<PAGE>
[LOGO OF THE NEW ENGLAND APPEARS HERE]
-------------------------------------------------------------------------
ZENITH FUND
VARIABLE PRODUCTS
SEMIANNUAL REPORTS
JUNE 30, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Loomis Sayles Small Cap Series......................................... 1
Draycott International Equity Series................................... 8
Alger Equity Growth Series............................................. 14
Capital Growth Series.................................................. 20
Loomis Sayles Avanti Growth Series..................................... 24
Venture Value Series................................................... 30
Westpeak Value Growth Series........................................... 36
Westpeak Stock Index Series............................................ 43
Loomis Sayles Balanced Series.......................................... 53
Back Bay Advisors Managed Series....................................... 60
Salomon Brothers Strategic Bond Opportunities Series................... 68
Back Bay Advisors Bond Income Series................................... 74
Salomon Brothers U.S. Government Series................................ 80
Back Bay Advisors Money Market Series.................................. 84
Notes to Financial Statements.......................................... 90
Footnotes to Portfolio Manager Commentary.............................. 97
New England Variable Life Separate Account............................. 100
Fidelity Variable Insurance Products Fund.............................. VIPF-1
Fidelity Variable Insurance Products Fund II........................... VIPFII-1
</TABLE>
IMPORTANT:
Some funds appearing in this report may not be available under your variable
life or variable annuity product.
<PAGE>
August, 1996
TO OUR POLICYHOLDERS/CONTRACT OWNERS:
We are pleased to provide you with the 1996 Semiannual Report for the Zenith
Fund variable life insurance and variable annuity products. This report
includes performance histories, present investments, and financial reports as
of June 30, 1996, as well as the outlook and strategy of each fund. It is
intended to help you make an informed decision regarding the investment of the
cash value of your variable product.
The New England offers many variable life and variable annuity products to
help you meet your financial objectives. We are committed to meeting your
expectations by providing quality products with strong performance potential
and excellent personal service.
Please feel free to contact one of our Registered Representatives* with any
questions you may have regarding your financial objectives. Thank you for
making The New England your financial partner.
Sincerely,
[ART] /s/ Bruce Long
David Allen Bruce Long
Senior Vice President President
New England Life New England Annuities
* Variable products are offered through New England Securities Corporation.
[LOGO OF RECYCLABLE PAPER
APPEARS HERE]
<PAGE>
ZENITH LOOMIS SAYLES SMALL CAP SERIES
PORTFOLIO MANAGERS: MARY CHAMPAGNE AND JEFFREY PETHERICK;
LOOMIS SAYLES & COMPANY, L.P.
MARKET REVIEW
---------------- -------------------
Through mid-year, the economic
[PHOTO OF [PHOTO OF environment was good for small cap
MARY CHAMPAGNE JEFFREY PETHERICK stocks, as investors began to favor
APPEARS HERE] APPEARS HERE] niche-oriented companies. This shift
from 1995's emphasis on large-cap
issues served our portfolio well,
given its small stock focus.
We concentrated on finding
undervalued, growing companies that
were dominant, or look to become
- ----------------- ------------------- dominant, in a specific market
subsegment. Throughout the first half of 1996, these included leaders in energy,
oil and gas and consumer cyclicals.
Energy stocks were among the portfolio's best performers. Global Industries,
which lays pipe for offshore drilling activity, and Belden and Blake, an oil
and gas producer located in the Appalachian Basin, are good examples of
leading small companies that have benefited from recent foreign exploration
and higher oil and gas prices.
Another growth area has been business services, especially the temporary
help segment. CDI, which serves both the technology and automotive arenas, was
up 88% for the first six months of 1996. Career Horizons was up over 100% when
we sold it earlier this year.
Early in 1996, we increased our weighting in consumer cyclicals--retail
stores, restaurants and other consumer services--and reaped the rewards.
Healthy consumer spending in the first and second quarters enhanced the growth
of investments such as Ann Taylor, a retailer of upscale women's clothing, and
Cole National, a specialty eyewear and giftware retailer.
OUTLOOK AND STRATEGY
We have deliberately limited investments in the technology sector for most
of 1996. Our 7% level was significantly below the 12% average for the Russell
2000 Small Cap Index/19/. However, the sector's correction in June presented
a buying opportunity, and we plan to add to our technology exposure further in
the coming months if we think market conditions make it appropriate.
We expect the economy to grow slowly for the balance of the year, and that
interest rates will remain at or near their current levels. Given this
scenario, the earnings growth of small, niche-oriented companies should
support a renewed focus on small capitalization issues. Those companies which
target affluent baby boomers and older consumers may do particularly well.
We do not anticipate making major changes in portfolio structure or in
sector weightings. We plan to take profits aggressively, eliminate any non-
performers and continue to pursue added value through disciplined stock
selection. Given the market outlook, we believe the portfolio is well
positioned for the months ahead.
1
<PAGE>
A $10,000 Investment Compared to an Index FUND FACTS
[GRAPH APPEARS HERE] GOAL: Long-term growth from
investment in common stocks or
Small Cap Russell their equivalent.
Series 2,000/19/
Inception 5/1/94 $10,000 $10,000 START DATE: May 1, 1994
12/31/94 9,676 10,027
12/31/95 12,470 12,879 SIZE: $50 million as of June 30,
6/30/96 14,451 14,214 1996
MANAGERS: Jeffrey Petherick and
Average Annual Return Mary Champagne. Mr. Petherick
has co-managed the Series since
Small Cap Lipper Variable Small its inception in May, 1994. Ms.
Series Company Fund Average/15/ Champagne joined the management
6 mos.* 15.88% 14.36% of the Series in July 1995. Mr.
1 year 34.43% 29.31% Petherick has also co-managed
Since the Loomis Sayles portion of the
inception 18.57% n/a New England Star Advisers Fund
*not annualized since July 1, 1994. Ms. Champagne
has co-managed the Loomis Sayles
portion of the New England Star
Advisers Fund since July, 1995.
They also manage the Loomis Sayles
Small Cap Fund and the Maxim
Funds--Small Cap Series. Mr.
Petherick joined Loomis Sayles in
1990. Ms. Champagne joined Loomis
Sayles in 1993.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts; if these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
2
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
COMMON STOCKS--87.2% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
AEROSPACE--0.4%
11,000 Whittaker Corp.(c)....................................... $ 203,500
-----------
AUTOMOBILE & RELATED--1.9%
9,900 Strattec Security Corp.(c)............................... 175,725
30,600 Tower Automotive(c)...................................... 749,700
-----------
925,425
-----------
BANKS--SAVINGS & LOAN--2.0%
10,500 Charter One Financial, Inc. ............................. 366,188
9,250 Commercial Federal Corp. ................................ 353,813
11,000 First Financial Corp. ................................... 247,500
-----------
967,501
-----------
BUSINESS SERVICES--1.9%
18,500 CDI Corp.(c)............................................. 624,375
16,100 Cort Business Services Corp.(c).......................... 313,950
-----------
938,325
-----------
CHEMICALS--SPECIALTY--4.7%
10,500 Cambrex Corp. ........................................... 536,813
4,200 Cytec Industries, Inc.(c)................................ 359,100
20,600 Dexter Corp. ............................................ 612,850
27,200 Intertape Polymer Group, Inc. ........................... 550,800
10,400 Learonal, Inc. .......................................... 260,000
-----------
2,319,563
-----------
COMPUTER SOFTWARE & SERVICES--4.8%
7,100 Analysts International Corp. ............................ 298,200
14,500 Boole & Babbage, Inc. ................................... 348,000
7,400 MDL Information System, Inc.(c).......................... 220,150
30,000 Mentor Graphics Corp. ................................... 487,500
18,300 National Computer Systems, Inc. ......................... 391,163
19,400 Read Rite Corp. ......................................... 274,025
14,900 SPSS, Inc.(c)............................................ 372,500
-----------
2,391,538
-----------
COSMETICS--0.8%
18,000 Paragon Trade Brands, Inc. .............................. 387,000
-----------
ELECTRICAL EQUIPMENT--1.9%
12,000 Belden, Inc. ............................................ 360,000
10,200 Gasonics International Corp.(c).......................... 107,100
6,400 Technitrol, Inc. ........................................ 253,600
17,900 Woodhead Industries...................................... 210,325
-----------
931,025
-----------
ELECTRONIC COMPONENTS--4.0%
30,000 Amphenol Corp.(c)........................................ 690,000
11,700 Burr Brown Corp.(c)...................................... 207,675
15,700 Inter Tel, Inc. ......................................... 411,144
29,200 S3, Inc. ................................................ 359,525
15,600 Unitrode Corp.(c)........................................ 302,250
-----------
1,970,594
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
ENVIRONMENTAL SERVICES--1.7%
10,400 United Waste Systems Inc.(c)............................. $ 335,400
27,800 World Fuel Services Corp. ............................... 503,875
-----------
839,275
-----------
FINANCIAL SERVICES--4.8%
21,400 Dignity Partners, Inc. .................................. 197,950
26,900 DVI(c)................................................... 423,675
26,800 Financial Federal Corp. ................................. 418,750
12,760 Imperial Credit Industries, Inc.(c)...................... 385,990
17,700 Southern Pacific Funding Corp. .......................... 309,750
28,800 WFS Financial, Inc.(c)................................... 648,000
-----------
2,384,115
-----------
FOOD & BEVERAGES--2.6%
46,000 Flowers Industries, Inc. ................................ 741,750
33,800 Unimark Group, Inc. ..................................... 561,925
-----------
1,303,675
-----------
FREIGHT TRANSPORTATION--1.6%
9,400 ABC Rail Products Corp.(c)............................... 203,275
29,000 Harper Group, Inc. ...................................... 565,500
-----------
768,775
-----------
HEALTH CARE--DRUGS--0.5%
10,800 Applied Bioscience International, Inc. .................. 113,400
13,600 Minntech Corp. .......................................... 147,900
-----------
261,300
-----------
HEALTH CARE--MEDICAL TECHNOLOGY--3.0%
20,200 Conmed Corp.(c).......................................... 537,825
19,900 Gelman Sciences, Inc.(c)................................. 450,238
18,600 Sofamor/Danek Group, Inc.(c)............................. 516,150
-----------
1,504,213
-----------
HEALTH CARE--SERVICES--3.5%
35,945 Grancare, Inc.(c)........................................ 714,407
25,100 Health Images, Inc....................................... 291,788
15,900 Healthplan Services Corp.(c)............................. 365,700
33,800 Regency Health Services(c)............................... 384,475
-----------
1,756,370
-----------
HOME PRODUCTS--2.3%
7,300 Aptargroup, Inc. ........................................ 220,825
10,800 Bush Boake Allen, Inc.(c)................................ 234,900
9,850 Inbrand Corporation(c)................................... 275,800
25,950 US Can Corp.(c).......................................... 421,688
-----------
1,153,213
-----------
HOTELS & RESTAURANTS--1.5%
30,000 WMS Industries, Inc. .................................... 738,750
-----------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
HOUSING & BUILDING MATERIALS--3.0%
25,200 Congoleum Corp. ......................................... $ 289,800
11,500 Crossman Communities Inc.(c)............................. 224,250
22,700 Dayton Superior Corp. ................................... 297,938
28,700 Giant Cement Holdings Inc.(c)............................ 362,338
9,200 Toro Co. ................................................ 304,750
-----------
1,479,076
-----------
INSURANCE--5.9%
18,400 Allied Group Inc. ....................................... 800,400
12,700 Capital Resource Corp. .................................. 466,725
10,200 Meadrowbrook Insurance Group(c).......................... 313,650
14,700 Protective Life Corp. ................................... 516,337
12,500 Reinsurance Group of America, Inc. ...................... 471,875
10,350 Triad Guaranty, Inc.(c).................................. 380,362
-----------
2,949,349
-----------
LEISURE--0.7%
7,495 Harman International..................................... 369,129
-----------
MACHINERY--2.1%
10,600 Greenfield Industries Inc. .............................. 349,800
11,500 Hardinge Bros Inc. ...................................... 365,125
14,800 Keystone International Inc. ............................. 307,100
-----------
1,022,025
-----------
MEDIA & ENTERTAINMENT--3.3%
27,800 Banta Corp. ............................................. 701,950
14,300 Houghton Mifflin Co. .................................... 711,425
12,400 Vertex Communications Corp. ............................. 230,950
-----------
1,644,325
-----------
METALS--3.5%
33,100 Citation Corp.(c)........................................ 397,200
9,700 Cleveland Cliffs Inc. ................................... 379,512
20,000 Quanex Corp. ............................................ 472,500
24,300 Republic Engineered Steels(c)............................ 85,050
42,500 UNR Industries Inc. ..................................... 409,062
-----------
1,743,324
-----------
MINING--1.2%
27,000 Pittston Co. ............................................ 583,875
-----------
MISCELLANEOUS--1.4%
10,300 Kenneth Cole Productions, Inc............................ 203,425
12,600 Horizon Group, Inc....................................... 258,300
12,300 Merix Corp............................................... 246,000
-----------
707,725
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
MULTI-INDUSTRY--1.4%
45,700 Griffon Corp.(c)......................................... $ 371,312
9,700 Insilco Corp.(c)......................................... 324,950
-----------
696,262
-----------
OIL--INDEPENDENT PRODUCERS--3.7%
26,300 Belden & Blake Corp.(c).................................. 545,725
17,900 Cross Timbers Oil Co..................................... 443,025
19,400 Lomak Petroleum Inc.(c).................................. 276,450
22,800 Vintage Petroleum Inc.................................... 581,400
-----------
1,846,600
-----------
OIL--SERVICES--3.2%
15,700 Global Industries Inc.(c)................................ 467,075
37,000 Pride Petroleum Services Inc.(c)......................... 527,250
21,300 Seitel Inc.(c)........................................... 583,087
-----------
1,577,412
-----------
PAPER PRODUCTS--1.0%
19,400 Caraustar Industries Inc................................. 514,100
-----------
REAL-ESTATE INVESTMENT TRUSTS--5.4%
33,100 Capstone Capital Corp.(c)................................ 678,550
30,600 Chateau Properties Inc................................... 680,850
29,900 Liberty Property......................................... 594,262
25,400 Patriot American Hospitality(c).......................... 752,475
-----------
2,706,137
-----------
RETAIL--3.1%
21,000 Carson Pirie Scott & Co.................................. 561,750
35,650 Cato Corp.(c)............................................ 213,900
19,500 99 Cents Only Stores..................................... 273,000
19,500 Haverty Furniture Companies Inc.......................... 199,875
18,500 Zale Corp. .............................................. 312,187
-----------
1,560,712
-----------
STEEL & IRON--2.4%
7,500 J & L Specialty Steel, Inc............................... 111,562
55,600 Oregon Steel Mills, Inc.................................. 764,500
14,000 RMI Titanium Co. ........................................ 329,000
-----------
1,205,062
-----------
TELECOMMUNICATIONS--1.5%
36,300 Cole National Corp.(c)................................... 726,000
-----------
TEXTILE & APPAREL--0.5%
4,900 Jones Apparel Group(c)................................... 240,712
-----------
Total Common Stocks
(Identified Cost $38,913,135)........................... 43,315,982
-----------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
SHORT-TERM INVESTMENTS--13.3%
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
COMMERCIAL PAPER--13.3%
$2,298,440 Associates Corp. of North America 5.450%, 7/01/96... $ 2,298,440
2,300,000 Chevron Oil Finance Co.
5.250%, 7/01/96.................................... 2,300,000
2,000,000 Exxon Asset Management
5.200%, 7/01/96.................................... 2,000,000
-----------
Total Short-Term Investments
(Identified Cost $6,598,440)....................... 6,598,440
-----------
Total Investments--100.5%
(Identified Cost $45,511,575)(b)................... 49,914,422
Other assets less liabilities....................... (229,358)
-----------
TOTAL NET ASSETS--100%.............................. $49,685,064
===========
(a) See Note 1A.
(b) Federal Tax Information:
At June 30, 1996 the net unrealized appreciation on investments based on
cost of $45,511,575 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost...................................... $ 5,833,370
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value......................................... (1,430,523)
-----------
Net unrealized appreciation......................... $ 4,402,847
===========
(c) Non-income producing security.
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value..................................... $49,914,422
Cash..................................................... 194
Receivable for:
Fund shares sold......................................... 319,636
Securities sold.......................................... 306,254
Dividends and interest................................... 62,364
-----------
50,602,870
LIABILITIES
Payable for:
Securities purchased..................................... $839,248
Fund shares redeemed..................................... 8,489
Accrued expenses:
Management fees.......................................... 38,571
Other expenses........................................... 31,498
--------
917,806
-----------
NET ASSETS................................................ $49,685,064
===========
Net Assets consist of:
Capital paid in.......................................... $41,869,961
Undistributed net investment income...................... 176,304
Accumulated net realized gains........................... 3,235,952
Unrealized appreciation on investments................... 4,402,847
-----------
NET ASSETS................................................ $49,685,064
===========
Computation of offering price:
Net asset value and redemption price per share
($49,685,064 divided by 360,902 shares of beneficial
interest)................................................ $ 137.67
===========
Identified cost of investments............................ $45,511,575
===========
</TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends................................................ $ 201,499
Interest................................................. 144,088
----------
345,587
EXPENSES
Management fees.......................................... $184,139
Trustees' fees and expenses.............................. 6,518
Custodian................................................ 31,255
Audit and tax services................................... 5,700
Legal.................................................... 5,979
Printing................................................. 11,832
Miscellaneous............................................ 5,003
--------
Total expenses.......................................... 250,426
Less expenses assumed by the investment adviser......... (66,288) 184,138
-------- ----------
NET INVESTMENT INCOME..................................... 161,449
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on:
Investments--net......................................... 2,830,789
Unrealized appreciation on:
Investments--net......................................... 2,162,465
----------
Net gain on investment transactions....................... 4,993,254
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS................ $5,154,703
==========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES SMALL CAP SERIES)
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................... $ 186,550 $ 161,449
Net realized gain on investments.................... 1,462,220 2,830,789
Unrealized appreciation on investments.............. 2,281,753 2,162,465
----------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS.............. 3,930,523 5,154,703
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................... (171,695) 0
Net realized gain on investments.................... (1,055,203) 0
----------- -----------
(1,226,898) 0
----------- -----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares........................ 25,462,402 24,029,113
Net asset value of shares issued in connection with
the reinvestment of:
Distributions from net investment income............ 171,695 0
Distributions from net realized gain................ 1,055,203 0
----------- -----------
26,689,300 24,029,113
Cost of shares redeemed............................. (4,756,656) (7,239,898)
----------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS....................................... 21,932,644 16,789,215
----------- -----------
TOTAL INCREASE IN NET ASSETS........................ 24,636,269 21,943,918
NET ASSETS
Beginning of the period............................. 3,104,877 27,741,146
----------- -----------
End of the period................................... $27,741,146 $49,685,064
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the period............................. $ 0 $ 14,855
=========== ===========
End of the period................................... $ 14,855 $ 176,304
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares...................... 234,111 183,310
Issued in connection with the reinvestment of:
Distributions from net investment income............ 1,477 0
Distributions from net realized gain................ 9,076 0
----------- -----------
244,664 183,310
Redeemed............................................ (43,301) (55,910)
----------- -----------
Net change.......................................... 201,363 127,400
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
MAY 2, 1994 (A) SIX MONTHS
THROUGH YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
--------------- ------------ ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.. $100.00 $ 96.61 $118.80
------- ------- -------
Income From Investment Operations
Net Investment Income................ 0.14 0.85 0.49
Net Realized and Unrealized Gain
(Loss) on Investments............... (3.38) 26.93 18.38
------- ------- -------
Total From Investment Operations..... (3.24) 27.78 18.87
------- ------- -------
Less Distributions
Distributions From Net Investment
Income.............................. (0.15) (0.78) 0.00
Distributions From Net Realized
Capital Gains....................... 0.00 (4.81) 0.00
------- ------- -------
Total Distributions.................. (0.15) (5.59) 0.00
------- ------- -------
Net Asset Value, End of Period........ $ 96.61 $118.80 $137.67
======= ======= =======
TOTAL RETURN (%)...................... (3.23)(c) 28.88 15.88(c)
Ratio of Operating Expenses to Average
Net Assets (%)....................... 1.00 (b) 1.00 1.00(b)
Ratio of Net Investment Income to
Average Net Assets (%)............... 0.32 (b) 1.26 0.87(b)
Portfolio Turnover Rate (%)........... 80 (b) 98 63(b)
Average Commission Rate(d)............ -- -- $0.0313
Net Assets, End of Period (000)....... $ 3,105 $27,741 $49,685
The ratios of expenses to average net
assets without giving effect to the
voluntary expense agreement described
in Note 4 to the Financial Statements
would have been (%).................. 2.31 (b) 1.91 1.36(b)
</TABLE>
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Not computed on an annualized basis.
(d) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
See accompanying notes to financial statements.
7
<PAGE>
ZENITH DRAYCOTT INTERNATIONAL EQUITY SERIES
PORTFOLIO MANAGERS: NICHOLAS D. P. CARN, TIMOTHY S. GRIFFEN, GREGORY D.
ECKERSLEY AND NIGEL HANKIN; DRAYCOTT PARTNERS, LTD.
- ----------------- ------------------ MARKET REVIEW
The first six months of 1996 marked
[PHOTO OF [PHOTO OF a turning point, of sorts, in world
NICHOLAS D.P. TIMOTHY S. economies. The Japanese stock market
CARN APPEARS GRIFFEN APPEARS continued to rise after showing signs
HERE] HERE] of stabilization in the later part of
1995, though its returns were slightly
reduced by the weakness of the yen
when translated into dollars. German
- ----------------- ------------------ bond yields are up in anticipation of
a stronger economy. On the currency
- ----------------- ------------------ front, the yen and, to a slightly
lesser extent, the European currencies
[PHOTO OF [PHOTO OF were weak against the dollar.
GREGORY D. NIGEL HANKIN
ECKERSLEY APPEARS HERE] Currently, the Draycott
APPEARS International Equity Series is very
HERE similar in structure to its
performance benchmark, the EAFE
Index/2/. The overall performance of
- ----------------- ------------------ the EAFE/2/ was modestly surpassed by
the Series. Through June 30, 1996 the
Series delivered a return of 6.62%. In
comparison, the EAFE Index/2/ returned
4.5% during the same time frame. In
terms of international equity trends,
strong stock market gains in Japan,
France and Germany were partially
offset by the rising dollar, which
made those foreign stocks less
valuable in dollar terms.
Due to our closeness to the EAFE/2/, our selection of stocks was very broad
based. Stock selection in Japan and Europe added the most value to the
portfolio in the first six months. Again, we believe Japan is emerging from a
period of very weak economic growth over the last few years, and we're going
to see a continuation of very low interest rates and very fast monetary
growth. These conditions will resemble the economic environment that occurred
in the United States in 1990 setting the stage for Japan to take its turn at
prosperity.
Within Europe, countries that most benefited the Series in the first half of
the year were Italy and Spain. Both economies experienced falling long term
interest rates; this is in contrast to Germany, which experienced rising long-
term rates. In response to these conditions, we kept the Series' portfolio
overweighted in securities of issuers in Italy and Spain--a strategy we intend
to maintain through the rest of the year. Less helpful to the Series
performance was its overweighting of British stocks, which underperformed the
international equity markets as a whole.
OUTLOOK AND STRATEGY
We believe that over the next six months Japan's stock market cycle will
continue to turn upwards. We also think the "dollar area", which includes the
United States, Canada and Latin America, will turn downwards. As a result,
these areas will trade places for a while.
International stock markets continue to offer tremendous opportunities to
investors who recognize the wisdom of international diversification and are
aware of its risks. Our emphasis on fundamental research and discovery of
undervalued stocks and market situations remain keys to successful investment
through the rest of 1996.
8
<PAGE>
A $10,000 investment Compared to an Index FUND FACTS
GOAL: total return from long-
[GRAPH APPEARS HERE] term growth of capital and
dividend income, primarily
through investment in
international securities.
International
Equity Series EAFE/2/ START DATE: October 31, 1994
10/30/94 $10,000 $10,000
12/31/94 10,260 9,555 SIZE: $29 million as of June 30,
12/31/95 10,879 10,455 1996
6/30/96 11,599 10,844
MANAGERS: Nicholas Carn, Timothy
Average Annual Return Griffen, Gregory Eckersley and
Lipper Variable Nigel Hankin have served as
International International/13/ portfolio managers since the
Equity Series Fund Average Series' inception in 1994. Each
6 mos.* 6.62% 10.46% has also served as portfolio
1 year 12.28% 17.56% manager of New England
Since International Equity Fund since
inception 9.31% n/a 1991. They also have managed the
*not annualized Maxim Series--Foreign Equity
Portfolio since November, 1994.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts; if these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
9
<PAGE>
NEW ENGLAND ZENITH FUND
(DRAYCOTT INTERNATIONAL EQUITY SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
COMMON STOCKS--86.7% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
AUSTRALIA--4.5%
11,000 Capral Aluminum.......................................... $ 31,811
20,800 Australian & New Zealand Bank Group...................... 98,402
13,050 Amcor Ltd. .............................................. 88,709
5,200 Broken Hill Property..................................... 71,799
4,100 CRA Ltd. ................................................ 63,022
31,300 CSR Ltd. ................................................ 110,442
29,250 Fairfax (John)........................................... 60,914
6,100 Lend Lease Corp. ........................................ 93,477
22,900 News Corporation......................................... 129,752
21,800 Normandy Mining.......................................... 9,936
66,300 Normandy Mining Ltd. .................................... 104,725
31,200 North Ltd. .............................................. 89,493
28,700 QNI Limited.............................................. 64,053
14,500 Southcorp Holdings Ltd. ................................. 35,894
22,600 Westpac Bank Corp. ...................................... 99,991
23,500 WMC Limited.............................................. 168,055
-----------
1,320,475
-----------
BELGIUM--1.0%
2,700 Delhaize Le Lion......................................... 135,856
840 Glaverbel................................................ 91,242
500 Powerfin................................................. 68,527
-----------
295,625
-----------
DENMARK--1.0%
3,000 Carli Gry Intl A/S....................................... 98,319
600 Crisplant Industries..................................... 38,918
6,570 ISS International........................................ 146,910
-----------
284,147
-----------
FINLAND--1.7%
2,200 Cultor OY................................................ 107,825
1,935 Huhtamaki OY............................................. 64,756
5,020 Kesko.................................................... 74,569
670 Kone Corp. .............................................. 74,788
1,800 Raison Tentaat........................................... 107,652
3,860 UPM Kymmene OY........................................... 80,090
-----------
509,680
-----------
GERMANY--6.4%
3,020 Adidas AG................................................ 254,034
160 Boss (Hugo) AG........................................... 184,150
380 Henkel Kgaa.............................................. 164,196
9,790 Hoechst AG............................................... 332,235
970 Mannesmann AG............................................ 335,561
1,210 SGL Carbon............................................... 141,651
4,200 Tarkett AG............................................... 88,668
7,050 Veba Ag. ................................................ 374,964
-----------
1,875,459
-----------
GREAT BRITAIN--20.1%
32,300 BAA...................................................... 234,011
46,000 BTR...................................................... 180,742
32,750 Barclays................................................. 392,908
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
GREAT BRITAIN--(CONTINUED)
18,100 Bass..................................................... $ 227,269
22,450 British Aerospace........................................ 340,463
14,250 British Petroleum........................................ 125,039
38,750 British Telecommunication................................ 208,223
23,400 British Sky Broadcast.................................... 159,719
25,100 Cadbury Schweppes........................................ 198,414
17,875 Carlton Communications................................... 143,799
50,800 Cookson Group............................................ 223,271
22,300 General Electric......................................... 120,002
20,850 Glaxo Welcome............................................ 280,742
22,400 Greenalls Group.......................................... 200,031
55,950 Hanson................................................... 156,406
88,000 Ladbroke Group........................................... 243,951
61,150 National Grid Group...................................... 161,921
16,350 National Westminster..................................... 155,908
42,200 Orange................................................... 147,788
10,700 Pearson.................................................. 110,340
49,812 Pillar Properties Inv.................................... 123,777
19,500 Rank Organisation........................................ 150,664
20,900 Reed International....................................... 349,415
13,150 Smithkline Beecham....................................... 140,608
24,700 Storehouse............................................... 122,440
43,500 Telewest Communication................................... 108,767
33,450 Ti Group................................................. 279,486
7,265 Thorn EMI................................................ 202,414
50,650 Tomkins.................................................. 190,360
37,550 Williams Holdings........................................ 197,401
-----------
5,876,279
-----------
ITALY--3.4%
58,250 BCA Fideuram SPA......................................... 126,296
164,500 Credito Italiano......................................... 192,942
21,700 Edison................................................... 131,086
7,200 Mediolanum............................................... 71,706
43,450 Saipem................................................... 183,022
75,300 Stet..................................................... 197,931
25,660 Unicem (Union Cem)....................................... 83,620
-----------
986,603
-----------
JAPAN--33.0%
17,000 Asahi Glass Co. ......................................... 203,630
18,750 Bank of Tokyo............................................ 435,468
13,000 Canon Inc. .............................................. 271,019
16,000 Dai Nippon Printing...................................... 310,154
6,000 Daiwa Securities......................................... 77,356
13 East Japan Railway....................................... 68,349
21,000 Fuji Bank................................................ 453,161
1,000 Hitachi.................................................. 9,327
110,000 Hokkaido Takushoku....................................... 333,928
13,000 Honda Motor Co. ......................................... 337,585
48,000 Ishikawajima Har......................................... 234,810
11,000 Kirin Brewery Co. ....................................... 134,778
21,000 Matsushita Electronic Industries......................... 391,716
17,000 Mitsubishi Bank.......................................... 223,838
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
NEW ENGLAND ZENITH FUND
(DRAYCOTT INTERNATIONAL EQUITY SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
JAPAN--(CONTINUED)
26,000 Mitsubishi Chemical...................................... $ 120,294
15,000 Mitsubishi Heavy Industrial.............................. 130,709
16,000 Mitsubishi Warehouse..................................... 286,746
15,000 Mitsui + Co. ............................................ 136,195
33,000 Mitsukoshi............................................... 353,038
17,000 Mitsui Fudosan Co. ...................................... 230,055
52,000 Nippon Credit Bank....................................... 193,517
12,000 Nippondenso Co. ......................................... 261,144
67,000 Nippon Steel Corp. ...................................... 230,348
12,000 Nomura Securities........................................ 234,810
30,780 Odakyu Electric Railway.................................. 207,705
14,000 Onward Kkashiyama........................................ 229,141
69,000 Osaka Gas Co. ........................................... 252,997
17,000 Ricoh Company............................................ 180,314
16,000 Sakura Bank.............................................. 178,485
17,000 Sanwa Bank............................................... 315,549
18,000 Sato Kogyo Co. .......................................... 110,602
8,000 Sony Corp. .............................................. 527,408
7,000 Sumitomo Bank............................................ 135,692
1,000 Sumitomo Marine & Fire................................... 8,732
22,000 Sumitomo Rubber.......................................... 190,902
28,000 Taisei Corp. ............................................ 199,186
13,000 Takashimaya Co. ......................................... 202,076
25,000 Tokai Bank............................................... 324,601
16,000 Toto..................................................... 241,393
5,000 Toyota Motor Corp. ...................................... 125,269
19,000 Yakult Honsha Co. ....................................... 269,282
46,000 Yasuda Trust & Banking................................... 291,483
-----------
9,652,792
-----------
NETHERLANDS--3.8%
1,400 Ahrend NV................................................ 62,797
14,300 Fortis Amev NV........................................... 410,009
2,000 KLM...................................................... 64,028
4,600 Kon PTT Nederland........................................ 174,236
8,000 Vendex International..................................... 279,097
1,000 Wolters Kluwer NV........................................ 113,691
-----------
1,103,858
-----------
NORWAY--1.8%
8,100 Benor Tankers............................................ 48,682
3,000 Narvesen ASA............................................. 68,422
2,600 Norske Skogsindust....................................... 72,522
1,600 Orkla ASA................................................ 84,326
2,050 Protector Forsikrg....................................... 51,494
16,600 Schibsted ASA............................................ 214,883
-----------
540,329
-----------
SPAIN--4.1%
6,300 Banco Santander SA....................................... 294,317
1,950 Gas Natural Sdg SA....................................... 409,789
42,250 Sevillana de Elec........................................ 389,477
480 Sol Melia................................................ 10,125
5,100 Viscofan Envoltura....................................... 80,680
-----------
1,184,388
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
SWITZERLAND--5.9%
353 Alusuisse Lonza HD.................................. $ 291,673
600 Adia SA............................................. 150,696
60 Baloise Holdings.................................... 130,539
203 Nestle SA........................................... 232,032
45 Roche Holdings AG................................... 343,565
189 Sandoz AG........................................... 216,333
152 Schindler Holdings AG............................... 161,702
189 Swissair............................................ 183,074
-----------
1,709,614
-----------
Total Common Stocks
(Identified Cost $23,630,314)...................... 25,339,249
-----------
SHORT-TERM INVESTMENT--9.0%
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$2,627,000 Repurchase agreement with State Street Bank & Trust
Company dated
6/28/96 at 4.750% to be repurchased at $2,628,040
on 7/1/96 collateralized by $2,750,000.00 U.S.
Treasury Notes due 12/19/96 with a value of
$2,680,750......................................... 2,627,000
-----------
Total Short-Term Investment
(Identified Cost $2,627,000)....................... 2,627,000
-----------
Total Investments--95.7%
(Identified Cost $26,257,314)(b)................... 27,966,249
Other assets less liabilities(c).................... 904,152
-----------
TOTAL NET ASSETS--100%.............................. $28,870,401
===========
(a) See Note 1A.
(b) Federal Tax Information:
At June 30, 1996 the net unrealized appreciation on investments based on
cost of $26,257,314 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost...................................... $ 1,971,735
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value......................................... (258,443)
-----------
Net unrealized appreciation......................... $ 1,713,292
===========
As of June 30, 1996, the Series had a net tax basis capital loss carry
forward as follows:
</TABLE>
Expiring December 31, 2002 $323
Expiring December 31, 2003 $50,456
(c) Including deposits in foreign denominated currencies with a value of
$587,804 and a cost of $583,447.
TEN LARGEST INDUSTRY HOLDINGS AT JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C>
Banking.................................................................. 12.55%
Basic Industries......................................................... 6.72%
Miscellaneous Industries................................................. 6.59%
Conglomerates............................................................ 5.45%
Retail Trade............................................................. 4.88%
Food & Beverage.......................................................... 4.44%
Broadcasting/Publishing.................................................. 3.94%
Household Appliances..................................................... 3.73%
Electric Utilities....................................................... 3.33%
Drugs/Health Care........................................................ 3.21%
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
NEW ENGLAND ZENITH FUND
(DRAYCOTT INTERNATIONAL EQUITY SERIES)
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value..................................... $27,966,249
Cash..................................................... 797
Foreign cash at value.................................... 587,804
Receivable for:
Fund shares sold......................................... 115,319
Securities sold.......................................... 419,586
Dividends and interest................................... 44,628
Foreign withholding taxes................................ 20,563
Due from adviser......................................... 11,819
Unamortized organization expense......................... 6,702
-----------
29,173,467
LIABILITIES
Payable for:
Securities purchased..................................... $156,482
Fund shares redeemed..................................... 86,696
Foreign withholding taxes................................ 5,077
Accrued expenses:
Management fees.......................................... 14,937
Other expenses........................................... 39,874
--------
303,066
-----------
NET ASSETS................................................ $28,870,401
===========
Net Assets consist of:
Capital paid in.......................................... $26,632,782
Undistributed net investment income...................... 154,743
Accumulated net realized gains........................... 367,987
Unrealized appreciation on investments and foreign
currency................................................ 1,714,889
-----------
NET ASSETS................................................ $28,870,401
===========
Computation of offering price:
Net asset value and redemption price per share
($28,870,401 divided by 2,523,511 shares of beneficial
interest)................................................ $ 11.44
===========
Identified cost of investments............................ $26,257,314
===========
</TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends........................................... $ 306,079(a)
Interest............................................ 799
----------
306,878
EXPENSES
Management fees..................................... $ 100,615
Trustees' fees and expenses......................... 6,434
Custodian........................................... 69,651
Audit and tax services.............................. 14,000
Legal............................................... 5,411
Printing............................................ 5,523
Amortization of organization expenses............... 1,003
Miscellaneous....................................... 5,006
----------
Total expenses..................................... 207,643
Less expenses assumed by the investment adviser.... (62,308) 145,335
---------- ----------
NET INVESTMENT INCOME................................ 161,543
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments--net.................................... 906,775
Foreign currency transactions--net.................. (374,258)
----------
Total realized gain on investments and foreign
currency transactions.............................. 532,517
----------
Unrealized appreciation (depreciation) on:
Investments--net.................................... 1,108,730
Foreign currency transactions--net.................. (250,872)
----------
Total unrealized appreciation on investments and
foreign currency transactions...................... 857,858
----------
Net gain on investment transactions.................. 1,390,375
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS........... $1,551,918
==========
(a)Net of foreign taxes of: $39,335.
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
NEW ENGLAND ZENITH FUND
(DRAYCOTT INTERNATIONAL EQUITY SERIES)
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................... $ 123,277 $ 161,543
Net realized gain (loss) on investments and foreign
currency transactions.............................. (125,269) 532,517
Unrealized appreciation on investments, and foreign
currency transactions.............................. 798,519 857,858
----------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS.............. 796,527 1,551,918
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................... (123,277) 0
In excess of net investment income.................. (48,516) 0
----------- -----------
(171,793) 0
----------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares........................ 16,189,698 14,181,296
Net asset value of shares issued in connection with
the reinvestment of:
Distributions from net investment income............ 171,793 0
----------- -----------
16,361,491 14,181,296
Cost of shares redeemed............................. (3,707,935) (3,130,320)
----------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS....................................... 12,653,556 11,050,976
----------- -----------
TOTAL INCREASE IN NET ASSETS........................ 13,278,290 12,602,894
NET ASSETS
Beginning of the period............................. 2,989,217 16,267,507
----------- -----------
End of the period................................... $16,267,507 $28,870,401
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the period............................. $ 0 $ (6,800)
=========== ===========
End of the period................................... $ (6,800) $ 154,743
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares...................... 1,564,292 1,290,420
Issued in connection with the reinvestment of:
Distributions from net investment income............ 16,055 0
----------- -----------
1,580,347 1,290,420
Redeemed............................................ (355,736) (283,626)
----------- -----------
Net change.......................................... 1,224,611 1,006,794
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 31, 1994 (A) YEAR SIX MONTHS
THROUGH ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
-------------------- ------------ ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period.......................... $10.00 $ 10.23 $ 10.73
------ ------- -------
Income From Investment Operations
Net Investment Income........... 0.03 0.09 0.66
Net Realized and Unrealized Gain
on Investments................. 0.23 0.53 0.05
------ ------- -------
Total From Investment
Operations..................... 0.26 0.62 0.71
------ ------- -------
Less Distributions
Distributions From Net
Investment Income.............. (0.02) (0.09) 0.00
Distributions in Excess of Net
Investment Income.............. 0.00 (0.03) 0.00
Distributions From Paid-in
Capital........................ (0.01) 0.00 0.00
------ ------- -------
Total Distributions............. (0.03) (0.12) 0.00
------ ------- -------
Net Asset Value, End of Period... $10.23 $ 10.73 $ 11.44
====== ======= =======
TOTAL RETURN (%)................. 2.60(c) 6.03 6.62(c)
Ratio of Operating Expenses to
Average Net Assets (%).......... 1.30(b) 1.30 1.30(b)
Ratio of Net Investment Income to
Average Net Assets (%).......... 2.56(b) 1.29 1.43(b)
Portfolio Turnover Rate (%)...... 4(b) 89 104(b)
Average Commission Rate(d)....... -- -- $0.0190
Net Assets, End of Period (000).. $2,989 $16,268 $28,870
The ratios of expenses to average
net assets without giving effect
to the voluntary expense
agreement described in Note 4 to
the Financial Statements would
have been (%)................... 5.38(b) 3.12 3.13(b)
</TABLE>
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Not computed on an annualized basis.
(d) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
See accompanying notes to financial statements.
13
<PAGE>
ZENITH ALGER EQUITY GROWTH SERIES
PORTFOLIO MANAGER: DAVID D. ALGER
FRED ALGER MANAGEMENT, INC.
- ---------------- MARKET REVIEW
The first six months of 1996 have been extremely
[PHOTO OF DAVID challenging and volatile. On more than one occasion, we
ALGER APPEARS have experienced the financial market equivalent of wind
HERE] shear. The reason for market conditions so far this year
has been a dramatic change in perception about the nature
of the economy.
The conventional wisdom in the market earlier in the
year was that the economy was extremely weak, and
consequently would require a series of Federal Reserve
- ---------------- actions to lower interest rates in order to avoid a possible
recession. Over the second quarter, the market's focus shifted to whether the
economy was growing too fast which might cause inflation and potentially lead to
Federal Reserve actions to raise interest.
Against this backdrop, we were fairly active within the Alger Equity Growth
Series. Our strategy of emphasizing individual security selection,
particularly quality growth stocks at reasonable valuations, resulted in
several portfolio changes. Nine West Group, Inc., Schlumberger Ltd. and
Tidewater Inc. are examples of three companies that were added to the
portfolio over the six month period. Examples of companies that were
eliminated from the portfolio over the period include US Robotics, Inc., Bay
Networks and Digital Equipment Corp. The portfolio's best performing stocks
included Tellabs, Inc. and Cisco Systems, Inc., which increased in value by
80.7% and 51.8%, respectively during the first six months of 1996.
During the last several weeks of this period, the portfolio felt a strong
negative impact from declining technology stock prices. Although we eliminated
a number of positions and reduced others in anticipation of this effect, we
were startled by a few bad earnings pre-announcements. Some of the stocks
which pre-announced poor earnings were stocks already presumed to be having
poor quarters. Therefore, we believe this severe negative reaction was
exaggerated.
OUTLOOK AND STRATEGY
Although the performance of the Series was unexciting during the first six
months of 1996, we believe the second half of the year will be more inspired.
Many of the stocks which did not have bad earnings but were nevertheless
caught in the down-draft of pre-announced poor earnings should rebound nicely.
The second half of the year for technology stocks, particularly those related
to personal computers, should be stronger. Finally, the semiconductor glut
will likely dissipate in which case we expect those companies to resume
positive price movement.
We continue to believe that the stock market is undervalued relative to the
bond market and that the bond market should rally in the second half of the
year. Moreover, we do not believe that the Federal Reserve will find it
necessary to raise rates even at their August 20 meeting. For these reasons,
we believe that there is a good chance that the market will attain a target
objective of 6000 by year end or at least the middle of 1997.
14
<PAGE>
A $10,000 Investment Compared to an Index FUND FACTS
GOAL: Long-term capital
[GRAPH APPEARS HERE] appreciation.
START DATE: October 31, 1994
Alger Equity S & P
Growth Series 500/20/ SIZE: $85 million as of June 30,
10/31/94 $10,000 $10,000 1996
12/31/94 9,580 9,794
12/31/95 14,245 13,461 MANAGER: David D. Alger,
6/30/96 15,019 14,818 President and Chief Investment
Officer (since 1975), Executive
Average Annual Return Vice President, Portfolio
Lipper Manager and Director of Research
Alger Variable Growth (since 1971), Fred Alger
Equity Growth Fund Average/11/ Management, Inc.; Portfolio
6 mos.* 5.36% 10.56% Manager, The Alger Growth
1 year 18.39% 23.96% Portfolio (since 1986), The
Since Alger American Fund Growth
inception 27.66% n/a Portfolio (since 1989) and The
*not annualized Alger Retirement Fund (since 1993).
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts; if these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
15
<PAGE>
NEW ENGLAND ZENITH FUND
(ALGER EQUITY GROWTH SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
COMMON STOCKS--92.5% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
AEROSPACE--3.2%
12,200 Boeing Co. ............................................... $ 1,062,925
45,400 Sundstrand Corp. ......................................... 1,662,775
-----------
2,725,700
-----------
APPAREL--2.0%
9,000 Nike, Inc. ............................................... 924,750
15,000 Tommy Hilfiger Corp.(c)................................... 804,375
-----------
1,729,125
-----------
BANKS--2.3%
28,000 Chase Manhattan Corp. .................................... 1,977,500
-----------
BIO TECHNOLOGY--1.8%
41,600 Biochem Pharmacy, Inc.(c)................................. 1,560,000
-----------
BUILDING & CONSTRUCTION--1.0%
42,500 Clayton Homes, Inc. ...................................... 850,000
-----------
CHEMICALS--0.9%
22,500 Monsanto Company.......................................... 731,250
-----------
COMMUNICATIONS--2.2%
7,400 Cascade Communications Corp.(c)........................... 503,200
20,000 Glenayre Technologies, Inc.(c)............................ 1,000,000
5,400 Tellabs, Inc.(c).......................................... 361,125
-----------
1,864,325
-----------
COMPUTER RELATED & BUSINESS EQUIPMENT--11.6%
23,200 Ascend Communications, Inc.(c)............................ 1,305,000
44,000 Cisco Systems, Inc.(c).................................... 2,491,500
25,000 Compuware Corp.(c)........................................ 987,500
31,801 First Data Corp. ......................................... 2,532,155
18,400 Microchip Technology, Inc.(c)............................. 455,400
44,900 3Com Corp.(c)............................................. 2,054,175
-----------
9,825,730
-----------
COMPUTER SOFTWARE--1.9%
70,700 Informix Corporation(c)................................... 1,590,750
-----------
COMPUTER TECHNOLOGY--0.8%
13,450 Adaptec, Inc.(c).......................................... 637,194
-----------
DEFENSE--2.4%
3,000 Lockheed Martin Corp. .................................... 252,000
36,400 McDonnell Douglas Corp. .................................. 1,765,400
-----------
2,017,400
-----------
FINANCE--4.8%
19,400 American International Group, Inc. ....................... 1,913,325
26,500 MBNA Corp. ............................................... 755,250
30,150 Travelers Group, Inc ..................................... 1,375,594
-----------
4,044,169
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
FINANCIAL SERVICES--1.6%
4,000 Merrill Lynch & Co., Inc. ................................ $ 260,500
45,000 Charles Schwab Corp. ..................................... 1,102,500
-----------
1,363,000
-----------
HEALTH CARE--5.3%
11,000 Boston Scientific Corp.(c)................................ 495,000
29,400 Columbia/HCA Healthcare Corp. ............................ 1,569,225
21,500 Merck & Co., Inc. ........................................ 1,389,437
20,500 United Healthcare Corp. .................................. 1,035,250
-----------
4,488,912
-----------
HEALTH CARE--ADMINISTRATIVE SERVICES--0.3%
10,000 Liposome, Inc.(c)......................................... 187,500
-----------
HEALTH MAINTENANCE SERVICES--1.0%
19,900 Oxford Health Plans, Inc.(c).............................. 818,388
-----------
INSURANCE--0.7%
20,000 Travelers Aetna Property Casual Corp.(c).................. 567,500
-----------
MACHINERY--1.0%
17,200 Case Corp. ............................................... 825,600
-----------
MEDICAL SERVICES--1.7%
12,900 Guidant Corp. ............................................ 635,325
14,700 Medtronic, Inc. .......................................... 823,200
-----------
1,458,525
-----------
MISCELLANEOUS--3.7%
30,000 Money Store, Inc. ........................................ 663,750
32,000 Service Corp. International............................... 1,840,000
15,000 Tidewater, Inc. .......................................... 658,125
-----------
3,161,875
-----------
MORTGAGE--1.5%
39,500 Green Tree Financial Corp. ............................... 1,234,375
-----------
MOTOR VEHICLES--1.4%
19,600 Chrysler Corp. ........................................... 1,215,200
-----------
NON-FERROUS METALS--1.0%
15,200 Aluminum Co. of America................................... 872,100
-----------
OFFICE EQUIPMENT--0.8%
13,100 Xerox Corp. .............................................. 700,850
-----------
OIL SERVICES--1.6%
16,900 Halliburton Co. .......................................... 937,950
5,000 Schlumberger, Ltd. ....................................... 421,250
-----------
1,359,200
-----------
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
NEW ENGLAND ZENITH FUND
(ALGER EQUITY GROWTH SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
PHARMACEUTICALS--5.5%
10,300 Amgen, Inc.(c)............................................ $ 556,200
29,000 Astra AB(c)............................................... 1,268,750
16,100 Eli Lilly & Company....................................... 1,046,500
6,096 Johnson & Johnson......................................... 301,752
9,500 Pfizer, Inc. ............................................. 678,063
14,700 Smithkline Beecham PLC.................................... 799,313
-----------
4,650,578
-----------
RESTAURANTS & LODGING--5.0%
52,000 Boston Chicken, Inc.(c)................................... 1,690,000
55,800 Lone Star Steakhouse Saloon(c)............................ 2,106,450
11,900 Outback Steakhouse, Inc.(c)............................... 410,364
-----------
4,206,814
-----------
RETAILING--9.3%
9,800 Cintas Corp. ............................................. 524,300
20,500 Gucci Group NY, Inc.(c)................................... 1,337,625
15,000 Nine West Group, Inc.(c).................................. 766,875
15,000 Nordstrom, Inc. .......................................... 667,500
81,000 Officemax, Inc.(c)........................................ 1,933,875
50,000 The Gap, Inc. ............................................ 1,606,250
20,000 TJX Companies, Inc. ...................................... 675,000
11,000 Viking Office Products, Inc.(c)........................... 345,125
-----------
7,856,550
-----------
SEMI-CONDUCTORS--6.2%
21,500 Altera Corp.(c)........................................... 817,000
15,000 Intel Corp. .............................................. 1,101,562
23,000 Linear Technology Corporation............................. 690,000
33,500 Maxim Integrated Products, Inc.(c)........................ 914,969
53,300 Xilinx, Inc.(c)........................................... 1,692,275
-----------
5,215,806
-----------
SERVICES--3.6%
30,500 CUC International, Inc.(c)................................ 1,082,750
33,200 Loewen Group, Inc. ....................................... 1,004,300
33,500 USA Waste Services, Inc.(c)............................... 992,437
-----------
3,079,487
-----------
SOAPS--1.2%
12,000 Colgate Palmolive Co. .................................... 1,017,000
-----------
TELECOMMUNICATIONS--5.2%
13,000 LCI International, Inc.(c)................................ 407,875
20,000 MFS Communications, Inc. ................................. 752,500
11,400 Telecomunicacoes Brasileiras.............................. 793,725
43,700 Worldcom, Inc.(c)......................................... 2,419,887
-----------
4,373,987
-----------
Total Common Stocks
(Identified Cost $72,275,066)............................ 78,206,390
-----------
</TABLE>
SHORT-TERM INVESTMENT--11.1%
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$9,372,262 Seven Seas U.S. Government Money Market Fund........ $ 9,372,262
-----------
Total Short-Term Investment
(Identified Cost $9,372,262)....................... 9,372,262
-----------
Total Investments--103.6%
(Identified cost $81,647,328)(b)................... 87,578,652
Other assets less liabilities....................... (3,040,763)
-----------
TOTAL NET ASSETS--100%.............................. $84,537,889
===========
(a) See Note 1A.
(b) Federal Tax Information:
At June 30, 1996 the net unrealized appreciation on investments based on
cost of $81,647,328 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost...................................... $ 7,775,714
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value......................................... (1,844,390)
-----------
Net unrealized appreciation......................... $ 5,931,324
===========
(c) Non-income producing security.
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
NEW ENGLAND ZENITH FUND
(ALGER EQUITY GROWTH SERIES)
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................... $87,578,652
Receivable for:
Fund shares sold....................................... 341,513
Securities sold........................................ 328,056
Dividends and interest................................. 74,105
Foreign taxes.......................................... 123
Unamortized organization expense....................... 6,702
-----------
88,329,151
LIABILITIES
Payable for:
Securities purchased................................... $3,557,831
Fund shares redeemed................................... 104,594
Withholding taxes...................................... 717
Accrued expenses:
Management fees........................................ 80,884
Other expenses......................................... 47,236
----------
3,791,262
-----------
NET ASSETS.............................................. $84,537,889
===========
Net Assets consist of:
Capital paid in........................................ $78,092,571
Undistributed net investment income.................... 56,676
Accumulated net realized gains......................... 457,318
Unrealized appreciation on investments................. 5,931,324
-----------
NET ASSETS.............................................. $84,537,889
===========
Computation of offering price:
Net asset value and redemption price per share
($84,537,889 divided by 5,815,420 shares of beneficial
interest).............................................. $ 14.54
===========
Identified cost of investments.......................... $81,647,328
===========
</TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends............................................. $ 160,728(a)
Interest.............................................. 189,279
----------
350,007
EXPENSES
Management fees....................................... $235,857
Trustees' fees and expenses........................... 6,655
Custodian............................................. 24,428
Audit and tax services................................ 9,900
Legal................................................. 5,411
Printing.............................................. 13,165
Amortization of organization expenses................. 1,003
Miscellaneous......................................... 5,020
--------
Total expenses....................................... 301,439
Less expenses assumed by the investment adviser...... (6,754) 294,685
-------- ----------
NET INVESTMENT INCOME.................................. 55,322
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on Investments--net..................... 1,302,740
Unrealized appreciation on Investments--net........... 1,430,434
----------
Net gain on investment transactions.................... 2,733,174
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............. $2,788,496
==========
(a) Net of foreign taxes of: $717
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
NEW ENGLAND ZENITH FUND
(ALGER EQUITY GROWTH SERIES)
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................... $ 30,373 $ 55,322
Net realized gain on investments.................... 448,499 1,302,740
Unrealized appreciation on investments.............. 4,579,507 1,430,434
----------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS.............. 5,058,379 2,788,496
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................... (30,373) 0
In excess of net investment income.................. (993) 0
Net realized gain on investments.................... (1,285,986) 0
----------- -----------
(1,317,352) 0
----------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares........................ 47,127,562 46,775,195
Net asset value of shares issued in connection with
the reinvestment of:
Distributions from net investment income............ 31,366 0
Distributions from net realized gain................ 1,285,986 0
----------- -----------
48,444,914 46,775,195
Cost of shares redeemed............................. (7,716,452) (11,412,204)
----------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS....................................... 40,728,462 35,362,991
----------- -----------
TOTAL INCREASE IN NET ASSETS........................ 44,469,489 38,151,487
NET ASSETS
Beginning of the period............................. 1,916,913 46,386,402
----------- -----------
End of the period................................... $46,386,402 $84,537,889
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the period............................. $ 0 $ 1,354
----------- -----------
End of the period................................... $ 1,354 $ 56,676
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares...................... 3,648,304 3,246,736
Issued in connection with the reinvestment of:
Distributions from net investment income............ 2,303 0
Distributions from net realized gain................ 94,419 0
----------- -----------
3,745,026 3,246,736
Redeemed............................................ (583,251) (793,512)
----------- -----------
Net change.......................................... 3,161,775 2,453,224
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 31, 1994(A) SIX MONTHS
THROUGH ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
1994 1995 1996
------------------- ---------- ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $10.00 $ 9.56 $ 13.80
------ ------- -------
Income From Investment Operations
Net Investment Income............ 0.02 0.01 0.02
Net Realized and Unrealized Gain
(Loss) on Investments........... (0.44) 4.65 0.72
------ ------- -------
Total From Investment Operations. (0.42) 4.66 0.74
------ ------- -------
Less Distributions
Distributions From Net Investment
Income.......................... (0.02) (0.01) 0.00
Distributions From Net Realized
Capital Gains................... 0.00 (0.41) 0.00
------ ------- -------
Total Distributions.............. (0.02) (0.42) 0.00
------ ------- -------
Net Asset Value, End of Period.... $ 9.56 $ 13.80 $ 14.54
====== ======= =======
TOTAL RETURN (%).................. (4.20)(c) 48.80 5.36 (c)
Ratio of Operating Expenses to
Average Net Assets (%)........... 0.85 (b) 0.85 0.90 (b)
Ratio of Net Investment Income to
Average Net Assets (%)........... 1.07 (b) 0.14 0.20 (b)
Portfolio Turnover Rate (%)....... 32 (b) 107 89 (b)
Average Commission Rate (d)....... -- -- $0.0728
Net Assets, End of Period (000)... $1,917 $46,386 $84,538
The ratios of expenses to average
net assets without giving effect
to the voluntary expense
agreement described in Note 4 to
the Financial Statements would
have been (%).................... 2.74 (b) 2.45 0.92 (b)
</TABLE>
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Not computed on an annualized basis.
(d) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
See accompanying notes to financial statements.
19
<PAGE>
ZENITH CAPITAL GROWTH SERIES
PORTFOLIO MANAGER: G. KENNETH HEEBNER
CAPITAL GROWTH MANAGEMENT, L.P.
- ----------------- --------------------------------------------------------
MARKET REVIEW
--------------------------------------------------------
[PHOTO OF Through the first half of 1996, a strong economy, low
KENNETH inflation and a stable interest rate environment resulted
HEEBNER in a solid stock market performance. A principal
APPEARS beneficiary of these conditions was growth stocks, which
HERE] continued to post gains albeit less than in the second
half of 1995. Well managed moderate growth companies,
which the Series favors, are proving to be long-term,
steady performers. Many such companies offer earnings
growth rates approaching 20% yet still at deep discounts
to average market multiples.
- ----------------- Capitalizing on a business environment that emphasizes low
labor and capital costs and high productivity, the Capital Growth Series
returned 5.31% over the first half of the year. Returns were compromised
somewhat by late selloffs in the stock market in June, due in part to
inflationary fears stemming from the fast growing economy.
Throughout the first half of the year, we've maintained confidence in the
growth of the economy. As a result, we have maintained substantial positions
in airline and bank stocks, which continued to increase in value over the six-
month period.
The Series' success over the last ten years stems from our commitment in
quality, long term investments in well established companies that are
reasonably priced. We did not deviate from this approach through the first
half of 1996.
- --------------------------------------------------------------------------------
OUTLOOK AND STRATEGY
- --------------------------------------------------------------------------------
Going forward, we anticipate continued moderate growth with relatively low
inflation, an environment conducive to investing in growth companies. We will
continue to avoid investing in companies with high price earnings ratios
relative to high growth rates. Many investors, we believe, are displaying
enormous enthusiasm for growth but without closely examining valuations.
We will keep investing in growth companies but only at reasonable prices and
with a long-term investment horizon in mind. While there may be periodic
bursts of volatility along the way, we feel that the companies we select under
this approach will continue to perform well over the long haul.
A $10,000 Investment Compared to an Index FUND FACT
[GRAPH APPEARS HERE] GOAL: Long-term growth of
capital.
Zenith Capital
Growth Series S&P 500/20/ START DATE: August 26, 1983
6/30/86 $10,000 $10,000
12/86 10,634 9,824 SIZE: $992 million as of June
12/87 16,239 10,333 30, 1996
12/88 14,812 12,038
12/89 19,368 15,841 MANAGER: G. Kenneth Heebner,
12/90 18,368 15,347 since 1983; portfolio manager
12/91 28,786 20,003 of New England Growth Fund
12/92 27,045 21,525 since 1976; CGM Capital
12/93 31,096 23,685 Development Fund since 1976;
12/94 28,896 24,006 CGM Mutual Fund since 1981;
12/95 39,885 32,321 CGM Realty Fund since May,
6/30/96 42,003 36,321 1994; CGM Fixed Income Fund
since June, 1993.
Average Annual Return
Zenith Capital Lipper Variable Growth
Growth Series Fund Average/11/
6 mos.* 5.31% 10.56%
1 year 13.97% 23.96%
5 years 13.12% 15.74%
10 years 15.43% n/a
*not annualized
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life insurance
contracts; if these charges were included, the returns shown would be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
20
<PAGE>
NEW ENGLAND ZENITH FUND
(CAPITAL GROWTH SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
COMMON STOCKS--99.6% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
AEROSPACE--1.7%
193,000 Boeing Co. ........................................... $ 16,815,125
------------
AIRLINES--11.9%
310,700 AMR Corp.(c).......................................... 28,273,700
835,000 Northwest Airlines Corp.(c)........................... 32,982,500
1,060,000 UAL Corp.(c).......................................... 56,975,000
------------
118,231,200
------------
APPAREL & TEXTILES--5.2%
500,500 NIKE, Inc. Class B.................................... 51,426,375
------------
BANKS--MONEY CENTER--14.3%
930,000 Chase Manhattan Corp. ................................ 65,681,250
926,000 Citicorp.............................................. 76,510,750
------------
142,192,000
------------
BEVERAGES & TOBACCO--7.2%
155,000 Anheuser-Bush Companies, Inc. ........................ 11,625,000
1,697,000 PepsiCo Inc. ......................................... 60,031,375
------------
71,656,375
------------
COMPUTER SOFTWARE & SERVICES--7.6%
511,000 Computer Associates International, Inc. .............. 36,408,750
280,000 Microsoft Corp.(c).................................... 33,635,000
125,000 Oracle Systems Corp.(c)............................... 4,929,688
------------
74,973,438
------------
ELECTRONIC COMPONENTS--5.1%
895,000 Cisco System, Inc.(c)................................. 50,679,375
------------
FOOD--RETAILERS/WHOLESALERS--5.9%
560,000 Philip Morris Companies, Inc. ........................ 58,240,000
------------
HOTELS & RESTAURANTS--5.1%
450,000 Hilton Hotels Corp. .................................. 50,625,000
------------
INSURANCE--12.0%
1,255,000 Allstate Corp. ....................................... 57,259,375
628,850 American International Group, Inc. ................... 62,020,331
------------
119,279,706
------------
LEISURE--3.3%
460,000 Circus Circus Enterprises(c).......................... 18,860,000
175,000 Eastman Kodak Co. .................................... 13,606,250
------------
32,466,250
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
OIL--SERVICE--11.0%
1,015,000 Halliburton Co. ...................................... $ 56,332,500
626,000 Schlumberger Ltd. .................................... 52,740,500
------------
109,073,000
------------
RETAIL--9.2%
3,370,000 KMart Corp.(c)........................................ 41,703,750
1,030,000 Sears Roebuck and Co. ................................ 50,083,750
------------
91,787,500
------------
Total Common Stock
(Identified Cost $847,205,195)....................... 987,445,344
------------
</TABLE>
SHORT-TERM INVESTMENT--0.3%
<TABLE>
<CAPTION>
FACE
AMOUNT
<C> <S> <C>
$2,865,000 American Express Credit Corp. 5.390%, 07/01/96..... 2,865,000
------------
Total Short-Term Investment
(Identified Cost $2,865,000)...................... 2,865,000
------------
Total Investments--99.9%
(Identified Cost $850,070,195)(b)................. 990,310,344
Other assets less liabilities...................... 1,307,226
------------
TOTAL NET ASSETS--100%............................. $991,617,570
============
(a) See Note 1A.
(b) Federal Tax Information:
At June 30, 1996 the net unrealized appreciation on investments based on
cost of $850,070,195 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost..................................... $158,314,380
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value................................... (18,074,231)
------------
Net unrealized appreciation........................ $140,240,149
============
(c) Non-Income producing security.
</TABLE>
See accompanying notes to financial statements.
21
<PAGE>
NEW ENGLAND ZENITH FUND
(CAPITAL GROWTH SERIES)
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value............................... $ 990,310,344
Cash............................................... 3,733
Receivable for:
Fund shares sold................................... 744,117
Securities sold.................................... 16,123,240
Dividends and interest............................. 1,378,298
--------------
1,008,559,732
LIABILITIES
Payable for:
Securities purchased............................... $15,905,034
Fund shares redeemed............................... 295,148
Miscellaneous...................................... 23,068
Accrued expenses:
Management fees.................................... 517,781
Deferred trustees' fees............................ 44,575
Other expenses..................................... 156,556
-----------
16,942,162
--------------
NET ASSETS.......................................... $ 991,617,570
==============
Net Assets consist of:
Capital paid in.................................... $ 796,452,485
Undistributed net investment income................ 3,844,568
Accumulated net realized
gains............................................. 51,080,368
Unrealized appreciation on investments............. 140,240,149
--------------
NET ASSETS.......................................... $ 991,617,570
==============
Computation of offering price:
Net asset value and redemption price per share
($991,617,570 divided by 2,513,565 shares of
beneficial interest)............................... $ 394.51
==============
Identified cost of investments...................... $ 850,070,195
==============
</TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends.............................................. $ 7,080,715
Interest............................................... 92,992
-----------
7,173,707
EXPENSES
Management fees........................................ $3,093,449
Trustees' fees and expenses............................ 18,092
Custodian.............................................. 80,133
Audit and tax services................................. 7,450
Legal.................................................. 4,028
Printing............................................... 149,575
Miscellaneous.......................................... 4,968
----------
Total expenses........................................ 3,357,695
-----------
NET INVESTMENT INCOME................................... 3,816,012
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on:
Investments--net....................................... 31,301,804
Unrealized appreciation on: Investments--net........... 13,982,314
-----------
Net gain on investment transactions..................... 45,284,118
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS.............. $49,100,130
===========
</TABLE>
See accompanying notes to financial statements.
22
<PAGE>
NEW ENGLAND ZENITH FUND
(CAPITAL GROWTH SERIES)
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
1995 JUNE 30, 1996
------------ -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................ $ 7,450,611 $ 3,816,012
Net realized gain on investments................. 132,068,325 31,301,804
Unrealized appreciation on investments........... 114,117,353 13,982,314
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS........... 253,636,289 49,100,130
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................ (7,422,072) 0
Net realized gain on investments................. (112,289,797) 0
------------ ------------
(119,711,869) 0
------------ ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares..................... 211,234,567 119,915,713
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income......... 7,422,051 0
Distributions from net realized gain............. 112,289,762 0
------------ ------------
330,946,380 119,915,713
Cost of shares redeemed.......................... (210,553,681) (98,842,093)
------------ ------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS.................................... 120,392,699 21,073,620
------------ ------------
TOTAL INCREASE IN NET ASSETS..................... 254,317,119 70,173,750
NET ASSETS
Beginning of the period.......................... 667,126,701 921,443,820
------------ ------------
End of the period................................ $921,443,820 $991,617,570
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the period.......................... $ 278,739 $ 28,556
============ ============
End of the period................................ $ 28,556 $ 3,844,568
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares................... 561,255 305,199
Issued in connection with the reinvestment of:
Distributions from net investment income......... 19,951 0
Distributions from net realized gain............. 301,846 0
------------ ------------
883,052 305,199
Redeemed......................................... (559,603) (251,290)
------------ ------------
Net change....................................... 323,449 53,909
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
------------------------------------------------ ENDED
1991 1992 1993 1994 1995 JUNE 30, 1996
-------- -------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 249.04 $ 347.36 $ 322.23 $ 351.63 $ 312.30 $ 374.62
-------- -------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment Income.. 3.16 4.04 2.12 5.28 3.47 1.52
Net Realized and
Unrealized Gain (Loss)
on Investments........ 130.75 (25.10) 46.21 (30.54) 114.91 18.37
-------- -------- -------- -------- -------- --------
Total From Investment
Operations............ 133.91 (21.06) 48.33 (25.26) 118.38 19.89
-------- -------- -------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income..... (3.22) (4.07) (2.18) (5.15) (3.48) 0.00
Distributions From Net
Realized Capital
Gains................. (31.93) 0.00 (16.75) (8.92) (52.58) 0.00
Distributions From
Paid-in Capital....... (0.44) 0.00 0.00 0.00 0.00 0.00
-------- -------- -------- -------- -------- --------
Total Distributions.... (35.59) (4.07) (18.93) (14.07) (56.06) 0.00
-------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $ 347.36 $ 322.23 $ 351.63 $ 312.30 $ 374.62 $ 394.51
======== ======== ======== ======== ======== ========
TOTAL RETURN (%)........ 54.00 (6.05) 14.97 (7.07) 38.03 5.31(b)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.70 0.70 0.68 0.67 0.71 0.70(a)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 1.22 1.53 0.67 1.61 0.92 0.79(a)
Portfolio Turnover Rate
(%).................... 174 207 169 140 242 265(a)
Average Commission
Rate(c)................ -- -- -- -- -- $ 0.0626
Net Assets, End of
Period (000)........... $343,965 $472,017 $644,384 $667,127 $921,444 $991,618
</TABLE>
(a) Computed on an annualized basis.
(b) Not computed on an annualized basis.
(c) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
See accompanying notes to financial statements.
23
<PAGE>
ZENITH LOOMIS SAYLES AVANTI GROWTH SERIES
PORTFOLIO MANAGERS: SCOTT PAPE AND BRUCE EBEL
LOOMIS, SAYLES & COMPANY, L.P.
- ------------------ MARKET REVIEW
[PHOTO OF SCOTT Buoyed by an acceleration of activity in key areas such
PAPE & BRUCE as retail sales, employment and housing, the general
EBEL APPEARS economic environment was solid during the first six months
HERE] of 1996. Inflation remained under control during the
period with very little evidence of pricing or labor cost
pressures that traditionally ignite higher inflation.
The only negative trend developing during the first half
of 1996 was the rise of long-term interest rates. Yields
on the thirty-year bellwether long-term Treasury Bond rose
- ------------------ from 5.8% in January to 7.2% by late June. That has led to
some consternation and subsequent volatility in both the fixed income and equity
markets.
Thanks to a boost from consumer and technology stocks, the Avanti Growth
Series continued to post strong gains. For the six months ending June 30,
1996, the Series returned 10.85%.
The Series' continued strong performance was fueled primarily by stocks that
benefited from accelerated consumer spending and retail sales. Holdings that
boosted the overall performance of the Series came from the technology,
financial, and consumer staples sectors, particularly from companies that make
telecommunications, software, personal care and beverage products. Energy
holdings, an area where the Series increased its exposure, also performed
admirably, with oil field service companies driving returns. Overall, growth
indices bettered the performance of value stocks year-to-date, indicating the
heavier proportion of harder-hit industrial and utility stocks in most value
funds.
Sectors that underperformed included heavy industrials, especially companies
that sold basic materials, such as steel, building materials and construction
and home building materials. Utilities were a sub-standard performer as well,
attributable chiefly to the rising interest rate environment during the first
half of the year. The Series was underweighted in both categories during this
period. An area that received greater weighting in the Series in late 1995 and
early 1996 was domestic emerging growth stocks, representing 33% of the Series
as of January 1, 1996, which also performed very well over the first six
months of 1996.
Allocating a third of the Series to domestic emerging growth stocks follows
a general strategy of uncovering dynamic growth companies earlier in their
life cycles than other growth investing. By locating the next Coca-Cola's and
Gillette's of the world, the Series pursued substantially higher overall
returns than those derived from index funds. Combined with core stocks that
have already established a long-term pattern of growth and earnings, the
Series' domestic emerging growth stock allocation targets the upside potential
characteristic of a growth fund, with the market correlation and limitation of
risk sought by an index fund.
Individual stocks that contributed to the growth of the Series during the
period included Microsoft, Cintas and Paychex. Microsoft, our second largest
holding in the Series, exemplifies the Series' management strategy. It's a
premiere company that has dominated its industry and one that has earned above
average rates of return over long periods of time.
Cinta, the market leader in the uniform rental industry, underscores another
tenet that the Series operates under: finding companies with a history of
predictable above average earnings that they have provided quarter after
quarter. Cinta has experienced average growth of 20% annually over the last
ten years.
Paychex personifies the emerging growth stock investment strategy that the
Series employs. A small company that does payroll processing for rapidly
growing businesses, Paychex presents an investment opportunity with high
recurring revenues and consistently strong growth in a market that is not yet
saturated.
24
<PAGE>
OUTLOOK AND STRATEGY
We believe that economic growth will slow moderately through the rest of
1996. Interest rates should remain stable and low inflation should be the norm
for the period. We expect that corporate earnings will continue to be strong
even if the economy loses some momentum. Companies are still enjoying
increased productivity and are working hard to bolster their bottom lines.
That should result in further growth for these companies in particular and the
economy in general during the second half of 1996.
In the meantime, the Series will continue to focus on America's premiere
companies--leaders in their respective industries, with strong management and
excellent prospects for increased revenues and earnings. We feel these stocks
offer investors the best opportunities for long-term growth.
A $10,000 Investment Compared to an Index FUND FACTS
[GRAPH APPEARS HERE] GOAL: Long-term growth of
capital.
Avanti
Growth S&P START DATE: April 30, 1993
Series 500/20/
Inception 4/30/93 $10,000 $10,000 SIZE: $65 million as of June 30,
12/31/93 11,473 10,819 1996
12/31/94 11,443 10,966
12/31/95 14,916 15,072 MANAGERS: Scott Pape has served
6/30/96 16,533 16,592 as a co-portfolio manager of the
Series since 1993; Bruce Ebel
replaced Richard Hurckes, who
Average Annual Return retired in June 1996. They also
manage New England Capital
Avanti Lipper Variable Growth Growth Fund. Mr. Pape joined
Growth Series Fund Average/11/ Loomis Sayles in 1991 and Mr.
6 mos.* 10.85% 10.56% Ebel in 1994. Prior to joining
1 year 20.46% 23.96% Loomis Sayles, Mr. Ebel served
Since as Senior Vice President at
inception 17.21% n/a Kemper Asset Management.
*not annualized
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts; if these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
25
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES AVANTI GROWTH SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
COMMON STOCKS--97.3% OF NET ASSETS
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
AEROSPACE--1.1%
7,800 Boeing Co. .............................................. $ 679,574
-----------
AIRLINES--0.5%
11,500 Southwest Airlines Co. .................................. 334,937
-----------
APPAREL & TEXTILES--0.2%
1,300 Nike, Inc. .............................................. 133,575
-----------
BANKS--1.5%
16,300 First Bank Systems....................................... 945,400
-----------
BUSINESS SERVICES--11.0%
13,000 Ceridian Corp.(c)........................................ 656,500
26,000 Checkfree Corp.(c)....................................... 516,750
21,200 Cintas Corp. ............................................ 1,134,200
19,400 Danka Business Systems................................... 567,450
21,900 First Data Corp. ........................................ 1,743,788
41,250 Fiserv, Inc.(c).......................................... 1,237,500
17,200 Medaphis Corp.(c)........................................ 683,700
11,600 Paychex, Inc. ........................................... 558,250
1,000 Sykes Enterprises, Inc.(c)............................... 49,250
-----------
7,147,388
-----------
CHEMICALS--2.5%
10,000 Air Products & Chemicals, Inc. .......................... 577,500
28,500 Monsanto Co. ............................................ 926,250
3,500 Morton International, Inc. .............................. 130,375
-----------
1,634,125
-----------
COMMUNICATION--9.5%
4,000 Cascade Communications Corp.(c).......................... 272,000
22,500 Cisco Systems, Inc.(c)................................... 1,274,063
14,500 Glenayre Technologies, Inc.(c)........................... 725,000
15,900 Motorola, Inc. .......................................... 999,713
4,600 Paging Network, Inc.(c).................................. 110,400
24,900 Qualcom, Inc.(c)......................................... 1,322,812
15,200 Tellabs, Inc.(c)......................................... 1,016,500
4,900 US Robotics, Inc. ....................................... 418,950
-----------
6,139,438
-----------
COMPUTER SOFTWARE & SERVICES--9.6%
11,000 Adobe Systems, Inc. ..................................... 394,625
11,000 Automatic Data Processing................................ 424,875
9,900 HBO & Co. ............................................... 670,725
49,000 Informix Corp.(c)........................................ 1,102,500
14,400 Microsoft Corp.(c)....................................... 1,729,800
19,000 Oracle Systems Corp.(c).................................. 749,313
26,900 Parametric Technology Corp.(c)........................... 1,166,787
-----------
6,238,625
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
COMPUTERS & BUSINESS EQUIPMENT--2.5%
16,300 Hewlett Packard Co. ...................................... $ 1,623,887
-----------
ELECTRIC--2.4%
18,000 General Electric Co. ..................................... 1,557,000
-----------
ELECTRONIC COMPONENTS--5.5%
17,300 Intel Corp. .............................................. 1,270,468
31,000 LSI Logic Corp.(c)........................................ 806,000
7,000 Molex, Inc. .............................................. 222,250
17,500 Molex, Inc. Class A....................................... 514,063
19,500 Solectron Corp.(c)........................................ 738,563
-----------
3,551,344
-----------
ENERGY--0.7%
2,700 Amoco Corp. .............................................. 195,413
3,100 Schlumberger, Ltd. ....................................... 261,175
-----------
456,588
-----------
FINANCIAL SERVICES--2.1%
14,000 MBNA Corp. ............................................... 399,000
15,200 MGIC Investment Corp. .................................... 853,100
5,300 Charles Schwab Corp. ..................................... 129,850
-----------
1,381,950
-----------
FOOD & BEVERAGES--2.8%
15,000 Coca Cola Co. ............................................ 733,125
30,400 PepsiCo, Inc. ............................................ 1,075,400
-----------
1,808,525
-----------
GAS & PIPELINE UTILITIES--0.5%
8,300 Enron Corp. .............................................. 339,263
-----------
HEALTH CARE--5.7%
19,000 Boston Scientific Corp.(c)................................ 855,000
18,300 Indexx Labs, Inc.(c)...................................... 718,275
21,900 Medtronic, Inc. .......................................... 1,226,400
26,200 Summit Technology, Inc.(c)................................ 366,800
30,000 Ventritex, Inc.(c)........................................ 513,750
-----------
3,680,225
-----------
HEALTH CARE--DRUGS--7.6%
22,400 Amgen, Inc.(c)............................................ 1,209,600
6,000 Biogen, Inc.(c)........................................... 329,250
25,400 Johnson & Johnson......................................... 1,257,300
19,900 Merck & Co. .............................................. 1,286,038
87,000 Oncor, Inc.(c)............................................ 478,500
23,000 Somatogen, Inc.(c)........................................ 324,875
-----------
4,885,563
-----------
</TABLE>
See accompanying notes to financial statements.
26
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES AVANTI GROWTH SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
HEALTH CARE--SERVICES--3.5%
18,000 Columbia/HCA Healthcare................................... $ 960,750
28,600 Healthsouth Corp.(c)...................................... 1,029,600
4,050 Phycor, Inc.(c)........................................... 153,900
2,000 United Healthcare Corp. .................................. 101,000
-----------
2,245,250
-----------
HOTELS & RESTAURANTS--5.9%
11,400 Boston Chicken, Inc.(c)................................... 370,500
7,100 Circus Circus Enterprises(c).............................. 291,100
18,800 Lone Star Steakhouse Saloon(c)............................ 709,700
11,300 McDonalds Corp. .......................................... 528,275
21,900 Primadonna Resorts, Inc.(c)............................... 503,700
49,000 Starbucks Corp.(c)........................................ 1,384,250
-----------
3,787,525
-----------
HOUSEHOLD PRODUCTS--3.5%
17,700 Duracell International, Inc. ............................. 763,313
21,500 Gillette Co. ............................................. 1,341,062
1,400 Procter & Gamble Co. ..................................... 126,875
-----------
2,231,250
-----------
INSURANCE--2.8%
11,500 American International Group, Inc. ....................... 1,134,188
10,000 Exel Limited.............................................. 705,000
-----------
1,839,188
-----------
LEISURE TIME--1.6%
13,300 Eastman Kodak Co. ........................................ 1,034,074
-----------
MACHINERY--1.5%
14,000 Illinois Tool Works, Inc. ................................ 946,750
-----------
MEDIA & ENTERTAINMENT--2.5%
16,400 Walt Disney Co. .......................................... 1,031,150
14,400 Tele-Communications, Inc. NE(c)........................... 261,000
1,800 Tribune Co. .............................................. 130,725
10,300 U.S. West Media Group(c).................................. 187,975
-----------
1,610,850
-----------
METALS--0.3%
3,200 Nucor Corp. .............................................. 162,000
-----------
OIL--2.5%
22,000 Anadarko Petroleum Corp. ................................. 1,276,000
11,300 Enron Oil & Gas Co. ...................................... 314,988
-----------
1,590,988
-----------
OIL SERVICES--0.8%
7,800 Baker Hughes, Inc. ....................................... 256,425
18,400 Rowan Companies, Inc.(c).................................. 271,400
-----------
527,825
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
RETAIL--3.0%
28,000 Office Max, Inc.(c)................................. $ 668,500
27,150 Petsmart, Inc.(c)................................... 1,296,412
-----------
1,964,912
-----------
RETAIL SPECIALTY--1.8%
32,450 CUC International, Inc.(c).......................... 1,151,974
-----------
TELECOMMUNICATION--0.4%
2,000 AT & T Corp. ....................................... 124,000
6,500 MCI Communications Corp. ........................... 166,563
-----------
290,563
-----------
TOBACCO--1.5%
9,500 Philip Morris Companies, Inc. ...................... 988,000
-----------
Total Common Stocks
(Identified Cost $52,488,895)...................... 62,908,556
-----------
SHORT-TERM INVESTMENT--2.3%
<CAPTION>
FACE
AMOUNT
<C> <S> <C>
$1,501,533 Associates Corp. of North America
5.45%, 7/01/96..................................... 1,501,533
-----------
Total Short-Term Investment
(Identified cost $1,501,533)....................... 1,501,533
-----------
Total Investments--99.6%
(Identified cost $53,990,428)(b)................... 64,410,089
Other assets less liabilities....................... 255,935
-----------
TOTAL NET ASSETS--100%.............................. $64,666,024
===========
(a) See Note 1A.
(b) Federal Tax Information:
At June 30, 1996 the net unrealized appreciation on investments based on
cost for federal income tax purposes of $53,990,428 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost...................................... $11,781,569
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value......................................... (1,361,908)
-----------
Net unrealized appreciation......................... $10,419,661
===========
(c) Non-income producing security.
</TABLE>
See accompanying notes to financial statements.
27
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES AVANTI GROWTH SERIES)
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................... $64,410,089
Receivable for:
Fund shares sold....................................... 132,904
Securities sold........................................ 1,254,181
Dividends and interest................................. 47,857
Foreign withholding taxes.............................. 44
-----------
65,845,075
LIABILITIES
Payable for:
Securities purchased................................... $1,060,866
Fund shares redeemed................................... 28,476
Foreign withholding taxes.............................. 212
Miscellaneous.......................................... 474
Accrued expenses:
Management fees........................................ 64,343
Deferred trustees' fees................................ 633
Other expenses......................................... 24,047
----------
1,179,051
-----------
NET ASSETS.............................................. $64,666,024
===========
Net Assets consist of:
Capital paid in........................................ $50,671,120
Undistributed net investment income.................... 43,602
Accumulated net realized gains......................... 3,531,641
Unrealized appreciation on investments................. 10,419,661
-----------
NET ASSETS.............................................. $64,666,024
===========
Computation of offering price:
Net asset value and redemption price per share
($64,666,024 divided by 409,567 shares of beneficial
interest).............................................. $ 157.89
===========
Identified cost of investments.......................... $53,990,428
===========
</TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends............................................. $ 202,346(a)
Interest.............................................. 74,977
----------
277,323
EXPENSES
Management fees....................................... $197,714
Trustees' fees and expenses........................... 6,673
Custodian............................................. 26,467
Audit and tax services................................ 5,700
Legal................................................. 5,163
Printing.............................................. 20,981
Miscellaneous......................................... 3,424
--------
Total expenses....................................... 266,122
Less expenses assumed by the investment adviser...... (26,039) 240,083
-------- ----------
NET INVESTMENT INCOME.................................. 37,240
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on:
Investments--net...................................... 2,622,731
Unrealized appreciation on:
Investments--net...................................... 3,089,684
----------
Net gain on investment transactions.................... 5,712,415
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............. $5,749,655
==========
(a) Net of foreign taxes of: $160.
</TABLE>
See accompanying notes to financial statements.
28
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES AVANTI GROWTH SERIES)
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................... $ 138,413 $ 37,240
Net realized gain on investments.................... 2,703,726 2,622,731
Unrealized appreciation on investments.............. 6,182,432 3,089,684
----------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS.............. 9,024,571 5,749,655
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................... (132,051) 0
Net realized gain on investments.................... (1,364,969) 0
----------- -----------
(1,497,020) 0
----------- -----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares........................ 25,328,373 17,711,099
Net asset value of shares issued in connection with
the reinvestment of:
Distributions from net investment income............ 132,051 0
Distributions from net realized gain................ 1,364,969 0
----------- -----------
26,825,393 17,711,099
Cost of shares redeemed............................. (11,142,834) (7,627,100)
----------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS....................................... 15,682,559 10,083,999
----------- -----------
TOTAL INCREASE IN NET ASSETS........................ 23,210,110 15,833,654
NET ASSETS
Beginning of the period............................. 25,622,260 48,832,370
----------- -----------
End of the period................................... $48,832,370 $64,666,024
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the period............................. $ 0 $ 6,362
=========== ===========
End of the period................................... $ 6,362 $ 43,602
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares...................... 188,223 117,619
Issued in connection with the reinvestment of:
Distributions from net investment income............ 929 0
Distributions from net realized gain................ 9,604 0
----------- -----------
198,756 117,619
Redeemed............................................ (83,183) (50,875)
----------- -----------
Net change.......................................... 115,573 66,744
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
APRIL 30, 1993 (A) YEAR ENDED SIX MONTHS
THROUGH DECEMBER 31, ENDED
DECEMBER 31, ------------ JUNE 30,
1993 1994 1995 1996
------------------ ------- ------- ----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $100.00 $113.67 $112.77 $142.44
------- ------- ------- -------
Income From Investment
Operations
Net Investment Income........ 0.18 0.59 0.42 0.09
Net Realized and Unrealized
Gain (Loss) on Investments.. 14.56 (0.89) 33.80 15.36
------- ------- ------- -------
Total From Investment
Operations.................. 14.74 (0.30) 34.22 15.45
------- ------- ------- -------
Less Distributions
Distributions From Net
Investment Income........... (0.18) (0.60) (0.40) 0.00
Distributions From Net
Realized Capital Gains...... (0.67) 0.00 (4.15) 0.00
Distributions From Paid-in
Capital..................... (0.22) 0.00 0.00 0.00
------- ------- ------- -------
Total Distributions.......... (1.07) (0.60) (4.55) 0.00
------- ------- ------- -------
Net Asset Value, End of
Period....................... $113.67 $112.77 $142.44 $157.89
======= ======= ======= =======
TOTAL RETURN (%).............. 14.74 (c) (0.27) 30.35 10.85(c)
Ratio of Operating Expenses to
Average Net Assets (%)....... 0.85 (b) 0.84 0.85 0.85(b)
Ratio of Net Investment Income
to Average Net Assets (%).... 0.46 (b) 0.67 0.37 0.13(b)
Portfolio Turnover Rate (%)... 21 (b) 67 58 84(b)
Average Commission Rate (d).. -- -- -- $0.0312
Net Assets, End of Period
(000)........................ $11,972 $25,622 $48,832 $64,666
The ratios of expenses to
average net assets without
giving effect to the
voluntary expense agreement
described in Note 4 to the
Financial Statements would
have been (%)................ 0.89 (b) 0.84 1.06 0.94(b)
</TABLE>
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Not computed on an annualized basis.
(d) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
See accompanying notes to financial statements.
29
<PAGE>
ZENITH VENTURE VALUE SERIES
PORTFOLIO MANAGERS: SHELBY M.C. DAVIS AND CHRISTOPHER C. DAVIS
DAVIS SELECTED ADVISERS, L.P.
- ----------------- -------------------------------------------------------------
MARKET REVIEW
-------------------------------------------------------------
The Venture Value Series ended the six months ended June
[PHOTO OF 30, 1996, with a total return of 7.71%, compared to the
SHELBY M.C. total return of the 10.2% posted by the S&P 500
DAVIS AND Index/20/ over the same period.
CHRISTOPHER In light of recent market activity and the market's
DAVIS APPEARS average volatility over the last twenty to thirty years,
HERE] investors should be prepared for a 1,000 point drop at any
time. Were this to happen, we'd stay the course while
looking for new opportunities to invest. Frankly, however,
we're more concerned that the underlying euphoria might
lead to a 1,000 upside market move--which would lead us to
reexamine our investment tactics and look for selling
opportunities.
----------------
But fundamentals remain positive for long term investors like us. There is
still little sign of recession and inflation remains moderate. In addition,
American companies are now more competitive in world markets, and have a lot
of opportunity both to export goods and services as well as to locate
facilities in high growth economies overseas. And while the market hovers near
all-time highs, its current average price-per-earnings ratio is only slightly
above its 50 year average--unlike several prior periods, when valuations
reached dangerous levels. We therefore intend to stay fairly fully invested,
riding out the inevitable ups and downs of the market. At the same time, we'll
remain alert for strong buying or selling opportunities triggered by wide
market swings.
- --------------------------------------------------------------------------------
OUTLOOK AND STRATEGY
- --------------------------------------------------------------------------------
As the market pushed to new highs, we asked ourselves again how to avoid
losing money while still trying to make money. We responded by redoubling our
efforts to control our portfolio's risk, first by continuing to focus on
companies with strong balance sheets, which enables them to weather changing
market conditions. Second, we've been increasing our holdings in world-class
domestic and multinational natural resource companies. These stocks have just
survived a 10-year depression in commodities prices, and now represent growth
opportunities. At the same time, they're also defensive in nature and
represent a bit of a hedge against inflation.
Looking at the bigger picture, however, our strategies remain the same. We
continue to emphasize four themes: financial companies with strong brand names
selling at discounts to the market; growth companies whose stock volatility
creates buying opportunities; high quality multinationals poised to benefit
from high growth economies overseas, and companies with strong cash flows
which are undergoing restructuring. To date, our investments in insurers and
investment banks, which have added a lot to our performance, while our
relatively low weighting in high technology stocks has helped us to avoid the
losses that the sector has generated.
A $10,000 Investment Compared to an Index FUND FACTS
[GRAPH APPEARS HERE] GOAL: Growth of capital.
Venture S&P START DATE: October 31, 1994
Value 500/20/
10/31/94 $10,000 $10,000 SIZE: $63 million as of June 30,
12/31/94 9,650 9,794 1996
12/31/95 13,441 13,461
06/30/96 14,477 14,818 MANAGERS: Shelby M.C. Davis has
served as portfolio manager
since the Series' inception in
Average Annual Return 1994 and has served as portfolio
manager of Davis New York
Venture Lipper Variable Growth Venture Fund since 1968 and of
Value and Income Fund/12/ Selected American Shares since
6 mos.* 7.71% 9.48% May, 1993. He also managed the
1 year 22.20% 23.55% Selected Special Fund from May,
Since 1993 through October, 1994 and
inception 24.87% n/a the Davis Financial Fund from
*not annualized May, 1991 through May, 1995.
Christopher C. Davis has co-
managed the Series since
October, 1995 and has been an
assistant portfolio manager and
research analyst at Davis
Selected since 1989.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts; if these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
30
<PAGE>
NEW ENGLAND ZENITH FUND
(VENTURE VALUE SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
COMMON STOCKS--84.8% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES VALUE(A)
<C> <S> <C>
AEROSPACE--0.1%
1,000 Boeing Co. ............................................... $ 87,125
-----------
AGRICULTURE--0.1%
4,600 Archer-Daniels-Midland Co. ............................... 87,975
-----------
AUTOMOTIVE--2.1%
21,800 General Motors Corp. ..................................... 1,141,775
2,400 General Motors Corp., Class H............................. 144,300
-----------
1,286,075
-----------
BANKS AND SAVINGS & LOANS--11.6%
26,860 Banc One Corp. ........................................... 913,240
7,300 Barnett Banks, Inc. ...................................... 445,300
18,580 Citicorp.................................................. 1,535,173
20,800 First Bank Systems, Inc. ................................. 1,206,400
300 First Union Corp. ........................................ 18,263
11,600 Golden West Financial Corp. .............................. 649,600
4,200 Signet Banking Corp. ..................................... 97,650
18,700 State Street Boston Corp. ................................ 953,700
6,400 Wells Fargo & Co. ........................................ 1,528,800
-----------
7,348,126
-----------
COMPUTER PRODUCTS AND SERVICES--7.3%
11,900 Adobe Systems, Inc. ...................................... 426,913
17,100 Hewlett-Packard Co. ...................................... 1,703,588
28,900 Intel Corp. .............................................. 2,122,345
9,300 Novellus Systems, Inc.(c)................................. 334,800
-----------
4,587,646
-----------
CONSUMER PRODUCTS--6.2%
600 American Brands, Inc. .................................... 27,225
400 American Home Products Corp. ............................. 24,050
32,000 Coca Cola Company......................................... 1,564,000
1,000 General Electric Co. ..................................... 86,500
8,400 The Gillette Co. ......................................... 523,950
48,900 Guinness PLC.............................................. 355,415
3,400 Kimberly-Clark Corp....................................... 262,650
9,900 Nestle SA (Switzerland) (ADR)(d).......................... 565,142
800 Philip Morris Companies, Inc. ............................ 83,200
10,900 The Seagram Co., Ltd. .................................... 366,513
-----------
3,858,645
-----------
DIVERSIFIED FINANCIAL SERVICES--6.8%
48,900 American Express Co. ..................................... 2,182,163
16,700 Dean Witter, Discover & Co. .............................. 956,075
13,500 Federal Home Loan Mortgage Corporation.................... 1,154,250
-----------
4,292,488
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE(A)
<C> <S> <C>
ELECTRONICS--0.7%
15,200 Applied Materials, Inc.(c)................................ $ 463,600
-----------
ENERGY--5.3%
13,700 Amerada Hess Corp. ....................................... 734,663
200 Amoco Corp. .............................................. 14,475
400 Atlantic Richfield Co. ................................... 47,400
27,900 Burlington Resources, Inc. ............................... 1,199,700
1,200 Chevron Corp. ............................................ 70,800
8,500 Energy Venture, Inc.(c)................................... 276,250
1,900 Exxon Corp. .............................................. 165,062
4,700 Halliburton Co. .......................................... 260,850
200 Mobil Corp. .............................................. 22,425
4,500 Noble Affiliates, Inc. ................................... 169,875
3,500 Schlumberger, Ltd. ....................................... 294,875
300 Sonat, Inc. .............................................. 13,500
1,900 Unocal Corp. ............................................. 64,125
-----------
3,334,000
-----------
ENTERTAINMENT--0.8%
8,500 Walt Disney Co. .......................................... 534,437
-----------
FOOD & RESTAURANT--2.7%
28,200 McDonald's Corp. ......................................... 1,318,350
14,700 Tyson Foods Inc., Class A................................. 402,413
-----------
1,720,763
-----------
FREIGHT--0.4%
9,400 Illinois Central Corp..................................... 266,725
-----------
INTERNATIONAL CLOSED-END INVESTMENT COMPANY--1.0%
50,534 Morgan Stanley Asia Pacific Fund, Inc. ................... 606,407
-----------
INVESTMENT FIRMS--4.7%
18,900 Donaldson Lufkin & Jenrette, Inc. ........................ 585,900
11,700 J.P. Morgan & Co., Inc. .................................. 990,113
28,800 Morgan Stanley Group, Inc. ............................... 1,414,800
-----------
2,990,813
-----------
LIFE INSURANCE--4.1%
54,800 Equitable Companies, Inc. ................................ 1,363,150
21,500 SunAmerica, Inc. ......................................... 1,214,750
-----------
2,577,900
-----------
MANUFACTURING--0.0%
100 Dow Chemical Co. ......................................... 7,600
600 Maytag Corp. ............................................. 12,525
-----------
20,125
-----------
</TABLE>
See accompanying notes to financial statements.
31
<PAGE>
NEW ENGLAND ZENITH FUND
(VENTURE VALUE SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE(A)
<C> <S> <C>
PAPER PRODUCTS--1.6%
26,100 Fort Howard Corp.(c)...................................... $ 518,738
200 International Paper Co. .................................. 7,375
17,000 Jefferson Smurfit Corp.(c)................................ 184,875
6,000 The Mead Corp. ........................................... 311,250
300 Union Camp Corp. ......................................... 14,625
-----------
1,036,863
-----------
PHARMACEUTICAL AND HEALTH CARE--2.9%
200 Bristol-Myers Squibb Co. ................................. 18,000
8,800 Johnson & Johnson......................................... 435,600
5,100 Merck & Co., Inc. ........................................ 329,588
14,700 Pfizer, Inc. ............................................. 1,049,213
-----------
1,832,401
-----------
PHOTOGRAPHIC--1.3%
10,300 Eastman Kodak Co. ........................................ 800,824
-----------
PROPERTY/CASUALTY INSURANCE--14.8%
28,981 The Allstate Corp. ....................................... 1,322,259
5,900 American International Group, Inc. ....................... 581,888
18,900 W.R. Berkley Corp. ....................................... 789,075
25,600 Chubb Corp. .............................................. 1,276,800
10,500 General Re Corp. ......................................... 1,598,625
14,100 NAC Re Corp. ............................................. 472,350
5,800 National Re Corp. ........................................ 218,950
10,800 Progressive Corp. (Ohio).................................. 499,500
5,200 Transatlantic Holdings, Inc. ............................. 364,650
34,350 The Travelers Group, Inc. ................................ 1,567,219
20,600 20th Century Industries, Inc.(c).......................... 342,475
5,700 UNUM Corp. ............................................... 354,825
-----------
9,388,616
-----------
PUBLISHING--2.5%
14,900 Gannet Co., Inc. ......................................... 1,054,175
7,100 Tribune Co. .............................................. 515,638
-----------
1,569,813
-----------
REAL ESTATE--2.7%
7,400 Federal Realty Investment Trust(c)........................ 166,500
54,500 Host Marriott Corp.(c).................................... 715,313
1,600 Kimco Realty Corp. ....................................... 45,200
4,100 Mid-Atlantic Realty Trust................................. 40,744
4,600 Saul Centers, Inc. ....................................... 63,825
8,100 United Dominion Realty Trust, Inc. ....................... 116,437
11,800 Vornado Realty Trust...................................... 482,325
2,300 Weingarten Realty, Inc. .................................. 89,125
-----------
1,719,469
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE(A)
<C> <S> <C>
RETAIL--2.2%
20,600 Federated Department Stores, Inc.(c).................... $ 702,975
10,200 Harcourt General, Inc. ................................. 510,000
2,900 Home Depot, Inc. ....................................... 156,600
-----------
1,369,575
-----------
TELECOMMUNICATIONS--2.1%
23,200 Airtouch Communications(c).............................. 655,400
2,300 AT & T Corp. ........................................... 142,600
3,600 Cellular Communications, Inc.(c)........................ 191,250
11,900 MCI Communications Corp. ............................... 304,938
200 SBC Communications, Inc. ............................... 9,850
-----------
1,304,038
-----------
TRANSPORTATION--0.8%
7,300 Union Pacific Corp. .................................... 510,087
-----------
UTILITIES--0.0%
100 Carolina Power & Light Co. ............................. 3,800
200 Duke Power Co. ......................................... 10,250
200 Edison International.................................... 3,525
100 Enova Corp. ............................................ 2,312
100 Wisconsin Energy Corp. ................................. 2,888
-----------
22,775
-----------
Total Common Stocks
(Identified Cost $46,655,314).......................... 53,617,311
-----------
PREFERRED STOCK--1.5%
1,200 Banc One Corp., $3.50, Ser. C Conv. Pfd................. 80,100
42,900 The News Corp. Ltd., (ADR)(d)........................... 863,363
-----------
Total Preferred Stocks
(Identified Cost $775,260)............................. 943,463
-----------
BONDS--0.1%
<CAPTION>
FACE
AMOUNT
<C> <S> <C>
$39,000 Noble Affiliates, Inc., Conv. Sub. Notes, 4.25%,
11/01/03............................................... 42,998
-----------
Total Bonds (Identified Cost $40,005)................... 42,998
-----------
</TABLE>
See accompanying notes to financial statements.
32
<PAGE>
NEW ENGLAND ZENITH FUND
(VENTURE VALUE SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
SHORT TERM INVESTMENTS--14.7%
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$5,835,000 Federal Farm Credit Bank, Discount Note, 5.27%,
7/09/96............................................ $ 5,828,167
3,495,000 Federal Home Loan Mortgage Association, Discount
Note, 5.24%, 7/01/96............................... 3,495,000
-----------
Total Short-Term Investment
(Identified Cost $9,323,167)....................... 9,323,167
-----------
Total Investments--101.1%
(Identified Cost $56,793,746)(b)................... 63,926,939
Other assets less liabilities(e).................... (679,242)
-----------
TOTAL NET ASSETS--100%.............................. $63,247,697
===========
(a) See Note 1a.
(b) Federal Tax Information: At June 30, 1996 the net unrealized appreciation
on investments based on cost of $56,793,746 for federal income tax purposes
was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost...................................... $ 7,543,853
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value......................................... (410,660)
-----------
Net unrealized appreciation......................... $ 7,133,193
===========
</TABLE>
(c) Non-income producing security.
(d) An American Depository Receipt (ADR) is a certificate issued by a U.S. bank
representing the right to receive securities of the foreign issuer
described. The values of ADRs are significantly influenced by trading on
exchanges not located in the United States or Canada.
(e) Including deposits in foreign denominated currencies with a value of $7,146
and a cost of $6,964.
See accompanying notes to financial statements.
33
<PAGE>
NEW ENGLAND ZENITH FUND
(VENTURE VALUE SERIES)
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................... $63,926,939
Cash................................................... 7,746
Foreign cash at value.................................. 7,146
Receivable for:
Fund shares sold....................................... 313,576
Securities sold........................................ 142,837
Dividends and interest................................. 67,724
Foreign withholding taxes.............................. 576
Prepaid expense........................................ 6,702
-----------
64,473,246
LIABILITIES
Payable for:
Securities purchased................................... $1,048,332
Fund shares redeemed................................... 91,492
Withholding taxes...................................... 245
Accrued expenses:
Management fees........................................ 43,143
Other expenses......................................... 42,337
----------
1,225,549
-----------
NET ASSETS.............................................. $63,247,697
===========
Net Assets consist of:
Capital paid in........................................ $55,733,438
Undistributed net investment income.................... 334,013
Accumulated net realized gains......................... 46,879
Unrealized appreciation on investments and foreign
currency.............................................. 7,133,367
-----------
NET ASSETS.............................................. $63,247,697
===========
Computation of offering price:
Net asset value and redemption price per share
($63,247,697 divided by 4,483,306 shares of beneficial
interest).............................................. $ 14.11
===========
Identified cost of investments.......................... $56,793,746
===========
</TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends............................................. $ 435,707(a)
Interest.............................................. 115,426
----------
551,133
EXPENSES
Management fees....................................... $184,191
Trustees' fees and expenses........................... 6,572
Custodian............................................. 46,187
Audit and tax services................................ 9,900
Legal................................................. 5,411
Printing.............................................. 8,983
Amortization of organization expenses................. 1,003
Miscellaneous......................................... 5,023
--------
Total expenses....................................... 267,270
Less expenses assumed by the investment adviser...... (46,239) 221,031
-------- ----------
NET INVESTMENT INCOME.................................. 330,102
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized loss on Investments--net..................... (36,497)
Unrealized appreciation on Investments--net........... 3,190,561
----------
Net gain on investment transactions.................... 3,154,064
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............. $3,484,166
==========
(a) Net of foreign taxes of: $3,936.
</TABLE>
See accompanying notes to financial statements.
34
<PAGE>
NEW ENGLAND ZENITH FUND
(VENTURE VALUE SERIES)
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................... $ 246,049 $ 330,102
Net realized gain (loss) on investments............. 600,646 (36,497)
Unrealized appreciation on investments and foreign
currency........................................... 3,966,150 3,190,561
----------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS.............. 4,812,845 3,484,166
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................... (244,485) 0
Net realized gain on investments.................... (517,278) 0
----------- -----------
(761,763) 0
----------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares........................ 31,372,928 31,814,844
Net asset value of shares issued in connection with
the reinvestment of:
Distributions from net investment income............ 244,485 0
Distributions from net realized gain................ 517,278 0
----------- -----------
32,134,691 31,814,844
Cost of shares redeemed............................. (4,512,250) (7,096,280)
----------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS....................................... 27,622,441 24,718,564
----------- -----------
TOTAL INCREASE IN NET ASSETS........................ 31,673,523 28,202,730
NET ASSETS
Beginning of the period............................. 3,371,444 35,044,967
----------- -----------
End of the period................................... $35,044,967 $63,247,697
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the period............................. $ 0 $ 3,911
=========== ===========
End of the period................................... $ 3,911 $ 334,013
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares...................... 2,627,688 2,325,674
Issued in connection with the reinvestment of:
Distributions from net investment income............ 18,850 0
Distributions from net realized gain................ 39,883 0
----------- -----------
2,686,421 2,325,674
Redeemed............................................ (362,591) (516,790)
----------- -----------
Net change.......................................... 2,323,830 1,808,884
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 31, 1994 (A) SIX MONTHS
THROUGH ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
1994 1995 1996
-------------------- ---------- ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $10.00 $ 9.62 $ 13.10
------ ------- -------
Income From Investment Operations
Net Investment Income............ 0.03 0.10 0.17
Net Realized and Unrealized Gain
(Loss) on Investments........... (0.38) 3.68 0.84
------ ------- -------
Total From Investment Operations. (0.35) 3.78 1.01
------ ------- -------
Less Distributions
Distributions From Net Investment
Income.......................... (0.03) (0.10) 0.00
Distributions From Net Realized
Capital Gains................... 0.00 (0.20) 0.00
------ ------- -------
Total Distributions.............. (0.03) (0.30) 0.00
------ ------- -------
Net Asset Value, End of Period.... $ 9.62 $ 13.10 $ 14.11
====== ======= =======
TOTAL RETURN (%).................. (3.50)(c) 39.28 7.71 (c)
Ratio of Operating Expenses to
Average Net Assets (%)........... 0.90 (b) 0.90 0.90 (b)
Ratio of Net Investment Income to
Average Net Assets (%)........... 2.54 (b) 1.39 1.33 (b)
Portfolio Turnover Rate (%)....... 1 (b) 20 12 (b)
Average Commission Rate (d)....... -- -- $0.0423
Net Assets, End of Period (000)... $3,371 $35,045 $63,248
The ratios of expenses to average
net assets without giving effect
to the voluntary expense
agreement described in Note 4 to
the Financial Statements would
have been (%).................... 3.97 (b) 1.51 1.09 (b)
</TABLE>
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Not computed on an annualized basis.
(d) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission per share for trades on which
commissions are charged. This rate generally does not reflect mark-ups,
mark-downs, or spreads on shares traded on a principal basis.
See accompanying notes to financial statements.
35
<PAGE>
ZENITH WESTPEAK VALUE GROWTH SERIES
PORTFOLIO MANAGERS: GERALD SCRIVER AND PHILIP COOPER;
WESTPEAK INVESTMENT ADVISORS, L.P.
- ----------------- ------------------ MARKET REVIEW
The first six months of 1996 held
[PHOTO OF GERALD [PHOTO OF PHILIP few surprises for us in terms of the
SCRIVER APPEARS COOPER APPEARS overall economic environment and its
HERE] HERE] effects on the Westpeak Value Growth
Series. We anticipated rising interest
rates throughout 1996, as well as a
rise in inflation; thus far, our
expectations have been accurate.
In the shadow of 1995's bull market,
- ----------------- ------------------ both the stock market and the economy
have remained strong. However, we do not expect the current growth rates to
continue through the second half of this year. Therefore, we have positioned the
portfolio for a weaker market environment by placing a stronger emphasis on
value stocks, which tend to outperform growth investments in uncertain market
environments.
For the first half of 1996 the Series' total return was 4.70%. While the
Series underperformed its benchmark, the S&P 500/20/, in the first six
months of the year, its long-term track record remains strong. As of June 30,
1996, a $10,000 investment in the Westpeak Value Growth Series since inception
on April 30, 1993 would have grown to $16,125. This is a hypothetical value
attributable to the Series since inception and does not include variable
annuity and life insurance contract charges and expenses.
We believe the Series' relative underperformance for the first six months of
this year was due, in part, to our own early anticipation of a changing market
environment--one we believe will ultimately favor value stocks over growth
stocks.
The momentum of the stock market this year has been characterized by
strength in highly volatile, smaller companies. Consistent with our strategy,
we've focused the Series' investments on large, highly liquid companies with
low price to earnings (P/E) ratios. Low P/E stocks, such as Exxon, Sears and
General Motors, carry relatively low risk, but have in many cases shown the
potential to achieve consistent growth over time.
While these large capitalization stocks have been relatively ignored during
the last six to eight months, we believe that they are about to come back into
favor, especially if interest rates rise and investors become more concerned
with the effects of this economic change on small cap investments. Recently,
the NASDAQ and Russell 2000/19/ indexes, benchmarks for small company stock
performance, have become more volatile. This trend may indicate that small cap
stocks may underperform in the second half of the year.
With this in mind, over the past two or three months we have been shifting
the Series' focus toward a value-based investment strategy, increasing our
emphasis on defensive, low P/E stocks to help offset the volatility of smaller
company stocks.
Currently, the Series' portfolio is overweighted in the energy sector. This
was beneficial in the first half of the year, as energy stocks responded well
to rising interest rates. We'll maintain this position in anticipation of
continued rising rates.
OUTLOOK AND STRATEGY
As we enter the third quarter of 1996, we believe the outlook for stocks and
bonds is fairly unfriendly. We believe the economy is going to experience
several more quarters of above-potential growth. This will result in the
perception of an increase in inflationary pressures and the distinct
possibility of tightening in Fed interest rate policy. Bonds appear to offer
decent value relative to stocks, but yields are likely to rise further as
investors raise their outlook for economic growth. We expect the Long
Government bond yield to reach 7.50-7.75% during this cycle.
Westpeak's measures of speculation, valuation and monetary environment
indicate the market (as measured by the Russell 1000/18/) is high-risk
territory. An equity bear phase should emerge this summer. A market downturn
will shift relative performance to value stocks and away from growth stocks.
36
<PAGE>
A $10,000 Investment Compared to an Index FUND FACTS
[GRAPH APPEARS HERE] GOAL: Long-term total
return through investment
in equity securities.
Value
Growth S&P START DATE: May 1, 1993
Series 500/20/
4/30/93 $10,000 $10,000 SIZE: $62 million as of
12/31/93 11,424 10,819 June 30, 1996
12/31/94 11,286 10,966
12/31/95 15,402 15,072 MANAGERS: Gerald Scriver
06/30/96 16,125 16,592 and Philip Cooper. Mr.
Scriver and Mr. Cooper
Average Annual Return have managed the Series
since its inception in
Value Lipper Variable Growth 1993; they also have
Growth and Income Fund Average/12/ managed Westpeak Stock
6 mos.* 4.70% 9.48% Index Series since August,
1 year 18.57% 23.55% 1993 and New England
Since Growth Opportunities Fund
inception 16.28% n/a since May 1, 1995. Mr.
*not annualized Scriver joined Westpeak in
July, 1991 and Mr. Cooper
joined Westpeak in
December, 1991.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts; if these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
37
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK VALUE GROWTH SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
COMMON STOCKS--97.0% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES VALUE(A)
<C> <S> <C>
AEROSPACE--1.4%
6,200 Lockheed Martin Corp...................................... $ 520,800
2,800 United Technologies Corp.................................. 322,000
-----------
842,800
-----------
AGRICULTURE & FOOD--3.3%
18,100 CPC International, Inc.................................... 1,303,200
27,800 IBP, Inc.................................................. 767,975
-----------
2,071,175
-----------
AIRLINES--0.8%
3,700 AMR Corp.(c).............................................. 336,700
2,800 UAL, Inc.(c).............................................. 150,500
-----------
487,200
-----------
ALUMINUM--0.4%
4,100 Aluminum Company of America............................... 235,237
-----------
APPAREL--1.6%
9,600 Nike, Inc................................................. 986,400
-----------
BANKS--4.3%
13,800 Banponce Corp. New........................................ 621,000
7,000 Citicorp.................................................. 578,375
17,900 NationsBank Corp.......................................... 1,478,988
-----------
2,678,363
-----------
BEVERAGE--1.2%
15,200 Coca Cola Co.............................................. 742,900
-----------
BUSINESS MACHINES--4.3%
2,900 Cabletron Systems, Inc.(c)................................ 199,013
5,500 Gateway 2000, Inc.(c)..................................... 187,000
10,200 Hewlett Packard Co........................................ 1,016,175
12,200 Seagate Technology(c)..................................... 549,000
1,400 Sun Microsystems, Inc.(c)................................. 82,425
24,800 Western Digital Corp.(c).................................. 647,900
-----------
2,681,513
-----------
CHEMICAL--1.2%
4,500 Albemarle Corp............................................ 82,125
10,800 Cabot Corp................................................ 264,600
32,000 Terra Industries, Inc..................................... 396,000
-----------
742,725
-----------
COMPUTER SOFTWARE & SERVICES--2.3%
26,600 Comdisco, Inc............................................. 708,225
3,600 Compuware Corp.(c)........................................ 142,200
8,000 Sterling Software, Inc.(c)................................ 616,000
-----------
1,466,425
-----------
COSMETICS--3.6%
40,600 Johnson & Johnson......................................... 2,009,700
2,700 Procter & Gamble Co....................................... 244,688
-----------
2,254,388
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE(A)
<C> <S> <C>
DRUGS--4.6%
6,200 Amgen, Inc.(c)............................................ $ 334,800
5,900 Bristol Myers & Squibb Co................................. 531,000
10,100 Eli Lilly and Co.......................................... 656,500
7,500 Merck & Company, Inc...................................... 484,687
3,900 Rhone Poulenc Rorer, Inc.................................. 261,788
9,400 Schering Plough Corp...................................... 589,850
-----------
2,858,625
-----------
ELECTRIC UTILITIES--3.1%
15,200 Consolidated Edison Co. of New York....................... 444,600
29,000 Pinnacle West Capital Corp................................ 880,875
21,500 Unicom Corp............................................... 599,313
-----------
1,924,788
-----------
ELECTRONICS--5.1%
5,200 Kemet Corp.(c)............................................ 104,000
26,500 KLA Instruments Corp.(c).................................. 616,125
18,900 Komag, Inc.(c)............................................ 498,487
19,900 Novellus Systems, Inc.(c)................................. 716,400
17,800 Raytheon Co............................................... 918,925
5,100 Tellabs, Inc.(c).......................................... 341,063
-----------
3,195,000
-----------
ENTERTAINMENT--0.2%
3,800 Grand Casinos, Inc.(c).................................... 97,850
-----------
FINANCIAL SERVICES--2.3%
19,110 Bear Stearns Companies, Inc............................... 451,474
41,200 Lehman Brothers Holdings, Inc............................. 1,019,700
-----------
1,471,174
-----------
GAS UTILITIES--2.3%
4,800 Nicor, Inc................................................ 136,200
19,900 Oneok..................................................... 497,500
16,200 Williams Companies, Inc................................... 801,900
-----------
1,435,600
-----------
HEALTHCARE--2.0%
19,700 Abbott Labs............................................... 856,950
5,600 Millipore Corp............................................ 234,500
2,000 Pacificare Health Systems, Inc.(c)........................ 135,500
-----------
1,226,950
-----------
HOTEL & RESTAURANT--0.2%
3,000 McDonalds Corp............................................ 140,250
-----------
INSURANCE--OTHER--2.9%
14,400 Bankers Life Holdings Corp................................ 318,600
14,600 Loews Corp................................................ 1,151,575
16,350 Old Republic International Corp........................... 351,525
-----------
1,821,700
-----------
</TABLE>
See accompanying notes to financial statements.
38
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK VALUE GROWTH SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
INTERNATIONAL OIL--6.7%
3,600 Chevron Corp.............................................. $ 212,400
27,500 Exxon Corp................................................ 2,389,063
14,200 Mobil Corp................................................ 1,592,175
-----------
4,193,638
-----------
MEDIA--0.1%
1,000 King World Productions(c)................................. 36,375
-----------
METALS--1.4%
11,100 Asarco, Inc............................................... 306,637
8,700 Phelps Dodge Corp......................................... 542,663
-----------
849,300
-----------
MISCELLANEOUS--0.2%
2,700 American Water Works, Inc................................. 108,674
-----------
MORTGAGE--0.5%
500 Federal Home Loan Mortgage Corp........................... 42,750
8,400 Green Tree Financial Corp................................. 262,500
-----------
305,250
-----------
MOTOR VEHICLES--5.1%
22,600 Chrysler Corp............................................. 1,401,200
30,400 General Motors Corp....................................... 1,592,200
3,500 Paccar, Inc............................................... 171,500
-----------
3,164,900
-----------
OIL REFINEMENT/DISTRIBUTION--1.2%
4,700 Royal Dutch Petroleum Co.................................. 722,625
2,000 Ultramar Corp............................................. 58,000
-----------
780,625
-----------
OIL SERVICE--2.3%
12,300 Ensco International, Inc.(c).............................. 399,750
2,800 Halliburton Co............................................ 155,400
15,000 IPL Energy, Inc........................................... 378,750
10,400 Sonat Offshore Drilling, Inc.............................. 525,200
-----------
1,459,100
-----------
OIL RESERVES--3.4%
23,000 Amoco Corp................................................ 1,664,625
200 NGC Corp.................................................. 3,000
12,000 Phillips Petroleum Company................................ 502,500
-----------
2,170,125
-----------
PAPER--0.6%
8,900 Champion International Corp............................... 371,575
-----------
PHOTOGRAPHY--0.8%
6,100 Eastman Kodak............................................. 474,274
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
PRODUCER OF GOODS--6.9%
8,000 Applied Materials, Inc.(c)................................ $ 244,000
5,300 Case Corp................................................. 254,400
12,200 Caterpillar Tractor Co.................................... 826,550
22,900 Dover Corp................................................ 1,056,263
13,600 Harsco Corp............................................... 914,600
8,000 Illinois Tool Works, Inc.................................. 541,000
8,600 Lam Research Corp.(c)..................................... 223,600
4,800 Varian Associates, Inc.................................... 248,400
-----------
4,308,813
-----------
PUBLISHING--0.3%
3,700 Reynolds & Reynolds....................................... 197,024
-----------
RETAIL--6.3%
16,200 Eckerd Jack Corp. Del(c).................................. 366,525
10,300 Gap, Inc.................................................. 330,888
4,100 Kroger Co.(c)............................................. 161,950
18,600 May Department Stores Co.................................. 813,750
1,800 Mercantile Stores Co., Inc................................ 105,525
28,400 Sears Roebuck and Co...................................... 1,380,950
3,400 Tiffany & Co. New......................................... 248,200
9,000 TJX Companies, Inc........................................ 303,750
8,000 Waban, Inc.(c)............................................ 191,000
-----------
3,902,538
-----------
SERVICES--2.9%
11,500 Gtech Holdings Corp.(c)................................... 340,688
2,800 Omnicom Group............................................. 130,200
22,800 PHH Corp.................................................. 1,299,600
1,000 Primark Corp.(c).......................................... 32,625
-----------
1,803,113
-----------
SOAPS--2.1%
13,800 Clorox Co................................................. 1,223,025
2,500 First Brands Corp......................................... 67,500
-----------
1,290,525
-----------
TELEPHONE--7.5%
27,100 Ameritech Corp............................................ 1,609,063
23,800 Bell Atlantic Corp........................................ 1,517,250
21,700 Bell South Corp........................................... 919,537
5,100 SBC Communications, Inc................................... 251,175
9,600 Sprint Corp............................................... 403,200
-----------
4,700,225
-----------
THRIFT--0.4%
7,200 Standard Federal Bancorporation........................... 277,200
-----------
TIRES AND RUBBER GOODS--1.2%
14,900 Goodyear Tire & Rubber Company............................ 718,924
-----------
Total Common Stocks
(Identified Cost $54,977,247)............................ 60,473,261
-----------
</TABLE>
See accompanying notes to financial statements.
39
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK VALUE GROWTH SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
SHORT-TERM INVESTMENT--2.8%
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$1,717,000 Repurchase agreement with State Street Bank & Trust
Company dated 6/28/96 at 4.75% to be repurchased at
$1,717,680 on 7/1/96. Collaterized by $1,800,000
U.S Treasury Bills due 12/19/96 with a value of
$1,754,672......................................... $ 1,717,000
-----------
Total Short-Term Investment
(Identified cost $1,717,000)....................... 1,717,000
-----------
Total Investments--99.8%
(Identified cost $56,694,247)(b)................... 62,190,261
Other assets less liabilities....................... 141,160
-----------
TOTAL NET ASSETS--100%.............................. $62,331,421
===========
(a) See Note 1A.
(b) Federal Tax Information:
At June 30,1996 the net unrealized appreciation on investments based on cost
of $56,694,247 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost...................................... $ 7,278,606
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value......................................... (1,782,592)
-----------
Net unrealized appreciation......................... $ 5,496,014
===========
(c) Non-income producing security.
</TABLE>
See accompanying notes to financial statements.
40
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK VALUE GROWTH SERIES)
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value...................................... $62,190,261
Cash...................................................... 953
Receivable for:
Securities sold........................................... 33,600
Fund shares sold.......................................... 117,149
Dividends and interest.................................... 77,556
-----------
62,419,519
LIABILITIES
Payable for:
Fund shares redeemed...................................... $ 4,952
Foreign withholding taxes................................. 497
Miscellaneous............................................. 471
Accrued expenses:
Management fees........................................... 44,869
Deferred trustees' fees................................... 655
Other expenses............................................ 36,654
-------
88,098
-----------
NET ASSETS................................................. $62,331,421
===========
Net Assets consist of:
Capital paid in........................................... $51,849,730
Undistributed net investment income....................... 394,186
Accumulated net realized gains............................ 4,591,491
Unrealized appreciation on
investments.............................................. 5,496,014
-----------
NET ASSETS................................................. $62,331,421
===========
Computation of offering price:
Net asset value and redemption price per share ($62,331,421
divided by 421,289 shares of beneficial interest)......... $ 147.95
===========
Identified cost of investments............................. $56,694,247
===========
</TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends............................................ $ 554,012(a)
Interest............................................. 62,260
-----------
616,272
EXPENSES
Management fees...................................... $194,314
Trustees' fees and expenses.......................... 6,668
Custodian............................................ 27,207
Audit and tax services............................... 5,700
Legal................................................ 5,163
Printing............................................. 16,324
Miscellaneous........................................ 3,194
--------
Total expenses...................................... 258,570
Less expenses assumed by the investment adviser..... (22,619) 235,951
-------- -----------
NET INVESTMENT INCOME................................. 380,321
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments--net.................... 4,109,596
Unrealized depreciation on investments--net.......... (2,154,870)
-----------
Net gain on investment transactions................... 1,954,726
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............ $ 2,335,047
===========
(a) Net of foreign taxes of $3,607.
</TABLE>
See accompanying notes to financial statements.
41
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK VALUE GROWTH SERIES)
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income......................... $ 563,717 $ 380,321
Net realized gain on investments.............. 2,941,365 4,109,596
Unrealized appreciation (depreciation) on
investments.................................. 6,907,865 (2,154,870)
----------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS........ 10,412,947 2,335,047
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income......................... (549,852) 0
Paid in capital............................... (1,825,459) 0
----------- -----------
(2,375,311) 0
----------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares.................. 22,945,280 17,241,926
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income...... 549,852 0
Distributions from net realized gain.......... 1,825,459 0
----------- -----------
25,320,591 17,241,926
Cost of shares redeemed....................... (8,163,352) (5,374,589)
----------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS........................... 17,157,239 11,867,337
----------- -----------
TOTAL INCREASE IN NET ASSETS.................. 25,194,875 14,202,384
NET ASSETS
Beginning of the period....................... 22,934,162 48,129,037
----------- -----------
End of the period............................. $48,129,037 $62,331,421
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the period....................... $ 0 $ 13,865
=========== ===========
End of the period............................. $ 13,865 $ 394,186
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares................ 175,593 117,244
Issued in connection with the reinvestment of:
Distributions from net investment income...... 3,932 0
Distributions from net realized gain.......... 13,054 0
----------- -----------
192,579 117,244
Redeemed...................................... (62,314) (36,558)
----------- -----------
Net change.................................... 130,265 80,686
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
APRIL 30, 1993(A) SIX MONTHS
THROUGH ENDED
DECEMBER 31, YEAR ENDED YEAR ENDED JUNE 30,
1993 1994 1995 1996
----------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................. $100.00 $112.32 $109.03 $141.31
------- ------- ------- -------
Income From Investment
Operations
Net Investment Income..... 0.92 1.90 1.77 0.90
Net Realized and
Unrealized Gain (Loss) on
Investments.............. 13.33 (3.25) 37.91 5.74
------- ------- ------- -------
Total From Investment
Operations............... 14.25 (1.35) 39.68 6.64
------- ------- ------- -------
Less Distributions
Distributions From Net
Investment Income........ (0.92) (1.92) (1.71) 0.00
Distributions From Net
Realized Capital Gains... (1.00) 0.00 (5.69) 0.00
Distributions in Excess of
Net Realized Capital
Gains.................... (0.01) 0.00 0.00 0.00
Distributions From Paid-in
Capital.................. 0.00 (0.02) 0.00 0.00
------- ------- ------- -------
Total Distributions....... (1.93) (1.94) (7.40) 0.00
------- ------- ------- -------
Net Asset Value, End of
Period.................... $112.32 $109.03 $141.31 $147.95
======= ======= ======= =======
TOTAL RETURN (%)........... 14.24(c) (1.21) 36.46 4.70(c)
Ratio of Operating Expenses
to Average Net Assets (%). 0.85(b) 0.85 0.85 0.85(b)
Ratio of Net Investment
Income to Average Net
Assets (%)................ 2.16(b) 2.30 1.63 1.37(b)
Portfolio Turnover Rate
(%)....................... 49(b) 133 92 116(b)
Average Commission Rate
(d)....................... -- -- -- $0.0373
Net Assets, End of Period
(000)..................... $ 9,082 $22,934 $48,129 $62,331
The ratios of expenses to
average net assets without
giving effect to the
voluntary expense
agreement described in
Note 4 to the Financial
Statements would have been
(%)....................... 0.94(b) 0.86 1.06 0.93(b)
</TABLE>
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Not computed on an annualized basis.
(d) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
See accompanying notes to financial statements.
42
<PAGE>
ZENITH WESTPEAK STOCK INDEX SERIES
PORTFOLIO MANAGERS: GERALD H. SCRIVER AND PHILIP J. COOPER;
WESTPEAK INVESTMENT ADVISORS, L.P.
- ---------------- ------------------ -----------------------------------------
MARKET REVIEW
-----------------------------------------
The Westpeak Stock Index Series
[PHOTO OF GERALD [PHOTO OF PHILIP returned 9.9%, compared to 10.2%
H. SCRIVER J. COOPER APPEARS posted by the S&P 500 Index/20/ for
APPEARS HERE] HERE] the six months ended June 30, 1996.
The Series is managed so as to track
the performance of the S&P 500
Index/20/. Westpeak's approach is to
seek and emulate the S&P 500
Index/20/ by owning a majority of
- ---------------- ------------------ the stocks in the Index in the same
proportion as the Index. This process seeks to minimize the tracking error (the
difference between the performance of the Series and the Index). For example,
during the second quarter the Series returned 4.42% while the S&P 500 Index
returned 4.52%.
- --------------------------------------------------------------------------------
OUTLOOK AND STRATEGY
- --------------------------------------------------------------------------------
As we enter the third quarter of 1996, we believe the outlook for stocks and
bonds is fairly unfriendly. We believe the economy is going to experience
several more quarters of above-potential growth. This will result in the
perception of an increase in inflationary pressures and the distinct
possibility of tightening in Fed interest rate policy. Bonds appear to offer
decent value relative to stocks, but yields are likely to rise further as
investors raise their outlook for economic growth. We expect the Long
Government bond yield to reach 7.50-7.75% during this cycle.
Westpeak's measures of speculation, valuation and monetary environment
indicate the market (as measured by the Russell 1000/18/) is high-risk
territory. An equity bear phase should emerge this summer. A market downturn
will shift relative performance to value stocks and away from growth stocks.
A $10,000 Investment Compared to an Index FUND FACTS
GOAL: Investment results that
[GRAPH APPEARS HERE] correspond to the composite
price and yield performance of
United States publicly traded
Stock common stocks.
Index S&P
Series 500/20/ START DATE: May 1, 1987
4/30/87 $10,000 $10,000
12/31/87 8,780 8,770 SIZE: $68 million as of June
12/31/88 10,215 10,216 30, 1996
12/31/89 13,294 13,444
12/31/90 12,743 13,025 MANAGERS: Gerald Scriver and
12/31/91 16,614 16,976 Philip Cooper. Mr. Scriver and
12/31/92 17,826 18,268 Mr. Cooper have managed the
12/31/93 19,560 20,101 Series since 1993; they have
12/31/94 19,783 20,374 also managed Westpeak Value
12/31/95 27,079 28,003 Growth Series since August,
06/30/96 29,752 30,825 1993 and New England Growth
Opportunities Fund since May 1,
1995. Mr. Scriver joined
Westpeak in July, 1991 and Mr.
Cooper joined Westpeak in
December, 1991.
Average Annual Return
Stock Index Lipper Variable S&P 500
Series Fund Index Average/18/
6 mos.* 9.87% 9.95%
1 year 25.30% 25.45%
5 years 15.31% 15.19%
Since
inception 12.63% n/a
*not annualized
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts; if these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
43
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
COMMON STOCKS--98.2% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
AEROSPACE--1.9%
4,100 Allied Signal, Inc. ...................................... $ 234,213
4,500 Boeing Co. ............................................... 392,062
900 General Dynamics Corp. ................................... 55,800
2,815 Lockheed Martin Corp. .................................... 236,460
3,000 McDonnell Douglas Corp. .................................. 145,500
400 Northrop Grumman Corp. ................................... 27,250
900 Teledyne, Inc. ........................................... 32,513
1,600 United Technologies Corp. ................................ 184,000
-----------
1,307,798
-----------
AGRICULTURE AND FOOD--2.8%
6,596 Archer-Daniels-Midland Co. ............................... 126,149
3,300 Campbell Soup Company..................................... 232,650
3,050 Conagra, Inc. ............................................ 138,394
2,100 CPC International, Inc. .................................. 151,200
2,200 General Mills, Inc. ...................................... 119,900
4,800 H.J. Heinz Co. ........................................... 145,800
1,200 Hershey Foods Corp. ...................................... 88,050
2,900 Kellogg Co. .............................................. 212,425
800 Pioneer Hi Bred International, Inc. ...................... 42,300
1,600 Quaker Oats Co. .......................................... 54,600
6,000 Sara Lee Corp. ........................................... 194,250
2,200 Unilever N.V. ............................................ 319,275
1,800 William Wrigley Jr. Co. .................................. 90,900
-----------
1,915,893
-----------
AIR TRANSPORT--0.4%
900 AMR Corp.(c).............................................. 81,900
900 Delta Airlines, Inc. ..................................... 74,700
700 Federal Express Corp.(c).................................. 57,400
1,600 Southwest Airlines Co. ................................... 46,600
900 US Air Group, Inc.(c)..................................... 16,200
-----------
276,800
-----------
ALUMINUM--0.3%
2,400 Alcan Aluminum, Ltd. ..................................... 73,200
2,000 Aluminum Company of America............................... 114,750
900 Reynolds Metals Co. ...................................... 46,912
-----------
234,862
-----------
APPAREL--0.6%
100 Brown Group, Inc. ........................................ 1,738
1,000 Fruit of the Loom, Inc. .................................. 25,500
600 Liz Claiborne, Inc. ...................................... 20,775
2,400 Nike, Inc. ............................................... 246,600
1,200 Reebok International Ltd. ................................ 40,350
300 Russell Corp. ............................................ 8,288
100 Springs Industries, Inc................................... 5,050
400 Stride Rite Corp.......................................... 3,300
1,000 VF Corp................................................... 59,625
-----------
411,226
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
BANKS--6.7%
5,475 Banc One Corp. ........................................... $ 186,150
1,800 Bank of Boston Corp. ..................................... 89,100
2,200 Bank of New York, Inc. ................................... 112,750
4,928 BankAmerica Corp. ........................................ 373,296
900 Bankers Trust New York Corp. ............................. 66,487
1,100 Barnett Banks of Florida, Inc. ........................... 67,100
2,000 Boatmens Bancshares, Inc. ................................ 80,250
5,570 Chase Manhattan Corp. .................................... 393,381
6,700 Citicorp(c)............................................... 553,587
1,500 Comerica, Inc. ........................................... 66,938
2,800 Core States Financial Corp. .............................. 107,800
1,300 Fifth Third Bancorp. ..................................... 70,200
2,200 First Bank Systems, Inc. ................................. 127,600
4,510 First Chicago Corp. ...................................... 176,454
3,450 First U.N. Corp. ......................................... 210,019
3,662 Fleet Financial Group, Inc. .............................. 159,297
2,400 J.P. Morgan & Co., Inc. .................................. 203,100
3,100 Keycorp................................................... 120,125
1,750 Mellon Bank Corp. ........................................ 99,750
2,700 National City Corp. ...................................... 94,838
3,816 Nationsbank Corp. ........................................ 315,297
4,600 Norwest Corp. ............................................ 160,425
4,400 PNC Bank Corp. ........................................... 130,900
700 Republic New York Corp. .................................. 43,575
2,200 Suntrust Banks, Inc. ..................................... 81,400
1,900 U.S. Bancorp. ............................................ 68,638
1,900 Wachovia Corp. ........................................... 83,125
1,333 Wells Fargo & Co. ........................................ 318,420
-----------
4,560,002
-----------
BEVERAGES--3.5%
33,200 Coca Cola Co. ............................................ 1,622,650
20,200 PepsiCo, Inc. ............................................ 714,575
1,300 Whitman Corp. ............................................ 31,363
-----------
2,368,588
-----------
BUSINESS MACHINES--4.4%
2,100 3Com Corp. ............................................... 96,075
1,400 Amdahl Corporation(c)..................................... 15,050
1,900 Apple Computer, Inc. ..................................... 39,900
2,500 Bay Networks, Inc. ....................................... 64,375
1,000 Cabletron Systems, Inc.(c)................................ 68,625
7,200 Cisco Systems, Inc. ...................................... 407,700
3,300 Compaq Computer Corp.(c).................................. 162,525
300 Data General Corp.(c)..................................... 3,900
1,800 Digital Equipment Corp.(c)................................ 81,000
3,000 EMC Corp. ................................................ 55,875
6,800 Hewlett-Packard Co. ...................................... 677,450
7,300 International Business Machines Corp. .................... 722,700
1,700 Pitney Bowes, Inc. ....................................... 81,175
2,200 Silicon Graphics, Inc.(c)................................. 52,800
</TABLE>
See accompanying notes to financial statements.
44
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
BUSINESS MACHINES--(CONTINUED)
2,800 Sun Microsystems, Inc.(c)................................. $ 164,850
1,800 Tandem Computers, Inc.(c)................................. 22,275
2,200 Unisystems, Corp.(c)...................................... 15,675
4,500 Xerox Corp. .............................................. 240,750
-----------
2,972,700
-----------
CHEMICALS--3.3%
1,500 Air Products and Chemicals, Inc. ......................... 86,625
800 Ashland, Inc. ............................................ 31,700
900 Avery Dennison Corp. ..................................... 49,388
600 B.F. Goodrich Co. ........................................ 22,425
3,050 Dow Chemical Co. ......................................... 231,800
1,300 Eastman Chemical Co. ..................................... 79,138
7,900 E.I. Du Pont de Nemours & Co. ............................ 625,087
300 FMC Corp.(c).............................................. 19,575
800 Great Lakes Chemical Corp. ............................... 49,800
1,400 Hercules, Inc. ........................................... 77,350
8,700 Monsanto Company.......................................... 282,750
2,100 Morton International, Inc. ............................... 78,225
1,000 Nalco Chemical Co. ....................................... 31,500
3,300 Occidental Petroleum Corp. ............................... 81,675
2,800 PPG Industries, Inc. ..................................... 136,500
2,000 Praxair, Inc. ............................................ 84,500
1,000 Rohm & Haas Co. .......................................... 62,750
1,000 Sigma-Aldrich Corp. ...................................... 53,500
1,700 Union Carbide Corp. ...................................... 67,575
1,200 W.R. Grace & Co. ......................................... 85,050
-----------
2,236,913
-----------
CONSTRUCTION--0.2%
800 Armstrong World Industries, Inc. ......................... 46,100
700 Centex Corp. ............................................. 21,788
900 Fluor Corp. .............................................. 58,838
700 Sherwin Williams Co. ..................................... 32,550
100 Skyline Corp. ............................................ 2,500
-----------
161,776
-----------
CONSUMER DURABLES--0.4%
1,000 Black & Decker Corp. ..................................... 38,625
2,000 Masco Corp. .............................................. 60,500
800 Maytag Corp. ............................................. 16,700
2,800 Tenneco, Inc. ............................................ 143,150
1,000 Whirlpool Corp. .......................................... 49,625
-----------
308,600
-----------
CONTAINERS--0.2%
200 Ball Corp. ............................................... 5,750
400 Bemis, Inc. .............................................. 14,000
1,800 Crown Cork & Seal, Inc.(c) ............................... 81,000
900 Temple Inland, Inc. ...................................... 42,075
-----------
142,825
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
COSMETICS--2.6%
200 Alberto Culver Co. ........................................ $ 9,275
1,600 Avon Products, Inc. ....................................... 72,200
17,400 Johnson & Johnson ......................................... 861,300
9,060 Procter & Gamble Co. ...................................... 821,062
----------
1,763,837
----------
DOMESTIC OIL RESERVES--0.8%
2,000 Atlantic Richfield Co. .................................... 237,000
1,600 Burlington Resources, Inc. ................................ 68,800
400 Louisiana Land & Exploration............................... 23,050
800 Pennzoil Company........................................... 37,000
3,900 Phillips Petroleum Company................................. 163,312
1,711 Santa Fe Energy Research, Inc.(c).......................... 20,318
----------
549,480
----------
DRUGS & MEDICINE--6.1%
700 Allergan, Inc. ............................................ 27,475
1,600 Alza Corp.(c) ............................................. 43,800
8,400 American Home Products Corp. .............................. 505,050
3,800 Amgen, Inc.(c) ............................................ 205,200
6,640 Bristol Myers & Squibb Co. ................................ 597,600
7,200 Eli Lilly & Co. ........................................... 468,000
600 Mallinckrodt Group, Inc. .................................. 23,325
16,200 Merck & Co., Inc. ......................................... 1,046,925
8,500 Pfizer, Inc. .............................................. 606,687
6,680 Pharmacia & Upjohn, Inc. .................................. 296,425
4,600 Schering-Plough Corp. ..................................... 288,650
----------
4,109,137
----------
ELECTRIC UTILITIES--3.2%
2,500 American Electric Power Co., Inc. ......................... 106,562
2,100 Baltimore Gas & Electric Co. .............................. 59,588
2,200 Carolina Power & Light Co. ................................ 83,600
2,500 Central & South West Corp. ................................ 72,500
2,111 Cinergy Corp. ............................................. 67,552
3,100 Consolidated Edison Co. of New York ....................... 90,675
2,050 Dominion Resources, Inc. .................................. 82,000
2,100 DTE Energy Co. ............................................ 64,838
2,800 Duke Power Co. ............................................ 143,500
5,700 Edison International ...................................... 100,462
3,200 Entergy Corp. ............................................. 90,800
2,300 FPL Group, Inc. ........................................... 105,800
1,500 General Public Utilities Corp. ............................ 52,875
4,000 Houston Industries, Inc. .................................. 98,500
2,000 Niagara Mohawk Power Corp. ................................ 15,500
500 Northern States Power Co. ................................. 24,688
2,100 Ohio Edison Co. ........................................... 45,938
5,600 Pacific Gas & Electric Corp. .............................. 130,200
4,000 Pacificorp ................................................ 89,000
2,900 PECO Energy Co. ........................................... 75,400
2,000 P.P. & L Res, Inc. ........................................ 47,250
3,200 Public Service Enterprise Group ........................... 87,600
</TABLE>
See accompanying notes to financial statements.
45
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
ELECTRIC UTILITIES--(CONTINUED)
8,800 Southern Co. ............................................. $ 216,700
2,500 Texas Utilities Company .................................. 106,875
2,700 Unicom Corp. ............................................. 75,263
1,300 Union Electric Co. ....................................... 52,325
-----------
2,185,991
-----------
ELECTRONICS--3.9%
1,700 Advanced Micro Devices, Inc.(c) .......................... 23,163
3,056 AMP, Inc. ................................................ 122,622
1,087 Andrew Corp.(c) .......................................... 58,426
1,300 Cooper Industries, Inc. .................................. 53,950
1,800 DSC Communications Corp.(c) .............................. 54,225
300 Harris Corp. ............................................. 18,300
1,400 Honeywell, Inc. .......................................... 76,300
11,200 Intel Corp. .............................................. 822,500
2,000 LSI Logic Corp.(c) ....................................... 52,000
3,400 Micron Technology, Inc. .................................. 87,975
7,800 Motorola, Inc. ........................................... 490,425
1,800 National Semiconductor Corp.(c) .......................... 27,900
3,100 Northern Telecom, Ltd. ................................... 168,562
300 Raychem Corp. ............................................ 21,563
2,600 Raytheon Co. ............................................. 134,225
3,500 Rockwell International Corp. ............................. 200,375
1,100 Scientific Atlanta, Inc. ................................. 17,050
200 Tektronix, Inc. .......................................... 8,950
1,100 Tellabs, Inc.(c) ......................................... 73,563
2,500 Texas Instruments, Inc. .................................. 124,687
200 Thomas & Betts Corp. ..................................... 7,500
-----------
2,644,261
-----------
FINANCE--1.8%
6,400 American Express Co. ..................................... 285,600
400 Beneficial Corp. ......................................... 22,450
2,402 Dean Witter, Discover & Co. .............................. 137,514
1,200 Household International, Inc. ............................ 91,200
2,325 MBNA Corp. ............................................... 66,263
2,300 Merrill Lynch & Co., Inc. ................................ 149,787
2,000 Morgan Stanley Group, Inc. ............................... 98,250
1,200 Salomon, Inc. ............................................ 52,800
6,576 Travelers Group, Inc. .................................... 300,030
-----------
1,203,894
-----------
FOREIGN OIL RESERVES--0.1%
900 Kerr McGee Corp. ......................................... 54,788
-----------
FOREST PRODUCTS--0.0%
1,300 Louisiana Pacific Corp. .................................. 28,763
-----------
GAS UTILITIES--0.8%
900 Columbia Gas System, Inc.(c).............................. 46,913
1,100 Consolidated Natural Gas Co. ............................. 57,475
700 Eastern Enterprises....................................... 23,275
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
3,200 Enron Corp. .............................................. $ 130,800
700 Ensearch Corporation...................................... 15,225
400 Nicor, Inc. .............................................. 11,350
1,300 Noram Energy Corp. ....................................... 14,138
200 Oneok, Inc. .............................................. 5,000
1,100 Pacific Enterprises, Ltd. ................................ 32,588
1,829 PanEnergy Corp. .......................................... 60,128
300 Peoples Energy Corp. ..................................... 10,050
1,000 Sonat, Inc. .............................................. 45,000
1,600 Williams Companies, Inc. ................................. 79,200
-----------
531,142
-----------
HEALTH CARE--3.2%
11,000 Abbott Laboratories, Inc. ................................ 478,500
400 Bausch & Lomb, Inc. ...................................... 17,000
3,400 Baxter International, Inc. ............................... 160,650
600 Becton Dickinson & Co. ................................... 48,150
1,300 Beverly Enterprises, Inc.(c).............................. 15,600
1,300 Biomet, Inc.(c)........................................... 18,688
2,600 Boston Scientific Corp.(c)................................ 117,000
5,791 Columbia Healthcare Corp. ................................ 309,095
1,300 Community Psychiatric Centers(c).......................... 12,350
3,300 Corning, Inc. ............................................ 126,637
400 C.R. Bard, Inc. .......................................... 13,600
2,100 Humana, Inc.(c)........................................... 37,537
400 Manor Care, Inc. ......................................... 15,750
3,600 Medtronics, Inc. ......................................... 201,600
400 Millipore Corp. .......................................... 16,750
1,100 St. Jude Medical, Inc.(c)................................. 36,850
3,000 Tenet Healthcare Corp.(c)................................. 64,125
2,600 U.S. Healthcare, Inc. .................................... 143,000
2,300 United Healthcare Corp. .................................. 116,150
700 United States Surgical Corp. ............................. 21,700
3,800 Warner-Lambert Company.................................... 209,000
-----------
2,179,732
-----------
HOTELS AND RESTAURANTS--1.2%
600 Bally Entertainment Group(c).............................. 16,500
2,200 Darden Restaurants, Inc.(c)............................... 23,650
1,750 Harrahs Entertainment, Inc. .............................. 49,437
400 Hilton Hotels Corp. ...................................... 45,000
1,300 ITT Corp. New............................................. 86,125
200 Luby's Cafeterias, Inc. .................................. 4,700
1,700 Marriott Corporation...................................... 91,375
10,100 McDonald's Corp. ......................................... 472,175
400 Ryans Family Steak Houses(c).............................. 3,700
800 Shoney's, Inc.(c)......................................... 8,700
1,400 Wendys International, Inc. ............................... 26,075
-----------
827,437
-----------
INTERNATIONAL OIL--4.2%
8,300 Chevron Corporation....................................... 489,700
16,300 Exxon Corporation......................................... 1,416,062
</TABLE>
See accompanying notes to financial statements.
46
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
INTERNATIONAL OIL--(CONTINUED)
5,400 Mobil Corporation......................................... $ 605,475
1,200 Oryx Energy Corp.(c)...................................... 19,500
3,700 Texaco, Inc. ............................................. 310,337
-----------
2,841,074
-----------
LEISURE--0.3%
1,200 Brunswick Corp. .......................................... 24,000
1,400 Hasbro, Inc. ............................................. 50,050
3,750 Mattel, Inc. ............................................. 107,344
100 Outboard Marine Corp. .................................... 1,813
-----------
183,207
-----------
LIFE INSURANCE--0.4%
2,600 American General Corp. ................................... 94,575
525 Jefferson Pilot Corp. .................................... 27,103
1,400 Providian Corp. .......................................... 60,025
1,100 Transamerica Corp. ....................................... 89,100
1,050 USLife Corp. ............................................. 34,519
-----------
305,322
-----------
LIQUOR--0.7%
300 Adolph Coors Co. ......................................... 5,363
3,300 Anheuser-Busch Companies, Inc. ........................... 247,500
1,100 Brown Forman Corp. "B".................................... 44,000
5,100 Seagram Company, Ltd. .................................... 171,487
-----------
468,350
-----------
MEDIA--2.0%
2,600 Comcast Corp. ............................................ 48,100
1,600 General Instrument Corp. ................................. 46,200
250 King World Productions(c)................................. 9,094
2,300 Loral Space & Communications.............................. 31,338
8,500 Tele-Communications A(c).................................. 154,062
5,000 Time-Warner, Inc. ........................................ 196,250
1,000 Tribune Co. .............................................. 72,625
4,857 Viacom, Inc.(c)........................................... 188,815
9,998 Walt Disney Co. .......................................... 628,624
-----------
1,375,108
-----------
MISCELLANEOUS MINING--0.2%
800 Asarco, Inc. ............................................. 22,100
1,050 Cyprus Amax Minerals Co. ................................. 23,756
1,400 Inco, Ltd. ............................................... 45,150
1,000 Phelps Dodge Corp. ....................................... 62,375
-----------
153,381
-----------
MORTGAGE--1.1%
2,400 Federal Home Loan Mortgage Corp. ......................... 205,200
14,500 Federal National Mortgage Association..................... 485,750
1,800 Green Tree Acceptance Corp. .............................. 56,250
-----------
747,200
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
MOTOR VEHICLES--2.3%
5,300 Chrysler Corp. ........................................... $ 328,600
1,300 Dana Corp. ............................................... 40,300
400 Echlin, Inc. ............................................. 15,150
800 Fleetwood Enterprises, Inc. .............................. 24,800
16,700 Ford Motor Co. ........................................... 540,662
10,100 General Motors Corp. ..................................... 528,987
100 Nacco Industries, Inc. ................................... 5,538
1,220 Navistar International Corp., Inc.(c)..................... 12,048
345 Paccar, Inc. ............................................. 16,905
500 Varity Corp.(c)........................................... 24,063
-----------
1,537,053
-----------
OIL REFINING--2.8%
1,200 Amerada Hess Corp. ....................................... 64,350
6,400 Amoco Corp. .............................................. 463,200
1,400 Coastal Corp. ............................................ 58,450
7,000 Royal Dutch Petroleum Co. ADR(d).......................... 1,076,250
800 Sun, Inc. ................................................ 24,300
3,000 Unocal Corp. ............................................. 101,250
4,000 USX Marathon Group........................................ 80,500
-----------
1,868,300
-----------
OIL SERVICES--0.7%
2,000 Baker Hughes, Inc......................................... 65,750
1,300 Halliburton Co............................................ 72,150
300 Helmerich & Payne, Inc.................................... 10,987
1,100 Rowan Companies, Inc.(c).................................. 16,225
3,100 Schlumberger, Ltd......................................... 261,175
300 Western Atlas, Inc.(c).................................... 17,475
-----------
443,762
-----------
OTHER INSURANCE--3.0%
1,200 Aetna Life and Casualty Company........................... 85,800
5,686 Allstate Corp............................................. 259,424
6,312 American International Group, Inc......................... 622,521
1,400 Aon Corp.................................................. 71,050
3,000 Chubb Corp................................................ 149,625
1,000 CIGNA Corp................................................ 117,875
1,300 General Reinsurance Corp.................................. 197,925
1,300 ITT Hartford Group, Inc................................... 69,225
1,200 Lincoln National Corp., Inc. ............................. 55,500
1,400 Loews Corp................................................ 110,425
1,000 Safeco Corp............................................... 35,375
600 St. Paul Companies, Inc................................... 32,100
1,450 Torchmark, Inc............................................ 63,438
1,700 UNUM Corp................................................. 105,825
2,100 USF&G Corp. .............................................. 34,388
-----------
2,010,496
-----------
</TABLE>
See accompanying notes to financial statements.
47
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
PAPER--1.4%
1,600 Alco Standard Corp........................................ $ 72,400
633 Boise Cascade Corp........................................ 23,184
1,100 Champion International Corp............................... 45,925
1,200 Georgia Pacific Corp...................................... 85,200
3,910 International Paper Co. .................................. 144,181
900 James River Corp.......................................... 23,737
3,806 Kimberly Clark Corp....................................... 294,013
900 Mead Corp. ............................................... 46,688
200 Potlatch Corp............................................. 7,825
1,100 Stone Container Corp...................................... 15,125
500 Union Camp Corp........................................... 24,375
675 Westvaco Corporation...................................... 20,166
2,500 Weyerhaeuser Co........................................... 106,250
700 Willamette Industries, Inc................................ 41,650
-----------
950,719
-----------
PHOTOGRAPHY--0.6%
4,950 Eastman Kodak Co.......................................... 384,862
800 Polaroid Corp............................................. 36,500
-----------
421,362
-----------
POLLUTION CONTROL--0.5%
2,800 Browning-Ferris Industries, Inc........................... 81,200
3,200 Laidlaw, Inc.............................................. 32,400
700 Safety Kleen Corp......................................... 12,250
6,300 WMX Technologies, Inc. ................................... 206,325
-----------
332,175
-----------
PRECIOUS METALS--0.7%
4,300 Barrick Gold Corp......................................... 116,637
1,800 Echo Bay Mines, Ltd....................................... 19,350
1,425 Engelhard Corp............................................ 32,775
2,700 Freeport McMoran Copper & Gold............................ 86,063
1,800 Homestake Mining Co. ..................................... 30,825
1,124 Newmont Mining Corp....................................... 55,498
3,000 Placer Dome, Inc.......................................... 71,625
2,200 Santa Fe Pacific Gold Corp................................ 31,075
-----------
443,848
-----------
PRODUCER GOODS--6.2%
2,300 Applied Materials, Inc.(c) ............................... 70,150
700 Briggs & Stratton Corp. .................................. 28,788
1,000 Case Equipment Corp. ..................................... 48,000
2,900 Caterpillar Tractor Co. .................................. 196,475
700 Cincinnati Milacron, Inc. ................................ 16,800
200 Crane Co. ................................................ 8,200
700 Cummins Engine, Inc. ..................................... 28,263
4,200 Deere & Co. .............................................. 168,000
2,000 Dover Corporation......................................... 92,250
1,600 Dresser Industries, Inc. ................................. 47,200
1,000 Eaton Corp. .............................................. 58,625
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
3,100 Emerson Electric Co. ..................................... $ 280,162
300 Foster Wheeler Corp. ..................................... 13,463
22,700 General Electric Co. ..................................... 1,963,550
500 General Signal Corp. ..................................... 18,937
1,400 Genuine Parts Company..................................... 64,050
400 Giddings & Lewis, Inc. ................................... 6,500
800 Harnischfeger Industries, Inc. ........................... 26,600
1,300 Illinois Tool Works, Inc. ................................ 87,912
1,200 Ingersoll Rand Co. ....................................... 52,500
1,300 ITT Industries Inc. ...................................... 32,662
300 Johnson Controls, Inc. ................................... 20,850
600 McDermott International, Inc. ............................ 12,525
5,300 Minnesota Mining & Mfg. Co. .............................. 365,700
400 National Services Industries, Inc. ....................... 15,650
800 Owens Corning Fiberglas Co.(c) ........................... 34,400
1,400 Pall Corp. ............................................... 33,775
600 Parker Hannifin Corp. .................................... 25,425
800 Perkin Elmer Corp. ....................................... 38,600
300 Snap-On Tools Corp. ...................................... 14,213
600 Stanley Works............................................. 17,850
1,000 Textron, Inc. ............................................ 79,875
200 Timken Co. ............................................... 7,750
700 Trinova Corp. ............................................ 23,363
1,000 TRW, Inc. ................................................ 89,875
2,000 TYCO International Ltd. .................................. 81,500
900 W.W. Grainger, Inc. ...................................... 69,750
-----------
4,240,188
-----------
PROPERTY--0.0%
300 Kaufman & Broad Home Corp. ............................... 4,350
200 Pulte Corp. .............................................. 5,350
-----------
9,700
-----------
PUBLISHING--1.0%
1,100 American Greetings Corp. ................................. 30,113
2,100 Gannet Co., Inc. ......................................... 148,575
300 John H. Harland Co. ...................................... 7,387
800 Jostens, Inc. ............................................ 15,800
600 Knight-Ridder, Inc. ...................................... 43,500
800 McGraw-Hill Companies, Inc. .............................. 36,600
200 Meredith Corp. ........................................... 8,350
1,200 Moore Corp., Ltd. ........................................ 22,650
1,000 New York Times Co. ....................................... 32,625
1,700 R.R. Donnelley & Sons Co. ................................ 59,288
1,900 Time Mirror Co. .......................................... 82,650
5,600 U.S. West Media Group, Inc.(c)............................ 178,500
-----------
666,038
-----------
RAILROADS--1.0%
2,122 Burlington Northern, Inc. ................................ 171,617
1,300 Conrail, Inc. ............................................ 86,288
2,600 CSX Corporation........................................... 125,450
</TABLE>
See accompanying notes to financial statements.
48
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
RAILROADS--(CONTINUED)
1,500 Norfolk Southern Corp. ................................... $ 127,125
2,300 Union Pacific Corp. ...................................... 160,712
-----------
671,192
-----------
RETAIL--FOOD--0.7%
2,800 Albertson's, Inc. ........................................ 115,850
2,100 American Stores Co. ...................................... 86,625
300 Fleming Companies, Inc. .................................. 4,313
600 Giant Foods, Inc. ........................................ 21,525
800 Great Atlantic & Pacific Tea Company, Inc. ............... 26,300
1,400 Kroger Co.(c)............................................. 55,300
1,300 SuperValu Stores, Inc. ................................... 40,950
2,700 Sysco Corp. .............................................. 92,475
1,200 Winn-Dixie Stores, Inc. .................................. 42,450
-----------
485,788
-----------
RETAIL--OTHER--4.3%
1,400 Charming Shoppes, Inc.(c)................................. 9,887
1,200 Circuit City Stores, Inc. ................................ 43,350
800 Dayton Hudson Corp. ...................................... 82,500
1,700 Dillard Department Stores, Inc. .......................... 62,050
2,600 Federated Department Stores............................... 88,725
600 Harcourt General, Inc. ................................... 30,000
6,349 Home Depot, Inc. ......................................... 342,846
2,500 J.C. Penney Company, Inc. ................................ 131,250
5,900 KMart Corp.(c)............................................ 73,012
200 Longs Drug Stores Corp. .................................. 8,925
2,400 Lowes Companies, Inc. .................................... 86,700
2,700 May Department Stores Co. ................................ 118,125
1,100 Melville Corporation...................................... 44,550
250 Mercantile Stores Co., Inc. .............................. 14,656
1,400 Nordstrom, Inc. .......................................... 62,300
432 Payless Shoesource, Inc. ................................. 13,716
900 Pep Boys: Manny, Moe & Jack............................... 30,600
2,239 Price Costco.(c).......................................... 48,418
900 Rite Aid Corp. ........................................... 26,775
5,300 Sears, Roebuck & Co. ..................................... 257,712
1,200 Tandy Corp. .............................................. 56,850
5,200 The Gap, Inc. ............................................ 167,050
3,593 The Limited, Inc. ........................................ 77,250
1,300 TJX Companies, Inc. ...................................... 43,875
3,475 Toys R Us, Inc.(c)........................................ 99,037
3,200 Walgreen Co. ............................................. 107,200
30,200 Wal-Mart Stores, Inc. .................................... 766,325
1,800 Woolworth Corp.(c)........................................ 40,500
-----------
2,934,184
-----------
SERVICES--4.2%
800 Alexander & Alexander Services............................ 15,800
600 Autodesk, Inc. ........................................... 17,925
4,000 Automatic Data Processing, Inc. .......................... 154,500
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
900 Ceridian Corp.(c)......................................... $ 45,450
3,000 Computer Associates International, Inc. .................. 213,750
700 Computer Sciences Corp.(c)................................ 52,325
2,100 CUC International, Inc.(c)................................ 74,550
1,000 De Luxe Corp. ............................................ 35,500
1,200 Dow Jones & Co., Inc. .................................... 50,100
2,320 Dun & Bradstreet Corp. ................................... 145,000
400 EG & G, Inc. ............................................. 8,550
3,100 First Data Corp. ......................................... 246,837
1,200 H & R Block, Inc. ........................................ 39,150
600 Intergraph Corp.(c)....................................... 7,275
800 Interpublic Group Companies, Inc. ........................ 37,500
1,000 Marsh & McLennan Companies................................ 96,500
7,800 Microsoft Corp.(c)........................................ 936,975
5,000 Novell, Inc.(c)........................................... 69,375
300 Ogden Corp. .............................................. 5,437
8,625 Oracle Systems Corp.(c)................................... 340,148
800 Ryder Systems, Inc. ...................................... 22,500
1,550 Service Corporation International......................... 89,125
200 Shared Medical System..................................... 12,850
5,400 Westinghouse Electric Corp. .............................. 101,250
-----------
2,818,372
-----------
SOAPS--1.5%
400 Clorox Co. ............................................... 35,450
2,200 Colgate Palmolive Co. .................................... 186,450
1,100 Dial Corp. ............................................... 31,487
700 Ecolab, Inc. ............................................. 23,100
5,800 Gillette Co. ............................................. 361,775
1,600 International Flavours & Fragrances, Inc. ................ 76,200
1,900 Newell Co. ............................................... 58,187
800 Premark International, Inc. .............................. 14,800
1,800 Ralston Purina Co. ....................................... 115,425
2,200 Rubbermaid, Inc. ......................................... 59,950
800 Tupperware Corp. ......................................... 33,800
-----------
996,624
-----------
STEEL & IRON--0.2%
1,300 Armco, Inc.(c)............................................ 6,500
1,200 Bethlehem Steel Corp.(c).................................. 14,250
300 Inland Steel Industries, Inc. ............................ 5,887
1,000 Nucor Corp. .............................................. 50,625
1,020 USX US Steel Corp. ....................................... 28,942
1,200 Worthington Industries, Inc. ............................. 25,050
-----------
131,254
-----------
TELEPHONE--7.4%
6,400 Airtouch Communications................................... 180,800
2,400 ALLTEL Corp. ............................................. 73,800
6,900 Ameritech Corp. .......................................... 409,687
21,135 AT & T Corp. ............................................. 1,310,370
5,600 Bell Atlantic Corp. ...................................... 357,000
</TABLE>
See accompanying notes to financial statements.
49
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
TELEPHONE--(CONTINUED)
13,000 BellSouth Corp. .......................................... $ 550,875
12,500 GTE Corp. ................................................ 559,375
8,900 MCI Communications Corp. ................................. 228,062
5,600 NYNEX Corp. .............................................. 266,000
5,100 Pacific Telesis Group..................................... 172,125
7,900 SBC Communications, Inc. ................................. 389,075
6,700 Sprint Corp. ............................................. 281,400
5,600 U.S. West, Inc.(c)........................................ 102,200
2,500 Worldcom, Inc. ........................................... 138,437
-----------
5,019,206
-----------
THRIFT--0.2%
700 Golden West Financial Corp. .............................. 39,200
1,450 Great Western Financial Corp. ............................ 34,619
1,800 H.F. Ahmanson & Co. ...................................... 48,600
-----------
122,419
-----------
TIRES AND RUBBER GOODS--0.1%
1,100 Cooper Tire & Rubber Co. ................................. 24,475
1,600 Goodyear Tire & Rubber Company............................ 77,200
-----------
101,675
-----------
TOBACCO--2.1%
2,600 American Brands, Inc. .................................... 117,975
11,400 Philip Morris Companies, Inc. ............................ 1,185,600
3,000 UST, Inc. ................................................ 102,750
-----------
1,406,325
-----------
TRUCKING AND FREIGHT--0.0%
300 Caliber Systems, Inc. .................................... 10,200
300 Consolidated Freightways, Inc. ........................... 6,337
300 Yellow Corp.(c)........................................... 3,975
-----------
20,512
-----------
Total Common Stocks
(Identified cost $46,062,484)............................ 66,681,279
-----------
</TABLE>
SHORT-TERM INVESTMENT--2.7%
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$1,825,000 Repurchase Agreement with State Street Bank & Trust
Co. dated 6/28/96 at 4.750% to be repurchased at
$1,825,722, on 7/01/96 collateralized by
$1,910,000, U.S. Treasury Bills due 12/12/96, with
a value of $1,861,902.............................. $ 1,825,000
-----------
Total Short Term Investment
(Identified cost $1,825,000)....................... 1,825,000
-----------
Total Investments--100.9%
(Identified cost $47,887,484)(b)................... 68,506,279
Other assets less liabilities....................... (632,593)
-----------
TOTAL NET ASSETS--100%.............................. $67,873,686
===========
(a) See Note 1A.
(b) Federal Tax Information:
At June 30, 1996 the net unrealized appreciation on investments based on cost
of $47,887,484 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost...................................... $21,333,863
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value......................................... (715,068)
-----------
Net unrealized appreciation......................... $20,618,795
===========
</TABLE>
(c) Non-income producing security.
(d) An American Depository Receipt (ADR) is a certificate issued by a U.S. bank
representing the right to receive securities of the foreign issuer
described. The values of ADR's are significantly influenced by trading on
exchanges not located in the United States or Canada.
50
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value..................................... $68,506,279
Cash..................................................... 167
Receivable for:
Fund shares sold......................................... 78,010
Dividends and interest................................... 99,418
-----------
68,683,874
LIABILITIES
Payable for:
Securities purchased..................................... $704,877
Fund shares redeemed..................................... 21,225
Miscellaneous............................................ 24,290
Accrued expenses:
Management fees.......................................... 16,187
Deferred trustees' fees.................................. 33,492
Other expenses........................................... 10,117
--------
810,188
-----------
NET ASSETS................................................ $67,873,686
===========
Net Assets consist of:
Capital paid in.......................................... $46,517,888
Undistributed net investment income...................... 611,031
Accumulated net realized gains........................... 125,972
Unrealized appreciation on investments................... 20,618,795
-----------
NET ASSETS................................................ $67,873,686
===========
Computation of offering price:
Net asset value and redemption price per share
($67,873,686 divided by 617,209 shares of beneficial
interest)................................................ $ 109.97
===========
Identified cost of investments............................ $47,887,484
===========
</TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends............................................. $ 688,228(a)
Interest.............................................. 29,368
----------
717,596
EXPENSES
Management fees....................................... $ 79,263
Trustees' fees and expenses........................... 9,245
Custodian............................................. 38,946
Audit and tax services................................ 5,700
Legal................................................. 3,864
Printing.............................................. 18,437
Miscellaneous......................................... 5,540
--------
Total expenses....................................... 160,995
Less expenses assumed by the investment adviser...... (34,175) 126,820
-------- ----------
NET INVESTMENT INCOME.................................. 590,776
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments--net..................... 158,516
Unrealized appreciation on investments--net........... 5,183,707
----------
Net gain on investment transactions.................... 5,342,223
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............. $5,932,999
==========
(a) Net of foreign taxes of: $5,057
</TABLE>
See accompanying notes to financial statements.
51
<PAGE>
NEW ENGLAND ZENITH FUND
(WESTPEAK STOCK INDEX SERIES)
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................... $ 1,070,362 $ 590,776
Net realized gain on investments.................... 775,273 158,516
Unrealized appreciation on investments.............. 13,212,050 5,183,707
----------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS.............. 15,057,685 5,932,999
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................... (1,050,107) 0
Net realized gain on investments.................... (673,888) 0
----------- -----------
(1,723,995) 0
----------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares........................ 17,851,781 9,418,797
Net asset value of shares issued in connection with
the reinvestment of:
Distributions from net investment income............ 1,050,107 0
Distributions from net realized gain................ 673,888 0
----------- -----------
19,575,776 9,418,797
Cost of shares redeemed............................. (11,403,132) (6,148,732)
----------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS....................................... 8,172,644 3,270,065
----------- -----------
TOTAL INCREASE IN NET ASSETS........................ 21,506,334 9,203,064
NET ASSETS
Beginning of the period............................. 37,164,288 58,670,622
----------- -----------
End of the period................................... $58,670,622 $67,873,686
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the period............................. $ 0 $ 20,255
=========== ===========
End of the period................................... $ 20,255 $ 611,031
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares...................... 202,803 89,553
Issued in connection with the reinvestment of:
Distributions from net investment income............ 10,562 0
Distributions from net realized gain................ 6,778 0
----------- -----------
220,143 89,553
Redeemed............................................ (127,215) (58,517)
----------- -----------
Net change.......................................... 92,928 31,036
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $108.49 $137.39 $ 72.00 $ 76.48 $ 75.35 $100.09
------- ------- ------- ------- ------- -------
Income From Investment
Operations
Net Investment Income.. 3.56 8.35 1.54 1.80 1.88 0.96
Net Realized and
Unrealized Gain (Loss)
on Investments........ 29.29 2.02 5.18 (0.92) 25.89 8.92
------- ------- ------- ------- ------- -------
Total From Investment
Operations............ 32.85 10.37 6.72 0.88 27.77 9.88
------- ------- ------- ------- ------- -------
Less Distributions
Distributions From Net
Investment Income..... (3.56) (8.35) (1.36) (1.82) (1.85) 0.00
Distributions in Excess
of Net Investment
Income................ 0.00 0.00 (0.18) 0.00 0.00 0.00
Distributions From Net
Realized Capital
Gains................. (0.39) (67.41) (0.55) (0.16) (1.18) 0.00
Distributions in Excess
of Net Realized
Capital Gains......... 0.00 0.00 (0.15) 0.00 0.00 0.00
Distributions From
Paid-in Capital....... 0.00 0.00 0.00 (0.03) 0.00 0.00
------- ------- ------- ------- ------- -------
Total Distributions.... (3.95) (75.76) (2.24) (2.01) (3.03) 0.00
------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $137.39 $ 72.00 $ 76.48 $ 75.35 $100.09 $109.97
======= ======= ======= ======= ======= =======
TOTAL RETURN (%)........ 30.37 7.30 9.72 1.14 36.88 9.87(b)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.36 0.35 0.34 0.33 0.40 0.40(a)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 2.86 2.63 2.52 2.59 2.20 1.87(a)
Portfolio Turnover Rate
(%).................... 2 17 12 2 5 2(a)
Average Commission Rate
(c).................... -- -- -- -- -- $0.0353
Net Assets, End of
Period (000)........... $20,496 $10,172 $28,817 $37,164 $58,671 $67,874
The ratios of expenses
to average net assets
without giving effect
to the voluntary
expense agreement
described in Note 4 to
the Financial
Statements would have
been (%)............... -- -- -- -- 0.54 0.51
</TABLE>
(a) Computed on an annualized basis.
(b) Not computed on an annualized basis.
(c) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
See accompanying notes to financial statements.
52
<PAGE>
ZENITH LOOMIS SAYLES BALANCED SERIES
PORTFOLIO MANAGERS: DOUG RAMOS, MERI ANNE BECK
LOOMIS, SAYLES & COMPANY, L.P.
- ------------------ ----------------- MARKET REVIEW
[PHOTO OF DOUG [PHOTO OF MERI At the outset of 1996, most
RAMOS APPEARS ANNE BECK APPEARS investors were expecting economic
HERE] HERE] growth to start slowly and quicken as
the year progressed. Some pessimistic
souls even discussed the possibility
of a recession. At the time this all
seemed very reasonable; economic
growth had slowed dramatically in the
fourth quarter of 1995, the East Coast
was struck by a severe blizzard and
the federal government's partial
shutdown all pointed to a weak first
- ------------------ ----------------- quarter.
However, the economic picture began to change in February and March.
Unexpectedly strong reports on employment and light vehicle sales suggested
that the economy was not as weak as expected. Fixed-income investors started
questioning the prospect of further Federal Reserve easing. Stock investors
became concerned that the Federal Reserve would raise interest rates to rein
in economic growth and keep inflation from gaining momentum. Rising interest
rates halted the stock market rally that began on January 11.
These developments produced mixed results for the Loomis Sayles Balanced
Series in the first six months of 1996. In this environment, bond market
performance was negative. As measured by the Lehman Government Corporate
Index/4/, bonds returned -1.88% for the first six months of the year. While
the initial rally in stocks was stopped in February by the rise in interest
rates, renewed economic growth and the prospects for stronger earnings growth
in the second half of the year helped stocks trade marginally higher in May
and June. For the first two quarters of 1996, stocks within the S&P 500/20/
produced a total return of +10.2%. Fortunately, on average, 62% of the Series'
assets were invested in common stocks during this period. Overall the Series
returned 4.27% during the first six months of the year.
BONDS. The Series' purchase of corporate bonds in the consumer, insurance,
finance and technology sectors was beneficial as spreads tightened on good
credit and financial news. Individual bonds, such as Federated Department
Stores and La Quinta Inns, were positive consumer holdings in an improving
sector. Sears Roebuck and Delta Airlines received ratings upgrades causing
spreads to narrow versus Treasury bonds. Bankers Trust lagged in performance
due to a pending lawsuit regarding derivative usage, but improved after a
settlement was reached.
An intermediate maturity and an emphasis on current or higher coupon bonds
were beneficial both on a current income and price performance basis in an
environment of declining bond prices. Due to historically narrow corporate
bond spreads, high quality discount coupon mortgage securities continue to be
purchased.
STOCKS. The equity markets continued to exhibit a positive bias toward large
capitalization growth stocks, while low P/E ("value") and mid capitalization
stocks continued to lag. Perhaps reversing a long-term trend, small
capitalization stocks are staging an impressive comeback. However, the Series'
medium to large capitalization value bias continued to be a drag on
performance compared with the S&P 500/20/.
The Series' financial sector holdings did very well, especially in the first
quarter. In the banking industry, holdings in Chase Manhattan, Nationsbank and
First Interstate--now part of Wells Fargo--performed very well. Significant
positive returns were also recorded by Green Tree Financial and Ace Ltd.
In the basic materials sector, chemical holdings in Dupont and Praxair did
well. Energy was the best performing sector, completely reversing last year's
results, with El Paso Natural Gas and Ultramar providing significant returns.
Finally, technology performed well with handsome returns generated by Intel
Corporation, EMC Corporation, and IBM, which was recently sold from the
portfolio. The one poor performer in the portfolio was the utility sector,
which was hurt by the rise in interest rates.
53
<PAGE>
OUTLOOK AND STRATEGY
In anticipation of continued potential for economic growth through the end
of the year, as well as continued signs of an increase in the rate of
corporate earnings growth, we are increasing the Series' weighting in stocks
to 65%. We continue to invest in stocks with below average P/E ratios and
above average long-term growth potential. Stock selection remains a critical
element in determining performance for "value" portfolios. We believe that the
market's current bias toward large capitalization growth stocks will reverse
itself, though it may take an acceleration in earnings growth rates.
A $10,000 Investment Compared to an Index FUND FACTS
[GRAPH APPEARS HERE] GOAL: Reasonable long-term
investment return from a
Zenith Stock S&P Leh/gov't combination of long-term capital
Index 500/20/ corp./4/ appreciation and moderate
10/31/94 $10,000 $10,000 $10,000 current income.
12/31/94 9,990 9,794 10,048
12/31/95 12,467 13,461 11,981 START DATE: October 31, 1994
06/30/96 12,998 14,818 11,756
SIZE: $35 million as of June 30,
1996
Average Annual Return
Lipper Variable MANAGERS: Douglas Ramos and Meri
Balanced Balanced Anne Beck have managed the
Series Fund Average/8/ Series since its inception. Mr.
6 mos.* 4.27% 4.14% Ramos serves as portfolio co-
1 year 12.37% 16.47% manager of New England Balanced
Since Fund and New England Value Fund.
inception 17.07% n/a Ms. Beck also serves as
*not annualized portfolio co-manager of New
England Balanced Fund. Mr. Ramos
joined Loomis Sayles in 1985 and
Ms. Beck joined Loomis Sayles in
1986.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts; if these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
54
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
COMMON STOCKS--57.3% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
AEROSPACE--3.0%
5,300 Lockheed Martin Corp. .. $ 445,200
7,200 Northrop Grumman Corp. . 490,500
2,600 Raytheon Co. ........... 134,225
-----------
1,069,925
-----------
AUTOMOBILES--2.3%
6,800 Chrysler Corp. ......... 421,600
7,600 General Motors Corp. ... 398,050
-----------
819,650
-----------
BANKS--4.0%
6,300 Chase Manhattan Corp. .. 444,937
5,500 NationsBank Corp. ...... 454,438
11,700 Norwest Corp. .......... 408,038
466 Wells Fargo & Co. ...... 111,316
-----------
1,418,729
-----------
CHEMICALS--3.7%
E.I. Du Pont de Nemours
5,600 & Co. ................. 443,100
8,600 PPG Industries, Inc. ... 419,250
10,600 Praxair, Inc. .......... 447,850
-----------
1,310,200
-----------
COMPUTER & BUSINESS
EQUIPMENT--1.0%
19,500 EMC Corp. .............. 363,187
-----------
CONGLOMERATES--1.9%
7,900 Allied Signal, Inc. .... 451,288
6,600 Philips NV (ADR)(d)..... 215,325
-----------
666,613
-----------
ELECTRIC UTILITIES--1.3%
26,700 Edison International.... 470,587
-----------
ELECTRONIC COMPONENTS--
1.9%
6,700 Intel Corp. ............ 492,031
3,700 Texas Instruments,
Inc. .................. 184,538
-----------
676,569
-----------
FINANCIAL SERVICES--3.7%
5,000 Federal Home Loan
Mortgage Corp. ........ 427,500
13,700 Federal National
Mortgage Association... 458,950
13,000 Green Tree Financial
Corp. ................. 406,250
-----------
1,292,700
-----------
FOOD--AGRIBUSINESS--1.3%
13,900 Penenergy Corp. ........ 456,962
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
FOOD & BEVERAGE--1.4%
17,100 IBP, Inc. ............................................... $ 472,387
-----------
FREIGHT--TRANSPORTATION--3.9%
5,200 Burlington Northern Santa Fe............................. 420,550
21,000 Canadian Pacific Ltd. ................................... 462,000
5,900 Federal Express Corp.(c)................................. 483,800
-----------
1,366,350
-----------
GAS & PIPELINE UTILITIES--0.5%
4,500 El Paso Natural Gas Co. ................................. 173,250
-----------
HEALTH CARE--DRUGS--0.8%
10,700 Glaxo Wellcome PLC (ADR)(d).............................. 286,225
-----------
HEALTH CARE--SERVICES--1.1%
32,300 Beverly Enterprises, Inc.(c)............................. 387,600
-----------
HOUSING & BUILDING MATERIALS--3.5%
7,500 Armstrong World Industries, Inc. ........................ 432,187
10,100 Black & Decker Corp. .................................... 390,113
13,900 Masco Corp. ............................................. 420,475
-----------
1,242,775
-----------
HOUSEHOLD PRODUCTS--1.4%
8,200 Premark International, Inc. ............................. 151,700
8,200 Tupperware Corp. ........................................ 346,450
-----------
498,150
-----------
INSURANCE--4.6%
9,400 ACE Ltd. ................................................ 441,800
8,800 Chubb Corp. ............................................. 438,900
11,600 Everest Reinsurance Holdings............................. 300,150
10,400 Providian Corp. ......................................... 445,900
-----------
1,626,750
-----------
LEISURE TIME--2.5%
15,600 American Greetings Corp. ................................ 427,050
16,100 Carnival Corp. .......................................... 464,887
-----------
891,937
-----------
OIL--2.0%
8,800 Repsol S.A., (ADR)(d).................................... 305,800
13,400 Ultramar Corp. .......................................... 388,600
-----------
694,400
-----------
PACKAGING--1.2%
9,500 Crown Cork & Seal, Inc. ................................. 427,500
-----------
</TABLE>
See accompanying notes to financial statements.
55
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
RETAIL--FOOD & DRUG--3.6%
18,500 Eckerd Corp. Delaware................................... $ 418,563
10,600 Kroger Co. ............................................. 418,700
11,000 Melville Corp. ......................................... 445,500
-----------
1,282,763
-----------
TELECOMMUNICATIONS--3.5%
12,500 DSC Communications Corp. (Rights)(c).................... 376,563
8,700 GTE Corp. .............................................. 389,325
13,400 Pacific Telesis Group................................... 452,250
-----------
1,218,138
-----------
TOBACCO--3.2%
5,200 Loews Corp. ............................................ 410,150
2,800 Philip Morris Companies, Inc. .......................... 291,200
12,400 UST, Inc. .............................................. 424,700
-----------
1,126,050
-----------
Total Common Stocks
(Identified Cost $18,657,639).......................... 20,239,397
-----------
MEDIUM & LONG TERM BONDS & NOTES--34.4%
<CAPTION>
FACE
AMOUNT
<C> <S> <C>
AEROSPACE--0.9%
$330,000 Lockheed Martin Corporation 6.550%, 5/15/99............. 329,455
-----------
BANKS--3.8%
100,000 Bankers Trust, NY Corp. 8.125%, 4/01/02................. 104,271
350,000 Capital One Bank 6.830%, 5/17/99........................ 349,422
50,000 Chase Manhattan Corp. 9.050%, 2/01/02................... 50,716
475,000 Household Bank FSB 6.250%, 4/01/99...................... 470,241
310,000 Mellon Bank NA 7.000%, 3/15/06.......................... 302,148
50,000 Norwest Corp. 7.650%, 3/15/05........................... 51,476
-----------
1,328,274
-----------
CABLE & MEDIA--1.0%
350,000 TCI Communications, Inc. 7.250%, 6/15/99................ 350,815
-----------
COMPUTER--0.8%
300,000 Comdisco, Inc. 5.760%, 1/19/99.......................... 294,360
-----------
ENERGY--0.4%
125,000 Coastal Corp. 8.125%, 9/15/02........................... 130,324
25,000 Standard Oil Co. 9.000%, 6/01/19........................ 26,147
-----------
156,471
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
FINANCE--4.9%
$ 125,000 Associates Corp. NA 8.350%, 12/22/98................. $ 130,422
115,000 Avalon Properties, Inc. 7.375%, 9/15/02.............. 113,242
200,000 Ford Motor Credit Corp.
6.850%, 8/15/00..................................... 200,332
244,000 General Motors Acceptance Corp. 5.500%, 12/15/01..... 225,502
350,000 Great Western Financial Corp. 6.125%, 6/15/98........ 347,767
50,000 International Lease Finance Corp. 8.040%, 12/01/97... 51,296
100,000 Secured Finance Investment, Inc. 9.05%, 12/15/04..... 110,119
50,000 Standard Credit Card 8.625%, 1/07/02................. 50,990
300,000 WFS Financial 6.950%, 11/20/03....................... 301,968
200,000 World Omni Automobile Lease 6.550%, 6/25/02.......... 199,360
-----------
1,730,998
-----------
GOVERNMENT AGENCY--6.5%
350,000 Federal Home Loan Banks 7.151%, 9/13/05.............. 341,702
30,000 Federal National Mortgage Association Zero Coupon
10/10/01............................................ 29,433
25,000 United States Treasury Notes 8.250%, 7/15/98......... 25,988
175,000 United States Treasury Notes 5.500%, 4/15/00......... 169,750
105,000 United States Treasury Notes 6.125%, 7/31/00......... 103,836
1,670,000 United States Treasury Notes 6.250%, 2/15/03......... 1,640,508
-----------
2,311,217
-----------
HEALTH CARE--0.1%
50,000 Columbia/HCA Healthcare Corp. 8.020%, 8/5/02......... 52,242
-----------
INDUSTRIALS--2.2%
325,000 Amerco 7.850%, 5/15/03............................... 326,313
68,000 Anheuser Busch Companies, Inc. 8.500%, 3/01/17....... 70,818
200,000 Martin Marietta Corp. 6.500%, 4/15/03................ 194,002
200,000 Tektronix, Inc. 7.625%, 8/15/02...................... 201,280
-----------
792,413
-----------
INSURANCE--0.8%
275,000 Travelers Aetna 6.750%, 4/15/01...................... 272,998
-----------
</TABLE>
See accompanying notes to financial statements.
56
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
MEDIUM & LONG TERM BONDS & NOTES--(CONTINUED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
LEISURE & LODGING--1.1%
$100,000 Carnival Corp. 7.050%, 5/15/05.......................... $ 97,628
300,000 La Quinta Inns, Inc. 7.400%, 9/15/05.................... 285,000
-----------
382,628
-----------
MORTGAGE--2.4%
375,000 Federal Home Loan Mortgage 6.500%, 7/15/10.............. 357,836
390,220 Federal Home Loan Mortgage 6.000%, 8/15/22.............. 335,344
200,000 Federal National Mortgage Association 6.000%, 2/25/24... 165,340
-----------
858,520
-----------
MORTGAGE BACKED--1.8%
200,000 Federal Home Loan Mortgage 8.000%, 7/15/21.............. 201,874
50,000 G.E. Capital Mortgage Inc. 10.000%, 3/25/24............. 52,500
75,000 PaineWebber CMO Tr.
9.000%, 10/20/03....................................... 76,945
75,000 Westam Mortgage Financial Corp. 8.950%, 8/01/18......... 80,038
200,000 Westam Mortgage Financial Corp. 9.400%, 12/01/18........ 215,936
-----------
627,293
-----------
RETAIL STORE--1.4%
335,000 Federated Department Stores, Inc. 8.500%, 6/15/03....... 336,186
170,000 Sears Overseas Finance Zero Coupon 7/12/98.............. 148,856
-----------
485,042
-----------
SECURITIES--3.3%
225,000 Alex Brown, Inc. 7.625%, 8/15/05........................ 225,367
200,000 Donaldson Lufkin & Jennrette 6.875%, 11/01/05........... 189,540
100,000 Lehman Bros. Inc. 5.750%, 11/15/98...................... 97,855
200,000 Lehman Bros. Inc. 7.375%, 5/15/07....................... 202,686
100,000 Merrill Lynch & Co. 8.375%, 2/09/00..................... 104,409
145,000 Salomon, Inc 7.500%, 2/01/03............................ 144,037
200,000 Smith Barney Holdings, Inc. 5.500%, 1/15/99............. 194,734
-----------
1,158,628
-----------
TECHNOLOGY--0.6%
200,000 Digital Equipment Corp. 8.625%, 11/01/12................ 201,514
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
TELECOMMUNICATIONS--0.6%
$ 200,000 Southern Bell Telephone & Telegraph Co. 7.625%,
3/15/13............................................ $ 197,698
-----------
TRANSPORTATION--0.4%
25,000 American Airlines 10.180%, 1/02/13.................. 28,624
100,000 AMR Corp 10.290%, 3/08/21........................... 121,457
-----------
150,081
-----------
UTILITIES--1.3%
250,000 Cincinnati Gas & Electric Co. 7.375%, 11/01/01...... 251,057
195,000 Detroit Edison Co. 6.340%, 3/15/00.................. 191,166
-----------
442,223
-----------
YANKEE/SUPRANATIONAL--0.1%
50,000 SKF Aktiebolaget AB 7.625%, 7/15/03................. 50,160
-----------
Total Bonds & Notes
(Identified Cost $12,211,390)...................... 12,173,030
-----------
SHORT-TERM INVESTMENTS--7.7%
1,528,000 Repurchase Agreement with State Street Bank & Trust
Co. dated 6/28/96 at 4.750% to be repurchased at
$1,528,605 on 7/01/96. Collateralized by $1,600,000
U.S. Treasury Bill due 12/19/96, with a value of
$1,559,709......................................... 1,528,000
1,200,000 Associates Corp. of North America 5.450%, 7/01/96... 1,200,000
-----------
Total Short-Term Investments
(Identified Cost $2,728,000)....................... 2,728,000
-----------
Total Investments--99.4%
(Identified Cost $33,597,029(b))................... 35,140,427
Other assets less liabilities....................... 204,642
-----------
TOTAL NET ASSETS--100%.............................. $35,345,069
===========
(a) See Note 1a.
(b) Federal Tax Information:
At June 30, 1996 the net unrealized appreciation on investments based on cost
of $33,597,029 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost...................................... $ 1,888,840
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value......................................... (345,442)
-----------
Net unrealized appreciation......................... $ 1,543,398
===========
</TABLE>
(c) Non-income producing security.
(d) An American Depository Receipt (ADR) is a certificate issued by a U.S.
bank representing the right to receive securities of the foreign issuer
described. The values of ADRs are significantly influenced by trading on
exchanges not located in the United States or Canada.
See accompanying notes to financial statements.
57
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value..................................... $35,140,427
Cash..................................................... 646
Receivable for:
Fund shares sold......................................... 79,480
Securities sold.......................................... 152,004
Dividends and interest................................... 206,861
Foreign taxes............................................ 275
Due from advisor......................................... 86
Unamortized organization expense......................... 6,703
-----------
35,586,482
LIABILITIES
Payable for:
Securities purchased..................................... $137,992
Fund shares redeemed..................................... 58,246
Accrued expenses:
Management fees.......................................... 13,270
Other expenses........................................... 31,905
--------
241,413
-----------
NET ASSETS................................................ $35,345,069
===========
Net Assets consist of:
Capital paid in.......................................... $33,113,070
Undistributed net investment income...................... 446,272
Accumulated net realized gains........................... 242,329
Unrealized appreciation on investments................... 1,543,398
-----------
NET ASSETS................................................ $35,345,069
===========
Computation of offering price:
Net asset value and redemption price per share
($35,345,069 divided by 2,837,644 shares of beneficial
interest)................................................ $ 12.46
===========
Identified cost of investments............................ $33,597,029
===========
</TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends............................................. $ 174,405(a)
Interest.............................................. 385,392
----------
559,797
EXPENSES
Management fees....................................... $ 94,346
Trustees' fees and expenses........................... 6,453
Custodian............................................. 26,323
Audit and tax services................................ 10,347
Legal................................................. 5,411
Printing.............................................. 3,056
Amortization of organization expenses................. 1,003
Miscellaneous......................................... 4,971
--------
Total expenses....................................... 151,910
Less expenses assumed by the investment adviser...... (37,335) 114,575
-------- ----------
NET INVESTMENT INCOME.................................. 445,222
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on Investments--net..................... 103,879
Unrealized appreciation on investments--net........... 515,612
----------
Net gain on investment transactions.................... 619,491
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............. $1,064,713
==========
</TABLE>
(a)Net of foreign taxes of: $2,749.
See accompanying notes to financial statements.
58
<PAGE>
NEW ENGLAND ZENITH FUND
(LOOMIS SAYLES BALANCED SERIES)
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................... $ 382,625 $ 445,222
Net realized gain on investments.................... 426,765 103,879
Unrealized appreciation on investments.............. 1,029,622 515,612
----------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS.............. 1,839,012 1,064,713
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................... (382,625) 0
In excess of net investment income.................. (1,297) 0
Net realized gain on investments.................... (288,315) 0
----------- -----------
(672,237) 0
----------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares........................ 18,594,352 18,604,691
Net asset value of shares issued in connection with
the reinvestment of:
Distributions from net investment income............ 383,922 0
Distributions from net realized gain................ 288,315 0
----------- -----------
19,266,589 18,604,691
Cost of shares redeemed............................. (4,333,030) (3,147,011)
----------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS....................................... 14,933,559 15,457,680
----------- -----------
TOTAL INCREASE IN NET ASSETS........................ 16,100,334 16,522,393
NET ASSETS
Beginning of the period............................. 2,722,342 18,822,676
----------- -----------
End of the period................................... $18,822,676 $35,345,069
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the period............................. $ 251 $ 1,050
=========== ===========
End of the period................................... $ 1,050 $ 446,272
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares...................... 1,626,505 1,518,994
Issued in connection with the reinvestment of:
Distributions from net investment income............ 32,426 0
Distributions from net realized gain................ 24,351 0
----------- -----------
1,683,282 1,518,994
Redeemed............................................ (382,082) (256,443)
----------- -----------
Net change.......................................... 1,301,200 1,262,551
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 31, 1994(A) YEAR SIX MONTHS
THROUGH ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
------------------- ------------ ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $10.00 $ 9.94 $ 11.95
------ ------- -------
Income From Investment Operations
Net Investment Income............ 0.05 0.26 0.41
Net Realized and Unrealized Gain
(Loss) on Investments........... (0.06) 2.20 0.10
------ ------- -------
Total From Investment Operations. (0.01) 2.46 0.51
------ ------- -------
Less Distributions
Distributions From Net Investment
Income.......................... (0.05) (0.26) 0.00
Capital Gains.................... 0.00 (0.19) 0.00
------ ------- -------
Total Distributions.............. (0.05) (0.45) 0.00
------ ------- -------
Net Asset Value, End of Period.... $ 9.94 $ 11.95 $ 12.46
====== ======= =======
TOTAL RETURN (%).................. (0.10)(c) 24.79 4.27(c)
Ratio of Operating Expenses to
Average Net Assets (%)........... 0.85 (b) 0.85 0.85(b)
Ratio of Net Investment Income to
Average Net Assets (%)........... 4.16 (b) 4.03 3.26(b)
Portfolio Turnover Rate (%)....... 0 (b) 72 63(b)
Average Commission Rate (d)....... -- -- $0.0095
Net Assets, End of Period (000)... $2,722 $18,823 $35,345
The ratios of expenses to average
net assets without giving effect
to the voluntary expense
agreement described in Note 4 to
the Financial Statements would
have been (%).................... 3.73 (b) 1.85 1.13(b)
</TABLE>
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Not computed on an annualized basis.
(d) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
See accompanying notes to financial statements.
59
<PAGE>
ZENITH BACK BAY ADVISORS MANAGED SERIES
PORTFOLIO MANAGER: PETER PALFREY;
BACK BAY ADVISORS(R), L.P.
- ------------------ MARKET REVIEW
[PHOTO OF PETER The Back Bay Advisors Managed Series ended the first six
PALFREY APPEARS months of 1996 nominally behind its peer group of Lipper
HERE] "Flexible Funds", with a total return of 5.24%, versus the
comparable Lipper average of 5.41%--an underperformance of
17 basis points. For the 12-month period ended June 30,
1996, the Series remained well ahead of its peer group,
with a top quartile performance of 18.22% versus 15.24%
for the Lipper averages--an outperformance of 298 basis
points. During the first half of 1996, the Series' asset
allocation moved to a slightly greater overweight position
in stocks--from 67% to 69%; this was achieved through a
combination of bond sales and the greater relative market
- ------------------ appreciation of stock holdings. During this same period, the
duration on the bond portfolio was reduced by 0.7 years to 6.58 years and the
portfolio weighting in bonds was reduced from 33% to 29%. At the end of the
second quarter, the allocation to stocks was trimmed modestly, raising cash and
bringing equity exposure down to 69.4%.
Despite being a relatively volatile period, stocks managed to extend their
bull market advance, with the S&P 500 Index/20/ (including reinvestment of
dividends) up 10.2% through June 30. Solid fundamentals (good corporate
earnings growth, improved economic outlook), coupled with record capital
inflows served to push equities to consecutive new highs, despite investor
concern over "full" valuations and increasing interest rates. Bonds, in
contrast, declined sharply over the same period, with the Lehman
Government/Corporate Index/4/ down 1.88% through June 30. The weakness in
fixed income markets reflected investor concern over the sharp rebound in U.S.
economic growth (from the somewhat anemic pace of growth in late 1995), marked
by strong payroll gains and higher than expected energy and commodity prices.
While inflation has remained below 3% on a year-over-year basis, investors
fear that tighter labor markets could lead to increased wage pressures,
answered by a corresponding shift to a more restrictive monetary policy by the
Federal Reserve Board.
OUTLOOK AND STRATEGY
Recent volatility in equity and fixed income markets during early July
reflects increased investor uncertainty over the sustainability of the current
economic growth cycle. The depth and extent of the present stock market
correction will depend on investor reaction to the remaining second quarter
earnings announcements and on management comments about the prospects for
subsequent quarters. While it may take some time to work through this current
correction, with market conditions expected to be quite choppy through the
summer, I remain constructive on the equity market on a longer term basis.
During periods of greater investor uncertainty, larger capitalization, high
quality stocks, such as those favored by the Series, tend to outperform as
investors seek relative safety.
In the credit markets, investor interest in bonds has been perked by recent
weakness in stocks, with many market pundits talking of a major asset
allocation shift. Interestingly, the equity sell off has not translated into
any meaningful, lasting support for bonds thus far. This is most likely due to
investor fear that the economy may not slow sufficiently through the remainder
of 1996 to avert Federal Reserve action and/or a pickup in inflationary
pressures. However, I expect that Gross Domestic Product (GDP) growth will
likely slow from the current 4-4.5% pace to a more sustainable 3% average pace
during the second half of the year. This is due primarily to the dampening
effect on consumer spending (housing, auto) from the 100 basis point increase
in rates thus far this year. Given that the bond market has already "priced-
in" 50 basis points of Federal Reserve monetary tightening between now and
year-end, any signs of moderating economic growth, coupled with continued
benign inflation, should be more positively received by credit market
participants. Accordingly, I have begun to position the bond portion of the
Series more aggressively, with issues that potentially perform best in a
stable to falling interest rate environment.
60
<PAGE>
A $10,000 Investment Compared to an Index FUND FACTS
[GRAPH APPEARS HERE] GOAL: A favorable total
return through investment in
Zenith diversified portfolio. The
Managed S&P Leh/gov't Series' portfolio is expected
Series 500/20/ corp./4/ to include a mix of
5/01/87 $10,000 $10,000 $10,000 (1) common stocks, (2) notes
12/31/87 9,935 8,770 10,357 and bonds and (3) money
12/31/88 10,877 10,216 11,142 market instruments.
12/31/89 12,952 13,444 12,729
12/31/90 13,369 13,025 13,782 START DATE: May 1, 1987
12/31/91 16,085 16,976 16,001
12/31/92 17,142 18,268 17,213 SIZE: $151 million as of June
12/31/93 18,968 20,101 19,117 30, 1996
12/31/94 18,756 20,374 18,447
12/31/95 24,620 28,003 21,997 MANAGER: Peter Palfrey has
06/30/96 25,911 30,825 21,583 managed the Series since
January, 1994 and joined Back
Bay Advisors in 1993. Mr.
Average Annual Return Palfrey also manages several
other fixed income and
Zenith Lipper Variable Flexible separate accounts.
Managed Series Portfolio Fund Average/9/
6 mos.* 5.24% 5.41%
1 year 18.26% 15.24%
5 years 12.67% 12.12%
Since
inception 10.95% n/a
*not annualized
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts; if these charges were included, the returns shown would be
lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
61
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
COMMON STOCKS--69.4% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
AEROSPACE--1.0%
5,025 Boeing Co................................................. $ 437,803
14,600 Rockwell International Corp............................... 835,850
2,500 United Technologies Corp.................................. 287,500
-----------
1,561,153
-----------
APPAREL--0.2%
7,400 Melville Corp............................................. 299,700
-----------
AUTOMOBILE & RELATED--1.4%
15,432 Chrysler Corp............................................. 956,784
4,600 Ford Motor Co............................................. 148,925
12,500 General Motors Corp....................................... 654,687
6,750 Genuine Parts Co.......................................... 308,813
-----------
2,069,209
-----------
BANKS--3.5%
32,186 Banc One Corp............................................. 1,094,324
10,144 Bank America Corp......................................... 768,408
5,400 Bankers Trust New York Corp. ............................. 398,925
19,000 Citicorp.................................................. 1,569,875
10,900 J.P. Morgan & Co., Inc.................................... 922,413
7,200 Nations Bank Corp......................................... 594,900
-----------
5,348,845
-----------
BUSINESS MACHINES--1.4%
8,500 Apple Computer............................................ 178,500
28,400 Digital Equipment Corp.(c)................................ 1,278,000
5,900 International Business Machines Corp...................... 584,100
-----------
2,040,600
-----------
BUSINESS SERVICES--1.4%
28,500 Browning Ferris Industries, Inc........................... 826,500
10,000 Dun & Bradstreet Corp..................................... 625,000
9,200 H & R Block, Inc.......................................... 300,150
9,500 WMX Technologies, Inc..................................... 311,125
-----------
2,062,775
-----------
CHEMICALS--3.4%
14,200 Allied-Signals, Inc....................................... 811,175
8,200 Dow Chemical Co........................................... 623,200
13,700 E.I. Du Pont de Nemours & Co.............................. 1,084,012
56,000 Monsanto Co............................................... 1,820,000
15,600 PPG Industries, Inc....................................... 760,500
-----------
5,098,887
-----------
COMMUNICATION--5.3%
15,500 Airtouch Communications, Inc. ............................ 437,875
35,200 Ameritech Corp. .......................................... 2,090,000
27,261 AT & T Co. ............................................... 1,690,182
12,200 Bell Atlantic Corp. ...................................... 777,750
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
16,200 Bellsouth Corp. .......................................... $ 686,475
10,600 GTE Corp. ................................................ 474,350
14,600 NYNEX Corp. .............................................. 693,500
15,500 Pacific Telesis Group..................................... 523,125
7,200 SBC Comunications, Inc. .................................. 354,600
9,700 US West, Inc. ............................................ 309,188
-----------
8,037,045
-----------
CONGLOMERATES--0.7%
2,200 ITT Corp. ................................................ 145,750
13,800 Minnesota Mining & Manufacturing.......................... 952,200
-----------
1,097,950
-----------
CONSTRUCTION--1.3%
28,600 Home Depot, Inc. ......................................... 1,544,400
14,900 Masco Corp. .............................................. 450,725
-----------
1,995,125
-----------
CONSUMER DURABLES--0.0%
800 Whirlpool Corp. .......................................... 39,700
-----------
DOMESTIC OIL--1.7%
2,400 Amoco Corp. .............................................. 173,700
2,700 Atlantic Richfield Co. ................................... 319,950
3,600 Halliburton Co. .......................................... 199,800
69,300 Oryx Energy Co. .......................................... 1,126,125
934 Santa Fe Energy, Inc.(c).................................. 11,091
3,601 Sun, Inc. ................................................ 109,380
800 Tenneco, Inc. ............................................ 40,900
15,600 Unocal Corp. ............................................. 526,500
-----------
2,507,446
-----------
DRUGS & MEDICINE--6.2%
8,800 Abbott Laboratories....................................... 382,800
22,000 American Home Products Corp. ............................. 1,322,750
37,100 Baxter International, Inc. ............................... 1,752,975
15,200 Eli Lilly & Co. .......................................... 988,000
31,500 Merck & Co., Inc. ........................................ 2,035,687
19,200 Pfizer Inc. .............................................. 1,370,400
18,705 Pharmacia & Upjohn, Inc. ................................. 830,034
10,800 Schering Plough Corp. .................................... 677,700
-----------
9,360,346
-----------
ELECTRONICS--4.0%
43,200 AMP, Inc. ................................................ 1,733,400
9,400 Emerson Electric Co. ..................................... 849,525
22,400 Hewlett-Packard........................................... 2,231,600
6,400 Motorola, Inc. ........................................... 402,400
15,400 Raytheon Co. ............................................. 795,025
-----------
6,011,950
-----------
</TABLE>
See accompanying notes to financial statements.
62
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
ENERGY & UTILITIES--2.8%
18,300 American Electric Power, Inc. ............................ $ 780,037
11,700 Consolidated Edison Co. .................................. 342,225
40,200 Edison International...................................... 708,525
45,700 Pacific Gas & Electric Co. ............................... 1,062,525
7,700 Public Service Enterprise Group........................... 210,788
10,200 Southern Co. ............................................. 251,175
8,900 Texas Utilities Co. ...................................... 380,475
17,300 Unicom Corp. ............................................. 482,237
-----------
4,217,987
-----------
ENERGY RAW MATERIALS--1.1%
58,800 Occidental Petroleum Corp. ............................... 1,455,300
3,200 Schlumberger Ltd. ........................................ 269,600
-----------
1,724,900
-----------
ENTERTAINMENT--0.0%
2,200 ITT Industry, Inc. ....................................... 55,275
-----------
FINANCE--2.1%
25,000 American Express Co. ..................................... 1,115,625
4,449 Dean Witter, Discover & Co. .............................. 254,705
11,600 Federal Home Loan Mortgage Corp. ......................... 991,800
16,900 Salomon, Inc. ............................................ 743,600
-----------
3,105,730
-----------
FOOD & AGRICULTURE--4.8%
39,800 Coca Cola Co. ............................................ 1,945,225
5,000 General Mills, Inc. ...................................... 272,500
41,850 H. J. Heinz Co. .......................................... 1,271,194
24,600 Kellogg Co. .............................................. 1,801,950
16,200 PepsiCo, Inc. ............................................ 573,075
13,300 Ralston Purina Co. ....................................... 852,862
16,000 Sara Lee Corp. ........................................... 518,000
-----------
7,234,806
-----------
GOLD--0.2%
18,434 Santa Fe Pacific Gold Corp. .............................. 260,380
-----------
INSURANCE--2.4%
11,500 Aetna Life & Casualty Co. ................................ 822,250
10,568 Allstate Corp. ........................................... 482,165
14,400 American General Corp. ................................... 523,800
6,468 American International Group, Inc. ....................... 637,907
2,700 CIGNA Corp. .............................................. 318,263
4,300 General Reinsurance Corp. ................................ 654,675
2,200 ITT Hartford Group, Inc. ................................. 117,150
-----------
3,556,210
-----------
INTERNATIONAL OIL--4.9%
11,000 Chevron Corp. ............................................ 649,000
9,400 Cooper Industries, Inc. .................................. 390,100
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
25,100 Exxon Corp. .............................................. $ 2,180,562
7,800 Mobil Corp. .............................................. 874,575
9,800 Royal Dutch Petroleum Co. ADR(d).......................... 1,506,750
21,200 Texaco, Inc. ............................................. 1,778,150
-----------
7,379,137
-----------
LIQUOR--0.4%
3,300 Anheuser-Busch Companies, Inc. ........................... 247,500
11,700 Seagram, Ltd. ............................................ 393,413
-----------
640,913
-----------
MEDIA--0.6%
3,000 Gannett Co. Inc. ......................................... 212,250
15,200 Tele-Communications, Inc. ................................ 275,500
7,200 Time Warner, Inc. ........................................ 282,600
9,700 US West, Inc. ............................................ 177,025
-----------
947,375
-----------
NON-FERROUS METALS--0.7%
8,075 Alcan Aluminum Ltd. ...................................... 246,288
14,000 Aluminum Company of America............................... 803,250
-----------
1,049,538
-----------
OFFICE EQUIPMENT--1.8%
50,700 Xerox Corp. .............................................. 2,712,450
-----------
OPTICAL PHOTO, EQUIPMENT--0.2%
3,600 Eastman Kodak Co. ........................................ 279,900
-----------
PAPER & FOREST PRODUCTS--1.3%
12,640 Burlington Northern Santa Fe.............................. 1,022,260
3,600 Georgia-Pacific Corp. .................................... 255,600
11,800 International Paper Co. .................................. 435,125
1,400 Kimberly Clark Corp. ..................................... 108,150
4,050 Weyerhaeuser Co. ......................................... 172,125
-----------
1,993,260
-----------
PRODUCER OF GOODS--2.9%
5,600 Caterpillar Inc. ......................................... 379,400
24,000 Deere & Co. .............................................. 960,000
34,400 General Electric Co. ..................................... 2,975,600
4,200 Westinghouse Electric Corp. .............................. 78,750
-----------
4,393,750
-----------
RAILROADS & SHIPPING--0.4%
4,500 Norfolk Southern Corp. ................................... 381,375
4,200 Union Pacific Corp. ...................................... 293,475
-----------
674,850
-----------
RESTAURANTS--0.3%
5,000 Darden Restaurants, Inc. ................................. 53,750
9,200 McDonald's Corp. ......................................... 430,100
-----------
483,850
-----------
</TABLE>
See accompanying notes to financial statements.
63
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (A)
<C> <S> <C>
RETAIL--3.3%
19,000 Albertsons, Inc. ......................................... $ 786,125
8,000 Dayton Hudson Corp. ...................................... 825,000
15,600 J.C. Penney Company, Inc. ................................ 819,000
38,900 Kmart Corp.(c)............................................ 481,388
7,800 May Department Stores Co. ................................ 341,250
11,400 Sears Roebuck & Co. ...................................... 554,325
5,400 The Limited, Inc. ........................................ 116,100
11,625 Toys R Us(c).............................................. 331,313
29,200 Wal-Mart Stores, Inc. .................................... 740,950
-----------
4,995,451
-----------
SOAPS & COSMETICS--3.3%
6,260 Bristol-Myers Squibb Co. ................................. 563,400
18,400 Gillette Co. ............................................. 1,147,700
10,400 Johnson & Johnson......................................... 514,800
10,300 Procter & Gamble Co. ..................................... 933,437
12,400 Unilever, N.V. ........................................... 1,799,550
-----------
4,958,887
-----------
STEEL--0.9%
64,700 USX Marathon Group........................................ 1,302,087
220 USX-US Steel Group........................................ 6,243
-----------
1,308,330
-----------
TOBACCO--1.2%
8,500 American Brands, Inc. .................................... 385,688
13,600 Philip Morris Companies, Inc. ............................ 1,414,400
-----------
1,800,088
-----------
TRAVEL & RECREATION--2.3%
55,735 Walt Disney Co. .......................................... 3,504,338
-----------
Total Common Stock
(Identified cost $67,194,984)............................ 104,808,136
-----------
</TABLE>
BONDS & NOTES--29.5%
<TABLE>
<CAPTION>
FACE
AMOUNT
<C> <S> <C>
CORPORATE BONDS--16.5%
$ 3,000,000 360 Communications,
7.500%, 03/01/06..................................... 2,872,740
2,500,000 Banco de Comercio Exterior,
8.625%, 6/02/00...................................... 2,555,275
1,000,000 Boston Edison Co.,
7.800%, 5/15/10...................................... 942,060
2,000,000 Cemex SA,
8.875%, 6/10/98...................................... 2,010,420
2,000,000 Lehman Brothers Holdings, Inc.,
8.500%, 5/01/07...................................... 2,101,040
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$ 1,730,000 Lehman Brothers Holdings, Inc.,
8.800%, 3/01/15................................... $ 1,898,796
1,000,000 Maxus Energy Corp.,
9.375%, 11/01/03.................................. 965,000
1,000,000 Paramount Communications, Inc.,
8.250%, 8/01/22................................... 943,050
1,485,000 Public Service Electric & Gas Co.,
8.750%, 11/01/21.................................. 1,586,648
5,000,000 Tele-Communications, Inc.,
9.800%, 2/01/12................................... 5,402,400
10,000,000 Time Warner Inc.,
Zero Coupon, 12/17/12............................. 3,625,000
30,000 Viacom, Inc.,
8.000%, 7/07/06................................... 27,450
------------
24,929,879
------------
FOREIGN--4.9%
11,500,000 Government of Canada,
Zero Coupon, 12/01/20(e).......................... 1,138,216
8,500,000 Government of Canada,
8.000%, 06/01/23(e)............................... 6,151,029
------------
7,289,245
------------
YANKEE--6.9%
3,250,000 Argentina Republic,
9.250%, 2/23/01................................... 3,107,813
6,000,000 Hydro Quebec,
7.500%, 4/01/16................................... 5,830,800
1,500,000 United Mexican States,
9.750%, 2/06/01................................... 1,492,500
------------
10,431,113
------------
U.S. GOVERNMENT BONDS--1.2%
501,211 Government National Mortgage Association, 10.000%,
9/15/18........................................... 546,786
594,723 Government National Mortgage Association, 11.500%
with various maturities to 2013................... 668,994
1,500,000 United States Treasury Bond,
Zero Coupon, 7/07/06.............................. 587,790
------------
1,803,570
------------
Total Bonds & Notes
(Identified Cost $43,134,047)..................... 44,453,807
------------
</TABLE>
See accompanying notes to financial statements.
64
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
SHORT-TERM INVESTMENT--0.5%
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$825,000 American Express Credit Corp., 5.390%, 7/01/96....... $ 825,000
------------
Short-Term Investment
(Identified Cost $825,000).......................... 825,000
------------
Total Investments--99.4%
(Identified Cost $111,154,031)(b)................... 150,086,943
Other assets less liabilities........................ 863,155
------------
TOTAL NET ASSETS--100%............................... $150,950,098
============
(a) See Note 1A.
(b) Federal Tax Information:
At June 30, 1996 the net unrealized appreciation on investments based on
cost of $111,154,031 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost....................................... $ 41,451,115
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value.......................................... (2,518,203)
------------
Net unrealized appreciation.......................... $ 38,932,912
============
</TABLE>
(c) Non-income producing security.
(d) An American Depository Receipt (ADR) is a certificate issued by a U.S.
bank representing the right to receive securities of the foreign issuer
described. The values of ADR's are significantly influenced by trading on
exchanges not located in the United States or Canada.
(e) Denominated in Canadian dollars.
See accompanying notes to financial statements.
65
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................. $150,086,943
Cash................................................. 3,545
Receivable for:
Fund shares sold..................................... 45,938
Dividends and interest............................... 1,027,938
------------
151,164,364
LIABILITIES
Payable for:
Fund shares redeemed................................. $74,343
Foreign withholding taxes............................ 282
Miscellaneous........................................ 16,591
Accrued expenses:
Management fees...................................... 61,555
Deferred trustees' fees.............................. 30,097
Other expenses....................................... 31,398
-------
214,266
------------
NET ASSETS............................................ $150,950,098
============
Net Assets consist of:
Capital paid in...................................... $108,119,183
Undistributed net investment income.................. 2,793,804
Accumulated net realized gains....................... 1,104,183
Unrealized appreciation on investments............... 38,932,928
------------
NET ASSETS............................................ $150,950,098
============
Computation of offering price:
Net asset value and redemption price per share
($150,950,098 divided by 877,150 shares of
beneficial interest)................................ $ 172.09
============
Identified cost of investments....................... $111,154,031
============
</TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends........................................... $1,286,210(a)
Interest............................................ 1,929,822
----------
3,216,032
EXPENSES
Management fees..................................... $ 372,228
Trustees' fees and expenses......................... 11,149
Custodian........................................... 43,055
Audit and tax services.............................. 7,700
Legal............................................... 6,150
Printing............................................ 22,909
Miscellaneous....................................... 4,967
----------
Total expenses..................................... 468,158
----------
NET INVESTMENT INCOME................................ 2,747,874
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FORWARD CURRENCY CONTRACTS AND FOREIGN CURRENCY
TRANSACTIONS
Realized gain on:
Investments--net.................................... 793,554
Foreign currency transactions--net.................. (45,625)
----------
Total realized gain on investments and foreign
currency transactions............................. 747,929
----------
Unrealized appreciation on:
Investments--net.................................... 4,164,356
Foreign currency transactions--net.................. (88)
----------
Total unrealized appreciation on investments and
foreign currency transactions..................... 4,164,268
----------
Net gain on investment transactions.................. 4,912,197
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS........... $7,660,071
==========
(a) Net of foreign taxes of: $10,837.
</TABLE>
See accompanying notes to financial statements.
66
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MANAGED SERIES)
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................. $ 5,487,603 $ 2,747,874
Net realized gain on investments and foreign
currency transactions............................ 2,566,425 747,929
Unrealized appreciation on investments, and
foreign currency transactions.................... 28,568,247 4,164,268
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS............ 36,622,275 7,660,071
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................. (5,487,603) 0
In excess of net investment income................ (212,274) 0
Net realized gain on investments.................. (764,206) 0
------------ ------------
(6,464,083) 0
------------ ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares...................... 22,221,525 10,086,880
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income.......... 5,699,877 0
Distributions from net realized gain.............. 764,206 0
------------ ------------
28,685,608 10,086,880
Cost of shares redeemed........................... (33,185,396) (14,332,589)
------------ ------------
DECREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS..................................... (4,499,788) (4,245,709)
------------ ------------
TOTAL INCREASE IN NET ASSETS...................... 25,658,404 3,414,362
NET ASSETS
Beginning of the period........................... 121,877,332 147,535,736
------------ ------------
End of the period................................. $147,535,736 $150,950,098
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the period........................... $ 85 $ 45,930
============ ============
End of the period................................. $ 45,930 $ 2,793,804
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 150,563 60,278
Issued in connection with the reinvestment of:
Distributions from net investment income.......... 35,150 0
Distributions from net realized gain.............. 4,713 0
------------ ------------
190,426 60,278
Redeemed.......................................... (223,554) (85,395)
------------ ------------
Net change........................................ (33,128) (25,117)
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
------- ------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $112.79 $127.87 $ 130.26 $ 137.18 $ 130.30 $ 163.52
------- ------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment Income.. 6.41 5.14 4.35 5.42 6.34 3.13
Net Realized and
Unrealized Gain (Loss)
on Investments........ 16.23 3.45 9.58 (6.92) 34.33 5.44
------- ------- -------- -------- -------- --------
Total From Investment
Operations............ 22.64 8.59 13.93 (1.50) 40.67 8.57
------- ------- -------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income..... (6.41) (5.13) (4.36) (5.38) (6.34) 0.00
Distribution in Excess
of Net Investment
Income................ 0.00 0.00 0.00 0.00 (0.23) 0.00
Distributions From Net
Realized Capital
Gains................. (1.15) (1.07) (2.65) 0.00 (0.88) 0.00
------- ------- -------- -------- -------- --------
Total Distributions.... (7.56) (6.20) (7.01) (5.38) (7.45) 0.00
------- ------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $127.87 $130.26 $ 137.18 $ 130.30 $ 163.52 $ 172.09
======= ======= ======== ======== ======== ========
TOTAL RETURN (%)........ 20.17 6.70 10.65 (1.11) 31.26 5.24(b)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.55 0.54 0.53 0.54 0.64 0.63(a)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 5.45 5.32 3.65 3.98 4.06 3.69(a)
Portfolio Turnover Rate
(%).................... 36 36 22 76 51 64(a)
Average Commission Rate
(c).................... -- -- -- -- -- $ 0.0555
Net Assets, End of
Period (000)........... $49,995 $77,575 $121,339 $121,877 $147,536 $150,950
</TABLE>
(a) Computed on an annualized basis.
(b) Not computed on an annualized basis.
(c) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
See accompanying notes to financial statements.
67
<PAGE>
ZENITH SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES
PORTFOLIO MANAGERS: STEVEN GUTERMAN, PETER WILBY AND DAVID SCOTT;
SALOMON BROTHERS ASSET MANAGEMENT INC
----------------------------------------
- ----------------- ----------------- MARKET REVIEW
----------------------------------------
[PHOTO OF STEVEN [PHOTO OF PETER The Series maintained its sector
GUTERMAN APPEARS WILBY APPEARS weightings in emerging market and high
HERE] HERE] yield debt securities throughout the
first six months of the year. Credit
quality continues to improve due to
further strides made by U.S.
corporations to strengthen balance
sheets by posting higher earnings and
paying down debt. The emerging markets
sector continues to be viewed
positively and the economic outlook
for Latin American countries appears
- ----------------- ----------------- to be especially attractive. Exposure to
- ----------------- Eastern European debt was reduced at the start of the
second quarter in order to reap profits from a strong
performance in the first quarter. The Series also took
some gains in the non-US investment grade sector by
shifting assets out of Canadian government bonds which had
[PHOTO OF rallied relative to US Treasuries on further strides
DAVID SCOTT towards budget deficit reduction at both the Federal and
APPEARS HERE] provincial level. The investment grade sector was
positioned defensively throughout most of the first six
months as interest rates tended to spike higher each month
with the release of strong monthly employment reports and
then rally back sporadically with other, more ambiguous
- ----------------- data.
- -------------------------------------------------------------------------------
OUTLOOK AND STRATEGY
- -------------------------------------------------------------------------------
Signs of U.S. economic strength emerged in the first half of the year,
suggesting that an accelerated pace of growth could be sustained into the
third quarter. Fueled by gains in consumption, housing, business investment
and net exports, the faster pace of growth pushed interest rates higher. We
continue to believe, however, that this stepped-up rebound will prove self-
limiting. GDP growth will likely peak and then slow toward trend levels in the
second half of the year. The high yield and emerging markets debt sectors
continue to offer attractive risk/reward opportunities and we expect to
maintain our allocations to those sectors. In the investment-grade portion of
the portfolio, we expect allocations to continue underweighting Treasuries and
overweighing mortgages and corporate bonds.
A $10,000 Investment Compared to an Index
[GRAPH APPEARS HERE]
Strategic Bond Lehman Aggregate FUND FACTS
Opp. Series Bond/3/
10/31/94 $10,000 $10,000 GOAL: A high level of total
12/31/94 9,860 10,047 return consistent with the
12/31/95 11,771 11,903 preservation of capital.
06/30/96 12,242 11,758
START DATE: October 31, 1994
Average Annual Return SIZE: $18 million as of June
30, 1996
Strategic Lipper Variable General
Bond Opp. Bond Fund Average/10/ MANAGERS: Steven Guterman,
6 mos.* 5.53% 0.70% Peter Wilby and David Scott
1 year 12.16% 7.56% have managed the Series
Since since its inception in
inception 13.91% n/a October 1994. Mr. Guterman,
*not annualized Mr. Wilby and Mr. Scott have
managed the Salomon Brothers
Investment Series--Strategic
Bond Series since March
1995, and the North American
Funds--Strategic Series
since March 1993. Mr. Wilby
also manages the Salomon
Brothers Investment Series--
High Yield Bond Series.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts; if these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
68
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
BONDS & NOTES--91.1% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
CORPORATE BONDS--36.8%
$ 125,000 Airplane Pass Thru Trust
10.875%, 3/15/19....... $ 130,313
150,000 Alvey Systems, Inc.
11.375%, 1/31/03....... 155,063
150,000 American Media
Operations
11.625%, 11/15/04...... 149,437
150,000 American Skiing Co.
12.000%, 7/15/06....... 148,125
150,000 Americold Corp. 12.875%,
5/01/08................ 153,375
200,000 Arch Communications
Group
0/10.875%, 3/15/08(q).. 105,750
150,000 Argosy Gaming Co.
13.250%, 6/01/04....... 153,375
100,000 Berry Plastics 12.250%,
4/15/04................ 108,125
150,000 Borg Warner Security
Corp.
9.125% 5/01/03......... 140,438
150,000 Cablevision Systems
Corp.
10.500%, 5/15/16....... 145,875
150,000 Clark Schwebel, Inc.
10.500%, 4/15/06....... 154,875
150,000 Cobb Theaters 10.625%,
3/01/03................ 153,750
150,000 Cole National Group,
Inc.
11.250%, 10/01/01...... 157,125
240,000 CS Wireless Systems,
Inc.
0/11.375%, 3/01/06(q).. 124,800
150,000 Empress River Casino
Financial Corp.
10.750%, 4/01/02....... 156,750
100,000 Excide Electronics
Group, Inc.
11.500%, 3/15/06....... 102,500
100,000 Finlay Fine Jewelry
Corp.
10.625%, 5/01/03....... 99,875
100,000 Flagstar Corp. 10.750%,
9/15/01................ 87,500
150,000 Four M Corp. 12.000%,
6/01/06................ 154,875
150,000 Hayes Wheels
International, Inc.
11.000%, 7/15/06....... 152,062
100,000 Herff Jones, Inc.
11.000%, 8/15/05....... 104,875
150,000 Hines Horticulture
11.750%, 10/15/05...... 155,438
150,000 HMH Properties, Inc.
9.500%, 5/15/05........ 143,625
125,000 In Flight Phone Corp.
14.000, 5/15/02(o)..... 45,000
125,000 Intelcom Group USA, Inc.
0/13.500%, 9/15/05(q).. 75,469
150,000 Jitney Jungle Stores
12.000%, 3/01/06....... 153,187
150,000 Jordan Industries, Inc.
10.375% 8/01/03........ 143,437
150,000 KCS Energy, Inc.
11.000%, 1/15/03....... 158,250
250,000 Marcus Cable Co.
Zero Coupon 12/15/05... 155,000
180,000 Mellon Financial Co.
9.750%, 6/15/01........ 201,191
150,000 Norcal Waste Systems,
Inc.
12.500%, 11/15/05...... 157,875
150,000 Paracelsus Healthcare
Corp.
9.875%, 10/15/03....... 151,125
250,000 Peoples Choice TV Corp.
0/13.125%, 6/01/04(q).. 147,500
150,000 Remington Product Co.
11.000%, 5/15/06....... 149,438
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$ 150,000 Renco Metals, Inc. 12.000%, 7/15/00.................. $ 169,313
150,000 Revlon Worldwide Corp.
Zero Coupon 3/15/98................................. 125,062
150,000 Rogers Cablesystems, LTD
10.000%, 3/15/05.................................... 150,000
150,000 Selmer, Inc. 11.000%, 5/15/05........................ 156,937
150,000 Smiths Food & Drug 11.250%, 5/15/07.................. 152,250
125,000 Southdown, Inc. 10.000%, 3/01/06..................... 123,438
150,000 Specialty Equipment Companies, Inc.
11.375% 12/01/03.................................... 156,562
100,000 Specialty Retailers, Inc.
11.000%, 8/15/03.................................... 102,000
150,000 Stone Container Corp.
10.750%, 10/01/02................................... 151,875
150,000 Talley Manufacturing & Technology, Inc. 10.750%,
10/15/03............................................ 152,062
150,000 Telex Communications, Inc.
12.000%, 7/15/04.................................... 159,750
150,000 Trump Atlantic City Associates
11.250%, 5/01/06.................................... 151,125
150,000 Twin Laboratories, Inc.
10.250%, 5/15/06.................................... 152,813
100,000 United States Leasing International
8.450%, 1/25/05..................................... 106,303
-----------
6,684,888
-----------
FOREIGN CORPORATE BONDS--5.0%
150,000 Algoma Steel, Inc.
12.375%, 7/15/02(e)................................. 147,000
250,000 Diamond Cable Communication 0/11.750%,
12/15/05(i)(q)...................................... 148,125
300,000 International Semi Tech.
Zero Coupon, 8/15/03(q)............................. 174,375
400,000 Korea Development Bank
9.600%, 12/01/00.................................... 440,588
-----------
910,088
-----------
FOREIGN GOVERNMENT BONDS--26.0%
940,500 Argentina (Republic of)
6.3125%, 3/31/05(c)................................. 720,423
186,000 Brazil (Federal Republic of)
6.375%, 1/01/01(d).................................. 168,098
595,336 Brazil (Federal Republic of) C Bonds 4.000%,
4/15/14(d).......................................... 368,066
500,000 Brazil (Federal Republic of)
6.500%, 4/15/06(d).................................. 404,375
250,000 Brazil (Federal Republic of)
5.000%, 4/15/24(d).................................. 137,812
60,000 Denmark (Kingdom of)
9.000%, 11/15/98(f)................................. 11,110
30,000 Denmark (Kingdom of)
7.000%, 12/15/04(f)................................. 5,067
</TABLE>
See accompanying notes to financial statements.
69
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
BONDS & NOTES--(CONTINUED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
FOREIGN GOVERNMENT BONDS--(CONTINUED)
$ 50,000 Dutch Government
6.250%, 7/15/98(k).................................. $ 30,519
500,000 Ecuador (Republic of)
3.250%, 2/28/25(g).................................. 179,375
210,000 Germany (Federal Republic of)
6.000%, 2/20/98(h).................................. 142,297
1,150,000 Germany (Federal Republic of)
6.000%, 4/20/98(h).................................. 779,980
220,000 Germany (Federal Republic of)
6.000%, 2/16/06(h).................................. 138,902
500,000 Morocco (Kingdom of)
4.375%, 1/01/09..................................... 363,750
250,000 Philippines (Republic of)
6.250%, 12/01/17(l)................................. 200,312
200,000 Poland (Republic of) 3.750%, 10/27/14(m)............. 150,500
250,000 United Mexican States
6.250%, 12/31/19(j)................................. 161,875
430,000 United Mexican States
11.500%, 5/15/26.................................... 391,154
500,000 Venezuela (Republic of)
6.563%, 12/18/07(n)................................. 353,812
-----------
4,707,427
-----------
U.S. GOVERNMENT BONDS--23.3%
500,000 Federal Home Loan Bank
6.490%, 9/08/97..................................... 503,275
32,256 Federal National Mortgage Association 13.000%,
11/01/15............................................ 37,840
300,000 Federal National Mortgage Association 6.500%,
3/01/25............................................. 280,593
149,858 Federal National Mortgage Association 7.000%,
5/01/26............................................. 144,144
24,683 Government National Mortgage Association 7.000%,
4/15/24............................................. 23,688
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$ 574,560 Government National Mortgage Association 7.000%,
5/15/26............................................ $ 551,400
150,000 United States Treasury Bonds
6.875%, 8/15/25.................................... 148,476
90,000 United States Treasury Notes
6.125%, 5/31/97.................................... 90,300
960,000 United States Treasury Notes
5.625%, 2/28/01.................................... 927,754
100,000 United States Treasury Notes
6.250%, 4/30/01.................................... 99,088
1,400,000 United States Treasury Notes
6.875%, 5/15/06.................................... 1,415,316
-----------
4,221,874
-----------
Total Bonds & Notes
(Identified Cost $16,422,142)...................... 16,524,277
-----------
SHORT-TERM INVESTMENT--12.2%
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
$2,211,000 Repurchase agreement with Merrill Lynch & Co. dated
6/28/96 at 5.300% to be repurchased at $2,211,977
on 7/1/96 collateralized by $2,205,000 U.S.
Treasury Bond 7.250% due 5/15/16 with a value of
$2,253,951......................................... 2,211,000
-----------
Total Short-Term Investment
(Identified Cost $2,211,000)....................... 2,211,000
-----------
Total Investments--103.3%
(Identified Cost $18,633,142)(b)................... 18,735,277
Other assets less liabilities(p).................... (598,047)
-----------
TOTAL NET ASSETS--100%.............................. $18,137,230
===========
</TABLE>
See accompanying notes to financial statements.
70
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
CURRENCY CONTRACTS OUTSTANDING AT JUNE 30, 1996
<TABLE>
<CAPTION>
LOCAL AGGREGATE UNREALIZED
CURRENCY DELIVERY CURRENCY FACE TOTAL APPRECIATION/
CONTRACT DATE AMOUNT VALUE VALUE DEPRECIATION
<S> <C> <C> <C> <C> <C>
Australian Dollar (bought) 07/22/96 26,824 $ 21,191 $ 21,049 $ (142)
Australian Dollar (sold) 07/22/96 27,689 21,542 21,729 (187)
Belgian Franc (sold) 07/22/96 115,822 3,780 3,706 74
Canadian Dollar (bought) 07/22/96 218,488 159,830 160,110 280
Canadian Dollar (sold) 07/22/96 216,635 158,939 158,752 187
Deutsche Mark (bought) 07/22/96 78,967 51,720 52,008 288
Deutsche Mark (bought) 07/22/96 1,034,620 680,000 681,412 1,412
Deutsche Mark (sold) 07/22/96 427,968 286,842 281,864 4,978
Deutsche Mark (sold) 07/22/96 108,112 71,692 71,204 488
Danish Krone (bought) 07/22/96 422,907 72,540 72,262 (278)
Danish Krone (sold) 07/22/96 552,452 95,845 94,398 1,447
Pound Sterling (bought) 07/22/96 167,397 258,963 259,916 953
Pound Sterling (sold) 07/22/96 153,141 234,719 237,780 (3,061)
Pound Sterling (sold) 07/22/96 43,864 66,673 68,107 (1,434)
Pound Sterling (sold) 07/22/96 78,089 117,680 121,247 (3,567)
Pound Sterling (sold) 07/22/96 58,493 87,447 90,821 (3,374)
Netherlands Guilder
(bought) 07/22/96 259,487 153,452 152,411 (1,041)
Netherlands Guilder (sold) 07/22/96 315,446 189,230 185,278 3,952
-------
Total Appreciation on Forward Currency contracts................ $ 975
=======
</TABLE>
(a) See Note 1A.
(b) Federal Tax Information:
At June 30, 1996 the net unrealized appreciation on investments based on
cost of $18,633,142 for federal income tax purposes was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost.............. $ 284,901
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value.............. (182,766)
---------
Net unrealized appreciation................................... $ 102,135
=========
</TABLE>
(c) Denominated in Argentinian australs.
(d) Denominated in Brazilian cruzerios.
(e) Denominated in Canadian dollars.
(f) Denominated in Danish kroner.
(g) Denominated in Ecuador sucre.
(h) Denominated in German marks.
(i) Denominated in Great British pound sterling.
(j) Denominated in Mexican pesos.
(k) Denominated in Netherland guilders.
(l) Denominated in Philippine pesos.
(m) Denominated in Polish zloty.
(n) Denominated in Venezuelan bolivar.
(o) Rights attached.
(p) Including deposits in foreign denominated currencies with a value of
$29,987 and a cost of $29,744.
(q) Step Bond; Coupon rate is zero or below market for an initial period then
increases to a higher coupon rate at a specified date and rate.
See accompanying notes to financial statements.
71
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................... $18,735,277
Cash................................................... 325
Foreign cash at value.................................. 29,987
Receivable for:
Fund shares sold....................................... 33,454
Securities sold........................................ 1,560,868
Open forward currency
contracts--net........................................ 975
Dividends and interest................................. 286,768
Foreign withholding taxes.............................. 432
Due from advisor....................................... 5,128
Unamortized organization expense....................... 6,706
-----------
20,659,920
LIABILITIES
Payable for:
Securities purchased................................... $2,460,332
Fund shares redeemed................................... 28,363
Accrued expenses:
Management fees........................................ 4,970
Other expenses......................................... 29,025
----------
2,522,690
-----------
NET ASSETS.............................................. $18,137,230
===========
Net Assets consist of:
Capital paid in........................................ $17,235,189
Undistributed net investment income.................... 592,640
Accumulated net realized gains......................... 206,169
Unrealized appreciation on investments, forward
contracts and foreign currency........................ 103,232
-----------
NET ASSETS.............................................. $18,137,230
===========
Computation of offering price:
Net asset value and redemption price per share
($18,137,230 divided by 1,584,503 shares of beneficial
interest).............................................. $ 11.45
===========
Identified cost of investments.......................... $18,633,142
===========
</TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends.................................................. $ 150
Interest................................................... 599,545
--------
599,695
EXPENSES
Management fees............................................ $ 43,905
Trustees' fees and expenses................................ 6,384
Custodian.................................................. 29,606
Audit and tax services..................................... 9,900
Legal...................................................... 5,411
Printing................................................... 1,411
Amortization of organization expenses...................... 1,001
Miscellaneous.............................................. 5,302
--------
Total expenses............................................ 102,920
Less expenses assumed by the
investment adviser....................................... (45,511) 57,409
-------- --------
NET INVESTMENT INCOME....................................... 542,286
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FORWARD
CURRENCY CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS
Realized gain on:
Investments--net........................................... 172,540
Foreign currency transactions--net......................... 13,689
--------
Total realized gain on investments and foreign currency
transactions............................................. 186,229
--------
Unrealized appreciation (depreciation) on:
Investments--net........................................... (65,644)
Foreign currency transactions--net......................... 15,382
--------
Total unrealized depreciation on investments and foreign
currency transactions.................................... (50,262)
--------
Net gain on investment transactions......................... 135,967
--------
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $678,253
========
</TABLE>
See accompanying notes to financial statements.
72
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES)
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income......................... $ 460,904 $ 542,286
Net realized gain on investments and foreign
currency transactions........................ 248,441 186,229
Unrealized appreciation (depreciation) on in-
vestments, and foreign currency transactions. 208,090 (50,262)
---------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS........ 917,435 678,253
---------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income......................... (435,233) 0
Net realized gain on investments.............. (170,001) 0
---------- -----------
(605,234) 0
---------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares.................. 9,873,846 10,055,378
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income...... 435,233 0
Distributions from net realized gain.......... 170,001 0
---------- -----------
10,479,080 10,055,378
Cost of shares redeemed....................... (4,757,322) (2,080,525)
---------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS........................... 5,721,758 7,974,853
---------- -----------
TOTAL INCREASE IN NET ASSETS.................. 6,033,959 8,653,106
NET ASSETS
Beginning of the period....................... 3,450,165 9,484,124
---------- -----------
End of the period............................. $9,484,124 $18,137,230
========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the period....................... $ 0 $ 50,354
========== ===========
End of the period............................. $ 50,354 $ 592,640
========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares................ 919,222 895,511
Issued in connection with the reinvestment of:
Distributions from net investment income...... 40,562 0
Distributions from net realized gain.......... 15,844 0
---------- -----------
975,628 895,511
Redeemed...................................... (455,476) (185,485)
---------- -----------
Net change.................................... 520,152 710,026
========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 31, 1994(A) YEAR ENDED SIX MONTHS
THROUGH DECEMBER 31, ENDED
DECEMBER 31, 1994 1995 JUNE 30, 1996
------------------- ------------ -------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period......................... $10.00 $ 9.74 $ 10.85
------ ------ -------
Income From Investment
Operations
Net Investment Income.......... 0.12 0.58 0.87
Net Realized and Unrealized
Gain (Loss) on Investments.... (0.26) 1.30 (0.27)
------ ------ -------
Total From Investment
Operations.................... (0.14) 1.88 0.60
------ ------ -------
Less Distributions
Distributions From Net
Investment Income............. (0.12) (0.55) 0.00
Distributions From Net Realized
Capital Gains................. 0.00 (0.22) 0.00
------ ------ -------
Total Distributions............ (0.12) (0.77) 0.00
------ ------ -------
Net Asset Value, End of Period.. $ 9.74 $10.85 $ 11.45
====== ====== =======
TOTAL RETURN (%) (1.40)(c) 19.38 5.53(c)
Ratio of Operating Expenses to
Average Net Assets (%)......... 0.85 (b) 0.85 0.85(b)
Ratio of Net Investment Income
to Average Net Assets (%)...... 7.05 (b) 8.39 7.91(b)
Portfolio Turnover Rate (%)..... 403 (b) 202 219(b)
Net Assets, End of Period (000). $3,450 $9,484 $18,137
The ratios of expenses to
average net assets without
giving effect to the voluntary
expense agreement described in
Note 4 to the Financial
Statements would have been (%). 2.01 (b) 2.44 1.52(b)
</TABLE>
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Not computed on an annualized basis.
See accompanying notes to financial statements.
73
<PAGE>
ZENITH BACK BAY BOND INCOME SERIES
PORTFOLIO MANAGER: CATHY BUNTING
BACK BAY ADVISORS(R), L.P.
- ---------------- MARKET REVIEW
[PHOTO OF CATHY
BUNTING APPEARS After rewarding investors with price gains for much of
HERE] 1995, the bond market reversed direction during the first
six months of 1996. Unexpected evidence of economic
strength fueled a climb in interest rates, tempering last
year's strong performance in the bond markets. Employment
data released in March were key among a host of indicators
signaling that the economy was growing at a surprisingly
strong pace. The good news is that inflation levels
- ---------------- remained tame in spite of the economy's vigor.
Though rising interest rates create challenging conditions for fixed income
investments, corporate bonds fared markedly better than government debt in the
first half of the year. The favorable economic landscape helped cushion price
declines of corporate issues in the face of rising interest rates. However,
the Series held its own returning -1.61% compared to the Lehman Brothers
Intermediate Government/Corporate Bond Index/4/ which returned -0.21% over the
same period.
The Series' focus on corporate bonds worked to its advantage during the past
six months. With 60%-70% of the portfolio devoted to corporate issues, the
Series managed to evade the steeper declines that beset government issues. All
corporate sectors benefited from the favorable economic environment and
institutional investors' increased participation in the corporate bond market,
helping to stabilize the prices of their debt.
The Series took advantage of opportunities in select sectors, namely
telephone and utilities. Increasingly competitive conditions in the utility
sector prompted consolidations and restructuring, rendering these bonds more
attractive. Meanwhile, with no new supply to speak of, the balance between
supply and demand shifted in favor of utilities. Supply, in fact, had been
shrinking as many utility companies repurchased their outstanding debt. The
lower quality, BBB rated bonds continue to offer good value in this sector.
The portfolio's Canadian holdings also worked well for the Series. Real
(inflation-adjusted) returns on Canadian bonds were attractive as the
inflation rate in Canada remained low. Further, the country's Quebec
Separatist referendum issue--a major source of volatility in Canada's
securities markets during 1995--has been postponed until 1998 or beyond,
improving overall investor sentiment. The sounder fiscal situation in Canada
added further to the fundamental merit of Canadian debt.
Also contributing positively to the Series' performance was the average
credit quality of the portfolio--slightly lower relative to the average
quality of the Lehman Aggregate Bond Index/3/. Taking a bit more credit risk
during the six months was amply rewarded, as lower-grade bonds generally
performed better than their higher-grade counterparts.
Positives aside, volatility in the cable sector took a toll on the Series'
six-month results. Specifically, Moody's--an independent bond rating agency--
unexpectedly downgraded the credit quality of TCI Communications to below
investment grade (bonds rated BBB and above are considered to be "investment
grade"). The sober effects reverberated throughout the sector, hampering the
performance of cable/media bonds as a group. We took advantage of the
consequent price weakness in the sector and added to our holdings of TCI.
As always, intensive credit-by-credit research precedes all our investment
decisions. One of the largest cable companies in the nation, TCI has
demonstrated its commitment to trying to regain investment grade ratings, it
has implemented some structural changes to help improve its balance sheet.
That said, we believe the investment viability of TCI issues, as well as other
select cable bonds, remain fundamentally intact.
During the period, the 5.8 year average duration of the Series was modestly
longer than the 4.8 year average of the Lehman Aggregate Bond Index/3/.
(Duration is a more precise measure than maturity of the sensitivity of bond
prices to changes in interest rates. Essentially, the longer a bond's or a
portfolio's duration, the more pronounced its reactions to interest rate
movements.) While the Series' longer duration boosted its performance last
year amidst falling interest rates, it hampered returns this year as rates
rose.
74
<PAGE>
On the other hand, the Series' duration structure helped boost its current
yield in a rising interest rate environment. During the second half, we plan
to maintain our current duration strategy, anticipating that economic growth
will slow, while inflation levels remain subdued.
- ----------------------------------------------------------------------------
OUTLOOK AND STRATEGY
- ----------------------------------------------------------------------------
Whether the recent pace of economic growth will translate into escalating
inflation rates is an open question. In fact, definitive signs have yet to
emerge indicating whether the recent pace of economic growth is sustainable.
Job growth--a key force behind the economy's strength--bears watching.
Though the direction of interest rates over the short term is unclear, a
portfolio of quality fixed-income investments can still provide income-
oriented investors with a reliable source of regular income. In the months
ahead, thorough credit research will remain key in helping us position the
Series in the securities with potential to deliver an attractive stream of
income and a steady share price.
A $10,000 Investment Compared to an Index FUND FACTS
[GRAPH APPEARS HERE] GOAL: A high level of current
income consistent with the
Bond Lehman Cost protection of capital and
Income Gov't/ of moderate investment risk.
Series Corp./4/ Living/1/
6/30/86 $10,000 $10,000 $10,000 START DATE: August 26, 1983
12/31/86 10,691 10,510 10,091 SIZE: $165.5 million as of June
12/31/87 10,843 10,896 10,539 30, 1996
12/31/88 11,751 11,635 11,005
12/31/89 13,196 13,119 11,516 MANAGER: Catherine Bunting,
12/31/90 14,263 14,322 12,219 since 1989; portfolio manager of
12/31/91 16,824 16,417 12,594 New England Bond Income Fund
12/31/92 18,201 17,594 12,959 since 1989, she joined Back Bay
12/31/93 20,496 19,129 13,315 Advisors in April 1987.
12/31/94 19,807 18,756 13,671
12/31/95 24,006 21,627 14,018
06/30/96 23,276 21,582 14,301
Average Annual Return
Zenith Lipper Variable A-Rated
Bond Income Corp. Bond Fund Avg./7/
6 mos.* -1.61% -2.18%
1 year 5.48% 4.48%
5 years 9.64% 8.29%
10 years 8.97% n/a
*not annualized
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of variable annuity or life
insurance contracts; if these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
75
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS BOND INCOME SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
BONDS & NOTES--94.8% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
CORPORATE BONDS AND NOTES--69.9%
BROADCASTING--4.7%
$5,520,000 Continental Cablevision, Inc., 11.000%, 6/01/07..... $ 6,244,500
1,500,000 Continental Cablevision, Inc., 9.500%, 8/01/13...... 1,631,250
------------
7,875,750
------------
FINANCIAL--7.8%
4,000,000 American General Financing, 8.450%, 10/15/09........ 4,433,200
4,160,000 Associates Corp. of North America, 8.550%, 7/15/09.. 4,640,771
3,750,000 Toronto Dominion Bank, 7.875%, 8/15/04.............. 3,813,375
------------
12,887,346
------------
FOREIGN--6.7%
4,500,000 British Columbia Province Canada, 7.750%, 06/16/03.. 3,346,177
4,000,000 Government of Canada, 9.000%, 12/01/04(c)........... 3,192,851
2,250,000 Government of Canada, 7.500%, 09/01/00(c)........... 1,685,102
2,500,000 Government of Canada, 8.000%, 06/01/23(c)........... 1,809,126
1,300,000 Ontario Hydro, 8.875%, 10/25/05(c).................. 1,009,778
------------
11,043,034
------------
LEISURE--2.8%
4,500,000 Time Warrner Inc. 9.150%, 2/01/23................... 4,688,775
------------
OIL AND GAS--3.6%
3,290,000 Oryx Energy Co. 10.000%, 4/01/01.................... 3,578,467
2,250,000 Mitchell Energy & Development Corp., 9.250%,
1/15/02............................................ 2,391,143
------------
5,969,610
------------
PUBLISHING--3.0%
2,150,000 Golden Books Publishing, Inc., 7.650%, 9/15/02...... 1,838,250
2,800,000 News America Holdings, Inc., 9.500%, 7/15/24........ 3,097,276
------------
4,935,526
------------
RAILROADS--2.5%
4,000,000 Southern Pacific Rail Corp., 9.375%, 8/15/05........ 4,200,000
------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
TELECOMMUNICATIONS--11.1%
$1,300,000 360 Communications, 7.125%, 3/01/03................. $ 1,249,027
4,250,000 AT&T Corp., 8.350%, 1/15/25......................... 4,450,388
3,000,000 Bellsouth Telecomm, Inc., 5.850%, 11/15/45.......... 2,925,480
1,500,000 MCI Communications Corp., 7.750%, 3/23/25........... 1,470,975
5,035,000 Tele-Communications, Inc., 9.250%, 1/15/03.......... 5,009,976
3,500,000 US West Communication, Inc., 7.200%, 11/10/26....... 3,237,675
------------
18,343,521
------------
UTILITIES--(DIVERSIFIED)--8.4%
2,200,000 Long Island Lighting Co., 8.900%, 7/15/19........... 1,992,474
2,250,000 Long Island Lighting Co., 9.000%, 11/01/22.......... 2,064,848
625,000 New York State Electric & Gas Co., 9.875%, 2/01/20.. 658,394
4,250,000 New York State Electric & Gas Co., 8.875%, 11/01/21. 4,445,755
5,000,000 Tennessee Valley Authority, 6.125%, 7/15/03......... 4,784,050
------------
13,945,521
------------
UTILITIES--(ELECTRIC)--8.2%
3,450,000 Alabama Power Co., 8.750%, 12/01/21................. 3,553,500
5,700,000 Arizona Public Service Co., 8.000%, 12/30/15........ 5,714,706
1,700,000 Texas Utilities Electric Co., 8.875%, 2/01/22....... 1,789,760
2,400,000 Texas Utilities Electric Co., 8.500%, 8/01/24....... 2,464,920
------------
13,522,886
------------
YANKEE--11.1%
1,500,000 Argentina Republic, 9.250%, 2/23/01................. 1,434,375
900,000 British Columbia Hydro & Power, 12.500%, 9/01/13.... 1,040,805
1,000,000 British Columbia Hydro & Power, 12.500%, 1/15/14.... 1,173,240
1,750,000 Canadian Pacific Limited, 8.850%, 06/01/22.......... 1,839,618
1,500,000 Finland Republic, 6.950%, 2/15/26................... 1,412,385
1,500,000 Hydro Quebec, 7.500%, 4/01/16....................... 1,457,700
1,000,000 Maxus Energy Corp., 11.500%, 11/15/15............... 1,043,750
</TABLE>
See accompanying notes to financial statements.
76
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS BOND INCOME SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
BONDS & NOTES--(CONTINUED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
YANKEE--(CONTINUED)
$ 450,000 Petroleos Mexicanos,
5.788%, 4/07/97, 144A(d),(e)....................... $ 451,125
7,600,000 Petroleos Mexicanos, 8.625%, 12/01/23............... 5,782,308
2,500,000 Province of Quebec, 8.625%, 12/01/26................ 2,701,250
------------
18,336,556
------------
Total Corporate Bonds and Notes
(Identified Cost $101,828,372)..................... 115,748,525
------------
U.S. GOVERNMENT AND AGENCIES--24.9%
49,826 Federal Home Loan Bank, 9.000%, 5/01/01............. 51,508
18,974 Federal Home Loan Bank, 9.000%, 9/01/01............. 19,614
1,500,000 Federal National Mortgage Association, 7.850%,
9/10/04............................................ 1,513,560
8,286,789 Government National Mortgage Association,
7.000% with various maturities
to 2025............................................ 7,952,748
6,811,800 Government National Mortgage Association,
7.500% with various maturities
to 2025............................................ 6,718,138
2,116,083 Government National Mortgage Association,
8.5000% with various maturities
to 2022............................................ 2,177,576
244,829 Government National Mortgage Association,
9.000%, 10/15/16................................... 256,458
2,500,000 Student Loan Marketing Association, 7.820%,
10/14/99........................................... 2,508,575
1,500,000 U.S. Treasury Notes,
6.375%, 7/15/99.................................... 1,504,230
2,500,000 U.S. Treasury Notes,
8.500%, 11/15/00................................... 2,694,225
3,500,000 U.S. Treasury Notes,
8.000%, 5/15/01.................................... 3,723,335
7,000,000 U.S. Treasury Notes,
5.750%, 8/15/03.................................... 6,669,390
5,500,000 U.S. Treasury Notes,
6.500%, 8/15/05.................................... 5,425,255
------------
Total U.S. Government and Agencies (Identified Cost
$57,696,766)....................................... 41,214,612
------------
Total Bonds and Notes
(Identified Cost $159,525,138)..................... 156,963,137
------------
</TABLE>
SHORT-TERM INVESTMENT--3.2%
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
COMMERCIAL PAPER--3.2%
$5,365,000 American Express Credit Corp. 5.000%, 1/02/96...... $ 5,365,000
------------
Total Short-Term Investment (Identified Cost
$5,365,000)....................................... 5,365,000
------------
Total Investments---98.1%
(Identified Cost $164,890,138)(b)................. 162,328,137
Other assets less liabilities...................... 3,211,141
------------
TOTAL NET ASSETS--100%............................. $165,539,278
============
(a) See Note 1A.
(b) Federal Tax Information:
At June 30, 1996 the net unrealized depreciation on investments based on
cost of $164,890,138 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost..................................... $ 748,907
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value................................... (3,310,908)
------------
Net unrealized depreciation........................ $ (2,562,001)
============
As of June 30, 1996, the Series had a net tax basis capital
loss carryforward as follows:
Expiring December 31, 2002......................... $ 362,321
(c) Denominated in Canadian dollars.
(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.
(e) Variable or floating rate security. Rate disclosed is as of June 30,
1996.
</TABLE>
See accompanying notes to financial statements.
77
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS BOND INCOME SERIES)
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value................................ $162,328,137
Cash................................................ 5,913
Receivable for:
Fund shares sold.................................... 106,074
Securities sold..................................... 1,706,208
Dividends and interest.............................. 3,375,773
------------
167,522,105
LIABILITIES
Payable for:
Securities purchased................................ $1,687,271
Fund shares redeemed................................ 151,609
Withholding taxes................................... 158
Accrued expenses:
Management fees..................................... 53,544
Deferred trustees' fees............................. 33,695
Other expenses...................................... 56,550
----------
1,982,827
------------
NET ASSETS........................................... $165,539,278
============
Net Assets consist of:
Capital paid in..................................... $161,935,969
Undistributed net investment income................. 5,927,287
Accumulated net realized gains...................... 238,039
Unrealized depreciation on investments.............. (2,562,017)
------------
NET ASSETS.......................................... $165,539,278
============
Computation of offering price:
Net asset value and redemption price per share
($165,539,278 divided by 1,548,292 shares of
beneficial interest)................................ $ 106.92
============
Identified cost of investments....................... $164,890,138
============
</TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest............................................ $ 6,299,952
EXPENSES
Management fees..................................... $ 324,600
Trustees' fees and expenses......................... 12,511
Custodian........................................... 38,188
Audit and tax services.............................. 7,550
Legal............................................... 5,088
Printing............................................ 33,055
Miscellaneous....................................... 4,969
-----------
Total expenses..................................... 425,961
-----------
NET INVESTMENT INCOME................................ 5,873,991
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Realized gain on:
Investments--net.................................... 575,446
Foreign currency transactions--net.................. 4,452
-----------
Total realized gain on investments................. 579,898
-----------
Unrealized depreciation on:
Investments--net.................................... (9,116,191)
Foreign currency transactions--net.................. 444
-----------
Total unrealized depreciation on investments and
foreign currency transactions..................... (9,115,747)
-----------
Net loss on investment transactions.................. (8,535,849)
-----------
NET DECREASE IN NET ASSETS FROM OPERATIONS........... $(2,661,858)
===========
</TABLE>
See accompanying notes to financial statements.
78
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS BOND INCOME SERIES)
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................. $ 10,335,393 $ 5,873,991
Net realized gain on investments and foreign
currency transactions............................ 1,559,812 579,898
Unrealized appreciation (depreciation) on
investments, and foreign currency transactions... 15,392,179 (9,115,747)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS. 27,287,384 (2,661,858)
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................. (9,888,438) 0
------------ ------------
(9,888,438) 0
------------ ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares...................... 46,886,957 28,541,278
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income.......... 9,888,437 0
------------ ------------
56,775,394 28,541,278
Cost of shares redeemed........................... (37,696,007) (23,052,092)
------------ ------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS..................................... 19,079,387 5,489,186
------------ ------------
TOTAL INCREASE IN NET ASSETS...................... 36,478,333 2,827,328
NET ASSETS
Beginning of the period........................... 126,233,617 162,711,950
------------ ------------
End of the period................................. $162,711,950 $165,539,278
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the period........................... $ 0 $ 53,292
============ ============
End of the period................................. $ 53,292 $ 5,927,287
============ ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares.................... 440,564 267,108
Issued in connection with the reinvestment of:
Distributions from net investment income.......... 91,832 0
------------ ------------
532,396 267,108
Redeemed.......................................... (356,518) (216,057)
------------ ------------
Net change........................................ 175,878 51,051
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
------- ------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 97.61 $103.44 $ 103.47 $ 106.14 $ 95.53 $ 108.67
------- ------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment Income.. 8.53 7.96 5.70 7.05 7.34 3.79
Net Realized and
Unrealized Gain (Loss)
on Investments........ 8.90 0.51 7.38 (10.61) 12.85 (5.54)
------- ------- -------- -------- -------- --------
Total From Investment
Operations............ 17.43 8.47 13.08 (3.56) 20.19 (1.75)
------- ------- -------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income..... (9.47) (6.87) (6.20) (7.05) (7.05) 0.00
Distributions in Excess
of Net Investment
Income................ 0.00 0.00 (0.05) 0.00 0.00 0.00
Distributions From Net
Realized Capital
Gains................. (2.13) (1.57) (4.16) 0.00 0.00 0.00
------- ------- -------- -------- -------- --------
Total Distributions.... (11.60) (8.44) (10.41) (7.05) (7.05) 0.00
------- ------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $103.44 $103.47 $ 106.14 $ 95.53 $ 108.67 $ 106.92
======= ======= ======== ======== ======== ========
TOTAL RETURN (%)........ 17.96 8.18 12.61 (3.36) 21.20 (1.61)(b)
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.45 0.44 0.43 0.44 0.55 0.52 (a)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 8.27 7.70 6.47 6.75 7.22 7.22 (a)
Portfolio Turnover Rate
(%).................... 193 71 177 82 73 103 (a)
Net Assets, End of
Period (000)........... $49,369 $83,057 $131,242 $126,234 $162,712 $165,539
</TABLE>
(a) Computed on an annualized basis.
(b) Not computed on an annualized basis.
As of January 1, 1993, the Bond Income Series discontinued the use of
equalization accounting.
See accompanying notes to financial statements.
79
<PAGE>
ZENITH SALOMON BROTHERS U.S. GOVERNMENT SERIES
PORTFOLIO MANAGERS: STEVEN GUTERMAN AND ROGER LAVAN;
SALOMON BROTHERS ASSET MANAGEMENT INC
- ------------------ ------------------ MARKET REVIEW
[PHOTO OF STEVEN [PHOTO OF ROGER Signs of U.S. economic strength
GUTTERMAN APPEARS LAVAN APPEARS emerged in the first half of the year,
HERE] HERE] suggesting that an accelerated pace of
growth could be sustained into the
third quarter. Fueled by gains in
consumption, housing, business
investment, and net exports, the
faster pace of growth pushed interest
rates higher. We continue to believe,
however, that this stepped-up rebound
will prove self-limiting. GDP growth
will likely peak and then slow toward
trend levels in the second half of the
- ------------------ ------------------ year.
The Series reported negative returns in the first half of the year due to
the sharp rise in interest rates. Portfolio duration varied between 3 and 4.5
years over the period while the average life was generally centered around 7
years. Portfolio holdings in the first half were mainly in U.S. Treasuries and
U.S. Agency mortgage securities. The relative weighting to mortgage securities
increased throughout the first half of the year.
OUTLOOK AND STRATEGY
In anticipation of high yields in the short-run, we positioned the Series
defensively with a neutral duration to our benchmark. During the second
quarter, the Series overweighted mortgage-backed securities. Mortgages
continue to look attractive as higher interest rates have reduced the
incentive for homeowners to refinance their mortgages. Barring a significant
rally, mortgages will continue to perform well in the coming months and will
be favored over Treasuries in the Series. Recent economic data such as new
home sales and the employment report continue to point to strong economic
growth and a possible increase in inflation. Therefore, we remain defensive on
the market with a short to neutral duration bias in the Series.
A $10,000 Investment Compared to an Index
[GRAPH APPEARS HERE]
Salomon Lehman Intermediate FUND FACTS
US Gov't Government/5/
10/31/94 $10,000 $10,000 GOAL: a high level of current
12/31/94 10,060 9,989 income consistent with the
12/31/95 11,571 11,430 preservation of capital and
06/30/96 11,445 11,446 maintenance of liquidity.
START DATE: October 31, 1994
Average Annual Return
Lipper Variable SIZE: $10.8 million as of June
US Gov't US Mortgage 30, 1996
Series and GNMA Average/17/
6 mos.* -1.09% -0.52% MANAGERS: Steven Guterman and
1 year 3.96% 4.69% Roger Lavan have managed the
Since Series since its inception in
inception 8.44% n/a October, 1994. Mr. Guterman and
*not annualized Mr. Lavan have also managed the
Salomon Bothers Investment
Series--U.S. Government Income
Series since March, 1995 and the
North American U.S. Government
Securities Fund since January,
1992. They both joined Salomon
Brothers Asset Management Inc in
1990.
Performance numbers are net of all Series expenses but do not include any
insurance, sales or administrative charges of the variable annuity or life
insurance contracts; if these charges were included, the returns shown would
be lower.
This information represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that shares,
upon redemption, may be worth more or less than the original cost.
80
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS U.S. GOVERNMENT SERIES)
INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)
BONDS & NOTES--92.7% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
FEDERAL AGENCY--71.6%
$ 250,000 Federal Home Loan Banks
6.490%, 9/08/97..................................... $ 251,637
300,000 Federal Home Loan Banks
5.940%, 6/13/00..................................... 293,199
374,127 Federal Home Loan Mortgage
6.000%, 10/01/10.................................... 354,254
75,473 Federal Home Loan Mortgage
11.750%, 12/01/13................................... 84,789
46,855 Federal Home Loan Mortgage
11.750%, 12/01/13................................... 52,639
1,949,264 Federal National Mortgage Association 6.500%,
12/01/10............................................ 1,885,913
46,457 Federal National Mortgage Association 14.500%,
11/01/14............................................ 56,736
22,784 Federal National Mortgage Association 12.500%,
8/01/15............................................. 26,387
111,968 Federal National Mortgage Association 12.500%
9/01/15............................................. 130,233
104,117 Federal National Mortgage Association 13.000%,
11/01/15............................................ 122,143
53,586 Federal National Mortgage Association 12.000%,
1/01/16............................................. 61,640
33,261 Federal National Mortgage Association 11.500%,
4/01/19............................................. 37,419
113,770 Federal National Mortgage Association 11.500%,
8/01/20............................................. 127,814
170,366 Federal National Mortgage Association 9.500%,
8/01/22............................................. 182,398
448,192 Federal National Mortgage Association 6.500%,
3/01/26............................................. 419,198
1,000,000 Federal National Mortgage Association
Pool 6.500%, 1/1/2099............................... 936,560
28,949 Government National Mortgage Association 7.000%,
4/15/24............................................. 27,782
38,868 Government National Mortgage Association 7.000%,
3/16/26............................................. 37,300
2,130,165 Government National Mortgage Association 7.000%,
5/15/26............................................. 2,044,298
350,000 Government National Mortgage Association 7.000%,
12/15/2098.......................................... 335,345
300,000 Student Loan Marketing Association 7.500%, 3/08/00... 308,565
-----------
7,776,249
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE (A)
<C> <S> <C>
U.S. TREASURY--21.1%
$ 1,000,000 U.S. Treasury Notes 6.125%, 5/31/97................ $ 1,003,330
500,000 U.S. Treasury Notes 5.625%, 2/28/01................ 483,575
250,000 U.S. Treasury Notes 6.500%, 5/31/01................ 250,188
450,000 U.S. Treasury Notes 6.625%, 6/30/01................ 452,883
100,000 U.S. Treasury Notes 6.875%, 5/15/06................ 101,094
-----------
2,291,070
-----------
Total Bonds & Notes
(Identified Cost $10,157,140)..................... 10,067,319
-----------
SHORT-TERM INVESTMENT--23.2%
$ 2,514,000 Repurchase agreement with Merrill Lynch dated
6/28/96 at 5.300% to be repurchased $2,515,110 on
7/1/96 collateralized by $2,505,000 U.S. Treasury
Bond 7.250% due 5/15/16 valued at $2,558,357...... 2,514,000
-----------
Total Short-Term Investment
(Identified Cost $2,514,000)...................... 2,514,000
-----------
Total Investments--115.9%
(Identified Cost $12,671,140)(b).................. 12,581,319
Other assets less liabilities...................... (1,728,675)
-----------
TOTAL NET ASSETS--100%............................. $10,852,644
===========
(a) See Note 1A.
(b) Federal Tax Information:
At June 30, 1996 the net unrealized depreciation on investments based on
cost of $12,671,140 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost..................................... $ 31,287
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value................................... (121,108)
-----------
Net unrealized depreciation........................ $ (89,821)
===========
</TABLE>
See accompanying notes to financial statements.
81
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS U.S. GOVERNMENT SERIES)
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value.................................. $12,581,319
Cash.................................................. 980
Receivable for:
Fund shares sold...................................... 22,343
Dividends and interest................................ 72,046
Due from advisor...................................... 10,752
Prepaid expense....................................... 6,706
-----------
12,694,146
LIABILITIES
Payable for:
Securities purchased.................................. $1,709,699
Fund shares redeemed.................................. 104,211
Accrued expenses:
Management fees....................................... 1,978
Other expenses........................................ 25,614
----------
1,841,502
-----------
NET ASSETS............................................. $10,852,644
===========
Net Assets consist of:
Capital paid in....................................... $10,728,424
Undistributed net investment income................... 280,229
Accumulated net realized losses....................... (66,188)
Unrealized depreciation on investments................ (89,821)
-----------
NET ASSETS............................................. $10,852,644
===========
Computation of offering price:
Net asset value and redemption price per share
($10,852,644 divided by 993,945 shares of beneficial
interest)............................................. $ 10.92
===========
Identified cost of investments......................... $12,671,140
===========
</TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest.................................................. $ 312,162
---------
312,162
EXPENSES
Management fees........................................... $25,664
Trustees' fees and expenses............................... 6,369
Custodian................................................. 21,456
Audit and tax services.................................... 9,850
Legal..................................................... 5,412
Printing.................................................. 745
Amortization of organization expenses..................... 1,001
Miscellaneous............................................. 4,985
-------
Total expenses........................................... 75,482
Less expenses assumed by the investment adviser.......... (42,814) 32,668
------- ---------
NET INVESTMENT INCOME...................................... 279,494
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Realized loss on:
Investments--net......................................... (80,877)
Unrealized depreciation on:
Investments--net......................................... (284,185)
---------
Net loss on investment transactions........................ (365,062)
---------
NET DECREASE IN NET ASSETS FROM OPERATIONS................. $ (85,568)
=========
</TABLE>
See accompanying notes to financial statements.
82
<PAGE>
NEW ENGLAND ZENITH FUND
(SALOMON BROTHERS U.S. GOVERNMENT SERIES)
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................... $ 214,389 $ 279,494
Net realized gain (loss) on investments............. 71,273 (80,877)
Unrealized appreciation (depreciation) on invest-
ments.............................................. 195,460 (284,185)
----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS... 481,122 (85,568)
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................... (214,389) 0
In excess of net investment income.................. (1,001) 0
Net realized gain on investments.................... (50,946) 0
----------- -----------
(266,336) 0
----------- -----------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares........................ 7,348,256 5,096,310
Net asset value of shares issued in connection with
the reinvestment of:
Distributions from net investment income............ 215,390 0
Distributions from net realized gain................ 50,946 0
----------- -----------
7,614,592 5,096,310
Cost of shares redeemed............................. (2,299,033) (1,700,134)
----------- -----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS....................................... 5,315,559 3,396,176
----------- -----------
TOTAL INCREASE IN NET ASSETS........................ 5,530,345 3,310,608
NET ASSETS
Beginning of the period............................. 2,011,691 7,542,036
----------- -----------
End of the period................................... $ 7,542,036 $10,852,644
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the period............................. $ 0 $ 735
=========== ===========
End of the period................................... $ 735 $ 280,229
=========== ===========
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares...................... 671,863 466,417
Issued in connection with the reinvestment of:
Distributions from net investment income............ 19,652 0
Distributions from net realized gain................ 4,648 0
----------- -----------
696,163 466,417
Redeemed............................................ (214,709) (155,934)
----------- -----------
Net change.......................................... 481,454 310,483
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 31, 1994(A) YEAR SIX MONTHS
THROUGH ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
------------------- ------------ ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Pe-
riod............................ $10.00 $ 9.96 $ 11.04
------ ------ -------
Income From Investment Operations
Net Investment Income........... 0.10 0.33 0.28
Net Realized and Unrealized Gain
(Loss) on Investments.......... (0.04) 1.16 (0.40)
------ ------ -------
Total From Investment Opera-
tions.......................... 0.06 1.49 (0.12)
------ ------ -------
Less Distributions
Distributions From Net Invest-
ment Income.................... (0.10) (0.33) 0.00
Distributions From Net Realized
Capital Gains.................. 0.00 (0.08) 0.00
------ ------ -------
Total Distributions............. (0.10) (0.41) 0.00
------ ------ -------
Net Asset Value, End of Period... $ 9.96 $11.04 $ 10.92
====== ====== =======
TOTAL RETURN (%)................. 0.60(c) 15.02 (1.09)(c)
Ratio of Operating Expenses to
Average Net Assets (%).......... 0.70(b) 0.70 0.70(b)
Ratio of Net Investment Income to
Average Net Assets (%).......... 5.70(b) 5.62 5.96(b)
Portfolio Turnover Rate (%)...... 1,409(b) 415 421(b)
Net Assets, End of Period (000).. $2,012 $7,542 $10,853
The ratios of expenses to average
net assets without giving effect
to the voluntary expense
agreement described in Note 4 to
the Financial Statements would
have been (%)................... 2.54(b) 2.90 1.62(b)
</TABLE>
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Not computed on an annualized basis.
See accompanying notes to financial statements.
83
<PAGE>
ZENITH BACK BAY ADVISORS MONEY MARKET SERIES*
PORTFOLIO MANAGER: JOHN DONOVAN;
BACK BAY ADVISORS(R), L.P.
- ----------------- MARKET REVIEW
[PHOTO OF JOHN The interest rate environment during the first half of
DONOVAN APPEARS 1996 was notable for its high level of volatility, as the
HERE] economic releases presented conflicting views as to the
strength of the domestic economy, and political events in
Washington raised hopes of imminent fiscal policy reform
but subsequently caused them to fade away.
Based on a fourth quarter 1995 Gross Domestic Product
(GDP) of only 0.5% and a January economy plagued by severe
winter storms, the Federal Reserve Board lowered short
term interest rates by 25 basis points to 5.25% in late
- ----------------- January, pushing the three-month treasury bill yield to 4.89%
and the one-year treasury bill yield to 4.79% by mid-February on market
expectations of further rate cuts. However, with the return of milder weather
and the end of the General Motors strike, economic activity picked up
significantly, resulting in a respectable first quarter GDP growth rate of 2.2%.
At this point, the market's outlook for Federal Reserve policy turned to neutral
with the three-month and one-year bill yields backing up to 5.13% and 5.41%
respectively.
The second quarter saw continued expansion as the important housing and
automobile sectors remained strong despite the pressures of higher interest
rates. Job growth was surprisingly solid in spite of the ongoing trend toward
downsizing in many prominent corporations, and wage pressures began to appear
in certain industries and certain areas of the country. In addition,
expectations of a fiscal drag on the economy through a balanced budget
agreement evaporated as Washington returned to politics as usual. With second
quarter GDP growth rate expected to exceed 4%, the interest rate outlook has
come full circle to where participants are now expecting an imminent Federal
Reserve tightening and have significantly backed up rates to a point where the
three-month and one-year bills are yielding 5.30% and 5.95%.
The Series is using a barbell strategy to achieve an average maturity of 63
days as of the end of June. Fifty four percent of the Series is invested in
securities with maturities shorter than one month. This may give the Series
flexibility to invest in higher yielding securities quickly if the Federal
Reserve Board pushes up rates. As a hedge against the Federal Reserve Board
not tightening credit and because of the higher yield opportunities in the
longer end of the curve, 15% of the Series is invested in securities longer
than 4 months.
OUTLOOK AND STRATEGY
The short term interest rate picture remains murky as we enter the second
half of 1996. Although concerns have arisen about a strong economy leading to
increased inflation, it is unclear whether the Federal Reserve will
necessarily have to raise rates aggressively to slow down economic growth. The
market has already priced in about 50 basis points of Federal Reserve
tightening but could certainly anticipate more if inflation concerns persist.
At present, the Series is well-positioned to take advantage of the backup in
rates.
* Money Market Funds are not insured or guaranteed by the U.S. Government.
There can be no assurance that the Series will maintain a stable net asset
value of $100.00 per share. All performance information represents past
performance and is not indicative of future results. Investment return and
principal value may fluctuate so that shares may be worth more or less than
original cost.
FUND FACTS
BACK BAY ADVISORS MONEY MARKET SERIES
GOAL: The highest possible level of current income consistent with the
preservation of capital.
START DATE: August 1, 1993
SIZE: $100.9 million as of June 30, 1996
MANAGER: John Donovan has served as portfolio manager since 1995. Mr. Donovan
joined Back Bay Advisors in 1992.
84
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISERS MONEY MARKET SERIES)
INVESTMENTS AS OF JUNE 30, 1996
INVESTMENTS--98.7% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
FACE INTEREST MATURITY
VALUE DESCRIPTION RATE DATE VALUE (A)
<C> <S> <C> <C> <C>
CERTIFICATE OF DEPOSIT--10.9%
$2,000,000 Societe Generale New York......... 5.320% 07/01/96 $ 2,000,000
1,000,000 Dresdner U.S. Finance, Inc. ...... 5.320% 07/05/96 1,000,032
2,000,000 Morgan Guaranty Trust London...... 5.350% 07/15/96 2,000,008
1,000,000 Banque National de Paris.......... 5.240% 07/30/96 1,000,039
2,000,000 Union Bank of Switzerland......... 5.300% 10/04/96 2,000,966
1,000,000 Banque National de Paris.......... 5.460% 11/14/96 1,000,052
1,000,000 Banque National de Paris.......... 5.550% 12/02/96 1,000,000
1,000,000 Societe Generale New York......... 5.650% 04/01/97 999,228
------------
11,000,325
------------
Total Certificate of Deposit (Cost
$11,000,325)..................... 11,000,325
------------
CERTIFICATE OF DEPOSIT
(EURODOLLAR)--1.0%
1,000,000 Toronto Dominion Bank............. 5.170% 01/17/97 1,000,491
------------
Total Certificate of Deposit
(Eurodollar) (Cost $1,000,491)... 1,000,491
------------
COMMERCIAL PAPER--88.0%
AUTOMOTIVE--9.9%
425,000 Ford Motor Credit Corp. .......... 5.450% 07/05/96 424,743
1,100,000 Ford Motor Credit Corp. .......... 5.290% 07/08/96 1,098,869
1,200,000 General Motors Acceptance Corp. .. 5.320% 07/09/96 1,198,581
1,500,000 American Honda Finance............ 5.350% 07/16/96 1,496,656
1,000,000 General Motors Acceptance Corp. .. 5.390% 07/19/96 997,305
195,000 Ford Motor Credit Corp. .......... 5.280% 07/26/96 194,285
1,200,000 General Motors Acceptance Corp. .. 5.400% 07/31/96 1,194,600
1,320,000 Ford Motor Credit Corp. .......... 5.340% 08/01/96 1,314,322
1,000,000 General Motors Acceptance Corp. .. 5.410% 08/12/96 993,688
1,045,000 Ford Motor Credit Corp. .......... 5.400% 10/17/96 1,028,071
------------
9,941,120
------------
BANKING--13.8%
330,000 Royal Bank of Canada.............. 5.090% 07/01/96 330,000
1,000,000 Societe General North America..... 4.900% 07/22/96 997,142
2,000,000 ABN Amro North.................... 5.100% 07/24/96 1,993,483
2,000,000 Dresdner US Finance............... 5.320% 10/01/96 1,972,809
500,000 J.P. Morgan....................... 5.300% 11/01/96 490,946
1,500,000 ABN Amro North.................... 5.290% 11/07/96 1,471,566
1,000,000 Banque National de Paris.......... 5.310% 11/21/96 978,908
1,500,000 J.P. Morgan....................... 5.370% 12/02/96 1,465,542
1,000,000 Dresdner US Finance............... 5.410% 12/05/96 976,406
1,235,000 Swiss Bank Corp. New York......... 5.430% 12/27/96 1,201,656
First National Bank North
2,000,000 Carolina......................... 5.300% 06/03/97 2,000,000
------------
13,878,458
------------
DRUGS--4.3%
1,000,000 American Home Products Corp. ..... 5.350% 07/09/96 998,811
1,500,000 American Home Products Corp. ..... 5.370% 07/26/96 1,494,406
900,000 American Home Products Corp. ..... 5.400% 08/05/96 895,275
1,000,000 American Home Products Corp. ..... 5.400% 08/13/96 993,550
------------
4,382,042
------------
</TABLE>
See accompanying notes to financial statements.
85
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
INVESTMENTS AS OF JUNE 30, 1996
INVESTMENTS--(CONTINUED)
<TABLE>
<CAPTION>
FACE INTEREST MATURITY
VALUE DESCRIPTION RATE DATE VALUE (A)
<C> <S> <C> <C> <C>
FINANCE--26.0%
$ 150,000 American Express.................. 5.360% 07/02/96 $ 149,978
1,000,000 UBS Finance....................... 5.390% 07/02/96 999,850
1,300,000 Avco Financial Services........... 5.340% 07/10/96 1,298,267
2,000,000 Household Finance................. 5.360% 07/18/96 1,994,938
Associates Corporation North
1,500,000 America.......................... 5.250% 07/22/96 1,495,406
1,000,000 Avco Financial Services........... 5.370% 07/29/96 995,823
1,500,000 Avco Financial Services........... 5.390% 08/07/96 1,491,690
Associates Corporation North
1,000,000 America.......................... 5.290% 08/09/96 994,269
885,000 American Express.................. 5.270% 09/13/96 875,413
1,300,000 American Express.................. 5.270% 09/17/96 1,285,156
1,000,000 Transamerica Finance Group........ 5.220% 09/18/96 988,545
1,500,000 Transamerica Finance Group........ 5.300% 09/20/96 1,482,113
1,000,000 CIT Group Hold.................... 5.100% 09/27/96 987,533
820,000 CIT Group Hold.................... 5.100% 09/30/96 809,429
900,000 American Express.................. 5.280% 10/10/96 886,668
1,000,000 Transamerica Finance Group........ 5.300% 10/15/96 984,394
1,000,000 American Express.................. 5.270% 10/28/96 982,580
710,000 Transamerica Finance Group........ 5.290% 11/12/96 696,020
International Lease Finance
1,500,000 Corp. ........................... 5.440% 11/13/96 1,469,400
1,000,000 General Electric Capital Corp. ... 4.940% 11/26/96 979,691
1,000,000 General Electric Capital Corp. ... 5.230% 12/13/96 976,029
1,000,000 General Electric Capital Corp. ... 5.600% 02/21/96 963,445
500,000 General Electric Capital Corp. ... 5.620% 03/07/97 480,564
2,000,000 Household Finance................. 5.460% 05/22/97 2,000,000
------------
26,267,201
------------
FOOD & TOBACCO--2.0%
1,040,000 BAT Capital Corp. ................ 5.280% 07/02/96 1,039,847
1,000,000 PepsiCo, Inc. .................... 5.280% 09/03/96 990,613
------------
2,030,460
------------
FORESTRY--1.6%
1,600,000 Weyerhaeuser MTG.................. 5.380% 07/25/96 1,594,261
------------
INSURANCE--4.4%
1,840,000 MetLife Funding, Inc. ............ 5.380% 07/09/96 1,837,800
1,500,000 Prudential Funding Corp. ......... 5.340% 07/17/96 1,496,440
1,175,000 Prudential Funding Corp. ......... 5.490% 12/30/96 1,142,388
------------
4,476,628
------------
OIL & GAS--1.0%
1,000,000 Chevron Oil Finance Co. .......... 5.000% 10/11/96 985,833
------------
POLLUTION CONTROL--3.4%
1,270,000 WMX Technologies, Inc. ........... 5.340% 08/16/96 1,261,334
290,000 WMX Technologies, Inc. ........... 5.280% 11/05/96 284,598
1,000,000 WMX Technologies, Inc. ........... 5.420% 01/24/97 968,535
500,000 WMX Technologies, Inc. ........... 5.630% 02/04/97 482,964
500,000 WMX Technologies, Inc ............ 5.630% 03/04/97 480,764
------------
3,478,195
------------
</TABLE>
See accompanying notes to financial statements.
86
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
INVESTMENTS AS OF JUNE 30, 1996
INVESTMENTS--(CONTINUED)
<TABLE>
<CAPTION>
FACE INTEREST MATURITY
VALUE DESCRIPTION RATE DATE VALUE (A)
<C> <S> <C> <C> <C>
RETAIL--4.0%
$1,530,000 Sears Roebuck Corp. ............... 5.300% 07/11/96 $ 1,527,748
1,500,000 Sears Roebuck Corp. ............... 5.350% 07/12/96 1,497,548
1,000,000 Sears Roebuck Corp. ............... 5.390% 08/15/96 993,262
------------
4,018,558
------------
SECURITIES--16.8%
2,000,000 Goldman Sachs Group................ 5.650% 07/01/96 2,000,000
460,000 Lehman Brothers, Inc. ............. 5.420% 07/01/96 460,000
500,000 Merrill Lynch, Inc. ............... 5.280% 07/02/96 499,927
1,520,000 Lehman Brothers, Inc. ............. 5.350% 07/03/96 1,519,548
1,131,000 Merrill Lynch, Inc. ............... 5.400% 07/03/96 1,130,661
1,215,000 Smith Barney, Inc. ................ 5.280% 07/03/96 1,214,644
1,445,000 Smith Barney, Inc. ................ 5.300% 07/05/96 1,444,149
1,500,000 Smith Barney, Inc. ................ 5.370% 07/08/96 1,498,434
1,310,000 Lehman Brothers, Inc. ............. 5.370% 07/09/96 1,308,437
1,000,000 Lehman Brothers, Inc. ............. 5.370% 07/10/96 998,657
1,060,000 Merrill Lynch, Inc. ............... 5.450% 07/19/96 1,057,112
625,000 Merrill Lynch, Inc. ............... 5.380% 07/22/96 623,039
900,000 Merrill Lynch, Inc. ............... 5.370% 07/24/96 896,912
1,000,000 Morgan Stanley Group............... 5.060% 08/02/96 995,502
1,300,000 Goldman Sachs Group................ 5.370% 11/22/96 1,272,076
------------
16,919,098
------------
TELECOMMUNICATIONS--0.8%
825,000 Bell Atlantic Services............. 5.380% 07/23/96 822,288
------------
Total Commercial Paper
(Cost $88,794,142)................ 88,794,142
------------
Total Investments--98.7%
(Cost $100,794,958) (b)........... 100,794,958
Other assets less liabilities...... 100,962
------------
TOTAL NET ASSETS--100%............. $100,895,920
============
</TABLE>
(a) See Note 1A.
(b) The aggregate cost for federal income tax purposes was $100,794,958.
See accompanying notes to financial statements.
87
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value.................................... $100,794,958
Cash.................................................... 3,804
Receivable for:
Fund shares sold........................................ 682,617
Dividends and interest.................................. 227,388
------------
101,708,767
LIABILITIES
Payable for:
Fund shares redeemed.................................... $330,537
Dividends declared...................................... 357,184
Miscellaneous........................................... 23,792
Accrued expenses:
Management fees......................................... 59,938
Deferred trustees' fees................................. 28,188
Other expenses.......................................... 13,208
--------
812,847
------------
NET ASSETS............................................... $100,895,920
============
Net Assets consist of:
Capital paid in......................................... $100,895,920
------------
NET ASSETS............................................... $100,895,920
============
Computation of offering price:
Net asset value and redemption price per share
($100,895,920 divided by 1,008,959 shares of beneficial
interest)............................................... $ 100.00
============
Cost of investments...................................... $100,794,958
============
</TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest.................................................. $2,581,876
EXPENSES
Management fees........................................... $163,887
Trustees' fees and expenses............................... 9,477
Custodian................................................. 29,996
Audit and tax services.................................... 5,762
Legal..................................................... 4,065
Printing.................................................. 15,976
Miscellaneous............................................. 4,971
--------
Total expenses............................................ 234,134
----------
NET INVESTMENT INCOME...................................... 2,347,742
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS................. $2,347,742
==========
</TABLE>
See accompanying notes to financial statements.
88
<PAGE>
NEW ENGLAND ZENITH FUND
(BACK BAY ADVISORS MONEY MARKET SERIES)
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------- ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................ $ 4,403,095 $ 2,347,742
------------- ------------
Increase in net assets from operations........... 4,403,095 2,347,742
------------- ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................ (4,403,095) (2,347,742)
------------- ------------
(4,403,095) (2,347,742)
------------- ------------
FROM CAPITAL SHARES TRANSACTIONS
Proceeds from sale of shares..................... 141,012,985 105,256,018
Net asset value of shares issued in connection
with the reinvestment of:
Distributions from net investment income......... 4,331,085 2,347,742
------------- ------------
145,344,070 107,603,760
Cost of shares redeemed.......................... (129,156,304) (96,855,999)
------------- ------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS.................................... 16,187,766 10,747,761
------------- ------------
TOTAL INCREASE IN NET ASSETS..................... 16,187,766 10,747,761
NET ASSETS
Beginning of the period.......................... 73,960,393 90,148,159
------------- ------------
End of the period................................ $ 90,148,159 $100,895,920
============= ============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares................... 1,410,130 1,052,681
Issued in connection with the reinvestment of:
Distributions from net investment income......... 43,311 23,357
------------- ------------
1,453,441 1,076,038
Redeemed......................................... (1,291,563) (968,561)
------------- ------------
Net change....................................... 161,878 107,477
============= ============
</TABLE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period.... $100.00 $100.00 $100.00 $100.00 $100.00 $ 100.00
------- ------- ------- ------- ------- --------
Income From Investment
Operations
Net investment income.. 6.03 3.73 2.93 3.89 5.50 2.33
------- ------- ------- ------- ------- --------
Total from Investment
Operations............ 6.03 3.73 2.93 3.89 5.50 2.33
Distributions from net
investment income..... (6.03) (3.73) (2.93) (3.89) (5.50) (2.33)
------- ------- ------- ------- ------- --------
Total Distributions.... (6.03) (3.73) (2.93) (3.89) (5.50) (2.33)
------- ------- ------- ------- ------- --------
Net asset value at end
of period.............. $100.00 $100.00 $100.00 $100.00 $100.00 $ 100.00
======= ======= ======= ======= ======= ========
TOTAL RETURN (%)........ 6.20 3.79 2.97 4.01 5.64 2.51(b)
Ratio of operating
expenses to average net
assets (%)............. 0.38 0.38 0.38 0.40 0.50 0.50(a)
Ratio of net investment
income to average net
assets (%)............. 6.01 3.71 2.93 3.89 5.50 2.33(a)
Net Assets, End of
Period (000)........... $58,614 $61,607 $59,044 $73,960 $90,148 $100,896
The ratios of expenses
to average net assets
without giving effect
to the voluntary
expense agreement
described in Note 4 to
the Financial
Statements would have
been (%)............... -- -- -- -- 0.51 0.50(a)
</TABLE>
(a) Computed on an annualized basis.
(b) Not computed on an annualized basis.
See accompanying notes to financial statements.
89
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1996 (UNAUDITED)
1. New England Zenith Fund (the "Fund") is organized as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts pursuant to
an Agreement and Declaration of Trust dated December 16, 1986. The Fund
succeeded to the operations of The New England Zenith Fund, Inc. on February
27, 1987. The Fund is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company.
Shares in the Fund are not offered directly to the general public and,
currently, are available only to certain separate accounts established by New
England Variable Life Insurance Company ("NEVLICO"), New England Mutual Life
Insurance Company ("The New England") or its subsidiaries as an investment
vehicle for variable life insurance or variable annuity products, although not
all Series are available to all such separate accounts. In the future, shares
may be offered to separate accounts of insurance companies unaffiliated with
NEVLICO or The New England.
The Fund's Agreement and Declaration of Trust permits the issuance of an
unlimited number of shares of beneficial interest, no par value, in separate
Series, with shares of each Series representing interests in a separate
portfolio of assets. Each Series is separately managed and has its own
investment objective and policies. The Fund (or its predecessor) began
offering shares of the Series on the dates set forth below:
<TABLE>
<S> <C>
Bond Income Series...... August 26, 1983
Capital Growth Series... August 26, 1983
Money Market Series..... August 26, 1983
Stock Index Series...... March 30, 1987
Managed Series.......... May 1, 1987
Avanti Growth Series.... April 30, 1993
Value Growth Series..... April 30, 1993
</TABLE>
<TABLE>
<S> <C>
Small Cap Series......... May 1, 1994
Balanced Series.......... October 31, 1994
International Equity Se-
ries.................... October 31, 1994
U.S. Government Series... October 31, 1994
Strategic Bond Opportuni-
ties Series............. October 31, 1994
Venture Value Series..... October 31, 1994
Equity Growth Series..... October 31, 1994
</TABLE>
The following is a summary of significant accounting policies followed by the
Fund in the preparation of the Financial Statements of the Series. The
policies are in conformity with generally accepted accounting principles for
investment companies. The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
A. SECURITY VALUATION
MONEY MARKET SERIES--The Money Market Series employs the amortized cost
method of security valuation which, in the opinion of the Board of
Trustees, represents the fair market value of the particular security. The
Board monitors the deviations between the Series' net asset value per
share, as determined by using available market quotations, and its
amortized cost price per share. If the deviation exceeds 1/2 of 1%, the
Board will consider what action, if any, should be initiated to provide
fair valuation of the Series.
BOND INCOME, MANAGED, BALANCED, U.S. GOVERNMENT AND STRATEGIC BOND
OPPORTUNITIES SERIES--Debt securities (other than short-term obligations)
are valued on the basis of valuations furnished by a pricing service,
authorized by the Board of Trustees, which service determines valuations
for normal, institutional-size trading units of such securities using
market information, transactions for comparable securities and various
relationships between securities which are generally recognized by
institutional traders. Short-term notes are stated at amortized cost which
approximates market value.
CAPITAL GROWTH, MANAGED, STOCK INDEX, AVANTI GROWTH, VALUE GROWTH, SMALL
CAP, BALANCED, INTERNATIONAL EQUITY, VENTURE VALUE AND EQUITY GROWTH
SERIES--Equity securities are valued on the basis of market valuations
furnished by a pricing service, authorized by the Board of Trustees. The
pricing service provides the last reported sale price for securities listed
on a national securities exchange or on the NASDAQ National Market System,
or if there is no reported sale during the day, and in the case of over-
the-counter securities not so listed, the last bid price. Securities for
which current market quotations are not readily available are taken at fair
value as determined in good faith by the Board of
90
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1996--(CONTINUED) (UNAUDITED)
Trustees, although the actual calculations may be made by persons acting
pursuant to the direction of the Board. Short-term notes are stated at
amortized cost which approximates market value.
B. FOREIGN CURRENCY TRANSLATION--The books and records of the Funds are
maintained in U.S. dollars. The values of securities, currencies and other
assets and liabilities denominated in currencies other than U.S. dollars
are translated into U.S. dollars based upon foreign exchange rates
prevailing at the end of the period. Purchases and sales of investment
securities, income and expenses are translated on the respective dates of
such transactions.
Since the values of investment securities are presented at the foreign
exchange rates prevailing at the end of the period, it is not practical to
isolate that portion of the results of operations arising from changes in
exchange rates from fluctuations arising from changes in market prices of the
investment securities.
Net realized and unrealized gains and losses on foreign currency transactions
represent foreign exchange gains from the sale of short-term securities and
holdings of foreign currencies, foreign currency gains and losses between
trade dates and settlement dates on investment securities transactions, and
the difference between the amounts of daily interest accruals on the books of
the Fund and the amounts actually received resulting from changes in exchange
rates on the payable date.
FORWARD FOREIGN CURRENCY CONTRACTS. The Fund may use foreign currency
contracts to facilitate transactions in foreign securities and to manage the
Fund's currency exposure. Contracts to buy generally are used to acquire
exposure to foreign currencies, while contracts to sell are used to hedge the
Fund's investments against currency fluctuations. Also, a contract to buy or
sell can offset a previous contract. These contracts involve market risk in
excess of the unrealized gain or loss reflected in the Fund's Statements of
Assets and Liabilities. The U.S. dollar value of the currencies the Fund has
committed to buy or sell is shown in the Schedules of Investments under the
caption "Forward Foreign Currency Contracts." This amount represents the
aggregate exposure to each currency the Fund has acquired or hedged through
currency contracts at period end. Losses may arise from changes in the value
of the foreign currency or if the counterparties do not perform under the
contract's terms. The U.S. dollar value of forward foreign currency contracts
is determined using forward currency exchange rates supplied by a quotation
service.
C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME--Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Dividend income is recorded on the ex-dividend date and interest
income is recorded on the accrual basis. In determining gain or loss on
securities sold, the cost of securities has been determined on the
identified cost basis.
D. FUTURES CONTRACTS--The Value Growth, Stock Index, Managed, Balanced,
International Equity, U.S. Government, Strategic Bond Opportunities and
Venture Value Series each may enter into futures contracts on the S&P 500
Index or on interest-bearing securities or indices thereof, or on indices
of stocks to hedge against changes in the values of securities the Series
owns or expects to purchase. Upon entering into a futures contract, the
Series is required to deposit with a broker an amount ("initial margin")
equal to a certain percentage of the purchase price indicated in the
futures contract. Subsequent payments ("variation margin") are made or
received by the Series each day, dependent on the daily fluctuations in the
value of the underlying security, and are recorded for financial reporting
purposes as unrealized gains or losses by the Series. When entering into a
closing transaction, the Series will realize, for book purposes, a gain or
loss equal to the difference between the value of the futures contract to
sell and the futures contract to buy. Futures contracts are valued at the
most recent settlement price, unless such price does not reflect the fair
market value of the contract, in which case the position will be valued by
or under the direction of the Board of Trustees. Certain risks are
associated with investments in futures contracts, including risk of
imperfect correlation between the value of a position in futures contracts
and the value of the stocks or bonds that the Series is attempting to
hedge. In addition, there is a risk that the Series may not be able to
close out its futures positions due to an illiquid secondary market.
E. REPURCHASE AGREEMENTS--The Series, through their custodian, receive
delivery of the underlying securities collateralizing repurchase
agreements. It is the Series' policy that the market value of the
collateral be at least equal to 100% of the repurchase price. Each Series'
adviser is responsible for determining that the value of the collateral is
at all times at least equal to the repurchase price. In connection with
transactions in repurchase agreements, if the seller defaults and the value
of the collateral declines or if the seller enters an insolvency
proceeding, realization of the collateral by the Series may be delayed or
limited.
91
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1996--(CONTINUED) (UNAUDITED)
F. SHORT SALES AGAINST THE BOX--The Equity Growth Series may hedge against
changes in the value of investments by engaging in short sales against the
box. In a short sale against the box, the fund sells a borrowed security,
while at the same time either owning an identical security or having the
right to obtain such a security. By selling short against the box the
equity underlying one of its convertible holdings, the Series would seek to
offset the effect that a decline in the underlying equity might have on the
value of the convertible security. While the short sale is outstanding, the
Series will not dispose of the security hedged by the short sale. The
Series is required to establish a margin account with the broker lending
the security sold short. While the short sale is outstanding, the broker
retains the proceeds of the short sale and the Series instructs the
custodian to maintain in a separate account securities having a value at
least equal to the amount of the securities sold short. The Series had no
such transactions during the six months ended June 30, 1996.
G. FEDERAL TAXES--Each Series, which is a separate taxable entity, intends to
meet the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute to its shareholders all of its
taxable income and any net realized capital gains at least annually.
Accordingly, no provision for federal income tax has been made.
H. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS--Money Market Series dividends
are declared daily to shareholders of record at the time and are paid
monthly. Dividends and distributions are recorded by all other Series on
the ex-dividend date. Net realized gains from security transactions are
distributed at least annually to shareholders. The timing and
characterization of certain income and capital gains distributions are
determined in accordance with federal tax regulations which may differ from
generally accepted accounting principles. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassification to paid in capital. These differences primarily relate to
tax equalization, investments in mortgage backed securities and investments
in foreign securities.
I. OTHER--The Money Market Series invests primarily in a portfolio of money
market instruments maturing in 397 days or less whose ratings are within
the two highest ratings categories by a nationally recognized rating agency
or, if not rated, are believed to be of comparable quality. The weighted
average maturity of the Series is less than ninety days. The ability of the
issuers of the securities held by the Series to meet their obligations may
be affected by foreign economic, political and legal developments in the
case of foreign banks or of foreign branches or subsidiaries of U.S. banks
or domestic economic developments in a specific industry, state or region.
2. At June 30, 1996 The New England owned an aggregate of 11 shares of the
fourteen Series and held 15,958,759 shares in separate investment accounts for
annuity contracts offered by The New England. NEVLICO, a life insurance
subsidiary of The New England, held the remaining 9,999,000 shares then
outstanding in separate investment accounts for life insurance and annuity
contracts offered by NEVLICO.
As long as The New England owns (directly or through NEVLICO) more than 25% of
the Fund's outstanding shares, it will be presumed to be in control (as that
term is defined by the Investment Company Act of 1940, as amended) of the
Fund.
3. For the six months ended June 30, 1996, purchases and sales of securities
(excluding short-term investments) for each of the Series were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------------------------ ------------------------------
SERIES OTHER U.S. GOVERNMENT OTHER U.S. GOVERNMENT
------ -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Back Bay Advisors Bond
Income................. $ 72,274,167 $20,497,109 $ 58,078,109 $20,151,317
Capital Growth.......... 1,325,026,661 -- 1,290,107,685 --
Westpeak Stock Index.... 3,834,474 -- 755,737 --
Back Bay Advisors
Managed................ 47,326,703 617,880 49,938,778 113,694
Loomis Sayles Avanti
Growth................. 33,986,799 -- 23,063,576 --
Westpeak Value Growth... 43,718,750 -- 31,182,194 --
Loomis Sayles Small Cap. 25,727,596 -- 10,232,265 --
Loomis Sayles Balanced.. 17,409,280 4,751,545 5,074,622 2,957,387
Draycott International
Equity................. 19,325,110 -- 10,470,205 --
Salomon Brothers U.S.
Government............. -- 20,916,045 -- 17,423,127
Salomon Brothers
Strategic Bond
Opportunities.......... 13,476,185 8,315,029 7,407,314 5,633,507
Venture Value........... 22,186,884 -- 2,536,982 --
Alger Equity Growth..... 61,713,743 -- 27,029,125 --
</TABLE>
92
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1996--(CONTINUED) (UNAUDITED)
Purchases and sales of corporate short-term obligations for the Money Market
Series aggregated $353,378,049 and $343,457,175, respectively.
Transactions in index futures contracts for the Managed Series for the six
months ended June 30, 1996 are summarized as follows:
<TABLE>
<CAPTION>
PURCHASES OF FUTURES
CONTRACTS
----------------------
AGGREGATE
NUMBER OF FACE VALUE
CONTRACTS OF CONTRACTS
--------- ------------
<S> <C> <C>
Contracts opened........................................ 10 $ 3,153,870
Contracts closed........................................ (10) (3,153,870)
--- -----------
Open at June 30, 1996................................... 0 $ 0
=== ===========
</TABLE>
Transactions in forward currency contracts for the Strategic Bond
Opportunities Series for the six months ended June 30, 1996 are summarized as
follows:
<TABLE>
<CAPTION>
SALES OF CONTRACTS
------------------
AGGREGATED FACE
VALUE OF CONTRACTS
------------------
<S> <C>
Open at December 31, 1995.................................... $ 919,184
Contracts opened............................................. 3,707,020
Contracts closed............................................. (4,544,431)
-----------
Open at June 30, 1996........................................ $ 81,773
===========
</TABLE>
4. MANAGEMENT FEES.
TNE Advisers, Inc. acts as adviser to all of the Series (except the Capital
Growth Series for which Capital Growth Management, L.P. ("CGM") serves as
advisor). Separate management agreements for each Series provide for fees as
set forth below:
<TABLE>
<CAPTION>
NET FEES EARNED
BY TNE ADVISERS
FOR THE SIX MONTHS MANAGEMENT FEE
ENDED JUNE 30, 1996 PAID BY SERIES TO
BEFORE REDUCTION DUE TO TNE ADVISERS, INC.
SERIES EXPENSE LIMITS (A) (% OF AVERAGE NET ASSETS)
------ ----------------------- ---------------------------------------
<S> <C> <C>
Loomis Sayles Small Cap
Series................. $ 85,853 1.00% all assets
Draycott International
Equity Series.......... 26,080 0.90% all assets
Alger Equity Growth
Series................. 102,399 0.75% all assets
Loomis Sayles Avanti
Growth Series.......... 72,303 0.70% the first $200 million
0.65% the next $300 million
0.60% amounts in excess of $500 million
Venture Value Series.... 73,677 0.75% all assets
Westpeak Value Growth
Series................. 70,845 0.70% the first $200 million
0.65% the next $300 million
0.60% amounts in excess of $500 million
Westpeak Stock Index
Series................. 47,559 0.25% all assets
Loomis Sayles Balanced
Series................. 28,634 0.70% of all assets
Back Bay Managed Series. 210,904 0.50% of all assets
Salomon Brothers 0.65% of all assets
Strategic Bond
Opportunities Series... 20,264
Back Bay Advisors Bond
Income Series.......... 149,869 0.40% the first $400 million
0.35% the next $300 million
0.30% the next $300 million
0.25% amounts in excess of $1 billion
Salomon Brothers U.S.
Government Series...... 15,165 0.55% all assets
Back Bay Advisors Money
Market Series.......... 93,653 0.35% the first $500 million
0.30% the next $500 million
0.25% amounts in excess of $1 billion
</TABLE>
(a) There are two forms of expense limit, a Voluntary Expense Limitation and
an Expense Deferral Arrangement. Only one pertains to each of these
Series, as described below.
93
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1996--(CONTINUED) (UNAUDITED)
The Capital Growth Series pays its adviser, CGM, a management fee at an annual
rate of 0.70% of the first $200 million of average net assets, 0.65% of the
next $300 million of such assets and 0.60% of such assets in excess of $500
million. For advisory services rendered during the six months ended June 30,
1996, CGM was paid at an annual rate of 0.64% of the Capital Growth Series'
average net assets, totaling $3,093,449.
SUB-ADVISORY FEES. TNE Advisers, Inc. has sub-contracted day-to-day portfolio
management responsibilities to each of the following sub-advisers to manage
the Series: Loomis, Sayles & Company, L.P., for the Loomis Sayles Small Cap,
Loomis Sayles Avanti Growth and the Loomis Sayles Balanced Series, Draycott
Partners, Ltd. for the Draycott International Equity Series; Fred Alger
Management, Inc. for the Alger Equity Growth Series; Davis Selected Advisers,
L.P. for the Venture Value Series; Westpeak Investment Advisors, L.P. for the
Westpeak Value Growth and Westpeak Stock Index Series; Back Bay Advisors, L.P.
for the Back Bay Advisors Managed, Back Bay Advisors Bond Income and Back Bay
Advisors Money Market Series and Salomon Brothers Asset Management Inc, for
the Salomon Brothers Strategic Bond Opportunities and Salomon Brothers U.S.
Government Series. TNE Advisers, Inc. pays each sub-adviser at the following
rates for providing sub-advisory services to the following Series:
<TABLE>
<CAPTION>
GROSS FEES
EARNED BY ANNUAL
SUB-ADVISOR PERCENTAGE
FOR SIX MONTHS RATES PAID
ENDED JUNE TO SUB- AVERAGE DAILY NET ASSET
SERIES 30, 1996 ADVISERS VALUE LEVELS
------ -------------- ---------- ------------------------------------
<S> <C> <C> <C>
Loomis Sayles Small Cap
Series................. $98,286 0.55% of the first $25 million
0.50% of the next $75 million
0.45% of the next $100 million
0.40% of amounts in excess of $200 million
Draycott International
Equity Series.......... $74,535 0.75% of the first $10 million
0.60% of the next $40 million
0.45% of amounts in excess of $50 million
Alger Equity Growth Se-
ries*.................. $133,458 0.45% of the first $100 million
0.40% of the next $400 million
0.35% of amounts in excess of $500 million
Loomis Sayles Avanti
Growth Series.......... $125,411 0.50% of the first $25 million
0.40% of the next $75 million
0.35% of the next $100 million
0.30% of amounts in excess of $200 million
Venture Value Series.... $110,514 0.45% of the first $100 million
0.40% of the next $400 million
0.35% of amounts in excess of $500 million
Westpeak Value Growth
Series................. $123,469 0.50% of the first $25 million
0.40% of the next $75 million
0.35% of the next $100 million
0.30% of amounts in excess of $200 million
Westpeak Stock Index Se-
ries................... $31,704 0.10% of all assets
Loomis Sayles Balanced
Series................. $65,712 0.50% of the first $25 million
0.40% of the next $75 million
0.30% of amounts in excess of $100 million
Back Bay Advisors Man-
aged Series............ $161,324 0.25% of the first $50 million
0.20% of amounts in excess of $50 million
</TABLE>
- -------
* During the period January 1, 1996 through May 1, 1996 the sub-advisory fees
for the Alger Equity Growth Series were: 0.45% of the Series' first $10
million of average daily net assets; 0.40% of the next $90 million of such
assets, 0.35% of the next $150 million of such assets, 0.30% of the next
$250 million of such assets and 0.25% of such assets in excess of $500
million.
94
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1996--(CONTINUED) (UNAUDITED)
<TABLE>
<CAPTION>
GROSS FEES
EARNED BY ANNUAL
SUB-ADVISOR PERCENTAGE
FOR SIX MONTHS RATES PAID
ENDED JUNE TO SUB- AVERAGE DAILY NET ASSET
SERIES 30, 1996 ADVISERS VALUE LEVELS
------ --------------- ---------- ------------------------------------
<S> <C> <C> <C>
Salomon Brothers Strate-
gic Bond Opportunities
Series................. $23,641 0.35% of the first $50 million
0.30% of the next $150 million
0.25% of the next $300 million
0.20% of amounts in excess of $500 million
Back Bay Advisors Bond
Income Series.......... $174,731 0.25% of the first $50 million
0.20% of the next $200 million
0.15% of amounts in excess of $250 million
Salomon Brothers U.S.
Government Series...... $10,499 0.225% of the first $200 million
0.150% of the next $300 million
0.100% of amounts in excess of $500 million
Back Bay Advisors Money
Market Series.......... $70,234 0.15% of the first $100 million
0.10% of amounts in excess of $100 million
</TABLE>
VOLUNTARY EXPENSE LIMITATION AND EXPENSE DEFERRAL AGREEMENT.
Each Series (except the Capital Growth Series) is subject to one of two forms
of expense limit. The first form of expense limit is a Voluntary Expense
Limitation, which relates to the Loomis Sayles Avanti Growth Series, Westpeak
Value Growth Series, Westpeak Stock Index Series, Back Bay Advisors Managed,
Back Bay Advisors Bond Income and Back Bay Advisors Money Market Series.
Pursuant to this agreement TNE Advisers, Inc. bears expenses (other than
advisory fees and any brokerage costs, interest, taxes or extraordinary
expenses) of the Series in excess of 0.15% of the respective Series' average
daily net assets. In the case of the Loomis Sayles Small Cap Series, TNE
Advisers, Inc. bears all the expenses (other than any brokerage costs,
interest, taxes or extraordinary expenses) of the Series in excess of 1.00% of
the Series' average daily net assets. Similar Voluntary Expense Limitations
with The New England were in effect with respect to the Capital Growth Series
from November 1, 1994 to April 30, 1996 and with respect to the Back Bay
Advisors Money Market, Back Bay Advisors Bond Income, Back Bay Advisors
Managed and Westpeak Stock Index Series from November 1, 1994 to April 30,
1995 and with respect to the Loomis Sayles Small Cap, Loomis Sayles Avanti
Growth and Westpeak Value Growth Series from December 1, 1994 to April 30,
1995.
The second form of expense limit is an Expense Deferral Agreement which has
been in effect since November 1, 1994 and relates to the Draycott
International Equity Series, Alger Equity Growth Series, Venture Value Series,
Loomis Sayles Balanced Series, Salomon Brothers Strategic Bond Opportunities
Series, and Salomon Brothers U.S. Government Series. Under this arrangement,
which TNE Advisers, Inc. can terminate at any time, TNE Advisers, Inc. has
agreed to pay expenses of the Series' operations (exclusive of any brokerage
costs, interest, taxes or extraordinary expenses) in excess of the annual
percentages of the Series net assets set forth below, subject to the
obligation of the Series to repay TNE Advisers, Inc. such expenses in future
years, if any, when the Series' expenses fall below that percentage; provided,
however, that no Series is obligated to repay any expenses paid by TNE
Advisers, Inc. more than two years after the end of the fiscal year in which
such expenses were incurred. The percentage applicable to each Series are as
follows:
<TABLE>
<CAPTION>
% OF
AVERAGE
SERIES NET ASSETS
------ ----------
<S> <C>
Draycott International Equity Series......................... 1.30%
Alger Equity Growth Series................................... 0.90
Venture Value Series......................................... 0.90
Loomis Sayles Balanced Series................................ 0.85
Salomon Brothers Strategic Bond Opportunities Series......... 0.85
Salomon Brothers U.S. Government Series...................... 0.70
</TABLE>
95
<PAGE>
NEW ENGLAND ZENITH FUND
NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1996--(CONTINUED) (UNAUDITED)
For the period January 1, 1996 to June 30, 1996 the effective expense ratios
for each series, after giving effect to the foregoing arrangements, and the
amounts of expenses deferred for those Series to which the Expense Deferral
Agreement applies, are:
<TABLE>
<CAPTION>
EXPENSES ASSUMED
BY THE NEW
ENGLAND AND TNE
TOTAL EXPENSE RATIO ADVISERS AS A
UNDER CURRENT VOLUNTARY RESULT OF THE SERIES
EXPENSE AGREEMENT EXCEEDING THE
OR EXPENSE DEFERRAL VOLUNTARY EXPENSE EXPENSES DEFERRED UNTIL EXPENSES DEFERRED UNTIL
SERIES ARRANGEMENT LIMIT DECEMBER 1997 DECEMBER 31, 1998
------ ----------------------- -------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
Back Bay Advisors Money
Market Series 0.50% -- not applicable not applicable
Back Bay Advisors Bond
Income Series 0.52% -- not applicable not applicable
Back Bay Advisors
Managed Series 0.63% -- not applicable not applicable
Westpeak Value Growth
Series 0.85% $22,619 not applicable not applicable
Westpeak Stock Index
Series 0.40% 34,175 not applicable not applicable
Loomis Sayles Small Cap
Series 1.00% 66,288 not applicable not applicable
Loomis Sayles Avanti
Growth Series 0.85% 26,039 not applicable not applicable
Draycott International
Equity Series 1.30% not applicable $176,796 $62,308
Alger Equity Growth
Series 0.90%* not applicable 77,254 6,754
Venture Value Series 0.90% not applicable 108,971 46,239
Loomis Sayles Balanced
Series 0.85% not applicable 96,085 37,335
Salomon Brothers
Strategic Bond
Opportunities Series 0.85% not applicable 88,120 45,511
Salomon Brothers U.S.
Government Series 0.70% not applicable 84,623 42,814
</TABLE>
* Prior to January 1, 1996 the voluntary expenses limit was 0.85%
Effective May 1, 1996, Fred Alger Management, Inc. has agreed with TNE
Advisers, Inc. that the sub-advisory fee payable by TNE Advisers, Inc. to Fred
Alger Management, Inc. will be reduced by 0.05% of the first $240 million of
the excess of the Series' average daily net assets over $10 million, and by
0.10% of the excess of the Series' average daily net assets over $250 million.
This fee reduction benefits TNE Advisers, Inc. but does not reduce the
advisory fee payable by the Series. The fee reduction agreement will expire on
(a) January 1, 1998 or (b) at such time as TNE Advisers, Inc. has recovered
certain expenses (generally those expenses borne by TNE Advisers, Inc. under
the Expense Deferral Arrangement prior to January 1, 1996 which were not
recovered from the Series), whichever occurs first.
5. The Fund does not pay any compensation to its officers or to any trustees
who are directors, officers or employees of The New England, NEVLICO, Back Bay
Advisors, L.P., Capital Growth Management Limited Partnership, Loomis, Sayles
& Company, L.P., Westpeak Investment Advisors, L.P., New England Funds L.P. or
their affiliates, other than registered investment companies. Each
disinterested trustee is compensated by each Series as follows:
<TABLE>
<CAPTION>
BOND CAPITAL MONEY STOCK AVANTI VALUE SMALL
INCOME GROWTH MARKET INDEX MANAGED GROWTH GROWTH CAP
------ ------- ------ ------ ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Annual Retainer......... $2,416 $3,692 $1,580 $1,527 $2,391 $796 $795 $761
Meeting Fee............. $ 133 $ 133 $ 133 $ 133 $ 133 $133 $133 $133
Committee Chairman
Annual Retainer
(Contract Review)...... $ 287 $1,627 $ 159 $ 104 $ 261 $ 86 $ 85 $ 49
Committee Chairman
Annual Retainer
(Audit)................ $ 192 $1,084 $ 106 $ 69 $ 174 $ 57 $ 57 $ 33
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC
INTERNATIONAL U.S. BOND VENTURE EQUITY
BALANCED EQUITY GOVERNMENT OPPORTUNITIES VALUE GROWTH
-------- ------------- ---------- ------------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Annual Retainer......... $746 $742 $727 $730 $773 $792
Meeting Fee............. $133 $133 $133 $133 $133 $133
Committee Chairman
Annual Retainer
(Contract Review)...... $ 33 $ 29 $ 73 $ 77 $ 62 $ 82
Committee Chairman
Annual Retainer
(Audit)................ $ 22 $ 19 $ 9 $ 11 $ 41 $ 55
</TABLE>
A deferred compensation plan is available to trustees on a voluntary basis.
Each participating trustee will receive deferred compensation in an amount
equal to the value that such compensation would have had if it had been
invested in the relevant Series on the normal payment date.
96
<PAGE>
FOOTNOTES TO PORTFOLIO MANAGER COMMENTARY
- ---------------------------------
(1) COL (Cost of Living) is based on the Consumer Price Index, a widely
recognized measure of the cost of goods and services in the United
States, calculated by the U.S. Bureau of Labor Statistics.
(2) EAFE-Morgan Stanley Capital International Europe, AustralAsia, Far East
Index is an arithmetical average (weighted by market value) of the
performance (in U.S. dollars) of 1,036 companies representing the stock
markets of Europe, Australia, New Zealand and the Far East. The Index
performance has not been adjusted for ongoing management, distribution
and operating expenses and sale charges applicable to mutual funds
investments.
(3) Lehman Brothers Aggregate Bond Index includes most obligations of the
U.S. Treasury, agencies and quasi-federal corporations, most publicly
issued investment grade corporate bonds, and most bonds backed by
mortgage pools of GNMA, FNMA and FHLMC. The index has not been adjusted
for ongoing management, distribution and operating expenses and sales
charges applicable to mutual funds expenses.
(4) Lehman Brothers Government/Corporate Bond Index is an unmanaged index of
the market value of approximately 5,300 bonds with a face value
currently in excess of $1.3 trillion. To be included in the Lehman
Brothers Government/ Corporate Bond Index, an issue must have amounts
outstanding in excess of $25 million, have at least one year to maturity
and be rated "Baa" or higher ("investment grade") by a nationally
recognized rating agency. The index has not been adjusted for ongoing
management, distribution and operating expenses and sales charges
applicable to mutual fund expenses.
(5) Lehman Brothers Intermediate Government Bond Index includes most
obligations of the U.S. Treasury, agencies and quasi-federal
corporations having maturities of 1 to 10 years. The index has not been
adjusted for ongoing management, distribution and operating expenses and
sales charges applicable to mutual fund expenses.
(6) Lehman Brothers Intermediate Government/Corporate Bond Index is an
unmanaged index of investment grade bonds issued by the U.S. government
and U.S. corporations having maturities between one and ten years. The
Index performance has not been adjusted for ongoing management,
distribution and operating expenses and sales charges applicable to
mutual fund investments.
(7) Lipper Variable A-Rated Corporate Bond Fund Average is an average of the
total return performance (calculated on the basis of net asset value) of
funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(8) Lipper Variable Balanced Fund Average is an average of the total return
performance (calculated on the basis of net asset level) of funds with
similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
(9) Lipper Variable Flexible Portfolio Fund Average is an average of the
total return performance (calculated on the basis of net asset value) of
funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(10) Lipper Variable General Bond Fund Average is an average of the total
return performance (calculated on the basis of net asset value) of funds
with similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
(11) Lipper Variable Growth Fund Average is an average of the total return
performance (calculated on the basis of net asset value) of funds with
similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
(12) Lipper Variable Growth and Income Fund Average is an average of the
total return performance (calculated on the basis of net asset value) of
funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(13) Lipper Variable International Funds Average is an average of the total
return performance (calculated on the basis of net asset value) of funds
with similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
(14) Lipper Variable Intermediate Investment Grade Debt Average is
an average of the total return performance (calculated on the
basis of net asset value) of funds with similar investment objectives as
calculated by Lipper Analytical Services, an independent mutual fund
ranking service.
97
<PAGE>
(15) Lipper Variable Small Company Fund Average is an average of the total
return performance (calculated on the basis of net asset value) of funds
with similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
(16) Lipper Variable S&P 500 Index Fund Average is an average of the total
return performance (calculated on the basis of net asset value) of funds
with similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
(17) Lipper Variable U.S. Mortgage and GNMA Fund Average is an average of the
total return performance (calculated on the basis of net asset value) of
funds with similar investment objectives as calculated by Lipper
Analytical Services, an independent mutual fund ranking service.
(18) The Russell 1000 represents the "large cap" segment of the Russell 3000
index. This index is comprised of 1,000 large U.S. companies as
determined by market capitalization, the smallest of which has
approximately $250 million in market capitalization. The average market
capitalization for this index is currently $510 million, and the median
capitalization is $2.38 billion.
(19) Russell 2000 Index consists of 2000 small market capitalization stocks
having an average market cap of $160 million. The Russell 2000 Index
performance has not been adjusted for ongoing management, distribution
and operating expenses and sales charges applicable to mutual fund
investments.
(20) Standard & Poor's 500 Index (S&P 500) is an unmanaged index representing
the performance of 500 major companies, most of which are listed on the
New York Stock Exchange. The S&P 500 performance has not been adjusted
for ongoing management, distribution and operating expenses and sales
charges applicable to mutual fund investments.
98
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
99
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
------------------------------------------------------------------------
CAPITAL BOND MONEY STOCK AVANTI
GROWTH INCOME MARKET INDEX MANAGED GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in New England Zenith Fund,
Variable Insurance Products Fund, and
Variable Insurance Products Fund II, at
value....................................... $493,429,165 $32,240,131 $23,719,578 $26,776,820 $26,955,032 $22,270,621
<CAPTION>
NEW ENGLAND ZENITH
FUND: SHARES COST
--------------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth
Series.............. 1,250,898 $397,583,551
Back Bay Advisors
Bond Income Series.. 304,591 31,739,399
Back Bay Advisors
Money Market Series. 237,196 23,719,578
Westpeak Stock Index
Series.............. 243,492 21,695,648
Back Bay Advisors
Managed Series...... 156,652 20,442,310
Loomis Sayles Avanti
Growth Series....... 141,060 17,384,595
Westpeak Value Growth
Series.............. 105,575 12,911,145
Loomis Sayles Small
Cap Series.......... 95,734 10,980,427
Loomis Sayles
Balanced Series..... 120,141 1,452,153
Alger Equity Growth
Series.............. 1,157,387 16,322,624
Draycott
International Equity
Series.............. 273,163 2,949,510
Venture Value Series. 646,112 8,484,481
Variable Insurance
Products Fund I:
Equity-Income
Portfolio........... 3,528,936 58,332,835
Overseas Portfolio... 2,991,849 47,085,641
High Income
Portfolio........... 247,794 2,778,732
Variable Insurance
Products Fund II:
Asset Manager
Portfolio........... 207,980 2,993,740
Amount due and accrued from policy-related
transactions, net........................... 273,441 26,278 584,242 43,398 22,160 24,058
Dividends receivable......................... -- -- 89,087 -- -- --
------------ ----------- ----------- ----------- ----------- -----------
Total Assets................................ 493,702,606 32,266,409 24,392,907 26,820,218 26,977,192 22,294,679
LIABILITIES
Due New England Variable Life Insurance
Company..................................... 59,655,288 3,996,079 3,543,804 3,577,495 2,832,019 4,050,354
------------ ----------- ----------- ----------- ----------- -----------
Total Liabilities........................... 59,655,288 3,996,079 3,543,804 3,577,495 2,832,019 4,050,354
------------ ----------- ----------- ----------- ----------- -----------
NET ASSETS FOR VARIABLE LIFE INSURANCE
POLICIES..................................... $434,047,318 $28,270,330 $20,849,103 $23,242,723 $24,145,173 $18,244,325
============ =========== =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
100
<PAGE>
<TABLE>
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- -------------------------------------------------------------------------- ----------------------------------- -----------
VALUE SMALL EQUITY INTERNATIONAL VENTURE EQUITY- HIGH ASSET
GROWTH CAP BALANCED GROWTH EQUITY VALUE INCOME OVERSEAS INCOME MANAGER
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ----------- ----------- ----------- ----------- ------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$15,619,832 $13,179,643 $1,496,960 $16,816,838 $3,124,981 $9,116,640 $68,743,665 $53,494,256 $2,919,011 $3,250,730
24,267 48,570 4,277 55,655 7,171 21,595 78,344 54,319 3,019 492
-- -- -- -- -- -- -- -- -- --
- ----------- ----------- ---------- ----------- ---------- ---------- ----------- ----------- ---------- ----------
15,644,099 13,228,213 1,501,237 16,872,493 3,132,152 9,138,235 68,822,009 53,548,575 2,922,030 3,251,222
2,583,600 1,942,420 241,965 2,987,379 499,536 1,528,438 10,254,908 9,066,143 355,136 533,639
- ----------- ----------- ---------- ----------- ---------- ---------- ----------- ----------- ---------- ----------
2,583,600 1,942,420 241,965 2,987,379 499,536 1,528,438 10,254,908 9,066,143 355,136 533,639
- ----------- ----------- ---------- ----------- ---------- ---------- ----------- ----------- ---------- ----------
$13,060,499 $11,285,793 $1,259,272 $13,885,114 $2,632,616 $7,609,797 $58,567,101 $44,482,432 $2,566,894 $2,717,583
=========== =========== ========== =========== ========== ========== =========== =========== ========== ==========
<CAPTION>
- -------------
TOTAL
------------
<S>
$813,153,903
1,271,286
89,087
------------
814,514,276
107,648,203
------------
107,648,203
------------
$706,866,073
============
</TABLE>
See Notes to Financial Statements
101
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
--------------------------------------------------------------------------
CAPITAL BOND MONEY STOCK AVANTI
GROWTH INCOME MARKET INDEX MANAGED GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCOME
Dividends..................... $-- $-- $585,542 $-- $-- $--
EXPENSE
Mortality and expense risk
charge....................... 1,359,863 89,218 71,108 70,375 71,483 59,213
----------- --------- -------- ---------- ---------- ----------
Net investment income (loss).. (1,359,863) (89,218) 514,434 (70,375) (71,483) (59,213)
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net unrealized appreciation
(depreciation) on
investments:
Beginning of period......... 71,963,590 997,195 -- 2,853,587 5,216,548 2,881,100
End of period............... 95,845,614 500,732 -- 5,081,172 6,512,722 4,886,026
----------- --------- -------- ---------- ---------- ----------
Net change in unrealized
appreciation (depreciation).. 23,882,024 (496,463) -- 2,227,585 1,296,174 2,004,926
Net realized gain (loss) on
investments.................. 209,809 (657) -- 1,270 14,663 9,736
----------- --------- -------- ---------- ---------- ----------
Net realized and unrealized
gain (loss) on investments... 24,091,833 (497,120) -- 2,228,855 1,310,837 2,014,662
----------- --------- -------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS.................... $22,731,970 $(586,338) $514,434 $2,158,480 $1,239,354 $1,955,449
=========== ========= ======== ========== ========== ==========
</TABLE>
See Notes to Financial Statements
102
<PAGE>
<TABLE>
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
---------------------------------------------------------------------------------------------------------------- -----------
VALUE SMALL EQUITY INTERNATIONAL VENTURE EQUITY- HIGH ASSET
GROWTH CAP BALANCED GROWTH EQUITY VALUE INCOME OVERSEAS INCOME MANAGER
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ----------- ------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$-- $-- $-- $-- $-- $-- $ 2,662,990 $1,164,550 $199,463 $174,907
42,766 31,125 3,065 35,347 6,487 19,771 188,019 147,792 7,913 8,876
---------- ---------- ------- -------- -------- -------- ----------- ---------- -------- --------
(42,766) (31,125) (3,065) (35,347) (6,487) (19,771) 2,474,971 1,016,758 191,550 166,031
2,105,777 768,552 3,769 65,901 24,089 171,931 9,642,454 4,022,725 167,043 269,255
2,708,687 2,199,216 44,807 494,214 175,471 632,159 10,410,830 6,408,615 140,279 256,990
---------- ---------- ------- -------- -------- -------- ----------- ---------- -------- --------
602,910 1,430,664 41,038 428,313 151,382 460,228 768,376 2,385,890 (26,764) (12,265)
2,792 32,052 305 (302) 793 635 4,426 23,389 1,502 2,495
---------- ---------- ------- -------- -------- -------- ----------- ---------- -------- --------
605,702 1,462,716 41,343 428,011 152,175 460,863 772,802 2,409,279 (25,262) (9,770)
---------- ---------- ------- -------- -------- -------- ----------- ---------- -------- --------
$ 562,936 $1,431,591 $38,278 $392,664 $145,688 $441,092 $ 3,247,773 $3,426,037 $166,288 $156,261
========== ========== ======= ======== ======== ======== =========== ========== ======== ========
<CAPTION>
- -------------
TOTAL
------------
<S>
$ 4,787,452
2,212,421
------------
2,575,031
101,153,516
136,297,534
------------
35,144,018
302,908
------------
35,446,926
------------
$ 38,021,957
============
</TABLE>
See Notes to Financial Statements
103
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
---------------------------------------------------------------------------
CAPITAL BOND MONEY STOCK AVANTI
GROWTH INCOME MARKET INDEX MANAGED GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCOME
Dividends.............. $ -- $ -- $564,140 $ -- $ -- $ --
EXPENSE
Mortality and expense
risk charge (Note 3).. 957,237 65,466 56,121 40,416 51,579 30,976
----------- ----------- -------- ----------- ---------- ----------
Net investment income
(loss)................ (957,237) (65,466) 508,019 (40,416) (51,579) (30,976)
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of period.. 9,892,073 (2,028,893) -- (1,645,744) 703,242 205,680
End of period........ 97,554,400 875,829 -- 959,698 3,649,734 2,235,192
----------- ----------- -------- ----------- ---------- ----------
Net change in
unrealized
appreciation
(depreciation)........ 87,662,327 2,904,722 -- 2,605,442 2,946,492 2,029,512
Net realized gain
(loss) on
investments........... 472,396 591 -- 1,234 14,137 10,282
----------- ----------- -------- ----------- ---------- ----------
Net realized and
unrealized gain
(loss) on
investments........... 88,134,723 2,905,313 -- 2,606,676 2,960,629 2,039,794
----------- ----------- -------- ----------- ---------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $87,177,486 $2,839,847 $508,019 $ 2,566,260 $2,909,050 $2,008,818
=========== =========== ======== =========== ========== ==========
</TABLE>
See Notes to Financial Statements
104
<PAGE>
<TABLE>
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
--------------------------------------------------------------------------------------------------------------- -----------
VALUE SMALL EQUITY INTERNATIONAL VENTURE EQUITY HIGH ASSET
GROWTH CAP BALANCED GROWTH EQUITY GROWTH INCOME OVERSEAS INCOME MANAGER
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ----------- ------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ -- $ -- $ -- $1,740,446 $ 282,520 $ 8,412 $11,896
20,921 6,642 13 675 128 508 93,571 111,562 1,846 3,303
---------- -------- ---- ------- ------- ------- ---------- ---------- ------- -------
(20,921) (6,642) (13) (675) (128) (508) 1,646,875 170,958 6,566 8,593
1,918 4,662 -- -- -- -- 149,659 260,895 213 (1,503)
1,397,000 264,055 573 79,573 (3,820) 27,865 3,425,550 1,750,898 55,614 65,677
---------- -------- ---- ------- ------- ------- ---------- ---------- ------- -------
1,395,082 259,393 573 79,573 (3,820) 27,865 3,275,891 1,490,003 55,401 67,180
3,797 1,553 52 6 (62) 33 2,706 3,044 932 1,426
---------- -------- ---- ------- ------- ------- ---------- ---------- ------- -------
1,398,879 260,946 625 79,579 (3,882) 27,898 3,278,597 1,493,047 56,333 68,606
---------- -------- ---- ------- ------- ------- ---------- ---------- ------- -------
$1,377,958 $254,304 $612 $78,904 $(4,010) $27,390 $4,925,472 $1,664,005 $62,899 $77,199
========== ======== ==== ======= ======= ======= ========== ========== ======= =======
<CAPTION>
- -------------
TOTAL
------------
<C>
$ 2,607,414
1,440,964
------------
1,166,450
7,542,202
112,337,838
------------
104,795,636
512,127
------------
105,307,763
------------
$106,474,213
============
</TABLE>
See Notes to Financial Statements
105
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1994 (UNAUDITED)
See Notes to Financial Statements
<TABLE>
<CAPTION>
VARIABLE INSURANCE
NEW ENGLAND ZENITH FUND PRODUCTS FUND
--------------------------------------------------------------------------------------- -----------------------
CAPITAL BOND MONEY STOCK AVANTI VALUE EQUITY
GROWTH INCOME MARKET INDEX MANAGED GROWTH GROWTH INCOME OVERSEAS
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME
Dividends....... $ -- $ -- $260,487 $ -- $ -- $ -- $ -- $ 438,262 $ 69,390
EXPENSE
Mortality and
expense risk
charge (Note 3). 791,830 52,229 42,483 27,189 41,554 12,397 6,653 23,528 48,988
------------ --------- -------- ----------- ---------- --------- --------- --------- --------
Net investment
income (loss)... (791,830) (52,229) 218,004 (27,189) (41,554) (12,397) (6,653) 414,734 20,402
NET REALIZED AND
UNREALIZED GAIN
(LOSS) ON
INVESTMENTS
Net unrealized
appreciation
(depreciation)
on investments:
Beginning of
period.......... 46,100,393 41,284 -- (1,457,732) 1,602,795 143,154 67,310 93,013 700,341
End of period... 28,176,440 (898,423) -- (1,831,944) 851,996 (279,074) (93,805) (306,789) 898,893
------------ --------- -------- ----------- ---------- --------- --------- --------- --------
Net change in
unrealized
appreciation
(depreciation).. (17,923,953) (939,707) -- (374,212) (750,799) (422,228) (161,115) (399,802) 198,552
Net realized
gain (loss) on
investments..... 117,667 1,641 -- 2,919 (4,548) 653 851 (417) (258)
------------ --------- -------- ----------- ---------- --------- --------- --------- --------
Net realized and
unrealized gain
(loss) on
investments..... (17,806,286) (938,066) -- (371,293) (755,347) (421,575) (160,264) (400,219) 198,294
------------ --------- -------- ----------- ---------- --------- --------- --------- --------
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS.. $(18,598,116) $(990,295) $218,004 $ (398,482) $ (796,901) $(433,972) $(166,917) $ 14,515 $218,696
============ ========= ======== =========== ========== ========= ========= ========= ========
<CAPTION>
-------------
TOTAL
-------------
<S> <C>
INCOME
Dividends....... $ 768,139
EXPENSE
Mortality and
expense risk
charge (Note 3). 1,046,851
-------------
Net investment
income (loss)... (278,712)
NET REALIZED AND
UNREALIZED GAIN
(LOSS) ON
INVESTMENTS
Net unrealized
appreciation
(depreciation)
on investments:
Beginning of
period.......... 47,290,558
End of period... 26,517,294
-------------
Net change in
unrealized
appreciation
(depreciation).. (20,773,264)
Net realized
gain (loss) on
investments..... 118,508
-------------
Net realized and
unrealized gain
(loss) on
investments..... (20,654,756)
-------------
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS.. $(20,933,468)
=============
</TABLE>
106
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
107
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
------------------------------------------------------------------------------
CAPITAL BOND MONEY STOCK AVANTI
GROWTH INCOME MARKET INDEX MANAGED GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES
Net investment income
(loss)............... $ (1,359,863) $ (89,218) $ 514,434 $ (70,375) $ (71,483) $ (59,213)
Net realized and
unrealized gain
(loss) on
investments.......... 24,091,833 (497,120) -- 2,228,855 1,310,837 2,014,662
------------ ----------- ------------ ----------- ----------- -----------
Increase (decrease)
in net assets
derived from
investment
activities......... 22,731,970 (586,338) 514,434 2,158,480 1,239,354 1,955,449
FROM POLICY-RELATED
TRANSACTIONS
Net premiums
transferred from New
England Variable
Life Insurance
Company.............. 53,435,648 4,218,292 33,049,580 2,902,396 2,664,297 3,149,453
Net transfers (to)
from other sub-
accounts............. 1,339,350 592,254 (28,343,980) 2,111,786 190,777 1,126,268
Net transfers to New
England Variable
Life Insurance
Company.............. (38,294,306) (2,633,015) (3,802,787) (2,505,089) (1,948,255) (2,324,302)
------------ ----------- ------------ ----------- ----------- -----------
Increase in net
assets derived from
policy related
transactions....... 16,480,692 2,177,531 902,813 2,509,093 906,819 1,951,419
------------ ----------- ------------ ----------- ----------- -----------
Net increase in net
assets............... 39,212,662 1,591,193 1,417,247 4,667,573 2,146,173 3,906,868
NET ASSETS, AT
BEGINNING OF THE
PERIOD ............... 394,834,656 26,679,137 19,431,856 18,575,150 21,999,000 14,337,457
------------ ----------- ------------ ----------- ----------- -----------
NET ASSETS, AT END OF
THE PERIOD ........... $434,047,318 $28,270,330 $ 20,849,103 $23,242,723 $24,145,173 $18,244,325
============ =========== ============ =========== =========== ===========
</TABLE>
See Notes to Financial Statements
108
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
- ------------------------------------------------------------------------------ -------------------------------------
VALUE SMALL EQUITY INTERNATIONAL VENTURE EQUITY- HIGH
GROWTH CAP BALANCED GROWTH EQUITY VALUE INCOME OVERSEAS INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ----------- ----------- ----------- ----------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ (42,766) $ (31,125) $ (3,065) $ (35,347) $ (6,487) $ (19,771) $ 2,474,971 $ 1,016,758 $ 191,550
605,702 1,462,716 41,343 428,011 152,175 460,863 772,802 2,409,279 (25,262)
- ----------- ----------- ---------- ----------- ---------- ----------- ----------- ----------- ----------
562,936 1,431,591 38,278 392,664 145,688 441,092 3,247,773 3,426,037 166,288
2,342,172 1,905,133 242,433 3,550,409 546,876 1,778,905 9,205,421 8,101,022 427,597
1,245,146 2,952,358 794,239 7,071,895 1,398,090 3,421,648 5,173,468 76,744 483,284
(1,400,233) (1,548,285) (233,889) (2,842,352) (411,886) (1,418,288) (6,412,413) (5,503,590) (252,768)
- ----------- ----------- ---------- ----------- ---------- ----------- ----------- ----------- ----------
2,187,085 3,309,206 802,783 7,779,952 1,533,080 3,782,265 7,966,476 2,674,176 658,113
- ----------- ----------- ---------- ----------- ---------- ----------- ----------- ----------- ----------
2,750,021 4,740,797 841,061 8,172,616 1,678,768 4,223,357 11,214,249 6,100,213 824,401
10,310,478 6,544,996 418,211 5,712,498 953,848 3,386,440 47,352,852 38,382,219 1,742,493
- ----------- ----------- ---------- ----------- ---------- ----------- ----------- ----------- ----------
$13,060,499 $11,285,793 $1,259,272 $13,885,114 $2,632,616 $ 7,609,797 $58,567,101 $44,482,432 $2,566,894
=========== =========== ========== =========== ========== =========== =========== =========== ==========
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- ---------------------------
ASSET
MANAGER
SUB-ACCOUNT TOTAL
------------ -------------
<S> <C>
$ 166,031 $ 2,575,031
(9,770) 35,446,926
------------ -------------
156,261 38,021,957
577,897 128,097,531
366,673 --
(356,241) (71,887,699)
------------ -------------
588,329 56,209,832
------------ -------------
744,590 94,231,789
1,972,993 612,634,284
------------ -------------
$2,717,583 $706,866,073
============ =============
</TABLE>
See Notes to Financial Statements
109
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
------------------------------------------------------------------------------
CAPITAL BOND MONEY STOCK AVANTI
GROWTH INCOME MARKET INDEX MANAGED GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES
Net investment income
(loss)............... $ (957,237) $ (65,466) $ 508,019 $ (40,416) $ (51,579) $ (30,976)
Net realized and
unrealized gain
(loss) on
investments.......... 88,134,723 2,905,313 -- 2,606,676 2,960,629 2,039,794
------------ ----------- ------------ ----------- ----------- -----------
Increase (decrease)
in net assets
derived from
investment
activities......... 87,177,486 2,839,847 508,019 2,566,260 2,909,050 2,008,818
FROM POLICY-RELATED
TRANSACTIONS
Net premiums
transferred from New
England Variable
Life Insurance
Company.............. 49,734,998 3,544,173 18,550,018 2,071,157 2,195,879 2,349,422
Net transfers (to)
from other sub-
accounts............. (6,736,788) 1,120,498 (16,699,146) 1,420,830 263,128 1,761,125
Net transfers to New
England Variable
Life Insurance
Company.............. (33,892,334) (2,096,225) (2,543,340) (1,506,471) (1,743,836) (1,650,709)
------------ ----------- ------------ ----------- ----------- -----------
Increase (decrease)
in net assets
derived from
policy-related
transactions....... 9,105,876 2,568,446 (692,468) 1,985,516 715,171 2,459,838
------------ ----------- ------------ ----------- ----------- -----------
Net increase
(decrease) in net
assets............... 96,283,362 5,408,293 (184,449) 4,551,776 3,624,221 4,468,656
NET ASSETS, AT
BEGINNING OF THE
PERIOD................ 249,494,737 16,750,131 16,880,743 9,678,964 14,759,578 6,411,211
------------ ----------- ------------ ----------- ----------- -----------
NET ASSETS, AT END OF
THE PERIOD............ $345,778,099 $22,158,424 $ 16,696,294 $14,230,740 $18,383,799 $10,879,867
============ =========== ============ =========== =========== ===========
</TABLE>
See Notes to Financial Statements
110
<PAGE>
<TABLE>
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- ----------------------------------------------------------------------------- ------------------------------------- -----------
VALUE SMALL EQUITY INTERNATIONAL VENTURE EQUITY HIGH ASSET
GROWTH CAP BALANCED GROWTH EQUITY GROWTH INCOME OVERSEAS INCOME MANAGER
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ----------- ----------- ----------- ----------- ------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ (20,921) $ (6,642) $ (13) $ (675) $ (128) $ (508) $ 1,646,875 $ 170,958 $ 6,566 $ 8,593
1,398,879 260,946 625 79,579 (3,882) 27,898 3,278,597 1,493,047 56,333 68,606
- ----------- ---------- ------- ---------- -------- --------- ----------- ----------- --------- ----------
1,377,958 254,304 612 78,904 (4,010) 27,390 4,925,472 1,664,005 62,899 77,199
1,497,200 674,650 900 24,947 9,485 24,004 6,224,222 8,425,634 112,982 270,411
1,634,366 3,015,492 54,304 1,247,281 279,885 898,179 8,902,110 492,201 973,615 1,372,920
(1,125,185) (806,258) (5,066) (179,460) (42,059) (127,498) (4,621,563) (4,184,101) (198,454) (440,380)
- ----------- ---------- ------- ---------- -------- --------- ----------- ----------- --------- ----------
2,006,381 2,883,884 50,138 1,092,768 247,311 794,685 10,504,769 4,733,734 888,143 1,202,951
- ----------- ---------- ------- ---------- -------- --------- ----------- ----------- --------- ----------
3,384,339 3,138,188 50,750 1,171,672 243,301 822,075 15,430,241 6,397,739 951,042 1,280,150
4,092,981 190,830 -- -- -- -- 19,132,167 27,868,832 30,422 200,694
- ----------- ---------- ------- ---------- -------- --------- ----------- ----------- --------- ----------
$ 7,477,320 $3,329,018 $50,750 $1,171,672 $243,301 $ 822,075 $34,562,408 $34,266,571 $ 981,464 $1,480,844
=========== ========== ======= ========== ======== ========= =========== =========== ========= ==========
<CAPTION>
- --------------
TOTAL
-------------
<S>
$ 1,166,450
105,307,763
-------------
106,474,213
95,710,082
--
(55,162,939)
-------------
40,547,143
-------------
147,021,356
365,491,290
-------------
$512,512,646
=============
</TABLE>
See Notes to Financial Statements
111
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
-------------------------------------------------------------------------------------------
CAPITAL BOND MONEY STOCK AVANTI VALUE
GROWTH INCOME MARKET INDEX MANAGED GROWTH GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ----------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES
Net investment
income (loss)... $ (791,830) $ (52,229) $ 218,004 $ (27,189) $ (41,554) $ (12,397) $ (6,653)
Net realized and
unrealized gain
(loss) on
investments..... (17,806,286) (938,066) -- (371,293) (755,347) (421,575) (160,264)
------------ ----------- ------------ ----------- ----------- ---------- ----------
Increase
(decrease) in
net assets
derived from
investment
activities...... (18,598,116) (990,295) 218,004 (398,482) (796,901) (433,972) (166,917)
FROM POLICY-
RELATED
TRANSACTIONS
Net premiums
transferred from
New England
Variable Life
Insurance
Company......... 49,862,225 3,075,314 19,503,281 1,849,762 1,887,274 1,359,085 644,341
Net transfers
(to) from other
sub-accounts.... 337,418 (765,574) (14,187,909) 232,168 (419,362) 1,356,107 866,967
Net transfers to
New England
Variable Life
Insurance
Company......... (27,715,942) (1,956,957) (2,262,853) (1,058,382) (1,354,649) (861,494) (445,323)
------------ ----------- ------------ ----------- ----------- ---------- ----------
Increase in net
assets derived
from policy-
related
transactions.... 22,483,701 352,783 3,052,519 1,023,548 113,263 1,853,698 1,065,985
------------ ----------- ------------ ----------- ----------- ---------- ----------
Net increase
(decrease) in
net assets...... 3,885,585 (637,512) 3,270,523 625,066 (683,638) 1,419,726 899,068
NET ASSETS, AT
BEGINNING OF THE
PERIOD.......... 229,946,670 16,444,862 12,758,384 7,369,159 14,204,213 2,663,683 1,501,043
------------ ----------- ------------ ----------- ----------- ---------- ----------
NET ASSETS, AT
END OF THE
PERIOD.......... $233,832,255 $15,807,350 $ 16,028,907 $ 7,994,225 $13,520,575 $4,083,409 $2,400,111
============ =========== ============ =========== =========== ========== ==========
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
-------------------------
EQUITY
INCOME OVERSEAS
SUB-ACCOUNT SUB-ACCOUNT TOTAL
------------ ------------ -------------
<S> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES
Net investment
income (loss)... $ 414,734 $ 20,402 $ (278,712)
Net realized and
unrealized gain
(loss) on
investments..... (400,219) 198,294 (20,654,756)
------------ ------------ -------------
Increase
(decrease) in
net assets
derived from
investment
activities...... 14,515 218,696 (20,933,468)
FROM POLICY-
RELATED
TRANSACTIONS
Net premiums
transferred from
New England
Variable Life
Insurance
Company......... 3,416,999 4,184,916 85,783,197
Net transfers
(to) from other
sub-accounts.... 4,180,528 8,399,657 --
Net transfers to
New England
Variable Life
Insurance
Company......... (2,006,902) (3,753,018) (41,415,520)
------------ ------------ -------------
Increase in net
assets derived
from policy-
related
transactions.... 5,590,625 8,831,555 44,367,677
------------ ------------ -------------
Net increase
(decrease) in
net assets...... 5,605,140 9,050,251 23,434,209
NET ASSETS, AT
BEGINNING OF THE
PERIOD.......... 4,281,914 9,453,665 298,623,593
------------ ------------ -------------
NET ASSETS, AT
END OF THE
PERIOD.......... $ 9,887,054 $18,503,916 $322,057,802
============ ============ =============
</TABLE>
See Notes to Financial Statements
112
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. New England Variable Life Separate Account (the "Account") of New England
Variable Life Insurance Company ("NEVLICO"), was established by NEVLICO's
Board of Directors on January 31, 1983 in accordance with the regulations of
the Delaware Insurance Department. NEVLICO is a wholly-owned subsidiary of New
England Mutual Life Insurance Company ("The New England"). The Account is
registered as a unit investment trust under the Investment Company Act of
1940. The assets of the Account are owned by NEVLICO. However, that portion of
the Account assets equal to the reserves and other liabilities of the Account
may not be charged with liabilities that arise out of any other business
NEVLICO may conduct.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The accompanying financial statements of the Account are unaudited, but in the
opinion of management include all adjustments (Consisting of only normally
recurring adjustments) necessary for the fair presentation thereof. The
results of operations for each of the six month periods ending June 30, 1996,
1995 and 1994 are not necessarily indicative of results to be expected for the
full year or any future periods.
2. The Account has sixteen investment sub-accounts each of which invests in
the shares of one portfolio of the New England Zenith Fund ("Zenith Fund"),
the Variable Insurance Products Fund or the Variable Insurance Products Fund
II. The portfolios of the Zenith Fund, the Variable Insurance Products Fund
and Variable Insurance Products Fund II in which the sub-accounts invest are
referred to herein as the "Eligible Funds". The Zenith Fund, the Variable
Insurance Products Fund and the Variable Insurance Products Fund II are
diversified, open-end management investment companies. The Account purchases
or redeems shares of the sixteen Eligible Funds based on the amount of net
premiums invested in the Account, transfers among the sub-accounts, policy
loans, surrender payments, and death benefit payments. The values of the
shares of the Eligible Funds are determined as of the close of the New York
Stock Exchange (normally 4:00 p.m. Boston time) on each day the Exchange is
open for trading. Realized gains and losses on the sale of the Eligible Funds'
shares are computed on the basis of identified cost on the trade date. Income
from dividends is recorded on the ex-dividend date.
3. Certain deductions are made from each premium payment paid to NEVLICO to
arrive at a net premium that is transferred to the Account, and certain
deductions are made from the variable life insurance policies' cash value.
These deductions include sales load, administrative expenses, a risk charge,
state premium taxes and the cost of providing insurance protection. Charges
for investment advisory fees and other expenses are deducted from the assets
of the Eligible Funds.
NEVLICO charges the Account for mortality and expense risks NEVLICO assumes.
Currently, the charges are made daily at an annual rate of .35% of the Account
assets attributable to fixed premium ("Zenith Life") variable life policies,
.45% of the Account assets attributable to single premium ("Zenith Life One")
variable life policies, .60% of the Account assets attributable to variable
ordinary ("Zenith Life Plus" and "Zenith Life Plus II") life policies and
limited payment ("Zenith Life Executive 65") variable life policies, .90% of
the Account assets attributable to variable survivorship ("Zenith Survivorship
Life") life policies, and .75% of the Accounts assets attributable to flexible
premium ("Zenith Flexible Life") variable life policies.
4. For federal income tax purposes the Account's operations are included with
those of NEVLICO. NEVLICO intends to make appropriate charges against the
Account in the future if and when tax liabilities arise.
113
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. The adviser and sub-adviser for each series of the Zenith Fund are listed
in the chart below. TNE Advisers, Inc. which is a subsidiary of The New
England, and each of the sub-advisers are registered with the SEC as
investment advisers under the Investment Advisers Act of 1940.
<TABLE>
<CAPTION>
SERIES ADVISER SUB-ADVISER
------ ---------------------------------------- ------------------------------------
<S> <C> <C>
Capital Growth Capital Growth Management, L.P. ("CGM")*
Back Bay Advisors Money Market TNE Advisers, Inc. Back Bay Advisors, L.P.**
Back Bay Advisors Bond Income TNE Advisers, Inc. Back Bay Advisors, L.P.**
Back Bay Advisors Managed TNE Advisers, Inc. Back Bay Advisors, L.P.**
Westpeak Stock Index TNE Advisers, Inc. Westpeak Investment Advisors, L.P.**
Westpeak Value Growth TNE Advisers, Inc. Westpeak Investment Advisors, L.P.**
Loomis Sayles Avanti Growth TNE Advisers, Inc. Loomis, Sayles & Company, L.P.**
Loomis Sayles Small Cap TNE Advisers, Inc. Loomis, Sayles & Company, L.P.**
Loomis Sayles Balanced TNE Advisers, Inc. Loomis, Sayles & Company, L.P.**
Draycott International Equity TNE Advisers, Inc. Draycott Partners, Ltd.
Venture Value TNE Advisers, Inc. Davis Selected Advisers, Inc.
Alger Equity Growth TNE Advisers, Inc. Fred Alger Management, Inc.
</TABLE>
* An affiliate of The New England
** An indirect subsidiary of The New England
In the case of the Back Bay Advisors Money Market Series, Back Bay Advisors
Bond Income Series, Back Bay Advisors Managed Series, Westpeak Stock Index
Series, Westpeak Value Growth Series, Loomis Sayles Avanti Growth Series and
Loomis Sayles Small Cap Series, TNE Advisers became the adviser on May 1,
1995. Prior to that date those series were advised by their current sub-
adviser, except as follows. The New England itself served as investment
adviser to the Back Bay Advisors Money Market Series and Back Bay Advisors
Bond Income Series until September 10, 1986 when Back Bay Advisors assumed The
New England's responsibilities under the investment advisory agreements with
those Series. Back Bay Advisors served as investment adviser to the Westpeak
Stock Index Series until August 2, 1993, when Westpeak became the investment
adviser. The Capital Growth Series was managed by Loomis, Sayles until March
1, 1990, when its Capital Growth Management Division was reorganized into CGM.
The Equity-Income, Overseas, and High Income Portfolios of the Variable
Insurance Products Fund and the Asset Manager Portfolio of the Variable
Insurance Products Fund II receive investment advice from Fidelity Management
& Research Company.
6. The following table shows the aggregate cost of shares purchased and
proceeds from sales of each sub-account as of June 30, 1996:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
Capital Growth Series $75,982,904 $56,621,847
Back Bay Advisors Bond Income Series 7,805,023 5,410,760
Back Bay Advisors Money Market Series 39,160,663 36,697,311
Westpeak Stock Index Series 6,703,825 3,512,028
Back Bay Advisors Managed Series 4,502,908 3,282,381
Loomis Sayles Avanti Growth Series 5,789,760 2,968,047
Westpeak Value Growth Series 4,463,192 1,788,676
Loomis Sayles Small Cap Series 6,274,182 2,761,705
Loomis Sayles Balanced Series 1,212,151 258,719
Alger Equity Growth Series 11,847,413 2,323,623
Draycott International Equity Series 2,178,562 398,948
Venture Value Series 5,976,896 1,324,108
Equity-Income Portfolio 20,612,983 7,874,753
Overseas Portfolio 14,529,153 9,445,809
High Income Portfolio 1,555,631 653,892
Asset Manager Portfolio 1,490,239 755,532
</TABLE>
114
<PAGE>
[LOGO OF THE NEW ENGLAND APPEARS HERE]
-------------------
Bulk Rate
U.S. Postage
PAID
Hudson, MA
Permit No. 19
-------------------
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
501 BOYLSTON STREET
BOSTON, MASSACHUSETTS 02116
EQUAL OPPORTUNITY EMPLOYER M/F
(C) 1996 NEW ENGLAND VARIABLE LIFE INSURANCE COMPANY
(C) 1996 NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
This booklet has been prepared for variable contract owners of
New England Variable Life Insurance Company and of The New
England.
(2_FIDELITY_LOGOS)
VARIABLE INSURANCE PRODUCTS
FUND
MONEY MARKET PORTFOLIO
HIGH INCOME PORTFOLIO
EQUITY-INCOME PORTFOLIO
GROWTH PORTFOLIO
OVERSEAS PORTFOLIO
SEMIANNUAL REPORT
JUNE 30, 1996
CONTENTS
MONEY MARKET PORTFOLIO VIPF-3 PERFORMANCE
VIPF-4 FUND TALK: THE MANAGER'S OVERVIEW
VIPF-5 INVESTMENTS
VIPF-8 FINANCIAL STATEMENTS
HIGH INCOME PORTFOLIO VIPF-10 PERFORMANCE AND INVESTMENT SUMMARY
VIPF-11 FUND TALK: THE MANAGER'S OVERVIEW
VIPF-12 INVESTMENTS
VIPF-18 FINANCIAL STATEMENTS
EQUITY-INCOME PORTFOLIO VIPF-20 PERFORMANCE AND INVESTMENT SUMMARY
VIPF-21 FUND TALK: THE MANAGER'S OVERVIEW
VIPF-22 INVESTMENTS
VIPF-27 FINANCIAL STATEMENTS
GROWTH PORTFOLIO VIPF-29 PERFORMANCE AND INVESTMENT SUMMARY
VIPF-30 FUND TALK: THE MANAGER'S OVERVIEW
VIPF-31 INVESTMENTS
VIPF-36 FINANCIAL STATEMENTS
OVERSEAS PORTFOLIO VIPF-38 PERFORMANCE AND INVESTMENT SUMMARY
VIPF-39 FUND TALK: THE MANAGER'S OVERVIEW
VIPF-40 INVESTMENTS
VIPF-44 FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS VIPF-46 NOTES TO THE FINANCIAL STATEMENTS
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.
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 both the change
in a fund's share price over a given period, and reinvestment of its
dividends (or income). 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.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED PAST 1 PAST 5 PAST 10
JUNE 30, 1996 YEAR YEARS YEARS
Money Market 5.55% 4.54% 5.99%
AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return
and show you what would have happened if the fund had achieved that return
by performing at a constant rate each year.
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.
If Fidelity had not reimbursed certain fund expenses, the fund's five year
and 10 year total returns would have been lower. Yield will vary.
YIELD
Row: 1, Col: 1, Value: 5.85
Row: 1, Col: 2, Value: 2.87
Row: 2, Col: 1, Value: 5.64
Row: 2, Col: 2, Value: 2.86
Row: 3, Col: 1, Value: 5.56
Row: 3, Col: 2, Value: 2.83
Row: 4, Col: 1, Value: 5.13
Row: 4, Col: 2, Value: 2.71
Row: 5, Col: 1, Value: 5.159999999999999
Row: 5, Col: 2, Value: 2.66
Money Market
MMDA
6% -
5% -
4% -
3% -
2% -
1% -
0%
6/28/95 9/27/95 12/27/95 4/3/96 6/26/96
Money Market 5.85% 5.64% 5.56% 5.13% 5.16%
MMDA 2.87% 2.86% 2.83% 2.71% 2.66%
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. This is compared to similar yields for the average bank money
market deposit account (MMDA). The MMDA average is supplied by BANK RATE
MONITOR.(Trademark)
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.
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND: MONEY MARKET PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
An interview with
Bob Litterst, Portfolio
Manager of Money
Market Portfolio
Q. BOB, HOW HAS THE INVESTMENT CLIMATE CHANGED DURING THE PAST SIX MONTHS?
A. It has changed dramatically. Six months ago, the economy was growing
slowly, inflationary pressures were mild and, on the fiscal front, Congress
and the White House appeared headed toward a balanced budget agreement. In
December 1995, just before the period began, the Federal Reserve had
lowered the rate banks charge each other for overnight loans - known as the
federal funds rate - one-quarter percentage point. On January 31, 1996, the
Fed cut the federal funds rate again, to 5.25%. By then, market
participants were so optimistic about the prospect of further rate cuts
that the money market yield curve was inverted; that is, rates fell rather
than rose at longer maturities.
Q. WHEN DID THE SHIFT IN SENTIMENT OCCUR?
A. The first indication that conditions might be about to change was Fed
Chairman Alan Greenspan's February testimony before Congress, which
dampened hopes of further rate cuts. Then came the February employment
report, which came in well above analysts' predictions. Because they're so
volatile, monthly employment numbers aren't always very accurate indicators
of long-term trends. But with the release of subsequent monthly employment
numbers, the trend solidified. We know now that during the first six months
of 1996, the economy created more than 230,000 new jobs per month, much
higher than in 1995 and almost double the rate of growth in the labor
force. While the recent strength in the labor market is probably not
sustainable, it has shown no signs of abating and will likely contribute to
robust economic activity in the second quarter and beyond. Meanwhile, the
trend toward lower inflation began to deteriorate, albeit at a moderate
pace. Initially, increases in food and energy prices were the prime
drivers. More recently, signs of rising wage pressures have appeared. As a
result, market participants have pushed short-term interest rates steadily
higher while reassessing when the Fed might choose to raise the federal
funds rate.
Q. HOW DID YOU RESPOND TO CHANGING CONDITIONS?
A. When the period began, the fund's average maturity was 70 days,
reflecting my belief at the time that rates were likely to keep falling. As
market sentiment has shifted, I've shortened the fund's average maturity,
though not as much as you might expect; it was 61 days at the end of March.
Typically during periods of volatility, the market overreacts, creating
buying opportunities. That's why in recent months I've occasionally added
securities with maturities between six and 12 months, rather than shorten
up all at once. At the end of June, the fund's average maturity was 58
days.
Q. WHAT'S THE OUTLOOK?
A. The consensus among most market participants as we head into the third
quarter of 1996 is that the economy has considerable momentum. Job growth
is very strong, unemployment is at a new low for the cycle and wages are
beginning to move higher. It appears that during the second quarter, the
gross domestic product (GDP) expanded at an annual rate of at least 4%, on
the strength of consumer activity and inventory restocking. Earlier
forecasts for slower economic growth in the second half of the year, which
included those made by the Fed staff, appear less likely to be realized.
That increases the probability that the Fed will lift short-term rates to
curtail inflationary pressures in the economy. In the past, the Fed has
been reluctant to intervene on the eve of a presidential election. This
time, however, it may have no choice. If the Fed does act, the most likely
time would be at the next meeting of the Federal Open Market Committee in
August. When the period ended, the fund's average maturity was 58 days, or
slightly longer than neutral. Looking ahead, I'll probably aim to shorten
up even more, at least enough to get the fund on the short side of neutral,
probably between 40 and 50 days.
FUND FACTS
GOAL: income and share price stability by
investing in high quality, short-term instruments
START DATE: April 1, 1982
SIZE: as of June 30, 1996, more than $826
million
MANAGER: Robert Litterst, since 1992; joined
Fidelity in 1991
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND: MONEY MARKET PORTFOLIO
INVESTMENTS JUNE 30, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
BANKERS' ACCEPTANCES - 0.5%
ANNUALIZED
YIELD AT
DUE TIME OF PRINCIPAL VALUE
DATE PURCHASE AMOUNT (NOTE 1)
CHASE MANHATTAN BANK
7/1/96 5.40% $ 1,241,965 $ 1,241,597
8/13/96 5.45 1,836,798 1,824,376
10/3/96 5.48 446,151 439,786
10/15/96 5.49 460,254 452,867
TOTAL BANKERS' ACCEPTANCES 3,958,626
CERTIFICATES OF DEPOSIT - 27.5%
DOMESTIC CERTIFICATES OF DEPOSIT - 1.9%
Bank of New York
4/29/97 5.80 3,000,000 3,000,000
Chase Manhattan Bank (USA)
7/24/96 5.20 3,000,000 3,000,000
Old Kent Bank & Trust Co.
7/24/96 5.25 10,000,000 10,000,000
16,000,000
CHICAGO BRANCH, YANKEE DOLLAR, FOREIGN BANKS - 0.6%
ABN-AMRO Bank
12/2/96 5.51 5,000,000 5,000,000
NEW YORK BRANCH, YANKEE DOLLAR, FOREIGN BANKS - 14.5%
Banque Nationale de Paris
8/5/96 5.42 10,000,000 10,000,000
8/29/96 5.11 3,000,000 3,000,000
Bayerische Landesbank Girozentrale
7/30/96 5.60 (a) 10,000,000 10,000,000
4/22/97 5.85 6,000,000 6,000,000
Canadian Imperial Bank of Commerce
12/5/96 5.63 3,000,000 3,000,000
Commerzbank, Germany
9/3/96 5.18 10,000,000 10,000,000
9/6/96 5.40 4,000,000 4,000,075
Deutsche Bank, A.G.
8/1/96 5.19 10,000,000 10,000,000
Dresdner Bank, A.G.
7/5/96 5.05 2,000,000 2,000,078
12/16/96 5.62 12,000,000 12,000,000
Landesbank Hessen - Thuringen
9/9/96 5.40 4,000,000 4,000,000
Rabobank Nederland, N.V.
7/29/96 5.18 5,000,000 5,000,000
Societe Generale
7/9/96 5.37 5,000,000 5,000,000
7/17/96 5.34 20,000,000 20,000,000
9/3/96 5.13 10,000,000 10,000,000
Swiss Bank Corp.
8/8/96 5.16 3,000,000 2,999,459
Westdeutsche Landesbank
8/26/96 5.08 4,000,000 4,000,000
120,999,612
LONDON BRANCH, EURODOLLAR, DOMESTIC BANKS - 0.5%
Bank of America National Trust & Savings Assoc.
7/16/96 5.02 4,000,000 4,000,000
LONDON BRANCH, EURODOLLAR, FOREIGN BANKS - 10.0%
ABN-AMRO Bank
8/19/96 5.00 10,000,000 10,003,170
11/6/96 5.52 5,000,000 4,998,499
ANNUALIZED
YIELD AT
DUE TIME OF PRINCIPAL VALUE
DATE PURCHASE AMOUNT (NOTE 1)
Abbey National Treasury Services
8/30/96 5.42% $ 3,000,000 $ 2,999,615
12/3/96 5.52 10,000,000 10,000,000
Banco Bilbao Vizcaya, S.A.
7/15/96 5.41 7,000,000 7,000,031
Banque Nationale de Paris
8/8/96 5.00 4,000,000 4,000,149
8/30/96 5.50 4,000,000 3,997,139
Bayerische Hypotheken-und Weschel
9/9/96 5.15 10,000,000 10,000,194
9/17/96 5.40 3,000,000 2,999,897
11/27/96 5.50 3,000,000 2,999,755
Bayerische Vereinsbank A.G.
12/3/96 5.51 5,000,000 5,000,212
Deutsche Bank, A.G.
7/29/96 5.20 5,000,000 5,000,000
9/9/96 5.41 9,000,000 9,000,000
Societe Generale
12/18/96 5.63 5,000,000 5,000,909
82,999,570
TOTAL CERTIFICATES OF DEPOSIT 228,999,182
COMMERCIAL PAPER - 44.8%
ABN-AMRO North America Finance, Inc.
8/26/96 5.10 4,000,000 3,967,972
8/26/96 5.16 5,000,000 4,959,480
8/28/96 5.13 3,000,000 2,974,999
11/8/96 5.55 9,000,000 8,821,800
A.H. Robins Company, Incorporated
8/14/96 5.48 1,253,000 1,244,306
Abbott Laboratories
7/24/96 5.43 2,225,000 2,216,657
7/30/96 5.43 4,625,000 4,603,494
American Brands, Inc.
8/7/96 5.36 5,000,000 4,971,292
American Home Products
8/12/96 5.44 3,000,000 2,980,237
Asset Securitization Cooperative Corporation
8/6/96 5.42 5,000,000 4,971,658
8/19/96 5.44 2,000,000 1,984,700
Associates Corp. of North America
7/1/96 5.17 10,000,000 9,997,178
7/25/96 5.36 3,000,000 2,988,517
8/12/96 5.43 2,000,000 1,986,849
8/19/96 5.45 3,000,000 2,977,050
8/22/96 5.37 2,000,000 1,984,100
8/22/96 5.45 2,000,000 1,983,800
Bear Stearns Cos., Inc.
8/12/96 5.43 5,000,000 4,967,123
Beneficial Corp.
8/19/96 5.37 2,000,000 1,984,983
8/21/96 5.45 3,000,000 2,976,150
CIT Group Holdings, Inc.
8/12/96 5.38 2,000,000 1,987,020
8/12/96 5.44 4,000,000 3,973,600
Cheltenham & Gloucester Building Society
9/9/96 5.41 10,000,000 9,893,600
Chrysler Financial Corporation
7/29/96 5.45 3,000,000 2,986,500
COMMERCIAL PAPER - CONTINUED
ANNUALIZED
YIELD AT
DUE TIME OF PRINCIPAL VALUE
DATE PURCHASE AMOUNT (NOTE 1)
Citibank Credit Card MasterTrust I (Dakota Certificate Program)
7/8/96 5.35% $ 3,200,000 $ 3,195,744
7/25/96 5.36 1,000,000 996,164
8/20/96 5.46 4,982,000 4,943,141
8/21/96 5.46 5,000,000 4,960,250
Commonwealth Bank of Australia
7/23/96 5.43 2,000,000 1,992,800
CoreStates Capital Corp.
7/2/96 5.43 (a) 5,000,000 5,000,000
7/5/96 5.43 (a) 5,000,000 5,000,000
7/8/96 (c) 5.49 (a) 5,000,000 5,000,000
Corporate Asset Funding Co., Inc.
8/5/96 5.40 2,000,000 1,989,054
Delaware Funding Corporation
8/20/96 5.45 5,000,000 4,961,000
Dresdner U.S. Finance Inc.
8/26/96 5.13 6,500,000 6,447,639
du Pont (E.I.) de Nemours & Co.
8/9/96 5.00 5,400,000 5,369,988
Eiger Capital Corp.
7/22/96 5.42 1,000,000 996,550
Enterprise Funding Corp.
8/20/96 5.45 2,572,000 2,551,938
8/21/96 5.37 1,452,000 1,440,670
8/23/96 5.43 4,000,000 3,967,245
Ford Motor Credit Corp.
7/8/96 5.35 10,000,000 9,986,750
8/30/96 5.46 15,000,000 14,860,500
General Electric Capital Corp.
8/14/96 5.39 10,000,000 9,932,278
8/20/96 5.04 10,000,000 9,928,933
General Electric Capital Services Inc.
9/19/96 5.40 10,000,000 9,879,278
General Motors Acceptance Corp.
7/15/96 5.42 7,000,000 6,983,231
7/22/96 5.42 4,500,000 4,484,562
8/19/96 5.43 1,000,000 992,406
8/20/96 5.50 4,000,000 3,968,570
11/26/96 5.68 3,000,000 2,930,875
12/4/96 5.70 3,000,000 2,927,123
Generale Bank
7/17/96 5.41 2,000,000 1,994,610
Goldman Sachs Group, L.P. (The)
8/19/96 5.40 4,000,000 3,969,741
8/22/96 5.40 10,000,000 9,920,500
Government of Canada
9/6/96 5.15 5,000,000 4,951,892
Morgan (J.P.) & Co.
12/3/96 5.71 2,500,000 2,439,271
Morgan Stanley Group, Inc.
7/11/96 5.35 2,000,000 1,996,468
7/15/96 5.35 5,000,000 4,988,222
7/22/96 5.12 5,000,000 4,984,029
Nationwide Building Society
7/12/96 5.42 2,000,000 1,996,137
9/6/96 5.50 1,000,000 989,574
ANNUALIZED
YIELD AT
DUE TIME OF PRINCIPAL VALUE
DATE PURCHASE AMOUNT (NOTE 1)
New Center Asset Trust
8/5/96 5.40% $ 2,000,000 $ 1,989,044
8/12/96 5.43 4,000,000 3,973,845
8/19/96 5.41 4,000,000 3,969,684
9/27/96 5.43 4,000,000 3,947,100
11/26/96 5.64 7,475,000 7,303,387
PHH Corp.
7/22/96 5.47 (a) 3,000,000 2,999,832
Preferred Receivables Funding Corp.
7/2/96 5.33 4,270,000 4,268,113
7/25/96 5.36 10,000,000 9,961,723
Sears Roebuck Acceptance Corp.
7/26/96 5.42 5,000,000 4,979,769
8/13/96 5.44 2,000,000 1,986,512
8/14/96 5.44 2,000,000 1,986,212
Sherwood Medical Company
8/12/96 5.40 3,000,000 2,980,383
8/12/96 5.45 2,303,000 2,287,801
8/19/96 5.45 2,000,000 1,984,700
8/20/96 5.41 2,000,000 1,984,545
Textron, Inc.
7/11/96 5.51 1,000,000 998,174
7/15/96 5.54 1,000,000 997,551
U.S.L. Capital, Inc.
7/22/96 5.41 10,600,000 10,563,566
Unifunding, Inc.
9/3/96 5.44 3,000,000 2,970,493
Westpac Capital Corp.
7/25/96 5.24 12,000,000 11,955,756
8/5/96 5.06 10,000,000 9,949,331
10/9/96 5.50 10,000,000 9,848,417
TOTAL COMMERCIAL PAPER 372,186,136
FEDERAL AGENCIES - 4.3%
FEDERAL HOME LOAN BANK - AGENCY COUPONS (A) - 1.2%
7/2/96 5.35 5,000,000 4,998,848
9/20/96 5.44 5,000,000 4,998,504
9,997,352
FEDERAL NATIONAL MORTGAGE ASSOC. - AGENCY COUPONS - 2.5%
5/28/97 6.00 9,500,000 9,500,000
7/29/96 5.37 (a) 6,000,000 5,994,907
9/20/96 5.47 (a) 5,000,000 4,996,166
20,491,073
STUDENT LOAN MARKETING ASSOC. - AGENCY COUPONS (A) - 0.6%
7/16/96 5.50 5,000,000 5,000,000
TOTAL FEDERAL AGENCIES 35,488,425
BANK NOTES - 9.8%
Bank of America National Trust & Savings Assoc.
7/1/96 5.40 (a) 4,000,000 3,999,582
Bank of New York
9/3/96 5.16 3,000,000 3,000,000
Bank of New York - Delaware
7/30/96 5.64 (a) 8,000,000 8,000,000
BANK NOTES - CONTINUED
ANNUALIZED
YIELD AT
DUE TIME OF PRINCIPAL VALUE
DATE PURCHASE AMOUNT (NOTE 1)
Comerica Bank-Detroit
9/1/96 5.45% (a) $ 5,000,000 $ 4,999,337
Huntington National Bank
7/30/96 5.59 (a) 10,000,000 10,000,000
NationsBank of Texas
10/17/96 5.78 10,000,000 9,997,691
PNC Bank, N.A.
7/8/96 5.46 (a) 4,300,000 4,297,091
7/9/96 5.47 (a) 11,400,000 11,399,427
7/20/96 5.43 (a) 6,000,000 5,998,763
7/20/96 5.45 (a) 5,000,000 4,998,846
Seattle First National Bank
7/5/96 5.43 (a) 5,000,000 4,997,436
Wachovia Bank of North Carolina, N.A.
7/26/96 5.44 (a) 5,000,000 4,999,062
11/15/96 5.02 5,000,000 4,989,668
TOTAL BANK NOTES 81,676,903
MASTER NOTES (A) - 2.0%
Goldman Sachs Group, L.P. (The)
8/14/96 5.50 4,000,000 4,000,000
J.P. Morgan Securities
7/9/96 5.45 6,000,000 6,000,000
7/17/96 5.50 3,000,000 3,000,000
Norwest Corp.
7/1/96 5.53 4,000,000 4,000,000
TOTAL MASTER NOTES 17,000,000
MEDIUM-TERM NOTES - 6.3%
Abbey National Treasury Services (b)
9/9/96 5.57 (a) 10,000,000 10,000,000
Associates Corp. of North America
8/1/96 5.55 2,000,000 1,998,150
Beneficial Corp.
7/19/96 5.47 (a) 5,000,000 4,998,836
8/3/96 5.46 (a) 3,000,000 2,999,213
CIT Group Holdings, Inc.
7/1/96 5.40 (a) 5,000,000 4,998,945
Ford Motor Credit Corp.
7/9/96 5.10 1,700,000 1,701,758
General Motors Acceptance Corp.
7/5/96 5.34 (a) 2,000,000 2,000,090
7/28/96 5.55 (a) 1,000,000 1,001,545
8/1/96 5.48 (a) 5,000,000 5,000,000
Liquid Asset Backed Securities Trust (1996-1) (b)
7/15/96 5.52 (a) 4,000,000 4,000,000
Norwest Corp.
9/10/96 5.61 (a) 6,000,000 6,000,000
Philip Morris Cos., Inc.
7/1/96 5.55 5,000,000 5,000,841
Transamerica Life Insurance and Annuity Co.
9/15/96 5.61 (a) 3,000,000 3,000,000
TOTAL MEDIUM-TERM NOTES 52,699,378
SHORT-TERM NOTES (A) - 4.7%
ANNUALIZED
YIELD AT
DUE TIME OF PRINCIPAL VALUE
DATE PURCHASE AMOUNT (NOTE 1)
Capital One Funding Corp. (1994-B)
7/8/96 5.50% $ 3,490,000 $ 3,490,000
7/8/96 (d) 5.50 79,000 79,000
Capital One Funding Corp. (1995-E)
7/8/96 5.50 5,900,000 5,900,000
SMM Trust (1995-B) (b)
7/2/96 5.49 2,500,000 2,500,000
SMM Trust (1995-D) (b)
7/27/96 5.54 4,000,000 4,000,000
SMM Trust (1995-N) (b)
8/8/96 5.55 3,000,000 3,000,000
SMM Trust (1995-P) (b)
9/15/96 5.66 1,000,000 1,000,000
SMM Trust (1996-I) (b)
7/29/96 5.54 5,000,000 5,000,000
SMM Trust (1996-V) (b)
9/26/96 5.62 14,000,000 14,000,000
TOTAL SHORT-TERM NOTES 38,969,000
REPURCHASE AGREEMENTS - 0.1%
MATURITY
AMOUNT
In a joint trading account
(U.S. Government Obligations)
dated 6/28/96 due 7/1/96:
At 5.62% $ 460,215 460,000
TOTAL INVESTMENTS - 100% $ 831,437,650
Total Cost for Income Tax Purposes - $831,437,650
LEGEND
1. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end. The due date on these types of
securities reflects the next interest rate reset date or, when applicable,
the final maturity date.
2. 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 $43,500,000 or 5.3% of net
assets.
3. Security purchased on a delayed delivery basis (see Note 2 of Notes to
Financial Statements).
4. Security sold on a delayed delivery basis (see Note 2 of Notes to
Financial Statements).
INCOME TAX INFORMATION
At December 31, 1995, the fund had a capital loss carryforward of
approximately $78,000 which will expire on December 31, 2002.
VARIABLE INSURANCE PRODUCTS FUND: MONEY MARKET PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
JUNE 30, 1996 (UNAUDITED)
ASSETS
Investment in securities, at value (including repurchase agreements of $460,000) - See accompanying $ 831,437,650
schedule
Receivable for investments sold 79,000
Delayed delivery
Interest receivable 4,893,808
TOTAL ASSETS 836,410,458
LIABILITIES
Payable for investments purchased $ 5,000,000
Delayed delivery
Share transactions in process 4,520,481
Accrued management fee 127,637
Other payables and accrued expenses 108,819
TOTAL LIABILITIES 9,756,937
NET ASSETS $ 826,653,521
Net Assets consist of:
Paid in capital $ 826,685,763
Accumulated net realized gain (loss) on investments (32,242
)
NET ASSETS, for 826,685,763 shares outstanding $ 826,653,521
NET ASSET VALUE, offering price $1.00
and redemption price per share ($826,653,521 (divided by) 826,685,763 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
INTEREST INCOME $ 22,606,356
EXPENSES
Management fee $ 843,674
Transfer agent fees 292,564
Accounting fees and expenses 55,938
Non-interested trustees' compensation 2,491
Custodian fees and expenses 21,987
Audit 20,026
Legal 1,669
Miscellaneous 797
Total expenses before reductions 1,239,146
Expense reductions (36,398 1,202,748
)
NET INTEREST INCOME 21,403,608
NET REALIZED GAIN (LOSS) 30,484
ON INVESTMENTS
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 21,434,092
OTHER INFORMATION
Expense reductions $ 1,613
Custodian interest credits
Transfer agent interest credits 34,785
$ 36,398
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1996 1995
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
Operations $ 21,403,608 $ 43,984,366
Net interest income
Net realized gain (loss) 30,484 16,876
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 21,434,092 44,001,242
Distributions to shareholders from net interest income (21,403,608) (43,984,366)
Share transactions at net asset value of $1.00 per share 818,118,433 1,212,453,074
Proceeds from sales of shares
Reinvestment of distributions from net interest income 21,396,789 43,984,366
Cost of shares redeemed (821,766,170) (1,196,186,142)
NET INCREASE (DECREASE) IN NET ASSETS AND SHARES RESULTING FROM SHARE TRANSACTIONS 17,749,052 60,251,298
TOTAL INCREASE (DECREASE) IN NET ASSETS 17,779,536 60,268,174
NET ASSETS
Beginning of period 808,873,985 748,605,811
End of period $ 826,653,521 $ 808,873,985
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS YEARS ENDED DECEMBER 31,
ENDED
JUNE 30, 1996
SELECTED PER-SHARE DATA (UNAUDITED) 1995 1994 1993 1992 1991
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Income from Investment Operations .026 .057 .042 .032 .038 .059
Net interest income
Less Distributions (.026) (.057) (.042) (.032) (.038) (.059)
From net interest income
Net asset value, end of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
TOTAL RETURN B, C 2.64% 5.87% 4.25% 3.23% 3.90% 6.09%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 826,654 $ 808,874 $ 748,606 $ 353,104 $ 301,002 $ 271,123
Ratio of expenses to average net assets .30% A .33% .27% .22% .24% .38%
D
Ratio of expenses to average net assets after .29% A, .33% .27% .22% .24% .38%
expense reductions E
Ratio of net interest income to average net assets 5.25% A 5.72% 4.32% 3.16% 3.85% 5.93%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED
DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS).
C THE 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 THE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN.
D 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.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF
NOTES TO FINANCIAL STATEMENTS).
VARIABLE INSURANCE PRODUCTS FUND: HIGH INCOME PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance: total
percentage change in value, the average annual percentage change, or the
growth of a hypothetical $10,000 investment. A fund's total return includes
changes in a fund's share price, plus reinvestment of any dividends
(income) and capital gains (the profits the fund earns when it sells
securities that have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED PAST 1 PAST 5 PAST 10
JUNE 30, 1996 YEAR YEARS YEARS
HIGH INCOME 15.54% 16.33% 10.98%
Merrill Lynch High Yield Master Index 9.37% 13.49% 10.89%
AVERAGE ANNUAL RETURNS take the fund's actual (or 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 Merrill Lynch High Yield
Master Index - a market-capitalization weighted index which includes all
domestic and yankee high-yield bonds. Issues included in the Index have
maturities of at least one year and have a credit rating of less than
BBB-/Baa3, but are not in default.
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.
(checkmark)
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.
If Fidelity had not reimbursed certain fund expenses, the fund's five and
10 year total returns would have been lower.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, 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.
$10,000 OVER 10 YEARS
IMAHDR PRASUN SHR__CHT 19960630 19960710 163426 S00000000000001
VIP: High Income ML High Yield Master
00152 ML002
1986/06/30 10000.00 10000.00
1986/07/31 9969.60 9868.34
1986/08/31 10009.85 10050.46
1986/09/30 10094.85 10133.64
1986/10/31 10396.46 10311.93
1986/11/30 10429.79 10395.89
1986/12/31 10495.75 10452.03
1987/01/31 10878.38 10747.56
1987/02/28 11066.63 10925.00
1987/03/31 11167.43 11045.79
1987/04/30 10818.44 10804.91
1987/05/31 10717.86 10756.22
1987/06/30 10949.33 10904.91
1987/07/31 10961.05 10964.24
1987/08/31 11051.84 11074.11
1987/09/30 10666.99 10819.32
1987/10/31 10156.90 10530.24
1987/11/30 10456.04 10796.53
1987/12/31 10623.40 10939.90
1988/01/31 10972.66 11239.27
1988/02/29 11301.18 11544.24
1988/03/31 11219.98 11525.15
1988/04/30 11307.44 11558.43
1988/05/31 11290.62 11618.76
1988/06/30 11527.26 11840.91
1988/07/31 11647.26 11966.03
1988/08/31 11591.62 12005.35
1988/09/30 11684.55 12126.36
1988/10/31 11811.75 12315.29
1988/11/30 11766.65 12361.42
1988/12/31 11860.15 12413.73
1989/01/31 12145.15 12599.89
1989/02/28 12204.89 12684.57
1989/03/31 12048.07 12673.28
1989/04/30 11914.64 12710.68
1989/05/31 12134.78 12944.68
1989/06/30 12482.34 13128.08
1989/07/31 12400.16 13190.25
1989/08/31 12328.24 13255.40
1989/09/30 11896.88 13129.21
1989/10/31 11386.85 12921.55
1989/11/30 11396.44 12950.50
1989/12/31 11365.20 12938.79
1990/01/31 11113.98 12685.91
1990/02/28 10942.84 12501.17
1990/03/31 10827.38 12670.16
1990/04/30 10859.46 12734.53
1990/05/31 11082.59 12964.56
1990/06/30 11257.17 13215.73
1990/07/31 11431.05 13495.01
1990/08/31 11239.82 12978.40
1990/09/30 10973.31 12413.94
1990/10/31 10707.03 12098.04
1990/11/30 10958.17 12200.53
1990/12/31 11111.40 12376.33
1991/01/31 11347.15 12551.28
1991/02/28 11975.80 13482.87
1991/03/31 12400.14 14062.58
1991/04/30 12840.19 14563.37
1991/05/31 13028.79 14634.49
1991/06/30 13311.68 14928.88
1991/07/31 13814.60 15286.59
1991/08/31 14003.20 15607.89
1991/09/30 14317.52 15806.68
1991/10/31 14804.73 16276.38
1991/11/30 14930.46 16464.39
1991/12/31 15009.04 16655.67
1992/01/31 15810.57 17238.00
1992/02/29 16384.62 17666.11
1992/03/31 16914.26 17912.60
1992/04/30 17033.85 18042.98
1992/05/31 17238.87 18330.78
1992/06/30 17426.81 18558.53
1992/07/31 17768.51 18934.55
1992/08/31 18144.38 19185.23
1992/09/30 18332.32 19403.82
1992/10/31 18058.96 19158.75
1992/11/30 18281.06 19430.08
1992/12/31 18486.09 19680.27
1993/01/31 18981.55 20164.87
1993/02/28 19305.34 20546.57
1993/03/31 19750.85 20902.78
1993/04/30 19880.79 21052.82
1993/05/31 20177.79 21336.21
1993/06/30 20697.55 21737.07
1993/07/31 20901.74 21970.72
1993/08/31 21124.50 22180.16
1993/09/30 21198.75 22289.60
1993/10/31 21699.95 22709.48
1993/11/30 21904.14 22833.68
1993/12/31 22256.83 23062.00
1994/01/31 22999.34 23567.40
1994/02/28 22971.77 23397.92
1994/03/31 22197.90 22635.45
1994/04/30 21973.88 22370.94
1994/05/31 22014.61 22291.23
1994/06/30 21933.15 22373.28
1994/07/31 22014.61 22530.55
1994/08/31 22014.61 22687.05
1994/09/30 22177.53 22678.46
1994/10/31 21973.88 22736.09
1994/11/30 21790.60 22542.69
1994/12/31 21892.42 22793.44
1995/01/31 22136.80 23115.52
1995/02/28 22896.58 23836.75
1995/03/31 23181.69 24168.48
1995/04/30 23861.57 24734.35
1995/05/31 24475.65 25507.10
1995/06/30 24541.44 25701.93
1995/07/31 25133.60 25995.76
1995/08/31 25330.98 26153.53
1995/09/30 25747.68 26452.75
1995/10/31 25988.93 26640.26
1995/11/30 26120.52 26900.31
1995/12/31 26427.56 27332.11
1996/01/31 27041.65 27763.77
1996/02/29 27488.29 27805.58
1996/03/31 27416.08 27730.06
1996/04/30 27825.27 27742.62
1996/05/31 28210.40 27942.70
1996/06/28 28354.82 28110.55
IMATRL PRASUN SHR__CHT 19960630 19960710 163431 R00000000000123
Let's say hypothetically that $10,000 was invested in High Income Portfolio
on June 30, 1986. As the chart shows, by June 30, 1996, the value of the
investment would have grown to $28,355 - a 183.55% increase on the initial
investment. For comparison, look at how the Merrill Lynch High Yield Master
Index did over the same period. With dividends and capital gains, if any,
reinvested, the same $10,000 investment would have grown to $28,111 - a
181.11% increase.
INVESTMENT SUMMARY
TOP FIVE HOLDINGS AS OF JUNE 30, 1996
(BY ISSUER, EXCLUDING REPURCHASE AGREEMENTS) % OF FUND'S
INVESTMENTS
PanAmSat Corp. (various issues) 4.6
Marvel Parent Holdings, Inc. (various issues) 2.7
Cablevision System Corp. (various issues) 2.7
Mothers Work, Inc. (various issues) 2.0
American Financial Group, Inc. 1.8
TOP FIVE MARKET SECTORS AS OF JUNE 30, 1996
% OF FUND'S
INVESTMENTS
Media & Leisure 33.2
Retail & Wholesale 9.2
Utilities 8.1
Finance 6.4
Industrial Machinery & Equipment 5.9
QUALITY DIVERSIFICATION AS OF JUNE 30, 1996
(MOODY'S RATINGS) % OF FUND'S
INVESTMENTS
Aaa, Aa, A 0.0
Baa 0.0
Ba 2.1
B 52.4
Caa, Ca, C 9.7
Nonrated 7.7
TABLE EXCLUDES SHORT-TERM INVESTMENTS. UNRATED DEBT SECURITIES THAT ARE
EQUIVALENT TO BA AND BELOW AT JUNE 30, 1996, ACCOUNT FOR 7.7% OF THE FUND'S
INVESTMENTS.
VARIABLE INSURANCE PRODUCTS FUND: HIGH INCOME PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
An interview with Barry Coffman, Portfolio Manager of High Income Portfolio
Q. BARRY, HOW DID THE FUND PERFORM?
A. It did quite well compared to its peers, and significantly outperformed
its benchmark. The Merrill Lynch High Yield Master Index had a total return
of 2.85% for the six months ended June 30, 1996, and 9.37% for the 12-month
period.
Q. WHAT CONTRIBUTED TO THE FUND'S PERFORMANCE?
A. The strength of the economy caused credit spreads to narrow during the
period. The securities most affected were the lowest-rated, or B-rated,
issues. That's where the fund is concentrated, while the index has a much
higher weighting in BB-rated securities. BB-rated securities are much more
sensitive to interest rate changes, and therefore traded down along with
U.S. Treasuries during the period.
Q. HOW DID INTEREST RATES FACTOR INTO THIS EQUATION?
A. Interest rates rose because of the unexpected strength of the economy,
which also benefited the stock market in general. In addition, defaults
were less than expected and credit spreads narrowed, which resulted in the
high-yield market significantly outperforming Treasuries. Within the
high-yield market, the fund also benefited from stronger relative
performance of B-rated issues compared to BB-rated securities.
Q. WHAT WAS BEHIND THE FUND'S INCREASE IN MEDIA AND
TELECOMMUNICATIONS-RELATED SECURITIES?
A. There have been a number of ongoing, secular changes occurring in many
of the media and telecommunications industries, which have created
opportunities for many companies. Many of them have huge capital needs and,
as a result, these sectors dominated the market for new issuance of
high-yield securities in the first half of 1996. The growth potential for
this market is still significant and should be independent of the larger
economic environment for the next few years. At the end of the period, we
were well-represented in many of these industries, including satellite
broadcasting, competitive local exchange companies (CLEC), cellular,
paging, wireless cable, and cable and telephone companies in the U.K.
Q. IN THE LAST REPORT, YOU MENTIONED THAT YOU HAD BEEN ADDING SOME SMALLER,
LESS VISIBLE COMPANIES TO THE PORTFOLIO. HOW DID THOSE INVESTMENTS WORK
OUT?
A. Many of them also were solid contributors to performance during the
period. The fund benefited from investing in securities that I was able to
purchase on what I viewed as very favorable terms. Harcor Energy is an
excellent example. I bought a sizable number of its bonds and received
warrants for equity in the company as well. Harcor subsequently boosted its
cash flow through additional drilling, which increased its stock price. In
addition, it announced a secondary stock offering, which could improve the
company's credit standing. In the specialty retail area, the fund also was
helped by some regional retailers such as Specialty Retailers and Mothers
Work, a maternity clothes company I've discussed in the past and which
continued to perform well over the period.
Q. STILL, THERE MUST HAVE BEEN SOME DISAPPOINTMENTS . . .
A. Right, but nothing that negatively impacted the fund very much. Somewhat
ironically, one of the higher-quality positions in the fund, Viacom, was
one of the poorer performers. After acquiring Paramount and Blockbuster,
Viacom planned to sell some cable systems, which I thought would result in
a credit upgrade. But a combination of regulatory delays and weakness in
the Treasury market - the bonds are very sensitive to interest rates
because they trade on a tight spread relative to the price of Treasuries -
hurt the securities.
Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SEVERAL MONTHS?
A. I'd say that I'm a bit more cautious now than I was a few months ago.
The economy is expected to experience slower growth in the second half of
1996, partly due to the increase in interest rates. Still, I'll continue to
look for companies that I think can prosper independent of the economy and,
within those companies, I'll invest in whichever aspect of their capital
structure looks most attractive from a risk versus reward perspective.
FUND FACTS
GOAL: to seek high current income by
investing in high-yielding, lower-rated fixed
income securities
START DATE: September 19, 1985
SIZE: as of June 30, more than $1.1 billion
MANAGER: Barry Coffman, since 1990; joined
Fidelity in 1986
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND: HIGH INCOME PORTFOLIO
INVESTMENTS JUNE 30, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
CORPORATE BONDS - 71.8%
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (NOTE 1)
CONVERTIBLE BONDS - 1.6%
MEDIA & LEISURE - 0.8%
PUBLISHING - 0.8%
Hollinger liquid yield option
note yankee 0%, 10/5/13 B1 $ 30,000,000 $ 9,787,500
RETAIL & WHOLESALE - 0.1%
GROCERY STORES - 0.1%
Farm Fresh, Inc.
7 1/2%, 3/1/10 B3 1,686,000 935,730
UTILITIES - 0.7%
TELEPHONE SERVICES - 0.7%
GST Telecommunications, Inc.
0%, 12/15/05 (c)(e) - 70,000 69,650
Winstar Communications, Inc.
0%, 10/15/05 (c)(e) - 11,550,000 7,969,500
8,039,150
TOTAL CONVERTIBLE BONDS 18,762,380
NONCONVERTIBLE BONDS - 70.2%
AEROSPACE & DEFENSE - 0.6%
RHI Holdings, Inc.
11 7/8%, 3/1/99 B2 2,160,000 2,160,000
Wyman-Gordon Co.
10 3/4%, 3/15/03 B1 4,490,000 4,714,500
6,874,500
BASIC INDUSTRIES - 5.2%
CHEMICALS & PLASTICS - 1.5%
American Pacific Corp.
11%, 2/21/02 (e) B2 743,750 706,563
Atlantis Group, Inc.
11%, 2/15/03 B2 7,785,000 7,434,675
Foamex-JPS Automotive LP/
Foamex-JPS Capital Corp.
Series B, 14%, 7/1/04 Caa 2,760,000 1,938,900
Foamex LP/Foamex Capital
Corp. 11 7/8%, 10/1/04 B3 2,480,000 2,542,000
Foamex LP/Foamex Capital
Corp. 9 1/2%, 6/1/00 B1 380,000 380,000
NL Industries, Inc.:
11 3/4%, 10/15/03 B1 2,270,000 2,321,075
0%, 10/15/05 (c) B2 550,000 428,313
Texas Petrochemicals Corp.
11 1/8%, 7/1/06 (e) B3 1,960,000 1,989,400
17,740,926
METALS & MINING - 0.4%
Renco Metals, Inc.
11 1/2%, 7/1/03 B2 4,190,000 4,190,000
PACKAGING & CONTAINERS - 0.2%
Crown Packaging Holdings Ltd.,
Series B, 0%, 11/1/03 (c) Caa 6,840,000 2,599,200
PAPER & FOREST PRODUCTS - 3.1%
Florida Coast Paper Co. LLC
12 3/4, 6/1/03 (e) B3 7,210,000 7,498,400
Rapp International Finance
Co. BV yankee
13 1/4%, 12/15/05 Ba3 13,980,000 15,133,350
Repap Wisconsin, Inc.
9 7/8%, 5/1/06 B3 1,210,000 1,076,900
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (NOTE 1)
Riverwood International
10 7/8%, 4/1/08 B3 $ 13,230,000 $ 12,998,475
36,707,125
TOTAL BASIC INDUSTRIES 61,237,251
CONGLOMERATES - 0.7%
Jordan Industries, Inc.
10 3/8%, 8/1/03 B3 9,155,000 8,697,250
CONSTRUCTION & REAL ESTATE - 0.6%
CONSTRUCTION - 0.4%
UDC Homes, Inc. Series B,
12 1/2%, 5/1/00 - 40,000 37,600
WCI Communities LP
17%, 7/24/98 (d) - 5,000,000 5,000,000
5,037,600
REAL ESTATE - 0.2%
Littlefield Co.
10%, 9/30/97 (d)(f) - 2,750,000 2,094,125
TOTAL CONSTRUCTION & REAL ESTATE 7,131,725
DURABLES - 3.1%
AUTOS, TIRES, & ACCESSORIES - 1.3%
APS, Inc.
11 7/8%, 1/15/06 (e) B2 400,000 419,000
Collins & Aikman Products Co.
11 1/2%, 4/15/06 B3 980,000 997,150
Harvard Industries, Inc.:
12%, 7/15/04 B3 740,000 725,200
11 1/8%, 8/1/05 B3 6,320,000 5,940,800
Hayes Wheels International,
Inc. 11%, 7/15/06 B3 4,830,000 4,890,375
Venture Holdings Trust
9 3/4%, 4/1/04 B3 3,280,000 2,706,000
15,678,525
HOME FURNISHINGS - 1.1%
Interlake Corp.
12 1/8%, 3/1/02 B3 7,570,000 7,570,000
Knoll, Inc.
10 7/8%, 3/15/06 B3 5,280,000 5,385,600
12,955,600
TEXTILES & APPAREL - 0.7%
CMI Industries, Inc.
9 1/2%, 10/1/03 B1 4,050,000 3,493,125
Hat Brands, Inc. (f):
Series B, 12 5/8%, 9/15/02 - 1,520,000 1,140,000
Series D, 12 5/8%, 9/15/02 - 680,000 510,000
Synthetic 12 3/4%, 12/01/02 B3 2,590,000 2,745,400
7,888,525
TOTAL DURABLES 36,522,650
ENERGY - 2.1%
OIL & GAS - 2.1%
Clark USA, Inc., Series B,
10 7/8%, 12/1/05 B2 5,420,000 5,555,500
Harcor Energy, Inc., Series B,
14 7/8%, 7/15/02 B3 15,000,000 16,350,000
Mesa Operating Co.
10 5/8%, 7/1/06 B2 2,930,000 2,988,600
24,894,100
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (NOTE 1)
FINANCE - 3.5%
CREDIT & OTHER FINANCE - 0.6%
Homeside, Inc.
11 1/4%, 5/15/03 (e) B+ $ 3,210,000 $ 3,306,300
Polysindo International Finance
Co. BV yankee
11 3/8%, 6/15/06 Ba3 3,730,000 3,799,938
7,106,238
INSURANCE - 1.9%
American Life Holdings
11 1/4%, 9/15/04 B1 13,350,000 14,050,875
Penncorp Financial Group, Inc.
9 1/4%, 12/15/03 B1 7,950,000 7,989,750
22,040,625
SAVINGS & LOANS - 1.0%
First Nationwide Parent Holdings
Ltd. 12 1/2%, 4/15/03 B2 11,610,000 12,103,425
SECURITIES INDUSTRY - 0.0%
ECM Corp. 14%, 6/1/02 (e) - 415,373 456,910
TOTAL FINANCE 41,707,198
HEALTH - 1.3%
MEDICAL EQUIPMENT & SUPPLIES - 1.3%
Wright Medical Technology, Inc.,
Series B, 10 3/4%,
7/1/00 B3 15,630,000 15,630,000
INDUSTRIAL MACHINERY & EQUIPMENT - 5.2%
ELECTRICAL EQUIPMENT - 1.2%
Magnetek, Inc.
10 3/4%, 11/15/98 B1 10,000,000 9,800,000
Telex Communications, Inc.
12%, 7/15/04 B2 3,500,000 3,745,000
13,545,000
INDUSTRIAL MACHINERY & EQUIPMENT - 2.9%
Exide Corp.:
10 3/4%, 12/15/02 B1 3,375,000 3,442,500
10%, 4/15/05 B1 2,460,000 2,392,350
Howmet Corp.
10%, 12/1/03 (e) B3 2,050,000 2,152,500
MVE, Inc. 12 1/2%,
2/15/02 B3 5,595,000 5,818,800
Specialty Equipment Cos., Inc.
11 3/8%, 12/1/03 B3 13,600,000 14,042,000
Thermadyne Holdings Corp.:
10 1/4%, 5/1/02 B3 1,484,000 1,491,420
10 3/4%, 11/1/03 Caa 5,226,000 5,226,000
34,565,570
POLLUTION CONTROL - 1.1%
Norcal Waste System, Inc.
12 3/4%, 11/15/05 (e)(g) B3 12,530,000 13,219,150
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 61,329,720
MEDIA & LEISURE - 19.8%
BROADCASTING - 9.3%
Adelphia Communications Corp.
12 1/2%, 5/15/02 B3 2,460,000 2,499,975
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (NOTE 1)
Bell Cablemedia PLC yankee
0%, 9/15/05 (c) B2 $ 12,970,000 $ 7,895,488
CS Wireless Systems, Inc.
0%, 3/1/06 unit (c)(e) - 4,810,000 9,908,600
Citicasters, Inc.
9 3/4%, 2/15/04 B2 7,812,000 8,007,300
Cooke Media Group, Inc.
11 5/8%, 4/1/99 - 350,000 332,500
Diamond Cable
Communications PLC yankee
0%, 12/15/05 (c) B3 18,150,000 10,663,125
NWCG Holdings Corp.
0%, 6/15/99 Caa 18,695,000 13,834,300
Peoples Choice TV Corp.
unit 0%, 6/1/04 (c) Caa 20,230,000 11,480,525
Robin Media Group, Inc.
11 1/8%, 4/1/97 - 12,340,000 12,340,000
UIH Australia/Pacific, Inc.
0%, 5/15/06 (c)(e) B2 12,000,000 6,330,000
Viacom, Inc. 8%, 7/7/06 B1 22,780,000 20,843,700
Videotron Group Ltd. yankee
10 5/8%, 2/15/05 Ba3 6,140,000 6,400,950
110,536,463
ENTERTAINMENT - 1.7%
AMF Group, Inc. (e):
10 7/8%, 3/15/06 B2 9,880,000 9,768,850
0%, 3/15/06 (c) B2 14,610,000 8,072,025
Alliance Gaming Corp.
12 7/8%, 6/30/03 B2 2,200,000 2,200,000
20,040,875
LEISURE DURABLES & TOYS - 1.2%
ICON Health and Fitness, Inc.
13%, 7/15/02 B3 5,890,000 6,567,350
IHF Holdings, Inc.
0%, 11/15/04 (c) Caa 10,250,000 7,072,500
13,639,850
LODGING & GAMING - 2.8%
American Skiing Co.
12%, 7/15/06 (e) B3 5,310,000 5,203,800
Casino Magic Financial Corp.
11 1/2%, 10/15/01 B1 2,745,000 2,827,350
HMH Properties, Inc., Series B,
9 1/2%, 5/15/05 B1 13,470,000 12,863,850
Horseshoe Gaming LLC, Series A,
12 3/4%, 9/30/00 B1 10,010,000 10,760,750
Wyndham Hotel Corp.
10 1/2%, 5/15/06 B2 1,810,000 1,800,950
33,456,700
PUBLISHING - 3.0%
Hollinger International Publishing,
Inc. 9 1/4%, 2/1/06 B1 4,350,000 3,980,250
Marvel Holdings, Inc., Series B,
0%, 4/15/98 B3 18,000,000 14,400,000
Marvel Parent Holdings, Inc.
0%, 4/15/98 B3 22,440,000 17,727,600
36,107,850
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (NOTE 1)
MEDIA & LEISURE - CONTINUED
RESTAURANTS - 1.8%
Host Marriott Travel Plazas, Inc.
Series B, 9 1/2%, 5/15/05 B1 $ 10,690,000 $ 10,195,588
SC International Services, Inc.
13%, 10/1/05 B3 10,640,000 11,650,800
21,846,388
TOTAL MEDIA & LEISURE 235,628,126
NONDURABLES - 2.4%
AGRICULTURE - 0.1%
Hines Horticulture, Inc., Series B,
11 3/4%, 10/15/05 B3 1,300,000 1,345,500
FOODS - 1.2%
Specialty Foods Corp.:
10 1/4%, 8/15/01 B3 3,410,000 3,205,400
Series B:
11 1/8%, 10/1/02 B3 6,300,000 6,016,500
11 1/4%, 8/15/03 Caa 5,500,000 4,771,250
13,993,150
HOUSEHOLD PRODUCTS - 1.1%
MacAndrews & Forbes Group,
Inc. 12 1/4%, 7/1/96 - 1,360,000 1,360,000
Revlon Worldwide Corp.
secured 0%, 3/15/98 B3 13,510,000 11,247,075
12,607,075
TOTAL NONDURABLES 27,945,725
RETAIL & WHOLESALE - 9.1%
APPAREL STORES - 3.5%
Apparel Retailers, Inc.
0%, 8/15/05 (c) Caa 11,230,000 9,770,100
Lamonts Apparel, Inc.
10 1/4%, 11/1/99
pay-in-kind (e)(f) - 2,201,000 99,045
Mothers Work, Inc.
12 5/8%, 8/1/05 B3 22,500,000 23,793,750
Specialty Retailers, Inc.
11%, 8/15/03 B3 7,220,000 7,508,800
41,171,695
GENERAL MERCHANDISE STORES - 0.8%
Pantry, Inc., Series B,
12%, 11/15/00 B2 10,500,000 9,240,000
GROCERY STORES - 3.4%
Food 4 Less Holdings, Inc.
0%, 7/15/05 (c) Caa 19,430,000 8,549,200
Pathmark Stores, Inc.:
11 5/8%, 6/15/02 B3 5,480,000 5,466,300
9 5/8%, 5/1/03 B2 1,470,000 1,379,963
Ralph's Grocery Co.:
10.45%, 6/15/04 B1 3,230,000 3,092,725
10.45%, 6/15/04 (e) B1 4,500,000 4,308,750
11%, 6/15/05 B3 6,340,000 5,832,800
Star Markets, Inc.
13%, 11/1/04 B3 11,905,000 12,321,675
40,951,413
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (NOTE 1)
RETAIL & WHOLESALE, MISCELLANEOUS - 1.4%
Alliance Entertainment Corp.
Series B, 11 1/4%, 7/15/05 B3 $ 15,730,000 $ 14,943,500
Brylane LP Series B
10%, 9/1/03 B2 350,000 336,000
Guitar Center Management Co.,
Inc. 11%, 7/1/06 (e) B2 1,470,000 1,495,725
16,775,225
TOTAL RETAIL & WHOLESALE 108,138,333
SERVICES - 3.0%
PRINTING - 1.7%
Big Flower Press:
10 3/4%, 8/1/03 B2 275,000 266,750
Class A, 10 3/4%,
8/1/03 B3 3,219,000 3,122,430
Class B, 10 3/4%,
8/1/03 B2 967,000 937,990
Sullivan Graphics, Inc.
12 3/4%, 8/1/05 Caa 16,980,000 16,406,925
20,734,095
SERVICES - 1.3%
Protection One Alarm Monitoring,
Inc. 13 5/8%, 6/30/05 Caa 18,300,000 15,692,250
TOTAL SERVICES 36,426,345
TECHNOLOGY - 4.4%
COMMUNICATIONS EQUIPMENT - 2.3%
Echostar Satellite Broadcasting
Corp. 0%, 3/15/04 (c)(e) Caa 21,280,000 13,140,400
Hyperion Telecommunication,
Inc. 0%, 4/15/03 unit (c)(e) - 25,950,000 14,402,250
27,542,650
COMPUTERS & OFFICE EQUIPMENT - 2.0%
Dictaphone Corp.
11 3/4%, 8/1/05 B3 8,130,000 7,621,875
Exide Electronics Group, Inc.
11 1/2%, 3/15/06 unit (e) B 3,770,000 3,845,400
Unisys Corp.:
10 5/8%, 10/01/99 B1 4,080,000 4,100,400
12%, 4/15/03 (e) B1 8,530,000 8,700,600
24,268,275
ELECTRONICS - 0.1%
Alpine Group, Inc.
12 1/4%, 7/15/03 B3 940,000 949,400
TOTAL TECHNOLOGY 52,760,325
TRANSPORTATION - 2.5%
AIR TRANSPORTATION - 1.4%
US Air, Inc.:
Series 1993-A1 Pass Thru
Trust 8 5/8%, 9/1/98 B1 5,000,000 4,925,000
9 5/8%, 2/1/01 B3 1,320,000 1,237,500
10%, 7/1/03 B3 980,000 916,300
10 3/8%, 3/1/13 B1 9,115,000 9,092,213
16,171,013
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (NOTE 1)
TRANSPORTATION - CONTINUED
RAILROADS - 1.1%
Transtar Holdings LP/Transtar
Cap Corp., Series B, 0%,
12/15/03 (c) B- $ 17,941,000 $ 13,276,340
TOTAL TRANSPORTATION 29,447,353
UTILITIES - 6.7%
CELLULAR - 5.1%
Arch Communications Group,
Inc. 0%, 3/15/08 (c) B3 14,800,000 7,622,000
Comunicaciones Celulares SA
yankee 0%, 11/15/03 (c) B3 12,000,000 7,140,000
Intercel, Inc. unit
0%, 2/1/06 (c) B2 16,720,000 10,032,000
International Cabletel, Inc.,
Series B, 0%, 2/1/06 (c) B3 8,220,000 4,623,750
Microcell Telecommunications,
Inc. unit, 0%, 6/1/06 (c)(e) B3 20,900,000 10,188,750
Millicom International Cellular
SA 0%, 6/1/06 (c)(e) B3 35,000,000 18,287,500
Western Wireless Corp.
10 1/2%, 6/1/06 B3 2,870,000 2,862,825
60,756,825
TELEPHONE SERVICES - 1.6%
GST USA, Inc.
0%, 12/15/05 (c) - 560,000 310,800
MFS Communications, Inc.
0%, 1/15/06 (c) B1 1,250,000 759,375
Shared Technologies Fairchild
Corp. 0%, 3/1/06 (c)(e) Caa 6,290,000 4,748,950
Winstar Communications, Inc.
0%, 10/15/05 (c) - 23,100,000 12,705,000
18,524,125
TOTAL UTILITIES 79,280,950
TOTAL NONCONVERTIBLE BONDS 833,651,551
TOTAL CORPORATE BONDS
(Cost $842,876,208) 852,413,931
COMMERCIAL MORTGAGE SECURITIES - 0.2%
Meritor Mortgage Security Corp.
commercial Series 1987-1 Class
B, 9.40%, 2/1/00 (e)(f) - 1,350,000 231,390
SKW Real Estate LP commercial
Series II Class E,
11%, 4/15/05 (e) B 1,500,000 1,502,850
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $1,724,781) 1,734,240
COMMON STOCKS - 8.9%
SHARES
BASIC INDUSTRIES - 0.1%
IRON & STEEL - 0.1%
Republic Engineered Steels, Inc. (a) 116,100 406,350
PAPER & FOREST PRODUCTS - 0.0%
Mail-Well Holdings, Inc. (a)(e) 23,479 205,441
TOTAL BASIC INDUSTRIES 611,791
SHARES VALUE (NOTE 1)
CONGLOMERATES - 0.5%
American Standard Companies, Inc. (a) 164,100 $ 5,415,300
DURABLES - 0.0%
TEXTILES & APPAREL - 0.0%
Hat Brands, Inc. (warrants) (a)(d) 27,466 137,328
HM/Hat Brands Trust
Class I unit (a)(d) 340,000 340,000
477,328
ENERGY - 1.2%
OIL & GAS - 1.2%
Flores & Rucks, Inc. (a) 356,000 12,282,000
Harcor Energy, Inc. (warrants)(a) 330,000 577,500
TransTexas Gas Corp. (a) 180,200 1,711,900
14,571,400
FINANCE - 1.9%
INSURANCE - 1.9%
American Financial Group, Inc. 717,200 21,605,650
Penncorp. Financial Group, Inc. 25,000 793,750
22,399,400
SECURITIES INDUSTRY - 0.0%
ECM Corp. LP (e) 3,000 300,000
TOTAL FINANCE 22,699,400
HEALTH - 0.1%
MEDICAL EQUIPMENT & SUPPLIES - 0.1%
MVE, Inc. (warrants) (a) 10,555 316,650
Wright Medical Technology, Inc.
(warrants) (a) 1,976 247,000
563,650
HOLDING COMPANIES - 0.0%
SDW Holdings Corp. (a):
(warrants) 3,720 11,160
Series B (warrants) (e) 4,450 57,850
69,010
INDUSTRIAL MACHINERY & EQUIPMENT - 0.6%
ELECTRICAL EQUIPMENT - 0.6%
Exide Corp. 311,500 7,553,875
Terex Corp. (rights) (a)(d) 3,150 315
7,554,190
MEDIA & LEISURE - 3.2%
BROADCASTING - 1.3%
Adelphia Communications Class A (a) 137,600 1,032,000
Benedek Communications Corp. unit
Class A 5,760 5,760,000
PanAmSat Corp. (a) 316,000 9,164,000
15,956,000
ENTERTAINMENT - 0.0%
Live Entertainment, Inc. (a)(d):
$2.00 (warrants) 232,000 11,600
$2.72 (warrants) 221,765 11,088
22,688
LEISURE DURABLES & TOYS - 0.1%
IHF Capital, Inc. (a)(e):
Series H (warrants) 10,250 968,625
Series I (warrants) 5,890 144,305
1,112,930
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
MEDIA & LEISURE - CONTINUED
LODGING & GAMING - 1.7%
Bally Gaming International, Inc.
(warrants) (a) 90,000 $ 270,000
Grand Casinos, Inc. 446,700 11,502,525
Host Marriott Corp. (a) 597,100 7,836,938
Maritime Group Ltd. (warrants) (a) 17,880 179
Motels of America, Inc. (a) 3,000 195,000
19,804,642
PUBLISHING - 0.1%
American Media, Inc. Class A (a) 339,500 1,782,375
General Media, Inc. (warrants) (a) 1,310 1,310
1,783,685
TOTAL MEDIA & LEISURE 38,679,945
NONDURABLES - 0.3%
HOUSEHOLD PRODUCTS - 0.3%
Revlon, Inc. Class A (a) 113,300 3,299,863
RETAIL & WHOLESALE - 0.0%
APPAREL STORES - 0.0%
Lamonts Apparel, Inc. (a) 35,870 8,968
Lamonts Apparel, Inc. (warrants) (a) 66,214 1
Mothers Work, Inc. 10,950 279,225
288,194
GROCERY STORES - 0.0%
FF Holdings Corp. (a)(d) 33,900 67,800
Food 4 Less Holdings, Inc.
(warrants) (a)(d) 9,348 186,960
MAFCO (warrants) (a) 59 -
254,760
RETAIL & WHOLESALE, MISCELLANEOUS - 0.0%
Barry's Jewelers, Inc. (warrants) (a) 5,697 712
Town & Country Jewelry
Manufacturing Corp. Class A (a) 8,374 8,374
9,086
TOTAL RETAIL & WHOLESALE 552,040
SERVICES - 0.9%
PRINTING- 0.6%
Big Flower Press Holdings, Inc. (a) 474,000 6,695,250
SERVICES - 0.3%
Protection One, Inc. (a) 181,600 2,973,700
Protection One, Inc. (warrants) (a) 74,560 745,600
Vestar/LPA Investment Corp. (a) 5,177 51,770
3,771,070
TOTAL SERVICES 10,466,320
TECHNOLOGY - 0.0%
COMPUTERS & OFFICE EQUIPMENT - 0.0%
Exide Electronics Group, Inc. (a) 25,000 237,500
UTILITIES - 0.1%
CELLULAR - 0.1%
Arch Communications Group, Inc. 1,700 31,663
Comunicaciones Celulares SA
(warrants) (a)(e) 12,000 600,000
631,663
ELECTRIC UTILITY - 0.0%
Eastern Utilities Associates 3 59
El Paso Electric Co. (a) 55,658 333,948
Northeast Utilities Associates (warrants) (a) 21,789 4,766
338,773
SHARES VALUE (NOTE 1)
GAS - 0.0%
UGI Corp. (warrants) (a) 14,033 $ 2,105
TOTAL UTILITIES 972,541
TOTAL COMMON STOCKS
(Cost $94,753,375) 106,170,278
PREFERRED STOCKS - 11.0%
CONVERTIBLE PREFERRED STOCKS - 0.0%
RETAIL & WHOLESALE - 0.0%
GROCERY STORES - 0.0%
Supermarkets General Holdings Corp.
exchangeable pay-in-kind $3.52 (a) 4,950 128,700
NONCONVERTIBLE PREFERRED STOCKS - 11.0%
BASIC INDUSTRIES - 0.0%
PAPER & FOREST PRODUCTS - 0.0%
S D Warren Co. exchangeable
pay-in-kind 3,720 129,270
DURABLES - 0.1%
AUTOS, TIRES, & ACCESSORIES - 0.1%
Harvard Industries, Inc. pay-in-kind $14.25 25,979 675,454
ENERGY - 0.3%
OIL & GAS - 0.3%
Gulf Canada Resources Ltd. (d) 31,009 96,903
Gulf Canada Resources Ltd.,
Series 1, adj. rate 924,342 2,881,048
2,977,951
FINANCE - 1.0%
SAVINGS & LOANS - 1.0%
First Nationwide Bank $11.50 110,348 12,083,106
HOLDING COMPANIES - 0.1%
SDW Holdings Corp. (a) 44,500 1,546,375
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
ELECTRICAL EQUIPMENT - 0.1%
Ampex Corp. 8% (d) 1,589 1,142,459
MEDIA & LEISURE - 8.8%
BROADCASTING - 8.6%
Cablevision System Corp.:
$11.125 pay-in-kind (e) 103,616 9,688,096
Series H, $11.75 exchangeable
pay-in-kind (a) 231,437 22,333,671
Chancellor Radio Broadcasting Co.
exchangeable pay-in-kind (e) 64,300 6,526,450
PanAmSat Corp. 12 3/4% pay-in-kind 40,207 45,634,945
Time Warner, Inc., Series K exchangeable 19,102 18,719,960
102,903,122
PUBLISHING - 0.2%
K-III Communications Corp., Series B,
$11.625 pay-in-kind 25,901 2,596,575
TOTAL MEDIA & LEISURE 105,499,697
UTILITIES - 0.6%
TELEPHONE SERVICES - 0.6%
Intelecom Group USA, Inc. (a) 6,567 6,829,675
TOTAL NONCONVERTIBLE PREFERRED STOCKS 130,883,987
TOTAL PREFERRED STOCKS
(Cost $127,614,155) 131,012,687
REPURCHASE AGREEMENTS - 8.1%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.46%, dated
6/28/96 due 7/1/96 $ 96,763,007 $ 96,719,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $1,163,687,519) $ 1,188,050,136
LEGEND
1. Non-income producing
2. Standard & Poor's credit ratings are used in the absence of a rating by
Moody's Investors Service, Inc.
3. Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
4. Restricted securities - Investment in securities not registered under
the Securities Act of 1933 (see Note 2 of Notes to Financial Statements).
Additional information on each holding is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
Ampex Corp. 8% 2/16/95 $ 834,225
FF Holdings Corp. 10/2/92
to 1/14/94 $ 135,752
Food 4 Less Holdings, 12/30/92
Inc. (warrants) to 5/17/93 $ 229,281
Gulf Canada Resources Ltd. 10/15/93 $ 76,940
Hat Brands, Inc. (warrants) 9/2/92
to 2/23/94 $ -
HM/Hat Brands Trust
Class I unit 2/22/94 $ 340,000
Littlefield Co.
10%, 9/30/97 2/28/94 $ 2,750,000
Live Entertainment, Inc.
(warrants):
$2.00 3/23/93 $ 220,717
$2.72 3/23/93 $ 131,863
Terex Corp. (rights) 7/29/92 $ -
WCI Communities LP
17%, 7/24/98 7/24/95 $ 4,937,231
5. 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 $176,513,025 or 14.8% of net
assets.
6. Non-income producing - issuer filed for protection under the Federal
Bankruptcy Code or is in default of interest payment.
7. Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $814,757,806 and $685,837,402, respectively, of which U.S.
government and government agency obligations aggregated $24,243,750 and
$23,786,719, 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 $1,407 for the period (see
Note 4 of Notes to Financial Statements).
The fund participated in the interfund lending program as a lender. The
maximum loan and the average daily loan balances during the period for
which loans were outstanding amounted to $24,330,000 and $14,516,333,
respectively. The weighted average interest rate was 5.45%. Interest earned
from the interfund lending program amounted to $13,187 and is included in
interest income on the Statement of Operations.
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 0.0% AAA, AA, A 0.0%
Baa 0.0% BBB 0.0%
Ba 2.1% BB 10.0%
B 52.4% B 49.5%
Caa 9.7% CCC 4.3%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by either S&P or Moody's amounted to 5.9%
including long-term debt categorized as other securities. FMR has
determined that unrated debt securities that are lower quality account for
5.9% of the total value of investment in securities.
INCOME TAX INFORMATION
At June 30, 1996, the aggregate cost of investment securities for income
tax purposes was $1,163,978,551. Net unrealized appreciation aggregated
$24,071,585, of which $47,109,000 related to appreciated investment
securities and $23,037,415 related to depreciated investment securities.
VARIABLE INSURANCE PRODUCTS FUND: HIGH INCOME PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
ASSETS
Investment in $ 1,188,050,136
securities, at value
(including
repurchase
agreements of
$96,719,000) (cost
$1,163,687,519) -
See accompanying
schedule
Receivable for 8,006,128
investments sold
Receivable for fund 2,867,350
shares sold
Dividends receivable 1,286,174
Interest receivable 16,929,392
TOTAL ASSETS 1,217,139,180
LIABILITIES
Payable to custodian $ 22,577
bank
Payable for 26,878,636
investments
purchased
Payable for fund 465,240
shares redeemed
Accrued management 580,732
fee
Other payables and 130,376
accrued expenses
TOTAL LIABILITIES 28,077,561
NET ASSETS $ 1,189,061,619
Net Assets consist of:
Paid in capital $ 1,097,088,005
Undistributed net 51,787,017
investment income
Accumulated 15,828,606
undistributed net
realized gain (loss)
on investments and
foreign currency
transactions
Net unrealized 24,357,991
appreciation
(depreciation) on
investments
and assets and
liabilities in
foreign currencies
NET ASSETS, for $ 1,189,061,619
100,933,211
shares outstanding
NET ASSET VALUE, $11.78
offering price
and redemption
price per
share
($1,189,061,619 (divided by)
100,933,211
shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
INVESTMENT INCOME $ 6,676,114
Dividends
Interest 48,932,279
TOTAL INCOME 55,608,393
EXPENSES
Management fee $ 3,285,865
Transfer agent fees 161,007
Accounting fees and 300,553
expenses
Non-interested 1,841
trustees'
compensation
Custodian fees and 30,842
expenses
Registration fees 4,022
Audit 19,221
Legal 8,508
Miscellaneous 5,934
Total expenses 3,817,793
before reductions
Expense reductions (35,635 3,782,158
)
NET INVESTMENT 51,826,235
INCOME
REALIZED AND
UNREALIZED GAIN
(LOSS)
Net realized gain
(loss) on:
Investment 16,991,686
securities
Foreign currency 1,007 16,992,693
transactions
Change in net
unrealized
appreciation
(depreciation) on:
Investment 8,460,085
securities
Assets and (56 8,460,029
liabilities in )
foreign currencies
NET GAIN (LOSS) 25,452,722
NET INCREASE $ 77,278,957
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS
OTHER INFORMATION
Expense reductions $ 29,476
Directed brokerage
arrangements
Custodian interest 6,159
credits
$ 35,635
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1996 1995
(UNAUDITED)
Operations $ 51,826,235 $ 76,879,046
Net investment income
Net realized gain (loss) 16,992,693 21,706,316
Change in net unrealized 8,460,029 49,316,188
appreciation (depreciation)
NET INCREASE (DECREASE) IN 77,278,957 147,901,550
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (81,893,762) (43,871,918)
From net investment income
From net realized gain (16,022,693) -
TOTAL DISTRIBUTIONS (97,916,455) (43,871,918)
Share transactions 456,333,503 747,404,302
Net proceeds from sales of
shares
Reinvestment of distributions 97,916,454 43,871,918
Cost of shares redeemed (384,550,398) (424,723,050)
NET INCREASE (DECREASE) IN 169,699,559 366,553,170
NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) 149,062,061 470,582,802
IN NET ASSETS
NET ASSETS
Beginning of period 1,039,999,558 569,416,756
End of period (including $ 1,189,061,619 $ 1,039,999,558
undistributed net
investment income of
$51,787,017 and
$76,334,012, respectively)
OTHER INFORMATION
Shares
Sold 39,321,306 66,375,373
Issued in reinvestment of 8,680,536 4,326,619
distributions
Redeemed (33,371,112) (37,385,468)
Net increase (decrease) 14,630,730 33,316,524
<TABLE>
<CAPTION>
<S> <C> <C>
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED YEARS ENDED DECEMBER 31,
JUNE 30, 1996
SELECTED PER-SHARE DATA (UNAUDITED) 1995 1994 1993 D 1992 1991
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of $ 12.050 $ 10.750 $ 11.990 $ 10.820 $ 9.550 $ 7.070
period
Income from Investment .549 .856 .770 .728 .790 .890
Operations
Net investment income
Net realized and unrealized .281 1.224 (.910) 1.332 1.290 1.590
gain (loss)
Total from investment .830 2.080 (.140) 2.060 2.080 2.480
operations
Less Distributions (.920) (.780) (.730) (.794) (.810) -
From net investment income
In excess of net investment - - - (.036) - -
income
From net realized gain (.180) - (.370) (.060) - -
Total distributions (1.100) (.780) (1.100) (.890) (.810) -
Net asset value, end of period $ 11.780 $ 12.050 $ 10.750 $ 11.990 $ 10.820 $ 9.550
TOTAL RETURN B, C 7.29% 20.72% (1.64)% 20.40% 23.17% 35.08%
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of period (000 $ 1,189,062 $ 1,040,000 $ 569,417 $ 463,931 $ 200,591 $ 70,060
omitted)
Ratio of expenses to average .70% A .71% .71% .64% F .67% .97%
net assets
Ratio of expenses to average .69% A, .71% .71% .64% .67% .97%
net assets after E
expense reductions
Ratio of net investment income 9.46% A 9.32% 8.75% 8.69% 10.98% 12.94%
to average net assets
Portfolio turnover rate 138% A 132% 122% 155% 160% 154%
Average commission rate G $ .0450
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE
7 OF NOTES TO FINANCIAL STATEMENTS). C 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. D EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF
POSITION 93-2, "DETERMINATION, DISCLOSURE, AND FINANCIAL
STATEMENT PRESENTATION OF INCOME, CAPITAL GAIN, AND RETURN OF
CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES." AS A RESULT, NET
INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN RECLASSIFICATIONS
RELATED TO BOOK TO TAX DIFFERENCES. E FMR OR THE FUND HAS ENTERED
INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID
OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO
FINANCIAL STATEMENTS). F FMR VOLUNTARILY REIMBURSED A PORTION OF
THE FUND'S EXPENSES. WITHOUT THIS REIMBURSEMENT, THE FUND'S
EXPENSE RATIO WOULD HAVE BEEN HIGHER. G FOR FISCAL YEARS BEGINNING
ON OR AFTER SEPTEMBER 1, 1995, A FUND IS REQUIRED TO DISCLOSE ITS
AVERAGE COMMISSION RATE PER SHARE FOR SECURITY TRADES ON WHICH
COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD TO
PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED
IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE
STRUCTURES MAY DIFFER.
</TABLE>
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance: total
percentage change in value, the average annual percentage change, or the
growth of a hypothetical $10,000 investment. A fund's total return includes
changes in a fund's share price, plus reinvestment of any dividends
(income) and capital gains (the profits the fund earns when it sells
securities that have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED PAST 1 PAST 5 LIFE OF
JUNE 30, 1996 YEAR YEARS FUND
Equity-Income 22.08% 18.95% 13.27%
S&P 500 26.00% 15.73% 14.80%
AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and
show you what would have happened if the fund had performed at a constant
rate each year.
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 growth in the long run
and volatility in the short run. 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.
(checkmark)
You can compare these figures to the performance of the Standard & Poor's
500 Index - a widely recognized, unmanaged index of common stocks. The S&P
500 returns reflect reinvestment of all dividends paid by stocks included
in the Index, but do not reflect any brokerage commissions or other fees
you might pay if you actually invested in those stocks.
Figures for more than one year assume a steady compounded rate of return
and are not the fund's year-by-year results, which fluctuated over the
periods shown. The life of fund figures are from commencement of
operations, October 9, 1986.
If Fidelity had not reimbursed certain fund expenses, the fund's life of
fund total return would have been lower.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, 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.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19960630 19960710 164801 S00000000000001
VIP: Equity-Income SP Standard & Poor 500
00150 SP001
1986/10/09 10000.00 10000.00
1986/10/31 10110.00 10329.97
1986/11/30 10330.00 10580.99
1986/12/31 10020.00 10311.18
1987/01/31 11170.00 11700.09
1987/02/28 11430.00 12162.25
1987/03/31 11720.18 12513.74
1987/04/30 11428.43 12402.36
1987/05/31 11498.86 12510.26
1987/06/30 11738.55 13142.03
1987/07/31 12185.73 13808.33
1987/08/31 12521.12 14323.38
1987/09/30 12258.32 14009.70
1987/10/31 9866.20 10992.01
1987/11/30 9424.74 10086.27
1987/12/31 9906.52 10853.84
1988/01/31 10611.13 11310.78
1988/02/29 11136.95 11837.86
1988/03/31 10943.07 11472.07
1988/04/30 11124.21 11599.41
1988/05/31 11273.39 11700.33
1988/06/30 11914.76 12237.37
1988/07/31 11893.18 12190.87
1988/08/31 11688.12 11776.38
1988/09/30 12035.42 12278.06
1988/10/31 12243.12 12619.39
1988/11/30 12046.36 12438.93
1988/12/31 12156.33 12656.61
1989/01/31 12907.13 13583.07
1989/02/28 12840.88 13244.86
1989/03/31 13119.01 13553.46
1989/04/30 13625.32 14256.89
1989/05/31 14030.37 14834.29
1989/06/30 14039.98 14749.73
1989/07/31 14858.50 16081.64
1989/08/31 15097.24 16396.84
1989/09/30 14927.51 16329.61
1989/10/31 14066.31 15950.76
1989/11/30 14146.69 16276.16
1989/12/31 14264.74 16666.78
1990/01/31 13301.38 15548.44
1990/02/28 13380.20 15749.02
1990/03/31 13402.27 16166.37
1990/04/30 12937.59 15762.21
1990/05/31 13793.57 17299.02
1990/06/30 13656.23 17181.39
1990/07/31 13322.25 17126.41
1990/08/31 12258.45 15578.18
1990/09/30 11307.54 14819.52
1990/10/31 11019.21 14755.80
1990/11/30 11808.98 15709.03
1990/12/31 12083.75 16147.31
1991/01/31 12731.78 16851.33
1991/02/28 13608.52 18056.20
1991/03/31 13890.81 18493.16
1991/04/30 13955.72 18537.54
1991/05/31 14721.66 19338.37
1991/06/30 14119.72 18452.67
1991/07/31 14920.19 19312.56
1991/08/31 15235.12 19770.27
1991/09/30 15130.56 19440.11
1991/10/31 15382.51 19700.60
1991/11/30 14719.47 18906.67
1991/12/31 15882.70 21069.59
1992/01/31 16097.15 20677.70
1992/02/29 16619.87 20946.51
1992/03/31 16416.22 20538.05
1992/04/30 16930.49 21141.87
1992/05/31 17065.83 21245.47
1992/06/30 16916.41 20928.91
1992/07/31 17434.82 21784.90
1992/08/31 17052.84 21338.31
1992/09/30 17229.86 21590.10
1992/10/31 17436.12 21665.67
1992/11/30 18068.66 22404.47
1992/12/31 18564.83 22680.04
1993/01/31 19119.01 22870.55
1993/02/28 19548.49 23181.59
1993/03/31 20131.05 23670.73
1993/04/30 20047.35 23097.89
1993/05/31 20410.07 23716.92
1993/06/30 20650.14 23785.70
1993/07/31 20931.09 23690.55
1993/08/31 21731.81 24588.43
1993/09/30 21648.73 24399.09
1993/10/31 21846.69 24904.16
1993/11/30 21464.91 24667.57
1993/12/31 21961.06 24966.04
1994/01/31 22928.26 25814.89
1994/02/28 22337.82 25115.31
1994/03/31 21403.32 24020.28
1994/04/30 22140.85 24327.74
1994/05/31 22351.57 24726.71
1994/06/30 22213.48 24120.91
1994/07/31 22955.44 24912.07
1994/08/31 24136.53 25933.47
1994/09/30 23741.11 25298.10
1994/10/31 24228.42 25867.31
1994/11/30 23436.54 24925.22
1994/12/31 23512.77 25294.86
1995/01/31 23880.40 25950.76
1995/02/28 24790.97 26962.06
1995/03/31 25646.99 27757.71
1995/04/30 26360.31 28575.17
1995/05/31 27154.68 29717.32
1995/06/30 27544.83 30407.65
1995/07/31 28604.87 31415.97
1995/08/31 28963.65 31494.83
1995/09/30 29925.22 32823.91
1995/10/31 29580.88 32706.73
1995/11/30 30859.87 34142.55
1995/12/31 31763.97 34800.14
1996/01/31 32687.06 35984.73
1996/02/29 32796.85 36318.31
1996/03/31 33142.08 36668.06
1996/04/30 33573.62 37208.55
1996/05/31 33936.11 38168.15
1996/06/28 33625.40 38313.57
IMATRL PRASUN SHR__CHT 19960630 19960710 164806 R00000000000120
Let's say hypothetically that $10,000 was invested in Equity-Income
Portfolio on October 9, 1986, when the fund started. As the chart shows, by
June 30, 1996, the value of the investment would have grown to $33,625 - a
236.25% increase on the initial investment. For comparison, look at how the
S&P 500 did over the same period. With dividends and capital gains, if any,
reinvested, the same $10,000 investment would have grown to $38,314 - a
283.14% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE 30, 1996
% OF FUND'S
INVESTMENTS
General Electric Co. 2.2
Aetna Life & Casualty Co. 1.9
British Petroleum PLC ADR 1.7
American Express Co. 1.7
RJR Nabisco Holdings Corp. 1.7
TOP FIVE MARKET SECTORS AS OF JUNE 30, 1996
% OF FUND'S
INVESTMENTS
Finance 17.7
Health 12.5
Media & Leisure 10.3
Retail & Wholesale 8.4
Nondurables 6.9
ASSET ALLOCATION AS OF JUNE 30, 1996 *
Row: 1, Col: 1, Value: 2.8
Row: 1, Col: 2, Value: 13.1
Row: 1, Col: 3, Value: 44.1
Row: 1, Col: 4, Value: 40.0
Stocks 84.1%
Bonds 13.1%
Short-term investments 2.8%
FOREIGN INVESTMENTS 5.6%
*
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
NOTE TO SHAREHOLDERS: On March 26, 1996, Andy Offit became manager of
Equity-Income Portfolio.
Q. HOW DID THE FUND PERFORM, ANDY?
A. Overall, a little disappointing. For the six- and 12-month periods
ending June 30, 1996, the fund underperformed its benchmark index, the
Standard & Poor's 500 Index, which returned 10.10% for the six-month and
26.00% for the 12-month periods.
Q. WHY DID THE FUND LAG ITS BENCHMARK DURING THE PAST SIX MONTHS?
A. The past 12 months have not really been a stock picker's market, but
rather one in which the S&P 500 managed to outperform most "bottom up"
mutual funds, such as VIP Equity Income. Additionally, since I took over
the fund in March, I've positioned the fund further from the pure index
stocks. It's a strategy that's not proved successful in the short run but
one I believe may benefit the fund in the long run.
Q. CAN YOU EXPLAIN WHAT CHANGES YOU'VE MADE TO THE FUND SINCE YOU TOOK
OVER?
A. Yes, but before I describe what's changed, I'd like to explain what
stayed the same. The fund continued to invest mainly in U.S. stocks -
mostly large-cap, growth stocks. But I also began to make selective
investments in mid-cap growth stocks of companies with between $2 billion
and $6 billion in market capitalization. As for the income portion, I've
begun to accumulate a position in convertible bond securities.
Q. WHY DO YOU FIND CONVERTIBLE BONDS ATTRACTIVE?
A. First of all, I managed a convertible bond fund for three years and am
very familiar and comfortable with these securities. I believe that
convertible bonds have the potential to add value to the fund on the
upside, while minimizing risk. Second, the fund's prospectus says that the
fund should seek to achieve a yield higher than the S&P 500, and I think
that strategic investments in convertible bonds can potentially add a lot
of yield to the fund. I also think that convertible bonds can potentially
lower the fund's volatility since they don't necessarily move in sync with
the market. At the end of the period, the fund had a 13.1% position in
convertible bonds.
Q. WHAT ABOUT THE FUND'S HOLDINGS IN MID-CAP STOCKS?
A. Although investing in mid-cap stocks is a strategy that I'm enthusiastic
about, I don't expect to make it a very large percentage of the fund's
investments. That said, I think the fund can potentially benefit from
prudent investments in medium-sized companies that have a lot of room to
grow. Mid-cap stocks can be more risky than large-cap stocks, but sometimes
the reward can make the risk worthwhile. At the end of the period, the
portion of the fund's investments in mid-cap stocks was less than three
percent.
Q. WHERE DID YOU FIND INVESTMENT OPPORTUNITIES DURING
THE PERIOD?
A. In pharmaceuticals and defense companies. Both groups have experienced
stable business conditions and attractive valuations relative to their
growth prospects and the overall market. Finally, both industries are
benefiting from growth from new areas and consolidation. Some of the fund's
holdings at the end of the period included Schering-Plough and American
Home Products in the drug sector and Lockheed Martin and General Dynamics
in defense.
Q. WHAT'S BEEN MOST DISAPPOINTING DURING THE PAST SIX MONTHS?
A. That the fund hasn't performed better. I can't point toward one in-
vestment that really hurt performance. I simply owned too many stocks that
didn't go up as much as the market, and not enough of the stocks in the S&P
500 that did.
Q. WHAT'S YOUR OUTLOOK GOING FORWARD, ANDY?
A. My overall outlook is positive. I'm very comfortable with the changes
I've made to the fund's investment strategy. Though the fund's performance
was disappointing during the past six months, I'm pleased with its growth
stock and convertible bond holdings and am looking forward to continuing
with this strategy during the next six months.
FUND FACTS
GOAL: to seek high current income by
investing in high-yielding, lower-rated fixed
income securities
START DATE: September 19, 1985
SIZE: as of June 30, more than $1.1 billion
MANAGER: Barry Coffman, since 1990; joined
Fidelity in 1986
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
INVESTMENTS JUNE 30, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 81.5%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 4.4%
AEROSPACE & DEFENSE - 2.4%
Alliant Techsystems, Inc. (a) 215,000 $ 10,131,862
Boeing Co. 40,000 3,485,000
Lockheed Martin Corp. 924,603 77,666,652
Northrop Grumman Corp. 527,900 35,963,188
Thiokol Corp. 376,700 14,879,650
142,126,352
DEFENSE ELECTRONICS - 1.2%
Litton Industries, Inc. (a) 893,100 38,849,850
Raytheon Co. 612,700 31,630,638
70,480,488
SHIP BUILDING & REPAIR - 0.8%
General Dynamics Corp. 825,600 51,187,200
TOTAL AEROSPACE & DEFENSE 263,794,040
BASIC INDUSTRIES - 4.9%
CHEMICALS & PLASTICS - 3.0%
Hercules, Inc. 1,000,100 55,255,525
IMC Fertilizer Group, Inc. 961,300 36,168,913
Monsanto Co. 300,000 9,750,000
Raychem Corp. 225,000 16,171,875
Synetic, Inc. (a)(e) 1,157,582 42,830,534
Union Carbide Corp. 551,100 21,906,225
182,083,072
METALS & MINING - 1.2%
Inco Ltd. 1,364,793 43,990,064
Pechiney SA Class A 741,943 29,922,396
73,912,460
PAPER & FOREST PRODUCTS - 0.7%
Boise Cascade Corp. 569,600 20,861,600
Champion International Corp. 460,100 19,209,175
40,070,775
TOTAL BASIC INDUSTRIES 296,066,307
CONGLOMERATES - 2.4%
Allied-Signal, Inc. 1,463,700 83,613,863
Coltec Industries, Inc. (a) 1,371,600 19,545,300
Tyco International Ltd. 1,052,742 42,899,237
146,058,400
CONSTRUCTION & REAL ESTATE - 0.5%
BUILDING MATERIALS - 0.5%
Masco Corp. 1,045,400 31,623,350
DURABLES - 3.3%
AUTOS, TIRES, & ACCESSORIES - 2.2%
Bandag, Inc. 400,000 19,200,000
Dana Corp. 313,500 9,718,500
Echlin, Inc. 220,300 8,343,863
Fruehauf Trailor Corp. (a) 414,200 258,875
Goodyear Tire & Rubber Co. 853,300 41,171,725
Johnson Controls, Inc. 210,700 14,643,650
Snap-on Tools Corp. 642,900 30,457,388
Volvo AB Class B 430,000 9,767,141
133,561,142
CONSUMER ELECTRONICS - 0.6%
Maytag Co. 676,000 14,111,500
Newell Co. 322,200 9,867,375
Sunbeam-Oster, Inc. 635,600 9,375,100
33,353,975
SHARES VALUE (NOTE 1)
TEXTILES & APPAREL - 0.5%
Nine West Group, Inc. 80,000 $ 4,090,000
Reebok International Ltd. 500,000 16,812,500
Warnaco Group, Inc. Class A 426,300 10,977,225
31,879,725
TOTAL DURABLES 198,794,842
ENERGY - 4.9%
ENERGY SERVICES - 0.8%
Baker Hughes, Inc. 271,800 8,935,425
McDermott International, Inc. 521,100 10,877,963
Schlumberger Ltd. 270,600 22,798,050
Seacor Holdings, Inc. (a) 145,600 6,515,600
49,127,038
OIL & GAS - 4.1%
Amerada Hess Corp. 1,710,100 91,704,113
British Petroleum PLC ADR 981,459 104,893,431
Canada Occidental Petroleum Ltd. 322,200 5,422,969
Royal Dutch Petroleum Co. ADR 200,000 30,750,000
Total SA Class B 200,000 14,812,803
247,583,316
TOTAL ENERGY 296,710,354
FINANCE - 15.3%
BANKS - 4.0%
Bank of New York Co., Inc. 837,500 42,921,875
BankAmerica Corp. 764,700 57,926,025
Citicorp 749,400 61,919,175
First Bank System, Inc. 91,600 5,312,800
Fleet Financial Group, Inc. 538,054 23,405,349
PNC Financial Corp. 700,000 20,825,000
Republic New York Corp. 131,200 8,167,200
U.S. Bancorp. 543,700 19,641,163
240,118,587
CREDIT & OTHER FINANCE - 2.8%
American Express Co. 2,285,172 101,975,801
Beneficial Corp. 398,000 22,337,750
Household International, Inc. 637,825 48,474,700
172,788,251
FEDERAL SPONSORED CREDIT - 2.6%
Federal Home Loan
Mortgage Corporation 496,900 42,484,950
Federal National Mortgage Association 1,526,200 51,127,700
Student Loan Marketing Association 828,200 61,286,800
154,899,450
INSURANCE - 5.7%
Aetna Life & Casualty Co. 1,608,200 114,986,300
Allstate Corp. 914,999 41,746,829
General Re Corp. 652,500 99,343,125
ITT Hartford Group, Inc. 939,200 50,012,400
Loews Corp. 505,700 39,887,088
345,975,742
SECURITIES INDUSTRY - 0.2%
Lehman Brothers Holdings, Inc. 598,800 14,820,300
TOTAL FINANCE 928,602,330
HEALTH - 10.1%
DRUGS & PHARMACEUTICALS - 5.6%
American Home Products Corp. 1,163,000 69,925,375
Barr Laboratories, Inc. (a)(e) 1,141,800 29,401,350
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
HEALTH - CONTINUED
DRUGS & PHARMACEUTICALS - CONTINUED
Genentech, Inc. special (a) 534,400 $ 27,989,200
Lilly (Eli) & Co. 160,000 10,400,000
Pharmacia & Upjohn, Inc. 1,311,600 58,202,250
Schering-Plough Corp. 1,348,900 84,643,475
Warner-Lambert Co. 1,029,000 56,595,000
337,156,650
MEDICAL EQUIPMENT & SUPPLIES - 3.5%
Acuson Corp. (a) 806,300 12,900,800
Advanced Medical, Inc. (a)(e) 1,395,655 4,012,508
Bard (C.R.), Inc. 1,072,700 36,471,800
Cardiac Control Systems, Inc. (a)(e) 99,800 274,450
Cardinal Health, Inc. 620,500 44,753,563
Stryker Corp. 679,000 15,447,250
U.S. Surgical Corp. 3,183,800 98,697,800
212,558,171
MEDICAL FACILITIES MANAGEMENT - 1.0%
Columbia/HCA Healthcare Corp. 584,700 31,208,363
Integramed America, Inc. (a)(e) 605,500 2,081,406
Tenet Healthcare Corp. (a) 685,200 14,646,150
Vencor, Inc. (a) 541,200 16,506,600
64,442,519
TOTAL HEALTH 614,157,340
HOLDING COMPANIES - 0.2%
Koor Industries Ltd. sponsored ADR 552,300 9,527,175
INDUSTRIAL MACHINERY & EQUIPMENT - 4.0%
ELECTRICAL EQUIPMENT - 2.3%
American Superconductor Corp. (a) 419,800 5,982,150
General Electric Co. 1,522,800 131,722,200
137,704,350
INDUSTRIAL MACHINERY & EQUIPMENT - 0.4%
Ingersoll-Rand Co. 610,800 26,722,500
POLLUTION CONTROL - 1.3%
WMX Technologies, Inc. 2,405,200 78,770,300
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 243,197,150
MEDIA & LEISURE - 8.6%
BROADCASTING - 1.2%
Viacom, Inc. Class B (non-vtg.) (a) 1,927,100 74,916,013
ENTERTAINMENT - 0.5%
Disney (Walt) Co. 294,900 18,541,838
GC Cos., Inc. (a) 270,500 10,076,125
28,617,963
LEISURE DURABLES & TOYS - 1.2%
Hasbro, Inc. 2,100,500 75,092,875
LODGING & GAMING - 4.7%
Circus Circus Enterprises, Inc. (a) 1,229,100 50,393,100
Hilton Hotels Corp. 470,400 52,920,000
ITT Corp. 1,055,800 69,946,750
Mirage Resorts, Inc. (a) 1,508,800 81,098,000
WMS Industries, Inc. (a) 1,206,200 29,702,675
284,060,525
PUBLISHING - 0.8%
Harcourt General, Inc. 385,600 19,280,000
Score Board, Inc. (a) 303,900 1,443,525
Times Mirror Co. Class A 641,030 27,884,805
48,608,330
SHARES VALUE (NOTE 1)
RESTAURANTS - 0.2%
Darden Restaurants, Inc. 810,100 $ 8,708,575
TOTAL MEDIA & LEISURE 520,004,281
NONDURABLES - 6.8%
BEVERAGES - 1.6%
PepsiCo, Inc. 2,345,600 82,975,600
Seagram Co. Ltd. 500,000 16,776,063
99,751,663
FOODS - 1.3%
Chock Full-O-Nuts Corp. 132,500 645,938
General Mills, Inc. 1,060,600 57,802,700
Nestle SA (Reg.) 16,900 19,262,293
77,710,931
HOUSEHOLD PRODUCTS - 1.0%
First Brands Corp. 865,900 23,379,300
Playtex Products, Inc. (a) 2,141,500 20,076,563
Premark International, Inc. 231,700 4,286,450
Stanhome, Inc. 474,900 12,584,850
60,327,163
TOBACCO - 2.9%
Philip Morris Companies, Inc. 724,700 75,368,800
RJR Nabisco Holdings Corp. 3,260,739 101,082,909
176,451,709
TOTAL NONDURABLES 414,241,466
PRECIOUS METALS - 0.0%
Naxos Resources Ltd. (a) 60,200 368,648
RETAIL & WHOLESALE - 6.7%
APPAREL STORES - 0.1%
Melville Corp. 121,600 4,924,800
GENERAL MERCHANDISE STORES - 4.2%
Consolidated Stores Corp. (a) 469,900 17,268,825
Dillard Department Stores, Inc. Class A 1,356,400 49,508,600
Federated Department Stores, Inc. (a) 466,600 15,922,725
Sears, Roebuck & Co. 1,768,600 85,998,175
Wal-Mart Stores, Inc. 1,681,600 42,670,600
Woolworth Corp. (a) 1,837,100 41,334,750
252,703,675
RETAIL & WHOLESALE, MISCELLANEOUS - 2.4%
Home Depot, Inc., (The) 1,465,900 79,158,600
Tandy Corp. 846,000 40,079,250
Toys "R" Us, Inc. 930,000 26,505,000
145,742,850
TOTAL RETAIL & WHOLESALE 403,371,325
SERVICES - 1.5%
ADVERTISING - 0.5%
Interpublic Group of Companies, Inc. 658,500 30,867,188
PRINTING - 0.5%
Deluxe Corp. 178,500 6,336,750
Harland (John H.) Co. 948,200 23,349,425
29,686,175
SERVICES - 0.5%
ADT Ltd. (a) 800,900 15,116,988
Manpower, Inc. 415,100 16,292,675
31,409,663
TOTAL SERVICES 91,963,026
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TECHNOLOGY - 3.6%
COMMUNICATIONS EQUIPMENT - 1.0%
Cisco Systems, Inc. (a) 560,100 $ 31,715,663
General Instrument Corp. 917,893 26,504,160
58,219,823
COMPUTER SERVICES & SOFTWARE - 0.4%
Softkey International, Inc. (a) 1,257,400 23,812,013
COMPUTERS & OFFICE EQUIPMENT - 0.8%
Pitney Bowes, Inc. 991,000 47,320,250
ELECTRONICS - 0.3%
Storage Technology Corp. (a) 537,500 20,559,375
PHOTOGRAPHIC EQUIPMENT - 1.1%
Eastman Kodak Co. 874,900 68,023,475
TOTAL TECHNOLOGY 217,934,936
TRANSPORTATION - 1.6%
AIR TRANSPORTATION - 0.8%
Northwest Airlines Corp. Class A (a) 1,150,000 45,425,000
RAILROADS - 0.8%
Burlington Northern Santa Fe Corp. 625,540 50,590,548
TOTAL TRANSPORTATION 96,015,548
UTILITIES - 2.7%
TELEPHONE SERVICES - 2.7%
AT&T Corp. 1,509,700 93,601,400
LCI International, Inc. 280,000 8,785,000
Lucent Technologies, Inc. 614,400 23,270,400
Southern New England
Telecommunications Corp. 670,300 28,152,600
WorldCom, Inc. 126,500 7,004,938
160,814,338
TOTAL COMMON STOCKS
(Cost $4,403,590,418) 4,933,244,856
CONVERTIBLE PREFERRED STOCKS - 2.6%
DURABLES - 0.2%
CONSUMER DURABLES - 0.2%
Owens-Corning Capital LLC $3.25 236,800 13,320,000
ENERGY - 0.9%
OIL & GAS - 0.9%
Occidental Petroleum Corp.
Indexed $3.00 218,900 13,599,163
Occidental Petroleum Corp.
$3.875 (d) 682,100 40,584,950
54,184,113
FINANCE - 1.4%
INSURANCE - 0.8%
Conseco, Inc. $4.27875 631,100 48,910,250
SECURITIES INDUSTRY - 0.6%
Merrill Lynch & Co., Inc. $1.3725 400,000 8,850,000
Salomon, Inc. $2.03 840,700 23,014,163
31,864,163
TOTAL FINANCE 80,774,413
SHARES VALUE (NOTE 1)
MEDIA & LEISURE - 0.1%
BROADCASTING - 0.1%
Cablevision Systems Corp. depositary
shares representing 1/10 pfd.,
Series I, $2.125 307,500 $ 7,995,000
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $156,423,454) 156,273,526
CORPORATE BONDS - 13.1%
MOODY'S PRINCIPAL
RATINGS (B) AMOUNT
CONVERTIBLE BONDS - 13.1%
BASIC INDUSTRIES - 0.9%
CHEMICALS & PLASTICS - 0.3%
IMC Fertilizer Group, Inc.
subnote convertible
6 1/4%, 12/1/2001 B2 $ 16,000,000 19,700,000
IRON & STEEL - 0.1%
Trimas Corp. 5%, 8/1/03 Ba3 3,500,000 3,911,250
METALS & MINING - 0.5%
Inco Ltd. 5 3/4%, 7/1/04 Baa2 25,800,000 32,637,000
TOTAL BASIC INDUSTRIES 56,248,250
CONGLOMERATES - 0.4%
Gencorp, Inc. 8%, 8/1/02 B1 19,500,000 21,108,750
CONSTRUCTION & REAL ESTATE - 0.4%
REAL ESTATE INVESTMENT TRUSTS - 0.4%
Liberty Property exchangeable
8%, 7/1/01 B1 25,110,000 25,926,075
DURABLES - 0.5%
AUTOS, TIRES, & ACCESSORIES - 0.5%
Mascotech, Inc.
4 1/2%, 12/15/03 Ba3 35,400,000 27,966,000
Titan Wheel International, Inc.
4 3/4%, 12/1/00 B2 500,000 642,500
28,608,500
ENERGY - 0.9%
ENERGY SERVICES - 0.1%
Nabors Industries, Inc.
5%, 5/1/06 Ba2 4,347,000 4,825,170
OIL & GAS - 0.8%
Pennzoil 4 3/4%, 10/1/03 Baa3 32,670,000 35,365,275
USX-Marathon Group
7%, 6/15/17 BB- 15,000,000 14,006,250
49,371,525
TOTAL ENERGY 54,196,695
FINANCE - 1.0%
INSURANCE - 1.0%
Chubb Corp., (The)
6%, 5/15/98 Aa3 40,730,000 47,654,100
Mutual Risk Management Ltd.
exchangeable 0%,
10/30/15 (d) Baa3 31,000,000 11,663,750
59,317,850
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (NOTE 1)
CONVERTIBLE BONDS - CONTINUED
HEALTH - 2.4%
DRUGS & PHARMACEUTICALS - 0.3%
Bentley Pharmaceuticals, Inc.
12%, 2/13/06 - $ 750,000 $ 952,500
Roche Holdings, Inc. liquid
yield option notes
0%, 4/20/10 (d) - 44,500,000 18,968,125
19,920,625
MEDICAL EQUIPMENT & SUPPLIES - 0.1%
Phoenix Shannon PLC 9 1/2%,
11/1/00 (d) - 3,500,000 3,395,000
MEDICAL FACILITIES MANAGEMENT - 2.0%
Beverly Enterprises, Inc.
5 1/2%, 8/1/18 B3 44,550,000 45,441,000
Integrated Health Services, Inc.
5 3/4%, 1/1/01 B2 22,000,000 21,340,000
NovaCare, Inc.
5 1/2%, 1/15/00 B1 36,787,000 32,372,560
Sun Healthcare Group, Inc.:
6%, 3/1/04 (d) - 15,060,000 13,554,000
euro 6%, 3/1/04 - 6,670,000 6,036,350
118,743,910
TOTAL HEALTH 142,059,535
INDUSTRIAL MACHINERY & EQUIPMENT - 0.7%
Cooper Industries, Inc.
7.05%, 1/1/15 A3 41,665,000 44,894,038
MEDIA & LEISURE - 1.6%
BROADCASTING - 0.8%
Comcast Corp. 3 3/8%,
9/9/05 (c) B1 33,500,000 30,987,500
Time Warner, Inc. liquid yield
option notes 0%, 6/22/13 Ba1 50,000,000 20,750,000
51,737,500
LODGING & GAMING - 0.6%
Hilton Hotels Corp.
5%, 5/15/06 Baa2 32,300,000 34,076,500
RESTAURANTS - 0.2%
Shoney's, Inc. liquid yield
option notes 0%, 4/11/04 B2 26,260,000 12,210,900
TOTAL MEDIA & LEISURE 98,024,900
NONDURABLES - 0.1%
BEVERAGES - 0.1%
Grand Metropolitan PLC euro
6 1/2%, 1/31/00 A2 4,500,000 4,882,500
PRECIOUS METALS - 0.2%
Homestake Mining Co.
5 1/2%, 6/23/00 (d) Ba2 14,700,000 14,700,000
RETAIL & WHOLESALE - 1.7%
APPAREL STORES - 0.1%
Baby Superstore, Inc.
4 7/8%, 10/1/00 B3 7,000,000 5,390,000
DRUG STORES - 0.9%
Rite Aid Corp. liquid yield
option notes 0%, 7/24/06 Baa1 103,000,000 54,203,750
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (NOTE 1)
RETAIL & WHOLESALE,
MISCELLANEOUS - 0.7%
Price Co. sub. deb. conv.
6 3/4%, 3/1/01 Baa1 $ 39,330,000 $42,230,588
TOTAL RETAIL & WHOLESALE 101,824,338
TECHNOLOGY - 1.8%
COMMUNICATIONS EQUIPMENT - 0.2%
3Com Corp.
10 1/4%, 11/1/01 (d) Ba3 8,000,000 12,560,000
COMPUTERS & OFFICE EQUIPMENT - 1.3%
Silicon Graphics, Inc. 0%,
11/2/13 (d) B1 19,500,000 9,774,375
Unisys Corp. 8 1/4%, 8/1/00 B3 66,839,000 64,833,830
74,608,205
ELECTRONICS - 0.3%
Xilinx, Inc. 5 1/4%,
11/1/02 B2 21,000,000 19,215,000
TOTAL TECHNOLOGY 106,383,205
UTILITIES - 0.5%
CELLULAR - 0.4%
Cellular Communications, Inc.
0%, 7/27/99 (d) B1 30,000,000 24,300,000
GAS - 0.1%
Consolidated Natural Gas Co.
7 1/4%, 12/15/15 A2 6,400,000 6,840,000
TOTAL UTILITIES 31,140,000
TOTAL CONVERTIBLE BONDS 789,314,636
NONCONVERTIBLE BONDS - 0.0%
NONDURABLES - 0.0%
BEVERAGES - 0.0%
Canandaigua Wine, Inc.
8 3/4%, 12/15/03 B1 2,520,000 2,431,800
TOTAL CORPORATE BONDS
(Cost $790,216,327) 791,746,436
REPURCHASE AGREEMENTS - 2.8%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.46%, dated
6/28/96 due 7/1/96 $ 170,449,519 170,372,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $5,520,602,199) $ 6,051,636,818
LEGEND
1. Non-income producing
2. Standard & Poor's credit ratings are used in the absence of a rating by
Moody's Investors Service, Inc.
3. Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date.
4. 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 $149,500,200 or 2.5% of net
assets.
5. An affiliated company is a company in which the fund has ownership of at
least 5% of the voting securities. Transactions during the period with
companies which are or were affiliates are as follows:
PURCHASE SALES DIVIDEND MARKET
AFFILIATE COST COST INCOME VALUE
Advanced Medical, Inc. $ - $ - $ - $ 4,012,508
Barr Laboratories, Inc. - - - 29,401,350
Cardiac Control
Systems, Inc - - - 274,450
Integramed America, Inc. - - - 2,081,406
Synetic, Inc. 2,831,088 - - 42,830,534
$ 2,831,088 $ - $ - $ 78,600,248
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $6,769,029,781 and $5,536,451,087, respectively, of which U.S.
govern- ment and government agency obligations aggregated $0 and
$328,865,573, 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 $2,091,635 for the period
(see Note 4 of Notes to Financial Statements).
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 1.7% AAA, AA, A 1.0%
Baa 3.5% BBB 4.9%
Ba 1.4% BB 2.3%
B 5.5% B 3.6%
Caa 0.0% CCC 0.0%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by either S&P or Moody's amounted to 0.7% includ-
ing long-term debt categorized as other securities. FMR has determined that
unrated debt securities that are lower quality account for 0.0% of the
total value of investment in securities.
The fund participated in the bank borrowing program. The maximum loan and
the average daily loan balances during the period for which loans were
outstanding amounted to $21,073,000 and $11,553,500, respectively. The
weighted average interest rate was 6.4% (see Note 6 of Notes to Financial
Statements).
INCOME TAX INFORMATION
At June 30, 1996, the aggregate cost of investment securities for income
tax purposes was $5,521,135,829. Net unrealized appreciation aggregated
$530,500,989, of which $618,801,558 related to appreciated investment
securities and $88,300,569 related to depreciated investment securities.
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
ASSETS
Investment in $ 6,051,636,818
securities, at value
(including
repurchase
agreements of
$170,372,000) (cost
$5,520,602,199) -
See accompanying
schedule
Cash 5,000,464
Receivable for 89,781,950
investments sold
Receivable for fund 5,361,337
shares sold
Dividends receivable 8,649,263
Interest receivable 11,964,344
Other receivables 126,809
TOTAL ASSETS 6,172,520,985
LIABILITIES
Payable for $ 111,493,837
investments
purchased
Payable for fund 1,200,031
shares redeemed
Accrued management 2,541,934
fee
Other payables and 450,920
accrued expenses
TOTAL LIABILITIES 115,686,722
NET ASSETS $ 6,056,834,263
Net Assets consist of:
Paid in capital $ 4,993,820,617
Undistributed net 63,832,911
investment income
Accumulated 468,151,713
undistributed
net realized gain
(loss) on
investments and
foreign
currency
transactions
Net unrealized 531,029,022
appreciation
(depreciation) on
investments
and assets and
liabilities in
foreign currencies
NET ASSETS, for $ 6,056,834,263
310,912,656 shares
outstanding
NET ASSET VALUE, $19.48
offering price
and redemption
price per
share
($6,056,834,263 (divided by)
310,912,656
shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
INVESTMENT INCOME $ 52,963,671
Dividends
Interest 24,963,746
TOTAL INCOME 77,927,417
EXPENSES
Management fee $ 14,096,454
Transfer agent fees 1,107,973
Accounting fees and 401,530
expenses
Non-interested 4,613
trustees'
compensation
Custodian fees and 71,778
expenses
Registration fees 42,083
Audit 38,357
Legal 10,915
Interest 4,392
Miscellaneous 18,856
Total expenses 15,796,951
before reductions
Expense reductions (581,877 15,215,074
)
NET INVESTMENT 62,712,343
INCOME
REALIZED AND
UNREALIZED GAIN
(LOSS)
Net realized gain
(loss) on:
Investment 477,014,218
securities
Foreign currency 441 477,014,659
transactions
Change in net
unrealized
appreciation
(depreciation) on:
Investment (239,084,681
securities )
Assets and (11,732 (239,096,413)
liabilities in )
foreign currencies
NET GAIN (LOSS) 237,918,246
NET INCREASE $ 300,630,589
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS
OTHER INFORMATION
Expense reductions $ 576,280
Directed brokerage
arrangements
Custodian interest 5,597
credits
$ 581,877
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1996 1995
(UNAUDITED)
Operations $ 62,712,343 $ 88,914,157
Net investment income
Net realized gain (loss) 477,014,659 220,997,465
Change in net unrealized (239,096,413) 715,587,919
appreciation (depreciation)
NET INCREASE (DECREASE) IN 300,630,589 1,025,499,541
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (7,876,787) (84,729,039)
From net investment income
From net realized gain (225,801,230) (121,254,353)
TOTAL DISTRIBUTIONS (233,678,017) (205,983,392)
Share transactions 1,115,681,821 1,784,340,253
Net proceeds from sales of
shares
Reinvestment of distributions 233,678,017 205,981,922
Cost of shares redeemed (238,912,828) (214,815,736)
NET INCREASE (DECREASE) IN 1,110,447,010 1,775,506,439
NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) 1,177,399,582 2,595,022,588
IN NET ASSETS
NET ASSETS
Beginning of period 4,879,434,681 2,284,412,093
End of period (including $ 6,056,834,263 $ 4,879,434,681
undistributed net
investment income of
$63,832,911 and
$8,997,355, respectively)
OTHER INFORMATION
Shares
Sold 57,674,330 103,951,843
Issued in reinvestment of 12,390,139 12,868,445
distributions
Redeemed (12,415,210) (12,384,683)
Net increase (decrease) 57,649,259 104,435,605
<TABLE>
<CAPTION>
<S> <C> <C>
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED YEARS ENDED DECEMBER 31,
JUNE 30, 1996
SELECTED PER-SHARE DATA (UNAUDITED) 1995 1994 1993 D 1992 1991
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of $ 19.27 $ 15.35 $ 15.44 $ 13.40 $ 11.85 $ 9.51
period
Income from Investment
Operations
Net investment income .20 .41 .41 .37 .40 .50
Net realized and unrealized .90 4.69 .64 2.06 1.57 2.43
gain (loss)
Total from investment 1.10 5.10 1.05 2.43 1.97 2.93
operations
Less Distributions (.03) (.40) (.37) (.35) (.42) (.59)
From net investment income
In excess of net investment - - - (.04) - -
income
From net realized gain (.86) (.78) (.77) - - -
Total distributions (.89) (1.18) (1.14) (.39) (.42) (.59)
Net asset value, end of period $ 19.48 $ 19.27 $ 15.35 $ 15.44 $ 13.40 $ 11.85
TOTAL RETURN B, C 5.86% 35.09% 7.07% 18.29% 16.89% 31.44%
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of period (000 $ 6,056,834 $ 4,879,435 $ 2,284,412 $ 1,318,500 $ 592,880 $ 282,171
omitted)
Ratio of expenses to average .57% A .61% .60% .62% .65% .74%
net assets
Ratio of expenses to average .55% A, .61% .58% E .62% .65% .74%
net assets after expense E
reductions
Ratio of net investment income 2.27% A 2.56% 2.83% 2.87% 3.52% 4.83%
to average net assets
Portfolio turnover rate 216% A 87% 134% 120% 74% 107%
Average commission rate F $ .0420
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE
NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C 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. D EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF
POSITION 93-2, "DETERMINATION, DISCLOSURE, AND FINANCIAL
STATEMENT PRESENTATION OF INCOME, CAPITAL GAIN, AND RETURN OF
CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES." AS A RESULT, NET
INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN RECLASSIFICATIONS
RELATED TO BOOK TO TAX DIFFERENCES.. E FMR OR THE FUND HAS ENTERED
INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED
A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO
FINANCIAL STATEMENTS). F FOR FISCAL YEARS BEGINNING ON OR AFTER
SEPTEMBER 1, 1995, A FUND IS REQUIRED TO DISCLOSE ITS AVERAGE
COMMISSION RATE PER SHARE FOR SECURITY TRADES ON WHICH COMMISSIONS
ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD TO PERIOD AND
FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN VARIOUS
MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES
MAY DIFFER.
</TABLE>
VARIABLE INSURANCE PRODUCTS FUND: GROWTH PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance: total
percentage change in value, the average annual percentage change, or the
growth of a hypothetical $10,000 investment. A fund's total return includes
changes in a fund's share price, plus reinvestment of any dividends
(income) and capital gains (the profits the fund earns when it sells
securities that have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED PAST 1 PAST 5 LIFE OF
JUNE 30, 1996 YEAR YEARS FUND
Growth 21.09% 19.93% 15.22%
S&P 500 26.00% 15.73% 14.80%
AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and
show you what would have happened if the fund had performed at a constant
rate each year.
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 growth in the long run
and volatility in the short run. 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.
(checkmark)
You can compare these figures to the performance of the Standard & Poor's
500 Index - a widely recognized, unmanaged index of common stocks. The S&P
500 returns reflect reinvestment of all dividends paid by stocks included
in the Index, but do not reflect any brokerage commissions or other fees
you might pay if you actually invested in those stocks.
Figures for more than one year assume a steady compounded rate of return
and are not the fund's year-by-year results, which fluctuated over the
periods shown. The life of fund figures are from commencement of
operations, October 9, 1986.
If Fidelity had not reimbursed certain fund expenses, the fund's life of
fund total return would have been lower.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, 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.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19960630 19960710 163826 S00000000000001
VIP: Growth SP Standard & Poor 500
00151 SP001
1986/10/09 10000.00 10000.00
1986/10/31 10000.00 10329.97
1986/11/30 10220.00 10580.99
1986/12/31 10030.00 10311.18
1987/01/31 11100.00 11700.09
1987/02/28 11650.00 12162.25
1987/03/31 11839.97 12513.74
1987/04/30 11839.97 12402.36
1987/05/31 11920.10 12510.26
1987/06/30 12270.69 13142.03
1987/07/31 12761.52 13808.33
1987/08/31 13142.16 14323.38
1987/09/30 12991.91 14009.70
1987/10/31 10137.09 10992.01
1987/11/30 9425.90 10086.27
1987/12/31 10397.53 10853.84
1988/01/31 10623.12 11310.78
1988/02/29 11484.46 11837.86
1988/03/31 11381.92 11472.07
1988/04/30 11525.47 11599.41
1988/05/31 11422.93 11700.33
1988/06/30 11997.15 12237.37
1988/07/31 11935.63 12190.87
1988/08/31 11648.52 11776.38
1988/09/30 11976.65 12278.06
1988/10/31 12007.41 12619.39
1988/11/30 11894.61 12438.93
1988/12/31 12017.66 12656.61
1989/01/31 12879.00 13583.07
1989/02/28 12612.39 13244.86
1989/03/31 12993.68 13553.46
1989/04/30 13680.85 14256.89
1989/05/31 14170.19 14834.29
1989/06/30 13982.78 14749.73
1989/07/31 15232.18 16081.64
1989/08/31 15492.47 16396.84
1989/09/30 15627.82 16329.61
1989/10/31 15190.53 15950.76
1989/11/30 15440.41 16276.16
1989/12/31 15804.81 16666.78
1990/01/31 14888.59 15548.44
1990/02/28 15030.81 15749.02
1990/03/31 15214.51 16166.37
1990/04/30 14771.47 15762.21
1990/05/31 16078.97 17299.02
1990/06/30 16413.95 17181.39
1990/07/31 16154.61 17126.41
1990/08/31 14490.52 15578.18
1990/09/30 12999.33 14819.52
1990/10/31 12534.68 14755.80
1990/11/30 13550.42 15709.03
1990/12/31 13950.23 16147.31
1991/01/31 14879.53 16851.33
1991/02/28 15989.61 18056.20
1991/03/31 16472.15 18493.16
1991/04/30 16318.61 18537.54
1991/05/31 17283.69 19338.37
1991/06/30 16000.57 18452.67
1991/07/31 17524.96 19312.56
1991/08/31 18303.60 19770.27
1991/09/30 18446.17 19440.11
1991/10/31 19016.45 19700.60
1991/11/30 17930.73 18906.67
1991/12/31 20299.56 21069.59
1992/01/31 21538.81 20677.70
1992/02/29 21989.40 20946.51
1992/03/31 20641.73 20538.05
1992/04/30 19833.13 21141.87
1992/05/31 19664.67 21245.47
1992/06/30 18901.00 20928.91
1992/07/31 19630.98 21784.90
1992/08/31 19091.92 21338.31
1992/09/30 19428.83 21590.10
1992/10/31 20181.28 21665.67
1992/11/30 21528.94 22404.47
1992/12/31 22191.55 22680.04
1993/01/31 22629.54 22870.55
1993/02/28 22163.03 23181.59
1993/03/31 23046.80 23670.73
1993/04/30 22805.77 23097.89
1993/05/31 24504.44 23716.92
1993/06/30 24756.94 23785.70
1993/07/31 24688.08 23690.55
1993/08/31 25927.65 24588.43
1993/09/30 26409.70 24399.09
1993/10/31 26662.20 24904.16
1993/11/30 25583.32 24667.57
1993/12/31 26490.04 24966.04
1994/01/31 27155.74 25814.89
1994/02/28 26875.65 25115.31
1994/03/31 25654.59 24020.28
1994/04/30 25813.32 24327.74
1994/05/31 25215.00 24726.71
1994/06/30 23932.88 24120.91
1994/07/31 24763.21 24912.07
1994/08/31 26167.43 25933.47
1994/09/30 25849.96 25298.10
1994/10/31 26900.07 25867.31
1994/11/30 25825.53 24925.22
1994/12/31 26484.91 25294.86
1995/01/31 25984.27 25950.76
1995/02/28 27060.36 26962.06
1995/03/31 28042.58 27757.71
1995/04/30 28987.98 28575.17
1995/05/31 30117.54 29717.32
1995/06/30 32781.83 30407.65
1995/07/31 36023.18 31415.97
1995/08/31 36465.18 31494.83
1995/09/30 37410.57 32823.91
1995/10/31 37029.96 32706.73
1995/11/30 37005.40 34142.55
1995/12/31 35851.29 34800.14
1996/01/31 36416.07 35984.73
1996/02/29 37637.01 36318.31
1996/03/31 37782.28 36668.06
1996/04/30 39261.34 37208.55
1996/05/31 40489.50 38168.15
1996/06/28 39697.14 38313.57
IMATRL PRASUN SHR__CHT 19960630 19960710 163830 R00000000000120
Let's say hypothetically that $10,000 was invested in Growth Portfolio on
October 9, 1986, when the fund started. As the chart shows, by June 30,
1996, the value of the investment would have grown to $39,697 - a 296.97%
increase on the initial investment. For comparison, look at how the S&P 500
did over the same period. With dividends and capital gains, if any,
reinvested, the same $10,000 investment would have grown to $38,314 - a
283.14% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE 30, 1996
% OF FUND'S
INVESTMENTS
Cisco Systems, Inc. 2.3
General Electric Co. 2.1
HFS, Inc. 2.0
Oracle Corp. 1.9
Philip Morris Companies, Inc. 1.6
TOP FIVE MARKET SECTORS AS OF JUNE 30, 1996
% OF FUND'S
INVESTMENTS
Technology 22.2
Retail & Wholesale 11.0
Health 10.4
Media & Leisure 8.2
Utilities 8.0
ASSET ALLOCATION AS OF JUNE 30, 1996 *
Row: 1, Col: 1, Value: 9.6
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 40.4
Row: 1, Col: 4, Value: 50.0
Stocks 90.4%
Short-term investments 9.6%
FOREIGN INVESTMENTS 3.1%
*
VARIABLE INSURANCE PRODUCTS FUND: GROWTH PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
An interview with Lawrence Greenberg, Portfolio
Manager of Growth Portfolio
Q. HOW DID THE FUND PERFORM, LARRY?
A. For the six months ended June 30, 1996, the fund slightly edged out the
Standard & Poor's 500 Index return of 10.10% and underperformed the 26.00%
return of the index for the past 12 months.
Q. WHY DO YOU THINK THE FUND UNDERPERFORMED OVER THE
PAST YEAR?
A. The fund's position in semiconductor stocks hurt its performance in the
fourth quarter of 1995. Semiconductor company stocks fell as it became
apparent that a worldwide supply glut would reduce prices and therefore
lower profit margins and curb expansion. Unfortunately, I was not able to
reduce the fund's position in these stocks quickly enough to avoid some
losses.
Q. YOU ALSO CONTINUED TO REDUCE THE FUND'S OVERALL TECHNOLOGY POSITION.
SHOULD ONE TAKE THIS AS AN INDICATION THAT YOU HAD A NEGATIVE VIEW ON THE
TECHNOLOGY SECTOR?
A. Absolutely not. During the period, I cut back on technology stocks
because I thought some companies' fundamentals did not justify their stock
prices. Remember, there are always going to be ups and downs in the various
areas that make up the technology sector. However, on a long-term basis, I
believe technology is where an investor is going to find the best growth
opportunities, and I intend to continue to make it a major focus of the
fund. In fact, many technology stocks came back from the fourth-quarter
correction.
Q. SO WHAT WERE THE GROWTH AREAS DURING THE PERIOD?
A. The major growth areas I found revolved around improvement of
communications. This involved the computer networking equipment industry,
modem manufacturers and database vendors. These industries are active in
structuring data so that it can be communicated across corporate networks.
Some examples from the fund's holdings include Cisco Systems in networking,
U.S. Robotics in modems, and Oracle and PeopleSoft in databases.
Q. AS YOU REDUCED YOUR TECHNOLOGY POSITION, IT APPEARS YOU REALLOCATED SOME
OF THE FUND'S ASSETS TO THE HEALTH AND MEDIA/LEISURE SECTORS. WHY?
A. I reinvested these assets in companies within these sectors that offered
good growth potential, solid fundamentals and attractive valuations. Some
examples included the biopharmaceutical firm Biogen, as well as HFS - which
owns several businesses such as Days Inn, Ramada, Century 21, and recently
announced that it intends to acquire rental-car chain Avis.
Q. IN YOUR LAST REPORT, YOU DISCUSSED THE MERITS OF SPECIALTY RETAIL
STOCKS. WHAT'S HAPPENED IN THAT AREA?
A. Many of them have done well. I prefer to own specialty retailers that
are considered to be "category killers" - companies that dominate their
market segment no matter what is happening in the overall retail market or
the economy. Some examples of these included PETsMART and Sunglass Hut
International. The difference from six months ago, however, is that the
general retail environment has recently shown some strength. Therefore, I
added some stocks that benefited from the improving retail environment.
Q. WITH THE STOCK MARKET SURPASSING HISTORICALLY HIGH PRICE
LEVELS, WHAT ADJUSTMENTS HAVE YOU MADE TO THE FUND?
A. I've attempted to spread out the fund's holdings more than in the recent
past. When market valuations get to such high levels, it's often not a good
idea to be counting on the performance of one sector or industry. This
strategy has the potential of lowering the fund's volatility in a market
downturn, while still remaining fully invested.
Q. WHAT'S YOUR OUTLOOK?
A. There is no question that the market has gone a long time without a
meaningful correction and many stocks are approaching fair value. If
interest rates continue to climb - or cash flows into mutual funds begin to
slow - I believe a healthy correction at some point is likely. I use the
word "healthy" because corrections give me an opportunity to reposition the
fund back into the companies that I like the most at more attractive
valuations.
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 AND
OTHER CONDITIONS.
FUND FACTS
GOAL: to seek high current income by
investing in high-yielding, lower-rated fixed
income securities
START DATE: September 19, 1985
SIZE: as of June 30, more than $1.1 billion
MANAGER: Barry Coffman, since 1990; joined
Fidelity in 1986
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND: GROWTH PORTFOLIO
INVESTMENTS JUNE 30, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 90.3%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 1.2%
AEROSPACE & DEFENSE - 1.0%
Boeing Co. 225,000 $ 19,603,115
C A E Industries Ltd. 535,900 4,460,757
General Motors Corp. Class H 125,000 7,515,625
Lockheed Martin Corp. 50,000 4,200,000
Rockwell International Corp. 275,000 15,743,750
Special Devices, Inc. (a) 153,400 2,454,400
Wyman-Gordon Co. (a) 132,000 2,343,000
56,320,647
DEFENSE ELECTRONICS - 0.2%
Raytheon Co. 200,000 10,325,000
Stanford Telecommunications, Inc. (a) 3,800 213,750
10,538,750
TOTAL AEROSPACE & DEFENSE 66,859,397
BASIC INDUSTRIES - 1.8%
CHEMICALS & PLASTICS - 1.0%
Dow Chemical Co. 85,000 6,460,000
du Pont (E.I.) de Nemours & Co. 185,000 14,638,125
IMC Fertilizer Group, Inc. 150,000 5,643,750
Monsanto Co. 575,000 18,687,500
Praxair, Inc. 100,000 4,225,000
Union Carbide Corp. 150,000 5,962,500
55,616,875
IRON & STEEL - 0.0%
Nucor Corp. 50,000 2,531,250
METALS & MINING - 0.5%
Alcan Aluminium Ltd. 100,000 3,047,193
Aluminum Co. of America 135,000 7,745,625
Freeport McMoRan Copper & Gold, Inc.
Class A 125,000 3,734,375
Inco Ltd. 175,000 5,640,607
SGL Carbon AG 48,000 5,604,460
25,772,260
PACKAGING & CONTAINERS - 0.1%
Crown Cork & Seal Co., Inc. 50,000 2,250,000
Tupperware Corp. (a) 100,000 4,225,000
6,475,000
PAPER & FOREST PRODUCTS - 0.2%
International Paper Co. 100,000 3,687,500
Pentair, Inc. 165,000 4,950,000
8,637,500
TOTAL BASIC INDUSTRIES 99,032,885
CONGLOMERATES - 0.9%
Allied-Signal, Inc. 235,000 13,424,375
Mark IV Industries, Inc. 350,000 7,918,750
Textron, Inc. 55,000 4,393,125
Tyco International Ltd. 369,500 15,057,125
United Technologies Corp. 85,000 9,775,000
50,568,375
CONSTRUCTION & REAL ESTATE - 0.7%
BUILDING MATERIALS - 0.1%
York International Corp. 75,000 3,881,250
CONSTRUCTION - 0.3%
Oakwood Homes Corp. 900,000 18,562,500
ENGINEERING - 0.2%
Fluor Corp. 85,000 5,556,875
MasTec, Inc. (a) 225,000 5,681,250
11,238,125
SHARES VALUE (NOTE 1)
REAL ESTATE INVESTMENT TRUSTS - 0.1%
First Industrial Realty Trust, Inc. 178,800 $ 4,201,800
RFS Hotel Investors, Inc. 200,000 3,100,000
7,301,800
TOTAL CONSTRUCTION & REAL ESTATE 40,983,675
DURABLES - 4.9%
AUTOS, TIRES, & ACCESSORIES - 2.9%
Autozone, Inc. (a) 775,000 26,931,250
Chrysler Corp. 775,000 48,050,000
Danaher Corp. 125,000 5,437,500
Eaton Corp. 150,000 8,793,750
General Motors Corp. 1,100,046 57,614,909
Honda Motor Co. Ltd. 75,000 1,941,571
Magna International, Inc. Class A 56,800 2,624,326
Scania AB:
Class A 79,000 2,186,588
Class B 79,000 2,192,530
TRW, Inc. 60,000 5,392,500
161,164,924
CONSUMER DURABLES - 0.3%
Minnesota Mining & Manufacturing Co. 225,000 15,525,000
CONSUMER ELECTRONICS - 0.3%
Gemstar International Group Ltd. (a) 65,000 1,950,000
Harman International Industries, Inc. 129,800 6,392,650
Newell Co. 275,000 8,421,875
16,764,525
HOME FURNISHINGS - 0.1%
Garden Ridge Corp. (a) 120,000 3,030,000
TEXTILES & APPAREL - 1.3%
Adidas AG 71,400 5,990,200
Adidas AG (b) 45,600 3,825,674
Donnkenny, Inc. (a) 240,000 4,680,000
Gucci Group NV 100,000 6,450,000
Liz Claiborne, Inc. 100,000 3,462,500
Mohawk Industries, Inc. (a) 216,700 3,846,425
NIKE, Inc. Class B 190,000 19,522,500
Tommy Hilfiger (a) 100,000 5,362,500
Warnaco Group, Inc. Class A 362,500 9,334,375
Wolverine World Wide, Inc. 235,000 7,637,500
70,111,674
TOTAL DURABLES 266,596,123
ENERGY - 3.8%
ENERGY SERVICES - 0.7%
Dresser Industries, Inc. 135,000 3,982,500
Halliburton Co. 114,100 6,332,550
Schlumberger Ltd. 248,600 20,944,550
Varco International, Inc. (a) 239,500 4,340,938
35,600,538
INDEPENDENT POWER - 0.3%
Thermo Electron Corp. (a) 375,000 15,609,375
OIL & GAS - 2.8%
Amerada Hess Corp. 292,800 15,701,400
Anadarko Petroleum Corp. 85,000 4,930,000
Apache Corp. 44,600 1,466,225
Atlantic Richfield Co. 150,000 17,775,000
Barrett Resources Corp. (a) 325,000 9,668,750
Belco Oil & Gas Corp. (a) 200,300 7,110,650
Benton Oil & Gas Co. (a) 305,000 6,710,000
British Petroleum PLC ADR 176,343 18,846,658
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Chesapeake Energy Corp. (a) 77,700 $ 4,655,525
Louisiana Land & Exploration Co. 177,000 10,199,625
Noble Affiliates, Inc. 200,000 7,550,000
Occidental Petroleum Corp. 166,900 4,130,775
Royal Dutch Petroleum Co. ADR 225,000 34,593,750
Ultramar Corp. 100,000 2,900,000
Unocal Corp. 251,672 8,493,930
154,732,288
TOTAL ENERGY 205,942,201
FINANCE - 5.7%
BANKS - 0.7%
BankAmerica Corp. 175,000 13,256,250
Chase Manhattan Corp. 85,000 6,003,125
Citicorp 185,000 15,285,625
NationsBank Corp. 46,300 3,825,538
38,370,538
CREDIT & OTHER FINANCE - 0.8%
American Express Co. 625,000 27,890,625
Green Tree Financial Corp. 185,000 5,781,250
Household International, Inc. 125,008 9,500,608
43,172,483
FEDERAL SPONSORED CREDIT - 2.1%
Federal Home Loan Mortgage
Corporation 375,000 32,062,500
Federal National Mortgage Association 2,500,000 83,750,000
115,812,500
INSURANCE - 1.6%
Allstate Corp. 300,000 13,687,500
American Financial Group, Inc. 150,000 4,518,750
American International Group, Inc. 275,000 27,121,875
CIGNA Corp. 65,000 7,661,875
Capital Re Corp. 34,000 1,249,500
ITT Hartford Group, Inc. 125,000 6,656,250
MBIA, Inc. 75,000 5,840,625
MGIC Investment Corp. 85,000 4,770,625
SunAmerica, Inc. 100,000 5,650,000
Travelers Group, Inc., (The) 165,000 7,528,125
UNUM Corp. 75,000 4,668,750
89,353,875
SAVINGS & LOANS - 0.1%
California Federal Bancorp., Inc. 400,000 7,300,000
SECURITIES INDUSTRY - 0.4%
Merrill Lynch & Co., Inc. 175,000 11,396,875
Morgan Stanley Group, Inc. 100,000 4,912,500
Schwab (Charles) Corp. 150,000 3,675,000
19,984,375
TOTAL FINANCE 313,993,771
HEALTH - 10.4%
DRUGS & PHARMACEUTICALS - 4.8%
ALZA Corp. Class A (a) 185,000 5,064,375
American Home Products Corp. 250,000 15,031,250
Amgen, Inc. (a) 185,000 9,990,000
Biogen, Inc. (a) 550,000 30,181,250
Bristol-Myers Squibb Co. 340,000 30,600,000
Dura Pharmaceuticals, Inc. (a) 85,000 4,760,000
Elan Corp. PLC ADR (a) 100,000 5,712,500
Genentech, Inc. special (a) 385,000 20,164,375
ICN Pharmaceuticals, Inc. 125,000 2,906,250
SHARES VALUE (NOTE 1)
Jones Medical Industries, Inc. 100,000 $ 3,325,000
Lilly (Eli) & Co. 275,000 17,875,000
Merck & Co., Inc. 625,000 40,390,625
Pfizer, Inc. 425,000 30,334,375
Pharmacia & Upjohn, Inc. 400,000 17,750,000
Protein Design Labs, Inc. (a) 265,000 5,962,500
Schering-Plough Corp. 200,000 12,550,000
Sigma Aldrich Corp. 100,000 5,350,000
Smithkline Beecham PLC ADR 75,000 4,078,125
262,025,625
MEDICAL EQUIPMENT & SUPPLIES - 2.2%
Bergen Brunswig Corp. Class A 350,000 9,712,500
Cardinal Health, Inc. 70,000 5,048,750
Johnson & Johnson 450,000 22,275,000
Medtronic, Inc. 475,000 26,600,000
Millipore Corp. 125,000 5,234,375
Oakley, Inc. (a) 105,300 4,791,150
Pall Corp. 400,000 9,650,000
Physician Sales & Service, Inc. (a) 275,000 6,668,750
St. Jude Medical, Inc. (a) 375,000 12,562,500
Sybron Corp. (a) 235,000 5,875,000
Thermedics, Inc. (a) 200,000 5,000,000
Thermo Cardiosystems, Inc. (a) 97,500 4,363,125
U.S. Surgical Corp. 108,900 3,375,900
121,157,050
MEDICAL FACILITIES MANAGEMENT - 3.4%
American Medical Response, Inc. (a) 200,000 7,050,000
American Oncology Resources, Inc. (a) 122,700 2,668,725
Columbia/HCA Healthcare Corp. 515,025 27,489,459
Coventry Corp. (a) 128,600 2,025,450
Foundation Health Corp. (a) 125,000 4,484,375
HEALTHSOUTH Rehabilitation Corp. (a) 1,130,300 40,690,800
Healthsource, Inc. (a) 100,000 1,750,000
Living Centers of America, Inc. (a) 235,000 8,078,125
Magellan Health Services, Inc. (a) 225,000 4,837,500
Medpartners/Mullikin, Inc. (a) 385,000 8,036,875
Multicare Companies, Inc. (a) 262,500 4,987,500
Occusystems, Inc. (a) 115,000 4,298,125
Oxford Health Plans, Inc. (a) 350,000 14,393,750
Phycor, Inc. (a) 121,050 4,599,900
Physician Reliance Network, Inc. (a) 425,000 9,456,250
Sunrise Assisted Living, Inc. (a) 5,000 120,000
U.S. Healthcare, Inc. 350,000 19,250,000
United HealthCare Corp. 271,400 13,705,700
Vencor, Inc. (a) 246,625 7,522,063
185,444,597
TOTAL HEALTH 568,627,272
INDUSTRIAL MACHINERY & EQUIPMENT - 3.7%
ELECTRICAL EQUIPMENT - 2.8%
Emerson Electric Co. 300,000 27,112,500
General Electric Co. 1,300,000 112,450,000
Glenayre Technologies, Inc. (a) 185,062 9,253,100
Loral Space & Communications Ltd. (a) 85,000 1,158,125
United Communication Industry
PCL (For. Reg.) 154,000 2,061,661
152,035,386
INDUSTRIAL MACHINERY & EQUIPMENT - 0.8%
Case Corp. 175,000 8,400,000
Caterpillar, Inc. 275,000 18,631,250
Ingersoll-Rand Co. 200,000 8,750,000
Stanley Works 205,600 6,116,600
41,897,850
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
POLLUTION CONTROL - 0.1%
USA Waste Services, Inc. (a) 115,000 $ 3,406,875
Zurn Industries, Inc. 146,500 3,039,875
6,446,750
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 200,379,986
MEDIA & LEISURE - 8.2%
BROADCASTING - 0.7%
Clear Channel Communications, Inc. (a) 23,000 1,894,625
Emmis Broadcasting Corp. Class A (a) 25,900 1,295,000
Evergreen Media Corp. Class A (a) 300,000 12,825,000
Jacor Communications, Inc. Class A (a) 72,900 2,250,788
PanAmSat Corp. (a) 350,000 10,150,000
Paxson Communications Corp. (a) 250,000 2,656,250
Time Warner, Inc. 100,000 3,925,000
Viacom, Inc. Class B (non-vtg.) (a) 125,000 4,859,375
39,856,038
ENTERTAINMENT - 0.6%
Disney (Walt) Co. 200,000 12,575,000
MGM Grand, Inc. 274,500 10,945,688
Regal Cinemas, Inc. (a) 91,600 4,190,700
Scientific Games Holdings Corp. (a) 114,600 3,323,400
31,034,788
LEISURE DURABLES & TOYS - 0.4%
Harley Davidson, Inc. 225,000 9,253,125
Mattel, Inc. 162,500 4,651,563
Nintendo Co. Ltd. Ord. 64,000 4,760,403
18,665,091
LODGING & GAMING - 4.5%
Anchor Gaming (a) 124,800 7,519,200
Circus Circus Enterprises, Inc. (a) 544,800 22,336,800
Doubletree Corp. (a) 432,800 15,364,400
Extended Stay America, Inc. (a) 100,000 3,150,000
HFS, Inc. (a) 1,550,000 108,500,000
Hilton Hotels Corp. 125,000 14,062,500
Host Marriott Corp. (a) 350,000 4,593,750
ITT Corp. 150,000 9,937,500
Mirage Resorts, Inc. (a) 500,000 26,875,000
Penske Motorsports, Inc. (a) 25,000 662,500
Station Casinos, Inc. (a) 175,400 2,521,375
Studio Plus Hotels, Inc. (a) 250,000 8,250,000
Sun International Hotels Ltd. Ord. (a) 273,500 13,264,750
Trump Hotels & Casino Resorts, Inc. (a) 235,000 6,697,500
Wyndham Hotel Corp. (a)(c) 189,700 3,959,988
247,695,263
PUBLISHING - 0.3%
Knight-Ridder, Inc. 50,000 3,625,000
New York Times Co., (The) Class A 131,100 4,277,138
Times Mirror Co. Class A 167,900 7,303,650
15,205,788
RESTAURANTS - 1.7%
Apple South, Inc. 485,000 12,973,750
Applebee's International, Inc. 600,000 19,275,000
Buffets, Inc. (a) 217,400 2,663,150
Landry's Seafood Restaurants, Inc. (a) 496,200 12,280,950
Lone Star Steakhouse Saloon (a) 400,000 15,100,000
Outback Steakhouse, Inc. (a) 300,000 10,345,313
Planet Hollywood International, Inc.
Class A (a) 235,000 6,345,000
Quality Dining, Inc. (a) 125,000 4,093,750
Starbucks Corp. (a) 400,000 11,300,000
94,376,913
TOTAL MEDIA & LEISURE 446,833,881
SHARES VALUE (NOTE 1)
NONDURABLES - 3.7%
BEVERAGES - 1.0%
Coca-Cola Co., (The) 425,000 $ 20,771,875
PepsiCo, Inc. 1,050,000 37,143,750
57,915,625
HOUSEHOLD PRODUCTS - 0.8%
Gillette Co. 250,000 15,593,750
Premark International, Inc. 100,000 1,850,000
Procter & Gamble Co. 225,000 20,390,625
Safeskin Corp. (a) 63,700 2,643,550
USA Detergents, Inc. (a) 48,900 1,949,888
42,427,813
TOBACCO - 1.9%
Philip Morris Companies, Inc. 850,000 88,400,000
RJR Nabisco Holdings Corp. 425,000 13,175,000
101,575,000
TOTAL NONDURABLES 201,918,438
PRECIOUS METALS - 0.6%
Barrick Gold Corp. 385,000 10,461,113
Bre-X Minerals Ltd. (a) 200,000 3,344,212
Getchell Gold Corp. 113,353 3,740,649
Newmont Mining Corp. 295,000 14,565,625
32,111,599
RETAIL & WHOLESALE - 10.9%
APPAREL STORES - 1.2%
Gap, Inc. 425,000 13,653,125
Just for Feet, Inc. (a) 739,100 39,079,913
Melville Corp. 275,000 11,137,500
63,870,538
DRUG STORES - 0.4%
General Nutrition Companies, Inc. (a) 1,325,000 23,187,500
GENERAL MERCHANDISE STORES - 1.9%
Consolidated Stores Corp. (a) 200,000 7,350,000
Dillard Department Stores, Inc. Class A 175,000 6,387,500
Dollar General Corp. 256,312 7,497,126
Family Dollar Stores, Inc. 418,700 7,274,913
K mart Corp. 307,400 3,804,075
Price/Costco, Inc. 131,700 2,848,013
Sears, Roebuck & Co. 125,000 6,078,125
Wal-Mart Stores, Inc. 2,250,000 57,093,750
Woolworth Corp. (a) 218,700 4,920,750
103,254,252
RETAIL & WHOLESALE, MISCELLANEOUS - 7.4%
Barnes & Noble, Inc. (a) 250,000 8,968,750
Bed Bath & Beyond, Inc. (a) 235,000 6,286,250
Corporate Express, Inc. (a) 350,000 14,000,000
Gulf South Medical Supply, Inc. (a) 156,300 6,095,700
Home Depot, Inc., (The) 900,000 48,600,000
Lowe's Companies, Inc. 1,575,000 56,896,875
Office Depot, Inc. (a) 325,000 6,621,875
Officemax, Inc. (a) 1,040,000 24,830,000
PETsMART, Inc. (a) 1,595,600 76,189,900
Petco Animal Supplies, Inc. (a) 525,000 15,093,750
Sports Authority, Inc. (a) 163,700 5,361,175
Staples, Inc. (a) 1,050,000 20,475,000
Sunglass Hut International, Inc. (a)(c) 3,174,300 77,373,563
Toys "R" Us, Inc. 829,400 23,637,900
U.S. Office Products Co. (a) 250,000 10,500,000
Viking Office Products, Inc. (a) 220,000 6,902,500
407,833,238
TOTAL RETAIL & WHOLESALE 598,145,528
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
SERVICES - 1.6%
LEASING & RENTAL - 0.7%
Hollywood Entertainment Corp. (a)(c) 1,711,400 $ 26,526,700
Movie Gallery, Inc. (a) 522,800 10,978,800
37,505,500
SERVICES - 0.9%
AccuStaff, Inc. (a) 232,600 6,338,350
Aresco, Inc. 225,000 3,853,125
HCIA, Inc. (a) 175,000 11,025,000
Medaphis Corp. (a) 425,000 16,893,750
Premier Technologies, Inc. (a) 15,000 472,500
Service Corp. International 200,000 11,500,000
Veterinary Centers of America, Inc. (a) 63,500 1,420,813
51,503,538
TOTAL SERVICES 89,009,038
TECHNOLOGY - 22.2%
COMMUNICATIONS EQUIPMENT - 3.8%
ADC Telecommunications, Inc. 60,000 2,700,000
Aspect Telecommunications Corp. (a) 65,000 3,217,500
Cisco Systems, Inc. (a) 2,250,000 127,406,250
DSC Communications Corp. (a) 75,000 2,259,375
Dialogic Corp. (a) 23,900 1,425,038
Pairgain Technologies, Inc. (a) 100,000 6,200,000
U.S. Robotics Corp. (a) 735,000 62,842,500
206,050,663
COMPUTER SERVICES & SOFTWARE - 13.8%
Affiliated Computer Services, Inc.
Class A (a) 200,000 9,400,000
America Online, Inc. (a) 1,225,000 53,593,750
American Management Systems, Inc. (a) 460,000 13,455,000
Ascend Communications, Inc. (a) 1,285,000 72,281,250
Aspect Development, Inc. (a) 3,000 76,500
Automatic Data Processing, Inc. 300,000 11,587,500
BBN Corp. (a) 200,400 4,358,700
BMC Software, Inc. (a) 150,000 8,962,500
Business Objects SA sponsored ADR (a) 137,200 5,522,300
CUC International, Inc. (a) 1,445,000 51,297,500
Cadence Design Systems, Inc. (a) 75,000 2,531,250
Ceridian Corp. (a) 100,000 5,050,000
Citrix Systems, Inc. (a) 30,400 1,155,200
Cognos, Inc. (a) 250,000 5,729,530
CompUSA, Inc. (a) 820,000 27,982,500
Compuserve Corp. (a) 88,300 1,865,338
Computer Sciences Corp. (a) 385,000 28,778,750
DST Systems, Inc. (a) 100,000 3,200,000
Data Broadcasting Corp. (a) 106,000 1,020,250
Electronic Arts, Inc. (a) 115,000 3,076,250
Electronic Data Systems Corp. 700,000 37,625,000
Electronics for Imaging, Inc. (a) 215,000 14,915,625
Equifax Inc. 99,900 2,622,375
FactSet Research Systems, Inc. 19,000 323,000
First Data Corp. 165,090 13,145,291
HBO & Co. 400,000 27,100,000
Henry (Jack) & Associates, Inc. 68,900 2,342,600
Inso Corp. (a) 244,000 12,779,500
Lycos, Inc. (a)(c) 300,000 3,337,500
Macromedia, Inc. (a) 591,600 12,941,250
McAfee Associates, Inc. (a) 360,000 17,640,000
Microsoft Corp. (a) 615,000 73,876,875
Netscape Communications Corp. (a) 400,000 24,900,000
Oracle Corp. (a) 2,600,000 102,537,500
Parametric Technology Corp. (a) 350,000 15,181,250
SHARES VALUE (NOTE 1)
PeopleSoft, Inc. (a) 322,500 $ 22,978,125
Physician Computer Network, Inc. (a) 351,200 4,060,750
Policy Management Systems Corp. (a) 173,600 8,680,000
Sterling Software, Inc. (a) 325,000 25,025,000
SunGard Data Systems, Inc. (a) 275,000 11,034,375
Technology Solutions, Inc. (a) 175,000 6,059,375
Viasoft, Inc. (a) 110,000 7,108,750
757,138,209
COMPUTERS & OFFICE EQUIPMENT - 2.3%
Adaptec, Inc. (a) 625,000 29,609,375
Bay Networks, Inc. (a) 450,000 11,587,500
Compaq Computer Corp. (a) 317,500 15,636,875
Dell Computer Corp. (a) 200,000 10,175,000
FileNet Corp. (a) 286,600 10,460,900
Fore Systems, Inc. (a) 199,400 7,203,325
Hewlett-Packard Co. 100,000 9,962,500
Hutchinson Technology, Inc. (a) 35,800 1,270,900
Pitney Bowes, Inc. 200,000 9,550,000
Radius, Inc. (a) 682 1,876
SCI Systems, Inc. (a) 100,000 4,062,500
Sun Microsystems, Inc. (a) 260,000 15,307,500
Tech Data Corp. (a) 10,300 224,025
125,052,276
ELECTRONICS - 2.2%
Altera Corp. (a) 100,000 3,800,000
Analog Devices, Inc. (a) 375,000 9,562,500
Atmel Corp. (a) 300,000 9,037,500
ESS Technology, Inc. (a) 250,000 4,625,000
Intel Corp. 850,000 62,421,875
Linear Technology Corp. 250,100 7,503,000
Maxim Integrated Products, Inc. (a) 250,000 6,828,125
S-3, Inc. (a) 343,400 4,228,113
Solectron Corp. (a) 110,000 4,166,250
Storage Technology Corp. (a) 116,400 4,452,300
Xilinx, Inc. (a) 175,000 5,556,250
122,180,913
PHOTOGRAPHIC EQUIPMENT - 0.1%
3D Systems Corp. (a) 215,000 4,730,000
TOTAL TECHNOLOGY 1,215,152,061
TRANSPORTATION - 2.0%
AIR TRANSPORTATION - 1.3%
AMR Corp. (a) 125,000 11,375,000
America West Airlines, Inc. Class B (a) 620,000 13,640,000
Atlantic Southeast Airlines, Inc. 250,000 7,062,500
Delta Air Lines, Inc. 150,000 12,450,000
Midwest Express Holdings, Inc. (a) 200,000 6,425,000
Northwest Airlines Corp. Class A (a) 130,900 5,170,550
Southwest Airlines Co. 185,000 5,388,125
Trans World Airlines, Inc. (a) 250,000 3,562,500
UAL Corp. (a) 125,000 6,718,750
71,792,425
RAILROADS - 0.7%
Burlington Northern Santa Fe Corp. 185,025 14,963,897
CSX Corp. 303,300 14,634,225
Union Pacific Corp. 150,000 10,481,250
40,079,372
TOTAL TRANSPORTATION 111,871,797
UTILITIES - 8.0%
CELLULAR - 3.4%
AirTouch Communications, Inc. (a) 2,600,000 73,450,000
Arch Communications Group, Inc. (a) 325,043 6,053,926
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
UTILITIES - CONTINUED
CELLULAR - CONTINUED
Palmer Wireless, Inc. (a) 978,300 $ 19,566,000
36O Degrees Communications Co. (a) 1,000,000 24,000,000
United States Cellular Corp. (a) 217,800 6,751,800
Vanguard Cellular Systems, Inc.
Class A (a)(c) 2,400,000 52,200,000
182,021,726
GAS - 0.2%
Enron Corp. 274,800 11,232,450
TELEPHONE SERVICES - 4.4%
ALLTEL Corp. 250,000 7,687,500
AT&T Corp. 850,000 52,700,000
Ameritech Corp. 375,000 22,265,625
Bell Atlantic Corp. 400,000 25,500,000
BellSouth Corp. 700,000 29,662,500
Comsat Corp., Series 1 232,200 6,037,200
Frontier Corp. 525,000 16,078,125
LCI International, Inc. (a) 590,400 18,523,800
Lucent Technologies, Inc. 225,000 8,521,875
MCI Communications Corp. 450,000 11,531,250
SBC Communications, Inc. 325,000 16,006,250
Telebras sponsored ADR 75,000 5,221,875
Telefonos de Mexico SA sponsored
ADR representing Ord. Class L shares 75,000 2,512,500
WorldCom, Inc. (a) 350,000 19,381,250
241,629,750
TOTAL UTILITIES 434,883,926
TOTAL COMMON STOCKS
(Cost $3,902,079,925) 4,942,909,953
CONVERTIBLE PREFERRED STOCKS - 0.1%
RETAIL & WHOLESALE - 0.1%
GENERAL MERCHANDISE STORES - 0.1%
K mart Financing I $3.875
(Cost $3,005,000) 60,100 3,260,425
REPURCHASE AGREEMENTS - 9.6%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.46%, dated
6/28/96 due 7/1/96 $527,478,894 527,239,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $4,432,323,925) $ 5,473,409,378
LEGEND
1. Non-income producing
2. 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 $3,825,674 or 0.1% of net
assets.
3. An affiliated company is a company in which the fund has ownership of at
least 5% of the voting securities. Transactions during the period with
companies which are or were affiliates are as follows:
PURCHASE SALES DIVIDEND MARKET
AFFILIATE COST COST INCOME VALUE
Hollywood
Entertainment Corp. $ 172,425 $ - $ - $ 26,526,700
Lycos, Inc. - - - 3,337,500
Microwave Power
Devices, Inc. - 1,172,000 - -
Sunglass Hut
International, Inc. 12,551,057 - - 77,373,563
Vanguard Cellular
Systems, Inc. Class A 1,032,413 7,470,903 - 52,200,000
Wyndham Hotel Corp. 324,910 - - 3,959,988
$ 14,080,805 $ 8,642,903 $ - $ 163,397,751
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $3,276,590,051 and $2,281,838,828, respectively, of which U.S.
govern- ment and government agency obligations aggregated $109,306,406 and
$168,455,938, 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 $770,670 for the period
(see Note 4 of Notes to Financial Statements).
INCOME TAX INFORMATION
At June 30, 1996, the aggregate cost of investment securities for income
tax purposes was $4,438,998,615. Net unrealized appreciation aggregated
$1,034,410,763, of which $1,127,724,480 related to appreciated investment
securities and $93,313,717 related to depreciated investment securities.
VARIABLE INSURANCE PRODUCTS FUND: GROWTH PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
ASSETS
Investment in $ 5,473,409,378
securities, at value
(including
repurchase
agreements of
$527,239,000) (cost
$4,432,323,925) -
See accompanying
schedule
Cash 213
Receivable for 28,328,495
investments sold
Receivable for fund 19,308,458
shares sold
Dividends receivable 3,742,970
Other receivables 500,919
TOTAL ASSETS 5,525,290,433
LIABILITIES
Payable for $ 24,985,858
investments
purchased
Payable for fund 735,390
shares redeemed
Accrued management 2,761,151
fee
Other payables and 419,541
accrued expenses
TOTAL LIABILITIES 28,901,940
NET ASSETS $ 5,496,388,493
Net Assets consist of:
Paid in capital $ 4,287,950,898
Undistributed net 18,822,430
investment income
Accumulated 148,531,171
undistributed net
realized gain (loss)
on investments and
foreign currency
transactions
Net unrealized 1,041,083,994
appreciation
(depreciation) on
investments
and assets and
liabilities in
foreign currencies
NET ASSETS, for $ 5,496,388,493
182,841,951
shares outstanding
NET ASSET VALUE, $30.06
offering price
and redemption
price per
share
($5,496,388,493 (divided by)
182,841,951
shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
INVESTMENT INCOME $ 20,081,809
Dividends
Interest 15,590,569
TOTAL INCOME 35,672,378
EXPENSES
Management fee $ 14,612,883
Transfer agent fees 1,005,170
Accounting fees and 400,818
expenses
Non-interested 8,206
trustees'
compensation
Custodian fees and 73,519
expenses
Registration fees 47,314
Audit 25,708
Legal 11,688
Miscellaneous 16,973
Total expenses 16,202,279
before reductions
Expense reductions (331,285 15,870,994
)
NET INVESTMENT 19,801,384
INCOME
REALIZED AND
UNREALIZED GAIN
(LOSS)
Net realized gain
(loss) on:
Investment 166,407,898
securities (including
realized loss of
$925,483
on sales of
investments in
affiliated issuers)
Foreign currency 870 166,408,768
transactions
Change in net
unrealized
appreciation
(depreciation) on:
Investment 287,572,326
securities
Assets and (1,584 287,570,742
liabilities in )
foreign currencies
NET GAIN (LOSS) 453,979,510
NET INCREASE $ 473,780,894
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS
OTHER INFORMATION
Expense reductions $ 329,209
Directed brokerage
arrangements
Custodian interest 2,076
credits
$ 331,285
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) SIX MONTHS YEAR ENDED
IN NET ASSETS ENDED DECEMBER 31,
JUNE 30, 1996 1995
(UNAUDITED)
Operations $ 19,801,384 $ 11,674,225
Net investment
income
Net realized gain 166,408,768 361,319,825
(loss)
Change in net 287,570,742 474,991,263
unrealized
appreciation
(depreciation)
NET INCREASE 473,780,894 847,985,313
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS
Distributions to (11,769,237) (12,404,421)
shareholders
From net
investment income
From net realized (297,173,230) -
gain
TOTAL DISTRIBUTIONS (308,942,467) (12,404,421)
Share transactions 1,449,823,397 2,059,928,760
Net proceeds from
sales of shares
Reinvestment of 308,942,467 12,404,421
distributions
Cost of shares (589,917,609) (887,081,596)
redeemed
NET INCREASE 1,168,848,255 1,185,251,585
(DECREASE) IN NET
ASSETS RESULTING
FROM SHARE
TRANSACTIONS
TOTAL INCREASE 1,333,686,682 2,020,832,477
(DECREASE) IN NET
ASSETS
NET ASSETS
Beginning of period 4,162,701,811 2,141,869,334
End of period $ 5,496,388,493 $ 4,162,701,811
(including
undistributed net
investment
income of
$18,822,430 and
$10,790,283,
respectively)
OTHER INFORMATION
Shares
Sold 49,509,849 76,302,442
Issued in 11,121,040 568,749
reinvestment of
distributions
Redeemed (20,365,435) (33,037,870)
Net increase 40,265,454 43,833,321
(decrease)
SEE ACCOMPANYING
NOTES WHICH ARE AN
INTEGRAL PART OF THE
FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS YEARS ENDED DECEMBER 31,
ENDED
JUNE 30, 1996
SELECTED PER-SHARE DATA (UNAUDITED) 1995 1994 1993 D 1992 1991
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of $ 29.20 $ 21.69 $ 23.08 $ 19.76 $ 18.51 $ 12.91
period
Income from Investment .11 .08 .12 .12 .09 .09 G
Operations
Net investment income
Net realized and unrealized 2.85 7.55 (.12) H 3.64 1.64 5.72
gain (loss)
Total from investment 2.96 7.63 - 3.76 1.73 5.81
operations
Less Distributions (.08) (.12) (.12) (.11) (.05) (.21)
From net investment income
From net realized gain (2.02) - (1.27) (.21) (.43) -
In excess of net realized gain - - - (.12) - -
Total distributions (2.10) (.12) (1.39) (.44) (.48) (.21)
Net asset value, end of period $ 30.06 $ 29.20 $ 21.69 $ 23.08 $ 19.76 $ 18.51
TOTAL RETURN B, C 10.73% 35.36% (.02)% 19.37% 9.32% 45.51%
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of period (000 $ 5,496,388 $ 4,162,702 $ 2,141,869 $ 1,383,849 $ 749,837 $ 371,462
omitted)
Ratio of expenses to average .68% A .70% .70% .71% .75% .84%
net assets
Ratio of expenses to average .66% A, .70% .69% E .71% .75% .84%
net assets after expense E
reductions
Ratio of net investment income .83% A .37% .69% .72% .83% .56%
to average net assets
Portfolio turnover rate 106% A 108% 122% 159% 262% 261%
Average commission rate F $ .0408
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN
(SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C 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. D EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED
STATEMENT OF POSITION 93-2, "DETERMINATION, DISCLOSURE,
AND FINANCIAL STATEMENT PRESENTATION OF INCOME, CAPITAL GAIN, AND RETURN
OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES. E FMR
OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S
EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). F FOR FISCAL
YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND
IS REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS
AMOUNT MAY VARY FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE
MIX OF TRADES EXECUTED IN VARIOUS MARKETS WHERE
TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY DIFFER. G NET
INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED
ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. H THE AMOUNT SHOWN FOR
A SHARE OUTSTANDING DOES NOT CORRESPOND WITH THE
AGGREGATE NET GAIN ON INVESTMENTS FOR THE PERIOD ENDED DUE TO THE TIMING
OF SALES AND REPURCHASES OF FUND SHARES IN RELATION
TO FLUCTUATING MARKET VALUES OF THE INVESTMENTS OF THE FUND.
</TABLE>
VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance: total
percentage change in value, the average annual percentage change, or the
growth of a hypothetical $10,000 investment. A fund's total return includes
changes in a fund's share price, plus reinvestment of any dividends
(income) and capital gains (the profits the fund earns when it sells
securities that have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1996 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
OVERSEAS 13.02% 10.11% 7.72%
Morgan Stanley EAFE Index 13.28% 9.99% 7.62%
AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and
show you what would have happened if the fund had performed at a constant
rate each year.
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.
(checkmark)
You can compare the fund's figures to the performance of the Morgan Stanley
Capital International Europe, Australasia, Far East (EAFE) Index - an
unmanaged index of over 1,000 foreign stocks. The EAFE Index may be
compiled in two ways: a capitalization weighted (cap-weighted) version and
a gross domestic product weighted (GDP-weighted) version.
Figures for more than one year assume a steady compounded rate of return
and are not the fund's year-by-year results, which fluctuated over the
periods shown. The life of fund figures are from commencement of operations
January 28, 1987.
If Fidelity had not reimbursed certain fund expenses, the fund's life of
fund total return would have been lower.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, 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.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19960630 19960711 093927 S00000000000001
VIP: Overseas MS EAFE Index
00154 MS001
1987/01/28 10000.00 10000.00
1987/01/31 10000.00 9997.46
1987/02/28 10010.00 10296.66
1987/03/31 10460.00 11140.41
1987/04/30 11220.00 12319.18
1987/05/31 11060.00 12319.14
1987/06/30 10520.00 11926.66
1987/07/31 10400.00 11905.82
1987/08/31 11320.00 12798.54
1987/09/30 11070.00 12597.05
1987/10/31 8760.00 10777.00
1987/11/30 8840.00 10938.65
1987/12/31 9462.16 11263.46
1988/01/31 9138.32 11464.55
1988/02/29 9381.20 12228.75
1988/03/31 9806.24 12980.64
1988/04/30 9968.16 13169.27
1988/05/31 9786.00 12747.12
1988/06/30 9613.96 12411.13
1988/07/31 9543.12 12800.51
1988/08/31 9209.16 11968.24
1988/09/30 9603.84 12491.19
1988/10/31 10028.88 13559.96
1988/11/30 10211.04 14367.68
1988/12/31 10231.28 14447.79
1989/01/31 10534.87 14701.99
1989/02/28 10717.03 14777.56
1989/03/31 10707.38 14487.53
1989/04/30 11023.50 14621.89
1989/05/31 10615.60 13826.42
1989/06/30 10574.81 13593.67
1989/07/31 11563.97 15300.67
1989/08/31 11482.39 14612.54
1989/09/30 12196.21 15278.16
1989/10/31 11533.38 14664.33
1989/11/30 12155.42 15401.50
1989/12/31 12920.24 15969.77
1990/01/31 12746.88 15375.56
1990/02/28 12449.36 14302.43
1990/03/31 12919.92 12812.46
1990/04/30 12991.52 12710.78
1990/05/31 13840.58 14161.09
1990/06/30 14147.46 14036.37
1990/07/31 14863.53 14234.08
1990/08/31 13349.56 12851.83
1990/09/30 12081.09 11060.74
1990/10/31 13206.34 12784.21
1990/11/30 12797.16 12030.10
1990/12/31 12705.10 12224.98
1991/01/31 12827.85 12620.40
1991/02/28 13260.02 13973.29
1991/03/31 12872.18 13134.44
1991/04/30 13155.20 13263.42
1991/05/31 13186.64 13401.82
1991/06/30 12463.37 12417.04
1991/07/31 13081.82 13027.11
1991/08/31 13123.75 12762.56
1991/09/30 13658.34 13481.84
1991/10/31 13752.68 13672.96
1991/11/30 13260.02 13034.64
1991/12/31 13721.24 13707.79
1992/01/31 13888.95 13415.00
1992/02/29 13599.52 12934.85
1992/03/31 13323.28 12080.93
1992/04/30 14152.01 12138.36
1992/05/31 14768.23 12950.85
1992/06/30 14491.99 12336.56
1992/07/31 13567.65 12020.83
1992/08/31 13450.78 12774.79
1992/09/30 12908.92 12522.52
1992/10/31 12027.08 11865.66
1992/11/30 11963.33 11977.32
1992/12/31 12250.20 12039.27
1993/01/31 12600.81 12037.79
1993/02/28 12847.62 12401.41
1993/03/31 13738.91 13482.39
1993/04/30 14651.94 14761.90
1993/05/31 14967.16 15073.67
1993/06/30 14597.60 14838.49
1993/07/31 15173.67 15357.91
1993/08/31 15988.88 16186.97
1993/09/30 15901.92 15822.62
1993/10/31 16478.00 16310.23
1993/11/30 15782.36 14884.55
1993/12/31 16825.82 15959.32
1994/01/31 17923.63 17308.60
1994/02/28 17607.51 17260.66
1994/03/31 17170.60 16517.22
1994/04/30 17738.58 17218.03
1994/05/31 17520.13 17119.18
1994/06/30 17334.44 17361.11
1994/07/31 17793.20 17528.07
1994/08/31 18000.73 17943.05
1994/09/30 17531.05 17377.92
1994/10/31 17891.50 17956.61
1994/11/30 17214.29 17093.61
1994/12/31 17115.99 17200.65
1995/01/31 16406.01 16539.88
1995/02/28 16449.17 16492.41
1995/03/31 16955.64 17521.06
1995/04/30 17440.09 18180.00
1995/05/31 17682.31 17963.28
1995/06/30 17847.46 17648.27
1995/07/31 18640.19 18746.98
1995/08/31 18122.72 18031.85
1995/09/30 18386.96 18384.02
1995/10/31 18023.62 17889.85
1995/11/30 18232.82 18387.61
1995/12/31 18783.33 19128.45
1996/01/31 19135.65 19206.98
1996/02/29 19177.79 19271.92
1996/03/31 19471.10 19681.17
1996/04/30 20012.59 20253.37
1996/05/31 20023.87 19880.67
1996/06/28 20170.53 19992.56
IMATRL PRASUN SHR__CHT 19960630 19960711 093932 R00000000000117
Let's say hypothetically that $10,000 was invested in Overseas Portfolio on
January 28, 1987 when the fund started. As the chart shows, by June 30,
1996, the value of the investment would have grown to $20,171 - a 101.71%
increase on the initial investment. For comparison, look at how the Morgan
Stanley EAFE Index did over the same period. With dividends and capital
gains, if any, reinvested, the same $10,000 investment would have grown to
$19,993 - a 99.93% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE 30, 1996
% OF FUND'S
INVESTMENTS
Veba AG Ord. 3.1
Volvo AB Class B 2.7
Honda Motor Co. Ltd. 2.0
Total SA Class B 2.0
Matsushita Electric Industrial Co. Ltd. 1.9
TOP FIVE MARKET SECTORS AS OF JUNE 30, 1996
% OF FUND'S
INVESTMENTS
Finance 16.8
Durables 15.7
Utilities 10.8
Basic Industries 6.5
Nondurables 5.7
GEOGRAPHIC DIVERSIFICATION AS OF JUNE 30, 1996
(BY LOCATION OF ISSUER) % OF FUND'S
INVESTMENTS
Japan 25.9
United Kingdom 13.2
France 8.6
Germany 7.5
Sweden 6.8
VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
NOTE TO SHAREHOLDERS: On March 26, 1996, Rick Mace became manager of
Overseas Portfolio.
Q. HOW DID THE FUND PERFORM, RICK?
A. For the six months ended June 30, 1996, the fund outperformed the Morgan
Stanley Capital International EAFE Index - which tracks the performance of
stocks in Europe, Australia and the Far East. The index had a total return
of 4.52% for the past six months and 13.28% for 12 months.
Q. IN YOUR OPINION, WHY DID THE FUND OUTPERFORM ITS BENCHMARK?
A. In my opinion, good individual stock selection was important to the
fund's performance. Because I use a bottom-up, stock-by-stock approach to
investing, I believe stock selection plays a greater role in fund
performance than country or sector investing.
Q. JAPAN CONTINUES TO BE THE TOP WEIGHTING OF THE FUND . . .
A. The fund's Japanese position is somewhat below the Japanese weighting of
the EAFE index, but much larger than many international funds. What made
Japanese equities so attractive was the weak yen, low interest rates, a
recovering economy and a great variety of undervalued stocks. These
characteristics benefited broadly based export companies such as Sony and
Omron, retailers such as Ito-Yokado and auto companies such as Toyota and
Honda.
Q. SPECIFICALLY, WHAT IS THE ADVANTAGE OF A WEAK YEN?
A. It improves the competitiveness of Japanese companies by reducing the
prices of Japanese exports measured in foreign currencies. Additionally,
reported profits are favorably impacted by the translation of overseas
earnings back into yen. For example, when you consider a company like
Canon, a 1% weakening in the yen helps its earnings by almost 5%.
Q. TURNING TO EUROPE, WHAT'S BEEN THE STORY THERE?
A. The new investments in Europe have come mainly in French stocks and, to
a lesser extent, in the United Kingdom and Germany. I believe that the
aggressive cost cutting of many European companies, the cheapness of
European stocks and the potential for a more robust European economy have
provided outstanding investment opportunities. Investors may remember the
spectacular performance of the stocks of U.S. companies in the early 1990s.
This performance was driven by cost cutting, increased corporate earnings
and a strong economy. Of course, there can be no guarantee this scenario
will occur in Europe.
Q. CAN YOU GIVE EXAMPLES OF SOME EUROPEAN COMPANIES YOU PURCHASED DURING
THE PERIOD?
A. Sure. Veba, a German conglomerate; Pechiney, a French aluminum company;
Alcatel Alsthom Compagnie Generale d'Electricite, a French telecom company;
and Volvo, the Swedish car and truck manufacturer; all exemplify my reasons
for raising the fund's European position.
Q. WERE THERE ANY DISAPPOINTMENTS?
A. Unfortunately, Deutsche Bank has not exhibited the ability to cut costs
that I had hoped it would. The stock remains at very inexpensive levels,
and I am hopeful that the bank's continued cost-cutting efforts will
produce more meaningful results.
Q. SINCE THIS IS YOUR FIRST REPORT AS MANAGER OF THE FUND, WOULD YOU MIND
SUMMARIZING YOUR INVESTMENT STYLE?
A. When I look at a stock, I attempt to establish its worth as a means of
determining what return I can expect and as a way of comparing potential
rewards and potential risks. I try to minimize surprises by thoroughly
understanding what the downside possibilities are for each stock I own. I
attempt to select stocks that I believe have two or three times as much
upside potential as downside risk. I also focus on a company's cash flow
and balance sheet. I've found that while accounting conventions vary
dramatically from country to country, the items that are most comparable
are cash flow and balance sheets.
Q. WHAT'S YOUR OUTLOOK?
A. The economy has already begun to recover in Japan - to the benefit of
the fund - and I am hopeful for a similar scenario to occur in Europe. I
believe there is the potential for economic improvement in many areas of
the world and, in my opinion, the fund is well positioned to take advantage
of any recoveries.
FUND FACTS
GOAL: long-term growth of capital by investing in
equity securities outside the United States
START DATE: January 28, 1987
SIZE: as of June 30, 1996, more than $1.6 billion
MANAGER: Richard Mace, since March 1996;
joined Fidelity in 1987
(checkmark)
FUND FACTS
GOAL: to seek high current income by
investing in high-yielding, lower-rated fixed
income securities
START DATE: September 19, 1985
SIZE: as of June 30, more than $1.1 billion
MANAGER: Barry Coffman, since 1990; joined
Fidelity in 1986
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO
INVESTMENTS JUNE 30, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 88.1%
SHARES VALUE (NOTE 1)
ARGENTINA - 0.9%
Banco de Galicia y Buenos Aires SA
sponsored ADR representing
Class B shares (New) 68,300 $ 1,767,263
Perez Companc Class B 428,780 2,809,549
Telecom Argentina Class B
sponsored ADR 116,500 5,460,938
Telecom Argentina Stet France
Telecom SA 263,600 1,239,379
YPF Sociedad Anonima sponsored ADR
representing Class D shares 161,800 3,640,500
14,917,629
AUSTRALIA - 1.0%
Brambles Industries Ltd. 395,700 5,509,681
CSR Ltd. 403,602 1,427,177
Coles Myer Ltd. 716,900 2,608,427
Western Mining Holdings Ltd. 528,100 3,784,737
Woolworths Ltd. 1,204,600 2,912,456
16,242,478
AUSTRIA - 0.1%
EVN (Energie-Versor Nieder) 14,640 2,020,723
BELGIUM - 0.4%
Bekaert SA 6,000 4,831,072
Delhaize Freres & Cie Le Lion SA 22,000 1,104,928
5,936,000
BRAZIL - 1.8%
Compania Cervejaria Brahma PN
(Pfd. Reg.) 5,984,300 3,569,781
Telebras sponsored ADR 321,500 22,384,438
Telebras PN (Pfd. Reg.) 49,144,970 3,430,825
29,385,044
CANADA - 1.5%
Alcan Aluminium Ltd. 177,800 5,417,909
BCE, Inc. 108,300 4,269,095
Barrick Gold Corp. 62,600 1,700,950
Bre-X Minerals Ltd. 63,400 1,060,115
Canadian Natural Resources Ltd. 63,100 1,177,731
Greenstone Resources Ltd. 90,600 1,063,107
Inco Ltd. 157,800 5,086,216
Magna International, Inc. Class A 33,700 1,557,039
Midland Walwyn, Inc. 289,300 1,856,459
Renaissance Energy Ltd. 45,800 1,209,189
24,397,810
DENMARK - 0.9%
International Service Systems AS,
Series B 371,200 8,278,520
Unidanmark AS Class A 137,650 6,374,096
14,652,616
FINLAND - 1.7%
Cultor OY, Series 1 78,600 3,840,501
Huhtamaki Ord. 179,500 5,988,743
Nokia Corp. AB, Series A 67,800 2,495,544
Pohjola Class B 407,000 6,877,072
Valmet OY Class A 320,300 5,412,103
Valmet OY (b) 175,000 2,956,972
27,570,935
SHARES VALUE (NOTE 1)
FRANCE - 8.6%
Alcatel Alsthom Compagnie Generale
d'Electricite SA 290,800 $ 25,328,652
Axa SA 172,118 9,402,217
Canal Plus SA 27,000 6,594,180
Club Mediterranee SA Ord. 31,600 2,825,917
Credit Commercial de France Ord. 53,200 2,462,371
Eramet SA 94,457 6,349,050
Generale des Eaux 33,800 3,770,126
IMETAL SA Ord. 42,100 5,961,785
Lafarge Coppee SA 46,390 2,803,198
Michelin SA (Compagnie Generale des
Etablissements) Class B 257,100 12,548,275
Nationale Elf Aquitaine 81,728 6,002,371
Pechiney SA Class A 267,300 10,780,149
Peugeot SA Ord. 19,000 2,539,476
Societe Generale Class A 27,200 2,986,460
Total SA Class B 428,880 31,764,575
Usinor Sacilor 276,300 3,979,685
Vallourec SA 65,600 2,977,769
139,076,256
GERMANY - 7.1%
Asko 6,650 4,907,347
BASF AG 52,000 1,483,765
Bayer AG 307,100 10,827,566
Continental Gummi-Werke AG 280,100 4,538,190
Daimler-Benz AG Ord. (a) 142,000 7,586,684
Deutsche Bank AG 152,600 7,207,084
Gildemeister AG (a) 18 767
Hoechst AG Ord. 155,000 5,246,310
Karstadt AG 3,700 1,493,834
Kaufhof Holding AG 12,000 4,532,371
Mannesmann AG Ord. 18,400 6,348,573
Veba AG Ord. 944,000 50,076,274
Volkswagen AG 28,100 10,423,450
114,672,215
HONG KONG - 2.3%
Amoy Properties Ltd. 2,490,000 3,007,557
Consolidated Electric Power Asia Ltd.
sponsored ADR (b) 23,500 381,875
Consolidated Electric Power Asia Ltd. 905,600 1,497,440
Dickson Concepts International Ltd. 2,880,000 3,683,245
Great Eagle Holdings Ltd. 1,048,000 3,066,426
HSBC Holdings PLC 738,000 11,295,954
Hong Kong & China Gas Co. Ltd. 2,340,000 3,733,239
Hysan Development Co. Ltd. 1,561,000 4,779,189
Oriental Press Group Ltd. 3,378,000 1,810,967
Peregrine Investments Holdings Ltd. 1,168,000 1,682,367
Semi-Tech (Global) Ltd. 102,006 157,470
Sun Hung Kai Properties Ltd. 167,000 1,688,122
36,783,851
IRELAND - 0.7%
Bank of Ireland, Inc. 1,052,200 7,199,134
Independent Newspapers PLC 868,416 4,044,257
Independent Newspapers PLC (rights) (a) 173,683 26,962
11,270,353
ITALY - 0.6%
Magneti Marelli SPA 1,753,900 2,517,162
Montedison Spa Ord. (a) 1,749,800 1,016,822
Olivetti & Co. Spa Ord. (a) 4,764,650 2,559,254
Pirelli Spa Ord. 349,600 588,512
SAI (Sta ASsieuratrice Industriale) Spa 249,100 2,376,918
9,058,668
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
JAPAN - 25.8%
Acom Co. Ltd. 24,000 $ 938,517
Amway Japan Ltd. 85,100 4,266,442
Aoyama Trading Co. Ord. 127,800 3,343,385
Bridgestone Corp. 519,000 9,887,517
Canon, Inc. 851,000 17,686,341
Citizen Watch Co. Ltd. Ord. 469,000 3,903,168
DDI Corp. Ord. 1,022 8,905,994
Dai-Ichi Kangyo Bank 153,000 2,845,085
Daito Trust Construction 432,700 6,468,511
Daiwa House Industry Co. Ltd. 590,000 9,142,701
Daiwa Securities Co. Ltd. 855,000 10,989,016
Dennys Japan Co. Ltd. 71,000 2,517,570
East Japan Railway Co. Ord. 700 3,668,930
Fanuc Ltd. 102,300 4,065,704
Fuji Bank Ltd. 206,000 4,431,521
Fuji Photo Film Co. Ltd. 450,000 14,192,608
Hanshin Department Store Ltd. 9,000 63,990
Hitachi Koki Co. Ltd. Ord. 137,000 1,348,708
Hitachi Ltd. 1,261,000 11,724,352
Hitachi Maxell Ltd. 285,000 5,949,136
Honda Motor Co. Ltd. 1,264,000 32,721,937
Ito-Yokado Co. Ltd. 311,000 18,738,526
Japan Airlines Co. Ltd. (a) 375,000 3,031,995
Kao Corp. 136,000 1,834,739
Kobe Steel Ltd. (a) 1,609,000 4,619,981
Komatsu Ltd. Ord. 1,487,000 14,638,896
Komatsu Seiren Co. Ltd. 110,000 1,303,496
Matsushita Electric Industrial Co. Ltd. 1,645,000 30,589,308
Minebea Co. Ltd. 283,000 2,375,853
Mitsubishi Electric Co. Ord. 1,102,000 7,674,473
Mitsubishi Estate Co. Ltd. 279,000 3,840,208
Mitsubishi Heavy Industries Ltd. 552,000 4,795,187
Mitsui Trust and Banking Co. Ltd. 237,000 2,765,234
Mitsukoshi Ltd. 354,000 3,775,398
Nichido Fire & Marine Insurance Co. Ltd. 670,950 5,180,207
Nikko Securities Co. Ltd. 566,000 6,345,928
Nintendo Co. Ltd. Ord. 44,600 3,317,406
Nippon Shokubai Co. Ltd. 228,000 2,202,999
Nippon Thompson Co. Ltd. 163,000 1,404,084
Nitto Denko Corp. 107,000 1,882,412
Nomura Securities Co. Ltd. 795,000 15,507,953
Omron Corp. 164,000 3,483,159
Onward Kashiyama & Co. Ltd. 323,000 5,270,225
Orix Corp. 255,000 9,437,127
Ricoh Co. Ltd. Ord. 609,000 6,439,451
Rohm Co. Ltd. 57,000 3,761,725
Sakura Bank Ltd. 125,000 1,390,092
Sankyo Co. Ltd. 198,000 5,125,746
Seino Transportation Co. Ltd. 155,000 2,444,282
Sekisui Chemical Co. Ltd. 360,000 4,397,247
Sho Bond Corp. Ord. 28,700 1,072,604
Sony Corp. 189,500 12,454,264
Sumitomo Marine and Fire Insurance
Co. Ltd. 420,000 3,656,169
Sumitomo Realty & Development Co. Ltd. 796,000 6,290,798
Sumitomo Trust & Banking Co. Ltd. 349,000 4,771,888
TDK Corp. 107,000 6,378,743
Tadano Ltd. 17,000 164,259
Takashimaya Co. Ltd. 357,000 5,532,109
Takeda Chemical Industries Ltd. 532,000 9,407,776
Tokio Marine & Fire Insurance
Co. Ltd. (The) 280,000 3,726,357
SHARES VALUE (NOTE 1)
Toyota Motor Corp. 765,000 $ 19,106,696
Uny Co. Ltd. 113,000 2,235,176
Yamanouchi Pharmaceutical Co. Ltd. 209,000 4,534,160
York Benimaru Co. 44,700 1,776,510
417,741,979
KOREA (SOUTH) - 0.5%
Korea Electric Power Corp. 200,070 8,079,753
MEXICO - 0.2%
Banacci SA de CV Class B (a) 426,200 885,552
Cifra SA Class C (a) 1,824,100 2,602,078
3,487,630
NETHERLANDS - 5.4%
AKZO NV 113,500 13,575,919
DSM NV 33,500 3,321,197
ING Groep NV 632,362 18,826,242
KLM Royal Dutch Air Lines NV 132,273 4,224,195
Philips Electronics NV (Bearer) 44,400 1,441,305
Pirelli Tyre Holdings NV Ord. (a) 596,200 5,265,614
Royal Dutch Petroleum Co. Ord. 109,600 16,898,029
Royal Ptt Nederland NV 230,900 8,724,419
Unilever NV Ord. 55,000 7,945,838
Vendex International NV 21,200 737,790
Vendex International NV (b) 198,600 6,911,563
87,872,111
NORWAY - 1.5%
Den Norske Bank Class A Free shares 1,357,200 4,109,567
Norsk Hydro AS 160,450 7,842,468
Orkla AS:
Class A Free shares 93,250 4,901,860
Class B (non-vtg.) 62,200 3,021,088
Saga Petroleum AS Class B 268,500 3,631,725
23,506,708
PERU - 0.1%
Compania de Minas Buenaventura SA
Class B sponsored ADR (a) 78,600 1,562,175
SINGAPORE - 0.3%
Kim Engineering Holdings Ltd. 2,665,000 2,511,123
Overseas Union Bank Ltd. (For . Reg.) 286,000 1,965,427
Van Der Horst Ltd. 156,000 729,437
5,205,987
SOUTH AFRICA - 0.1%
De Beers Consolidated Mines Ltd. ADR 24,000 810,000
SPAIN - 3.4%
Banco Bilbao Vizcaya SA Ord. (Reg.) 352,700 14,279,129
Banco de Santander SA Ord. (Reg.) 226,403 10,561,176
Banco Intercontinental Espanol 63,400 7,087,031
Tabacalera SA, Series A 279,100 14,042,630
Telefonica de Espana SA Ord. 500,000 9,204,727
55,174,693
SWEDEN - 6.8%
Bure Investment AB (b) 62,000 568,910
Electrolux AB 164,500 8,252,467
Ericsson (L.M.) Telephone Co. Class B 126,700 2,725,428
Esselte AB Class B Free shares 79,600 1,622,462
Investor AB Class B Free shares 170,000 6,354,734
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
SWEDEN - CONTINUED
SKF AB Ord. 146,000 $ 3,459,039
Scania AB:
Class A 124,800 3,454,256
Class B 661,800 18,367,294
Series B (warrants) 170,000 184,121
Skandia Foersaekrings AB 302,700 7,991,193
Skandinaviska Enskilda Banken
Class A Free shares 1,008,100 8,037,140
Swedish Match AB 1,538,100 4,766,217
Volvo AB Class B 1,930,900 43,859,006
109,642,267
SWITZERLAND - 2.4%
CIBA-GEIGY AG (Reg.) 8,580 10,436,291
Nestle SA (Reg.) 12,425 14,161,775
Roche Holdings Ltd. participation
certificates 1,300 9,897,109
Sandoz AG (Reg.) 4,100 4,679,641
39,174,816
THAILAND - 0.3%
Ruang Khao Unit Trust (For. Reg.) 744,900 476,616
Siam City Bank PCL (For. Reg.) 4,763,700 5,111,266
5,587,882
UNITED KINGDOM - 13.2%
Allied Domecq PLC 457,026 3,213,873
Argyll Group PLC Ord. 6,554 35,304
Barclays PLC Ord. 877,200 10,519,298
Barratt Developments PLC 1,571,125 6,194,897
Bass PLC Ord. 638,300 8,011,144
Booker PLC 383,500 2,220,567
Boots Co. PLC (The) 319,900 2,875,295
British Airways PLC Ord. 540,200 4,637,344
British Petroleum PLC Ord. 1,766,100 15,490,070
British Telecommunications PLC Ord. 764,400 4,105,693
Cable & Wireless PLC Ord. 687,200 4,539,127
Caradon PLC 1,322,400 4,423,844
Christies International PLC 98,000 320,995
Cookson Group PLC 2,967,600 13,037,113
Courtaulds PLC Ord. 42,800 282,372
Dixons Group PLC 1,235,200 10,105,029
Glaxo Holdings PLC 440,600 5,929,980
Granada Group PLC 344,500 4,607,169
Grand Metropolitan PLC 1,306,645 8,661,141
Hanson Trust PLC Ord. 739,400 2,066,054
Lloyds Abbey Life PLC 642,100 5,063,561
Lloyds TSB Group PLC 598,702 2,927,594
MFI Furniture Group PLC 1,379,900 3,716,522
Mirror Group Newspaper PLC 2,066,000 6,526,561
National Westminster Bank PLC Ord. 954,820 9,100,799
Prudential Corp. PLC 382,413 2,410,174
RTZ Corp. PLC Ord. 197,800 2,926,233
Redland PLC Ord. 350,700 2,166,748
Rolls Royce PLC Ord. 996,084 3,463,647
Royal Insurance Holdings PLC 1,145,900 7,070,881
Rugby Group 691,100 1,180,112
Scottish Hydro-Electric PLC Ord. 300 1,378
Scottish Power PLC ADR 118,400 558,747
Shell Transport & Trading Co. PLC:
ADR 17,300 1,522,400
(Reg.) 1,102,100 16,150,376
SHARES VALUE (NOTE 1)
Sema Group PLC 304,600 $ 3,475,417
Smithkline Beecham PLC Ord. 256,500 2,741,454
South West Water PLC Ord. 421,800 4,282,269
T & N PLC 822,000 1,786,444
Unigate Ltd. Ord. 330,600 2,042,564
United Utilities PLC 291,189 2,447,728
Vodafone Group PLC 1,331,004 4,948,511
WPP Group PLC (b) 1,357,800 4,573,884
WPP Group PLC ADR 26,100 874,350
Whitbread & Co. PLC Class A 588,100 6,472,724
Wickes PLC 806,200 857,281
Yorkshire Water PLC Ord. 251,200 2,573,672
213,138,340
UNITED STATES OF AMERICA - 0.5%
Dresser Industries, Inc. 49,200 1,451,400
Newmont Mining Corp. 27,500 1,357,813
Pharmacia & Upjohn, Inc. 110,000 4,881,250
7,690,463
TOTAL COMMON STOCKS
(Cost $1,263,543,603) 1,424,659,382
PREFERRED STOCKS - 2.0%
CONVERTIBLE PREFERRED STOCKS - 0.1%
JAPAN - 0.1%
AJL participating trust exchangeable 71,700 1,514,663
NONCONVERTIBLE PREFERRED STOCKS - 1.9%
AUSTRIA - 0.3%
Creditanstalt Bankverein 105,900 5,353,024
GERMANY - 0.4%
Porsche AG (a) 3,750 2,250,738
Volkswagen AG 4% 14,600 3,998,360
6,249,098
ITALY - 1.2%
Fiat Spa 591,600 1,034,819
SAI Sta Assicuratrice Industriale Spa 650,500 2,510,465
Stet (Societa Finanziaria Telefonica) Spa 5,976,400 15,690,488
19,235,772
TOTAL NONCONVERTIBLE PREFERRED STOCKS 30,837,894
TOTAL PREFERRED STOCKS
(Cost $27,285,280) 32,352,557
CONVERTIBLE BONDS - 0.3%
MOODY'S PRINCIPAL
RATINGS AMOUNT
BERMUDA - 0.3%
MBL International Finance of
Bermuda 3%, 11/30/02
(Cost $4,974,627) Aa3 $4,392,000 5,127,660
REPURCHASE AGREEMENTS - 9.6%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.46%, dated
6/28/96 due 7/1/96 $ 155,694,809 $ 155,624,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $1,451,427,510) $ 1,617,763,599
LEGEND
1. Non-income producing
2. 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 $15,393,204 or 1.0% of net
assets.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $845,532,811 and $666,830,168, 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 $125,063 for the period
(see Note 4 of Notes to Financial Statements).
MARKET SECTOR DIVERSIFICATION
As a Percentage of Total Value of Investment in Securities
Aerospace & Defense 0.2%
Basic Industries 6.5
Conglomerates 0.1
Construction & Real Estate 3.8
Durables 15.7
Energy 5.7
Finance 16.8
Health 3.6
Holding Companies 1.1
Industrial Machinery & Equipment 4.7
Media & Leisure 2.0
Nondurables 5.7
Precious Metals 0.7
Retail & Wholesale 5.4
Services 0.9
Repurchase Agreements 9.6
Technology 5.2
Transportation 1.5
Utilities 10.8
100.0%
INCOME TAX INFORMATION
At June 30,1996, the aggregate cost of investment securities for income tax
purposes was $1,451,764,296. Net unrealized appreciation aggregated
$165,999,303, of which $201,517,356 related to appreciated investment
securities and $35,518,053 related to depreciated investment securities.
VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
ASSETS
Investment in $ 1,617,763,599
securities, at value
(including
repurchase
agreements of
$155,624,000) (cost
$1,451,427,510) -
See accompanying
schedule
Cash 145
Receivable for 6,907,853
investments sold
Receivable for fund 1,426,835
shares sold
Dividends receivable 5,208,210
Interest receivable 10,593
Other receivables 900
TOTAL ASSETS 1,631,318,135
LIABILITIES
Payable for $ 25,450,937
investments
purchased
Payable for fund 2,908,321
shares redeemed
Accrued management 995,084
fee
Other payables and 373,638
accrued expenses
TOTAL LIABILITIES 29,727,980
NET ASSETS $ 1,601,590,155
Net Assets consist of:
Paid in capital $ 1,343,799,674
Undistributed net 15,365,533
investment income
Accumulated 76,142,317
undistributed net
realized gain (loss)
on investments and
foreign currency
transactions
Net unrealized 166,282,631
appreciation
(depreciation) on
investments
and assets and
liabilities in
foreign currencies
NET ASSETS, for $ 1,601,590,155
89,553,847
shares outstanding
NET ASSET VALUE, $17.88
offering price
and redemption
price per
share
($1,601,590,155 (divided by)
89,553,847 shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
INVESTMENT INCOME $ 26,007,078
Dividends
Interest 5,229,423
31,236,501
Less foreign taxes (3,560,017
withheld )
TOTAL INCOME 27,676,484
EXPENSES
Management fee $ 5,651,511
Transfer agent fees 311,446
Accounting fees and 364,979
expenses
Non-interested 2,564
trustees'
compensation
Custodian fees and 504,353
expenses
Registration fees 7,263
Audit 22,050
Legal 10,205
Miscellaneous 3,156
Total expenses 6,877,527
before reductions
Expense reductions (32,610 6,844,917
)
NET INVESTMENT 20,831,567
INCOME
REALIZED AND
UNREALIZED GAIN
(LOSS)
Net realized gain
(loss) on:
Investment 77,024,385
securities
Foreign currency (146,148 76,878,237
transactions )
Change in net
unrealized
appreciation
(depreciation) on:
Investment 7,721,171
securities
Assets and (54,691 7,666,480
liabilities in )
foreign currencies
NET GAIN (LOSS) 84,544,717
NET INCREASE $ 105,376,284
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS
OTHER INFORMATION
Expense reductions $ 30,765
Directed brokerage
arrangements
Custodian interest 1,845
credits
$ 32,610
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET SIX MONTHS YEAR ENDED
ASSETS ENDED DECEMBER 31,
JUNE 30, 1996 1995
(UNAUDITED)
Operations $ 20,831,567 $ 24,265,663
Net investment income
Net realized gain (loss) 76,878,237 10,642,375
Change in net unrealized 7,666,480 85,131,645
appreciation (depreciation)
NET INCREASE (DECREASE) IN 105,376,284 120,039,683
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (16,689,141) (4,893,543)
From net investment income
From net realized gain (18,358,055) (1,797,170)
In excess of net realized gain - (3,096,373)
TOTAL DISTRIBUTIONS (35,047,196) (9,787,086)
Share transactions 371,027,321 466,436,535
Net proceeds from sales of
shares
Reinvestment of distributions 35,047,195 9,787,086
Cost of shares redeemed (217,947,394) (541,043,324)
NET INCREASE (DECREASE) IN 188,127,122 (64,819,703)
NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) 258,456,210 45,432,894
IN NET ASSETS
NET ASSETS
Beginning of period 1,343,133,945 1,297,701,051
End of period (including $ 1,601,590,155 $ 1,343,133,945
undistributed net
investment income of
$15,365,533 and
$18,738,964, respectively)
OTHER INFORMATION
Shares
Sold 21,423,198 29,090,043
Issued in reinvestment of 2,053,145 652,472
distributions
Redeemed (12,673,890) (33,802,732)
Net increase (decrease) 10,802,453 (4,060,217)
<TABLE>
<CAPTION>
<S> <C> <C>
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS YEARS ENDED DECEMBER 31,
ENDED
JUNE 30, 1996
SELECTED PER-SHARE DATA (UNAUDITED) 1995 1994 1993 D 1992 1991
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of $ 17.06 $ 15.67 $ 15.48 $ 11.53 $ 13.09 $ 12.42
period
Income from Investment
Operations
Net investment income .13 .17 .19 .06 .16 .24
Net realized and unrealized 1.11 1.34 .08 H 4.16 (1.54) .74
gain (loss)
Total from investment 1.24 1.51 .27 4.22 (1.38) .98
operations
Less Distributions (.20) (.06) (.08) (.18) (.18) (.17)
From net investment income
In excess of net investment - - - (.04) - -
income
From net realized gain (.22) (.02) - - - (.14) G
In excess of net realized gain - (.04) - (.05) - -
Total distributions (.42) (.12) (.08) (.27) (.18) (.31)
Net asset value, end of period $ 17.88 $ 17.06 $ 15.67 $ 15.48 $ 11.53 $ 13.09
TOTAL RETURN B, C 7.39% 9.74% 1.72% 37.35% (10.72) 8.00%
%
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of period (000 $ 1,601,590 $ 1,343,134 $ 1,297,701 $ 777,961 $ 180,837 $ 126,490
omitted)
Ratio of expenses to average .93% A .91% .92% 1.03% 1.14% 1.26%
net assets
Ratio of expenses to average .92% A, .91% .92% 1.03% 1.14% 1.26%
net assets after expense E
reductions
Ratio of net investment income 2.81% A 1.88% 1.28% 1.21% 1.86% 2.33%
to average net assets
Portfolio turnover rate 102% A 50% 42% 42% 61% 168%
Average Commission rate F $ .0141
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN
(SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C 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. D EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED
STATEMENT OF POSITION 93-2, "DETERMINATION, DISCLOSURE,
AND FINANCIAL STATEMENT PRESENTATION OF INCOME, CAPITAL GAIN, AND
RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT
COMPANIES." AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT
CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX
DIFFERENCES E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS
WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A
PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL
STATEMENTS). F FOR FISCAL YEARS BEGINNING ON OR AFTER
SEPTEMBER 1, 1995, A FUND IS REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION
RATE PER SHARE FOR SECURITY TRADES ON WHICH
COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD TO PERIOD
AND FUND TO FUND DEPENDING ON THE MIX OF TRADES
EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE
STRUCTURES MAY DIFFER. G INCLUDES AMOUNTS
DISTRIBUTED FROM NET REALIZED GAINS ON FOREIGN CURRENCY RELATED
TRANSACTIONS TAXABLE AS ORDINARY INCOME. H THE AMOUNT
SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH THE AGGREGATE
NET GAIN ON INVESTMENTS FOR THE PERIOD ENDED DUE TO
THE TIMING OF SALES AND REPURCHASES OF FUND SHARES IN RELATION TO
FLUCTUATING MARKET VALUES OF THE INVESTMENTS OF THE FUND.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
For the period ended June 30, 1996 (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 (the trust). The trust is registered under the
Investment Company Act of 1940, as amended (the 1940 Act), as an open-end
management investment company organized as a Massachusetts business trust.
Each fund is authorized to issue an unlimited number of shares. Shares of
each fund may only be purchased by insurance companies for the purpose of
funding variable annuity or variable life insurance contracts. The
financial statements have been prepared in conformity with generally
accepted accounting principles which permit 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.
HIGH INCOME PORTFOLIO. 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
maturing within sixty days of their purchase date are valued at amortized
cost or original cost plus accrued interest, both of which approximate
current value.
EQUITY-INCOME AND GROWTH PORTFOLIOS. Securities for which exchange
quotations are readily available are valued at the last sale price, or if
no sale price, at the closing bid price. Securities (including restricted
securities) for which exchange quotations are not readily available (and in
certain cases debt securities which trade on an exchange) are valued
primarily using dealer-supplied valuations or at their fair value as
determined in good faith under consistently applied procedures under the
general supervision of the Board of Trustees. Short-term securities
maturing within sixty days of their purchase date are valued at amortized
cost or original cost plus accrued interest, both of which approximate
current value.
OVERSEAS PORTFOLIO. Securities for which quotations are readily available
are valued at the last sale price, or if no sale price, at the closing bid
price in the principal market in which
such securities are normally traded. Securities (including restricted
securities) for which quotations are not readily available are valued
primarily using dealer-supplied valuations or at their fair value as
determined in good faith under consistently applied procedures under the
general supervision of the Board of Trustees. Short-term securities
maturing within sixty days of their purchase date are valued at amortized
cost or original cost plus accrued interest, both of which approximate
current value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the funds are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the 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 forward currency
contracts, disposition of foreign currencies, currency gains and losses
realized between the trade and settlement dates on securities transactions,
and the difference between the amount of net investment income accrued and
the U.S. dollar amount actually received. 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 income taxes to
the extent that it distributes substantially all of its taxable income for
the fiscal year. The Overseas Portfolio may be subject to foreign taxes on
income, gains on investments or currency repatriation. 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.
HIGH INCOME, EQUITY-INCOME, GROWTH AND OVERSEAS PORTFOLIOS. Dividend income
is recorded on the ex-dividend date, except certain dividends from foreign
securities where the ex-dividend date may have passed, are recorded as soon
as the funds are informed of the ex-dividend date. Interest income, 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 between the
funds in the trust.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS. Dividends are declared daily and paid
monthly from net interest income for the Money Market Portfolio.
Distributions are recorded on the ex-dividend date for all other funds.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for defaulted
bonds, foreign currency transactions, passive foreign investment companies
(PFIC), market discount, partnerships, non-taxable dividends, capital loss
carryforwards and losses deferred due to wash sales. Certain foreign
currency gains (losses) are taxable as ordinary income and, therefore,
increase (decrease) taxable ordinary income available for distributions
with respect to the Overseas Portfolio.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and may
affect the per-share allocation between net interest/investment income and
realized and unrealized gain (loss). 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.
FORWARD FOREIGN CURRENCY CONTRACTS. The funds, (excluding the Money Market
Portfolio), may use foreign currency contracts to facilitate transactions
in foreign securities and to manage the funds' currency exposure. Contracts
to buy generally are used to acquire exposure to foreign currencies, while
contracts to sell are used to hedge the fund's investments against currency
fluctuations. Also, a contract to buy or sell can offset a previous
contract. 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 forward foreign currency contracts is determined
using forward currency exchange rates supplied by a quotation service.
Purchases and sales of forward foreign currency contracts having the same
settlement date and broker are offset and any realized gain (loss) is
recognized on the date of offset; otherwise, gain (loss) is recognized on
settlement date.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, 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 that mature in 60 days or less from
the date of purchase, and are collateralized by 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 (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.
DELAYED DELIVERY TRANSACTIONS. The funds may purchase or sell securities on
a when-issued or forward commitment basis. Payment and delivery may take
place a month or more after the date of the transaction. The price of the
underlying securities and the date when the securities will be delivered
and paid for are fixed at the time the transaction is negotiated. The
market value of the securities purchased or sold on a when-issued or
forward commitment basis is identified as such in the fund's schedule of
investments. The funds may receive compensation for interest forgone in the
purchase of a delayed delivery security. Losses may arise due to changes in
the market value of the underlying securities or if the counterparty does
not perform under the contract.
RESTRICTED SECURITIES. The 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 $9,088,578 or
0.8% of net assets of the the High Income Portfolio.
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 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 basic fund fee rate of .03% of the fund's
average net assets, plus a fixed income group fee rate and an income-based
fee. The group fee rate is the weighted average of a series of rates
ranging from .1100% to .3700% and is based on the monthly average net
assets of all the mutual funds advised by FMR. The income-based fee is
added only when the
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
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 0.24%
of average net assets. For the period, the management fee was equivalent to
an annualized rate of .21% of average net assets.
For all other funds, FMR receives a monthly fee that is calculated on the
basis of a group fee rate plus a fixed individual fund fee rate applied to
the average net assets of 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 High Income Portfolio and .2500% to .5200% for the
Equity-Income, Growth, and Overseas Portfolios for the period. 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 annual individual fund fee rates
are .45%, .20%, .30% and .45% for High Income, Equity-Income, Growth, and
Overseas Portfolios, respectively. For the period, the management fee was
equivalent to an annualized rate of .60%, .51%, .61%, and .76% of average
net assets for the High Income, Equity-Income, Growth, and Overseas
Portfolios, respectively.
SUB-ADVISER FEE. As the Money Market Portfolio's investment sub-adviser,
FMR Texas Inc., a wholly owned subsidiary of FMR, receives a fee from FMR
of 50% of the management fee payable to FMR. The fee is paid prior to any
voluntary expense reimbursements which may be in effect.
FMR, on behalf of the High Income and Overseas Portfolios, entered into
sub-advisory agreements with Fidelity Management & Research (U.K.) Inc.,
Fidelity Management & Research (Far East) Inc., and with respect only to
Overseas Portfolio, Fidelity International Investment Advisors (FIIA). In
addition, FIIA entered into a sub-advisory agreement with its subsidiary,
Fidelity International Investment Advisors (U.K.) Limited (FIIAL U.K.).
Under the sub-advisory arrangements, FMR may receive investment advice and
research services and may grant the sub-advisers investment management
authority to buy and sell securities. FMR pays its sub-advisers either a
portion of its management fee or a fee based on costs incurred for these
services. FIIA pays FIIAL U.K. a fee based on costs incurred for either
service.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations Company
(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 account size and type of account.
FIIOC pays for typesetting,
printing and mailing of all shareholder reports, except proxy statements.
For the period, transfer agent fees were equivalent to an annualized rate
of .07% of average net assets for the Money Market Portfolio, .03% of
average net assets for the High Income Portfolio, and .04% of average net
assets for the Equity-Income, Growth, and Overseas Portfolios.
ACCOUNTING FEES. Fidelity Service Co. (FSC), an affiliate of FMR, maintains
the funds' accounting records. The fee is based on the level of average net
assets for the month plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. 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. INTERFUND LENDING PROGRAM.
Each fund is permitted to participate in the interfund lending program as
either a borrower or a lender. 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.
6. BANK BORROWINGS.
The funds are permitted to have bank borrowings for temporary or emergency
purposes to fund shareholder redemptions. Each fund has established
borrowing arrangements with certain banks. Under the most restrictive
arrangement, each fund must pledge to the bank securities having a market
value in excess of 220% of the total bank borrowings. The interest rate on
the borrowings is the bank's base rate, as revised from time to time.
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.
7. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse the funds' operating expenses
(excluding interest, taxes, brokerage commissions and extraordinary
expenses) above an annual rate of 1.00% of average net assets for the High
Income Portfolio and 1.50% of average net assets for the Equity-Income,
Growth, and Overseas Portfolios.
FMR has directed certain portfolio trades to brokers who paid a portion of
certain funds' expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest
earned on uninvested cash balances was 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 approximately 10% or more of the total
outstanding shares of the following funds:
FILI UNAFFILIATED INSURANCE COMPANIES
FUND % OF OWNERSHIP # OF % OF OWNERSHIP
Money Market 50 1 13
High Income 18 2 51
Equity-Income 25 1 28
Growth 19 1 29
Overseas 16 1 37
9. TRANSACTIONS WITH AFFILIATED COMPANIES.
Information regarding transactions with affiliated companies is included
under the caption "Legend" at the end of each applicable fund's schedule of
investments.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
FMR Texas Inc., Irving, TX
MONEY MARKET PORTFOLIO
Fidelity Management & Research (U.K.) Inc.,
London, England
HIGH INCOME AND OVERSEAS PORTFOLIOS
Fidelity Management & Research (Far East) Inc.,
Tokyo, Japan
HIGH INCOME AND OVERSEAS PORTFOLIOS
Fidelity International Investment Advisors
Pembroke, Bermuda
OVERSEAS PORTFOLIO
Fidelity International Investment Advisors (U.K.) Limited
Kent, England
OVERSEAS PORTFOLIO
OFFICERS
Edward C. Johnson 3d, PRESIDENT
J. Gary Burkhead, SENIOR VICE PRESIDENT
William J. Hayes, VICE PRESIDENT
Fred L. Henning, Jr., VICE PRESIDENT
Robert A. Lawrence, VICE PRESIDENT
Lawrence Greenberg, VICE PRESIDENT
Richard R. Mace, VICE PRESIDENT
Barry J. Coffman, VICE PRESIDENT
Robert Litterst, VICE PRESIDENT
Andrew Offit, VICE PRESIDENT
Arthur S. Loring, SECRETARY
Kenneth A. Rathgeber, TREASURER
Robert H. Morrison, MANAGER, SECURITY TRANSACTIONS
John H. Costello, ASSISTANT TREASURER
Leonard M. Rush, ASSISTANT TREASURER
Thomas J. Simpson, ASSISTANT TREASURER -
MONEY MARKET PORTFOLIO
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
Richard J. Flynn *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Edward H. Malone *
Marvin L. Mann *
Gerald C. McDonough *
Thomas R. Williams *
ADVISORY BOARD
William O. McCoy
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Investments Institutional Operations Co.
Boston, MA
CUSTODIAN
The Bank of New York, New York, NY
MONEY MARKET AND HIGH INCOME PORTFOLIOS
The Chase Manhattan Bank, N.A., New York, NY
EQUITY-INCOME AND OVERSEAS PORTFOLIOS
Brown Brothers Harriman & Co., Boston, MA
GROWTH PORTFOLIO
* INDEPENDENT TRUSTEES
(2_FIDELITY_LOGOS)
VARIABLE INSURANCE PRODUCTS
FUND II
INVESTMENT GRADE BOND PORTFOLIO
ASSET MANAGER PORTFOLIO
INDEX 500 PORTFOLIO
ASSET MANAGER: GROWTH PORTFOLIO
CONTRAFUND PORTFOLIO
SEMIANNUAL REPORT
JUNE 30, 1996
CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT GRADE BOND PORTFOLIO VIPFII-3 PERFORMANCE AND INVESTMENT SUMMARY
VIPFII-4 FUND TALK: THE MANAGER'S OVERVIEW
VIPFII-5 INVESTMENTS
VIPFII-9 FINANCIAL STATEMENTS
ASSET MANAGER PORTFOLIO VIPFII-11 PERFORMANCE AND INVESTMENT SUMMARY
VIPFII-12 FUND TALK: THE MANAGER'S OVERVIEW
VIPFII-13 INVESTMENTS
VIPFII-22 FINANCIAL STATEMENTS
INDEX 500 PORTFOLIO VIPFII-24 PERFORMANCE AND INVESTMENT SUMMARY
VIPFII-25 FUND TALK: THE MANAGER'S OVERVIEW
VIPFII-26 INVESTMENTS
VIPFII-33 FINANCIAL STATEMENTS
ASSET MANAGER: GROWTH PORTFOLIO VIPFII-35 PERFORMANCE AND INVESTMENT SUMMARY
VIPFII-36 FUND TALK: THE MANAGER'S OVERVIEW
VIPFII-37 INVESTMENTS
VIPFII-45 FINANCIAL STATEMENTS
CONTRAFUND PORTFOLIO VIPFII-47 PERFORMANCE AND INVESTMENT SUMMARY
VIPFII-48 FUND TALK: THE MANAGER'S OVERVIEW
VIPFII-49 INVESTMENTS
VIPFII-57 FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS VIPFII-59 NOTES TO THE FINANCIAL STATEMENTS
</TABLE>
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.
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: total
percentage change in value, the average annual percentage change, or the
growth of a hypothetical $10,000 investment. A fund's total return includes
changes in a fund's share price, plus reinvestment of any dividends
(income) and capital gains (the profits the fund earns when it sells
securities that have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1996 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
INVESTMENT GRADE BOND 4.49% 7.75% 8.09%
Lehman Brothers Aggregate Bond Index 5.02% 8.26% n/a
AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and
show you what would have happened if the fund had performed at a constant
rate each year.
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.
(checkmark)
You can compare these figures to the Lehman Brothers Aggregate Bond Index,
which is comprised of fixed-rate debt issues, including government,
corporate, asset-backed, and mortgage-backed securities. Issues included in
the Index are rated investment-grade or above and have maturities of at
least one 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. The life of fund figures are from commencement of
operations, December 5, 1988.
If Fidelity had not reimbursed certain fund expenses, the past five years
and life of fund total return figures would have been lower.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, 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.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19960630 19960729 153703 S00000000000001
VIP II: Inv. Grade LB Aggregate Bond
00227 LB001
1988/12/31 10000.00 10000.00
1989/01/31 10086.92 10143.88
1989/02/28 10109.25 10070.36
1989/03/31 10172.02 10113.90
1989/04/30 10285.31 10325.54
1989/05/31 10399.91 10596.87
1989/06/30 10600.00 10919.52
1989/07/31 10765.35 11151.64
1989/08/31 10679.56 10986.42
1989/09/30 10721.69 11042.65
1989/10/31 10887.69 11314.55
1989/11/30 10981.36 11422.39
1989/12/31 11026.21 11452.96
1990/01/31 11001.11 11316.86
1990/02/28 11063.52 11353.48
1990/03/31 11097.11 11361.84
1990/04/30 11101.82 11257.75
1990/05/31 11276.11 11591.07
1990/06/30 11364.07 11777.05
1990/07/31 11476.89 11939.97
1990/08/31 11475.79 11780.51
1990/09/30 11520.66 11877.97
1990/10/31 11521.38 12028.78
1990/11/30 11590.77 12287.71
1990/12/31 11711.43 12479.17
1991/01/31 11735.04 12633.43
1991/02/28 11853.10 12741.27
1991/03/31 12053.80 12828.93
1991/04/30 12230.89 12967.91
1991/05/31 12325.33 13043.74
1991/06/30 12348.94 13037.11
1991/07/31 12455.20 13217.90
1991/08/31 12714.93 13503.94
1991/09/30 12951.04 13777.57
1991/10/31 13092.71 13930.97
1991/11/30 13234.39 14058.71
1991/12/31 13629.42 14476.23
1992/01/31 13494.11 14279.29
1992/02/29 13567.97 14372.13
1992/03/31 13543.27 14291.11
1992/04/30 13642.04 14394.34
1992/05/31 13851.92 14665.96
1992/06/30 14012.41 14867.80
1992/07/31 14296.36 15171.13
1992/08/31 14382.78 15324.82
1992/09/30 14555.62 15506.47
1992/10/31 14370.44 15300.89
1992/11/30 14333.40 15304.35
1992/12/31 14536.36 15547.71
1993/01/31 14841.14 15845.85
1993/02/28 15093.07 16123.24
1993/03/31 15159.39 16190.42
1993/04/30 15252.23 16303.16
1993/05/31 15278.75 16323.92
1993/06/30 15570.53 16619.76
1993/07/31 15676.64 16713.76
1993/08/31 15955.15 17006.72
1993/09/30 16034.73 17053.43
1993/10/31 16114.31 17117.15
1993/11/30 16034.73 16971.54
1993/12/31 16129.93 17063.52
1994/01/31 16312.59 17293.91
1994/02/28 16045.19 16993.45
1994/03/31 15678.93 16574.49
1994/04/30 15538.06 16442.14
1994/05/31 15495.80 16439.84
1994/06/30 15453.53 16403.51
1994/07/31 15707.10 16729.33
1994/08/31 15721.19 16750.09
1994/09/30 15552.14 16503.56
1994/10/31 15566.23 16488.86
1994/11/30 15594.40 16452.24
1994/12/31 15523.97 16565.84
1995/01/31 15749.36 16893.69
1995/02/28 16053.30 17295.35
1995/03/31 16155.46 17401.46
1995/04/30 16374.37 17644.53
1995/05/31 17031.09 18327.33
1995/06/30 17162.44 18461.69
1995/07/31 17104.06 18420.46
1995/08/31 17308.38 18642.77
1995/09/30 17468.91 18824.14
1995/10/31 17702.41 19068.94
1995/11/30 17965.10 19354.69
1995/12/31 18213.20 19626.31
1996/01/31 18329.95 19756.64
1996/02/29 17995.20 19413.22
1996/03/31 17857.01 19278.28
1996/04/30 17749.53 19169.86
1996/05/31 17718.82 19130.94
1996/06/30 17933.78 19387.85
IMATRL PRASUN SHR__CHT 19960630 19960729 153707 R00000000000123
Let's say hypothetically that $10,000 was invested in Investment Grade Bond
Portfolio on December 31, 1988, shortly after the fund started. As the
chart shows, by June 30, 1996, the value of the investment would have grown
to $17,934 - a 79.34% 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 $19,388 - a 93.88% increase.
INVESTMENT SUMMARY
QUALITY DIVERSIFICATION AS OF JUNE 30, 1996
(MOODY'S RATINGS) % OF FUND'S
INVESTMENTS
Aaa 68.8
Aa 2.0
A 12.1
Baa 8.7
Ba 0.9
B 0.0
Not rated 2.8
TABLE EXCLUDES SHORT-TERM INVESTMENTS. SECURITIES RATED AS "BA" BY MOODY'S
WERE RATED INVESTMENT GRADE BY OTHER NATIONALLY RECOGNIZED RATING AGENCIES
OR ASSIGNED AN INVESTMENT GRADE RATING AT THE TIME OF ACQUISITION BY
FIDELITY.
AVERAGE YEARS TO MATURITY AS OF JUNE 30, 1996
Years 8.0
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, 1996
% OF FUND'S
INVESTMENTS
Finance 13.3
Technology 2.0
Transportation 1.4
Utilities 1.3
Aerospace & Defense 1.3
VARIABLE INSURANCE PRODUCTS FUND II: INVESTMENT GRADE BOND PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
An interview with
Michael Gray, Portfolio Manager of Investment Grade Bond Portfolio
Q. MICHAEL, HOW DID THE FUND DO?
A. For the six- and 12-month periods ending June 30, 1996, the fund
slightly underperformed the Lehman Brothers Aggregate Bond Index, a broad
measure of U.S. taxable bonds, which returned -1.21% for the six month
period and 5.02% for the 12-month period.
Q. WHAT KIND OF ENVIRONMENT DID YOU FIND YOURSELF INVESTING IN DURING THE
PAST SIX MONTHS?
A. It was much different from the previous six months. The period began
with bond investors having a very positive view of the market. The economy
was weakening, inflation was low and the Federal Reserve Board was lowering
interest rates. The expectation was that these trends would continue.
However, investors got caught by surprise. The bull market of 1995 turned
abruptly into a bear market. First, the economy began to show signs of much
stronger growth than expected. This was true in employment, housing and
autos. Second, the balanced budget deal that everyone was expecting to come
out of Congress never materialized following two government shutdowns and
much political brinkmanship. Once the presidential election campaign began,
all hopes of a budget deal faded. Finally, the talk of further Fed easing
turned to talk of when the Fed would begin to increase rates. These factors
caused interest rates to rise dramatically.
Q. WHAT WAS YOUR STRATEGY IN THIS UNFAVORABLE MARKET ENVIRONMENT?
A. One important factor was that I kept the duration of the portfolio close
to the duration of the index. A duration-neutral strategy was helpful
because the fund didn't get as badly hurt as it could have during this
period of volatility in interest rates. Another important strategy was that
the fund was overweighted versus its index in corporate securities, which
performed quite well during the period.
Q. WHY WERE CORPORATE BONDS ATTRACTIVE RELATIVE TO OTHER INVESTMENTS?
A. Corporate bonds tend to perform well in a strong economy. That's because
business is strong, earnings improve and cash flow is often used to pay
down debt. All of these factors help credit quality to improve. As I sensed
a shift in the economy, I increased the fund's weighting in corporate bonds
from 19.7% at the beginning of the period to 24.2% at the end of the
period. In addition, there was a favorable technical situation in the
market in which the supply of new corporate debt was fairly limited, while
demand was rather strong.
Q. MICHAEL, WE UNDERSTAND THERE WERE SOME INVESTMENT POLICY CHANGES . . .
A. This change helps the fund maintain a degree of flexibility under usual
circumstances to invest in the lowest tier of investment-grade bonds
without significantly increasing the risk of the fund. Further, the fund
now uses two additional agencies to determine the credit quality of its
bonds. Ratings from Duff & Phelps Rating Co. and Fitch Investors Service,
L.P., may be used, along with those from Moody's Investors Service and
Standard & Poor's that had been used previously.
Q. WHAT'S YOUR OUTLOOK GOING FORWARD, MICHAEL?
A. My overall outlook is favorable. I think that the economy looks to be
growing at a reasonable rate, and that inflation appears to be under
control. However, I also feel that the risk of inflation is higher over the
next six months than it was over the past six months. In general, I think
corporate bonds should continue to perform well, and that agencies and
mortgages should increase in value going forward.
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 AND
OTHER CONDITIONS.
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, 1996, more than $199 million
MANAGER: Michael Gray, since August 1995;
joined Fidelity in 1982
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND II: INVESTMENT GRADE BOND PORTFOLIO
INVESTMENTS JUNE 30, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
CORPORATE BONDS - 24.2%
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
CONVERTIBLE BONDS - 0.3%
RETAIL & WHOLESALE - 0.3%
DRUG STORES - 0.3%
Rite Aid Corp. liquid yield
option notes 0%, 7/24/06 Baa1 $ 1,000,000 $ 526,250
NONCONVERTIBLE BONDS - 23.9%
AEROSPACE & DEFENSE - 1.3%
Lockheed Martin Corp.:
7 1/4%, 5/15/06 A3 1,000,000 998,080
7.70%, 6/15/08 A3 500,000 509,032
7 3/4%, 5/1/26 A3 1,000,000 996,840
2,503,952
ENERGY - 1.0%
ENERGY SERVICES - 0.5%
Petroliam Nasional BHD
yankee 6 7/8%, 7/1/03 (c) A1 1,040,000 1,024,192
OIL & GAS - 0.5%
Coastal Corp. 10 1/4%,
10/15/04 Baa3 435,000 506,544
Petro-Canada, Inc. yankee
7 7/8%, 6/15/26 Baa1 500,000 505,660
1,012,204
TOTAL ENERGY 2,036,396
FINANCE - 13.3%
ASSET BACKED SECURITIES - 3.8%
Concord Leasing, Inc. 5.04%,
7/15/98 (c) AAA 74,283 73,640
Discover Card Master Trust I
6.90%, 2/16/00 A2 260,000 262,925
Ford Credit:
Auto Loan Master Trust
7 3/8%, 4/15/99 Aaa 500,000 505,000
Grantor Trust 5.90%, 10/15/00 Aaa 795,702 792,220
Green Tree Financial Corp.
6.10%, 4/15/27 Aaa 1,135,730 1,126,680
KeyCorp Auto Grantor Trust
5.80%, 7/15/00 A3 85,760 85,228
Premier Auto Trust:
4.90%, 12/15/98 Aaa 411,098 408,467
8.05%, 4/4/00 AAA 1,430,000 1,467,538
6%, 5/6/00 AAA 500,000 497,030
Railcar Trust 7 3/4%, 6/1/04 Aaa 821,070 845,446
Sears Credit Account Master
Trust II 7%, 1/15/04 Aaa 1,000,000 1,002,200
Standard Credit Card Master
Trust I:
8 1/4%, 10/7/97 A2 285,000 286,870
7.65%, 2/15/00 A2 150,000 152,508
Union Federal Savings Bank
Grantor Trust 8.20%, 1/10/01 Baa2 79,126 80,214
7,585,966
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
BANKS - 7.1%
Bank of Boston Corp. 9 1/2%,
8/15/97 Baa1 $ 75,000 $ 77,578
Banponce Corp.:
5 3/4%, 3/1/99 Baa1 370,000 360,021
6.378%, 4/8/99 Baa1 430,000 423,997
Citicorp
euro 5.575%, 1/30/98 (d) A2 500,000 500,000
Corporacion Andina de Fomento
yankee 7.10%, 2/1/03 Baa2 1,000,000 972,890
Den Danske Bank Group AS
yankee 7 1/4%,
6/15/05 (c) A2 500,000 494,480
Export Import Bank of Korea
6 3/8%, 2/15/06 A1 880,000 816,578
First Fidelity Bancorporation
8 1/2%, 4/1/98 A2 250,000 258,083
First Maryland Bancorp
10 3/8%, 8/1/99 Baa1 500,000 547,585
Firstar Corp. 7.15%, 9/1/00 A3 640,000 643,232
Kansallis-Osake-Pankki NY
Branch 10%, 5/1/02 A3 260,000 293,298
KeyCorp:
8.40%, 4/1/99 A2 310,000 321,092
7 1/2%, 6/15/06 A2 1,100,000 1,107,876
Korea Development Bank yankee
6 1/2%, 11/15/02 A1 1,000,000 961,040
Marine Midland Bank:
euro 5.6875%, 9/27/96 (d) Baa1 1,000,000 1,000,000
8 5/8%, 3/1/97 Baa1 250,000 253,443
Mellon Financial Co. 6 1/2%,
12/1/97 A2 200,000 200,294
Meridian Bancorp, Inc. 5.625%,
12/1/96 (d) A2 900,000 900,288
Merita Bank Ltd. yankee 6 1/2%,
1/15/06 A3 1,000,000 929,640
Midland Bank PLC yankee 7 5/8%,
6/15/06 A1 700,000 709,198
National City Corp.
5.6133%, 1/31/97 (d) A2 850,000 851,054
Signet Banking Corp.
5.625%, 5/15/97 (d) Baa2 350,000 347,984
Sovran Financial Corp. 9 3/4%,
6/15/99 A3 770,000 825,286
Union Planters Corp. 6 3/4%,
11/1/05 Baa3 400,000 379,612
14,174,549
CREDIT & OTHER FINANCE - 1.8%
Finova Capital Corp. 6.14%,
11/2/98 Baa1 400,000 396,452
General Motors Acceptance Corp.:
5.65%, 12/15/97 A3 1,000,000 992,780
5 3/8%, 3/9/98 A3 1,400,000 1,380,008
Household Finance Corp. 7.80%,
11/1/96 A2 350,000 352,009
Secured Finance, Inc.
9.05%, 12/15/04 Aaa 500,000 550,595
3,671,844
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
INSURANCE - 0.4%
Metropolitan Life Insurance Co.
6.30%, 11/1/03 (c) A1 $ 770,000 $ 726,172
Nationwide Mutual Insurance Co.
6 1/2%, 2/15/04 (c) A1 130,000 122,417
848,589
SAVINGS & LOANS - 0.2%
Golden West Financial Corp.
10 1/4%, 5/15/97 A3 350,000 361,529
TOTAL FINANCE 26,642,477
INDUSTRIAL MACHINERY & EQUIPMENT - 0.6%
POLLUTION CONTROL - 0.6%
WMX Technologies, Inc.
6 1/4%, 4/1/99 A1 1,200,000 1,190,700
MEDIA & LEISURE - 0.6%
LODGING & GAMING - 0.5%
Circus Circus Enterprises, Inc.
6.45%, 2/1/06 Baa2 1,000,000 925,360
RESTAURANTS - 0.1%
Darden Restaurants, Inc.
6 3/8%, 2/1/06 A3 310,000 285,891
TOTAL MEDIA & LEISURE 1,211,251
NONDURABLES - 1.0%
FOODS - 1.0%
Nabisco, Inc.
6.85%, 6/15/05 Baa2 1,000,000 955,740
Ralcorp Holdings, Inc.
8 3/4%, 9/15/04 Ba1 1,000,000 1,019,600
1,975,340
RETAIL & WHOLESALE - 0.7%
GENERAL MERCHANDISE STORES - 0.7%
Dayton Hudson Corp.
6.40%, 2/15/03 Baa1 500,000 473,870
Sears Roebuck & Co.:
9%, 9/15/96 A2 475,000 477,921
9.23%, 8/6/98 A2 450,000 474,080
1,425,871
SERVICES - 0.7%
LEASING & RENTAL - 0.7%
Ryder System, Inc.
9 1/4%, 5/15/01 A3 1,190,000 1,300,575
TECHNOLOGY - 2.0%
COMPUTERS & OFFICE EQUIPMENT - 2.0%
Comdisco, Inc.:
9 3/4%, 1/15/97 Baa2 200,000 203,790
7 3/4%, 1/29/97 Baa2 700,000 706,566
7.73%, 2/18/97 Baa2 1,000,000 1,009,830
6 1/2%, 6/15/00 Baa2 1,200,000 1,183,584
5 3/4%, 2/15/01 Baa2 1,000,000 954,740
4,058,510
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
TRANSPORTATION - 1.4%
AIR TRANSPORTATION - 1.4%
AMR Corp.:
7 3/4%, 12/1/97 Baa3 $ 140,000 $ 142,218
9.55%, 3/6/98 Baa3 400,000 418,656
Delta Air Lines, Inc.:
equipment trust certificate
8.54%, 1/2/07 Baa1 434,123 450,481
10 1/2%, 4/30/16 Baa1 1,000,000 1,188,120
United Airlines Pass Through
Trust 7.27%, 1/30/13 Baa1 610,000 577,536
2,777,011
UTILITIES - 1.3%
CELLULAR - 0.4%
360 Degrees Communications Co.:
7 1/8%, 3/1/03 Ba2 620,000 592,881
7 1/2%, 3/1/06 Ba2 300,000 284,634
877,515
ELECTRIC UTILITY - 0.2%
British Columbia Hydro & Power
Authority yankee 12 1/2%,
1/15/14 Aa2 360,000 420,368
GAS - 0.7%
Florida Gas 7 3/4%,
11/1/97 (c) Baa2 220,000 223,826
Southwest Gas Corp., Series F,
9 3/4%, 6/15/02 Baa3 1,000,000 1,115,900
1,339,726
TOTAL UTILITIES 2,637,609
TOTAL NONCONVERTIBLE BONDS 47,759,692
TOTAL CORPORATE BONDS
(Cost $48,576,533) 48,285,942
U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS - 42.1%
U.S. TREASURY OBLIGATIONS - 34.5%
9%, 5/15/98 Aaa 9,710,000 10,200,064
9 1/4%, 8/15/98 Aaa 6,750,000 7,156,080
8 7/8%, 11/15/98 Aaa 2,332,000 2,465,717
8 7/8%, 2/15/99 Aaa 130,000 138,104
7 3/4%, 12/31/99 Aaa 10,832,000 11,285,536
6 7/8%, 3/31/00 Aaa 409,000 414,943
7 7/8%, 8/15/01 Aaa 1,615,000 1,710,883
12 3/8%, 5/15/04 Aaa 300,000 403,077
12 3/4%, 11/15/10 Aaa 2,117,000 2,972,734
13 7/8%, 5/15/11 Aaa 30,000 44,963
9%, 11/15/18 Aaa 11,640,000 14,186,250
8 7/8%, 2/15/19 Aaa 9,260,000 11,162,652
8 1/8%, 8/15/19 Aaa 2,200,000 2,469,500
12%, 8/15/23 Aaa 3,140,000 4,426,427
69,036,930
U.S. GOVERNMENT AGENCY OBLIGATIONS - 7.6%
Federal Farm Credit Bank
6.09%, 4/03/00 Aaa 420,000 413,360
U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Federal Home Loan Bank:
6.225%, 10/17/02 Aaa $ 440,000 $ 427,693
7.31%, 6/16/04 Aaa 2,850,000 2,917,688
7.36%, 7/1/04 Aaa 680,000 697,741
7.66%, 7/20/04 Aaa 1,940,000 2,024,875
7.56%, 9/1/04 Aaa 310,000 321,067
Federal Home Loan Mortgage Corp.:
8.115%, 1/31/05 Aaa 640,000 687,098
6.783%, 8/18/05 Aaa 560,000 552,037
Government Trust Certificates:
(assets of Trusts guaranteed by
U.S. Government through
Defense Security Assistance
Agency):
Class 1-C 9 1/4%, 11/15/01 Aaa 204,000 217,882
Class 2-E, 9.40%, 5/15/02 Aaa 1,000,000 1,072,120
Class T-2, 9 5/8%, 5/15/02 Aaa 80,000 85,672
(assets of Trust guaranteed by
U.S. Government through
Export-Import Bank) Series
1994-C, 6.61%, 9/15/99 Aaa 81,597 81,981
Guaranteed Export Trust
Certificates (assets of Trust
guaranteed by U.S. Government
through Export-Import Bank)
Series 1996-A, 6.55%,
6/15/04 Aaa 590,000 585,569
Private Export Funding Corp. :
Series VV, 6.24%, 5/15/02 Aaa 220,000 214,463
8 3/4%, 6/30/03 Aaa 310,000 342,159
Series SS, 5.80%, 2/1/04 Aaa 1,220,000 1,168,809
6.86%, 4/30/04 Aaa 156,800 157,288
State of Israel (guaranteed by U.S.
Government through Agency
for International Development):
7 3/4%, 4/1/98 Aaa 78,617 80,060
4 7/8%, 9/15/98 Aaa 190,000 184,359
7 1/8%, 8/15/99 Aaa 435,000 442,054
7 3/4%, 11/15/99 Aaa 144,000 149,099
5.89%, 8/15/05 Aaa 690,000 638,881
8 1/2%, 4/1/06 Aaa 750,000 810,915
U.S. Housing & Urban Development:
8.27%, 8/1/03 Aaa 415,000 448,188
8.24%, 8/1/04 participation
certificate Aaa 500,000 536,825
15,257,883
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $84,857,918) 84,294,813
U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES - 21.5%
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
FEDERAL HOME LOAN GUARANTY CORPORATION - 1.0%
7%, 2/1/97 Aaa $ 189,532 $ 190,302
8 1/2%, 3/1/20 Aaa 1,803,521 1,866,410
2,056,712
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 15.1%
5 1/2%, 5/1/00 to 7/1/01 Aaa 3,050,330 2,875,881
6%, 3/1/01 to 4/01/11 Aaa 14,640,902 14,034,224
6 1/2%, 1/1/26 to 5/1/26 Aaa 8,564,073 8,010,062
7.65%, 3/10/05 Aaa 2,000,000 2,085,000
7.35%, 3/28/05 Aaa 1,070,000 1,095,744
8%, 12/1/24 to 2/1/26 Aaa 1,978,302 1,993,141
30,094,052
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 5.4%
6%, 8/15/08 to 4/15/11 Aaa 6,117,630 5,843,121
8%, 2/15/17 to 7/15/26 Aaa 2,380,679 2,404,674
10%, 7/15/13 to 5/15/25 Aaa 2,322,586 2,532,302
10,780,097
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $43,052,877) 42,930,861
COMMERCIAL MORTGAGE SECURITIES - 4.9%
CS First Boston Mortgage Securities
Corp. commercial Series:
1994-CFB1 Class A-1,
6.0148%, 1/25/28 (d) AAA 413,577 413,060
1995-AEWI Class A1,
6.665%, 11/25/27 Aaa 460,549 453,425
Equitable Life Assurance Society
of the United States (c):
commercial Series 1996-1:
Class B-1, 7.33%, 5/15/06 Aa2 500,000 496,250
Class C-1, 7.52%, 5/15/06 A2 500,000 496,250
sequential pay series 174
Class A-1, 7.24%, 5/15/06 Aaa 1,000,000 992,500
Lennar Central Partner LP commercial
floater Series 1994-1 Class B,
6.429%, 9/15/01 (c)(d) - 733,000 733,000
Meritor Mortgage Security Corp.
commercial Series 1987-1
Class A-3, 9.40%, 6/1/99 Baa3 142,975 143,332
Nomura Asset Securities Corp.
commercial floater Series
1994-MD-II Class A-6,
6.7025% 7/4/03 (d) - 179,477 178,131
Oregon Commercial Mortgage
commercial Series 1995 Class
1-A, 7.15%, 6/25/26 (c) AAA 411,652 409,089
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
Resolution Trust Corp. Commercial:
Series 1994-N2 Class 3,
7 1/2%, 12/15/04 (b)(c) Baa2 $ 254,648 $ 255,284
Series 1995-C1 Class A-2B,
6.55%, 2/25/27 Aaa 900,000 897,047
Series 1995-C1 Class A-4B,
6.65%, 2/25/27 Aaa 740,000 728,322
floater (d):
Series 1993-C2 Class A-2,
6.37% 3/25/25 AAA 463,575 465,748
Series 1994-C1 Class A-3,
6.05%, 6/25/26 AAA 327,102 327,920
SC Finance Corp. commercial
floater 6.9875%, 8/1/04 (c)(d) - 600,000 594,750
SKW Real Estate LP commercial
Series II Class B, 7.65%,
4/15/02 (b)(c) A 99,404 99,404
Structured Asset Securities Corp.
commercial Series:
1993-C1, Class A-1,
6.60%, 10/25/24 AA+ 117,805 117,124
1995-C1, Class D,
7 3/8%, 9/25/24 BBB 650,000 602,469
1996 Class A-1A,
5.71%, 2/25/28 AAA 212,169 210,047
1996 Class A-2A,
7 3/4%, 2/25/28 AAA 1,265,516 1,274,810
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $9,854,547) 9,887,962
FOREIGN GOVERNMENT OBLIGATIONS (E) - 2.5%
Alberta Province yankee
9 1/4%, 4/1/00 Aa2 1,400,000 1,516,998
British Columbia Province
yankee 7%, 1/1/03 Aa2 500,000 503,140
Manitoba Province Canada yankee
6 3/4%, 3/1/03 A1 500,000 493,935
Ontario Province yankee
7 3/4%, 6/4/02 Aa3 1,000,000 1,043,540
Quebec Province yankee:
7 1/2%, 7/15/02 A2 500,000 511,790
7 1/8%, 2/9/24 A2 1,000,000 913,770
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $5,057,603) 4,983,173
REPURCHASE AGREEMENTS - 4.8%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.46%, dated
6/28/96 due 7/1/96 $ 9,541,339 9,537,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $200,936,478) $ 199,919,751
LEGEND
(a) Standard & Poor's Corporation credit ratings are used in the absence of
a rating by Moody's Investors Service, Inc.
(b) Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date.
(c) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $6,741,254 or 3.4% of net
assets.
(d) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(e) Some foreign government obligations have not been individually rated by
S&P or Moody's. The ratings listed are assigned to securities 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
Purchases and sales of securities, other than short-term securities,
aggregated $118,480,304 and $86,566,848, respectively, of which U.S.
government and government agency obligations aggregated $92,757,818 and
$75,046,007, respectively.
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 82.9% AAA, AA, A 79.6%
Baa 8.7% BBB 11.8%
Ba 0.9% BB 1.0%
B 0.0% B 0.0%
Caa 0.0% CCC 0.0%
Ca, C 0.0% CC, C 0.0%
D 0.0%
For some foreign government obligations, FMR has assigned the ratings of
the sovereign credit of the issuing government. The percentage not rated by
either S&P or Moody's amounted to 0.8%.
INCOME TAX INFORMATION
At June 30, 1996, the aggregate cost of investment securities for income
tax purposes was $200,940,175. Net unrealized depreciation aggregated
$1,020,424, of which $1,981,111 related to appreciated investment
securities and $3,001,535 related to depreciated investment securities.
At December 31, 1995, the fund had a capital loss carryforward of
approximately $230,000, all of which will expire on December 31, 2002.
VARIABLE INSURANCE PRODUCTS FUND II: INVESTMENT GRADE BOND PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
ASSETS
Investm $ 199,919,751
ent in
securit
ies, at
value
(includ
ing
repurc
hase
agree
ments
of
$9,537
,000)
(cost
$200,9
36,478
) -
See
accom
panyin
g
sched
ule
Cash 2,904
Receiva 3,092,307
ble for
invest
ments
sold
Receiva 143,407
ble for
fund
shares
sold
Interest 3,021,238
receiv
able
Other 1,563
receiv
ables
TOTAL 206,181,170
ASSETS
LIABILITI
ES
Payable $ 6,824,349
for
invest
ments
purcha
sed
Accrued 72,956
manag
ement
fee
Other 38,381
payabl
es and
accrue
d
expen
ses
TOTAL 6,935,686
LIABILIT
IES
NET $ 199,245,484
ASSET
S
Net
Assets
consist
of:
Paid in $ 194,981,604
capital
Undistrib 6,350,715
uted
net
invest
ment
incom
e
Accumul (1,070,108
ated )
undistr
ibuted
net
realize
d gain
(loss)
on
invest
ments
and
foreign
curren
cy
transa
ctions
Net (1,016,727
unreali )
zed
apprec
iation
(depre
ciation
) on
invest
ments
NET $ 199,245,484
ASSET
S, for
17,064
,017
shares
outsta
nding
NET $11.68
ASSET
VALUE,
offerin
g price
and
redem
ption
price
per
share
($199,
245,48
4 (divided by)
17,064
,017
shares
)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
INVESTM $ 6,902,212
ENT
INCOME
Interest
EXPENS
ES
Manage $ 433,742
ment
fee
Transfer 43,051
agent
fees
Accounti 38,802
ng
fees
and
expen
ses
Non-inte 377
rested
trustee
s'
compe
nsatio
n
Custodia 13,783
n fees
and
expen
ses
Audit 15,056
Legal 393
Miscella 1,091
neous
Total 546,295
expen
ses
before
reducti
ons
Expen (1,395 544,900
se )
reducti
ons
NET 6,357,312
INVEST
MENT
INCOM
E
REALIZE (824,053
D AND )
UNREALIZ
ED GAIN
(LOSS)
Net
realize
d gain
(loss)
on
invest
ment
securit
ies
Change (8,631,513
in net )
unreali
zed
apprec
iation
(depre
ciation
)
on
invest
ment
securit
ies
NET GAIN (9,455,566
(LOSS) )
NET $ (3,098,254
INCREA )
SE
(DECRE
ASE) IN
NET
ASSETS
RESULTI
NG
FROM
OPERAT
IONS
OTHER $ 1,395
INFORM
ATION
Expen
se
reducti
ons
Cust
odian
interest
credits
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1996 1995
(UNAUDITED)
Operatio $ 6,357,312 $ 9,555,423
ns
Net
invest
ment
incom
e
Net (824,053) 2,634,445
realize
d gain
(loss)
Chang (8,631,513) 10,799,845
e in
net
unreali
zed
apprec
iation
(depre
ciation
)
NET (3,098,254) 22,989,713
INCR
EASE
(DEC
REAS
E) IN
NET
ASSE
TS
RESU
LTING
FROM
OPER
ATIO
NS
Distributi (9,612,980) (4,480,858)
ons to
shareh
olders
from
net
invest
ment
incom
e
Share 56,847,122 116,054,959
transa
ctions
Net
procee
ds
from
sales
of
shares
Reinve 9,612,980 4,480,858
stment
of
distrib
utions
Cost (36,049,271) (68,879,418)
of
shares
redee
med
NET 30,410,831 51,656,399
INCR
EASE
(DEC
REAS
E) IN
NET
ASSE
TS
RESU
LTING
FROM
SHAR
E
TRAN
SACTI
ONS
TOTAL 17,699,597 70,165,254
INCREA
SE
(DECRE
ASE) IN
NET
ASSETS
NET
ASSETS
Beginn 181,545,887 111,380,633
ing of
period
End of $ 199,245,484 $ 181,545,887
perio
d
(incl
udin
g
undi
strib
uted
net
inve
stme
nt
inco
me
of
$6,3
50,7
15
and
$9,5
28,2
38,
resp
ectiv
ely)
OTHER
INFORMAT
ION
Shares
Sold 4,779,399 9,944,966
Issued 807,814 413,363
in
reinve
stment
of
distrib
utions
Redee (3,075,136) (5,910,491)
med
Net 2,512,077 4,447,838
increa
se
(decre
ase)
<TABLE>
<CAPTION>
<S> <C> <C>
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS YEARS ENDED DECEMBER 31,
ENDED
JUNE 30, 1996
SELECTED PER-SHARE DATA (UNAUDITED) 1995 1994 1993 D 1992 1991
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Net $ 12.480 $ 11.020 $ 11.480 $ 10.970 $ 11.080 $ 9.920
asset
value,
beginn
ing of
period
Income .337 .320 .733 .641 .672 .455
from
Invest
ment
Operat
ions
Net
invest
ment
incom
e
Net (.517) 1.530 (1.163) .559 .058 1.165
realize
d and
unreali
zed
gain
(loss)
Total (.180) 1.850 (.430) 1.200 .730 1.620
from
invest
ment
operati
ons
Less (.620) (.390) - (.628) (.680) (.460)
Distrib
utions
From
net
invest
ment
incom
e
In - - - (.002) - -
excess
of net
invest
ment
incom
e
From - - (.010) (.050) (.160) -
net
realize
d gain
In - - (.020) (.010) - -
excess
of net
realize
d gain
Total (.620) (.390) (.030) (.690) (.840) (.460)
distrib
utions
Net $ 11.680 $ 12.480 $ 11.020 $ 11.480 $ 10.970 $ 11.080
asset
value,
end of
period
TOTAL (1.53)% 17.32% (3.76) 10.96% 6.65% 16.38%
RETUR %
N B, C
RATIOS
AND
SUPPL
EMENT
AL
DATA
Net $ 199,245 $ 181,546 $ 111,381 $ 122,376 $ 73,598 $ 44,835
assets
, end
of
period
(000
omitte
d)
Ratio of .57% A .59% .67% .68% .76% .80%
expen E
ses to
averag
e net
assets
Ratio of .56% A, .59% .67% .68% .76% .80%
expen F
ses to
averag
e net
assets
after
expen
se
reducti
ons
Ratio of 6.57% A 6.53% 6.53% 6.85% 7.11% 7.73%
net
invest
ment
incom
e to
averag
e net
assets
Portfolio 94% A 182% 143% 70% 119% 128%
turnov
er rate
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
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 THOSE CHARGES WOULD
REDUCE THE TOTAL RETURNS SHOWN.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE
PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
D EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2, "DETERMINATION,
DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME, CAPITAL GAIN, AND RETURN OF
CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES." AS A RESULT, NET INVESTMENT INCOME PER SHARE
MAY REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
E FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE PERIOD. WITHOUT THIS
REIMBURSEMENT, THE EXPENSE RATIO WOULD HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR
REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
</TABLE>
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance: total
percentage change in value, the average annual percentage change, or the
growth of a hypothetical $10,000 investment. A fund's total return includes
changes in a fund's share price, plus reinvestment of any dividends
(income) and capital gains (the profits the fund earns when it sells
securities that have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1996 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Asset Manager 16.58% 11.33% 11.29%
S&P 500 26.00% 15.73% 13.19%
AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and
show you what would have happened if the fund had performed at a constant
rate each year.
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 growth in the long run and volatility
in the short run. 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.
(checkmark)
You can compare the fund's returns to those of the Standard & Poor's 500
Index - a widely recognized, unmanaged index of common stocks. The S&P 500
returns reflect reinvestment of all dividends paid by stocks included in
the Index, but do not reflect any brokerage commissions or other fees you
might pay if you actually invested in those stocks.
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.
If Fidelity had not reimbursed certain fund expenses, the past five years
and life of fund total return figures would have been lower.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, 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.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19960630 19960729 091923 S00000000000001
VIP II:ASS.MAN. FI Composite SP S&P 500
00228 F0001 SP001
1989/09/30 10000.00 10000.00 10000.00
1989/10/31 10020.02 10057.20 9768.00
1989/11/30 10060.06 10176.98 9967.27
1989/12/31 10091.09 10276.92 10206.48
1990/01/31 9868.42 10029.14 9521.63
1990/02/28 9969.64 10093.23 9644.46
1990/03/31 10050.61 10192.55 9900.03
1990/04/30 9919.03 10098.47 9652.53
1990/05/31 10425.10 10527.96 10593.65
1990/06/30 10506.07 10593.55 10521.62
1990/07/31 10485.83 10658.17 10487.95
1990/08/31 10141.70 10328.51 9539.84
1990/09/30 9929.15 10236.17 9075.25
1990/10/31 9979.76 10309.57 9036.22
1990/11/30 10465.59 10618.75 9619.96
1990/12/31 10769.23 10792.69 9888.36
1991/01/31 11284.56 10998.50 10319.49
1991/02/28 11726.26 11273.90 11057.34
1991/03/31 11915.56 11396.34 11324.93
1991/04/30 12094.35 11471.10 11352.11
1991/05/31 12367.79 11653.26 11842.52
1991/06/30 12146.94 11502.23 11300.13
1991/07/31 12451.92 11733.43 11826.72
1991/08/31 12704.33 11942.28 12107.01
1991/09/30 12777.94 11999.01 11904.82
1991/10/31 12862.08 12105.80 12064.35
1991/11/30 12651.74 12022.39 11578.15
1991/12/31 13198.62 12614.73 12902.69
1992/01/31 13366.89 12476.86 12662.70
1992/02/29 13626.47 12556.58 12827.32
1992/03/31 13593.27 12465.80 12577.19
1992/04/30 13792.52 12619.13 12946.96
1992/05/31 13936.42 12743.05 13010.40
1992/06/30 13925.35 12748.65 12816.54
1992/07/31 14157.81 13094.91 13340.74
1992/08/31 14113.53 13044.62 13067.25
1992/09/30 14202.09 13188.90 13221.45
1992/10/31 14224.22 13136.41 13267.72
1992/11/30 14534.17 13311.65 13720.15
1992/12/31 14744.49 13474.85 13888.91
1993/01/31 15010.15 13643.28 14005.57
1993/02/28 15150.92 13833.47 14196.05
1993/03/31 15579.83 13975.40 14495.59
1993/04/30 15672.57 13890.43 14144.79
1993/05/31 15939.19 14039.61 14523.87
1993/06/30 16066.70 14188.71 14565.99
1993/07/31 16263.77 14206.88 14507.73
1993/08/31 16739.04 14556.36 15057.57
1993/09/30 16750.64 14541.52 14941.63
1993/10/31 17202.73 14691.00 15250.92
1993/11/30 17179.54 14577.88 15106.04
1993/12/31 17875.07 14678.76 15288.82
1994/01/31 18443.09 14967.05 15808.64
1994/02/28 17857.33 14683.28 15380.23
1994/03/31 17017.99 14303.86 14709.65
1994/04/30 17030.15 14341.05 14897.93
1994/05/31 17176.13 14437.71 15142.26
1994/06/30 16847.69 14293.33 14771.27
1994/07/31 17139.63 14595.21 15255.77
1994/08/31 17541.06 14846.54 15881.26
1994/09/30 17334.15 14628.89 15492.17
1994/10/31 17419.36 14769.03 15840.74
1994/11/30 17163.73 14554.47 15263.82
1994/12/31 16786.37 14689.71 15490.18
1995/01/31 16676.82 14964.29 15891.84
1995/02/28 16946.97 15338.22 16511.15
1995/03/31 17170.77 15572.95 16998.39
1995/04/30 17444.31 15852.95 17498.99
1995/05/31 17668.12 16378.13 18198.43
1995/06/30 17817.32 16597.47 18621.18
1995/07/31 18451.43 16808.98 19238.66
1995/08/31 18675.24 16919.65 19286.95
1995/09/30 18911.47 17285.46 20100.85
1995/10/31 18662.80 17383.85 20029.09
1995/11/30 19147.71 17812.18 20908.37
1995/12/31 19632.62 18067.68 21311.07
1996/01/31 20055.36 18375.48 22036.50
1996/02/29 20001.35 18308.01 22240.77
1996/03/31 20213.99 18330.20 22454.95
1996/04/30 20426.62 18406.38 22785.94
1996/05/31 20586.10 18600.31 23373.59
1996/06/30 20772.16 18738.77 23462.64
IMATRL PRASUN SHR__CHT 19960630 19960729 091928 R00000000000123
Let's say hypothetically that $10,000 was invested in Asset Manager
Portfolio on September 30, 1989, shortly after the fund started. As the
chart shows, by June 30, 1996, the value of the investment would have grown
to $20,772 - a 107.72% increase on the initial investment. For comparison,
look at how the S&P 500 did over the same period. With dividends and
capital gains, if any, reinvested, the same $10,000 investment would have
grown to $23,463 - a 134.63% increase.
You can also look at how the Fidelity Composite Index, a hypothetical
combination of unmanaged indices, did over the same period. Reflecting the
fund's neutral mix of 40% stocks, 40% bonds, and 20% short-term
instruments, this index combines returns from the S&P 500 (134.63%), Lehman
Brothers Treasury Bond Index (73.02%), and the Salomon Brothers 3-month
T-Bill Total Rate of Return Index (40.48%). With reinvested dividends and
capital gains, if any, a $10,000 investment in the index would have grown
to $18,739 - an 87.39% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE 30, 1996
% OF
FUND'S
INVESTMENT
S
Philip Morris Companies, Inc. 4.8
Federal National Mortgage Association 4.6
General Motors Corp. 2.4
Royal Dutch Petroleum Co. ADR 1.8
Compaq Computer Corp. 1.5
TOP FIVE FIXED-INCOME SECURITIES AS OF JUNE 30, 1996
(BY ISSUER, EXCLUDING REPURCHASE AGREEMENTS) % OF
FUND'S
INVESTMENT
S
U.S. Treasury Obligations (various issues) 22.2
Federal National Mortgage Association (various issues) 4.3
U.S. Government Agency Obligations (various issues) 1.7
Government National Mortgage Corporation (various issues) 1.3
Federal Home Loan Mortgage Corporation (various issues) 1.2
ASSET ALLOCATION AS OF JUNE 30, 1996*
Row: 1, Col: 1, Value: 12.0
Row: 1, Col: 2, Value: 32.4
Row: 1, Col: 3, Value: 25.6
Row: 1, Col: 4, Value: 25.0
Stock class 55.6%
Bond class 32.4%
Short-term class
and other 12.0%
FOREIGN INVESTMENTS 18.6%
*
ASSET ALLOCATIONS IN THIS PIE CHART REFLECT 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
NOTE TO SHAREHOLDERS: On March 26, 1996, Richard Habermann was named the
head of a three-person team of portfolio managers of Asset Manager
Portfolio. Dick Habermann will have primary responsibility for asset
allocation decisions. George Vanderheiden, who has been with Fidelity for
25 years, will be responsible for individual stock selection. Michael Gray,
who joined Fidelity 14 years ago, will be responsible for bond selection.
The following is an interview with Dick Habermann.
Q. HOW DID THE FUND PERFORM, DICK?
A. The fund performed reasonably well in the first half of 1996. In an
environment that produced mixed returns for stocks and bonds, Asset Manager
performed roughly in line with other flexible portfolios. The Standard &
Poor's 500 Index had total returns of 10.10% and 26.00% for the past six
and 12 months, respectively. Looking back over the period, the fund held
its own during a time when the portfolio underwent some restructuring as a
result of the management change.
Q. HOW WERE THE FUND'S ASSETS DISTRIBUTED AT THE END OF THE PERIOD?
A. Around 55% in equities, 33% bonds and 12% cash equivalents. During the
past six months, the overall asset mix did not change substantially, but
the securities within the asset classes did undergo some significant
change.
Q. COULD YOU DETAIL WHAT SOME OF THOSE CHANGES WERE?
A. Sure. Within equities, we sold a substantial amount of the fund's
foreign holdings, especially in Japan. Despite the underperformance of the
the Japanese market compared to the U.S., our individual holdings in many
Japanese stocks had actually done fairly well, so we took some profits and
re-directed those assets into domestic equities. On the fixed-income side,
our holdings had been focused in the middle of the yield curve, in
securities with maturities between five and 15 years. We allocated more
assets into the high-yield, longer maturity end of the market, and
re-structured the fixed-income portion of the portfolio to more closely
reflect the composition of the Lehman Brothers Aggregate Bond Index. The
result was an increase of corporate bonds and mortgage securities and a
reduction of the fund's U.S. Treasury holdings.
Q. LET'S TURN TO THE MANAGEMENT CHANGE. WHAT WAS THE THINKING BEHIND THE
TEAM APPROACH?
A. We think this approach makes more sense than relying on a single person,
given that the fund invests in so many different kinds of securities and is
involved in so many segments of the market. Fidelity has traditionally
taken what's known as a bottom-up approach with most of its funds,
emphasizing research and individual security selection. Our hope is that by
dividing the responsibility for different parts of the fund among
sub-portfolio managers with established expertise in those areas, we can
better leverage our strength as a fund management organization.
Q. WILL THE FUND'S INVESTMENT STRATEGY CHANGE?
A. No. As always, the fund will seek competitive long-term results by
investing in a broad mix of stocks and bonds. In the past, the fund has
never tried to time the market by making sudden shifts in the asset mix,
nor will it try to do so in the future. In short, the fund's basic asset
allocation structure will not change. The shift at the top should be seen
as an attempt to better fulfill the fund's original investment objective,
not take the fund in a different direction.
Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SEVERAL MONTHS?
A. I'm guardedly optimistic. I think that the economy has shown that it's
pretty resilient so far this year. Still, there are signs that various
businesses may be slowing down, which could mean that we may see some
earnings disappointments. One other note of caution is that stimulus
packages in other countries have helped boost some foreign economies. With
a group of economies growing in sync, that could imply a degree of
inflation risk, which bears watching. I do feel that there is still room
for company managements to add value by rationalizing their businesses and
continuing to cut costs. Those efforts may not have the impact they did
over the past year or two, but they can still be meaningful. That's why
individual security selection will continue to be crucial, and I take
comfort in having George and Michael, with their valuable experience and
expertise, on the team. In the next report, each of them will provide their
views on their respective parts of the portfolio.
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 AND
OTHER CONDITIONS.
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, 1996, more than $3.4 billion
MANAGER: Richard Habermann, since March
1996; joined Fidelity in 1968
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO
INVESTMENTS JUNE 30, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 55.2%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 0.2%
Boeing Co. 61,200 $ 5,332,050
BASIC INDUSTRIES - 4.2%
CHEMICALS & PLASTICS - 2.6%
Air Products & Chemicals, Inc. 59,100 3,413,025
Betz Laboratories, Inc. 2,800 122,850
Dow Chemical Co. 12,700 965,200
du Pont (E.I.) de Nemours & Co. 510,400 40,385,400
Nippon Shokubai Co. Ltd. 439,000 4,241,739
Nippon Zeon Co. Ltd. 1,072,000 6,644,729
Raychem Corp. 154,600 11,111,875
Rohm & Haas Co. 8,900 558,475
Sekisui Chemical Co. Ltd. 1,178,000 14,388,770
Union Carbide Corp. 212,500 8,446,875
90,278,938
IRON & STEEL - 0.4%
Kobe Steel Ltd. (a) 2,634,000 7,563,101
NKK Corp. (a) 1,402,000 4,242,870
11,805,971
METALS & MINING - 0.3%
Aluminum Co. of America 8,100 464,738
Broken Hill Proprietary Co. Ltd. (The) 121,129 1,676,093
Reynolds Metals Co. 173,300 9,033,263
11,174,094
PACKAGING & CONTAINERS - 0.1%
Owens-Illinois, Inc. (a) 59,500 952,000
Tupperware Corp. (a) 31,300 1,322,425
2,274,425
PAPER & FOREST PRODUCTS - 0.8%
Boise Cascade Corp. 119,000 4,358,375
Champion International Corp. 212,200 8,859,350
Georgia-Pacific Corp. 18,400 1,306,400
International Paper Co. 192,100 7,083,688
Temple-Inland, Inc. 83,900 3,922,325
Willamette Industries, Inc. 47,900 2,850,050
28,380,188
TOTAL BASIC INDUSTRIES 143,913,616
CONSTRUCTION & REAL ESTATE - 0.8%
BUILDING MATERIALS - 0.2%
Armstrong World Industries, Inc. 35,100 2,022,638
Masco Corp. 33,100 1,001,275
Tecumseh Products Co. Class A 40,000 2,150,000
5,173,913
CONSTRUCTION - 0.5%
Centex Corp. 127,200 3,959,100
DR Horton, Inc. 52,524 551,502
Daito Trust Construction 726,100 10,854,601
Kaufman & Broad Home Corp. 166,400 2,412,800
Ryland Group, Inc. 9,100 136,500
17,914,503
ENGINEERING - 0.1%
Fluor Corp. 76,100 4,975,038
TOTAL CONSTRUCTION & REAL ESTATE 28,063,454
DURABLES - 4.9%
AUTOS, TIRES, & ACCESSORIES - 3.7%
Chrysler Corp. 95,200 5,902,400
Cummins Engine Co., Inc. 80,600 3,254,225
Dana Corp. 158,700 4,919,700
SHARES VALUE (NOTE 1)
Discount Auto Parts, Inc. (a) 9,700 $ 246,138
Federal-Mogul Corp. 188,900 3,471,038
Ford Motor Co. 36,700 1,188,163
General Motors Corp. 1,558,490 81,625,914
Goodyear Tire & Rubber Co. 44,700 2,156,775
Honda Motor Co. Ltd. 369,000 9,552,527
Magna International, Inc. Class A 9,300 429,687
Scania AB:
Class A 69,900 1,934,715
Class B 63,400 1,759,575
Superior Industries International, Inc. 56,400 1,494,600
Volvo AB Class B 358,600 8,145,341
126,080,798
CONSUMER DURABLES - 0.0%
Swedish Match AB 170,900 529,580
CONSUMER ELECTRONICS - 0.4%
Daiichi Corp. Ord. 145,800 4,226,280
Newell Co. 91,600 2,805,250
Whirlpool Corp. 108,400 5,379,350
12,410,880
HOME FURNISHINGS - 0.1%
Haverty Furniture Companies, Inc. 29,600 303,400
Shimachu Co. Ltd. 162,000 4,799,234
5,102,634
TEXTILES & APPAREL - 0.7%
Burlington Industries, Inc. (a) 331,900 4,688,088
Chiyoda Corp. 92,900 2,176,319
Donna Karan International, Inc. 2,700 75,600
Onward Kashiyama & Co. Ltd. 449,000 7,326,102
Tokyo Style Co. Ltd. 485,000 8,444,009
22,710,118
TOTAL DURABLES 166,834,010
ENERGY - 5.1%
ENERGY SERVICES - 0.5%
Transocean Drilling AS (a) 627,225 16,244,607
OIL & GAS - 4.6%
Amerada Hess Corp. 5,100 273,488
Amoco Corp. 27,100 1,961,363
Anadarko Petroleum Corp. 15,000 870,000
Atlantic Richfield Co. 199,500 23,640,750
British Petroleum PLC ADR 217,412 23,235,908
Burlington Resources, Inc. 175,200 7,533,600
Canada Occidental Petroleum Ltd. 80,200 1,349,851
Enron Oil & Gas Co. 16,900 471,088
Kerr-McGee Corp. 71,000 4,322,125
Noble Affiliates, Inc. 31,800 1,200,450
Occidental Petroleum Corp. 191,700 4,744,575
Royal Dutch Petroleum Co.:
ADR 397,400 61,100,250
Ord. 29,800 4,594,537
Santa Fe Energy Resources, Inc. (a) 178,500 2,119,688
Seagull Energy Corp. (a) 46,800 1,170,000
Sun Co., Inc. 173,800 5,279,175
Tosco Corp. 139,300 6,999,825
Total SA Class B 19,300 1,429,435
Total SA sponsored ADR 59,500 2,208,938
Ultramar Corp. 23,300 675,700
Union Pacific Resources Group, Inc. 42,900 1,147,575
156,328,321
TOTAL ENERGY 172,572,928
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - 10.4%
BANKS - 0.2%
Canadian Imperial Bank of Commerce 23,800 $ 768,868
Fleet Financial Group, Inc. 46,800 2,035,800
State Street Boston Corp. 49,800 2,539,800
5,344,468
CLOSED END INVESTMENT COMPANY - 0.1%
First NIS Regional Fund (Reg.) 200,000 2,134,000
CREDIT & OTHER FINANCE - 0.5%
Acom Co. Ltd. 454,200 17,761,433
Associates First Capital Corp. (a) 25,700 966,963
18,728,396
FEDERAL SPONSORED CREDIT - 6.1%
Federal Home Loan Mortgage Corporation 548,500 46,896,750
Federal National Mortgage Association 4,710,190 157,791,365
Student Loan Marketing Association 48,400 3,581,600
208,269,715
INSURANCE - 2.7%
AFLAC, Inc. 91,300 2,727,588
Allmerica Financial Corp. 60,300 1,793,925
Allstate Corp. 697,000 31,800,625
American International Group, Inc. 235,600 23,236,050
CIGNA Corp. 14,400 1,697,400
Chubb Corp. (The) 11,000 548,625
Equitable of Iowa Companies 16,000 568,000
General Re Corp. 112,500 17,128,125
MGIC Investment Corp. 39,400 2,211,325
Providian Corp. 156,200 6,697,075
Torchmark Corp. 114,000 4,987,500
Travelers/Aetna Property Casualty Corp.
Class A (a) 20,900 593,038
93,989,276
SAVINGS & LOANS - 0.3%
Golden West Financial Corp. 218,000 12,208,000
SECURITIES INDUSTRY - 0.5%
Nomura Securities Co. Ltd. 501,000 9,772,937
United Asset Management Corp. 241,400 5,914,300
15,687,237
TOTAL FINANCE 356,361,092
HEALTH - 2.2%
DRUGS & PHARMACEUTICALS - 0.5%
Pharmacia & Upjohn, Inc. 239,600 10,632,250
Sandoz AG (Reg.) 3,300 3,766,540
Schering-Plough Corp. 66,700 4,185,425
18,584,215
MEDICAL EQUIPMENT & SUPPLIES - 0.2%
Bard (C.R.), Inc. 1,500 51,000
Baxter International, Inc. 39,500 1,866,375
Biomet, Inc. (a) 212,600 3,056,125
4,973,500
MEDICAL FACILITIES MANAGEMENT - 1.5%
Columbia/HCA Healthcare Corp. 968,600 51,699,025
TOTAL HEALTH 75,256,740
HOLDING COMPANIES - 0.0%
U.S. Industries, Inc. (a) 65,400 1,577,775
SHARES VALUE (NOTE 1)
INDUSTRIAL MACHINERY & EQUIPMENT - 2.7%
ELECTRICAL EQUIPMENT - 0.6%
Emerson Electric Co. 22,800 $ 2,060,550
General Electric Co. 95,200 8,234,800
Omron Corp. 145,000 3,079,623
Scientific-Atlanta, Inc. 400 6,200
Sensormatic Electronics Corp. 248,400 4,067,550
Westinghouse Electric Corp. 101,000 1,893,750
19,342,473
INDUSTRIAL MACHINERY & EQUIPMENT - 1.8%
Caterpillar, Inc. 205,400 13,915,850
Deere & Co. 297,000 11,880,000
Dover Corp. 15,000 691,875
Komatsu Ltd. Ord. 2,460,000 24,217,675
NSK Ltd. 1,603,000 12,113,277
62,818,677
POLLUTION CONTROL - 0.3%
Browning-Ferris Industries, Inc. 396,000 11,484,000
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 93,645,150
MEDIA & LEISURE - 2.0%
BROADCASTING - 0.1%
Comcast Corp.:
Class A 10,200 187,425
Class A special 130,000 2,405,000
2,592,425
ENTERTAINMENT - 0.1%
Cedar Fair LP (depositary unit) 9,000 336,375
Royal Caribbean Cruises Ltd. 53,800 1,533,300
1,869,675
LEISURE DURABLES & TOYS - 1.2%
Brunswick Corp. 97,800 1,956,000
Fleetwood Enterprises, Inc. 34,300 1,063,300
Namco Ltd. 379,400 12,553,867
Nintendo Co. Ltd. Ord. 348,700 25,936,758
Outboard Marine Corp. 93,500 1,694,688
43,204,613
LODGING & GAMING - 0.4%
Bally Gaming International, Inc.
(warrants) (a) 38,400 115,200
Circus Circus Enterprises, Inc. (a) 352,500 14,452,500
Fitzgeralds South, Inc.
(warrants) (a)(c) 420 -
Mirage Resorts, Inc. (a) 11,900 639,625
15,207,325
PUBLISHING - 0.1%
Dow Jones & Co., Inc. 8,400 350,700
Knight-Ridder, Inc. 10,100 732,250
Times Mirror Co. Class A 18,100 787,350
1,870,300
RESTAURANTS - 0.1%
Brinker International, Inc. (a) 74,500 1,117,500
Darden Restaurants, Inc. 123,500 1,327,625
McDonald's Corp. 56,400 2,636,700
5,081,825
TOTAL MEDIA & LEISURE 69,826,163
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NONDURABLES - 6.0%
BEVERAGES - 0.3%
Compania Cervejaria Brahma PN
(Pfd. Reg.) 14,855,200 $ 8,861,489
FOODS - 0.3%
General Mills, Inc. 66,100 3,602,450
Nestle SA (Reg.) 6,000 6,838,684
Tyson Foods, Inc. 20,900 572,138
Weston George Ltd. 24,800 858,465
11,871,737
HOUSEHOLD PRODUCTS - 0.0%
Premark International, Inc. 53,900 997,150
TOBACCO - 5.4%
Philip Morris Companies, Inc. 1,570,400 163,321,600
RJR Nabisco Holdings Corp. 653,130 20,247,030
UST, Inc. 40,300 1,380,275
184,948,905
TOTAL NONDURABLES 206,679,281
PRECIOUS METALS - 0.1%
Barrick Gold Corp. 40,100 1,089,586
Santa Fe Pacific Gold Corp. 162,300 2,292,488
3,382,074
RETAIL & WHOLESALE - 6.4%
APPAREL STORES - 0.5%
Melville Corp. 47,500 1,923,750
Shimamura Corp. 127,300 5,593,054
TJX Companies, Inc. 120,200 4,056,750
Talbots, Inc. 147,400 4,772,075
16,345,629
GENERAL MERCHANDISE STORES - 2.9%
Aoyama Trading Co. Ord. 162,600 4,253,790
Dillard Department Stores, Inc. Class A 94,300 3,441,950
Federated Department Stores, Inc. (a) 272,300 9,292,238
Hankyu Department Stores, Inc. 1,123,000 14,740,623
Hanshin Department Store Ltd. 115,000 817,647
K mart Corp. 43,200 534,600
Jusco Co. Ltd. 217,000 7,101,135
Matsuzakaya Co., Ltd. 587,000 7,169,956
Price/Costco, Inc. 21,100 456,288
Takashimaya Co. Ltd. 1,182,000 18,316,394
Wal-Mart Stores, Inc. 1,242,000 31,515,750
Woolworth Corp. (a) 102,200 2,299,500
99,939,871
GROCERY STORES - 0.0%
Safeway, Inc. (a) 7,500 247,500
RETAIL & WHOLESALE, MISCELLANEOUS - 3.0%
Amway Japan Ltd. 595,500 29,855,066
Home Depot, Inc., (The) 472,100 25,493,400
Lowe's Companies, Inc. 263,200 9,508,100
Office Depot, Inc. (a) 145,500 2,964,563
Tandy Corp. 114,000 5,400,750
Toys "R" Us, Inc. 321,900 9,174,150
Uny Co. Ltd. 927,000 18,336,357
100,732,386
TOTAL RETAIL & WHOLESALE 217,265,386
SHARES VALUE (NOTE 1)
SERVICES - 0.2%
ADVERTISING - 0.2%
Interpublic Group of Companies, Inc. 16,900 $ 792,188
WPP Group PLC 1,303,200 4,389,959
5,182,147
SERVICES - 0.0%
Christies International PLC 335,200 1,097,934
TOTAL SERVICES 6,280,081
TECHNOLOGY - 5.5%
COMMUNICATIONS EQUIPMENT - 0.1%
Cisco Systems, Inc. 21,400 1,211,775
General Instrument Corp. (a) 56,000 1,617,000
2,828,775
COMPUTER SERVICES & SOFTWARE - 0.6%
Adobe Systems, Inc. 11,600 416,150
America Online, Inc. 12,300 538,125
Automatic Data Processing, Inc. 143,400 5,538,825
Electronic Data Systems Corp. 25,600 1,376,000
Metromail Corp. (a) 18,800 420,650
Microsoft Corp. (a) 24,700 2,967,088
Oracle Corp. (a) 117,500 4,633,906
Policy Management Systems Corp. (a) 78,400 3,920,000
19,810,744
COMPUTERS & OFFICE EQUIPMENT - 2.9%
Compaq Computer Corp. (a) 1,075,300 52,958,525
Hewlett-Packard Co. 66,400 6,615,100
International Business Machines Corp. 366,500 36,283,500
SCI Systems, Inc. (a) 6,800 276,250
Seagate Technology 31,300 1,408,500
Tech Data Corp. (a) 14,900 324,075
97,865,950
ELECTRONICS - 0.7%
Intel Corp. 121,300 8,907,969
Methode Electronics, Inc. Class A 5,400 91,800
Molex, Inc. 56,000 1,645,000
Solectron Corp. (a) 377,700 14,305,388
24,950,157
PHOTOGRAPHIC EQUIPMENT - 1.2%
Fuji Photo Film Co. Ltd. 1,311,000 41,347,797
TOTAL TECHNOLOGY 186,803,423
TRANSPORTATION - 0.6%
AIR TRANSPORTATION - 0.0%
Southwest Airlines Co. 9,800 285,425
RAILROADS - 0.5%
Bombardier, Inc. Class B 117,000 1,754,721
Burlington Northern Santa Fe Corp. 162,100 13,109,838
CSX Corp. 200 9,650
14,874,209
SHIPPING - 0.1%
Overseas Shipholding Group, Inc. 16,200 293,625
Sembawang Maritime Ltd. 651,000 1,761,828
Stolt-Nielsen SA 25,100 454,938
Stolt-Nielsen SA Class B sponsored ADR 80,900 1,506,763
Storli AS Class B (non-vtg.) 9,600 182,970
4,200,124
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TRANSPORTATION - CONTINUED
TRUCKING & FREIGHT - 0.0%
Caliber System, Inc. 15,300 $ 520,200
Consolidated Freightways, Inc. 27,700 585,163
1,105,363
TOTAL TRANSPORTATION 20,465,121
UTILITIES - 3.9%
CELLULAR - 1.6%
AirTouch Communications, Inc. (a) 317,100 8,958,075
Vodafone Group PLC sponsored ADR 828,900 30,565,688
Vodafone Group PLC 4,726,000 17,570,693
57,094,456
TELEPHONE SERVICES - 2.3%
Ameritech Corp. 53,500 3,176,563
Bell Atlantic Corp. 140,800 8,976,000
BellSouth Corp. 299,400 12,687,075
NYNEX Corp. 244,300 11,604,250
SBC Communications, Inc. 346,900 17,084,825
Telebras PN:
(Pfd. Reg.) 58,793,000 4,104,357
sponsored ADR 227,600 15,846,650
Telesp PN (Pfd. Reg.) 19,563,700 4,188,811
77,668,531
TOTAL UTILITIES 134,762,987
TOTAL COMMON STOCKS
(Cost $1,776,445,123) 1,889,021,331
PREFERRED STOCKS - 0.3%
CONVERTIBLE PREFERRED STOCKS - 0.0%
RETAIL & WHOLESALE - 0.0%
GROCERY STORES - 0.0%
Supermarkets General Holdings Corp.
exchangeable pay-in-kind $3.52 20,000 520,000
NONCONVERTIBLE PREFERRED STOCKS - 0.3%
ENERGY - 0.0%
OIL & GAS - 0.0%
Gulf Canada Resources Ltd.,
Series 1, adj. rate 178,000 554,802
MEDIA & LEISURE - 0.3%
BROADCASTING - 0.3%
Cablevision System Corp.
$11.125 pay-in-kind (c) 37,103 3,469,131
Time Warner, Inc., Series K
(exchangeable) 3,475 3,405,500
6,874,631
NONDURABLES - 0.0%
HOUSEHOLD PRODUCTS - 0.0%
Revlon Group, Inc., Series B,
exchangeable $14.875 5,100 510,000
SHARES VALUE (NOTE 1)
UTILITIES - 0.0%
TELEPHONE SERVICES - 0.0%
Intelecom Group USA, Inc. (a) 970 $ 1,008,800
TOTAL NONCONVERTIBLE PREFERRED STOCKS 8,948,233
TOTAL PREFERRED STOCKS
(Cost $9,500,180) 9,468,233
CORPORATE BONDS - 9.5%
MOODY'S PRINCIPAL
RATINGS (B) AMOUNT
CONVERTIBLE BONDS - 0.7%
FINANCE - 0.2%
CREDIT & OTHER FINANCE - 0.2%
Cre Fin (Caymen Islands) Ltd. 3%,
11/24/05 (c) - $ 5,000,000 7,087,500
RETAIL & WHOLESALE - 0.5%
DRUG STORES - 0.5%
Rite Aid Corp. liquid yield
option notes 0%, 7/24/06 Baa1 30,020,000 15,798,025
TECHNOLOGY - 0.0%
ELECTRONICS - 0.0%
United Microelectronics Corp.
euro 1 1/4%, 6/8/04 - 227,000 288,858
TOTAL CONVERTIBLE BONDS 23,174,383
NONCONVERTIBLE BONDS - 8.8%
AEROSPACE & DEFENSE - 0.3%
Be Aerospace, Inc.
9 7/8%, 2/1/06 B2 270,000 265,275
Lockheed Martin Corp. :
7 1/4%, 5/15/06 A3 4,000,000 3,992,320
7.70%, 6/15/08 A3 2,750,000 2,799,693
7 3/4%, 5/1/26 A3 3,000,000 2,990,520
Moog, Inc. 10%,
5/1/06 (c) B2 1,000,000 1,005,000
11,052,808
BASIC INDUSTRIES - 0.2%
CHEMICALS & PLASTICS - 0.1%
Acetex Corp. yankee
9 3/4%, 10/1/03 B1 2,140,000 2,091,850
NL Industries, Inc.
0%, 10/15/05 (e) B2 670,000 521,763
2,613,613
PACKAGING & CONTAINERS - 0.1%
Owens Illinois, Inc.
9.95%, 10/15/04 B2 3,000,000 3,045,000
TOTAL BASIC INDUSTRIES 5,658,613
CONSTRUCTION & REAL ESTATE - 0.6%
BUILDING MATERIALS - 0.1%
Building Materials Corp.
of America 0%, 7/1/04 (e) B1 2,770,000 2,063,650
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
CONSTRUCTION & REAL ESTATE - CONTINUED
CONSTRUCTION - 0.1%
Greystone Homes, Inc.
10 3/4%, 3/1/04 B1 $ 1,800,000 $ 1,764,000
REAL ESTATE - 0.4%
Henderson Capital International
Ltd. euro 4%, 10/27/96 - 18,770,000 15,672,950
TOTAL CONSTRUCTION & REAL ESTATE 19,500,600
DURABLES - 0.3%
AUTOS, TIRES, & ACCESSORIES - 0.2%
APS, Inc. 11 7/8%,
1/15/06 (c) B2 320,000 335,200
Aftermarket Technology Corp.
Series B, 12%, 8/1/04 B3 1,110,000 1,198,800
Collins & Aikman Products Co.
11 1/2%, 4/15/06 B3 2,720,000 2,767,600
Harvard Industries, Inc.
11 1/8%, 8/1/05 B3 500,000 470,000
Hayes Wheels International, Inc.
11%, 7/15/06 B3 280,000 283,500
Lear Seating Corp.
8 1/4%, 2/1/02 B2 960,000 912,000
5,967,100
CONSUMER ELECTRONICS - 0.0%
Tag Heuer International
SA yankee 12%,
12/15/05 (c) B3 1,220,000 1,271,850
HOME FURNISHINGS - 0.0%
Interlake Corp.
12 1/8%, 3/1/02 B3 770,000 770,000
Knoll, Inc.
10 7/8%, 3/15/06 B3 920,000 938,400
1,708,400
TEXTILES & APPAREL - 0.1%
CMI Industries, Inc.
9 1/2%, 10/1/03 B1 600,000 517,500
Hat Brands, Inc., Series B,
12 5/8%, 9/15/02 (d) - 380,000 285,000
Reeves Industries, Inc.
11%, 7/15/02 B2 2,270,000 1,974,900
2,777,400
TOTAL DURABLES 11,724,750
ENERGY - 0.7%
OIL & GAS - 0.7%
Apache Corp.
7.95%, 4/15/26 Baa3 5,190,000 5,144,639
Clark USA, Inc., Series B,
10 7/8%, 12/1/05 B2 880,000 902,000
Diamond Shamrock, Inc.
7.65%, 7/1/26 Baa3 2,000,000 2,033,960
Mesa Operating Co.
10 5/8%, 7/1/06 B2 130,000 132,600
Norcen Energy Resources Ltd.
yankee 7 3/8%, 5/15/06 Baa3 2,200,000 2,175,800
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
Occidental Petroleum Corp. :
10.94%, 5/17/00 Baa3 $ 2,700,000 $ 3,066,228
6.39%, 11/9/00 Baa3 1,000,000 979,880
8 1/2%, 11/9/01 Baa3 1,251,000 1,331,639
Petro-Canada, Inc. yankee
7 7/8%, 6/15/26 Baa1 3,000,000 3,033,960
Tosco Corp.
7 5/8%, 5/15/06 Ba1 3,500,000 3,489,220
USX Corp. 8 1/2%, 3/1/23 Baa3 1,020,000 1,043,134
23,333,060
FINANCE - 3.2%
ASSET-BACKED SECURITIES - 0.6%
Airplanes 10 7/8%, 3/15/19 Ba2 5,850,000 6,113,250
Caterpillar Financial Asset Trust
6.55%, 5/22/02 A3 880,000 876,014
Green Tree Financial Corp.:
6 1/2%, 6/15/27 Aaa 1,800,000 1,792,116
6.80%, 6/15/27 Aaa 1,900,000 1,892,267
Premier Auto Trust:
8.05%, 4/4/00 Aaa 6,804,000 6,982,605
6%, 5/6/00 Aaa 2,320,000 2,306,219
19,962,471
BANKS - 0.9%
Banponce Financial Corp.
7.72%, 4/13/00 Baa1 2,000,000 2,041,960
Capital One Bank
8 1/8%, 2/27/98 Baa3 1,035,000 1,058,101
Central Fidelity Banks, Inc.
8.15%, 11/15/02 Baa2 100,000 104,637
Chase Manhattan Corp.
6 1/4%, 1/15/06 A2 7,000,000 6,457,010
Den Danske Bank Group
AS yankee 7 1/4%,
6/15/05 (c) A2 2,600,000 2,571,296
Keycorp 7 1/2%, 6/15/06 A2 6,300,000 6,345,108
Korea Development Bank
yankee 7 1/4%, 5/15/06 A1 5,000,000 4,925,150
Midland Bank PLC yankee
7 5/8%, 6/15/06 A1 3,000,000 3,039,420
Signet Banking Corp.
9 5/8%, 6/1/99 Baa2 790,000 845,024
Southern National Corp.
7.05%, 5/23/03 A3 5,000,000 4,974,950
32,362,656
CREDIT & OTHER FINANCE - 1.4%
Finova Capital Corp.:
6.44%, 11/6/01 Baa1 5,500,000 5,365,910
6.12%, 5/28/02 Baa1 2,000,000 1,908,540
Ford Motor Credit:
5.73%, 2/23/00 A1 3,250,000 3,145,025
6.65%, 5/22/00 A1 9,000,000 8,962,110
5.68%, 2/15/01 A1 5,000,000 4,761,250
6.57%, 3/19/01 A1 700,000 690,235
General Motors Acceptance Corp.:
6.65%, 5/24/00 A3 10,000,000 9,957,400
5 5/8%, 2/1/99 A3 5,000,000 4,879,650
HMC Acquisition Properties, Inc.
Series B, 9%, 12/15/07 Ba3 4,730,000 4,327,950
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
Homeside, Inc. 11 1/4%,
5/15/03 (c) B+ $ 650,000 $ 669,500
Repsol International Finance BV
yankee 7%, 8/1/05 Aa3 3,000,000 2,958,720
47,626,290
INSURANCE - 0.1%
Reliance Group
9 3/4%, 11/15/03 B1 2,440,000 2,409,500
SAVINGS & LOANS - 0.2%
First Nationwide Parent Holdings
Ltd. 12 1/2%, 4/15/03 B2 4,470,000 4,659,975
Great Western Financial Corp.
8.60%, 2/1/02 Baa1 2,000,000 2,133,060
6,793,035
TOTAL FINANCE 109,153,952
HEALTH - 0.2%
MEDICAL FACILITIES MANAGEMENT - 0.2%
Tenet Healthcare Corp.
10 1/8%, 3/1/05 Ba3 4,700,000 4,970,250
INDUSTRIAL MACHINERY & EQUIPMENT - 0.2%
INDUSTRIAL MACHINERY & EQUIPMENT - 0.2%
Exide Corp.:
10 3/4%, 12/15/02 B1 705,000 719,100
10%, 4/15/05 B1 1,715,000 1,667,838
IMO Industries, Inc.
11 3/4%, 5/1/06 (c) B3 2,880,000 2,952,000
5,338,938
POLLUTION CONTROL - 0.0%
Envirosource, Inc.
9 3/4%, 6/15/03 B3 420,000 383,250
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 5,722,188
MEDIA & LEISURE - 1.2%
BROADCASTING - 0.8%
Bell Cablemedia PLC yankee
0%, 9/15/05 (e) B2 1,780,000 1,083,575
CAI Wireless system, Inc.
12 1/4%, 9/15/02 B3 320,000 334,400
CS Wireless Systems, Inc.
0%, 3/1/06 Unit (c)(e) - 210,000 432,600
Cablevision Systems Corp.
9 7/8%, 5/15/06 B2 1,100,000 1,058,750
Fundy Cable Ltd./LTEE yankee
11%, 11/15/05 B1 580,000 587,250
Granite Broadcasting Corp.:
10 3/8%, 5/15/05 B3 710,000 686,925
9 3/8%, 12/1/05 (c) B3 210,000 191,625
JCAC, Inc.
10 1/8%, 6/15/06 B2 130,000 128,700
Lenfest Communications, Inc.
10 1/2%, 6/15/06 (c) B2 1,450,000 1,457,250
NWCG Holdings Corp.
0%, 6/15/99 Caa 70,000 51,800
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
SCI Television, Inc. secured
11%, 6/30/05 B2 $ 4,850,000 $ 5,044,000
SFX Broadcasting, Inc.
10 3/4%, 5/15/06 (c) B3 3,100,000 3,084,500
Telemundo Group, Inc. 7%,
2/15/06 (f) B1 3,800,000 3,439,000
Telewest PLC 0%,
10/1/07 (e) B1 7,410,000 4,371,900
Time Warner, Inc.
7 3/4%, 6/15/05 Ba1 5,300,000 5,173,966
27,126,241
LODGING & GAMING - 0.2%
American Skiing Co.
12%, 7/15/06 (c) B3 1,770,000 1,734,600
Ballys Grand, Inc. 1st mtg.
10 3/8%, 12/15/03 B1 1,920,000 2,107,200
Casino Magic Financial Corp.
11 1/2%, 10/15/01 B1 390,000 401,700
Courtyard by Marriott II
LP/Courtyard II Finance Co.,
Series B, 10 3/4%, 2/1/08 B- 960,000 936,000
Horseshoe Gaming LLC,
Series A, 12 3/4%,
9/30/00 B1 430,000 462,250
Wyndham Hotel Corp.
10 1/2%, 5/15/06 B2 330,000 328,350
5,970,100
PUBLISHING - 0.0%
Golden Books Publishing, Inc.
7.65%, 9/15/02 B1 490,000 414,050
RESTAURANTS - 0.2%
Foodmaker, Inc.
9 3/4%, 6/1/02 B3 2,180,000 2,081,900
Host Marriott Travel Plazas, Inc.,
Series B, 9 1/2%, 5/15/05 B1 5,280,000 5,035,800
7,117,700
TOTAL MEDIA & LEISURE 40,628,091
NONDURABLES - 0.5%
FOODS - 0.4%
Chiquita Brands International, Inc.
9 5/8%, 1/15/04 B1 4,350,000 4,273,875
Foodbrands of America, Inc.
10 3/4%, 5/15/06 B3 1,150,000 1,150,000
Nabisco, Inc.
6.85%, 6/15/05 Baa2 3,000,000 2,867,220
Ralcorp Holdings, Inc.
8 3/4%, 9/15/04 Ba1 420,000 428,232
Specialty Foods Corp., Series B:
11 1/8%, 10/1/02 B3 3,200,000 3,056,000
11 1/4%, 8/15/03 Caa 1,020,000 884,850
12,660,177
HOUSEHOLD PRODUCTS - 0.1%
Revlon Consumer Products Corp.
10 1/2%, 2/15/03 B3 1,800,000 1,818,000
Revlon Worldwide Corp. secured
0%, 3/15/98 B3 1,890,000 1,573,425
3,391,425
TOTAL NONDURABLES 16,051,602
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - 0.3%
APPAREL STORES - 0.0%
Lamonts Apparel, Inc.
10 1/4%, 11/1/99
pay-in-kind (c)(d) - $ 2,816,000 $ 126,720
Loehmann's, Inc.
11 7/8%, 5/15/03 B2 1,030,000 1,060,900
1,187,620
GENERAL MERCHANDISE STORES - 0.1%
K Mart Corp.
12 1/2%, 3/01/05 Ba3 1,150,000 1,253,500
GROCERY STORES - 0.2%
Pathmark Stores, Inc.:
12 5/8%, 6/15/02 B3 1,720,000 1,732,900
9 5/8%, 5/1/03 B2 2,030,000 1,905,663
0%, 11/1/03 (e) B3 1,780,000 1,079,125
Ralph's Grocery Co.
10.45%, 6/15/04 B1 3,270,000 3,131,025
7,848,713
RETAIL & WHOLESALE, MISCELLANEOUS - 0.0%
Brylane LP, Series B
10%, 9/1/03 B2 290,000 278,400
TOTAL RETAIL & WHOLESALE 10,568,233
SERVICES - 0.0%
PRINTING - 0.0%
Sullivan Graphics, Inc.
12 3/4%, 8/1/05 Caa 1,500,000 1,449,375
TECHNOLOGY - 0.3%
COMMUNICATIONS EQUIPMENT - 0.1%
Echostar Communications Corp.
0%, 6/1/04 (e) B2 4,030,000 2,941,900
COMPUTERS & OFFICE EQUIPMENT - 0.2%
Bell & Howell Co., Series B,
0%, 3/1/05 (e) B3 2,050,000 1,404,250
Comdisco, Inc.
5 3/4%, 2/15/01 Baa2 4,000,000 3,818,960
Unisys Corp.
12%, 4/15/03 (c) B1 3,000,000 3,060,000
8,283,210
TOTAL TECHNOLOGY 11,225,110
TRANSPORTATION - 0.3%
AIR TRANSPORTATION - 0.2%
Delta Air Lines, Inc.:
9 7/8%, 5/15/00 Baa3 1,500,000 1,638,885
10 1/2%, 4/30/16 Baa1 2,500,000 2,970,300
US Air, Inc.:
9 5/8%, 2/1/01 B3 2,180,000 2,043,750
10%, 7/1/03 B3 2,200,000 2,057,000
8,709,935
RAILROADS - 0.1%
Burlington Northern Santa Fe
Corp. 7.29%, 6/1/36 Baa2 3,000,000 2,993,640
TOTAL TRANSPORTATION 11,703,575
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
UTILITIES - 0.5%
CELLULAR - 0.3%
Arch Communications Group, Inc.
0%, 3/15/08 (e) B3 $ 1,590,000 $ 818,850
Intercel, Inc. 0%, 5/1/06 (e) B2 2,690,000 1,466,050
International Cabletel, Inc.,
Series B, 0%, 2/1/06 (e) B3 1,580,000 888,750
Nextel Communications, Inc.
0%, 8/15/04 (e) B3 1,250,000 734,375
Paging Network, Inc.:
8 7/8%, 2/1/06 B2 110,000 100,100
10 1/8%, 8/1/07 B2 120,000 118,200
Rogers Cantel, Inc.
9 3/8%, 6/1/08 Ba3 2,900,000 2,805,750
360 Degrees Communications
Co. 7 1/2%, 3/1/06 Ba2 1,500,000 1,423,170
Western Wireless Corp.
10 1/2%, 6/1/06 B3 1,000,000 997,500
9,352,745
ELECTRIC UTILITY - 0.1%
El Paso Electric Co., Series E,
9.40%, 5/1/11 1st Mtg. Ba3 1,900,000 1,885,750
Hydro-Quebec
8.40%, 1/15/22 A2 1,800,000 1,896,084
3,781,834
TELEPHONE SERVICES - 0.1%
Brooks Fiber Properties, Inc.
10 7/8%, 3/1/06 (c) - 500,000 263,750
Call-Net Enterprises, Inc.
yankee 0%, 12/1/04 (e) B2 3,360,000 2,469,600
MFS Communications, Inc.
0%, 1/15/06 (e) B1 3,110,000 1,889,325
Shared Technologies Fairchild
Corp. 0%, 3/1/06 (c)(e) Caa 980,000 739,900
5,362,575
TOTAL UTILITIES 18,497,154
TOTAL NONCONVERTIBLE BONDS 301,239,361
TOTAL CORPORATE BONDS
(Cost $327,572,613) 324,413,744
U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS - 23.9%
U.S. TREASURY OBLIGATIONS - 22.2%
6.125%, 3/31/98 Aaa 234,965,000 235,148,273
7 3/4%, 12/31/99 Aaa 59,535,000 62,027,730
5 1/2%, 12/31/00 Aaa 51,080,000 49,228,350
7 7/8%, 8/15/01 Aaa 88,430,000 93,680,089
6 1/4%, 2/15/03 Aaa 21,560,000 21,179,250
11 7/8%, 11/15/03 Aaa 49,640,000 64,562,777
11 3/4%, 2/15/10 Aaa 70,770,000 93,250,798
13 7/8%, 5/15/11 Aaa 25,650,000 38,442,938
9%, 11/15/18 Aaa 76,290,000 92,978,438
8 7/8%, 2/15/19 Aaa 9,000,000 10,849,230
TOTAL U.S. TREASURY OBLIGATIONS 761,347,873
U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - 1.7%
Federal Agricultural Mortgage Corp.
7.63%, 1/16/01 Aaa $ 3,321,000 $ 3,451,748
Federal Farm Credit Bank:
8.16%, 12/7/04 Aaa 5,000,000 5,366,300
9.55%, 5/9/05 Aaa 2,500,000 2,911,500
Federal Home Loan Bank:
5.695%, 12/19/00 Aaa 4,000,000 3,857,480
7.28%, 7/25/01 Aaa 2,300,000 2,354,993
7.31%, 6/16/04 Aaa 2,470,000 2,528,663
8.22%, 11/17/04 Aaa 4,000,000 4,307,240
7.59%, 3/10/05 Aaa 3,850,000 4,007,003
6.75%, 8/1/05 Aaa 2,500,000 2,456,650
Guaranteed Export Trust Certificates
(assets of Trust guaranteed by
U.S. Government through
Export-Import Bank) Series
1996-A, 6.55%, 6/15/04 Aaa 3,162,354 3,138,605
Private Export Funding Corp.
7.03%, 10/31/03 Aaa 7,810,000 7,898,878
U.S. Housing & Urban Development:
6.67%, 8/1/01 Aaa 9,400,000 9,385,242
8.24%, 8/1/04
participation certificate Aaa 2,450,000 2,630,443
7.63%, 8/1/14 Aaa 2,825,000 2,816,808
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 57,111,553
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $829,026,007) 818,459,426
U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES - 6.8%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 1.2%
5 1/2%, 1/1/03 to 6/1/03 Aaa 4,241,998 4,002,028
7%, 2/1/97 to 6/1/01 Aaa 1,110,000 1,114,507
8 1/2%, 7/1/21 to 6/1/26 Aaa 34,838,309 35,777,181
40,893,716
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 4.3%
5 1/2%, 2/1/03 to 5/1/03 Aaa 4,241,997 3,999,398
6%, 10/1/02 to 6/1/26 Aaa 65,894,674 61,534,009
6%, 4/1/11 (g) Aaa 163,275 154,396
6 1/2%, 12/1/25 to 6/1/26 Aaa 70,119,463 65,583,434
7%, 5/1/26 Aaa 14,838,476 14,272,685
145,543,922
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 1.3%
6%, 12/15/09 to 5/15/26 Aaa 11,813,980 11,270,783
6 1/2%, 6/15/08 to 7/15/09 Aaa 22,880,033 22,287,899
8%, 7/15/26 Aaa 12,000,000 12,097,500
8 1/2%, 12/15/96 Aaa 141,337 146,764
45,802,946
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $232,674,016) 232,240,584
COMMERCIAL MORTGAGE SECURITIES - 0.7%
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
American Southwest Financial
Securities commercial Series
1994-C2 Class B2, 13.3419%,
12/25/01 (c) - $ 500,000 $ 472,500
DLJ Mortgage Acceptance
Corp. commercial
Series 1993-MF12 Class B-2,
10.10%, 9/18/03 - 600,000 540,750
Equitable Life Assurance Society
of the United States (c):
commercial Series 1996-1:
Class B-1, 7.33%,
5/15/06 Aa2 3,500,000 3,473,750
Class C-1, 7.52%,
5/15/06 A2 2,300,000 2,282,750
sequential pay series 174
Class A1, 7.24%,
5/15/06 Aaa 5,000,000 4,962,500
FSB Trust Receipts commercial
Series 1994 Class 1-B,
7.89%, 12/1/24 - 2,900,000 1,938,469
Merrill Lynch Mortgage
Investments, Inc. commercial
Series 1994 Class M1-E,
8.0698%, 6/25/22 (c)(f) Ba2 5,670,000 4,862,138
Morgan Stanley Capital One, Inc.
commercial Series 1996-MBL1:
Class E, 8.661%,
5/25/21 (c) - 1,966,807 1,687,766
Class F, 8.661%,
9/25/00 (c) - 1,040,000 872,300
Mortgage Capital Funding, Inc.
commercial Series 1996-MC1
Class G, 7.15%, 7/15/28 BB 1,000,000 746,251
Resolution Trust Corp. commercial
Series 1994-C1 Class E,
8%, 6/25/26 BB 3,213,001 2,743,100
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $24,751,290) 24,582,274
FOREIGN GOVERNMENT OBLIGATIONS - 0.2%
Mexico Value recovery rights (a) - 2,000 -
Ontario Province Canada
6%, 2/21/06
(Cost $5,209,634) Aa3 5,660,000 5,183,824
REPURCHASE AGREEMENTS - 3.4%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.46%, dated
6/28/96 due 7/1/96 $ 117,051,234 116,998,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $3,322,176,863) $ 3,420,367,416
LEGEND
(a) Non-income producing
(b) Standard & Poor's Corporation credit ratings are used in the absence of
a rating by Moody's Investors Service, Inc.
(c) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $49,066,126 or 1.4% of net
assets.
(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.
(f) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(g) Security purchased on a delayed delivery basis (see Note 2 of Notes to
Financial Statements).
(h) A company in which the fund has ownership of at least 5% of the voting
securities is an affiliated company. A summary of the transactions during
the period in which the issuers were affiliates is as follows:
PURCHASE SALES DIVIDEND MARKET
AFFILIATE COST COST INCOME VALUE
Barr Laboratories, Inc. $ - $ 16,365,800 $ - $ -
Synetic, Inc. - 25,400,727 - -
WMS Industries, Inc. 344,890 26,915,132 - -
$ 344,890 $68,681,659 $ - $ -
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $4,046,506,721 and $3,584,128,952, respectively, of which U.S.
govern- ment and government agency obligations aggregated $648,703,297 and
$455,919,112, respectively.
The market value of futures contracts opened and closed during the period
amounted to $16,398,668 and $180,511,750, 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 $484,515 for the period
(see Note 4 of Notes to Financial Statements).
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 33.8% AAA, AA, A 32.9%
Baa 1.8% BBB 2.6%
Ba 1.1% BB 1.4%
B 3.3% B 2.4%
Caa 0.1% CCC 0.3%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by either S&P or Moody's amounted to 0.9%.
Distribution of investments by country of issue, as a percentage of total
value of investment in securities, is as follows:
United States 81.4%
Japan 10.0
United Kingdom 2.5
Netherland 1.9
Brazil 1.0
Others (individually less than 1%) 3.2
TOTAL 100.0%
INCOME TAX INFORMATION
At June 30, 1996, the aggregate cost of investment securities for income
tax purposes was $3,322,796,676. Net unrealized appreciation aggregated
$97,570,740, of which $158,860,567 related to appreciated investment
securities and $61,289,827 related to depreciated investment securities.
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
ASSETS
Investm $ 3,420,367,416
ent in
securit
ies, at
value
(includ
ing
repurc
hase
agree
ments
of
$116,9
98,000
) (cost
$3,322
,176,8
63) -
See
accom
panyin
g
sched
ule
Cash 343,670
Receiva 37,306,301
ble for
invest
ments
sold
Receiva 1,349,918
ble for
fund
shares
sold
Dividend 5,145,457
s
receiv
able
Interest 22,386,856
receiv
able
TOTAL 3,486,899,618
ASSETS
LIABILITI
ES
Payable $ 65,166,641
for
invest
ments
purcha
sed
Regula
r
deliver
y
Delaye 154,042
d
deliver
y
Payable 1,192,085
for
fund
shares
redee
med
Accrued 1,995,560
manag
ement
fee
Other 354,832
payabl
es and
accrue
d
expen
ses
TOTAL 68,863,160
LIABILIT
IES
NET $ 3,418,036,458
ASSET
S
Net
Assets
consist
of:
Paid in $ 3,027,860,052
capital
Undistrib 52,331,859
uted
net
invest
ment
incom
e
Accumul 239,697,920
ated
undistr
ibuted
net
realize
d gain
(loss)
on
invest
ments
and
foreign
curren
cy
transa
ctions
Net 98,146,627
unreali
zed
apprec
iation
(depre
ciation
) on
invest
ments
and
assets
and
liabiliti
es in
foreign
curren
cies
NET $ 3,418,036,458
ASSET
S, for
218,72
6,062
shares
outsta
nding
NET $15.63
ASSET
VALUE,
offerin
g price
and
redem
ption
price
per
share
($3,41
8,036,
458 (divided by)
218,72
6,062
shares
)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
INVESTM $ 17,308,134
ENT
INCOME
Dividend
s
Interest 51,408,320
TOTAL 68,716,454
INCOM
E
EXPENS
ES
Manage $ 11,935,509
ment
fee
Transfer 934,747
agent
fees
Accounti 348,841
ng
fees
and
expen
ses
Non-inte 1,166
rested
trustee
s'
compe
nsatio
n
Custodia 307,716
n fees
and
expen
ses
Registrat 8,080
ion
fees
Legal 7,587
Miscella 21,431
neous
Total 13,565,077
expen
ses
before
reducti
ons
Expen (370,594 13,194,483
se )
reducti
ons
NET 55,521,971
INVEST
MENT
INCOM
E
REALIZE
D AND
UNREALIZ
ED GAIN
(LOSS)
Net
realize
d gain
(loss)
on:
Invest 230,606,117
ment
securit
ies
(includ
ing
reali
zed
gain of
$20,25
4,123
on
sales
of
invest
ments
in
affili
ated
issuer
s)
Foreig 7,214,369
n
curren
cy
transa
ctions
Future 13,494,578 251,315,064
s
contra
cts
Change
in net
unreali
zed
apprec
iation
(depre
ciation
) on:
Invest (102,043,173
ment )
securit
ies
Assets (6,984,852
and )
liabiliti
es in
forei
gn
curren
cies
Future (8,457,295 (117,485,320
s ) )
contra
cts
NET GAIN 133,829,744
(LOSS)
NET $ 189,351,715
INCREA
SE
(DECRE
ASE) IN
NET
ASSETS
RESULTI
NG
FROM
OPERAT
IONS
OTHER $ 367,255
INFORM
ATION
Expen
se
reducti
ons
Direc
ted
broker
age
arrang
ements
Cust 3,339
odian
interest
credits
$ 370,594
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1996 1995
(UNAUDITED)
Operatio $ 55,521,971 $ 114,776,593
ns
Net
invest
ment
incom
e
Net 251,315,064 108,752,522
realize
d gain
(loss)
Chang (117,485,320) 284,744,744
e in
net
unreali
zed
apprec
iation
(depre
ciation
)
NET 189,351,715 508,273,859
INCR
EASE
(DEC
REAS
E) IN
NET
ASSE
TS
RESU
LTING
FROM
OPER
ATIO
NS
Distributi (119,397,539) (67,894,650)
ons to
shareh
olders
From
net
invest
ment
incom
e
From (98,450,602) -
net
realize
d gain
TOTAL (217,848,141) (67,894,650)
DISTRIB
UTIONS
Share 136,278,278 239,926,948
transa
ctions
Net
procee
ds
from
sales
of
shares
Reinve 217,848,141 67,894,650
stment
of
distrib
utions
Cost (240,437,844) (705,883,879)
of
shares
redee
med
NET 113,688,575 (398,062,281)
INCR
EASE
(DEC
REAS
E) IN
NET
ASSE
TS
RESU
LTING
FROM
SHAR
E
TRAN
SACTI
ONS
TOTAL 85,192,149 42,316,928
INCREA
SE
(DECRE
ASE) IN
NET
ASSETS
NET
ASSETS
Beginn 3,332,844,309 3,290,527,381
ing of
period
End of $ 3,418,036,458 $ 3,332,844,309
perio
d
(incl
udin
g
undi
strib
uted
net
inve
stme
nt
inco
me
of
$52,
331,
859
and
$105
,158,
635,
resp
ectiv
ely)
OTHER
INFORMAT
ION
Shares
Sold 8,852,245 16,731,500
Issued 14,427,030 5,014,376
in
reinve
stment
of
distrib
utions
Redee (15,599,060) (49,259,550)
med
Net 7,680,215 (27,513,674)
increa
se
(decre
ase)
<TABLE>
<CAPTION>
<S> <C> <C>
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED YEARS ENDED DECEMBER 31,
JUNE 30, 1996
SELECTED PER-SHARE DATA (UNAUDITED) 1995 1994 1993 D 1992 1991
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Net $ 15.79 $ 13.79 $ 15.42 $ 13.32 $ 12.55 $ 10.24
asset
value,
beginn
ing of
period
Income
from
Invest
ment
Operat
ions
Net .31 .30 .45 .33 .32 .35
invest
ment
incom
e
Net .57 1.99 (1.33) 2.39 1.09 1.96
realize
d and
unreali
zed
gain
(loss)
Total .88 2.29 (.88) 2.72 1.41 2.31
from
invest
ment
operati
ons
Less (.57) (.29) (.29) (.33) (.31) -
Distrib
utions
From
net
invest
ment
incom
e
In - - - (.04) - -
excess
of net
invest
ment
incom
e
From (.47) - (.46) (.25) (.33) -
net
realize
d gain
Total (1.04) (.29) (.75) (.62) (.64) -
distrib
utions
Net $ 15.63 $ 15.79 $ 13.79 $ 15.42 $ 13.32 $ 12.55
asset
value,
end of
period
TOTAL 5.80% 16.96% (6.09)% 21.23% 11.71% 22.56%
RETUR
N B, C
RATIOS
AND
SUPPL
EMENT
AL
DATA
Net $ 3,418,036 $ 3,332,844 $ 3,290,527 $ 2,422,692 $ 731,724 $ 193,518
assets
, end
of
period
(000
omitte
d)
Ratio of .81% A .81% .81% .88% .91% 1.08%
expen
ses to
averag
e net
assets
Ratio of .79% A, .79% .80% .88% .91% 1.08%
expen E E E
ses to
averag
e net
assets
after
expen
se
reducti
ons
Ratio of 3.31% A 3.54% 4.07% 3.64% 4.89% 5.89%
net
invest
ment
incom
e to
averag
e net
assets
Portfolio 256% A 256% 85% 113% 92% 110%
turnov
er rate
Average $ .0189
commi
ssion
rate F
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
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 THOSE CHARGES WOULD
REDUCE THE TOTAL RETURNS SHOWN.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE
PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
D EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION
93-2, "DETERMINATION,
DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME, CAPITAL
GAIN, AND RETURN OF CAPITAL
DISTRIBUTIONS BY INVESTMENT COMPANIES." AS A RESULT, NET INVESTMENT
INCOME PER SHARE MAY REFLECT
CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR
REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
F FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND
IS REQUIRED TO DISCLOSE ITS AVERAGE
COMMISSION RATE PER SHARE FOR SECURITY TRADES ON WHICH COMMISSIONS
ARE CHARGED. THIS AMOUNT
MAY VARY FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE
MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES
MAY DIFFER.
</TABLE>
VARIABLE INSURANCE PRODUCTS FUND II: INDEX 500 PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance: total
percentage change in value, the average annual percentage change, or the
growth of a hypothetical $10,000 investment. A fund's total return includes
changes in a fund's share price, plus reinvestment of any dividends
(income) and capital gains (the profits the fund earns when it sells
securities that have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1996 PAST 1 LIFE OF
YEAR FUND
INDEX 500 25.88% 16.19%
S&P 500 26.00% 16.49%
AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and
show you what would have happened if the fund had performed at a constant
rate each year.
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 growth in the long run and volatility
in the short run. 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.
(checkmark)
You can compare the fund's returns to the performance of the Standard &
Poor's 500 Index - a widely recognized, unmanaged index of common stocks.
The S&P 500 returns reflect reinvestment of all dividends paid by stocks
included in the Index, but do not reflect any brokerage commissions or
other fees you might pay if you actually invested in those stocks.
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.
If Fidelity had not reimbursed certain fund expenses, the past one year and
life of fund return figures would have been lower.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, 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.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19960630 19960716 105341 S00000000000001
VIP II: Index 500 SP Standard & Poor 500
00157 SP001
1992/08/27 10000.00 10000.00
1992/08/31 10014.00 10018.36
1992/09/30 10130.00 10136.58
1992/10/31 10152.00 10172.06
1992/11/30 10498.00 10518.92
1992/12/31 10630.67 10648.31
1993/01/31 10707.47 10737.75
1993/02/28 10856.70 10883.79
1993/03/31 11095.84 11113.43
1993/04/30 10822.25 10844.49
1993/05/31 11103.95 11135.12
1993/06/30 11132.32 11167.41
1993/07/31 11081.66 11122.74
1993/08/31 11501.17 11544.30
1993/09/30 11407.95 11455.40
1993/10/31 11641.01 11692.53
1993/11/30 11527.52 11581.45
1993/12/31 11666.06 11721.59
1994/01/31 12059.53 12120.12
1994/02/28 11732.95 11791.67
1994/03/31 11223.46 11277.55
1994/04/30 11357.65 11421.90
1994/05/31 11533.77 11609.22
1994/06/30 11252.82 11324.80
1994/07/31 11623.93 11696.25
1994/08/31 12087.29 12175.80
1994/09/30 11793.76 11877.49
1994/10/31 12055.84 12144.73
1994/11/30 11617.64 11702.42
1994/12/31 11787.47 11875.97
1995/01/31 12099.87 12183.91
1995/02/28 12563.64 12658.72
1995/03/31 12931.02 13032.28
1995/04/30 13311.22 13416.08
1995/05/31 13834.52 13952.32
1995/06/30 14148.51 14276.43
1995/07/31 14620.55 14749.84
1995/08/31 14656.86 14786.86
1995/09/30 15269.88 15410.86
1995/10/31 15218.62 15355.85
1995/11/30 15880.76 16029.97
1995/12/31 16171.25 16338.71
1996/01/31 16724.46 16894.88
1996/02/29 16880.36 17051.49
1996/03/31 17054.17 17215.70
1996/04/30 17292.62 17469.46
1996/05/31 17733.85 17919.99
1996/06/28 17809.61 17988.27
IMATRL PRASUN SHR__CHT 19960630 19960716 105344 R00000000000050
Let's say hypothetically that $10,000 was invested in Index 500 Portfolio
on August 27, 1992, when the fund started. As the chart shows, by June 30,
1996, the value of the investment would have grown to $17,810 - a 78.10%
increase on the initial investment. For comparison, look at how the S&P 500
did over the period. With dividends and capital gains, if any, reinvested,
the same $10,000 investment would have grown to $17,988 - a 79.88%
increase.
INVESTMENT SUMMARY
TOP TEN STOCKS AS OF JUNE 30, 1996
% OF FUND'S
INVESTMENTS
General Electric Co. 2.7
Coca-Cola Co., (The) 2.3
Exxon Corp. 2.0
AT&T Corp. 1.8
Philip Morris Companies, Inc. 1.6
Royal Dutch Petroleum Co. ADR 1.5
Merck & Co., Inc. 1.5
Microsoft Corp. 1.3
Johnson & Johnson 1.2
Procter & Gamble Co. 1.2
TOP TEN MARKET SECTORS AS OF JUNE 30, 1996
% OF FUND'S
INVESTMENTS
Finance 12.7
Utilities 11.2
Nondurables 11.1
Technology 11.0
Health 9.9
Energy 8.4
Basic Industries 5.6
Industrial Machinery & Equipment 5.3
Retail & Wholesale 4.6
Media & Leisure 4.0
VARIABLE INSURANCE PRODUCTS FUND II: INDEX 500 PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
An interview with
Jennifer Farrelly,
Portfolio Manager of
Index 500 Portfolio
Q. HOW DID THE FUND PERFORM, JEN?
A. For the six months and 12 months ended June 30, 1996, the fund performed
in line with the Standard & Poor's 500 Index, which returned 10.10% for the
past six months and 26.00% for the past year. Of course, the fund's total
return is slightly lower than the index due to management expenses.
Q. WHAT'S THE MARKET BEEN LIKE IN THE PAST SIX MONTHS?
A. Price as well as trading volume records continued to be broken over the
past six months. The difference so far in 1996 compared to 1995 is higher
interest rates. While higher interest rates indicate a growing economy,
they also mean corporate borrowing costs will go up. Additionally, higher
interest rates make bonds look more attractive on a yield basis when
compared to stocks. Yet, despite rising rates, stocks continued to do
relatively well. This was due in part to strong corporate earnings in the
first quarter, a large amount of cash inflows into mutual funds and
widespread optimism about the market.
Q. MUCH HAS BEEN MADE IN THE FINANCIAL PRESS ABOUT THE MARKET'S SHIFT FROM
LARGE, MULTINATIONAL COMPANIES TO SMALLER COMPANIES. DID YOU FIND THIS TO
BE TRUE?
A. First of all, there are many large, well established companies - such as
Microsoft - that did very well. Also, many of the companies that
underperformed during the period were adversely affected by a strong
dollar. A strong dollar hurts the competitiveness of American exports as
prices for American goods would be higher relative to those of other
countries. Additionally, a company's reported profits are hurt by a strong
currency after the translation of overseas earnings back into dollars. In
the second quarter of 1996, many investors sought refuge in the large
"defensive" companies they shunned earlier in the period. This reversal was
due mainly to concerns over further interest rate increases and over future
earnings growth of smaller companies.
Q. WOULD THE FUTURE EARNINGS CONCERNS YOU JUST REFERRED TO PERTAIN TO THE
TECHNOLOGY SECTOR?
A. For the most part, yes. Stocks in two major areas of technology -
personal computers and semiconductors - were hurt during the period.
Analysts began to anticipate a drop-off in personal computer demand, and
semiconductor prices fell as a result of a worldwide supply glut. Both
events served to cloud the earnings outlook for both types of companies.
Q. DID RISING INTEREST RATES HURT ALL FINANCIAL STOCKS?
A. Although some interest-rate-sensitive stocks - such as Fannie Mae - lost
ground when interest rates rose in February, the financial sector did not
move downward in lockstep. For the most part, banks - such as Citicorp -
and brokerages - such as Merrill Lynch - continued to perform well because
of the strength of their underlying businesses and a large amount of
financial activity.
Q. WHAT DID THE PASSAGE OF THE NEW TELECOMMUNICATIONS LAW IN FEBRUARY 1996
MEAN FOR MANY S&P 500 COMPANIES?
A. The long-term effects are innumerable. The telecommunications law gave
the long-distance phone service, local phone service, broadcast and cable
industries the regulatory freedom necessary to blur the traditional lines
of their respective businesses through mergers and acquisitions. Most
recently, industry observers credited the telecom law with creating the
easier regulatory environment that resulted in the announced merger between
Westinghouse Electric and radio juggernaut Infinity Broadcasting. Some
other merger announcements that highlighted the impact of the telecom law
included: SBC Communications and Pacific Telesis, U.S. West and Continental
Cablevision, and Bell Atlantic and NYNEX.
Q. WERE THERE ANY DISAPPOINTMENTS?
A. Stocks of economically sensitive companies underperformed in the second
quarter of 1996. This was because in that time period many investors began
to favor consumer goods companies that historically have been impervious to
economic cycles.
Q. WHAT'S YOUR OUTLOOK?
A. Market valuation measures are well beyond historic highs and investors
should not be surprised if the market encounters a healthy correction.
Investors, however, should always keep their long-term financial goals in
mind and not be swayed by short-term price fluctuations in the 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 AND
OTHER CONDITIONS.
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, 1996, more than $3.4 billion
MANAGER: Richard Habermann, since March
1996; joined Fidelity in 1968
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND II: INDEX 500 PORTFOLIO
INVESTMENTS JUNE 30, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 93.7%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 1.7%
AEROSPACE & DEFENSE - 1.4%
Boeing Co. 28,700 $ 2,500,433
Lockheed Martin Corp. 16,693 1,402,212
McDonnell Douglas Corp. 18,800 911,800
Northrop Grumman Corp. 4,800 327,000
Rockwell International Corp. 18,200 1,041,950
6,183,395
DEFENSE ELECTRONICS - 0.2%
Raytheon Co. 20,300 1,047,988
SHIP BUILDING & REPAIR - 0.1%
General Dynamics Corp. 5,200 322,400
TOTAL AEROSPACE & DEFENSE 7,553,783
BASIC INDUSTRIES - 5.6%
CHEMICALS & PLASTICS - 2.9%
Air Products & Chemicals, Inc. 9,400 542,850
Avery Dennison Corp. 4,500 246,938
Dow Chemical Co. 21,800 1,656,800
du Pont (E.I.) de Nemours & Co. 46,300 3,663,488
Eastman Chemical Co. 6,775 412,428
Engelhard Corp. 12,100 278,300
FMC Corp. (a) 3,000 195,750
Goodrich (B.F.) Company 4,300 160,713
Grace (W.R.) & Co. 8,200 581,175
Great Lakes Chemical Corp. 5,500 342,375
Hercules, Inc. 9,100 502,775
Monsanto Co. 48,600 1,579,500
Morton International, Inc. 12,200 454,450
Nalco Chemical Co. 5,700 179,550
PPG Industries, Inc. 16,200 789,750
Praxair, Inc. 12,500 528,125
Raychem Corp. 3,800 273,125
Rohm & Haas Co. 5,700 357,675
Union Carbide Corp. 11,400 453,150
13,198,917
IRON & STEEL - 0.2%
Armco, Inc. (a) 8,800 44,000
Bethlehem Steel Corp. (a) 9,300 110,438
Inland Steel Industries, Inc. 4,000 78,500
Nucor Corp. 7,400 374,625
USX-U.S. Steel Group 7,000 198,625
Worthington Industries, Inc. 7,650 159,694
965,882
METALS & MINING - 0.7%
ASARCO, Inc. 3,500 96,688
Alcan Aluminium Ltd. 18,757 571,562
Aluminum Co. of America 14,700 843,413
Cyprus Amax Minerals Co. 7,850 177,606
Freeport-McMoRan Copper &
Gold, Inc. Class B 16,800 535,500
Inco Ltd. 9,936 320,258
Phelps Dodge Corp. 5,700 355,538
Reynolds Metals Co. 5,400 281,475
3,182,040
PACKAGING & CONTAINERS - 0.4%
Ball Corp. 2,600 74,750
Bemis Co., Inc. 4,500 157,500
Corning, Inc. 19,200 736,800
SHARES VALUE (NOTE 1)
Crown Cork & Seal Co., Inc. 10,500 $ 472,500
Tupperware Corp. (a) 5,200 219,700
1,661,250
PAPER & FOREST PRODUCTS - 1.4%
Boise Cascade Corp. 4,100 150,163
Champion International Corp. 8,000 334,000
Georgia-Pacific Corp. 7,600 539,600
International Paper Co. 24,600 907,125
James River Corp. 7,000 184,625
Kimberly-Clark Corp. 23,216 1,793,436
Louisiana-Pacific Corp. 9,100 201,338
Mead Corp. 4,400 228,250
Potlatch Corp. 2,500 97,813
Stone Container Corp. 8,200 112,750
Temple-Inland, Inc. 4,600 215,050
Union Camp Corp. 5,800 282,750
Westvaco Corp. 8,350 249,456
Weyerhaeuser Co. 16,900 718,250
Willamette Industries, Inc. 4,700 279,650
6,294,256
TOTAL BASIC INDUSTRIES 25,302,345
CONGLOMERATES - 1.1%
Allied-Signal, Inc. 23,700 1,353,863
Crane Co. 2,600 106,600
Dial Corp. (The) 7,900 226,138
Harris Corp. 3,200 195,200
ITT Industries, Inc. 10,000 251,250
Teledyne, Inc. 4,600 166,175
Textron, Inc. 7,000 559,125
Tyco International Ltd. 12,800 521,600
United Technologies Corp. 10,100 1,161,500
Whitman Corp. 8,700 209,888
4,751,339
CONSTRUCTION & REAL ESTATE - 0.4%
BUILDING MATERIALS - 0.2%
Armstrong World Industries, Inc. 3,000 172,875
Masco Corp. 13,500 408,375
Owens-Corning (a) 4,200 180,600
Sherwin-Williams Co. 7,000 325,500
1,087,350
CONSTRUCTION - 0.0%
Centex Corp. 2,300 71,588
Kaufman & Broad Home Corp. 3,200 46,400
Pulte Corp. 2,300 61,525
179,513
ENGINEERING - 0.2%
EG & G, Inc. 4,100 87,638
Fluor Corp. 6,900 451,088
Foster Wheeler Corp. 3,400 152,575
691,301
TOTAL CONSTRUCTION & REAL ESTATE 1,958,164
DURABLES - 4.0%
AUTOS, TIRES, & ACCESSORIES - 2.6%
Chrysler Corp. 31,500 1,953,000
Cooper Tire & Rubber Co. 6,900 153,525
Cummins Engine Co., Inc. 3,400 137,275
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
DURABLES - CONTINUED
AUTOS, TIRES, & ACCESSORIES - CONTINUED
Dana Corp. 8,400 $ 260,400
Eaton Corp. 6,400 375,200
Echlin, Inc. 5,200 196,950
Ford Motor Co. 97,500 3,156,563
General Motors Corp. 62,478 3,272,285
Genuine Parts Co. 10,200 466,650
Goodyear Tire & Rubber Co. 12,800 617,600
Johnson Controls, Inc. 3,500 243,250
NACCO Industries, Inc. Class A 800 44,300
Navistar International Corp. (a) 6,070 59,941
PACCAR, Inc. 3,145 154,105
Pep Boys-Manny, Moe & Jack 5,100 173,400
Snap-on Tools Corp. 3,300 156,338
TRW, Inc. 5,400 485,325
11,906,107
CONSUMER DURABLES - 0.6%
Minnesota Mining & Manufacturing Co. 35,100 2,421,900
CONSUMER ELECTRONICS - 0.3%
Black & Decker Corp. 7,100 274,238
Maytag Co. 9,100 189,963
Newell Co. 13,300 407,313
Whirlpool Corp. 6,100 302,713
1,174,227
TEXTILES & APPAREL - 0.5%
Fruit of the Loom, Inc. Class A (a) 5,100 130,050
Liz Claiborne, Inc. 6,100 211,213
NIKE, Inc. Class B 11,900 1,222,725
Reebok International Ltd. 6,400 215,200
Russell Corp. 3,300 91,163
Springs Industries, Inc. Class A 1,600 80,800
Stride Rite Corp. 4,200 34,650
VF Corp. 5,400 321,975
2,307,776
TOTAL DURABLES 17,810,010
ENERGY - 8.4%
ENERGY SERVICES - 0.8%
Baker Hughes, Inc. 11,800 387,925
Dresser Industries, Inc. 15,100 445,450
Halliburton Co. 9,500 527,250
Helmerich & Payne, Inc. 2,000 73,250
McDermott International, Inc. 4,500 93,938
Rowan Companies, Inc. (a) 7,000 103,250
Schlumberger Ltd. 20,100 1,693,425
Western Atlas, Inc. (a) 3,700 215,525
3,540,013
OIL & GAS - 7.6%
Amerada Hess Corp. 7,700 412,913
Amoco Corp. 41,400 2,996,325
Ashland, Inc. 5,400 213,975
Atlantic Richfield Co. 13,500 1,599,750
Burlington Resources, Inc. 10,500 451,500
Chevron Corp. 54,500 3,215,500
Coastal Corp. (The) 8,700 363,225
Exxon Corp. 103,700 9,008,938
Kerr-McGee Corp. 4,400 267,850
Louisiana Land & Exploration Co. 2,700 155,588
Mobil Corp. 33,000 3,700,125
SHARES VALUE (NOTE 1)
Occidental Petroleum Corp. 26,500 $ 655,875
Oryx Energy Co. (a) 8,800 143,000
Pennzoil Co. 3,800 175,750
Phillips Petroleum Co. 21,800 912,875
Royal Dutch Petroleum Co. ADR 44,800 6,888,000
Santa Fe Energy Resources, Inc. (a) 7,600 90,250
Sun Co., Inc. 6,200 188,325
Texaco, Inc. 22,100 1,853,638
USX-Marathon Group 23,900 480,988
Unocal Corp. 20,555 693,731
34,468,121
TOTAL ENERGY 38,008,134
FINANCE - 12.7%
BANKS - 6.3%
Banc One Corp. 37,826 1,286,084
Bank of Boston Corp. 9,283 459,509
Bank of New York Co., Inc. 13,700 702,125
BankAmerica Corp. 30,800 2,333,100
Bankers Trust New York Corp. 6,500 480,188
Barnett Banks, Inc. 8,000 488,000
Boatmen's Bancshares, Inc. 13,200 529,650
Chase Manhattan Corp. 36,473 2,575,906
Citicorp 40,662 3,359,698
Comerica, Inc. 10,000 446,250
CoreStates Financial Corp. 18,600 716,100
Fifth Third Bancorp 8,300 448,200
First Bank System, Inc. 12,100 701,800
First Union Corp. 24,049 1,463,983
Fleet Financial Group, Inc. 22,274 968,919
KeyCorp. 19,707 763,646
Mellon Bank Corp. 11,200 638,400
Morgan (J.P.) & Co., Inc. 15,600 1,320,150
National City Corp. 18,344 644,333
NationsBank Corp. 24,617 2,033,980
Norwest Corp. 29,400 1,025,325
PNC Financial Corp. 28,400 844,900
Republic New York Corp. 4,600 286,350
SunTrust Banks, Inc. 18,800 695,600
U.S. Bancorp 13,500 487,688
Wachovia Corp. 14,300 625,625
Wells Fargo & Co. 8,200 1,958,775
28,284,284
CREDIT & OTHER FINANCE - 1.2%
American Express Co. 32,979 1,471,688
Beneficial Corp. 4,500 252,563
Dean Witter, Discover & Co. 14,158 810,546
First Chicago NBD Corp. 26,859 1,050,858
Green Tree Financial Corp. 11,500 359,375
Household International, Inc. 8,110 616,360
MBNA Corp. 18,500 527,250
Transamerica Corp. 5,629 460,171
5,548,811
FEDERAL SPONSORED CREDIT - 1.0%
Federal Home Loan Mortgage Corporation 15,000 1,282,500
Federal National Mortgage Association 91,000 3,048,500
4,331,000
INSURANCE - 3.6%
Aetna Life & Casualty Co. 9,500 679,250
Alexander & Alexander Services, Inc. 3,800 75,050
Allstate Corp. 37,421 1,707,333
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - CONTINUED
INSURANCE - CONTINUED
American General Corp. 17,000 $ 618,375
American International Group, Inc. 39,475 3,893,222
Aon Corp. 9,100 461,825
CIGNA Corp. 6,400 754,400
Chubb Corp. (The) 14,500 723,188
General Re Corp. 6,900 1,050,525
ITT Hartford Group, Inc. 10,000 532,500
Jefferson Pilot Corp. 6,000 309,750
Lincoln National Corp. 8,600 397,750
Loews Corp. 9,900 780,863
Marsh & McLennan Companies, Inc. 6,200 598,300
Providian Corp. 8,000 343,000
SAFECO Corp. 10,600 374,975
St. Paul Companies, Inc. (The) 7,000 374,500
Torchmark Corp. 5,900 258,125
Travelers Group, Inc., (The) 39,525 1,803,328
UNUM Corp. 6,000 373,500
USF&G Corp. 9,300 152,288
USLIFE Corp. 2,775 91,228
16,353,275
SAVINGS & LOANS - 0.2%
Ahmanson (H.F.) & Co. 9,900 267,300
Golden West Financial Corp. 4,800 268,800
Great Western Financial Corp. 11,350 270,981
807,081
SECURITIES INDUSTRY - 0.4%
Merrill Lynch & Co., Inc. 14,600 950,825
Morgan Stanley Group, Inc. 12,900 633,713
Salomon, Inc. 8,800 387,200
1,971,738
TOTAL FINANCE 57,296,189
HEALTH - 9.9%
DRUGS & PHARMACEUTICALS - 6.0%
ALZA Corp. Class A (a) 6,800 186,150
Allergan, Inc. 5,300 208,025
American Home Products Corp. 52,300 3,144,538
Amgen, Inc. (a) 22,300 1,204,200
Bristol-Myers Squibb Co. 42,200 3,798,000
Lilly (Eli) & Co. 46,096 2,996,240
Merck & Co., Inc. 102,700 6,636,988
Pfizer, Inc. 53,100 3,790,013
Pharmacia & Upjohn, Inc. 41,960 1,861,975
Schering-Plough Corp. 30,500 1,913,875
Sigma Aldrich Corp. 4,100 219,350
Warner-Lambert Co. 22,700 1,248,500
27,207,854
MEDICAL EQUIPMENT & SUPPLIES - 2.9%
Abbott Laboratories 65,900 2,866,650
Bard (C.R.), Inc. 4,800 163,200
Bausch & Lomb, Inc. 4,700 199,750
Baxter International, Inc. 22,600 1,067,850
Becton, Dickinson & Co. 5,400 433,350
Biomet, Inc. (a) 9,700 139,438
Boston Scientific Corp. (a) 14,600 657,000
Johnson & Johnson 111,400 5,514,300
Mallinckrodt Group, Inc. 6,100 237,138
Medtronic, Inc. 19,300 1,080,800
Millipore Corp. 3,800 159,125
SHARES VALUE (NOTE 1)
Pall Corp. 9,500 $ 229,188
St. Jude Medical, Inc. (a) 6,750 226,125
U.S. Surgical Corp. 5,200 161,200
13,135,114
MEDICAL FACILITIES MANAGEMENT - 1.0%
Beverly Enterprises, Inc. (a) 8,300 99,600
Columbia/HCA Healthcare Corp. 37,075 1,978,878
Community Psychiatric Centers (a) 3,700 35,150
Humana, Inc. 13,600 243,100
Manor Care, Inc. 5,300 208,688
Tenet Healthcare Corp. (a) 17,400 371,925
United HealthCare Corp. 14,500 732,250
U.S. Healthcare, Inc. 12,900 709,500
4,379,091
TOTAL HEALTH 44,722,059
HOLDING COMPANIES - 0.3%
CINergy Corp. 13,213 422,816
Norfolk Southern Corp. 10,900 923,775
1,346,591
INDUSTRIAL MACHINERY & EQUIPMENT - 5.3%
ELECTRICAL EQUIPMENT - 3.5%
Emerson Electric Co. 18,700 1,690,013
General Electric Co. 139,500 12,066,750
General Signal Corp. 3,900 147,713
Grainger (W.W.), Inc. 4,300 333,250
Honeywell, Inc. 10,500 572,250
Scientific-Atlanta, Inc. 6,300 97,650
Westinghouse Electric Corp. 34,600 648,750
15,556,376
INDUSTRIAL MACHINERY & EQUIPMENT - 1.3%
Briggs & Stratton Corp. 2,500 102,813
Case Corp. 5,900 283,200
Caterpillar, Inc. 16,400 1,111,100
Cincinnati Milacron, Inc. 3,400 81,600
Cooper Industries, Inc. 8,946 371,259
Deere & Co. 22,000 880,000
Dover Corp. 9,400 433,575
Giddings & Lewis, Inc. 2,800 45,500
Harnischfeger Industries, Inc. 3,800 126,350
Illinois Tool Works, Inc. 9,900 669,488
Ingersoll-Rand Co. 9,000 393,750
Parker-Hannifin Corp. 6,250 264,844
Stanley Works 7,400 220,150
Tenneco, Inc. 14,600 746,425
Timken Co. 2,700 104,625
TRINOVA Corp. 2,500 83,438
Varity Corp. (a) 3,300 158,813
6,076,930
POLLUTION CONTROL - 0.5%
Browning-Ferris Industries, Inc. 17,800 516,200
Laidlaw, Inc. Class B 24,600 249,870
Ogden Corp. 4,000 72,500
Safety Kleen Corp. 4,900 85,750
WMX Technologies, Inc. 40,700 1,332,925
2,257,245
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 23,890,551
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
MEDIA & LEISURE - 4.0%
BROADCASTING - 0.8%
Comcast Corp. Class A special 19,950 $ 369,075
TCI Group Class A 54,400 986,000
Time Warner, Inc. 32,338 1,269,267
Viacom, Inc. Class B (non-vtg.) (a) 30,700 1,193,463
3,817,805
ENTERTAINMENT - 0.8%
Disney (Walt) Co. 56,600 3,558,725
King World Productions, Inc. (a) 3,000 109,125
3,667,850
LEISURE DURABLES & TOYS - 0.3%
Brunswick Corp. 8,100 162,000
Fleetwood Enterprises, Inc. 3,900 120,900
Hasbro, Inc. 7,400 264,550
Mattel, Inc. 22,976 657,688
Outboard Marine Corp. 1,600 29,000
1,234,138
LODGING & GAMING - 0.4%
Bally Entertainment Corp. 4,000 110,000
Harrah's Entertainment, Inc. 8,500 240,125
Hilton Hotels Corp. 4,100 461,250
ITT Corp. 8,200 543,250
Marriott International, Inc. 10,400 559,000
1,913,625
PUBLISHING - 1.0%
American Greetings Corp. Class A 6,300 172,463
Dow Jones & Co., Inc. 8,200 342,350
Dun & Bradstreet Corp. 14,200 887,500
Gannett Co., Inc. 11,800 834,850
Harcourt General, Inc. 6,000 300,000
Knight-Ridder, Inc. 4,000 290,000
McGraw-Hill, Inc. 8,300 379,725
Meredith Corp. 2,400 100,200
New York Times Co., (The) Class A 8,100 264,263
Times Mirror Co. Class A 9,000 391,500
Tribune Co. 5,400 392,175
4,355,026
RESTAURANTS - 0.7%
Darden Restaurants, Inc. 13,300 142,975
Luby's Cafeterias, Inc. 1,900 44,650
McDonald's Corp. 58,200 2,720,850
Ryan's Family Steak Houses, Inc. (a) 4,400 40,700
Shoney's, Inc. (a) 3,400 36,975
Wendy's International, Inc. 10,500 195,563
3,181,713
TOTAL MEDIA & LEISURE 18,170,157
NONDURABLES - 11.1%
AGRICULTURE - 0.1%
Pioneer Hi-Bred International, Inc. 6,900 364,838
BEVERAGES - 4.0%
Anheuser-Busch Companies, Inc. 21,300 1,597,500
Brown-Forman Corp. Class B 5,700 228,000
Coca-Cola Co., (The) 209,500 10,239,313
Coors (Adolph) Co. Class B 3,100 55,413
PepsiCo, Inc. 131,600 4,655,350
Seagram Co. Ltd. 31,100 1,043,471
17,819,047
SHARES VALUE (NOTE 1)
FOODS - 2.4%
Archer-Daniels-Midland Co. 43,361 $ 829,279
CPC International, Inc. 12,100 871,200
Campbell Soup Co. 20,700 1,459,350
ConAgra, Inc. 20,500 930,188
General Mills, Inc. 13,200 719,400
Heinz (H.J.) Co. 30,950 940,106
Hershey Foods Corp. 6,400 469,600
Kellogg Co. 18,200 1,333,150
Quaker Oats Co. 11,300 385,613
Ralston Purina Group 8,900 570,713
Sara Lee Corp. 40,500 1,311,188
Sysco Corp. 15,400 527,450
Wrigley (Wm.) Jr. Company 9,600 484,800
10,832,037
HOUSEHOLD PRODUCTS - 2.7%
Alberto Culver Co. Class B 2,400 111,300
Avon Products, Inc. 11,400 514,425
Clorox Co. 4,400 389,950
Colgate-Palmolive Co. 12,100 1,025,475
Gillette Co. 37,100 2,314,113
International Flavors & Fragrances, Inc. 9,200 438,150
Procter & Gamble Co. 57,200 5,183,750
Rubbermaid, Inc. 13,200 359,700
Unilever NV ADR 13,300 1,930,163
12,267,026
TOBACCO - 1.9%
American Brands, Inc. 15,100 685,163
Philip Morris Companies, Inc. 69,600 7,238,400
UST, Inc. 16,200 554,850
8,478,413
TOTAL NONDURABLES 49,761,361
PRECIOUS METALS - 0.5%
Barrick Gold Corp. 29,400 798,849
Echo Bay Mines Ltd. 10,500 112,427
Homestake Mining Co. 12,300 210,638
Newmont Mining Corp. 8,224 406,060
Placer Dome, Inc. 19,900 476,503
Santa Fe Pacific Gold Corp. 11,020 155,658
2,160,135
RETAIL & WHOLESALE - 4.6%
APPAREL STORES - 0.4%
Brown Group, Inc. 1,400 24,325
Charming Shoppes, Inc. 8,700 61,444
Gap, Inc. 24,100 774,213
Limited, Inc. (The) 22,719 488,459
Melville Corp. 8,700 352,350
TJX Companies, Inc. 6,100 205,875
1,906,666
DRUG STORES - 0.2%
Long Drug Stores, Inc. 1,600 71,400
Rite Aid Corp. 6,900 205,275
Walgreen Co. 20,600 690,100
966,775
GENERAL MERCHANDISE STORES - 2.5%
Dayton Hudson Corp. 6,100 629,063
Dillard Department Stores, Inc. Class A 9,500 346,750
Federated Department Stores, Inc. (a) 17,000 580,125
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
RETAIL & WHOLESALE - CONTINUED
GENERAL MERCHANDISE STORES - CONTINUED
K mart Corp. 38,300 $ 473,963
May Department Stores Co. (The) 20,700 905,625
Mercantile Stores Co., Inc. 3,000 175,875
Nordstrom, Inc. 6,700 298,150
Penney (J.C.) Co., Inc. 18,600 976,500
Price/Costco, Inc. (a) 16,239 351,168
Sears, Roebuck & Co. 32,600 1,585,175
Wal-Mart Stores, Inc. 191,600 4,861,850
Woolworth Corp. 11,200 252,000
11,436,244
GROCERY STORES - 0.6%
Albertson's, Inc. 21,200 877,150
American Stores Co. 12,300 507,375
Fleming Companies, Inc. 3,064 44,045
Giant Food, Inc. Class A 4,900 175,788
Great Atlantic & Pacific Tea Co., Inc. 3,100 101,913
Kroger Co. (The) (a) 10,400 410,800
Supervalu, Inc. 5,600 176,400
Winn-Dixie Stores, Inc. 12,800 452,800
2,746,271
RETAIL & WHOLESALE, MISCELLANEOUS - 0.9%
Circuit City Stores, Inc. 8,200 296,225
Home Depot, Inc., (The) 39,800 2,149,200
Lowe's Companies, Inc. 13,500 487,688
Tandy Corp. 5,400 255,825
Toys "R" Us, Inc. (a) 22,700 646,950
3,835,888
TOTAL RETAIL & WHOLESALE 20,891,844
SERVICES - 0.7%
ADVERTISING - 0.1%
Interpublic Group of Companies, Inc. 6,600 309,375
LEASING & RENTAL - 0.0%
Ryder Systems, Inc. 6,700 188,438
PRINTING - 0.3%
Alco Standard Corp. 10,600 479,650
Deluxe Corp. 6,800 241,400
Donnelley (R.R.) & Sons Co. 12,900 449,888
Harland (John H.) Co. 2,500 61,563
Moore Corporation Ltd. 8,400 157,398
1,389,899
SERVICES - 0.3%
Block (H&R), Inc. 8,600 280,575
Ecolab, Inc. 5,300 174,900
Jostens, Inc. 3,300 65,175
National Service Industries, Inc. 4,100 160,413
Service Corp. International 9,700 557,750
1,238,813
TOTAL SERVICES 3,126,525
TECHNOLOGY - 11.0%
COMMUNICATIONS EQUIPMENT - 1.4%
Andrew Corp. (a) 4,975 267,406
Cabletron Systems, Inc. (a) 6,100 418,613
Cisco Systems, Inc. (a) 46,200 2,616,075
DSC Communications Corp. (a) 9,700 292,213
General Instrument Corp. (a) 10,200 294,525
SHARES VALUE (NOTE 1)
Northern Telecom Ltd. 21,100 $ 1,148,968
Tellabs, Inc. (a) 7,300 488,188
3Com Corp. (a) 13,800 631,350
6,157,338
COMPUTER SERVICES & SOFTWARE - 3.1%
Autodesk, Inc. 3,800 113,525
Automatic Data Processing, Inc. 24,300 938,588
CUC International, Inc. (a) 15,150 537,825
Ceridian Corp. (a) 5,600 282,800
Computer Associates International, Inc. 20,250 1,442,813
Computer Sciences Corp. (a) 4,600 343,850
First Data Corp. 18,700 1,488,988
Microsoft Corp. (a) 49,500 5,946,188
Novell, Inc. (a) 30,800 427,350
Oracle Corp. (a) 54,600 2,153,288
Shared Medical Systems Corp. 2,000 128,500
13,803,715
COMPUTERS & OFFICE EQUIPMENT - 3.4%
Amdahl Corp. (a) 9,900 106,425
Apple Computer, Inc. 10,400 218,400
Bay Networks, Inc. (a) 15,300 393,975
Compaq Computer Corp. (a) 22,100 1,088,425
Data General Corp. (a) 3,100 40,300
Digital Equipment Corp. (a) 12,700 571,500
EMC Corp. (a) 19,000 353,875
Hewlett-Packard Co. 42,500 4,234,063
Intergraph Corp. (a) 3,800 46,075
International Business Machines Corp. 47,400 4,692,600
Pitney Bowes, Inc. 12,600 601,650
Silicon Graphics, Inc. (a) 13,500 324,000
Sun Microsystems, Inc. (a) 15,300 900,788
Tandem Computers, Inc. (a) 9,900 122,513
Unisys Corp. (a) 14,400 102,600
Xerox Corp. 27,100 1,449,850
15,247,039
ELECTRONIC INSTRUMENTS - 0.2%
Applied Materials, Inc. (a) 14,900 454,450
Perkin-Elmer Corp. 3,500 168,875
Tektronix, Inc. 2,700 120,825
744,150
ELECTRONICS - 2.4%
AMP, Inc. 18,096 726,102
Advanced Micro Devices, Inc. (a) 11,000 149,875
Intel Corp. 68,600 5,037,813
LSI Logic Corp. (a) 10,700 278,200
Micron Technology, Inc. 17,200 445,050
Motorola, Inc. 49,400 3,106,025
National Semiconductor Corp. (a) 11,400 176,700
Texas Instruments, Inc. 15,700 783,038
Thomas & Betts Corp. 3,400 127,500
10,830,303
PHOTOGRAPHIC EQUIPMENT - 0.5%
Eastman Kodak Co. 28,500 2,215,875
Polaroid Corp. 3,700 168,813
2,384,688
TOTAL TECHNOLOGY 49,167,233
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TRANSPORTATION - 1.2%
AIR TRANSPORTATION - 0.3%
AMR Corp. (a) 7,600 $ 691,600
Delta Air Lines, Inc. 4,200 348,600
Southwest Airlines Co. 12,100 352,413
USAir Group, Inc. (a) 5,300 95,400
1,488,013
RAILROADS - 0.8%
Burlington Northern Santa Fe Corp. 12,418 1,004,306
CSX Corp. 17,638 851,034
Conrail, Inc. 6,600 438,075
Union Pacific Corp. 17,100 1,194,863
3,488,278
TRUCKING & FREIGHT - 0.1%
Caliber System, Inc. 3,200 108,800
Consolidated Freightways, Inc. 3,700 78,163
Federal Express Corp. 4,800 393,600
Yellow Corp. 2,300 30,475
611,038
TOTAL TRANSPORTATION 5,587,329
UTILITIES - 11.2%
CELLULAR - 0.3%
AirTouch Communications, Inc. (a) 41,300 1,166,725
ELECTRIC UTILITY - 3.0%
American Electric Power Co., Inc. 15,500 660,688
Baltimore Gas & Electric Co. 12,400 351,850
Carolina Power & Light Co. 12,900 490,200
Central & South West Corp. 17,200 498,800
Consolidated Edison Co. of New York, Inc. 19,700 576,225
DTE Energy Co. 12,200 376,675
Dominion Resources, Inc. 14,600 584,000
Duke Power Co. 17,000 871,250
Edison International 37,100 653,888
Entergy Corp. 19,100 541,963
FPL Group, Inc. 15,500 713,000
General Public Utilities Corp. 10,100 356,025
Houston Industries, Inc. 22,000 541,750
Niagara Mohawk Power Corp. 12,100 93,775
Northern States Power Co. 5,600 276,500
Ohio Edison Co. 12,800 280,000
PECO Energy Co. 18,600 483,600
PP&L Resources, Inc. 13,200 311,850
Pacific Gas & Electric Co. 34,900 811,425
PacifiCorp. 24,500 545,125
Public Service Enterprise Group, Inc. 20,500 561,188
Southern Co. 55,700 1,371,613
Texas Utilities Co. 18,900 807,975
Unicom Corp. 18,000 501,750
Union Electric Co. 8,600 346,150
13,607,265
GAS - 0.7%
Columbia Gas System, Inc. (The) 4,600 239,775
Consolidated Natural Gas Co. 7,700 402,325
ENSERCH Corp. 5,800 126,150
Eastern Enterprises Co. 1,600 53,200
Enron Corp. 21,100 862,463
NICOR, Inc. 4,200 119,175
Noram Energy Corp. 10,300 112,013
ONEOK, Inc. 2,200 55,000
SHARES VALUE (NOTE 1)
Pacific Enterprises 7,000 $ 207,375
Panenergy Corp. 12,600 414,225
Peoples Energy Corp. 3,000 100,500
Sonat, Inc. 7,100 319,500
Williams Companies, Inc. 8,400 415,800
3,427,501
TELEPHONE SERVICES - 7.2%
ALLTEL Corp. 15,900 488,925
AT&T Corp. 133,500 8,277,000
Ameritech Corp. 46,300 2,749,063
Bell Atlantic Corp. 36,600 2,333,250
BellSouth Corp. 82,900 3,512,888
GTE Corp. 80,800 3,615,800
MCI Communications Corp. 56,800 1,455,500
NYNEX Corp. 35,800 1,700,500
Pacific Telesis Group 35,700 1,204,875
SBC Communications, Inc. 51,000 2,511,750
Sprint Corp. 36,400 1,528,800
U.S. West, Inc. 39,200 1,249,500
U.S. West, Inc. (Media Group) 39,300 717,225
WorldCom, Inc. (a) 16,200 897,075
32,242,151
TOTAL UTILITIES 50,443,642
TOTAL COMMON STOCKS
(Cost $368,310,535) 421,947,391
U.S. TREASURY OBLIGATIONS - 0.5%
PRINCIPAL
AMOUNT
U.S. Treasury Bills, yields at date
of purchase 5.20% to 5.22%,
10/31/96 (b)
(Cost $2,456,525) $ 2,500,000 2,456,700
REPURCHASE AGREEMENTS - 5.8%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.46% dated
6/28/96 due 7/1/96 $ 25,946,800 25,935,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $396,702,060) $ 450,339,091
FUTURES CONTRACTS
EXPIRATION UNDERLYING FACE UNREALIZED
DATE AMOUNT AT VALUE GAIN/(LOSS)
PURCHASED
86 S&P 500 Index Contracts Sept. 1996 $ 29,102,400 $ 241,531
THE FACE VALUE OF FUTURES PURCHASED AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 6.5%
LEGEND
(a) Non-income producing
(b) Security pledged to cover margin requirements for futures contracts. At
the period end, the value of securities pledged amounted to $1,768,824.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $176,324,392 and $2,743,056, respectively.
The market value of futures contracts opened and closed during the period
amounted to $190,595,793 and $186,047,133, 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 $194 for the period (see
Note 4 of Notes to Financial Statements).
INCOME TAX INFORMATION
At June 30, 1996, the aggregate cost of investment securities for income
tax purposes was $396,702,060. Net unrealized appreciation aggregated
$53,637,031, of which $59,998,888 related to appreciated investment
securities and $6,361,857 related to depreciated investment securities.
VARIABLE INSURANCE PRODUCTS FUND II: INDEX 500 PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
ASSETS
Investm $ 450,339,091
ent in
securit
ies, at
value
(includ
ing
repurc
hase
agree
ments
of
$25,93
5,000)
(cost
$396,7
02,060
) -
See
accom
panyin
g
sched
ule
Cash 42,798
Receiva 1,581,767
ble for
fund
shares
sold
Dividend 618,471
s
receiv
able
Receiva 152,641
ble for
daily
variati
on
on
futures
contra
cts
Other 10
receiv
ables
TOTAL 452,734,778
ASSETS
LIABILITI
ES
Payable $ 396,755
for
fund
shares
redee
med
Accrued 38,829
manag
ement
fee
Other 70,081
payabl
es and
accrue
d
expen
ses
TOTAL 505,665
LIABILIT
IES
NET $ 452,229,113
ASSET
S
Net
Assets
consist
of:
Paid in $ 394,095,495
capital
Undistrib 4,052,312
uted
net
invest
ment
incom
e
Accumul 202,737
ated
undistr
ibuted
net
realize
d gain
(loss)
on
invest
ments
and
foreign
curren
cy
transa
ctions
Net 53,878,569
unreali
zed
apprec
iation
(depre
ciation
) on
invest
ments
and
assets
and
liabiliti
es in
foreign
curren
cies
NET $ 452,229,113
ASSET
S, for
5,658,
494
shares
outsta
nding
NET $79.92
ASSET
VALUE,
offerin
g price
and
redem
ption
price
per
share
($452,
229,11
3 (divided by)
5,658,
494
shares
)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
INVESTM $ 3,629,616
ENT
INCOME
Dividend
s
Interest 902,740
TOTAL 4,532,356
INCOM
E
EXPENS
ES
Manage $ 497,141
ment
fee
Transfer 135,288
agent
fees
Accounti 106,835
ng
fees
and
expen
ses
Non-inte 580
rested
trustee
s'
compe
nsatio
n
Custodia 14,183
n fees
and
expen
ses
Audit 19,778
Legal 529
Miscella 928
neous
Total 775,262
expen
ses
before
reducti
ons
Expen (294,924 480,338
se )
reducti
ons
NET 4,052,018
INVEST
MENT
INCOM
E
REALIZE
D AND
UNREALIZ
ED GAIN
(LOSS)
Net
realize
d gain
(loss)
on:
Invest 632,689
ment
securit
ies
Foreig 127
n
curren
cy
transa
ctions
Future (551,342 81,474
s )
contra
cts
Change
in net
unreali
zed
apprec
iation
(depre
ciation
) on:
Invest 27,630,841
ment
securit
ies
Assets (10
and )
liabiliti
es in
forei
gn
curren
cies
Future 367,081 27,997,912
s
contra
cts
NET GAIN 28,079,386
(LOSS)
NET $ 32,131,404
INCREA
SE
(DECRE
ASE) IN
NET
ASSETS
RESULTI
NG
FROM
OPERAT
IONS
OTHER $ 513
INFORM
ATION
Expen
se
reducti
ons
Cust
odian
interest
credits
Tran 11,997
sfer
agent
interest
credits
FMR 282,414
reimbu
rseme
nt
$ 294,924
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1996 1995
(UNAUDITED)
Operatio $ 4,052,018 $ 3,388,217
ns
Net
invest
ment
incom
e
Net 81,474 8,859,319
realize
d gain
(loss)
Chang 27,997,912 24,840,544
e in
net
unreali
zed
apprec
iation
(depre
ciation
)
NET 32,131,404 37,088,080
INCR
EASE
(DEC
REAS
E) IN
NET
ASSE
TS
RESU
LTING
FROM
OPER
ATIO
NS
Distributi (3,387,922) (1,038,071)
ons to
shareh
olders
From
net
invest
ment
incom
e
From (8,711,800) (125,271)
net
realize
d gain
In - (16,781)
excess
of net
realize
d gain
TOTAL (12,099,722) (1,180,123)
DISTRIB
UTIONS
Share 210,964,549 176,225,141
transa
ctions
Net
procee
ds
from
sales
of
shares
Reinve 12,099,722 1,180,123
stment
of
distrib
utions
Cost (36,566,535) (18,914,447)
of
shares
redee
med
NET 186,497,736 158,490,817
INCR
EASE
(DEC
REAS
E) IN
NET
ASSE
TS
RESU
LTING
FROM
SHAR
E
TRAN
SACTI
ONS
TOTAL 206,529,418 194,398,774
INCREA
SE
(DECRE
ASE) IN
NET
ASSETS
NET
ASSETS
Beginn 245,699,695 51,300,921
ing of
period
End of $ 452,229,113 $ 245,699,695
perio
d
(incl
udin
g
undi
strib
uted
net
inve
stme
nt
inco
me
of
$4,0
52,3
12
and
$3,3
89,1
30,
resp
ectiv
ely)
OTHER
INFORMAT
ION
Shares
Sold 2,725,869 2,593,616
Issued 161,200 20,470
in
reinve
stment
of
distrib
utions
Redee (473,860) (281,351)
med
Net 2,413,209 2,332,735
increa
se
(decre
ase)
<TABLE>
<CAPTION>
<S> <C> <C>
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SIX MONTHS YEARS ENDED DECEMBER 31, AUGUST 27, 1992
ENDED (COMMENCEMENT
JUNE 30, 1996 OF
OPERATIONS) TO
DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1995 1994 1993 D 1992
</TABLE>
Net $ 75.71 $ 56.22 $ 55.74 $ 52.60 $ 50.00
asset
value,
beginn
ing of
period
Income
from
Invest
ment
Operat
ions
Net .58 .85 1.14 1.31 .44
invest
ment
incom
e
Net 6.88 19.72 (.56) 3.80 2.71
realize
d and
unreali
zed
gain
(loss)
Total 7.46 20.57 .58 5.11 3.15
from
invest
ment
operati
ons
Less (.91) (.95) - (1.28) (.47)
Distrib
utions
From
net
invest
ment
incom
e
From (2.34) (.11) (.10) (.60) (.08)
net
realize
d gain
In - (.02) - (.09) -
excess
of net
realize
d gain
Total (3.25) (1.08) (.10) (1.97) (.55)
distrib
utions
Net $ 79.92 $ 75.71 $ 56.22 $ 55.74 $ 52.60
asset
value,
end of
period
TOTAL 10.13% 37.19% 1.04% 9.74% 6.31%
RETUR
N B, C
RATIOS
AND
SUPPL
EMENT
AL
DATA
Net $ 452,229 $ 245,700 $ 51,301 $ 25,153 $ 17,961
assets
, end
of
period
(000
omitte
d)
Ratio of .28% A .28% .28% .28% .28% A,
expen E E E
ses to
averag
e net
assets
Ratio of .27% A, .28% .28% .28% .28% A
expen F
ses to
averag
e net
assets
after
expen
se
reducti
ons
Ratio of 2.30% A 2.70% 2.81% 2.65% 2.89% A
net
invest
ment
incom
e to
averag
e net
assets
Portfolio 2% A 16% 2% 9% 0%
turnov
er rate
Average $ .0238
commi
ssion
rate G
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
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 THOSE CHARGES
WOULD REDUCE THE TOTAL RETURNS SHOWN. C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS). D EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME, CAPITAL GAIN, AND
RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES." AS A RESULT, NET INVESTMENT INCOME PER
SHARE MAY REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES. 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 (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS). F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO
EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS). G FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS REQUIRED TO
DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY TRADES ON WHICH COMMISSIONS ARE
CHARGED. THIS AMOUNT MAY VARY FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF
TRADES EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
</TABLE>
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: total
percentage change in value, the average annual percentage change, or the
growth of a hypothetical $10,000 investment. A fund's total return includes
changes in a fund's share price, plus reinvestment of any dividends
(income) and capital gains (the profits the fund earns when it sells
securities that have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIOD ENDED JUNE 30, 1996 PAST 1 LIFE OF
YEAR FUND
Asset Manager: Growth 20.33% 21.83%
S&P 500 26.00% 32.05%
AVERAGE ANNUAL RETURNS take the fund's actual ( or cumulative) return and
show you what would have happened if the fund had performed at a constant
rate each year.
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 growth in the long run and volatility
in the short run. 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.
(checkmark)
You can compare the fund's return to those of the Standard & Poor's 500
Index - a widely recognized, unmanaged index of common stocks. The S&P 500
returns reflect reinvestment of all dividends paid by stocks included in
the Index, but do not reflect any brokerage commissions or other fees you
might pay if you actually invested in those stocks.
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.
If Fidelity had not reimbursed certain fund expenses, the life of fund
total return figure would have been lower.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, 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.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19960630 19960729 091923 S00000000000001
VIP II:ASS.MAN.AGG S&P 500 FI Aggress. Comp.
00159 SP001 F0022
1995/01/03 10000.00 10000.00 10000.00
1995/01/31 10149.70 10389.70 10319.00
1995/03/31 10289.42 10696.30 10538.79
1995/04/30 10558.88 11011.31 10784.35
1995/05/31 10708.58 11451.43 11197.39
1995/06/30 11137.72 11717.44 11395.58
1995/07/31 11546.91 12106.00 11631.47
1995/08/31 12065.87 12136.38 11693.12
1995/09/30 12245.51 12648.54 12049.76
1995/10/31 11776.45 12603.38 12081.09
1995/11/30 11986.03 13156.67 12484.60
1995/12/31 12277.71 13410.07 12696.83
1996/01/31 12569.78 13866.55 13004.10
1996/02/29 12613.39 13995.09 13005.40
1996/03/31 12840.37 14129.86 13056.12
1996/04/30 13143.01 14338.14 13159.26
1996/05/31 13348.36 14707.92 13376.39
1996/06/30 13402.41 14763.95 13465.00
IMATRL PRASUN SHR__CHT 19960630 19960729 091928 R00000000000123
Let's say hypothetically that $10,000 was invested in Asset Manager: Growth
Portfolio on January 31, 1995, shortly after the fund started. As the chart
shows, by June 30, 1996, the value of the investment would have grown to
$13,402 - a 34.02% increase on the initial investment. For comparison, look
at how the S&P 500 did over the same period. With dividends and capital
gains, if any, reinvested, the same $10,000 investment would have grown to
$14,764 - a 47.64% increase.
You can also look at how the Fidelity Aggressive Asset Allocation Composite
Index, a hypothetical combination of unmanaged indices, did over the same
period. Reflecting the fund's neutral mix of 65% stocks, 30% bonds, and 5%
short-term instruments, this index combines returns from the S&P 500
(47.64%), Lehman Brothers Treasury Bond Index (14.07%), and the Salomon
Brothers 3-month T-Bill Total Rate of Return Index (7.95%). With reinvested
dividends and capital gains, if any, a $10,000 investment in the index
would have grown to $13,465 - a 34.65% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE 30, 1996
% OF FUND'S
INVESTMENTS
Philip Morris Companies, Inc. 6.1
Federal National Mortgage Association 5.9
General Motors Corp. 3.6
Royal Dutch Petroleum Co. ADR 2.6
Columbia/HCA Healthcare Corp. 2.1
TOP FIVE MARKET SECTORS AS OF JUNE 30, 1996
(STOCKS ONLY) % OF FUND'S
INVESTMENTS
Finance 13.3
Nondurables 7.3
Durables 7.3
Energy 7.2
Retail & Wholesale 6.7
ASSET ALLOCATION AS OF JUNE 30, 1996*
Row: 1, Col: 1, Value: 5.2
Row: 1, Col: 2, Value: 20.4
Row: 1, Col: 3, Value: 34.4
Row: 1, Col: 4, Value: 40.0
Stock class 74.4%
Bond class 20.4%
Short-term class
and other 5.2%
FOREIGN INVESTMENTS 17.3%
*
ASSET ALLOCATIONS IN THIS PIE CHART REFLECT 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
NOTE TO SHAREHOLDERS: On March 26, 1996, Richard Habermann was named the
head of a three-person team of portfolio managers of Asset Manager: Growth
Portfolio. Dick Habermann will have primary responsibility for asset
allocation decisions. George Vanderheiden, who has been with Fidelity for
25 years, will be responsible for individual stock selection. Michael Gray,
who joined Fidelity 14 years ago, will be responsible for bond selection.
The following is an interview with Dick Habermann.
Q. HOW DID THE FUND PERFORM, DICK?
A. The fund performed quite well in the first half of 1996. In an
environment that produced mixed returns for stocks and bonds, Asset
Manager: Growth's performance nearly matched that of the broad stock
market. For the six and 12-month periods ended June 30, 1996, the Standard
& Poor's 500 Index returned 10.10% and 26.00%, respectively. Looking back
over the period, the fund benefited from its considerable weighting in
equities, even while the portfolio underwent some restructuring as a result
of the management change.
Q. HOW WERE THE FUND'S ASSETS DISTRIBUTED AT THE END OF THE PERIOD?
A. Around 75% in equities, 20% bonds and 5% cash equivalents. During the
past six months, the biggest change to the overall asset mix was a shift
from short-term investments into bonds. There was also significant change
among the securities within the asset classes.
Q. COULD YOU DETAIL WHAT SOME OF THOSE CHANGES WERE?
A. Sure. Within equities, we sold a substantial amount of the fund's
foreign holdings, especially in Japan. Despite the underperformance of the
Japanese market compared to the U.S., our individual holdings in many
Japanese stocks had actually done fairly well, so we took some profits and
re-directed those assets into domestic equities. On the fixed-income side,
our holdings had been focused in the middle of the yield curve, in
securities with maturities between five and 15 years. We allocated more
assets into the high-yield, longer maturity end of the market, and
re-structured the fixed-income portion of the portfolio to more closely
reflect the composition of the Lehman Brothers Aggregate Bond Index. The
result was an increase in corporate bonds and mortgage securities and a
reduction of the fund's U.S. Treasury holdings.
Q. LET'S TURN TO THE MANAGEMENT CHANGE. WHAT WAS THE THINKING BEHIND THE
TEAM APPROACH?
A. We think this approach makes more sense than relying on a single person,
given that the fund invests in so many different kinds of securities and is
involved in so many segments of the market. Fidelity has traditionally
taken what's known as a bottom-up approach with most of its funds,
emphasizing research and individual security selection. Our hope is that by
dividing the responsibility for different parts of the fund among
sub-portfolio managers with established expertise in those areas, we can
better leverage our strength as a fund management organization.
Q. WILL THE FUND'S INVESTMENT STRATEGY CHANGE?
A. No. As always, the fund will seek competitive long-term results by
investing in a broad mix of stocks and bonds. In the past, the fund has
never tried to time the market by making sudden shifts in the asset mix,
nor will it try to do so in the future. In short, the fund's basic asset
allocation structure will not change. The shift at the top should be seen
as an attempt to better fulfill the fund's original investment objective,
not take the fund in a different direction.
Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SEVERAL MONTHS?
A. I'm guardedly optimistic. I think that the economy has shown that it's
pretty resilient so far this year. Still, there are signs that various
businesses may be slowing down, which could mean that we may see some
earnings disappointments. One other note of caution is that stimulus
packages in other countries have helped boost some foreign economies. With
a group of economies moving in sync, that could imply a degree of inflation
risk, which bears watching. I do feel that there is still room for company
managements to add value by rationalizing their businesses and continuing
to cut costs. Those efforts may not have the impact they did over the past
year or two, but they can still be meaningful. That's why individual
security selection will continue to be crucial, and I take comfort in
having George and Michael, with their valuable experience and expertise, on
the team. In the next report, each of them will provide their views on
their respective parts of the portfolio.
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 AND
OTHER CONDITIONS.
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, 1996, more than $3.4 billion
MANAGER: Richard Habermann, since March
1996; joined Fidelity in 1968
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER: GROWTH PORTFOLIO
INVESTMENTS JUNE 30, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 71.9%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 0.7%
AEROSPACE & DEFENSE - 0.3%
Boeing Co. 3,200 $ 278,800
C A E Industries Ltd. 18,700 155,656
434,456
DEFENSE ELECTRONICS - 0.4%
Raytheon Co. 9,800 505,925
TOTAL AEROSPACE & DEFENSE 940,381
BASIC INDUSTRIES - 5.2%
CHEMICALS & PLASTICS - 3.2%
Air Products & Chemicals, Inc. 3,300 190,575
Betz Laboratories, Inc. 1,000 43,875
Dow Chemical Co. 700 53,200
du Pont (E.I.) de Nemours & Co. 28,800 2,278,800
Nippon Zeon Co. Ltd. 57,000 353,311
Raychem Corp. 8,300 596,563
Rohm & Haas Co. 900 56,475
Sekisui Chemical Co. Ltd. 23,000 280,935
Union Carbide Corp. 10,900 433,275
4,287,009
IRON & STEEL - 0.2%
Kobe Steel Ltd. (a) 87,000 249,806
NKK Corp. (a) 22,000 66,579
316,385
METALS & MINING - 0.5%
Broken Hill Proprietary Co. Ltd. (The) 7,770 107,515
Reynolds Metals Co. 11,700 609,863
717,378
PACKAGING & CONTAINERS - 0.1%
Owens-Illinois, Inc. (a) 2,200 35,200
Tupperware Corp. (a) 1,700 71,825
107,025
PAPER & FOREST PRODUCTS - 1.2%
Boise Cascade Corp. 6,100 223,413
Champion International Corp. 11,900 496,825
Georgia-Pacific Corp. 900 63,900
International Paper Co. 10,800 398,250
Temple-Inland, Inc. 4,700 219,725
Willamette Industries, Inc. 2,600 154,700
1,556,813
TOTAL BASIC INDUSTRIES 6,984,610
CONSTRUCTION & REAL ESTATE - 1.4%
BUILDING MATERIALS - 0.1%
Masco Corp. 2,100 63,525
Tecumseh Products Co. Class A 2,200 118,250
181,775
CONSTRUCTION - 1.0%
Centex Corp. 6,400 199,200
DR Horton, Inc. 32,500 341,250
Daito Trust Construction 45,000 672,713
Kaufman & Broad Home Corp. 9,400 136,300
Ryland Group, Inc. 500 7,500
U.S. Home Corp. (a) 1,000 24,625
1,381,588
ENGINEERING - 0.2%
Fluor Corp. 4,400 287,650
SHARES VALUE (NOTE 1)
REAL ESTATE - 0.1%
Sekiwa Real Estate Ltd. 7,000 $ 73,379
TOTAL CONSTRUCTION & REAL ESTATE 1,924,392
DURABLES - 7.3%
AUTOS, TIRES, & ACCESSORIES - 6.3%
Chrysler Corp. 4,900 303,800
Cummins Engine Co., Inc. 7,500 302,813
Dana Corp. 7,900 244,900
Discount Auto Parts, Inc. (a) 2,500 63,438
Federal-Mogul Corp. 13,200 242,550
Ford Motor Co. 2,700 87,413
General Motors Corp. 92,500 4,844,688
Gentex Corp. (a) 1,400 27,300
Goodyear Tire & Rubber Co. 2,500 120,625
Honda Motor Co. Ltd. 9,000 232,988
Magna International, Inc. Class A 25,000 1,155,073
Scania AB:
Class A (a) 3,600 99,642
Class B (a) 3,300 91,587
Superior Industries International, Inc. 9,600 254,400
Volvo AB Class B 18,300 415,671
8,486,888
CONSUMER DURABLES - 0.0%
Swedish Match AB 14,100 43,693
CONSUMER ELECTRONICS - 0.3%
Daiichi Corp. Ord. 1,000 28,987
Newell Co. 5,000 153,125
Whirlpool Corp. 5,400 267,975
450,087
HOME FURNISHINGS - 0.3%
Shimachu Co. Ltd. 13,000 385,124
TEXTILES & APPAREL - 0.4%
Burlington Industries, Inc. (a) 13,200 186,450
Onward Kashiyama & Co. Ltd. 19,000 310,013
496,463
TOTAL DURABLES 9,862,255
ENERGY - 7.2%
ENERGY SERVICES - 0.1%
McDermott International, Inc. 6,900 144,038
OIL & GAS - 7.1%
Amerada Hess Corp. 8,600 461,175
Amoco Corp. 1,500 108,563
Anadarko Petroleum Corp. 800 46,400
Atlantic Richfield Co. 11,200 1,327,200
British Petroleum PLC ADR 12,100 1,293,188
Burlington Resources, Inc. 12,100 520,300
Canada Occidental Petroleum Ltd. 12,000 201,973
Elf Aquitaine SA sponsored ADR 3,100 113,925
Enron Oil & Gas Co. 1,100 30,663
Fortune Petroleum Corp. (warrants) (a) 100,000 250,000
Kerr-McGee Corp. 2,800 170,450
Noble Affiliates, Inc. 2,200 83,050
Occidental Petroleum Corp. 10,800 267,300
Royal Dutch Petroleum Co.:
ADR 22,700 3,490,125
Ord. 800 123,343
Santa Fe Energy Resources, Inc. 9,800 116,375
Seagull Energy Corp. (a) 2,600 65,000
Sun Co., Inc. 9,700 294,638
Tosco Corp. 7,800 391,950
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Total SA:
Class B 900 $ 66,658
sponsored ADR 3,700 137,363
Ultramar Corp. 1,400 40,600
Union Pacific Resources Group, Inc. 2,500 66,875
9,667,114
TOTAL ENERGY 9,811,152
FINANCE - 13.3%
BANKS - 0.2%
Canadian Imperial Bank of Commerce 1,300 41,997
Fleet Financial Group, Inc. 2,500 108,750
State Street Boston Corp. 2,900 147,900
298,647
CLOSED END INVESTMENT COMPANY - 0.2%
First NIS Regional Fund (Reg.) 25,000 266,750
CREDIT & OTHER FINANCE - 0.3%
Acom Co. Ltd. 10,000 391,049
Associates First Capital Corp. (a) 1,800 67,725
458,774
FEDERAL SPONSORED CREDIT - 7.9%
Federal Home Loan Mortgage Corporation 30,700 2,624,850
Federal National Mortgage Association 238,000 7,973,000
Student Loan Marketing Association 2,400 177,600
10,775,450
INSURANCE - 3.9%
AFLAC, Inc. 5,100 152,363
Allmerica Financial Corp. 3,900 116,025
Allstate Corp. 38,800 1,770,250
American International Group, Inc. 13,000 1,282,125
CIGNA Corp. 800 94,300
Chubb Corp. (The) 600 29,925
Equitable of Iowa Companies 900 31,950
General Re Corp. 6,300 959,175
MGIC Investment Corp. 2,200 123,475
Providian Corp. 9,300 398,738
Torchmark Corp. 6,400 280,000
Travelers/Aetna Property Casualty Corp.
Class A (a) 800 22,700
5,261,026
SAVINGS & LOANS - 0.5%
Golden West Financial Corp. 11,200 627,200
SECURITIES INDUSTRY - 0.3%
United Asset Management Corp. 13,600 333,200
TOTAL FINANCE 18,021,047
HEALTH - 3.8%
DRUGS & PHARMACEUTICALS - 0.9%
IVAX Corp. 20,000 317,500
Pharmacia & Upjohn, Inc. 13,500 599,063
Sandoz AG (Reg.) 100 114,138
Schering-Plough Corp. 3,700 232,175
1,262,876
MEDICAL EQUIPMENT & SUPPLIES - 0.8%
Arterial Vascular Engineering, Inc. (a) 19,000 688,750
Bard (C.R.), Inc. 100 3,400
Baxter International, Inc. 3,100 146,475
Biomet, Inc. (a) 11,700 168,188
1,006,813
SHARES VALUE (NOTE 1)
MEDICAL FACILITIES MANAGEMENT - 2.1%
Columbia/HCA Healthcare Corp. 53,400 $ 2,850,225
Huntingdon International Holdings
PLC Ord. (a) 13,200 17,008
2,867,233
TOTAL HEALTH 5,136,922
INDUSTRIAL MACHINERY & EQUIPMENT - 3.0%
ELECTRICAL EQUIPMENT - 0.8%
Emerson Electric Co. 1,300 117,488
General Electric Co. 5,400 467,100
Scientific-Atlanta, Inc. 10,400 161,200
Sensormatic Electronics Corp. 14,000 229,250
Westinghouse Electric Corp. 5,600 105,000
1,080,038
INDUSTRIAL MACHINERY & EQUIPMENT - 1.9%
Caterpillar, Inc. 11,500 779,125
Deere & Co. 14,900 596,000
Dover Corp. 800 36,900
Komatsu Ltd. Ord. 72,000 708,810
NSK Ltd. 56,000 423,171
2,544,006
POLLUTION CONTROL - 0.3%
Browning-Ferris Industries, Inc. 17,000 493,000
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 4,117,044
MEDIA & LEISURE - 2.6%
BROADCASTING - 0.1%
Comcast Corp.:
Class A 600 11,025
Class A special 7,300 135,050
146,075
ENTERTAINMENT - 0.1%
Cedar Fair LP (depositary unit) 500 18,688
Royal Carribean Cruises Ltd. 1,800 51,300
69,988
LEISURE DURABLES & TOYS - 1.5%
Brunswick Corp. 5,500 110,000
Fleetwood Enterprises, Inc. 28,600 886,600
Namco Ltd. 9,000 297,799
Nintendo Co. Ltd. Ord. 7,700 572,736
Outboard Marine Corp. 5,300 96,063
1,963,198
LODGING & GAMING - 0.5%
Circus Circus Enterprises, Inc. (a) 17,100 701,100
Mirage Resorts, Inc. (a) 700 37,625
738,725
PUBLISHING - 0.1%
Dow Jones & Co., Inc. 500 20,875
Knight-Ridder, Inc. 600 43,500
Times Mirror Co. Class A 1,000 43,500
107,875
RESTAURANTS - 0.3%
Brinker International, Inc. (a) 6,600 99,000
Darden Restaurants, Inc. 6,000 64,500
Family Steak Houses of Florida, Inc. (a) 227,800 156,613
McDonald's Corp. 3,000 140,250
460,363
TOTAL MEDIA & LEISURE 3,486,224
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NONDURABLES - 7.3%
BEVERAGES - 0.4%
Compania Cervejaria Brahma PN
(Pfd. Reg.) 806,400 $ 481,037
FOODS - 0.2%
General Mills, Inc. 5,500 299,750
Tyson Foods, Inc. 1,300 35,588
335,338
HOUSEHOLD PRODUCTS - 0.0%
Premark International, Inc. 2,900 53,650
TOBACCO - 6.7%
Philip Morris Companies, Inc. 79,100 8,226,400
RJR Nabisco Holdings Corp. 23,520 729,120
UST, Inc. 2,000 68,500
9,024,020
TOTAL NONDURABLES 9,894,045
PRECIOUS METALS - 0.2%
Barrick Gold Corp. 2,300 62,495
Santa Fe Pacific Gold Corp. 9,100 128,538
191,033
RETAIL & WHOLESALE - 6.7%
APPAREL STORES - 0.1%
Melville Corp. 3,600 145,800
Talbots, Inc. 500 16,188
161,988
GENERAL MERCHANDISE STORES - 3.6%
Aoyama Trading Co. Ord. 3,200 83,715
Federated Department Stores, Inc. (a) 20,500 699,563
Hankyu Department Stores, Inc. 49,000 643,179
Hanshin Department Store Ltd. 23,000 163,529
Jusco Co. Ltd. 7,000 229,069
K mart Corp. 2,600 32,175
Matsuzakaya Co., Ltd. 25,000 305,364
Price/Costco, Inc. 1,200 25,950
Takashimaya Co. Ltd. 51,000 790,301
Wal-Mart Stores, Inc. 69,800 1,771,175
Woolworth Corp. (a) 5,500 123,750
4,867,770
GROCERY STORES - 0.0%
Safeway, Inc. (a) 900 29,700
RETAIL & WHOLESALE, MISCELLANEOUS - 3.0%
Amway Japan Ltd. 14,700 736,976
Home Depot, Inc. (The) 26,100 1,409,400
Lowe's Companies, Inc. 15,300 552,713
Office Depot, Inc. (a) 8,400 171,150
Rex Stores Corp. (a) 4,000 61,500
Tandy Corp. 6,600 312,675
Toys "R" Us, Inc. 16,500 470,250
Uny Co. Ltd. 19,000 375,826
4,090,490
TOTAL RETAIL & WHOLESALE 9,149,948
SERVICES - 0.0%
Interpublic Group of Companies, Inc. 900 42,188
SHARES VALUE (NOTE 1)
TECHNOLOGY - 6.2%
COMMUNICATIONS EQUIPMENT - 0.1%
Cisco Systems, Inc. 1,200 $ 67,950
General Instrument Corp. (a) 3,100 89,513
157,463
COMPUTER SERVICES & SOFTWARE - 0.8%
Adobe Systems, Inc. 700 25,113
America Online, Inc. 700 30,625
Automatic Data Processing, Inc. 8,200 316,725
Compuserve Corp. (a) 100 2,113
Electronic Data Systems Corp. 1,500 80,625
Metromail Corp. (a) 1,100 24,613
Microsoft Corp. (a) 1,400 168,175
Oracle Corp. (a) 6,800 268,175
Policy Management Systems Corp. (a) 5,000 250,000
1,166,164
COMPUTERS & OFFICE EQUIPMENT - 3.9%
Compaq Computer Corp. (a) 55,100 2,713,675
Hewlett-Packard Co. 3,700 368,613
International Business Machines Corp. 20,800 2,059,200
SCI Systems, Inc. (a) 300 12,188
Seagate Technology 1,600 72,000
Tech Data Corp. (a) 600 13,050
5,238,726
ELECTRONICS - 0.7%
Intel Corp. 100 7,344
Methode Electronics, Inc. Class A 300 5,100
Molex, Inc. 3,200 94,000
Solectron Corp. (a) 21,200 802,950
909,394
PHOTOGRAPHIC EQUIPMENT - 0.7%
Fuji Photo Film Co. Ltd. 29,000 914,635
TOTAL TECHNOLOGY 8,386,382
TRANSPORTATION - 0.8%
AIR TRANSPORTATION - 0.0%
Southwest Airlines Co. 1,900 55,338
RAILROADS - 0.7%
Bombardier, Inc. Class B 6,600 98,984
Burlington Northern Santa Fe Corp. (a) 9,100 735,963
CSX Corp. 100 4,825
839,772
SHIPPING - 0.1%
Overseas Shipholding Group, Inc. 900 16,313
Stolt-Nielsen SA 1,200 21,750
Stolt-Nielsen SA Class B sponsored ADR 4,900 91,263
Storli AS Class B (non-vtg.) 500 9,530
138,856
TRUCKING & FREIGHT - 0.0%
Caliber System, Inc. 1,000 34,000
Consolidated Freightways, Inc. 1,500 31,688
65,688
TOTAL TRANSPORTATION 1,099,654
UTILITIES - 6.2%
CELLULAR - 2.1%
AirTouch Communications, Inc. (a) 17,800 502,850
Vodafone Group PLC 169,600 630,552
Vodafone Group PLC sponsored ADR 45,900 1,692,563
2,825,965
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
UTILITIES - CONTINUED
TELEPHONE SERVICES - 4.1%
Ameritech Corp. 10,300 $ 611,563
Bell Atlantic Corp. 5,700 363,375
BellSouth Corp. 16,800 711,900
Lucent Technologies, Inc. 3,000 113,625
NYNEX Corp. 13,800 655,500
SBC Communications, Inc. 19,500 960,375
Telebras:
PN (Pfd. Reg.) 2,934,000 204,823
sponsored ADR 26,100 1,817,213
Telesp PN (Pfd. Reg.) 437,000 93,567
5,531,941
TOTAL UTILITIES 8,357,906
TOTAL COMMON STOCKS
(Cost $94,105,522) 97,405,183
PREFERRED STOCKS - 0.3%
CONVERTIBLE PREFERRED STOCKS - 0.0%
MEDIA & LEISURE - 0.0%
BROADCASTING - 0.0%
Triathalon Broadcasting Co.
$0.945 depositary share
representing 1/10 pfd 2,000 19,250
NONCONVERTIBLE PREFERRED STOCKS - 0.3%
ENERGY - 0.0%
OIL & GAS - 0.0%
Gulf Canada Resources Ltd.,
Series 1, adj. rate 600 1,870
MEDIA & LEISURE - 0.3%
BROADCASTING - 0.3%
Cablevision System Corp.
$11.125 pay-in-kind (c) 2,055 192,143
Time Warner, Inc.,
Series K (exchangeable) 204 199,920
TOTAL MEDIA & LEISURE 392,063
UTILITIES - 0.0%
TELEPHONE SERVICES - 0.0%
Intelecom Group USA, Inc. (a) 40 41,600
TOTAL NONCONVERTIBLE PREFERRED STOCKS 435,533
TOTAL PREFERRED STOCKS
(Cost $467,612) 454,783
CORPORATE BONDS - 6.4%
MOODY'S PRINCIPAL
RATINGS (B) AMOUNT
CONVERTIBLE BONDS - 0.6%
INDUSTRIAL MACHINERY & EQUIPMENT - 0.6%
Thermwood Corp. 12%,
2/25/03 - $ 380,000 $ 874,000
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - 5.8%
AEROSPACE & DEFENSE - 0.1%
Be Aerospace, Inc.
9 7/8%, 2/1/06 B2 $ 10,000 $ 9,825
Lockheed Martin Corp.
7.70%, 6/15/08 A3 150,000 152,711
Moog, Inc. 10%,
5/1/06 (c) B2 40,000 40,200
202,736
BASIC INDUSTRIES - 0.2%
CHEMICALS & PLASTICS - 0.1%
Acetex Corp. yankee
9 3/4%, 10/1/03 B1 100,000 97,750
PACKAGING & CONTAINERS - 0.1%
Owens Illinois, Inc.
9.95%, 10/15/04 B2 150,000 152,250
TOTAL BASIC INDUSTRIES 250,000
CONSTRUCTION & REAL ESTATE - 0.1%
BUILDING MATERIALS - 0.0%
Building Materials Corp. of
America 0%, 7/1/04 (d) B1 90,000 67,050
CONSTRUCTION - 0.1%
Greystone Homes, Inc.
10 3/4%, 3/1/04 B1 80,000 78,400
TOTAL CONSTRUCTION & REAL ESTATE 145,450
DURABLES - 0.5%
AUTOS, TIRES, & ACCESSORIES - 0.2%
APS, Inc. 11 7/8%,
1/15/06 (c) B2 20,000 20,950
Collins & Aikman Products
Co. 11 1/2%, 4/15/06 B3 170,000 172,975
Harvard Industries, Inc.
11 1/8%, 8/1/05 B3 25,000 23,500
Hayes Wheels International,
Inc. 11%, 7/15/06 B3 30,000 30,375
Lear Seating Corp.
8 1/4%, 2/1/02 B2 30,000 28,500
276,300
CONSUMER ELECTRONICS - 0.1%
Tag Heuer International
SA yankee 12%,
12/15/05 (c) B3 80,000 83,400
HOME FURNISHINGS - 0.1%
Interlake Corp.
12 1/8%, 3/1/02 B3 90,000 90,000
Knoll, Inc. 10 7/8%,
3/15/06 B3 30,000 30,600
120,600
TEXTILES & APPAREL - 0.1%
CMI Industries, Inc.
9 1/2%, 10/1/03 B1 125,000 107,813
Reeves Industries, Inc.
11%, 7/15/02 B2 130,000 113,100
220,913
TOTAL DURABLES 701,213
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
ENERGY - 0.3%
OIL & GAS - 0.3%
Clark USA, Inc., Series B,
10 7/8%, 12/1/05 B2 $ 30,000 $ 30,750
Mesa Operating Co.
10 5/8%, 7/1/06 B2 20,000 20,400
Occidental Petroleum Corp.
9 3/4%, 6/15/01 Baa3 100,000 111,381
Petro-Canada, Inc. yankee
7 7/8%, 6/15/26 Baa1 125,000 126,415
Tosco Corp.
7 5/8%, 5/15/06 Ba1 100,000 99,692
388,638
FINANCE - 1.2%
ASSET-BACKED SECURITIES - 0.4%
Airplanes 10 7/8%, 3/15/19 Ba2 260,000 271,700
Green Tree Financial Corp.:
6 1/2%, 6/15/27 Aaa 100,000 99,562
6.80%, 6/15/27 Aaa 100,000 99,593
470,855
BANKS - 0.3%
Chase Manhattan Corp.
6 1/4%, 1/15/06 A2 150,000 138,365
Keycorp 7 1/2%, 6/15/06 A2 100,000 100,716
Midland Bank PLC yankee
7 5/8%, 6/15/06 A1 125,000 126,643
Southern National Corp.
7.05%, 5/23/03 A3 100,000 99,499
465,223
CREDIT & OTHER FINANCE - 0.2%
Homeside, Inc. 11 1/4%,
5/15/03 (c) B+ 70,000 72,100
Ford Motor Credit
6.65%, 5/22/00 A1 100,000 99,579
HMC Acquisition Properties, Inc.
Series B, 9%, 12/15/07 Ba3 150,000 137,250
308,929
INSURANCE - 0.1%
Reliance Group
9 3/4%, 11/15/03 B1 150,000 148,125
SAVINGS & LOANS - 0.2%
First Nationwide Parent Holdings
Ltd. 12 1/2%, 4/15/03 B2 210,000 218,925
TOTAL FINANCE 1,612,057
HEALTH - 0.2%
MEDICAL FACILITIES MANAGEMENT - 0.2%
Tenet Healthcare Corp.
10 1/8%, 3/1/05 Ba3 200,000 211,500
INDUSTRIAL MACHINERY & EQUIPMENT - 0.2%
INDUSTRIAL MACHINERY & EQUIPMENT - 0.2%
Exide Corp. 10%, 4/15/05 B1 125,000 121,563
IMO Industries, Inc.
11 3/4%, 5/1/06 (c) B3 100,000 102,500
224,063
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
POLLUTION CONTROL - 0.0%
Envirosource, Inc.
9 3/4%, 6/15/03 B3 $ 30,000 $ 27,375
TOTAL INDUSTRIAL MACHINERY
& EQUIPMENT 251,438
MEDIA & LEISURE - 1.1%
BROADCASTING - 0.8%
Bell Cablemedia PLC yankee
0%, 9/15/05 (d) B2 110,000 66,955
CAI Wireless system, Inc.
12 1/4%, 9/15/02 B3 95,000 99,275
Cablevision Systems Corp.
9 7/8%, 5/15/06 B2 100,000 96,250
CS Wireless Systems, Inc. 0%,
3/1/06 Unit (c)(d) - 20,000 41,200
Fundy Cable Ltd./LTEE
yankee 11%, 11/15/05 B1 20,000 20,250
Granite Broadcasting Corp.:
10 3/8%, 5/15/05 B3 30,000 29,025
9 3/8%, 12/1/05 (c) B3 10,000 9,125
Lenfest Communications, Inc.
10 1/2%, 6/15/06 (c) B2 75,000 75,375
NWCG Holdings Corp.
0%, 6/15/99 Caa 20,000 14,800
SCI Television, Inc. secured
11%, 6/30/05 B2 150,000 156,000
SFX Broadcasting, Inc.
10 3/4%, 5/15/06 (c) B3 160,000 159,200
Telemundo Group, Inc. 7%,
2/15/06 (e) B1 150,000 135,750
Telewest PLC 0%,
10/1/07 (d) B1 230,000 135,700
1,038,905
LODGING & GAMING - 0.1%
American Skiing Co. 12%,
7/15/06 (c) B3 110,000 107,800
Courtyard by Marriott II
LP/Courtyard II Finance Co.,
Series B, 10 3/4%, 2/1/08 B- 30,000 29,250
Horseshoe Gaming LLC,
Series A, 12 3/4%,
9/30/00 B1 20,000 21,500
Wyndham Hotel Corp.
10 1/2%, 5/15/06 B2 50,000 49,750
208,300
PUBLISHING - 0.0%
Golden Books Publishing, Inc.
7.65%, 9/15/02 B1 40,000 33,800
RESTAURANTS - 0.2%
Foodmaker, Inc.
9 3/4%, 6/1/02 B3 120,000 114,600
Host Marriott Travel Plazas, Inc.,
Series B, 9 1/2%, 5/15/05 B1 100,000 95,375
209,975
TOTAL MEDIA & LEISURE 1,490,980
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
NONDURABLES - 0.4%
FOODS - 0.2%
Foodbrands of America, Inc.
10 3/4%, 5/15/06 B3 $ 50,000 $ 50,000
Nabisco, Inc.
6.85%, 6/15/05 Baa2 150,000 143,361
Specialty Foods Corp., Series B:
11 1/8%, 10/1/02 B3 110,000 105,050
11 1/4%, 8/15/03 Caa 15,000 13,013
311,424
HOUSEHOLD PRODUCTS - 0.2%
Revlon Consumer Products Corp.
10 1/2%, 2/15/03 B3 100,000 101,000
Revlon Worldwide Corp.
secured 0%, 3/15/98 B3 130,000 108,225
209,225
TOTAL NONDURABLES 520,649
RETAIL & WHOLESALE - 0.4%
APPAREL STORES - 0.0%
Loehmann's, Inc.
11 7/8%, 5/15/03 B2 50,000 51,500
GENERAL MERCHANDISE STORES - 0.1%
K Mart Corp.
12 1/2%, 3/01/05 Ba3 80,000 87,200
GROCERY STORES - 0.3%
Pathmark Stores, Inc. :
12 5/8%, 6/15/02 B3 40,000 40,300
9 5/8%, 5/1/03 B2 150,000 140,813
0%, 11/1/03 (d) B3 140,000 84,875
Ralph's Grocery Co.
10.45%, 6/15/04 B1 170,000 162,775
428,763
RETAIL & WHOLESALE, MISCELLANEOUS - 0.0%
Brylane LP Series B
10%, 9/1/03 B2 10,000 9,600
TOTAL RETAIL & WHOLESALE 577,063
SERVICES - 0.1%
Sullivan Graphics, Inc.
12 3/4%, 8/1/05 Caa 110,000 106,288
TECHNOLOGY - 0.3%
COMMUNICATIONS EQUIPMENT - 0.1%
Echostar Communications Corp.
0%, 6/1/04 (d) B2 150,000 109,500
COMPUTERS & OFFICE EQUIPMENT - 0.2%
Bell & Howell Co. ,
Series B, 0%, 3/1/05 (d) B3 70,000 47,950
Comdisco, Inc.
7.21%, 7/02/01 Baa2 125,000 126,511
Unisys Corp. 12%,
4/15/03 (c) B1 150,000 153,000
327,461
TOTAL TECHNOLOGY 436,961
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
TRANSPORTATION - 0.1%
US Air, Inc.:
9 5/8%, 2/1/01 B3 $ 100,000 $ 93,750
10%, 7/1/03 B3 90,000 84,150
177,900
UTILITIES - 0.6%
CELLULAR - 0.3%
Arch Communications Group, Inc.
0%, 3/15/08 (d) B3 90,000 46,350
Intercel, Inc. 0%, 5/1/06 (d) B2 100,000 54,500
International Cabletel, Inc.,
Series B, 0%, 2/1/06 (d) B3 10,000 5,625
Nextel Communications, Inc.
0%, 8/15/04 (d) B3 120,000 70,500
Paging Network, Inc.:
8 7/8%, 2/1/06 B2 20,000 18,200
10 1/8%, 8/1/07 B2 20,000 19,700
Rogers Cantel, Inc.
9 3/8%, 6/1/08 Ba3 150,000 145,125
Western Wireless Corp.
10 1/2%, 6/1/06 B3 75,000 74,813
434,813
ELECTRIC UTILITY - 0.1%
El Paso Electric Co., Series E,
9.40%, 5/1/11 1st Mtg Ba3 100,000 99,250
TELEPHONE SERVICES - 0.2%
Call-Net Enterprises, Inc. yankee
0%, 12/1/04 (d) B2 150,000 110,250
MFS Communications, Inc.
0%, 1/15/06 (d) B1 160,000 97,200
Shared Technologies Fairchild
Corp. 0%, 3/1/06 (c)(d) Caa 30,000 22,650
230,100
TOTAL UTILITIES 764,163
TOTAL NONCONVERTIBLE BONDS 7,837,036
TOTAL CORPORATE BONDS
(Cost $8,756,423) 8,711,036
U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS - 10.8%
U.S. TREASURY OBLIGATIONS - 10.5%
7 3/8%, 11/15/97 Aaa 1,000,000 1,017,810
7 7/8%, 8/15/01 Aaa 8,442,000 8,943,202
7 7/8%, 11/15/04 Aaa 3,945,000 4,240,244
TOTAL U.S. TREASURY OBLIGATIONS 14,201,256
U.S. GOVERNMENT AGENCY OBLIGATIONS - 0.3%
Federal Home Loan Bank:
7.31%, 6/16/04 Aaa 30,000 30,713
7.56%, 9/1/04 Aaa 50,000 51,785
Federal Home Loan Mortgage Corp.
6.783%, 8/18/05 Aaa 30,000 29,573
Federal National Mortgage
Association 6.44%, 6/21/05 Aaa 250,000 240,430
U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Guaranteed Export Trust Certificates
(assets of Trust guaranteed by
U.S. Government through Export-
Import Bank) Series 1996-A,
6.55%, 6/15/04 Aaa $ 37,647 $ 37,347
U.S. Housing & Urban
Development 8.24%, 8/1/04
participation certificate Aaa 20,000 21,473
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS 411,321
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS
(Cost $14,706,153). 14,612,577
U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES - 3.8%
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 2.8%
6%, 3/1/11 Aaa 1,989,165 1,880,994
6 1/2%, 2/1/26 to 3/1/26 Aaa 2,015,741 1,885,343
3,766,337
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 1.0%
6%, 5/15/11 Aaa 989,141 942,156
8%, 7/15/26 Aaa 500,000 504,063
1,446,219
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $5,259,461) 5,212,556
COMMERCIAL MORTGAGE SECURITIES - 0.3%
DLJ Mortgage Acceptance
Corp. commercial Series
1993-MF12 Class B-2,
10.10%, 9/18/03 - 250,000 225,313
Morgan Stanley Capital One, Inc.
commercial Series 1996-MBL1
Class E, 8.661%,
5/25/21 (c) - 99,838 85,673
Mortgage Capital Funding, Inc.
commercial Series 1996-MC1
Class G, 7.15%, 7/15/28 BB 100,000 74,625
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $385,202) 385,611
FOREIGN GOVERNMENT OBLIGATIONS - 0.1%
Ontario Province Canada
6%, 2/21/06
(Cost $92,043) Aa3 100,000 91,587
REPURCHASE AGREEMENTS - 6.4%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.46%, dated
6/28/96 due 7/1/96 $ 8,706,960 $8,703,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $132,475,416) $ 135,576,333
LEGEND
(a) Non-income producing
(b) Standard & Poor's Corporation credit ratings are used in the absence of
a rating by Moody's Investors Service, Inc.
(c) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $1,165,316 or 0.9% of net
assets.
(d) Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
(e) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(f) A company in which the fund has ownership of at least 5% of the voting
securities is an affiliated company. A summary of the transactions during
the period in which the issuers were affiliates is as follows:
PURCHASE SALES DIVIDEND MARKET
AFFILIATE COST COST INCOME VALUE
Cardiac Control
Systems, Inc. $ 50,600 $ 358,569 $ - $ -
IVF America, Inc. - 1,364,593 - -
$ 50,600 $ 1,723,162 $ - $ -
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $170,477,714 and $107,319,471, respectively, of which U.S.
government and government agency obligations aggregated $30,362,456 and
$13,264,439, respectively.
The market value of futures contracts opened and closed during the period
amounted to $1,122,861 and $4,735,264, 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 $39,093 for the period (see
Note 4 of Notes to Financial Statements).
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 15.4% AAA, AA, A 15.1%
Baa 0.4% BBB 0.7%
Ba 0.8% BB 1.2%
B 3.7% B 2.8%
Caa 0.1% CCC 0.4%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by either S&P or Moody's amounted to 0.9%.
Distribution of investments by country of issue, as a percentage of total
value of investment in securities, is as follows:
United States 82.7%
Japan 6.9
United Kingdom 2.9
Netherland 2.7
Brazil 1.9
Canada 1.7
Others (individually less than 1%) 1.2
TOTAL 100.0%
INCOME TAX INFORMATION
At June 30, 1996, the aggregate cost of investment securities for income
tax purposes was $132,475,423. Net unrealized appreciation aggregated
$3,100,910, of which $5,700,787 related to appreciated investment
securities and $2,599,877 related to depreciated investment securities.
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER: GROWTH PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
ASSETS
Investm $ 135,576,333
ent in
securit
ies, at
value
(includ
ing
repurc
hase
agree
ments
of
$8,703
,000)
(cost
$132,4
75,416
) -
See
accom
panyin
g
sched
ule
Cash 280
Receiva 3,255,594
ble for
invest
ments
sold
Receiva 386,095
ble for
fund
shares
sold
Dividend 245,700
s
receiv
able
Interest 463,464
receiv
able
TOTAL 139,927,466
ASSETS
LIABILITI
ES
Payable $ 7,909,609
for
invest
ments
purcha
sed
Payable 4,755
for
fund
shares
redee
med
Accrued 73,679
manag
ement
fee
Other 58,814
payabl
es and
accrue
d
expen
ses
TOTAL 8,046,857
LIABILIT
IES
NET $ 131,880,609
ASSET
S
Net
Assets
consist
of:
Paid in $ 122,341,516
capital
Undistrib 1,037,114
uted
net
invest
ment
incom
e
Accumul 5,401,908
ated
undistr
ibuted
net
realize
d gain
(loss)
on
invest
ments
and
foreign
curren
cy
transa
ctions
Net 3,100,071
unreali
zed
apprec
iation
(depre
ciation
) on
invest
ments
and
assets
and
liabiliti
es in
foreign
curren
cies
NET $ 131,880,609
ASSET
S, for
10,634
,247
shares
outsta
nding
NET $12.40
ASSET
VALUE,
offerin
g price
and
redem
ption
price
per
share
($131,
880,60
9 (divided by)
10,634
,247
shares
)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
INVESTM $ 671,334
ENT
INCOME
Dividend
s
Interest 842,362
TOTAL 1,513,696
INCOM
E
EXPENS
ES
Manage $ 341,139
ment
fee
Transfer 33,070
agent
fees
Accounti 32,012
ng
fees
and
expen
ses
Non-inte 167
rested
trustee
s'
compe
nsatio
n
Custodia 45,238
n fees
and
expen
ses
Audit 14,657
Legal 140
Miscella 135
neous
Total 466,558
expen
ses
before
reducti
ons
Expen (21,701 444,857
se )
reducti
ons
NET 1,068,839
INVEST
MENT
INCOM
E
REALIZE
D AND
UNREALIZ
ED GAIN
(LOSS)
Net
realize
d gain
(loss)
on:
Invest 5,292,153
ment
securiti
es
(includi
ng
realiz
ed gain
of
$267,4
51 on
sales
of
invest
ments
in
affiliate
d
issuers
)
Foreig 219,878
n
curren
cy
transa
ctions
Future 262,658 5,774,689
s
contra
cts
Change
in net
unreali
zed
apprec
iation
(depre
ciation
) on:
Invest 1,606,997
ment
securit
ies
Assets (133,480
and )
liabiliti
es in
forei
gn
curren
cies
Future (160,755 1,312,762
s )
contra
cts
NET GAIN 7,087,451
(LOSS)
NET $ 8,156,290
INCREA
SE
(DECRE
ASE) IN
NET
ASSETS
RESULTI
NG
FROM
OPERAT
IONS
OTHER $ 21,701
INFORM
ATION
Expen
se
reducti
ons
Direc
ted
broker
age
arrang
ements
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS JANUARY 3, 1995
ENDED (COMMENCEMENT
JUNE 30, 1996 OF
(UNAUDITED) OPERATIONS) TO
DECEMBER 31,
1995
Operatio $ 1,068,839 $ 621,277
ns
Net
invest
ment
incom
e
Net 5,774,689 4,773,781
realize
d gain
(loss)
Chang 1,312,762 1,787,309
e in
net
unreali
zed
apprec
iation
(depre
ciation
)
NET 8,156,290 7,182,367
INCR
EASE
(DEC
REAS
E) IN
NET
ASSE
TS
RESU
LTING
FROM
OPER
ATIO
NS
Distributi - (591,903)
ons to
shareh
olders
From
net
invest
ment
incom
e
From (2,735,270) (2,259,995)
net
realize
d gain
TOTAL (2,735,270) (2,851,898)
DISTRIB
UTIONS
Share 66,961,120 68,544,838
transa
ctions
Net
procee
ds
from
sales
of
shares
Reinve 2,735,270 2,851,898
stment
of
distrib
utions
Cost (11,483,416) (7,480,590)
of
shares
redee
med
NET 58,212,974 63,916,146
INCR
EASE
(DEC
REAS
E) IN
NET
ASSE
TS
RESU
LTING
FROM
SHAR
E
TRAN
SACTI
ONS
TOTAL 63,633,994 68,246,615
INCREA
SE
(DECRE
ASE) IN
NET
ASSETS
NET
ASSETS
Beginn 68,246,615 -
ing of
period
End of $ 131,880,609 $ 68,246,615
perio
d
(inclu
ding
unde
r
(over
)
distri
butio
n of
net
inves
tmen
t
inco
me
of
$1,0
37,11
4
and
$(31,
082),
resp
ectiv
ely)
OTHER
INFORMAT
ION
Shares
Sold 5,573,284 6,215,852
Issued 235,393 243,336
in
reinve
stment
of
distrib
utions
Redee (970,860) (662,758)
med
Net 4,837,817 5,796,430
increa
se
(decre
ase)
<TABLE>
<CAPTION>
<S> <C> <C>
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
FINANCIAL HIGHLIGHTS
SIX MONTHS JANUARY 3, 1995
ENDED (COMMENCEMENT
JUNE 30, 1996 OF
(UNAUDITED) OPERATIONS) TO
DECEMBER 31,
1995
SELECTE $ 11.77 $ 10.00
D
PER-S
HARE
DATA
Net
asset
value,
beginn
ing of
period
Income
from
Invest
ment
Operat
ions
Net .10 .10
invest
ment
incom
e
Net .95 2.20
realize
d and
unreali
zed
gain
(loss)
Total 1.05 2.30
from
invest
ment
operati
ons
Less - (.11)
Distrib
utions
From
net
invest
ment
incom
e
From (.42) (.42)
net
realize
d gain
Total (.42) (.53)
distrib
utions
Net $ 12.40 $ 11.77
asset
value,
end of
period
TOTAL 9.16% 23.02%
RETUR
N B, C
RATIOS
AND
SUPPL
EMENT
AL
DATA
Net $ 131,881 $ 68,247
assets
, end
of
period
(000
omitte
d)
Ratio of .98% A 1.00% D
expen
ses to
averag
e net
assets
Ratio of .93% A, 1.00%
expen E
ses to
averag
e net
assets
after
expen
se
reducti
ons
Ratio of 2.24% A 1.69%
net
invest
ment
incom
e to
averag
e net
assets
Portfolio 253% A 343%
turnov
er rate
Average $ .0285
commi
ssion
rate F
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
THOSE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD
CERTAIN EXPENSES NOT BEEN REDUCED DURING THE
PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS). D FMR AGREED TO REIMBURSE A
PORTION OF THE FUND'S EXPENSES DURING THE PERIOD.
WITHOUT THIS REIMBURSEMENT, THE EXPENSE RATIO
WOULD HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS). E FMR OR THE FUND HAS
ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE
FUND'S
EXPENSES (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS). F FOR FISCAL YEARS BEGINNING ON OR
AFTER SEPTEMBER 1, 1995, A FUND IS REQUIRED TO
DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE
CHARGED. THIS AMOUNT MAY VARY FROM PERIOD TO
PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF
TRADES EXECUTED IN VARIOUS MARKETS WHERE TRADING
PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
VARIABLE INSURANCE PRODUCTS FUND II: CONTRAFUND PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance: total
percentage change in value, the average annual percentage change, or the
growth of a hypothetical $10,000 investment. A fund's total return includes
changes in a fund's share price, plus reinvestment of any dividends
(income) and capital gains (the profits the fund earns when it sells
securities that have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1996 PAST 1 LIFE OF
YEAR FUND
CONTRAFUND 21.03% 31.88%
S&P 500 26.00% 32.05%
AVERAGE ANNUAL RETURNS take the fund's actual ( or cumulative) return and
show you what would have happened if the fund had performed at a constant
rate each year.
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 growth in the long run and volatility
in the short run. 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.
(checkmark)
You can compare the fund's return to the performance of the Standard &
Poor's 500 Index - a widely recognized, unmanaged index of common stocks.
The S&P 500 returns reflect reinvestment of all dividends paid by stocks
included in the Index, but do not reflect any brokerage commissions or
other fees you might pay if you actually invested in those stocks.
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.
$10,000 OVER LIFE OF FUND
Contrafund Portfolio S&P 500
$15,145
$15,116
$
1995 1996
Let's say hypothetically that $10,000 was invested in Contrafund Portfolio
on January 3, 1995, when the fund started. As the chart shows, by June 30,
1996, the value of the investment would have grown to $15,116 - a 51.16%
increase on the initial investment. For comparison, look at how the S&P 500
did over the same period. With dividends and capital gains, if any,
reinvested, the same $10,000 investment would have grown to $15,145 - a
51.45% increase.
INVESTMENT SUMMARY
TOP TEN STOCKS AS OF JUNE 30, 1996
% OF FUND'S
INVESTMENTS
Schlumberger Ltd. 1.9
Royal Dutch Petroleum Co. ADR 1.5
General Motors Corp. 1.1
Home Depot, Inc. (The) 1.0
Halliburton Co. 1.0
WorldCom, Inc. 0.9
du Pont (E.I.) de Nemours & Co. 0.9
Chrysler Corp. 0.9
Tidewater, Inc. 0.8
Ford Motor Co. 0.8
TOP TEN MARKET SECTORS AS OF JUNE 30, 1996
% OF FUND'S
INVESTMENTS
Energy 21.8
Retail & Wholesale 8.2
Durables 6.9
Finance 6.8
Media & Leisure 6.5
Technology 6.4
Basic Industries 5.5
Industrial Machinery & Equipment 4.8
Health 2.7
Precious Metals 2.6
VARIABLE INSURANCE PRODUCTS FUND II: CONTRAFUND PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
An interview with Will Danoff, Portfolio Manager of Contrafund Portfolio
Q. HOW DID THE FUND PERFORM, WILL?
A. The fund slightly underperformed the Standard & Poor's 500 Index, which
returned 10.10% for the six-month period ended June 30, 1996, and 26.00%
for the year.
Q. WHAT'S YOUR EVALUATION OF THE FUND'S PERFORMANCE?
A. The fund performed in line with its peers despite taking, in my opinion,
much less risk than the average growth fund. While it is difficult to
quantify risk in a fund, one measure is the fund's price-to-earnings (P/E)
ratio - or the price the fund is paying for one dollar of earnings.
Contrafund's average P/E ratio was about 21 times at the end of the period,
lower than the average growth fund's approximately 27 P/E ratio.
Additionally, the fund carried a higher-than-average percentage of
short-term investments (cash) during the period. Contrafund had between 13%
and about 15% of total investments in cash for the entire period, much more
than the cash position for the average growth fund, which was about 8%.
Thus, with the market up 10% for the period, the fund's cash position hurt
its performance by approximately one percentage point.
Q. WHY DID THE FUND HOLD A LARGE CASH POSITION?
A. While in the short term it would have been better for the fund to have
stayed fully invested in stocks, the fund held its relatively high cash
position because I believed that the market was paying incredibly high
prices for most growth companies - particularly small and rapidly growing
companies. While small growth companies produced some of the best returns
in the market during the period, many of these companies were trading at
P/E ratios of more than 60 - which is more than three times as much as the
average stock in Contrafund. I was simply unwilling to buy these expensive
stocks in order to produce better than average returns for a single
six-month period. If interest rates increase, this year's historically huge
cash flows into mutual funds slow, or earnings growth diminishes, these
very expensive stocks could fall precipitously.
Q. WHICH SECTORS HELPED THE FUND DURING THE PERIOD? WHICH ONES HURT IT?
A. The energy and energy-services sector contributed nicely to the fund's
performance during the first half of the year despite suffering what I
consider a mild - and healthy - correction in the second quarter. The
sector rose about 15% in the first six months of the year, handily beating
all of the market averages and generating the best returns of all sectors
with the exception of the volatile precious metals group. One dampening
influence on the fund during the period, other than the high cash position,
was its underweighting of the consumer products sector. While the fund was
adequately represented in the retailing sector - which rebounded sharply
after a disastrous 1995 - it missed the strong performance of the consumer
nondurables, which includes tobacco, soft drink and personal care
multinationals. Although I underestimated the excellent overseas unit
growth of these companies, their stocks trade at very high P/E multiples
relative to their expected - and admittedly very predictable - earnings
growth rates and they are not the best investments for the fund.
Q. DID YOU FEEL AS OPTIMISTIC ABOUT THE ENERGY SECTOR AS YOU DID AT THE
BEGINNING OF THE YEAR?
A. Yes, right now I still believe that the energy sector is one of the most
attractive segments of the stock market. As I outlined in a letter to
shareholders last year, new technological breakthroughs such as
three-dimensional seismic analysis and horizontal drilling techniques now
enable exploration companies to find and extract oil and natural gas much
more economically than in the past. Thus, these energy companies are more
profitable and can grow faster even if the prices of oil and natural gas
stay at current levels. Additionally, the entire energy industry is
operating very close to effective capacity. In the past decade, the weaker
energy companies have closed part of their operations, gone out of business
entirely, or sold themselves to the stronger players. My research showed
that the industry's capacity utilization is approaching 95% - a level not
seen since the last oil crisis in 1979. This tightness suggests that global
oil and gas prices should remain firm and rates charged by firms in the
energy services sector should begin to increase for the first time in 15
years. These higher prices are extremely positive for the profit growth of
the surviving companies and consequently their performance in the stock
market. Based on this optimistic view, the fund held large positions in
Schlumberger, Royal Dutch Petroleum, Halliburton, British Petroleum and
Tidewater - all leading companies in this sector.
Q. GIVEN THE RECORD HIGHS IN THE STOCK MARKET, HOW DO YOU PLAN TO MANAGE
THE FUND GOING FORWARD?
A. Looking forward, the fund will remain defensively postured by holding a
substantial cash position, owning less economically sensitive stocks and
holding fewer high P/E stocks. Nevertheless, I will continue to look for
companies with the potential of good earnings growth 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 AND
OTHER CONDITIONS.
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, 1996, more than $3.4 billion
MANAGER: Richard Habermann, since March
1996; joined Fidelity in 1968
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND II: CONTRAFUND PORTFOLIO
INVESTMENTS JUNE 30, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 82.4%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 1.5%
AEROSPACE & DEFENSE - 0.8%
Boeing Co. 31,500 $ 2,744,438
C A E Industries Ltd. 302,700 2,519,633
General Motors Corp. Class H 63,900 3,841,988
Harsco Corp. 17,800 1,197,050
Northrop Grumman Corp. 19,300 1,314,813
Orbital Sciences Corp. (a) 3,700 60,125
Sundstrand Corp. 55,600 2,036,350
13,714,397
DEFENSE ELECTRONICS - 0.4%
KVH Industries, Inc. (a) 130,500 1,190,813
Raytheon Co. 55,800 2,880,675
Tech-Sym Corp. (a) 9,100 270,725
Tracor, Inc. (a) 113,000 1,949,250
6,291,463
SHIP BUILDING & REPAIR - 0.3%
Avondale Industries, Inc. (a) 47,300 851,400
General Dynamics Corp. 61,000 3,782,000
4,633,400
TOTAL AEROSPACE & DEFENSE 24,639,260
BASIC INDUSTRIES - 5.5%
CHEMICALS & PLASTICS - 3.5%
Air Products & Chemicals, Inc. 26,700 1,541,925
Asahi Chemical Industry Co. Ltd. 294,000 2,095,693
Cambrex Corp. 29,300 1,497,963
Crompton & Knowles Corp. 188,500 3,157,375
Dow Chemical Co. 25,300 1,922,800
du Pont (E.I.) de Nemours & Co. 182,500 14,440,313
Furon Co. 13,300 329,175
Grace (W.R.) & Co. 43,700 3,097,238
Hercules, Inc. 61,300 3,386,825
ICI (Imperial Chemical Industries)
PLC Ord. 7,800 95,414
International Specialty Products, Inc. (a) 72,400 796,400
Monsanto Co. 20,400 663,000
Praxair, Inc. 103,900 4,389,775
Raychem Corp. 38,800 2,788,750
Rohm & Haas Co. 9,100 571,025
Sealed Air Corp. (a) 235,800 7,928,775
Union Carbide Corp. 107,800 4,285,050
Uniroyal Chemical Corp. (a) 104,200 1,549,975
Witco Corp. 40,000 1,375,000
55,912,471
IRON & STEEL - 0.2%
Kobe Steel Ltd. (a) 1,011,000 2,902,922
Mueller Industries, Inc. (a) 10,400 431,600
3,334,522
METALS & MINING - 1.1%
Aluminum Co. of America 25,500 1,463,063
Belden, Inc. 30,000 900,000
Falconbridge Ltd. 49,600 1,080,356
Falconbridge Ltd.
1st Installment Receipt (d) 86,900 701,038
Freeport-McMoRan Copper & Gold, Inc.
Class B 179,600 5,724,750
Inco Ltd. 147,300 4,747,780
QNI Ltd. 700,482 1,566,727
SHARES VALUE (NOTE 1)
SGL Carbon AG 9,400 $ 1,097,540
Titanium Metals Corp. (a) 16,700 432,113
17,713,367
PACKAGING & CONTAINERS - 0.4%
Bemis Co., Inc. 14,600 511,000
Corning, Inc. 52,900 2,030,038
Owens-Illinois, Inc. (a) 240,700 3,851,200
6,392,238
PAPER & FOREST PRODUCTS - 0.3%
Boise Cascade Corp. 8,900 325,963
Champion International Corp. 35,700 1,490,475
Fort Howard Corp. (a) 28,000 556,500
Georgia-Pacific Corp. 24,100 1,711,100
International Paper Co. 6,900 254,438
Pentair, Inc. 22,100 663,000
5,001,476
TOTAL BASIC INDUSTRIES 88,354,074
CONGLOMERATES - 1.1%
Alexander & Baldwin, Inc. 8,700 209,888
Allied-Signal, Inc. 93,600 5,346,900
American Standard Companies, Inc. (a) 21,900 722,700
Brascan Ltd. Class A 53,600 998,453
Crane Co. 27,100 1,111,100
Mark IV Industries, Inc. 4,500 101,813
Suncor, Inc. 3,500 110,630
Tyco International Ltd. 216,100 8,806,075
United Technologies Corp. 3,200 368,000
17,775,559
CONSTRUCTION & REAL ESTATE - 1.7%
BUILDING MATERIALS - 0.2%
Dexter Corp. 5,700 169,575
Elcor Corp. 19,400 354,050
Masco Corp. 24,400 738,100
Schuller Corp. 63,500 658,813
Southdown, Inc. 16,600 390,100
York International Corp. 2,900 150,075
2,460,713
CONSTRUCTION - 0.4%
Centex Corp. 6,900 214,763
Crossman Communities, Inc. (a) 25,000 487,500
Daiwa House Industry Co. Ltd. 193,000 2,990,748
Lennar Corp. 45,744 1,143,600
Oakwood Homes Corp. 92,600 1,909,875
Skyline Corp. 500 12,500
6,758,986
ENGINEERING - 0.4%
EG & G, Inc. 50,500 1,079,438
Fluor Corp. 68,700 4,491,263
Foster Wheeler Corp. 26,800 1,202,650
MasTec, Inc. (a) 15,200 383,800
7,157,151
REAL ESTATE - 0.4%
Catellus Development Corp. 9,100 83,038
Metroplex BHD 2,078,000 2,232,080
Rouse Co. (The) 125,900 3,257,663
5,572,781
REAL ESTATE INVESTMENT TRUSTS - 0.3%
Crescent Real Estate Equities, Inc. 39,500 1,451,625
Felcor Suite Hotels, Inc. 17,300 527,650
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
CONSTRUCTION & REAL ESTATE - CONTINUED
REAL ESTATE INVESTMENT TRUSTS - CONTINUED
General Growth Properties, Inc. 10,300 $ 248,488
Speiker Properties, Inc. 85,300 2,324,425
Starwood Lodging Trust combined
certificate (SBI) 8,200 298,275
4,850,463
TOTAL CONSTRUCTION & REAL ESTATE 26,800,094
DURABLES - 6.9%
AUTOS, TIRES, & ACCESSORIES - 4.8%
Autozone, Inc. (a) 42,400 1,473,400
Chrysler Corp. 231,100 14,328,200
Dana Corp. 117,700 3,648,700
Danaher Corp. 85,900 3,736,650
Ford Motor Co. 374,800 12,134,150
General Motors Corp. 343,300 17,980,338
Goodyear Tire & Rubber Co. 34,900 1,683,925
Honda Motor Co. Ltd. 187,000 4,840,983
Intermet Corp. (a) 81,400 1,134,513
Lear Seating Corp. (a) 200,400 7,064,100
Magna International, Inc. Class A 30,800 1,423,050
PACCAR, Inc. 12,600 617,400
SPX Corp. 36,400 891,800
Scania AB:
Class A 22,900 633,834
Class B 24,000 666,085
Standard Products Co. 12,900 299,925
TRW, Inc. 30,700 2,759,163
Toyota Motor Corp. 102,000 2,547,559
77,863,775
CONSUMER DURABLES - 0.0%
Syratech Corp. (a) 14,100 317,250
CONSUMER ELECTRONICS - 0.5%
Harman International Industries, Inc. 32,600 1,605,550
Maytag Co. 134,200 2,801,425
Sony Corp. 55,400 3,640,983
8,047,958
HOME FURNISHINGS - 0.2%
Furniture Brands International, Inc. (a) 148,600 1,634,600
Kinetic Concepts, Inc. 55,000 852,500
Miller (Herman), Inc. 8,100 248,063
2,735,163
TEXTILES & APPAREL - 1.4%
Adidas AG 22,200 1,862,499
Andayani Megah PT 1,000,000 494,305
Designer Holdings Ltd. (a) 42,800 1,139,550
Fila Holding Spa sponsored ADR 3,300 284,571
Fruit of the Loom, Inc. Class A (a) 20,500 522,750
Gucci Group NV 15,000 967,500
Intimate Brands, Inc. Class A 67,600 1,546,350
Jones Apparel Group, Inc. (a) 45,700 2,245,013
Kellwood Co. 50,000 918,750
Liz Claiborne, Inc. 78,200 2,707,675
Mohawk Industries, Inc. (a) 55,000 976,250
NIKE, Inc. Class B 44,200 4,541,550
Stride Rite Corp. 30,300 249,975
Unifi, Inc. 19,200 540,000
SHARES VALUE (NOTE 1)
Vans, Inc. (a) 106,800 $ 1,815,600
Warnaco Group, Inc. Class A 84,800 2,183,600
22,995,938
TOTAL DURABLES 111,960,084
ENERGY - 21.5%
ENERGY SERVICES - 8.8%
BJ Services Co. (a) 65,600 2,304,200
Baker Hughes, Inc. 209,100 6,874,163
Carbo Ceramics, Inc. (a) 21,500 473,000
Diamond Offshore Drilling, Inc. (a) 61,000 3,492,250
Dresser Industries, Inc. 346,500 10,221,750
ENSCO International, Inc. (a) 308,087 10,012,828
Energy Ventures, Inc. (a) 55,800 1,813,500
Falcon Drilling, Inc. (a) 41,100 1,114,838
Global Marine, Inc. (a) 228,000 3,163,500
Halliburton Co. 286,800 15,917,400
Helmerich & Payne, Inc. 88,500 3,241,313
Nabors Industries, Inc. (a) 453,400 7,367,750
Newpark Resources, Inc. 18,800 690,900
Noble Drilling Corp. 173,400 2,405,925
Powell Industries, Inc. (a) 3,400 39,525
Reading & Bates Corp. (a) 137,700 3,046,613
Rowan Companies, Inc. (a) 38,800 572,300
Schlumberger Ltd. 368,600 31,054,550
Seacor Holdings, Inc. (a) 16,400 733,900
Smedvig AS 12,900 298,409
Smith International, Inc. (a) 395,400 11,911,425
Sonat Offshore Drilling, Inc. 120,600 6,090,300
Tidewater, Inc. 289,559 12,704,401
Transocean Drilling AS (a) 11,600 300,430
Varco International, Inc. (a) 49,100 889,938
Weatherford Enterra, Inc. (a) 196,200 5,886,000
142,621,108
INDEPENDENT POWER - 0.2%
Thermo Electron Corp. (a) 62,500 2,601,563
OIL & GAS - 12.5%
Amerada Hess Corp. 48,600 2,606,175
Amoco Corp. 5,900 427,013
Anadarko Petroleum Corp. 98,000 5,684,000
Atlantic Richfield Co. 73,200 8,674,200
Barrett Resources Corp. (a) 70,900 2,109,275
Belco Oil & Gas Corp. (a) 25,000 887,500
Benton Oil & Gas Co. (a) 57,200 1,258,400
British Petroleum PLC ADR 110,882 11,850,514
Burlington Resources, Inc. 104,000 4,472,000
Camco International, Inc. 270,200 9,153,025
Canada Occidental Petroleum Ltd. 159,900 2,691,287
Canadian Natural Resources Ltd. (a) 36,100 673,789
Chesapeake Energy Corp. (a) 51,600 3,091,700
Chieftain International, Inc. (a) 50,000 999,230
Coastal Corp. (The) 112,700 4,705,225
Cooper Cameron Corp. (a) 199,920 8,746,500
Devon Energy Corp. 2,400 58,800
Diamond Shamrock R&M, Inc. 136,700 3,947,213
Elan Energy, Inc. (a) 12,700 116,424
Enron Oil & Gas Co. 206,200 5,747,825
Enterprise Oil PLC 149,200 1,065,409
Exxon Corp. 57,800 5,021,375
Flores & Rucks, Inc. (a) 55,500 1,914,750
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Forcenergy Gas Exploration, Inc. (a) 26,200 $ 494,525
Imperial Oil Ltd. 21,100 891,320
Kerr-McGee Corp. 37,200 2,264,550
Lomak Petroleum, Inc. 66,500 947,625
Louisiana Land & Exploration Co. 11,300 651,163
NGC Corp. 33,300 499,500
Newfield Exploration Co. (a) 83,600 3,249,950
Noble Affiliates, Inc. (a) 81,900 3,091,725
Norcen Energy Resources Ltd. 8,800 154,567
Northstar Energy Corp. (a) 122,000 1,185,508
Occidental Petroleum Corp. 361,900 8,957,025
Petro-Canada 99,400 1,235,620
Petro-Canada
1st installment receipt (d) 124,800 777,969
Phillips Petroleum Co. 266,100 11,142,938
Pogo Producing Co. 132,300 5,043,938
Renaissance Energy Ltd. (a) 220,400 5,818,929
Rio Alto Exploration Ltd. (a)(c) 39,300 216,164
Royal Dutch Petroleum Co.
ADR 135,100 20,771,625
Ord. 20,600 3,176,089
Rutherford-Moran Oil Corp. 1,900 46,313
Santa Fe Energy Resources, Inc. (a) 174,900 2,076,938
Swift Energy Co. (a) 377,900 6,802,200
Texaco, Inc. 99,000 8,303,625
Tosco Corp. 49,400 2,482,350
USX-Marathon Group 214,900 4,324,863
Union Pacific Resources Group, Inc. 126,700 3,389,225
United Meridian Corp. (a) 65,200 2,347,200
Unocal Corp. 332,300 11,215,125
Valero Energy Corp. 35,800 895,000
Vastar Resources, Inc. 30,300 1,132,463
Vintage Petroleum, Inc. 81,800 2,085,900
201,573,561
TOTAL ENERGY 346,796,232
FINANCE - 6.8%
BANKS - 3.0%
Bank of New York Co., Inc. 25,800 1,322,250
BankAmerica Corp. 127,800 9,680,850
Chase Manhattan Corp. 36,700 2,591,938
Citicorp 72,100 5,957,263
Cullen Frost Bankers, Inc. 19,400 538,350
First Bank System, Inc. 115,000 6,670,000
First Commerce Corp. 28,800 1,018,800
Firstar Corp. 8,200 378,225
HSBC Holdings PLC 296,000 4,530,627
HUBCO, Inc. 13,500 285,188
Hang Seng Bank Ltd. 78,000 785,945
Mitsui Trust and Banking Co. Ltd. 185,000 2,158,516
NationsBank Corp. 35,900 2,966,238
Regions Financial Corp. 3,600 168,300
Sakura Bank Ltd. 104,000 1,156,556
Texas Regional Bancshares, Inc.
Class A (vtg.) 7,800 195,000
U.S. Bancorp. 165,800 5,989,525
Westpac Banking Corp. 295,500 1,310,219
Zions Bancorp. 7,600 552,900
48,256,690
SHARES VALUE (NOTE 1)
CLOSED END INVESTMENT COMPANY - 0.1%
Alliance Global Environment Fund 12,800 $ 168,000
Morgan Stanley Asia-Pacific Fund, Inc. 82,100 985,200
Morgan Stanley Emerging Markets
Fund, Inc. 23,900 403,313
TCW/DW Emerging Markets
Opportunities Trust (SBI) 14,200 156,200
Templeton Dragon Fund, Inc. 43,400 575,050
2,287,763
CREDIT & OTHER FINANCE - 1.4%
Aames Financial Corp. 200 7,175
Acom Co. Ltd. 20,100 786,008
American Express Co. 105,800 4,721,325
Associates First Capital Corp. (a) 39,600 1,489,950
Cityscape Financial Corp. 18,300 937,875
Greenpoint Financial Corp. 90,500 2,556,625
Household International, Inc. 153,700 11,681,200
PHH Corp. 18,700 1,065,900
23,246,058
FEDERAL SPONSORED CREDIT - 0.5%
Federal Home Loan Mortgage
Corporation 9,700 829,350
Federal National Mortgage Association 198,400 6,646,400
7,475,750
INSURANCE - 1.2%
ACE Ltd. 1,300 61,100
Allmerica Financial Corp. 15,000 446,250
Allstate Corp. 144,100 6,574,563
Conseco, Inc. 95,500 3,820,000
Everest Reinsurance Holdings, Inc. 4,000 103,500
Gainsco, Inc. 47,000 464,125
ITT Hartford Group, Inc. 1,000 53,250
Riscorp, Inc. (a) 65,000 1,186,250
SunAmerica, Inc. 41,200 2,327,800
Tokio Marine & Fire Insurance
Co. Ltd. (The) 38,000 505,720
Travelers/Aetna Property Casualty
Corp. Class A (a) 35,800 1,015,825
Travelers Group, Inc., (The) 53,250 2,429,531
18,987,914
SAVINGS & LOANS - 0.3%
Glendale Federal Bank Federal Savings
Bank (a) 112,600 2,040,875
Golden West Financial Corp. 42,980 2,406,880
4,447,755
SECURITIES INDUSTRY - 0.3%
Nikko Securities Co. Ltd. 245,000 2,746,912
Nomura Securities Co. Ltd. 78,000 1,521,535
Peregrine Investments Holdings Ltd. 842,000 1,212,802
5,481,249
TOTAL FINANCE 110,183,179
HEALTH - 2.6%
DRUGS & PHARMACEUTICALS - 0.3%
Alliance Pharmaceutical Corp. (a) 42,000 693,000
Andrx Corp. (a) 6,300 95,288
CIBA-GEIGY AG (Reg.) 200 243,270
Sandoz AG (Reg.) 200 228,275
Sepracor, Inc. (a) 104,200 1,563,000
Takeda Chemical Industries Ltd. 107,000 1,892,165
4,714,998
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
HEALTH - CONTINUED
MEDICAL EQUIPMENT & SUPPLIES - 0.7%
Acuson Corp. (a) 11,400 $ 182,400
Bard (C.R.), Inc. 4,400 149,600
Becton, Dickinson & Co. 5,700 457,425
Biomet, Inc. (a) 55,100 792,063
Cardinal Health, Inc. 3,200 230,800
Hoya Corp. 114,000 3,678,593
InControl, Inc. (a) 44,200 519,350
Pall Corp. 14,000 337,750
Sofamor/Danek Group, Inc. 13,800 382,950
U.S. Surgical Corp. 107,300 3,326,300
Zoll Medical Corp. (a) 40,000 640,000
10,697,231
MEDICAL FACILITIES MANAGEMENT - 1.6%
Columbia/HCA Healthcare Corp. 102,100 5,449,588
HEALTHSOUTH Rehabilitation Corp. (a) 306,600 11,037,600
Health Management Associates, Inc.
Class A (a) 130,000 2,632,500
Multicare Companies, Inc. (a) 18,500 351,500
National Surgery Centers, Inc. (a) 17,450 462,425
OrNda Healthcorp (a) 24,500 588,000
Physicians Resource Group, Inc. (a) 14,600 487,275
Quorum Health Group, Inc. (a) 15,400 406,175
Safeguard Health Enterprises, Inc. (a) 61,300 1,095,738
Tenet Healthcare Corp. (a) 120,400 2,573,550
Total Renal Care Holdings, Inc. (a) 14,800 625,300
Vencor, Inc. (a) 33,600 1,024,800
26,734,451
TOTAL HEALTH 42,146,680
HOLDING COMPANIES - 0.2%
Citic Pacific Ltd. Ord. 190,000 768,247
First Pacific Co. Ltd. 660,586 1,015,498
Lonrho Ltd. Ord. 304,500 874,478
2,658,223
INDUSTRIAL MACHINERY & EQUIPMENT - 4.8%
ELECTRICAL EQUIPMENT - 1.1%
AMETEK, Inc. 25,200 548,100
Alcatel Alsthom Cie Generale
d'Electricite SA 34,100 2,970,107
Avid Technology, Inc. (a) 35,000 647,500
Charter Power Systems, Inc. 12,900 448,275
Computer Products, Inc. (a) 48,200 825,425
Emerson Electric Co. 24,200 2,187,075
Hutchison Whampoa Ltd. Ord. 24,000 150,988
Loral Space & Communications Ltd. (a) 264,000 3,597,000
Omron Corp. 123,000 2,612,370
Roper Industries, Inc. 4,900 238,875
Sensormatic Electronics Corp. 14,400 235,800
Westinghouse Electric Corp. 202,600 3,798,750
18,260,265
INDUSTRIAL MACHINERY & EQUIPMENT - 2.4%
BW/IP Holdings, Inc. Class A 45,300 860,700
Case Corp. 113,100 5,428,800
Caterpillar, Inc. 118,000 7,994,500
Cooper Industries, Inc. 54,800 2,274,200
Deere & Co. 65,300 2,612,000
Detroit Diesel Corp. (a) 11,800 228,625
Dover Corp. 49,300 2,273,963
SHARES VALUE (NOTE 1)
Global Industrial Technologies, Inc. (a) 3,500 $ 56,000
Graham-Field Health Products, Inc. (a) 64,900 559,763
Harnischfeger Industries, Inc. 38,700 1,286,775
Ingersoll-Rand Co. 81,000 3,543,750
Kaydon Corp. 58,800 2,528,406
Lindsay Manufacturing Co. (a) 49,900 2,008,475
Parker-Hannifin Corp. 13,700 580,538
Stanley Works 88,800 2,641,800
Thermo Fibertek, Inc. (a) 20,850 351,844
UCAR International, Inc. (a) 87,900 3,658,838
38,888,977
POLLUTION CONTROL - 1.3%
Allied Waste Industries, Inc. (a) 88,900 788,988
Republic Industries, Inc. 10,700 311,638
Sanifill, Inc. (a) 64,400 3,171,700
Sevenson Environmental Services, Inc. 31,500 547,313
Superior Services, Inc. (a) 134,700 2,289,900
Thermo Instrument Systems, Inc. (a) 8,500 274,125
USA Waste Services, Inc. (a) 96,000 2,844,000
United Waste Systems, Inc. (a) 108,700 3,505,575
WMX Technologies, Inc. 201,400 6,595,850
20,329,089
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 77,478,331
MEDIA & LEISURE - 6.5%
BROADCASTING - 1.2%
American Radio Systems Corp.
Class A (a) 61,900 2,661,700
Asia Satellite Telecommunications
Holdings Ltd. 173,700 514,974
Chancellor Corp. Class A 4,200 131,250
Clear Channel Communications, Inc. (a) 13,400 1,103,825
EZ Communications, Inc. Class A 700 16,625
Emmis Broadcasting Corp. Class A (a) 7,500 375,000
Home Shopping Network, Inc. (a) 166,000 1,992,000
Infinity Broadcasting Corp. Class A 190,050 5,701,500
Jacor Communications, Inc. Class A (a) 24,500 756,438
PanAmSat Corp. (a) 28,900 838,100
Paxson Communications Corp. (a) 51,300 545,063
Renaissance Communications Corp. (a) 58,200 1,876,950
TCI Group Class A 41,400 750,375
Telemundo Group, Inc. Class A (a) 39,000 906,750
U.S. Satellite Broadcasting Co., Inc.
Class A (a) 16,000 604,000
Viacom, Inc. Class A (a) 1,100 41,938
18,816,488
ENTERTAINMENT - 0.1%
Ameristar Casinos, Inc. 7,600 98,800
Carmike Cinemas, Inc. Class A (a) 2,200 59,400
Disney (Walt) Co. 8,100 509,288
MGM Grand, Inc. (a) 1,100 43,863
Regal Cinemas, Inc. (a) 17,200 786,900
1,498,251
LEISURE DURABLES & TOYS - 1.2%
Brunswick Corp. 1,200 24,000
Callaway Golf Co. 22,700 754,775
Champion Enterprises, Inc. (a) 125,100 2,611,463
Coleman, Inc. (a) 31,100 1,317,863
Harley Davidson, Inc. 61,500 2,529,188
Hasbro, Inc. 125,800 4,497,350
K2, Inc. (a) 6,400 173,600
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
MEDIA & LEISURE - CONTINUED
LEISURE DURABLES & TOYS - CONTINUED
Mattel, Inc. 132,950 $ 3,805,694
Nintendo Co. Ltd. Ord. 42,200 3,138,891
Polaris Industries, Inc. 34,600 1,180,725
20,033,549
LODGING & GAMING - 2.4%
Bally Entertainment Corp. 161,000 4,427,500
Circus Circus Enterprises, Inc. (a) 152,400 6,248,400
HFS, Inc. (a) 71,600 5,012,000
Hilton Hotels Corp. 83,500 9,393,750
Host Marriott Corp. (a) 245,000 3,215,625
ITT Corp. 67,700 4,485,125
International Game Technology Corp. 72,800 1,228,500
Interstate Hotels Co. 11,800 262,550
Mirage Resorts, Inc. (a) 34,600 1,859,750
Penske Motorsports, Inc. (a) 6,400 169,600
Promus Hotel Corp. (a) 900 26,663
Renaissance Hotel Group NV 2,400 51,000
Showboat, Inc. 51,100 1,539,388
Sun International Hotels Ltd. Ord. (a) 14,100 683,850
38,603,701
PUBLISHING - 1.1%
Belo (A.H.) Corp. Class A 2,300 85,675
Dow Jones & Co., Inc. 2,500 104,375
Harcourt General, Inc. 74,400 3,720,000
K-III Communications Corp. (a) 79,200 990,000
Knight-Ridder, Inc. 51,200 3,712,000
New York Times Co., (The) Class A 110,700 3,611,588
Playboy Enterprises, Inc. Class B (a) 40,400 595,900
Times Mirror Co. Class A 104,900 4,563,150
17,382,688
RESTAURANTS - 0.5%
CKE Restaurants, Inc. 1,900 48,450
Daka International, Inc. (a) 1,500 35,250
Landry's Seafood Restaurants, Inc. (a) 92,100 2,279,475
Mortons Restaurant Group, Inc. (a) 122,400 2,142,000
Outback Steakhouse, Inc. (a) 60,200 2,075,959
Papa John's International, Inc. (a) 14,600 711,750
Shoney's, Inc. (a) 38,100 414,338
7,707,222
TOTAL MEDIA & LEISURE 104,041,899
NONDURABLES - 0.4%
BEVERAGES - 0.1%
Coca-Cola Enterprises, Inc. 4,000 138,500
PepsiCo, Inc. 29,600 1,047,100
Seagram Co. Ltd. 24,400 818,672
2,004,272
HOUSEHOLD PRODUCTS - 0.3%
Gillette Co. 25,400 1,584,325
Inbrand Corp. (a) 15,400 431,200
Premark International, Inc. 31,800 588,300
Safeskin Corp. (a) 39,800 1,651,700
4,255,525
TOTAL NONDURABLES 6,259,797
PRECIOUS METALS - 2.6%
Agnico Eagle Mines Ltd. 22,000 358,989
Barrick Gold Corp. 150,300 4,083,910
Bre-X Minerals Ltd. (a) 357,400 5,976,106
SHARES VALUE (NOTE 1)
Bresea Resources Ltd. (a) 25,300 $ 236,570
Euro-Nevada Mining Ltd. 8,000 343,222
Franco Nevada Mining Corp. 62,700 3,977,522
Free State Consolidated Gold Mines
Ltd. Ord. 129,200 1,215,772
Getchell Gold Corp. 10,800 356,400
Greenstone Resources Ltd. (a) 39,900 468,190
Indochina Goldfields Ltd. (c) 75,600 651,461
Kinross Gold Corp. (a) 373,200 2,819,083
Newmont Gold Co. 39,600 1,994,850
Newmont Mining Corp. 241,400 11,919,125
Placer Dome, Inc. 150,700 3,608,489
TVI Pacific, Inc. (a) 68,500 86,407
TVI Pacific, Inc. (a)(c) 123,300 155,532
Western Mining Holdings Ltd. 590,300 4,230,506
42,482,134
RETAIL & WHOLESALE - 8.1%
APPAREL STORES - 2.3%
AnnTaylor Stores Corp. (a) 39,700 803,925
Burton Group PLC Ord. 319,700 769,244
Cato Corp. Class A 115,200 691,200
Charming Shoppes, Inc. 606,500 4,283,406
Gap, Inc. 233,300 7,494,763
Goody's Family Clothing 77,200 791,300
Limited, Inc. (The) 172,012 3,698,258
Loehmanns, Inc. (a) 26,600 611,800
Melville Corp. 215,800 8,739,900
Payless Shoesource, Inc. (a) 83,888 2,663,444
Ross Stores, Inc. 35,700 1,240,575
Saks Holdings, Inc. (a) 32,300 1,102,238
TJX Companies, Inc. 141,100 4,762,125
37,652,178
GENERAL MERCHANDISE STORES - 1.9%
Consolidated Stores Corp. (a) 15,700 576,975
Dayton Hudson Corp. 55,900 5,764,688
Dillard Department Stores, Inc. Class A 87,200 3,182,800
Federated Department Stores, Inc. (a) 27,300 931,613
K mart Corp. 232,700 2,879,663
Kohls Corp. 10,900 399,213
May Department Stores Co. (The) 14,600 638,750
Mercantile Stores Co., Inc. 13,300 779,713
Meyer (Fred), Inc. (a) 12,900 378,938
Michaels Stores, Inc. (a) 90,100 1,531,700
Price/Costco, Inc. (a) 107,300 2,320,363
Stein Mart, Inc. 64,800 1,182,600
Value City Department Stores, Inc. (a) 43,800 481,800
Woolworth Corp. (a) 410,300 9,231,750
30,280,566
GROCERY STORES - 1.9%
Albertson's, Inc. 35,200 1,456,400
American Stores Co. 49,000 2,021,250
Central Garden & Pet Co. (a) 36,100 649,800
Food Lion, Inc.:
Class A 428,700 3,402,806
Class B 33,700 261,175
Giant Food, Inc. Class A 8,600 308,525
Great Atlantic & Pacific Tea Co., Inc. 91,900 3,021,213
Loblaw Companies Ltd. 131,800 1,068,087
Performance Food Group Co. (a) 35,200 915,200
Provigo, Inc. (a) 338,600 1,812,753
Quality Food Centers, Inc. (a) 9,100 234,325
Richfood Holdings, Inc. Class A 188,500 6,126,250
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
RETAIL & WHOLESALE - CONTINUED
GROCERY STORES - CONTINUED
Safeway, Inc. (a) 231,000 $ 7,623,000
Vons Companies, Inc. (a) 12,600 470,925
Weis Markets, Inc. 5,100 166,388
Whole Foods Market, Inc. (a) 26,900 712,850
30,250,947
RETAIL & WHOLESALE, MISCELLANEOUS - 2.0%
Circuit City Stores, Inc. 87,300 3,153,713
Daisytek International Corp. 1,000 42,000
Duty Free International, Inc. 27,500 419,375
Home Depot, Inc. (The) 304,000 16,416,000
Lowe's Companies, Inc. 72,500 2,619,063
Orchard Supply Hardware Corp. (a) 15,400 463,925
Petco Animal Supplies, Inc. (a) 7,000 201,250
PETsMART, Inc. (a) 15,200 725,800
Tiffany & Co., Inc. 9,900 722,700
Toys "R" Us, Inc. 255,300 7,276,050
32,039,876
TOTAL RETAIL & WHOLESALE 130,223,567
SERVICES - 1.1%
ADVERTISING - 0.0%
Interpublic Group of Companies, Inc. 6,500 304,688
WPP Group PLC 187,700 632,286
936,974
LEASING & RENTAL - 0.0%
Team Rental Group, Inc. Class A (a) 400 5,600
PRINTING - 0.1%
Deluxe Corp. 24,900 883,950
Harland (John H.) Co. 10,700 263,488
1,147,438
SERVICES - 1.0%
APAC Teleservices, Inc. (a) 41,100 1,479,600
Block (H & R), Inc. 5,600 182,700
Career Horizons, Inc. (a) 73,800 2,583,000
Coach USA, Inc. (a) 9,400 209,150
Craig (Jenny), Inc. (a) 210,300 3,759,113
HCIA, Inc. (a) 25,200 1,587,600
Lawyers Title Corp. 30,000 540,000
Manpower, Inc. 28,800 1,130,400
National Service Industries, Inc. 68,500 2,680,063
Norrell Corp. GA 2,000 98,250
Robert Half International, Inc. (a) 4,400 122,650
Service Corp. International 21,600 1,242,000
Sitel Corp. (a) 4,800 198,600
15,813,126
TOTAL SERVICES 17,903,138
TECHNOLOGY - 6.4%
COMMUNICATIONS EQUIPMENT - 0.4%
Cisco Systems, Inc. (a) 53,500 3,029,438
Dynatech Corp. 45,000 1,462,500
Echostar Communications Corp.
Class A (a) 21,600 610,200
Northern Telecom Ltd. 42,900 2,336,053
7,438,191
COMPUTER SERVICES & SOFTWARE - 2.5%
Acxiom Corp. (a) 3,600 122,850
American Management Systems, Inc. (a) 73,350 2,145,488
SHARES VALUE (NOTE 1)
Ascend Communications, Inc. (a) 6,900 $ 388,125
BBN Corp. 9,100 197,925
BMC Software, Inc. (a) 13,100 782,725
Broadway & Seymour, Inc. (a) 3,300 39,600
CUC International, Inc. (a) 50,600 1,796,300
Ceridian Corp. (a) 158,916 8,025,258
Computer Sciences Corp. (a) 19,000 1,420,250
Compuware Corp. (a) 2,900 114,550
Documentum, Inc. (a) 30,800 939,400
ECI Telecom Ltd. 94,000 2,185,500
Electronic Arts, Inc. (a) 16,000 428,000
Equifax, Inc. 52,900 1,388,625
Fair Issac & Company, Inc. 1,600 70,800
First Data Corp. 29,000 2,309,125
Fiserv, Inc. 4,300 129,000
GT Interactive Software, Inc. (a) 17,700 296,475
ICT Group, Inc. (a) 5,900 113,575
Keane, Inc. (a) 32,800 1,209,500
May & Speh, Inc. (a) 65,600 1,033,200
Metromail Corp. (a) 29,000 648,875
Micrografx, Inc. (a) 23,000 336,375
National Data Corp. 5,000 171,250
Oracle Corp. (a) 48,900 1,928,494
PC Docs Group International, Inc. (a) 55,200 1,093,029
Physician Support Systems, Inc. (a) 156,300 3,536,288
Policy Management Systems Corp. (a) 7,000 350,000
Rational Software Corp. (a) 53,000 2,848,750
SunGard Data Systems, Inc. (a) 14,800 593,850
Technology Solutions, Inc. 53,000 1,835,125
Vanstar Corp. (a) 74,300 1,244,525
39,722,832
COMPUTERS & OFFICE EQUIPMENT - 1.6%
Diebold, Inc. 31,250 1,507,812
Bell & Howell Co. (a) 79,400 2,590,425
Canon, Inc. 356,000 7,398,751
Compaq Computer Corp. (a) 24,500 1,206,625
Data General Corp. (a) 19,000 247,000
Dell Computer Corp. (a) 12,600 641,025
FileNet Corp. (a) 66,100 2,412,650
Hewlett-Packard Co. 7,000 697,375
Kronos, Inc. (a) 62,900 2,232,950
Pomeroy Computer Resources, Inc. 81,000 1,215,000
Proxim, Inc. (a) 50,000 2,012,500
Stratus Computer, Inc. (a) 65,300 1,893,700
Sun Microsystems, Inc. (a) 8,000 471,000
VeriFone, Inc. (a) 19,200 811,200
25,338,013
ELECTRONIC INSTRUMENTS - 0.6%
ADE Corp. 11,300 161,025
Kollmorgen Corp. 26,700 393,825
Milltronics Ltd. (a) 50,000 1,420,923
Perkin-Elmer Corp. 127,800 6,166,350
Thermoquest Corp. (a) 89,900 1,247,363
Waters Corp. (a) 31,100 1,026,300
10,415,786
ELECTRONICS - 0.7%
ESS Technology, Inc. (a) 34,000 629,000
Griffon Corp. (a) 54,300 441,188
Intel Corp. 49,200 3,613,125
OnTrak Systems, Inc. (a) 3,300 53,625
Samsung Electronics Co. Ltd. GDS (c):
(vtg.) 630 32,130
(vtg.) (bonus issue 3/96) 189 9,633
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TECHNOLOGY - CONTINUED
ELECTRONICS - CONTINUED
Storage Technology Corp. (a) 137,800 $ 5,270,850
Zero Corp. 39,000 833,625
10,883,176
PHOTOGRAPHIC EQUIPMENT - 0.6%
Eastman Kodak Co. 23,600 1,834,900
Fuji Photo Film Co. Ltd. 181,000 5,708,582
Polaroid Corp. 36,070 1,645,694
9,189,176
TOTAL TECHNOLOGY 102,987,174
TRANSPORTATION - 2.2%
AIR TRANSPORTATION - 0.6%
AMR Corp. 9,000 819,000
Atlantic Southeast Airlines, Inc. 43,800 1,237,350
Comair Holdings, Inc. 17,500 472,500
Delta Air Lines, Inc. 57,800 4,797,400
Mesa Airlines, Inc. (a) 19,000 225,625
Northwest Airlines Corp. Class A (a) 10,000 395,000
UAL Corp. (a) 34,400 1,849,000
USAir Group, Inc. 15,900 286,200
10,082,075
RAILROADS - 1.6%
Bombardier, Inc. Class B 194,800 2,921,536
Burlington Northern Santa Fe Corp. 136,919 11,073,324
CSX Corp. 23,400 1,129,050
Canadian Pacific Ltd. Ord. 197,100 4,322,020
Tranz Rail Holdings Ltd.
sponsored ADR (a) 22,100 306,638
Wisconsin Central
Transportation Corp. (a) 163,800 5,323,500
25,076,068
SHIPPING - 0.0%
Trico Marine Services, Inc. (a) 8,100 180,225
TRUCKING & FREIGHT - 0.0%
Expeditors International of Washington, Inc. 200 6,200
Hunt (J.B.) Transport Services, Inc. 600 12,525
USFreightways Corp. 24,100 469,950
Yellow Corp. (a) 8,000 106,000
594,675
TOTAL TRANSPORTATION 35,933,043
UTILITIES - 2.5%
CELLULAR - 0.1%
Commnet Cellular, Inc. (a) 1,800 54,000
Palmer Wireless, Inc. (a) 53,000 1,060,000
360 Degrees Communications Co. (a) 33,700 808,800
1,922,800
ELECTRIC UTILITY - 0.1%
Iberdrola SA 71,900 737,537
GAS - 0.4%
Consolidated Natural Gas Co. 800 41,800
Enron Corp. 58,300 2,383,013
Nova Corp. 273,700 2,478,967
Sonat, Inc. 41,600 1,872,000
Williams Companies, Inc. 2,000 99,000
6,874,780
SHARES VALUE (NOTE 1)
TELEPHONE SERVICES - 1.9%
BCE, Inc. 135,000 $ 5,321,587
Cincinnati Bell, Inc. 14,900 776,663
Comsat Corp., Series 1 35,000 910,000
DDI Corp. Ord. 17 148,143
LCI International, Inc. (a) 72,700 2,280,963
Lucent Technologies, Inc. 50,800 1,924,050
Sprint Corp. 102,600 4,309,200
WorldCom, Inc. (a) 261,200 14,463,950
30,134,556
TOTAL UTILITIES 39,669,673
TOTAL COMMON STOCKS
(Cost $1,213,025,713) 1,328,292,141
CONVERTIBLE PREFERRED STOCKS - 0.2%
CONSTRUCTION & REAL ESTATE - 0.0%
REAL ESTATE - 0.0%
Rouse Co., Series A 11,400 661,200
ENERGY - 0.0%
OIL & GAS - 0.0%
Diamond Shamrock, Inc. $2.50 (c) 4,200 254,100
Valero Energy Corp. $3.125 8,800 462,000
716,100
MEDIA & LEISURE - 0.0%
BROADCASTING - 0.0%
American Radio System Corp. $3.50
depository shares representing
1/20 (c) 5,800 342,200
RETAIL & WHOLESALE - 0.2%
APPAREL STORES - 0.1%
TJX Companies, Inc., Series E,
$7.00 5,900 1,109,200
GENERAL MERCHANDISE STORES - 0.1%
K Mart Financing I $3.875 16,800 911,400
TOTAL RETAIL & WHOLESALE 2,020,600
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $3,531,423) 3,740,100
CONVERTIBLE BONDS - 0.3%
MOODY'S PRINCIPAL
RATINGS (B) AMOUNT
ENERGY - 0.2%
ENERGY SERVICES - 0.1%
Nabors Industries, Inc. 5%,
5/1/06 Ba2 $ 730,000 810,300
OIL & GAS - 0.1%
Pogo Producing Co. 5 1/2%,
6/15/06 (c) - 1,100,000 1,182,500
TOTAL ENERGY 1,992,800
HEALTH - 0.1%
MEDICAL FACILITIES MANAGEMENT - 0.1%
NovaCare, Inc. 5 1/2%,
1/15/00 B1 1,600,000 1,408,000
CONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
MEDIA & LEISURE - 0.0%
BROADCASTING - 0.0%
Home Shopping Network, Inc.
5 7/8%, 3/1/06 (c) B- $ 270,000 $ 310,500
Jacor Communications, Inc.
liquid yield option notes
0%, 6/12/11 B 302,000 142,695
TOTAL MEDIA & LEISURE 453,195
TECHNOLOGY - 0.0%
ELECTRONICS - 0.0%
National Semiconductor Corp.
6 1/2%, 10/1/02 (c) Ba2 220,000 190,300
TOTAL CONVERTIBLE BONDS
(Cost $3,838,023) 4,044,295
U.S. TREASURY OBLIGATIONS - 2.0%
7 1/4%, 2/15/23 Aaa 6,300,000 6,367,914
6 1/4%, 8/15/23 Aaa 15,100,000 13,689,056
7 1/2%, 11/15/24 Aaa 2,290,000 2,427,400
7 5/8%, 2/15/25 Aaa 1,000,000 1,077,500
6%, 2/15/26 Aaa 10,000,000 8,867,200
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $33,796,327) 32,429,070
REPURCHASE AGREEMENTS - 15.1%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.46%, dated
6/28/96 due 7/1/96 $ 243,674,822 243,564,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $1,497,755,486) $ 1,612,069,606
CURRENCY ABBREVIATIONS
CAD - Canadian dollar
LEGEND
(a) Non-income producing
(b) Standard & Poor's Corporation credit ratings are used in the absence of
a rating by Moody's Investors Service, Inc.
(c) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $3,344,520 or 0.2% of net
assets.
(d) Purchased on an installment basis. Market value reflects only those
payments made through June 30, 1996. The remaining installments for
Falconbridge Ltd., aggregating CAD 1,647,300 are due July 31, 1996 and
January 31, 1997. The remaining installments for Petro-Canada, aggregating
CAD 1,060,800 are due September 23, 1996 and March 24, 1997.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $1,860,607,319 and $1,265,592,243, respectively, of which U.S.
government and government agency obligations aggregated $20,258,179 and
$68,039,188, respectively.
The market value of futures contracts opened and closed during the period
amounted to $19,149,114 and $19,177,886, 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 $572,129 for the period
(see Note 4 of Notes to Financial Statements).
Distribution of investments by country of issue, as a percentage of total
value of investment in securities, is as follows:
United States 87.5%
Canada 4.5
Japan 3.3
Netherland 1.5
Others (individually less than 1%) 3.2
TOTAL 100.0%
INCOME TAX INFORMATION
At June 30, 1996, the aggregate cost of investment securities for income
tax purposes was $1,497,823,527. Net unrealized appreciation aggregated
$114,246,079, of which $138,882,033 related to appreciated investment
securities and $24,635,954 related to depreciated investment securities.
VARIABLE INSURANCE PRODUCTS FUND II: CONTRAFUND PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
ASSETS
Investm $ 1,612,069,606
ent in
securit
ies, at
value
(includ
ing
repurc
hase
agree
ments
of
$243,5
64,000
) (cost
$1,497
,755,4
86) -
See
accom
panyin
g
sched
ule
Cash 817,881
Receiva 23,045,827
ble for
invest
ments
sold
Receiva 3,963,561
ble for
fund
shares
sold
Dividend 1,514,047
s
receiv
able
Interest 850,004
receiv
able
TOTAL 1,642,260,926
ASSETS
LIABILITI
ES
Payable $ 43,036,497
for
invest
ments
purcha
sed
Payable 97,055
for
fund
shares
redee
med
Accrued 784,129
manag
ement
fee
Other 213,869
payabl
es and
accrue
d
expen
ses
TOTAL 44,131,550
LIABILIT
IES
NET $ 1,598,129,376
ASSET
S
Net
Assets
consist
of:
Paid in $ 1,434,322,316
capital
Undistrib 10,092,878
uted
net
invest
ment
incom
e
Accumul 39,408,751
ated
undistr
ibuted
net
realize
d gain
(loss)
on
invest
ments
and
foreign
curren
cy
transa
ctions
Net 114,305,431
unreali
zed
apprec
iation
(depre
ciation
) on
invest
ments
and
assets
and
liabiliti
es in
foreign
curren
cies
NET $ 1,598,129,376
ASSET
S, for
108,09
5,047
shares
outsta
nding
NET $14.78
ASSET
VALUE,
offerin
g price
and
redem
ption
price
per
share
($1,59
8,129,
376 (divided by)
108,09
5,047
shares
)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
INVESTM $ 6,837,463
ENT
INCOME
Dividend
s
Special 1,135,200
dividen
d from
Schulle
r Corp.
Interest 6,281,376
TOTAL 14,254,039
INCOM
E
EXPENS
ES
Manage $ 3,737,061
ment
fee
Transfer 439,345
agent
fees
Accounti 260,873
ng
fees
and
expen
ses
Non-inte 2,156
rested
trustee
s'
compe
nsatio
n
Custodia 135,205
n fees
and
expen
ses
Registrat 3,452
ion
fees
Audit 21,902
Legal 1,814
Miscella 1,033
neous
Total 4,602,841
expen
ses
before
reducti
ons
Expen (166,529 4,436,312
se )
reducti
ons
NET 9,817,727
INVEST
MENT
INCOM
E
REALIZE
D AND
UNREALIZ
ED GAIN
(LOSS)
Net
realize
d gain
(loss)
on:
Invest 40,313,620
ment
securit
ies
Foreig (129,883
n )
curren
cy
transa
ctions
Future 28,772 40,212,509
s
contra
cts
Change
in net
unreali
zed
apprec
iation
(depre
ciation
) on:
Invest 45,861,051
ment
securit
ies
Assets (8,719 45,852,332
and )
liabiliti
es in
forei
gn
curren
cies
NET GAIN 86,064,841
(LOSS)
NET $ 95,882,568
INCREA
SE
(DECRE
ASE) IN
NET
ASSETS
RESULTI
NG
FROM
OPERAT
IONS
OTHER $ 163,906
INFORM
ATION
Expen
se
reducti
ons
Direc
ted
broker
age
arrang
ements
Cust 2,623
odian
interest
credits
$ 166,529
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS JANUARY 3, 1995
ENDED (COMMENCEMENT
JUNE 30, 1996 OF
(UNAUDITED) OPERATIONS) TO
DECEMBER 31,
1995
Operatio $ 9,817,727 $ 4,056,021
ns
Net
invest
ment
incom
e
Net 40,212,509 16,037,745
realize
d gain
(loss)
Chang 45,852,332 68,453,099
e in
net
unreali
zed
apprec
iation
(depre
ciation
)
NET 95,882,568 88,546,865
INCR
EASE
(DEC
REAS
E) IN
NET
ASSE
TS
RESU
LTING
FROM
OPER
ATIO
NS
Distributi - (3,710,433)
ons to
shareh
olders
From
net
invest
ment
incom
e
From (9,296,351) (7,420,866)
net
realize
d gain
TOTAL (9,296,351) (11,131,299)
DISTRIB
UTIONS
Share 662,955,008 806,897,529
transa
ctions
Net
procee
ds
from
sales
of
shares
Reinve 9,296,351 11,131,299
stment
of
distrib
utions
Cost (37,707,944) (18,444,650)
of
shares
redee
med
NET 634,543,415 799,584,178
INCR
EASE
(DEC
REAS
E) IN
NET
ASSE
TS
RESU
LTING
FROM
SHAR
E
TRAN
SACTI
ONS
TOTAL 721,129,632 876,999,744
INCREA
SE
(DECRE
ASE) IN
NET
ASSETS
NET
ASSETS
Beginn 876,999,744 -
ing of
period
End of $ 1,598,129,376 $ 876,999,744
perio
d
(incl
udin
g
undi
strib
uted
net
inve
stme
nt
inco
me
of
$10,
092,
878
and
$275
,151,
resp
ectiv
ely)
OTHER
INFORMAT
ION
Shares
Sold 46,441,942 64,153,925
Issued 674,626 816,078
in
reinve
stment
of
distrib
utions
Redee (2,615,032) (1,376,492)
med
Net 44,501,536 63,593,511
increa
se
(decre
ase)
<TABLE>
<CAPTION>
<S> <C> <C>
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED JANUARY 3, 1995
JUNE 30, 1996 (COMMENCEMENT
(UNAUDITED) OF
OPERATIONS) TO
DECEMBER 31,
1995
SELECTE $ 13.79 $ 10.00
D
PER-SHA
RE DATA
Net
asset
value,
beginn
ing of
period
Income
from
Invest
ment
Operat
ions
Net .09 C .06
invest
ment
incom
e
Net 1.03 3.91
realize
d and
unreali
zed
gain
(loss)
Total 1.12 3.97
from
invest
ment
operati
ons
Less - (.06)
Distrib
utions
From
net
invest
ment
incom
e
From (.13) (.12)
net
realize
d gain
Total (.13) (.18)
distrib
utions
Net $ 14.78 $ 13.79
asset
value,
end of
period
TOTAL 8.19% 39.72%
RETUR
N B
RATIOS
AND
SUPPL
EMENT
AL
DATA
Net $ 1,598,129 $ 877,000
assets
, end
of
period
(000
omitte
d)
Ratio of .75% A .72%
expen
ses to
averag
e net
assets
Ratio of .73% A, .72%
expen D
ses to
averag
e net
assets
after
expen
se
reducti
ons
Ratio of 1.61% A 1.07%
net
invest
ment
incom
e to
averag
e net
assets
Portfolio 244% A 132%
turnov
er rate
Average $ .0337
commi
ssion
rate E
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 THOSE CHARGES
WOULD REDUCE THE TOTAL RETURNS SHOWN.
C INVESTMENT INCOME PER SHARE REFLECTS A SPECIAL
DIVIDEND (FROM SCHULLER CORP.) WHICH AMOUNTED
TO $.01 PER SHARE.
D FMR OR THE FUND HAS ENTERED INTO VARYING
ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID
OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE
NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
E FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER
1, 1995, A FUND IS REQUIRED TO DISCLOSE ITS
AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS
AMOUNT MAY VARY FROM PERIOD TO PERIOD AND FUND
TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED
IN VARIOUS MARKETS WHERE TRADING PRACTICES AND
COMMISSION RATE STRUCTURES MAY DIFFER.
NOTES TO FINANCIAL STATEMENTS
For the period ended June 30, 1996 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Investment Grade Bond Portfolio, Asset Manager Portfolio, Index 500
Portfolio, Asset Manager: Growth Portfolio and Contrafund Portfolio (the
funds) are funds of Variable Insurance Products Fund II (the trust). The
trust is registered under the Investment Company Act of 1940, as amended
(the 1940 Act), as an open-end management investment company organized as a
Massachusetts business trust. Each fund is authorized to issue an unlimited
number of shares. Shares of each fund may only be purchased by insurance
companies for the purpose of funding variable annuity or variable life
insurance contracts. The financial statements have been prepared in
conformity with generally accepted accounting principles which permit
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.
INVESTMENT GRADE BOND FUND. Securities are valued based upon a computerized
matrix system and/or appraisals by a pricing service, both of which
consider market transactions and dealer-supplied valuations. Short-term
securities maturing within sixty days of their purchase date are valued
either at amortized cost or original cost plus accrued interest, both of
which approximate current value. Securities (including restricted
securities) for which market quotations are not readily available are
valued at their fair value as determined in good faith under consistently
applied procedures under the general supervision of the Board of Trustees.
ASSET MANAGER PORTFOLIO, INDEX 500 PORTFOLIO, ASSET MANAGER: GROWTH
PORTFOLIO AND CONTRAFUND PORTFOLIO. Securities for which exchange
quotations are readily available are valued at the last sale price, or if
no sale price, at the closing bid price. Securities (including restricted
securities) for which exchange quotations are not readily available (and in
certain cases debt securities which trade on an exchange) are valued
primarily using dealer-supplied valuations or at their fair value as
determined in good faith under consistently applied procedures under the
general supervision of the Board of Trustees. Short-term securities
maturing within sixty days of their purchase date are valued at amortized
cost or original cost plus accrued interest, both of which approximate
current value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the funds' are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the 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 forward
currency contracts and foreign currency options, disposition of foreign
currencies, currency gains and losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amount of net investment income accrued and the U.S. dollar amount actually
received. 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 qualified regulated investment companies under Subchapter
M of the Internal Revenue Code, each fund is not subject to income taxes to
the extent that each fund distributes substantially all of its taxable
income for the fiscal year. The Asset Manager and Asset Manager: Growth
Portfolios may be subject to foreign taxes on income, gains on investments
or currency repatriation. The schedules of investments include information
regarding income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date,
except certain dividends from foreign securities where the ex-dividend date
may have passed, are recorded as soon as the funds are informed of the
ex-dividend date. Interest income, which includes accretion of original
issue discount, is accrued as earned. Investment income is recorded net of
foreign taxes 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 between the
funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for
litigation, paydown gains/losses on certain securities, futures and options
transactions, defaulted bonds, foreign currency transactions, passive
foreign investment companies (PFIC), market discount, partnerships,
non-taxable dividends, capital loss carryforwards 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 and may
affect the per-share allocation between net investment income and realized
and unrealized gain (loss). 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.
FORWARD FOREIGN CURRENCY CONTRACTS. Each fund may use foreign currency
contracts to facilitate transactions in foreign securities and to manage
the fund's currency exposure. Contracts to buy generally are used to
acquire exposure to foreign currencies, while contracts to sell are used to
hedge the fund's investments against currency fluctuations. Also, a
contract to buy or sell can offset a previous contract. 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 forward foreign currency contracts is determined
using forward currency exchange rates supplied by a quotation service.
Purchases and sales of forward foreign currency contracts having the same
settlement date and broker are offset and any realized gain (loss) is
recognized on the date of offset; otherwise, gain (loss) is recognized on
settlement date.
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 that
mature in 60 days or less from the date of purchase, and are collateralized
by 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 (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.
DELAYED DELIVERY TRANSACTIONS. Each fund may purchase or sell securities on
a when-issued or forward commitment basis. Payment and delivery may take
place a month or more after the date of the transaction. The price of the
underlying securities and the date when the securities will be delivered
and paid for are fixed at the time the transaction is negotiated. The
market value of the securities purchased or sold on a when-issued or
forward commitment basis are identified as such in the fund's schedule of
investments. 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 AND OPTIONS. Each fund may use futures and options
contracts to manage its exposure to the stock market. Buying futures,
writing puts, and buying calls tend to increase the funds' exposure to the
underlying instrument. Selling futures, buying puts, and writing calls tend
to decrease the funds' 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, if there
is an illiquid secondary market for the contracts, or if the counterparties
do not perform under the contracts' terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. Exchange-traded
options are valued using the last sale price or, in the absence of a sale,
the last offering price. Options traded over-the-counter are valued using
dealer-supplied valuations.
RESTRICTED SECURITIES. Each 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
funds' 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), the market value of future 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.
INVESTMENT GRADE BOND, ASSET MANAGER, ASSET MANAGER: GROWTH AND CONTRAFUND
PORTFOLIOS. As each fund's investment adviser, FMR receives a monthly fee
that is calculated on the basis of a group fee rate plus a fixed individual
fund fee rate applied to the average net assets of each fund. The group fee
rate is the weighted average of a series of rates 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 for the Asset Manager,
Asset Manager: Growth and Contrafund Portfolios, and from .1100% to .3700%
for the period for the Investment Grade Bond Portfolio.
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 annual individual
fund fee rate is .40% for the Asset Manager and Asset Manager: Growth
Portfolios and .30% for the Investment Grade Bond and Contrafund
Portfolios. For the period, the management fees were equivalent to rates of
.45%, .71%, .71% and .61%, respectively, of average net assets for the
Investment Grade Bond, Asset Manager, Asset Manager: Growth and Contrafund
Portfolios, respectively. Effective August 1, 1996, FMR voluntarily agreed
to reduce Asset Manager and Asset Manager: Growth Portfolios' individual
fund fee rates from .40% to .25%, and .40% to .30%, respectively.
4. FEES AND OTHER TRANSACTIONS WITH
AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
INDEX 500 PORTFOLIO. As the fund's investment adviser, FMR receives a fee
that is computed at an annual rate of .28% of the fund's average net
assets.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations Company
(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 account size and type of account.
FIIOC pays for typesetting, printing and mailing of all shareholder
reports, except proxy statements. For the period, the transfer agent fees
were equivalent to an annualized rate of .04%, .06%, .08%, .07% and .07% of
the average net assets of Investment Grade Bond, Asset Manager, Index 500,
Asset Manager: Growth and Contrafund Portfolios, respectivly.
ACCOUNTING FEES. Fidelity Service Co. (FSC), an affiliate of FMR, maintains
the funds' accounting records. The fee is based on the level of average net
assets for the month plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. 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. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse the funds' operating expenses
(excluding interest, taxes, brokerage commissions and extraordinary
expenses) above an annual rate of .80%, 1.25%, .28%, 1.00% and 1.00% of
average net assets for Investment Grade, Asset Manager, Index 500, Asset
Manager: Growth and Contrafund Portfolios, respectively.
FMR has directed certain portfolio trades to brokers who paid a portion of
certain funds' expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest
earned on uninvested cash balances was used to offset a portion of certain
funds' expenses.
For the period, the reduction under these arrangements are shown under the
caption "Other Information" on each applicable fund's Statement of
Operations.
6. TRANSACTIONS WITH AFFILIATED COMPANIES.
Information regarding transactions with affiliated companies is included
under the caption "Legend" at the end of each applicable 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
more than 5% of the outstanding shares of the funds and certain
unaffiliated insurance companies were record owners of more than 10% of the
total outstanding shares of the following funds:
FILI UNAFFILIATED INSURANCE COMPANIES
FUND % OF OWNERSHIP # OF % OF OWNERSHIP
Investment Grade Bond 43 2 23
Asset Manager 22 3 50
Index 500 49 1 12
Asset Manager: Growth 82 0 0
Contrafund 49 1 19
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research (U.K.) Inc.,
London, England
ASSET MANAGER, ASSET MANAGER: GROWTH,
AND CONTRAFUND PORTFOLIOS
Fidelity Management & Research (Far East) Inc.,
Tokyo, Japan
ASSET MANAGER, ASSET MANAGER: GROWTH,
AND CONTRAFUND PORTFOLIOS
OFFICERS
Edward C. Johnson 3d, PRESIDENT
J. Gary Burkhead, SENIOR VICE PRESIDENT
William J. Hayes, VICE PRESIDENT
Fred L. Henning, Jr., VICE PRESIDENT
Robert A. Lawrence, VICE PRESIDENT
William Danoff, VICE PRESIDENT
Jennifer G. Farrelly, VICE PRESIDENT
Michael S. Gray, VICE PRESIDENT
Richard C. Habermann, VICE PRESIDENT
George Vanderheiden, VICE PRESIDENT
Arthur S. Loring, SECRETARY
Kenneth A. Rathgeber, TREASURER
Robert H. Morrison, MANAGER, SECURITY TRANSACTIONS
John H. Costello, ASSISTANT TREASURER
Leonard M. Rush, ASSISTANT TREASURER
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
Richard J. Flynn *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Edward H. Malone *
Marvin L. Mann *
Gerald C. McDonough *
Thomas R. Williams
ADVISORY BOARD
William O. McCoy
* INDEPENDENT TRUSTEES
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER SERVICING AGENT
Fidelity Investments Institutional Operations Co.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
INVESTMENT GRADE BOND PORTFOLIO
The Chase Manhattan Bank, N.A.
New York, NY
ASSET MANAGER PORTFOLIO AND ASSET MANAGER: GROWTH PORTFOLIO
Brown Brothers Harriman & Co.
Boston, MA
INDEX 500 PORTFOLIO AND CONTRAFUND PORTFOLIO
