SEMIANNUAL REPORT FOR THE PERIOD ENDED JUNE 30,
1994
VARIABLE
INSURANCE
PRODUCTS FUND II
(registered trademark)
TABLE OF CONTENTS
VARIABLE INSURANCE PRODUCTS FUND II
PAGE
Performance Updates VIPFII-1
Market Environment VIPFII-4
Portfolio Managers' Messages VIPFII-5
Schedule of Investments and Financial Statements:
Investment Grade Bond Portfolio VIPFII-9
Asset Manager Portfolio VIPFII-17
Index 500 Portfolio VIPFII-43
Notes to Financial Statements VIPFII-54
VARIABLE INSURANCE PRODUCTS FUND II: INVESTMENT GRADE BOND PORTFOLIO
PERFORMANCE UPDATE
$10,000 OVER LIFE OF FUND
VIP II: Invest. Grade Bond (227) Lehman Gov't/Corp Int. Bond
12/31/88 10000.00 10000.00
01/31/89 10086.91 10105.00
02/28/89 10109.24 10063.57
03/31/89 10172.01 10106.84
04/30/89 10285.31 10308.98
05/31/89 10399.90 10513.10
06/30/89 10600.00 10778.03
07/31/89 10765.35 10998.98
08/31/89 10679.56 10857.09
09/30/89 10721.68 10908.12
10/31/89 10887.68 11139.37
11/30/89 10981.36 11245.19
12/31/89 11026.20 11276.68
01/31/90 11001.10 11204.51
02/28/90 11063.51 11245.97
03/31/90 11097.10 11260.59
04/30/90 11101.81 11221.17
05/31/90 11276.10 11468.04
06/30/90 11364.06 11621.71
07/31/90 11476.87 11783.25
08/31/90 11475.77 11734.94
09/30/90 11520.64 11825.30
10/31/90 11521.36 11962.48
11/30/90 11590.75 12144.31
12/31/90 11711.41 12310.68
01/31/91 11735.02 12436.25
02/28/91 11853.08 12535.74
03/31/91 12053.78 12620.98
04/30/91 12230.87 12758.55
05/31/91 12325.32 12836.38
06/30/91 12348.93 12845.37
07/31/91 12455.18 12989.23
08/31/91 12714.91 13237.33
09/30/91 12951.03 13465.01
10/31/91 13092.70 13618.51
11/30/91 13234.37 13775.12
12/31/91 13629.41 14111.24
01/31/92 13494.10 13982.82
02/29/92 13567.95 14037.36
03/31/92 13543.25 13982.61
04/30/92 13642.02 14105.66
05/31/92 13851.90 14324.30
06/30/92 14012.39 14536.30
07/31/92 14296.34 14825.57
08/31/92 14382.76 14973.82
09/30/92 14555.60 15177.47
10/31/92 14370.42 14980.16
11/30/92 14333.38 14923.24
12/31/92 14536.35 15123.21
01/31/93 14841.12 15416.60
02/28/93 15093.06 15660.18
03/31/93 15159.37 15722.82
04/30/93 15252.21 15848.60
05/31/93 15278.73 15813.74
06/30/93 15570.52 16062.01
07/31/93 15676.62 16100.56
08/31/93 15955.14 16356.56
09/30/93 16034.71 16423.62
10/31/93 16114.29 16467.97
11/30/93 16034.71 16375.75
12/31/93 16129.92 16451.07
01/31/94 16312.57 16633.68
02/28/94 16045.17 16387.50
03/31/94 15678.91 16117.11
04/30/94 15538.04 16007.51
05/31/94 15495.78 16018.72
06/30/94 15453.52 16020.32
$10,000 OVER LIFE OF FUND: LET'S SAY $10,000 WAS INVESTED IN INVESTMENT
GRADE BOND PORTFOLIO ON DECEMBER 31, 1988, SHORTLY AFTER THE FUND STARTED.
BY JUNE 30, 1994, THE VALUE OF THE INVESTMENT WITH DIVIDENDS REINVESTED
WOULD HAVE GROWN TO $15,454 - A 54.54% INCREASE ON THE INITIAL INVESTMENT.
FOR COMPARISON, LOOK AT HOW A $10,000 INVESTMENT IN THE LEHMAN BROTHERS
INTERMEDIATE GOVERNMENT - CORPORATE BOND INDEX (WITH INCOME REINVESTED) DID
OVER THE SAME PERIOD. IT WOULD HAVE GROWN TO $16,020 - A 60.20% INCREASE.
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED JUNE 30, 1994
One Year Five Years Life of
Fund
INVESTMENT GRADE BOND
PORTFOLIO -.75% 7.83% 8.22%
LEHMAN BROTHERS
INTERMED. GOV'T/CORP -.25% 8.25% n/a
BOND INDEX
THE CHARTS ABOVE SHOW INVESTMENT GRADE BOND PORTFOLIO'S TOTAL RETURNS,
WHICH INCLUDE CHANGES IN SHARE PRICE AND REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS. FIGURES FOR THE LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT/CORPORATE BOND INDEX, A BROAD MEASURE OF THE PERFORMANCE OF THE
U.S. BOND MARKET, INCLUDE REINVESTMENT OF INCOME AND CAPITAL GAINS.
FIGURES FOR MORE THAN ONE YEAR ASSUME A STEADY COMPOUNDED RATE OF RETURN
AND ARE NOT THE FUND'S YEAR-BY-YEAR RESULTS, WHICH FLUCTUATED OVER THE
PERIODS SHOWN. THE LIFE OF FUND FIGURES ARE FROM COMMENCEMENT OF
OPERATIONS, DECEMBER 5, 1988.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, IT WOULD BE LOWER.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. PRINCIPAL AND
INVESTMENT RETURN WILL VARY AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU
WITHDRAW YOUR MONEY.
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO
PERFORMANCE UPDATE
$10,000 OVER LIFE OF FUND
VIP II: Asset Mgr (228) S&P 500 Fidelity Composite Index
09/30/89 10000.00 10000.00 10000.00
10/31/89 10020.02 9768.00 10057.20
11/30/89 10060.06 9967.27 10176.98
12/31/89 10091.10 10206.48 10276.92
01/31/90 9868.42 9521.63 10029.14
02/28/90 9969.64 9644.46 10093.23
03/31/90 10050.61 9900.03 10192.55
04/30/90 9919.03 9652.53 10098.47
05/31/90 10425.10 10593.65 10527.96
06/30/90 10506.08 10521.62 10593.55
07/31/90 10485.83 10487.95 10658.17
08/31/90 10141.70 9539.84 10328.51
09/30/90 9929.15 9075.25 10236.17
10/31/90 9979.76 9036.22 10309.57
11/30/90 10465.59 9619.96 10618.75
12/31/90 10769.23 9888.36 10792.69
01/31/91 11284.56 10319.49 10998.50
02/28/91 11726.27 11057.34 11273.90
03/31/91 11915.57 11324.93 11396.34
04/30/91 12094.35 11352.11 11471.10
05/31/91 12367.79 11842.52 11653.26
06/30/91 12146.94 11300.13 11502.23
07/31/91 12451.93 11826.72 11733.43
08/31/91 12704.33 12107.01 11942.28
09/30/91 12777.95 11904.82 11999.01
10/31/91 12862.08 12064.35 12105.80
11/30/91 12651.75 11578.15 12022.39
12/31/91 13198.62 12902.69 12614.73
01/31/92 13366.89 12662.70 12476.86
02/29/92 13626.48 12827.32 12556.58
03/31/92 13593.27 12577.19 12465.80
04/30/92 13792.52 12946.96 12619.13
05/31/92 13936.42 13010.40 12743.05
06/30/92 13925.36 12816.54 12748.65
07/31/92 14157.81 13340.74 13094.91
08/31/92 14113.54 13067.25 13044.62
09/30/92 14202.09 13221.45 13188.90
10/31/92 14224.23 13267.72 13136.41
11/30/92 14534.17 13720.15 13311.65
12/31/92 14744.49 13888.91 13474.85
01/31/93 15010.16 14005.57 13643.28
02/28/93 15150.93 14196.05 13833.47
03/31/93 15579.84 14495.59 13975.40
04/30/93 15672.57 14144.79 13890.43
05/31/93 15939.19 14523.87 14039.61
06/30/93 16066.71 14565.99 14188.71
07/31/93 16263.77 14507.73 14206.88
08/31/93 16739.05 15057.57 14556.36
09/30/93 16750.64 14941.63 14541.52
10/31/93 17202.74 15250.92 14691.00
11/30/93 17179.55 15106.04 14577.88
12/31/93 17875.08 15288.82 14678.76
01/31/94 18443.09 15808.64 14967.05
02/28/94 17857.34 15380.23 14683.28
03/31/94 17018.00 14709.65 14303.86
04/30/94 17030.16 14897.93 14341.05
05/31/94 17176.13 15142.26 14437.71
06/30/94 16847.69 14771.27 14293.33
$10,000 OVER LIFE OF FUND: LET'S SAY $10,000 WAS INVESTED IN ASSET MANAGER
PORTFOLIO ON SEPTEMBER 30, 1989, SHORTLY AFTER THE FUND STARTED. BY JUNE
30, 1994, THE VALUE OF THE INVESTMENT WITH DIVIDENDS REINVESTED WOULD HAVE
GROWN TO $16,848 - A 68.48% INCREASE ON THE INITIAL INVESTMENT. FOR
COMPARISON, LOOK AT HOW A $10,000 INVESTMENT IN THE S&P 500 (WITH INCOME
REINVESTED) DID OVER THE SAME PERIOD. IT WOULD HAVE GROWN TO $14,771 - A
47.71% INCREASE. YOU CAN ALSO LOOK AT HOW THE ASSET ALLOCATION COMPOSITE
INDEX, A HYPOTHETICAL COMBINATION OF UNMANAGED INDICES, DID OVER THE SAME
PERIOD. REFLECTING THE FUND'S NEUTRAL MIX OF 30% STOCKS, 30% BONDS, AND 40%
SHORT-TERM INSTRUMENTS, THIS INDEX COMBINES RETURNS FROM THE S&P 500
47.71%, LEHMAN BROTHERS TREASURY BOND INDEX 47.89%, AND THE SALOMON
BROTHERS 3-MONTH T-BILL TOTAL RATE OF RETURN INDEX 26.48%. WITH DIVIDENDS
AND INTEREST, IF ANY, REINVESTED, A $10,000 INVESTMENT IN THE INDEX WOULD
HAVE GROWN TO $14,293 - A 42.93% INCREASE.
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED JUNE 30, 1994
One Year Life of
Fund
ASSET MANAGER PORTFOLIO 4.86% 11.41%
S&P 500(registered trademark) 1.41% 8.26%
THE CHARTS ABOVE SHOW ASSET MANAGER PORTFOLIO'S TOTAL RETURNS, WHICH
INCLUDE CHANGES IN SHARE PRICE AND REINVESTMENT OF DIVIDENDS AND CAPITAL
GAINS. FIGURES FOR THE S&P 500, AN UNMANAGED INDEX OF COMMON STOCKS,
INCLUDE REINVESTMENT OF INCOME AND CAPITAL GAINS. S&P 500 IS A REGISTERED
TRADEMARK OF STANDARD & POOR'S CORPORATION.
FIGURES FOR MORE THAN ONE YEAR ASSUME A STEADY COMPOUNDED RATE OF RETURN
AND ARE NOT THE FUND'S YEAR-BY-YEAR RESULTS, WHICH FLUCTUATED OVER THE
PERIODS SHOWN. THE LIFE OF FUND FIGURES ARE FROM COMMENCEMENT OF
OPERATIONS, SEPTEMBER 6, 1989.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, IT WOULD BE LOWER.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. PRINCIPAL AND
INVESTMENT RETURN WILL VARY AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU
WITHDRAW YOUR MONEY.
VARIABLE INSURANCE PRODUCTS FUND II: INDEX 500 PORTFOLIO
PERFORMANCE UPDATE
$10,000 OVER LIFE OF FUND
VIP II: Index 500 (157) S&P 500
08/27/92 10000.00 10000.00
08/31/92 10014.00 10018.36
09/30/92 10130.00 10136.58
10/31/92 10152.00 10172.06
11/30/92 10498.00 10518.92
12/31/92 10630.67 10648.31
01/31/93 10707.47 10737.75
02/28/93 10856.71 10883.79
03/31/93 11095.85 11113.43
04/30/93 10822.26 10844.49
05/31/93 11103.96 11135.12
06/30/93 11132.33 11167.41
07/31/93 11081.67 11122.74
08/31/93 11501.18 11544.30
09/30/93 11407.96 11455.40
10/31/93 11641.02 11692.53
11/30/93 11527.53 11581.45
12/31/93 11666.05 11721.59
01/31/94 12059.52 12120.12
02/28/94 11732.97 11791.67
03/31/94 11223.47 11277.55
04/30/94 11357.66 11421.90
05/31/94 11533.78 11609.22
06/30/94 11252.83 11324.80
$10,000 OVER LIFE OF FUND: LET'S SAY $10,000 WAS INVESTED IN INDEX 500
PORTFOLIO ON AUGUST 27, 1992, WHEN THE FUND STARTED. BY JUNE 30, 1994, THE
VALUE OF THE INVESTMENT WITH DIVIDENDS REINVESTED WOULD HAVE GROWN TO
$11,253 - A 12.53% INCREASE ON THE INITIAL INVESTMENT. FOR COMPARISON, LOOK
AT HOW A $10,000 INVESTMENT IN THE S&P 500 (WITH INCOME REINVESTED) DID
OVER THE SAME PERIOD. IT WOULD HAVE GROWN TO $11,325 - A 13.25% INCREASE.
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED JUNE 30, 1994
One Year Life of
Fund
INDEX 500 PORTFOLIO 1.08% 6.61%
S&P 500(registered trademark) 1.41% 6.98%
THE CHARTS ABOVE SHOW INDEX 500 PORTFOLIO'S TOTAL RETURNS, WHICH INCLUDE
CHANGES IN SHARE PRICE AND REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS.
FIGURES FOR THE S&P 500, AN UNMANAGED INDEX OF COMMON STOCKS, INCLUDE
REINVESTMENT OF INCOME AND CAPITAL GAINS.
FIGURES FOR MORE THAN ONE YEAR ASSUME A STEADY COMPOUNDED RATE OF RETURN
AND ARE NOT THE FUND'S YEAR-BY-YEAR RESULTS, WHICH FLUCTUATED OVER THE
PERIODS SHOWN. THE LIFE OF FUND FIGURES ARE FROM COMMENCEMENT OF
OPERATIONS, AUGUST 27, 1992.
THE ADVISER HAS VOLUNTARILY AGREED TO LIMIT THE EXPENSES OF THE FUND TO
.28% OF THE FUND'S AVERAGE NET ASSETS. IF EXPENSES HAD NOT BEEN LIMITED,
RETURNS WOULD HAVE BEEN LOWER.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, IT WOULD BE LOWER.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. PRINCIPAL AND
INVESTMENT RETURN WILL VARY AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU
WITHDRAW YOUR MONEY.
MARKET ENVIRONMENT
After a strong performance in January, U.S. stocks stumbled through a
correction that - aside from a few brief upturns - continued through June
1994. The sell-off stretched into most market sectors. Once it began,
investors tended to seek safety in the stocks of larger, more established
companies, which generally outperformed those of smaller companies.
The Standard & Poor's 500 Composite Stock Index, a broad measure of the
U.S. market, had a total return of -3.39% for the six months ended June 30,
1994. The Dow Jones Industrial Average, which measures 30 large industrial
stocks, returned -2.06% for the same period. The NASDAQ Composite, which
tracks the performance of smaller stocks, fell 9.12%.
Several factors contributed to the market downturn, but rising interest
rates were key. The Federal Reserve Board raised short-term rates to curb
future inflation that might result from a strengthening economy. However,
investors worried that higher rates might slow the economic growth that had
begun to result in improving corporate profits. In addition, near the end
of the period, investors were concerned that a weakening dollar would make
U.S. stocks less attractive to foreign investors, and might cause the Fed
to boost interest rates further.
In overseas stock markets, results were mixed. The Morgan Stanley EAFE
(Europe, Australia and the Far East) index rose 8.78% for the six months
ended June 30, thanks largely to strong gains by Japanese stocks and the
yen. Europe, and more notably emerging markets in the Far East and Latin
America, suffered corrections on the heels of strong gains in 1993. The
Morgan Stanley Europe Index returned -2.81% during the period, while the
Morgan Stanley Emerging Markets Free Index was down 10.35%.
Rising interest rates sparked a sharp sell-off in the U.S. bond markets
from February through June. After reaching a low of 5.79% in October 1993,
the yield on the bellwether 30-year Treasury bond rose to 7.61% by June 30,
1994. Although the Fed was trying to ease the threat of inflation by
raising rates, investors feared higher inflation would diminish the value
of their bonds' interest payments - which are paid at a fixed rate. The
Lehman Brothers Aggregate Bond Index - a broad measure of taxable bonds in
the U.S. market - fell 3.87% during the period. Even though refinancings
slowed, mortgage-backed securities also suffered from rising rates. The
total return for the Lehman Brothers mortgage index was -2.87%. The
negative effects of rising rates on high-yield bonds were somewhat offset
by credit quality enhancements due to the improving economy. The Merrill
Lynch High Yield Master Index returned -1.21% during the period.
Many overseas bond markets were extremely volatile, and most took their cue
from the downturn in the U.S. markets. The Salomon Brothers World
Government Bond Index -
a measure of bond market performance of developed nations including the
United States - rose 0.67% for the six months. Corrections in emerging
markets were especially severe. Political instability in Mexico and a
partial liquidation of the high amount of borrowed money that backed
investments in these markets contributed to poor performance. The JP Morgan
Emerging Markets Bond Index had a total return of -19.94% during the
period.
A MESSAGE FROM DONALD TAYLOR,
PORTFOLIO MANAGER OF
INVESTMENT GRADE
BOND PORTFOLIO
Turbulent bond markets worldwide caused the fund to register a total return
of -4.19% for the six months ended June 30, 1994. That trailed the -3.92%
return of the average intermediate-term investment grade bond fund tracked
by Lipper Analytical Services. For the 12 months ended June 30, the fund
returned -0.75%, outperforming the average fund's -1.44% return, according
to Lipper Analytical Services.
The combination of strong U.S. economic growth in 1993's fourth quarter,
widespread speculation and heavy borrowing to finance investments, caused
fixed income markets to sell off on a global basis. The Federal Reserve
Board, in an attempt to restrict what had been an extremely accommodative
stance on monetary policy, made the first of four increases in the federal
funds rate on February 4. (The federal funds rate is the interest rate that
banks charge each other for overnight loans.) That sent the U.S. bond
market into a tailspin. Overseas, many highly leveraged hedge funds -
aggressively managed private partnerships - had taken large short positions
in the Japanese yen - betting that its value would fall. When U.S.-Japan
trade negotiations broke down, the value of the yen rose sharply, forcing
the speculators to cover their losses. They did this by massively
liquidating investments in markets throughout the world. This exacerbated
the sell-off already occurring in the U.S.
During the second half of 1993, anticipating the acceleration in U.S.
economic growth and the corresponding unfavorable dynamics for domestic
bonds, I began to take advantage of attractive opportunities in Europe and
Mexico. Many European countries were experiencing weak economic growth,
falling inflation rates and declining short-term interest rates. This
created a very favorable environment for fixed-income investments. The
furtherance of pro-growth economic policies in Mexico provided the backdrop
for strong returns in that market.
About 70% - 75% of the fund remained in the U.S. market through this
period. Roughly one-half of this allocation was in corporate securities.
Treasury and mortgage-backed securities made up the other half.
One factor that helped performance during this volatile stretch was keeping
the fund's duration - its sensitivity to interest rate fluctuations - at an
average of about 4.4 years. This is near the mid-point of the fund's
permitted range. In a rising interest rate environment, such as we've had
this year, a long duration will cause a fund's share price to deteriorate
rapidly. A neutral duration helped to keep the fund's interest rate risk in
check.
The use of derivatives was limited to currency forward contracts. These are
used to hedge the fund's non-dollar foreign bonds against unfavorable
movements in currency exchange rates. They allow the fund to have exposure
to international bond markets while eliminating the currency risk for the
hedged portion.
Looking ahead, I believe the U.S. Treasury market offers good value across
the entire one- to 30-year maturity spectrum, with the 30-year bond
providing the best value. The near-term outlook for the dollar is
uncertain. Given that it has fallen dramatically against other major
currencies and is now fundamentally cheap, it could soon stabilize. If that
occurs, and inflation remains low, the U.S. bond market could rally from
its current depressed level.
A MESSAGE FROM BOB BECKWITT, PORTFOLIO MANAGER OF
ASSET MANAGER PORTFOLIO
Asset Manager's performance during the past year, especially during the
first six months of 1994, has no doubt been a disappointment to many. Those
who had grown accustomed to the returns of the past several years have had
to adjust to the realities of today's more challenging investment climate,
and lower their expectations accordingly.
In order to better understand these changes, it may help to review Asset
Manager's investment strategy. The strategy has two parts. First, I search
both inside and outside the United States for asset classes that have the
potential for attractive intermediate and long-term returns. (By asset
classes I mean mainly stocks, bonds and cash equivalents.) Second, once
I've chosen the asset classes, I try to diversify among them. The theory
being simply that when you invest in many different assets, some zig while
others zag and the fund as a whole benefits. The goal is to achieve
above-average returns, but without exposing investors to as much risk as
they might face in a more concentrated fund. It's a long-term strategy - I
don't try to time the market - but I do make gradual adjustments to the mix
as conditions warrant. Earlier this spring, I reduced the fund's stake in
stocks and bonds - especially foreign securities - and raised the cash
component. The breakdown of assets on June 30, 1994, was 40% stocks, 26%
bonds and 34% cash. Of the total, 25% were foreign securities.
Until recently, the strategy worked quite well. Unfortunately,
diversification didn't help much during the first half of 1994, when nearly
every asset class in the world went one direction, and that was down.
Losses ranged from approximately 5% for the average U.S. stock to 25% for
stocks traded on the Hong Kong exchange; and from 4% for U.S. bonds to 20%
for emerging market bonds. Practically the only investors who didn't lose
money after January were those who put everything they had in cash.
Bonds were the most disappointing performers. When U.S. interest rates rose
in February, bond prices fell, not just here but around the world. The
fund's 7% stake in emerging market bonds turned out to be especially
vulnerable, in part because smaller markets tend to be more volatile. It's
important to remember that on the whole, bonds issued in countries such as
Mexico and Argentina contributed greatly to the fund's performance over the
past several years. For example, last summer I increased the fund's stake
in Mexico in anticipation of passage of the North American Free Trade
Agreement (NAFTA), and the fund benefited as a result. Unfortunately, the
January revolt in Chiapas and the March assassination of Mexico's leading
presidential candidate, not to mention rising U.S. interest rates, upset
the markets, and the fund gave back a good chunk of its gains. While I've
since reduced the fund's stake somewhat, I still believe in Mexico's
commitment to economic reform. NAFTA's passage was a seminal event; its
importance should not be underestimated. Despite the short-term uncertainty
in Mexico, the long-term potential remains high. Unless conditions worsen,
I plan on staying invested.
Europe is a different story. Last winter, when rising U.S. interest rates
drove up the cost of funds, large investors who had borrowed heavily to
finance purchases of European bonds began selling. Prices fell, but not as
much as they did in the United States, where inflation is a bigger threat
and the economy is more robust. I tried to take advantage of that relative
outperformance
by eliminating my stake in European bonds last spring, and adding more U.S.
bonds. So-called junk bonds - 9% of the fund - are especially attractive
right now; they offer an attractive yield and the potential for price gains
in an improving economy.
Derivatives had little effect, positive or negative, on the fund's results
during the last six months. What are derivatives? They're like customized
bonds. Their performance is tied to the performance of various underlying
assets. Because I'm able to choose the underlying assets, derivatives let
me take advantage of potential opportunities I might otherwise miss. For
example, when it looked as though short-term interest rates in Europe were
likely to fall faster than long-term rates, I chose derivatives designed to
capitalize on that. They had the greater potential for price gains that you
normally get only with long-term bonds, but with returns tied to short-term
rates. They were strong performers through January and poor performers
after that. Then as inflationary pressures increased, I invested in
derivatives tied to commodity prices. Those, too, did well, although I've
since cut back as commodity prices have risen.
Derivatives can be risky, especially if you don't know how to use them. On
the other hand, the two major components of that risk - that my market
forecast could be wrong, and that the issuer could go bankrupt - are
basically the same risks I assume with every investment I make for the
fund. In any case, the fund limits its stake in these types of derivatives
to no more than 10% of assets; at the end of June, the total was less than
5%.
Despite recent setbacks, I've preserved large investments in stocks,
focusing domestically on the technology and finance sectors. Among the
fund's largest holdings throughout the period were companies that stand to
profit from increased capital investment, including Intel, Compaq, Motorola
and IBM. That's a trend I've been betting on for a couple of years. Foreign
stocks were more than 14% of the fund at the end of June, led by British
Petroleum, whose outlook has improved thanks to aggressive cost cutting.
I want to emphasize that further declines in world markets - and in the
fund's share price as well - are still possible. That shouldn't surprise
anyone, given the almost uninterrupted gains we've enjoyed since 1990.
Remember, the fund is not designed for investors unwilling to accept
short-term losses. On the other hand, I'm more optimistic about the fund's
prospects when I look at the next six months than I have been for some
time. I still believe strongly in the long-term potential of countries in
Latin America and Southeast Asia, where economic growth is continuing at
roughly twice the rate of growth in the United States, Europe and Japan.
That bodes well not only for emerging market stocks, of course, as company
earnings grow; but also for bonds, as countries improve their ability to
pay off debt. Moreover, thanks to recent corrections, emerging markets no
longer appear as speculative as they once did. Overall, in terms of asset
allocation, the fund has been in a defensive mode for the past several
months, with more cash than at any time during the past two years. However,
I would expect to see the percentage of the fund's assets allocated to
stocks and bonds increase in the months ahead.
A MESSAGE FROM JENNIFER
FARRELLY, PORTFOLIO MANAGER
OF INDEX 500 PORTFOLIO
A stock market downturn that began in early February and continued through
June led to a -3.39% total return for the S&P 500 index - a broad measure
of the performance of U.S. stocks - for the six month period ended June 30,
1994. The index was up 1.41% for the 12 months ended June 30. The fund's
performance was slightly lower due to management expenses.
The utilities group - more than 9% of the index at the end of June -
suffered the biggest loss among S&P 500 sectors. Electric utilities were
especially hard hit; many were forced to slash dividends and were unable to
raise rates. In addition, utility companies in many parts of the country
began to face increased competition.
The index's largest sector, consumer nondurables, continued to turn in
disappointing results. Despite the improving economy, cost-conscious
consumers forced many food, beverage and retail companies to either hold
the line or lower prices on their products, and many of these companies
turned in lackluster earnings as a result. Health care stocks were mixed.
While there was continuing uncertainty over healthcare reform, investors
rewarded hospital supply and hospital management companies for successfully
trimming expenses and consolidating their businesses. Despite some
late-period gains, the index's drug stocks finished the six months ended
June 30 with a negative return.
Basic industries stocks, which made up nearly 8% of the index at mid-year,
posted the largest gain among S&P 500 sectors. The improving economy
boosted so-called "deep cyclicals" - companies that provide raw materials
from which consumer products are made. Increased demand allowed these
companies to raise prices while maintaining strong earnings growth. For
example, copper stocks were up more than 20% for the six months ended June
30.
The financial sector rebounded from sub-par performance in the fall of
1993, and rose more than 5% over the past six months. Regional banks were
particularly attractive to investors; many of these stocks were cheap, and
some banks showed that they could sustain earnings growth despite rising
interest rates.
The technology and energy sectors - together more than 24% of the index -
each turned in positive returns from December 31 through June 30. Although
the technology group was volatile, strong performance from companies tied
to the boom in personal computers offset losses in telecommunications
stocks, which were mostly due to doubts about the building of the
information superhighway. As for energy stocks, rising oil prices boosted
the profits of those companies whose businesses are price sensitive.
As many investors are keenly aware, stock market volatility has picked up
over the past six months. I expect that could continue, especially if
interest rates continue to rise. However, stock prices eventually follow
company earnings, which have been improving lately due to effective cost
cutting and the improving economy. So if rates level out, and earnings
drive the market, the stocks of those companies showing the best earnings
improvement could do well. But regardless of what happens over the next six
months, a long-term view of stock investing always helps investors weather
the peaks and valleys.
VARIABLE INSURANCE PRODUCTS FUND II: INVESTMENT GRADE BOND PORTFOLIO
INVESTMENTS/JUNE 30, 1994 (UNAUDITED)
(SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES)
MOODY'S PRINCIPAL VALUE MOODY'S PRINCIPAL VALUE
RATINGS(B) AMOUNT(A) (NOTE 1) RATINGS(B) AMOUNT(A) (NOTE 1)
Corporate BONDS - 42.5%
CONVERTIBLE BONDS - 0.9%
ENERGY - 0.5%
ENERGY SERVICES - 0.5%
Halliburton Co. liquid yield option
note 0%, 3/31/06 A3 $ 1,000,000 $ 495,000
RETAIL & WHOLESALE - 0.4%
DRUG STORES - 0.4%
Rite Aid Corp. liquid yield option
note 0%, 7/24/06 Baa1 1,000,000 448,750
TOTAL CONVERTIBLE BONDS 943,750
NONCONVERTIBLE BONDS - 41.6%
BASIC INDUSTRIES - 0.4%
IRON & STEEL - 0.4%
Pohang Iron & Steel Ltd.
6 5/8%, 7/1/03 (d) A2 500,000 437,980
ENERGY - 1.2%
ENERGY SERVICES - 1.2%
McDermott International, Inc.:
10 1/4%, 6/1/95 Baa3 305,000 314,485
9 3/8%, 3/15/02 Baa3 450,000 471,730
Petroliam Nasional Berhad
6 7/8%, 7/1/03 (d) A2 500,000 460,355
1,246,570
FINANCE - 30.7%
ASSET-BACKED SECURITIES - 2.9%
Concord Leasing, Inc. 5.04%,
7/15/98 (d) AAA 431,330 415,177
Discover Card Trust:
7 1/5%, 4/16/98 Aaa 500,000 505,310
6 1/8%, 5/15/98 A2 200,000 197,124
Ford Credit Auto Loan Master Trust
7 3/8%, 4/15/99 Aaa 500,000 507,150
Ford Credit 1991-B Grantor Trust
6 1/2%, 11/15/96 AAA 11,121 11,157
General Motors Acceptance Corp.
Grantor Trust 5.70% 12/15/96 Aaa 13,072 13,068
Standard Credit Card Master Trust,
5 7/8%, 7/7/96 Aaa 500,000 496,450
Standard Credit Card Trust
9%, 3/10/95 Aaa 1,000,000 1,020,000
3,165,436
BANKS - 15.5%
Bank of Boston Corp.:
9 1/2%, 8/15/97 Baa2 $ 75,000 $ 80,229
4.675%, 8/26/98 (c) Baa2 450,000 443,812
6 5/8%, 12/1/05 Baa2 1,000,000 886,250
Bank of New York, Inc. 7 5/8%,
7/15/02 Baa1 400,000 391,404
BankAmerica Corp. 7 3/4%,
7/15/02 A3 500,000 491,460
Chemical New York NV euro:
0%, 2/16/00 Baa1 1,800,000 1,172,250
0%, 2/16/02 Baa1 1,100,000 600,875
0%, 2/16/03 A2 946,000 473,000
Citicorp:
9.47%, 5/22/96 A2 750,000 788,542
euro 5%, 1/30/98 (c) A3 500,000 496,250
Continental Bank Corp.
4 1/2%, 5/18/00 (c) Baa3 500,000 497,500
Czech National Bank Prague euro 7%,
4/6/96 Baa2 175,000 174,440
Export-Import Bank Korea 7.85%,
11/1/96 A1 275,000 279,768
First Bank System, Inc. euro
5 1/4%, 11/30/10 (c) Baa1 900,000 882,000
First Fidelity Bancorporation:
9 3/4%, 5/25/95 A3 50,000 51,567
9 5/8%, 8/15/99 A3 500,000 539,930
First Hawaiian Bank secured 6.93%,
12/1/03 (d) A1 800,000 727,840
First Maryland Bancorp:
10 3/8%, 8/1/99 Baa1 500,000 556,290
8 3/8%, 5/15/02 Baa1 300,000 300,750
KeyCorp 8.40%, 4/1/99 A2 310,000 319,982
MBNA American Bank, N.A.
7 1/4%, 9/15/02 A3 700,000 667,072
Marine Midland Banks, Inc.
8 5/8%, 3/1/97 Baa1 250,000 258,422
Mellon Financial Co.:
6 1/8%, 11/15/95 A3 225,000 224,809
6 1/2%, 12/1/97 A3 200,000 195,726
Mercantile Bancorporation, Inc .
7 5/8%, 10/15/02 Baa3 700,000 679,203
Meridian Bancorp, Inc.
5 1/4%,12/1/96 (c) Baa1 900,000 901,476
Midland American Capital Corp.
gtd. 12 3/4%, 11/15/03 A1 815,000 966,345
MOODY'S PRINCIPAL VALUE MOODY'S PRINCIPAL VALUE
RATINGS(B) AMOUNT(A) (NOTE 1) RATINGS(B) AMOUNT(A) (NOTE 1)
CORPORATE BONDS - CONTINUED
NonCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
BANKS - CONTINUED
Moore Financial Group, Inc.
5 1/4%, 11/30/97 (c) Baa1 $ 250,000 $ 247,500
NCNB Corp. 9 1/8%, 10/15/01 A3 500,000 529,475
National City Corp. 5 1/4%,
1/31/97 (c) A2 850,000 845,750
Security Pacific Corp. 10.05%,
5/1/95 A2 300,000 310,344
Signet Banking Corp. 5 1/4%,
5/15/97 (c) Baa1 100,000 99,750
Sovran Financial Corp. 9 3/4%,
6/15/99 A3 550,000 591,899
16,671,910
CREDIT & OTHER FINANCE - 7.6%
American Residential Mortgage
Corp. 6.09%, 12/15/98 Baa3 225,000 209,531
Aristar, Inc. 8.55%, 6/1/95 Baa1 125,000 127,704
Beneficial Corp.:
9 3/8%, 6/2/95 A2 300,000 308,913
9.4%, 2/7/96 A2 150,000 156,886
Caterpillar Financial Services Corp.
7.14%, 4/10/95 A3 150,000 151,384
Chrysler Financial Corp.:
6%, 4/15/96 A3 500,000 495,725
6.4%, 6/17/97 Baa3 1,000,000 983,020
Fleet Mortgage Group 6 1/2%,
9/15/99 A3 1,000,000 946,740
Ford Motor Credit Co.:
6 1/2%, 1/17/95 A2 350,000 351,774
euro 9 5/8%, 2/27/96 A2 250,000 261,562
General Motors Acceptance Corp.:
7.40%, 4/3/95 Baa1 200,000 202,044
8.60%, 4/5/95 Baa1 300,000 305,649
9.40%, 5/18/95 Baa1 200,000 205,560
Greyhound Financial Corp. 8 1/4%,
3/11/97 Baa2 460,000 470,465
Household Finance Corp. 7.8%,
11/1/96 A2 350,000 356,986
Industrial Finance Corp. Thailand
7 1/4%, 12/2/96 - THB 10,000,000 379,928
Margaretten Financial Corp. 6 3/4%,
6/15/00 Baa3 775,000 738,420
Railcar Trust 7 3/4%, 6/1/04 Aaa 926,330 944,567
Westinghouse Credit Corp.:
8 3/4%, 10/20/94 Ba1 $ 100,000 $ 100,950
9.15%, 7/12/95 Ba1 75,000 76,627
8 3/4%, 11/15/96 Ba1 258,000 263,121
8.93%, 6/22/99 Ba1 100,000 102,219
8,139,775
INSURANCE - 2.7%
ITT Hartford Group, Inc. 8 1/5%,
10/15/98 A1 650,000 665,697
Metropolitan Life Insurance Co.
6 3/10%, 11/1/03 (d) Aa3 1,000,000 880,000
New York Life Insurance Co. 6.4%,
12/15/03 (d) Aa2 500,000 440,650
Protective Life Corp. 7.95%
7/1/04 A3 1,000,000 984,500
2,970,847
SAVINGS & LOANS - 2.0%
Golden West Financial Corp.
10 1/4%, 5/15/97 A3 350,000 377,177
7 7/8%, 1/15/02 A3 500,000 494,590
Household Bank 8.45%, 12/10/02 A3 1,000,000 1,023,660
World Savings & Loan Association
9.9%, 7/1/00 A2 200,000 217,804
2,113,231
TOTAL FINANCE 33,061,199
INDUSTRIAL MACHINERY & EQUIPMENT - 0.3%
ELECTRICAL EQUIPMENT - 0.3%
Westinghouse Electric Corp.:
9%, 2/6/98 Ba1 200,000 205,762
6.875%, 9/1/03 Ba1 150,000 131,781
337,543
MEDIA & LEISURE - 2.6%
BROADCASTING - 1.5%
Telecommunications, Inc. 6.58%,
2/15/05 Baa3 700,000 659,085
Time Warner, Inc. 6.05%,
7/1/95 (d) Ba1 1,000,000 994,960
1,654,045
PUBLISHING - 1.1%
News America Holdings, Inc.:
9 1/8%, 10/15/99 Ba1 500,000 517,265
8 5/8%, 2/1/03 Ba1 600,000 601,518
1,118,783
TOTAL MEDIA & LEISURE 2,772,828
MOODY'S PRINCIPAL VALUE MOODY'S PRINCIPAL VALUE
RATINGS(B) AMOUNT(A) (NOTE 1) RATINGS(B) AMOUNT(A) (NOTE 1)
CORPORATE BONDS - CONTINUED
NonCONVERTIBLE BONDS - CONTINUED
NONDURABLES - 1.0%
BEVERAGES - 0.9%
Coca-Cola Enterprises, Inc.:
7 7/8%, 2/1/02 A3 $ 500,000 $ 502,005
8 1/2%, 2/1/22 A3 500,000 508,780
1,010,785
TOBACCO - 0.1%
Philip Morris Companies, Inc.
8 7/8%, 7/1/96 A2 100,000 103,408
TOTAL NONDURABLES 1,114,193
RETAIL & WHOLESALE - 0.5%
GENERAL MERCHANDISE STORES - 0.5%
Sears Roebuck & Co.
9%, 9/15/96 Baa1 475,000 494,736
SERVICES - 0.3%
ADVERTISING - 0.1%
Valassis Inserts 9 3/8%, 3/15/99 Ba2 100,000 103,719
LEASING & RENTAL - 0.2%
Ryder System, Inc. 9 1/4%,
5/15/01 Baa1 200,000 213,654
TOTAL SERVICES 317,373
TECHNOLOGY - 0.9%
COMPUTERS & OFFICE EQUIPMENT - 0.9%
Comdisco, Inc.:
9 3/4%, 1/15/97 Baa2 200,000 211,618
7 3/4%, 1/29/97 Baa2 700,000 706,888
918,506
TRANSPORTATION - 1.4%
AIR TRANSPORTATION - 1.4%
AMR Corp. 9.76%, 1/11/96 Baa3 100,000 103,396
Delta Air Lines, Inc. equip.
trust cert. 8.54%, 1/2/07 Baa3 480,000 433,320
Qantas Airways Ltd. 6 5/8%,
6/30/98 (d) Baa2 500,000 483,750
Southwest Airlines Co. 8 3/4%,
10/15/03 Baa1 500,000 522,915
1,543,381
UTILITIES - 2.3%
ELECTRIC UTILITY - 1.9%
Castle Peak Power, Ltd. 6.87%,
8/1/3 A3 1,000,000 887,500
Iberdrola International BV gtd.
7 1/8%, 6/1/03 (d) A1 1,300,000 1,207,375
2,094,875
GAS - 0.4%
Houston Natural Gas Corp.
12 1/8%, 4/15/95 Baa2 $ 150,000 $ 156,457
Panhandle Eastern Pipe Line Co.
9 7/8%, 10/15/96 Baa2 250,000 255,150
411,607
TOTAL UTILITIES 2,506,482
TOTAL NONCONVERTIBLE BONDS 44,750,791
TOTAL CORPORATE BONDS
(Cost $46,608,158) 45,694,541
U.S. TREASURY OBLIGATIONS - 16.0%
3 7/8%, 4/30/95 Aaa 4,000,000 3,949,360
9 1/4%, 8/15/98 Aaa 1,000,000 1,085,940
8 1/8%, 8/15/19 Aaa 10,370,000 10,778,267
Stripped coupon 8/15/17 Aaa 8,700,000 1,422,972
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $18,648,916) 17,236,539
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES - 8.1%
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.1%
12%, 3/1/17 Aaa 72,279 81,766
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 8.0%
7%, 12/15/22 to 4/15/24 Aaa 4,431,515 4,079,748
7 1/2%, 2/15/23 to 12/15/23 Aaa 2,833,694 2,702,639
8%, 2/15/17 to 3/15/23 Aaa 609,214 601,295
10%, 7/15/13 to 3/15/16 Aaa 1,131,911 1,214,781
8,598,463
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(Cost $9,273,565) 8,680,229
U.S. GOVERNMENT AGENCY - COLLATERALIZED MORTGAGE OBLIGATIONS - 0.9%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 0.9%
9.3%, 4/15/19 (Cost $961,871) Aaa 892,134 928,935
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.5%
CS First Boston Mortgage Securities
Corp. 4.988%, 1/25/28 Aaa 330,000 330,000
MBNA Trust 9 1/2%, 10/25/20 Aaa 47,406 47,347
Ryland Mortgage Securities Corp.
7 1/2%, 8/1/23 Aaa 116,520 116,666
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $499,094) 494,013
MOODY'S PRINCIPAL VALUE PRINCIPAL VALUE
RATINGS(B) AMOUNT(A) (NOTE 1) AMOUNT(A) (NOTE 1)
FOREIGN GOVERNMENT OBLIGATIONS (f)-12.9%
Alberta Province 9 1/4%, 4/1/00 Aa2 $ 1,400,000 $ 1,516,074
British Columbia Province 7%,
1/1/03 Aa1 500,000 478,885
Canadian Government 8 1/4%,
3/1/97 Aaa CAD 590,000 421,584
Danish Government:
8%, 5/15/03 Aa1 DKK 2,965,000 465,706
7%, 12/15/04 Aa1 DKK 5,745,000 835,083
French Government OAT:
8 1/2%, 11/25/02 Aaa FRF 1,800,000 352,792
8 1/2%, 4/25/03 Aaa FRF 10,380,000 2,032,147
6 3/4%, 10/25/03 Aaa FRF 6,100,000 1,068,508
5 1/2%, 4/25/04 Aaa FRF 700,000 111,236
German Republic 6 1/2%,
7/15/03 Aaa DEM 750,000 453,369
Italian Republic BTPS 8 1/2%,
4/1/99(e) - ITL 800,000 469,920
Korea Development Bank:
6 1/4%, 5/1/00 A1 100,000 91,345
7%, 7/15/99 A1 200,000 191,498
Manitoba Province
6 3/4%, 3/1/03 A1 500,000 465,005
Mexican Government Cetes
1/12/95 to 10/11/95 - MXN 5,279,500 1,317,917
New Zealand Government 8%,
4/15/04 Aaa NZD 2,380,000 1,442,379
Quebec Province:
8.24%, 2/28/96 Aa3 500,000 515,075
7 1/2%, 7/15/02 Aa3 500,000 481,650
United Kingdom Treasury Bonds
12%, 11/20/98 Aaa GBP 386,000 672,158
Victorian Public Authorities Finance
Agency 8.45%, 10/1/01 A1 500,000 519,665
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $14,479,105) 13,901,996
CERTIFICATES OF DEPOSIT - 0.7%
Siam Commerce Bank Co. Ltd.
6 3/4%, 11/29/94
(Cost $791,040) THB 20,000,000 793,842
COMMERCIAL PAPER - 4.2%
Bancomer:
0%, 12/21/95 MXN 3,850,772 915,684
SNC 0%, 12/28/95 MXN 1,242,336 294,663
Bank Negara Malaysia 0%, 9/7/94 MYR 2,130,000 808,646
Nacional Financiera SNC:
0%, 7/23/96 MXN 1,675,000 $ 369,522
0%, 8/3/95 MXN 3,730,500 934,005
Public Bank BHD 0%, 7/13/94 MYR 3,000,000 1,151,973
TOTAL COMMERCIAL PAPER
(Cost $4,795,040) 4,474,493
MATURITY
AMOUNT
REPURCHASE AGREEMENTS - 14.2%
Investments in repurchase agreements,
(U.S. Treasury obligations), in a
joint trading account at 4.29%
dated 6/30/94 due 7/1/94 $ 15,329,827 15,328,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $111,384,789) $ 107,532,588
Forward Foreign Currency Contracts
SETTLEMENT UNREALIZED
CONTRACTS TO BUY DATE(S) VALUE GAIN/(LOSS)
616,653 CAD 8/9/94 $ 445,037 $ (3,682)
44,588,957 JPY 7/19/94 453,047 27,297
TOTAL CONTRACTS TO Buy
(Payable amount $874,469) $ 898,084 23,615
THE VALUE OF CONTRACTS TO BUY AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 0.8%
CONTRACTS TO SELL
616,653 CAD 8/9/94 445,037 (2,707)
444,795 GBP 9/14/94 686,260 (16,844)
10,251,312 DKK 8/2/94 1,642,470 (88,794)
21,680,102 FRF 9/7/94 3,975,480 (171,686)
769,270 DEM 8/31/94 484,366 2,868
767,465,320 ITL 9/30/94 481,369 4,032
47,174,027 JPY 7/19/94 479,314 (23,780)
TOTAL CONTRACTS TO SELL
(Receivable amount $7,897,385) $ 8,194,296 (296,911)
THE VALUE OF CONTRACTS TO SELL AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 7.6%
$ (273,296)
CURRENCY ABBREVIATIONS:
GBP - British pound
CAD - Canadian dollar
DKK - Danish krone
FRF - French franc
DEM - German Deutsche mark
ITL - Italian lira
JPY - Japanese yen
MYR - Malaysian ringgit
MXN - Mexican peso
NZD - New Zealand dollar
THB - Thai baht
LEGEND:
(a) Principal amount is stated in United States dollars unless otherwise
noted.
(b) Standard & Poor's Corporation credit ratings are used in the absence of
a rating by Moody's Investors Service, Inc.
(c) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(d) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $6,048,087 or 5.5% of net
assets.
(e) Principal amount in thousands.
(f) Most 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 securiites,
aggregated $75,361,938 and $90,337,933, respectively, of which U.S.
government and government agency obligations aggregated $63,421,762 and
$73,599,369, respectively.
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S S&P
RATINGS RATINGS
Aaa, Aa, A 59.9% AAA, AA, A 61.5%
Baa 15.7% BBB 17.2%
Ba 2.9% BB 0.2%
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%.
Distribution of investments by country of issue, as a percentage of total
value of investment in securities, is as follows:
United States 78.2%
Canada 3.6
Mexico 3.6
France 3.3
Malaysia 2.3
New Zealand 1.3
Denmark 1.2
Spain 1.1
Thailand 1.1
Others (individually less than 1%) 4.3
TOTAL 100.0%
INCOME TAX INFORMATION:
At June 30, 1994, the aggregate cost of investment securities for income
tax purposes was $111,386,357. Net unrealized depreciation aggregated
$3,853,769, of which $705,031 related to appreciated investment securities
and $4,558,800 related to depreciated investment securities.
INVESTMENT GRADE BOND PORTFOLIO
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, 1994 (Unaudited)
ASSETS
Investment in securities, at value (including repurchase agreements of $15,328,000) (cost $111,384,789) $ 107,532,588
(Notes 1 and 2) - See accompanying schedule
Cash 2,149
Receivable for investments sold 4,008,176
Unrealized appreciation on foreign currency contracts (Note 2) 34,197
Interest receivable 1,473,359
Total assets 113,050,469
LIABILITIES
Payable for investments purchased $ 1,975,045
Unrealized depreciation on foreign currency contracts (Note 2) 307,493
Payable for closed foreign currency contracts (Note 2) 62,920
Payable for fund shares redeemed 336,447
Accrued management fee 42,829
Other payables and accrued expenses 198,512
Total liabilities 2,923,246
NET ASSETS $ 110,127,223
Net Assets consist of (Note 1):
Paid in capital $ 112,179,473
Undistributed net investment income 3,479,455
Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions (1,431,589)
Net unrealized appreciation (depreciation) on investments and assets and liabilities in foreign currencies (4,100,116)
NET ASSETS, for 10,038,737 shares outstanding $ 110,127,223
NET ASSET VALUE, offering price and redemption price per share ($110,127,223 (divided by) 10,038,737 shares) $10.97
</TABLE>
Statement of Operations
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
Six Months Ended June 30, 1994 (Unaudited)
INVESTMENT INCOME $ 4,217,568
Interest
EXPENSES
Management fee (Note 4) $ 266,569
Transfer agent fees (Note 4) 60,105
Accounting fees and expenses (Note 4) 32,403
Non-interested trustees' compensation 1,228
Custodian fees and expenses 37,409
Registration fees 1,275
Audit 20,925
Legal 328
Miscellaneous 982
Total expenses 421,224
Net investment income 3,796,344
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 2)
Net realized gain (loss) on:
Investment securities (1,195,043)
Foreign currency transactions (396,681) (1,591,724)
Change in net unrealized appreciation (depreciation) on:
Investment securities (6,905,720)
Assets and liabilities in foreign currencies (314,853) (7,220,573)
Net gain (loss) (8,812,297)
Net increase (decrease) in net assets resulting from operations $ (5,015,953)
</TABLE>
Statement of Changes in Net Assets
DRAFT
SIX MONTHS ENDED
JUNE 30, 1994 YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS (UNAUDITED) DECEMBER 31, 1993
<TABLE>
<CAPTION>
<S> <C> <C>
Operations $ 3,796,344 $ 6,778,747
Net investment income
Net realized gain (loss) (1,591,724) 466,133
Change in net unrealized appreciation (depreciation) (7,220,573) 2,326,336
Net increase (decrease) in net assets resulting from operations (5,015,953) 9,571,216
Distributions to shareholders: (226,562) (6,271,862)
From net investment income
In excess of net investment income - (20,655)
From net realized gain - (466,133)
In excess of net realized gain (90,472) (136,034)
Total distributions (317,034) (6,894,684)
Share transactions 27,543,007 79,979,898
Net proceeds from sales of shares
Reinvestment of distributions 317,034 6,894,684
Cost of shares redeemed (34,776,236) (40,773,056)
Net increase (decrease) in net assets resulting from share transactions (6,916,195) 46,101,526
Total increase (decrease) in net assets (12,249,182) 48,778,058
NET ASSETS
Beginning of period 122,376,405 73,598,347
End of period (including under (over) distribution of net investment income of $3,479,455 and $ 110,127,223 $ 122,376,405
($90,327), respectively)
OTHER INFORMATION
Shares
Sold 2,437,053 6,824,727
Issued in reinvestment of distributions 27,544 602,270
Redeemed (3,085,575) (3,478,667)
Net increase (decrease) (620,978) 3,948,330
</TABLE>
Financial Highlights
DRAFT
SIX MONTHS ENDED
JUNE 30, 1994 YEARS ENDED DECEMBER 31,
(UNAUDITED) 1993 1992 1991 1990 1989
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 11.480 $ 10.970 $ 11.080 $ 9.920 $ 10.140 $ 10.000
Income from Investment Operations .375 .641 .672 .455 .826 .827
Net investment income
Net realized and unrealized gain (loss) (.855) .559 .058E 1.165 (.220) .160
Total from investment operations (.480) 1.200 .730 1.620 .606 .987
Less Distributions (.020) (.628) (.680) (.460) (.826) (.827)
From net investment income
In excess of net investment income - (.002) - - - -
From net realized gain on investments - (.050) (.160) - - (.020)
In excess of net realized gain on (.010) (.010) - - - -
investments
Total distributions (.030) (.690) (.840) (.460) (.826) (.847)
Net asset value, end of period $ 10.970 $ 11.480 $ 10.970 $ 11.080 $ 9.920 $ 10.140
TOTAL RETURN B, C (4.19)% 10.96% 6.65% 16.38% 6.21% 10.26%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 110,127 $ 122,376 $ 73,598 $ 44,835 $ 14,348 $ 6,053
Ratio of expenses to average net assets D .73%1. .68% .76% .80% .80% .80%
Ratio of expenses to average net assets .73%1. .68% .76% 1.16% 2.20% 3.53%
before expense reductions D
Ratio of net investment income to average net 6.56%1. 6.85% 7.11% 7.73% 8.26% 8.19%
assets
Portfolio turnover rate 147%1. 70% 119% 128% 122% 67%
</TABLE>
1. ANNUALIZED
2. TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
3. THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
4. SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS.
5. THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH THE
AGGREGATE NET LOSS ON INVESTMENTS FOR THAT YEAR DUE TO THE TIMING OF SALES
AND REPURCHASES
OF FUND SHARES IN RELATION TO FLUCTUATING MARKET VALUES OF THE INVESTMENTS
OF THE FUND.
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO
INVESTMENTS/JUNE 30, 1994 (UNAUDITED)
(SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN
SECURITIES)
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - 40.2%
AEROSPACE & DEFENSE - 0.3%
AEROSPACE & DEFENSE - 0.2%
Aviall, Inc. (a) 825 $ 7,116
Boeing Co. 25,800 1,193,250
Flightsafety International, Inc. 41,300 1,553,913
Martin Marietta Corp. 7,800 344,175
Oerlikon-Buhrle Holding Ltd. (Reg.) (a) 8,300 865,134
Samsung Aerospace Industries (a) 4,500 172,163
Samsung Aerospace Industries (New) (a) 671 17,587
Sturm Ruger & Co., Inc. 2,800 82,600
Thiokol Corp. 1,300 31,363
4,267,301
DEFENSE ELECTRONICS - 0.1%
Litton Industries, Inc. 7,100 238,738
Loral Corp. 37,200 1,302,000
Raytheon Co. 27,900 1,806,525
Watkins-Johnson Co. 7,300 216,263
3,563,526
TOTAL AEROSPACE & DEFENSE 7,830,827
BASIC INDUSTRIES - 2.7%
CHEMICALS & PLASTICS - 1.2%
ARCO Chemical Co. 12,800 580,800
Airgas, Inc. (a) 54,600 1,440,075
Akzo NV Ord. 15,200 1,630,553
Albemarle Corp. (a) 66,700 1,092,213
BASF AG 15,200 2,891,682
Bayer AG 8,200 1,779,521
Betz Laboratories, Inc. 2,000 84,750
DSM NV 11,500 817,692
du Pont (E.I.) de Nemours & Co. 29,500 1,722,063
Eastman Chemical Co. 22,200 1,060,050
Ferro Corp. 15,000 346,875
GEON 7,500 195,000
Grace (W.R.) & Co. 58,200 2,320,725
Great Lakes Chemical Corp. 35,400 1,916,025
Han Wha (a) 3,000 43,972
Hanna (M.A.) Co. 21,450 544,294
Hanyang Chemical Corp. (a) 4,500 58,692
Hercules, Inc. 2,700 288,900
Hoechst AG Ord. 19,500 3,979,968
IMC Fertilizer Group, Inc. (a) 10,000 346,250
Imperial Chemical Industries:
Ord. 37,953 455,318
PLC ADR 7,300 346,750
Indo Gulf Fertilizer and Chemicals GDR (f) 201,400 765,320
Kureha Chemical Industries Co. Ltd. 98,000 $ 626,484
Lucky Co. Ltd. (a) 64,320 1,446,112
Lyondell Petrochemical Co. 24,300 598,388
Methanex Corp. (a) 32,500 378,863
Nalco Chemical Co. 65,500 2,087,813
OM Group, Inc. (a) 12,500 250,000
Oriental Chemical Industry Co. (a) 22,386 664,587
Perez Companc Class B (a) 500,000 2,385,605
Potash Corp. of Saskatchewan 1,500 41,072
Reliance Industries Ltd. GDR (f) 25,500 548,250
Shinetsu Chemical 40,000 856,418
Union Carbide Corp. 61,300 1,639,775
Wellman, Inc. 9,900 275,963
Witco Corp. 15,000 446,250
36,953,068
IRON & STEEL - 0.5%
Allegheny Ludlum Industries, Inc. 27,600 510,600
Birmingham Steel Corp. 29,500 796,500
British Steel PLC Ord. 479,765 1,051,875
Compania Siderurgica Nacional (a) 37,300,000 963,086
Dongkuk Steel Mill Co. (a) 1,500 52,916
Geneva Steel Co. (warrants) (a) 22,640 203,760
Hoogovens en Staalfabrieken (a) 10,800 433,395
Hyundai Pipe Co. Ltd. (a) 20,850 347,047
Inland Steel Industries, Inc. (a) 24,000 837,000
Kawasaki Steel Corp. 279,000 1,183,378
LTV Corp. (a) 50,600 777,975
Nucor Corp. 23,500 1,609,750
Oregon Steel Mills, Inc. 8,700 166,388
Pohang Iron & Steel Co. Ltd. 4,700 465,884
Thyssen AG Ord. 19,100 3,456,758
USX-U.S. Steel Group 37,500 1,270,313
14,126,625
METALS & MINING - 0.5%
Alcan Aluminum Ltd. 212,700 4,805,259
Alumax, Inc. (a) 16,450 421,531
Aluminum Co. of America 6,600 482,625
Castle A.M. & Co. 3,800 86,450
Dae Chang Industrial Co. (a) 12,880 294,382
Hindalco Industries Ltd. GDR (a)(f) 12,000 336,000
Iljin Corp. (a) 7,190 212,561
Korea Tungsten Mining Co. (a) 9,682 388,459
Noranda, Inc. 180,700 3,086,237
Poong San Corp. (a) 14,250 251,351
RTZ Corp. PLC Ord. (a) 25,093 318,472
Reynolds Metals Co. 81,600 3,916,800
Sam Sun Industry (a) 3,360 24,625
14,624,752
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
BASIC INDUSTRIES - CONTINUED
PACKAGING & CONTAINERS - 0.1%
Ball Corp. 21,655 $ 563,030
Carnaudmetalbox SA 13,510 414,615
Owens-Illinois, Inc. (a) 205,700 2,262,700
3,240,345
PAPER & FOREST PRODUCTS - 0.4%
Abitibi-Price, Inc. (a) 9,000 108,169
Boise Cascade Corp. 7,900 174,788
Bowater, Inc. 58,300 1,435,638
Champion International Corp. 27,200 894,200
Chesapeake Corp. 5,100 130,050
Eagon Industrial Co. Ltd. (a) 4,050 93,069
Georgia-Pacific Corp. 500 29,938
International Paper Co. 14,700 973,875
Jefferson Smurfit Corp. 6,500 104,813
Kimberly Clark de Mexico Class A 173,500 3,211,731
Repola OY 22,500 389,159
Stone Consolidated Corp. (a) 85,500 988,975
Stone Container Corp. (a) 37,500 548,438
Sung Chang Enterprise Co. (a) 4,070 294,235
Temple-Inland, Inc. 20,800 990,600
Weyerhaeuser Co. 2,300 92,000
10,459,678
TOTAL BASIC INDUSTRIES 79,404,468
CONGLOMERATES - 0.2%
Alexander & Baldwin, Inc. 22,100 569,075
Allied-Signal, Inc. 8,800 304,700
Dial Corp. (The) 9,500 406,125
Harris Corp. 8,800 388,300
ITT Corp. 1,500 122,438
Nestle SA (Reg.) 800 676,404
Suncor, Inc. 64,800 1,370,251
Textron, Inc. 11,600 607,550
United Technologies Corp. 18,400 1,182,200
5,627,043
CONSTRUCTION & REAL ESTATE - 1.0%
BUILDING MATERIALS - 0.6%
Armstrong World Industries, Inc. 40,000 1,865,000
Cementos Apasco SA de CV Class A (a) 224,300 1,666,134
Cemex `A' (Reg.) (a) 68,175 435,074
Cemex SA, Series B 1,123,950 7,437,009
Chosun Refractories Co. 2,200 86,082
Holderbank Financiere AG PC (Bearer) 1,330 877,657
Lafarge Corp. 27,000 523,125
Lilly Industrial Coatings, Inc. Class A 9,450 129,938
Medusa Corp. 10,850 $ 265,825
National Gypsum Co. (a) 10,000 307,500
Tecumseh Products Co. Class A 27,600 1,283,400
Texas Industries, Inc. 500 16,813
Tolmex B2 SA (a) 419,100 4,237,327
19,130,884
CONSTRUCTION - 0.1%
Bufete Industrial SA sponsored ADR
representing 3 ordinary certificate Banco (a) 12,500 375,000
Centex Corp. 24,500 630,875
DR Horton, Inc. (a) 19,387 242,342
Daelim Industrial Co. (a) 33,900 715,856
Dongbu Construction Co. (a) 2,300 43,997
Kun Young Construction Corp. 4,030 78,092
Lennar Corp. 14,450 272,744
Lucky Development Co. Ltd. (a) 3,470 84,482
NCI Building Systems, Inc. (a) 18,800 314,900
Pulte Corp. 43,400 998,200
Samsung Construction Co. Ltd. 1,575 65,968
Standard Pacific Corp. 36,200 298,650
4,121,106
ENGINEERING - 0.1%
EA Engineering Science & Technology, Inc. (a) 3,700 55,500
EG & G, Inc. 26,900 403,500
Glenayre Technologies, Inc. 3,100 121,675
Hanil Development Co. (a) 27,871 578,174
Hyundai Engineering & Construction Co. Ltd. (a) 10,500 528,228
Kyonghyang Construction Co. (a) 4,500 82,728
Sungwon Construction Company 3,527 78,422
1,848,227
REAL ESTATE - 0.1%
Fondo Opcion SA De CV Class 2 Series B (a) 130,800 340,060
Hwa Sung Industrial Co. (a) 3,950 168,785
Immeubles de France, Ste Des (a) 3,200 288,611
Mitsubishi Estate, Ltd. 68,000 841,806
Mundicenter Soc Imobil SA 12,000 293,758
1,933,020
REAL ESTATE INVESTMENT TRUSTS - 0.1%
Crown American Realty Trust (SBI) 32,700 437,363
Developers Diversified Realty 21,400 663,400
Equity Residential Property Trust (SBI) 3,200 95,200
Federal Realty Investment Trust (SBI) 12,500 320,313
Health Care Property Investors, Inc. 1,700 52,275
Irvine Apartment Communities 700 14,000
Kimco Realty Corporation 10,100 362,338
Merry Land & Investment Co., Inc. 20,000 405,000
Simon Properties Group, Inc. (REIT) (a) 25,000 665,625
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
CONSTRUCTION & REAL ESTATE - CONTINUED
REAL ESTATE INVESTMENT TRUSTS - CONTINUED
Storage Equities, Inc. 9,900 $ 153,450
Vornado Realty Trust 9,200 335,800
3,504,764
TOTAL CONSTRUCTION & REAL ESTATE 30,538,001
DURABLES - 3.4%
AUTOS, TIRES, & ACCESSORIES - 1.9%
Aisin Seiki Co. Ltd. (a) 55,000 759,005
Asia Motors Co., Inc. 16,830 382,571
BMW AG (a) 7,000 3,439,478
Breed Technologies, Inc. (a) 10,000 277,500
Bridgestone Corp. 181,000 2,938,609
Chrysler Corp. 167,700 7,902,863
Clark Automotive Products Corp. (a) 26,100 270,788
Continental Gummi-Werke AG (a) 9,700 1,498,277
Dae Won Kang Up Co. 1,543 52,325
Discount Auto Parts, Inc. 36,900 784,125
Echlin, Inc. 27,100 816,388
Ford Motor Co. 24,800 1,463,200
General Motors Corp. 127,600 6,411,900
Genuine Parts Company 10,000 361,250
Goodyear Tire & Rubber Co. 37,200 1,339,200
Heung-ah Tire & Rubber Co. (a) 3,000 69,685
Honda Motor Co. Ltd. 338,000 5,933,435
Hyundai Motor Service Co. (a) 1,200 70,654
Johnson Controls, Inc. 7,200 348,300
Kia Motors Corp. GDR (a)(f) 15,500 434,000
Kia Precision Works Co. (a) 17,544 370,471
Lonrho Ltd. Ord. 264,366 522,472
Mazda Motor Corp. (a) 124,000 708,392
Mitsubishi Motors Corp. (a) 92,000 914,865
Nissan Motor Co. Ltd. Ord. 443,000 3,933,282
Pirelli Tyre Holdings NV Ord. (a) 85,000 759,057
Raymond Corp. (The) (a) 17,850 343,613
Smith (A.O.) Corp. Class B 11,700 295,425
Snap-on Tools Corp. 13,100 487,975
Standard Products Co. 8,825 258,131
Sumitomo Rubber Industries 135,000 1,438,356
Suzuki Motor Corp. 311,000 4,134,042
Tofas Turkey Otomobil Fabrikas ADR (f) 42,000 304,500
Toyota Motor Corporation 305,000 6,839,674
Vickers PLC Ord. Unit 139,800 374,502
57,238,310
CONSUMER DURABLES - 0.0%
Sankyo Co. Ltd. (a) 1,000 $ 94,368
CONSUMER ELECTRONICS - 0.8%
Aktiebolaget Electrolux 23,800 1,097,433
Harman International Industries, Inc. (a) 37,800 945,000
Jeewon Industrial Co. (a) 3,000 77,511
Jeewon Industrial Co. (New) (a) 857 19,481
Matsushita Electric Industrial Co. Ltd. 522,000 9,587,214
Newell Co. 9,400 434,750
Pioneer Electronic Corp. 130,000 3,680,365
Sony Corp. 140,300 8,613,038
Videocon International Ltd. GDR 15,600 112,320
24,567,112
HOME FURNISHINGS - 0.1%
LADD Furniture, Inc. 105,500 738,500
HON Industries, Inc. 1,600 44,000
Leggett & Platt, Inc. 8,200 307,500
Miller (Herman), Inc. 101,700 2,656,913
3,746,913
TEXTILES & APPAREL - 0.6%
Arvind Mills Ltd. Unit (f) 28,600 171,600
Burlington Industries, Inc. 44,800 655,200
Cygne Designs, Inc. (a) 5,300 113,950
Fruit of the Loom, Inc. Class A (a) 45,000 1,175,625
Indian Rayon & Industries, Inc. GDR (f) 27,200 557,600
Interface, Inc. Class A 2,600 29,250
Jones Apparel Group, Inc. (a) 2,200 62,150
Korea Moolsan Co. (a) 15,140 297,139
Kurabo Industries Ltd. 156,000 747,154
Liz Claiborne, Inc. 34,800 696,000
Mohawk Industries Inc. (a) 17,800 311,500
Nam Yeung Corp. (a) 1,170 155,506
Nautica Enterprises, Inc. (a) 10,000 241,250
Nisshinbo Industries 312,000 3,577,473
Russell Corp. 12,300 358,238
Shaw Industries, Inc. 14,600 240,900
Shu Kwang Corp. (a) 2,351 46,141
Tokyo Style Co. Ltd. 57,000 1,133,638
Unifi, Inc. 141,200 3,300,550
VF Corp. 19,200 912,000
Warnaco Group, Inc. Class A (a) 41,900 1,230,813
Westpoint Stevens, Inc. Class A (a) 13,400 182,575
Youngone Corp. (a) 416 6,408
16,202,660
TOTAL DURABLES 101,849,363
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
ENERGY - 3.7%
COAL - 0.0%
MAPCO, Inc. 1,400 $ 82,600
Pittston Co. Minerals Group 18,800 347,800
430,400
ENERGY SERVICES - 0.9%
BJ Services Co. (a) 25,500 525,938
Baker Hughes, Inc. 128,600 2,636,300
Commercial Del Plata (a) 101,700 575,959
Dreco Energy Services Ltd. Class A (a) 8,900 62,300
Dual Drilling Co. (a) 32,500 361,563
Enterra Corp. (a) 26,800 562,800
Global Marine, Inc. (a) 126,300 584,138
Halliburton Co. 105,500 3,560,625
Helmerich & Payne, Inc. 8,800 233,200
Marine Drilling Cos., Inc. (a) 100,000 575,000
Nabors Industries, Inc. (a) 53,700 389,325
Noble Drilling Corp. (a) 25,000 200,000
Nowsco Well Service Ltd. (a) 24,800 394,433
Schlumberger Ltd. 253,700 15,000,013
Serv-Tech, Inc. (a) 5,200 41,925
Smith International, Inc. (a) 400 6,100
Tidewater, Inc. 10,600 246,450
Tuboscope Vetco Corp. (a) 15,000 101,250
Weatherford International, Inc. (a) 19,500 263,250
Western Co. of North America (a) 14,800 186,850
Wheatley TXT Corp. 8,000 112,000
26,619,419
INDEPENDENT POWER - 0.0%
California Energy Co., Inc. 12,500 206,250
Magma Power Co. (a) 8,200 239,850
Thermo Electron Corp. 21,850 813,913
1,260,013
OIL & GAS - 2.8%
Amerada Hess Corp. 123,700 6,092,225
Amoco Corp. 43,400 2,473,800
Ampolex Ltd. Ord. 41,500 123,559
Anadarko Petroleum Corp. 22,400 1,145,200
Anderson Exploration Ltd. (a) 5,000 117,025
Apache Corp. 67,500 1,864,688
Ashland Oil, Inc. 11,600 390,050
Atlantic Richfield Co. 14,700 1,501,238
Blue Range Resource Corp. Class A (a) 12,300 95,590
British Petroleum PLC:
ADR 307,500 22,063,125
Ord. 514,674 3,095,188
Burlington Resources, Inc. 100,400 $ 4,154,050
Cabot Oil & Gas Corp. Class A 1,613 33,671
Camco International, Inc. 4,500 91,688
Coastal Corp. (The) 23,900 645,300
Cosmo Oil Company Ltd. 56,000 487,549
Diamond Shamrock R&M, Inc. 3,800 96,425
Enron Oil & Gas Co. 11,800 271,400
Isu Chemical Co. (a) 32,331 481,923
Kerr-McGee Corp. 35,700 1,682,363
Louis Dreyfus Natural Gas Corp. (a) 19,800 277,200
Louisiana Land & Exploration Co. 64,800 2,754,000
Mark Resources, Inc. (a) 24,800 161,359
Mesa, Inc. (a) 18,000 101,250
Mobil Corp. 4,100 334,663
Morrison Petroleums Ltd. 65,300 489,779
Murphy Oil Corp. 60,100 2,569,275
Newfield Exploration Co. (a) 37,200 841,650
Noble Affiliates, Inc. 18,700 565,675
Norsk Hydro AS 29,288 927,905
Norsk Hydro AS ADR (a) 22,500 705,938
Occidental Petroleum Corp. 12,400 234,050
Oryx Energy Co. 23,200 348,000
Pancanadian Petroleum Ltd. 16,900 508,558
Parker & Parsley Petroleum Co. 17,400 443,700
Petro-Canada 52,800 438,966
Petroleum Heat & Power, Inc. Class A 13,000 92,625
Phillips Petroleum Co. 25,300 790,625
Poco Petroleums Ltd. (a) 85,600 580,156
Renaissance Energy Ltd. (a) 109,000 2,275,348
Renaissance Energy Ltd. (a)(f) 75,000 1,565,606
Rio Alto Exploration Ltd. (a) 58,400 379,975
Tesoro Petroleum Corp. (a) 5,000 54,375
Texaco, Inc. 22,300 1,346,363
Tosco Corp. 75,300 2,240,175
Total Compagnie Francaise des Petroles
Class B 16,318 939,993
Total SA sponsored ADR 144,200 4,813,118
Unocal Corp. 233,300 6,678,213
Western Gas Resources, Inc. 47,300 1,253,450
Yukong Ltd. (a) 5,500 233,650
Yukong Ltd. (New) (a) 331 13,198
YPF Sociedad Anonima sponsored ADR
representing Class D shares 45,300 1,081,538
82,946,433
TOTAL ENERGY 111,256,265
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
FINANCE - 7.7%
BANKS - 3.1%
Akita Bank (a) 79,000 $ 613,242
BNP CI Ord. 14,520 620,114
Banacci SA de CV:
Class C 662,600 4,218,768
Class L Ord. (a) 14,100 87,281
Banc One Corp. 165,340 5,662,895
Banco de Galicia Y Buenos Aires SA
sponsored ADR representing Class B
shares (a) 47,695 1,293,727
Banco Bilbao Vizcaya SA Ord. (Reg.) 28,600 628,044
Banco Frances Del Rio PL (Reg.) 122,306 919,456
Bank of Boston Corp. 229,482 5,650,994
Bank of New York Co., Inc. 76,208 2,200,506
Bank International Indonesia Ord. (a) 119,100 377,337
BankAmerica Corp. 62,400 2,854,800
BanPonce Corp. 11,960 373,750
Barclays PLC Ord. 128,791 1,032,049
Barnett Banks, Inc. 14,700 643,125
Boatmen's Bancshares, Inc. 29,000 913,500
Boram Bank (a) 28,520 389,690
Boram Bank (New) 6,778 85,877
CS Holding:
(BR) (warrants) (a) 2,150 18,138
(Bearer) 3,990 1,669,544
Chase Manhattan Corp. 6,200 237,150
Chase Manhattan Corp. (warrants) (a) 20 165
Chemical Banking Corp. 92,100 3,545,850
Cho Hung Bank Co. Ltd. 55,750 734,054
Cho Hung Bank Co. Ltd. (New) (a) 12,252 153,711
Citicorp 171,400 6,834,575
Comerica, Inc. 113,400 3,203,550
CoreStates Financial Corp. 2,200 56,650
Deutsche Bank AG 5,900 2,542,190
Development Bank of Singapore (For. Reg.) 29,000 280,046
Financiere Bank de Suez Cie 34 1,652
First Bank System, Inc. 6,200 226,300
First Chicago Corp. 12,600 606,375
First Fidelity Bancorporation 20,500 950,688
First Interstate Bancorp 10,500 808,500
First Union Corp. 110,297 5,087,449
Fleet Financial Group, Inc. 72,100 2,721,775
Grupo Financiero Bancomer SA de CV
sponsored ADR, Series C (f) 183,352 4,033,744
Hanil Bank 13,900 $ 197,679
HSBC Holdings:
Ord. 63,895 678,245
PLC (Reg.) (a) 132,884 1,452,624
Istituto Mobiliare Italiano 142,900 961,716
Keycorp. (New) 81,739 2,605,431
Kores First Bank, Inc. Ltd. 3,750 55,431
Kyung Nam Bank (a) 13,500 165,176
Kyungki Bank Ltd. (a) 20,000 236,010
Magna Group, Inc. 2,700 52,313
Mellon Bank Corp. 61 3,431
Mercantile Bancorporation, Inc. 4,000 140,500
Midlantic Corp. 24,000 702,000
Mitsubishi Trust & Banking (a) 53,000 881,989
Mitsui Trust and Banking 140,000 1,733,130
National Westminster Bank PLC Ord. 110,357 736,090
NationsBank Corp. 130,068 6,682,244
Norwest Corp. 16,800 438,900
PNC Financial Corp. 7,500 216,563
Panin Bank (For. Reg.) 241,500 400,651
Regions Financial Corp. 9,300 324,338
Republic New York Corp. 8,000 369,000
Shawmut National Corp. 282,600 6,217,200
Shinhan Bank 4,350 94,019
Signet Banking Corp. 9,902 399,793
Southern National Corp. 8,100 162,000
State Street Boston Corp. 4,000 154,500
Sumitomo Trust & Banking Co. (a) 161,000 2,662,913
Swiss Bank Corp. (Bearer) (a) 3,525 1,041,468
Union Planters Corp. 4,230 113,153
United Overseas Bank (For. Reg.) (a) 23,000 183,638
92,339,406
CLOSED END INVESTMENT COMPANY - 0.2%
ASA Ltd. 3,200 144,400
Morgan Stanley India Investment Fund (a) 312,000 4,251,000
4,395,400
CREDIT & OTHER FINANCE - 0.9%
Abbey National PLC Ord 55,693 337,511
America Group Ltd. Class A 17,400 407,845
American Express Co. 128,900 3,319,175
Argentaria Corp. Bancaria de Esp 9,900 384,979
Beneficial Corp. 31,700 1,157,050
Brierley Investments Ltd. 7,151,966 5,229,303
Central Investment & Finance Corp. (a) 6,000 119,247
Corporacion Bancaria de Espana SA
sponsored ADR (a) 15,700 306,150
Dean Witter Discover & Co. 43,950 1,648,125
First USA, Inc. 10,700 410,613
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
GFC Financial Corp. 8,600 $ 287,025
Green Tree Acceptance, Inc. 45,400 1,271,200
Groupo Financiero Serfin sponsored
ADR cv (a) 81,300 1,432,913
Grupo Carso SA de CV Class A-1 (a) 1,138,500 10,318,227
Jardine Strategic Holdings Ord. (a) 90,500 343,056
Man AG Ord. (a) 3,700 918,794
Promise Co., Ltd. (a) 8,000 496,804
Pusan Invest & Finance (a) 1,440 78,703
Shin Han Securities Co. (a) 4,500 86,082
28,552,802
FEDERAL SPONSORED CREDIT - 1.1%
Federal Home Loan Mortgage Corporation 104,000 6,292,000
Federal National Mortgage Association 308,900 25,793,150
32,085,150
INSURANCE - 1.1%
ACE Ltd. 30,000 738,750
Allstate Corp. 134,700 3,199,125
American Annuity Group, Inc. (a) 62,468 554,404
American Bankers Insurance Group, Inc. 53,500 1,210,438
American International Group, Inc. 9,000 779,625
American Reinsurance Corp. (a) 1,800 55,575
Assicurazioni Generali Spa 45,600 1,173,607
Assurances Generales (Reg.) 2,880 249,699
Corporacion Mapfre International Reassurance:
(Reg.) (a) 21,000 805,414
(rights) (a) 21,000 1,601
Dai-Tokyo Fire & Marine Insurance Ord. 71,000 556,905
GAN (Groupe Des Assur Natl.) 7,020 505,481
General Re Corp. 38,100 4,152,900
Gryphon Holdings, Inc. (a) 3,200 48,000
International Nederlanden Groep CV A 22,221 953,488
John Alden Financial Corp. 26,800 924,600
Loews Corp. 11,700 997,425
MBIA, Inc. 25,500 1,463,063
Mutual Assurance, Inc. (a) 689 14,142
NAC Re Corp. 19,900 587,050
Penncorp Financial Group, Inc. 2,300 40,250
Providian Corp. 25,400 768,350
Prudential Corp. 97,772 432,500
Royale Insurance Co. Ltd. 130,355 500,151
SAFECO Corp. 53,400 2,970,375
St. Paul Companies, Inc. (The) 110,400 4,429,800
Tokio Marine & Fire Insurance Co. Ltd. (The) 81,000 1,043,836
Travelers, Inc. (The) 89,200 $ 2,876,700
UNUM Corp. 47,900 2,143,525
34,176,779
SAVINGS & LOANS - 0.4%
Ahmanson (H.F.) & Co. 149,574 2,823,209
American Savings of Florida FSB (a) 9,400 204,450
Anchor Bancorp Inc. (a) 37,500 581,250
Bankatlantic Federal Savings Bank 3,100 48,825
Brooklyn Bancorp, Inc. 16,400 574,000
Charter One Financial Corp. 33,850 685,463
Commercial Federal Corp. (a) 3,300 77,550
FirstFed Michigan Corp. 5,100 118,575
GP Financial Corp. (a) 5,500 122,375
Golden West Financial Corp. 95,700 3,696,413
North Side Savings Bank (a) 2,625 61,031
Roosevelt Financial Group, Inc. 38,700 619,200
Standard Federal Bank 40,000 1,000,000
Washington Mutual Savings Bank 18,600 383,625
10,995,966
SECURITIES INDUSTRY - 0.9%
Alliance Entertainment Corp. (a) 3,400 17,425
Bear Stearns Companies, Inc. 4,830 82,110
Boram Securities Co. Ltd. (a) 15,060 280,604
Coryo Securities 11,200 217,030
Daehan Korean Blue-Chip Investment
Trust (a)(f) 475,000 9,281,500
Daiwa Securities (a) 279,000 4,897,717
Franklin Resources, Inc. 3,000 111,375
Hyundai Securities Co. Ltd. (a) 4,896 140,485
Korea First Securities Co. (a) 24,888 562,650
Korea Investment & Financial (a) 4,590 91,224
Korea Investment & Financial (New) (a) 897 17,828
Lehman Brothers Holdings, Inc. 129,480 1,958,385
Merrill Lynch & Co., Inc. 11,000 385,000
Midland Walwyn Inc. (a) 16,900 105,377
Morgan Stanley Group, Inc. 8,100 460,688
Nomura Securities Co. Ltd. (a) 342,000 8,259,362
Paine Webber Group, Inc. 17,700 276,563
Seoul Securities Co. (a) 15,361 282,400
Ssangyong Investment & Securities 1,450 41,786
Sunkyong Securities Co. (a) 25,800 528,787
27,998,296
TOTAL FINANCE 230,543,799
HEALTH - 2.3%
DRUGS & PHARMACEUTICALS - 1.1%
ALZA Corp. Class A 12,300 289,050
Allergan, Inc. 115,200 2,491,200
American Cyanamid Co. 92,200 5,163,200
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
HEALTH - CONTINUED
DRUGS & PHARMACEUTICALS - CONTINUED
Astra A Free (a) 27,200 $ 550,715
Bristol-Myers Squibb Co. 5,200 278,850
Cellpro, Inc. (a) 9,200 177,100
Cephalon, Inc. (a) 6,400 57,600
Elan PLC therapeutic systems unit (common &
1 ADR warrant) (a) 3,762 94,520
Elan PLC ADR (a) 53,500 1,859,125
Forest Laboratories, Inc. (a) 15,800 687,300
Genentech, Inc. (a) 3,400 167,450
Korea Green Cross Corp. (a) 3,455 238,225
Lilly (Eli) & Co. 6,200 352,625
Pfizer, Inc. 116,600 7,360,375
Protein Design Labs, Inc. (a) 5,200 94,900
Schering AG 2,100 1,257,394
Schering-Plough Corp. 84,800 5,194,000
Shin Poong Pharmaceutical Co. (a) 3,470 109,912
Sigma Aldrich Corp. 2,400 96,000
Warner-Lambert Co. 87,300 5,761,800
32,281,341
MEDICAL EQUIPMENT & SUPPLIES - 0.9%
Bausch & Lomb, Inc. 19,400 717,800
Baxter International, Inc. 131,200 3,444,000
Beckman Instruments, Inc. 5,500 138,875
Becton, Dickinson & Co. 43,300 1,769,888
Bergen Brunswig Corp. Class A 53,300 892,775
Boston Scientific Corp. (a) 35,900 453,238
Cardinal Health, Inc. 22,750 891,800
Cordis Corp. (a) 8,500 329,906
Johnson & Johnson 75,400 3,232,775
Kendall International, Inc. (a) 29,400 1,499,400
Mallinckrodt Group, Inc. 75,700 2,460,250
McKesson Corp. 47,600 3,433,150
Medtronic, Inc. 46,880 3,756,260
Mentor Corp. (a) 9,600 147,600
Millipore Corp. 9,200 485,300
Owens and Minor, Inc. 49,975 743,378
Pall Corp. 47,000 705,000
Puritan Bennett Corp. 4,200 84,000
Sofamor/Danek Group, Inc. (a) 30,100 391,300
Spacelabs Medical, Inc. (a) 11,900 252,875
St. Jude Medical, Inc. 40,100 1,303,250
Thermedics, Inc. (a) 45,450 664,706
Zoll Medical Corp. (a) 300 3,675
27,801,201
MEDICAL FACILITIES MANAGEMENT - 0.3%
Columbia/HCA Healthcare Corp. 138,700 $ 5,201,271
Health Management Associates, Inc. Class A (a) 21,900 448,950
Humana, Inc. (a) 60,600 977,175
Lincare Holdings, Inc. (a) 22,700 439,813
U.S. Healthcare, Inc. 35,700 1,320,900
United HealthCare Corp. 26,400 1,174,800
9,562,909
TOTAL HEALTH 69,645,451
INDUSTRIAL MACHINERY & EQUIPMENT - 1.2%
ELECTRICAL EQUIPMENT - 0.5%
Alcatel Alsthom CGE 2,609 283,233
Avid Technology, Inc. (a) 300 8,175
General Electric Co. 60,500 2,820,813
General Electric PLC Ord. 94,318 409,940
Grainger (W.W.), Inc. 10,000 638,750
Hitachi Koki Co., Ord. 56,000 596,651
ICOM, Inc. (a) 10,000 155,251
Il Jin Electric & Machinery (a) 3,000 87,572
Mitsubishi Electric Co. Ord. 380,000 2,579,603
Mori Seiki Co. Ord. 35,000 898,529
Murata Manufacturing Co. Ord. 41,000 1,930,391
Omron Corp. (a) 33,000 592,694
Philips Electronics 48,300 1,394,339
Philips NV 57,600 1,656,000
Scientific-Atlanta, Inc. 15,000 515,625
14,567,566
INDUSTRIAL MACHINERY & EQUIPMENT - 0.5%
Briggs & Stratton Corp. 4,500 300,938
CMI Corp. Oklahoma Class A 2,000 10,750
Caterpillar, Inc. 56,900 5,690,000
Cooper Industries, Inc. 21,900 788,400
Daewoo Heavy Industries Ltd. (a) 7,500 123,905
Deere & Co. 11,100 750,638
Duriron Company, Inc. 1,800 28,800
Finning Ltd. 85,600 1,191,252
Harnischfeger Industries, Inc. 23,300 454,350
Hitachi Const. Machinery Co. Ltd. 62,000 893,354
Imo Industries, Inc. 5,300 50,350
Indresco, Inc. (a) 30,000 356,250
Joy Technologies, Inc. Class A (a) 40,400 393,900
Keystone International, Inc. 15,800 308,100
Korea Machinery Co. Ltd. (a) 15,000 204,956
Manitowoc Co., Inc. 20,900 519,888
Parker-Hannifin Corp. 12,500 532,813
Regal-Beloit Corp. 24,700 660,725
SKF AB Ord. (a) 58,800 1,036,902
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
Soosan Heavy Industrial Co. (a) 3,400 $ 87,001
TRINOVA Corp. 11,300 391,263
14,774,535
POLLUTION CONTROL - 0.2%
American Ecology Corp. 18,500 153,781
Attwoods PLC:
ADR 189,600 1,682,700
Ord. 287,500 501,607
Browning-Ferris Industries, Inc. 34,200 1,038,825
Harding Associates Inc. (a) 2,500 15,000
OHM Corp. 11,100 117,938
Safety Kleen Corp. 12,400 210,800
Sanifill, Inc. (a) 14,900 376,225
Sevenson Environmental Services, Inc. 3,500 63,875
TETRA Technologies, Inc. (a) 24,600 212,175
Thermo Instrument Systems, Inc. (a) 7,400 210,900
United Waste Systems, Inc. 4,100 76,875
WMX Technologies, Inc. 24,700 654,550
WSA Waste Services, Inc. 17,400 202,275
Western Waste Industries, Inc. (a) 5,500 110,000
Zurn Industries, Inc. 10,500 212,625
5,840,151
TOTAL INDUSTRIAL MACHINERY &
EQUIPMENT 35,182,252
MEDIA & LEISURE - 1.1%
BROADCASTING - 0.2%
BET Holdings, Inc. Class A (a) 3,400 49,725
CBS, Inc. 1,400 434,000
Capital Cities/ABC, Inc. 11,000 782,375
Clear Channel Communications, Inc. 900 33,863
Groupo Televisa GDS (a)(f) 16,000 812,000
Heritage Media Corp. Class A (a) 5,000 88,750
Home Shopping Network, Inc. (a) 67,910 797,943
Infinity Broadcasting Corp. (a) 5,400 130,950
Multimedia, Inc. (a) 300 8,700
Peoples Choice TV Corp. (a) 3,400 73,950
Tele-Communications, Inc. Class A (a) 189,100 3,852,913
7,065,169
ENTERTAINMENT - 0.0%
Carnival Cruise Lines, Inc. Class A 1,300 57,525
Royal Carribean Cruises Ltd. 29,500 818,625
876,150
LEISURE DURABLES & TOYS - 0.1%
Brunswick Corp. 38,400 $ 844,800
Callaway Golf Co. 17,000 663,000
Coleman, Inc. (a) 5,500 165,000
Fleetwood Enterprises, Inc. 31,200 596,700
Mattel, Inc. 15,625 396,484
Outboard Marine Corp. 50,400 1,008,000
Samick Musical Instruments (a) 3,065 51,397
3,725,381
LODGING & GAMING - 0.4%
Accor SA 1,700 191,063
Bally Gaming Intl., Inc., (warrants) (a) 38,400 278,400
Caesars World, Inc. (a) 12,400 449,500
Four Seasons Hotels, Inc. 62,200 539,599
Grupo Posadas SA de CV Class L (a) 129,200 114,252
Grupo Situr SA de CV Class B (a) 1,655,633 4,349,600
Hilton Hotels Corp. 2,600 137,800
Host Marriott Corp. 44,841 437,200
International Game Technology Corp. 4,300 81,163
La Quinta Motor Inns, Inc. 103,700 2,709,163
Ladbroke Group PLC Ord. 324,094 765,614
Marriott International, Inc. 4,041 107,592
Mirage Resorts, Inc. (a) 23,600 442,500
Resorts International, Inc. (a) 21,851 20,485
Resorts World BHD 23,000 132,667
Sun International Hotels Ltd. (a) 2,560 64,000
Trump Plaza Holding Associates
(warrants) (a) 60 39,000
Video Lottery Technologies, Inc. (a) 43,500 478,500
11,338,098
PUBLISHING - 0.3%
American Greetings Corp. Class A 25,200 756,000
Dow Jones & Co., Inc. 2,000 62,000
Enquirer/Star Group, Inc. Class A 24,100 424,763
Gannett Co., Inc. 39,800 1,970,100
Houghton Mifflin Co. 900 39,825
McGraw-Hill, Inc. 6,000 399,000
Meredith Corp. 18,800 799,000
Scripps (E.W.) Co. Class A 18,800 549,900
Thomson Corp. 60,200 663,691
Times Mirror Co., Series A 12,000 361,500
Torstar Corp. Class B 90,300 1,534,105
7,559,884
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
MEDIA & LEISURE - CONTINUED
RESTAURANTS - 0.1%
Au Bon Pain, Inc. Class A (a) 10,900 $ 218,000
Bertucci's, Inc. (a) 14,700 213,150
Cracker Barrel Old Country Store, Inc. 3,000 71,625
McDonald's Corp. 89,400 2,581,425
Morrison Restaurants, Inc. 7,300 166,075
Uno Restaurant Corp. (a) 2,700 28,013
3,278,288
TOTAL MEDIA & LEISURE 33,842,970
NONDURABLES - 2.2%
AGRICULTURE - 0.1%
Delta & Pine Land Co. (a) 200 3,525
Molinos Rio de La Plata (Reg) 121,269 1,592,366
1,595,891
BEVERAGES - 0.4%
Bass PLC Ord. 61,549 477,534
Canadaigua Wine Co. Class A (a) 12,500 312,500
Coca-Cola Femsa SA de CV sponsored ADR (a) 33,500 841,688
Comp Cervecerias Unidas SA ADR (a) 14,000 308,000
Dr. Pepper/Seven-Up Companies, Inc. (a) 26,900 618,700
Fomento Economico Mexicano SA `B' 399,600 1,660,830
Grupo Embotellador de Mexico CPO GDR 52,300 1,320,575
Kirin Brewery Co. Ltd. 45,000 534,247
Panamerican Beverages, Inc. Class A 51,100 1,232,788
PepsiCo, Inc. 15,100 462,438
Scottish & Newcastle Brewers PLC 39,895 313,533
Seagram Co. Ltd. 85,500 2,580,607
Whitbread Class A 50,145 387,119
11,050,559
FOODS - 0.6%
Archer-Daniels-Midland Co. 43,800 1,018,350
Borden, Inc. 134,900 1,669,388
ConAgra, Inc. 97,700 2,979,850
Dean Foods Co. 18,300 494,100
Dole Food, Inc. 17,700 477,900
Ezaki Glicko Co. 75,000 844,749
Goodman Fielder Ltd. Ord. 381,962 358,685
Grupo Ind Maseca SA de CV, Class B 751,000 1,128,993
Herdez SA de CV Class A (a) 1,123,800 1,308,474
IBP, Inc. 175,993 4,685,814
Michael Foods, Inc. 5,500 60,500
Miwon Co. Ltd. 13,287 353,198
Miwon Co. Ltd. (New) (a) 3,501 68,276
Nippon Suisan Kaisha Ltd. (a) 182,000 912,308
Ralcorp Holdings, Inc. 1,066 $ 16,923
Samyang Foods Co. (a) 3,000 104,341
Tyson Foods, Inc. 5,800 135,575
Viscofan Envolturas Celulo SA 24,100 596,298
Weston George Ltd. 54,500 1,438,099
18,651,821
HOUSEHOLD PRODUCTS - 0.1%
Hartstone Group PLC Ord. (a) 508,600 314,111
Neutrogena Corp. 9,600 182,400
Orkla AS Class A Free shares 26,700 860,021
Premark International, Inc. 6,500 489,125
Procter & Gamble Co. 5,500 293,563
Safeskin Corp. (a) 5,000 75,000
Stanhome, Inc. 1,400 46,200
Uni Charm Corp. Ord. 39,000 1,163,470
3,423,890
TOBACCO - 1.0%
Empresas La Moderna SA sponsored ADR (a) 34,300 853,213
ITC Ltd. GDS unit
(1 share & 1/3 warrants) (a)(f) 11,700 286,650
Philip Morris Companies, Inc. 408,200 21,022,300
RJR Nabisco Holdings Corp. (a) 733,800 4,494,525
UST, Inc. 117,600 3,189,900
29,846,588
TOTAL NONDURABLES 64,568,749
PRECIOUS METALS - 0.0%
Homestake Mining Co. 36,700 688,125
Western Deep Levels Ltd. ADR 6,200 260,400
948,525
RETAIL & WHOLESALE - 2.1%
APPAREL STORES - 0.3%
AnnTaylor Stores Corp. (a) 32,700 1,254,863
BON-TON Stores, Inc. 3,400 30,175
Charming Shoppes, Inc. 41,000 384,375
Claire's Stores, Inc. 22,600 231,650
Edison Brothers Stores, Inc. 1,700 42,925
Gap, Inc. 14,500 619,875
Lamonts Apparel Corp. (a) 45,916 57,396
Limited, Inc. (The) 87,400 1,507,650
Ross Stores, Inc. (a) 12,900 188,663
TJX Companies, Inc. 155,000 3,390,625
7,708,197
DRUG STORES - 0.1%
General Nutrition Companies, Inc. (a) 17,800 307,050
Rite Aid Corporation 61,800 1,251,450
Thrifty Payless Holdings, Inc. Class C 35,530 79,943
1,638,443
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
RETAIL & WHOLESALE - CONTINUED
GENERAL MERCHANDISE STORES - 1.0%
Aoyama Trading Co. Ord. (a) 37,000 $ 1,449,213
Cifra SA Class C (a) 1,883,100 4,385,118
Controladora Commercial Mexicana
SA B-1 (a) 583,700 898,133
Dayton Hudson Corp. 37,200 3,013,200
Dillard Department Stores, Inc. Class A 14,500 447,688
Federated Department Stores, Inc. (a) 215,400 4,308,000
Hornbach Baumarkt AG BR 400 240,892
Ito Yokado Co. Ltd. 16,000 884,830
Keum Kang Development Industries Co. (a) 2,250 41,923
Midopa Co. (a) 17,267 315,291
Midopa Co. (New) (a) 4,696 85,748
Penney (J.C.) Co., Inc. 24,800 1,345,400
Sears Roebuck de Mexico SA (a) 229,200 2,769,992
Sears Roebuck de Mexico SA de CV
ADR representing Series B-1 (a)(f) 37,400 888,250
Sears, Roebuck & Co. 147,200 7,065,600
Value City Department Stores, Inc. (a) 45,700 611,238
Wal-Mart Stores, Inc. 115,500 2,800,875
31,551,391
GROCERY STORES - 0.3%
American Stores Co. 15,900 389,550
Bruno's, Inc. 68,500 496,625
Food Lion, Inc. Class A 358,200 2,149,200
Giant Food, Inc. Class A 14,000 274,750
Great Atlantic & Pacific Tea Co., Inc. 18,800 404,200
Kroger Co. (The) (a) 10,000 232,500
Loblaw Companies, Ltd. 35,500 526,116
Safeway, Inc. (a) 73,800 1,761,975
Stop & Shop Companies, Inc. (a) 46,400 1,113,600
Supervalu, Inc. 16,600 502,150
Tae Gu Department Store Co. (a) 1,554 53,663
Whole Foods Market, Inc. (a) 17,400 269,700
8,174,029
RETAIL & WHOLESALE, MISC - 0.4%
Best Buy Co., Inc. (a) 57,800 1,668,975
Circuit City Stores, Inc. 77,300 1,584,650
Duty Free International, Inc. 12,300 130,688
Good Guys, Inc. 39,300 510,900
Grupo Casa Autrey SA sponsored ADR (a) 10,600 282,225
Hechinger Co. Class A 5,300 72,875
Little Switzerland, Inc. (a) 32,400 202,500
Lowe's Companies, Inc. 38,500 1,318,625
Micro Warehouse, Inc. (a) 8,200 174,250
North West Company, Inc. 800 7,519
Office Depot, Inc. (a) 9,300 $ 186,000
Rex Stores Corp. (a) 75,300 1,223,625
Sotheby's Holdings, Inc. Class A 61,200 757,350
Spiegel, Inc. Class A 6,900 131,100
Staples, Inc. 6,200 167,400
Tiffany & Company, Inc. 7,400 256,225
Toys "R" Us, Inc. (a) 116,900 3,828,475
Uny Co., Ltd. 8,000 135,566
Viking Office Products, Inc. (a) 15,400 385,000
Wickes PLC 370,000 542,716
Williams-Sonoma, Inc. (a) 450 13,613
13,580,277
TRADING COMPANIES - 0.0%
Hyundai Corp. (a) 12,000 366,685
Hyundai Corp. (New) (a) 3,681 106,537
Kanematsu-Gosho Ltd. (a) 102,000 553,729
Nam Sung Corp. (a) 4,711 99,485
1,126,436
TOTAL RETAIL & WHOLESALE 63,778,773
SERVICES - 0.5%
ADVERTISING - 0.0%
Omnicom Group, Inc. 6,800 328,100
LEASING & RENTAL - 0.1%
Blockbuster Entertainment Corp. 12,400 320,850
GATX Corp. 500 20,250
Hollywood Entertainment Corp. (a) 5,200 171,600
Orix Corp. 77,000 3,172,197
3,684,897
PRINTING - 0.2%
Donnelley (R.R.) & Sons Co. 52,400 1,454,100
Komori Corp. 61,000 1,949,772
Moore Corporation Ltd. 6,300 105,892
New England Business Service, Inc. 25,000 468,750
Reynolds & Reynolds Co. Class A 22,400 518,000
Standard Register Co. 2,000 43,000
Wallace Computer Services, Inc. 13,100 419,200
4,958,714
SERVICES - 0.2%
ADT Ltd. 24,800 251,100
Barefoot, Inc. 5,500 180,125
Borg Warner Securities Corp. (a) 27,600 310,500
CDI Corp. (a) 5,500 72,875
CPI Corp. 25,300 420,613
Chemed Corp. 6,100 218,075
Devry, Inc. (a) 12,500 362,500
Earth Technology Corp. (USA) 4,800 57,000
Heidemij NV (a) 11,400 111,150
Jostens, Inc. 12,500 201,563
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
SERVICES - CONTINUED
SERVICES - CONTINUED
Kelly Services, Inc. Class A 2,200 $ 60,500
Manpower, Inc. (a) 5,300 111,300
Pinkertons, Inc. (a) 17,100 273,600
Pittston Company Services Group 10,400 278,200
Robert Half International, Inc. (a) 3,400 137,275
Supercuts, Inc. (a) 11,000 118,250
Western Atlas, Inc. 57,700 2,747,963
Zebra Technologies Corp. Class A (a) 24,700 784,225
6,696,814
TOTAL SERVICES 15,668,525
TECHNOLOGY - 5.4%
COMMUNICATIONS EQUIPMENT - 0.5%
Cabletron Systems, Inc. (a) 37,900 3,662,088
Cisco Systems, Inc. (a) 210,800 4,927,450
DSC Communications Corp. (a) 51,500 1,007,469
Daewoo Telecommunication (a) 6,592 115,455
Ericsson (L.M.) Telephone Co. Class B ADR 10,200 505,538
General Instrument Corp. (a) 14,200 809,400
Network General Corp. 15,100 239,713
Newbridge Networks Corp. (a) 39,400 1,354,375
3Com Corp. (a) 32,600 1,674,825
Wellfleet Communications, Inc. (a) 77,000 1,925,000
16,221,313
COMPUTER SERVICES & SOFTWARE - 0.6%
Adobe Systems, Inc. 6,000 163,500
Cheyenne Software, Inc. (a) 45,450 386,337
Compuware Corp. (a) 41,100 1,700,513
ECI Telecom Ltd. 5,500 90,750
Gupta Corp. (a) 12,300 113,775
Informix Corp. (a) 200 3,100
Investment Technology Group, Inc. 2,700 33,750
LEGENT Corp. (a) 6,300 170,100
Lotus Development Corp. (a) 63,100 2,318,925
Microsoft Corp. (a) 122,400 6,303,600
Novell, Inc. (a) 49,100 822,425
Oracle Systems Corp. (a) 46,000 1,725,000
Parametric Technology Corp. (a) 48,900 1,106,363
Peoplesoft, Inc. (a) 30,800 1,078,000
Platinum Technology, Inc. (a) 16,800 218,400
Powersoft Corp. (a) 9,900 480,150
SHL Systemhouse, Inc. (a) 78,400 499,800
Sybase, Inc. (a) 21,200 1,038,800
Viewlogic Systems, Inc. (a) 71,200 1,121,400
19,374,688
COMPUTERS & OFFICE EQUIPMENT - 1.8%
Amdahl Corp. 114,500 $ 629,750
Canon, Inc. 416,000 7,302,689
Cherry Corp. (a) 33,600 1,033,200
Comdisco, Inc. 2,000 38,250
Compaq Computer Corp. (a) 516,200 16,647,450
Conner Peripherals, Inc. (a) 2,600 31,525
Diebold, Inc. 24,750 1,054,969
EMC Corp. (a) 82,300 1,111,050
Exabyte (a) 1,300 18,525
Fore Systems, Inc. (a) 3,300 96,525
Fujitsu Ltd. (a) 339,000 3,887,062
General Motors Corp. Class E 7,700 268,538
Hewlett-Packard Co. 37,500 2,826,563
International Business Machines Corp. 202,000 11,867,500
SCI Systems, Inc. (a) 108,400 1,639,550
Seagate Technology (a) 7,600 150,100
Silicon Graphics, Inc. (a) 47,600 1,053,150
Sun Microsystems, Inc. (a) 26,400 544,500
Tandem Computers, Inc. (a) 49,600 558,000
Tech Data Corp. (a) 48,100 793,650
Xerox Corp. 12,300 1,202,325
52,754,871
ELECTRONIC INSTRUMENTS - 0.2%
Applied Materials, Inc. (a) 25,800 1,102,950
KLA Instruments Corp. (a) 15,600 585,000
Kulicke & Soffa Industries, Inc. (a) 26,900 369,875
Lam Research Corp. (a) 18,900 529,200
Measurex Corp. 2,200 39,050
Megatest Corp. (a) 12,200 192,150
TSI, Inc. 5,300 64,925
Tektronix, Inc. 12,500 353,125
Teradyne, Inc. (a) 39,230 1,039,595
Varian Associates, Inc. 13,000 461,500
4,737,370
ELECTRONICS - 2.2%
AMP, Inc. 13,300 921,025
Advanced Micro Devices, Inc. (a) 137,700 3,425,288
Anthem Electronics, Inc. (a) 51,500 1,068,625
Atmel Corp. (a) 11,800 280,250
Daewoo Electronics Components Co. (a) 4,598 75,962
Daewoo Electronics Components Co. (New) (a) 1,148 17,255
GTI Corp. (a) 1,300 13,325
Hitachi Ltd. 706,000 7,378,794
Hitachi Maxell Ltd. 94,000 2,003,044
Integrated Device Technology, Inc. (a) 22,300 551,925
Intel Corp. 334,000 19,539,000
LSI Logic Corp. (a) 19,100 477,500
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
TECHNOLOGY - CONTINUED
ELECTRONICS - CONTINUED
Linear Technology Corp. 1,600 $ 70,400
Maxim Integrated Products, Inc. (a) 4,500 234,000
Methode Electronics, Inc. Class A 15,900 270,300
Micron Technology, Inc. 60,250 2,078,625
Molex, Inc. 28,300 1,040,025
Motorola, Inc. 234,900 10,453,050
National Semiconductor Corp. (a) 20,200 348,450
Nichicon Corp. (a) 77,000 1,211,061
Ryoyo Electro Corp. Ord. 28,000 821,106
Samsung Electronics Co. Ltd.:
GDR (a)(f) 950 43,543
GDS (f) 20,300 1,172,325
Solectron Corp. (a) 95,900 2,433,463
TDK Corp. 80,000 3,969,558
Texas Instruments, Inc. 63,300 5,032,350
Toshiba Corp. 243,000 1,992,328
66,922,577
PHOTOGRAPHIC EQUIPMENT - 0.1%
Eastman Kodak Co. 12,400 596,750
Fuji Photo Film Co. Ltd. 14,000 312,532
Polaroid Corp. 41,600 1,326,000
2,235,282
TOTAL TECHNOLOGY 162,246,101
TRANSPORTATION - 1.3%
AIR TRANSPORTATION - 0.3%
AMR Corp. (a) 52,100 3,093,438
Comair Holdings, Inc. 56,600 1,146,150
Delta Air Lines, Inc. 23,000 1,040,750
KLM Royal Dutch Airlines (a) 5,300 145,088
KLM Royal Dutch Airlines Ord. (a) 10,700 298,675
Korean Air (a) 24,468 708,160
Mesa Airlines, Inc. (a) 3,900 38,513
Technology Resources (a) 975,000 3,968,591
10,439,365
RAILROADS - 0.8%
Burlington Northern, Inc. 14,600 779,275
CSX Corp. 54,100 4,084,550
Canadian Pacific Ltd. Ord. 543,500 8,005,646
Chicago & North Western Holdings Corp. (a) 43,300 1,001,313
Conrail, Inc. 11,400 624,150
Illinois Central Corp., Series A 46,700 1,546,938
Johnstown America Industries, Inc. (a) 12,400 251,100
Santa Fe Pacific Corp. 238,200 4,972,425
Southern Pacific Rail Corp. (a) 89,100 1,748,588
Trinity Industries, Inc. 26,500 930,813
Union Pacific Corp. 9,700 $ 549,263
Wisconsin Central Transportation Corp. (a) 7,300 472,675
24,966,736
SHIPPING - 0.1%
Great Eastern Shipping Co. Ltd. GDR 21,000 241,500
Han Jin Transportation Co. (a) 10,815 306,294
Mitsui OSK Lines 202,000 826,037
Transportacion Maritima Mexicana SA de
CV ADR representing L share (a) 64,000 488,000
1,861,831
TRUCKING & FREIGHT - 0.1%
Carolina Freight Corp. 5,400 51,300
Federal Express Corp. (a) 4,400 328,350
Hitachi Transport System Co. 49,000 551,903
Landstar System, Inc. 3,400 100,300
Roadway Services, Inc. 8,900 560,700
Yellow Corp. 10,300 178,963
1,771,516
TOTAL TRANSPORTATION 39,039,448
UTILITIES - 5.1%
CELLULAR - 0.5%
Airtouch Communications 178,500 4,217,063
Dial Page, Inc. 11,200 316,400
Nextel Communications, Inc. Class A (a) 17,000 514,250
Onecomm Corp. 16,800 348,600
Premier Page Co. (a) 25,000 248,438
Rogers Cantel Mobile Communications, Inc.
Class B (non-vtg.) (a) 30,800 751,491
Vanguard Cellular Systems, Inc. Class A 5,700 188,100
Vodafone Group PLC (a) 204,113 1,542,662
Vodafone Group PLC sponsored ADR 108,100 8,188,575
16,315,579
ELECTRIC UTILITY - 1.9%
AES Corp. 94,400 1,770,000
American Electric Power Co., Inc. 37,200 1,050,900
Baltimore Gas & Electric Co. 63,700 1,353,625
Boston Edison Co. 24,800 651,000
Carolina Power & Light Co. 40,000 925,000
Centerior Energy Corp. 87,200 882,900
Central & South West Corp. 33,400 709,750
Central Costanera SA ADR (a)(f) 26,300 815,300
Central Louisiana Electric Co., Inc. 32,700 768,450
Cincinnati Gas & Electric Co. 13,300 289,275
Commonwealth Edison Co. 53,800 1,223,950
Consolidated Edison Co. of New York, Inc. 41,400 1,097,100
DPL, Inc. 77,700 1,534,575
DQE, Inc. 52,300 1,549,388
Detroit Edison Company 51,500 1,274,625
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
UTILITIES - CONTINUED
Dominion Resources, Inc. 17,400 $ 632,925
Duke Power Co. 28,900 1,033,175
Eastern Utilities Associates 47,900 1,107,688
Empresa Nacional De Electricidad SA
sponsored ADR 6,200 278,225
Entergy Corp. 140,800 3,484,800
FECSA (Fuerzas Elec Cat) Class A (a) 35,700 245,803
FPL Group, Inc. 29,900 893,263
General Public Utilities Corp. 36,700 963,375
Hawaiian Electric Industries, Inc. 1,800 55,800
Hong Kong Electric Holdings Ord. 1,068,500 3,220,918
Houston Industries, Inc. 34,300 1,119,038
Iberdrola SA 96,680 670,644
Illinova Corp. 82,900 1,554,375
Kansas City Power & Light Co. 2,500 48,438
Korea Electric Power Corp. 89,200 2,969,456
LG&E Energy Corp. 1,400 51,100
Long Island Lighting Co. 21,700 385,175
Montana Power Co. 27,900 624,263
NIPSCO Industries, Inc. 68,400 2,017,800
New England Electric Systems 2,200 71,775
New York State Electric & Gas Corp. 2,800 66,500
Niagara Mohawk Power Corp. 94,300 1,426,288
Northeast Utilities 16,700 363,225
Northern States Power Co. 14,900 612,763
Ohio Edison Co. 63,400 1,133,275
PSI Resources, Inc. 75,600 1,597,050
Pacific Gas & Electric Co. 41,000 973,750
PacifiCorp. 64,200 1,083,375
Peco Energy Co. 104,100 2,745,638
Pinnacle West Capital Corp. 3,200 52,400
Portland General Corp. 9,100 154,700
Public Service Co. of Colorado 1,900 49,638
Public Service Co. of New Mexico (a) 30,100 346,150
Public Service Enterprise Group, Inc. 46,600 1,211,600
SCEcorp 69,300 892,238
Scottish Hydro-Electric PLC Ord. 45,499 242,364
Scottish Power PLC 114,250 634,165
Sevillana De Electricidad 38,400 187,103
Southern Co. 123,400 2,313,750
Texas Utilities Co. 20,900 655,738
Union Electric Co. 17,700 561,975
Union Electricia Fenosa SA 9,800 47,816
United Illuminating Co. 3,400 111,775
Veba Vereinigte Elektrizetaets &
Bergwerks AG Ord. 8,300 $ 2,606,413
57,393,563
GAS - 0.5%
Columbia Gas System, Inc. (The) (a) 24,300 656,100
Consolidated Natural Gas Co. 9,100 343,525
ENSERCH Corp. 37,600 540,500
El Paso Natural Gas Co. 9,700 311,613
Energen Corp. 9,900 206,663
Enron Corp. 18,600 609,150
Equitable Resources, Inc. 7,400 254,375
MCN Corp. 71,900 2,876,000
NICOR, Inc. 6,200 163,525
National Fuel Gas Co. 1,900 55,813
Noram Energy Corp. 44,600 267,600
ONEOK, Inc. 12,400 212,350
Pacific Enterprises 117,900 2,343,263
Panhandle Eastern Corp. 21,700 428,575
Questar Corp. 38,800 1,256,150
Sonat, Inc. 43,300 1,331,475
Tejas Gas Corp. (a) 6,900 331,200
Westcoat Energy, Inc. 24,700 363,826
Williams Companies, Inc. 43,400 1,242,325
13,794,028
TELEPHONE SERVICES - 2.2%
ALC Communications Corp. (a) 12,500 384,375
Ameritech Corp. 199,700 7,638,525
Bell Atlantic Corp. 43,300 2,424,800
BellSouth Corp. 121,300 7,490,275
British Telecommunications PLC Ord. 397,731 2,256,805
GTE Corp. 92,800 2,923,200
NYNEX Corp. 118,700 4,495,763
Pacific Telesis Group 43,600 1,346,150
Rochester Telephone Corp. 13,800 312,225
SIP Spa 1,078,800 2,702,038
Southwestern Bell Corp. 191,100 8,312,850
Sprint Corporation 34,600 1,206,675
Telecom Argentina Stet France 364,800 1,894,115
Telefonica Argentina Class B 243,800 1,429,590
Telefonos de Mexico SA sponsored ADR
representing shares Ord. Class L 282,200 15,767,925
Telephone & Data Systems, Inc. 8,700 321,900
U.S. West, Inc. 111,300 4,660,688
65,567,899
TOTAL UTILITIES 153,071,069
TOTAL COMMON STOCKS
(Cost $1,192,728,759) 1,205,041,629
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
PREFERRED STOCKS - 0.7%
CONVERTIBLE PREFERRED STOCKS - 0.3%
BASIC INDUSTRIES - 0.1%
METALS & MINING - 0.1%
Alumax, Inc., Series A, $4.00 100 $ 11,500
Reynolds Metals Co. $3.31 34,500 1,720,688
1,732,188
DURABLES - 0.0%
AUTOS, TIRES, & ACCESSORIES - 0.0%
Chrysler Corp., Series A, $4.625 (f) 900 118,800
Ford Motor Co., Series A, $4.20 800 77,600
196,400
ENERGY - 0.1%
ENERGY SERVICES - 0.0%
Chiles Offshore Corp. $1.50 (a) 20,000 455,000
OIL & GAS - 0.1%
Unocal Corp. $3.50 (f) 25,000 1,356,250
Western Gas Resources, Inc. $2.625 9,300 406,875
1,763,125
TOTAL ENERGY 2,218,125
HEALTH - 0.0%
MEDICAL EQUIPMENT & SUPPLIES - 0.0%
U.S. Surgical Corp. $2.20 (f) 27,500 666,875
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
Cooper Industries, Inc. $8.00 exchangeable (a) 34,600 787,150
NONDURABLES - 0.1%
TOBACCO - 0.1%
RJR Nabisco Holdings Corp., Series A,
depositary shares representing 1/4 share 313,700 1,960,625
TECHNOLOGY - 0.0%
COMPUTER SERVICES & SOFTWARE - 0.0%
Ceridian Corp. (a) 7,500 446,250
TRANSPORTATION - 0.0%
AIR TRANSPORTATION - 0.0%
AMR Corp. $3.00 (f) 28,000 1,246,000
TOTAL CONVERTIBLE PREFERRED STOCKS 9,253,613
NONCONVERTIBLE PREFERRED STOCKS - 0.4%
BASIC INDUSTRIES - 0.1%
CHEMICALS & PLASTICS - 0.0%
Henkel KGAA 2,500 $ 922,076
IRON & STEEL - 0.1%
Dongbu Steel Co. Ltd. (a) 10,500 260,853
Geneva Steel Co. Series B, 14% exchangable (a) 8,000 1,040,000
1,300,853
TOTAL BASIC INDUSTRIES 2,222,929
CONSTRUCTION & REAL ESTATE - 0.0%
CONSTRUCTION - 0.0%
Dongbu Construction (a) 800 12,223
DURABLES - 0.0%
AUTOS, TIRES, & ACCESSORIES - 0.0%
Hyundai Motor Service Co. (a) 1,900 97,000
FINANCE - 0.1%
CREDIT & OTHER FINANCE - 0.0%
Tong Yang Securities (a) 24,888 454,448
INSURANCE - 0.0%
SAI (Sta Assicur Industriale) N/C Risp 111,600 743,010
SAVINGS & LOANS - 0.1%
California Federal Bank Series B, 10.625% (a) 16,900 1,795,625
TOTAL FINANCE 2,993,083
UTILITIES - 0.2%
ELECTRIC UTILITY - 0.0%
Long Island Lighting Co. $7.95 43,000 1,010,500
Public Service Co. of New Hampshire Co.,
Series A (a) 6,000 155,250
1,165,750
TELEPHONE SERVICES - 0.2%
Stet (Societa Finanziaria Telefonica) Spa (a) 2,487,100 6,579,026
TOTAL UTILITIES 7,744,776
TOTAL NONCONVERTIBLE PREFERRED STOCKS 13,070,011
TOTAL PREFERRED STOCKS
(Cost $19,660,077) 22,323,624
MOODY'S PRINCIPAL VALUE MOODY'S PRINCIPAL VALUE
RATINGS(B) AMOUNT(A) (NOTE 1) RATINGS(B) AMOUNT(A) (NOTE 1)
CORPORATE BONDS - 12.1%
CONVERTIBLE BONDS - 0.1%
BASIC INDUSTRIES - 0.0%
IRON & STEEL - 0.0%
Sterlite Industries India Ltd. euro
3 1/2%, 6/30/99 - $ 185,000 $ 181,300
PAPER & FOREST PRODUCTS - 0.0%
Stone Consolidated Corp. 8%,
12/31/03 - CAD 560,000 497,958
TOTAL BASIC INDUSTRIES 679,258
DURABLES - 0.1%
TEXTILES & APPAREL - 0.1%
Alpargatas SAIC 9%, 3/15/98 (f) - 900,000 819,000
Shinwon Corp. euro 0.5% 12/31/08 - 120,000 169,200
988,200
FINANCE - 0.0%
CREDIT & OTHER FINANCE - 0.0%
Industrial Credit & Investment
Corp. 2 1/2%, 4/3/00 (f) - 485,000 417,100
Scici Ltd. euro 3 1/2%, 4/1/04 (f) - 225,000 280,125
697,225
SECURITIES INDUSTRY - 0.0%
Peregrine Investment Fin. Cayman
Ltd. 4 1/2%, 12/1/00 (f) - 290,000 221,850
TOTAL FINANCE 919,075
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
ELECTRICAL EQUIPMENT - 0.0%
Daewoo Electronics euro 3 1/2%,
12/31/07 - 300,000 555,000
NONDURABLES - 0.0%
BEVERAGES - 0.0%
Jinro Ltd. euro 0.25%, 9/30/09 - 120,000 115,200
RETAIL & WHOLESALE - 0.0%
TRADING COMPANIES - 0.0%
Daewoo Corp. euro 0.25%,
12/31/08 - 90,000 114,300
TECHNOLOGY - 0.0%
COMMUNICATIONS EQUIPMENT - 0.0%
Ericsson (L.M.) Telephone Co.
4 1/4%, 6/30/00 - 27,800 48,650
COMPUTERS & OFFICE EQUIPMENT - 0.0%
Tae Il Media Co. Ltd. 0.50%,
12/31/98 - CHF 50,000 $ 34,869
Unisys Corp. 8 1/4%, 8/1/00 B2 350,000 371,875
406,744
TOTAL TECHNOLOGY 455,394
TOTAL CONVERTIBLE BONDS 3,826,427
NONCONVERTIBLE BONDS - 12.0%
AEROSPACE & DEFENSE - 0.0%
DEFENSE ELECTRONICS - 0.0%
Tracor, Inc. 10 7/8%, 8/15/01 B2 470,000 479,400
BASIC INDUSTRIES - 0.9%
CHEMICALS & PLASTICS - 0.4%
G-I Holdings, Inc., Series B,
0%, 10/1/98 Ba3 7,480,000 4,581,500
IMC Fertilizer Group, Inc. 10 1/8%,
6/15/01 Ba3 1,350,000 1,336,500
Methanex Corp. 8 7/8%, 11/15/01 Ba3 700,000 689,500
NL Industires, Inc. 11 3/4%,
10/15/03 B1 580,000 597,400
OSI Specialties, Inc. 9 1/4%,
10/1/02 B1 370,000 349,650
UCC Corp. 9%, 9/1/00 B1 3,300,000 3,188,625
UCC Investors Holding, Inc.
10 1/2%, 5/1/02 B2 950,000 964,250
11,707,425
IRON & STEEL - 0.0%
WCI Steel, Inc., Series B,
10 1/2%, 3/1/02 B1 640,000 651,200
METALS & MINING - 0.1%
Sherritt Incorporated 11%, 3/31/04 B1 850,000 590,363
Sifto Canada, Inc. 8 1/2%, 7/15/00 B1 1,600,000 1,480,000
2,070,363
PAPER & FOREST PRODUCTS - 0.4%
Container Corp. America:
14%, 12/1/01 B3 3,000,000 3,285,000
9 3/4%, 4/1/03 B2 1,125,000 1,068,750
Repap Wisconsin, Inc.:
8 1/4%, 2/1/02 B1 5,050,000 4,595,500
9 7/8%, 5/1/06 B3 840,000 764,400
Stone Container Corp.
9 7/8%, 2/1/01 B1 2,820,000 2,608,500
Valcor, Inc. 9 5/8%, 11/1/03 B1 90,000 83,362
12,405,512
TOTAL BASIC INDUSTRIES 26,834,500
MOODY'S PRINCIPAL VALUE MOODY'S PRINCIPAL VALUE
RATINGS(B) AMOUNT(A) (NOTE 1) RATINGS(B) AMOUNT(A) (NOTE 1)
CORPORATE BONDS - CONTINUED
NONCONVERTIBLE BONDS - CONTINUED
CONGLOMERATES - 0.0%
Sequa Corp. 9 3/8%, 12/15/03 B3 $ 440,000 $ 409,200
CONSTRUCTION & REAL ESTATE - 2.1%
BUILDING MATERIALS - 1.7%
Adience, Inc. 11%, 6/15/02 - 1,000,000 795,000
Building Materials Corp. of America
11 3/4% 7/1/04 (f) - 3,900,000 2,193,750
Cemex SA and Tolmex SA de CV:
10%, 11/05/99 Ba2 4,170,000 4,185,637
euro 8 7/8%, 6/10/98 Ba2 11,610,000 11,435,850
Cemex SA 8 7/8%, 6/10/98 (f) Ba2 12,800,000 12,608,000
Tolmex SA de CV 8 3/8%, 11/1/03 Ba2 11,080,000 9,573,120
Triangle Pacific Corp. 10 1/2%,
8/1/03 B2 1,580,000 1,556,300
USG Corp.:
9 1/4%, 9/15/01 B1 6,370,000 6,035,575
10 1/4%, 12/15/02 B2 1,050,000 1,050,000
10 1/4%, 12/15/02 B2 2,158,000 2,158,000
51,591,232
CONSTRUCTION - 0.4%
Empresas ICA Sociedad
Controladora SA de CV 9 3/4%,
2/11/98 (f) - 990,000 1,002,375
ICA euro 9 3/4%, 2/11/98 - 2,253,000 2,281,162
Kaufman & Broad Home Corp.
9 3/8%, 5/1/03 Ba3 306,000 286,110
MDC Holdings, Inc.
11 1/8% 12/15/03 B 510,000 489,600
Ryland Group, Inc. 9 5/8%, 6/1/04 Ba3 900,000 837,000
US Home Corp. 9 3/4%, 6/15/03 Ba3 5,725,000 5,410,125
10,306,372
REAL ESTATE - 0.0%
Baldwin Co. 10 3/8%, 8/1/03 B2 90,000 78,300
TOTAL CONSTRUCTION & REAL ESTATE 61,975,904
DURABLES - 0.2%
AUTOS, TIRES, & ACCESSORIES - 0.1%
Grupo Dina (Consorcio G):
10 1/2%, 11/18/97 (f) - 2,120,000 2,093,500
euro 10 1/2%, 11/18/97 - 500,000 493,750
2,587,250
TEXTILES & APPAREL - 0.1%
Alpargatas SA euro 9% 3/15/98 - $ 1,250,000 $ 1,137,500
Westpoint Stevens, Inc.:
8 3/4%, 12/15/01 B1 1,120,000 1,022,000
9 3/8%, 12/15/05 B3 770,000 698,775
2,858,275
TOTAL DURABLES 5,445,525
ENERGY - 0.8%
ENERGY SERVICES - 0.5%
Baroid Corp. 8%, 4/15/03 Ba1 1,200,000 1,230,000
Falcon Drilling, Inc. 9 3/4%,
1/15/01 (f) B2 2,500,000 2,400,000
TransTexas Gas Corp. 10 1/2%,
9/1/00 B1 10,520,000 10,572,600
14,202,600
INDEPENDENT POWER - 0.0%
Consolidated Hydro 0%,
7/15/03 (d) - 1,585,000 925,244
OIL & GAS - 0.3%
Gulf Canada Resources Ltd. 9 1/4%,
1/15/04 B2 4,570,000 4,204,400
HS Resources, Inc. 9 7/8%, 12/1/03 B1 710,000 656,750
Mesa Capital Corp. secured
0%, 6/30/98 (d) B3 2,419,000 2,177,100
Oryx Energy Co. 9 3/4%,
9/15/98 Ba2 540,000 521,100
7,559,350
TOTAL ENERGY 22,687,194
FINANCE - 2.1%
BANKS - 0.8%
Bancomer SA:
euro 8%, 7/7/98 (f) - 9,800,000 9,408,000
SNC euro 8%, 7/7/98 Ba2 8,150,000 7,824,000
9% 6/1/00 (f) - 5,000,000 4,912,500
Midlantic Corp. 9 1/4%, 9/1/99 Baa3 340,000 357,000
Signet Banking Corp. 9 5/8%,
6/01/99 Baa1 790,000 848,168
23,349,668
CREDIT & OTHER FINANCE - 0.6%
GPA Delaware, Inc.:
8 1/2%, 3/3/97 - 1,100,000 968,000
8 5/8%, 1/15/99 - 700,000 549,500
Indah Kiat International Finance Co.
BV gtd.:
11 3/8%, 6/15/99 Ba3 890,000 898,900
11 7/8%, 6/15/02 Ba3 1,320,000 1,333,200
12 1/2%, 6/15/06 Ba3 1,440,000 1,454,400
MOODY'S PRINCIPAL VALUE MOODY'S PRINCIPAL VALUE
RATINGS(B) AMOUNT(A) (NOTE 1) RATINGS(B) AMOUNT(A) (NOTE 1)
CORPORATE BONDS - CONTINUED
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
Lomas Mortgage USA, Inc.
10 1/4%, 10/01/02 Ba2 $ 3,520,000 $ 3,300,000
Secured Finance, Inc. 11.18%,
12/15/04 - 8,000,000 8,520,000
17,024,000
INSURANCE - 0.7%
American Annuity Group, Inc.
11 1/8%, 2/01/03 B2 2,460,000 2,484,600
American Financial Corp. s.f.
12%, 9/3/99 - 4,420,000 4,420,000
Americo Life, Inc. 9 1/4%, 6/1/05 Ba2 1,600,000 1,480,000
Nacolah, Inc. 9 1/2%, 12/1/03 B1 760,000 684,000
Penncorp Financial Group, Inc.
9 1/4%, 12/15/03 B1 930,000 864,900
Reliance Financial Services:
9.273%, 11/1/00 - 1,930,000 1,891,400
10.36%, 12/1/00 - 4,030,000 4,060,225
Reliance Group:
9%, 11/15/00 Ba3 2,230,000 2,007,000
9 3/4%, 11/15/03 B1 2,190,000 1,971,000
19,863,125
SAVINGS & LOANS - 0.0%
Western Financial Savings Bank
8 1/2%, 7/1/03 Ba3 1,600,000 1,544,000
TOTAL FINANCE 61,780,793
HEALTH - 0.4%
MEDICAL FACILITIES MANAGEMENT - 0.4%
American Medical International, Inc.
9 1/2%, 4/15/06 B1 1,280,000 1,190,400
HealthSouth Rehabilitation Co.
9 1/2%, 4/1/01 Ba3 1,130,000 1,087,625
Healthtrust, Inc. - The Hospital Co.:
10 3/4%, 5/1/02 B1 6,100,000 6,305,875
8 3/4%, 3/15/05 B1 2,245,000 2,009,275
Hospital Corp. America 8%, 4/15/96 A3 1,000,000 1,020,600
Integrated Health Services, Inc.
10 3/4%, 7/15/04 B2 680,000 680,000
12,293,775
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
ELECTRICAL EQUIPMENT - 0.1%
Specialty Equipment Cos., Inc.
11 3/8%, 12/1/03 B3 1,780,000 1,806,700
MEDIA & LEISURE - 3.0%
BROADCASTING - 0.9%
Act III Broadcasting, Inc. 9 5/8%,
12/15/03 B3 $ 400,000 $ 374,000
Continental Cablevision, Inc.:
8 5/8%, 8/15/03 Ba2 400,000 368,500
9%, 9/1/08 Ba2 626,000 563,400
Great American TV & Radio
9 1/2%, 12/31/99 - 2,980,000 2,756,500
Helicon Group L.P./Helicon Cap Corp.,
9%, 11/1/03 Caa 1,120,000 963,200
Robin Media Group, Inc. 11 1/8%,
4/1/97 - 1,340,000 1,259,600
Rogers Cablesystems 9.65%,
1/15/14 Ba3 860,000 522,248
SCI Television, Inc. secured:
7 1/2%, 6/30/98 (h) - 9,299,174 9,206,182
11%, 6/30/05 - 9,928,000 10,225,840
Spectravision, Inc. pay-in-kind
11.65%, 12/1/02 B3 490,000 225,400
26,464,870
LODGING & GAMING - 1.5%
Bally's Casino Holdings, Inc.
10 1/2%, 6/15/98 (f) B3 11,170,000 6,869,550
Ballys Grand, Inc., 1st mtg.,
10 3/8%, 12/15/03 (f) - 2,300,000 2,104,500
Bally's Park Place Funding, Inc.
9 1/4%, 3/15/04 B1 3,370,000 3,033,000
California Hotel Finance Corp.
gtd. 11%, 12/01/02 B2 10,365,000 10,546,387
Embassy Suites, Inc.:
gtd. 8 3/4%, 3/15/00 (f) Ba3 4,900,000 4,704,000
10 7/8%, 4/15/02 Ba3 4,750,000 5,035,000
First Mexican Acceptance Corp.
euro 10 3/4%, 9/15/96 - 600,000 613,704
Fitzgeralds Gaming Corporation
unit 13%, 3/15/96 (f)(h) - 420,000 394,800
GNS Finance Corporation 9 1/4%,
3/15/03 B2 480,000 451,200
Grand Casino Resorts, Inc. gtd. 1st
mtg. 12 1/2%, 2/1/00 - 1,920,000 2,001,600
HWCC-Tunica, Inc. 1st mtg.
13 1/2%, 9/30/98 (f) - 620,000 620,000
Host Marriott Corp.:
10 1/2, 5/1/06 B1 3,061,000 3,061,000
11%, 5/1/07 B1 530,000 528,012
9 1/8%, 12/1/07 B1 180,000 178,200
MOODY'S PRINCIPAL VALUE MOODY'S PRINCIPAL VALUE
RATINGS(B) AMOUNT(A) (NOTE 1) RATINGS(B) AMOUNT(A) (NOTE 1)
CORPORATE BONDS - CONTINUED
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
LODGING & GAMING - CONTINUED
Host Marriott Hospitality, Inc.:
10 5/8%, 2/1/00 B1 $ 430,000 $ 426,775
11 1/4%, 7/18/05 B1 694,000 694,000
Lady Luck Gaming Finance Corp.
10 1/2%, 3/1/01 (f) B1 980,000 823,200
Red Roof Inns 9 5/8%,
12/15/03 (f) - 3,030,000 2,829,262
Resorts International Hotel
Financing, Inc.:
mtg. 11%, 9/15/03 - 160,000 120,000
11 3/8%, 12/15/04 ($1000 jr.
mtg. notes & 1 Class B) - 44,000 30,800
Trump Plaza Holding Assoc.
pay-in-kind 12 1/2%, 6/15/03 Caa 1,000 725
45,065,715
PUBLISHING - 0.5%
GACC Holding Co. 9 3/4%,
3/1/04 (f) - 8,520,000 8,328,300
News America Holdings, Inc.
8 1/2%, 2/15/05 Ba1 6,000,000 5,889,000
14,217,300
RESTAURANTS - 0.1%
Family Restaurants, Inc. 9 3/4%,
2/1/02 B1 3,670,000 3,303,000
Flagstar Corp. :
10 7/8%, 12/1/02 B1 340,000 331,925
11 1/4%, 11/1/04 B2 1,380,000 1,260,975
4,895,900
TOTAL MEDIA & LEISURE 90,643,785
NONDURABLES - 1.0%
BEVERAGES - 0.2%
Dr. Pepper/Seven-Up Companies, Inc.
0%, 11/1/02 (d) B3 800,000 616,000
Fomento Economico Mexicano SA
de CV euro 9 1/2%, 7/22/97 - 1,780,000 1,795,575
Grupo Embotellador de Mexico:
euro 10 3/4%, 11/19/97 Ba2 2,370,000 2,423,325
SA de CV 10 3/4%, 11/19/97 (f) Ba2 200,000 204,500
5,039,400
FOODS - 0.1%
Chiquita Brands International, Inc.
9 1/8%, 3/1/04 B1 $ 420,000 $ 388,500
Doskocil Cos. Inc. 9 3/4%, 7/15/00 B2 1,069,000 988,825
Specialty Foods Corp. 10 1/4%,
8/15/01 B2 800,000 736,000
2,113,325
HOUSEHOLD PRODUCTS - 0.6%
Revlon Consumer Products Corp.:
9 1/2%, 6/1/99 B2 2,235,000 2,045,025
9 3/8%, 4/1/01 B2 5,235,000 4,475,925
10 1/2%, 2/15/03 B3 3,590,000 3,105,350
Revlon World Wide secured 0%,
3/15/98 B3 16,350,000 6,867,000
16,493,300
TOBACCO - 0.1%
Empresas La Moderna SA 10 1/4%,
11/12/97 (f) - 4,455,000 4,544,100
TOTAL NONDURABLES 28,190,125
RETAIL & WHOLESALE - 0.6%
APPAREL STORES - 0.1%
Apparel Retailers, Inc. 12 3/4%,
8/15/05 Caa 2,010,000 1,206,000
Lamonts Apparel Corp. 10 1/4%,
11/1/99 - 2,645,000 2,036,650
3,242,650
DRUG STORES - 0.1%
Eckerd Jack Corp 9 1/4%,
2/15/04 B2 350,000 329,000
Thrifty Payless, Inc.:
11 3/4%, 4/15/03 B2 1,380,000 1,397,250
12 1/4%, 4/15/04 B3 2,390,000 2,413,900
4,140,150
GENERAL MERCHANDISE STORES - 0.2%
Controladora Comercial Mexicana
SA de CV:
euro 8 3/4%, 4/21/98 - 1,000,000 967,500
8 3/4%, 4/21/98 (f) - 1,900,000 1,838,250
Dairy Mart Convenient Stores, Inc.
10 1/4%, 3/15/04 B3 410,000 377,200
Hills Stores Co. 10 1/4%, 9/30/03 - 1,610,000 1,585,850
Parisian, Inc. 9 7/8%, 7/15/03 B3 2,810,000 2,543,050
7,311,850
GROCERY STORES - 0.1%
Penn Traffic Co. 9 5/8%, 4/15/05 B2 1,625,000 1,527,500
Ralph's Grocery Co. 9%, 4/1/03 B2 625,000 581,250
2,108,750
MOODY'S PRINCIPAL VALUE MOODY'S PRINCIPAL VALUE
RATINGS(B) AMOUNT(A) (NOTE 1) RATINGS(B) AMOUNT(A) (NOTE 1)
CORPORATE BONDS - CONTINUED
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - CONTINUED
RETAIL & WHOLESALE, MISCELLANEOUS- 0.1%
Finlay Fine Jewelry Corp. 10 5/8%,
5/1/03 B1 $ 1,025,000 $ 1,014,750
Musicland Group, Inc. 9%, 6/15/03 B1 390,000 362,700
1,377,450
TOTAL RETAIL & WHOLESALE 18,180,850
SERVICES - 0.1%
ADVERTISING - 0.1%
Outdoor Systems, Inc. 10 3/4%,
8/15/03 B2 910,000 873,600
EDUCATIONAL SERVICES - 0.0%
Kindercare Learning Centers, Inc.
10 3/8%, 6/1/01 Ba3 860,000 862,150
TOTAL SERVICES 1,735,750
TECHNOLOGY - 0.2%
COMPUTER SERVICES & SOFTWARE - 0.0%
Computervision Corp. 11 3/8%,
8/15/99 B3 1,000,000 880,000
COMPUTERS & OFFICE EQUIPMENT - 0.1%
Unisys Corp. 9 3/4%, 9/15/96 Ba3 2,725,000 2,759,062
ELECTRONICS - 0.1%
Berg Electronics 11 3/8%, 5/1/03 B3 430,000 445,050
Grupo Condumex SA de CV
7 3/8% 7/27/98 (f) - 1,000,000 947,000
1,392,050
TOTAL TECHNOLOGY 5,031,112
TRANSPORTATION - 0.2%
RAILROADS - 0.2%
Southern Pacific Rail Corp.
9 3/8%, 8/15/05 Ba3 3,050,000 2,989,000
Transtar Holdings L.P./Transtar Cap
Corp. 0%, 12/15/03 (d) - 3,160,000 1,769,600
4,758,600
SHIPPING - 0.0%
Sea Containers Ltd. 9 1/2%, 7/1/03 Ba3 1,250,000 1,156,250
TOTAL TRANSPORTATION 5,914,850
UTILITIES - 0.5%
CELLULAR - 0.3%
Cencall Communications Corp.
0%, 1/15/04 Caa 3,670,000 2,055,200
Horizon Cellular Telephone
0%, 10/1/00 (d) Caa 600,000 414,000
Mobilmedia Communications, Inc.
0%, 12/1/03 (d) B3 480,000 283,200
Nextel Communications, Inc.
0%, 8/15/04 (d) B3 $ 6,030,000 $ 3,467,250
Paging Network, Inc. 8 7/8%, 2/1/06 B2 1,140,000 1,017,450
7,237,100
ELECTRIC UTILITY - 0.1%
AES Corp. 9 3/4%, 6/15/00 Ba2 2,025,000 2,014,875
Toledo Edison Co. 8.70%, 9/1/02 Ba3 1,130,000 1,004,819
3,019,694
TELEPHONE SERVICES - 0.1%
MFS Communications 0%, 1/15/04 B3 7,620,000 4,286,250
TOTAL UTILITIES 14,543,044
TOTAL NONCONVERTIBLE BONDS 357,952,507
TOTAL CORPORATE BONDS
(Cost $382,860,495) 361,778,934
U.S. TREASURY OBLIGATIONS - 13.0%
U.S. Treasury Bills, yields at time of
purchase 3.62% to 4.23%
7/7/94 to 9/29/94 (k) - 257,125,000 254,484,603
6 1/4%, 2/15/03 Aaa 145,500,000 135,633,645
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $391,250,691) 390,118,248
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES - 0.0%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.0%
8 1/2%, 12/15/16 (Cost $209,869) Aaa 196,658 199,058
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.1%
CS First Boston Mortgage
Securities Corp.:
6.4769% 1/25/28 (f) - 944,000 749,005
6.4769% 1/25/28 (f) - 550,000 349,336
Nomura Asset Securities Corp.
Commercial Mortgage Pass-
Through Cert. Series 1994-MD1
Class B-1 8.4263%, 3/25/18 - 510,000 397,322
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS (Cost $1,530,682) 1,495,663
MOODY'S PRINCIPAL VALUE PRINCIPAL VALUE
RATINGS (C) AMOUNT (B) (NOTE 1) AMOUNT(B) (NOTE 1)
FOREIGN GOVERNMENT OBLIGATIONS (m) - 6.4%
Argentina Republic:
Brady:
4 1/4%, 3/31/23 (f)(h) - $ 3,500,000 $ 1,728,125
euro 4 1/4%, 3/31/23 (h) B1 9,650,000 4,764,687
Par 4 1/4%, 3/31/23 (f)(h) - 1,655,000 817,156
euro 5%, 3/31/05 - 62,150,000 44,359,564
Province of Cordoba, 10%,
1/28/95 (e) - 4,068,750 3,972,321
5%, 3/31/05 (f)(h) - 822,000 586,702
Brazil Federative Republic IDU
euro 8 3/4%, 1/1/01 B2 17,325,000 12,040,875
Mexican Government:
Brady:
5.188%, 12/31/19 (h) Ba3 15,300,000 12,546,000
0% 12/31/19 (h) Ba3 9,200,000 7,544,000
6 1/4%, 12/31/19 Ba3 40,750,000 25,825,312
6 1/4%, 12/31/19 Ba3 48,250,000 30,578,437
Discount 5.813%, 12/31/19 (h) Ba3 23,600,000 19,352,000
Cetes 0%, 7/21/94 to 7/28/94 - MXN 43,008,000 12,555,005
Mexico Value Recovery (rights)(a) - 145,756,000 1,458
New Zealand Government
8%, 4/15/04 Aaa NZD 21,000,000 12,726,878
Siderurgica Brasileiras SA inflation
indexed 6%, 8/15/99 (l) - BRC 22,372,700 3,464,572
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $215,902,812) 192,863,092
OTHER SECURITIES - 5.1%
INDEXED SECURITIES - 4.8%
AIG Matched Funding Corp. notes:
14.994%, 9/14/94 (coupon
inversely indexed to HELIBOR and
principal indexed to value of 2-year Finnish
securities, both multiplied by 6) (i) 1,375,000 1,027,125
11.018%, 9/16/94 (coupon inversely
indexed to HELIBOR and principal indexed
to value of 3-year Finnish securities,
both multiplied by 4) (i) 950,000 661,200
Bankers Trust Company notes:
10.514%, 9/2/94 (coupon inversely
indexed to HELIBOR and principal
indexed to value of 3-year Finnish
securities, both multiplied by 4) (i) 1,000,00 693,700
0%, 11/3/94 (coupon inversely indexed
to ITL LIBOR and principal indexed to value
of 2-year Italian securities, both multiplied
by 8) (i) $ 1,700,000 $ 1,042,780
0%, 11/9/94 (coupon inversely indexed
to HELIBOR and principal indexed to value
of 2-year Finnish securities, both multiplied
by 8) (i) 1,250,000 697,375
0%, 11/14/94 (coupon inversely indexed
to HELIBOR and principal indexed to value
of 2-year Finnish securities, both multiplied
by 8) (i) 700,000 378,840
0%, 11/16/94 (coupon inversely indexed
to ITL LIBOR and principal indexed to
value of 2-year Italian securities,
both multiplied by 8.5) (i) 5,000,000 3,258,500
1.125%, 11/16/94 (coupon inversely indexed
to HELIBOR and principal indexed to value
of 2-year Finnish securities, both multiplied
by 8) (i) 2,400,000 1,300,320
0%, 12/5/94 (coupon inversely indexed
to value of HELIBOR and principal indexed to
value of 2-year Finnish securities, both
multiplied by 8) (i) 1,500,000 739,800
0%, 12/5/94 (coupon inversely indexed
to ITL LIBOR and principal indexed to value
of 2-year Italian securities, both multiplied
by 8) (i) 1,700,000 1,198,500
0%, 12/6/94 (coupon inversely indexed
to HELIBOR and principal indexed
to value of 2-year Finnish securities,
both multiplied by 8) (i) 700,000 341,810
0%, 12/7/94 (coupon inversely indexed
to HELIBOR and principal indexed to value
of 2-year Finnish securities, both multiplied
by 8) (i) 2,800,000 1,369,200
0%, 12/8/94 (coupon inversely indexed
to GBP LIBOR and principal indexed to value
of 2-year United Kingdom securities, both
multiplied by 10) (i) 4,100,000 2,377,590
0%, 12/8/94 (coupon inversely indexed
to HELIBOR and principal indexed to
value of 2-year Finnish securities,
both multiplied by 8) (i) 1,800,000 1,854,400
6.75%, 3/3/95 (coupon inversely indexed
to GBP LIBOR and principal indexed to
value of 1-year United Kingdom securities,
both multiplied by 10) (i) 3,000,000 2,395,200
PRINCIPAL VALUE PRINCIPAL VALUE
AMOUNT (B) (NOTE 1) AMOUNT(B) (NOTE 1)
OTHER SECURITIES - CONTINUED
INDEXED SECURITIES - CONTINUED
Bankers Trust Company notes - CONTINUED
4.3125%, 12/21/94 (inversely indexed to
3-month LIBOR rate, multiplied by 12) $ 12,440,000 $ 11,691,112
4.3125%, 12/21/94 (inversely indexed to
3-month LIBOR rate, multiplied by 12) 2,490,000 2,343,837
4.625%, 12/21/94 (inversely indexed to
3-month LIBOR rate, multiplied by 12) 2,090,000 2,019,358
Citibank Nassau :
cert. of dep. 4.36%, 12/21/94
(inversely indexed to 3-month LIBOR
rate, multiplied by 12) 9,950,000 9,309,220
cert. of dep. 4.53%, 12/21/94
(inversely indexed to 3-month LIBOR
rate, multiplied by 12) 6,270,000 5,992,866
cert. of dep. 4.586%, 12/21/94
(inversely indexed to 3-month LIBOR
rate, multiplied by 12) 10,450,000 10,085,295
cert. of dep. 4.65%, 12/21/94
(inversely indexed to 3-month LIBOR
rate, multiplied by 12) 8,340,000 8,118,156
cert. of dep. 4.6875%, 12/21/94
(inversely indexed to 3-month LIBOR
rate, multiplied by 12) 8,335,000 8,139,127
0%, 11/3/94 (coupon inversely indexed
to ITL LIBOR and principal indexed to value
of 2-year Italian securities, both multiplied
by 8) (i) 4,250,000 2,514,725
0%, 11/4/94 (coupon inversely indexed
to ITL LIBOR and principal indexed to value
of 2-year Italian securities, both multiplied
by 8) (i) 2,400,000 1,459,200
0%, 11/15/94 (coupon inversely indexed
to ITL LIBOR and principal indexed to value
of 2-year Italian securities, both multiplied
by 8.5) (i) 5,000,000 3,143,000
4.815%, 12/8/94 (coupon inversely indexed
to GBP LIBOR and principal indexed to value
of 2-year United Kingdom securities, both
multiplied by 10) (i) 3,600,000 1,875,961
4.375% 12/21/94 (inversely indexed to
3-month LIBOR rate, multiplied by 12) 8,295,000 7,774,903
8.68%, 3/3/95 (coupon inversely indexed
to GBP LIBOR and principal indexed to value
of 1-year United Kingdom securities. both
multiplied by 10) (i) 6,000,000 4,633,800
Disney Corp. note 0%, 12/9/94 (inversely
indexed to 6-month GBP swap rate,
multiplied by 10) (h) $ 4,400,000 $ 2,399,760
E.I. du Pont de Nemours 7.2192%, 3/8/95
(coupon inversely indexed to GBP
LIBOR and principal indexed to value
of 1-year United Kingdom securities,
both multiplied by 10) (i) 3,100,000 2,468,530
Emerson Electric Company 6.115%,
10/24/94 (coupon inversely
indexed to LIBOR and principal
indexed to value of 2-year United
Kingdom securities, both multiplied
by 10) (i) 4,700,000 2,996,720
Federal Home Loan Bank note:
4.28%, 1/4/95 (inversely indexed to
3-month LIBOR rate, multiplied by 12) 8,290,000 7,768,559
4.62%, 1/4/95 (inversely indexed to
3-month LIBOR rate, multiplied by 12) 4,170,000 4,054,074
4.58%, 1/4/95 (inversely indexed to
3-month LIBOR rate, multiplied by 12) 5,020,000 4,783,056
Goldman Sachs Group, L.P. notes:
(indexed to corn price)
4.59% to 4.74%, 12/1/94 5,819,000 5,509,768
(indexed to cotton price)
3.288% to 3.346%, 8/19/94 2,535,000 2,760,537
(indexed to hog price)
3.215% to 3.934%, 8/19/94 6,690,000 5,574,357
(indexed to lead price)
3.2235% to 3.683%, 8/19/94 871,000 965,354
(indexed to nickel price)
3.21% to 3.543%, 8/19/94 590,000 638,752
(indexed to silver price)
3.732% to 4.3%, 12/22/94 568,000 532,349
(indexed to soy bean price)
3.21% to 4.74%, 7/5/94 3,080,000 2,912,308
Morgan Guaranty Trust Co. cert. of dep.
0%, 2/3/95 (coupon inversely indexed
to 1-month CAD Banker's Acceptance
rates and principal indexed to value of
4-year Canadian securities, both multiplied
by 9) (i) 1,650,000 153,946
Sara Lee Corp. 0%, 11/4/94 (inversely
indexed to ITL LIBOR and principal indexed
to 2-year Italian securities, both multiplied
by 8) (i) 1,350,000 837,000
142,791,970
PRINCIPAL VALUE
AMOUNT (B) (NOTE 1)
OTHER SECURITIES - CONTINUED
PURCHASED BANK DEBT - 0.3%
Polish People's Republic:
loans under 1988 restructuring
agreement (j) $ 3,999,999 $ 1,520,000
past due interest 1,150,182 437,070
Republic of Ecuador:
loan participation under 1985
multi-year refinancing
agreement JPY 600,000,000 2,070,000
loan participation thru Kidder
Peabody Emerging Markets Inc.
0%, 8/15/06 3,000,000 1,560,000
loan participation (a) 3,200,000 1,600,000
Republic of Panama:
loan participation under
refinancing agreement (g) 1,000,000 505,000
loan participation (g) 2,000,000 990,000
8,682,070
TOTAL OTHER SECURITIES
(Cost $187,085,199) 151,474,040
COMMERCIAL PAPER - 0.7%
Banco Nacional De Mexico SA
0% 7/21/94 (Cost $19,688,991) MXN 67,000,000 19,542,279
MATURITY
AMOUNT
REPURCHASE AGREEMENTS - 21.7%
Investments in repurchase agreements,
(U.S. Treasury obligations), in a joint
trading account at 4.29% dated
6/30/94 due 7/1/94 $ 651,077,578 651,000,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $3,061,917,575) $ 2,995,836,567
Futures Contracts
EXPIRATION UNDERLYING FACE UNREALIZED
PURCHASED DATE AMOUNT AT VALUE GAIN/(LOSS)
86 Mid Cap 400
Futures September 1994 $ 7,110,050 $ (372,035)
THE FACE VALUE OF FUTURES PURCHASED AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - .2%
Forward Foreign Currency Contracts
SETTLEMENT UNREALIZED
CONTRACTS TO BUY DATE(S) VALUE GAIN/(LOSS)
4,353,600 CHF 7/19/94 $ 3,264,792 $ 183,906
9,047,928 DKK 7/13/94 1,450,667 65,434
30,172,770 FRF 7/21/94 5,539,297 234,567
16,204,593 GBP 8/16/94 25,005,308 610,913
54,988,422 MYR 7/27/94 21,185,000 (158,123)
TOTAL CONTRACTS TO BUY
(Payable amount $55,508,367) $ 56,445,064 936,697
THE VALUE OF CONTRACTS TO BUY AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 1.9%
CONTRACTS TO SELL
4,353,600 CHF 7/19/94 3,264,792 (264,792)
9,047,928 DKK 7/13/94 1,450,667 (105,651)
30,172,770 FRF 7/21/94 5,539,297 (386,887)
16,204,593 GBP 8/16/94 25,005,308 (763,236)
13,245,040,198 JPY 7/28/94 to 9/21/94 135,117,478 (5,783,525)
TOTAL CONTRACTS TO SELL
(Receivable amount $163,073,451) $ 170,377,542 (7,304,091)
THE VALUE OF CONTRACTS TO SELL AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 5.7%
$ (6,367,394)
CURRENCY ABBREVIATIONS:
BRC - Brazilian cruzeiro
GBP - British pound
CAD - Canadian dollar
DKK - Danish krone
FRF - French franc
DEM - German deutsche mark
JPY - Japanese yen
MYR - Malaysian ringgit
MXN - Mexican peso
NZD - New Zealand dollar
CHF - Swiss franc
LEGEND:
(a) Non-income producing.
(b) Principal amount is stated in United States dollars unless otherwise
noted.
(c) Standard & Poor's Corporation credit ratings are used in the absence of
a rating by Moody's Investors Service, Inc.
(d) Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
(e) 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
Argentina Province of
Cordoba 10%, 1/28/95 1/27/94 $3,918,750
(f) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $100,198,199 or 3.2% of net
assets.
(g) Security purchased on a delayed delivery basis (see Note 2 of Notes to
Financial Statements).
(h) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(i) Coupon is inversely indexed to a floating interest rate multiplied by a
specified factor. If the floating rate is high enough, the coupon rate may
be zero or be a negative amount that is carried forward to reduce future
interest and/or principal payments. The price may be considerably more
volatile than the price of a comparable fixed rate security. The rate shown
is the rate at period end.
(j) Partial interest/dividend payment received on the last interest payment
date.
(k) A portion of the security was pledged to cover margin requirements for
futures contracts. At the period end, the value of securities pledged
amounted to $2,018,750.
(l) Principal amount shown is original face amount and does not reflect the
inflation adjustments.
(m) Most 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 $1,283,876,946, and $1,123,185,403, respectively, of which U.S.
government and government agency obligations aggregated $240,938,287, and
$104,559,734, respectively.
The market value of futures contracts opened and closed amounted to
$352,118,069 and $412,171,312, respectively.
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S S&P
RATINGS RATINGS
Aaa, Aa, A 5.0% AAA, AA, A 5.0%
Baa 0.0% BBB 0.5%
Ba 6.7% BB 4.8%
B 5.5% B 4.5%
Caa 0.2% CCC 0.3%
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 4.4% including long-term debt categorized
as other securities.
Distribution of investments by country of issue, as a percentage of total
value of investment in securities, is as follows:
United States 75.1%
Mexico 9.4
Japan 4.3
Argentina 2.3
United Kingdom 1.7
Canada 1.5
Korea 1.1
Others (individually less than 1%) 4.6
TOTAL 100.0%
INCOME TAX INFORMATION:
At June 30, 1994, the aggregate cost of investment securities for income
tax purposes was $3,062,162,341. Net unrealized depreciation aggregated
$66,325,774, of which $91,935,714 related to appreciated investment
securities and $158,261,488 related to depreciated investment securities.
ASSET MANAGER PORTFOLIO
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, 1994 (Unaudited)
ASSETS
Investment in securities, at value $ 2,995,836,56
(including repurchase agreements of $651,000,000) (cost $3,061,917,575) (Notes 1 and 2) - See 7
accompanying schedule
Cash 9,372,794
Receivable for investments sold 128,394,523
Unrealized appreciation on foreign currency contracts (Note 2) 1,094,820
Receivable for fund shares sold 5,038,560
Dividends receivable 2,486,564
Interest receivable 17,662,477
Other receivables 10,502
Total assets 3,159,896,807
LIABILITIES
Payable for investments purchased $ 56,244,967
Regular delivery
Delayed delivery (Note 2) 2,170,000
Unrealized depreciation on foreign currency contracts (Note 2) 7,462,214
Payable for closed foreign currency contracts (Note 2) 4,052,832
Payable for fund shares redeemed 4,155,905
Accrued management fee 1,858,774
Payable for daily variation on futures contracts 55,917
Other payables and accrued expenses 756,638
Total liabilities 76,757,247
NET ASSETS $ 3,083,139,56
0
Net Assets consist of (Note 1):
Paid in capital $ 3,086,157,11
5
Undistributed net investment income 47,392,385
Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions 21,879,056
Net unrealized appreciation (depreciation) on investments and assets and liabilities in foreign currencies (72,288,996)
NET ASSETS, for 222,654,764 shares outstanding $ 3,083,139,56
0
NET ASSET VALUE, offering price $13.85
and redemption price per share ($3,083,139,560 (divided by) 222,654,764 shares)
</TABLE>
Statement of Operations
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
Six Months Ended June 30, 1994 (Unaudited)
INVESTMENT INCOME $ 11,269,755
Dividends
Interest 51,705,963
Total income 62,975,718
EXPENSES
Management fee (Note 4) $ 10,245,842
Transfer agent fees (Note 4) 78,256
Accounting fees and expenses (Note 4) 375,214
Non-interested trustees' compensation 6,572
Custodian fees and expenses 602,576
Registration fees 118
Audit 53,748
Legal 7,382
Miscellaneous 7,676
Total expenses before reductions 11,377,384
Expense reductions (Note 5) (63,452) 11,313,932
Net investment income 51,661,786
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 2)
Net realized gain (loss) on:
Investment securities 32,297,691
Foreign currency transactions (6,587,569)
Futures contracts (2,979,071) 22,731,051
Change in net unrealized appreciation (depreciation) on:
Investment securities (239,897,125)
Futures contracts (403,385)
Assets and liabilities in foreign currencies (13,321,165) (253,621,675)
Net gain (loss) (230,890,624)
Net increase (decrease) in net assets resulting from operations $ (179,228,838)
</TABLE>
Statement of Changes in Net Assets
DRAFT
SIX MONTHS ENDED
JUNE 30, 1994 YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS (UNAUDITED) DECEMBER 31, 1993
<TABLE>
<CAPTION>
<S> <C> <C>
Operations $ 51,661,786 $ 52,166,548
Net investment income
Net realized gain (loss) 22,731,051 71,627,167
Change in net unrealized appreciation (depreciation) (253,621,675) 164,876,596
Net increase (decrease) in net assets resulting from operations (179,228,838) 288,670,311
Distributions to shareholders: (48,208,503) (20,492,703)
From net investment income
In excess of net investment income - (2,321,789)
From net realized gain (79,199,683) (15,415,197)
Total distributions (127,408,186) (38,229,689)
Share transactions 944,312,563 1,430,436,639
Net proceeds from sales of shares
Reinvestment of distributions 127,407,963 38,229,689
Cost of shares redeemed (104,636,325) (28,138,506)
Net increase (decrease) in net assets resulting from share transactions 967,084,201 1,440,527,822
Total increase (decrease) in net assets 660,447,177 1,690,968,444
NET ASSETS
Beginning of period 2,422,692,383 731,723,939
End of period (including undistributed net investment income of $47,392,385 and $51,341,945, $ 3,083,139,560 $ 2,422,692,383
respectively)
OTHER INFORMATION
Shares
Sold 64,485,688 101,223,825
Issued in reinvestment of distributions 8,499,530 2,911,629
Redeemed (7,426,944) (1,958,476)
Net increase (decrease) 65,558,274 102,176,978
</TABLE>
FINANCIAL HIGHLIGHTS
DRAFT
SEPTEMBER 6, 1989
SIX MONTHS ENDED (COMMENCEMENT OF
JUNE 30, 1994 YEARS ENDED DECEMBER 31, OPERATIONS) TO
(UNAUDITED) 1993 1992 1991 1990 DECEMBER 31, 1989
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 15.42 $ 13.32 $ 12.55 $ 10.24 $ 9.97 $ 10.00
Income from Investment Operations
Net investment income .17 .33 .32 .35 .41 .09
Net realized and unrealized gain (loss) (1.00) 2.39 1.09 1.96 .26 (.01)
Total from investment operations (.83) 2.72 1.41 2.31 .67 .08
Less Distributions
From net investment income (.28) (.33) (.31) - (.40) (.09)
In excess of net investment income - (.04) - - - -
From net realized gain (.46) (.25) (.33) - - (.02)
Total distributions (.74) (.62) (.64) - (.40) (.11)
Net asset value, end of period $ 13.85 $ 15.42 $ 13.32 $ 12.55 $ 10.24 $ 9.97
TOTAL RETURN B, C (5.75)% 21.23% 11.71% 22.56% 6.72% .81%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 3,083,140 $ 2,422,692 $ 731,724 $ 193,518 $ 35,858 $ 7,271
Ratio of expenses to average net assets D .80%1. .88% .91% 1.08% 1.25% 2.50%A
Ratio of expenses to average net assets .81%1. .88% .91% 1.08% 1.54% 4.39%A
before expense reductions D
Ratio of net investment income to average 3.67%1. 3.64% 4.89% 5.89% 5.92% 4.77%A
net assets
Portfolio turnover rate 110%1. 113% 92% 110% 117% 158%A
</TABLE>
1. ANNUALIZED
2. TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
3. THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
4. SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS.
VARIABLE INSURANCE PRODUCTS FUND II: INDEX 500 PORTFOLIO
INVESTMENTS/JUNE 30, 1994 (UNAUDITED)
(SHOWING PERCENTAGE OF TOTAL VALUE OF
INVESTMENT IN SECURITIES)
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - 86.3%
AEROSPACE & DEFENSE - 1.4%
AEROSPACE & DEFENSE - 1.0%
Boeing Co. 3,200 $ 148,000
Lockheed Corp. 500 32,688
Martin Marietta Corp. 1,000 44,125
McDonnell Douglas Corp. 400 46,800
Northrop Corp. 400 14,850
Rockwell International Corp. 2,200 82,174
368,637
DEFENSE ELECTRONICS - 0.3%
E-Systems, Inc. 400 14,950
Loral Corp. 700 24,500
Raytheon Co. 1,200 77,700
117,150
SHIP BUILDING & REPAIR - 0.1%
General Dynamics Corp. 600 24,525
TOTAL AEROSPACE & DEFENSE 510,312
BASIC INDUSTRIES - 6.5%
CHEMICALS & PLASTICS - 3.8%
Air Products & Chemicals, Inc. 1,000 42,375
Avery Dennison Corp. 500 14,500
Dow Chemical Co. 2,700 176,513
du Pont (E.I.) de Nemours & Co. 6,400 373,600
Eastman Chemical Co. 875 41,781
Engelhard Corp. 1,000 25,250
FMC Corp. (a) 300 16,238
First Mississippi Corp. 100 1,525
Goodrich (B.F.) Co. 300 13,050
Grace (W.R.) & Co. 800 31,900
Great Lakes Chemical Corp. 700 37,888
Hercules, Inc. 400 42,800
Minnesota Mining & Manufacturing Co. 4,200 207,900
Monsanto Co. 1,200 90,750
Morton International, Inc. 400 31,200
Nalco Chemical Co. 600 19,125
PPG Industries, Inc. 2,200 82,500
Praxair, Inc. 1,200 23,400
Raychem Corp. 500 18,000
Rohm & Haas Co. 600 37,350
Union Carbide Corp. 1,400 37,450
1,365,095
IRON & STEEL - 0.4%
Armco, Inc. (a) 900 5,063
Bethlehem Steel Corp. (a) 1,100 20,488
Inland Steel Industries, Inc. (a) 400 13,950
Nucor Corp. 900 $ 61,650
USX-U.S. Steel Group 800 27,100
Worthington Industries, Inc. 950 17,575
145,826
METALS & MINING - 0.7%
ASARCO, Inc. 300 8,438
Alcan Aluminium Ltd. 2,220 50,154
Aluminum Co. of America 900 65,813
Cyprus Amax Minerals Co. 950 28,263
Inco Ltd. 1,015 24,582
Phelps Dodge Corp. 600 34,200
Reynolds Metals Co. 500 24,000
235,450
PACKAGING & CONTAINERS - 0.1%
Ball Corp. 300 7,800
Bemis Co., Inc. 500 11,125
Crown Cork & Seal Co., Inc. (a) 800 29,800
48,725
PAPER & FOREST PRODUCTS - 1.5%
Boise Cascade Corp. 300 6,638
Champion International Corp. 800 26,300
Federal Paper Board Co., Inc. 500 11,438
Georgia-Pacific Corp. 800 47,900
International Paper Co. 1,100 72,875
James River Corp. of Virginia 700 11,900
Kimberly-Clark Corp. 1,600 84,600
Louisiana-Pacific Corp. 1,000 30,500
Mead Corp. 500 22,063
Potlatch Corp. 300 11,550
Scott Paper Co. 800 41,800
Stone Container Corp. (a) 600 8,775
Temple-Inland, Inc. 600 28,575
Union Camp Corp. 600 27,225
Westvaco Corp. 600 18,450
Weyerhaeuser Co. 1,900 76,000
526,589
TOTAL BASIC INDUSTRIES 2,321,685
CONGLOMERATES - 1.1%
Allied-Signal, Inc. 2,800 96,950
Crane Co. 300 7,913
Dial Corp. (The) 400 17,100
Harris Corp. 400 17,650
ITT Corp. 1,200 97,950
Teledyne, Inc. 500 8,000
Textron, Inc. 800 41,900
Tyco Laboratories, Inc. 400 18,300
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
CONGLOMERATES - CONTINUED
United Technologies Corp. 1,100 $ 70,675
Whitman Corp. 1,000 15,500
391,938
CONSTRUCTION & REAL ESTATE - 0.5%
BUILDING MATERIALS - 0.3%
Armstrong World Industries, Inc. 300 13,988
Masco Corp. 1,400 38,500
Owens-Corning Fiberglass Corp. (a) 500 15,563
Sherwin-Williams Co. 800 25,200
93,251
CONSTRUCTION - 0.1%
Centex Corp. 400 10,300
Kaufman & Broad Home Corp. 400 5,350
Morrison-Knudsen Corp. 300 6,450
Pulte Corp. 300 6,900
Skyline Corp. 200 3,700
32,700
ENGINEERING - 0.1%
EG & G, Inc. 500 7,500
Fluor Corp. 700 35,613
Foster Wheeler Corp. 300 10,913
54,026
TOTAL CONSTRUCTION & REAL ESTATE 179,977
DURABLES - 3.9%
AUTOS, TIRES, & ACCESSORIES - 3.1%
Chrysler Corp. 3,300 155,513
Cooper Tire & Rubber Co. 700 16,188
Cummins Engine Co., Inc. 300 12,975
Dana Corp. 800 22,800
Eaton Corp. 800 41,600
Echlin, Inc. 500 15,063
Ford Motor Co. 4,700 277,300
General Motors Corp. 6,700 336,675
Genuine Parts Co. 1,100 39,738
Goodyear Tire & Rubber Co. 1,500 54,000
Johnson Controls, Inc. 400 19,350
Navistar International Corp. (a) 670 8,961
PACCAR, Inc. 445 20,581
Pep Boys-Manny, Moe & Jack 500 15,813
SPX Corp. 200 3,100
Snap-on Tools Corp. 500 18,625
TRW, Inc. 700 45,150
1,103,432
CONSUMER ELECTRONICS - 0.4%
Black & Decker Corp. 800 $ 13,800
Maytag Co. 1,000 18,500
Newell Co. 700 32,375
Stanley Works 500 20,125
Whirlpool Corp. 800 42,000
126,800
HOME FURNISHINGS - 0.0%
Bassett Furniture Industries, Inc. 225 6,413
TEXTILES & APPAREL - 0.4%
Hartmarx Corp. (a) 300 1,838
Liz Claiborne, Inc. 700 14,000
NIKE, Inc. Class B 800 47,800
Oshkosh B'Gosh, Inc. Class A 200 2,800
Reebok International Ltd. 900 26,888
Russell Corp. 400 11,650
Springs Industries, Inc. Class A 200 5,975
Stride Rite Corp. 400 5,200
VF Corp. 700 33,250
149,401
TOTAL DURABLES 1,386,046
ENERGY - 8.8%
COAL - 0.0%
Eastern Enterprises Co. 200 4,575
Pittston Company Services Group 400 10,700
15,275
ENERGY SERVICES - 0.7%
Baker Hughes, Inc. 1,300 26,650
Dresser Industries, Inc. 1,600 32,800
Halliburton Co. 1,000 33,750
Helmerich & Payne, Inc. 200 5,300
McDermott International, Inc. 600 15,000
Rowan Companies, Inc. (a) 800 7,000
Schlumberger Ltd. 2,400 141,900
262,400
OIL & GAS - 8.1%
Amerada Hess Corp. 800 39,400
Amoco Corp. 4,700 267,900
Ashland Oil, Inc. 500 16,813
Atlantic Richfield Co. 1,600 163,400
Burlington Resources, Inc. 1,200 49,650
Chevron Corp. 6,400 268,000
Coastal Corp. (The) 900 24,300
Exxon Corp. 11,800 668,175
Kerr-McGee Corp. 500 23,563
Louisiana Land & Exploration Co. 400 17,000
Maxus Energy Corp. (a) 1,200 6,000
Mobil Corp. 3,900 318,338
Occidental Petroleum Corp. 3,000 56,625
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Oryx Energy Co. 1,000 $ 15,000
Pennzoil Co. 400 20,500
Phillips Petroleum Co. 2,400 75,000
Royal Dutch Petroleum Co. 5,200 544,050
Santa Fe Energy Resources, Inc. 800 7,500
Sun Company, Inc. 1,100 29,563
Texaco, Inc. 2,400 144,900
USX-Marathon Group 2,700 45,225
Unocal Corp. 2,400 68,700
2,869,602
TOTAL ENERGY 3,147,277
FINANCE - 10.3%
BANKS - 5.1%
Banc One Corp. 3,660 125,355
Bank of Boston Corp. 1,100 27,088
BankAmerica Corp. 3,500 160,125
Bankers Trust New York Corp. 700 46,638
Barnett Banks, Inc. 1,000 43,750
Boatmen's Bancshares, Inc. 900 28,350
Chase Manhattan Corp. 1,700 65,025
Chemical Banking Corp. 2,500 96,250
Citicorp 3,600 143,550
CoreStates Financial Corp. 1,200 30,900
First Chicago Corp. 900 43,313
First Fidelity Bancorporation 700 32,463
First Interstate Bancorp 700 53,900
First Union Corp. 1,700 78,413
Fleet Financial Group, Inc. 1,400 52,850
Keycorp. 2,407 76,723
Mellon Bank Corp. 700 39,375
Morgan (J.P.) & Co., Inc. 1,800 111,375
NBD Bancorp, Inc. 1,500 47,438
NationsBank Corp. 2,500 128,438
Norwest Corp. 2,900 75,763
PNC Financial Corp. 2,200 63,525
Shawmut National Corp. 900 19,800
SunTrust Banks, Inc. 1,100 53,213
U.S. Bancorp 900 23,288
Wachovia Corp. 1,600 53,000
Wells Fargo & Co. 600 90,225
1,810,133
CREDIT & OTHER FINANCE - 0.8%
American Express Co. 4,600 118,450
Beneficial Corp. 400 14,600
Dean Witter Discover & Co. 1,558 $ 58,425
Household International, Inc. 1,000 34,000
MBNA Corp. 1,500 33,750
National Intergroup, Inc. (a) 200 3,500
Transamerica Corp. 629 32,787
295,512
FEDERAL SPONSORED CREDIT - 1.0%
Federal Home Loan Mortgage Corporation 1,800 108,900
Federal National Mortgage Association 2,700 225,450
334,350
INSURANCE - 2.8%
Aetna Life & Casualty Co. 1,000 55,875
Alexander & Alexander Services, Inc. 400 6,500
American General Corp. 2,000 55,250
American International Group, Inc. 2,950 255,544
CIGNA Corp. 600 43,875
Chubb Corp. (The) 900 68,963
Continental Corp. 600 9,300
General Re Corp. 900 98,100
Jefferson Pilot Corp. 400 19,500
Lincoln National Corp. 800 33,900
Marsh & McLennan Companies, Inc. 800 66,700
Providian Corp. 900 27,225
SAFECO Corp. 700 38,938
St. Paul Companies, Inc. (The) 1,000 40,125
Torchmark Corp. 800 31,200
Travelers, Inc. (The) 3,017 97,298
UNUM Corp. 700 31,325
USF&G Corp. 800 9,800
USLIFE Corp. 250 8,875
998,293
SAVINGS & LOANS - 0.2%
Ahmanson (H.F.) & Co. 1,200 22,650
Golden West Financial Corp. 700 27,038
Great Western Financial Corp. 1,200 22,050
71,738
SECURITIES INDUSTRY - 0.4%
Lehman Brothers Holdings, Inc. 920 13,915
Merrill Lynch & Co., Inc. 2,100 73,500
Salomon, Inc. 1,000 47,750
135,165
TOTAL FINANCE 3,645,191
HEALTH - 7.4%
DRUGS & PHARMACEUTICALS - 4.3%
ALZA Corp. Class A 700 16,450
Allergan, Inc. 700 15,138
American Cyanamid Co. 800 44,800
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
HEALTH - CONTINUED
DRUGS & PHARMACEUTICALS - CONTINUED
American Home Products Corp. 2,900 $ 164,575
Amgen, Inc. (a) 1,200 51,450
Bristol-Myers Squibb Co. 5,000 268,125
Lilly (Eli) & Co. 2,700 153,563
Merck & Co., Inc. 12,200 362,950
Pfizer, Inc. 2,900 183,063
Schering-Plough Corp. 1,800 110,250
Syntex Corporation 2,200 50,600
Upjohn Co. 1,600 46,600
Warner-Lambert Co. 1,200 79,200
1,546,764
MEDICAL EQUIPMENT & SUPPLIES - 2.2%
Abbott Laboratories 7,800 226,200
Bard (C.R.), Inc. 500 11,938
Bausch & Lomb, Inc. 500 18,500
Baxter International, Inc. 2,600 68,250
Becton, Dickinson & Co. 600 24,525
Biomet, Inc. (a) 1,100 11,413
Johnson & Johnson 6,100 261,538
Mallinckrodt Group, Inc. 700 22,750
McKesson Corp. 400 28,850
Medtronic, Inc. 500 40,063
Millipore Corp. 300 15,825
Pall Corp. 1,100 16,500
St. Jude Medical, Inc. 400 13,000
U.S. Surgical Corp. 500 11,125
770,477
MEDICAL FACILITIES MANAGEMENT - 0.9%
Beverly Enterprises, Inc. (a) 700 8,488
Columbia/HCA Healthcare Corp. 3,175 119,063
Community Psychiatric Centers 400 4,750
Manor Care, Inc. 500 12,563
National Medical Enterprises, Inc. 1,500 23,438
U.S. Healthcare, Inc. 1,500 55,500
United HealthCare Corp. 1,800 82,575
306,377
TOTAL HEALTH 2,623,618
INDUSTRIAL MACHINERY & EQUIPMENT - 4.9%
ELECTRICAL EQUIPMENT - 3.0%
Corning, Inc. 1,900 61,988
Emerson Electric Co. 2,100 119,438
General Electric Co. 16,400 764,650
General Signal Corp. 400 13,200
Grainger (W.W.), Inc. 500 31,938
Honeywell, Inc. 1,200 $ 37,200
Scientific-Atlanta, Inc. 300 10,313
Westinghouse Electric Corp. 3,300 38,363
Zenith Electronics Corp. (a) 300 2,663
1,079,753
INDUSTRIAL MACHINERY & EQUIPMENT - 1.3%
Briggs & Stratton Corp. 200 13,375
Caterpillar, Inc. 900 90,000
Cincinnati Milacron, Inc. 400 8,350
Clark Equipment Co. (a) 200 11,950
Cooper Industries, Inc. 1,000 36,000
Deere & Co. 900 60,863
Dover Corp. 500 29,438
Giddings & Lewis, Inc. 300 4,650
Harnischfeger Industries, Inc. 300 5,850
Illinois Tool Works, Inc. 1,000 39,000
Ingersoll-Rand Co. 1,100 38,638
Parker-Hannifin Corp. 400 17,050
TRINOVA Corp. 300 10,388
Tenneco, Inc. 1,700 78,838
Timken Co. 300 9,825
Varity Corp. (a) 500 18,188
472,403
POLLUTION CONTROL - 0.6%
Browning-Ferris Industries, Inc. 1,800 54,675
Ogden Corp. 500 11,000
Rollins Environmental Services, Inc. 500 2,375
Safety Kleen Corp. 500 8,500
WMX Technologies, Inc. 4,700 124,550
Zurn Industries, Inc. 200 4,050
205,150
TOTAL INDUSTRIAL MACHINERY &
EQUIPMENT 1,757,306
MEDIA & LEISURE - 4.2%
BROADCASTING - 1.3%
CBS, Inc. 200 62,000
Capital Cities/ABC, Inc. 2,000 142,250
Comcast Corp. Class A (Special) 2,150 38,700
Tele-Communications, Inc. Class A (a) 4,200 85,575
Time Warner, Inc. 3,700 129,963
458,488
ENTERTAINMENT - 0.6%
Disney (Walt) Co. 5,200 216,450
King World Productions, Inc. 300 11,963
228,413
LEISURE DURABLES & TOYS - 0.3%
Brunswick Corp. 1,000 22,000
Fleetwood Enterprises, Inc. 400 7,650
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
MEDIA & LEISURE - CONTINUED
LEISURE DURABLES & TOYS - CONTINUED
Hasbro, Inc. 900 $ 26,663
Mattel, Inc. 1,525 38,697
Outboard Marine Corp. 200 4,000
99,010
LODGING & GAMING - 0.2%
Bally Entertainment Corp. (a) 300 1,950
Hilton Hotels Corp. 400 21,200
Marriott International, Inc. 1,300 34,613
Promus Companies, Inc. (a) 900 26,663
84,426
PUBLISHING - 1.2%
American Greetings Corp. Class A 800 24,000
Dow Jones & Co Inc. 900 27,900
Dun & Bradstreet Corp. 1,600 88,800
Gannett Co., Inc. 1,500 74,250
Harcourt General, Inc. 700 24,588
Knight-Ridder, Inc. 600 30,675
McGraw-Hill, Inc. 400 26,600
Meredith Corp. 200 8,500
New York Times Co. (The) Class A 1,100 26,263
Times Mirror Co., Series A 1,300 39,163
Tribune Co. 700 37,275
408,014
RESTAURANTS - 0.6%
Luby's Cafeterias, Inc. 300 6,750
McDonald's Corp. 6,600 190,575
Ryan's Family Steak Houses, Inc. (a) 500 3,625
Shoney's, Inc. (a) 400 6,100
Wendy's International, Inc. 900 14,063
221,113
TOTAL MEDIA & LEISURE 1,499,464
NONDURABLES - 9.7%
AGRICULTURE - 0.1%
Pioneer Hi-Bred International, Inc. 800 26,200
BEVERAGES - 2.8%
Anheuser-Busch Companies, Inc. 2,500 126,875
Brown-Forman Corp. Class B 900 25,425
Coca-Cola Company (The) 12,500 507,813
Coors (Adolph) Co. Class B 400 7,000
PepsiCo, Inc. 7,700 235,813
Seagram Co. Ltd. 3,500 105,639
1,008,565
FOODS - 2.7%
Archer-Daniels-Midland Co. 3,200 74,400
Borden, Inc. 1,300 16,088
CPC International, Inc. 1,500 $ 72,375
Campbell Soup Co. 2,300 79,063
ConAgra, Inc. 2,300 70,150
General Mills, Inc. 1,600 87,400
Gerber Products Co. 600 30,600
Heinz (H.J.) Co. 2,500 79,688
Hershey Foods Corp. 900 39,038
Kellogg Co. 2,100 114,188
Pet, Inc. 900 16,763
Quaker Oats Co. 700 48,913
Ralston Purina Co. 900 31,163
SYSCO Corp. 1,700 38,463
Sara Lee Corp. 4,500 95,625
Wrigley (Wm.) Jr. Co. 1,200 57,000
950,917
HOUSEHOLD PRODUCTS - 2.6%
Alberto Culver Co. Class B cv 300 6,488
Avon Products, Inc. 600 35,325
Clorox Co. 600 29,325
Colgate-Palmolive Co. 1,400 72,800
Gillette Co. 2,200 143,275
International Flavors & Fragrances, Inc. 1,000 39,125
Premark International, Inc. 400 30,100
Procter & Gamble Co. 6,600 352,275
Rubbermaid, Inc. 1,500 39,375
Unilever NV ADR 1,600 161,200
909,288
TOBACCO - 1.5%
American Brands, Inc. 2,000 63,250
Philip Morris Companies, Inc. 8,300 427,450
UST, Inc. 1,900 51,538
542,238
TOTAL NONDURABLES 3,437,208
PRECIOUS METALS - 0.5%
American Barrick Resources Corp. 2,800 66,799
Echo Bay Mines Ltd. 1,000 10,844
Homestake Mining Co. 1,400 26,250
Newmont Mining Corp. 724 29,141
Placer Dome, Inc. 2,200 47,117
180,151
RETAIL & WHOLESALE - 5.5%
APPAREL STORES - 0.5%
Brown Group, Inc. 200 7,525
Charming Shoppes, Inc. 900 8,438
Gap, Inc. 1,300 55,575
Genesco, Inc. (a) 200 650
Limited, Inc. (The) 3,400 58,650
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
RETAIL & WHOLESALE - CONTINUED
APPAREL STORES - CONTINUED
Melville Corp. 1,100 $ 42,625
TJX Companies, Inc. 800 17,500
190,963
DRUG STORES - 0.2%
Long Drug Stores, Inc. 100 3,575
Rite Aid Corp. 800 16,200
Walgreen Co. 1,100 40,150
59,925
GENERAL MERCHANDISE STORES - 3.2%
Dayton Hudson Corp. 600 48,600
Dillard Department Stores, Inc. Class A 1,000 30,875
K mart Corp. 4,000 62,000
May Department Stores Co. (The) 2,300 90,275
Mercantile Stores Co., Inc. 300 9,638
Nordstrom, Inc. 700 29,750
Penney (J.C.) Co., Inc. 2,200 119,350
Price/Costco, Inc. 2,039 30,458
Sears, Roebuck & Co. 3,300 158,400
Wal-Mart Stores, Inc. 21,900 531,075
Woolworth Corp. 1,200 19,050
1,129,471
GROCERY STORES - 0.6%
Albertson's, Inc. 2,500 68,750
American Stores Co. 1,300 31,850
Bruno's, Inc. 700 5,075
Fleming Companies, Inc. 300 8,325
Giant Food, Inc. Class A 500 9,813
Great Atlantic & Pacific Tea Co., Inc. 400 8,600
Kroger Co. (The) (a) 1,000 23,250
Supervalu, Inc. 600 18,150
Winn-Dixie Stores, Inc. 800 34,400
208,213
RETAIL & WHOLESALE, MISCELLANEOUS - 1.0%
Circuit City Stores, Inc. 1,000 20,500
Handleman Co. 300 3,038
Home Depot, Inc. (The) 4,200 176,925
Lowe's Companies, Inc. 1,500 51,375
Tandy Corp. 700 24,150
Toys "R" Us, Inc. (a) 2,700 88,425
364,413
TOTAL RETAIL & WHOLESALE 1,952,985
SERVICES - 1.0%
ADVERTISING - 0.1%
Interpublic Group of Companies, Inc. 800 24,800
LEASING & RENTAL - 0.2%
Blockbuster Entertainment Corp. 2,300 $ 59,513
Ryder Systems, Inc. 700 17,588
77,101
PRINTING - 0.3%
Alco Standard Corp. 500 28,563
Deluxe Corp. 700 18,463
Donnelley (R.R.) & Sons Co. 1,600 44,400
Harland (John H.) Co. 300 6,525
Moore Corp. Ltd. 900 15,127
113,078
SERVICES - 0.4%
Block (H & R), Inc. 1,100 43,175
Ecolab, Inc. 700 15,400
Jostens, Inc. 400 6,450
National Education Corp. (a) 200 1,125
National Service Industries, Inc. 400 10,400
Service Corp. International 900 23,175
Western Atlas, Inc. 500 23,813
123,538
TOTAL SERVICES 338,517
TECHNOLOGY - 7.0%
COMMUNICATIONS EQUIPMENT - 0.4%
Andrew Corp. (a) 300 11,025
Cisco Systems, Inc. (a) 2,500 58,438
DSC Communications Corp. (a) 1,000 19,563
M/A-Com, Inc. (a) 200 1,600
Northern Telecom Ltd. 2,300 64,016
154,642
COMPUTER SERVICES & SOFTWARE - 1.8%
Autodesk, Inc. 300 14,850
Automatic Data Processing, Inc. 1,400 74,375
Ceridian Corp. (a) 500 12,313
Computer Associates International, Inc. 1,500 60,000
Computer Sciences Corp. (a) 500 20,813
Lotus Development Corp. (a) 400 14,700
Microsoft Corp. (a) 5,800 298,700
Novell, Inc. (a) 2,900 48,575
Oracle Systems Corp. (a) 2,700 101,250
Shared Medical Systems Corp. 300 7,200
652,776
COMPUTERS & OFFICE EQUIPMENT - 2.4%
Amdahl Corp. 1,000 5,500
Apple Computer, Inc. 1,200 31,800
Compaq Computer Corp. (a) 1,800 58,050
Cray Research, Inc. (a) 300 6,788
Data General Corp. (a) 300 2,325
Digital Equipment Corp. (a) 1,400 27,125
VALUE VALUE
SHARES (NOTE 1) SHARES (NOTE 1)
COMMON STOCKS - CONTINUED
TECHNOLOGY - CONTINUED
COMPUTERS & OFFICE EQUIPMENT - CONTINUED
Hewlett-Packard Co. 2,500 $ 188,438
Intergraph Corp. (a) 400 3,900
International Business Machines Corp. 5,600 329,000
Pitney Bowes, Inc. 1,600 61,200
Sun Microsystems, Inc. (a) 800 16,500
Tandem Computers, Inc. (a) 1,000 11,250
Unisys Corp. (a) 1,500 13,875
Xerox Corp. 900 87,975
843,726
ELECTRONIC INSTRUMENTS - 0.1%
Perkin-Elmer Corp. 500 14,625
Tektronix, Inc. 300 8,475
23,100
ELECTRONICS - 1.8%
AMP, Inc. 1,100 76,175
Advanced Micro Devices, Inc. (a) 800 19,900
Intel Corp. 3,900 228,150
Motorola, Inc. 5,400 240,300
National Semiconductor Corp. (a) 800 13,800
Texas Instruments, Inc. 800 63,600
Thomas & Betts Corp. 200 12,300
654,225
PHOTOGRAPHIC EQUIPMENT - 0.5%
Eastman Kodak Co. 3,100 149,188
Polaroid Corp. 400 12,750
161,938
TOTAL TECHNOLOGY 2,490,407
TRANSPORTATION - 1.6%
AIR TRANSPORTATION - 0.3%
AMR Corp. (a) 800 47,500
Delta Air Lines, Inc. 400 18,100
UAL Corp. (a) 300 37,875
USAir Group, Inc. (a) 500 3,188
106,663
RAILROADS - 1.1%
Burlington Northern, Inc. 800 42,700
CSX Corp. 900 67,950
Conrail, Inc. 700 38,325
Norfolk Southern Corp. 1,400 88,200
Santa Fe Pacific Corp. 1,700 35,488
Union Pacific Corp. 1,900 107,588
380,251
TRUCKING & FREIGHT - 0.2%
Consolidated Freightways, Inc. (a) 300 $ 7,125
Federal Express Corp. (a) 600 44,775
Roadway Services, Inc. 400 25,200
Yellow Corp. 300 5,213
82,313
TOTAL TRANSPORTATION 569,227
UTILITIES - 12.0%
CELLULAR - 0.6%
Airtouch Communications 4,800 113,400
McCaw Cellular Communications, Inc.
Class A (a) 1,900 98,325
211,725
ELECTRIC UTILITY - 3.3%
American Electric Power Co., Inc. 1,700 48,025
Baltimore Gas & Electric Co. 1,300 27,625
Carolina Power & Light Co. 1,500 34,688
Central & South West Corp. 1,900 40,375
Commonwealth Edison Co. 2,000 45,500
Consolidated Edison Co. of New York, Inc. 2,200 58,300
Detroit Edison Company 1,500 37,125
Dominion Resources, Inc. 1,500 54,563
Duke Power Co. 1,900 67,925
Entergy Corp. 2,300 56,925
FPL Group, Inc. 1,900 56,763
Houston Industries, Inc. 1,200 39,150
Niagara Mohawk Power Corp. 1,300 19,663
Northern States Power Co. 600 24,675
Ohio Edison Co. 1,400 25,025
PSI Resources, Inc. 500 10,563
Pacific Gas & Electric Co. 4,100 97,375
PacifiCorp. 2,600 43,875
Peco Energy Co. 2,200 58,025
Public Service Enterprise Group, Inc. 2,400 62,400
SCEcorp 4,200 54,075
Southern Co. 6,100 114,375
Texas Utilities Co. 2,100 65,888
Union Electric Co. 900 28,575
1,171,478
GAS - 0.7%
Columbia Gas System, Inc. (The) (a) 400 10,800
Consolidated Natural Gas Co. 800 30,200
ENSERCH Corp. 600 8,625
Enron Corp. 2,400 78,600
NICOR, Inc. 600 15,825
Noram Energy Corp. 1,100 6,600
ONEOK, Inc. 300 5,138
Pacific Enterprises 900 17,888
VALUE MATURITY VALUE
SHARES (NOTE 1) AMOUNT (NOTE 1)
COMMON STOCKS - CONTINUED
UTILITIES - CONTINUED
GAS - CONTINUED
Panhandle Eastern Corp. 1,100 $ 21,725
Peoples Energy Corp. 300 7,013
Sonat, Inc. 800 24,600
Transco Energy Co. 300 4,875
Williams Companies, Inc. 900 25,763
257,652
TELEPHONE SERVICES - 7.4%
AT & T Corp. 13,000 706,875
Ameritech Corp. 5,300 202,725
Bell Atlantic Corp. 4,100 229,600
BellSouth Corp. 4,700 290,225
GTE Corp. 9,000 283,500
MCI Communications Corp. 5,100 112,838
NYNEX Corp. 3,900 147,713
Pacific Telesis Group 4,100 126,588
Southwestern Bell Corp. 5,800 252,300
Sprint Corporation 3,200 111,600
U.S. West, Inc. 4,300 180,063
2,644,027
TOTAL UTILITIES 4,284,882
TOTAL COMMON STOCKS
(Cost $30,601,376) 30,716,191
PREFERRED STOCKS - 0.0%
FINANCE - 0.0%
CREDIT & OTHER FINANCE - 0.0%
National Intergroup, Inc., Series A, $4.20
exchangeable (Cost $1,442) 52 1,807
PRINCIPAL
AMOUNT
U.S. TREASURY OBLIGATIONS - 1.0%
U.S. Treasury Bills, yields at date of purchase
3.83% to 3.94%, 7/7/94 (b) $ 85,000 84,945
8 1/2%, 5/15/95 (b) 50,000 51,258
8 1/2%, 11/15/95 (b) 100,000 103,500
8 5/8%, 10/15/95 (b) 100,000 103,516
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $359,653) 343,219
REPURCHASE AGREEMENTS - 12.7%
Investments in repurchase agreements,
(U.S. Treasury obligations), in a joint
trading account at 4.29% dated
6/30/94 due 7/1/94 $ 4,529,540 $ 4,529,000
TOTAL INVESTMENT in SECURITIES - 100%
(Cost $35,491,471) $ 35,590,217
FuTUrES Contracts
EXPIRATION UNDERLYING FACE UNREALIZED
PURCHASED DATE AMOUNT AT VALUE GAIN/(LOSS)
21 S&P 500
Index Futures September, 1994 $ 4,673,025 $ (148,360)
THE FACE VALUE OF FUTURES PURCHASED AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 13.1%
LEGEND:
(a) Non-income producing
(b) A portion of the Security was pledged to cover margin requirements for
futures contracts. At the period end, the value of securities pledged
amounted to $343,219.
OTHER INFORMATION:
Purchases and sales of securities, other than short-term securities,
aggregated $8,736,789 and $286,815, respectively.
The market value of futures contracts opened and closed amounted to
$14,498,205 and $10,907,960, respectively.
INCOME TAX INFORMATION:
At June 30, 1994, the aggregate cost of investment securities for income
tax purposes was $35,491,471. Net unrealized appreciation aggregated
$98,746, of which $2,455,514 related to appreciated investment securities
and $2,356,768 related to depreciated investment securities.
Statement of Assets and Liabilities
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, 1994 (Unaudited)
ASSETS
Investment in securities, at value (including repurchase agreements of $4,529,000) (cost $35,491,471) $ 35,590,217
(Notes 1 and 2) - See accompanying schedule
Cash 895
Receivable for fund shares sold 152,292
Dividends receivable 84,488
Interest receivable 3,385
Receivable from investment adviser for expense reductions (Note 5) 26,244
Total assets 35,857,521
LIABILITIES
Payable for investments purchased $ 82,575
Payable for fund shares redeemed 17,697
Accrued management fee 8,130
Payable for daily variation on futures contracts 39,375
Other payables and accrued expenses 44,090
Total liabilities 191,867
NET ASSETS $ 35,665,654
Net Assets consist of (Note 1)
Paid in capital $ 35,195,044
Undistributed net investment income 404,598
Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions 115,626
Net unrealized appreciation (depreciation) on investments (49,614)
NET ASSETS, for 664,516 shares outstanding $ 35,665,654
NET ASSET VALUE, offering price and redemption price per share ($35,665,654 (divided by) 664,516 shares) $53.67
</TABLE>
Statement of Operations
DRAFT
<TABLE>
<CAPTION>
<S> <C> <C>
Six Months Ended June 30, 1994 (Unaudited)
INVESTMENT INCOME $ 379,787
Dividends
Interest 64,862
Total income 444,649
EXPENSES
Management fee (Note 4) $ 41,450
Transfer agent fees (Note 4) 39,164
Accounting fees and expenses (Note 4) 22,543
Non-interested trustees' compensation 83
Custodian fees and expenses 14,289
Registration fees 4,355
Audit 19,814
Legal 67
Miscellaneous 519
Total expenses before reductions 142,284
Expense reductions (Note 5) (101,068) 41,216
Net investment income 403,433
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 2)
Net realized gain (loss) on:
Investment securities 57,049
Futures contracts 67,390 124,439
Change in net unrealized appreciation (depreciation) on:
Investment securities (1,560,311)
Futures contracts (151,985) (1,712,296)
Net gain (loss) (1,587,857)
Net increase (decrease) in net assets resulting from operations $ (1,184,424)
</TABLE>
Statement of Changes in Net Assets
DRAFT
SIX MONTHS ENDED
JUNE 30, 1994 YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS (UNAUDITED) DECEMBER 31, 1993
<TABLE>
<CAPTION>
<S> <C> <C>
Operations $ 403,433 $ 552,615
Net investment income
Net realized gain (loss) 124,439 314,758
Change in net unrealized appreciation (depreciation) (1,712,296) 1,044,761
Net increase (decrease) in net assets resulting from operations (1,184,424) 1,912,134
Distributions to shareholders - (551,427)
From net investment income
From net realized gain (48,645) (250,780)
In excess of net realized gain - (39,680)
Total distributions (48,645) (841,887)
Share transactions 15,324,619 21,442,174
Net proceeds from sales of shares
Reinvestment of distributions 48,645 841,887
Cost of shares redeemed (3,627,219) (16,162,443)
Net increase (decrease) in net assets resulting from share transactions 11,746,045 6,121,618
Total increase (decrease) in net assets 10,512,976 7,191,865
NET ASSETS
Beginning of period 25,152,678 17,960,813
End of period (including undistributed net investment income of $404,598 and $1,165, respectively) $ 35,665,654 $ 25,152,678
OTHER INFORMATION
Shares
Sold 277,044 392,103
Issued in reinvestment of distributions 866 15,162
Redeemed (64,646) (297,446)
Net increase (decrease) 213,264 109,819
</TABLE>
FINANCIAL HIGHLIGHTS
DRAFT
AUGUST 27, 1992
SIX MONTHS ENDED (COMMENCEMENT OF
JUNE 30, 1994 YEAR ENDED OPERATIONS) TO
(UNAUDITED) DECEMBER 31, 1993 DECEMBER 31, 1992
SELECTED PER-SHARE DATA
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Net asset value, beginning of period $ 55.74 $ 52.60 $ 50.00
Income from Investment Operations
Net investment income .61 1.31 .44
Net realized and unrealized gain (loss) (2.58) 3.80 2.71
Total from investment operations (1.97) 5.11 3.15
Less Distributions
From net investment income - (1.28) (.47)
From net realized gain (.10) (.60) (.08)
In excess of net realized gain - (.09) -
Total distributions (.10) (1.97) (.55)
Net asset value, end of period $ 53.67 $ 55.74 $ 52.60
TOTAL RETURN B, C (3.54)% 9.74% 6.31%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 35,666 $ 25,153 $ 17,961
Ratio of expenses to average net assets D .28%A .28% .28%A
Ratio of expenses to average net assets before expense reductions .97%A .95% 1.77%A
Ratio of net investment income to average net assets 2.74%A 2.65% 2.89%A
Portfolio turnover rate 2%A 9% -%
</TABLE>
1. ANNUALIZED
2. TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
3. THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
4. SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 1994 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES.
Investment Grade Bond Portfolio, Asset Manager Portfolio, and Index 500
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 following summarizes the
significant accounting policies of the funds:
SECURITY VALUATION.
INVESTMENT GRADE BOND PORTFOLIO. Securities are valued based upon a
computerized matrix system and/or appraisals by a pricing service, both of
which consider market transactions and dealer-supplied valuations.
Short-term securities maturing within sixty days are valued either at
amortized cost or original cost plus accrued interest, both of which
approximate current value. Securities for which market quotations are not
readily available are valued at their fair value as determined in good
faith under consistently applied procedures under the general supervision
of the Board of Trustees.
ASSET MANAGER PORTFOLIO AND INDEX 500 PORTFOLIO. Securities for which
exchange quotations are readily available are valued at the last sale
price, or if no sale price, at the closing bid price. Securities (including
restricted securities) for which exchange quotations are not readily
available (and in certain cases debt securities which trade on an
exchange), are valued primarily using dealer-supplied valuations or at
their fair value as determined in good faith under consistently applied
procedures under the general supervision of the Board of Trustees.
Short-term securities maturing within sixty days are valued at amortized
cost or original cost plus accrued interest, both of which approximate
current value.
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.
Effective January 1, 1994, the funds adopted Statement of Position (SOP)
93-4: Foreign Currency Accounting and Financial Statement Presentation for
Investment Companies. In accordance with this SOP, reported net realized
gains and losses on foreign currency transactions represent net gains and
losses from sales and maturities of forward currency contracts, 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.
Further, as permitted under the SOP, the effects of changes in foreign
currency exchange rates on investments in securities are not segregated in
the Statements of Operations from the effects of changes in market prices
of those securities, but are included with the net realized and unrealized
gain or loss on investments.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, each fund is not subject to income taxes to
the extent that it distributes all of its taxable income for the fiscal
year. The schedules of investments include information regarding income
taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date,
except certain dividends from foreign securities where the ex-dividend date
may have passed, are recorded as soon as the funds are informed of the
ex-dividend date. Interest income, which includes accretion of original
issue discount, is accrued as earned. Investment income is recorded net of
foreign taxes 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. Distributions are recorded on the
ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
paydown gains/losses on certain securities, futures and options
transactions, foreign currency transactions, market discount, non-taxable
dividends, and losses deferred due to wash sales and excise tax
regulations.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income 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 may enter into forward
foreign currency contracts. These contracts involve market risk in excess
of the amount reflected in the fund's Statement of Assets and Liabilities.
The face or contract amount in U.S. dollars reflects the total exposure the
fund has in that particular currency contract. The U.S. dollar value of
forward foreign currency contracts is determined using forward currency
exchange rates supplied by a quotation service. Losses may arise due to
changes in the value of the foreign currency or if the counterparty does
not perform under the contract.
Purchases and sales of forward foreign currency contracts having the same
settlement date and broker are offset and any realized gain (loss) is
recognized on the date of offset, otherwise gain (loss) is recognized on
settlement date.
REPURCHASE AGREEMENTS. The funds, through their custodian, receive delivery
of the underlying securities, whose market value is required to be at least
102% of the resale price at the time of purchase. The funds' investment
adviser, Fidelity Management & Research Company (FMR), is responsible for
determining that the value of these underlying securities remains at least
equal to the resale price.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the funds, along with other registered
investment companies having management contracts with FMR, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by
U.S. Treasury or Federal Agency obligations.
DELAYED DELIVERY TRANSACTIONS. Each fund may purchase or sell securities on
a when-issued or forward commitment basis. Payment and delivery may take
place a month or more after the date of the transaction. The price of the
underlying securities and the date when the securities will be delivered
and paid for are fixed at the time the transaction is negotiated. Each fund
identifies securities as segregated in its custodial records with a value
at least equal to the amount of the purchase commitment.
FUTURES CONTRACTS AND OPTIONS. Each fund may invest in futures contracts
and write options. These investments involve to varying degrees, elements
of market risk and risks in excess of the amount recognized in the
Statement of Assets and Liabilities. The face or contract amounts reflect
the extent of the involvement the fund has in the particular classes of
instruments. Risks may be caused by an imperfect correlation between
movements in the price of the instruments and the price of the underlying
securities and interest rates. Risks also may arise if there is an illiquid
secondary market for the instruments, or due to the inability of
counterparties to perform.
2. OPERATING POLICIES - CONTINUED
FUTURES CONTRACTS AND OPTIONS - CONTINUED
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. Options traded
on an exchange are valued using the last sale price or, in the absence of a
sale, the last offering price. Options traded over-the-counter are valued
using dealer-supplied valuations.
INDEXED SECURITIES. The funds may invest in indexed securities whose value
is linked either directly or inversely to changes in foreign currencies,
interest rates, commodities, indices, or other reference instruments.
Indexed securities may be more volatile than the reference instrument
itself, but any loss is limited to the amount of the original investment.
RESTRICTED SECURITIES. The funds are permitted to invest in privately
placed restricted securities. These securities may be resold in
transactions exempt from registration or to the public if the securities
are registered. Disposal of these securities may involve time-consuming
negotiations and expense, and prompt sale at an acceptable price may be
difficult. At the end of the period, restricted securities (excluding 144A
issues) amounted to $3,972,321 or 0.1% of net assets of the Asset Manager
Portfolio.
3. JOINT TRADING ACCOUNT.
At the end of the period, the Asset Manager Portfolio had 20% or more of
its total investments in repurchase agreements through a joint trading
account. These repurchase agreements were with entities whose
creditworthiness has been reviewed and found satisfactory by FMR. The
repurchase agreements were dated 6/30/94 and due 7/1/94. The maturity
values of the joint trading account investments were $651,077,578 at 4.29%.
The investments in repurchase agreements through the joint trading account
are summarized as follows:
SUMMARY OF JOINT TRADING ACCOUNT
MAXIMUM
AMOUNT AGGREGATE AGGREGATE AGGREGATE
NO. OF WITH ONE PRINCIPAL MATURITY MARKET COUPON MATURITY
DEALERS DEALER AMOUNT OF AMOUNT OF VALUE OF RATES OF DATES OF
OR BANKS OR BANK AGREEMENTS AGREEMENTS COLLATERAL COLLATERAL COLLATERAL
At 4.29% 23 11.9% $13,660,719,000 $13,662,347,871 $13,947,398,451 3
7/8%-14% 7/15/94-8/15/23
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE.
INVESTMENT GRADE BOND PORTFOLIO AND ASSET MANAGER PORTFOLIO. As each fund's
investment adviser, FMR receives a monthly fee that is calculated on the
basis of a group fee rate plus a fixed individual fund fee rate applied to
the average net assets of each fund. The group fee rates range from .14% to
.37% for Investment Grade Bond Portfolio and .30% to .52% for Asset Manager
Portfolio. The annual individual fund fee rate is .30% and .40% for the
Investment Grade Bond Portfolio and the Asset Manager Portfolio,
respectively. For the period, the management fees were equivalent to
annualized rates of .46% and .73%, respectively of average net assets.
The Board of Trustees approved a new group fee rate schedule with rates
ranging from.1325% to .3700% for Investment Grade Bond Portfolio and .2850%
to .5200% for Asset Manager Portfolio. Effective November 1, 1993, FMR has
voluntarily agreed to implement this new group fee rate schedule as it
results in the same or a lower management fee. In July 1994, the Board of
Trustees approved a new group fee rate schedule with rates ranging from
.12% to .37% for Investment Grade Bond Portfolio and .27% to .52% for Asset
Manager Portfolio. Effective August 1, 1994, FMR has voluntarily agreed to
implement this new group fee rate schedule as it results in the same or a
further reduction in the management fee.
INDEX 500 PORTFOLIO. As the fund's investment adviser, FMR receives a fee
that is computed daily at an annual rate of .28% of the fund's average net
assets.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
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 fees based on the type,
size, number of accounts and the number of transactions made by
shareholders. FIIOC pays for typesetting, printing and mailing of all
shareholder reports, except proxy statements.
ACCOUNTING FEES. Fidelity Service Co., 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. The Asset Manager Portfolio and the Index 500
Portfolio each placed a portion of its portfolio transactions with
brokerage firms which are affiliates of FMR. The commissions paid to these
affiliated firms were $249,799 and $17 for the Asset Manager Portfolio and
the Index 500 Portfolio, respectively, for the period.
5. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse the funds' total operating expenses
(excluding interest, taxes, brokerage commissions and extraordinary
expenses) above an annual rate of .80%, 1.25% and .28% of average net
assets for the Investment Grade Bond Portfolio, the Asset Manager Portfolio
and the Index 500 Portfolio, respectively. For the period, the
reimbursement reduced expenses by $101,068 for the Index 500 Portfolio.
For the period ended June 30, 1994, FMR has directed certain portfolio
trades to brokers who paid a portion of Asset Manager Portfolio's expenses.
For the period, the fund's expenses were reduced by $63,452 under this
arrangement.
6. CREDIT RISK
The Asset Manager Portfolio's relatively large investment in countries with
limited or developing capital markets may involve greater risks than
investments in more developed markets and the prices of such investments
may be volatile. The yields of emerging market debt obligations reflect,
among other things, perceived credit risk. The consequences of political,
social or economic changes in these markets may have disruptive effects on
the market prices of the fund's investments and the income they generate.
7. BENEFICIAL INTEREST.
At the end of the period, Fidelity Investments Life Insurance Company
(FILI), an affiliate of FMR, was record owner of more than 5% of the
outstanding shares of the portfolios and certain unaffiliated insurance
companies were record owners of more than 10% of the outstanding shares of
the following funds:
FMR FILI UNAFFILIATED INSURANCE COMPANIES
PORTFOLIO % OF OWNERSHIP % OF OWNERSHIP # OF % OF OWNERSHIP
Investment Grade Bond 0% 48% 2 27%
Asset Manager 0% 33% 2 38%
Index 500 0% 61% 1 12%
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, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL. NEITHER THE FUNDS NOR
FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, PRESIDENT
J. Gary Burkhead, SENIOR VICE PRESIDENT
William J. Hayes, VICE PRESIDENT
Thomas J. Steffanci, VICE PRESIDENT
Robert Beckwitt, VICE PRESIDENT
Donald G. Taylor, VICE PRESIDENT
Gary L. French, TREASURER
John H. Costello, ASSISTANT TREASURER
Leonard M. Rush, ASSISTANT TREASURER
Arthur S. Loring, SECRETARY
Robert H. Morrison, MANAGER, SECURITY TRANSACTIONS
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox
Phyllis Burke Davis
Richard J. Flynn
Edward C. Johnson 3d
E. Bradley Jones
Donald J. Kirk
Peter S. Lynch
Edward H. Malone
Marvin L. Mann
Gerald C. McDonough
Thomas R. Williams
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Investments Institutional Operations Co.
Boston, MA
CUSTODIAN
INVESTMENT GRADE BOND PORTFOLIO:
The Bank of New York
New York, NY
ASSET MANAGER PORTFOLIO:
The Chase Manhattan Bank, N.A.
New York, NY
INDEX 500 PORTFOLIO:
Brown Brothers Harriman & Co.
Boston, MA
VIP II-8-94S
