAL NONCONVERTIBLE BONDS 48,502,426
TOTAL CORPORATE BONDS 48,819,136
(Cost $50,803,032)
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 4.3%
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 0.1%
Federal Home Loan Bank:
7.56% 9/1/04 Aaa 310,000 326,467
7.59% 3/10/05 Aaa 190,000 201,104
Government Trust Certificates Aaa 68,877 71,662
(assets of Trust guaranteed
by U.S. Government through
Defense Security Assistance
Agency) Series 2 E, 9.4%
5/15/02
TOTAL U.S. GOVERNMENT AGENCY 599,233
OBLIGATIONS
U.S. TREASURY OBLIGATIONS -
4.2%
U.S. Treasury Bonds:
8.875% 8/15/17 Aaa 830,000 1,060,325
9.875% 11/15/15 Aaa 625,000 852,931
14% 11/15/11 Aaa 490,000 716,777
U.S. Treasury Notes:
5.5% 5/31/03 Aaa 6,000,000 5,954,040
6.5% 5/31/02 Aaa 290,000 296,571
7% 7/15/06 Aaa 6,309,000 6,682,619
U.S. Treasury Notes - coupon Aaa 1,430,000 663,806
STRIPS 0% 11/15/11
TOTAL U.S. TREASURY 16,227,069
OBLIGATIONS
TOTAL U.S. GOVERNMENT AND 16,826,302
GOVERNMENT AGENCY OBLIGATIONS
(Cost $16,983,048)
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES - 8.8%
FANNIE MAE - 5.4%
5.5% 2/1/11 Aaa 176,780 167,941
6% 4/1/09 to 1/1/29 Aaa 2,612,046 2,495,473
6.5% 11/1/25 to 6/1/29 Aaa 10,930,418 10,535,119
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
FANNIE MAE - CONTINUED
7% 12/1/24 to 9/1/28 Aaa $ 3,823,941 $ 3,781,148
7.5% 7/1/29 Aaa 4,000,000 4,053,750
21,033,431
FREDDIE MAC - 0.2%
7% 6/1/01 to 7/1/01 Aaa 103,471 104,011
7.5% 7/1/29 Aaa 422,400 428,472
532,483
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 3.2%
6.5% 4/15/28 to 4/15/29 Aaa 10,937,968 10,517,513
7% 1/15/28 to 12/15/28 Aaa 696,696 687,333
7.5% 6/15/27 to 3/15/28 Aaa 1,299,084 1,311,552
12,516,398
TOTAL U.S. GOVERNMENT AGENCY 34,082,312
- - MORTGAGE SECURITIES
(Cost $35,117,954)
ASSET-BACKED SECURITIES - 1.3%
Airplanes Pass Through Trust Ba2 30,000 28,350
10.875% 3/15/19
American Express Credit A1 200,000 197,094
Account Master Trust 6.1%
12/15/06
Chevy Chase Auto Receivables Aaa 86,385 85,875
Trust 5.91% 12/15/04
Contimortgage Home Equity Aaa 708,187 706,855
Loan Trust 6.26% 7/15/12
Ford Credit Auto Owner Trust:
6.2% 12/15/02 Baa3 510,000 502,345
6.4% 5/15/02 A1 610,000 611,800
6.4% 12/15/02 Baa3 80,000 78,560
Green Tree Financial Corp. Aaa 590 590
6.1% 4/15/27
Key Auto Finance Trust:
6.3% 10/15/03 A2 440,170 439,482
6.65% 10/15/03 Baa3 131,479 132,075
MBNA Master Credit Card Trust Aaa 1,000,000 1,011,270
II 6.55% 1/15/07
Premier Auto Trust 5.59% Aaa 1,000,000 981,870
2/9/04
Sears Credit Account Master Aaa 262,500 262,910
Trust II 6.5% 10/15/03
TOTAL ASSET-BACKED SECURITIES 5,039,076
(Cost $5,056,072)
COMMERCIAL MORTGAGE
SECURITIES - 0.6%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
CS First Boston Mortgage
Securities Corp.:
Series 1997 C2 Class D, 7.27% Baa2 $ 220,000 $ 207,006
1/17/35
Series 1998 FLI:
Class D, 5.4013% 12/10/00 A2 300,000 296,719
(g)(h)
Class E, 5.7675% 1/10/13 Baa2 420,000 411,600
(g)(h)
GS Mortgage Securities Corp. Baa3 500,000 434,885
II Series 1998-GLII Class E,
6.9697% 4/13/31 (g)(h)
Morgan Stanley Capital I,
Inc. Series 1998 CF1:
Class D, 7.35% 1/15/12 Baa2 195,000 180,741
Class E, 7.35% 12/15/12 Baa3 68,000 57,418
Thirteen Affiliates of Aaa 500,000 490,050
General Growth Properties,
Inc. sequential pay Series 1
Class A2, 6.602% 12/15/10 (g)
Wells Fargo Capital Markets Aaa 143,915 144,232
Apartment Financing Trust
Series APT Class 1, 6.56%
12/29/05 (g)
TOTAL COMMERCIAL MORTGAGE 2,222,651
SECURITIES
(Cost $2,315,802)
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS (I) - 0.1%
Korean Republic yankee:
8.75% 4/15/03 Baa3 140,000 146,423
8.875% 4/15/08 Baa3 116,000 122,548
Quebec Province:
yankee 6.86% 4/15/26 (f) A2 250,000 252,490
yankee:
7.125% 2/9/24 A2 30,000 29,208
7.5% 7/15/23 A2 30,000 30,500
TOTAL FOREIGN GOVERNMENT AND 581,169
GOVERNMENT AGENCY OBLIGATIONS
(Cost $576,842)
SUPRANATIONAL OBLIGATIONS -
0.1%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Inter American Development Aaa $ 500,000 $ 495,845
Bank yankee 6.29% 7/16/27
(Cost $496,855)
CASH EQUIVALENTS - 6.5%
SHARES
Taxable Central Cash Fund (c) 25,118,320 25,118,320
(Cost $25,118,320)
TOTAL INVESTMENT IN $ 388,188,893
SECURITIES - 100%
(Cost $336,125,438)
</TABLE>
SECURITY TYPE ABBREVIATIONS
ACES - Automatic Common Exchange
Securities
PIES - Premium Income Exchangeable
Securities
QUIPS - Quarterly Income Preferred
Securities
LEGEND
(a) Non-income producing
(b) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(c) At period end, the seven-day yield on the Taxable Central Cash
Fund was 4.84%. The yield refers to the income earned by investing in
the fund over the seven-day period, expressed as an annual percentage.
(d) Non-income producing - issuer filed for protection under the
Federal Bankruptcy Code or is in default of interest payment.
(e) Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date. The rate shown
is the rate at period end.
(f) Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date. The rate shown is the rate at
period end.
(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 $9,919,607 or 2.6% of net assets.
(h) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(i) For foreign government obligations not individually rated by S&P
or Moody's, the ratings listed have been assigned by FMR, the fund's
investment adviser, based principally on S&P and Moody's ratings of
the sovereign credit of the issuing government.
(j) Restricted securities - Investment in securities not registered
under the Securities Act of 1933.
SECURITY ACQUISITION DATE ACQUISITION COST
Mothers Work, Inc. 6/18/98 $ 18
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $234,628,628 and $185,116,370, respectively, of which
long-term U.S. government and government agency obligations aggregated
$65,743,085 and $47,982,267, respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company.
The commissions paid to these affiliated firms were $12,071 for the
period.
The composition of long-term debt holdings as a percentage of total
value of investments in securities, is as follows (ratings are
unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 17.5% AAA, AA, A 16.9%
Baa 5.3% BBB 5.6%
Ba 0.7% BB 0.6%
B 3.2% B 3.2%
Caa 0.8% CCC 0.6%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by Moody's or S&P amounted to 0.2%. FMR has
determined that unrated debt securities that are lower quality account
for 0.2% of the total value of investment in securities.
INCOME TAX INFORMATION
At June 30, 1999, the aggregate cost of investment securities for
income tax purposes was $336,781,783. Net unrealized appreciation
aggregated $51,407,110, of which $59,663,175 related to appreciated
investment securities and $8,256,065 related to depreciated investment
securities.
VARIABLE INSURANCE PRODUCTS FUND III: BALANCED PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 388,188,893
value (cost $336,125,438) -
See accompanying schedule
Cash 41,469
Receivable for investments 3,303,471
sold
Receivable for fund shares 73,355
sold
Dividends receivable 82,717
Interest receivable 1,501,888
Other receivables 37,322
TOTAL ASSETS 393,229,115
LIABILITIES
Payable for investments $ 17,429,025
purchased
Payable for fund shares 489,528
redeemed
Accrued management fee 132,357
Distribution fees payable 1,442
Other payables and accrued 42,076
expenses
TOTAL LIABILITIES 18,094,428
NET ASSETS $ 375,134,687
Net Assets consist of:
Paid in capital $ 308,165,308
Undistributed net investment 5,061,999
income
Accumulated undistributed net 9,844,250
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation 52,063,130
(depreciation) on
investments and assets and
liabilities in foreign
currencies
NET ASSETS $ 375,134,687
INITIAL CLASS: NET ASSET $16.06
VALUE, offering price and
redemption price per share
($356,627,636 (divided by)
22,208,610 shares)
SERVICE CLASS: NET ASSET $16.01
VALUE, offering price and
redemption price per share
($18,507,051 (divided by)
1,156,020 shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30,
1999 (UNAUDITED)
INVESTMENT INCOME $ 1,778,053
Dividends
Interest 4,181,750
TOTAL INCOME 5,959,803
EXPENSES
Management fee $ 748,922
Transfer agent fees 117,752
Distribution fees - Service 6,847
Class
Accounting fees and expenses 79,462
Non-interested trustees' 521
compensation
Custodian fees and expenses 15,769
Audit 10,906
Legal 250
Miscellaneous 4,419
Total expenses before 984,848
reductions
Expense reductions (27,287) 957,561
NET INVESTMENT INCOME 5,002,242
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities 10,162,372
Foreign currency transactions 7,065 10,169,437
Change in net unrealized
appreciation (depreciation)
on:
Investment securities 1,557,859
Assets and liabilities in (8,450) 1,549,409
foreign currencies
NET GAIN (LOSS) 11,718,846
NET INCREASE (DECREASE) IN $ 16,721,088
NET ASSETS RESULTING FROM
OPERATIONS
OTHER INFORMATION $ 26,451
Expense reductions Directed
brokerage arrangements
Custodian credits 836
$ 27,287
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
ASSETS 1999 (UNAUDITED)
Operations Net investment $ 5,002,242 $ 7,601,874
income
Net realized gain (loss) 10,169,437 8,523,372
Change in net unrealized 1,549,409 26,055,460
appreciation (depreciation)
NET INCREASE (DECREASE) IN 16,721,088 42,180,706
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (7,479,403) (5,425,338)
From net investment income
From net realized gain (8,692,279) (8,288,727)
TOTAL DISTRIBUTIONS (16,171,682) (13,714,065)
Share transactions - net 57,341,742 74,228,783
increase (decrease)
TOTAL INCREASE (DECREASE) 57,891,148 102,695,424
IN NET ASSETS
NET ASSETS
Beginning of period 317,243,539 214,548,115
End of period (including $ 375,134,687 $ 317,243,539
undistributed net investment
income of $5,061,999 and
$7,505,060, respectively)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OTHER INFORMATION:
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
1999 (UNAUDITED)
SHARES DOLLARS SHARES DOLLARS
Share transactions Initial 3,234,240 $ 51,127,548 6,631,328 $ 99,433,344
Class Sold
Reinvested 1,027,536 15,608,273 974,658 13,713,433
Redeemed (1,150,453) (18,219,759) (3,218,228) (47,915,708)
Net increase (decrease) 3,111,323 $ 48,516,062 4,387,758 $ 65,231,069
Service Class Sold 528,546 $ 8,334,214 610,188 $ 9,232,622
Reinvested 37,189 563,405 46 643
Redeemed (4,666) (71,939) (15,989) (235,551)
Net increase (decrease) 561,069 $ 8,825,680 594,245 $ 8,997,714
Distributions From net $ 7,218,828 $ 5,425,084
investment income Initial
Class
Service Class 260,575 254
Total $ 7,479,403 $ 5,425,338
From net realized gain $ 8,389,449 $ 8,288,339
Initial Class
Service Class 302,830 388
Total $ 8,692,279 $ 8,288,727
$ 16,171,682 $ 13,714,065
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 1996 1995 H
Net asset value, beginning of $ 16.11 $ 14.58 $ 12.23 $ 11.17 $ 10.00
period
Income from Investment
Operations
Net investment income .23 D .44 D .44 D .33 .14
Net realized and unrealized .52 2.00 2.22 .78 1.25
gain (loss)
Total from investment .75 2.44 2.66 1.11 1.39
operations
Less Distributions
From net investment income (.37) (.36) (.31) (.01) (.14)
From net realized gain (.43) (.55) - (.04) (.08)
Total distributions (.80) (.91) (.31) (.05) (.22)
Net asset value, end of period $ 16.06 $ 16.11 $ 14.58 $ 12.23 $ 11.17
TOTAL RETURN B, C 4.94% 17.64% 22.18% 9.98% 13.92%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 356,628 $ 307,681 $ 214,538 $ 103,110 $ 43,155
(000 omitted)
Ratio of expenses to average .57% A .59% .61% .72% 1.42% F
net assets
Ratio of expenses to average .56% A, G .58% G .60% G .71% G 1.42%
net assets after expense
reductions
Ratio of net investment 2.94% A 2.94% 3.28% 3.63% 3.56%
income to average net assets
Portfolio turnover 115% A 94% 98% 163% 248%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - SERVICE CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 E
Net asset value, beginning of $ 16.07 $ 14.59 $ 14.16
period
Income from Investment
Operations
Net investment income D .22 .41 .08
Net realized and unrealized .52 1.98 .35
gain (loss)
Total from investment .74 2.39 .43
operations
Less Distributions
From net investment income (.37) (.36) -
From net realized gain (.43) (.55) -
Total distributions (.80) (.91) -
Net asset value, end of period $ 16.01 $ 16.07 $ 14.59
TOTAL RETURN B, C 4.89% 17.27% 3.04%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 18,507 $ 9,562 $ 10
(000 omitted)
Ratio of expenses to average .68% A .70% .71% A
net assets
Ratio of expenses to average .66% A, G .69% G .71% A
net assets after expense
reductions
Ratio of net investment 2.83% A 2.79% 3.43% A
income to average net assets
Portfolio turnover 115% A 94% 98%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE
TO YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. INCLUSION
OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN. TOTAL RETURNS FOR PERIODS OF LESS THAN ONE
YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED
BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF SALE
OF SERVICE CLASS SHARES) TO DECEMBER 31, 1997.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS'
EXPENSES DURING THE PERIOD. WITHOUT THIS REIMBURSEMENT,
THE CLASS' EXPENSE RATIO WOULD HAVE BEEN HIGHER.
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS
WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A
PORTION OF THE CLASS' EXPENSES.
H FOR THE PERIOD JANUARY 3, 1995 (COMMENCEMENT OF
OPERATIONS OF INITIAL CLASS SHARES) TO DECEMBER 31, 1995.
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER: GROWTH PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). If Fidelity had not reimbursed certain fund
expenses, the life of fund total return would have been lower.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30,1999 PAST 1 YEAR LIFE OF FUND
VIP II: ASSET MGR: GROWTH - 13.76% 20.79%
"INITIAL CLASS"
Fidelity Aggressive Composite 17.24% n/a
S&P 500 (registered trademark) 22.76% 30.11%
LB Aggregate Bond 3.15% 8.55%
LB 3 Month T-Bill 4.89% n/a
Variable Annuity Flexible 10.46% n/a
Portfolio Funds Average
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's returns to those of the Fidelity Aggressive
Asset Allocation Composite Index - a hypothetical combination of
unmanaged indices. The composite index combines the total returns of
the Standard & Poor's 500 Index, the Lehman Brothers Aggregate Bond
Index and the Lehman Brothers 3 Month Treasury Bill Index weighted
according to the fund's neutral mix.
You can also compare the fund's returns to the variable annuity
flexible portfolio funds average, which reflects the performance of
mutual funds with similar objectives tracked by Lipper Inc. The past
one year average represents a peer group of 92 mutual funds. The
benchmarks listed in the table above include 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, January 3, 1995.
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, THE TOTAL RETURN 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.
(checkmark)UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for example,
has a history of long-term growth and short-term
volatility. In turn, the share price and return of a
fund that invests in stocks will vary. That means if
you sell your shares during a market downturn,
you might lose money. But if you can ride out the
market's ups and downs, you may have a gain.
$10,000 OVER LIFE OF FUND
VIP II ASSET MGR GROWTH 70 S&P/25 LBAGG/5 LB 3MO
S&P 500 LB AGGREGATE BOND
00159 F0022
SP001 LB001
1995/01/31 10000.00 10000.00
10000.00 10000.00
1995/02/28 10149.70 10319.62
10389.70 10238.00
1995/03/31 10289.42 10539.71
10696.30 10300.45
1995/04/30 10558.88 10785.50
11011.31 10444.66
1995/05/31 10708.58 11199.23
11451.43 10848.87
1995/06/30 11137.72 11397.77
11717.44 10928.06
1995/07/31 11546.91 11633.53
12106.00 10904.02
1995/08/31 12065.87 11695.86
12136.38 11035.96
1995/09/30 12245.51 12052.97
12648.54 11143.01
1995/10/31 11776.45 12083.85
12603.38 11287.87
1995/11/30 11986.03 12487.56
13156.67 11457.19
1995/12/31 12277.71 12701.01
13410.07 11617.59
1996/01/31 12569.78 13008.92
13866.55 11694.26
1996/02/29 12613.39 13009.89
13995.09 11490.78
1996/03/31 12840.37 13059.96
14129.86 11410.35
1996/04/30 13143.01 13162.84
14338.14 11346.45
1996/05/31 13348.36 13380.07
14707.92 11323.76
1996/06/30 13402.41 13467.11
14763.95 11475.49
1996/07/31 13067.35 13093.05
14111.68 11506.48
1996/08/31 13164.62 13267.32
14409.30 11486.92
1996/09/30 13705.04 13821.05
15220.25 11686.79
1996/10/31 14104.95 14163.15
15640.03 11946.24
1996/11/30 15023.67 14935.59
16822.26 12150.52
1996/12/31 14737.79 14700.41
16489.01 12037.52
1997/01/31 15367.80 15358.12
17519.24 12074.83
1997/02/28 15514.22 15455.00
17656.59 12105.02
1997/03/31 14781.88 14970.83
16931.08 11970.65
1997/04/30 15401.55 15656.26
17941.87 12150.21
1997/05/31 16336.68 16364.80
19034.17 12265.64
1997/06/30 16821.15 16929.64
19886.90 12411.60
1997/07/31 17959.09 17991.36
21469.30 12746.72
1997/08/31 17395.75 17251.75
20266.59 12638.37
1997/09/30 18037.95 17980.97
21376.59 12825.42
1997/10/31 17609.82 17629.62
20662.61 13011.39
1997/11/30 18116.82 18224.94
21619.09 13071.24
1997/12/31 18432.29 18493.92
21990.29 13203.26
1998/01/31 18432.29 18700.72
22233.50 13372.26
1998/02/28 19558.44 19644.52
23836.98 13361.56
1998/03/31 20283.77 20370.04
25057.67 13406.99
1998/04/30 20220.15 20544.55
25309.75 13476.71
1998/05/31 20016.54 20350.75
24874.67 13604.74
1998/06/30 20487.37 20976.94
25885.08 13720.15
1998/07/31 20309.22 20836.30
25609.41 13749.26
1998/08/31 17751.48 18817.12
21906.80 13973.05
1998/09/30 18413.18 19776.04
23310.15 14300.19
1998/10/31 19583.89 20879.82
25206.20 14224.74
1998/11/30 20563.72 21798.80
26733.94 14305.30
1998/12/31 21670.80 22698.67
28274.35 14348.32
1999/01/31 22307.06 23408.00
29456.79 14450.81
1999/02/28 21729.24 22800.07
28541.27 14198.50
1999/03/31 21946.67 23475.12
29683.21 14277.27
1999/04/30 22598.96 24134.36
30832.84 14322.53
1999/05/31 22204.87 23687.10
30104.87 14196.49
1999/06/30 23305.60 24593.03
31775.69 14151.15
IMATRL PRASUN SHR__CHT 19990630 19990714 122449 R00000000000056
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund II: Asset Manager: Growth
Portfolio on January 31, 1995, shortly after the fund started. As the
chart shows, by June 30, 1999, the value of the investment would have
grown to $23,306 - a 133.06% increase. With reinvested dividends and
capital gains, if any, a $10,000 investment in the Standard & Poor's
500 Index would have grown to $31,776 over the same period - a 217.76%
increase. If $10,000 was invested in the Lehman Brothers Aggregate
Bond Index, it would have grown to $14,151 - a 41.51% increase.
You can also look at how the Fidelity Aggressive Asset Allocation
Composite Index did over the same period. The Aggressive Asset
Allocation Composite index combines the cumulative total returns of
three unmanaged indexes - the S&P 500 (217.76%), Lehman Brothers
Aggregate Bond Index (41.51%), and the Lehman Brothers 3 Month
Treasury Bill Index (26.44%) - according to the fund's neutral mix*,
assuming monthly rebalancing. With reinvested dividends and capital
gains, if any, a $10,000 investment in the index would have grown to
$24,593 - a 145.93% increase.
* 70% STOCKS, 25% BONDS AND 5% SHORT-TERM INSTRUMENTS EFFECTIVE
JANUARY 1, 1997; 65%, 30% AND 5%, RESPECTIVELY, PRIOR TO DECEMBER 31,
1996.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE
30, 1999
% OF FUND'S INVESTMENTS
Wal-Mart Stores, Inc. 2.5
Lucent Technologies, Inc. 2.2
General Electric Co. 2.1
Microsoft Corp. 2.0
Ameritech Corp. 1.8
TOP FIVE MARKET SECTORS AS OF
JUNE 30, 1999
(STOCKS ONLY) % OF FUND'S INVESTMENTS
TECHNOLOGY 15.2
FINANCE 12.8
UTILITIES 7.9
RETAIL & WHOLESALE 7.7
HEALTH 6.8
ASSET ALLOCATION AS OF JUNE
30, 1999*
% OF FUND'S INVESTMENTS
Stock class 78.1%
Bonds class 18.9%
Short-term/ Money Market
class 3.0%
* FOREIGN INVESTMENTS 1.6%
Row: 1, Col: 1, Value: 77.8
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 19.0
Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 3.2
ASSET ALLOCATION IN THE PIE CHART REFLECTS THE CATEGORIZATION OF
ASSETS AS DEFINED IN THE FUND'S PROSPECTUS. FINANCIAL STATEMENT
CATEGORIZATIONS CONFORM TO ACCOUNTING STANDARDS AND WILL DIFFER FROM
THE PIE CHART.
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER: GROWTH PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). The initial offering of Service Class shares
took place on November 3, 1997. Performance for Service Class shares
reflects an asset based distribution fee (12b-1 fee), and returns
prior to November 3, 1997 are those of Initial Class and do not
include the effects of Service Class' 12b-1 fee. Had Service Class
shares' 12b-1 fee been reflected, returns prior to November 3, 1997
would have been lower. If Fidelity had not reimbursed certain fund
expenses, the life of fund total return would have been lower.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 1 YEAR LIFE OF FUND
VIP II: ASSET MGR: GROWTH - 13.68% 20.68%
SERVICE CLASS
Fidelity Aggressive Composite 17.24% n/a
S&P 500 22.76% 30.11%
LB Aggregate Bond 3.15% 8.55%
LB 3 Month T-Bill 4.89% n/a
Variable Annuity Flexible 10.46% n/a
Portfolio Funds Average
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's returns to those of the Fidelity Aggressive
Asset Allocation Composite Index - a hypothetical combination of
unmanaged indices. The composite index combines the total returns of
the Standard & Poor's 500 Index, the Lehman Brothers Aggregate Bond
Index and the Lehman Brothers 3 Month Treasury Bill Index weighted
according to the fund's neutral mix.
You can also compare the fund's returns to the variable annuity
flexible portfolio funds average, which reflects the performance of
mutual funds with similar objectives tracked by Lipper Inc. The past
one year average represents a peer group of 92 mutual funds. The
benchmarks listed in the table above include 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, January 3, 1995.
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, THE TOTAL RETURN 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.
(checkmark)UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for example,
has a history of long-term growth and short-term
volatility. In turn, the share price and return of a
fund that invests in stocks will vary. That means if
you sell your shares during a market downturn,
you might lose money. But if you can ride out the
market's ups and downs, you may have a gain.
$10,000 OVER LIFE OF FUND
VIP II ASSET MGR GRO - SC 70 S&P/25 LBAGG/5 LB 3MO
S&P 500 LB AGGREGATE BOND
00468 F0022
SP001 LB001
1995/01/31 10000.00 10000.00
10000.00 10000.00
1995/02/28 10149.70 10319.62
10389.70 10238.00
1995/03/31 10289.42 10539.71
10696.30 10300.45
1995/04/30 10558.88 10785.50
11011.31 10444.66
1995/05/31 10708.58 11199.23
11451.43 10848.87
1995/06/30 11137.72 11397.77
11717.44 10928.06
1995/07/31 11546.91 11633.53
12106.00 10904.02
1995/08/31 12065.87 11695.86
12136.38 11035.96
1995/09/30 12245.51 12052.97
12648.54 11143.01
1995/10/31 11776.45 12083.85
12603.38 11287.87
1995/11/30 11986.03 12487.56
13156.67 11457.19
1995/12/31 12277.71 12701.01
13410.07 11617.59
1996/01/31 12569.78 13008.92
13866.55 11694.26
1996/02/29 12613.39 13009.89
13995.09 11490.78
1996/03/31 12840.37 13059.96
14129.86 11410.35
1996/04/30 13143.01 13162.84
14338.14 11346.45
1996/05/31 13348.36 13380.07
14707.92 11323.76
1996/06/30 13402.41 13467.11
14763.95 11475.49
1996/07/31 13067.35 13093.05
14111.68 11506.48
1996/08/31 13164.62 13267.32
14409.30 11486.92
1996/09/30 13705.04 13821.05
15220.25 11686.79
1996/10/31 14104.95 14163.15
15640.03 11946.24
1996/11/30 15023.67 14935.59
16822.26 12150.52
1996/12/31 14737.79 14700.41
16489.01 12037.52
1997/01/31 15367.80 15358.12
17519.24 12074.83
1997/02/28 15514.22 15455.00
17656.59 12105.02
1997/03/31 14781.88 14970.83
16931.08 11970.65
1997/04/30 15401.55 15656.26
17941.87 12150.21
1997/05/31 16336.68 16364.80
19034.17 12265.64
1997/06/30 16821.15 16929.64
19886.90 12411.60
1997/07/31 17959.09 17991.36
21469.30 12746.72
1997/08/31 17395.75 17251.75
20266.59 12638.37
1997/09/30 18037.95 17980.97
21376.59 12825.42
1997/10/31 17609.82 17629.62
20662.61 13011.39
1997/11/30 18105.55 18224.94
21619.09 13071.24
1997/12/31 18421.02 18493.92
21990.29 13203.26
1998/01/31 18409.75 18700.72
22233.50 13372.26
1998/02/28 19510.54 19644.52
23836.98 13361.56
1998/03/31 20235.98 20370.04
25057.67 13406.99
1998/04/30 20159.62 20544.55
25309.75 13476.71
1998/05/31 19955.99 20350.75
24874.67 13604.74
1998/06/30 20414.16 20976.94
25885.08 13720.15
1998/07/31 20248.71 20836.30
25609.41 13749.26
1998/08/31 17690.58 18817.12
21906.80 13973.05
1998/09/30 18352.38 19776.04
23310.15 14300.19
1998/10/31 19510.54 20879.82
25206.20 14224.74
1998/11/30 20490.53 21798.80
26733.94 14305.30
1998/12/31 21585.05 22698.67
28274.35 14348.32
1999/01/31 22221.40 23408.00
29456.79 14450.81
1999/02/28 21643.48 22800.07
28541.27 14198.50
1999/03/31 21847.40 23475.12
29683.21 14277.27
1999/04/30 22499.97 24134.36
30832.84 14322.53
1999/05/31 22105.71 23687.10
30104.87 14196.49
1999/06/30 23206.92 24593.03
31775.69 14151.15
IMATRL PRASUN SHR__CHT 19990630 19990714 155443 R00000000000056
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund II: Asset Manager: Growth
Portfolio - Service Class on January 31, 1995, shortly after the fund
started. As the chart shows, by June 30, 1999, the value of the
investment would have grown to $23,207 - a 132.07% increase. With
reinvested dividends and capital gains, if any, a $10,000 investment
in the Standard & Poor's 500 Index would have grown to $31,776 over
the same period - a 217.76% increase. If $10,000 was invested in the
Lehman Brothers Aggregate Bond Index, it would have grown to $14,151 -
a 41.51% increase. You can also look at how the Fidelity Aggressive
Asset Allocation Composite Index did over the same period. The
Aggressive Asset Allocation Composite Index combines the cumulative
total returns of three unmanaged indexes - the S&P 500 (217.76%),
Lehman Brothers Aggregate Bond Index (41.51%), and the Lehman Brothers
3 Month Treasury Bill Index (26.44%) - according to the fund's neutral
mix*, assuming monthly rebalancing. With reinvested dividends and
capital gains, if any, a $10,000 investment in the index would have
grown to $24,593 - a 145.93% increase.
* 70% STOCKS, 25% BONDS AND 5% SHORT-TERM INSTRUMENTS EFFECTIVE
JANUARY 1, 1997; 65%, 30% AND 5%, RESPECTIVELY, PRIOR TO DECEMBER 31,
1996.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE
30, 1999
% OF FUND'S INVESTMENTS
Wal-Mart Stores, Inc. 2.5
Lucent Technologies, Inc. 2.2
General Electric Co. 2.1
Microsoft Corp. 2.0
Ameritech Corp. 1.8
TOP FIVE MARKET SECTORS AS OF
JUNE 30, 1999
(STOCKS ONLY) % OF FUND'S INVESTMENTS
TECHNOLOGY 15.2
FINANCE 12.8
UTILITIES 7.9
RETAIL & WHOLESALE 7.7
HEALTH 6.8
ASSET ALLOCATION AS OF JUNE
30, 1999*
% OF FUND'S INVESTMENTS
Stock class 78.1%
Bonds class 18.9%
Short-term/ Money Market
class 3.0%
* FOREIGN INVESTMENTS 1.6%
Row: 1, Col: 1, Value: 77.8
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 19.0
Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 3.2
ASSET ALLOCATION IN THE PIE CHART REFLECTS THE CATEGORIZATION OF
ASSETS AS DEFINED IN THE FUND'S PROSPECTUS. FINANCIAL STATEMENT
CATEGORIZATIONS CONFORM TO ACCOUNTING STANDARDS AND WILL DIFFER FROM
THE PIE CHART.
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER: GROWTH PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
(photograph of Richard Habermann)
An interview with
Richard Habermann,
Portfolio Manager of Asset Manager: Growth Portfolio
Q. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK, DICK?
A. For the six months that ended June 30, 1999, the fund trailed the
8.35% return of the Fidelity Aggressive Asset Allocation Composite
Index. For the 12 months that ended June 30, 1999, the fund also
lagged the index, which returned 17.24%.
Q. HOW DID YOU POSITION THE FUND FROM AN ASSET ALLOCATION STANDPOINT
DURING THE PERIOD? WHAT FACTORS CAUSED IT TO
UNDERPERFORM ITS BENCHMARK?
A. In terms of asset allocation, I gradually increased the fund's
exposure to equities during the second half of the period as that
segment of the market continued to broaden and perform well. In fact,
at the end of the period, the fund's equity subportfolio - which is
managed by Steve Snider - accounted for around 78% of total
investments, exceeding the 70% level of the composite index. While
this overweighting helped, several individual stock positions - namely
in the health care and finance sectors - performed poorly and brought
performance down. As for the bond portion of the fund, I sought
increased exposure in higher-yielding bonds as several factors made
that an attractive area. I kept the fund underweighted relative to its
composite index in both investment-grade bonds and short-term
securities, as investors generally tended to favor more aggressive
investments during the period.
Q. CAN YOU GO INTO MORE DETAIL ON THE PERFORMANCE OF THE STOCK
SUBPORTFOLIO DURING THE PERIOD?
A. It was almost a tale of two periods: the first three months of
1999, in which we continued to see a select group of large-cap stocks
perform exceptionally well; and the second three months, in which we
finally began to see a broadening of the equity market. The early
narrowness proved somewhat restrictive to the fund, while the later
broadening played to our stock research strengths. Many of the best
individual contributors came from the technology and retail sectors.
Hewlett-Packard, for example, benefited from solid growth in its
European and Asian businesses, while retailer Best Buy - which
specializes in high-end audio and video equipment - reaped the
benefits of increased consumer attraction to digital products. Two
main laggards during the period were health-care stock Guidant and
software company Oracle. Guidant, which manufactures cardiac systems,
was hurt by a recall in its product line as well as stronger
competition. Oracle, on the other hand, fell victim to a slowdown in
overall sales. The fund no longer owned Oracle at the end of the
period.
Q. CAN YOU PROVIDE SOME MORE SPECIFICS ON THE BOND PORTION OF THE
FUND?
A. The fund's high-yield bond investments - managed by Fred Hoff -
performed extremely well during the period. Despite rising interest
rates, several of the fund's high-yielding investments - including
those in the telecommunications, retail and health care areas -
performed nicely as spreads tightened relative to U.S. Treasuries. The
fund's positions in Nextel Communications performed well, as Nextel
continued to add wireless subscribers at a rapid rate during the
period. Nextel also received an equity infusion from Microsoft. The
fund's investment-grade bond exposure - managed by Charlie Morrison -
had a relatively neutral effect on performance over the past six
months. At the beginning of the period, risk-conscious investors
favored more conservative investments such as Treasuries. After the
Federal Reserve Board cut interest rates three times in the fall,
however, investor confidence resurfaced and the fund's positions in
spread sectors such as mortgage-backed and corporate bonds regained
their footing.
Q. WHAT WAS YOUR STRATEGY WITH RESPECT TO THE FUND'S
SHORT-TERM/MONEY MARKET INVESTMENTS?
A. The fund's short-term/money market investments - which are managed
by John Todd - performed relatively well thanks to an effective
mixture of both long- and short-term maturities. We bought longer-term
securities - mainly six months to one year - to capitalize on
attractive yield spreads within the short-term universe. On the other
hand, the overall flight to quality we witnessed in late 1998 created
a premium on liquidity, and shorter-term securities became attractive.
By buying long, we locked in some of those favorable spreads and, by
buying short, we were able to take advantage of the liquidity premium.
Q. WHAT'S YOUR OUTLOOK FOR THE REMAINDER OF 1999?
A. Through the last couple months of the period, the dominance of
large-cap stocks was interrupted by strong showings from both small-
and medium-cap stocks. This type of broad participation - if it can be
sustained - should be beneficial to the fund. However, if world
economies can continue to improve, this would inevitably heighten
concerns over inflation and higher interest rates. In terms of
portfolio positioning, these issues will become increasingly important
in determining the asset mix for the rest of the year.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET OR OTHER CONDITIONS. FOR MORE INFORMATION, SEE PAGE 3.
(checkmark)FUND FACTS
GOAL: maximum total return over the long term
by allocating assets among stocks, bonds and
short-term instruments anywhere in the world
START DATE: January 3, 1995
SIZE: as of June 30, 1999, more than $565
million
MANAGER: Richard Habermann, since 1996;
joined Fidelity in 1968
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER: GROWTH PORTFOLIO
INVESTMENTS JUNE 30, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 72.6%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 3.1%
AEROSPACE & DEFENSE - 2.9%
AlliedSignal, Inc. 77,600 $ 4,888,800
Cordant Technologies, Inc. 21,300 962,494
Northrop Grumman Corp. 29,300 1,942,956
United Technologies Corp. 118,456 8,491,815
16,286,065
DEFENSE ELECTRONICS - 0.2%
Litton Industries, Inc. (a) 14,000 1,004,500
TOTAL AEROSPACE & DEFENSE 17,290,565
BASIC INDUSTRIES - 1.7%
CHEMICALS & PLASTICS - 1.1%
Dow Chemical Co. 21,900 2,778,563
E.I. du Pont de Nemours and 17,300 1,181,806
Co.
Engelhard Corp. 18,900 427,613
FMC Corp. (a) 20,700 1,414,069
Solutia, Inc. 18,200 387,888
6,189,939
PAPER & FOREST PRODUCTS - 0.6%
Georgia-Pacific Corp. 26,600 1,260,175
Louisiana-Pacific Corp. 45,000 1,068,750
Weyerhaeuser Co. 19,900 1,368,125
3,697,050
TOTAL BASIC INDUSTRIES 9,886,989
CONSTRUCTION & REAL ESTATE -
0.6%
BUILDING MATERIALS - 0.2%
Fortune Brands, Inc. 26,000 1,075,750
CONSTRUCTION - 0.4%
Centex Corp. 26,400 991,650
D.R. Horton, Inc. 32,900 546,963
Kaufman & Broad Home Corp. 34,200 850,725
2,389,338
TOTAL CONSTRUCTION & REAL 3,465,088
ESTATE
DURABLES - 2.2%
AUTOS, TIRES, & ACCESSORIES -
1.5%
Delphi Automotive Systems 57,871 1,074,230
Corp.
Ford Motor Co. 132,300 7,466,681
8,540,911
CONSUMER ELECTRONICS - 0.4%
Maytag Corp. 35,000 2,439,063
SHARES VALUE (NOTE 1)
HOME FURNISHINGS - 0.3%
Ethan Allen Interiors, Inc. 20,100 $ 758,775
Furniture Brands 21,700 604,888
International, Inc. (a)
1,363,663
TOTAL DURABLES 12,343,637
ENERGY - 3.9%
OIL & GAS - 3.9%
Apache Corp. 23,100 900,900
Atlantic Richfield Co. 56,100 4,687,856
Chevron Corp. 20,500 1,951,344
Coastal Corp. (The) 56,800 2,272,000
Exxon Corp. 95,900 7,396,288
Mobil Corp. 51,500 5,098,500
22,306,888
FINANCE - 12.7%
BANKS - 4.5%
Bank of America Corp. 63,100 4,626,019
BankBoston Corp. 53,800 2,750,525
Chase Manhattan Corp. 117,300 10,161,113
Comerica, Inc. 10,700 635,981
Firstar Corp. 30,000 840,000
National City Corp. 24,139 1,581,105
SunTrust Banks, Inc. 34,100 2,367,819
Wells Fargo & Co. 66,400 2,838,600
25,801,162
CREDIT & OTHER FINANCE - 2.2%
American Express Co. 19,900 2,589,488
Citigroup, Inc. 109,200 5,187,000
Equitable Companies (The), 32,000 2,144,000
Inc.
Fleet Financial Group, Inc. 28,500 1,264,688
Providian Financial Corp. 11,500 1,075,250
12,260,426
FEDERAL SPONSORED CREDIT - 2.5%
Fannie Mae 140,400 9,599,850
Freddie Mac 78,200 4,535,600
14,135,450
INSURANCE - 1.9%
Allmerica Financial Corp. 12,400 754,075
American International Group, 27,925 3,268,970
Inc.
Conseco, Inc. 110,000 3,348,125
Financial Security Assurance 4,700 244,400
Holdings Ltd.
Lincoln National Corp. 20,800 1,088,100
Marsh & McLennan Companies, 26,400 1,993,200
Inc.
10,696,870
SECURITIES INDUSTRY - 1.6%
Kansas City Southern 26,500 1,691,031
Industries, Inc.
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - CONTINUED
SECURITIES INDUSTRY - CONTINUED
Lehman Brothers Holdings, 74,800 $ 4,656,300
Inc.
Morgan Stanley, Dean Witter & 26,600 2,726,500
Co.
9,073,831
TOTAL FINANCE 71,967,739
HEALTH - 6.7%
DRUGS & PHARMACEUTICALS - 3.7%
Amgen, Inc. (a) 47,500 2,891,563
Bristol-Myers Squibb Co. 145,500 10,248,656
Schering-Plough Corp. 148,700 7,881,100
21,021,319
MEDICAL EQUIPMENT & SUPPLIES
- - 2.5%
Abbott Laboratories 39,600 1,801,800
Boston Scientific Corp. (a) 39,700 1,744,319
Guidant Corp. 44,800 2,304,400
Johnson & Johnson 85,900 8,418,200
14,268,719
MEDICAL FACILITIES MANAGEMENT
- - 0.5%
Lincare Holdings, Inc. (a) 26,000 650,000
PacifiCare Health Systems, 25,600 1,841,600
Inc. Class A (a)
2,491,600
TOTAL HEALTH 37,781,638
INDUSTRIAL MACHINERY &
EQUIPMENT - 4.5%
ELECTRICAL EQUIPMENT - 2.3%
General Electric Co. 107,000 12,091,000
General Instrument Corp. (a) 28,300 1,202,750
13,293,750
INDUSTRIAL MACHINERY &
EQUIPMENT - 2.2%
Coltec Industries, Inc. (a) 36,700 795,931
Ingersoll-Rand Co. 71,500 4,620,688
Tyco International Ltd. 73,700 6,983,075
12,399,694
TOTAL INDUSTRIAL MACHINERY & 25,693,444
EQUIPMENT
MEDIA & LEISURE - 2.4%
BROADCASTING - 0.6%
NTL, Inc. warrants 12/31/08 427 21,350
(a)
Time Warner, Inc. 49,850 3,663,975
3,685,325
ENTERTAINMENT - 0.5%
Mandalay Resort Group (a) 39,800 840,775
Viacom, Inc. Class B 39,800 1,751,200
(non-vtg.) (a)
2,591,975
SHARES VALUE (NOTE 1)
PUBLISHING - 1.2%
Gannet, Inc. 50,900 $ 3,632,988
Knight-Ridder, Inc. 18,900 1,038,319
New York Times Co. (The) 32,800 1,207,450
Class A
Tribune Co. 10,000 871,250
World Color Press, Inc. (a) 9,700 266,750
7,016,757
RESTAURANTS - 0.1%
Brinker International, Inc. 12,000 326,250
(a)
TOTAL MEDIA & LEISURE 13,620,307
NONDURABLES - 3.8%
BEVERAGES - 0.8%
Anheuser-Busch Companies, 37,900 2,688,531
Inc.
Canandaigua Wine, Inc. Class 7,300 382,794
A (a)
Coors (Adolph) Co. Class B 14,700 727,650
PepsiCo, Inc. 22,600 874,338
4,673,313
FOODS - 1.4%
Heinz (H.J.) Co. 94,500 4,736,813
Quaker Oats Co. 43,400 2,880,675
7,617,488
HOUSEHOLD PRODUCTS - 1.0%
Avon Products, Inc. 18,700 1,037,850
Clorox Co. 17,500 1,869,219
Premark International, Inc. 4,400 165,000
Procter & Gamble Co. 25,900 2,311,575
5,383,644
TOBACCO - 0.6%
Philip Morris Companies, Inc. 88,500 3,556,594
TOTAL NONDURABLES 21,231,039
RETAIL & WHOLESALE - 7.7%
APPAREL STORES - 1.2%
Gap, Inc. 43,575 2,195,091
TJX Companies, Inc. 117,600 3,917,550
United Stationers, Inc. (a) 20,000 440,000
6,552,641
GENERAL MERCHANDISE STORES -
3.2%
Dayton Hudson Corp. 21,100 1,371,500
Federated Department Stores, 48,400 2,562,175
Inc. (a)
Wal-Mart Stores, Inc. 296,000 14,281,974
18,215,649
GROCERY STORES - 0.6%
Safeway, Inc. (a) 71,100 3,519,450
RETAIL & WHOLESALE,
MISCELLANEOUS - 2.7%
Best Buy Co., Inc. (a) 77,000 5,197,500
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
RETAIL & WHOLESALE - CONTINUED
RETAIL & WHOLESALE,
MISCELLANEOUS - CONTINUED
Home Depot, Inc. 110,600 $ 7,126,788
Lowe's Companies, Inc. 55,200 3,129,150
15,453,438
TOTAL RETAIL & WHOLESALE 43,741,178
SERVICES - 0.2%
PRINTING - 0.2%
Valassis Communications, Inc. 31,650 1,159,181
(a)
TECHNOLOGY - 15.2%
COMMUNICATIONS EQUIPMENT - 3.1%
Cisco Systems, Inc. (a) 82,200 5,296,763
Globalstar Telecommunications 180 9,900
Ltd. warrants 2/15/04 (a)(f)
Lucent Technologies, Inc. 183,600 12,381,525
17,688,188
COMPUTER SERVICES & SOFTWARE
- - 6.1%
Adobe Systems, Inc. 29,800 2,448,256
BMC Software, Inc. 74,000 3,996,000
Computer Associates 31,700 1,743,500
International, Inc.
Electronics for Imaging, Inc. 13,300 683,288
(a)
First Data Corp. 46,200 2,260,913
International Business 72,600 9,383,550
Machines Corp.
Microsoft Corp. (a) 127,000 11,453,813
NCR Corp. (a) 2,300 112,269
Unisys Corp. (a) 59,200 2,305,100
34,386,689
COMPUTERS & OFFICE EQUIPMENT
- - 3.1%
Adaptec, Inc. (a) 66,100 2,334,156
Comverse Technology, Inc. (a) 23,800 1,796,900
Hewlett-Packard Co. 76,900 7,728,450
Lexmark International Group, 90,600 5,985,263
Inc. Class A (a)
17,844,769
ELECTRONIC INSTRUMENTS - 0.9%
Applied Materials, Inc. (a) 66,100 4,883,138
ELECTRONICS - 2.0%
Intel Corp. 127,000 7,556,500
Motorola, Inc. 39,200 3,714,200
11,270,700
TOTAL TECHNOLOGY 86,073,484
TRANSPORTATION - 1.1%
AIR TRANSPORTATION - 1.1%
Comair Holdings, Inc. 41,400 861,638
Southwest Airlines Co. 180,400 5,614,950
6,476,588
SHARES VALUE (NOTE 1)
UTILITIES - 6.8%
CELLULAR - 0.0%
McCaw International Ltd. 910 $ 2,275
warrants 4/15/07 (a)(f)
ELECTRIC UTILITY - 1.7%
DTE Energy Co. 32,000 1,280,000
Edison International 39,400 1,053,950
Energy East Corp. 104,600 2,719,600
GPU, Inc. 30,700 1,295,156
Public Service Enterprise 24,200 989,175
Group, Inc.
Reliant Energy, Inc. 56,700 1,566,338
Unicom Corp. 19,900 767,394
9,671,613
TELEPHONE SERVICES - 5.1%
Ameritech Corp. 141,300 10,385,550
AT&T Corp. 141,150 7,877,934
BellSouth Corp. 140,900 6,604,688
Pathnet, Inc. warrants 890 8,900
4/15/08 (a)(f)
SBC Communications, Inc. 65,000 3,770,000
28,647,072
TOTAL UTILITIES 38,320,960
TOTAL COMMON STOCKS 411,358,725
(Cost $308,246,878)
NONCONVERTIBLE PREFERRED
STOCKS - 2.1%
CONSTRUCTION & REAL ESTATE -
0.1%
REAL ESTATE INVESTMENT TRUSTS
- - 0.1%
California Federal Preferred 30,171 784,446
Capital Corp. $2.2812
Walden Residential 1,200 25,950
Properties, Inc. $2.30
810,396
FINANCE - 0.1%
INSURANCE - 0.1%
American Annuity Group 160 158,835
Capital Trust II 8.875%
SIG Capital Trust I 9.5% (a) 692 544,565
703,400
HEALTH - 0.1%
MEDICAL FACILITIES MANAGEMENT
- - 0.1%
Fresenius Medical Care 586 554,722
Capital Trust II 7.875%
MEDIA & LEISURE - 0.7%
BROADCASTING - 0.5%
Adelphia Communications Corp. 2,183 249,408
$13.00
Capstar Communications, Inc. 2,572 298,352
$12.625 pay-in-kind
CSC Holdings, Inc. 11.125% 13,606 1,489,857
pay-in-kind
NONCONVERTIBLE PREFERRED
STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Granite Broadcasting Corp. 323 $ 316,540
12.75% pay-in-kind
Sinclair Capital 11.625% 4,717 491,747
2,845,904
PUBLISHING - 0.2%
PRIMEDIA, Inc.:
$9.20 3,869 360,784
Series D, $10.00 6,244 613,473
974,257
TOTAL MEDIA & LEISURE 3,820,161
UTILITIES - 1.1%
CELLULAR - 0.5%
Nextel Communications, Inc.:
11.125% pay-in-kind 2,555 2,567,775
Series D, 13% pay-in-kind 51 53,805
2,621,580
TELEPHONE SERVICES - 0.6%
Hyperion Telecommunication, 769 684,410
Inc. 12.875% pay-in-kind
Intermedia Communications, 691 678,908
Inc. 13.5% pay-in-kind
IXC Communications, Inc. 247 237,120
12.5% pay-in-kind
NEXTLINK Communications, Inc. 27,666 1,397,133
14% pay-in-kind
WinStar Communications, Inc. 449 361,445
14.25%
3,359,016
TOTAL UTILITIES 5,980,596
TOTAL NONCONVERTIBLE 11,869,275
PREFERRED STOCKS
(Cost $12,059,026)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS - 14.3%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT
CONVERTIBLE BONDS - 0.3%
HEALTH - 0.2%
MEDICAL FACILITIES MANAGEMENT
- - 0.2%
Tenet Healthcare Corp. 6% B1 $ 1,080,000 893,700
12/1/05
Total Renal Care Holdings, B1 460,000 372,600
Inc. 7% 5/15/09 (f)
1,266,300
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
MEDIA & LEISURE - 0.0%
RESTAURANTS - 0.0%
CKE Restaurants, Inc. 4.25% B1 $ 30,000 $ 22,500
3/15/04
NONDURABLES - 0.1%
FOODS - 0.1%
Chiquita Brands B3 390,000 368,550
International, Inc. 7%
3/28/01
RETAIL & WHOLESALE - 0.0%
RETAIL & WHOLESALE,
MISCELLANEOUS - 0.0%
Sports Authority, Inc. (The) B3 120,000 84,000
5.25% 9/15/01
TOTAL CONVERTIBLE BONDS 1,741,350
NONCONVERTIBLE BONDS - 14.0%
AEROSPACE & DEFENSE - 0.1%
SHIP BUILDING & REPAIR - 0.1%
Newport News Shipbuilding, B1 530,000 548,550
Inc. 9.25% 12/1/06
BASIC INDUSTRIES - 0.6%
CHEMICALS & PLASTICS - 0.4%
Acetex Corp. yankee 9.75% B1 60,000 55,200
10/1/03
Huntsman Corp. 9.5% 7/1/07 (f) B2 270,000 257,175
Huntsman ICI Chemicals LLC B2 510,000 514,463
10.125% 7/1/09 (f)
Lyondell Chemical Co.:
9.625% 5/1/07 (f) Ba3 140,000 143,150
9.875% 5/1/07 (f) Ba3 790,000 803,825
10.875% 5/1/09 (f) B2 170,000 175,525
Sterling Chemicals, Inc.:
11.25% 4/1/07 Caa3 130,000 100,100
11.75% 8/15/06 Caa3 510,000 387,600
2,437,038
METALS & MINING - 0.1%
Kaiser Aluminum & Chemical B3 190,000 193,325
Corp. 12.75% 2/1/03
Metals USA, Inc. 8.625% B2 320,000 296,800
2/15/08
490,125
PACKAGING & CONTAINERS - 0.1%
Gaylord Container Corp. Caa1 210,000 197,925
9.375% 6/15/07
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
BASIC INDUSTRIES - CONTINUED
PAPER & FOREST PRODUCTS - 0.0%
Potlatch Corp. 6.25% 3/15/02 Baa1 $ 80,000 $ 79,259
TOTAL BASIC INDUSTRIES 3,204,347
CONSTRUCTION & REAL ESTATE -
0.4%
BUILDING MATERIALS - 0.0%
American Standard Companies, Ba3 320,000 305,600
Inc. 7.375% 4/15/05
CONSTRUCTION - 0.1%
U.S. Home Corp. 8.875% 2/15/09 B1 500,000 472,500
ENGINEERING - 0.0%
Anteon Corp. 12% 5/15/09 (f) B3 230,000 226,550
REAL ESTATE - 0.2%
LNR Property Corp.:
9.375% 3/15/08 B1 460,000 434,700
10.5% 1/15/09 B1 440,000 440,000
874,700
REAL ESTATE INVESTMENT TRUSTS
- - 0.1%
CenterPoint Properties Trust:
6.75% 4/1/05 Baa2 100,000 95,498
7.125% 3/15/04 Baa2 110,000 106,377
Equity Office Properties
Trust:
6.375% 2/15/03 Baa1 100,000 97,736
6.75% 2/15/08 Baa1 100,000 94,560
Weeks Realty LP 6.875% 3/15/05 Baa2 100,000 97,042
491,213
TOTAL CONSTRUCTION & REAL 2,370,563
ESTATE
DURABLES - 0.4%
AUTOS, TIRES, & ACCESSORIES -
0.3%
Blue Bird Body Co. 10.75% B2 294,000 311,640
11/15/06
Delphi Automotive Systems Baa2 75,000 73,091
Corp. 6.125% 5/1/04
Federal-Mogul Corp. 7.875% Ba2 890,000 823,250
7/1/10
Oshkosh Truck Co. 8.75% 3/1/08 B2 300,000 298,500
1,506,481
CONSUMER DURABLES - 0.0%
Corning Consumer Products Co. B3 370,000 320,975
9.625% 5/1/08
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
TEXTILES & APPAREL - 0.1%
Jones Apparel Group, Inc. Baa2 $ 135,000 $ 134,831
7.875% 6/15/06 (f)
Worldtex, Inc. 9.625% 12/15/07 B1 570,000 498,750
633,581
TOTAL DURABLES 2,461,037
ENERGY - 0.6%
COAL - 0.1%
P&L Coal Holdings Corp. B2 400,000 398,000
9.625% 5/15/08
ENERGY SERVICES - 0.2%
Baker Hughes, Inc. 5.8% A2 90,000 87,633
2/15/03 (f)
R&B Falcon Corp. 6.5% 4/15/03 Ba3 320,000 273,600
RBF Finance Co.:
11% 3/15/06 (f) Ba3 810,000 834,300
11.375% 3/15/09 (f) Ba3 270,000 279,450
1,474,983
OIL & GAS - 0.3%
Apache Corp. 7.625% 7/1/19 Baa1 50,000 49,688
Chesapeake Energy Corp. B3 230,000 215,050
9.625% 5/1/05
Comstock Resources, Inc. B2 130,000 132,925
11.25% 5/1/07 (f)
Conoco, Inc.:
5.9% 4/15/04 A3 100,000 96,960
6.95% 4/15/29 A3 70,000 65,309
Gulf Canada Resources Ltd. Ba1 250,000 245,625
8.375% 11/15/05
Occidental Petroleum Corp. Baa3 100,000 105,120
9.75% 6/15/01
Ocean Energy, Inc. 8.875% B1 360,000 354,600
7/15/07
Oryx Energy Co.:
8% 10/15/03 Baa1 95,000 97,366
8.125% 10/15/05 Baa1 140,000 146,426
8.375% 7/15/04 Baa1 45,000 47,183
Petro-Canada 7% 11/15/28 A3 130,000 119,674
1,675,926
TOTAL ENERGY 3,548,909
FINANCE - 1.6%
BANKS - 0.3%
Bank One Corp. 5.625% 2/17/04 Aa3 120,000 114,782
BankAmerica Corp. 6.625% Aa2 60,000 59,963
6/15/04
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
FINANCE - CONTINUED
BANKS - CONTINUED
BankBoston Corp.:
6.125% 3/15/02 A2 $ 320,000 $ 320,908
6.625% 2/1/04 A3 60,000 59,857
Capital One Bank:
6.375% 2/15/03 Baa2 130,000 126,913
6.65% 3/15/04 Baa3 260,000 253,760
Capital One Financial Corp. Baa3 100,000 95,678
7.125% 8/1/08
Den Danske Bank AS 6.375% A1 170,000 163,646
6/15/08 (f)(i)
Fleet/Norstar Financial A3 90,000 96,027
Group, Inc. 9.9% 6/15/01
Korea Development Bank:
6.625% 11/21/03 Baa3 95,000 91,227
7.125% 9/17/01 Baa3 30,000 29,722
NB Capital Trust IV 8.25% Aa2 100,000 102,903
4/15/27
Providian National Bank 6.7% Baa3 100,000 97,691
3/15/03
Sumitomo Bank International Baa1 100,000 101,700
Finance NV 8.5% 6/15/09
Wachovia Corp. 6.7% 6/21/04 Aa3 100,000 100,700
1,815,477
CREDIT & OTHER FINANCE - 1.0%
Ahmanson Capital Trust I A3 125,000 127,043
8.36% 12/1/26 (f)
AMRESCO, Inc.:
9.875% 3/15/05 Caa3 550,000 420,750
10% 3/15/04 Caa3 370,000 284,900
AT&T Capital Corp.:
6.25% 5/15/01 Baa3 250,000 247,163
7.5% 11/15/00 Baa3 130,000 130,967
BankAmerica Capital II Series Aa2 100,000 100,654
2, 8% 12/15/26
BanPonce Trust I 8.327% 2/1/27 A3 75,000 72,156
ContiFinancial Corp.:
8.125% 4/1/08 Caa1 150,000 114,000
8.375% 8/15/03 Caa1 100,000 72,000
Countrywide Funding Corp. A3 150,000 149,264
6.45% 2/27/03
ERP Operating LP:
6.55% 11/15/01 A3 55,000 54,783
7.1% 6/23/04 A3 100,000 100,071
Farmers Insurance Exchange A2 110,000 100,977
Capital 7.05% 7/15/28 (f)
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
First Security Capital I A3 $ 110,000 $ 112,144
8.41% 12/15/26
Ford Motor Credit Co. 6.5% A1 700,000 701,708
2/28/02
GS Escrow Corp.:
7% 8/1/03 Ba1 90,000 87,043
7.125% 8/1/05 Ba1 165,000 156,646
Heller Financial, Inc. 6% A3 180,000 174,242
3/19/04
KeyCorp Institutional Capital A1 130,000 128,405
A 7.826% 12/1/26
Macsaver Financial Services,
Inc.:
7.4% 2/15/02 Ba1 430,000 361,200
7.6% 8/1/07 Ba1 790,000 649,775
7.875% 8/1/03 Ba1 130,000 110,825
Mellon Capital I 7.72% 12/1/26 A2 70,000 68,700
Money Store, Inc. 7.3% 12/1/02 A2 100,000 102,520
Sprint Capital Corp.:
5.7% 11/15/03 Baa1 40,000 38,493
5.875% 5/1/04 Baa1 100,000 96,288
6.875% 11/15/28 Baa1 100,000 91,348
TXU Eastern Funding 6.15% Baa1 60,000 59,272
5/15/02 (f)
U.S. Bancorp 8.09% 11/15/26 A1 100,000 98,426
UNICCO Service Co./UNICCO B3 510,000 487,050
Finance Corp. 9.875% 10/15/07
Yorkshire Power Finance Ltd. Baa2 60,000 56,208
yankee 6.496% 2/25/08
5,555,021
SAVINGS & LOANS - 0.1%
Chevy Chase Savings Bank FSB B1 170,000 172,125
9.25% 12/1/08
Great Western Finance Trust A3 120,000 118,656
II 8.206% 2/1/27
Home Savings of America FSB A3 90,000 88,349
6.5% 8/15/04
Long Island Savings Bank FSB Baa3 140,000 139,973
7% 6/13/02
Sovereign Bancorp, Inc. Ba1 100,000 99,597
6.625% 3/15/01
618,700
SECURITIES INDUSTRY - 0.2%
Amvescap PLC yankee 6.375% A3 200,000 196,876
5/15/03
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
FINANCE - CONTINUED
SECURITIES INDUSTRY - CONTINUED
Goldman Sachs Group L.P. A1 $ 400,000 $ 401,343
5.295% 7/27/00 (i)(j)
Lehman Brothers Holdings 6.4% Baa1 400,000 401,464
12/27/99
999,683
TOTAL FINANCE 8,988,881
HEALTH - 0.3%
DRUGS & PHARMACEUTICALS - 0.0%
Global Health Sciences, Inc. Caa1 70,000 52,675
11% 5/1/08
MEDICAL EQUIPMENT & SUPPLIES
- - 0.1%
Graham-Field Health Products, Caa1 230,000 157,550
Inc. 9.75% 8/15/07
MEDICAL FACILITIES MANAGEMENT
- - 0.2%
Fountain View, Inc. 11.25% Caa1 460,000 372,600
4/15/08
Integrated Health Services,
Inc.:
9.25% 1/15/08 B2 209,000 146,300
9.5% 9/15/07 B2 170,000 123,250
Tenet Healthcare Corp. 8.625% Ba3 630,000 614,250
1/15/07
1,256,400
TOTAL HEALTH 1,466,625
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.4%
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.3%
Bucyrus International, Inc. B1 520,000 474,500
9.75% 9/15/07
Dunlop Standard Aero Holdings B3 430,000 436,450
PLC 11.875% 5/15/09 (f)
Roller Bearing Holding, Inc. - 500,000 220,000
0% 6/15/09 (d)(f)
Tokheim Corp. 11.375% 8/1/08 B3 350,000 334,250
(f)
Tyco International Group SA
yankee:
6.125% 6/15/01 Baa1 90,000 89,524
6.375% 6/15/05 Baa1 105,000 102,704
1,657,428
POLLUTION CONTROL - 0.1%
Envirosource, Inc. Series B B3 80,000 49,200
9.75% 6/15/03
IT Group, Inc. (The) 11.25% B3 200,000 191,000
4/1/09 (f)
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
WMX Technologies, Inc.:
6.25% 10/15/00 Baa2 $ 100,000 $ 100,133
7.1% 8/1/26 Baa2 140,000 142,743
8.25% 11/15/99 Baa2 40,000 40,373
523,449
TOTAL INDUSTRIAL MACHINERY & 2,180,877
EQUIPMENT
MEDIA & LEISURE - 4.7%
BROADCASTING - 3.1%
ACME Television LLC/ACME B3 290,000 237,800
Financial Corp. 0% 9/30/04
(d)
Adelphia Communications Corp.:
7.75% 1/15/09 B1 1,150,000 1,066,625
9.875% 3/1/07 B1 930,000 970,688
Ascent Entertainment Group, B3 320,000 230,400
Inc. 0% 12/15/04 (d)
Avalon Cable Michigan, B3 330,000 335,775
Inc./Avalon Cable New
England/Avalon Cable Finance
9.375% 12/1/08 (f)
Benedek Communications Corp. B3 120,000 99,600
0% 5/15/06 (d)
Bresnan Communications Group B2 310,000 202,275
LLC/Bresnan Capital Corp. 0%
2/1/09 (d)(f)
Century Communications Corp.:
8.75% 10/1/07 Ba3 180,000 178,200
Series B, 0% 1/15/08 Ba3 1,000,000 440,000
Chancellor Media Corp. 9% B1 650,000 658,125
10/1/08
Charter Communications
Holdings LLC/Charter
Communications Holdings
Capital Corp.:
0% 4/1/11 (d)(f) B2 535,000 329,025
8.625% 4/1/09 (f) B2 480,000 459,000
Classic Cable, Inc. 9.875% B3 160,000 165,600
8/1/08 (f)
Clear Channel Communications,
Inc.:
6.875% 6/15/18 Baa3 150,000 135,195
7.25% 10/15/27 Baa3 105,000 96,355
Comcast UK Cable Partners B2 580,000 516,200
Ltd. 0% 11/15/07 (d)
Continental Cablevision, Inc.:
8.3% 5/15/06 Baa3 10,000 10,678
9% 9/1/08 Baa3 350,000 393,246
CSC Holdings, Inc.:
9.25% 11/1/05 B1 260,000 269,750
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
CSC Holdings, Inc.: - continued
9.875% 5/15/06 B1 $ 240,000 $ 256,200
10.5% 5/15/16 B1 280,000 322,000
Diamond Cable Communications
PLC:
0% 2/15/07 (d) B3 785,000 620,150
yankee 0% 12/15/05 (d) B3 130,000 114,075
EchoStar DBS Corp. 9.375% B2 490,000 496,125
2/1/09 (f)
Falcon Holding Group B2 1,835,000 1,282,206
LP/Falcon Funding Corp. 0%
4/15/10 (d)
FrontierVision Holdings Caa1 560,000 484,400
LP/FrontierVision Holdings
Capital Corp. 0% 9/15/07 (d)
FrontierVision Operating B3 340,000 373,150
Partners LP/ FrontierVision
Capital Corp. 11% 10/15/06
Golden Sky DBS, Inc. 0% Caa1 370,000 214,600
3/1/07 (d)(f)
Granite Broadcasting Corp. B3 600,000 595,500
9.375% 12/1/05
Hearst-Argyle Television, Baa3 200,000 188,018
Inc. 7.5% 11/15/27
Intermedia Capital Partners B2 180,000 198,900
IV LP / Intermedia Partners
IV Capital Corp. 11.25%
8/1/06
International Cabletel, Inc. B3 220,000 191,950
0% 2/1/06 (d)
Knology Holding, Inc. 0% - 840,000 480,900
10/15/07 (d)
Lenfest Communications, Inc. B1 190,000 193,325
8.25% 2/15/08
Nielsen Media Research, Inc. Baa2 60,000 60,665
7.6% 6/15/09
NTL Communications Corp. B3 620,000 678,900
11.5% 10/1/08
NTL, Inc.:
0% 4/1/08 (d) B3 470,000 314,900
10% 2/15/07 B3 270,000 276,750
Olympus Communications B1 160,000 175,200
LP/Olympus Capital Corp.
10.625% 11/15/06
Pegasus Communications Corp. B3 250,000 245,000
9.625% 10/15/05
Rogers Cablesystems Ltd. B2 290,000 334,950
yankee 11% 12/1/15
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
TCI Communications, Inc.:
9.25% 4/15/02 A2 $ 100,000 $ 107,598
9.8% 2/1/12 A2 190,000 232,146
TeleWest Communications PLC:
0% 4/15/09 (d)(f) B1 150,000 100,500
11.25% 11/1/08 B1 130,000 146,900
Telewest PLC:
yankee 9.625% 10/1/06 B1 110,000 112,200
0% 10/1/07 (d) B1 1,380,000 1,235,100
Time Warner, Inc.:
8.18% 8/15/07 Baa3 145,000 153,146
9.125% 1/15/13 Baa3 155,000 175,469
United International B3 1,160,000 771,400
Holdings, Inc. 0% 2/15/08 (d)
17,926,860
ENTERTAINMENT - 0.4%
Bally Total Fitness Holding B3 948,000 919,560
Corp. 9.875% 10/15/07
Cinemark USA, Inc. 8.5% 8/1/08 B2 510,000 474,300
Paramount Communications, Baa3 110,000 112,412
Inc. 7.5% 1/15/02
Regal Cinemas, Inc. 8.875% B3 630,000 573,300
12/15/10
United Artists Theatre Co. Caa1 120,000 92,400
9.75% 4/15/08
Viacom, Inc.:
6.75% 1/15/03 Baa3 110,000 109,331
7.75% 6/1/05 Baa3 115,000 117,788
2,399,091
LODGING & GAMING - 0.6%
Circus Circus Enterprises, Ba2 210,000 184,800
Inc. 7.625% 7/15/13
Coast Hotels & Casinos, Inc. B3 190,000 182,875
9.5% 4/1/09 (f)
Courtyard by Marriott II B- 650,000 663,000
LP/Courtyard II Finance Co.
10.75% 2/1/08
HMH Properties, Inc.:
7.875% 8/1/05 Ba2 135,000 127,575
7.875% 8/1/08 Ba2 1,375,000 1,265,000
Host Marriott LP 8.375% Ba2 630,000 606,375
2/15/06 (f)
Signature Resorts, Inc. 9.75% B3 340,000 306,000
10/1/07
3,335,625
PUBLISHING - 0.2%
Big Flower Press Holdings, B2 110,000 101,200
Inc. 8.625% 12/1/08
Garden State Newspapers, Inc. B1 750,000 701,250
Series B, 8.75% 10/1/09
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
MEDIA & LEISURE - CONTINUED
PUBLISHING - CONTINUED
News America Holdings, Inc.:
7.7% 10/30/25 Baa3 $ 110,000 $ 106,550
8.625% 2/1/03 Baa3 40,000 42,401
Time Warner Entertainment Co.
LP:
7.25% 9/1/08 Baa2 35,000 34,997
8.375% 3/15/23 Baa2 60,000 64,990
1,051,388
RESTAURANTS - 0.4%
CKE Restaurants, Inc. 9.125% B1 220,000 206,800
5/1/09
Domino's, Inc. 10.375% 1/15/09 B3 940,000 949,400
Host Marriott Travel Plazas, Ba3 450,000 460,125
Inc. 9.5% 5/15/05
NE Restaurant, Inc. 10.75% B3 550,000 503,250
7/15/08
2,119,575
TOTAL MEDIA & LEISURE 26,832,539
NONDURABLES - 0.3%
BEVERAGES - 0.1%
Seagram JE & Sons, Inc.:
5.79% 4/15/01 Baa3 115,000 113,865
6.4% 12/15/03 Baa3 120,000 117,420
6.625% 12/15/05 Baa3 60,000 58,200
7.6% 12/15/28 Baa3 60,000 57,978
347,463
FOODS - 0.0%
ConAgra, Inc. 7.125% 10/1/26 Baa1 115,000 113,950
HOUSEHOLD PRODUCTS - 0.1%
Revlon Consumer Products
Corp.:
8.625% 2/1/08 B3 380,000 355,300
9% 11/1/06 B2 390,000 386,100
741,400
TOBACCO - 0.1%
Philip Morris Companies, Inc.:
6.95% 6/1/06 A2 140,000 141,470
7.25% 9/15/01 A2 50,000 50,842
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
RJR Nabisco, Inc. 7.375% Baa2 $ 100,000 $ 98,757
5/15/03 (f)
291,069
TOTAL NONDURABLES 1,493,882
RETAIL & WHOLESALE - 0.5%
GENERAL MERCHANDISE STORES -
0.2%
Dayton Hudson Corp. 7.5% A3 125,000 128,129
7/15/06
Federated Department Stores,
Inc.:
6.79% 7/15/27 Baa2 100,000 98,804
8.5% 6/15/03 Baa2 50,000 52,935
K mart Corp. 12.5% 3/1/05 Ba1 510,000 608,175
888,043
GROCERY STORES - 0.3%
Kroger Co. 6% 7/1/00 Baa3 110,000 109,765
Pathmark Stores, Inc. 9.625% Caa1 1,230,000 1,248,450
5/1/03
Pueblo Xtra International,
Inc.:
Series C, 9.5% 8/1/03 B3 220,000 204,600
9.5% 8/1/03 B3 310,000 288,300
1,851,115
TOTAL RETAIL & WHOLESALE 2,739,158
SERVICES - 0.2%
PRINTING - 0.1%
Sullivan Graphics, Inc. Caa1 210,000 218,400
12.75% 8/1/05
SERVICES - 0.1%
La Petite Academy, Inc./La B3 530,000 504,825
Petite Academy Holding Co.
10% 5/15/08
Medaphis Corp. 9.5% 2/15/05 Caa1 260,000 192,400
697,225
TOTAL SERVICES 915,625
TECHNOLOGY - 0.3%
COMPUTER SERVICES & SOFTWARE
- - 0.1%
Federal Data Corp. 10.125% B3 690,000 653,775
8/1/05
COMPUTERS & OFFICE EQUIPMENT
- - 0.0%
Comdisco, Inc.:
6.375% 11/30/01 Baa1 150,000 149,603
7.21% 7/2/01 Baa1 125,000 126,244
275,847
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
TECHNOLOGY - CONTINUED
ELECTRONICS - 0.2%
Fairchild Semiconductor Corp.:
10.125% 3/15/07 B3 $ 255,000 $ 247,988
10.375% 10/1/07 (f) B3 400,000 394,000
11.74% 3/15/08 pay-in-kind (j) - 465,394 426,189
1,068,177
TOTAL TECHNOLOGY 1,997,799
TRANSPORTATION - 0.5%
AIR TRANSPORTATION - 0.4%
Atlas Air, Inc. 9.25% 4/15/08 B3 830,000 792,650
Continental Airlines, Inc.
Pass Through Trust
Certificates:
7.434% 3/15/06 Baa1 30,000 30,117
7.73% 9/15/12 Baa1 20,000 20,090
Kitty Hawk, Inc. 9.95% B1 625,000 620,313
11/15/04
Qantas Airways Ltd. 7.75% Baa1 110,000 109,725
6/15/09 (f)
US Airways Group, Inc. Ba2 360,000 369,000
10.375% 3/1/13
1,941,895
RAILROADS - 0.1%
Burlington Northern Santa Fe Baa2 150,000 140,318
Corp. 6.125% 3/15/09
Canadian National Railway Co. Baa2 150,000 139,323
6.9% 7/15/28
CSX Corp.:
6.25% 10/15/08 Baa2 60,000 56,090
6.46% 6/22/05 Baa2 100,000 96,705
Norfolk Southern Corp. 7.05% Baa1 220,000 223,560
5/1/37
Wisconsin Central Baa2 100,000 95,051
Transportation Corp. 6.625%
4/15/08
751,047
SHIPPING - 0.0%
Holt Group, Inc. 9.75% Caa1 130,000 88,400
1/15/06 (f)
TOTAL TRANSPORTATION 2,781,342
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
UTILITIES - 3.1%
CELLULAR - 0.7%
Cable & Wireless Baa1 $ 170,000 $ 167,595
Communications PLC 6.375%
3/6/03
McCaw International Ltd. 0% Caa1 1,010,000 611,050
4/15/07 (d)
Millicom International Caa1 560,000 408,800
Cellular SA 0% 6/1/06 (d)
Nextel Communications, Inc.:
0% 10/31/07 (d) B2 1,770,000 1,243,425
12% 11/1/08 B2 220,000 247,500
Nextel International, Inc. 0% Caa1 570,000 287,850
4/15/08 (d)
Rogers Cantel, Inc. 8.8% B2 200,000 200,000
10/1/07
Rogers Communications, Inc. B2 550,000 555,500
8.875% 7/15/07
Spectrasite Holdings, Inc. 0% - 200,000 113,000
4/15/09 (d)(f)
Tritel Pcs, Inc. 0% 5/15/09 B3 410,000 223,450
(d)(f)
4,058,170
ELECTRIC UTILITY - 0.1%
Avon Energy Partners Holdings Baa2 130,000 124,167
6.46% 3/4/08 (f)
Hydro-Quebec yankee 7.4% A2 90,000 98,208
3/28/25 (e)
Israel Electric Corp. Ltd.:
7.75% 12/15/27 (f) A3 170,000 151,513
yankee 7.875% 12/15/26 (f) A3 80,000 74,014
Texas Utilities Co. 6.375% Baa3 70,000 67,084
1/1/08
514,986
GAS - 0.0%
CMS Panhandle Holding Co. Baa3 50,000 48,635
6.125% 3/15/04 (f)
TELEPHONE SERVICES - 2.3%
AT&T Corp. 6.5% 3/15/29 A1 100,000 90,274
Covad Communications Group,
Inc.:
0% 3/15/08 (d) B3 460,000 251,850
12.5% 2/15/09 B3 270,000 259,875
GST Network Funding, Inc. 0% - 590,000 336,300
5/1/08 (d)(f)
GST Equipment Funding, Inc. - 290,000 309,575
13.25% 5/1/07
GST Telecommunications, Inc. - 170,000 184,450
12.75% 11/15/07
GTE Corp. 5.135% 6/12/00 (i) - 350,000 349,780
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
ICG Services, Inc. 0% 5/1/08 - $ 860,000 $ 464,400
(d)
Intermedia Communications, B2 350,000 325,500
Inc. 8.6% 6/1/08
IXC Communications, Inc. 9% B3 730,000 693,500
4/15/08
KMC Telecom Holdings, Inc. Caa2 550,000 551,375
13.5% 5/15/09 (f)
Level 3 Communications, Inc. B3 480,000 298,800
0% 12/1/08 (d)
Logix Communications - 785,000 694,725
Enterprises, Inc. 12.25%
6/15/08
MCI WorldCom, Inc.:
6.4% 8/15/05 A3 150,000 146,745
8.875% 1/15/06 A3 103,000 109,656
McLeodUSA, Inc.:
0% 3/1/07 (d) B2 580,000 445,150
8.125% 2/15/09 (f) B2 580,000 540,850
9.25% 7/15/07 B2 270,000 267,975
9.5% 11/1/08 B2 570,000 571,425
NEXTLINK Communications, Inc.:
9.625% 10/1/07 B3 540,000 523,800
10.75% 11/15/08 B3 200,000 205,500
Ono Finance PLC 13% 5/1/09 - 310,000 319,300
unit (f)
Pathnet, Inc. 12.25% 4/15/08 - 890,000 489,500
Rhythms NetConnections, Inc. B3 1,060,000 991,100
12.75% 4/15/09 (f)
Telecomunicaciones de P R, Baa2 90,000 86,880
Inc. 6.65% 5/15/06 (f)
Teligent, Inc.:
0% 3/1/08 (d) Caa1 1,435,000 846,650
11.5% 12/1/07 Caa1 675,000 664,875
WinStar Communications, Inc.:
0% 10/15/05 (d) Caa1 160,000 140,000
0% 10/15/05 (d) Caa1 220,000 303,600
0% 3/15/08 (d) CCC 1,490,000 1,303,750
15% 3/1/07 CCC 90,000 103,500
12,870,660
TOTAL UTILITIES 17,492,451
TOTAL NONCONVERTIBLE BONDS 79,022,585
TOTAL CORPORATE BONDS 80,763,935
(Cost $82,930,638)
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 1.5%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 0.1%
Fannie Mae:
6.25% 5/15/29 Aaa $ 245,000 $ 232,789
6.5% 4/29/09 Aaa 150,000 145,055
Federal Home Loan Bank 7.56% Aaa 50,000 52,656
9/1/04
TOTAL U.S. GOVERNMENT AGENCY 430,500
OBLIGATIONS
U.S. TREASURY OBLIGATIONS -
1.4%
U.S. Treasury Bills, yield at - 2,450,000 2,435,601
date of purchase 4.24% to
4.78% 7/1/99 to 9/30/99 (g)
U.S. Treasury Bonds:
6.875% 8/15/25 Aaa 495,000 536,610
8.875% 8/15/17 Aaa 264,000 337,260
8.875% 2/15/19 Aaa 259,000 333,828
U.S. Treasury Notes:
6.625% 6/30/01 Aaa 1,160,000 1,183,386
7% 7/15/06 Aaa 2,329,000 2,466,923
7.25% 8/15/04 Aaa 20,000 21,275
7.875% 11/15/04 Aaa 830,000 907,813
TOTAL U.S. TREASURY 8,222,696
OBLIGATIONS
TOTAL U.S. GOVERNMENT AND 8,653,196
GOVERNMENT AGENCY OBLIGATIONS
(Cost $8,730,168)
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES - 2.3%
FANNIE MAE - 1.8%
6% 3/1/11 to 1/1/29 Aaa 1,360,476 1,313,782
6.5% 2/1/26 to 7/1/29 Aaa 4,771,030 4,606,677
7% 8/1/25 to 7/1/29 Aaa 3,655,727 3,617,909
7.5% 5/1/24 to 1/1/26 Aaa 288,963 291,884
9,830,252
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
FREDDIE MAC - 0.0%
7.5% 7/1/29 Aaa $ 148,300 $ 150,432
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 0.5%
6.5% 5/15/29 Aaa 998,925 960,526
7% 7/15/28 Aaa 938,791 926,174
7.5% 1/15/26 to 8/15/28 Aaa 888,499 896,825
2,783,525
TOTAL U.S. GOVERNMENT AGENCY 12,764,209
- - MORTGAGE SECURITIES
(Cost $12,988,502)
ASSET-BACKED SECURITIES - 0.4%
Airplanes Pass Through Trust Ba2 430,000 406,350
10.875% 3/15/19
BankAmerica Manufacturing Aaa 150,000 148,172
Housing Contract 6.2% 4/10/09
Capita Equipment Receivables Baa2 100,000 97,536
Trust 6.48% 10/15/06
Chevy Chase Auto Receivables Aaa 66,450 66,058
Trust 5.91% 12/15/04
CIT Marine Trust 5.8% 4/15/10 Aaa 120,000 115,680
CPS Auto Grantor Trust:
6.09% 11/15/03 Aaa 79,558 79,309
6.55% 8/15/02 Aaa 41,424 41,554
CPS Auto Receivables Trust 6% Aaa 132,384 131,681
8/15/03
CSXT Trade Receivables Master Aaa 180,000 176,979
Trust 6% 7/25/04
Ford Credit Auto Owner Trust:
6.2% 12/15/02 Baa3 90,000 88,649
6.4% 5/15/02 A1 110,000 110,325
6.4% 12/15/02 Baa3 50,000 49,100
Green Tree Financial Corp.:
6.68% 1/15/29 AAA 210,000 210,983
6.8% 6/15/27 Aaa 70,566 70,786
Key Auto Finance Trust:
5.83% 1/15/07 Aaa 150,000 148,313
6.3% 10/15/03 A2 74,314 74,198
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Olympic Automobile
Receivables Trust:
6.4% 9/15/01 Aaa $ 46,968 $ 47,394
6.7% 3/15/02 Aaa 43,744 44,083
Petroleum Enhanced Trust Baa2 89,343 88,784
Receivables Offering
Petroleum Trust 6.125%
2/5/03 (f)(i)
UAF Auto Grantor Trust 6.1% Aaa 132,695 132,322
1/15/03 (f)
WFS Financial Owner Trust Aaa 140,000 140,700
6.55% 10/20/04
TOTAL ASSET-BACKED SECURITIES 2,468,956
(Cost $2,545,764)
COLLATERALIZED MORTGAGE
OBLIGATIONS - 0.0%
PRIVATE SPONSOR - 0.0%
Credit-Based Asset Servicing Ba3 190,151 86,043
and Securitization LLC
Series 1997 2 Class 2-B,
7.1917% 12/29/25 (f)(h)(i)
(Cost $101,077)
COMMERCIAL MORTGAGE
SECURITIES - 0.9%
BKB Commercial Mortgage Trust BBB 60,000 60,131
Series 1997-C1 Class D,
7.83% 2/25/43 (f)(i)
CBM Funding Corp. sequential
pay Series 1996-1:
Class A-3PI, 7.08% 11/1/07 AA 100,000 100,000
Class B, 7.48% 2/1/08 A 80,000 80,150
CS First Boston Mortgage
Securities Corp.:
Series 1997 C2 Class D, 7.27% Baa2 200,000 188,188
1/17/35
Series 1998 C1 Class D, 7.17% BBB 210,000 193,791
1/17/12
Series 1998 FLI Class E, Baa2 220,000 215,600
5.7675% 1/10/13 (f)(i)
Deutsche Mortgage & Asset Baa2 140,000 131,064
Receiving Corp. Series
1998-C1 Class D, 7.231%
7/15/12
DLJ Mortgage Acceptance Corp. - 250,000 242,188
Series 1993-MF12 Class B-2,
10.1% 9/18/03 (f)
First Chicago/Lennar Trust I
Series 1997-CHL1:
Class D, 8.0547% 4/13/39 (i) - 350,000 284,594
COMMERCIAL MORTGAGE
SECURITIES - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
First Chicago/Lennar Trust I
Series 1997-CHL1: - continued
Class E, 8.0547% 4/1/39 (i) - $ 320,000 $ 233,600
FMAC Loan Receivables Trust:
Series 1997-A Class E, - 250,000 181,797
8.1088% 4/15/19 (f)(i)
Series 1997-B Class E, - 100,000 68,125
7.8912% 9/15/19 (f)(i)
General Motors Acceptance Ba3 250,000 202,825
Corp. Commercial Mortgage
Securities, Inc. Series
1996-C1 Class F, 7.86%
10/15/28 (f)
GS Mortgage Securities Corp.
II:
Series 1997-GL Class A2-B, Aaa 200,000 201,754
6.86% 7/13/30
Series 1998-GLII:
Class D, 6.9697% 4/13/31 Baa2 50,000 45,842
(f)(i)
Class E, 6.9697% 4/13/31 Baa3 180,000 156,559
(f)(i)
LTC Commercial Mortgage Pass
Through Certificates:
Series 1996-1 Class E, 9.16% BB- 500,000 464,825
4/15/28
Series 1998-1 Class A, 6.029% AAA 107,509 102,752
5/30/30 (f)
Morgan Stanley Capital I,
Inc.:
Series 1996-MBL1 Class E, - 88,857 86,858
8.1666% 5/25/21 (f)(i)
Series 1998 CF1:
Class D, 7.35% 1/15/12 Baa2 176,000 163,130
Class E, 7.35% 12/15/12 Baa3 59,000 49,818
Nomura Asset Securities Corp. Baa2 140,000 129,899
Series 1998-D6 Class A-4,
7.5965% 3/17/28 (i)
Nomura Depositor Trust - 125,000 110,117
floater Series 1998-ST1A
Class B-2, 9.2375% 1/15/03
(f)(i)
Resolution Trust Corp. Ba3 59,738 48,388
Series 1991 M2 Class A3,
7.2498% 9/25/20 (i)
Structured Asset Securities
Corp.:
sequential pay Series 1996 AAA 10,888 10,826
Class A-2A, 7.75% 2/25/28
Series 1995-C1 Class E, BB 1,000,000 922,188
7.375% 9/25/24 (f)
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Series 1996 CFL Class E, BB+ $ 80,000 $ 77,275
7.75% 2/25/28
Thirteen Affiliates of
General Growth Properties,
Inc.:
Series D-2, 6.992% 12/15/10 Baa2 140,000 134,943
(f)
Series E-2, 7.224% 12/15/10 Baa3 100,000 94,354
(f)
TOTAL COMMERCIAL MORTGAGE 4,981,581
SECURITIES
(Cost $5,234,270)
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 0.0%
Korean Republic yankee:
8.75% 4/15/03 Baa3 40,000 41,835
8.875% 4/15/08 Baa3 46,000 48,597
TOTAL FOREIGN GOVERNMENT AND 90,432
GOVERNMENT AGENCY OBLIGATIONS
(Cost $90,633)
SUPRANATIONAL OBLIGATIONS -
0.0%
Inter American Development Aaa 150,000 148,754
Bank yankee 6.29% 7/16/27
(Cost $149,057)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
BANK NOTES - 0.1%
Key Bank NA 4.96% 8/20/99 (i) 500,000 499,892
(Cost $499,328)
CERTIFICATES OF DEPOSIT - 0.6%
Barclays Bank PLC euro 5.03% 400,000 399,771
9/7/99
Canadian Imperial Bank of 400,000 399,749
Commerce yankee 4.88%
4/13/00 (i)
Commerzbank AG yankee 5.58% 400,000 399,131
6/12/00
Credit Agricole Indosuez 400,000 399,767
yankee 5% 9/1/99
Deutsche Bank AG yankee 5.1% 400,000 398,326
2/11/00
Fleet National Bank 5.1388% 400,000 400,427
5/5/00 (i)
Halifax PLC euro 4.98% 8/31/99 400,000 399,785
Societe Generale, France 400,000 398,412
yankee 5.16% 2/22/00
TOTAL CERTIFICATES OF DEPOSIT 3,195,368
(Cost $3,199,219)
COMMERCIAL PAPER - 0.5%
PRINCIPAL AMOUNT VALUE (NOTE 1)
Abbey National North America $ 300,000 $ 293,101
yankee 5.07% 12/6/99
General Electric Capital 400,000 396,573
Corp. 4.94% 8/30/99
Generale de Banque SA yankee 400,000 396,973
4.92% 8/23/99
Kitty Hawk Funding Corp. 400,000 397,777
5.18% 8/9/99
Morgan (JP) & Co., Inc. 5.07% 400,000 390,743
12/7/99
New Center Asset Trust 4.95% 160,000 158,949
8/16/99
Nordbanken, North America, 300,000 299,342
Inc. yankee 4.83% 7/16/99
Triple A One Funding Corp. 300,000 298,205
4.88% 8/12/99
TOTAL COMMERCIAL PAPER 2,631,663
(Cost $2,632,240)
</TABLE>
CASH EQUIVALENTS - 4.7%
MATURITY AMOUNT
Investments in repurchase $ 21,003 21,000
agreements (U.S. Treasury
obligations), in a joint
trading account at 5.1%,
dated 6/30/99 due 7/1/99
SHARES
Taxable Central Cash Fund (c) 26,671,510 26,671,510
TOTAL CASH EQUIVALENTS 26,692,510
(Cost $26,692,510)
TOTAL INVESTMENT IN $ 566,204,539
SECURITIES - 100%
(Cost $466,099,310)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FUTURES CONTRACTS
EXPIRATION DATE UNDERLYING FACE AMOUNT UNREALIZED GAIN/(LOSS)
PURCHASED
53 S&P 500 Stock Index Sept. 1999 $ 18,307,525 $ 643,718
Contracts
</TABLE>
The face value of futures purchased as a percentage of investment in
securities - 3.2%
LEGEND
(a) Non-income producing
(b) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(c) At period end, the seven-day yield on the Taxable Central Cash
Fund was 4.84%. The yield refers to the income earned by investing in
the fund over the seven-day period, expressed as an annual percentage.
(d) Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date. The rate shown
is the rate at period end.
(e) Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date. The rate shown is the rate at
period end.
(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 $15,891,184 or 2.8% of net assets.
(g) Security or a portion of the security was pledged to cover margin
requirements for futures contracts. At the period end, the value of
securities pledged amounted to $1,163,750.
(h) Partial interest payment received on the last interest payment
date.
(i) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(j) Restricted securities - Investment in securities not registered
under the Securities Act of 1933.
Additional information on each holding is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST
Fairchild Semiconductor Corp. 4/3/97 - 3/15/99 $ 377,639
11.74% 3/15/08 pay-in-kind
Goldman Sachs Group L.P. 1/25/99 $ 400,000
5.295% 7/27/00
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $226,234,480 and $226,904,169, respectively, of which
long-term U.S. government and government agency obligations aggregated
$27,533,351 and $17,312,257, respectively.
The market value of futures contracts opened and closed during the
period amounted to $37,378,411 and $30,916,031, respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company.
The commissions paid to these affiliated firms were $6,531 for the
period.
The composition of long-term debt holdings as a percentage of total
value of investments in securities, is as follows (ratings are
unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 4.7% AAA, AA, A 4.5%
Baa 1.7% BBB 1.7%
Ba 1.9% BB 2.7%
B 7.4% B 7.1%
Caa 1.5% CCC 1.4%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by Moody's or S&P amounted to 0.9%. FMR has
determined that unrated debt securities that are lower quality account
for 0.9% of the total value of investment in securities.
INCOME TAX INFORMATION
At June 30, 1999, the aggregate cost of investment securities for
income tax purposes was $466,342,803. Net unrealized appreciation
aggregated $99,861,736, of which $111,300,515 related to appreciated
investment securities and $11,438,779 related to depreciated
investment securities.
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER: GROWTH PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 566,204,539
value (including repurchase
agreements of $21,000) (cost
$466,099,310) - See
accompanying schedule
Cash 16,626
Receivable for investments 576,761
sold
Receivable for fund shares 506,758
sold
Dividends receivable 409,704
Interest receivable 1,937,953
Receivable for daily 331,250
variation on futures
contracts
Other receivables 1,188
TOTAL ASSETS 569,984,779
LIABILITIES
Payable for investments $ 3,778,224
purchased
Payable for fund shares 203,815
redeemed
Accrued management fee 263,902
Distribution fees payable 562
Other payables and accrued 54,921
expenses
TOTAL LIABILITIES 4,301,424
NET ASSETS $ 565,683,355
Net Assets consist of:
Paid in capital $ 433,542,655
Undistributed net investment 6,305,461
income
Accumulated undistributed net 25,086,291
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation 100,748,948
(depreciation) on
investments and assets and
liabilities in foreign
currencies
NET ASSETS $ 565,683,355
INITIAL CLASS: NET ASSET $17.15
VALUE, offering price and
redemption price per share
($558,366,224 (divided by)
32,560,696 shares)
SERVICE CLASS: NET ASSET $17.07
VALUE, offering price and
redemption price per share
($7,317,131 (divided by)
428,751 shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30,
1999 (UNAUDITED)
INVESTMENT INCOME $ 2,822,281
Dividends
Interest 5,387,745
TOTAL INCOME 8,210,026
EXPENSES
Management fee $ 1,575,228
Transfer agent fees 182,110
Distribution fees - Service 2,475
Class
Accounting fees and expenses 120,575
Non-interested trustees' 832
compensation
Custodian fees and expenses 13,867
Registration fees 25
Audit 9,768
Miscellaneous 12,968
Total expenses before 1,917,848
reductions
Expense reductions (29,389) 1,888,459
NET INVESTMENT INCOME 6,321,567
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities 26,262,474
Foreign currency transactions (152)
Futures contracts 481,757 26,744,079
Change in net unrealized
appreciation (depreciation)
on:
Investment securities 6,554,589
Futures contracts 153,888 6,708,477
NET GAIN (LOSS) 33,452,556
NET INCREASE (DECREASE) IN $ 39,774,123
NET ASSETS RESULTING FROM
OPERATIONS
OTHER INFORMATION $ 28,411
Expense reductions Directed
brokerage arrangements
Custodian credits 978
$ 29,389
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
ASSETS 1999 (UNAUDITED)
Operations Net investment $ 6,321,567 $ 12,886,652
income
Net realized gain (loss) 26,744,079 19,750,450
Change in net unrealized 6,708,477 46,973,028
appreciation (depreciation)
NET INCREASE (DECREASE) IN 39,774,123 79,610,130
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (12,766,102) (9,747,110)
From net investment income
From net realized gain (21,173,047) (45,582,074)
TOTAL DISTRIBUTIONS (33,939,149) (55,329,184)
Share transactions - net 27,809,507 24,516,891
increase (decrease)
TOTAL INCREASE (DECREASE) 33,644,481 48,797,837
IN NET ASSETS
NET ASSETS
Beginning of period 532,038,874 483,241,037
End of period (including $ 565,683,355 $ 532,038,874
undistributed net investment
income of $6,305,461 and
$12,651,500, respectively)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OTHER INFORMATION:
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
1999 (UNAUDITED)
SHARES DOLLARS SHARES DOLLARS
Share transactions Initial 1,838,424 $ 30,461,246 5,166,840 $ 81,527,781
Class Sold
Reinvested 2,100,108 33,706,735 3,710,796 55,327,974
Redeemed (2,434,181) (40,326,088) (7,361,720) (115,250,981)
Net increase (decrease) 1,504,351 $ 23,841,893 1,515,916 $ 21,604,774
Service Class Sold 261,216 $ 4,287,515 202,513 $ 3,161,007
Reinvested 14,544 232,414 81 1,210
Redeemed (33,595) (552,315) (16,635) (250,100)
Net increase (decrease) 242,165 $ 3,967,614 185,959 $ 2,912,117
Distributions From net $ 12,678,680 $ 9,746,897
investment income Initial
Class
Service Class 87,422 213
Total $ 12,766,102 $ 9,747,110
From net realized gain $ 21,028,055 $ 45,581,077
Initial Class
Service Class 144,992 997
Total $ 21,173,047 $ 45,582,074
$ 33,939,149 $ 55,329,184
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 1996 1995 E
Net asset value, beginning of $ 17.03 $ 16.36 $ 13.10 $ 11.77 $ 10.00
period
Income from Investment
Operations
Net investment income .19 D .41 D .36 D .21 .10
Net realized and unrealized 1.02 2.19 2.92 2.08 2.20
gain (loss)
Total from investment 1.21 2.60 3.28 2.29 2.30
operations
Less Distributions
From net investment income (.41) (.34) - (.21) (.11)
From net realized gain (.68) (1.59) (.02) (.75) (.42)
Total distributions (1.09) (1.93) (.02) (.96) (.53)
Net asset value, end of period $ 17.15 $ 17.03 $ 16.36 $ 13.10 $ 11.77
TOTAL RETURN B, C 7.54% 17.57% 25.07% 20.04% 23.02%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 558,366 $ 528,874 $ 483,231 $ 253,024 $ 68,247
(000 omitted)
Ratio of expenses to average .72% A .73% .77% .87% 1.00% G
net assets
Ratio of expenses to average .71% A, H .72% H .76% H .85% H 1.00%
net assets after expense
reductions
Ratio of net investment 2.38% A 2.60% 2.44% 2.63% 1.69%
income to average net assets
Portfolio turnover 91% A 98% 90% 120% 343%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - SERVICE CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 F
Net asset value, beginning of $ 16.96 $ 16.35 $ 15.94
period
Income from Investment
Operations
Net investment income D .18 .40 .07
Net realized and unrealized 1.02 2.14 .34
gain (loss)
Total from investment 1.20 2.54 .41
operations
Less Distributions
From net investment income (.41) (.34) -
From net realized gain (.68) (1.59) -
Total distributions (1.09) (1.93) -
Net asset value, end of period $ 17.07 $ 16.96 $ 16.35
TOTAL RETURNB, C 7.51% 17.18% 2.57%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 7,317 $ 3,165 $ 10
(000 omitted)
Ratio of expenses to average .83% A .89% .87% A
net assets
Ratio of expenses to average .82% A, H .88% H .87% A
net assets after expense
reductions
Ratio of net investment 2.27% A 2.65% 2.70% A
income to average net assets
Portfolio turnover 91% A 98% 90%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE
TO YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. INCLUSION
OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN. TOTAL RETURNS FOR PERIODS OF LESS THAN ONE
YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED
BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD JANUARY 3, 1995 (COMMENCEMENT OF
OPERATIONS OF INITIAL CLASS SHARES) TO DECEMBER 31, 1995.
F FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF SALE
OF SERVICE CLASS SHARES) TO DECEMBER 31, 1997.
G FMR AGREED TO REIMBURSE A PORTION OF THE CLASS'
EXPENSES DURING THE PERIOD. WITHOUT THIS REIMBURSEMENT,
THE CLASS' EXPENSE RATIO WOULD HAVE BEEN HIGHER.
H FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS
WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A
PORTION OF THE CLASS' EXPENSES.
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
VIP: EQUITY-INCOME - "INITIAL 13.86% 21.38% 15.34%
CLASS"
Russell 3000 Value 14.39% 23.66% 16.72%
S&P 500 22.76% 27.87% 18.78%
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's returns to the performance of the Russell
3000 Value Index - a market capitalization-weighted index of
value-oriented stocks of U.S. domiciled corporations and the
performance of the Standard & Poor's 500 Index - a market
capitalization-weighted index of common stocks. These benchmarks
reflect the reinvestment of 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.
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, THE TOTAL RETURNS 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.
(checkmark)UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for
example, has a history of long-term growth and
short-term volatility. In turn, the share price and
return of a fund that invests in stocks will vary.
That means if you sell your shares during a
market downturn, you might lose money. But if
you can ride out the market's ups and downs,
you may have a gain.
$10,000 OVER 10 YEARS
VIP EQUITY-INCOME RUSSELL 3000 VALUE
00150 RS008
1989/06/30 10000.00 10000.00
1989/07/31 10583.00 10647.37
1989/08/31 10753.04 10907.00
1989/09/30 10632.15 10806.29
1989/10/31 10018.76 10398.84
1989/11/30 10076.01 10512.57
1989/12/31 10160.09 10726.06
1990/01/31 9473.93 10051.51
1990/02/28 9530.07 10304.44
1990/03/31 9545.79 10425.07
1990/04/30 9214.82 10021.06
1990/05/31 9824.50 10830.99
1990/06/30 9726.68 10600.26
1990/07/31 9488.80 10487.68
1990/08/31 8731.10 9545.64
1990/09/30 8053.81 9066.19
1990/10/31 7848.45 8917.99
1990/11/30 8410.97 9532.62
1990/12/31 8606.67 9777.32
1991/01/31 9068.23 10236.66
1991/02/28 9692.69 10938.98
1991/03/31 9893.76 11131.60
1991/04/30 9939.99 11214.12
1991/05/31 10485.53 11638.23
1991/06/30 10056.79 11145.19
1991/07/31 10626.93 11600.13
1991/08/31 10851.24 11820.32
1991/09/30 10776.77 11740.10
1991/10/31 10956.22 11930.42
1991/11/30 10483.97 11326.52
1991/12/31 11312.48 12261.67
1992/01/31 11465.22 12346.30
1992/02/29 11837.53 12668.73
1992/03/31 11692.48 12488.37
1992/04/30 12058.77 12975.28
1992/05/31 12155.17 13059.53
1992/06/30 12048.75 12954.41
1992/07/31 12417.98 13453.77
1992/08/31 12145.91 13053.78
1992/09/30 12272.00 13239.70
1992/10/31 12418.91 13275.13
1992/11/30 12869.44 13741.55
1992/12/31 13222.84 14088.69
1993/01/31 13617.55 14525.82
1993/02/28 13923.45 14999.14
1993/03/31 14338.38 15451.39
1993/04/30 14278.76 15239.24
1993/05/31 14537.11 15559.58
1993/06/30 14708.10 15886.42
1993/07/31 14908.21 16072.53
1993/08/31 15478.52 16657.09
1993/09/30 15419.35 16717.41
1993/10/31 15560.35 16742.11
1993/11/30 15288.42 16389.03
1993/12/31 15641.81 16716.45
1994/01/31 16330.70 17345.43
1994/02/28 15910.15 16803.76
1994/03/31 15244.55 16166.35
1994/04/30 15769.86 16461.41
1994/05/31 15919.95 16630.29
1994/06/30 15821.59 16228.77
1994/07/31 16350.06 16712.05
1994/08/31 17191.29 17210.64
1994/09/30 16909.65 16679.88
1994/10/31 17256.73 16854.88
1994/11/30 16692.72 16174.01
1994/12/31 16747.01 16391.33
1995/01/31 17008.86 16834.20
1995/02/28 17657.41 17495.55
1995/03/31 18267.11 17849.20
1995/04/30 18775.18 18409.83
1995/05/31 19340.97 19147.18
1995/06/30 19618.85 19445.11
1995/07/31 20373.87 20125.22
1995/08/31 20629.41 20440.96
1995/09/30 21314.29 21136.19
1995/10/31 21069.03 20863.16
1995/11/30 21980.00 21897.68
1995/12/31 22623.95 22460.41
1996/01/31 23281.42 23107.21
1996/02/29 23359.62 23299.44
1996/03/31 23605.51 23704.02
1996/04/30 23912.87 23847.05
1996/05/31 24171.05 24174.47
1996/06/30 23949.75 24164.90
1996/07/31 22781.77 23212.13
1996/08/31 23248.96 23911.96
1996/09/30 24244.82 24830.64
1996/10/31 24638.25 25720.03
1996/11/30 26285.71 27535.57
1996/12/31 25855.41 27310.59
1997/01/31 26863.56 28540.03
1997/02/28 27161.15 28944.22
1997/03/31 26151.65 27930.13
1997/04/30 27079.30 29026.27
1997/05/31 28757.26 30716.06
1997/06/30 30094.18 32057.67
1997/07/31 32290.53 34363.85
1997/08/31 30776.27 33309.23
1997/09/30 32467.88 35342.52
1997/10/31 31281.03 34357.39
1997/11/30 32426.95 35761.96
1997/12/31 33122.69 36822.47
1998/01/31 33040.84 36287.11
1998/02/28 35170.33 38705.64
1998/03/31 36799.39 40995.58
1998/04/30 36799.39 41262.97
1998/05/31 36203.04 40569.99
1998/06/30 36610.30 41019.33
1998/07/31 35708.50 40073.33
1998/08/31 30254.05 34083.42
1998/09/30 32028.56 36036.90
1998/10/31 34399.43 38684.63
1998/11/30 35853.95 40426.19
1998/12/31 36973.93 41793.71
1999/01/31 36857.57 42026.48
1999/02/28 36408.91 41259.45
1999/03/31 37739.26 42026.45
1999/04/30 41088.09 45945.47
1999/05/31 39971.81 45574.45
1999/06/30 41684.46 46921.32
IMATRL PRASUN SHR__CHT 19990630 19990723 102659 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund: Equity-Income Portfolio
on June 30, 1989. As the chart shows, by June 30, 1999, the value of
the investment would have grown to $41,684 - a 316.84% increase on the
initial investment. For comparison, look at how the Russell 3000 Value
Index did over the same period. With dividends and capital gains, if
any, reinvested, the same $10,000 investment would have grown to
$46,921 - a 369.21% increase. Beginning with this report, the fund
will compare its performance to that of the Russell 3000 Value Index,
rather than the Standard & Poor's 500 Index. The Russell 3000 Value
Index more closely reflects the fund's investment strategy.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE
30, 1999
% OF FUND'S INVESTMENTS
General Electric Co. 3.7
Citigroup, Inc. 2.9
BP Amoco PLC sponsored ADR 2.4
Fannie Mae 2.0
Bank One Corp. 1.9
TOP FIVE MARKET SECTORS AS OF
JUNE 30, 1999
% OF FUND'S INVESTMENTS
FINANCE 24.4
ENERGY 12.4
UTILITIES 12.0
INDUSTRIAL MACHINERY & 8.9
EQUIPMENT
BASIC INDUSTRIES 6.7
ASSET ALLOCATION AS OF JUNE
30, 1999*
% OF FUND'S INVESTMENTS
Stocks 96.9%
Bonds 1.5%
Short-term Investments 1.6%
* FOREIGN INVESTMENTS 9.1%
Row: 1, Col: 1, Value: 96.90000000000001
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 1.5
Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 1.6
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). The initial offering of Service Class shares
took place on November 3, 1997. Performance for Service Class shares
reflects an asset based distribution fee (12b-1 fee), and returns
prior to November 3, 1997 are those of Initial Class and do not
include the effects of Service Class' 12b-1 fee. Had Service Class
shares' 12b-1 fee been reflected, returns prior to November 3, 1997
would have been lower.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
VIP: EQUITY-INCOME - SERVICE 13.70% 21.34% 15.32%
CLASS
Russell 3000(registered 14.39% 23.66% 16.72%
trademark) Value
S&P 500 22.76% 27.87% 18.78%
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's returns to the performance of the Russell
3000 Value Index - a market capitalization-weighted index of
value-oriented stocks of U.S. domiciled corporations. You can also
compare the fund's returns to the performance of the Standard & Poor's
500 Index - a market capitalization-weighted index of common stocks.
These benchmarks reflect the reinvestment of 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.
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, THE TOTAL RETURNS 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.
(checkmark)UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for
example, has a history of long-term growth and
short-term volatility. In turn, the share price and
return of a fund that invests in stocks will vary.
That means if you sell your shares during a
market downturn, you might lose money. But if
you can ride out the market's ups and downs,
you may have a gain.
$10,000 OVER 10 YEARS
VIP EQUITY-INCOME - SC RUSSELL 3000 VALUE
00471 RS008
1989/06/30 10000.00 10000.00
1989/07/31 10583.00 10647.37
1989/08/31 10753.04 10907.00
1989/09/30 10632.15 10806.29
1989/10/31 10018.76 10398.84
1989/11/30 10076.01 10512.57
1989/12/31 10160.09 10726.06
1990/01/31 9473.93 10051.51
1990/02/28 9530.07 10304.44
1990/03/31 9545.79 10425.07
1990/04/30 9214.82 10021.06
1990/05/31 9824.50 10830.99
1990/06/30 9726.68 10600.26
1990/07/31 9488.80 10487.68
1990/08/31 8731.10 9545.64
1990/09/30 8053.81 9066.19
1990/10/31 7848.45 8917.99
1990/11/30 8410.97 9532.62
1990/12/31 8606.67 9777.32
1991/01/31 9068.23 10236.66
1991/02/28 9692.69 10938.98
1991/03/31 9893.76 11131.60
1991/04/30 9939.99 11214.12
1991/05/31 10485.53 11638.23
1991/06/30 10056.79 11145.19
1991/07/31 10626.93 11600.13
1991/08/31 10851.24 11820.32
1991/09/30 10776.77 11740.10
1991/10/31 10956.22 11930.42
1991/11/30 10483.97 11326.52
1991/12/31 11312.48 12261.67
1992/01/31 11465.22 12346.30
1992/02/29 11837.53 12668.73
1992/03/31 11692.48 12488.37
1992/04/30 12058.77 12975.28
1992/05/31 12155.17 13059.53
1992/06/30 12048.75 12954.41
1992/07/31 12417.98 13453.77
1992/08/31 12145.91 13053.78
1992/09/30 12272.00 13239.70
1992/10/31 12418.91 13275.13
1992/11/30 12869.44 13741.55
1992/12/31 13222.84 14088.69
1993/01/31 13617.55 14525.82
1993/02/28 13923.45 14999.14
1993/03/31 14338.38 15451.39
1993/04/30 14278.76 15239.24
1993/05/31 14537.11 15559.58
1993/06/30 14708.10 15886.42
1993/07/31 14908.21 16072.53
1993/08/31 15478.52 16657.09
1993/09/30 15419.35 16717.41
1993/10/31 15560.35 16742.11
1993/11/30 15288.42 16389.03
1993/12/31 15641.81 16716.45
1994/01/31 16330.70 17345.43
1994/02/28 15910.15 16803.76
1994/03/31 15244.55 16166.35
1994/04/30 15769.86 16461.41
1994/05/31 15919.95 16630.29
1994/06/30 15821.59 16228.77
1994/07/31 16350.06 16712.05
1994/08/31 17191.29 17210.64
1994/09/30 16909.65 16679.88
1994/10/31 17256.73 16854.88
1994/11/30 16692.72 16174.01
1994/12/31 16747.01 16391.33
1995/01/31 17008.86 16834.20
1995/02/28 17657.41 17495.55
1995/03/31 18267.11 17849.20
1995/04/30 18775.18 18409.83
1995/05/31 19340.97 19147.18
1995/06/30 19618.85 19445.11
1995/07/31 20373.87 20125.22
1995/08/31 20629.41 20440.96
1995/09/30 21314.29 21136.19
1995/10/31 21069.03 20863.16
1995/11/30 21980.00 21897.68
1995/12/31 22623.95 22460.41
1996/01/31 23281.42 23107.21
1996/02/29 23359.62 23299.44
1996/03/31 23605.51 23704.02
1996/04/30 23912.87 23847.05
1996/05/31 24171.05 24174.47
1996/06/30 23949.75 24164.90
1996/07/31 22781.77 23212.13
1996/08/31 23248.96 23911.96
1996/09/30 24244.82 24830.64
1996/10/31 24638.25 25720.03
1996/11/30 26285.71 27535.57
1996/12/31 25855.41 27310.59
1997/01/31 26863.56 28540.03
1997/02/28 27161.15 28944.22
1997/03/31 26151.65 27930.13
1997/04/30 27079.30 29026.27
1997/05/31 28757.26 30716.06
1997/06/30 30094.18 32057.67
1997/07/31 32290.53 34363.85
1997/08/31 30776.27 33309.23
1997/09/30 32467.88 35342.52
1997/10/31 31281.03 34357.39
1997/11/30 32426.95 35761.96
1997/12/31 33109.05 36822.47
1998/01/31 33040.84 36287.11
1998/02/28 35170.33 38705.64
1998/03/31 36784.85 40995.58
1998/04/30 36799.39 41262.97
1998/05/31 36188.49 40569.99
1998/06/30 36595.76 41019.33
1998/07/31 35693.96 40073.33
1998/08/31 30239.50 34083.42
1998/09/30 32014.02 36036.90
1998/10/31 34370.34 38684.63
1998/11/30 35810.32 40426.19
1998/12/31 36930.30 41793.71
1999/01/31 36813.94 42026.48
1999/02/28 36380.57 41259.45
1999/03/31 37695.71 42026.45
1999/04/30 41029.45 45945.47
1999/05/31 39913.11 45574.45
1999/06/30 41610.56 46921.32
IMATRL PRASUN SHR__CHT 19990630 19990723 102814 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund: Equity-Income Portfolio
- - Service Class on June 30, 1989. As the chart shows, by June 30,
1999, the value of the investment would have grown to $41,611 - a
316.11% increase on the initial investment. For comparison, look at
how the Russell 3000 Value Index did over the same period. With
dividends and capital gains, if any, reinvested, the same $10,000
investment would have grown to $46,921 - a 369.21% increase. Beginning
with this report, the fund will compare its performance to that of the
Russell 3000 Value Index, rather than the Standard & Poor's 500 Index.
The Russell 3000 Value Index more closely reflects the fund's
investment strategy.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE
30, 1999
% OF FUND'S INVESTMENTS
General Electric Co. 3.7
Citigroup, Inc. 2.9
BP Amoco PLC sponsored ADR 2.4
Fannie Mae 2.0
Bank One Corp. 1.9
TOP FIVE MARKET SECTORS AS OF
JUNE 30, 1999
% OF FUND'S INVESTMENTS
FINANCE 24.4
ENERGY 12.4
UTILITIES 12.0
INDUSTRIAL MACHINERY & 8.9
EQUIPMENT
BASIC INDUSTRIES 6.7
ASSET ALLOCATION AS OF JUNE
30, 1999*
% OF FUND'S INVESTMENTS
Stocks 96.9%
Bonds 1.5%
Short-term Investments 1.6%
* FOREIGN INVESTMENTS 9.1%
Row: 1, Col: 1, Value: 96.90000000000001
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 1.5
Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 1.6
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
(photograph of Steve Petersen)
An interview with
Steve Petersen,
Portfolio Manager of
Equity-Income Portfolio
Q. HOW DID THE FUND PERFORM, STEVE?
A. For the six-month period that ended June 30, 1999, the fund
outperformed both the Russell 3000 Value Index, which returned 12.27%,
and the Standard & Poor's 500 Index, which returned 12.38%. For the
12-month period that ended June 30, 1999, the fund slightly
underperformed the Russell 3000 Value Index, which returned 14.39%,
and underperformed the S&P 500 Index, which returned 22.76%.
Q. WHY DOES THE FUND NOW COMPARE ITS PERFORMANCE TO THE RUSSELL 3000
VALUE INDEX?
A. The fund focuses on stocks with "value" characteristics, and
invests primarily in stocks that pay higher dividends on average than
those in the Standard & Poor's 500 Index. The Russell 3000 Value
Index, which focuses on large-, mid- and small-cap companies with
value characteristics - rather than growth stocks - more closely
reflects the fund's investment strategy than the S&P 500 index, which
measures the performance of both growth and value stocks.
Q. HOW DID THE INVESTING ENVIRONMENT AFFECT THE FUND'S PERFORMANCE?
A. Beginning in the early part of 1999, there was a marked change in
investor perception about the prospects for future corporate earnings
growth. Value stocks regained favor in the face of growing evidence
that the earnings outlook in many cyclical industries showed signs of
improving. Many value stocks, which were beaten down over the last
couple of years as economic growth slowed throughout the world,
performed well as it became apparent that Asian economies were no
longer declining and were beginning to recover. It also became
apparent that concerns about economic problems in Russia and Eastern
Europe affecting the performance of U.S. companies were overblown, and
problems in Brazil were not as severe as originally anticipated. Given
their previous relative underperformance, many dividend-paying
companies had very attractive valuations, and performed well during
the period.
Q. ENERGY STOCKS DID VERY WELL. WHAT ACCOUNTED FOR THEIR STRONG
SHOWING?
A. Energy was the most important sector of the marketplace in terms of
its contribution to overall fund performance. Oil companies, given the
low prices they received over the past year or so for oil, cut back on
the development of new properties as well as their reinvestment in
existing wells. When world demand for oil began to rebound,
particularly in Asia, oil prices jumped. There was also a fair amount
of consolidation in the industry, with British Petroleum buying Amoco,
Exxon buying Mobil, and Total Fina attempting to buy Elf Aquitaine,
which could benefit stock prices. Toward the end of the period, OPEC's
move to limit oil production also helped push oil prices up. Fund
holdings BP Amoco, Total Fina and energy services company Halliburton
all performed well.
Q. FINANCIAL STOCKS ALSO PERFORMED WELL . . .
A. Yes, they made a pretty dramatic recovery from last fall, when many
financial services firms suffered with the decline in U.S. and global
financial markets. During the period, financial stocks benefited from
lower reserves and write-offs that banks were required to take,
because default rates and bankruptcies were lower. And, with low
interest rates, financial services companies that had investment
banking operations found a favorable environment in which to issue
corporate debt and undertake merger and acquisition activity. Although
there were some market jitters due to the anticipation of an increase
in interest rates, when the Fed finally acted at the end of June - and
shifted its stance to neutral - investors were relieved. Fund holdings
Chase Manhattan, American Express, Bank One and Bank of America all
performed well in this environment. Citigroup also performed well, its
merger with Travelers helping to broaden and diversify its operations.
Q. WERE THERE DISAPPOINTMENTS?
A. Sure. Philip Morris was a poor performer. Ongoing lawsuits and
recent declines in international tobacco volumes hurt the company's
performance. However, Philip Morris has very attractive valuations,
and I'm still holding the stock. Fannie Mae suffered from investors'
perception that higher interest rates are not good for mortgage
origination volumes. In addition, 1998 was a record year for mortgage
refinancing, and investors also feared that those volumes would slow
during 1999. The fund is still holding the stock, and I believe Fannie
Mae is a solid company. Another disappointment, Bank of New York,
increased its non-lending activities to over 60% of its business.
Unlike many other banks, its performance was sluggish, perhaps due to
the perception that the growth rate of its custodial and trustee
business may have slowed somewhat during 1999.
Q. STEVE, WHAT'S YOUR OUTLOOK?
A. I'm optimistic. The underlying business fundamentals for basic
industries look pretty good in that we're seeing better results coming
from many more companies than in recent years. Overall business trends
also look much better today than they did 12 months ago. My strategy
will be to continue to look for companies with excellent underlying
financials and interesting business fundamentals, which I believe can
perform well over time.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET OR OTHER CONDITIONS. FOR MORE INFORMATION, SEE PAGE 3.
(checkmark)FUND FACTS
GOAL: seeks reasonable income while maintaining a yield that exceeds
the composite dividend yield of the S&P 500; also considers the
potential for achieving capital appreciation
START DATE: October 9, 1986
SIZE: as of June 30, 1999, more than $12.5
billion
MANAGER: Stephen Petersen, since 1997; joined Fidelity in 1980
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
INVESTMENTS JUNE 30, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 93.5%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 4.6%
AEROSPACE & DEFENSE - 3.0%
AlliedSignal, Inc. 1,571,300 $ 98,991,900
Boeing Co. 789,100 34,868,356
Harsco Corp. 583,300 18,665,600
Northrop Grumman Corp. 194,300 12,884,519
Rockwell International Corp. 76,400 4,641,300
Textron, Inc. 1,122,400 92,387,550
United Technologies Corp. 1,639,500 117,531,656
379,970,881
DEFENSE ELECTRONICS - 1.3%
Litton Industries, Inc. (a) 642,500 46,099,375
Raytheon Co.:
Class A 19,131 1,317,648
Class B 1,601,800 112,726,675
160,143,698
SHIP BUILDING & REPAIR - 0.3%
General Dynamics Corp. 505,700 34,640,450
TOTAL AEROSPACE & DEFENSE 574,755,029
BASIC INDUSTRIES - 6.6%
CHEMICALS & PLASTICS - 3.0%
Arch Chemicals, Inc. 292,600 7,113,837
Dexter Corp. 501,400 20,463,388
Dow Chemical Co. 116,500 14,780,938
E.I. du Pont de Nemours and 818,300 55,900,119
Co.
Eastman Chemical Co. 218,600 11,312,550
Engelhard Corp. 287,500 6,504,688
Great Lakes Chemical Corp. 896,200 41,281,213
Hanna (M.A.) Co. 979,200 16,095,600
Hercules, Inc. 856,100 33,655,431
Hoechst AG 491,100 22,327,408
IMC Global, Inc. 1,626,800 28,672,350
Lyondell Chemical Co. 611,700 12,616,313
Millennium Chemicals, Inc. 749,200 17,653,025
Monsanto Co. 445,600 17,573,350
Praxair, Inc. 292,500 14,314,219
Solutia, Inc. 1,144,100 24,383,631
Union Carbide Corp. 497,000 24,228,750
Witco Corp. 682,700 13,654,000
382,530,810
IRON & STEEL - 0.5%
AK Steel Holding Corp. 148,400 3,339,000
Allegheny Teledyne, Inc. 511,800 11,579,475
Dofasco, Inc. 749,800 12,225,836
Nucor Corp. 521,200 24,724,425
USX-U.S. Steel Group 340,900 9,204,300
61,073,036
METALS & MINING - 1.5%
Alcan Aluminium Ltd. 858,000 27,422,917
Alcoa, Inc. 1,849,858 114,459,964
SHARES VALUE (NOTE 1)
Kaiser Aluminum Corp. (a) 250,000 $ 2,218,750
Olin Corp. 585,200 7,717,325
Phelps Dodge Corp. 339,200 21,009,200
Ryerson Tull, Inc. 753,323 16,996,850
189,825,006
PACKAGING & CONTAINERS - 0.3%
Ball Corp. 150,000 6,337,500
Crown Cork & Seal Co., Inc. 183,700 5,235,450
Owens-Illinois, Inc. (a) 413,400 13,513,013
Tupperware Corp. 576,500 14,700,750
39,786,713
PAPER & FOREST PRODUCTS - 1.3%
Bowater, Inc. 271,800 12,842,550
Champion International Corp. 776,700 37,184,513
Domtar, Inc. 1,072,400 10,190,989
Fort James Corp. 99,400 3,764,775
Georgia-Pacific Corp. 913,400 43,272,325
Kimberly-Clark Corp. 643,900 36,702,300
Weyerhaeuser Co. 240,100 16,506,875
160,464,327
TOTAL BASIC INDUSTRIES 833,679,892
CONSTRUCTION & REAL ESTATE -
1.8%
BUILDING MATERIALS - 0.5%
American Standard Companies, 49,500 2,376,000
Inc. (a)
Caradon PLC 1,228,100 2,895,938
Fortune Brands, Inc. 91,200 3,773,400
Masco Corp. 2,090,800 60,371,850
69,417,188
ENGINEERING - 0.2%
EG & G, Inc. 587,500 20,929,688
REAL ESTATE INVESTMENT TRUSTS
- - 1.1%
Alexandria Real Estate 109,600 3,425,000
Equities, Inc.
Crescent Real Estate Equities 853,600 20,273,000
Co.
Duke Realty Investments, Inc. 175,700 3,964,231
Equity Office Properties Trust 416,800 10,680,500
Equity Residential Properties 548,700 24,725,794
Trust (SBI)
Public Storage, Inc. 415,400 11,631,200
Reckson Associates Realty 62,800 1,475,800
Corp.
Spieker Properties, Inc. 277,000 10,768,375
Starwood Hotels & Resorts 1,465,981 44,804,044
Worldwide, Inc.
Weeks Corp. 231,900 7,072,950
138,820,894
TOTAL CONSTRUCTION & REAL 229,167,770
ESTATE
DURABLES - 2.6%
AUTOS, TIRES, & ACCESSORIES -
1.6%
DaimlerChrysler AG (Reg.) 178,837 15,894,135
Delphi Automotive Systems 293,900 5,455,519
Corp.
Eaton Corp. 426,500 39,238,000
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
DURABLES - CONTINUED
AUTOS, TIRES, & ACCESSORIES -
CONTINUED
Federal-Mogul Corp. 67,500 $ 3,510,000
Ford Motor Co. 906,100 51,138,019
Meritor Automotive, Inc. 629,900 16,062,450
Navistar International Corp. 76,500 3,825,000
(a)
Pep Boys-Manny, Moe & Jack 581,100 12,566,288
TRW, Inc. 852,300 46,769,963
194,459,374
CONSUMER DURABLES - 0.6%
Minnesota Mining & 350,200 30,445,513
Manufacturing Co.
Snap-On, Inc. 1,102,000 39,878,625
70,324,138
HOME FURNISHINGS - 0.2%
Newell Rubbermaid, Inc. 553,100 25,719,150
TEXTILES & APPAREL - 0.2%
Liz Claiborne, Inc. 161,700 5,902,050
NIKE, Inc. Class B 374,700 23,723,194
29,625,244
TOTAL DURABLES 320,127,906
ENERGY - 12.3%
ENERGY SERVICES - 1.4%
Baker Hughes, Inc. 337,200 11,296,200
Halliburton Co. 2,407,900 108,957,475
Schlumberger Ltd. 906,200 57,713,613
177,967,288
OIL & GAS - 10.9%
Amerada Hess Corp. 709,400 42,209,300
Anadarko Petroleum Corp. 587,900 21,642,069
Apache Corp. 263,000 10,257,000
Atlantic Richfield Co. 183,600 15,342,075
BP Amoco PLC sponsored ADR 2,834,819 307,577,862
Burlington Resources, Inc. 922,100 39,880,825
Chevron Corp. 1,409,471 134,164,021
Conoco, Inc. Class A 721,200 20,103,450
Elf Aquitaine SA sponsored ADR 943,100 69,376,794
Exxon Corp. 1,940,100 149,630,213
Mobil Corp. 446,100 44,163,900
Occidental Petroleum Corp. 1,854,000 39,165,750
Phillips Petroleum Co. 575,300 28,944,781
Royal Dutch Petroleum Co. (NY 2,218,600 133,670,650
Registry Gilder 1.25)
Santa Fe Snyder Corp. (a) 248,353 1,893,692
Texaco, Inc. 660,000 41,250,000
Tosco Corp. 449,800 11,666,688
Total Fina SA:
Class B 831,600 107,172,440
sponsored ADR 865,100 55,744,881
Ultramar Diamond Shamrock 490,300 10,694,669
Corp.
Union Pacific Resources 734,700 11,984,794
Group, Inc.
SHARES VALUE (NOTE 1)
Unocal Corp. 463,983 $ 18,385,326
USX-Marathon Group 1,621,100 52,787,069
1,367,708,249
TOTAL ENERGY 1,545,675,537
FINANCE - 23.3%
BANKS - 9.4%
Bank of America Corp. 3,173,890 232,685,811
Bank of New York Co., Inc. 4,631,400 169,914,488
Bank of Nova Scotia 178,900 3,913,858
Bank One Corp. 4,054,238 241,480,551
Chase Manhattan Corp. 1,377,300 119,308,613
Comerica, Inc. 1,278,300 75,978,956
Credit Suisse Group (Reg.) 141,100 24,484,518
Mellon Bank Corp. 390,700 14,211,713
National Bank of Canada 2,211,200 29,176,290
U.S. Bancorp 2,928,094 99,555,196
Wells Fargo & Co. 3,967,200 169,597,800
1,180,307,794
CREDIT & OTHER FINANCE - 7.5%
American Express Co. 1,853,072 241,130,994
Associates First Capital 3,421,056 151,595,549
Corp. Class A
Citigroup, Inc. 7,733,699 367,350,679
Fleet Financial Group, Inc. 1,373,600 60,953,500
Household International, Inc. 2,527,647 119,747,277
940,777,999
FEDERAL SPONSORED CREDIT - 2.3%
Fannie Mae 3,727,300 254,854,138
Freddie Mac 217,400 12,609,200
SLM Holding Corp. 412,700 18,906,819
286,370,157
INSURANCE - 2.4%
Allstate Corp. 787,198 28,240,728
Berkshire Hathaway, Inc. 109 7,510,100
Class A (a)
Chubb Corp. (The) 52,700 3,662,650
Financial Security Assurance 417,871 21,729,292
Holdings Ltd.
Fremont General Corp. 1,398,448 26,395,706
Hartford Financial Services 1,508,600 87,970,238
Group, Inc.
Highlands Insurance Group, 371,100 3,896,550
Inc. (a)
PMI Group, Inc. 469,800 29,509,313
Reliastar Financial Corp. 1,042,895 45,626,656
Torchmark Corp. 743,700 25,378,763
Travelers Property Casualty 620,000 24,257,500
Corp. Class A
304,177,496
SAVINGS & LOANS - 0.8%
Washington Mutual, Inc. 2,898,482 102,533,801
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - CONTINUED
SECURITIES INDUSTRY - 0.9%
Cendant Corp. (a) 946,100 $ 19,395,050
First Marathon, Inc. Class A 526,700 9,002,188
(non-vtg.)
Franklin Resources, Inc. 496,600 20,174,375
Lehman Brothers Holdings, 449,800 28,000,050
Inc.
Nomura Securities Co. Ltd. 1,561,000 18,246,543
Waddell & Reed Financial, Inc.:
Class A 394,416 10,821,789
Class B 182,132 4,917,564
110,557,559
TOTAL FINANCE 2,924,724,806
HEALTH - 5.3%
DRUGS & PHARMACEUTICALS - 3.7%
American Home Products Corp. 300,900 17,301,750
Bristol-Myers Squibb Co. 1,792,400 126,252,175
Lilly (Eli) & Co. 953,600 68,301,600
Merck & Co., Inc. 1,665,900 123,276,600
Schering-Plough Corp. 2,540,830 134,663,990
469,796,115
MEDICAL EQUIPMENT & SUPPLIES
- - 1.0%
Baxter International, Inc. 375,800 22,782,875
Becton, Dickinson & Co. 828,800 24,864,000
Johnson & Johnson 662,700 64,944,600
Pall Corp. 417,600 9,265,500
121,856,975
MEDICAL FACILITIES MANAGEMENT
- - 0.6%
Beverly Enterprises, Inc. (a) 1,722,000 13,883,625
Columbia/HCA Healthcare Corp. 2,259,150 51,536,859
Tenet Healthcare Corp. (a) 459,100 8,522,044
73,942,528
TOTAL HEALTH 665,595,618
INDUSTRIAL MACHINERY &
EQUIPMENT - 8.6%
ELECTRICAL EQUIPMENT - 4.8%
Emerson Electric Co. 781,000 49,105,375
General Electric Co. 4,147,000 468,610,970
Honeywell, Inc. 244,600 28,343,025
Loral Space & Communications 298,700 5,376,600
Ltd. (a)
Siemens AG 671,400 52,082,784
603,518,754
INDUSTRIAL MACHINERY &
EQUIPMENT - 2.6%
Case Corp. 421,000 20,260,625
Caterpillar, Inc. 134,800 8,088,000
Coltec Industries, Inc. (a) 1,371,600 29,746,575
Deere & Co. 871,300 34,525,263
Ingersoll-Rand Co. 498,000 32,183,250
SHARES VALUE (NOTE 1)
Kennametal, Inc. 393,700 $ 12,204,700
Parker-Hannifin Corp. 525,000 24,018,750
Tyco International Ltd. 1,705,923 161,636,204
322,663,367
POLLUTION CONTROL - 1.2%
Allied Waste Industries, Inc. 592,200 11,695,950
(a)
Browning-Ferris Industries, 988,598 42,509,714
Inc.
Ogden Corp. 508,300 13,692,331
Republic Services, Inc. Class 588,200 14,557,950
A
Waste Management, Inc. 1,197,447 64,362,776
146,818,721
TOTAL INDUSTRIAL MACHINERY & 1,073,000,842
EQUIPMENT
MEDIA & LEISURE - 4.1%
BROADCASTING - 1.8%
CBS Corp. (a) 1,626,900 70,668,469
Infinity Broadcasting Corp. 466,300 13,872,425
Class A
Time Warner, Inc. 1,948,599 143,222,027
227,762,921
ENTERTAINMENT - 1.3%
Disney (Walt) Co. 1,088,300 33,533,244
King World Productions, Inc. 457,000 15,909,313
(a)
Mandalay Resort Group (a) 464,400 9,810,450
Viacom, Inc. Class B 2,261,400 99,501,600
(non-vtg.) (a)
158,754,607
LEISURE DURABLES & TOYS - 0.1%
Brunswick Corp. 569,800 15,883,175
LODGING & GAMING - 0.0%
Mirage Resorts, Inc. (a) 309,100 5,177,425
PUBLISHING - 0.5%
Harcourt General, Inc. 657,900 33,922,969
Reader's Digest Association, 548,700 21,810,825
Inc. Class A (non-vtg.)
55,733,794
RESTAURANTS - 0.4%
McDonald's Corp. 1,310,800 54,152,425
TOTAL MEDIA & LEISURE 517,464,347
NONDURABLES - 4.0%
AGRICULTURE - 0.3%
Edperbrascan Corp. Class A 2,699,800 41,437,417
(ltd. vtg.)
BEVERAGES - 0.4%
Anheuser-Busch Companies, 144,000 10,215,000
Inc.
PepsiCo, Inc. 300,500 11,625,594
Seagram Co. Ltd. 395,600 19,838,149
Whitman Corp. 428,400 7,711,200
49,389,943
FOODS - 0.7%
Corn Products International, 401,625 12,224,461
Inc.
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NONDURABLES - CONTINUED
FOODS - CONTINUED
Goodman Fielder Ltd. 4,642,110 $ 4,172,262
Heinz (H.J.) Co. 498,200 24,972,275
Nabisco Group Holdings Corp. 449,000 8,783,563
Nabisco Holdings Corp. Class A 779,200 33,700,400
83,852,961
HOUSEHOLD PRODUCTS - 1.1%
Procter & Gamble Co. 307,200 27,417,600
Unilever NV 11,071 748,414
Unilever NV (NY shares) 714,285 49,821,379
Unilever PLC 6,090,714 56,719,999
134,707,392
TOBACCO - 1.5%
Philip Morris Companies, Inc. 4,833,300 194,238,244
TOTAL NONDURABLES 503,625,957
PRECIOUS METALS - 0.1%
Newmont Mining Corp. 605,600 12,036,300
RETAIL & WHOLESALE - 3.2%
APPAREL STORES - 0.9%
Charming Shoppes, Inc. (a) 612,800 3,734,250
Footstar, Inc. (a) 551,800 20,520,063
Limited, Inc. (The) 1,317,700 59,790,638
Payless ShoeSource, Inc. (a) 385,000 20,597,500
TJX Companies, Inc. 350,200 11,666,038
116,308,489
GENERAL MERCHANDISE STORES -
2.2%
Consolidated Stores Corp. (a) 2,020,156 54,544,219
Dayton Hudson Corp. 920,700 59,845,500
Federated Department Stores, 1,104,400 58,464,175
Inc. (a)
Hudson's Bay Co. 185,000 2,086,894
Hudson's Bay Co. (d) 302,500 3,412,354
Wal-Mart Stores, Inc. 2,073,200 100,031,900
278,385,042
GROCERY STORES - 0.1%
Albertson's, Inc. 152,700 7,873,594
TOTAL RETAIL & WHOLESALE 402,567,125
SERVICES - 0.8%
LEASING & RENTAL - 0.2%
Ryder Systems, Inc. 766,600 19,931,600
PRINTING - 0.2%
Donnelley (R.R.) & Sons Co. 568,400 21,066,325
Wallace Computer Services, 347,900 8,697,500
Inc.
29,763,825
SERVICES - 0.4%
ACNielsen Corp. (a) 636,000 19,239,000
Dun & Bradstreet Corp. 313,800 11,120,288
SHARES VALUE (NOTE 1)
Manpower, Inc. 364,500 $ 8,246,813
Modis Professional Services, 477,700 6,568,375
Inc. (a)
45,174,476
TOTAL SERVICES 94,869,901
TECHNOLOGY - 3.8%
COMPUTER SERVICES & SOFTWARE
- - 2.2%
Ask Jeeves, Inc. 2,200 30,800
Clarent Corp. 8,200 123,000
Electronic Data Systems Corp. 706,800 39,978,375
International Business 860,200 111,180,850
Machines Corp.
NCR Corp. (a) 168,300 8,215,144
Unisys Corp. (a) 3,018,317 117,525,718
277,053,887
COMPUTERS & OFFICE EQUIPMENT
- - 1.0%
Compaq Computer Corp. 351,400 8,323,788
Pitney Bowes, Inc. 1,582,000 101,643,500
Xerox Corp. 122,000 7,205,625
117,172,913
ELECTRONIC INSTRUMENTS - 0.1%
Thermo Electron Corp. (a) 614,900 12,336,431
ELECTRONICS - 0.5%
Motorola, Inc. 561,300 53,183,175
Texas Instruments, Inc. 83,200 12,064,000
65,247,175
TOTAL TECHNOLOGY 471,810,406
TRANSPORTATION - 1.3%
AIR TRANSPORTATION - 0.2%
AMR Corp. (a) 336,700 22,979,775
Viad Corp. 275,800 8,532,563
31,512,338
RAILROADS - 1.1%
Burlington Northern Santa Fe 2,153,400 66,755,400
Corp.
CSX Corp. 1,024,600 46,427,188
Union Pacific Corp. 409,400 23,873,138
137,055,726
TOTAL TRANSPORTATION 168,568,064
UTILITIES - 11.1%
CELLULAR - 0.3%
ALLTEL Corp. 508,900 36,386,350
ELECTRIC UTILITY - 2.9%
Allegheny Energy, Inc. 1,148,700 36,830,194
American Electric Power Co., 997,100 37,453,569
Inc.
Avista Corp. 707,500 11,496,875
Central & South West Corp. 444,000 10,378,500
CILCORP, Inc. 128,200 8,012,500
Cinergy Corp. 415,000 13,280,000
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
UTILITIES - CONTINUED
ELECTRIC UTILITY - CONTINUED
CMS Energy Corp. 379,200 $ 15,879,000
Consolidated Edison, Inc. 473,450 21,423,613
DPL, Inc. 1,059,850 19,474,744
Duke Energy Corp. 424,600 23,087,625
Entergy Corp. 2,579,800 80,618,750
Niagara Mohawk Holdings, Inc. 1,434,200 23,036,838
(a)
PG&E Corp. 1,551,878 50,436,035
Pinnacle West Capital Corp. 237,000 9,539,250
360,947,493
GAS - 0.3%
Questar Corp. 955,200 18,268,200
Sempra Energy 1,152,084 26,065,901
44,334,101
TELEPHONE SERVICES - 7.6%
Ameritech Corp. 1,792,700 131,763,450
AT&T Corp. 4,262,300 237,889,619
Bell Atlantic Corp. 2,749,540 179,751,178
BellSouth Corp. 1,227,600 57,543,750
GTE Corp. 1,251,500 94,801,125
MCI WorldCom, Inc. (a) 1,289,777 111,001,433
Pathnet, Inc. warrants 520 5,200
4/15/08 (a)(d)
SBC Communications, Inc. 2,018,400 117,067,200
Sprint Corp. (FON Group) 513,400 27,113,938
956,936,893
TOTAL UTILITIES 1,398,604,837
TOTAL COMMON STOCKS 11,736,274,337
(Cost $7,994,773,121)
PREFERRED STOCKS - 3.4%
CONVERTIBLE PREFERRED STOCKS
- - 3.4%
BASIC INDUSTRIES - 0.1%
CHEMICALS & PLASTICS - 0.1%
Monsanto Co. $1.625 ACES 460,000 18,457,500
DURABLES - 0.0%
AUTOS, TIRES, & ACCESSORIES -
0.0%
Automatic Common Exchangeable 219,200 3,945,600
Securities Trust II
(Republic Industries) $1.55
ACES
ENERGY - 0.1%
OIL & GAS - 0.1%
Apache Corp. $2.015 ACES 183,100 6,683,150
FINANCE - 1.1%
CREDIT & OTHER FINANCE - 0.6%
Federal-Mogul Financing Trust 490,300 28,927,700
$3.50
SHARES VALUE (NOTE 1)
Union Pacific Capital Trust $:
3.125 403,200 $ 20,714,400
3.125 TIDES (d) 384,500 19,753,688
69,395,788
INSURANCE - 0.5%
Aetna, Inc. Class C, $4.7578 760,000 56,430,000
PRIDES
Conseco, Inc. $3.50 PRIDES 296,800 11,927,650
68,357,650
SECURITIES INDUSTRY - 0.0%
Merrill Lynch & Co., Inc. 77,600 1,585,950
(IMC Global) $2.39 STRYPES
TOTAL FINANCE 139,339,388
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.3%
ELECTRICAL EQUIPMENT - 0.2%
Loral Space & Communications
Ltd. Series C:
$3.00 (d) 183,200 9,251,600
$3.00 141,700 7,155,850
16,407,450
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.1%
Ingersoll Rand Co./Ingersoll 530,100 14,809,669
Rand Finance $0.195 Growth
PRIDES
TOTAL INDUSTRIAL MACHINERY & 31,217,119
EQUIPMENT
MEDIA & LEISURE - 1.0%
BROADCASTING - 0.7%
Evergreen Media Corp. $3.00 128,300 14,145,075
(d)
MediaOne Group, Inc. 249,900 22,615,950
(Vodafone AirTouch PLC)
$3.63 PIES
MediaOne Group, Inc. Class D 374,200 55,334,825
$2.25
92,095,850
ENTERTAINMENT - 0.1%
Premier Parks, Inc. $4.05 PIES 273,300 18,584,400
PUBLISHING - 0.2%
Readers Digest Automatic 464,700 16,874,419
Common Exchange Trust $1.93
TRACES
Tribune Co. (The Learning 102,300 2,877,188
Co., Inc.) $1.75 DECS
19,751,607
TOTAL MEDIA & LEISURE 130,431,857
NONDURABLES - 0.2%
BEVERAGES - 0.2%
Seagram Co. Ltd. $3.76 473,400 23,699,588
RETAIL & WHOLESALE - 0.0%
GENERAL MERCHANDISE STORES -
0.0%
K mart Financing I $3.875 100,000 5,850,000
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
CONVERTIBLE PREFERRED STOCKS
- - CONTINUED
UTILITIES - 0.6%
ELECTRIC UTILITY - 0.6%
Houston Industries, Inc. 285,500 $ 34,045,875
(Time Warner) $3.216 ACES
NiSource, Inc. $3.875 PIES 299,300 14,777,938
Texas Utilities Co. $1.6575 465,200 20,643,250
growth PRIDES
69,467,063
TOTAL CONVERTIBLE PREFERRED 429,091,265
STOCKS
NONCONVERTIBLE PREFERRED
STOCKS - 0.0%
CONSTRUCTION & REAL ESTATE -
0.0%
REAL ESTATE INVESTMENT TRUSTS
- - 0.0%
California Federal Preferred 31,590 821,340
Capital Corp. $2.2812
MEDIA & LEISURE - 0.0%
BROADCASTING - 0.0%
CSC Holdings, Inc. 11.125% 21,167 2,317,787
pay-in-kind
PUBLISHING - 0.0%
PRIMEDIA, Inc. 8.625% 5,975 543,725
TOTAL MEDIA & LEISURE 2,861,512
TOTAL NONCONVERTIBLE 3,682,852
PREFERRED STOCKS
TOTAL PREFERRED STOCKS 432,774,117
(Cost $342,734,797)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS - 1.5%
MOODY'S RATINGS (UNAUDITED) (E) PRINCIPAL AMOUNT (F)
CONVERTIBLE BONDS - 1.1%
CONSTRUCTION & REAL ESTATE -
0.3%
REAL ESTATE INVESTMENT TRUSTS
- - 0.3%
Liberty Property LP 8.3% Ba2 $ 27,985,000 34,841,325
7/1/01
DURABLES - 0.1%
CONSUMER ELECTRONICS - 0.1%
Matsushita Electric Aa2 JPY 209,000,000 2,586,100
Industrial Co. Ltd. 1.4%
3/31/04
Sunbeam Corp. 0% 3/25/18 (d) Caa2 60,290,000 10,098,575
12,684,675
MOODY'S RATINGS (UNAUDITED) (E) PRINCIPAL AMOUNT (F) VALUE (NOTE 1)
FINANCE - 0.0%
INSURANCE - 0.0%
Loews Corp. 3.125% 9/15/07 A2 $ 4,320,000 $ 3,493,800
MEDIA & LEISURE - 0.3%
BROADCASTING - 0.0%
Jacor Communications, Inc. 0% Ba3 3,370,000 1,891,413
2/9/18 liquid yield option
notes
PUBLISHING - 0.3%
News America Holdings, Inc. Baa3 48,470,000 35,261,925
liquid yield option notes 0%
3/11/13
TOTAL MEDIA & LEISURE 37,153,338
NONDURABLES - 0.0%
FOODS - 0.0%
Chiquita Brands B3 820,000 774,900
International, Inc. 7%
3/28/01
RETAIL & WHOLESALE - 0.0%
DRUG STORES - 0.0%
Rite Aid Corp. 5.25% 9/15/02 Baa2 250,000 247,969
(d)
TECHNOLOGY - 0.3%
COMPUTER SERVICES & SOFTWARE
- - 0.0%
Softkey International, Inc. - 1,340,000 1,309,850
5.5% 11/1/00 (d)
COMPUTERS & OFFICE EQUIPMENT
- - 0.1%
Quantum Corp. 7% 8/1/04 B2 7,730,000 7,266,200
ELECTRONICS - 0.2%
Micron Technology, Inc. 7% B2 17,163,000 17,634,983
7/1/04
Solectron Corp. 0% 1/27/19 Baa3 15,490,000 9,081,013
(d)
26,715,996
TOTAL TECHNOLOGY 35,292,046
UTILITIES - 0.1%
TELEPHONE SERVICES - 0.1%
Telefonos de Mexico SA de CV BB 9,430,000 9,736,475
4.25% 6/15/04
TOTAL CONVERTIBLE BONDS 134,224,528
NONCONVERTIBLE BONDS - 0.4%
BASIC INDUSTRIES - 0.0%
CHEMICALS & PLASTICS - 0.0%
Lyondell Chemical Co. 9.875% Ba3 1,340,000 1,363,450
5/1/07 (d)
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (E) PRINCIPAL AMOUNT (F) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
ENERGY - 0.0%
ENERGY SERVICES - 0.0%
RBF Finance Co. 11.375% Ba3 $ 1,520,000 $ 1,573,200
3/15/09 (d)
FINANCE - 0.0%
CREDIT & OTHER FINANCE - 0.0%
Macsaver Financial Services, Ba1 1,000,000 852,500
Inc. 7.875% 8/1/03
HEALTH - 0.0%
MEDICAL FACILITIES MANAGEMENT
- - 0.0%
Tenet Healthcare Corp. 8.125% Ba3 2,220,000 2,097,900
12/1/08
MEDIA & LEISURE - 0.2%
BROADCASTING - 0.2%
Adelphia Communications Corp.:
7.75% 1/15/09 B1 3,340,000 3,097,850
9.875% 3/1/07 B1 1,970,000 2,056,188
Century Communications Corp., Ba3 960,000 422,400
Series B, 0% 1/15/08
Charter Communications B2 1,670,000 1,596,938
Holdings LLC/Charter
Communications Holdings
Capital Corp. 8.625% 4/1/09
(d)
CSC Holdings, Inc. 7.875% Ba2 600,000 571,116
2/15/18
Falcon Holding Group B2 1,840,000 1,285,700
LP/Falcon Funding Corp. 0%
4/15/10 (c)
NTL Communications Corp. B3 6,470,000 7,084,650
11.5% 10/1/08
Telewest PLC 0% 10/1/07 (c) B1 1,780,000 1,593,100
17,707,942
ENTERTAINMENT - 0.0%
Regal Cinemas, Inc. 8.875% B3 2,170,000 1,974,700
12/15/10
LODGING & GAMING - 0.0%
HMH Properties, Inc. 7.875% Ba2 1,070,000 984,400
8/1/08
RESTAURANTS - 0.0%
Domino's, Inc. 10.375% 1/15/09 B3 1,120,000 1,131,200
TOTAL MEDIA & LEISURE 21,798,242
MOODY'S RATINGS (UNAUDITED) (E) PRINCIPAL AMOUNT (F) VALUE (NOTE 1)
NONDURABLES - 0.0%
HOUSEHOLD PRODUCTS - 0.0%
Revlon Consumer Products B2 $ 1,960,000 $ 1,940,400
Corp. 9% 11/1/06
UTILITIES - 0.2%
CELLULAR - 0.1%
Nextel Communications, Inc.:
0% 10/31/07 (c) B2 4,635,000 3,256,088
12% 11/1/08 B2 2,090,000 2,351,250
5,607,338
TELEPHONE SERVICES - 0.1%
GST Network Funding, Inc. 0% - 1,620,000 923,400
5/1/08 (c)(d)
ICG Services, Inc. 0% 5/1/08 - 1,395,000 753,300
(c)
Intermedia Communications, B2 770,000 716,100
Inc. 8.6% 6/1/08
Level 3 Communications, Inc. B3 2,490,000 1,550,025
0% 12/1/08 (c)
McLeodUSA, Inc. 9.5% 11/1/08 B2 990,000 992,475
NEXTLINK Communications, Inc. B3 2,780,000 2,696,600
9.625% 10/1/07
Pathnet, Inc. 12.25% 4/15/08 - 520,000 286,000
Rhythms NetConnections, Inc. B3 1,670,000 1,561,450
12.75% 4/15/09 (d)
Teligent, Inc. 0% 3/1/08 (c) Caa1 3,160,000 1,864,400
WinStar Communications, Inc.:
0% 10/15/05 (c) Caa1 660,000 577,500
15% 3/1/07 CCC 840,000 966,000
12,887,250
TOTAL UTILITIES 18,494,588
TOTAL NONCONVERTIBLE BONDS 48,120,280
TOTAL CORPORATE BONDS 182,344,808
(Cost $175,647,333)
CASH EQUIVALENTS - 1.6%
SHARES
Taxable Central Cash Fund (b) 197,022,830 197,022,830
(Cost $197,022,830)
TOTAL INVESTMENT IN $ 12,548,416,092
SECURITIES - 100%
(Cost $8,710,178,081)
</TABLE>
SECURITY TYPE ABBREVIATIONS
ACES - Automatic Common
Exchange Securities
DECS - Dividend Enhanced
Convertible Stock/Debt
Exchangeable for Common
Stock
PIES - Premium Income Equity
Securities
PRIDES - Preferred Redeemable
Increased Dividend
Equity Securities
STRYPES - Structured Yield
Product Exchangeable for
Common Stock
TIDES - Term Income Deferred
Equity Securities
TRACES - Trust Automatic
Common Exchange Securities
CURRENCY ABBREVIATIONS
JPY - Japanese yen
LEGEND
(a) Non-income producing
(b) At period end, the seven-day yield on the Taxable Central Cash
Fund was 4.84%. The yield refers to the income earned by investing in
the fund over the seven-day period, expressed as an annual percentage.
(c) Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date. The rate shown
is the rate at period end.
(d) 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 $74,323,762 or 0.6% of net assets.
(e) Standard & Poor's credit ratings are used in absence of a rating
by Moody's Investors Service, Inc.
(f) Principal amount is stated in United States dollars unless
otherwise noted.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $1,387,987,794 and $1,717,759,112, respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company.
The commissions paid to these affiliated firms were $216,327 for the
period.
INCOME TAX INFORMATION
At June 30, 1999, the aggregate cost of investment securities for
income tax purposes was $8,717,979,460. Net unrealized appreciation
aggregated $3,830,436,632, of which $4,111,599,498 related to
appreciated investment securities and $281,162,866 related to
depreciated investment securities.
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 12,548,416,092
value (cost $8,710,178,081)
- - See accompanying schedule
Cash 10,114
Receivable for investments 52,384,900
sold
Receivable for fund shares 3,080,442
sold
Dividends receivable 19,484,709
Interest receivable 3,564,442
Other receivables 1,007,578
TOTAL ASSETS 12,627,948,277
LIABILITIES
Payable for investments $ 44,331,406
purchased
Payable for fund shares 9,675,629
redeemed
Accrued management fee 4,933,561
Distribution fees payable 28,132
Other payables and accrued 901,233
expenses
TOTAL LIABILITIES 59,869,961
NET ASSETS $ 12,568,078,316
Net Assets consist of:
Paid in capital $ 8,276,118,743
Undistributed net investment 97,274,883
income
Accumulated undistributed 356,506,786
net realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation 3,838,177,904
(depreciation) on
investments and assets and
liabilities in foreign
currencies
NET ASSETS $ 12,568,078,316
INITIAL CLASS: NET ASSET $27.26
VALUE, offering price and
redemption price per share
($12,210,029,445 (divided
by) 447,974,992 shares)
SERVICE CLASS: NET ASSET $27.21
VALUE, offering price and
redemption price per share
($358,048,871 (divided by)
13,157,148 shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30,
1999 (UNAUDITED)
INVESTMENT INCOME $ 123,274,610
Dividends
Interest 9,575,975
132,850,585
Less foreign taxes withheld (3,262,753)
TOTAL INCOME 129,587,832
EXPENSES
Management fee $ 28,572,858
Transfer agent fees 3,905,974
Distribution fees - Service 139,714
Class
Accounting fees and expenses 497,956
Non-interested trustees' 27,083
compensation
Custodian fees and expenses 177,582
Registration fees 28,755
Audit 42,149
Miscellaneous 114,076
Total expenses before 33,506,147
reductions
Expense reductions (441,990) 33,064,157
NET INVESTMENT INCOME 96,523,675
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities 366,346,440
Foreign currency transactions (10,866) 366,335,574
Change in net unrealized
appreciation (depreciation)
on:
Investment securities 958,811,984
Assets and liabilities in (163,094) 958,648,890
foreign currencies
NET GAIN (LOSS) 1,324,984,464
NET INCREASE (DECREASE) IN $ 1,421,508,139
NET ASSETS RESULTING FROM
OPERATIONS
OTHER INFORMATION $ 441,990
Expense reductions Directed
brokerage arrangements
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
ASSETS 1999 (UNAUDITED)
Operations Net investment $ 96,523,675 $ 175,118,232
income
Net realized gain (loss) 366,335,574 377,421,064
Change in net unrealized 958,648,890 617,114,451
appreciation (depreciation)
NET INCREASE (DECREASE) IN 1,421,508,139 1,169,653,747
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (170,985,891) (143,408,236)
From net investment income
From net realized gain (377,968,810) (510,364,604)
TOTAL DISTRIBUTIONS (548,954,701) (653,772,840)
Share transactions - net 60,468,325 1,007,105,749
increase (decrease)
TOTAL INCREASE (DECREASE) 933,021,763 1,522,986,656
IN NET ASSETS
NET ASSETS
Beginning of period 11,635,056,553 10,112,069,897
End of period (including $ 12,568,078,316 $ 11,635,056,553
undistributed net investment
income of $97,274,883 and
$172,284,861, respectively)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OTHER INFORMATION:
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
1999 (UNAUDITED)
SHARES DOLLARS SHARES DOLLARS
Share transactions Initial 22,827,373 $ 590,692,684 64,328,671 $ 1,568,020,907
Class Sold
Reinvested 22,601,688 537,468,129 27,884,679 652,780,343
Redeemed (46,332,859) (1,177,217,609) (59,592,607) (1,424,580,460)
Net increase (decrease) (903,798) $ (49,056,796) 32,620,743 $ 796,220,790
Service Class Sold 3,919,814 100,917,363 8,703,524 212,310,778
Reinvested 483,645 11,486,571 42,396 992,496
Redeemed (112,907) (2,878,813) (98,817) (2,418,315)
Net increase (decrease) 4,290,552 $ 109,525,121 8,647,103 $ 210,884,959
Distributions From net $ 167,408,106 $ 143,190,527
investment income Initial
Class
Service Class 3,577,785 217,709
Total $ 170,985,891 $ 143,408,236
From net realized gain $ 370,060,023 $ 509,589,817
Initial Class
Service Class 7,908,787 774,787
Total $ 377,968,810 $ 510,364,604
$ 548,954,701 $ 653,772,840
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 1996 1995
Net asset value, beginning of $ 25.42 $ 24.28 $ 21.03 $ 19.27 $ 15.35
period
Income from Investment
Operations
Net investment income .21 D .38 D .36 D .35 .41
Net realized and unrealized 2.85 2.31 5.06 2.30 4.69
gain (loss)
Total from investment 3.06 2.69 5.42 2.65 5.10
operations
Less Distributions
From net investment income (.38) (.34) (.36) (.03) (.40)
From net realized gain (.84) (1.21) (1.81) (.86) (.78)
Total distributions (1.22) (1.55) (2.17) (.89) (1.18)
Net asset value, end of period $ 27.26 $ 25.42 $ 24.28 $ 21.03 $ 19.27
TOTAL RETURN B, C 12.74% 11.63% 28.11% 14.28% 35.09%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 12,210,029 $ 11,409,912 $ 10,106,742 $ 6,961,090 $ 4,879,435
(000 omitted)
Ratio of expenses to average .57% A .58% .58% .58% .61%
net assets
Ratio of expenses to average .57% A .57% F .57% F .56% F .61%
net assets after expense
reductions
Ratio of net investment 1.66% A 1.58% 1.65% 1.97% 2.56%
income to average net assets
Portfolio turnover 24% A 28% 44% 186% 87%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA 1994
Net asset value, beginning of $ 15.44
period
Income from Investment
Operations
Net investment income .41
Net realized and unrealized .64
gain (loss)
Total from investment 1.05
operations
Less Distributions
From net investment income (.37)
From net realized gain (.77)
Total distributions (1.14)
Net asset value, end of period $ 15.35
TOTAL RETURN B, C 7.07%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 2,284,412
(000 omitted)
Ratio of expenses to average .60%
net assets
Ratio of expenses to average .58% F
net assets after expense
reductions
Ratio of net investment 2.83%
income to average net assets
Portfolio turnover 134%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - SERVICE CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 E
Net asset value, beginning of $ 25.39 $ 24.27 $ 23.44
period
Income from Investment
Operations
Net investment income D .19 .36 .05
Net realized and unrealized 2.85 2.31 .78
gain (loss)
Total from investment 3.04 2.67 .83
operations
Less Distributions
From net investment income (.38) (.34) -
From net realized gain (.84) (1.21) -
Total distributions (1.22) (1.55) -
Net asset value, end of period $ 27.21 $ 25.39 $ 24.27
TOTAL RETURNB, C 12.67% 11.54% 3.54%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 358,049 $ 225,145 $ 5,328
(000 omitted)
Ratio of expenses to average .68% A .68% .68% A
net assets
Ratio of expenses to average .67% A, F .67% F .65% A, F
net assets after expense
reductions
Ratio of net investment 1.56% A 1.51% 1.63% A
income to average net assets
Portfolio turnover 24% A 28% 44%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE
TO YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. INCLUSION
OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN. TOTAL RETURNS FOR PERIODS OF LESS THAN ONE
YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED
BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF SALE
OF SERVICE CLASS SHARES) TO DECEMBER 31, 1997.
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS
WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A
PORTION OF THE CLASS' EXPENSES.
VARIABLE INSURANCE PRODUCTS FUND III: GROWTH & INCOME PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). If Fidelity had not reimbursed certain fund
expenses, the life of fund total return would have been lower.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 1 YEAR LIFE OF FUND
VIP III: GROWTH & INCOME - 19.54% 26.51%
"INITIAL CLASS"
S&P 500 (registered trademark) 22.76% 29.11%
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's returns to the performance of the Standard
& Poor's 500 Index - a market capitalization-weighted index of common
stocks. This benchmark 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, December 31, 1996.
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, THE TOTAL RETURNS 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.
(checkmark)UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for example,
has a history of long-term growth and short-term
volatility. In turn, the share price and return of a
fund that invests in stocks will vary. That means if
you sell your shares during a market downturn,
you might lose money. But if you can ride out the
market's ups and downs, you may have a gain.
$10,000 OVER LIFE OF FUND
VIP III GROWTH & INCOME S&P 500
00147 SP001
1996/12/31 10000.00 10000.00
1997/01/31 10250.00 10440.61
1997/02/28 10270.00 10522.46
1997/03/31 9820.00 10090.10
1997/04/30 10350.00 10692.48
1997/05/31 10930.00 11343.43
1997/06/30 11490.00 11851.62
1997/07/31 12420.00 12794.65
1997/08/31 11790.00 12077.90
1997/09/30 12410.00 12739.40
1997/10/31 12060.00 12313.91
1997/11/30 12600.00 12883.92
1997/12/31 12879.20 13105.13
1998/01/31 12951.15 13250.08
1998/02/28 13837.79 14205.67
1998/03/31 14540.53 14933.14
1998/04/30 14540.53 15083.37
1998/05/31 14323.51 14824.09
1998/06/30 15057.25 15426.24
1998/07/31 14953.91 15261.95
1998/08/31 12835.35 13055.38
1998/09/30 13796.45 13891.71
1998/10/31 14871.23 15021.66
1998/11/30 15822.00 15932.12
1998/12/31 16690.09 16850.13
1999/01/31 17062.13 17554.80
1999/02/28 16735.18 17009.20
1999/03/31 17261.77 17689.74
1999/04/30 17746.24 18374.86
1999/05/31 17240.71 17941.03
1999/06/30 17999.01 18936.76
IMATRL PRASUN SHR__CHT 19990630 19990721 103952 R00000000000033
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund III: Growth & Income
Portfolio on December 31, 1996, when the fund started. As the chart
shows, by June 30, 1999, the value of the investment would have grown
to $17,999 - a 79.99% increase on the initial investment. For
comparison, look at how the Standard & Poor's 500 Index did over the
same period. With dividends and capital gains, if any, reinvested, the
same $10,000 investment would have grown to $18,937 - an 89.37%
increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE
30, 1999
% OF FUND'S INVESTMENTS
Associates First Capital 4.3
Corp. Class A
Fannie Mae 3.5
Microsoft Corp. 3.3
Citigroup, Inc. 3.1
General Electric Co. 3.0
TOP FIVE MARKET SECTORS AS OF
JUNE 30, 1999
% OF FUND'S INVESTMENTS
FINANCE 21.7
TECHNOLOGY 12.9
HEALTH 11.6
UTILITIES 8.9
NONDURABLES 8.4
ASSET ALLOCATION AS OF JUNE
30, 1999*
% OF FUND'S INVESTMENTS
Stocks 90.6%
Short-term Investments 9.4%
* FOREIGN INVESTMENTS 3.1%
Row: 1, Col: 1, Value: 90.59999999999999
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 0.0
Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 9.4
VARIABLE INSURANCE PRODUCTS FUND III: GROWTH & INCOME PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). The initial offering of Service Class shares
took place on November 3, 1997. Performance for Service Class shares
reflects an asset based distribution fee (12b-1 fee), and returns
prior to November 3, 1997 are those of Initial Class and do not
include the effects of Service Class' 12b-1 fee. Had Service Class
shares' 12b-1 fee been reflected, returns prior to November 3, 1997
would have been lower. If Fidelity had not reimbursed certain fund
expenses, the life of fund total would have been lower.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 1 YEAR LIFE OF FUND
VIP III: GROWTH & INCOME - 19.44% 26.37%
SERVICE CLASS
S&P 500 22.76% 29.11%
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's returns to the performance of the Standard
& Poor's 500 Index - a market capitalization-weighted index of common
stocks. This benchmark 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, December 31, 1996.
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, THE TOTAL RETURNS 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.
(checkmark)UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for example,
has a history of long-term growth and short-term
volatility. In turn, the share price and return of a
fund that invests in stocks will vary. That means if
you sell your shares during a market downturn,
you might lose money. But if you can ride out the
market's ups and downs, you may have a gain.
$10,000 OVER LIFE OF FUND
VIP III GROWTH & INC - SC S&P 500
00473 SP001
1996/12/31 10000.00 10000.00
1997/01/31 10250.00 10440.61
1997/02/28 10270.00 10522.46
1997/03/31 9820.00 10090.10
1997/04/30 10350.00 10692.48
1997/05/31 10930.00 11343.43
1997/06/30 11490.00 11851.62
1997/07/31 12420.00 12794.65
1997/08/31 11790.00 12077.90
1997/09/30 12410.00 12739.40
1997/10/31 12060.00 12313.91
1997/11/30 12590.00 12883.92
1997/12/31 12879.48 13105.13
1998/01/31 12941.16 13250.08
1998/02/28 13817.49 14205.67
1998/03/31 14520.25 14933.14
1998/04/30 14509.91 15083.37
1998/05/31 14292.88 14824.09
1998/06/30 15026.65 15426.24
1998/07/31 14923.30 15261.95
1998/08/31 12804.69 13055.38
1998/09/30 13765.81 13891.71
1998/10/31 14830.29 15021.66
1998/11/30 15781.08 15932.12
1998/12/31 16649.19 16850.13
1999/01/31 17021.24 17554.80
1999/02/28 16683.76 17009.20
1999/03/31 17210.39 17689.74
1999/04/30 17694.90 18374.86
1999/05/31 17189.33 17941.03
1999/06/30 17947.68 18936.76
IMATRL PRASUN SHR__CHT 19990630 19990712 093729 R00000000000033
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund III: Growth & Income
Portfolio - Service Class on December 31, 1996, when the fund started.
As the chart shows, by June 30, 1999, the value of the investment
would have grown to $17,948 - a 79.48% increase on the initial
investment. For comparison, look at how the Standard & Poor's 500
Index did over the same period. With dividends and capital gains, if
any, reinvested, the same $10,000 investment would have grown to
$18,937 - an 89.37% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE
30, 1999
% OF FUND'S INVESTMENTS
Associates First Capital 4.3
Corp. Class A
Fannie Mae 3.5
Microsoft Corp. 3.3
Citigroup, Inc. 3.1
General Electric Co. 3.0
TOP FIVE MARKET SECTORS AS OF
JUNE 30, 1999
% OF FUND'S INVESTMENTS
FINANCE 21.7
TECHNOLOGY 12.9
HEALTH 11.6
UTILITIES 8.9
NONDURABLES 8.4
ASSET ALLOCATION AS OF JUNE
30, 1999*
% OF FUND'S INVESTMENTS
Stocks 90.6%
Short-term Investments 9.4%
* FOREIGN INVESTMENTS 3.1%
Row: 1, Col: 1, Value: 90.59999999999999
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 0.0
Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 9.4
VARIABLE INSURANCE PRODUCTS FUND III: GROWTH & INCOME PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
(photograph of Louis Salemy)
An interview with
Louis Salemy, Portfolio Manager of Growth
& Income Portfolio
Q. HOW DID THE FUND PERFORM, LOUIS?
A. For the six months that ended June 30, 1999, the fund's return was
somewhat lower than the 12.38% return of the Standard & Poor's 500
Index. For the 12 months that ended June 30, 1999, the fund's return
was relatively close to the S&P 500's 22.76% increase but still
trailed it slightly.
Q. WHAT PREVENTED THE FUND FROM KEEPING UP WITH THE INDEX?
A. The fund had a positive first quarter but lost ground over the next
three months. The main contributing factor was a dramatic shift in
investor interest from growth to value stocks. Surprisingly strong
growth in the U.S. economy and improving prospects overseas, along
with surging crude oil prices, led investors to seek out the shares of
cyclical companies - those that are especially sensitive to
fluctuations in the economy. Since the fund favors the shares of
companies that tend to have steady, dependable earnings growth, it was
hurt by these developments. For instance, pharmaceutical stocks, where
the fund was overweighted relative to the index, had been one of the
best-performing categories during 1998, but underperformed badly in
the first six months of 1999. Rising interest rates were another
factor that detracted from performance. The fund had some large
positions in several financial stocks that fare better when interest
rates are stable or falling. Finally, the fund's position of
approximately 10% in cash equivalents held back performance.
Q. WHY DID THE FUND HAVE SUCH A LARGE POSITION IN CASH EQUIVALENTS?
A. I started 1999 with a fairly cautious outlook, especially in view
of the market's relatively high valuations. Although April, May and
June provided some grounds for questioning my judgment, it was still
unclear as the period ended whether the rally in cyclical shares was a
short-term phenomenon or the beginning of an important new trend. At
the end of June, other commodities had failed to confirm the rally in
crude oil, leaving open the possibility that many cyclical stocks had
far exceeded the price levels justified by underlying supply and
demand considerations. I wanted to have some buying power in the event
of a correction in stock prices.
Q. WHAT STOCKS HELPED THE FUND'S PERFORMANCE?
A. Citigroup was one of the fund's best performers and also one of its
largest holdings. The stock benefited from the synergies resulting
from the recent merger of Citicorp with Travelers Group, as well as
strong earnings growth in its Salomon Smith Barney brokerage unit.
Microsoft, a core technology holding, also did well. The company
continued to beat earnings estimates and generate substantial cash
flow. Another outstanding performer, American Express, benefited from
favorable earnings in its international operations compared to those
of last year, which were weakened by lower Asian demand. The company's
domestic business also continued to perform well.
Q. WHAT HOLDINGS FAILED TO PERFORM UP TO YOUR EXPECTATIONS?
A. Philip Morris was by far the biggest detractor from performance.
The company lost two important lawsuits, and the federal government
filed suit against the company to recover Medicare funds spent on
smoking-related ailments. The shares of pharmaceutical giant Eli Lilly
suffered from competitive pressure on some of the company's leading
drugs and the general move away from growth stocks. Finally, rising
interest rates hurt financial sector holdings Freddie Mac and Fannie
Mae, as did a perceived pricing war between them.
Q. WHAT'S YOUR OUTLOOK, LOUIS?
A. During the second half of 1999, I'll be watching the economy
closely to see whether growth is picking up or decelerating. If the
trend is toward faster growth, I may shift more of the fund's assets
into cyclicals and other economically sensitive shares. Second, I'll
be monitoring the technology sector to see if spending there
accelerates. If so, I'll consider adding more technology stocks to the
fund's portfolio. The jury is still out on these trends and, if the
economy begins to slow, the fund's positioning in solid growth stocks
could be timely.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET OR OTHER CONDITIONS. FOR MORE INFORMATION, SEE PAGE 3.
(checkmark)FUND FACTS
GOAL: seeks a high total return through a
combination of current income and capital
appreciation
START DATE: December 31, 1996
SIZE: as of June 30, 1999, more than $1.4 billion
MANAGER: Louis Salemy, since 1998; manager,
Fidelity Growth & Income II, since 1998; various
Fidelity Select Portfolios, 1992-1998, joined
Fidelity in 1992
VARIABLE INSURANCE PRODUCTS FUND III: GROWTH & INCOME PORTFOLIO
INVESTMENTS JUNE 30, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMMON STOCKS - 90.6%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 1.1%
DEFENSE ELECTRONICS - 0.6%
Litton Industries, Inc. (a) 115,000 $ 8,251,250
SHIP BUILDING & REPAIR - 0.5%
General Dynamics Corp. 104,400 7,151,400
TOTAL AEROSPACE & DEFENSE 15,402,650
BASIC INDUSTRIES - 1.7%
CHEMICALS & PLASTICS - 0.7%
Lyondell Chemical Co. 353,000 7,280,625
Nalco Chemical Co. 45,800 2,375,875
9,656,500
PACKAGING & CONTAINERS - 1.0%
Ball Corp. 148,200 6,261,450
Owens-Illinois, Inc. (a) 256,700 8,390,881
14,652,331
TOTAL BASIC INDUSTRIES 24,308,831
CONSTRUCTION & REAL ESTATE -
1.4%
REAL ESTATE INVESTMENT TRUSTS
- - 1.4%
Equity Office Properties Trust 244,700 6,270,438
Equity Residential Properties 147,500 6,646,719
Trust (SBI)
Public Storage, Inc. 237,800 6,658,400
19,575,557
DURABLES - 1.7%
AUTOS, TIRES, & ACCESSORIES -
1.7%
Federal-Mogul Corp. 171,400 8,912,800
Ford Motor Co. 192,000 10,836,000
General Motors Corp. 77,000 5,082,000
24,830,800
ENERGY - 6.2%
OIL & GAS - 6.2%
BP Amoco PLC sponsored ADR 149,481 16,218,689
Chevron Corp. 77,900 7,415,106
Exxon Corp. 447,600 34,521,150
Mobil Corp. 72,600 7,187,400
Royal Dutch Petroleum Co. 256,700 15,466,175
(NY Registry Gilder 1.25)
Texaco, Inc. 128,100 8,006,250
88,814,770
FINANCE - 21.7%
BANKS - 3.5%
Bank of New York Co., Inc. 414,500 15,206,969
Mellon Bank Corp. 190,000 6,911,250
Wachovia Corp. 332,000 28,406,750
50,524,969
CREDIT & OTHER FINANCE - 10.8%
American Express Co. 328,400 42,733,050
SHARES VALUE (NOTE 1)
Associates First Capital 1,390,000 $ 61,594,368
Corp. Class A
Citigroup, Inc. 915,275 43,475,563
Household International, Inc. 115,500 5,471,813
153,274,794
FEDERAL SPONSORED CREDIT - 5.9%
Fannie Mae 728,500 49,811,188
Freddie Mac 584,200 33,883,600
83,694,788
INSURANCE - 1.5%
American International Group, 115,150 13,479,747
Inc.
Hartford Financial Services 135,600 7,907,175
Group, Inc.
21,386,922
TOTAL FINANCE 308,881,473
HEALTH - 11.6%
DRUGS & PHARMACEUTICALS - 9.0%
Bristol-Myers Squibb Co. 415,400 29,259,738
Lilly (Eli) & Co. 349,100 25,004,288
Merck & Co., Inc. 487,000 36,038,000
Schering-Plough Corp. 135,700 7,192,100
Warner-Lambert Co. 431,200 29,914,500
127,408,626
MEDICAL EQUIPMENT & SUPPLIES
- - 1.8%
Baxter International, Inc. 101,600 6,159,500
Becton, Dickinson & Co. 199,200 5,976,000
Johnson & Johnson 140,300 13,749,400
25,884,900
MEDICAL FACILITIES MANAGEMENT
- - 0.8%
Health Management Associates, 991,900 11,158,875
Inc. Class A (a)
TOTAL HEALTH 164,452,401
INDUSTRIAL MACHINERY &
EQUIPMENT - 4.6%
ELECTRICAL EQUIPMENT - 3.4%
Emerson Electric Co. 105,400 6,627,025
General Electric Co. 379,100 42,838,300
49,465,325
INDUSTRIAL MACHINERY &
EQUIPMENT - 1.2%
Ingersoll-Rand Co. 123,200 7,961,800
Tyco International Ltd. 92,360 8,751,110
16,712,910
TOTAL INDUSTRIAL MACHINERY & 66,178,235
EQUIPMENT
MEDIA & LEISURE - 2.9%
BROADCASTING - 0.5%
CBS Corp. (a) 162,500 7,058,594
Time Warner, Inc. 65 4,778
7,063,372
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
MEDIA & LEISURE - CONTINUED
ENTERTAINMENT - 0.7%
Disney (Walt) Co. 202,300 $ 6,233,369
Scientific Games Holdings 200,000 3,900,000
Corp. (a)
10,133,369
LODGING & GAMING - 0.4%
Station Casinos, Inc. (a) 287,619 5,860,237
PUBLISHING - 0.5%
Central Newspapers, Inc. 15,300 575,663
Class A
Times Mirror Co. Class A 114,400 6,778,200
7,353,863
RESTAURANTS - 0.8%
Starbucks Corp. (a) 125,200 4,702,825
Tricon Global Restaurants, 126,000 6,819,750
Inc. (a)
11,522,575
TOTAL MEDIA & LEISURE 41,933,416
NONDURABLES - 8.4%
BEVERAGES - 1.8%
Coors (Adolph) Co. Class B 96,000 4,752,000
PepsiCo, Inc. 366,300 14,171,231
Whitman Corp. 360,200 6,483,600
25,406,831
FOODS - 1.0%
Bestfoods 146,400 7,246,800
Ralston Purina Co. 243,100 7,399,356
14,646,156
HOUSEHOLD PRODUCTS - 3.1%
Clorox Co. 145,200 15,509,175
Procter & Gamble Co. 316,200 28,220,850
43,730,025
TOBACCO - 2.5%
Philip Morris Companies, Inc. 875,260 35,174,511
TOTAL NONDURABLES 118,957,523
RETAIL & WHOLESALE - 5.3%
APPAREL STORES - 0.7%
Gap, Inc. 192,263 9,685,223
DRUG STORES - 0.5%
CVS Corp. 123,600 6,272,700
GENERAL MERCHANDISE STORES -
2.7%
Costco Companies, Inc. (a) 175,000 14,010,938
Dayton Hudson Corp. 126,700 8,235,500
Wal-Mart Stores, Inc. 345,400 16,665,550
38,911,988
GROCERY STORES - 0.4%
Safeway, Inc. (a) 114,100 5,647,950
SHARES VALUE (NOTE 1)
RETAIL & WHOLESALE,
MISCELLANEOUS - 1.0%
Bed Bath & Beyond, Inc. (a) 209,100 $ 8,050,350
Home Depot, Inc. 104,900 6,759,494
14,809,844
TOTAL RETAIL & WHOLESALE 75,327,705
SERVICES - 1.6%
ADVERTISING - 1.6%
Omnicom Group, Inc. 166,400 13,312,000
Outdoor Systems, Inc. (a) 248,100 9,055,650
22,367,650
TECHNOLOGY - 12.9%
COMMUNICATIONS EQUIPMENT - 1.4%
Cisco Systems, Inc. (a) 195,000 12,565,313
Lucent Technologies, Inc. 112,100 7,559,744
20,125,057
COMPUTER SERVICES & SOFTWARE
- - 6.8%
Ask Jeeves, Inc. 300 4,200
Automatic Data Processing, 365,000 16,060,000
Inc.
Clarent Corp. Delaware 900 13,500
DST Systems, Inc. (a) 153,400 9,645,025
Equifax, Inc. 185,000 6,602,188
IMS Health, Inc. 531,600 16,612,500
Microsoft Corp. (a) 517,100 46,635,956
Unisys Corp. (a) 20,900 813,794
96,387,163
COMPUTERS & OFFICE EQUIPMENT
- - 3.1%
EMC Corp. (a) 116,000 6,380,000
Hewlett-Packard Co. 86,900 8,733,450
Lexmark International Group, 62,400 4,122,300
Inc. Class A (a)
Pitney Bowes, Inc. 280,300 18,009,275
Xerox Corp. 121,000 7,146,563
44,391,588
ELECTRONICS - 1.6%
Intel Corp. 202,000 12,019,000
Solectron Corp. (a) 168,800 11,256,850
23,275,850
TOTAL TECHNOLOGY 184,179,658
TRANSPORTATION - 0.6%
RAILROADS - 0.6%
Burlington Northern Santa Fe 270,700 8,391,700
Corp.
UTILITIES - 8.9%
CELLULAR - 1.6%
ALLTEL Corp. 125,000 8,937,500
Vodafone AirTouch PLC 66,500 13,100,500
sponsored ADR
22,038,000
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
UTILITIES - CONTINUED
ELECTRIC UTILITY - 0.4%
IPALCO Enterprises, Inc. 284,000 $ 6,017,250
TELEPHONE SERVICES - 6.9%
Ameritech Corp. 133,300 9,797,550
AT&T Corp. 470,450 26,256,991
BellSouth Corp. 142,000 6,656,250
Cincinnati Bell, Inc. 362,400 9,037,350
MCI WorldCom, Inc. (a) 348,955 30,031,940
SBC Communications, Inc. 291,100 16,883,800
98,663,881
TOTAL UTILITIES 126,719,131
TOTAL COMMON STOCKS 1,290,321,500
(Cost $1,070,954,163)
CASH EQUIVALENTS - 9.4%
Taxable Central Cash Fund (b) 133,783,258 133,783,258
(Cost $133,783,258)
TOTAL INVESTMENT IN $ 1,424,104,758
SECURITIES - 100%
(Cost $1,204,737,421)
</TABLE>
LEGEND
(a) Non-income producing
(b) At period end, the seven-day yield on the Taxable Central Cash
Fund was 4.84%. The yield refers to the income earned by investing in
the fund over the seven-day period, expressed as an annual percentage.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $475,257,849 and $332,161,098, respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company.
The commissions paid to these affiliated firms were $68,404 for the
period.
INCOME TAX INFORMATION
At June 30, 1999, the aggregate cost of investment securities for
income tax purposes was $1,207,145,718. Net unrealized appreciation
aggregated $216,959,040, of which $245,528,129 related to appreciated
investment securities and $28,569,089 related to depreciated
investment securities.
VARIABLE INSURANCE PRODUCTS FUND III: GROWTH & INCOME PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 1,424,104,758
value (cost $1,204,737,421)
- - See accompanying schedule
Receivable for investments 10,194,544
sold
Receivable for fund shares 623,694
sold
Dividends receivable 1,435,270
Interest receivable 460,401
Other receivables 481
TOTAL ASSETS 1,436,819,148
LIABILITIES
Payable to custodian bank $ 1,912
Payable for investments 19,190,815
purchased
Payable for fund shares 325,075
redeemed
Accrued management fee 546,743
Distribution fees payable 2,984
Other payables and accrued 99,046
expenses
TOTAL LIABILITIES 20,166,575
NET ASSETS $ 1,416,652,573
Net Assets consist of:
Paid in capital $ 1,128,118,967
Undistributed net investment 6,727,752
income
Accumulated undistributed net 62,438,975
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation 219,366,879
(depreciation) on
investments and assets and
liabilities in foreign
currencies
NET ASSETS $ 1,416,652,573
INITIAL CLASS: NET ASSET $17.09
VALUE, offering price and
redemption price per share
($1,377,202,365 (divided by)
80,577,001 shares)
SERVICE CLASS: NET ASSET $17.04
VALUE, offering price and
redemption price per share
($39,450,208 (divided by)
2,315,203 shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30,
1999 (UNAUDITED)
INVESTMENT INCOME $ 7,595,964
Dividends
Interest 2,785,139
TOTAL INCOME 10,381,103
EXPENSES
Management fee $ 3,115,897
Transfer agent fees 436,377
Distribution fees - Service 13,601
Class
Accounting fees and expenses 218,130
Non-interested trustees' 1,929
compensation
Custodian fees and expenses 11,140
Registration fees 70,519
Audit 14,302
Legal 203
Miscellaneous 11,282
Total expenses before 3,893,380
reductions
Expense reductions (62,312) 3,831,068
NET INVESTMENT INCOME 6,550,035
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities 65,835,452
Foreign currency transactions 81 65,835,533
Change in net unrealized
appreciation (depreciation)
on:
Investment securities 26,719,759
Assets and liabilities in (1,543) 26,718,216
foreign currencies
NET GAIN (LOSS) 92,553,749
NET INCREASE (DECREASE) IN $ 99,103,784
NET ASSETS RESULTING FROM
OPERATIONS
OTHER INFORMATION
Expense reductions
Directed brokerage $ 62,312
arrangements
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
ASSETS 1999 (UNAUDITED)
Operations Net investment $ 6,550,035 $ 7,652,898
income
Net realized gain (loss) 65,835,533 11,913,664
Change in net unrealized 26,718,216 159,411,129
appreciation (depreciation)
NET INCREASE (DECREASE) IN 99,103,784 178,977,691
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (7,463,706) -
From net investment income
From net realized gain (14,927,412) (2,137,232)
TOTAL DISTRIBUTIONS (22,391,118) (2,137,232)
Share transactions - net 179,758,425 638,043,127
increase (decrease)
TOTAL INCREASE (DECREASE) 256,471,091 814,883,586
IN NET ASSETS
NET ASSETS
Beginning of period 1,160,181,482 345,297,896
End of period (including $ 1,416,652,573 $ 1,160,181,482
undistributed net investment
income of $6,727,752 and
$7,652,325, respectively)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OTHER INFORMATION:
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
1999 (UNAUDITED)
SHARES DOLLARS SHARES DOLLARS
Share transactions Initial 11,866,872 $ 194,239,417 49,641,298 $ 710,748,814
Class Sold
Reinvested 1,401,034 21,996,236 165,544 2,137,174
Redeemed (3,383,035) (55,707,272) (6,663,877) (91,124,370)
Net increase (decrease) 9,884,871 $ 160,528,381 43,142,965 $ 621,761,618
Service Class Sold 1,179,434 $ 19,317,639 1,196,585 $ 17,082,667
Reinvested 25,216 394,881 4 58
Redeemed (29,932) (482,476) (56,936) (801,216)
Net increase (decrease) 1,174,718 $ 19,230,044 1,139,653 $ 16,281,509
Distributions From net $ 7,332,079 $ -
investment income
Initial Class
Service Class 131,627 -
Total $ 7,463,706 $ -
From net realized gain $ 14,664,158 $ 2,137,174
Initial Class
Service Class 263,254 58
Total $ 14,927,412 $ 2,137,232
$ 22,391,118 $ 2,137,232
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 1996 H
Net asset value, beginning of $ 16.15 $ 12.53 $ 9.90 $ 10.00
period
Income from Investment
Operations
Net investment income .08 D .15 D .13 D .00
Net realized and unrealized 1.16 3.54 2.84 (.10)
gain (loss)
Total from investment 1.24 3.69 2.97 (.10)
operations
Less Distributions
From net investment income (.10) - (.08) -
From net realized gain (.20) (.07) (.26) -
Total distributions (.30) (.07) (.34) -
Net asset value, end of period $ 17.09 $ 16.15 $ 12.53 $ 9.90
TOTAL RETURN B, C 7.84% 29.59% 30.09% (1.00)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 1,377,202 $ 1,141,806 $ 345,287 $ 990
(000 omitted)
Ratio of expenses to average .61% A .61% .70% 1.00% A, F
net assets
Ratio of expenses to average .60% A, G .60% G .70% 1.00% A
net assets after expense
reductions
Ratio of net investment 1.03% A 1.08% 1.14% 3.89% A
income to average net assets
Portfolio turnover 57% A 66% 81% 0% A
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - SERVICE CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 E
Net asset value, beginning of $ 16.11 $ 12.53 $ 12.35
period
Income from Investment
Operations
Net investment income D .07 .15 .03
Net realized and unrealized 1.16 3.50 .49
gain (loss)
Total from investment 1.23 3.65 .52
operations
Less Distributions
From net investment income (.10) - (.08)
From net realized gain (.20) (.07) (.26)
Total distributions (.30) (.07) (.34)
Net asset value, end of period $ 17.04 $ 16.11 $ 12.53
TOTAL RETURN B, C 7.80% 29.27% 4.29%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 39,450 $ 18,375 $ 10
(000 omitted)
Ratio of expenses to average .71% A .71% .80% A
net assets
Ratio of expenses to average .70% A, G .70% G .80% A
net assets after expense
reductions
Ratio of net investment .93% A 1.05% 1.24% A
income to average net assets
Portfolio turnover 57% A 66% 81%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE
TO YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. INCLUSION
OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN. TOTAL RETURNS FOR PERIODS OF LESS THAN ONE
YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED
BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF SALE
OF SERVICE CLASS SHARES) TO DECEMBER 31, 1997.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS'
EXPENSES DURING THE PERIOD. WITHOUT THIS REIMBURSEMENT,
THE CLASS' EXPENSE RATIO WOULD HAVE BEEN HIGHER.
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS
WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A
PORTION OF THE CLASS' EXPENSES.
H FOR THE PERIOD DECEMBER 31, 1996 (COMMENCEMENT OF
OPERATIONS OF INITIAL CLASS SHARES).
VARIABLE INSURANCE PRODUCTS FUND II: INDEX 500 PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). If Fidelity had not reimbursed certain fund
expenses, the total return figures would have been lower.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
VIP II: INDEX 500 22.43% 27.49% 21.49%
S&P 500 (registered trademark) 22.76% 27.87% 21.87%
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's returns to the performance of the Standard
& Poor's 500 Index - a market capitalization-weighted index of common
stocks. This benchmark 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, August 27, 1992.
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, THE TOTAL RETURNS 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.
(checkmark)UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for example,
has a history of long-term growth and short-term
volatility. In turn, the share price and return of a
fund that invests in stocks will vary. That means if
you sell your shares during a market downturn,
you might lose money. But if you can ride out the
market's ups and downs, you may have a gain.
$10,000 OVER LIFE OF FUND
VIP II INDEX 500 S&P 500
00157 SP001
1992/08/27 10000.00 10000.00
1992/08/31 10014.00 10016.72
1992/09/30 10130.00 10134.92
1992/10/31 10152.00 10170.39
1992/11/30 10498.00 10517.20
1992/12/31 10630.67 10646.56
1993/01/31 10707.47 10735.99
1993/02/28 10856.70 10882.00
1993/03/31 11095.84 11111.61
1993/04/30 10822.25 10842.71
1993/05/31 11103.95 11133.30
1993/06/30 11132.32 11165.58
1993/07/31 11081.66 11120.92
1993/08/31 11501.17 11542.40
1993/09/30 11407.95 11453.53
1993/10/31 11641.01 11690.62
1993/11/30 11527.52 11579.55
1993/12/31 11666.06 11719.67
1994/01/31 12059.53 12118.14
1994/02/28 11732.95 11789.73
1994/03/31 11223.46 11275.70
1994/04/30 11357.65 11420.03
1994/05/31 11533.77 11607.32
1994/06/30 11252.82 11322.94
1994/07/31 11623.93 11694.33
1994/08/31 12087.29 12173.80
1994/09/30 11793.76 11875.54
1994/10/31 12055.84 12142.74
1994/11/30 11617.64 11700.50
1994/12/31 11787.47 11874.02
1995/01/31 12099.87 12181.91
1995/02/28 12563.64 12656.64
1995/03/31 12931.02 13030.14
1995/04/30 13311.22 13413.88
1995/05/31 13834.52 13950.03
1995/06/30 14148.51 14274.09
1995/07/31 14620.55 14747.42
1995/08/31 14656.86 14784.44
1995/09/30 15269.88 15408.34
1995/10/31 15218.62 15353.33
1995/11/30 15880.76 16027.34
1995/12/31 16171.25 16336.03
1996/01/31 16724.46 16892.11
1996/02/29 16880.36 17048.70
1996/03/31 17054.17 17212.88
1996/04/30 17292.62 17466.59
1996/05/31 17733.85 17917.06
1996/06/30 17809.61 17985.32
1996/07/31 17020.75 17190.73
1996/08/31 17370.61 17553.28
1996/09/30 18342.21 18541.18
1996/10/31 18848.06 19052.55
1996/11/30 20260.89 20492.73
1996/12/31 19844.17 20086.77
1997/01/31 21074.26 21341.79
1997/02/28 21231.99 21509.11
1997/03/31 20349.53 20625.30
1997/04/30 21559.17 21856.63
1997/05/31 22870.18 23187.26
1997/06/30 23874.76 24226.05
1997/07/31 25773.31 26153.72
1997/08/31 24330.96 24688.59
1997/09/30 25646.59 26040.78
1997/10/31 24798.69 25171.02
1997/11/30 25920.77 26336.19
1997/12/31 26358.54 26788.38
1998/01/31 26644.25 27084.66
1998/02/28 28537.17 29038.00
1998/03/31 29981.03 30525.04
1998/04/30 30277.94 30832.12
1998/05/31 29736.79 30302.12
1998/06/30 30950.78 31532.99
1998/07/31 30613.17 31197.16
1998/08/31 26183.42 26686.68
1998/09/30 27866.72 28396.22
1998/10/31 30129.49 30705.97
1998/11/30 31944.49 32567.06
1998/12/31 33819.35 34443.58
1999/01/31 35179.40 35884.01
1999/02/28 34072.96 34768.73
1999/03/31 35443.67 36159.83
1999/04/30 36794.90 37560.30
1999/05/31 35911.12 36673.50
1999/06/30 37895.36 38708.88
IMATRL PRASUN SHR__CHT 19990630 19990712 151639 R00000000000086
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund II: Index 500 Portfolio
on August 27, 1992, when the fund started. As the chart shows, by June
30, 1999, the value of the investment would have grown to $37,893 - a
278.93% increase on the initial investment. For comparison, look at
how the Standard & Poor's 500 Index did over the same period. With
dividends and capital gains, if any, reinvested, the same $10,000
investment would have grown to $38,709 - a 287.09% increase.
INVESTMENT SUMMARY
TOP TEN STOCKS AS OF JUNE 30,
1999
% OF FUND'S INVESTMENTS
Microsoft Corp. 3.9
General Electric Co. 3.2
International Business 2.0
Machines Corp.
Wal-Mart Stores, Inc. 1.8
Cisco Systems, Inc. 1.8
Lucent Technologies, Inc. 1.7
Intel Corp. 1.7
Exxon Corp. 1.6
AT&T Corp. 1.5
Merck & Co., Inc. 1.5
TOP TEN MARKET SECTORS AS OF
JUNE 30, 1999
% OF FUND'S INVESTMENTS
TECHNOLOGY 20.6
FINANCE 15.4
UTILITIES 10.7
HEALTH 10.5
NONDURABLES 7.2
RETAIL & WHOLESALE 6.2
ENERGY 5.7
INDUSTRIAL MACHINERY & 5.5
EQUIPMENT
MEDIA & LEISURE 4.4
BASIC INDUSTRIES 3.5
VARIABLE INSURANCE PRODUCTS FUND II: INDEX 500 PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
(photograph of Kathleen A. Condon)
An interview with
Kathleen A. Condon, who became Portfolio Manager
of the Index 500 Portfolio on July 6, 1999
Q. HOW DID THE FUND PERFORM, KATHLEEN?
A. For the six-month period that ended June 30, 1999, the fund's
return was slightly lower than the 12.38% return for the Standard &
Poor's 500 Index, primarily due to management fees. During the
12-month period ending June 30, 1999, the fund's performance was also
in line with the S&P 500 index's return of 22.76%.
Q. THE BIG STORIES DURING THE PERIOD WERE THE FEDERAL RESERVE BOARD'S
SHIFT IN ITS MONETARY POLICY AND ITS DECISION TO RAISE INTEREST RATES
AT THE END OF THE PERIOD. DID THESE ACTIONS HAVE ANY EFFECT ON THE
FUND?
A. Sure, but overall the effect was neutral. Despite a somewhat more
hostile monetary environment, the overall bullish stock market
remained intact with generally positive corporate earnings, robust
consumer spending and benign inflation. As a result, investors
counteracted periods of nervous selling with broad-based surges of
buying. The equity markets churned since the Fed's Open Market
Committee - its monetary-policy board - decided against a raise in
rates but adopted a "bias to tighten" at its May meeting.
Nevertheless, while the Fed decided to raise the federal funds rate -
the rate at which banks lend to each other - one-quarter of a point to
5.00% from 4.75% on June 30, its decision to shift monetary policy
from a tightening bias to a neutral stance created considerable
complacency about the interest-rate outlook.
Q. ANOTHER MAJOR EVENT DURING THE PERIOD WAS THE MARKET'S ROTATION
INTO CYCLICAL AND VALUE STOCKS. WHAT FACTORS DROVE THIS SHIFT IN
MARKET LEADERSHIP?
A. For the first time in a couple of years, cyclical and value stocks
began to outperform the S&P 500 index as investors became increasingly
concerned about the high valuations of a handful of large-cap growth
stocks. Rich valuations, combined with evidence of an improving global
economy, caused investors to re-evaluate their willingness to pay
steep premiums for the relative safety of large-cap growth companies.
While the long-term earnings prospects for value and cyclical stocks
did not improve substantially, the strong U.S. economy and improving
global environment were viewed as catalysts for growth in these
sectors.
Q. TECHNOLOGY STOCKS REMAINED THE LARGEST SECTOR IN THE INDEX. HOW DID
THESE STOCKS PERFORM?
A. The group experienced waves of extreme volatility, but managed to
produce positive results for the index and the fund. Companies such as
Microsoft, IBM, Lucent and Hewlett-Packard provided notable
contributions to fund performance. On the other hand, many of the
previously unstoppable technology stocks, most notably Internet
stocks, experienced severe volatility late in the period. In addition,
holdings such as Intel and Compaq detracted from total return, as
investors became concerned about weaker sales at these companies.
Q. THE SECOND-LARGEST SECTOR IN THE INDEX WAS FINANCIAL STOCKS. HOW
DID THIS GROUP FARE?
A. While most financial stocks recovered from their lows of last fall,
performance for the group was mixed. Certain segments of the industry,
such as discount broker Charles Schwab and diversified financial
companies Citigroup and American Express, posted solid results. On the
other hand, money center banks and regional banks lagged. As a result,
the sector produced marginally positive performance for the fund.
Q. DID ANY OTHER AREAS OF THE MARKET HAVE A SIGNIFICANT IMPACT ON THE
FUND'S RETURN?
A. In general, the fund's performance benefited from strength in
energy stocks, which rallied sharply in tandem with higher oil prices.
In contrast to energy stocks, large-cap pharmaceutical stocks fell out
of favor as investors became concerned about weaker sales resulting
from the potential loss of patent protection for many widely used
drugs.
Q. WHAT'S YOUR OUTLOOK?
A. Equities may avoid a major setback, but I anticipate more
volatility. Current equity valuations in many segments of the market
offer limited upside, especially with the majority of market indexes
approaching new highs. In addition, a murky inflation outlook clouds
the horizon given the recent strength in the domestic and overseas
markets. On the positive side, inflation and interest rates appear to
be in check, and the bull market psychology is very much embedded in
investors' minds.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET OR OTHER CONDITIONS. FOR MORE INFORMATION, SEE PAGE 3.
(checkmark)FUND FACTS
GOAL: to provide returns that correspond to those
of the S&P 500 index
START DATE: August 27, 1992
SIZE: as of June 30, 1999, more than $5.0 billion
MANAGER: Kathleen A. Condon, since July 1999
VARIABLE INSURANCE PRODUCTS FUND II: INDEX 500 PORTFOLIO
INVESTMENTS JUNE 30, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 95.6%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 1.6%
AEROSPACE & DEFENSE - 1.3%
AlliedSignal, Inc. 244,500 $ 15,403,500
Boeing Co. 426,568 18,848,974
Goodrich (B.F.) Co. 32,500 1,381,250
Lockheed Martin Corp. 175,986 6,555,479
Northrop Grumman Corp. 30,200 2,002,638
Rockwell International Corp. 86,800 5,273,100
Textron, Inc. 67,900 5,589,019
United Technologies Corp. 212,000 15,197,750
70,251,710
DEFENSE ELECTRONICS - 0.2%
Raytheon Co. Class B 148,500 10,450,688
SHIP BUILDING & REPAIR - 0.1%
General Dynamics Corp. 55,600 3,808,600
TOTAL AEROSPACE & DEFENSE 84,510,998
BASIC INDUSTRIES - 3.5%
CHEMICALS & PLASTICS - 1.8%
Air Products & Chemicals, 101,000 4,065,250
Inc.
Ashland, Inc. 26,000 1,043,250
Avery Dennison Corp. 51,200 3,091,200
Dow Chemical Co. 97,200 12,332,250
E.I. du Pont de Nemours and 494,200 33,760,038
Co.
Eastman Chemical Co. 37,675 1,949,681
Engelhard Corp. 57,300 1,296,413
FMC Corp. (a) 14,400 983,700
Great Lakes Chemical Corp. 26,000 1,197,625
Hercules, Inc. 47,200 1,855,550
Monsanto Co. 274,700 10,833,481
Nalco Chemical Co. 29,000 1,504,375
PPG Industries, Inc. 77,300 4,565,531
Praxair, Inc. 69,400 3,396,263
Raychem Corp. 41,800 1,546,600
Rohm & Haas Co. 96,336 4,130,406
Union Carbide Corp. 58,300 2,842,125
W.R. Grace & Co. (a) 32,400 595,350
90,989,088
IRON & STEEL - 0.1%
Allegheny Teledyne, Inc. 82,584 1,868,463
Bethlehem Steel Corp. (a) 54,500 418,969
Nucor Corp. 39,200 1,859,550
USX-U.S. Steel Group 43,000 1,161,000
Worthington Industries, Inc. 39,450 648,459
5,956,441
METALS & MINING - 0.4%
Alcan Aluminium Ltd. 102,157 3,265,085
Alcoa, Inc. 161,200 9,974,250
ASARCO, Inc. 19,200 361,200
Cyprus Amax Minerals Co. 48,750 740,391
SHARES VALUE (NOTE 1)
Freeport-McMoRan Copper & 55,500 $ 995,531
Gold, Inc. Class B
Inco Ltd. 60,236 1,083,070
Phelps Dodge Corp. 25,400 1,573,213
Reynolds Metals Co. 28,300 1,669,700
19,662,440
PACKAGING & CONTAINERS - 0.2%
Ball Corp. 13,030 550,518
Bemis Co., Inc. 18,500 735,375
Corning, Inc. 107,200 7,517,400
Crown Cork & Seal Co., Inc. 54,500 1,553,250
Owens-Illinois, Inc. (a) 66,200 2,163,913
Tupperware Corp. 25,300 645,150
13,165,606
PAPER & FOREST PRODUCTS - 1.0%
Boise Cascade Corp. 25,100 1,076,163
Champion International Corp. 46,500 2,226,188
Fort James Corp. 96,900 3,670,088
Georgia-Pacific Corp. 77,500 3,671,563
International Paper Co. 180,466 9,113,533
Kimberly-Clark Corp. 238,032 13,567,824
Louisiana-Pacific Corp. 54,600 1,296,750
Mead Corp. 45,800 1,912,150
Potlatch Corp. 17,900 786,481
Sealed Air Corp. (a) 38,960 2,527,530
Temple-Inland, Inc. 24,400 1,665,300
Westvaco Corp. 39,950 1,158,550
Weyerhaeuser Co. 88,300 6,070,625
Willamette Industries, Inc. 45,600 2,100,450
50,843,195
TOTAL BASIC INDUSTRIES 180,616,770
CONSTRUCTION & REAL ESTATE -
0.4%
BUILDING MATERIALS - 0.3%
Armstrong World Industries, 17,800 1,029,063
Inc.
Crane Co. 28,800 905,400
Fortune Brands, Inc. 75,500 3,123,813
Masco Corp. 149,500 4,316,813
Owens-Corning 24,200 831,875
Sherwin-Williams Co. 81,600 2,264,400
Vulcan Materials Co. 45,100 2,176,075
14,647,439
CONSTRUCTION - 0.0%
Centex Corp. 26,600 999,163
Fleetwood Enterprises, Inc. 15,300 404,494
Kaufman & Broad Home Corp. 20,200 502,475
Pulte Corp. 17,300 398,981
2,305,113
ENGINEERING - 0.1%
EG & G, Inc. 20,100 716,063
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
CONSTRUCTION & REAL ESTATE -
CONTINUED
ENGINEERING - CONTINUED
Fluor Corp. 33,300 $ 1,348,650
Foster Wheeler Corp. 19,200 271,200
2,335,913
TOTAL CONSTRUCTION & REAL 19,288,465
ESTATE
DURABLES - 2.4%
AUTOS, TIRES, & ACCESSORIES -
1.6%
AutoZone, Inc. (a) 63,050 1,899,381
Cooper Tire & Rubber Co. 36,600 864,675
Cummins Engine Co., Inc. 16,400 936,850
Dana Corp. 74,166 3,416,271
Danaher Corp. 64,400 3,743,250
Delphi Automotive Systems 247,435 4,593,012
Corp.
Eaton Corp. 32,200 2,962,400
Ford Motor Co. 531,100 29,973,956
General Motors Corp. 287,178 18,953,748
Genuine Parts Co. 79,250 2,773,750
Goodyear Tire & Rubber Co. 68,400 4,022,775
Johnson Controls, Inc. 35,500 2,460,594
NACCO Industries, Inc. Class A 2,700 198,450
Navistar International Corp. 28,170 1,408,500
(a)
PACCAR, Inc. 37,390 1,995,691
Pep Boys-Manny, Moe & Jack 23,000 497,375
TRW, Inc. 55,300 3,034,588
83,735,266
CONSUMER DURABLES - 0.3%
Minnesota Mining & 177,000 15,387,938
Manufacturing Co.
Snap-On, Inc. 28,300 1,024,106
16,412,044
CONSUMER ELECTRONICS - 0.2%
Black & Decker Corp. 43,600 2,752,250
Maytag Corp. 40,000 2,787,500
Whirlpool Corp. 30,900 2,286,600
7,826,350
HOME FURNISHINGS - 0.1%
Newell Rubbermaid, Inc. 125,393 5,830,775
TEXTILES & APPAREL - 0.2%
Fruit of The Loom Ltd. Class 31,600 308,100
A (a)
Liz Claiborne, Inc. 27,500 1,003,750
NIKE, Inc. Class B 123,900 7,844,419
Reebok International Ltd. (a) 24,500 456,313
Russell Corp. 15,800 308,100
Springs Industries, Inc. 4,900 213,763
Class A
VF Corp. 51,900 2,218,725
12,353,170
TOTAL DURABLES 126,157,605
SHARES VALUE (NOTE 1)
ENERGY - 5.7%
ENERGY SERVICES - 0.6%
Baker Hughes, Inc. 143,530 $ 4,808,255
Halliburton Co. 196,200 8,878,050
Helmerich & Payne, Inc. 22,100 526,256
McDermott International, Inc. 25,100 709,075
Rowan Companies, Inc. (a) 37,000 682,188
Schlumberger Ltd. 238,000 15,157,625
30,761,449
OIL & GAS - 5.1%
Amerada Hess Corp. 42,500 2,528,750
Anadarko Petroleum Corp. 55,900 2,057,819
Apache Corp. 44,200 1,723,800
Atlantic Richfield Co. 143,300 11,974,506
Burlington Resources, Inc. 82,057 3,548,965
Chevron Corp. 286,700 27,290,256
Coastal Corp. (The) 96,500 3,860,000
Exxon Corp. 1,067,500 82,330,938
Kerr-McGee Corp. 41,394 2,077,461
Mobil Corp. 342,600 33,917,400
Occidental Petroleum Corp. 153,300 3,238,463
Phillips Petroleum Co. 111,900 5,629,969
Royal Dutch Petroleum Co. 940,575 56,669,644
(NY Registry Gilder 1.25)
Sunoco, Inc. 43,500 1,313,156
Texaco, Inc. 235,200 14,700,000
Union Pacific Resources 111,112 1,812,515
Group, Inc.
Unocal Corp. 106,750 4,229,969
USX-Marathon Group 135,000 4,395,938
263,299,549
TOTAL ENERGY 294,060,998
FINANCE - 15.4%
BANKS - 6.3%
AmSouth Bancorp. 78,200 1,813,263
Bank of America Corp. 759,540 55,683,776
Bank of New York Co., Inc. 335,600 12,312,325
Bank One Corp. 516,099 30,740,147
BankBoston Corp. 131,982 6,747,580
BB&T Corp. 120,100 4,406,169
Capital One Financial Corp. 87,000 4,844,813
Chase Manhattan Corp. 371,146 32,150,522
Comerica, Inc. 71,800 4,267,612
Fifth Third Bancorp 116,725 7,769,508
First Union Corp. 424,845 19,967,715
Firstar Corp. 304,000 8,512,000
Huntington Bancshares, Inc. 92,459 3,236,065
KeyCorp 199,714 6,415,812
Mellon Bank Corp. 229,200 8,337,150
Mercantile Bancorp, Inc. 64,400 3,678,850
Morgan (JP) & Co., Inc. 76,700 10,776,350
National City Corp. 144,721 9,479,226
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - CONTINUED
BANKS - CONTINUED
Northern Trust Corp. 49,500 $ 4,801,500
PNC Financial Corp. 134,400 7,744,800
Regions Financial Corp. 95,000 3,651,563
Republic of New York Corp. 47,000 3,204,813
SouthTrust Corp. 82,500 3,165,938
State Street Corp. 70,400 6,010,400
Summit Bancorp 82,600 3,453,713
SunTrust Banks, Inc. 140,700 9,769,856
Synovus Finanical Corp. 104,300 2,072,963
U.S. Bancorp 319,851 10,874,934
Union Planters Corp. 58,000 2,591,875
Wachovia Corp. 88,100 7,538,056
Wells Fargo & Co. 721,600 30,848,400
326,867,694
CREDIT & OTHER FINANCE - 3.0%
American Express Co. 198,579 25,840,092
Associates First Capital 320,648 14,208,714
Corp. Class A
Citigroup, Inc. 1,480,929 70,344,128
Countrywide Credit 49,200 2,103,300
Industries, Inc.
Fleet Financial Group, Inc. 249,448 11,069,255
Household International, Inc. 213,682 10,123,185
MBNA Corp. 351,925 10,777,703
Providian Financial Corp. 62,400 5,834,400
Transamerica Corp. 54,858 4,114,350
154,415,127
FEDERAL SPONSORED CREDIT - 1.0%
Fannie Mae 455,100 31,117,463
Freddie Mac 297,900 17,278,200
SLM Holding Corp. 72,700 3,330,569
51,726,232
INSURANCE - 3.3%
Aetna, Inc. 63,700 5,697,169
AFLAC, Inc. 116,400 5,572,650
Allstate Corp. 364,942 13,092,294
American General Corp. 110,552 8,332,857
American International Group, 543,750 63,652,734
Inc.
Aon Corp. 111,425 4,596,281
Chubb Corp. (The) 71,400 4,962,300
CIGNA Corp. 90,600 8,063,400
Cincinnati Financial Corp. 68,100 2,558,006
Conseco, Inc. 140,516 4,276,956
Hartford Financial Services 102,100 5,953,706
Group, Inc.
Jefferson-Pilot Corp. 46,700 3,090,956
Lincoln National Corp. 88,600 4,634,888
Loews Corp. 47,400 3,750,525
Marsh & McLennan Companies, 112,950 8,527,725
Inc.
MBIA, Inc. 43,900 2,842,525
MGIC Investment Corp. 48,000 2,334,000
Progressive Corp. 31,800 4,611,000
Provident Companies, Inc. 50,600 2,024,000
SHARES VALUE (NOTE 1)
SAFECO Corp. 63,900 $ 2,819,588
St. Paul Companies, Inc. (The) 103,392 3,289,158
Torchmark Corp. 58,900 2,009,963
UNUM Corp. 62,500 3,421,875
170,114,556
SAVINGS & LOANS - 0.2%
Golden West Financial Corp. 26,800 2,626,400
Washington Mutual, Inc. 262,562 9,288,131
11,914,531
SECURITIES INDUSTRY - 1.6%
Bear Stearns Companies, Inc. 48,840 2,283,270
Cendant Corp. (a) 338,072 6,930,476
Franklin Resources, Inc. 110,900 4,505,313
Kansas City Southern 48,200 3,075,763
Industries, Inc.
Lehman Brothers Holdings, 52,100 3,243,225
Inc.
Merrill Lynch & Co., Inc. 159,500 12,750,031
Morgan Stanley, Dean Witter & 253,456 25,979,240
Co.
PaineWebber Group, Inc. 63,900 2,987,325
Schwab (Charles) Corp. 175,450 19,277,569
81,032,212
TOTAL FINANCE 796,070,352
HEALTH - 10.5%
DRUGS & PHARMACEUTICALS - 7.1%
Allergan, Inc. 29,300 3,252,300
ALZA Corp. Class A. (a) 43,800 2,228,325
American Home Products Corp. 578,500 33,263,750
Amgen, Inc. (a) 223,400 13,599,475
Bausch & Lomb, Inc. 23,400 1,790,100
Bristol-Myers Squibb Co. 872,100 61,428,544
Lilly (Eli) & Co. 482,592 34,565,652
Merck & Co., Inc. 1,036,100 76,671,400
PE Corp. (Biosystems Group) 21,800 2,501,550
Pfizer, Inc. 569,600 62,513,600
Pharmacia & Upjohn, Inc. 222,960 12,666,915
Schering-Plough Corp. 645,000 34,185,000
Sigma-Aldrich Corp. 44,500 1,532,469
Warner-Lambert Co. 373,200 25,890,750
Watson Pharmaceuticals, Inc. 40,800 1,430,550
(a)
367,520,380
MEDICAL EQUIPMENT & SUPPLIES
- - 3.0%
Abbott Laboratories 665,800 30,293,900
Bard (C.R.), Inc. 23,500 1,123,594
Baxter International, Inc. 125,500 7,608,438
Becton, Dickinson & Co. 113,900 3,417,000
Biomet, Inc. 49,300 1,959,675
Boston Scientific Corp. (a) 172,300 7,570,431
Cardinal Health, Inc. 119,350 7,653,319
Guidant Corp. 132,200 6,800,038
Johnson & Johnson 590,200 57,839,600
Mallinckrodt, Inc. 31,300 1,138,538
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
HEALTH - CONTINUED
MEDICAL EQUIPMENT & SUPPLIES
- - CONTINUED
McKesson HBOC, Inc. 123,448 $ 3,965,767
Medtronic, Inc. 256,400 19,967,150
Millipore Corp. 19,500 790,969
Pall Corp. 55,300 1,226,969
St. Jude Medical, Inc. (a) 33,229 1,183,783
U.S. Surgical Corp. rights 2 0
6/30/00 (a)
152,539,171
MEDICAL FACILITIES MANAGEMENT
- - 0.4%
Columbia/HCA Healthcare Corp. 253,712 5,787,805
HCR Manor Care, Inc. (a) 47,900 1,158,581
HEALTHSOUTH Corp. (a) 184,700 2,758,956
Humana, Inc. (a) 73,300 948,319
Tenet Healthcare Corp. (a) 135,900 2,522,644
United HealthCare Corp. 81,700 5,116,463
Wellpoint Health Networks, 29,500 2,503,813
Inc. (a)
20,796,581
TOTAL HEALTH 540,856,132
INDUSTRIAL MACHINERY &
EQUIPMENT - 5.5%
ELECTRICAL EQUIPMENT - 3.7%
Emerson Electric Co. 192,900 12,128,588
General Electric Co. 1,438,400 162,539,200
General Instrument Corp. (a) 70,700 3,004,750
Grainger (W.W.), Inc. 41,900 2,254,744
Harris Corp. 35,800 1,402,913
Honeywell, Inc. 55,300 6,407,888
Scientific-Atlanta, Inc. 36,200 1,303,200
Thomas & Betts Corp. 24,700 1,167,075
190,208,358
INDUSTRIAL MACHINERY &
EQUIPMENT - 1.5%
Briggs & Stratton Corp. 10,400 600,600
Case Corp. 35,200 1,694,000
Caterpillar, Inc. 157,600 9,456,000
Cooper Industries, Inc. 41,646 2,165,592
Deere & Co. 104,800 4,152,700
Dover Corp. 98,300 3,440,500
Illinois Tool Works, Inc. 107,200 8,790,400
Ingersoll-Rand Co. 72,300 4,672,388
ITT Industries, Inc. 42,900 1,635,563
Milacron, Inc. 13,300 246,050
Parker-Hannifin Corp. 47,825 2,187,994
Stanley Works 39,200 1,261,750
Tenneco, Inc. 82,700 1,974,463
Timken Co. 24,684 481,338
Tyco International Ltd. 358,719 33,988,625
76,747,963
SHARES VALUE (NOTE 1)
POLLUTION CONTROL - 0.3%
Browning-Ferris Industries, 71,500 $ 3,074,500
Inc.
Waste Management, Inc. 262,809 14,125,984
17,200,484
TOTAL INDUSTRIAL MACHINERY & 284,156,805
EQUIPMENT
MEDIA & LEISURE - 4.4%
BROADCASTING - 1.8%
CBS Corp. (a) 310,150 13,472,141
Clear Channel Communications, 145,000 9,995,938
Inc. (a)
Comcast Corp. Class A 331,800 12,753,563
(special)
MediaOne Group, Inc. 266,600 19,828,375
Time Warner, Inc. 522,640 38,414,040
94,464,057
ENTERTAINMENT - 1.1%
Carnival Corp. 268,700 13,031,950
Disney (Walt) Co. 902,800 27,817,525
King World Productions, Inc. 33,000 1,148,813
(a)
Viacom, Inc. Class B 304,900 13,415,600
(non-vtg.) (a)
55,413,888
LEISURE DURABLES & TOYS - 0.2%
Brunswick Corp. 40,300 1,123,363
Hasbro, Inc. 85,875 2,399,133
Mattel, Inc. 182,776 4,832,141
8,354,637
LODGING & GAMING - 0.1%
Harrah's Entertainment, Inc. 42,600 937,200
(a)
Hilton Hotels Corp. 114,400 1,623,050
Marriott International, Inc. 106,500 3,980,438
Class A
Mirage Resorts, Inc. (a) 85,800 1,437,150
7,977,838
PUBLISHING - 0.6%
American Greetings Corp. 39,000 1,174,875
Class A
Dow Jones & Co., Inc. 33,500 1,777,594
Gannet, Inc. 123,800 8,836,225
Harcourt General, Inc. 27,100 1,397,344
Knight-Ridder, Inc. 34,800 1,911,825
McGraw-Hill Companies, Inc. 89,500 4,827,406
Meredith Corp. 23,200 803,300
New York Times Co. (The) 80,600 2,967,088
Class A
Times Mirror Co. Class A 32,000 1,896,000
Tribune Co. 52,300 4,556,638
30,148,295
RESTAURANTS - 0.6%
Darden Restaurants, Inc. 60,400 1,317,475
McDonald's Corp. 593,900 24,535,494
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
MEDIA & LEISURE - CONTINUED
RESTAURANTS - CONTINUED
Tricon Global Restaurants, 66,910 $ 3,621,504
Inc. (a)
Wendy's International, Inc. 54,500 1,543,031
31,017,504
TOTAL MEDIA & LEISURE 227,376,219
NONDURABLES - 7.2%
AGRICULTURE - 0.1%
Pioneer Hi-Bred 105,800 4,119,588
International, Inc.
BEVERAGES - 2.4%
Anheuser-Busch Companies, 209,700 14,875,594
Inc.
Brown-Forman Corp. Class B 22,600 1,473,238
Coca-Cola Co. (The) 1,082,900 67,681,250
Coca-Cola Enterprises, Inc. 185,700 5,524,575
Coors (Adolph) Co. Class B 16,000 792,000
PepsiCo, Inc. 645,600 24,976,650
Seagram Co. Ltd. 193,700 9,713,472
125,036,779
FOODS - 1.5%
Archer-Daniels-Midland Co. 259,170 4,000,937
Bestfoods 129,200 6,395,400
Campbell Soup Co. 193,500 8,973,563
ConAgra, Inc. 214,300 5,705,738
General Mills, Inc. 67,200 5,401,200
Heinz (H.J.) Co. 162,250 8,132,781
Hershey Foods Corp. 61,400 3,645,625
Kellogg Co. 175,800 5,801,400
Nabisco Group Holdings Corp. 144,100 2,818,956
Quaker Oats Co. 59,800 3,969,225
Ralston Purina Co. 147,700 4,495,619
Sara Lee Corp. 400,300 9,081,806
Sysco Corp. 148,200 4,418,213
Wrigley (Wm.) Jr. Co. 50,900 4,581,000
77,421,463
HOUSEHOLD PRODUCTS - 2.3%
Alberto-Culver Co. Class B 16,600 441,975
Avon Products, Inc. 115,400 6,404,700
Clorox Co. 51,400 5,490,163
Colgate-Palmolive Co. 128,500 12,689,375
Ecolab, Inc. 51,500 2,246,688
Gillette Co. 486,800 19,958,800
International Flavors & 45,100 2,001,313
Fragrances, Inc.
Procter & Gamble Co. 582,900 52,023,825
Unilever NV (NY shares) 249,252 17,385,327
118,642,166
TOBACCO - 0.9%
Philip Morris Companies, Inc. 1,068,900 42,956,419
SHARES VALUE (NOTE 1)
RJ Reynolds Tobacco Holdings, 33 $ 1,040
Inc.
UST, Inc. 83,200 2,433,600
45,391,059
TOTAL NONDURABLES 370,611,055
PRECIOUS METALS - 0.1%
Barrick Gold Corp. 177,200 3,440,541
Battle Mountain Gold Co. 110,300 268,856
Homestake Mining Co. 103,600 848,225
Newmont Mining Corp. 80,065 1,591,292
Placer Dome, Inc. 125,000 1,461,339
7,610,253
RETAIL & WHOLESALE - 6.2%
APPAREL STORES - 0.5%
Gap, Inc. 375,275 18,904,478
Limited, Inc. (The) 98,040 4,448,565
TJX Companies, Inc. 141,100 4,700,394
28,053,437
DRUG STORES - 0.5%
CVS Corp. 171,000 8,678,250
Longs Drug Stores Corp. 17,100 591,019
Rite Aid Corp. 113,500 2,794,938
Walgreen Co. 436,700 12,828,063
24,892,270
GENERAL MERCHANDISE STORES -
3.0%
Consolidated Stores Corp. (a) 48,000 1,296,000
Costco Companies, Inc. (a) 95,739 7,665,104
Dayton Hudson Corp. 193,400 12,571,000
Dillards, Inc. Class A 45,500 1,598,188
Dollar General Corp. 107,993 3,131,797
Federated Department Stores, 92,000 4,870,250
Inc. (a)
K mart Corp. (a) 216,300 3,555,431
Kohls Corp. (a) 69,400 5,356,813
May Department Stores Co. 151,100 6,176,213
(The)
Nordstrom, Inc. 67,100 2,247,850
Penney (J.C.) Co., Inc. 115,600 5,613,825
Sears, Roebuck & Co. 169,000 7,531,063
Wal-Mart Stores, Inc. 1,950,500 94,111,625
155,725,159
GROCERY STORES - 0.7%
Albertson's, Inc. 183,981 9,486,520
Great Atlantic & Pacific Tea, 16,800 568,050
Inc.
Kroger Co. (a) 360,600 10,074,263
Safeway, Inc. (a) 213,500 10,568,250
Supervalu, Inc. 51,400 1,320,338
Winn-Dixie Stores, Inc. 57,300 2,116,519
34,133,940
RETAIL & WHOLESALE,
MISCELLANEOUS - 1.5%
Best Buy Co., Inc. (a) 89,900 6,068,250
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
RETAIL & WHOLESALE - CONTINUED
RETAIL & WHOLESALE,
MISCELLANEOUS - CONTINUED
Circuit City Stores, Inc. - 44,000 $ 4,092,000
Circuit City Group
Home Depot, Inc. 647,000 41,691,063
IKON Office Solutions, Inc. 56,700 850,500
Lowe's Companies, Inc. 162,800 9,228,725
Office Depot, Inc. (a) 163,900 3,616,044
Staples, Inc. (a) 213,650 6,609,797
Tandy Corp. 86,800 4,242,350
Toys R Us, Inc. (a) 118,900 2,459,744
78,858,473
TOTAL RETAIL & WHOLESALE 321,663,279
SERVICES - 0.5%
ADVERTISING - 0.2%
Interpublic Group of 58,150 5,037,244
Companies, Inc.
Omnicom Group, Inc. 77,800 6,224,000
11,261,244
LEASING & RENTAL - 0.0%
Ryder Systems, Inc. 34,800 904,800
PRINTING - 0.1%
Deluxe Corp. 36,100 1,405,644
Donnelley (R.R.) & Sons Co. 59,400 2,201,513
3,607,157
SERVICES - 0.2%
Block (H&R), Inc. 48,000 2,400,000
Dun & Bradstreet Corp. 72,400 2,565,675
Jostens, Inc. 10,700 225,369
National Service Industries, 20,300 730,800
Inc.
Service Corp. International 119,900 2,308,075
8,229,919
TOTAL SERVICES 24,003,120
TECHNOLOGY - 20.6%
COMMUNICATIONS EQUIPMENT - 4.3%
3Com Corp. (a) 157,100 4,192,606
Andrew Corp. (a) 34,912 661,146
Cabletron Systems, Inc. (a) 75,500 981,500
Cisco Systems, Inc. (a) 1,402,050 90,344,597
Lucent Technologies, Inc. 1,328,806 89,611,355
Northern Telecom Ltd. 290,620 25,034,607
Tellabs, Inc. (a) 170,400 11,512,650
222,338,461
COMPUTER SERVICES & SOFTWARE
- - 9.1%
Adobe Systems, Inc. 28,400 2,333,238
America Online, Inc. 476,500 52,653,250
SHARES VALUE (NOTE 1)
Autodesk, Inc. 25,400 $ 750,888
Automatic Data Processing, 270,300 11,893,200
Inc.
BMC Software, Inc. 100,100 5,405,400
Ceridian Corp. (a) 59,900 1,957,981
Computer Associates 236,112 12,986,160
International, Inc.
Computer Sciences Corp. (a) 69,600 4,815,450
Compuware Corp. (a) 165,400 5,261,788
Electronic Data Systems Corp. 216,200 12,228,813
Equifax, Inc. 63,200 2,255,450
First Data Corp. 194,200 9,503,663
IMS Health, Inc. 150,100 4,690,625
International Business 796,500 102,947,625
Machines Corp.
Microsoft Corp. (a) 2,239,400 201,965,888
Novell, Inc. (a) 155,400 4,118,100
Oracle Corp. (a) 635,725 23,601,291
Parametric Technology Corp. 124,700 1,730,213
(a)
Paychex, Inc. 114,150 3,638,531
PeopleSoft, Inc. 101,900 1,757,775
Shared Medical Systems Corp. 11,600 756,900
Unisys Corp. (a) 112,100 4,364,894
471,617,123
COMPUTERS & OFFICE EQUIPMENT
- - 3.7%
Apple Computer, Inc. (a) 61,300 2,838,956
Compaq Computer Corp. 739,962 17,527,850
Data General Corp. (a) 18,800 273,775
Dell Computer Corp. (a) 1,117,900 41,362,300
EMC Corp. (a) 440,500 24,227,500
Gateway, Inc. (a) 65,300 3,852,700
Hewlett-Packard Co. 445,500 44,772,750
Network Appliance, Inc. (a) 32,400 1,810,350
Pitney Bowes, Inc. 122,300 7,857,775
Seagate Technology, Inc. (a) 107,800 2,762,375
Silicon Graphics, Inc. (a) 82,200 1,346,025
Sun Microsystems, Inc. (a) 339,900 23,410,613
Xerox Corp. 287,800 16,998,188
189,041,157
ELECTRONIC INSTRUMENTS - 0.3%
Applied Materials, Inc. (a) 162,100 11,975,138
KLA-Tencor Corp. (a) 39,500 2,562,563
Tektronix, Inc. 20,550 620,353
Thermo Electron Corp. (a) 66,100 1,326,131
16,484,185
ELECTRONICS - 3.0%
Advanced Micro Devices, Inc. 63,600 1,148,775
(a)
Intel Corp. 1,456,300 86,649,850
LSI Logic Corp. (a) 59,400 2,739,825
Micron Technology, Inc. (a) 107,000 4,313,438
Motorola, Inc. 263,300 24,947,675
National Semiconductor Corp. 73,200 1,852,875
(a)
Solectron Corp. (a) 109,700 7,315,619
Texas Instruments, Inc. 171,000 24,795,000
153,763,057
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TECHNOLOGY - CONTINUED
PHOTOGRAPHIC EQUIPMENT - 0.2%
Eastman Kodak Co. 143,000 $ 9,688,250
Polaroid Corp. 22,700 627,088
10,315,338
TOTAL TECHNOLOGY 1,063,559,321
TRANSPORTATION - 0.9%
AIR TRANSPORTATION - 0.3%
AMR Corp. (a) 67,300 4,593,225
Delta Air Lines, Inc. 62,200 3,584,275
Southwest Airlines Co. 147,650 4,595,606
US Airways Group, Inc. (a) 35,100 1,529,044
14,302,150
RAILROADS - 0.4%
Burlington Northern Santa Fe 210,454 6,524,074
Corp.
CSX Corp. 95,538 4,329,066
Norfolk Southern Corp. 162,400 4,892,300
Union Pacific Corp. 108,800 6,344,400
22,089,840
TRUCKING & FREIGHT - 0.2%
FDX Corp. (a) 129,840 7,043,820
Laidlaw, Inc. 127,300 931,230
7,975,050
TOTAL TRANSPORTATION 44,367,040
UTILITIES - 10.7%
CELLULAR - 0.5%
ALLTEL Corp. 119,700 8,558,550
Nextel Communications, Inc. 126,500 6,348,719
Class A (a)
Sprint Corp. Series 1 (PCS 197,650 11,290,756
Group) (a)
26,198,025
ELECTRIC UTILITY - 2.0%
AES Corp. (a) 90,200 5,242,875
Ameren Corp. 56,400 2,164,350
American Electric Power Co., 91,400 3,433,213
Inc.
Carolina Power & Light Co. 55,700 2,384,656
Central & South West Corp. 93,262 2,179,999
Cinergy Corp. 64,913 2,077,216
CMS Energy Corp. 51,800 2,169,125
Consolidated Edison, Inc. 102,700 4,647,175
Constellation Energy Corp. 62,000 1,836,750
Dominion Resources, Inc. 94,000 4,071,375
DTE Energy Co. 69,000 2,760,000
Duke Energy Corp. 159,507 8,673,193
Edison International 154,900 4,143,575
Entergy Corp. 126,900 3,965,625
FirstEnergy Corp. 93,500 2,898,500
SHARES VALUE (NOTE 1)
Florida Progress Corp. 44,900 $ 1,854,931
FPL Group, Inc. 80,600 4,402,775
GPU, Inc. 46,600 1,965,938
New Century Energies, Inc. 45,700 1,773,731
Niagara Mohawk Holdings, Inc. 55,200 886,650
(a)
Northern States Power Co. 49,900 1,206,956
PacifiCorp 145,000 2,664,375
PECO Energy Co. 101,600 4,254,500
PG&E Corp. 168,600 5,479,500
PP&L Resources, Inc. 58,540 1,800,105
Public Service Enterprise 98,300 4,018,013
Group, Inc.
Reliant Energy, Inc. 123,822 3,420,583
Southern Co. 316,100 8,376,650
Texas Utilities Co. 123,900 5,110,875
Unicom Corp. 103,000 3,971,938
103,835,147
GAS - 0.6%
Columbia Gas System, Inc. 39,200 2,457,350
Consolidated Natural Gas Co. 42,600 2,587,950
Eastern Enterprises Co. 11,700 465,075
Enron Corp. 152,600 12,475,050
NICOR, Inc. 24,800 943,950
ONEOK, Inc. 13,006 412,941
Peoples Energy Corp. 15,900 599,231
Sempra Energy 104,956 2,374,630
Sonat, Inc. 48,000 1,590,000
Williams Companies, Inc. 188,100 8,006,006
31,912,183
TELEPHONE SERVICES - 7.6%
Ameritech Corp. 482,400 35,456,400
AT&T Corp. 1,397,005 77,970,342
Bell Atlantic Corp. 681,378 44,545,087
BellSouth Corp. 831,500 38,976,563
CenturyTel, Inc. 62,400 2,480,400
Frontier Corp. 75,400 4,448,600
GTE Corp. 423,700 32,095,275
MCI WorldCom, Inc. (a) 816,770 70,293,268
SBC Communications, Inc. 858,648 49,801,584
Sprint Corp. (FON Group) 380,000 20,068,750
U.S. WEST, Inc. 220,992 12,983,280
389,119,549
TOTAL UTILITIES 551,064,904
TOTAL COMMON STOCKS 4,935,973,316
(Cost $3,432,680,887)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -
4.4%
MOODY'S RATINGS (UNAUDITED) PRINCIPAL AMOUNT VALUE (NOTE 1)
U.S. Treasury Bills, yield at - $ 228,828,000 $ 226,880,016
date of purchase 4.26% to
4.78% 7/1/99 to 10/21/99 (b)
(Cost $226,831,509)
TOTAL INVESTMENT IN $ 5,162,853,332
SECURITIES - 100%
(Cost $3,659,512,396)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FUTURES CONTRACTS
EXPIRATION DATE UNDERLYING FACE AMOUNT UNREALIZED GAIN/(LOSS)
PURCHASED
278 S&P 500 Stock Index Sept. 1999 $ 96,028,150 $
Contracts
</TABLE>
THE FACE VALUE OF FUTURES PURCHASED AS A PERCENTAGE OF INVESTMENT IN
SECURITIES - 1.9%
LEGEND
(a) Non-income producing
(b) Security or a portion of the security was pledged to cover margin
requirements for futures contracts. At the period end, the value of
securities pledged amounted to $12,535,000.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $882,285,491 and $56,645,101, respectively.
The market value of futures contracts opened and closed during the
period amounted to $1,039,408,896 and $1,065,271,581, respectively.
The fund participated in the security lending program. At period end,
the value of securities loaned amounted to $74,625,956. The fund
received cash collateral of $76,983,425 which was invested in the
Bankers Trust Institutional Daily Asset Fund. The fund also received
non-cash collateral of $71,100 which represents U.S. Treasury
obligations.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company
or Bankers Trust Company. The commissions paid to these affiliated
firms were $0 and $30,884 respectively, for the period.
INCOME TAX INFORMATION
At June 30, 1999, the aggregate cost of investment securities for
income tax purposes was $3,666,328,802. Net unrealized appreciation
aggregated $1,496,524,530, of which $1,604,067,085 related to
appreciated investment securities and $107,542,555 related to
depreciated investment securities.
VARIABLE INSURANCE PRODUCTS FUND II: INDEX 500 PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 5,162,853,332
value (cost $3,659,512,396)
- - See accompanying schedule
Cash 2,153,639
Receivable for investments 39,041,584
sold
Receivable for fund shares 3,799,984
sold
Dividends receivable 4,445,249
Interest receivable 11,424
Receivable for daily 3,726,839
variation on futures
contracts
Investment of cash collateral 76,983,425
received for securities
loaned
TOTAL ASSETS 5,293,015,476
LIABILITIES
Payable for investments $ 188,109,262
purchased
Payable for fund shares 3,415,828
redeemed
Accrued management fee and 810,276
sub-advisory fee
Other payables and accrued 399,720
expenses
Collateral on securities 76,983,425
loaned, at value
TOTAL LIABILITIES 269,718,511
NET ASSETS $ 5,023,296,965
Net Assets consist of:
Paid in capital $ 3,479,079,591
Undistributed net investment 25,194,441
income
Accumulated undistributed net 11,665,202
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation 1,507,357,731
(depreciation) on
investments and assets and
liabilities in foreign
currencies
NET ASSETS, for 32,274,098 $ 5,023,296,965
shares outstanding
NET ASSET VALUE, offering $155.64
price and redemption price
per share ($5,023,296,965
(divided by) 32,274,098
shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30,
1999 (UNAUDITED)
INVESTMENT INCOME $ 28,255,924
Dividends
Interest (including income on 3,076,576
securities loaned of
$226,186)
TOTAL INCOME 31,332,500
EXPENSES
Management fee and $ 5,242,072
sub-advisory fee
Transfer agent fees 1,474,457
Accounting fees 454,322
Non-interested trustees' 6,432
compensation
Registration fees 57,228
Audit 33,063
Miscellaneous 38,852
Total expenses before 7,306,426
reductions
Expense reductions (1,247,250) 6,059,176
NET INVESTMENT INCOME 25,273,324
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities 11,441,468
Foreign currency transactions 3,488
Futures contracts 12,511,748 23,956,704
Change in net unrealized
appreciation (depreciation)
on:
Investment securities 452,701,171
Assets and liabilities in 106
foreign currencies
Futures contracts (2,093,163) 450,608,114
NET GAIN (LOSS) 474,564,818
NET INCREASE (DECREASE) IN $ 499,838,142
NET ASSETS RESULTING FROM
OPERATIONS
OTHER INFORMATION $ 1,205,747
Expense reductions FMR
reimbursement
Custodian credits 41,503
$ 1,247,250
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
ASSETS 1999 (UNAUDITED)
Operations Net investment $ 25,273,324 $ 38,335,034
income
Net realized gain (loss) 23,956,704 16,170,769
Change in net unrealized 450,608,114 661,278,302
appreciation (depreciation)
NET INCREASE (DECREASE) IN 499,838,142 715,784,105
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (39,106,912) (26,060,180)
From net investment income
From net realized gain (26,536,833) (60,359,977)
TOTAL DISTRIBUTIONS (65,643,745) (86,420,157)
Share transactions Net 1,084,913,593 1,653,376,843
proceeds from sales of shares
Reinvestment of distributions 65,643,745 86,420,157
Cost of shares redeemed (333,522,291) (695,135,202)
NET INCREASE (DECREASE) IN 817,035,047 1,044,661,798
NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) 1,251,229,444 1,674,025,746
IN NET ASSETS
NET ASSETS
Beginning of period 3,772,067,521 2,098,041,775
End of period (including $ 5,023,296,965 $ 3,772,067,521
undistributed net investment
income of $25,194,441 and
$38,272,966, respectively)
OTHER INFORMATION
Shares
Sold 7,372,672 13,244,133
Issued in reinvestment of 468,884 751,741
distributions
Redeemed (2,273,506) (5,630,148)
Net increase (decrease) 5,568,050 8,365,726
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 1996 1995
Net asset value, beginning of $ 141.24 $ 114.40 $ 89.05 $ 75.71 $ 56.22
period
Income from Investment
Operations
Net investment income .85 D 1.65 D 1.80 D 1.04 .85
Net realized and unrealized 15.90 29.70 26.67 15.55 19.72
gain (loss)
Total from investment 16.75 31.35 28.47 16.59 20.57
operations
Less Distributions
From net investment income (1.40) (1.36) (1.03) (.91) (.95)
From net realized gain (.95) (3.15) (2.09) (2.34) (.11)
In excess of net realized gain - - - - (.02)
Total distributions (2.35) (4.51) (3.12) (3.25) (1.08)
Net asset value, end of period $ 155.64 $ 141.24 $ 114.40 $ 89.05 $ 75.71
TOTAL RETURN B, C 12.05% 28.31% 32.83% 22.71% 37.19%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 5,023,297 $ 3,772,068 $ 2,098,042 $ 823,243 $ 245,700
(000 omitted)
Ratio of expenses to average .28% A, E .28% E .28% E .28% E .28% E
net assets
Ratio of net investment 1.18% A 1.33% 1.74% 2.26% 2.70%
income to average net assets
Portfolio turnover rate 3% A 4% 9% 14% 16%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA 1994
Net asset value, beginning of $ 55.74
period
Income from Investment
Operations
Net investment income 1.14
Net realized and unrealized (.56)
gain (loss)
Total from investment .58
operations
Less Distributions
From net investment income -
From net realized gain (.10)
In excess of net realized gain -
Total distributions (.10)
Net asset value, end of period $ 56.22
TOTAL RETURN B, C 1.04%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 51,301
(000 omitted)
Ratio of expenses to average .28% E
net assets
Ratio of net investment 2.81%
income to average net assets
Portfolio turnover rate 2%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE
TO YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. INCLUSION
OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN. TOTAL RETURNS FOR PERIODS OF LESS THAN ONE
YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED
BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
E FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S
EXPENSES DURING THE PERIOD. WITHOUT THIS REIMBURSEMENT,
THE FUND'S EXPENSE RATIO WOULD HAVE BEEN HIGHER.
VARIABLE INSURANCE PRODUCTS FUND III: GROWTH OPPORTUNITIES PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). If Fidelity had not reimbursed certain fund
expenses, the life of fund total return would have been lower.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 1 YEAR LIFE OF FUND
VIP III: GROWTH OPPORTUNITIES 19.19% 24.78%
- - "INITIAL CLASS"
S&P 500 (registered trademark) 22.76% 30.11%
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's return to the performance of the Standard &
Poor's 500 Index - a market capitalization-weighted index of common
stocks. This benchmark reflects the reinvestment of 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, January 3, 1995.
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, THE TOTAL RETURN 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.
(checkmark)UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for example,
has a history of long-term growth and short-term
volatility. In turn, the share price and return of a
fund that invests in stocks will vary. That means if
you sell your shares during a market downturn,
you might lose money. But if you can ride out the
market's ups and downs, you may have a gain.
$10,000 OVER LIFE OF FUND
VIP III GROWTH OPP S&P 500
00617 SP001
1995/01/03 10000.00 10000.00
1995/01/31 10060.00 10261.28
1995/02/28 10370.00 10661.16
1995/03/31 10560.00 10975.77
1995/04/30 10930.00 11299.00
1995/05/31 11440.00 11750.63
1995/06/30 11790.00 12023.59
1995/07/31 12180.00 12422.30
1995/08/31 12260.00 12453.48
1995/09/30 12470.00 12979.01
1995/10/31 12560.00 12932.68
1995/11/30 12920.00 13500.42
1995/12/31 13251.81 13760.44
1996/01/31 13444.45 14228.85
1996/02/29 13434.43 14360.75
1996/03/31 13393.72 14499.04
1996/04/30 13607.45 14712.76
1996/05/31 13912.77 15092.20
1996/06/30 14024.73 15149.70
1996/07/31 13617.62 14480.39
1996/08/31 13699.05 14785.78
1996/09/30 14360.59 15617.92
1996/10/31 14950.89 16048.66
1996/11/30 16080.60 17261.78
1996/12/31 15673.50 16919.83
1997/01/31 16416.46 17976.98
1997/02/28 16573.05 18117.92
1997/03/31 15727.48 17373.45
1997/04/30 16446.21 18410.65
1997/05/31 17513.74 19531.49
1997/06/30 18095.06 20406.50
1997/07/31 19490.24 22030.24
1997/08/31 18750.37 20796.11
1997/09/30 19532.52 21935.11
1997/10/31 19141.45 21202.48
1997/11/30 19817.90 22183.94
1997/12/31 20367.51 22564.84
1998/01/31 20452.07 22814.41
1998/02/28 21731.21 24459.78
1998/03/31 22407.88 25712.37
1998/04/30 22296.95 25971.03
1998/05/31 22141.65 25524.59
1998/06/30 22674.11 26561.40
1998/07/31 22751.76 26278.52
1998/08/31 19801.02 22479.17
1998/09/30 21021.26 23919.19
1998/10/31 22629.74 25864.77
1998/11/30 24082.93 27432.44
1998/12/31 25380.81 29013.09
1999/01/31 25613.76 30226.42
1999/02/28 24407.24 29286.98
1999/03/31 25024.57 30458.76
1999/04/30 26064.88 31638.42
1999/05/31 25893.40 30891.44
1999/06/30 27025.16 32605.92
IMATRL PRASUN SHR__CHT 19990630 19990712 151821 R00000000000057
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund III: Growth Opportunities
Portfolio on January 3, 1995, when the fund started. As the chart
shows, by June 30, 1999, the value of the investment would have grown
to $27,025 - a 170.25% increase on the initial investment. For
comparison, look at how the Standard & Poor's 500 Index did over the
same period. With dividends and capital gains, if any, reinvested, the
same $10,000 investment would have grown to $32,606 - a 226.06%
increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE
30, 1999
% OF FUND'S INVESTMENTS
Fannie Mae 5.8
Philip Morris Companies, Inc. 4.8
Fleet Financial Group, Inc. 3.5
Freddie Mac 3.2
Solectron Corp. 2.3
TOP FIVE MARKET SECTORS AS OF
JUNE 30, 1999
% OF FUND'S INVESTMENTS
FINANCE 21.1
TECHNOLOGY 11.9
HEALTH 9.5
RETAIL & WHOLESALE 7.7
ENERGY 7.2
ASSET ALLOCATION AS OF JUNE
30, 1999*
% OF FUND'S INVESTMENTS
Stocks 88.5%
Bonds 7.1%
Short-term Investments 4.4%
* FOREIGN INVESTMENTS 7.1%
Row: 1, Col: 1, Value: 88.5
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 7.1
Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 4.4
VARIABLE INSURANCE PRODUCTS FUND III: GROWTH OPPORTUNITIES PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). The initial offering of Service Class shares
took place on November 3, 1997. Performance for Service Class shares
reflects an asset based distribution fee (12b-1 fee), and returns
prior to November 3, 1997 are those of Initial Class and do not
include the effects of Service Class' 12b-1 fee. Had Service Class
shares' 12b-1 fee been reflected, returns prior to November 3, 1997
would have been lower. If Fidelity had not reimbursed certain fund
expenses, the life of fund total return would have been lower.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 1 YEAR LIFE OF FUND
VIP III: GROWTH OPPORTUNITIES 19.04% 24.75%
- - SERVICE CLASS
S&P 500 22.76% 30.11%
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's return to the performance of the Standard &
Poor's 500 Index - a market capitalization-weighted index of common
stocks. This benchmark reflects the reinvestment of 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 the fund figures are from
commencement of operations, January 3, 1995.
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, THE TOTAL RETURN 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.
(checkmark)UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for example,
has a history of long-term growth and short-term
volatility. In turn, the share price and return of a
fund that invests in stocks will vary. That means if
you sell your shares during a market downturn,
you might lose money. But if you can ride out the
market's ups and downs, you may have a gain.
$10,000 OVER LIFE OF FUND
VIP III GROWTH OPP - SC S&P 500
00491 SP001
1995/01/03 10000.00 10000.00
1995/01/31 10060.00 10261.28
1995/02/28 10370.00 10661.16
1995/03/31 10560.00 10975.77
1995/04/30 10930.00 11299.00
1995/05/31 11440.00 11750.63
1995/06/30 11790.00 12023.59
1995/07/31 12180.00 12422.30
1995/08/31 12260.00 12453.48
1995/09/30 12470.00 12979.01
1995/10/31 12560.00 12932.68
1995/11/30 12920.00 13500.42
1995/12/31 13251.81 13760.44
1996/01/31 13444.45 14228.85
1996/02/29 13434.43 14360.75
1996/03/31 13393.72 14499.04
1996/04/30 13607.45 14712.76
1996/05/31 13912.77 15092.20
1996/06/30 14024.73 15149.70
1996/07/31 13617.62 14480.39
1996/08/31 13699.05 14785.78
1996/09/30 14360.59 15617.92
1996/10/31 14950.89 16048.66
1996/11/30 16080.60 17261.78
1996/12/31 15673.50 16919.83
1997/01/31 16416.46 17976.98
1997/02/28 16573.05 18117.92
1997/03/31 15727.48 17373.45
1997/04/30 16446.21 18410.65
1997/05/31 17513.74 19531.49
1997/06/30 18095.06 20406.50
1997/07/31 19490.24 22030.24
1997/08/31 18750.37 20796.11
1997/09/30 19532.52 21935.11
1997/10/31 19141.45 21202.48
1997/11/30 19828.47 22183.94
1997/12/31 20367.51 22564.84
1998/01/31 20452.07 22814.41
1998/02/28 21731.21 24459.78
1998/03/31 22407.88 25712.37
1998/04/30 22296.95 25971.03
1998/05/31 22130.56 25524.59
1998/06/30 22674.11 26561.40
1998/07/31 22740.67 26278.52
1998/08/31 19789.93 22479.17
1998/09/30 21010.16 23919.19
1998/10/31 22618.65 25864.77
1998/11/30 24071.83 27432.44
1998/12/31 25358.62 29013.09
1999/01/31 25591.58 30226.42
1999/02/28 24385.18 29286.98
1999/03/31 25002.24 30458.76
1999/04/30 26042.09 31638.42
1999/05/31 25859.26 30891.44
1999/06/30 26990.53 32605.92
IMATRL PRASUN SHR__CHT 19990630 19990712 151826 R00000000000057
19990723 110748 R00000000000123
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund III: Growth Opportunities
Portfolio - Service Class on January 3, 1995, when the fund started.
As the chart shows, by June 30, 1999, the value of the investment
would have grown to $26,991 - a 169.91% increase on the initial
investment. For comparison, look at how the Standard & Poor's 500
Index did over the same period. With dividends and capital gains, if
any, reinvested, the same $10,000 investment would have grown to
$32,606 - a 226.06% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE
30, 1999
% OF FUND'S INVESTMENTS
Fannie Mae 5.8
Philip Morris Companies, Inc. 4.8
Fleet Financial Group, Inc. 3.5
Freddie Mac 3.2
Solectron Corp. 2.3
TOP FIVE MARKET SECTORS AS OF
JUNE 30, 1999
% OF FUND'S INVESTMENTS
FINANCE 21.1
TECHNOLOGY 11.9
HEALTH 9.5
RETAIL & WHOLESALE 7.7
ENERGY 7.2
ASSET ALLOCATION AS OF JUNE
30, 1999*
% OF FUND'S INVESTMENTS
Stocks 88.5%
Bonds 7.1%
Short-term Investments 4.4%
* FOREIGN INVESTMENTS 7.1%
Row: 1, Col: 1, Value: 88.5
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 7.1
Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 4.4
VARIABLE INSURANCE PRODUCTS FUND III: GROWTH OPPORTUNITIES PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
(photograph of George Vanderheiden)
An interview with George Vanderheiden, Portfolio Manager of Growth
Opportunities Portfolio
Q. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK, GEORGE?
A. For the six-month period ending June 30, 1999, the fund
underperformed the Standard & Poor's 500 Index return of 12.38%. For
the 12 months that ended June 30, 1999, the fund also trailed the S&P
500 index, which returned 22.76%.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S UNDERPERFORMANCE DURING THE
FIRST HALF OF 1999?
A. The main cause for the fund's underperformance was that, at the
period's outset, I had the fund tilted toward value stocks. Value
stocks are those that are misperceived or mispriced, where the
company's fundamentals argue for a higher valuation. I've used this
approach several times during my 28-year tenure at Fidelity; in this
case, however, my prediction was early. During the first half of the
six-month period, it remained a very narrow, growth-oriented market.
With a significant underweighting in technology, the fund was unable
to take advantage of that sector's healthy returns. However, by
mid-April, my strategy of tilting the fund toward value began to pay
off.
Q. HOW DID THE MARKET ENVIRONMENT CHANGE DURING THE COURSE OF THE
SIX-MONTH PERIOD?
A. For the first half of the year, the markets were enjoying the
benefits of aggressive domestic and global central bank interest-rate
cuts, which were intended to increase liquidity and investor
confidence and stimulate economic growth. Those measures were
successful. However, the extremely narrow market participation through
the first quarter of 1999 quickly broadened as investors realized that
the emerging markets of Asia and South America were beginning to
stabilize. With prospects of deflation now dimming, markets felt that
a reflationary environment would be positive for value, cyclical and
small- to mid-cap stocks. Therefore, investors rotated out of high
valuation, large-cap growth stocks into value and cyclical names. The
fund was well-positioned for this rotation, and it outperformed the
S&P 500 over the last three months of the period.
Q. WHAT WERE SOME OF THE BRIGHT SPOTS FOR THE FUND, GEORGE?
A. Technology holding Solectron was the largest contributor to
performance. The company is a contract electronic manufacturer -
meaning technology companies outsource their manufacturing to
Solectron. Its stock has increased ten fold since 1992, and its
expected earnings growth rate is very strong. U.K.-based
telecommunications company Vodafone was also a solid contributor,
based on its solid earnings growth, future growth prospects and its
merger with Airtouch. MCI WorldCom is another telecommunications
company that performed well. Its focus on the high-growth areas of
Internet, data and international communications gained the company 4%
of the global telecom market.
Q. WHICH HOLDINGS DIDN'T PERFORM UP TO YOUR EXPECTATIONS?
A. In the first quarter of 1999, Philip Morris was the largest
detractor from performance. Its stock was punished due to the
company's ongoing litigation battles. However, its earnings were
growing at almost twice the rate of the S&P 500, and it has
consistently gained market share over time. In fact, during the second
quarter, Philip Morris was the fund's second-best contributor to
performance. Fannie Mae and Freddie Mac, which provide housing-related
financial services for low and moderate-income families, also
underperformed. Nervous sentiment concerning recent legislative issues
drove share prices down. However, based on their strong fundamentals,
I feel these stocks were unfairly punished and I remain bullish about
their prospects. The fund's bond holdings, which accounted for
approximately 7% of assets at the end of the period, also were
disappointments.
Q. WHAT IS YOUR OUTLOOK FOR THE NEXT FEW MONTHS, GEORGE?
A. The improved world economy and strong U.S. economy bode well for
value stocks, as does improved pricing power across such cyclical
industries as homebuilders, chemicals and several others. In order to
sustain this momentum, earnings must continue to improve, as does the
global economy. I believe the global recovery is real, albeit fragile.
And recent earnings releases have been very friendly to value and
cyclical stocks. On the other hand, if the Federal Reserve Board
increases interest rates beyond its 0.25 percentage-point hike on June
30, the cyclical/value rally could pause. But as of this moment, I
believe that inflation is in check and that earnings will continue to
broaden. The fund is currently very well-positioned to take advantage
of that scenario.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET OR OTHER CONDITIONS. FOR MORE INFORMATION, SEE PAGE 3.
(checkmark)FUND FACTS
GOAL: to provide capital growth by investing primarily in common
stocks
START DATE: January 3, 1995
SIZE: as of June 30, 1999, more than $1.9 billion
MANAGER: George Vanderheiden, since inception; joined Fidelity in 1971
VARIABLE INSURANCE PRODUCTS FUND III: GROWTH OPPORTUNITIES PORTFOLIO
INVESTMENTS JUNE 30, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 88.5%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 0.3%
Boeing Co. 152,400 $ 6,734,175
BASIC INDUSTRIES - 1.7%
CHEMICALS & PLASTICS - 0.8%
Cabot Corp. 104,500 2,527,594
Dow Chemical Co. 6,800 862,750
E.I. du Pont de Nemours and 117,200 8,006,225
Co.
Engelhard Corp. 79,100 1,789,638
Praxair, Inc. 26,200 1,282,163
Raychem Corp. 32,900 1,217,300
15,685,670
PACKAGING & CONTAINERS - 0.9%
Bemis Co., Inc. 5,700 226,575
Owens-Illinois, Inc. (a) 520,600 17,017,113
17,243,688
PAPER & FOREST PRODUCTS - 0.0%
Westvaco Corp. 33,900 983,100
TOTAL BASIC INDUSTRIES 33,912,458
CONSTRUCTION & REAL ESTATE -
1.4%
BUILDING MATERIALS - 0.4%
Armstrong World Industries, 20,600 1,190,938
Inc.
Owens-Corning 158,600 5,451,875
Sherwin-Williams Co. 3,500 97,125
6,739,938
CONSTRUCTION - 0.9%
Centex Corp. 142,100 5,337,631
D.R. Horton, Inc. 136,736 2,273,236
Fleetwood Enterprises, Inc. 107,562 2,843,670
Kaufman & Broad Home Corp. 167,500 4,166,563
Lennar Corp. 149,500 3,588,000
18,209,100
ENGINEERING - 0.1%
Fluor Corp. 47,200 1,911,600
TOTAL CONSTRUCTION & REAL 26,860,638
ESTATE
DURABLES - 6.0%
AUTOS, TIRES, & ACCESSORIES -
4.6%
AutoNation, Inc. (a) 567,300 10,105,031
AutoZone, Inc. (a) 86,100 2,593,763
Cummins Engine Co., Inc. 130,700 7,466,238
Dana Corp. 160,800 7,406,850
Delphi Automotive Systems 337,078 6,257,010
Corp.
Discount Auto Parts, Inc. (a) 82,400 1,987,900
Eaton Corp. 131,700 12,116,400
General Motors Corp. 422,700 27,898,200
Goodyear Tire & Rubber Co. 22,300 1,311,519
SHARES VALUE (NOTE 1)
Lear Corp. (a) 123,200 $ 6,129,200
Magna International, Inc. 120,500 6,866,531
Class A
90,138,642
CONSUMER DURABLES - 0.1%
Minnesota Mining & 17,100 1,486,631
Manufacturing Co.
CONSUMER ELECTRONICS - 0.0%
Gemstar International Group 10,000 652,500
Ltd. (a)
HOME FURNISHINGS - 0.4%
Newell Rubbermaid, Inc. 147,805 6,872,933
TEXTILES & APPAREL - 0.9%
Burlington Industries, Inc. 314,400 2,849,250
(a)
Jones Apparel Group, Inc. (a) 53,800 1,846,013
Liz Claiborne, Inc. 185,000 6,752,500
Polo Ralph Lauren Corp. Class 24,100 457,900
A (a)
Warnaco Group, Inc. Class A 180,500 4,828,375
16,734,038
TOTAL DURABLES 115,884,744
ENERGY - 7.2%
ENERGY SERVICES - 1.0%
Baker Hughes, Inc. 38,400 1,286,400
Halliburton Co. 196,300 8,882,575
McDermott International, Inc. 181,300 5,121,725
Schlumberger Ltd. 77,100 4,910,306
20,201,006
OIL & GAS - 6.2%
Amerada Hess Corp. 229,700 13,667,150
Apache Corp. 42,200 1,645,800
BP Amoco PLC sponsored ADR 214,245 23,245,583
Chevron Corp. 44,500 4,235,844
Cooper Cameron Corp. (a) 72,300 2,679,619
Elf Aquitaine SA sponsored ADR 27,600 2,030,325
Exxon Corp. 326,100 25,150,463
Occidental Petroleum Corp. 469,900 9,926,638
Royal Dutch Petroleum Co. 272,200 16,400,050
(NY Registry Gilder 1.25)
Tosco Corp. 575,400 14,924,438
Total Fina SA:
Class B 6,153 792,968
sponsored ADR 54,068 3,484,007
Union Pacific Resources 63,300 1,032,581
Group, Inc.
USX-Marathon Group 35,900 1,168,994
120,384,460
TOTAL ENERGY 140,585,466
FINANCE - 21.1%
BANKS - 3.5%
Bank of America Corp. 435,900 31,956,919
Bank of Tokyo-Mitsubishi Ltd. 416,000 5,912,708
Bank of Tokyo-Mitsubishi Ltd. 44,500 648,031
ADR
Bank One Corp. 232,810 13,866,746
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - CONTINUED
BANKS - CONTINUED
BankBoston Corp. 183,200 $ 9,366,100
Wells Fargo & Co. 160,700 6,869,925
68,620,429
CREDIT & OTHER FINANCE - 4.1%
Associates First Capital 108,400 4,803,475
Corp. Class A
Concord EFS, Inc. (a) 69,300 2,932,256
E-Loan, Inc. 500 19,281
Fleet Financial Group, Inc. 1,546,264 68,615,465
Household International, Inc. 44,000 2,084,500
78,454,977
FEDERAL SPONSORED CREDIT - 9.0%
Fannie Mae 1,648,900 112,743,517
Freddie Mac 1,075,600 62,384,800
175,128,317
INSURANCE - 3.5%
Allmerica Financial Corp. 52,100 3,168,331
American International Group, 185,100 21,668,269
Inc.
CIGNA Corp. 204,300 18,182,700
MGIC Investment Corp. 478,200 23,252,475
Travelers Property Casualty 53,200 2,081,450
Corp. Class A
68,353,225
SAVINGS & LOANS - 0.6%
Golden State Bancorp, Inc. 112,900 2,483,800
Washington Mutual, Inc. 246,200 8,709,325
11,193,125
SECURITIES INDUSTRY - 0.4%
Kokusai Securities Co. Ltd. 37,000 457,826
Nomura Securities Co. Ltd. 586,000 6,849,759
7,307,585
TOTAL FINANCE 409,057,658
HEALTH - 9.5%
DRUGS & PHARMACEUTICALS - 3.2%
American Home Products Corp. 94,300 5,422,250
Amgen, Inc. (a) 182,500 11,109,688
AstraZeneca Group PLC 50,462 1,978,023
Forest Laboratories, Inc. (a) 10,000 462,500
Lilly (Eli) & Co. 130,300 9,332,738
Merck & Co., Inc. 224,000 16,576,000
Schering-Plough Corp. 300,000 15,900,000
Warner-Lambert Co. 22,000 1,526,250
62,307,449
MEDICAL EQUIPMENT & SUPPLIES
- - 3.4%
Abbott Laboratories 113,900 5,182,450
AmeriSource Health Corp. 201,500 5,138,250
Class A (a)
SHARES VALUE (NOTE 1)
Baxter International, Inc. 50,200 $ 3,043,375
Biomet, Inc. 37,700 1,498,575
Boston Scientific Corp. (a) 24,000 1,054,500
Cardinal Health, Inc. 368,800 23,649,300
Johnson & Johnson 274,000 26,852,000
St. Jude Medical, Inc. (a) 18,802 669,821
67,088,271
MEDICAL FACILITIES MANAGEMENT
- - 2.9%
Columbia/HCA Healthcare Corp. 1,404,050 32,029,891
HEALTHSOUTH Corp. (a) 67,700 1,011,269
Humana, Inc. (a) 281,500 3,641,906
Lifepoint Hospitals, Inc. 71,718 963,711
Tenet Healthcare Corp. (a) 415,400 7,710,863
Triad Hospitals, Inc. 71,718 968,193
United HealthCare Corp. 146,200 9,155,775
55,481,608
TOTAL HEALTH 184,877,328
INDUSTRIAL MACHINERY &
EQUIPMENT - 4.4%
ELECTRICAL EQUIPMENT - 3.1%
Emerson Electric Co. 209,000 13,140,875
General Electric Co. 121,500 13,729,500
Grainger (W.W.), Inc. 60,500 3,255,656
Koninklijke (Royal) Philips 72,312 7,154,921
Electronics NV
Koninklijke (Royal) Philips 166,412 16,786,811
Electronics NV sponsored ADR
Loral Space & Communications 2,500 45,000
Ltd. (a)
Thomas & Betts Corp. 113,600 5,367,600
59,480,363
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.5%
Caterpillar, Inc. 41,300 2,478,000
Deere & Co. 35,100 1,390,838
Illinois Tool Works, Inc. 24,100 1,976,200
Parker-Hannifin Corp. 19,500 892,125
Tyco International Ltd. 25,386 2,405,324
Ultratech Stepper, Inc. (a) 37,100 558,819
9,701,306
POLLUTION CONTROL - 0.8%
Republic Services, Inc. Class 194,200 4,806,450
A
Waste Management, Inc. 197,500 10,615,625
15,422,075
TOTAL INDUSTRIAL MACHINERY & 84,603,744
EQUIPMENT
MEDIA & LEISURE - 2.9%
BROADCASTING - 0.9%
AT&T Corp. (Liberty Media 246,522 9,059,684
Group) Class A (a)
Cox Communications, Inc. 35,000 1,288,438
Class A (a)
MediaOne Group, Inc. 97,400 7,244,125
17,592,247
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
MEDIA & LEISURE - CONTINUED
ENTERTAINMENT - 0.3%
Cedar Fair LP (depository 5,800 $ 144,638
unit)
Disney (Walt) Co. 17,000 523,813
Fox Entertainment Group, Inc. 131,600 3,544,975
(a)
Royal Carribean Cruises Ltd. 56,200 2,458,750
6,672,176
LODGING & GAMING - 0.9%
Gtech Holdings Corp. (a) 80,400 1,894,425
Mirage Resorts, Inc. (a) 236,300 3,958,025
Promus Hotel Corp. (a) 261,200 8,097,200
Sun International Hotels Ltd. 72,700 3,253,325
(a)
17,202,975
PUBLISHING - 0.1%
Reader's Digest Association, 39,100 1,554,225
Inc. Class A (non-vtg.)
RESTAURANTS - 0.7%
McDonald's Corp. 95,000 3,924,688
Papa John's International, 27,980 1,250,356
Inc. (a)
Tricon Global Restaurants, 6,000 324,750
Inc. (a)
Wendy's International, Inc. 273,000 7,729,313
13,229,107
TOTAL MEDIA & LEISURE 56,250,730
NONDURABLES - 5.0%
BEVERAGES - 0.1%
PepsiCo, Inc. 35,900 1,388,881
FOODS - 0.0%
Nabisco Group Holdings Corp. 34,300 670,994
HOUSEHOLD PRODUCTS - 0.1%
Procter & Gamble Co. 25,100 2,240,175
TOBACCO - 4.8%
Philip Morris Companies, Inc. 2,308,800 92,784,900
TOTAL NONDURABLES 97,084,950
PRECIOUS METALS - 0.1%
Barrick Gold Corp. 45,200 877,610
Newmont Mining Corp. 40,000 795,000
Placer Dome, Inc. 47,600 556,478
2,229,088
RETAIL & WHOLESALE - 7.7%
APPAREL STORES - 0.6%
Gap, Inc. 68,737 3,462,626
TJX Companies, Inc. 230,400 7,675,200
11,137,826
GENERAL MERCHANDISE STORES -
2.2%
Federated Department Stores, 195,000 10,322,813
Inc. (a)
SHARES VALUE (NOTE 1)
Saks, Inc. (a) 203,106 $ 5,864,686
Wal-Mart Stores, Inc. 553,800 26,720,850
42,908,349
GROCERY STORES - 0.6%
Kroger Co. (a) 59,200 1,653,900
Safeway, Inc. (a) 187,300 9,271,350
10,925,250
RETAIL & WHOLESALE,
MISCELLANEOUS - 4.3%
Circuit City Stores, Inc. - 138,400 12,871,200
Circuit City Group
Home Depot, Inc. 574,700 37,032,231
Lowe's Companies, Inc. 452,200 25,634,088
Office Depot, Inc. (a) 290,500 6,409,156
Staples, Inc. (a) 78,725 2,435,555
84,382,230
TOTAL RETAIL & WHOLESALE 149,353,655
SERVICES - 0.3%
ADVERTISING - 0.2%
Interpublic Group of 13,950 1,208,419
Companies, Inc.
Young & Rubicam, Inc. 41,100 1,867,481
3,075,900
SERVICES - 0.1%
Service Corp. International 157,300 3,028,025
TOTAL SERVICES 6,103,925
TECHNOLOGY - 11.9%
COMMUNICATIONS EQUIPMENT - 0.0%
Globalstar Telecommunications 20,100 466,069
Ltd. (a)
COMPUTER SERVICES & SOFTWARE
- - 3.9%
Ask Jeeves, Inc. 1,200 16,800
Automatic Data Processing, 141,900 6,243,600
Inc.
Black Box Corp. (a) 42,200 2,115,275
BMC Software, Inc. 52,300 2,824,200
Clarent Corp. Delaware 1,300 19,500
Compuware Corp. (a) 197,000 6,267,063
DST Systems, Inc. (a) 12,200 767,075
Electronics for Imaging, Inc. 51,100 2,625,263
(a)
First Data Corp. 149,900 7,335,731
Galileo International, Inc. 30,500 1,629,844
IMS Health, Inc. 140,600 4,393,750
International Business 123,200 15,923,600
Machines Corp.
Microsoft Corp. (a) 221,600 19,985,550
Policy Management Systems 145,700 4,371,000
Corp. (a)
74,518,251
COMPUTERS & OFFICE EQUIPMENT
- - 2.2%
Compaq Computer Corp. 509,000 12,056,938
Hewlett-Packard Co. 17,000 1,708,500
Ingram Micro, Inc. Class A (a) 97,200 2,502,900
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TECHNOLOGY - CONTINUED
COMPUTERS & OFFICE EQUIPMENT
- - CONTINUED
SCI Systems, Inc. 378,900 $ 17,997,750
Tech Data Corp. (a) 220,500 8,434,125
42,700,213
ELECTRONIC INSTRUMENTS - 0.8%
Applied Materials, Inc. (a) 24,700 1,824,713
KLA-Tencor Corp. (a) 18,700 1,213,163
LAM Research Corp. (a) 150,500 7,026,469
Novellus Systems, Inc. (a) 23,800 1,624,350
Thermo Electron Corp. (a) 214,300 4,299,394
15,988,089
ELECTRONICS - 5.0%
Altera Corp. (a) 10,200 375,488
Analog Devices, Inc. (a) 16,500 828,094
Etec Systems, Inc. (a) 22,000 731,500
Flextronics International (a) 8,800 488,400
Intel Corp. 146,300 8,704,850
International Rectifier Corp. 7,500 99,844
(a)
Methode Electronics, Inc. 194,000 4,437,750
Class A
Micrel, Inc. (a) 14,100 1,043,400
Microchip Technology, Inc. (a) 110,200 5,220,725
Micron Technology, Inc. (a) 330,800 13,335,375
Molex, Inc. Class A 113,528 3,576,132
Motorola, Inc. 93,700 8,878,075
National Semiconductor Corp. 129,900 3,288,094
(a)
Solectron Corp. (a) 683,300 45,567,569
96,575,296
TOTAL TECHNOLOGY 230,247,918
TRANSPORTATION - 2.5%
AIR TRANSPORTATION - 1.8%
Alaska Air Group, Inc. (a) 26,600 1,110,550
AMR Corp. (a) 341,500 23,307,375
Delta Air Lines, Inc. 145,300 8,372,913
Northwest Airlines Corp. 24,400 793,000
Class A (a)
UAL Corp. (a) 21,000 1,365,000
34,948,838
RAILROADS - 0.5%
Burlington Northern Santa Fe 162,800 5,046,800
Corp.
CSX Corp. 81,500 3,692,969
8,739,769
TRUCKING & FREIGHT - 0.2%
Airborne Freight Corp. 139,000 3,848,563
TOTAL TRANSPORTATION 47,537,170
SHARES VALUE (NOTE 1)
UTILITIES - 6.5%
CELLULAR - 1.9%
Vodafone AirTouch PLC 24,481 $ 482,276
Vodafone AirTouch PLC 183,080 36,066,760
sponsored ADR
36,549,036
ELECTRIC UTILITY - 0.1%
AES Corp. (a) 24,600 1,429,875
PG&E Corp. 44,530 1,447,225
2,877,100
GAS - 0.1%
Enron Corp. 19,700 1,610,475
TELEPHONE SERVICES - 4.4%
AT&T Corp. 181,935 10,154,247
Bell Atlantic Corp. 156,362 10,222,166
BellSouth Corp. 145,200 6,806,250
Digital Island, Inc. Delaware 7,000 125,563
MCI WorldCom, Inc. (a) 421,228 36,251,935
Network Plus Corp. 6,800 141,950
SBC Communications, Inc. 184,600 10,706,800
Sprint Corp. (FON Group) 218,400 11,534,250
85,943,161
TOTAL UTILITIES 126,979,772
TOTAL COMMON STOCKS 1,718,303,419
(Cost $1,269,266,958)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -
7.1%
MOODY'S RATINGS (UNAUDITED) PRINCIPAL AMOUNT
U.S. Treasury Bills, yield at - $ 850,000 849,213
date of purchase 4.29% to
4.5% 7/1/99 to 9/2/99
U.S. Treasury Bond stripped Aaa 49,450,000 14,377,093
principal 0% 2/15/19
U.S. Treasury Bonds:
6.25% 8/15/23 Aaa 15,453,000 15,525,475
7.875% 2/15/21 Aaa 25,700,000 30,506,671
8.125% 8/15/19 Aaa 63,840,000 77,106,590
TOTAL U.S. TREASURY OBLIGATIONS 138,365,042
(Cost $136,875,421)
CASH EQUIVALENTS - 4.4%
SHARES
Taxable Central Cash Fund (b) 84,192,702 84,192,702
(Cost $84,192,702)
TOTAL INVESTMENT IN $ 1,940,861,163
SECURITIES - 100%
(Cost $1,490,335,081)
</TABLE>
LEGEND
(a) Non-income producing
(b) At period end, the seven-day yield on the Taxable Central Cash
Fund was 4.84%. The yield refers to the income earned by investing in
the fund over the seven-day period, expressed as an annual percentage.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $533,892,029 and $425,092,472, respectively, of which
long-term U.S. government and government agency obligations aggregated
$37,530,372 and $25,615,547, respectively.
The market value of futures contracts opened and closed during the
period amounted to $105,146,524 and $111,118,351, respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company.
The commissions paid to these affiliated firms were $80,738 for the
period.
INCOME TAX INFORMATION
At June 30, 1999, the aggregate cost of investment securities for
income tax purposes was $1,492,787,084. Net unrealized appreciation
aggregated $448,074,079, of which $503,196,067 related to appreciated
investment securities and $55,121,988 related to depreciated
investment securities.
VARIABLE INSURANCE PRODUCTS FUND III: GROWTH OPPORTUNITIES PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 1,940,861,163
value (cost $1,490,335,081)
- - See accompanying schedule
Cash 7,687
Receivable for investments 7,478,125
sold
Receivable for fund shares 951,249
sold
Dividends receivable 2,663,407
Interest receivable 3,412,642
TOTAL ASSETS 1,955,374,273
LIABILITIES
Payable for investments $ 8,169,582
purchased
Payable for fund shares 1,208,951
redeemed
Accrued management fee 916,200
Distribution fees payable 20,004
Other payables and accrued 157,297
expenses
TOTAL LIABILITIES 10,472,034
NET ASSETS $ 1,944,902,239
Net Assets consist of:
Paid in capital $ 1,398,911,095
Undistributed net investment 10,358,217
income
Accumulated undistributed 85,109,899
net realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation 450,523,028
(depreciation) on
investments and assets and
liabilities in foreign
currencies
NET ASSETS $ 1,944,902,239
INITIAL CLASS: NET ASSET $23.64
VALUE, offering price and
redemption price per share
($1,689,448,173 (divided by)
71,458,622 shares)
SERVICE CLASS: NET ASSET $23.62
VALUE, offering price and
redemption price per share
($255,454,066 (divided by)
10,813,666 shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30,
1999 (UNAUDITED)
INVESTMENT INCOME $ 10,840,590
Dividends
Interest 6,176,883
TOTAL INCOME 17,017,473
EXPENSES
Management fee $ 5,249,382
Transfer agent fees 602,891
Distribution fees - Service 98,930
Class
Accounting fees and expenses 287,406
Non-interested trustees' 2,731
compensation
Custodian fees and expenses 52,101
Registration fees 451
Audit 15,626
Legal 257
Miscellaneous 10,449
Total expenses before 6,320,224
reductions
Expense reductions (94,895) 6,225,329
NET INVESTMENT INCOME 10,792,144
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities 88,183,072
Foreign currency transactions (4,287)
Futures contracts 704,648 88,883,433
Change in net unrealized
appreciation (depreciation)
on:
Investment securities 18,727,068
Assets and liabilities in (15,156)
foreign currencies
Futures contracts (26,196) 18,685,716
NET GAIN (LOSS) 107,569,149
NET INCREASE (DECREASE) IN $ 118,361,293
NET ASSETS RESULTING FROM
OPERATIONS
OTHER INFORMATION $ 94,034
Expense reductions Directed
brokerage arrangements
Custodian credits 861
$ 94,895
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
ASSETS 1999 (UNAUDITED)
Operations Net investment $ 10,792,144 $ 17,248,593
income
Net realized gain (loss) 88,883,433 29,400,065
Change in net unrealized 18,685,716 261,670,341
appreciation (depreciation)
NET INCREASE (DECREASE) IN 118,361,293 308,318,999
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (17,518,652) (12,018,174)
From net investment income
From net realized gain (32,887,198) (41,777,463)
TOTAL DISTRIBUTIONS (50,405,850) (53,795,637)
Share transactions - net 157,439,725 436,628,059
increase (decrease)
TOTAL INCREASE (DECREASE) 225,395,168 691,151,421
IN NET ASSETS
NET ASSETS
Beginning of period 1,719,507,071 1,028,355,650
End of period (including $ 1,944,902,239 $ 1,719,507,071
undistributed net investment
income of $10,358,217 and
$17,079,948, respectively)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OTHER INFORMATION:
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
1999 (UNAUDITED)
SHARES DOLLARS SHARES DOLLARS
Share transactions Initial 7,621,168 $ 171,150,526 21,572,358 $ 432,066,063
Class Sold
Reinvested 2,116,413 45,714,518 2,818,502 53,495,168
Redeemed (6,900,583) (155,430,201) (8,989,787) (178,498,316)
Net increase (decrease) 2,836,998 $ 61,434,843 15,401,073 $ 307,062,915
Service Class Sold 4,210,656 $ 94,758,088 6,428,938 $ 130,061,772
Reinvested 217,292 4,691,331 15,831 300,469
Redeemed (153,145) (3,444,537) (40,244) (797,097)
Net increase (decrease) 4,274,803 $ 96,004,882 6,404,525 $ 129,565,144
Distributions From net $ 15,930,817 $ 11,951,048
investment income Initial
Class
Service Class 1,587,835 67,126
Total $ 17,518,652 $ 12,018,174
From net realized gain $ 29,783,702 $ 41,544,120
Initial Class
Service Class 3,103,496 233,343
Total $ 32,887,198 $ 41,777,463
$ 50,405,850 $ 53,795,637
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 1996 1995 E
Net asset value, beginning of $ 22.88 $ 19.27 $ 15.40 $ 13.07 $ 10.00
period
Income from Investment
Operations
Net investment income .14 D .26 D .29 D .26 .11
Net realized and unrealized 1.28 4.29 4.18 2.12 3.14
gain (loss)
Total from investment 1.42 4.55 4.47 2.38 3.25
operations
Less Distributions
From net investment income (.23) (.21) (.25) - (.11)
From net realized gain (.43) (.73) (.35) (.05) (.07)
Total distributions (.66) (.94) (.60) (.05) (.18)
Net asset value, end of period $ 23.64 $ 22.88 $ 19.27 $ 15.40 $ 13.07
TOTAL RETURN B, C 6.48% 24.61% 29.95% 18.27% 32.52%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 1,689,448 $ 1,570,011 $ 1,025,766 $ 383,085 $ 164,303
(000 omitted)
Ratio of expenses to average .70% A .71% .74% .77% .85% G
net assets
Ratio of expenses to average .69% A, H .70% H .73% H .76% H .83% H
net assets after expense
reductions
Ratio of net investment 1.23% A 1.27% 1.68% 2.29% 2.49%
income to average net assets
Portfolio turnover 50% A 29% 26% 28% 38%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - SERVICE CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 F
Net asset value, beginning of $ 22.86 $ 19.27 $ 18.50
period
Income from Investment
Operations
Net investment income D .12 .23 .04
Net realized and unrealized 1.29 4.30 .73
gain (loss)
Total from investment 1.41 4.53 .77
operations
Less Distributions
From net investment income (.22) (.21) -
From net realized gain (.43) (.73) -
Total distributions (.65) (.94) -
Net asset value, end of period $ 23.62 $ 22.86 $ 19.27
TOTAL RETURN B, C 6.44% 24.51% 4.16%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 255,454 $ 149,496 $ 2,589
(000 omitted)
Ratio of expenses to average .81% A .80% .84% A
net assets
Ratio of expenses to average .80% A, H .79% H .83% A, H
net assets after expense
reductions
Ratio of net investment 1.12% A 1.16% 1.72% A
income to average net assets
Portfolio turnover 50% A 29% 26%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE
TO YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. INCLUSION
OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN. TOTAL RETURNS FOR PERIODS OF LESS THAN ONE
YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED
BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD JANUARY 3, 1995 (COMMENCEMENT OF
OPERATIONS OF INITIAL CLASS SHARES) TO DECEMBER 31, 1995.
F FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF SALE
OF SERVICE CLASS SHARES) TO DECEMBER 31, 1997.
G FMR AGREED TO REIMBURSE A PORTION OF THE CLASS'
EXPENSES DURING THE PERIOD. WITHOUT THIS REIMBURSEMENT,
THE CLASS' EXPENSE RATIO WOULD HAVE BEEN HIGHER.
H FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS
WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A
PORTION OF THE CLASS' EXPENSES.
VARIABLE INSURANCE PRODUCTS FUND II: CONTRAFUND PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 1 YEAR LIFE OF FUND
VIP II: CONTRAFUND - "INITIAL 23.87% 28.10%
CLASS"
S&P 500 (registered trademark) 22.76% 30.11%
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's return to the performance of the Standard &
Poor's 500 Index - a market capitalization-weighted index of common
stocks. This benchmark reflects the reinvestment of 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 the fund figures are from
commencement of operations, January 3, 1995.
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, THE TOTAL RETURN 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.
(checkmark)UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for example,
has a history of long-term growth and short-term
volatility. In turn, the share price and return of a
fund that invests in stocks will vary. That means if
you sell your shares during a market downturn,
you might lose money. But if you can ride out the
market's ups and downs, you may have a gain.
$10,000 OVER LIFE OF FUND
VIP II CONTRAFUND S&P 500
00158 SP001
1995/01/03 10000.00 10000.00
1995/01/31 9870.00 10261.28
1995/02/28 10370.00 10661.16
1995/03/31 10890.00 10975.77
1995/04/30 11480.00 11299.00
1995/05/31 11730.00 11750.63
1995/06/30 12490.00 12023.59
1995/07/31 13470.00 12422.30
1995/08/31 13640.00 12453.48
1995/09/30 13940.00 12979.01
1995/10/31 13650.00 12932.68
1995/11/30 13900.00 13500.42
1995/12/31 13971.98 13760.44
1996/01/31 14073.30 14228.85
1996/02/29 14124.25 14360.75
1996/03/31 14584.49 14499.04
1996/04/30 15065.18 14712.76
1996/05/31 15239.05 15092.20
1996/06/30 15116.32 15149.70
1996/07/31 14410.62 14480.39
1996/08/31 14962.90 14785.78
1996/09/30 15597.01 15617.92
1996/10/31 16077.71 16048.66
1996/11/30 17039.10 17261.78
1996/12/31 16936.82 16919.83
1997/01/31 17591.38 17976.98
1997/02/28 17103.08 18117.92
1997/03/31 16660.22 17373.45
1997/04/30 17060.91 18410.65
1997/05/31 18115.35 19531.49
1997/06/30 18906.18 20406.50
1997/07/31 20530.03 22030.24
1997/08/31 19950.08 20796.11
1997/09/30 21299.77 21935.11
1997/10/31 20656.56 21202.48
1997/11/30 20646.02 22183.94
1997/12/31 21025.62 22564.84
1998/01/31 21004.53 22814.41
1998/02/28 22531.76 24459.78
1998/03/31 23627.59 25712.37
1998/04/30 23851.23 25971.03
1998/05/31 23292.13 25524.59
1998/06/30 24544.52 26561.40
1998/07/31 24578.06 26278.52
1998/08/31 20899.18 22479.17
1998/09/30 22118.02 23919.19
1998/10/31 22844.85 25864.77
1998/11/30 24365.61 27432.44
1998/12/31 27328.84 29013.09
1999/01/31 28894.32 30226.42
1999/02/28 27829.69 29286.98
1999/03/31 28819.87 30458.76
1999/04/30 29437.27 31638.42
1999/05/31 28843.17 30891.44
1999/06/30 30404.14 32605.92
IMATRL PRASUN SHR__CHT 19990630 19990712 093142 R00000000000057
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund II: Contrafund Portfolio
on January 3, 1995, when the fund started. As the chart shows, by June
30, 1999, the value of the investment would have grown to $30,404 - a
204.04% increase on the initial investment. For comparison, look at
how the Standard & Poor's 500 Index did over the same period. With
dividends and capital gains, if any, reinvested, the same $10,000
investment would have grown to $32,606 - a 226.06% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE
30, 1999
% OF FUND'S INVESTMENTS
Time Warner, Inc. 3.8
MCI WorldCom, Inc. 3.8
McDonald's Corp. 3.3
AT&T Corp. 2.0
CVS Corp. 1.9
TOP FIVE MARKET SECTORS AS OF
JUNE 30, 1999
% OF FUND'S INVESTMENTS
TECHNOLOGY 17.1
MEDIA & LEISURE 15.8
UTILITIES 11.8
FINANCE 7.4
RETAIL & WHOLESALE 7.0
ASSET ALLOCATION AS OF JUNE
30, 1999*
% OF FUND'S INVESTMENTS
Stocks and
equity futures 90.8%
Bonds 1.8%
Short-term Investments 7.4%
* FOREIGN INVESTMENTS 9.4%
Row: 1, Col: 1, Value: 90.8
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 1.8
Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 7.4
VARIABLE INSURANCE PRODUCTS FUND II: CONTRAFUND PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). The initial offering of Service Class shares
took place on November 3, 1997. Performance for Service Class shares
reflects an asset based distribution fee (12b-1 fee), and returns
prior to November 3, 1997 are those of Initial Class and do not
include the effects of Service Class' 12b-1 fee. Had Service Class
shares' 12b-1 fee been reflected, returns prior to November 3, 1997
would have been lower.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 1 YEAR LIFE OF FUND
VIP II: CONTRAFUND - SERVICE 23.74% 28.07%
CLASS
S&P 500 22.76% 30.11%
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's return to the performance of the Standard &
Poor's 500 Index - a market capitalization-weighted index of common
stocks. This benchmark reflects the reinvestment of 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 the fund figures are from
commencement of operations, January 3, 1995.
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, THE TOTAL RETURN 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.
(checkmark)UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for example,
has a history of long-term growth and short-term
volatility. In turn, the share price and return of a
fund that invests in stocks will vary. That means if
you sell your shares during a market downturn,
you might lose money. But if you can ride out the
market's ups and downs, you may have a gain.
$10,000 OVER LIFE OF FUND
VIP II CONTRAFUND - SC S&P 500
00470 SP001
1995/01/03 10000.00 10000.00
1995/01/31 9870.00 10261.28
1995/02/28 10370.00 10661.16
1995/03/31 10890.00 10975.77
1995/04/30 11480.00 11299.00
1995/05/31 11730.00 11750.63
1995/06/30 12490.00 12023.59
1995/07/31 13470.00 12422.30
1995/08/31 13640.00 12453.48
1995/09/30 13940.00 12979.01
1995/10/31 13650.00 12932.68
1995/11/30 13900.00 13500.42
1995/12/31 13971.98 13760.44
1996/01/31 14073.30 14228.85
1996/02/29 14124.25 14360.75
1996/03/31 14584.49 14499.04
1996/04/30 15065.18 14712.76
1996/05/31 15239.05 15092.20
1996/06/30 15116.32 15149.70
1996/07/31 14410.62 14480.39
1996/08/31 14962.90 14785.78
1996/09/30 15597.01 15617.92
1996/10/31 16077.71 16048.66
1996/11/30 17039.10 17261.78
1996/12/31 16936.82 16919.83
1997/01/31 17591.38 17976.98
1997/02/28 17103.08 18117.92
1997/03/31 16660.22 17373.45
1997/04/30 17060.91 18410.65
1997/05/31 18115.35 19531.49
1997/06/30 18906.18 20406.50
1997/07/31 20530.03 22030.24
1997/08/31 19950.08 20796.11
1997/09/30 21299.77 21935.11
1997/10/31 20656.56 21202.48
1997/11/30 20646.02 22183.94
1997/12/31 21015.07 22564.84
1998/01/31 21004.53 22814.41
1998/02/28 22531.76 24459.78
1998/03/31 23627.59 25712.37
1998/04/30 23851.23 25971.03
1998/05/31 23292.13 25524.59
1998/06/30 24544.52 26561.40
1998/07/31 24566.88 26278.52
1998/08/31 20899.18 22479.17
1998/09/30 22106.84 23919.19
1998/10/31 22833.67 25864.77
1998/11/30 24354.42 27432.44
1998/12/31 27306.48 29013.09
1999/01/31 28871.96 30226.42
1999/02/28 27807.33 29286.98
1999/03/31 28797.53 30458.76
1999/04/30 29403.31 31638.42
1999/05/31 28809.18 30891.44
1999/06/30 30370.22 32605.92
IMATRL PRASUN SHR__CHT 19990630 19990729 104236 R00000000000057
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund II: Contrafund Portfolio
- - Service Class on January 3, 1995, when the fund started. As the
chart shows, by June 30, 1999, the value of the investment would have
grown to $30,370 - a 203.70% increase on the initial investment. For
comparison, look at how the Standard & Poor's 500 Index did over the
same period. With dividends and capital gains, if any, reinvested, the
same $10,000 investment would have grown to $32,606 - a 226.06%
increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE
30, 1999
% OF FUND'S INVESTMENTS
Time Warner, Inc. 3.8
MCI WorldCom, Inc. 3.8
McDonald's Corp. 3.3
AT&T Corp. 2.0
CVS Corp. 1.9
TOP FIVE MARKET SECTORS AS OF
JUNE 30, 1999
% OF FUND'S INVESTMENTS
TECHNOLOGY 17.1
MEDIA & LEISURE 15.8
UTILITIES 11.8
FINANCE 7.4
RETAIL & WHOLESALE 7.0
ASSET ALLOCATION AS OF JUNE
30, 1999*
% OF FUND'S INVESTMENTS
Stocks and equity futures 90.8%
Bonds 1.8%
Short-term Investments 7.4%
* FOREIGN INVESTMENTS 9.4%
Row: 1, Col: 1, Value: 90.8
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 1.8
Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 7.4
VARIABLE INSURANCE PRODUCTS FUND II: CONTRAFUND PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
(photograph of Will Danoff)
An interview with
Will Danoff,
Portfolio Manager of
Contrafund Portfolio
Q. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK, WILL?
A. For the six months that ended June 30, 1999, the fund trailed the
Standard & Poor's 500 Index, which returned 12.38%. For the 12 months
that ended June 30, 1999, the fund beat the 22.76% return of the S&P
500.
Q. CAN YOU HIGHLIGHT THE MAJOR FACTORS THAT AFFECTED THE FUND'S
PERFORMANCE DURING THE PERIOD?
A. The biggest factor was the fact that central banks around the world
lowered interest rates during the period. These eases - including
three successive rate cuts by the U.S. Federal Reserve Board shortly
before the period began - flipped the investment landscape entirely
over by averting a slowdown, and the economy gained some much-needed
stimulus as we entered 1999. As a result, economically sensitive
sectors such as energy, paper, chemicals and certain segments of
technology performed very well. Investors in turn took profits in
areas such as finance, retail and health care, groups that
historically perform well when the economy is slowing or interest
rates are falling. In terms of portfolio strategies, my decision to
sell a good chunk of the fund's technology exposure was the biggest
damper on performance during the period, as tech stocks rose about 35%
during the first six months of 1999.
Q. CAN YOU EXPAND A BIT ON TECHNOLOGY STOCKS? WHY DID THEY PERFORM SO
WELL DURING THE PERIOD AND WHAT WAS BEHIND YOUR DECISION TO TAKE
PROFITS IN SOME OF THE FUND'S TECHNOLOGY HOLDINGS?
A. The growth and popularity of the Internet was the primary driver
behind the sector's strong showing. In terms of my decision to sell, I
reduced the fund's exposure to several stocks - namely America Online
and Yahoo! - as valuations soared to what I felt were uncomfortable
levels. I also was concerned that the wave of new issues and flow of
venture capital money would trigger intense competition and put more
pressure on profits. In hindsight, these sales were premature as
Internet stocks continued to go up. I would add that many Internet
companies lost money during the period, making them difficult to
value, but the sector definitely performed better than I had expected.
Q. WITH TECHNOLOGY STOCKS LEADING THE MARKET'S CHARGE DURING THE
PERIOD, DID YOU PURSUE ANY OTHER TYPES OF TECH-RELATED STRATEGIES?
A. I tried to invest in traditional technology companies whose
products enable the overall use of the Internet. One such example was
Cisco Systems, a leader in providing networking equipment. Cisco
broadened its product offerings to address the needs of the
traditional telephone service providers, an area that has very strong
potential. One other strategy involved the tremendous growth in the
wireless communications area. Worldwide subscribers have grown at a
30%-40% annual growth clip over the past few years, and cellular
service providers benefited from new services such as Internet access
from one's cellular phone. The fund's stakes in Finland-based Nokia,
the leading wireless handset producer, and Vodafone AirTouch, a
leading global wireless service provider, each helped performance.
Q. WHICH OTHER STOCKS PERFORMED WELL DURING THE PERIOD? WHICH
PERFORMED POORLY?
A. When the global economic situation began to improve, some of the
fund's economically sensitive stocks - particularly in the energy area
- - fared well. These included names such as Exxon and Mobil, which
merged together, as well as British Petroleum and Amoco, which also
merged with one another. Several of the fund's investments in the
telecommunications area - which I bought when I felt they were
undervalued by the market - also performed well. These included MCI
WorldCom and NEXTLINK. On a negative note, the fund's position in
savings and loan Washington Mutual detracted from performance as
rising interest rates slowed the company's earnings growth.
Q. WHAT'S YOUR OUTLOOK FOR THE REMAINDER OF 1999?
A. The domestic economy and corporate profits are very strong, general
inflation remains subdued and productivity is high. Overseas, many
troubled markets have stabilized but are still not as riveting as the
U.S. market. As long as inflation remains in check, the Fed should be
able to maintain interest rates at current levels and stock prices of
growing companies should continue to perform well. The Fed's recent
tightening suggests that the central bank is concerned about the
domestic economy overheating and that Fed actions must be watched
closely. In terms of the fund itself, I'll continue to look for
leading growth companies, new emerging-growth companies and
underappreciated turnaround stories that I feel can sustain strong
earnings growth if the economy should slow.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET OR OTHER CONDITIONS. FOR MORE INFORMATION, SEE PAGE 3.
(checkmark)FUND FACTS
GOAL: to increase the value of the fund's
shares over the long term by investing in
companies whose value is not fully recognized
by the public
START DATE: January 3, 1995
SIZE: as of June 30, 1999, more than $8.1 billion
MANAGER: Will Danoff, since inception; joined
Fidelity in 1986
VARIABLE INSURANCE FUND II: CONTRAFUND PORTFOLIO
INVESTMENTS JUNE 30, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 90.1%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 1.1%
AEROSPACE & DEFENSE - 0.8%
Alliant Techsystems, Inc. (a) 77,400 $ 6,695,100
AlliedSignal, Inc. 131,100 8,259,300
Cordant Technologies, Inc. 92,000 4,157,250
Howmet International, Inc. (a) 46,800 804,375
Northrop Grumman Corp. 15,200 1,007,950
Rockwell International Corp. 56,800 3,450,600
Textron, Inc. 158,600 13,054,763
United Technologies Corp. 342,400 24,545,800
61,975,138
DEFENSE ELECTRONICS - 0.3%
Raytheon Co. Class B 321,100 22,597,413
SHIP BUILDING & REPAIR - 0.0%
General Dynamics Corp. 56,300 3,856,550
TOTAL AEROSPACE & DEFENSE 88,429,101
BASIC INDUSTRIES - 5.0%
CHEMICALS & PLASTICS - 0.8%
Crompton & Knowles Corp. 385,392 7,539,231
Dow Chemical Co. 29,000 3,679,375
E.I. du Pont de Nemours and 68,900 4,706,731
Co.
Fuller (H.B.) Co. 93,150 6,369,131
Geon Co. 203,500 6,562,875
MacDermid, Inc. 23,600 1,097,400
Praxair, Inc. 23,300 1,140,244
Rohm & Haas Co. 25,100 1,076,163
Spartech Corp. 15,300 483,863
Union Carbide Corp. 615,900 30,025,125
W.R. Grace & Co. (a) 12,300 226,013
Witco Corp. 80,500 1,610,000
64,516,151
IRON & STEEL - 0.1%
AK Steel Holding Corp. 271,900 6,117,750
Armco, Inc. (a) 415,700 2,754,013
8,871,763
METALS & MINING - 1.2%
Alcan Aluminium Ltd. 59,300 1,895,313
Alcoa, Inc. 452,100 27,973,688
Broken Hill Proprietary Co. 1,888,799 22,055,270
Ltd. (The)
Commscope, Inc. (a) 206,900 6,362,175
Falconbridge Ltd. 97,200 1,385,534
Inco Ltd. 597,500 10,743,317
Inco Ltd. Class VBN Shares 58,200 439,673
Reynolds Metals Co. 32,100 1,893,900
Rio Tinto PLC (Reg.) 1,353,208 22,699,503
95,448,373
SHARES VALUE (NOTE 1)
PACKAGING & CONTAINERS - 0.2%
Corning, Inc. 186,300 $ 13,064,288
Tupperware Corp. 62,290 1,588,395
14,652,683
PAPER & FOREST PRODUCTS - 2.7%
Boise Cascade Corp. 196,500 8,424,938
Bowater, Inc. 253,000 11,954,250
Champion International Corp. 437,000 20,921,375
Georgia-Pacific Corp. 920,800 43,622,900
International Paper Co. 473,616 23,917,608
Kimberly-Clark Corp. 284,200 16,199,400
Mead Corp. 23,400 976,950
Sealed Air Corp. (a) 112,225 7,280,597
Smurfit-Stone Container Corp. 105,800 2,175,513
(a)
Temple-Inland, Inc. 199,600 13,622,700
UPM-Kymmene Corp. 118,400 3,674,366
Weyerhaeuser Co. 736,400 50,627,500
Willamette Industries, Inc. 338,800 15,605,975
219,004,072
TOTAL BASIC INDUSTRIES 402,493,042
CONSTRUCTION & REAL ESTATE -
0.5%
BUILDING MATERIALS - 0.2%
ACX Technologies, Inc. (a) 10,900 177,125
American Standard Companies, 8,700 417,600
Inc. (a)
Fortune Brands, Inc. 357,900 14,808,113
Masco Corp. 120,700 3,485,213
Tecumseh Products Co. Class A 9,200 557,175
York International Corp. 29,400 1,258,688
20,703,914
CONSTRUCTION - 0.1%
Ashtead Group PLC 24,700 68,179
Jacobs Engineering Group, 158,230 6,012,740
Inc. (a)
6,080,919
REAL ESTATE - 0.0%
ResortQuest International, 192,100 1,584,825
Inc.
REAL ESTATE INVESTMENT TRUSTS
- - 0.2%
Cousins Properties, Inc. 8,800 297,550
Equity Office Properties Trust 300,800 7,708,000
Glenborough Realty Trust, 213,600 3,738,000
Inc.
Highwoods Properties, Inc. 23,700 650,269
Public Storage, Inc. 61,400 1,719,200
Spieker Properties, Inc. 7,300 283,788
Starwood Hotels & Resorts 11,100 339,244
Worldwide, Inc.
14,736,051
TOTAL CONSTRUCTION & REAL 43,105,709
ESTATE
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
DURABLES - 3.7%
AUTOS, TIRES, & ACCESSORIES -
1.9%
Copart, Inc. (a) 23,400 $ 497,250
Danaher Corp. 361,100 20,988,938
Eaton Corp. 59,500 5,474,000
Ford Motor Co. 227,700 12,850,819
Group 1 Automotive, Inc. (a) 139,900 2,955,388
Kroll-O'Gara Co. (a) 46,300 1,021,494
Midas, Inc. 392,800 11,145,700
Navistar International Corp. 225,800 11,290,000
(a)
PACCAR, Inc. 120,900 6,453,038
SPX Corp. 938,541 78,368,174
Tower Automotive, Inc. (a) 126,800 3,225,475
Toyota Motor Corp. 69,000 2,179,996
156,450,272
CONSUMER DURABLES - 0.2%
Blyth Industries, Inc. (a) 69,000 2,371,875
Boyds Collection, Ltd. 441,900 7,650,394
Minnesota Mining & 90,600 7,876,538
Manufacturing Co.
17,898,807
CONSUMER ELECTRONICS - 0.1%
Sony Corp. 104,900 11,578,338
HOME FURNISHINGS - 0.3%
Bombay Co., Inc. (The) (a) 410,500 3,155,719
Linens'n Things, Inc. (a) 364,300 15,938,125
Newell Rubbermaid, Inc. 76,419 3,553,484
22,647,328
TEXTILES & APPAREL - 1.2%
Delta Woodside Industries 88,700 532,200
Jason, Inc. (a) 3,100 24,800
Jones Apparel Group, Inc. (a) 693,126 23,782,886
NIKE, Inc. Class B 339,300 21,481,931
Polo Ralph Lauren Corp. Class 63,500 1,206,500
A (a)
Quiksilver, Inc. 221,300 5,767,631
Reebok International Ltd. (a) 33,200 618,350
Shaw Industries, Inc. (a) 166,700 2,750,550
Tommy Hilfiger (a) 351,700 25,849,950
Vans, Inc. (a) 18,800 215,319
Warnaco Group, Inc. Class A 411,100 10,996,925
93,227,042
TOTAL DURABLES 301,801,787
ENERGY - 5.0%
ENERGY SERVICES - 0.1%
Global Marine, Inc. (a) 304,500 4,700,719
OIL & GAS - 4.9%
Alberta Energy Co. Ltd. 228,100 7,376,174
Amerada Hess Corp. 176,100 10,477,950
Anadarko Petroleum Corp. 319,600 11,765,275
Atlantic Richfield Co. 512,300 42,809,069
BP Amoco PLC sponsored ADR 936,816 101,644,536
SHARES VALUE (NOTE 1)
Burlington Resources, Inc. 122,900 $ 5,315,425
Canadian Natural Resources 58,600 1,161,824
Ltd. (a)
Chevron Corp. 135,400 12,888,388
Elf Aquitaine SA sponsored ADR 65,200 4,796,275
Exxon Corp. 818,000 63,088,250
Mobil Corp. 534,700 52,935,300
Rio Alto Exploration Ltd. (a) 543,400 8,303,131
Royal Dutch Petroleum Co. (NY 603,100 36,336,775
Registry Gilder 1.25)
Santa Fe Snyder Corp. (a) 134,570 1,026,096
Shell Transport & Trading Co. 930,700 7,193,607
PLC (Reg.)
Total Fina SA sponsored ADR 137,500 8,860,156
Unocal Corp. 373,800 14,811,825
Vastar Resources, Inc. 191,300 10,031,294
400,821,350
TOTAL ENERGY 405,522,069
FINANCE - 7.4%
BANKS - 1.8%
AmSouth Bancorp. 178,200 4,132,012
Bank of America Corp. 19,600 1,436,925
Bank of New York Co., Inc. 878,200 32,218,963
BankBoston Corp. 453,100 23,164,738
BB&T Corp. 22,800 836,475
Chase Manhattan Corp. 383,000 33,177,375
Firstar Corp. 94,400 2,643,200
M&T Bank Corp. 3,990 2,194,500
Marshall & Ilsley Corp. 76,500 4,924,688
Mellon Bank Corp. 54,400 1,978,800
Northern Trust Corp. 27,200 2,638,400
Regions Financial Corp. 63,100 2,425,406
State Street Corp. 73,600 6,283,600
U.S. Bancorp 250,500 8,517,000
Wells Fargo & Co. 409,600 17,510,400
Zions Bancorp 23,000 1,460,500
145,542,982
CREDIT & OTHER FINANCE - 2.7%
American Express Co. 188,100 24,476,513
Associates First Capital 3,229,304 143,098,533
Corp. Class A
Citigroup, Inc. 88,200 4,189,500
Concord EFS, Inc. (a) 152,400 6,448,425
Fleet Financial Group, Inc. 168,700 7,486,063
Greenpoint Financial Corp. 49,800 1,634,063
Household International, Inc. 369,200 17,490,850
MBNA Corp. 418,500 12,816,563
217,640,510
FEDERAL SPONSORED CREDIT - 1.1%
Fannie Mae 1,004,300 68,669,013
Freddie Mac 377,600 21,900,800
90,569,813
INSURANCE - 1.1%
AFLAC, Inc. 288,900 13,831,088
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - CONTINUED
INSURANCE - CONTINUED
Allstate Corp. 485,400 $ 17,413,725
American International Group, 235,325 27,547,733
Inc.
Berkshire Hathaway, Inc. 8 551,200
Class A (a)
CIGNA Corp. 150,000 13,350,000
Horace Mann Educators Corp. 51,400 1,397,438
Mutual Risk Management Ltd. 440,100 14,688,338
Zenith National Insurance 127,700 3,144,613
Corp.
91,924,135
SAVINGS & LOANS - 0.3%
Astoria Financial Corp. 208,000 9,139,000
Golden West Financial Corp. 138,500 13,573,000
Washington Mutual, Inc. 139,225 4,925,084
27,637,084
SECURITIES INDUSTRY - 0.4%
Daiwa Securities Co. Ltd. 1,399,000 9,232,420
Nikko Securities Co. Ltd. 1,893,000 12,195,777
Nomura Securities Co. Ltd. 469,000 5,482,145
26,910,342
TOTAL FINANCE 600,224,866
HEALTH - 4.9%
DRUGS & PHARMACEUTICALS - 3.2%
Allergan, Inc. 332,800 36,940,800
Amgen, Inc. (a) 212,600 12,942,025
Bausch & Lomb, Inc. 157,600 12,056,400
Biogen, Inc. (a) 266,800 17,158,575
Centocor, Inc. (a) 101,200 4,718,450
Forest Laboratories, Inc. (a) 97,100 4,490,875
Genzyme Corp. 89 392
Genzyme Corp. (General 500 24,250
Division)
Immunex Corp. (a) 165,000 21,027,188
Lilly (Eli) & Co. 274,900 19,689,713
PE Corp. (Biosystems Group) 363,400 41,700,150
Pharmacia & Upjohn, Inc. 78,200 4,442,738
Schering-Plough Corp. 786,700 41,695,100
Shire Pharmaceuticals Group 143,200 1,194,849
PLC (a)
Warner-Lambert Co. 624,200 43,303,875
261,385,380
MEDICAL EQUIPMENT & SUPPLIES
- - 1.5%
Bard (C.R.), Inc. 296,100 14,157,281
Baxter International, Inc. 107,500 6,517,188
Becton, Dickinson & Co. 489,400 14,682,000
Biomet, Inc. 235,300 9,353,175
Boston Scientific Corp. (a) 439,600 19,314,925
Cardinal Health, Inc. 490,055 31,424,777
Guidant Corp. 184,400 9,485,075
Medtronic, Inc. 56,100 4,368,788
Smith & Nephew Associates Co. 1,302,175 3,964,067
Stryker Corp. 143,600 8,633,950
SHARES VALUE (NOTE 1)
Sybron International, Inc. (a) 79,400 $ 2,188,463
Varian Medical Systems, Inc. 47,400 1,196,850
125,286,539
MEDICAL FACILITIES MANAGEMENT
- - 0.2%
Health Management Associates, 87,313 982,271
Inc. Class A (a)
United HealthCare Corp. 205,700 12,881,963
13,864,234
TOTAL HEALTH 400,536,153
INDUSTRIAL MACHINERY &
EQUIPMENT - 3.6%
ELECTRICAL EQUIPMENT - 1.7%
Allen Telecom, Inc. (a) 228,500 2,456,375
American Power Conversion 295,300 5,942,913
Corp. (a)
ANTEC Corp. (a) 11,800 378,338
Emerson Electric Co. 28,500 1,791,938
General Instrument Corp. (a) 248,400 10,557,000
Koninklijke (Royal) Philips 200,176 20,192,754
Electronics NV sponsored ADR
L-3 Communications Holdings, 759,500 36,693,344
Inc. (a)
Loral Space & Communications 925,633 16,661,394
Ltd. (a)
Pittway Corp. Class A 6,900 235,894
Rayovac Corp. (a) 567,350 12,871,753
Research in Motion Ltd. (a) 185,800 3,753,600
Roper Industries, Inc. 146,000 4,672,000
Siemens AG 313,600 24,327,020
140,534,323
INDUSTRIAL MACHINERY &
EQUIPMENT - 1.3%
ASM Lithography Holding NV (a) 30,300 1,799,063
Briggs & Stratton Corp. 4,800 277,200
Exide Corp. 100 1,475
Illinois Tool Works, Inc. 26,400 2,164,800
Ingersoll-Rand Co. 20,500 1,324,813
ITT Industries, Inc. 331,400 12,634,625
Manitowoc Co., Inc. 9,900 412,088
Mettler-Toledo International, 148,500 3,684,656
Inc. (a)
Milacron, Inc. 2,800 51,800
Terex Corp. (a) 104,000 3,165,500
Tyco International Ltd. 799,197 75,723,916
101,239,936
POLLUTION CONTROL - 0.6%
IT Group, Inc. (The) (a) 999,100 16,048,044
Republic Services, Inc. Class 764,000 18,909,000
A
Safety-Kleen Corp. (a) 239,500 4,340,938
Waste Management, Inc. 204,494 10,991,553
50,289,535
TOTAL INDUSTRIAL MACHINERY & 292,063,794
EQUIPMENT
MEDIA & LEISURE - 15.8%
BROADCASTING - 7.6%
American Tower Corp. Class A 876,150 21,027,600
(a)
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
AT&T Corp. (Liberty Media 940,908 $ 34,578,369
Group) Class A (a)
Cablevision Systems Corp. 24,200 1,694,000
Class A (a)
Capital Radio PLC 171,100 2,265,609
CBS Corp. (a) 2,063,015 89,612,214
Citadel Communications Corp. 266,300 9,636,731
Clear Channel Communications, 204,200 14,077,038
Inc. (a)
Comcast Corp.:
Class A 226,700 8,118,694
Class A (special) 1,109,000 42,627,188
Cox Communications, Inc. 268,400 9,880,475
Class A (a)
E.W. Scripps Co. Class A 5,300 252,081
Entercom Communications Corp. 208,900 8,930,475
Infinity Broadcasting Corp. 150,700 4,483,325
Class A
MediaOne Group, Inc. 276,200 20,542,375
Metro Networks, Inc. (a) 16,300 870,013
NTL, Inc. (a) 31,500 2,714,906
SBS Broadcasting SA (a) 239,000 7,707,750
TCA Cable TV, Inc. 28,800 1,598,400
Television Francaise 1 SA 1,070 250,151
(T.F.1)
TeleWest Communications PLC 5,200 237,900
sponsored ADR (a)
Time Warner, Inc. 4,233,677 311,175,212
United Pan-Europe 185,600 10,098,880
Communications NV
Univision Communications, 92,200 6,085,200
Inc. Class A (a)
USA Networks, Inc. (a) 140,010 5,617,901
Westwood One, Inc. (a) 28,000 999,250
615,081,737
ENTERTAINMENT - 2.1%
Dover Downs Entertainment, 129,100 2,283,456
Inc.
King World Productions, Inc. 214,200 7,456,838
(a)
MGM Grand, Inc. (a) 80,200 3,929,800
Park Place Entertainment 519,200 5,029,750
Corp.
Premier Parks, Inc. (a) 914,300 33,600,525
Royal Carribean Cruises Ltd. 18,500 809,375
SFX Entertainment, Inc. Class 221,200 14,156,800
A (a)
Viacom, Inc.:
Class A (a) 678,800 29,952,050
Class B (non-vtg.) (a) 1,761,100 77,488,400
Zomax, Inc. (a) 2,400 105,600
174,812,594
LEISURE DURABLES & TOYS - 0.3%
Brass Eagle, Inc. (a) 13,300 249,375
Champion Enterprises, Inc. (a) 42,100 784,113
Harley-Davidson, Inc. 26,500 1,440,938
Hasbro, Inc. 603,300 16,854,694
Mattel, Inc. 218,660 5,780,824
25,109,944
SHARES VALUE (NOTE 1)
LODGING & GAMING - 0.5%
Four Seasons Hotels, Inc. 12,900 $ 567,081
Harrah's Entertainment, Inc. 173,400 3,814,800
(a)
Marriott International, Inc. 388,800 14,531,400
Class A
Millennium & Copthorne Hotels 348,153 3,254,214
PLC
Promus Hotel Corp. (a) 375,200 11,631,200
Sun International Hotels Ltd. 78,100 3,494,975
(a)
37,293,670
PUBLISHING - 0.7%
Harte Hanks Communications, 339,100 9,198,088
Inc.
McGraw-Hill Companies, Inc. 63,100 3,403,456
Meredith Corp. 59,300 2,053,263
PRIMEDIA, Inc. (a) 97,200 1,646,325
Reader's Digest Association, 822,840 32,707,890
Inc. Class A (non-vtg.)
Tribune Co. 126,000 10,977,750
59,986,772
RESTAURANTS - 4.6%
Allied Domecq PLC 1,550,700 14,969,025
Brinker International, Inc. 486,100 13,215,844
(a)
CEC Entertainment, Inc. (a) 151,600 6,405,100
Darden Restaurants, Inc. 679,700 14,825,956
McDonald's Corp. 6,525,500 269,584,719
Outback Steakhouse, Inc. (a) 393,850 15,483,228
Papa John's International, 211,000 9,429,063
Inc. (a)
Pizzaexpress PLC 285,900 4,148,741
PJ America, Inc. (a)(c) 430,800 9,127,575
Ryan's Family Steak Houses, 188,500 2,191,313
Inc. (a)
Starbucks Corp. (a) 11,300 424,456
Tricon Global Restaurants, 155,200 8,400,200
Inc. (a)
Wendy's International, Inc. 193,500 5,478,469
373,683,689
TOTAL MEDIA & LEISURE 1,285,968,406
NONDURABLES - 2.1%
FOODS - 1.4%
Ben & Jerry's Homemade, Inc. 239,400 6,643,350
Class A (a)
Earthgrains Co. 663,000 17,113,688
Flowers Industries, Inc. 468,400 10,158,425
Heinz (H.J.) Co. 199,000 9,974,875
Keebler Foods Co. (a) 623,600 18,941,850
Nabisco Group Holdings Corp. 252,100 4,931,706
Nabisco Holdings Corp. Class A 17,200 743,900
Quaker Oats Co. 405,400 26,908,425
Sysco Corp. 333,300 9,936,506
Tyson Foods, Inc. 137,800 3,100,500
Weston George Ltd. 12,100 537,704
108,990,929
HOUSEHOLD PRODUCTS - 0.7%
Avon Products, Inc. 303,500 16,844,250
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NONDURABLES - CONTINUED
HOUSEHOLD PRODUCTS - CONTINUED
Clorox Co. 22,481 $ 2,401,252
Colgate-Palmolive Co. 221,600 21,883,000
Dial Corp. 187,900 6,987,531
Estee Lauder Companies, Inc. 105,100 5,268,138
Playtex Products, Inc. (a) 292,000 4,544,250
57,928,421
TOBACCO - 0.0%
RJ Reynolds Tobacco Holdings, 77,800 2,450,700
Inc.
TOTAL NONDURABLES 169,370,050
PRECIOUS METALS - 0.7%
Barrick Gold Corp. 1,219,940 23,686,536
Euro-Nevada Mining Corp. Ltd. 251,300 3,023,778
Franco Nevada Mining Corp. 235,300 3,683,852
Ltd.
Newmont Mining Corp. 260,700 5,181,413
Placer Dome, Inc. 1,219,545 14,257,346
Stillwater Mining Co. (a) 252,700 8,260,131
58,093,056
RETAIL & WHOLESALE - 7.0%
APPAREL STORES - 0.8%
AnnTaylor Stores Corp. (a) 97,500 4,387,500
Charming Shoppes, Inc. (a) 1,479,600 9,016,313
Claire's Stores, Inc. 115,500 2,959,688
Gap, Inc. 465,987 23,474,095
Talbots, Inc. 68,600 2,615,375
TJX Companies, Inc. 663,900 22,116,169
Venator Group, Inc. (a) 183,600 1,916,325
66,485,465
DRUG STORES - 2.0%
CVS Corp. 3,033,502 153,950,227
Walgreen Co. 355,300 10,436,938
164,387,165
GENERAL MERCHANDISE STORES -
0.5%
Costco Companies, Inc. (a) 268,100 21,464,756
Dayton Hudson Corp. 69,700 4,530,500
Dollar General Corp. 132,575 3,844,675
Kohls Corp. (a) 43,600 3,365,375
Tuesday Morning Corp. (a) 95,800 2,442,900
35,648,206
GROCERY STORES - 1.1%
Fleming Companies, Inc. 395,207 4,594,281
Kroger Co. (a) 38,500 1,075,594
Loblaw Companies Ltd. 48,100 1,228,232
Safeway, Inc. (a) 1,343,450 66,500,775
U.S. Foodservice (a) 309,400 13,188,175
86,587,057
SHARES VALUE (NOTE 1)
RETAIL & WHOLESALE,
MISCELLANEOUS - 2.6%
Action Performance Companies, 292,200 $ 9,642,600
Inc. (a)
Bed Bath & Beyond, Inc. (a) 543,300 20,917,050
Best Buy Co., Inc. (a) 15,500 1,046,250
Circuit City Stores, Inc. - 130,000 12,090,000
Circuit City Group
Home Depot, Inc. 1,243,060 80,099,679
InterTAN, Inc. (a) 127,000 2,603,500
Office Depot, Inc. (a) 2,196,700 48,464,694
PETsMART, Inc. (a) 388,200 3,979,050
Staples, Inc. (a) 459,350 14,211,141
Sunglass Hut International, 653,100 11,225,156
Inc. (a)
Tandy Corp. 157,400 7,692,925
211,972,045
TOTAL RETAIL & WHOLESALE 565,079,938
SERVICES - 2.8%
ADVERTISING - 2.0%
Interpublic Group of 454,900 39,405,713
Companies, Inc.
Lamar Advertising Co. Class A 570,300 23,346,656
(a)
Outdoor Systems, Inc. (a) 1,786,988 65,225,062
Saatchi & Saatchi PLC 660,700 2,236,394
WPP Group PLC 500,904 4,238,757
Young & Rubicam, Inc. 578,900 26,303,769
160,756,351
LEASING & RENTAL - 0.1%
Hanover Compressor Co. (a) 57,700 1,853,613
Hertz Corp. Class A 45,400 2,814,800
4,668,413
PRINTING - 0.0%
Reynolds & Reynolds Co. Class 185,100 4,315,144
A
SERVICES - 0.7%
ACNielsen Corp. (a) 402,700 12,181,675
Block (H&R), Inc. 473,900 23,695,000
Carlisle Holdings Ltd. (a) 205,500 2,979,750
Catalina Marketing Corp. (a) 80,200 7,378,400
CGI Group, Inc. Class A (sub. 14,900 315,786
vtg.) (a)
Dun & Bradstreet Corp. 20,600 730,013
NOVA Corp. 31,100 777,500
Professional Detailing, Inc. 9,500 223,250
(a)
Regis Corp. 25,700 493,119
Securitas AB Class B 160,100 2,407,875
Streamline.com, Inc. 28,100 226,556
Suez Lyonnaise des Eaux 4,600 832,256
Telespectrum Worldwide, Inc. 239,300 1,854,575
(a)
54,095,755
TOTAL SERVICES 223,835,663
TECHNOLOGY - 17.1%
COMMUNICATIONS EQUIPMENT - 3.6%
ADC Telecommunications, Inc. 335,200 15,272,550
(a)
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TECHNOLOGY - CONTINUED
COMMUNICATIONS EQUIPMENT -
CONTINUED
Ciena Corp. (a) 107,400 $ 3,242,138
Cisco Systems, Inc. (a) 2,034,600 131,104,538
Copper Mountain Networks, 7,800 602,550
Inc.
DSP Communications, Inc. (a) 159,400 4,602,675
InterVoice, Inc. (a) 196,500 2,836,969
Lucent Technologies, Inc. 768,100 51,798,744
Microwave Power Devices, Inc. 2,400 36,900
(a)
Nokia AB sponsored ADR 413,600 37,870,250
Northern Telecom Ltd. 208,240 17,938,224
PulsePoint Communications (a) 55,700 332,459
Tellabs, Inc. (a) 346,300 23,396,894
289,034,891
COMPUTER SERVICES & SOFTWARE
- - 8.0%
Acxiom Corp. (a) 272,000 6,783,000
Adobe Systems, Inc. 306,300 25,164,459
Affiliated Computer Services, 69,500 3,518,438
Inc. Class A (a)
America Online, Inc. 7,300 806,650
Ariba, Inc. 2,200 213,950
Ask Jeeves, Inc. 1,500 21,000
Automatic Data Processing, 1,350,800 59,435,200
Inc.
AVT Corp. (a) 15,800 598,425
Bell & Howell Co. (a) 130,600 4,938,313
Bisys Group, Inc. (The) (a) 60,100 3,515,850
Ceridian Corp. (a) 1,672,220 54,660,691
Check Point Software 15,500 831,188
Technologies Ltd. (a)
Citrix Systems, Inc. (a) 15,700 887,050
Clarent Corp. Delaware 5,300 79,500
Clarify, Inc. (a) 233,800 9,644,250
Computer Sciences Corp. (a) 74,700 5,168,306
Dendrite International, Inc. 18,000 650,250
(a)
DST Systems, Inc. (a) 12,400 779,650
Electronic Data Systems Corp. 679,400 38,428,563
Equant NV (Reg.) 134,700 12,678,638
Fiserv, Inc. (a) 71,150 2,227,884
Forsoft Ltd. (a)(c) 831,800 6,342,475
Galileo International, Inc. 206,100 11,013,469
IMS Health, Inc. 711,100 22,221,875
Informix Corp. (a) 1,132,100 9,658,228
International Business 146,200 18,896,350
Machines Corp.
Intuit, Inc. (a) 284,800 25,667,600
Micromuse, Inc. (a) 117,100 5,840,363
Microsoft Corp. (a) 1,236,200 111,489,788
National Computer Systems, 181,500 6,125,625
Inc.
National Instrument Corp. (a) 40,800 1,647,300
NCR Corp. (a) 581,400 28,379,588
Novell, Inc. (a) 708,300 18,769,950
Orckit Communications Ltd. (a) 26,200 648,450
Polycom, Inc. (a) 412,300 16,079,700
SHARES VALUE (NOTE 1)
Rational Software Corp. (a) 409,600 $ 13,491,200
Sabre Group Holdings, Inc. 44,600 3,066,250
Class A (a)
Software.com, Inc. 4,400 102,025
Sykes Enterprises, Inc. (a) 167,800 5,600,325
Synopsys, Inc. (a) 69,000 3,807,938
THINK New Ideas, Inc. (a)(c) 844,000 13,345,750
Unisys Corp. (a) 2,277,884 88,695,108
USWEB Corp. (a) 43,200 958,500
VeriSign, Inc. (a) 38,400 3,312,000
Veritas Software Corp. (a) 38,000 3,607,625
Verity, Inc. (a) 9,400 509,363
Visual Networks, Inc. (a) 80,000 2,560,000
652,868,100
COMPUTERS & OFFICE EQUIPMENT
- - 1.8%
Apple Computer, Inc. (a) 125,600 5,816,850
Comdisco, Inc. 28,800 738,000
Comverse Technology, Inc. (a) 106,500 8,040,750
Gateway, Inc. (a) 10,000 590,000
Hewlett-Packard Co. 564,350 56,717,175
Lexmark International Group, 50,200 3,316,338
Inc. Class A (a)
Network Appliance, Inc. (a) 3,100 173,213
Redback Networks, Inc. 61,600 7,734,650
Safeguard Scientifics, Inc. 63,300 3,924,600
(a)
Silicon Graphics, Inc. (a) 118,600 1,942,075
Sun Microsystems, Inc. (a) 138,300 9,525,413
Symbol Technologies, Inc. 648,200 23,902,375
Xerox Corp. 429,900 25,390,969
147,812,408
ELECTRONIC INSTRUMENTS - 0.9%
Applied Materials, Inc. (a) 44,100 3,257,888
Hach Co. 15,000 271,875
Teradyne, Inc. (a) 62,500 4,484,375
Thermo Electron Corp. (a) 1,093,600 21,940,350
Thermo Instrument Systems, 206,500 3,484,688
Inc. (a)
Trimble Navigation Ltd. (a) 39,100 503,413
Waters Corp. (a) 818,200 43,466,875
77,409,464
ELECTRONICS - 2.8%
Analog Devices, Inc. (a) 251,600 12,627,175
Celestica, Inc. (sub-vtg.) 124,600 5,426,280
Conexant Systems, Inc. 198,600 11,531,213
Galileo Technology Ltd. (a) 7,800 353,438
hi/fn, Inc. 2,900 220,763
Intel Corp. 497,500 29,601,250
Linear Technology Corp. 278,900 18,756,025
LSI Logic Corp. (a) 111,900 5,161,388
Microchip Technology, Inc. (a) 4,600 217,925
Motorola, Inc. 536,500 50,833,375
National Semiconductor Corp. 155,300 3,931,031
(a)
Sanmina Corp. (a) 15,900 1,206,413
STMicroelectronics NV 14,900 1,033,688
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TECHNOLOGY - CONTINUED
ELECTRONICS - CONTINUED
Texas Instruments, Inc. 218,600 $ 31,697,000
Vitesse Semiconductor Corp. 768,400 51,818,975
(a)
224,415,939
PHOTOGRAPHIC EQUIPMENT - 0.0%
Imation Corp. (a) 10,900 270,456
TOTAL TECHNOLOGY 1,391,811,258
TRANSPORTATION - 1.6%
AIR TRANSPORTATION - 0.7%
Mesa Air Group, Inc. (a) 22,500 169,102
Northwest Airlines Corp. 41,400 1,345,500
Class A (a)
Ryanair Holdings PLC 18,900 1,001,700
sponsored ADR (a)
Southwest Airlines Co. 1,079,325 33,593,991
Viad Corp. 751,412 23,246,809
59,357,102
RAILROADS - 0.3%
Bombardier, Inc. Class B 384,000 5,906,885
Burlington Northern Santa Fe 177,400 5,499,400
Corp.
Union Pacific Corp. 225,700 13,161,131
24,567,416
TRUCKING & FREIGHT - 0.6%
American Freightways Corp. (a) 246,500 4,822,156
C.H. Robinson Worldwide, Inc. 341,300 12,542,775
Eagle USA Airfreight, Inc. (a) 25,000 1,060,938
Expeditors International of 157,900 4,302,775
Washington, Inc.
Swift Transportation Co., 865,500 19,041,000
Inc. (a)
USFreightways Corp. 35,000 1,620,938
43,390,582
TOTAL TRANSPORTATION 127,315,100
UTILITIES - 11.8%
CELLULAR - 3.2%
Advanced Radio Telecom Corp. 15,200 218,500
(a)
ALLTEL Corp. 519,800 37,165,700
Associated Group, Inc. Class 127,200 8,283,900
A (a)
Mannesmann AG 274,644 41,394,169
Nextel Communications, Inc. 170,800 8,572,025
Class A (a)
Orange PLC ADR (a) 239,300 18,067,150
Sprint Corp. Series 1 (PCS 114,400 6,535,100
Group) (a)
Teligent, Inc. Class A (a) 41,400 2,476,238
Vodafone AirTouch PLC 698,200 137,545,400
sponsored ADR
VoiceStream Wireless Corp. 125,400 3,566,063
263,824,245
SHARES VALUE (NOTE 1)
ELECTRIC UTILITY - 0.1%
Calpine Corp. (a) 66,800 $ 3,607,200
Entergy Corp. 11,100 346,875
Illinova Corp. 189,900 5,174,775
PG&E Corp. 31,000 1,007,500
10,136,350
GAS - 0.2%
Dynegy, Inc. 100,200 2,041,575
Enron Corp. 122,700 10,030,725
12,072,300
TELEPHONE SERVICES - 8.2%
Ameritech Corp. 287,100 21,101,850
AT&T Corp. 2,981,982 166,431,870
BCE, Inc. 111,700 5,479,234
BellSouth Corp. 24,800 1,162,500
Cincinnati Bell, Inc. 212,100 5,289,244
Commonwealth Telephone 30,300 1,225,256
Enterprises, Inc. (a)
Covad Communications Group, 42,250 2,252,453
Inc.
Energis PLC (a) 319,919 7,634,723
Global TeleSystems Group, 14,686 1,189,566
Inc. (a)
MCI WorldCom, Inc. (a) 3,590,546 309,011,365
McLeodUSA, Inc. Class A (a) 123,900 6,814,500
NEXTLINK Communications, Inc. 99,700 7,415,188
Class A (a)
Nippon Telegraph & Telephone 2,470 28,729,224
Corp.
NorthPoint Communication 40,200 1,467,300
Holdings, Inc.
Qwest Communications 1,254,344 41,471,748
International, Inc. (a)
SBC Communications, Inc. 555,290 32,206,820
Telecom Italia Spa 2,149,300 22,607,845
WinStar Communications, Inc. 71,300 3,475,875
(a)
664,966,561
WATER - 0.1%
Azurix Corp. 320,200 6,404,000
TOTAL UTILITIES 957,403,456
TOTAL COMMON STOCKS 7,313,053,448
(Cost $5,526,891,314)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -
1.9%
MOODY'S RATINGS (UNAUDITED) PRINCIPAL AMOUNT
U.S. Treasury Bills, yield at - $ 6,400,000 6,370,615
date of purchase 4.24% to
4.78% 7/1/99 to 9/30/99 (d)
U.S. Treasury Bonds:
6.125% 11/15/27 Aaa 20,000,000 19,865,600
6.375% 8/15/27 Aaa 61,000,000 62,506,090
6.5% 11/15/26 Aaa 5,000,000 5,194,550
6.75% 8/15/26 Aaa 9,900,000 10,599,138
U.S. TREASURY OBLIGATIONS -
CONTINUED
MOODY'S RATINGS (UNAUDITED) PRINCIPAL AMOUNT VALUE (NOTE 1)
U.S. Treasury Bonds: -
continued
6.875% 8/15/25 Aaa $ 36,500,000 $ 39,568,190
7.625% 2/15/25 Aaa 9,500,000 11,205,535
TOTAL U.S. TREASURY OBLIGATIONS 155,309,718
(Cost $157,346,178)
CASH EQUIVALENTS - 8.0%
MATURITY AMOUNT
Investments in repurchase $ 6,567,274 6,567,000
agreements (U.S. Treasury
obligations), in a joint
trading account at 1.5%,
dated 6/30/99 due 7/1/99
SHARES
Taxable Central Cash Fund (b) 646,393,001 646,393,001
TOTAL CASH EQUIVALENTS 652,960,001
(Cost $652,960,001)
TOTAL INVESTMENT IN $ 8,121,323,167
SECURITIES - 100%
(Cost $6,337,197,493)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FUTURES CONTRACTS
EXPIRATION DATE UNDERLYING FACE AMOUNT UNREALIZED GAIN/(LOSS)
PURCHASED
153 S&P 500 Stock Index Sept. 1999 $ 52,850,025 $ 1,208,657
Contracts
</TABLE>
THE FACE VALUE OF FUTURES PURCHASED AS A PERCENTAGE OF INVESTMENT IN
SECURITIES - 0.7%
LEGEND
(a) Non-income producing
(b) At period end, the seven-day yield on the Taxable Central Cash
Fund was 4.84%. The yield refers to the income earned by investing in
the fund over the seven-day period, expressed as an annual percentage.
(c) Transactions during the period with companies which are or were
affiliates are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
AFFILIATE PURCHASE COST SALES COST DIVIDEND INCOME VALUE
Forsoft Ltd. $ - $ - $ - $ 6,342,475
PJ America, Inc. 2,949,430 - - 9,127,575
THINK New Ideas, Inc. 4,396,872 - - 13,345,750
TOTALS $ 7,346,302 $ - $ - $ 28,815,800
</TABLE>
(d) Security or a portion of the security was pledged to cover margin
requirements for futures contracts. At the period end, the value of
securities pledged amounted to $1,995,000.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $7,804,592,641 and $7,189,313,289, respectively, of which
long-term U.S. government and government agency obligations aggregated
$126,084,531 and $115,771,688, respectively.
The market value of futures contracts opened and closed during the
period amounted to $515,014,560 and $477,512,756, respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company.
The commissions paid to these affiliated firms were $765,888 for the
period.
INCOME TAX INFORMATION
At June 30, 1999, the aggregate cost of investment securities for
income tax purposes was $6,400,120,961. Net unrealized appreciation
aggregated $1,721,202,206, of which $1,836,833,466 related to
appreciated investment securities and $115,631,260 related to
depreciated investment securities.
VARIABLE INSURANCE PRODUCTS FUND II: CONTRAFUND PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 8,121,323,167
value (including repurchase
agreements of $6,567,000)
(cost $6,337,197,493) - See
accompanying schedule
Receivable for investments 141,208,509
sold
Receivable for fund shares 15,671,059
sold
Dividends receivable 3,752,296
Interest receivable 5,546,873
Receivable for daily 897,933
variation on futures
contracts
Other receivables 855,159
TOTAL ASSETS 8,289,254,996
LIABILITIES
Payable for investments $ 129,361,416
purchased
Payable for fund shares 2,180,115
redeemed
Accrued management fee 3,788,077
Distribution fees payable 24,820
Other payables and accrued 189,671
expenses
TOTAL LIABILITIES 135,544,099
NET ASSETS $ 8,153,710,897
Net Assets consist of:
Paid in capital $ 5,528,155,841
Undistributed net investment 12,245,979
income
Accumulated undistributed net 828,008,703
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation 1,785,300,374
(depreciation) on
investments and assets and
liabilities in foreign
currencies
NET ASSETS $ 8,153,710,897
INITIAL CLASS: NET ASSET $26.10
VALUE, offering price and
redemption price per share
($7,828,682,938 (divided by)
299,934,503 shares)
SERVICE CLASS: NET ASSET $26.07
VALUE, offering price and
redemption price per share
($325,027,959 (divided by)
12,469,052 shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30,
1999 (UNAUDITED)
INVESTMENT INCOME $ 20,154,055
Dividends
Interest 18,110,483
TOTAL INCOME 38,264,538
EXPENSES
Management fee $ 21,229,808
Transfer agent fees 2,469,358
Distribution fees - Service 112,767
Class
Accounting fees and expenses 475,016
Non-interested trustees' 11,179
compensation
Custodian fees and expenses 225,541
Registration fees 121,843
Audit 23,934
Miscellaneous 68,035
Total expenses before 24,737,481
reductions
Expense reductions (1,007,736) 23,729,745
NET INVESTMENT INCOME 14,534,793
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities 907,237,572
Foreign currency transactions (40,606)
Futures contracts 2,052,082 909,249,048
Change in net unrealized
appreciation (depreciation)
on:
Investment securities (147,801,136)
Assets and liabilities in (55,066)
foreign currencies
Futures contracts 1,152,514 (146,703,688)
NET GAIN (LOSS) 762,545,360
NET INCREASE (DECREASE) IN $ 777,080,153
NET ASSETS RESULTING FROM
OPERATIONS
OTHER INFORMATION $ 999,711
Expense reductions Directed
brokerage arrangements
Custodian credits 8,025
$ 1,007,736
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
ASSETS 1999 (UNAUDITED)
Operations Net investment $ 14,534,793 $ 31,078,671
income
Net realized gain (loss) 909,249,048 176,892,378
Change in net unrealized (146,703,688) 1,158,422,991
appreciation (depreciation)
NET INCREASE (DECREASE) IN 777,080,153 1,366,394,040
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (32,779,254) (29,014,734)
From net investment income
From net realized gain (240,381,202) (213,465,544)
TOTAL DISTRIBUTIONS (273,160,456) (242,480,278)
Share transactions - net 1,108,645,520 1,305,641,290
increase (decrease)
TOTAL INCREASE (DECREASE) 1,612,565,217 2,429,555,052
IN NET ASSETS
NET ASSETS
Beginning of period 6,541,145,680 4,111,590,628
End of period (including $ 8,153,710,897 $ 6,541,145,680
undistributed net investment
income of $12,245,979 and
$30,790,900, respectively)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OTHER INFORMATION:
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
1999 (UNAUDITED)
SHARES DOLLARS SHARES DOLLARS
Share transactions Initial 44,022,659 $ 1,101,136,037 78,130,341 $ 1,666,803,775
Class Sold
Reinvested 11,119,147 266,192,366 12,506,721 242,005,046
Redeemed (16,638,218) (413,860,244) (35,242,800) (730,882,335)
Net increase (decrease) 38,503,588 $ 953,468,159 55,394,262 $ 1,177,926,486
Service Class Sold 6,059,477 $ 151,409,760 6,109,863 $ 128,808,187
Reinvested 291,308 6,968,091 24,559 475,234
Redeemed (129,390) (3,200,490) (73,492) (1,568,617)
Net increase (decrease) 6,221,395 $ 155,177,361 6,060,930 $ 127,714,804
Distributions From net $ 31,943,083 $ 28,957,869
investment income Initial
Class
Service Class 836,171 56,865
Total $ 32,779,254 $ 29,014,734
From net realized gain $ 234,249,282 $ 213,047,177
Initial Class
Service Class 6,131,920 418,367
Total $ 240,381,202 $ 213,465,544
$ 273,160,456 $ 242,480,278
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 1996 1995 F
Net asset value, beginning of $ 24.44 $ 19.94 $ 16.56 $ 13.79 $ 10.00
period
Income from Investment
Operations
Net investment income .05 D .13 D .16 D .14 .06
Net realized and unrealized 2.61 5.54 3.73 2.76 3.91
gain (loss)
Total from investment 2.66 5.67 3.89 2.90 3.97
operations
Less Distributions
From net investment income (.12) (.14) (.14) - (.06)
From net realized gain (.88) (1.03) (.37) (.13) (.12)
Total distributions (1.00) (1.17) (.51) (.13) (.18)
Net asset value, end of period $ 26.10 $ 24.44 $ 19.94 $ 16.56 $ 13.79
TOTAL RETURN B, C 11.25% 29.98% 24.14% 21.22% 39.72%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 7,828,683 $ 6,388,592 $ 4,107,868 $ 2,394,103 $ 877,000
(000 omitted)
Ratio of expenses to average .69% A .70% .71% .74% .72%
net assets
Ratio of expenses to average .66% A, G .66% G .68% G .71% G .72%
net assets after expense
reductions
Ratio of net investment .41% A .62% .90% 1.33% 1.07%
income to average net assets
Portfolio turnover 218% A 201% 142% 178% 132%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - SERVICE CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 E
Net asset value, beginning of $ 24.42 $ 19.93 $ 19.99
period
Income from Investment
Operations
Net investment income D .04 .11 .03
Net realized and unrealized 2.61 5.55 (.09)
gain (loss)
Total from investment 2.65 5.66 (.06)
operations
Less Distributions
From net investment income (.12) (.14) -
From net realized gain (.88) (1.03) -
Total distributions (1.00) (1.17) -
Net asset value, end of period $ 26.07 $ 24.42 $ 19.93
TOTAL RETURN B, C 11.22% 29.94% (0.30)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 325,028 $ 152,553 $ 3,722
(000 omitted)
Ratio of expenses to average .79% A .80% .81% A
net assets
Ratio of expenses to average .76% A, G .75% G .78% A, G
net assets after expense
reductions
Ratio of net investment .31% A .53% 1.14% A
income to average net assets
Portfolio turnover 218% A 201% 142%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE
TO YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. INCLUSION
OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN. TOTAL RETURNS FOR PERIODS OF LESS THAN ONE
YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED
BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF SALE
OF SERVICE CLASS SHARES) TO DECEMBER 31, 1997.
F FOR THE PERIOD JANUARY 3, 1995 (COMMENCEMENT OF
OPERATIONS OF INITIAL CLASS SHARES) TO DECEMBER 31, 1995.
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS
WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A
PORTION OF THE CLASS' EXPENSES.
VARIABLE INSURANCE PRODUCTS FUND: GROWTH PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
VIP: GROWTH - "INITIAL CLASS" 33.98% 27.63% 19.21%
Russell 3000 Growth 25.58% 28.27% 19.05%
S&P 500 22.76% 27.87% 18.78%
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's returns to the performance of the Russell
3000 Growth Index - a market capitalization-weighted index of
growth-oriented stocks of U.S. domiciled corporations and the
performance of the Standard & Poor's 500 Index - a market
capitalization-weighted index of common stocks. These benchmarks
reflect the reinvestment of 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.
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, THE TOTAL RETURNS 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.
(checkmark)UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for
example, has a history of long-term growth and
short-term volatility. In turn, the share price and
return of a fund that invests in stocks will vary.
That means if you sell your shares during a
market downturn, you might lose money. But if
you can ride out the market's ups and downs,
you may have a gain.
$10,000 OVER 10 YEARS
VIP GROWTH RUSSELL 3000 GROWTH
00151 RS007
1989/06/30 10000.00 10000.00
1989/07/31 10893.52 10969.08
1989/08/31 11079.67 11160.18
1989/09/30 11176.47 11216.75
1989/10/31 10863.74 10987.80
1989/11/30 11042.44 11261.19
1989/12/31 11303.05 11465.66
1990/01/31 10647.80 10525.79
1990/02/28 10749.51 10622.47
1990/03/31 10880.89 11049.92
1990/04/30 10564.04 10892.77
1990/05/31 11499.12 12013.66
1990/06/30 11738.68 12139.35
1990/07/31 11553.21 12002.96
1990/08/31 10363.12 10819.33
1990/09/30 9296.67 10212.49
1990/10/31 8964.37 10221.55
1990/11/30 9690.79 10922.39
1990/12/31 9976.72 11315.29
1991/01/31 10641.32 11919.03
1991/02/28 11435.21 12887.70
1991/03/31 11780.31 13417.40
1991/04/30 11670.50 13349.10
1991/05/31 12360.69 13947.09
1991/06/30 11443.05 13269.08
1991/07/31 12533.24 13974.86
1991/08/31 13090.10 14449.43
1991/09/30 13192.06 14223.97
1991/10/31 13599.90 14467.32
1991/11/30 12823.43 14075.86
1991/12/31 14517.54 16028.63
1992/01/31 15403.81 15732.62
1992/02/29 15726.05 15765.54
1992/03/31 14762.25 15305.37
1992/04/30 14183.97 15355.36
1992/05/31 14063.49 15459.86
1992/06/30 13517.34 15037.13
1992/07/31 14039.39 15698.06
1992/08/31 13653.87 15480.02
1992/09/30 13894.82 15675.23
1992/10/31 14432.95 15936.07
1992/11/30 15396.75 16680.11
1992/12/31 15870.62 16865.65
1993/01/31 16183.86 16699.85
1993/02/28 15850.23 16390.47
1993/03/31 16482.27 16713.43
1993/04/30 16309.89 16054.35
1993/05/31 17524.72 16644.52
1993/06/30 17705.30 16505.67
1993/07/31 17656.05 16247.92
1993/08/31 18542.55 16923.25
1993/09/30 18887.30 16854.75
1993/10/31 19067.88 17325.20
1993/11/30 18296.30 17158.58
1993/12/31 18944.75 17488.53
1994/01/31 19420.84 17898.09
1994/02/28 19220.53 17594.26
1994/03/31 18347.27 16722.89
1994/04/30 18460.79 16797.56
1994/05/31 18032.89 16994.84
1994/06/30 17115.96 16473.37
1994/07/31 17709.78 17004.50
1994/08/31 18714.04 17981.40
1994/09/30 18486.99 17767.26
1994/10/31 19237.99 18163.45
1994/11/30 18469.52 17567.52
1994/12/31 18941.08 17873.82
1995/01/31 18583.05 18180.12
1995/02/28 19352.62 18949.66
1995/03/31 20055.08 19504.04
1995/04/30 20731.19 19917.51
1995/05/31 21539.01 20570.63
1995/06/30 23444.42 21424.10
1995/07/31 25762.52 22393.19
1995/08/31 26078.63 22444.00
1995/09/30 26754.74 23418.02
1995/10/31 26482.54 23313.11
1995/11/30 26464.98 24231.38
1995/12/31 25639.59 24409.93
1996/01/31 26043.50 25123.53
1996/02/29 26916.68 25649.93
1996/03/31 27020.57 25729.74
1996/04/30 28078.35 26538.37
1996/05/31 28956.68 27511.78
1996/06/30 28390.01 27351.94
1996/07/31 26217.79 25569.50
1996/08/31 27001.68 26350.15
1996/09/30 28815.01 28211.38
1996/10/31 28748.90 28241.83
1996/11/30 30345.01 30232.65
1996/12/31 29410.01 29751.51
1997/01/31 31100.57 31707.36
1997/02/28 30393.57 31333.59
1997/03/31 28690.36 29592.06
1997/04/30 30070.55 31355.67
1997/05/31 32155.52 33817.18
1997/06/30 33476.98 35152.57
1997/07/31 35992.65 38136.45
1997/08/31 34602.67 36218.19
1997/09/30 36609.33 38114.04
1997/10/31 35229.14 36612.47
1997/11/30 36237.36 37917.03
1997/12/31 36315.67 38302.18
1998/01/31 36805.10 39287.65
1998/02/28 39570.06 42289.89
1998/03/31 40958.69 43983.91
1998/04/30 41760.25 44560.74
1998/05/31 40687.74 43112.60
1998/06/30 43261.77 45555.76
1998/07/31 44142.35 44943.59
1998/08/31 36939.59 37900.84
1998/09/30 40755.47 40882.85
1998/10/31 43634.32 44078.18
1998/11/30 46671.23 47435.92
1998/12/31 50656.46 51714.16
1999/01/31 54754.58 54698.02
1999/02/28 52066.37 52014.99
1999/03/31 54968.80 54691.85
1999/04/30 55158.92 55090.59
1999/05/31 54411.13 53529.47
1999/06/30 57959.96 57208.39
IMATRL PRASUN SHR__CHT 19990630 19990723 110750 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund: Growth Portfolio on June
30, 1989. As the chart shows, by June 30, 1999, the value of the
investment would have grown to $57,960 - a 479.60% increase on the
initial investment. For comparison, look at how the Russell 3000
Growth Index did over the same period. With dividends and capital
gains, if any, reinvested, the same $10,000 investment would have
grown to $57,208 - a 472.08% increase. Beginning with this report, the
fund will compare its performance to that of the Russell 3000 Growth
Index, rather than the Standard & Poor's 500 Index. The Russell 3000
Growth Index more closely reflects the fund's investment strategy.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE
30, 1999
% OF FUND'S INVESTMENTS
Philip Morris Companies, Inc. 2.7
Warner-Lambert Co. 2.6
Cisco Systems, Inc. 2.6
Microsoft Corp. 2.5
Lilly (Eli) & Co. 2.3
TOP FIVE MARKET SECTORS AS OF
JUNE 30, 1999
% OF FUND'S INVESTMENTS
TECHNOLOGY 27.1
HEALTH 17.1
FINANCE 10.8
MEDIA & LEISURE 10.6
RETAIL & WHOLESALE 9.5
ASSET ALLOCATION AS OF JUNE
30, 1999*
% OF FUND'S INVESTMENTS
Stocks 98.5%
Short-term Investments 1.5%
* FOREIGN INVESTMENTS 8.2%
Row: 1, Col: 1, Value: 98.5
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 0.0
Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 1.5
VARIABLE INSURANCE PRODUCTS FUND: GROWTH PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). The initial offering of Service Class shares
took place on November 3, 1997. Performance for Service Class shares
reflects an asset based distribution fee (12b-1 fee), and returns
prior to November 3, 1997 are those of Initial Class and do not
include the effects of Service Class' 12b-1 fee. Had Service Class
shares' 12b-1 fee been reflected, returns prior to November 3, 1997
would have been lower.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
VIP: GROWTH - SERVICE CLASS 33.83% 27.59% 19.19%
Russell 3000(registered 25.58% 28.27% 19.05%
trademark) Growth
S&P 500 22.76% 27.87% 18.78%
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's returns to the performance of the Russell
3000 Growth Index - a market capitalization-weighted index of U.S.
domiciled growth-oriented stocks. You can also compare the fund's
returns to the Standard & Poor's 500 Index - a market
capitalization-weighted index of common stocks. These benchmarks
reflect the reinvestment of 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.
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, THE TOTAL RETURNS 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.
(checkmark)UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for
example, has a history of long-term growth and
short-term volatility. In turn, the share price and
return of a fund that invests in stocks will vary.
That means if you sell your shares during a
market downturn, you might lose money. But if
you can ride out the market's ups and downs,
you may have a gain.
$10,000 OVER 10 YEARS
VIP GROWTH - SC RUSSELL 3000 GROWTH
00472 RS007
1989/06/30 10000.00 10000.00
1989/07/31 10893.52 10969.08
1989/08/31 11079.67 11160.18
1989/09/30 11176.47 11216.75
1989/10/31 10863.74 10987.80
1989/11/30 11042.44 11261.19
1989/12/31 11303.05 11465.66
1990/01/31 10647.80 10525.79
1990/02/28 10749.51 10622.47
1990/03/31 10880.89 11049.92
1990/04/30 10564.04 10892.77
1990/05/31 11499.12 12013.66
1990/06/30 11738.68 12139.35
1990/07/31 11553.21 12002.96
1990/08/31 10363.12 10819.33
1990/09/30 9296.67 10212.49
1990/10/31 8964.37 10221.55
1990/11/30 9690.79 10922.39
1990/12/31 9976.72 11315.29
1991/01/31 10641.32 11919.03
1991/02/28 11435.21 12887.70
1991/03/31 11780.31 13417.40
1991/04/30 11670.50 13349.10
1991/05/31 12360.69 13947.09
1991/06/30 11443.05 13269.08
1991/07/31 12533.24 13974.86
1991/08/31 13090.10 14449.43
1991/09/30 13192.06 14223.97
1991/10/31 13599.90 14467.32
1991/11/30 12823.43 14075.86
1991/12/31 14517.54 16028.63
1992/01/31 15403.81 15732.62
1992/02/29 15726.05 15765.54
1992/03/31 14762.25 15305.37
1992/04/30 14183.97 15355.36
1992/05/31 14063.49 15459.86
1992/06/30 13517.34 15037.13
1992/07/31 14039.39 15698.06
1992/08/31 13653.87 15480.02
1992/09/30 13894.82 15675.23
1992/10/31 14432.95 15936.07
1992/11/30 15396.75 16680.11
1992/12/31 15870.62 16865.65
1993/01/31 16183.86 16699.85
1993/02/28 15850.23 16390.47
1993/03/31 16482.27 16713.43
1993/04/30 16309.89 16054.35
1993/05/31 17524.72 16644.52
1993/06/30 17705.30 16505.67
1993/07/31 17656.05 16247.92
1993/08/31 18542.55 16923.25
1993/09/30 18887.30 16854.75
1993/10/31 19067.88 17325.20
1993/11/30 18296.30 17158.58
1993/12/31 18944.75 17488.53
1994/01/31 19420.84 17898.09
1994/02/28 19220.53 17594.26
1994/03/31 18347.27 16722.89
1994/04/30 18460.79 16797.56
1994/05/31 18032.89 16994.84
1994/06/30 17115.96 16473.37
1994/07/31 17709.78 17004.50
1994/08/31 18714.04 17981.40
1994/09/30 18486.99 17767.26
1994/10/31 19237.99 18163.45
1994/11/30 18469.52 17567.52
1994/12/31 18941.08 17873.82
1995/01/31 18583.05 18180.12
1995/02/28 19352.62 18949.66
1995/03/31 20055.08 19504.04
1995/04/30 20731.19 19917.51
1995/05/31 21539.01 20570.63
1995/06/30 23444.42 21424.10
1995/07/31 25762.52 22393.19
1995/08/31 26078.63 22444.00
1995/09/30 26754.74 23418.02
1995/10/31 26482.54 23313.11
1995/11/30 26464.98 24231.38
1995/12/31 25639.59 24409.93
1996/01/31 26043.50 25123.53
1996/02/29 26916.68 25649.93
1996/03/31 27020.57 25729.74
1996/04/30 28078.35 26538.37
1996/05/31 28956.68 27511.78
1996/06/30 28390.01 27351.94
1996/07/31 26217.79 25569.50
1996/08/31 27001.68 26350.15
1996/09/30 28815.01 28211.38
1996/10/31 28748.90 28241.83
1996/11/30 30345.01 30232.65
1996/12/31 29410.01 29751.51
1997/01/31 31100.57 31707.36
1997/02/28 30393.57 31333.59
1997/03/31 28690.36 29592.06
1997/04/30 30070.55 31355.67
1997/05/31 32155.52 33817.18
1997/06/30 33476.98 35152.57
1997/07/31 35992.65 38136.45
1997/08/31 34602.67 36218.19
1997/09/30 36609.33 38114.04
1997/10/31 35229.14 36612.47
1997/11/30 36227.57 37917.03
1997/12/31 36305.88 38302.18
1998/01/31 36795.31 39287.65
1998/02/28 39560.34 42289.89
1998/03/31 40949.01 43983.91
1998/04/30 41750.61 44560.74
1998/05/31 40666.76 43112.60
1998/06/30 43240.89 45555.76
1998/07/31 44110.23 44943.59
1998/08/31 36907.18 37900.84
1998/09/30 40723.21 40882.85
1998/10/31 43590.89 44078.18
1998/11/30 46627.91 47435.92
1998/12/31 50602.01 51714.16
1999/01/31 54700.30 54698.02
1999/02/28 52000.57 52014.99
1999/03/31 54890.90 54691.85
1999/04/30 55081.05 55090.59
1999/05/31 54333.11 53529.47
1999/06/30 57869.96 57208.39
IMATRL PRASUN SHR__CHT 19990630
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund: Growth Portfolio -
Service Class on June 30, 1989. As the chart shows, by June 30, 1999,
the value of the investment would have grown to $57,870 - a 478.70%
increase on the initial investment. For comparison, look at how the
Russell 3000 Growth Index did over the same period. With dividends and
capital gains, if any, reinvested, the same $10,000 investment would
have grown to $57,208 - a 472.08% increase. Beginning with this
report, the fund will compare its performance to that of the Russell
3000 Growth Index, rather than the Standard & Poor's 500 Index. The
Russell 3000 Growth Index more closely reflects the fund's investment
strategy.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE
30, 1999
% OF FUND'S INVESTMENTS
Philip Morris Companies, Inc. 2.7
Warner-Lambert Co. 2.6
Cisco Systems, Inc. 2.6
Microsoft Corp. 2.5
Lilly (Eli) & Co. 2.3
TOP FIVE MARKET SECTORS AS OF
JUNE 30, 1999
% OF FUND'S INVESTMENTS
TECHNOLOGY 27.1
HEALTH 17.1
FINANCE 10.8
MEDIA & LEISURE 10.6
RETAIL & WHOLESALE 9.5
ASSET ALLOCATION AS OF JUNE
30, 1999*
% OF FUND'S INVESTMENTS
Stocks 98.5%
Short-term Investments 1.5%
* FOREIGN INVESTMENTS 8.2%
Row: 1, Col: 1, Value: 98.5
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 0.0
Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 1.5
VARIABLE INSURANCE PRODUCTS FUND: GROWTH PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
(photograph of Jennifer Uhrig)
An interview with
Jennifer Uhrig,
Portfolio Manager
of Growth Portfolio
Q. HOW DID THE FUND PERFORM, JENNIFER?
A. The fund performed well over the most recent six-month period that
ended June 30, 1999, and provided higher returns than both the Russell
3000 Growth Index and the Standard & Poor's 500 Index, which returned
10.62% and 12.38%, respectively. For the most recent 12-month period
that ended June 30, 1999, the fund easily outpaced both the Russell
and S&P indexes, which returned 25.58% and 22.76%, respectively,
during that time.
Q. EARLIER IN THE PERIOD, THE FUND CHANGED ITS BENCHMARK INDEX TO THE
RUSSELL 3000 GROWTH INDEX. WHY?
A. Given the fund's focus on stocks with "growth" characteristics, the
Russell 3000 Growth Index conforms more closely with the fund's
investment strategy than the S&P 500 index, which is not
style-specific and thus measures the performance of both value and
growth stocks. We believe that the new index more accurately reflects
how the fund is performing relative to its universe of stocks. By
making the change, we present shareholders with a better yardstick
against which they can evaluate the fund's performance.
Q. OVERALL, WHAT FACTORS CONTRIBUTED TO THE FUND'S SOUND PERFORMANCE
RELATIVE TO ITS BENCHMARK?
A. Much of the fund's success can be attributed to strong stock
picking within the media/leisure and technology sectors. Cable stocks
and certain large-cap tech stocks, such as Microsoft, were strong
contributors. Also fueling performance was the fund's overweighting in
oil-sensitive energy stocks, especially relative to the growth
universe, during the recovery in oil prices. An underweighting in
nondurables also helped as many of these companies confronted
disappointing earnings overseas.
Q. WHAT WERE YOUR PRINCIPAL STRATEGIES DURING THE SIX-MONTH PERIOD?
HOW DID YOU POSITION THE FUND IN LIGHT OF THE DRAMATIC RISE IN
CYCLICAL STOCKS DURING THE SECOND QUARTER?
A. Most notably, I decreased the fund's weighting in technology,
specifically among the larger-caps, as I became increasingly concerned
about their high valuation levels. In health care, I added to the
fund's positions in the fastest-growing drug stocks, such as Eli Lilly
and Warner-Lambert, as they sold off. I also increased the fund's
weighting in financial stocks, which had underperformed in 1998.
Lastly, I managed to expose the portfolio to the Internet by buying
more AT&T, and its newly acquired broadband capabilities, without
having to pay the stratospheric prices characteristic of many stocks
in this industry. Since this is a growth fund, I'm not going to have
huge cyclical exposure. I did, however, add some cyclical, or
economically sensitive, stocks along the way.
Q. WHICH STOCKS PERFORMED WELL FOR THE FUND?
A. Microsoft was up strongly over the past six months, driven by a
robust product cycle including the much-anticipated releases of both
Office 2000 and Windows 2000. Also helping performance was MCI
WorldCom, an industry leader in data, Internet and international
communications services, which enjoyed strong revenue growth and the
cost benefits associated with acquisitions. Cisco Systems' shares also
soared as the firm continued to reap the benefits of its dominant
market share in providing data network equipment required to meet the
growing demands of the Internet and various telecommunications
networks.
Q. WHICH STOCKS DETRACTED FROM PERFORMANCE?
A. Philip Morris, in spite of its attractive valuation and impressive
fundamentals, suffered from the potential for further litigation. Drug
stocks in general - including Warner-Lambert and Eli Lilly - underwent
severe corrections as the market rotated away from these expensive
stocks in favor of attractively valued cyclical stocks during the
period.
Q. WHAT'S YOUR OUTLOOK?
A. I'll continue to pursue growth prospects that tend to thrive
irrespective of the economy's ebbs and flows. I may, however, consider
limited exposure to cyclicals if it appears the worldwide economy is
accelerating. Under these circumstances, certain traditional cyclicals
may show better growth than the average growth stock. However, I feel
that a lot of the valuation discrepancy between growth and value has
already been corrected, and I remain confident in the availability of
attractive opportunities in the growth universe. The biggest risk to
growth stocks today is higher interest rates, which pose a threat to
high price-to-earnings ratios. If the economy can stay healthy without
generating appreciable inflation and, hence, higher rates, growth
stocks should continue to perform well.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET OR OTHER CONDITIONS. FOR MORE INFORMATION, SEE PAGE 3.
(checkmark)FUND FACTS
GOAL: to increase the value of the fund's
shares over the long term by investing in
companies with above-average growth potential
START DATE: October 9, 1986
SIZE: as of June 30, 1999, more than $14.2 billion
MANAGER: Jennifer Uhrig, since 1997; joined
Fidelity in 1987
VARIABLE INSURANCE PRODUCTS FUND: GROWTH PORTFOLIO
INVESTMENTS JUNE 30, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMMON STOCKS - 98.5%
SHARES VALUE (NOTE 1)
BASIC INDUSTRIES - 3.2%
CHEMICALS & PLASTICS - 1.8%
Cytec Industries, Inc. (a) 1,240,100 $ 39,528,188
Dow Chemical Co. 210,200 26,669,125
Eastman Chemical Co. 904,800 46,823,400
Great Lakes Chemical Corp. 1,258,500 57,969,656
NOVA Chemicals Corp. 1,958,500 46,194,196
Solutia, Inc. 970,300 20,679,519
Union Carbide Corp. 599,900 29,245,125
267,109,209
METALS & MINING - 1.0%
Alcoa, Inc. 956,200 59,164,875
Commscope, Inc. (a) 1,072,200 32,970,150
Falconbridge Ltd. 578,200 8,241,929
Inco Ltd. 2,201,400 39,582,156
139,959,110
PACKAGING & CONTAINERS - 0.4%
Bemis Co., Inc. 193,500 7,691,625
Owens-Illinois, Inc. (a) 1,449,900 47,393,606
55,085,231
TOTAL BASIC INDUSTRIES 462,153,550
CONSTRUCTION & REAL ESTATE -
0.2%
BUILDING MATERIALS - 0.1%
Owens-Corning 350,700 12,055,313
ENGINEERING - 0.1%
Stolt Comex Seaway SA 974,000 10,592,250
Stolt Comex Seaway SA 199,250 2,141,938
sponsored ADR Class A
12,734,188
TOTAL CONSTRUCTION & REAL 24,789,501
ESTATE
DURABLES - 0.6%
AUTOS, TIRES, & ACCESSORIES -
0.2%
Eaton Corp. 217,100 19,973,200
CONSUMER ELECTRONICS - 0.4%
Matsushita Electric 643,000 12,751,495
Industrial Co. Ltd.
Sony Corp. 441,400 48,719,528
61,471,023
TOTAL DURABLES 81,444,223
ENERGY - 5.0%
ENERGY SERVICES - 1.9%
Baker Hughes, Inc. 1,271,970 42,610,995
BJ Services Co. (a) 730,100 21,492,319
Coflexip SA sponsored ADR (c) 928,500 40,389,750
Halliburton Co. 1,504,900 68,096,725
SHARES VALUE (NOTE 1)
Schlumberger Ltd. 892,300 $ 56,828,356
Smith International, Inc. (a) 806,750 35,043,203
264,461,348
OIL & GAS - 3.1%
Apache Corp. 818,700 31,929,300
Exxon Corp. 1,790,000 138,053,750
Newfield Exploration Co. (a) 1,617,400 45,994,813
Noble Affiliates, Inc. 1,544,900 43,546,869
Tosco Corp. 2,517,000 65,284,688
USX-Marathon Group 1,765,200 57,479,325
Vastar Resources, Inc. 255,400 13,392,538
Weatherford International, 1,223,740 44,819,478
Inc. (a)
440,500,761
TOTAL ENERGY 704,962,109
FINANCE - 10.8%
BANKS - 1.3%
Bank of Ireland, Inc. (Great 1,849,111 31,221,649
Britain)
Chase Manhattan Corp. 839,800 72,747,675
State Street Corp. 530,050 45,253,019
U.S. Bancorp 1,129,000 38,386,000
187,608,343
CREDIT & OTHER FINANCE - 2.3%
American Express Co. 992,200 129,110,025
Associates First Capital 1,231,400 54,566,413
Corp. Class A
Citigroup, Inc. 1,349,550 64,103,625
Household International, Inc. 1,365,738 64,701,838
Providian Financial Corp. 206,200 19,279,700
331,761,601
FEDERAL SPONSORED CREDIT - 2.6%
Fannie Mae 4,060,700 277,650,363
Freddie Mac 1,754,900 101,784,200
379,434,563
INSURANCE - 3.7%
Aetna, Inc. 591,000 52,857,563
Allmerica Financial Corp. 657,910 40,009,152
Ambac Financial Group, Inc. 560,500 32,018,563
American International Group, 1,644,665 192,528,597
Inc.
CIGNA Corp. 1,136,500 101,148,500
Mutual Risk Management Ltd. 123,100 4,108,463
Progressive Corp. 330,700 47,951,500
UNUM Corp. 656,800 35,959,800
Xl Capital Ltd. 287,700 16,255,050
522,837,188
SECURITIES INDUSTRY - 0.9%
Daiwa Securities Co. Ltd. 4,292,000 28,324,192
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - CONTINUED
SECURITIES INDUSTRY - CONTINUED
Nikko Securities Co. Ltd. 5,933,000 $ 38,223,743
Nomura Securities Co. Ltd. 4,901,000 57,287,832
123,835,767
TOTAL FINANCE 1,545,477,462
HEALTH - 17.1%
DRUGS & PHARMACEUTICALS - 13.5%
Alpharma, Inc. Class A 305,100 10,850,119
American Home Products Corp. 879,600 50,577,000
Amgen, Inc. (a) 961,600 58,537,400
Biogen, Inc. (a) 544,800 35,037,450
Bristol-Myers Squibb Co. 3,851,900 271,318,206
Chiron Corp. (a) 1,648,170 34,199,528
Elan Corp. PLC sponsored ADR 3,150,800 87,434,700
(a)
Genzyme Corp. 203,732 897,694
Genzyme Corp. (General 1,231,400 59,722,900
Division)
Lilly (Eli) & Co. 4,451,300 318,824,363
Medimmune, Inc. (a) 248,000 16,802,000
Merck & Co., Inc. 3,989,500 295,223,000
PE Corp.:
(Biosystems Group) 410,400 47,093,400
(Celera Genomics Group) 205,200 3,321,675
Pfizer, Inc. 797,200 87,492,700
Quintiles Transnational Corp. 1,083,500 45,507,000
(a)
Schering-Plough Corp. 1,832,070 97,099,710
Sepracor, Inc. (a) 60,300 4,899,375
Takeda Chemical Industries 346,000 16,012,045
Ltd.
Warner-Lambert Co. 5,397,300 374,437,688
1,915,287,953
MEDICAL EQUIPMENT & SUPPLIES
- - 2.4%
Boston Scientific Corp. (a) 1,647,000 72,365,063
Guidant Corp. 337,500 17,360,156
Johnson & Johnson 2,623,000 257,054,000
346,779,219
MEDICAL FACILITIES MANAGEMENT
- - 1.2%
Columbia/HCA Healthcare Corp. 1,988,900 45,371,781
Health Management Associates, 2,503,450 28,163,813
Inc. Class A (a)
HEALTHSOUTH Corp. (a) 2,418,400 36,124,850
Tenet Healthcare Corp. (a) 560,700 10,407,994
United HealthCare Corp. 792,000 49,599,000
169,667,438
TOTAL HEALTH 2,431,734,610
SHARES VALUE (NOTE 1)
INDUSTRIAL MACHINERY &
EQUIPMENT - 1.9%
ELECTRICAL EQUIPMENT - 1.1%
General Electric Co. 1,142,200 $ 129,068,600
Mitsubishi Electric Corp. 7,879,000 30,222,604
159,291,204
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.8%
ASM Lithography Holding N V 911,300 54,108,438
(a)
Case Corp. 931,400 44,823,625
Deere & Co. 120,200 4,762,925
Ingersoll-Rand Co. 60,100 3,883,963
107,578,951
TOTAL INDUSTRIAL MACHINERY & 266,870,155
EQUIPMENT
MEDIA & LEISURE - 10.6%
BROADCASTING - 5.6%
AT&T Corp. (Liberty Media 1,192,840 43,836,870
Group) Class A (a)
Cablevision Systems Corp. 779,600 54,572,000
Class A (a)
CBS Corp. (a) 2,148,600 93,329,813
Clear Channel Communications, 632,800 43,623,650
Inc. (a)
Comcast Corp. Class A 3,582,400 137,698,500
(special)
Cox Communications, Inc. 2,353,400 86,634,538
Class A (a)
MediaOne Group, Inc. 2,471,700 183,832,688
NTL, Inc. (a) 529,000 45,593,188
Time Warner, Inc. 1,312,779 96,489,257
United International 42,300 2,860,538
Holdings, Inc. Class A (a)
USA Networks, Inc. (a) 106,100 4,257,263
792,728,305
ENTERTAINMENT - 0.9%
Disney (Walt) Co. 3,059,120 94,259,135
King World Productions, Inc. 466,700 16,246,994
(a)
Royal Carribean Cruises Ltd. 601,000 26,293,750
136,799,879
LEISURE DURABLES & TOYS - 0.2%
Harley-Davidson, Inc. 644,100 35,022,938
PUBLISHING - 0.3%
Reader's Digest Association, 1,042,000 41,419,500
Inc. Class A (non-vtg.)
RESTAURANTS - 3.6%
Brinker International, Inc. 1,793,400 48,758,063
(a)
Darden Restaurants, Inc. 2,242,800 48,921,075
McDonald's Corp. 4,997,700 206,467,481
Outback Steakhouse, Inc. (a) 1,919,150 75,446,584
Papa John's International, 309,800 13,844,188
Inc. (a)
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
MEDIA & LEISURE - CONTINUED
RESTAURANTS - CONTINUED
Tricon Global Restaurants, 1,631,060 $ 88,281,123
Inc. (a)
Wendy's International, Inc. 977,000 27,661,313
509,379,827
TOTAL MEDIA & LEISURE 1,515,350,449
NONDURABLES - 4.7%
FOODS - 0.5%
American Italian Pasta Co. 642,000 19,500,750
Class A (a)
Keebler Foods Co. (a) 606,200 18,413,325
Nabisco Holdings Corp. Class A 902,000 39,011,500
76,925,575
HOUSEHOLD PRODUCTS - 1.5%
Avon Products, Inc. 1,426,300 79,159,650
Gillette Co. 1,292,400 52,988,400
Procter & Gamble Co. 921,100 82,208,175
214,356,225
TOBACCO - 2.7%
Philip Morris Companies, Inc. 9,450,700 379,799,982
TOTAL NONDURABLES 671,081,782
PRECIOUS METALS - 0.6%
Barrick Gold Corp. 1,434,000 27,842,757
Homestake Mining Co. 2,249,300 18,416,144
Newmont Mining Corp. 1,472,000 29,256,000
Placer Dome, Inc. 1,426,100 16,672,120
92,187,021
RETAIL & WHOLESALE - 9.5%
APPAREL STORES - 1.0%
Abercrombie & Fitch Co. Class 1,248,780 59,941,440
A (a)
TJX Companies, Inc. 1,998,800 66,585,025
World Co. Ltd. 159,400 11,571,211
138,097,676
DRUG STORES - 1.1%
CVS Corp. 2,010,410 102,028,308
Walgreen Co. 2,040,060 59,926,763
161,955,071
GENERAL MERCHANDISE STORES -
4.4%
Consolidated Stores Corp. (a) 276,600 7,468,200
Costco Companies, Inc. (a) 668,700 53,537,794
Dayton Hudson Corp. 1,829,250 118,901,250
Federated Department Stores, 1,935,900 102,481,706
Inc. (a)
Ito-Yokado Co. Ltd. 337,000 22,517,634
Nordstrom, Inc. 3,265,500 109,394,250
Ryohin Keikaku Co. Ltd. 181,000 45,464,634
SHARES VALUE (NOTE 1)
Saks, Inc. (a) 1,275,389 $ 36,826,857
Wal-Mart Stores, Inc. 2,781,700 134,217,025
630,809,350
GROCERY STORES - 0.6%
Safeway, Inc. (a) 1,588,200 78,615,900
RETAIL & WHOLESALE,
MISCELLANEOUS - 2.4%
Circuit City Stores, Inc. - 793,400 73,786,200
Circuit City Group
Home Depot, Inc. 1,658,500 106,869,594
Lowe's Companies, Inc. 1,562,100 88,551,544
Office Depot, Inc. (a) 1,894,200 41,790,788
Staples, Inc. (a) 885,550 27,396,703
338,394,829
TOTAL RETAIL & WHOLESALE 1,347,872,826
TECHNOLOGY - 27.1%
COMMUNICATIONS EQUIPMENT - 5.8%
ADC Telecommunications, Inc. 1,479,000 67,386,938
(a)
Cisco Systems, Inc. (a) 5,670,850 365,415,397
Copper Mountain Networks, 3,300 254,925
Inc.
Lucent Technologies, Inc. 2,989,610 201,611,824
Newbridge Networks Corp. (a) 1,226,100 35,206,262
Nokia AB sponsored ADR 1,129,000 103,374,063
Tellabs, Inc. (a) 816,700 55,178,294
828,427,703
COMPUTER SERVICES & SOFTWARE
- - 10.1%
Adobe Systems, Inc. 264,100 21,697,466
Amdocs Ltd. 700,600 15,938,650
Ask Jeeves, Inc. 2,600 36,400
At Home Corp. Series A (a) 1,306,138 70,449,818
Automatic Data Processing, 1,190,100 52,364,400
Inc.
Brocade Communications 2,500 241,094
Systems, Inc.
Cadence Design Systems, Inc. 3,059,000 39,002,250
(a)
Citrix Systems, Inc. (a) 1,222,000 69,043,000
Clarent Corp. Delaware 9,200 138,000
Compuware Corp. (a) 1,697,500 54,001,719
DST Systems, Inc. (a) 344,200 21,641,575
Electronic Arts, Inc. (a) 858,500 46,573,625
Electronic Data Systems Corp. 1,797,200 101,654,125
Electronics for Imaging, Inc. 1,168,300 60,021,413
(a)
First Data Corp. 1,502,200 73,513,913
High Speed Access Corp. 31,800 814,875
IMS Health, Inc. 1,164,800 36,400,000
International Business 451,100 58,304,675
Machines Corp.
Intuit, Inc. (a) 570,600 51,425,325
Keane, Inc. (a) 1,142,700 25,853,588
Legato Systems, Inc. (a) 871,800 50,346,450
Microsoft Corp. (a) 3,956,600 356,835,863
Oracle Corp. (a) 1,614,150 59,925,319
Policy Management Systems 721,700 21,651,000
Corp. (a)
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TECHNOLOGY - CONTINUED
COMPUTER SERVICES & SOFTWARE
- - CONTINUED
SAP AG (Systeme Anwendungen 848,000 $ 29,362,000
Produkte) sponsored ADR
Siebel Systems, Inc. (a) 474,300 31,481,663
Synopsys, Inc. (a) 760,700 41,981,131
Veritas Software Corp. (a) 508,100 48,237,744
1,438,937,081
COMPUTERS & OFFICE EQUIPMENT
- - 4.2%
Adaptec, Inc. (a) 1,877,100 66,285,094
CDW Computer Centers, Inc. (a) 1,198,600 52,738,400
EMC Corp. (a) 2,101,800 115,599,000
Hewlett-Packard Co. 1,096,900 110,238,450
Ingram Micro, Inc. Class A (a) 830,900 21,395,675
Lexmark International Group, 532,000 35,145,250
Inc. Class A (a)
Maxtor Corp. 1,880,600 9,461,769
Network Appliance, Inc. (a) 850,500 47,521,688
Pitney Bowes, Inc. 826,100 53,076,925
Redback Networks, Inc. 1,700 213,456
SCI Systems, Inc. 248,600 11,808,500
Tech Data Corp. (a) 913,300 34,933,725
Xerox Corp. 568,200 33,559,313
591,977,245
ELECTRONIC INSTRUMENTS - 1.3%
JDS Fitel, Inc. (a) 505,600 42,689,273
KLA-Tencor Corp. (a) 257,250 16,689,094
Novellus Systems, Inc. (a) 703,200 47,993,400
Teradyne, Inc. (a) 704,100 50,519,175
Waters Corp. (a) 520,600 27,656,875
185,547,817
ELECTRONICS - 5.7%
Altera Corp. (a) 1,079,500 39,739,094
Broadcom Corp. Class A (a) 112,100 16,205,456
Intel Corp. 2,321,800 138,147,100
Linear Technology Corp. 808,000 54,338,000
Maker Communications, Inc. 2,000 62,000
Micron Technology, Inc. (a) 3,094,800 124,759,125
Motorola, Inc. 2,225,300 210,847,175
Taiwan Semiconductor 1,561,900 53,104,600
Manufacturing Co. Ltd. ADR
Texas Instruments, Inc. 845,600 122,612,000
Vitesse Semiconductor Corp. 348,300 23,488,481
(a)
Xilinx, Inc. (a) 549,300 31,447,425
814,750,456
TOTAL TECHNOLOGY 3,859,640,302
TRANSPORTATION - 1.0%
RAILROADS - 1.0%
Burlington Northern Santa Fe 483,100 14,976,100
Corp.
SHARES VALUE (NOTE 1)
Canadian National Railway Co. 815,440 $ 55,135,719
Union Pacific Corp. 891,900 52,008,919
Wisconsin Central 1,038,400 19,599,800
Transportation Corp. (a)
141,720,538
UTILITIES - 6.2%
CELLULAR - 0.4%
Vodafone AirTouch PLC 270,550 53,298,350
sponsored ADR
ELECTRIC UTILITY - 0.2%
AES Corp. (a) 574,400 33,387,000
Illinova Corp. 22,500 613,125
34,000,125
GAS - 0.0%
Dynegy, Inc. 25,400 517,525
TELEPHONE SERVICES - 5.6%
AT&T Corp. 4,324,390 241,355,017
DDI Corp. 3,482 21,628,758
Global TeleSystems Group, 346,818 28,092,258
Inc. (a)
MCI WorldCom, Inc. (a) 3,017,570 259,699,618
McLeodUSA, Inc. Class A (a) 1,090,600 59,983,000
Metromedia Fiber Network, 1,290,600 46,380,938
Inc. Class A (a)
NEXTLINK Communications, Inc. 679,200 50,515,500
Class A (a)
Sprint Corp. (FON Group) 668,200 35,289,313
Time Warner Telecom, Inc. 515,100 14,937,900
WinStar Communications, Inc. 858,200 41,837,250
(a)
799,719,552
TOTAL UTILITIES 887,535,552
TOTAL COMMON STOCKS 14,032,820,080
(Cost $10,238,762,070)
CASH EQUIVALENTS - 1.5%
Taxable Central Cash Fund (b) 214,397,126 214,397,126
(Cost $214,397,126)
TOTAL INVESTMENT IN $ 14,247,217,206
SECURITIES - 100%
(Cost $10,453,159,196)
</TABLE>
LEGEND
(a) Non-income producing
(b) At period end, the seven-day yield on the Taxable Central Cash
Fund was 4.84%. The yield refers to the income earned by investing in
the fund over the seven-day period, expressed as an annual percentage.
(c) Transactions during the period with companies which are or were
affiliates are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PURCHASES SALES DIVIDEND VALUE
AFFILIATE COST COST INCOME
Coflexip SA sponsored ADR $ 4,002,766 $ - $ 691,321 $ 40,389,750
</TABLE>
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $7,400,719,408 and $5,546,026,535, respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company.
The commissions paid to these affiliated firms were $778,021 for the
period.
INCOME TAX INFORMATION
At June 30, 1999, the aggregate cost of investment securities for
income tax purposes was $10,504,731,866. Net unrealized appreciation
aggregated $3,742,485,340, of which $4,028,273,964 related to
appreciated investment securities and $285,788,624 related to
depreciated investment securities.
VARIABLE INSURANCE PRODUCTS FUND: GROWTH PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 14,247,217,206
value (cost
$10,453,159,196) - See
accompanying schedule
Receivable for investments 114,072,602
sold
Receivable for fund shares 29,895,347
sold
Dividends receivable 12,120,864
Interest receivable 904,121
Other receivables 1,503,905
TOTAL ASSETS 14,405,714,045
LIABILITIES
Payable to custodian bank $ 11,365
Payable for investments 173,780,066
purchased
Payable for fund shares 4,476,557
redeemed
Accrued management fee 6,573,295
Distribution fees payable 28,713
Other payables and accrued 652,497
expenses
TOTAL LIABILITIES 185,522,493
NET ASSETS $ 14,220,191,552
Net Assets consist of:
Paid in capital $ 9,194,164,863
Undistributed net investment 13,164,071
income
Accumulated undistributed net 1,218,896,761
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation 3,793,965,857
(depreciation) on
investments and assets and
liabilities in foreign
currencies
NET ASSETS $ 14,220,191,552
INITIAL CLASS: NET ASSET $45.73
VALUE, offering price and
redemption price per share
($13,834,287,802 (divided
by) 302,507,962 shares)
SERVICE CLASS: NET ASSET $45.65
VALUE, offering price and
redemption price per share
($385,903,750 (divided by)
8,453,639 shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30,
1999 (UNAUDITED)
INVESTMENT INCOME $ 43,967,402
Dividends (including $691,321
received from affiliated
issuers)
Interest 12,408,464
TOTAL INCOME 56,375,866
EXPENSES
Management fee $ 37,313,383
Transfer agent fees 4,299,795
Distribution fees - Service 122,330
Class
Accounting fees and expenses 502,862
Non-interested trustees' 32,463
compensation
Custodian fees and expenses 276,822
Registration fees 67,335
Audit 38,239
Miscellaneous 8,039
Total expenses before 42,661,268
reductions
Expense reductions (977,617) 41,683,651
NET INVESTMENT INCOME 14,692,215
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities 1,287,454,231
Foreign currency transactions 626,892 1,288,081,123
Change in net unrealized
appreciation (depreciation)
on:
Investment securities 397,538,644
Assets and liabilities in (124,092) 397,414,552
foreign currencies
NET GAIN (LOSS) 1,685,495,675
NET INCREASE (DECREASE) IN $ 1,700,187,890
NET ASSETS RESULTING FROM
OPERATIONS
OTHER INFORMATION $ 972,301
Expense reductions Directed
brokerage arrangements
Custodian credits 5,316
$ 977,617
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
ASSETS 1999 (UNAUDITED)
Operations Net investment $ 14,692,215 $ 18,972,063
income
Net realized gain (loss) 1,288,081,123 1,259,813,273
Change in net unrealized 397,414,552 1,830,051,769
appreciation (depreciation)
NET INCREASE (DECREASE) IN 1,700,187,890 3,108,837,105
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (20,716,861) (39,552,560)
From net investment income
From net realized gain (1,302,572,637) (1,034,611,705)
TOTAL DISTRIBUTIONS (1,323,289,498) (1,074,164,265)
Share transactions - net 2,463,327,477 1,616,145,892
increase (decrease)
TOTAL INCREASE (DECREASE) 2,840,225,869 3,650,818,732
IN NET ASSETS
NET ASSETS
Beginning of period 11,379,965,683 7,729,146,951
End of period (including $ 14,220,191,552 $ 11,379,965,683
undistributed net investment
income of $13,164,071 and
$18,972,632, respectively)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OTHER INFORMATION:
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
1999 (UNAUDITED)
SHARES DOLLARS SHARES DOLLARS
Share transactions Initial 44,814,245 $ 1,979,156,734 59,666,196 $ 2,260,308,481
Class Sold
Reinvested 31,299,165 1,303,923,239 31,899,319 1,073,412,088
Redeemed (24,176,675) (1,056,953,197) (49,261,439) (1,831,294,638)
Net increase (decrease) 51,936,735 $ 2,226,126,776 42,304,076 $ 1,502,425,931
Service Class Sold 5,286,827 $ 232,119,508 3,032,492 $ 115,566,215
Reinvested 465,535 19,366,259 22,360 752,178
Redeemed (336,178) (14,285,066) (71,737) (2,598,432)
Net increase (decrease) 5,416,184 $ 237,200,701 2,983,115 $ 113,719,961
Distributions From net $ 20,413,671 $ 39,524,864
investment income Initial
Class
Service Class 303,190 27,696
Total $ 20,716,861 $ 39,552,560
From net realized gain $ 1,283,509,568 $ 1,033,887,224
Initial Class
Service Class 19,063,069 724,481
Total $ 1,302,572,637 $ 1,034,611,705
$ 1,323,289,498 $ 1,074,164,265
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 1996 1995
Net asset value, beginning of $ 44.87 $ 37.10 $ 31.14 $ 29.20 $ 21.69
period
Income from Investment
Operations
Net investment income .05 D .08 D .20 D .22 .08
Net realized and unrealized 5.92 12.85 6.91 3.82 7.55
gain (loss)
Total from investment 5.97 12.93 7.11 4.04 7.63
operations
Less Distributions
From net investment income (.08) (.19) (.21) (.08) (.12)
From net realized gain (5.03) (4.97) (.94) (2.02) -
Total distributions (5.11) (5.16) (1.15) (2.10) (.12)
Net asset value, end of period $ 45.73 $ 44.87 $ 37.10 $ 31.14 $ 29.20
TOTAL RETURN B, C 14.42% 39.49% 23.48% 14.71% 35.36%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 13,834,288 $ 11,243,824 $ 7,727,132 $ 6,086,424 $ 4,162,702
(000 omitted)
Ratio of expenses to average .67% A .68% .69% .69% .70%
net assets
Ratio of expenses to average .66% A, F .66% F .67% F .67% F .70%
net assets after expense
reductions
Ratio of net investment .23% A .21% .58% .81% .37%
income to average net assets
Portfolio turnover 92% A 123% 113% 81% 108%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA 1994
Net asset value, beginning of $ 23.08
period
Income from Investment
Operations
Net investment income .12
Net realized and unrealized (.12)
gain (loss)
Total from investment -
operations
Less Distributions
From net investment income (.12)
From net realized gain (1.27)
Total distributions (1.39)
Net asset value, end of period $ 21.69
TOTAL RETURN B, C (0.02)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 2,141,869
(000 omitted)
Ratio of expenses to average .70%
net assets
Ratio of expenses to average .69% F
net assets after expense
reductions
Ratio of net investment .69%
income to average net assets
Portfolio turnover 122%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - SERVICE CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 E
Net asset value, beginning of $ 44.82 $ 37.09 $ 36.92
period
Income from Investment
Operations
Net investment income D .03 .06 .03
Net realized and unrealized 5.91 12.83 .14
gain (loss)
Total from investment 5.94 12.89 .17
operations
Less Distributions
From net investment income (.08) (.19) -
From net realized gain (5.03) (4.97) -
Total distributions (5.11) (5.16) -
Net asset value, end of period $ 45.65 $ 44.82 $ 37.09
TOTAL RETURN B, C 14.36% 39.38% 0.46%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 385,904 $ 136,142 $ 2,015
(000 omitted)
Ratio of expenses to average .78% A .80% .79% A
net assets
Ratio of expenses to average .76% A, F .75% F .77% A, F
net assets after expense
reductions
Ratio of net investment .13% A .15% .70% A
income to average net assets
Portfolio turnover 92% A 123% 113%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE
TO YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. INCLUSION
OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN. TOTAL RETURNS FOR PERIODS OF LESS THAN ONE
YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED
BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF SALE
OF SERVICE CLASS SHARES) TO DECEMBER 31, 1997.
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS
WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A
PORTION OF THE CLASS' EXPENSES.
VARIABLE INSURANCE PRODUCTS FUND III: MID CAP PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). If Fidelity had not reimbursed certain fund
expenses, the life of fund total return would have been lower.
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year. Average annual total returns for Initial Class shares will
appear once the fund is a year old.
(checkmark)UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for example,
has a history of long-term growth and short-term
volatility. In turn, the share price and return of a
fund that invests in stocks will vary. That means if
you sell your shares during a market downturn,
you might lose money. But if you can ride out the
market's ups and downs, you may have a gain.
$10,000 OVER LIFE OF FUND
VIP III MID CAP S&P MIDCAP 400
00772 SP004
1998/12/28 10000.00 10000.00
1998/12/31 10310.00 10546.36
1999/01/31 10520.00 10135.79
1999/02/28 9950.00 9605.08
1999/03/31 10440.00 9873.45
1999/04/30 11160.00 10652.27
1999/05/31 11050.00 10698.39
1999/06/30 11780.00 11271.29
IMATRL PRASUN SHR__CHT 19990630 19990712 093957 R00000000000010
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund III: Mid Cap Portfolio on
December 28, 1998, when the fund started. As the chart shows, by June
30, 1999, the value of the investment would have grown to $11,780 - a
17.80% increase on the initial investment. For comparison, look at how
the Standard & Poor's MidCap 400 Index did over the same period. With
dividends and capital gains, if any, reinvested, the same $10,000
investment would have grown to $11,271 - a 12.71% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE
30, 1999
% OF FUND'S INVESTMENTS
QUALCOMM, Inc. 2.1
Leggett & Platt, Inc. 1.7
Cardinal Health, Inc. 1.5
Clear Channel Communications, 1.4
Inc.
Westwood One, Inc. 1.2
TOP FIVE MARKET SECTORS AS OF
JUNE 30, 1999
% OF FUND'S INVESTMENTS
TECHNOLOGY 15.4
MEDIA & LEISURE 11.5
FINANCE 9.4
RETAIL & WHOLESALE 8.3
UTILITIES 7.9
ASSET ALLOCATION AS OF JUNE
30, 1999*
% OF FUND'S INVESTMENTS
Stocks 90.8%
Short-term Investments 9.2%
*FOREIGN INVESTMENTS 1.3%
Row: 1, Col: 1, Value: 90.8
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 0.0
Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 9.199999999999999
VARIABLE INSURANCE PRODUCTS FUND III: MID CAP PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). Performance for Service Class shares reflects an
asset based distribution fee (12b-1 fee). If Fidelity had not
reimbursed certain fund expenses, the life of fund total return would
have been lower.
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year. Average annual total returns for Service Class shares will
appear once the fund is a year old.
(checkmark)UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for example,
has a history of long-term growth and short-term
volatility. In turn, the share price and return of a
fund that invests in stocks will vary. That means if
you sell your shares during a market downturn,
you might lose money. But if you can ride out the
market's ups and downs, you may have a gain.
$10,000 OVER LIFE OF FUND
VIP III MID CAP - SC S&P MIDCAP 400
00773 SP004
1998/12/28 10000.00 10000.00
1998/12/31 10310.00 10546.36
1999/01/31 10520.00 10135.79
1999/02/28 9950.00 9605.08
1999/03/31 10440.00 9873.45
1999/04/30 11150.00 10652.27
1999/05/31 11040.00 10698.39
1999/06/30 11770.00 11271.29
IMATRL PRASUN SHR__CHT 19990630 19990712 094100 R00000000000010
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund III: Mid Cap Portfolio -
Service Class - on December 28, 1998, when the fund started. As the
chart shows, by June 30, 1999, the value of the investment would have
grown to $11,770 - a 17.70% increase on the initial investment. For
comparison, look at how the Standard & Poor's Mid Cap 400 Index did
over the same period. With dividends and capital gains, if any,
reinvested, the same $10,000 investment would have grown to $11,271 -
a 12.71% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE
30, 1999
% OF FUND'S INVESTMENTS
QUALCOMM, Inc. 2.1
Leggett & Platt, Inc. 1.7
Cardinal Health, Inc. 1.5
Clear Channel Communications, 1.4
Inc.
Westwood One, Inc. 1.2
TOP FIVE MARKET SECTORS AS OF
JUNE 30, 1999
% OF FUND'S INVESTMENTS
TECHNOLOGY 15.4
MEDIA & LEISURE 11.5
FINANCE 9.4
RETAIL & WHOLESALE 8.3
UTILITIES 7.9
ASSET ALLOCATION AS OF JUNE
30, 1999*
% OF FUND'S INVESTMENTS
Stocks 90.8%
Short-term Investments 9.2%
*FOREIGN INVESTMENTS 1.3%
Row: 1, Col: 1, Value: 90.8
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 0.0
Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 9.199999999999999
VARIABLE INSURANCE PRODUCTS FUND III: MID CAP PORTFOLIO
FUND TALK: THE MANAGERS' OVERVIEW
(photograph of Katherine Collins)
(photograph of David Felman)
NOTE TO SHAREHOLDERS: The following is an interview with Katherine
Collins, Portfolio Manager of Mid Cap Portfolio, with additional
comments from David Felman, who will become manager of the portfolio
effective August 2, 1999.
Q. HOW DID THE FUND PERFORM, KATHERINE?
K.C. The fund performed very well, substantially exceeding the return
of the Standard & Poor's MidCap 400 Index, which had a return of 6.87%
for the six months ending June 30, 1999. Going forward, we will look
at the fund's performance in six- and 12-month intervals.
Q. WHAT FACTORS CONTRIBUTED TO THIS STRONG PERFORMANCE?
K.C. The fund's diversified approach helped as both growth stocks and
cyclical issues did well during different parts of the period. I tried
to keep the fund firmly in the growth style, but also have some
balance with cyclical issues and other value stocks. The strong
performance of both technology and traditional growth stocks, which
tend to have above-average earnings growth, aided the fund.
Q. WHAT WAS YOUR STRATEGY IN TECHNOLOGY, WHICH, AT 15.4% OF
INVESTMENTS AT THE END OF THE PERIOD, WAS YOUR LARGEST INDUSTRY
WEIGHTING?
K.C. I emphasized both Internet-related stocks and semiconductor
equipment stocks, both of which did well. In the Internet, I invested
in a number of companies that provide the infrastructure and software
enabling companies to operate on the Web. Successful infrastructure
investments included VeriSign, which provides security systems for
Internet transactions; Exodus Communications, which helps companies
with their Web sites; and Inktomi and RealNetworks, two software
companies. America Online was a positive contributor, although I sold
most of the position to take profits and in recognition that it had
grown to be a large-cap company.
Q. WHAT OTHER AREAS HELPED PERFORMANCE?
K.C. The media and leisure industry, which at 11.5% of investments
accounted for the largest overweighting compared to the S&P mid-cap
index, was a substantial contributor. I invested in several
broadcasting and programming companies, including Clear Channel,
Westwood One and Univision. All did well as advertising sales remained
healthy. The fund's investment in Outdoor Systems, a billboard
advertising company, helped, as it was the subject of a pending
acquisition by the Infinity division of CBS.
Q. WERE THERE ANY DISAPPOINTMENTS?
K.C. Service Corp., which owns a chain of funeral homes, was a major
disappointment. The company failed to meet analysts' earnings
expectations because of a decline in the death rate and because of
earnings shortfalls in acquired properties. Another poor performer was
Networks Associates, a software company specializing in security
programs that the fund no longer owns. I also should point out that
not all Internet-related investments were winners. Lycos, Xoom.com and
Ticketmaster Online CitySearch were disappointments.
Q. TURNING TO YOU, DAVID, HOW WOULD YOU DESCRIBE YOUR INVESTMENT
STYLE?
D.F. In evaluating a company, I tend to look at three things:
fundamentals, industry or secular backdrop, and valuation. In
examining fundamentals, I look at unit sales, pricing and costs to
determine whether these factors are deteriorating or accelerating.
Looking at the secular backdrop, I am interested in where the industry
is going and where the company fits within the industry. Valuation is
important because I want to make sure I am paying a reasonable price,
even if the fundamentals are great and the secular backdrop is strong.
You don't always find compelling fundamentals, secular trends and
valuations together, but you try to make decisions balancing these
factors. I tend to look for growth, which is appropriate for a mid-cap
fund.
Q. WHAT IS YOUR OUTLOOK, DAVID?
D.F. I see continued opportunities. In an environment in which
interest rates have started to go up, I think investors may start to
rethink their willingness to pay the relatively high prices of many
large-cap companies. They should continue to look at mid-cap stocks,
which have more reasonable valuations. In addition, the domestic
industrial economy is in good shape, which has very positive
implications for many mid-cap companies.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGERS ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET OR OTHER CONDITIONS. FOR MORE INFORMATION, SEE PAGE 3.
(checkmark)FUND FACTS
GOAL: long-term growth of capital by investing
primarily in common stocks of companies with
medium-sized market capitalizations
START DATE: December 28, 1998
SIZE: as of June 30, 1999, more than $1.7
million
MANAGER: David Felman, since August 1999;
joined Fidelity in 1993
VARIABLE INSURANCE PRODUCTS FUND III: MID CAP PORTFOLIO
INVESTMENTS JUNE 30, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 90.8%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 1.4%
AEROSPACE & DEFENSE - 0.8%
Gulfstream Aerospace Corp. (a) 230 $ 15,539
DEFENSE ELECTRONICS - 0.2%
Litton Industries, Inc. (a) 50 3,588
SHIP BUILDING & REPAIR - 0.4%
General Dynamics Corp. 100 6,850
TOTAL AEROSPACE & DEFENSE 25,977
BASIC INDUSTRIES - 1.9%
CHEMICALS & PLASTICS - 1.1%
Cytec Industries, Inc. (a) 220 7,013
IMC Global, Inc. 120 2,115
Ivex Packaging Corp. (a) 400 8,800
Solutia, Inc. 130 2,771
20,699
IRON & STEEL - 0.2%
Nucor Corp. 70 3,321
PACKAGING & CONTAINERS - 0.6%
Bemis Co., Inc. 100 3,975
Owens-Illinois, Inc. (a) 170 5,557
Tupperware Corp. 110 2,805
12,337
TOTAL BASIC INDUSTRIES 36,357
CONSTRUCTION & REAL ESTATE -
3.1%
BUILDING MATERIALS - 1.9%
Carlisle Companies, Inc. 250 12,031
Dayton Superior Corp. Class A 170 3,156
(a)
Elcor Corp. 70 3,058
Fortune Brands, Inc. 180 7,448
Justin Industries, Inc. 400 5,575
Masco Corp. 120 3,465
34,733
CONSTRUCTION - 0.9%
Centex Corp. 180 6,761
Granite Construction, Inc. 150 4,397
Jacobs Engineering Group, 170 6,460
Inc. (a)
17,618
ENGINEERING - 0.1%
AdForce, Inc. (a) 80 1,880
REAL ESTATE INVESTMENT TRUSTS
- - 0.2%
Apartment Investment & 100 4,275
Management Co. Class A
TOTAL CONSTRUCTION & REAL 58,506
ESTATE
SHARES VALUE (NOTE 1)
DURABLES - 6.3%
AUTOS, TIRES, & ACCESSORIES -
2.0%
Casey's General Stores, Inc. 370 $ 5,550
Danaher Corp. 210 12,206
Eaton Corp. 50 4,600
Navistar International Corp. 100 5,000
(a)
SPX Corp. 120 10,020
37,376
HOME FURNISHINGS - 2.9%
Haverty Furniture Companies, 200 7,050
Inc.
Leggett & Platt, Inc. 1,180 32,819
Miller (Herman), Inc. 140 2,940
Restoration Hardware, Inc. 500 6,688
Rowe Furniture Corp. 450 4,697
54,194
TEXTILES & APPAREL - 1.4%
Liz Claiborne, Inc. 110 4,015
Mohawk Industries, Inc. (a) 340 10,328
WestPoint Stevens, Inc. Class 430 12,819
A
27,162
TOTAL DURABLES 118,732
ENERGY - 5.8%
ENERGY SERVICES - 1.5%
ENSCO International, Inc. 330 6,579
Halliburton Co. 280 12,670
Schlumberger Ltd. 120 7,643
Transocean Offshore, Inc. 100 2,625
29,517
OIL & GAS - 4.3%
Anadarko Petroleum Corp. 210 7,731
Apache Corp. 380 14,820
Coastal Corp. (The) 110 4,400
Enron Oil & Gas Co. 250 5,063
Kerr-McGee Corp. 100 5,019
Noble Affiliates, Inc. 150 4,228
Santa Fe Snyder Corp. (a) 1,080 8,235
Stone Energy Corp. (a) 70 2,966
Tosco Corp. 470 12,191
Ultramar Diamond Shamrock 220 4,799
Corp.
USX-Marathon Group 150 4,884
Vastar Resources, Inc. 130 6,817
81,153
TOTAL ENERGY 110,670
FINANCE - 9.4%
BANKS - 2.8%
Comerica, Inc. 190 11,293
Marshall & Ilsley Corp. 230 14,806
Northern Trust Corp. 80 7,760
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - CONTINUED
BANKS - CONTINUED
State Street Corp. 100 $ 8,538
US Trust Corp. 50 4,625
Westamerica Bancorp. 150 5,475
52,497
CREDIT & OTHER FINANCE - 1.4%
Associates First Capital 380 16,839
Corp. Class A
Household International, Inc. 70 3,316
Providian Financial Corp. 70 6,545
26,700
INSURANCE - 4.6%
AFLAC, Inc. 160 7,660
Allmerica Financial Corp. 200 12,163
Ambac Financial Group, Inc. 280 15,995
American Bankers Insurance 120 6,533
Group, Inc.
CIGNA Corp. 160 14,240
Financial Security Assurance 120 6,240
Holdings Ltd.
MBIA, Inc. 140 9,065
Protective Life Corp. 150 4,950
Reliastar Financial Corp. 230 10,063
86,909
SECURITIES INDUSTRY - 0.6%
E*Trade Group, Inc. (a) 280 11,183
TOTAL FINANCE 177,289
HEALTH - 6.8%
DRUGS & PHARMACEUTICALS - 1.4%
PE Corp. (Biosystems Group) 120 13,770
Quintiles Transnational Corp. 300 12,600
(a)
26,370
MEDICAL EQUIPMENT & SUPPLIES
- - 4.7%
Becton, Dickinson & Co. 120 3,600
Biomet, Inc. 240 9,540
Cardinal Health, Inc. 440 28,215
Guidant Corp. 160 8,230
Medtronic, Inc. 148 11,526
Millipore Corp. 150 6,084
Pall Corp. 300 6,656
Sybron International, Inc. (a) 580 15,986
89,837
MEDICAL FACILITIES MANAGEMENT
- - 0.7%
Health Management Associates, 350 3,938
Inc. Class A (a)
SHARES VALUE (NOTE 1)
Trigon Healthcare, Inc. (a) 100 $ 3,638
Wellpoint Health Networks, 70 5,941
Inc. (a)
13,517
TOTAL HEALTH 129,724
INDUSTRIAL MACHINERY &
EQUIPMENT - 4.2%
ELECTRICAL EQUIPMENT - 2.8%
American Power Conversion 160 3,220
Corp. (a)
Emerson Electric Co. 90 5,659
General Electric Co. 30 3,390
Grainger (W.W.), Inc. 100 5,381
Hubbell, Inc. Class B 130 5,899
Thomas & Betts Corp. 150 7,088
VWR Scientific Products Corp. 610 22,379
(a)
53,016
INDUSTRIAL MACHINERY &
EQUIPMENT - 1.4%
ASM Lithography Holding NV (a) 110 6,531
Illinois Tool Works, Inc. 70 5,740
Kaydon Corp. 100 3,363
Manitowoc Co., Inc. 135 5,619
PRI Automation, Inc. (a) 140 5,075
26,328
TOTAL INDUSTRIAL MACHINERY & 79,344
EQUIPMENT
MEDIA & LEISURE - 11.5%
BROADCASTING - 6.3%
American Tower Corp. Class A 150 3,600
(a)
Clear Channel Communications, 381 26,297
Inc. (a)
Cox Communications, Inc. 120 4,418
Class A (a)
Infinity Broadcasting Corp. 590 17,553
Class A
MediaOne Group, Inc. 80 5,950
Sinclair Broadcast Group, 300 4,913
Inc. Class A (a)
Univision Communications, 210 13,860
Inc. Class A (a)
USA Networks, Inc. (a) 520 20,865
Westwood One, Inc. (a) 650 23,197
120,653
ENTERTAINMENT - 2.0%
Cinar Films, Inc. Class B 180 4,410
(sub. vtg.) (a)
Fox Entertainment Group, Inc. 300 8,081
(a)
Pixar (a) 200 8,625
Premier Parks, Inc. (a) 380 13,965
Ticketmaster Online 90 2,723
CitySearch, Inc.
37,804
LEISURE DURABLES & TOYS - 1.4%
Harley-Davidson, Inc. 280 15,225
Hasbro, Inc. 195 5,448
Mattel, Inc. 210 5,552
26,225
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
MEDIA & LEISURE - CONTINUED
PUBLISHING - 0.5%
Belo (A.H.) Corp. Class A 200 $ 3,938
Meredith Corp. 150 5,194
9,132
RESTAURANTS - 1.3%
Papa John's International, 250 11,172
Inc. (a)
Starbucks Corp. (a) 350 13,147
24,319
TOTAL MEDIA & LEISURE 218,133
NONDURABLES - 4.6%
BEVERAGES - 1.3%
Brown-Forman Corp. Class B 100 6,519
Coors (Adolph) Co. Class B 270 13,365
Whitman Corp. 200 3,600
23,484
FOODS - 3.3%
Ben & Jerry's Homemade, Inc. 280 7,770
Class A (a)
Dean Foods Co. 280 11,638
Earthgrains Co. 370 9,551
Flowers Industries, Inc. 300 6,506
Interstate Bakeries Corp. 350 7,853
Keebler Foods Co. (a) 230 6,986
Michael Foods, Inc. 150 3,525
Suiza Foods Corp. (a) 90 3,769
Tootsie Roll Industries, Inc. 134 5,172
62,770
TOTAL NONDURABLES 86,254
RETAIL & WHOLESALE - 8.3%
APPAREL STORES - 1.6%
American Eagle Outfitters, 100 4,550
Inc. (a)
Ross Stores, Inc. 190 9,571
TJX Companies, Inc. 380 12,659
Wet Seal, Inc. Class A (a) 130 3,721
30,501
DRUG STORES - 0.5%
CVS Corp. 150 7,613
Duane Reade, Inc. (a) 80 2,450
10,063
GENERAL MERCHANDISE STORES -
2.9%
Ames Department Stores, Inc. 130 5,931
(a)
Dayton Hudson Corp. 50 3,250
Dollar General Corp. 200 5,800
Dollar Tree Stores, Inc. (a) 380 16,720
SHARES VALUE (NOTE 1)
Family Dollar Stores, Inc. 200 $ 4,800
Nordstrom, Inc. 520 17,420
53,921
GROCERY STORES - 2.4%
Kroger Co. (a) 500 13,969
Safeway, Inc. (a) 280 13,860
U.S. Foodservice (a) 420 17,903
45,732
RETAIL & WHOLESALE,
MISCELLANEOUS - 0.9%
Action Performance Companies, 80 2,640
Inc. (a)
Bed Bath & Beyond, Inc. (a) 230 8,855
Office Depot, Inc. (a) 250 5,516
17,011
TOTAL RETAIL & WHOLESALE 157,228
SERVICES - 3.9%
ADVERTISING - 2.3%
DoubleClick, Inc. (a) 60 5,505
Getty Images, Inc. (a) 100 1,888
Omnicom Group, Inc. 190 15,200
Outdoor Systems, Inc. (a) 590 21,535
44,128
SERVICES - 1.6%
Borg-Warner Security Corp. 540 10,969
International Telecom Data 200 3,200
Systems, Inc. (a)
Service Corp. International 810 15,593
29,762
TOTAL SERVICES 73,890
TECHNOLOGY - 15.4%
COMMUNICATIONS EQUIPMENT - 0.5%
Cisco Systems, Inc. (a) 143 9,215
COMPUTER SERVICES & SOFTWARE
- - 9.4%
Adobe Systems, Inc. 50 4,108
Affiliated Computer Services, 120 6,075
Inc. Class A (a)
America Online, Inc. 30 3,315
At Home Corp. Series A (a) 130 7,012
Autodesk, Inc. 130 3,843
Careerbuilder, Inc. 150 1,969
DST Systems, Inc. (a) 140 8,803
Electronics for Imaging, Inc. 200 10,275
(a)
Exodus Communications, Inc. 170 20,389
(a)
Inktomi Corp. 95 12,403
Intuit, Inc. (a) 170 15,321
Legato Systems, Inc. (a) 190 10,973
Lycos, Inc. (a) 60 5,513
NCR Corp. (a) 100 4,881
Polycom, Inc. (a) 150 5,850
RealNetworks, Inc. 120 8,265
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TECHNOLOGY - CONTINUED
COMPUTER SERVICES & SOFTWARE
- - CONTINUED
Shared Medical Systems Corp. 100 $ 6,525
Siebel Systems, Inc. (a) 90 5,974
Sportsline USA, Inc. (a) 60 2,153
VeriSign, Inc. (a) 180 15,525
Veritas Software Corp. (a) 100 9,494
Visual Networks, Inc. (a) 100 3,200
Xoom.com, Inc. (a) 120 6,300
178,166
COMPUTERS & OFFICE EQUIPMENT
- - 2.1%
Adaptec, Inc. (a) 100 3,531
Apple Computer, Inc. (a) 150 6,947
Comverse Technology, Inc. (a) 155 11,703
Gateway, Inc. (a) 60 3,540
Ingram Micro, Inc. Class A (a) 200 5,150
Lexmark International Group, 60 3,964
Inc. Class A (a)
SCI Systems, Inc. 100 4,750
39,585
ELECTRONIC INSTRUMENTS - 0.6%
Teradyne, Inc. (a) 100 7,175
Waters Corp. (a) 80 4,250
11,425
ELECTRONICS - 2.8%
Altera Corp. (a) 210 7,731
Analog Devices, Inc. (a) 190 9,536
Broadcom Corp. Class A (a) 90 13,011
Conexant Systems, Inc. 100 5,806
Linear Technology Corp. 190 12,778
Uniphase Corp. (a) 30 4,980
53,842
TOTAL TECHNOLOGY 292,233
TRANSPORTATION - 0.3%
AIR TRANSPORTATION - 0.3%
Ryanair Holdings PLC 100 5,300
sponsored ADR (a)
UTILITIES - 7.9%
CELLULAR - 3.2%
ALLTEL Corp. 70 5,005
Nextel Communications, Inc. 180 9,034
Class A (a)
QUALCOMM, Inc. 280 40,161
SkyTel Communications, Inc. 330 6,909
(a)
61,109
ELECTRIC UTILITY - 2.5%
AES Corp. (a) 130 7,556
Calpine Corp. (a) 150 8,100
CMS Energy Corp. 130 5,444
Duke Energy Corp. 80 4,350
Energy East Corp. 100 2,600
SHARES VALUE (NOTE 1)
Entergy Corp. 150 $ 4,688
Illinova Corp. 100 2,725
IPALCO Enterprises, Inc. 260 5,509
PG&E Corp. 200 6,500
47,472
GAS - 1.6%
Columbia Gas System, Inc. 200 12,538
Enron Corp. 90 7,358
Ocean Energy, Inc. (a) 500 4,813
Williams Companies, Inc. 140 5,959
30,668
TELEPHONE SERVICES - 0.6%
Cincinnati Bell, Inc. 350 8,728
Qwest Communications 80 2,645
International, Inc. (a)
11,373
TOTAL UTILITIES 150,622
TOTAL COMMON STOCKS 1,720,259
(Cost $1,527,292)
CASH EQUIVALENTS - 9.2%
Taxable Central Cash Fund (b) 174,354 174,354
(Cost $174,354)
TOTAL INVESTMENT IN $ 1,894,613
SECURITIES - 100%
(Cost $1,701,646)
LEGEND
(a) Non-income producing
(b) At period end, the seven-day yield on the Taxable Central Cash
Fund was 4.84%. The yield refers to the income earned by investing in
the fund over the seven-day period, expressed as an annual percentage.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $1,483,984 and $968,998, respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company.
The commissions paid to these affiliated firms were $116 for the
period.
INCOME TAX INFORMATION
At June 30, 1999, the aggregate cost of investment securities for
income tax purposes was $1,718,839. Net unrealized appreciation
aggregated $175,774, of which $236,093 related to appreciated
investment securities and $60,319 related to depreciated investment
securities.
VARIABLE INSURANCE PRODUCTS FUND III: MID CAP PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 1,894,613
value (cost $1,701,646) -
See accompanying schedule
Receivable for investments 18,787
sold
Receivable for fund shares 406
sold
Dividends receivable 801
Interest receivable 437
Receivable from investment 4,471
adviser for expense
reductions
TOTAL ASSETS 1,919,515
LIABILITIES
Payable to custodian bank $ 33,090
Payable for investments 52,287
purchased
Payable for fund shares 82,372
redeemed
Distribution fees payable 87
Other payables and accrued 13,394
expenses
TOTAL LIABILITIES 181,230
NET ASSETS $ 1,738,285
Net Assets consist of:
Paid in capital $ 1,512,902
Accumulated net investment (694)
(loss)
Accumulated undistributed net 33,110
realized gain (loss) on
investments
Net unrealized appreciation 192,967
(depreciation) on investments
NET ASSETS $ 1,738,285
INITIAL CLASS: NET ASSET $11.78
VALUE, offering price and
redemption price per share
($643,054 (divided by)
54,595 shares)
SERVICE CLASS: NET ASSET $11.77
VALUE, offering price and
redemption price per share
($1,095,231 (divided by)
93,028 shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30,
1999 (UNAUDITED)
INVESTMENT INCOME $ 3,815
Dividends
Interest 1,783
TOTAL INCOME 5,598
EXPENSES
Management fee $ 3,763
Transfer agent fees 663
Distribution fees - Service 367
Class
Accounting fees and expenses 29,999
Custodian fees and expenses 6,958
Registration fees 278
Audit 6,988
Miscellaneous 111
Total expenses before 49,127
reductions
Expense reductions (42,835) 6,292
NET INVESTMENT INCOME (LOSS) (694)
REALIZED AND UNREALIZED GAIN 33,814
(LOSS)
Net realized gain (loss) on
investment securities
Change in net unrealized 160,758
appreciation (depreciation)
on investment securities
NET GAIN (LOSS) 194,572
NET INCREASE (DECREASE) IN $ 193,878
NET ASSETS RESULTING FROM
OPERATIONS
OTHER INFORMATION $ 18,677
Expense reductions FMR
Reimbursement: Initial
Class
Service Class 23,706
Directed brokerage 58
arrangements
Custodian credits 394
$ 42,835
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET SIX MONTHS ENDED JUNE 30, DECEMBER 28, 1998
ASSETS 1999 (UNAUDITED) (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1998
Operations Net investment $ (694) $ (37)
income (loss)
Net realized gain (loss) 33,814 (704)
Change in net unrealized 160,758 32,209
appreciation (depreciation)
NET INCREASE (DECREASE) IN 193,878 31,468
NET ASSETS RESULTING FROM
OPERATIONS
Share transactions - net 512,919 1,000,020
increase (decrease)
TOTAL INCREASE (DECREASE) 706,797 1,031,488
IN NET ASSETS
NET ASSETS
Beginning of period 1,031,488 -
End of period (including $ 1,738,285 $ 1,031,488
accumulated net investment
loss of $694 and $0,
respectively)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OTHER INFORMATION:
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
1999 (UNAUDITED)
SHARES DOLLARS SHARES DOLLARS
Share transactions Initial 4,612 $ 50,813 50,001 $ 500,010
Class A Sold
Redeemed (18) (202) - -
Net increase (decrease) 4,594 $ 50,611 50,001 $ 500,010
Service Class B Sold 95,622 $ 1,036,455 50,001 $ 500,010
Redeemed (52,595) (574,147) - -
Net increase (decrease) 43,027 $ 462,308 50,001 $ 500,010
A INITIAL CLASS COMMENCEMENT
OF OPERATIONS DECEMBER 28,
1998.
B SERVICE CLASS COMMENCEMENT
OF OPERATIONS DECEMBER 28,
1998.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEAR ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 E
Net asset value, beginning of $ 10.31 $ 10.00
period
Income from Investment
Operations
Net investment income (loss) D .00 .00
Net realized and unrealized 1.47 .31
gain (loss)
Total from investment 1.47 .31
operations
Net asset value, end of period $ 11.78 $ 10.31
TOTAL RETURN B, C 14.26% 3.10%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 643 $ 516
(000 omitted)
Ratio of expenses to average 1.00% A, G 1.00% A, G
net assets
Ratio of expenses to average .93% A, H 1.00% A
net assets after expense
reductions
Ratio of net investment (.05)% A (.27)% A
income (loss) to average net
assets
Portfolio turnover 159% A 125% A
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
FINANCIAL HIGHLIGHTS - SERVICE CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEAR ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 F
Net asset value, beginning of $ 10.31 $ 10.00
period
Income from Investment
Operations
Net investment income (loss) D (.01) .00
Net realized and unrealized 1.47 .31
gain (loss)
Total from investment 1.46 .31
operations
Net asset value, end of period $ 11.77 $ 10.31
TOTAL RETURN B, C 14.16% 3.10%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 1,095 $ 516
(000 omitted)
Ratio of expenses to average 1.10% A, G 1.10% A, G
net assets
Ratio of expenses to average 1.03% A, H 1.10% A
net assets after expense
reductions
Ratio of net investment (.15)% A (.35)% A
income (loss) to average net
assets
Portfolio turnover 159% A 125% A
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE
TO YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. INCLUSION
OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN. TOTAL RETURNS FOR PERIODS OF LESS THAN ONE
YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN
CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING
THE PERIOD.
E FOR THE PERIOD DECEMBER 28, 1998 (COMMENCEMENT OF
OPERATIONS OF INITIAL CLASS SHARES) TO DECEMBER 31, 1998.
F FOR THE PERIOD DECEMBER 28, 1998 (COMMENCEMENT OF
OPERATIONS OF SERVICE CLASS SHARES) TO DECEMBER 31, 1998.
G FMR AGREED TO REIMBURSE A PORTION OF THE CLASS'
EXPENSES DURING THE PERIOD WITHOUT THIS REIMBURSEMENT,
THE CLASS' EXPENSE RATIO WOULD HAVE BEEN HIGHER.
H FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS
WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A
PORTION OF THE CLASS' EXPENSES.
VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). If Fidelity had not reimbursed certain fund
expenses, the fund's past 10 year total return would have been lower.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
VIP: OVERSEAS - "INITIAL CLASS" 5.12% 10.76% 10.58%
MSCI EAFE 7.86% 8.33% 6.66%
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's returns to the performance of the Morgan
Stanley Capital International Europe, Australasia, Far East (EAFE)
Index - a market capitalization-weighted index that is designed to
represent the performance of developed stock markets outside the
United States and Canada. As of June 30, 1999, the index included over
1,000 equity securities of companies domiciled in 21 countries.
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.
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, THE TOTAL RETURNS 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. Foreign investments involve greater risks and
potential rewards than U.S. investments. These risks include political
and economic uncertainties of foreign countries, as well as the risk
of currency fluctuations.
(checkmark)UNDERSTANDING PERFORMANCE
Many markets around the globe offer the
potential for significant growth over time;
however, investing in foreign markets means
assuming greater risks than investing in the
United States. Factors like changes in a country's
financial markets, its local political and
economic climate, and the fluctuating value of
its currency create these risks. For these reasons
an international fund's performance may be
more volatile than a fund that invests exclusively
in the United States.
$10,000 OVER 10 YEARS
VIP OVERSEAS MS EAFE (NET MA TAX)
00154 MS001
1989/06/30 10000.00 10000.00
1989/07/31 10935.39 11255.73
1989/08/31 10858.24 10749.52
1989/09/30 11533.27 11239.18
1989/10/31 10906.46 10787.62
1989/11/30 11494.70 11329.90
1989/12/31 12217.94 11747.95
1990/01/31 12054.00 11310.82
1990/02/28 11772.65 10521.39
1990/03/31 12217.63 9425.31
1990/04/30 12285.35 9350.51
1990/05/31 13088.25 10417.42
1990/06/30 13378.45 10325.66
1990/07/31 14055.60 10471.11
1990/08/31 12623.92 9454.28
1990/09/30 11424.41 8136.68
1990/10/31 12488.49 9404.53
1990/11/30 12101.55 8849.78
1990/12/31 12014.49 8993.14
1991/01/31 12130.57 9284.03
1991/02/28 12539.25 10279.26
1991/03/31 12172.49 9662.17
1991/04/30 12440.12 9757.06
1991/05/31 12469.86 9858.87
1991/06/30 11785.90 9134.43
1991/07/31 12370.74 9583.22
1991/08/31 12410.39 9388.60
1991/09/30 12915.92 9917.74
1991/10/31 13005.13 10058.33
1991/11/30 12539.25 9588.76
1991/12/31 12975.40 10083.95
1992/01/31 13134.00 9868.56
1992/02/29 12860.30 9515.35
1992/03/31 12599.07 8887.18
1992/04/30 13382.75 8929.42
1992/05/31 13965.48 9527.12
1992/06/30 13704.26 9075.23
1992/07/31 12830.16 8842.96
1992/08/31 12719.64 9397.60
1992/09/30 12207.24 9212.02
1992/10/31 11373.33 8728.81
1992/11/30 11313.04 8810.95
1992/12/31 11584.32 8856.52
1993/01/31 11915.87 8855.44
1993/02/28 12149.27 9122.93
1993/03/31 12992.11 9918.14
1993/04/30 13855.51 10859.39
1993/05/31 14153.59 11088.74
1993/06/30 13804.12 10915.74
1993/07/31 14348.88 11297.84
1993/08/31 15119.78 11907.73
1993/09/30 15037.55 11639.70
1993/10/31 15582.31 11998.40
1993/11/30 14924.48 10949.62
1993/12/31 15911.23 11740.26
1994/01/31 16949.36 12732.84
1994/02/28 16650.42 12697.58
1994/03/31 16237.26 12150.67
1994/04/30 16774.37 12666.22
1994/05/31 16567.79 12593.49
1994/06/30 16392.20 12771.47
1994/07/31 16826.02 12894.29
1994/08/31 17022.27 13199.56
1994/09/30 16578.12 12783.84
1994/10/31 16918.98 13209.54
1994/11/30 16278.58 12574.68
1994/12/31 16185.62 12653.42
1995/01/31 15514.23 12167.34
1995/02/28 15555.05 12132.42
1995/03/31 16033.99 12889.13
1995/04/30 16492.10 13373.87
1995/05/31 16721.16 13214.45
1995/06/30 16877.33 12982.71
1995/07/31 17626.97 13790.96
1995/08/31 17137.63 13264.89
1995/09/30 17387.51 13523.95
1995/10/31 17043.92 13160.43
1995/11/30 17241.74 13526.60
1995/12/31 17762.33 14071.59
1996/01/31 18095.50 14129.36
1996/02/29 18135.35 14177.13
1996/03/31 18412.72 14478.19
1996/04/30 18924.77 14899.12
1996/05/31 18935.44 14624.95
1996/06/30 19074.12 14707.26
1996/07/31 18508.73 14277.40
1996/08/31 18647.41 14308.69
1996/09/30 19191.47 14688.81
1996/10/31 18999.45 14538.50
1996/11/30 19991.56 15116.96
1996/12/31 20098.24 14922.50
1997/01/31 20098.24 14403.20
1997/02/28 20563.89 14642.29
1997/03/31 20750.73 14697.93
1997/04/30 20925.89 14778.77
1997/05/31 22233.75 15743.38
1997/06/30 23401.49 16613.99
1997/07/31 24195.56 16885.13
1997/08/31 22373.88 15626.35
1997/09/30 24020.40 16504.08
1997/10/31 22338.85 15239.70
1997/11/30 22233.75 15087.31
1997/12/31 22420.59 15221.74
1998/01/31 23156.27 15920.71
1998/02/28 24459.73 16945.21
1998/03/31 25569.25 17470.17
1998/04/30 26287.91 17611.34
1998/05/31 26250.08 17529.09
1998/06/30 25997.92 17664.94
1998/07/31 26199.65 17847.24
1998/08/31 21433.79 15639.36
1998/09/30 21408.57 15163.30
1998/10/31 23362.83 16747.41
1998/11/30 24737.11 17608.72
1998/12/31 25291.87 18306.73
1999/01/31 25644.89 18256.02
1999/02/28 24964.97 17824.27
1999/03/31 25976.71 18571.82
1999/04/30 27132.99 19327.32
1999/05/31 25884.74 18335.26
1999/06/30 27330.08 19053.27
IMATRL PRASUN SHR__CHT 19990630 19990714 113134 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund: Overseas Portfolio on
June 30, 1989. As the chart shows, by June 30, 1999, the value of the
investment would have grown to $27,330 - a 173.30% increase on the
initial investment. For comparison, look at how the Morgan Stanley
Capital International EAFE Index did over the same period. With
dividends and capital gains, if any, reinvested, the same $10,000
investment would have grown to $19,053 - a 90.53% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE 30, 1999
% OF FUND'S INVESTMENTS
Elf Aquitaine (France) 1.8
Nokia AB (Finland) 1.7
BP Amoco PLC (United Kingdom) 1.6
Shell Transport & Trading Co. 1.5
PLC (Reg.) (United Kingdom)
SmithKline Beecham PLC 1.4
(United Kingdom)
TOP FIVE MARKET SECTORS AS OF JUNE 30, 1999
% OF FUND'S INVESTMENTS
FINANCE 21.2
UTILITIES 17.4
HEALTH 8.0
ENERGY 7.1
TECHNOLOGY 7.0
TOP FIVE COUNTRIES AS OF JUNE 30, 1999
(EXCLUDING CASH EQUIVALENTS) % OF FUND'S INVESTMENTS
Japan 22.7
United Kingdom 19.3
France 12.1
Germany 8.3
Netherlands 6.7
TOP COUNTRIES ARE BASED ON THE LOCATION OF THE ISSUER OF EACH
SECURITY, INDICATING WHERE THE FUND IS EXPOSED TO POLITICAL AND CREDIT
RISKS. PERCENTAGES ARE ADJUSTED FOR THE EFFECT OF OPEN FUTURES
CONTRACTS, IF APPLICABLE.
VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). The initial offering of Service Class shares
took place on November 3, 1997. Performance for Service Class shares
reflects an asset based distribution fee (12b-1 fee), and returns
prior to November 3, 1997 are those of Initial Class and do not
include the effects of Service Class' 12b-1 fee. Had Service Class
shares' 12b-1 fee been reflected, returns prior to November 3, 1997
would have been lower. If Fidelity had not reimbursed certain fund
expenses, the past 10 year total return would have been lower.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
VIP: OVERSEAS - SERVICE CLASS 5.03% 10.73% 10.56%
MSCI EAFE 7.86% 8.33% 6.66%
AVERAGE ANNUAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate
each year.
You can compare the fund's returns to the performance of the Morgan
Stanley Capital International Europe, Australasia, Far East (EAFE)
Index - a market capitalization-weighted index that is designed to
represent the performance of developed stock markets outside the
United States and Canada. As of June 30, 1999, the index included over
1,000 equity securities of companies domiciled in 21 countries.
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.
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, THE TOTAL RETURNS 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. Foreign investments involve greater risks and
potential rewards than U.S. investments. These risks include political
and economic uncertainties of foreign countries, as well as the risk
of currency fluctuations.
(checkmark)UNDERSTANDING PERFORMANCE
Many markets around the globe offer the
potential for significant growth over time;
however, investing in foreign markets means
assuming greater risks than investing in the
United States. Factors like changes in a country's
financial markets, its local political and
economic climate, and the fluctuating value of
its currency create these risks. For these reasons
an international fund's performance may be
more volatile than a fund that invests exclusively
in the United States.
$10,000 OVER 10 YEARS
VIP OVERSEAS - SC MS EAFE (NET MA TAX)
00495 MS001
1989/06/30 10000.00 10000.00
1989/07/31 10935.39 11255.73
1989/08/31 10858.24 10749.52
1989/09/30 11533.27 11239.18
1989/10/31 10906.46 10787.62
1989/11/30 11494.70 11329.90
1989/12/31 12217.94 11747.95
1990/01/31 12054.00 11310.82
1990/02/28 11772.65 10521.39
1990/03/31 12217.63 9425.31
1990/04/30 12285.35 9350.51
1990/05/31 13088.25 10417.42
1990/06/30 13378.45 10325.66
1990/07/31 14055.60 10471.11
1990/08/31 12623.92 9454.28
1990/09/30 11424.41 8136.68
1990/10/31 12488.49 9404.53
1990/11/30 12101.55 8849.78
1990/12/31 12014.49 8993.14
1991/01/31 12130.57 9284.03
1991/02/28 12539.25 10279.26
1991/03/31 12172.49 9662.17
1991/04/30 12440.12 9757.06
1991/05/31 12469.86 9858.87
1991/06/30 11785.90 9134.43
1991/07/31 12370.74 9583.22
1991/08/31 12410.39 9388.60
1991/09/30 12915.92 9917.74
1991/10/31 13005.13 10058.33
1991/11/30 12539.25 9588.76
1991/12/31 12975.40 10083.95
1992/01/31 13134.00 9868.56
1992/02/29 12860.30 9515.35
1992/03/31 12599.07 8887.18
1992/04/30 13382.75 8929.42
1992/05/31 13965.48 9527.12
1992/06/30 13704.26 9075.23
1992/07/31 12830.16 8842.96
1992/08/31 12719.64 9397.60
1992/09/30 12207.24 9212.02
1992/10/31 11373.33 8728.81
1992/11/30 11313.04 8810.95
1992/12/31 11584.32 8856.52
1993/01/31 11915.87 8855.44
1993/02/28 12149.27 9122.93
1993/03/31 12992.11 9918.14
1993/04/30 13855.51 10859.39
1993/05/31 14153.59 11088.74
1993/06/30 13804.12 10915.74
1993/07/31 14348.88 11297.84
1993/08/31 15119.78 11907.73
1993/09/30 15037.55 11639.70
1993/10/31 15582.31 11998.40
1993/11/30 14924.48 10949.62
1993/12/31 15911.23 11740.26
1994/01/31 16949.36 12732.84
1994/02/28 16650.42 12697.58
1994/03/31 16237.26 12150.67
1994/04/30 16774.37 12666.22
1994/05/31 16567.79 12593.49
1994/06/30 16392.20 12771.47
1994/07/31 16826.02 12894.29
1994/08/31 17022.27 13199.56
1994/09/30 16578.12 12783.84
1994/10/31 16918.98 13209.54
1994/11/30 16278.58 12574.68
1994/12/31 16185.62 12653.42
1995/01/31 15514.23 12167.34
1995/02/28 15555.05 12132.42
1995/03/31 16033.99 12889.13
1995/04/30 16492.10 13373.87
1995/05/31 16721.16 13214.45
1995/06/30 16877.33 12982.71
1995/07/31 17626.97 13790.96
1995/08/31 17137.63 13264.89
1995/09/30 17387.51 13523.95
1995/10/31 17043.92 13160.43
1995/11/30 17241.74 13526.60
1995/12/31 17762.33 14071.59
1996/01/31 18095.50 14129.36
1996/02/29 18135.35 14177.13
1996/03/31 18412.72 14478.19
1996/04/30 18924.77 14899.12
1996/05/31 18935.44 14624.95
1996/06/30 19074.12 14707.26
1996/07/31 18508.73 14277.40
1996/08/31 18647.41 14308.69
1996/09/30 19191.47 14688.81
1996/10/31 18999.45 14538.50
1996/11/30 19991.56 15116.96
1996/12/31 20098.24 14922.50
1997/01/31 20098.24 14403.20
1997/02/28 20563.89 14642.29
1997/03/31 20750.73 14697.93
1997/04/30 20925.89 14778.77
1997/05/31 22233.75 15743.38
1997/06/30 23401.49 16613.99
1997/07/31 24195.56 16885.13
1997/08/31 22373.88 15626.35
1997/09/30 24020.40 16504.08
1997/10/31 22338.85 15239.70
1997/11/30 22233.75 15087.31
1997/12/31 22420.59 15221.74
1998/01/31 23156.27 15920.71
1998/02/28 24459.73 16945.21
1998/03/31 25569.25 17470.17
1998/04/30 26275.30 17611.34
1998/05/31 26237.47 17529.09
1998/06/30 25985.31 17664.94
1998/07/31 26187.04 17847.24
1998/08/31 21421.18 15639.36
1998/09/30 21395.96 15163.30
1998/10/31 23350.22 16747.41
1998/11/30 24711.89 17608.72
1998/12/31 25266.65 18306.73
1999/01/31 25619.68 18256.02
1999/02/28 24926.61 17824.27
1999/03/31 25951.53 18571.82
1999/04/30 27094.71 19327.32
1999/05/31 25859.55 18335.26
1999/06/30 27291.81 19053.27
IMATRL PRASUN SHR__CHT 19990630 19990714 113135 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Variable Insurance Products Fund: Overseas Portfolio -
Service Class on June 30, 1989. As the chart shows, by June 30, 1999,
the value of the investment would have grown to $27,292 - a 172.92%
increase on the initial investment. For comparison, look at how the
Morgan Stanley Capital International EAFE Index did over the same
period. With dividends and capital gains, if any, reinvested, the same
$10,000 investment would have grown to $19,053 - a 90.53% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE 30, 1999
% OF FUND'S INVESTMENTS
Elf Aquitaine (France) 1.8
Nokia AB (Finland) 1.7
BP Amoco PLC (United Kingdom) 1.6
Shell Transport & Trading Co. 1.5
PLC (Reg.) (United Kingdom)
SmithKline Beecham PLC 1.4
(United Kingdom)
TOP FIVE MARKET SECTORS AS OF JUNE 30, 1999
% OF FUND'S INVESTMENTS
FINANCE 21.2
UTILITIES 17.4
HEALTH 8.0
ENERGY 7.1
TECHNOLOGY 7.0
TOP FIVE COUNTRIES AS OF JUNE 30, 1999
(EXCLUDING CASH EQUIVALENTS) % OF FUND'S INVESTMENTS
Japan 22.7
United Kingdom 19.3
France 12.1
Germany 8.3
Netherlands 6.7
TOP COUNTRIES ARE BASED ON THE LOCATION OF THE ISSUER OF EACH
SECURITY, INDICATING WHERE THE FUND IS EXPOSED TO POLITICAL AND CREDIT
RISKS. PERCENTAGES ARE ADJUSTED FOR THE EFFECT OF OPEN FUTURES
CONTRACTS, IF APPLICABLE.
VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
(photograph of Richard Mace)
An interview with
Richard Mace,
Portfolio Manager
of Overseas Portfolio
Q. HOW DID THE FUND PERFORM COMPARED TO ITS BENCHMARK, RICK?
A. The fund fared well. For the six months that ended June 30, 1999,
the fund's return topped the 4.08% return of the Morgan Stanley
Capital International EAFE Index, which tracks the performance of
stocks in Europe, Australasia and the Far East. For the 12 months that
ended June 30, 1999, the fund's return lagged the 7.86% return of the
EAFE index.
Q. WHAT FACTORS CONTRIBUTED POSITIVELY TO THE FUND'S PERFORMANCE
DURING THE PERIOD?
A. Good stock selection in several industries - including
telecommunications - helped performance. The telecommunications
industry has undergone a major transformation, sparked primarily by
worldwide privatization, deregulation and technological advances. This
spawned a rash of mergers, acquisitions and alliances among industry
participants seeking to expand their global market shares and defend
their positions at home. The fund's stakes in companies such as
Japan's NTT Mobile Communications and DDI Corp., and the United
Kingdom's British Telecommunications and Vodafone AirTouch, performed
very well. The fund's energy-related investments - including France's
Elf Aquitaine, and the U.K.'s BP Amoco and Shell Transport & Trading -
also performed well as the price of oil rebounded sharply.
Q. WHICH OTHER INVESTMENTS STOOD OUT AMONG THE FUND'S TOP
CONTRIBUTORS?
A. The fund's longstanding position in Finnish telecom company Nokia
generated good results. When I looked at the stock a year and a half
ago, it was trading at a price-to-earnings (P/E) ratio of 20 and the
company was growing its earnings at a 30% to 40% clip. On that basis,
when I compared Nokia to its counterpart growth stocks in the U.S.,
the stock should have been trading at a higher P/E multiple. Thus, I
felt the valuation was attractive.
Q. WHAT FACTORS HINDERED THE FUND'S PERFORMANCE?
A. A major underweighting - relative to the EAFE index - in Japanese
banks detracted from performance. Bank shares in general soared
following the Japanese government's unveiling of a plan to inject
capital into the country's troubled banking system. I could find no
great benefit to the shareholders of these banks, so I decided to
avoid them. In addition, the fund's food and household products
positions declined during the period, namely Swiss-based Nestle and
the U.K.-based Unilever. These companies were hit particularly hard,
as investors became concerned that economic weakness would erode sales
growth.
Q. THE FUND'S COMBINED INVESTMENTS IN JAPAN, THE U.K. AND FRANCE
TOTALED AROUND 54% AT THE CLOSE OF THE PERIOD. HOW DID YOU POSITION
THE FUND WITHIN THESE MARKETS AND HOW DID EACH PERFORM?
A. The fund was underweighted - at approximately 23% and 19%,
respectively - in both Japan and the U.K. relative to the EAFE index
during the period. At 12%, the fund was overweighted in France. The
underweighting in Japan hurt somewhat, as the Japanese market turned
the corner and beat the EAFE's return over the past six months. The
fund's U.K. positions, while moderately underweighted relative to the
index, outperformed it. The fund's investments in France performed
well for the most part, but the weak performance of the euro muted
much of that performance. It's important to note that the fund's
country weightings are accumulated strictly as a result of my stock
selection process. If our research team uncovers more stocks that meet
my investing criteria in a particular country, the fund may be
overweighted in that market.
Q. WHAT'S YOUR OUTLOOK?
A. I'm optimistic that Europe's economies can continue to improve.
Since the beginning of 1999, the European Central Bank has cut
interest rates and the euro has depreciated 12% against the dollar.
This could bode well for European exporters. Consumer spending is also
expected to be fairly strong, and stronger domestic growth could allow
more small-company stocks to perform well. My outlook on Japan is a
bit more tentative. We've begun to see signs of gradual improvement,
but nothing to write home about yet. I'd like to see more concrete
evidence of a turnaround in Japan before I commit to that market.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET OR OTHER CONDITIONS. FOR MORE INFORMATION, SEE PAGE 3.
(checkmark)FUND FACTS
GOAL: seeks long-term growth of capital primarily by investments in
foreign securities
START DATE: January 28, 1987
SIZE: as of June 30, 1999, more than $2.2
billion
MANAGER: Richard Mace, since 1996;
joined Fidelity in 1987
VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO
INVESTMENTS JUNE 30, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 91.7%
SHARES VALUE (NOTE 1)
AUSTRALIA - 2.6%
AMP Ltd. 222,400 $ 2,450,915
Australia & New Zealand 910,042 6,745,668
Banking Group Ltd.
Brambles Industries Ltd. 50,600 1,343,761
Broken Hill Proprietary Co. 497,654 5,811,044
Ltd. (The)
Cable & Wireless Optus Ltd. 1,277,200 2,931,608
(a)
Coles Myer Ltd. 420,326 2,465,266
Commonwealth Bank of Australia 116,600 1,871,122
CSR Ltd. 248,800 717,171
Fosters Brewing Group Ltd. 541,900 1,539,619
Goodman Fielder Ltd. 1,101,900 990,372
National Australia Bank Ltd. 418,100 6,974,431
News Corp. Ltd. 652,382 5,611,041
News Corp. Ltd. sponsored ADR 44,200 1,395,063
(ltd. vtg.)
Rio Tinto Ltd. 235,600 3,894,260
WMC Ltd. 2,027,296 8,779,109
Woolworths Ltd. 571,300 1,915,530
55,435,980
BELGIUM - 0.4%
Electrabel SA 12,900 4,176,799
Fortis B 128,700 4,053,922
8,230,721
BERMUDA - 0.0%
Pacific Century Insurance 194,000 157,026
Holdings Ltd.
CANADA - 1.0%
BCE, Inc. 295,600 14,500,103
Celestica, Inc. (sub-vtg.) 50,500 2,199,255
Cinar Films, Inc. Class B 136,500 3,344,250
(sub. vtg.) (a)
Newbridge Networks Corp. (a) 33,000 947,563
Noranda, Inc. 108,400 1,437,725
22,428,896
DENMARK - 0.6%
Carlsberg AS Class B 58,800 2,444,229
Den Danske Bank Group AS 30,400 3,285,576
Ratin AS Class B 15,100 1,767,978
Tele Danmark AS Class B 39,000 1,912,983
Unidanmark AS Class A 43,200 2,873,216
12,283,982
FINLAND - 2.5%
Asko OY Class A 32,100 524,984
Helsinki Telephone Corp. 53,400 2,541,023
Class E
Nokia AB 404,600 37,046,179
Sampo Insurance Co. Ltd. 97,800 2,842,855
Sonera Group PLC (e) 74,500 1,633,810
UPM-Kymmene Corp. 269,100 8,351,115
Valmet OY 45,800 521,156
53,461,122
SHARES VALUE (NOTE 1)
FRANCE - 11.9%
Alcatel Alsthom Compagnie 45,550 $ 6,462,407
Generale d'Electricite SA
(RFD)
AXA SA de CV (a) 136,726 16,731,904
Banque Nationale de Paris 205,800 17,201,497
Canal Plus SA 9,000 2,533,265
Cap Gemini SA 34,800 5,486,226
Castorama Dubois 22,900 5,448,448
Investissements SA
Club Mediterranee SA (a) 22,000 2,341,788
Coflexip SA sponsored ADR 83,400 3,627,900
Compagnie de St. Gobain 27,600 4,411,102
Compagnie Financiere de 51,200 5,757,169
Paribas Class A (Reg.) (a)
Elf Aquitaine 268,637 39,523,204
France Telecom SA 206,000 15,609,333
Groupe Danone 36,700 9,491,079
L'Oreal SA 5,000 3,390,410
Lafarge SA 29,821 2,844,216
Lagardere S.C.A. (Reg.) 67,400 2,516,962
Michelin SA (Compagnie 66,519 2,729,716
Generale des Etablissements)
Class B
Pechiney SA Class A 15,996 689,682
Pinault Printemps SA 17,000 2,926,252
Rhone-Poulenc SA Class A 148,172 6,834,432
Sanofi-Synthelabo SA (a) 264,968 11,279,056
Scor SA 96,500 4,801,555
Seita 29,700 1,720,497
Societe Generale, France 53,000 9,369,738
Class A (a)
Suez Lyonnaise des Eaux 72,000 13,026,622
Television Francaise 1 SA 34,900 8,159,121
(T.F.1)
Total Fina SA Class B 158,954 20,485,195
Union Assurances Federales SA 48,499 5,769,526
Valeo SA 28,700 2,375,097
Vivendi SA 308,800 25,091,867
258,635,266
GERMANY - 7.6%
Allianz AG (Reg.) 42,800 11,965,173
BASF AG 315,100 14,081,264
Bayer AG 206,600 8,644,868
Bayerische Hypo-und 53,500 3,485,507
Vereinsbank AG
Continental Gummi-Werke AG 36,600 871,179
DaimlerChrysler AG (Reg.) 153,011 13,598,849
Deutsche Bank AG 156,900 9,579,253
Deutsche Lufthansa AG (Reg.) 107,600 1,966,792
Deutsche Telekom AG 571,200 23,930,553
FAG Kugelfischer Georg 131,900 1,352,160
Schaefer AG
Fresenius Medical Care AG 31,100 1,857,898
Hoechst AG 39,000 1,773,099
Holzmann (Phillip) AG (a) 2,100 360,609
Mannesmann AG 190,600 28,727,111
Metro AG 46,100 2,913,746
Munich Reinsurance
AG: (Reg.) 29,946 5,563,584
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
GERMANY - CONTINUED
Munich Reinsurance AG: -
continued
(RFD) 15,646 $ 2,879,312
RWE AG 101,200 4,699,370
Schering AG (a) 18,300 1,935,637
Siemens AG 123,600 9,588,073
Veba AG 164,200 9,715,803
Viag AG 11,800 5,622,319
165,112,159
HONG KONG - 0.5%
Cheung Kong Holdings Ltd. 276,000 2,454,535
Dah Sing Financial Holdings 774,000 2,947,878
Ltd.
Dao Heng Bank Group Ltd. 630,000 2,825,731
Wing Hang Bank Ltd. 578,000 1,858,701
10,086,845
HUNGARY - 0.1%
Matav RT sponsored ADR 38,400 1,056,000
IRELAND - 0.8%
Bank of Ireland, Inc. (Great 575,719 9,720,832
Britain)
CRH PLC 164,195 2,921,446
Elan Corp. PLC sponsored ADR 172,800 4,795,200
(a)
17,437,478
ITALY - 3.5%
Assicurazioni Generali Spa 350,200 12,186,574
Banca Commerciale Italiana Spa 761,800 5,584,080
Banca di Roma 1,486,150 2,150,750
Eni Spa sponsored ADR 1,837,900 10,874,954
Italgas Spa 342,300 1,439,031
Olivetti & Co. Spa 1,883,500 4,545,586
San Paolo-IMI Spa 479,100 6,554,872
Telecom Italia Mobile Spa 1,313,900 7,874,995
Telecom Italia Spa 1,932,324 20,325,539
Unicredito Italiano Spa 1,065,800 4,702,234
76,238,615
JAPAN - 20.9%
Aiful Corp. 27,200 3,325,255
Aiful Corp. (e) 65,200 7,970,832
Aiwa Co. Ltd. 42,300 1,395,752
Alps Electric Co. Ltd. 46,000 1,075,768
Aoyama Trading Co. Ltd. 50,900 1,603,943
Asahi Chemical Industry Co. 328,000 1,815,533
Ltd.
Bank of Tokyo-Mitsubishi Ltd. 103,000 1,463,964
Banyu Pharmaceutical Co. Ltd. 315,000 5,196,948
Canon, Inc. 180,000 5,242,500
Dai Nippon Printing Co. Ltd. 140,000 2,234,688
Dai-Ichi Kangyo Bank Ltd. 476,000 3,062,735
Dainippon Screen 224,000 1,154,877
Manufacturing Co. Ltd.
Daiwa Securities Co. Ltd. 989,000 6,526,707
DDI Corp. 3,828 23,777,968
SHARES VALUE (NOTE 1)
Fancl Corp. 13,000 $ 2,359,249
Fuji Bank Ltd. 902,000 6,279,959
Fuji Machine Manufacturing 36,000 1,107,692
Co. Ltd.
Fuji Photo Film Co. Ltd. 137,000 5,175,995
Furukawa Electric Co. Ltd. 1,590,000 7,279,439
Hirose Electric Co. Ltd. 11,500 1,191,503
Hitachi Ltd. 1,352,000 12,767,951
Honda Motor Co. Ltd. 393,000 17,046,376
Hoya Corp. 29,000 1,633,904
Ito-Yokado Co. Ltd. 320,000 21,381,729
Kao Corp. 242,000 6,787,379
Kirin Brewery Co. Ltd. 1,715,000 20,513,509
Koa Denko Co. Ltd. 64,000 697,942
Kobe Steel Ltd. Ord. 571,000 508,707
Kokusai Denshin Denwa 99,800 7,154,152
Kyocera Corp. 150,000 8,785,317
Matsushita Electric 869,000 17,233,357
Industrial Co. Ltd.
Matsushita Electric Works Co. 105,000 1,011,673
Ltd.
Matsushita-Kotobuk 73,000 2,059,476
Electronics Industries Ltd.
Minolta Co. Ltd. 871,000 4,454,692
Mitsubishi Electric Corp. 2,602,000 9,980,863
Mitsubishi Estate Co. Ltd. 646,000 6,293,471
Mitsubishi Trust & Banking 427,000 4,142,314
Corp.
Mitsui Fudosan Co. Ltd. 288,000 2,328,233
NEC Corp. 291,000 3,612,745
Nichicon Corp. 167,000 2,431,471
Nikko Securities Co. Ltd. 1,688,000 10,875,051
Nintendo Co. Ltd. 44,900 6,300,260
Nippon Computer Systems Corp. 132,000 2,139,658
Nippon Telegraph & Telephone 1,368 15,911,570
Corp.
Nippon Zeon Co. Ltd. 153,000 1,111,924
Nomura Securities Co. Ltd. 916,000 10,707,132
NTT Mobile Communication 756 10,102,867
Network, Inc.
Omron Corp. 1,524,000 26,400,496
Orix Corp. 60,900 5,425,614
Ricoh Co. Ltd. 465,000 6,390,514
Rohm Co. Ltd. 13,000 2,032,172
Ryohin Keikaku Co. Ltd. 12,200 3,064,467
Sankyo Co. Ltd. 108,000 2,717,261
Secom Ltd. 58,000 6,028,460
Sekisui Chemical Co. Ltd. 5,000 28,954
Sharp Corp. 759,000 8,953,352
Shin-Etsu Chemical Co. Ltd. 141,000 4,710,662
Shohkoh Fund & Co. Ltd. 6,600 4,725,758
Softbank Corp. 55,700 11,261,762
Sony Corp. 60,000 6,622,500
Sumitomo Realty & 474,000 1,775,178
Development Co. Ltd.
Takeda Chemical Industries 582,000 26,933,555
Ltd.
Takefuji Corp. 73,100 7,543,667
Takefuji Corp. (e) 36,400 3,756,354
Terumo Corp. 202,000 4,490,741
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
JAPAN - CONTINUED
THK Co. Ltd. 348,400 $ 8,047,185
Toyota Motor Corp. 125,000 3,949,268
Yahoo Japan Corp. 6 2,242,112
Yamaha Motor Co. Ltd. 242,000 2,243,828
Yamanouchi Pharmaceutical Co. 141,000 5,385,276
Ltd.
451,944,166
LUXEMBOURG - 0.1%
Stolt Comex Seaway SA 103,100 1,121,213
MALAYSIA - 0.1%
Oriental Holdings BHD 1,116,000 3,054,316
MEXICO - 0.8%
Banacci SA de CV Class O (a) 1,236,000 3,152,657
Empresas ICA Sociedad 255,400 1,723,950
Controladora SA de CV
sponsored ADR
Grupo Elektra SA de CV:
ADR 96,400 566,350
Unit 584,000 342,796
Grupo Financiero Bancomer SA 22,638,000 8,262,749
de CV Series A
Tubos de Acero de Mexico SA 326,700 3,552,863
sponsored ADR
17,601,365
NETHERLANDS - 6.6%
ABN AMRO Holding NV 323,000 7,016,674
Aegon NV 69,500 5,057,762
Ahrend (KON) NV 50,890 887,037
Akzo Nobel NV 202,600 8,550,846
CSM NV 38,400 1,924,574
Equant NV (Reg.) 45,200 4,254,450
Exact Holding NV (a)(e) 100 2,591
Fortis Amev NV 336,800 10,434,663
Heineken NV 94,600 4,858,698
ING Groep NV 372,086 20,207,479
Koninklijke (Royal) Philips 197,996 19,590,742
Electronics NV
Koninklijke Ahold NV 225,477 7,790,372
Koninklijke KPN NV 196,500 9,248,759
Nutreco Holding NV 69,433 2,470,779
Royal Dutch Petroleum Co. 80,980 4,879,044
(Hague Registry)
Samas Groep NV 78,200 1,160,829
STMicroelectronics NV 77,000 5,341,875
TNT Post Group NV 81,500 1,951,723
Unilever NV 169,817 11,479,851
Vedior NV 192,700 3,289,085
Vendex NV CVA 172,400 4,618,985
Vnu NV 138,000 5,531,721
Wolters Kluwer NV 59,500 2,375,821
142,924,360
NEW ZEALAND - 0.1%
Lion Nathan Ltd. 495,600 1,194,988
SHARES VALUE (NOTE 1)
PORTUGAL - 0.1%
Electricidade de Portugal SA 149,600 $ 2,702,000
SINGAPORE - 0.5%
Development Bank of Singapore 362,000 4,427,874
Ltd. (For. Reg.)
Oversea-Chinese Banking Corp. 220,000 1,837,107
(For. Reg.)
Overseas Union Bank Ltd. 387,300 1,867,604
United Overseas Bank Ltd. 312,000 2,183,358
(For. Reg.)
10,315,943
SPAIN - 2.9%
Argentaria Caja Postal y 118,600 2,710,129
Banco Hipotecario de Espana
SA
Banco Bilbao Vizcaya SA (Reg.) 255,100 3,697,074
Banco Santander Central 1,158,168 12,100,476
Hispano SA
Endesa SA 314,700 6,732,196
Iberdrola SA 336,700 5,144,381
Tabacalera SA Series A 96,900 1,964,669
Telefonica SA (a) 624,600 30,180,147
Union Electrica Fenosa SA 71,400 936,541
63,465,613
SWEDEN - 2.0%
ABB Ltd. 37,263 3,508,196
Electrolux AB 236,400 4,983,178
Ericsson (L.M.) Telefon AB 401,300 13,217,819
Class B
Nordbanken Holding AB 532,200 3,132,349
Skandia Foersaekrings AB 176,100 3,315,854
Skandinaviska Enskilda Banken 178,400 2,091,553
Class A
Svenska Handelsbanken 236,800 2,860,361
Swedish Match Co. 1,572,900 5,643,943
Volvo AB Class B 137,600 4,041,999
42,795,252
SWITZERLAND - 5.8%
ABB Ltd. (Reg.) 50,251 4,748,917
Credit Suisse Group (Reg.) 71,454 12,399,127
Gretag Imaging Holding AG 23,500 2,277,690
(Reg.)
Holderbank Financiere Glarus 1,040 1,231,067
AG (Bearer)
Julius Baer Holding AG 1,392 3,977,913
Nestle SA (Reg.) 14,400 26,018,836
Novartis AG (Reg.) 19,100 27,968,649
Roche Holding AG 1,290 13,297,768
participation certificates
Swatch Group AG (The) (Reg.) 18,000 2,577,732
Swiss Reinsurance Co. (Reg.) 3,000 5,728,293
Swisscom AG 24,700 9,321,055
UBS AG 55,834 16,712,022
126,259,069
TAIWAN - 0.5%
Taiwan Semiconductor 3,093,450 11,827,897
Manufacturing Co. Ltd.
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
UNITED KINGDOM - 19.3%
Abbey National PLC 260,900 $ 4,901,174
Allied Domecq PLC 323,200 3,119,874
Allied Zurich PLC 1,063,500 13,377,732
Amvescap PLC 466,400 4,152,760
Asda Group PLC 857,300 2,937,696
Ashtead Group PLC 790,900 2,183,102
AstraZeneca Group PLC 137,700 5,396,125
BG PLC 618,100 3,777,850
Boots Co. PLC 230,700 2,741,859
BP Amoco PLC 1,955,393 35,359,902
British Aerospace PLC 308,234 2,007,913
British American Tobacco PLC 537,100 5,053,356
British Energy PLC 357,000 3,040,719
British Telecommunications PLC 1,356,300 23,226,721
BTP PLC 144,800 992,368
BTR Siebe PLC 870,700 4,123,499
Cadbury Schweppes PLC 669,600 4,266,887
Caradon PLC 5,074,280 11,965,474
CGU PLC 328,600 4,750,227
Cookson Group PLC 1,151,238 3,885,914
Courtaulds Textiles PLC 552,200 1,419,706
Diageo PLC 770,300 8,049,337
Dixons Group PLC 128,800 2,407,401
Gallaher Group PLC 182,900 1,127,989
General Electric Co. PLC 550,100 5,613,843
Glaxo Wellcome PLC 839,800 23,776,867
Hays PLC 156,400 1,649,121
Hilton Group PLC 382,600 1,517,740
Kingfisher PLC 713,400 8,214,294
Lloyds TSB Group PLC 1,473,800 19,991,773
Marks & Spencer PLC 93,700 542,400
National Grid Group PLC 563,390 3,923,324
National Westminster Bank PLC 146,400 3,105,830
Orange PLC (a) 408,700 5,995,175
Pearson PLC 269,800 5,485,411
Peninsular & Oriental Steam 124,100 1,864,451
Navigation Co.
Prudential Corp. PLC 454,200 6,691,266
Rentokil Initial PLC 3,144,500 12,275,554
Reuters Group PLC 618,600 8,142,365
Rio Tinto PLC (Reg.) 197,500 3,312,981
Royal & Sun Alliance 421,280 3,780,919
Insurance Group PLC
Royal Bank of Scotland Group 254,000 5,176,194
PLC
Sainsbury (J.) PLC 392,700 2,477,623
Schroders PLC 39,300 803,363
Scottish & Newcastle PLC 318,300 3,316,071
Scottish & Southern Energy PLC 356,300 3,647,328
Shell Transport & Trading Co. 4,304,300 33,268,981
PLC (Reg.)
Smith (David S.) Holdings PLC 511,600 1,198,316
SmithKline Beecham PLC 2,317,042 30,614,077
South African Breweries PLC 355,400 3,043,908
(a)
SHARES VALUE (NOTE 1)
Standard Chartered PLC 8,373 $ 136,822
Tarmac PLC 3,569,159 6,699,265
Tomkins PLC 396,800 1,721,150
Unilever PLC 1,494,910 13,921,405
Vodafone AirTouch PLC 1,340,144 26,400,842
Vodafone AirTouch PLC 59,650 11,751,050
sponsored ADR
WPP Group PLC 315,300 2,668,136
416,993,430
UNITED STATES OF AMERICA - 0.5%
Ask Jeeves, Inc. 400 5,600
Baker Hughes, Inc. 69,800 2,338,300
Clarent Corp. 1,400 21,000
Halliburton Co. 65,600 2,968,400
Kaiser Aluminum Corp. (a) 8,200 72,775
McDermott International, Inc. 20,500 579,125
Newmont Mining Corp. 136,800 2,718,900
Noble Drilling Corp. (a) 43,600 858,375
Smith International, Inc. (a) 13,300 577,719
Weatherford International, 39,100 1,432,038
Inc. (a)
11,572,232
TOTAL COMMON STOCKS 1,984,335,934
(Cost $1,517,977,494)
PREFERRED STOCKS - 1.0%
CONVERTIBLE PREFERRED STOCKS
- - 0.3%
AUSTRALIA - 0.3%
WBK STRYPES Trust (Westpac 174,300 5,642,963
Banking Corp.) $3.135
NONCONVERTIBLE PREFERRED
STOCKS - 0.7%
GERMANY - 0.5%
Dyckerhoff AG 7,000 2,121,657
SAP AG (Systeme Anwendungen 15,300 6,205,800
Produkte)
Wella AG 4,300 3,091,454
11,418,911
ITALY - 0.2%
Telecom Italia Spa Risp 742,025 4,049,025
TOTAL NONCONVERTIBLE 15,467,936
PREFERRED STOCKS
TOTAL PREFERRED STOCKS 21,110,899
(Cost $15,760,716)
INVESTMENT COMPANIES - 0.9%
EMERGING MARKETS - 0.2%
Asia Tigers Fund, Inc. 142,400 1,352,800
Templeton Dragon Fund, Inc. 310,500 3,434,906
4,787,706
INVESTMENT COMPANIES -
CONTINUED
SHARES VALUE (NOTE 1)
GERMANY - 0.2%
New Germany Fund, Inc. (The) 370,600 $ 4,516,688
HONG KONG - 0.1%
Asia Pacific Fund, Inc. 209,100 2,051,794
MULTI-NATIONAL - 0.4%
European Warrant Fund, Inc. 118,700 1,884,363
Morgan Stanley Asia-Pacific 670,800 6,456,450
Fund, Inc.
8,340,813
TOTAL INVESTMENT COMPANIES 19,697,001
(Cost $19,802,736)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CONVERTIBLE BONDS - 0.7%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D)
FRANCE - 0.2%
Groupe Danone 3% 1/1/02 A1 EUR 1,547,358 2,617,159
Suez Lyonnaise des Eaux 4% A+ EUR 1,189,102 2,715,431
1/1/06
TOTAL FRANCE 5,332,590
NETHERLANDS - 0.1%
Koninklijke Ahold NV 3% Baa1 NLG 4,750,000 2,864,064
9/30/03
UNITED STATES OF AMERICA - 0.4%
Nestle Holdings, Inc. 3% - 5,480,000 6,432,150
6/17/02
Roche Holdings, Inc. liquid - 3,160,000 1,777,500
yield option note 0%
4/20/10 (e)
TOTAL UNITED STATES OF AMERICA 8,209,650
TOTAL CONVERTIBLE BONDS 16,406,304
(Cost $18,437,429)
GOVERNMENT OBLIGATIONS - 0.7%
UNITED STATES OF AMERICA - 0.7%
U.S. Treasury Bills, yield at - 15,000,000 14,917,721
date of purchase 4.34% to
4.78% 7/1/99 to 9/30/99 (f)
(Cost $14,915,527)
CASH EQUIVALENTS - 5.0%
SHARES
Taxable Central Cash Fund (c) 108,338,727 108,338,727
(Cost $108,338,727)
TOTAL INVESTMENT IN $ 2,164,806,586
SECURITIES - 100%
(Cost $1,695,232,629)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FUTURES CONTRACTS
EXPIRATION DATE UNDERLYING FACE AMOUNT UNREALIZED GAIN/(LOSS)
PURCHASED
253 Nikkei 225 Index Sept. 1999 $ 22,460,075 $ 1,494,740
Contracts (Japan)
149 Topix Index Contracts Sept. 1999 17,196,379 1,054,349
(Japan)
$ 39,656,454 $ 2,549,089
</TABLE>
THE FACE VALUE OF FUTURES PURCHASED AS A PERCENTAGE OF INVESTMENT IN
SECURITIES - 1.8%
CURRENCY ABBREVIATIONS
EUR - European Monetary Unit
NLG - Dutch guilder
SECURITY TYPE ABBREVIATIONS
STRYPES - Structured Yield Product
Exchangeable for Common Stock
LEGEND
(a) Non-income producing
(b) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(c) At period end, the seven-day yield on the Taxable Central Cash
Fund was 4.84%. The yield refers to the income earned by investing in
the fund over the seven-day period, expressed as an annual percentage.
(d) Principal amount is stated in United States dollars unless
otherwise noted.
(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 $15,141,087 or 0.7% of net assets.
(f) Security or a portion of the security was pledged to cover margin
requirements for futures contracts. At the period end, the value of
securities pledged amounted to $5,700,000.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $813,754,126 and $840,324,471, respectively.
The market value of futures contracts opened and closed during the
period amounted to $109,159,004 and $142,544,989, respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company.
The commissions paid to these affiliated firms were $825 for the
period.
INCOME TAX INFORMATION
At June 30, 1999, the aggregate cost of investment securities for
income tax purposes was $1,707,366,742. Net unrealized appreciation
aggregated $457,439,844, of which $531,467,130 related to appreciated
investment securities and $74,027,286 related to depreciated
investment securities.
MARKET SECTOR DIVERSIFICATION (UNAUDITED)
As a Percentage of Total Value of Investment in Securities
AEROSPACE & DEFENSE 0.1%
BASIC INDUSTRIES 3.8
CASH EQUIVALENTS 5.0
CONSTRUCTION & REAL ESTATE 2.4
DURABLES 4.5
ENERGY 7.1
FINANCE 21.2
GOVERNMENT OBLIGATIONS 0.7
HEALTH 8.0
HOLDING COMPANIES 0.3
INDUSTRIAL MACHINERY & 5.4
EQUIPMENT
INVESTMENT COMPANIES 0.9
MEDIA & LEISURE 2.3
NONDURABLES 6.6
PRECIOUS METALS 0.5
RETAIL & WHOLESALE 3.5
SERVICES 2.9
TECHNOLOGY 7.0
TRANSPORTATION 0.4
UTILITIES 17.4
100.0%
VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 2,164,806,586
value (cost $1,695,232,629)
- - See accompanying schedule
Receivable for investments 52,491,547
sold
Receivable for fund shares 33,878,668
sold
Dividends receivable 6,352,043
Interest receivable 489,592
Other receivables 55,105
TOTAL ASSETS 2,258,073,541
LIABILITIES
Payable to custodian bank $ 1,109,260
Payable for investments 46,326,496
purchased
Payable for fund shares 460,624
redeemed
Accrued management fee 1,285,467
Distribution fees payable 4,658
Payable for daily variation 366,336
on futures contracts
Other payables and accrued 418,210
expenses
TOTAL LIABILITIES 49,971,051
NET ASSETS $ 2,208,102,490
Net Assets consist of:
Paid in capital $ 1,622,113,054
Undistributed net investment 5,415,058
income
Accumulated undistributed net 108,549,962
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation 472,024,416
(depreciation) on
investments and assets and
liabilities in foreign
currencies
NET ASSETS $ 2,208,102,490
INITIAL CLASS: NET ASSET $20.80
VALUE, offering price and
redemption price per share
($2,144,918,224 (divided
by) 103,130,270 shares)
SERVICE CLASS: NET ASSET $20.77
VALUE, offering price and
redemption price per share
($63,184,266 (divided by)
3,042,463 shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30,
1999 (UNAUDITED)
INVESTMENT INCOME $ 30,054,894
Dividends
Interest 3,305,018
33,359,912
Less foreign taxes withheld (3,571,758)
TOTAL INCOME 29,788,154
EXPENSES
Management fee $ 7,714,595
Transfer agent fees 691,895
Distribution fees - Service 22,738
Class
Accounting fees and expenses 484,949
Non-interested trustees' 5,276
compensation
Custodian fees and expenses 710,068
Registration fees 8,712
Audit 23,977
Miscellaneous 30,875
Total expenses before 9,693,085
reductions
Expense reductions (522,927) 9,170,158
NET INVESTMENT INCOME 20,617,996
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities 112,336,696
Foreign currency transactions 40,488
Futures contracts 3,848,156 116,225,340
Change in net unrealized
appreciation (depreciation)
on:
Investment securities 29,187,214
Assets and liabilities in 72,114
foreign currencies
Futures contracts 5,102,727 34,362,055
NET GAIN (LOSS) 150,587,395
NET INCREASE (DECREASE) IN $ 171,205,391
NET ASSETS RESULTING FROM
OPERATIONS
OTHER INFORMATION $ 521,891
Expense reductions Directed
brokerage arrangements
Custodian credits 1,036
$ 522,927
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
ASSETS 1999 (UNAUDITED)
Operations Net investment $ 20,617,996 $ 24,821,303
income
Net realized gain (loss) 116,225,340 46,470,387
Change in net unrealized 34,362,055 174,010,260
appreciation (depreciation)
NET INCREASE (DECREASE) IN 171,205,391 245,301,950
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (31,839,749) (37,913,851)
From net investment income
From net realized gain (51,354,434) (111,746,087)
TOTAL DISTRIBUTIONS (83,194,183) (149,659,938)
Share transactions - net 10,528,562 86,667,359
increase (decrease)
TOTAL INCREASE (DECREASE) 98,539,770 182,309,371
IN NET ASSETS
NET ASSETS
Beginning of period 2,109,562,720 1,927,253,349
End of period (including $ 2,208,102,490 $ 2,109,562,720
undistributed net investment
income of $5,415,058 and
$15,374,087, respectively)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OTHER INFORMATION:
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
1999 (UNAUDITED)
SHARES DOLLARS SHARES DOLLARS
Share transactions Initial 70,526,229 $ 1,408,673,445 83,667,719 $ 1,630,270,593
Class Sold
Reinvested 4,250,326 81,691,268 7,943,861 149,503,507
Redeemed (75,092,389) (1,505,806,021) (88,486,169) (1,726,300,500)
Net increase (decrease) (315,834) $ (15,441,308) 3,125,411 $ 53,473,600
Service Class Sold 3,330,146 $ 66,705,230 1,950,594 $ 38,211,430
Reinvested 78,277 1,502,916 8,320 156,588
Redeemed (2,098,635) (42,238,276) (274,725) (5,174,259)
Net increase (decrease) 1,309,788 $ 25,969,870 1,684,189 $ 33,193,759
Distributions From net $ 31,264,559 $ 37,874,182
investment income Initial
Class
Service Class 575,190 39,669
Total $ 31,839,749 $ 37,913,851
From net realized gain $ 50,426,708 $ 111,629,169
Initial Class
Service Class 927,726 116,918
Total $ 51,354,434 $ 111,746,087
$ 83,194,183 $ 149,659,938
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 1996 1995
Net asset value, beginning of $ 20.06 $ 19.20 $ 18.84 $ 17.06 $ 15.67
period
Income from Investment
Operations
Net investment income .20 D .23 D .30 D .32 D, E .17
Net realized and unrealized 1.35 2.13 1.70 1.88 1.34
gain (loss)
Total from investment 1.55 2.36 2.00 2.20 1.51
operations
Less Distributions
From net investment income (.31) (.38) (.33) (.20) (.06)
From net realized gain (.50) (1.12) (1.31) (.22) (.02)
In excess of net realized gain - - - - (.04)
Total distributions (.81) (1.50) (1.64) (.42) (.12)
Net asset value, end of period $ 20.80 $ 20.06 $ 19.20 $ 18.84 $ 17.06
TOTAL RETURN B, C 8.06% 12.81% 11.56% 13.15% 9.74%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 2,144,918 $ 2,074,843 $ 1,926,322 $ 1,667,601 $ 1,343,134
(000 omitted)
Ratio of expenses to average .93% A .91% .92% .93% .91%
net assets
Ratio of expenses to average .88% A, G .89% G .90% G .92% G .91%
net assets after expense
reductions
Ratio of net investment 1.99% A 1.19% 1.55% 1.84% 1.88%
income to average net assets
Portfolio turnover 85% A 84% 67% 92% 50%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA 1994
Net asset value, beginning of $ 15.48
period
Income from Investment
Operations
Net investment income .19
Net realized and unrealized .08
gain (loss)
Total from investment .27
operations
Less Distributions
From net investment income (.08)
From net realized gain -
In excess of net realized gain -
Total distributions (.08)
Net asset value, end of period $ 15.67
TOTAL RETURN B, C 1.72%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 1,297,701
(000 omitted)
Ratio of expenses to average .92%
net assets
Ratio of expenses to average .92%
net assets after expense
reductions
Ratio of net investment 1.28%
income to average net assets
Portfolio turnover 42%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - SERVICE CLASS
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1998 1997 F
Net asset value, beginning of $ 20.04 $ 19.20 $ 19.36
period
Income from Investment
Operations
Net investment income D .18 .15 .01
Net realized and unrealized 1.36 2.19 (.17)
gain (loss)
Total from investment 1.54 2.34 (.16)
operations
Less Distributions
From net investment income (.31) (.38) -
From net realized gain (.50) (1.12) -
Total distributions (.81) (1.50) -
Net asset value, end of period $ 20.77 $ 20.04 $ 19.20
TOTAL RETURN B, C 8.02% 12.69% (0.83)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 63,184 $ 34,720 $ 931
(000 omitted)
Ratio of expenses to average 1.04% A 1.01% 1.02% A
net assets
Ratio of expenses to average .99% A, G .97% G 1.01% A, G
net assets after expense
reductions
Ratio of net investment 1.89% A .80% .31% A
income to average net assets
Portfolio turnover 85% A 84% 67%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE
TO YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. INCLUSION
OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN. TOTAL RETURNS FOR PERIODS OF LESS THAN ONE
YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED
BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
E INVESTMENT INCOME PER SHARE REFLECTS A SPECIAL DIVIDEND
WHICH AMOUNTED TO $.05 PER SHARE.
F FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF SALE
OF SERVICE CLASS SHARES) TO DECEMBER 31, 1997.
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS
WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A
PORTION OF THE CLASS' EXPENSES.
NOTES TO FINANCIAL STATEMENTS
For the period ended June 30, 1999 (Unaudited)
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. Investment Grade Bond
Portfolio, Asset Manager Portfolio, Asset Manager: Growth Portfolio,
Index 500 Portfolio, and Contrafund Portfolio (the funds) are funds of
Variable Insurance Products Fund II. Balanced Portfolio, Growth &
Income Portfolio, Growth Opportunities Portfolio, and Mid Cap
Portfolio (the funds) are funds of Variable Insurance Products Fund
III. The Variable Insurance Products Fund, Variable Insurance Products
Fund II and Variable Insurance Products Fund III (the trusts) are
registered under the Investment Company Act of 1940, as amended (the
1940 Act), as open-end management investment companies organized as
Massachusetts business trusts. 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. Each fund except the Money Market
Portfolio, Index 500 Portfolio and Investment Grade Bond Portfolio
offers two classes of shares: the funds' original class of shares
(Initial Class shares) and Service Class shares. Both classes have
equal rights and voting privileges, except for matters affecting a
single class. Investment income, realized and unrealized capital gains
and losses, the common expenses of the fund, and certain fund-level
expense reductions, if any, are allocated on a pro rata basis to each
class based on the relative net assets of each class to the total net
assets of the fund. Each class of shares differs in its respective
distribution plan.
The financial statements have been prepared in conformity with
generally accepted accounting principles which require management to
make certain estimates and assumptions at the date of the financial
statements. 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.
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. Securities (including restricted securities) for which
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 with remaining maturities of sixty days or less for which
quotations are not readily available are valued at amortized cost or
original cost plus accrued interest, both of which approximate current
value.
HIGH INCOME, ASSET MANAGER AND BALANCED PORTFOLIOS. Equity securities
for which quotations are readily available are valued at the last sale
price, or if no sale price, at the closing bid price. Debt 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 with remaining maturities of sixty days or less for which
quotations are not readily available are valued at amortized cost or
original cost plus accrued interest, both of which approximate current
value.
ASSET MANAGER: GROWTH, EQUITY-INCOME, GROWTH & INCOME, INDEX 500,
GROWTH OPPORTUNITIES, CONTRAFUND, GROWTH AND MID CAP 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 with
remaining maturities of sixty days or less for which quotations are
not readily available 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. If trading or events occurring in other markets
after the close of the principal market in which securities are traded
is expected to materially affect the value of those securities, then
they are valued at their fair value taking this trading or these
events into account. Fair value is determined in good faith under
consistently applied procedures under the general supervision of the
Board of Trustees. Securities (including restricted securities) for
which quotations are not readily available are valued primarily using
dealer-supplied valuations or at their fair value. Short-term
securities with remaining maturities of sixty days or less for which
quotations are not readily available are valued at amortized cost or
original cost plus accrued interest, both of which approximate current
value.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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 prevailing rates of exchange at period end. Purchase
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
and settlement date on purchases and sales of securities. The effects
of changes in foreign currency exchange rates on investments in
securities are included with the net realized and unrealized gain or
loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, each fund is not subject to
U.S. federal income taxes to the extent that it distributes
substantially all of its taxable income for its fiscal year. Each fund
may be subject to foreign taxes on income and gains on investments
which are accrued based upon each fund's understanding of the tax
rules and regulations that exist in the markets in which they invest.
Each fund accrues such taxes as applicable. 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 discount, is accrued as earned.
INVESTMENT GRADE BOND, HIGH INCOME, ASSET MANAGER, BALANCED, ASSET
MANAGER: GROWTH, EQUITY-INCOME, GROWTH & INCOME, INDEX 500, GROWTH
OPPORTUNITIES, CONTRAFUND, GROWTH, MID CAP 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. Non-cash dividends included in dividend income, if
any, are recorded at the fair market value of the securities received.
Interest income, which includes accretion of original issue discount,
is accrued as earned. Investment income is recorded net of foreign
taxes withheld where recovery of such taxes is uncertain.
EXPENSES. Most expenses of each trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
DEFERRED TRUSTEE COMPENSATION. Under a Deferred Compensation Plan (the
Plan) non-interested Trustees must defer receipt of a portion of, and
may elect to defer receipt of an additional portion of, their annual
compensation. Deferred amounts are treated as though equivalent dollar
amounts had been invested in a cross-section of other Fidelity funds.
Deferred amounts remain in the fund until distributed in accordance
with the Plan.
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 dividends and capital gain distributions are declared
separately for each class.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for litigation proceeds, paydown gains/losses on certain
securities, futures transactions, foreign currency transactions,
passive foreign investment companies (PFIC), market discount,
partnerships, non-taxable dividends and losses deferred due to wash
sales. Certain 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.
Undistributed net investment income, accumulated net investment loss
and accumulated undistributed net realized gain (loss) on investments
and foreign currency transactions may include temporary book and tax
basis differences which will reverse in a subsequent period. Any
taxable income or gain remaining at fiscal year end is distributed in
the following year.
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.
2. OPERATING POLICIES.
FOREIGN CURRENCY CONTRACTS. Certain funds use foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
terms. The U.S. dollar value of foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the funds, along with
other affiliated entities of Fidelity Management & Research Company
(FMR), may transfer uninvested cash balances into one or more joint
trading accounts. These balances are invested in one or more
repurchase agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the funds, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement
2. OPERATING POLICIES - CONTINUED
REPURCHASE AGREEMENTS - CONTINUED
(including accrued interest). FMR, the funds' investment adviser, is
responsible for determining that the value of the underlying
securities remains in accordance with the market value requirements
stated above.
TAXABLE CENTRAL CASH FUND. Pursuant to an Exemptive Order issued by
the SEC, the funds may invest in the Taxable Central Cash Fund (the
Cash Fund) managed by Fidelity Investments Money Management, Inc., an
affiliate of FMR. The Cash Fund is an open-end money market fund
available only to investment companies and other accounts managed by
FMR and its affiliates. The Cash Fund seeks preservation of capital,
liquidity, and current income by investing in U.S. Treasury securities
and repurchase agreements for these securities. Income distributions
from the Cash Fund are declared daily and paid monthly from net
interest income. Income distributions earned by the funds are recorded
as interest income in the accompanying financial statements.
INTERFUND LENDING PROGRAM. Pursuant to an Exemptive Order issued by
the SEC, the funds, along with other registered investment companies
having management contracts with FMR, may participate in an interfund
lending program. This program provides an alternative credit facility
allowing the funds to borrow from, or lend money to, other
participating funds. Information regarding each fund's participation
in the program is included under the caption "Other Information" at
the end of each applicable fund's schedule of investments.
DELAYED DELIVERY TRANSACTIONS. Each fund may purchase or sell
securities on a delayed delivery 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. The market values of the securities purchased or sold on a
delayed delivery basis are identified as such in each applicable
fund's schedule of investments. Each fund may receive compensation for
interest forgone in the purchase of a delayed delivery security. With
respect to purchase commitments, each fund identifies securities as
segregated in its custodial records with a value at least equal to the
amount of the commitment. Losses may arise due to changes in the
market value of the underlying securities or if the counterparty does
not perform under the contract.
FUTURES CONTRACTS. Certain funds may use futures contracts to manage
their exposure to the stock market and to fluctuations in currency
values. Buying futures tends to increase a fund's exposure to the
underlying instrument, while selling futures tends to decrease a
fund's exposure to the underlying instrument or hedge other fund
investments. Futures contracts involve, to varying degrees, risk of
loss in excess of the futures variation margin reflected in each
applicable fund's Statement of Assets and Liabilities. The underlying
face amount at value of any open futures contracts at period end is
shown in each applicable fund's schedule of investments under the
caption "Futures Contracts." This amount reflects each contract's
exposure to the underlying instrument at period end. Losses may arise
from changes in the value of the underlying instruments or if the
counterparties do not perform under the contracts' terms. Gains
(losses) are realized upon the expiration or closing of the futures
contracts. Futures contracts are valued at the settlement price
established each day by the board of trade or exchange on which they
are traded.
RESTRICTED SECURITIES. Certain funds are permitted to invest in
securities that are subject to legal or contractual restrictions on
resale. These securities generally 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 $35,000,000, $23,817,743,
$16,009,873, $39 and $827,532 or 2.0%, 0.9%, 0.3%, 0.0% and 0.1% of
net assets of the Money Market, High Income, Asset Manager, Balanced
and Asset Manager: Growth Portfolios, respectively.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. Certain funds are permitted
to invest in loans and loan participations, trade claims or other
receivables. These investments may include standby financing
commitments that obligate the fund to supply additional cash to the
borrower on demand. Loan participations involve a risk of insolvency
of the lending bank or other financial intermediary. At the end of the
period, these investments amounted to $32,103,750 or 1.3% of net
assets of the High Income Portfolio.
3. PURCHASES AND SALES OF INVESTMENTS.
Information regarding purchases and sales of securities (other than
short-term securities), and the market value of futures contracts
opened and closed, is included under the caption "Other Information"
at the end of each applicable fund's schedule of investments.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As each fund's investment adviser, FMR receives a
monthly fee.
For the Money Market Portfolio, 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 the fund and an
income-based fee. The group fee rate is the weighted average of a
series of rates and is based on the monthly average net assets of all
the mutual funds advised by FMR. The rates ranged from .1100% to
.3700% for the period. The annual individual fund fee rate is .03%. In
the event that these rates were lower than the contractual rates in
effect during the period, FMR voluntarily implemented the above rates,
as they resulted in the same or a lower management fee. The
income-based fee is added only when the fund's gross yield exceeds 5%.
At that time the income-based fee would equal 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% of average net
assets.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
For the period, the management fee was equivalent to an annualized
rate of .17% of average net assets. The income-based portion of this
fee was equal to $46,996, or an annualized rate of .01% of the fund's
average net assets.
For the Index 500 Portfolio, FMR receives a fee that is computed daily
at an annual rate of .24% of the fund's 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 the fund. The group fee rate is
the weighted average of a series of rates and is based on the monthly
average net assets of all the mutual funds advised by FMR. The rates
ranged from .1100% to .3700% for the period for the Investment Grade
Bond and High Income Portfolios and .2500% to .5200% for the period
for the Asset Manager, Balanced, Asset Manager: Growth, Equity-Income,
Growth & Income, Growth Opportunities, Contrafund, Growth, Mid Cap and
Overseas Portfolios for the period. The annual individual fund fee
rate is .30% for Investment Grade Bond, Asset Manager: Growth, Growth
Opportunities, Contrafund, Growth and Mid Cap, .45% for High Income
and Overseas, .25% for Asset Manager, .15% for Balanced, and .20% for
Equity-Income and Growth & Income Portfolios. In the event that these
rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee.
For the period, each fund's management fee was equivalent to the
following annualized rates expressed as a percentage of average net
assets:
Money Market .17%
Investment Grade Bond .43%
High Income .59%
Asset Manager .54%
Balanced .44%
Asset Manager: Growth .59%
Equity-Income .49%
Growth & Income .49%
Index 500 .24%
Growth Opportunities .59%
Contrafund .59%
Growth .59%
Mid Cap .59%
Overseas .75%
SUB-ADVISER FEE. As the Money Market and Investment Grade Bond
(effective January 1, 1999) Portfolios' investment sub-adviser,
Fidelity Investments Money Management, 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.
FMR, on behalf of the Overseas Portfolio, entered into sub-advisory
agreements with Fidelity Management & Research (U.K.) Inc., Fidelity
Management & Research (Far East) Inc., and Fidelity International
Investment Advisors (FIIA). In addition, FIIA entered into a
sub-advisory agreement with its subsidiary, Fidelity International
Investment Advisors (U.K.) Limited (FIIA(U.K.)L). 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 FIIA(U.K.)L a fee based on costs incurred
for either service.
FMR and Index 500 Portfolio entered into a sub-advisory agreement with
Bankers Trust Company (Bankers Trust). Bankers Trust receives a
sub-advisory fee for providing investment management, securities
lending and custodial services to the fund. For these services, FMR
pays Bankers Trust fees at an annual rate of .006% of the fund's
average net assets. In addition, the fund pays Bankers Trust fees
equal to 40% of net income from the fund's securities lending program.
For the period, the fund paid Bankers Trust $90,433. This fee is
included in the caption "Management fee and sub-advisory fee" on the
Statement of Operations.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the
1940 Act, the Trustees have adopted separate distribution plans with
respect to each fund's class of shares (collectively referred to as
"the Plans"). Under the Service Class Plan, the class pays Fidelity
Distributors Corporation (FDC), an affiliate of FMR, a distribution
and service fee (12b-1 fee). This fee is based on an annual rate of
.10% of Service Class average net assets. Initial Class shares are not
subject to a 12b-1 fee.
For the period, Service Class paid FDC the following amounts, all of
which were reallowed to insurance companies, for the distribution of
shares and providing shareholder support services:
HIGH INCOME 79,801
ASSET MANAGER 4,736
BALANCED 6,847
ASSET MANAGER: GROWTH 2,475
EQUITY-INCOME 139,714
GROWTH & INCOME 13,601
GROWTH OPPORTUNITIES 98,930
CONTRAFUND 112,767
GROWTH 122,330
MID CAP 367
OVERSEAS 22,738
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations
Company, Inc., (FIIOC), an affiliate of FMR, is the funds' transfer,
dividend disbursing and shareholder servicing agent. FIIOC receives
account fees and asset-based fees that vary according to the account
size and type of account. FIIOC pays a portion of the expenses related
to typesetting, printing and mailing of all shareholder reports,
except for proxy statements.
For the period, each fund's transfer agent fees were equivalent to the
following annualized rates expressed as a percentage of average net
assets:
Money Market, Investment Grade Bond, High Income, Asset Manager,
Balanced, Asset Manager: Growth, Equity-Income, Growth & Income, Index
500, Growth Opportunities, Contrafund, Growth and Overseas .07%
Mid Cap .10%
ACCOUNTING FEES. Fidelity Service Company, Inc. (FSC), an affiliate of
FMR, maintains each fund's accounting records. The fee is based on the
level of average net assets for the month plus out-of-pocket expenses.
MONEY MARKET INSURANCE. Pursuant to an Exemptive Order issued by the
SEC, the Money Market Portfolio, along with other money market funds
advised by FMR or its affiliates, has entered into insurance
agreements with FIDFUNDS Mutual Limited (FIDFUNDS), an affiliated
mutual insurance company, effective January 1, 1999. FIDFUNDS provides
limited coverage for certain loss events including issuer default as
to payment of principal or interest and bankruptcy or insolvency of a
credit enhancement provider. The insurance does not cover losses
resulting from changes in interest rates, ratings downgrades or other
market conditions. The fund may be subject to a special assessment of
up to approximately 2.5 times the fund's annual gross premium if
covered losses exceed certain levels. During the period, the fund paid
premiums of $71,105 to FIDFUNDS, which are being amortized over one
year.
BROKERAGE COMMISSIONS. Certain funds placed a portion of their
portfolio transactions with brokerage firms which are affiliates of
FMR. The commissions paid to these affiliated firms are shown under
the caption "Other Information" at the end of each applicable fund's
schedule of investments.
5. SECURITY LENDING.
Certain funds loaned securities to brokers who paid the funds
negotiated lenders' fees. These fees are included in interest income.
Each applicable fund receives U.S. Treasury obligations and/or cash as
collateral against the loaned securities, in an amount at least equal
to 102% of the market value of the loaned securities at the inception
of each loan. This collateral must be maintained at not less than 100%
of the market value of the loaned securities during the period of the
loan. The market value of the loaned securities is determined at the
close of business of the fund and any additional required collateral
is delivered to the fund on the next business day. Information
regarding the value of securities loaned and the value of collateral
at period end is included under the caption "Other Information" at the
end of each applicable fund's schedule of investments.
6. BANK BORROWINGS.
Each fund is permitted to have bank borrowings for temporary or
emergency purposes to fund shareholder redemptions. Each fund has
established borrowing arrangements with certain banks. The interest
rate on the borrowings is the bank's base rate, as revised from time
to time. Information regarding a fund's participation in the program
is included under the caption "Other Information" at the end of each
applicable fund's schedule of investments.
7. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse the Index 500 Portfolio's
operating expenses (excluding interest, taxes, brokerage commissions,
extraordinary expenses and sub-advisory fees paid by the fund
associated with securities lending) above an annual rate of .28% of
average net assets.
FMR voluntarily agreed to reimburse the Mid Cap Portfolio's operating
expenses (excluding interest, taxes, securities lending fees,
brokerage commissions and extraordinary expenses, if any) above the
annual rates of 1.00% and 1.10% of the average net assets for the
Initial Class and Service Class, respectively.
FMR has directed certain portfolio trades to brokers who paid a
portion of certain funds' expenses.
In addition, certain funds, or FMR on behalf of certain funds, have
entered into arrangements with their custodian whereby credits
realized on uninvested cash balances were used to offset a portion of
certain funds' expenses.
For the period, the reductions under these arrangements are shown
under the caption "Other Information" on each applicable fund's
Statement of Operations.
8. BENEFICIAL INTEREST.
At the end of the period, Fidelity Investments Life Insurance Company
(FILI) and its subsidiaries, affiliates of FMR, were the record owners
of more than 5% of the outstanding shares, and certain unaffiliated
insurance companies were record owners of 10% or more of the total
outstanding shares of the following funds:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FILI UNAFFILIATED INSURANCE COMPANIES
FUND % OF OWNERSHIP # OF % OF OWNERSHIP
Money Market 51% 0 0%
Investment Grade Bond 36% 0 0%
High Income 12% 2 60%
Asset Manager 18% 2 34%
Balanced 41% 1 49%
Asset Manager: Growth 66% 1 11%
Equity-Income 14% 1 29%
Growth & Income 55% 1 21%
Index 500 28% 1 10%
Growth Opportunities 23% 1 65%
Contrafund 24% 2 37%
Growth 14% 1 29%
Mid Cap 68% 1 32%
Overseas 13% 1 36%
</TABLE>
9. TRANSACTIONS WITH AFFILIATED COMPANIES.
An affiliated company is a company which the fund has ownership of at
least 5% of the voting securities. Information regarding transactions
with affiliated companies is included under the caption "Legend" at
the end of each applicable fund's schedule of investments.
10. CHANGE IN INDEPENDENT AUDITOR.
Based on the recommendation of the Audit Committee of the Investment
Grade Bond Portfolio, Asset Manager Portfolio, Balanced Portfolio,
Asset Manager: Growth Portfolio, Growth & Income Portfolio, Index 500
Portfolio, Growth Opportunities Portfolio and Contrafund Portfolio,
the Board of Trustees has determined not to retain
PricewaterhouseCoopers LLP as the funds' independent auditor and voted
to appoint Deloitte & Touche LLP for the fiscal year ended December
31, 1999. For the fiscal years ended December 31, 1998 and December
31, 1997, PricewaterhouseCoopers LLP's audit reports contained no
adverse opinion or disclaimer of opinion; nor were their reports
qualified as to uncertainty, audit scope, or accounting principles.
Further, there were no disagreements between the funds and
PricewaterhouseCoopers LLP on accounting principles, financial
statement disclosure or audit scope, which if not resolved to the
satisfaction of PricewaterhouseCoopers LLP would have caused them to
make reference to the disagreement in their report.
11. OTHER MATTERS.
On March 11, 1999, Bankers Trust, the Index 500 Portfolio's
sub-advisor, announced that it had reached an agreement with the
United States Attorney's Office to resolve an investigation concerning
inappropriate transfers of unclaimed funds and related recordkeeping
problems that occurred between 1994 and early 1996. Pursuant to its
agreement with the U.S. Attorney's Office, Bankers Trust pleaded
guilty to misstating entries in the bank's books and records. As a
result of the plea, absent an order from the Securities and Exchange
Commission (SEC), Bankers Trust would not be able to continue to
provide investment advisory services to the fund. The SEC has granted
a temporary order to permit Bankers Trust and its affiliates to
continue to provide investment advisory services to registered
investment companies. There is no assurance that the SEC will grant a
permanent order.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Investments Money Management, Inc. (FIMM),
Merrimack, NH
MONEY MARKET, ASSET MANAGER, BALANCED, INVESTMENT
GRADE BOND AND ASSET MANAGER: GROWTH PORTFOLIOS
Fidelity Management & Research (U.K.) Inc.,
London, England
HIGH INCOME, MID CAP, ASSET MANAGER, ASSET MANAGER: GROWTH,
CONTRAFUND, BALANCED, GROWTH OPPORTUNITIES,
GROWTH & INCOME, AND OVERSEAS PORTFOLIOS
Fidelity Management & Research (Far East) Inc.,
Tokyo, Japan
HIGH INCOME, MID CAP, ASSET MANAGER, ASSET MANAGER: GROWTH,
CONTRAFUND, BALANCED, GROWTH OPPORTUNITIES,
GROWTH & INCOME, AND OVERSEAS PORTFOLIOS
Fidelity International Investment Advisors,
Pembroke, Bermuda
OVERSEAS PORTFOLIO
Fidelity International Investment Advisors (U.K.) Limited,
Kent, England
OVERSEAS PORTFOLIO
Bankers Trust, New York, NY
INDEX 500 PORTFOLIO
OFFICERS
Edward C. Johnson 3d, PRESIDENT
Robert C. Pozen, SENIOR VICE PRESIDENT
Abigail P. Johnson, VICE PRESIDENT - GROWTH, MID CAP
AND GROWTH OPPORTUNITIES PORTFOLIOS
Richard A. Spillane, Jr., VICE PRESIDENT - EQUITY-INCOME,
OVERSEAS, BALANCED AND GROWTH & INCOME PORTFOLIOS
Fred L. Henning, Jr., VICE PRESIDENT - MONEY MARKET
AND INVESTMENT GRADE BOND PORTFOLIOS
Dwight D. Churchill, VICE PRESIDENT -
INVESTMENT GRADE BOND PORTFOLIO
Boyce I. Greer, VICE PRESIDENT - MONEY MARKET PORTFOLIO
Robert A. Lawrence, VICE PRESIDENT - INDEX 500, ASSET MANAGER, AND
ASSET MANAGER: GROWTH PORTFOLIOS
Bart A. Grenier, VICE PRESIDENT - HIGH INCOME
AND CONTRAFUND PORTFOLIOs
John Avery, VICE PRESIDENT - BALANCED PORTFOLIO
Barry J. Coffman, VICE PRESIDENT - HIGH INCOME PORTFOLIO
William Danoff, VICE PRESIDENT - CONTRAFUND PORTFOLIO
Robert K. Duby, VICE PRESIDENT - MONEY MARKET PORTFOLIO
David Felman, VICE PRESIDENT - MID CAP PORTFOLIO
Kevin E. Grant, VICE PRESIDENT - INVESTMENT GRADE BOND
AND BALANCED PORTFOLIOS
Richard C. Habermann, VICE PRESIDENT - ASSET MANAGER
AND ASSET MANAGER: GROWTH PORTFOLIOS
Richard R. Mace, Jr., VICE PRESIDENT - OVERSEAS PORTFOLIO
Charles S. Morrison II, VICE PRESIDENT - ASSET MANAGER
AND ASSET MANAGER: GROWTH PORTFOLIOS
VIP/VIPII/VIPIII-SANN-0899 81787
1.705983.101
Stephen R. Petersen, VICE PRESIDENT - EQUITY-INCOME PORTFOLIO
John J. Todd, VICE PRESIDENT - ASSET MANAGER
AND ASSET MANAGER: GROWTH PORTFOLIOS
Jennifer Uhrig, VICE PRESIDENT - GROWTH PORTFOLIO
George A. Vanderheiden, VICE PRESIDENT -
GROWTH OPPORTUNITIES PORTFOLIO
Steven J. Snider, VICE PRESIDENT - ASSET MANAGER
AND ASSET MANAGER: GROWTH PORTFOLIOS
Eric D. Roiter, SECRETARY
Richard A. Silver, TREASURER
Matthew N. Karstetter, DEPUTY TREASURER
Stanley N. Griffith, ASSISTANT VICE PRESIDENT - MONEY MARKET AND
INVESTMENT GRADE BOND PORTFOLIOS
John H. Costello, ASSISTANT TREASURER
Leonard M. Rush, ASSISTANT TREASURER
Thomas J. Simpson, ASSISTANT TREASURER - MONEY MARKET
AND INVESTMENT GRADE BOND PORTFOLIOS
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER SERVICING AGENT
Fidelity Investments Institutional Operations Co., Inc.
Boston, MA
CUSTODIAN
The Bank of New York, New York, NY
MONEY MARKET, INVESTMENT GRADE BOND AND
HIGH INCOME PORTFOLIOS
The Chase Manhattan Bank, New York, NY
EQUITY-INCOME, ASSET MANAGER, ASSET MANAGER: GROWTH,
GROWTH & INCOME, BALANCED AND OVERSEAS PORTFOLIOS
Brown Brothers Harriman & Co., Boston, MA
GROWTH, GROWTH OPPORTUNITIES, MID CAP
AND CONTRAFUND PORTFOLIOS
Bankers Trust, New York, NY
INDEX 500 PORTFOLIO
* INDEPENDENT TRUSTEES
