(2_FIDELITY_LOGOS)
VARIABLE INSURANCE PRODUCTS
FUND II
INVESTMENT GRADE BOND PORTFOLIO
ASSET MANAGER PORTFOLIO
INDEX 500 PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 1994
CONTENTS
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MARKET ENVIRONMENT VIPFII-3 A REVIEW OF WHAT HAPPENED DURING THE PAST YEAR
INVESTMENT GRADE BOND PORTFOLIO VIPFII-4 PERFORMANCE AND INVESTMENT SUMMARY
VIPFII-5 FUND TALK: THE MANAGER'S OVERVIEW
VIPFII-6 INVESTMENTS
VIPFII-11 FINANCIAL STATEMENTS
ASSET MANAGER PORTFOLIO VIPFII-13 PERFORMANCE AND INVESTMENT SUMMARY
VIPFII-14 FUND TALK: THE MANAGER'S OVERVIEW
VIPFII-15 INVESTMENTS
VIPFII-33 FINANCIAL STATEMENTS
INDEX 500 PORTFOLIO VIPFII-35 PERFORMANCE AND INVESTMENT SUMMARY
VIPFII-36 FUND TALK: THE MANAGER'S OVERVIEW
VIPFII-37 INVESTMENTS
VIPFII-44 FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS VIPFII-46 NOTES TO THE FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS VIPFII-49 THE AUDITORS' OPINION
DISTRIBUTIONS VIPFII-50
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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.
MARKET ENVIRONMENT
After producing strong results in 1993, most stock and bond markets
worldwide experienced increased volatility and lower returns in 1994.
Returns were dampened by rising interest rates and fears of inflation that
could result from expanding economies. U.S. stock and bond markets
generally lagged counterparts in the developed world, while emerging
markets struggled despite a mid-year rally.
U.S. STOCK MARKETS
The Standard & Poor's Composite Index of 500 stocks - a broad measure of
U.S. stock performance - rose 1.32% for the 12 months ended December 31,
1994, below the market's long-term average annual return. The NASDAQ
Composite Index - a measure of small stock performance - fell 3.20%. The
Dow Jones Industrial Average - an index of 30 blue-chip stocks - did
somewhat better, returning 4.97%.
There was a tug-of-war in the stock market during much of 1994, fueled by
two competing sentiments. On one side there was concern that rising
interest rates would hurt future corporate earnings. Performance was
dampened in the first part of the year, when four of six Federal Reserve
Board short-term interest rate increases occurred. The market dropped
sharply in November when the Fed raised rates again. On the other hand,
strengthening current corporate earnings and a flurry of merger and
acquisition activity helped the market rally from July through October and
again in December.
Technology was one of the best performing market sectors through the second
half of the year, although many technology stocks suffered corrections in
the second quarter of 1994. Performance was fueled by improving earnings
associated with strong growth in personal computers and related products.
Marked increases in cellular subscriptions helped technology stocks that
focus on microchips, as well as communications companies. Health care
stocks rebounded in the second half of the year, for two reasons. First,
concerns about reform abated, as President Clinton's health care plan lost
momentum. Second, stocks benefited from a spate of merger and acquisition
activity. Consumer nondurables - such as food, beverage and tobacco
companies - also showed some strength, as investors sought traditional
big-name growth stocks, which may have steady earnings growth in the face
of higher interest rates.
Cyclical stocks - those that usually rise and fall in tandem with the
economy - provided mixed returns during 1994. Although they dropped off
late in the year, industrial commodity industries such as chemicals and
paper performed well because the U.S. economic recovery boosted demand for
these products, and many companies successfully cut costs. However, concern
that rising interest rates might slow the economy - and therefore diminish
future earnings growth - hurt other cyclicals such as railroads and
automobiles. Interest rates also hurt financial stocks, notably banks,
because interest margins - the difference between the interest banks earn
through loans and the interest banks pay to depositors - narrowed.
FOREIGN STOCK MARKETS
Foreign markets showed mixed results in 1994. The Morgan Stanley EAFE
(Europe, Australia, Far East) index was up 7.78%. Many European economies
began to recover in 1994. In several nations, however, the positive effects
of that growth on corporate earnings were outweighed by the negative
effects of higher interest rates. The Morgan Stanley Europe Index rose
2.28% in 1994. Japan's stock market showed improvement, as the country's
economy appeared to emerge from a long recession. Even though Japan's
stocks gave back some of their gains over the summer, according to Morgan
Stanley Capital International Japanese stocks rose 21.4% in U.S. dollars
for the year.
Emerging markets were among the most volatile over the past year. As stock
prices relative to earnings reached high levels by early 1994, many
emerging markets began corrections that lasted several months. Over the
summer, strong earnings growth and more attractive valuations gave rise to
a rally in many emerging markets. However, as the year closed, most of
these markets were hurt by negative sentiment created by Mexico's
devaluation of the peso in December; the Morgan Stanley Emerging Markets
Free Index fell 7.32% during 1994.
U.S. BOND MARKETS
Sharply rising interest rates and ongoing inflation worries caused a severe
downturn in U.S. bond markets in 1994. Yields rose sharply - and prices
fell - on virtually all types of fixed-income investments. The Federal
Reserve Board raised the federal funds rate - the rate banks charge each
other for overnight loans - from 3.00% to 5.50% from February to November.
The Fed was hoping to head off future inflation that may be triggered by an
improving U.S. economy. However, investors heavily sold bonds at the very
threat of inflation because inflation diminishes the value of their fixed
payments. After reaching a three-decade low of 5.79% on October 30, 1993,
the yield on the benchmark 30-year Treasury bond broke the 8% barrier in
October 1994. The Lehman Brothers Aggregate Bond Index - a broad measure of
taxable bonds in the U.S. market - declined 2.92% for the year. Rising
interest rates and uncertainty over the future of the economy also hurt
high-yield issues. The Merrill Lynch High Yield Master Index fell 1.17%. In
the mortgage-backed market, the negative effects of rising interest rates
outweighed the positive effects of a decline in refinancings; the Lehman
Brothers mortgage index fell 1.61% in 1994.
FOREIGN BOND MARKETS
Most overseas bond markets were hurt by rising interest rates. The sell-off
was most pronounced in emerging markets earlier in the year, where many
investors held highly leveraged positions - investments made with borrowed
money. Although they showed some signs of strengthening in the second half
of 1994, emerging markets were sent tumbling again when Mexico devalued the
peso in December. The J.P. Morgan Emerging Markets Bond Index fell 18.68%
for the year. Developed markets fared somewhat better, benefiting from
higher yields and lower volatility. The Salomon Brothers World Government
Bond Index - which measures bond market performance in developed nations
including the U.S. - rose 2.34% for the year.
VARIABLE INSURANCE PRODUCTS FUND II: INVESTMENT GRADE BOND PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance: total
percentage change in value, the average annual percentage change, or the
growth of a hypothetical $10,000 investment. Each performance figure
includes changes in a fund's share price, plus reinvestment of any
dividends (income) and capital gains (the profits the fund earns when it
sells bonds that have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED PAST 1 PAST 5 LIFE OF
DECEMBER 31, 1994 YEAR YEARS FUND
INVESTMENT GRADE BOND -3.76% 7.08% 7.60%
Lehman Brothers Intermediate
Government - Corporate Bond Index -1.93% 7.42% n/a
Consumer Price Index 2.67% 3.49% 3.66%
AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and
show you what would have happened if the fund had performed at a constant
rate each year.
UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of
how it will do tomorrow. Bond prices, for
example, move in the opposite direction of
interest rates. In turn, the share price, return, and
yield of a fund that invests in bonds will vary.
That means if you sell your shares during a
market downturn, you might lose money. But if
you can ride out the market's ups and downs,
you may have a gain.
(checkmark)
You can compare these figures to the Lehman Brothers Intermediate
Government - Corporate Bond Index - a broad measure of the performance of
intermediate (one- to ten-year) bonds. This benchmark includes reinvested
dividends and capital gains, if any. Comparing the fund's performance to
the consumer price index (CPI) helps show how your fund did compared to
inflation. (The CPI returns begin on the month end closest to the fund's
start date.)
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 HAVE BEEN LOWER.
Past performance is no guarantee of future results. Principal and
investment return will vary and you may have a gain or loss when you
withdraw your money.
$10,000 OVER LIFE OF FUND
VIP II: Investment GGovernment/Corporate
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
07/31/94 15707.08 16251.01
08/31/94 15721.17 16301.39
09/30/94 15552.13 16151.42
10/31/94 15566.21 16149.80
11/30/94 15594.39 16077.13
12/30/94 15523.95 16133.40
Let's say you invested $10,000 in Investment Grade Bond Portfolio on
December 31, 1988, shortly after the fund started. By December 31, 1994,
your investment would have grown to $15,524 - a 55.24% increase. With
reinvested dividends and capital gains, if any, a $10,000 investment in the
Lehman Brothers Intermediate Government-Corporate Bond Index would have
grown to $16,133 over the same period - a 61.33% increase.
INVESTMENT SUMMARY
QUALITY DIVERSIFICATION AS OF DECEMBER 31, 1994
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(MOODY'S RATINGS) % OF FUND'S
INVESTMENTS
Aaa 41.0
Aa 2.3
A 19.3
Baa 11.9
Ba 2.9
B 0.0
Not rated 3.7
TABLE EXCLUDES SHORT-TERM INVESTMENTS. SECURITIES RATED AS "BA" BY MOODY'S WERE RATED INVESTMENT GRADE BY OTHER
NATIONALLY RECOGNIZED RATING AGENCIES OR ASSIGNED
AN INVESTMENT GRADE RATING AT THE TIME OF ACQUISITION BY FIDELITY.
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AVERAGE YEARS TO MATURITY AS OF DECEMBER 31, 1994
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Years 8.0
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S
BONDS, WEIGHTED BY DOLLAR AMOUNT.
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TOP FIVE INDUSTRIES AS OF DECEMBER 31, 1994
% OF FUND'S
INVESTMENTS
Finance 25.6
Utilities 2.4
Energy 1.9
Media & Leisure 1.5
Transportation 1.4
VARIABLE INSURANCE PRODUCTS FUND II: INVESTMENT GRADE BOND PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
An interview with Donald Taylor, Portfolio Manager of Investment Grade Bond
Portfolio
Q. HOW HAS THE FUND PERFORMED, DON?
A. The fund finished the year somewhat behind the Lehman Brothers
Intermediate Government - Corporate Bond Index, a broad measure of the
performance of intermediate (one- to ten-year) bonds.
Q. WHAT AFFECTED THE FUND'S PERFORMANCE?
A. The 12-month performance numbers were affected mainly by investments in
foreign markets. Earlier in the year, when the Federal Reserve Board
started raising short-term interest rates, foreign bonds - especially in
developed markets such as New Zealand, France and the United Kingdom -
appeared to be solid alternatives to investing in the U.S. Unfortunately,
these markets did worse than the U.S. That's because investors who were
using borrowed money needed to sell their holdings when short-term U.S.
interest rates started climbing.
Q. WHAT'S BEEN YOUR STRATEGY RECENTLY?
A. The fund has maintained a barbell strategy - overweighting the two ends
of the maturity spectrum and investing relatively little in between. On one
end, I've kept a higher percentage of short-term cash investments. This
helped me keep cash on hand while awaiting buying opportunities and helped
to keep the fund's sensitivity to interest rate changes lower. On the other
end of the barbell was a percentage in 25-year Treasuries, which were
offering attractive yields. My next move might be to purchase a wider
variety of maturities, if it appears they offer more relative value.
Q. WAS THE FUND AFFECTED BY MEXICO'S CURRENCY CRISIS?
A. Yes. When the peso devalued in December, the fund had about 4% to 5%
exposure to peso-denominated debt. I believed strong growth in the U.S.
would lead to strong growth in Mexico. That's because in an emerging
market, this kind of growth can cause bond prices to rise as credit quality
improves. However, that's not what happened. Instead, the rising interest
rates in the U.S. created more competition globally for the investment
dollar, as bonds became more attractive. Interest rates in Mexico saw a
corresponding increase, and the currency cheapened to some extent.
Borrowing became more expensive for the Mexican government, which put
pressure on the markets and raised questions about the sustainability of
the economic reform process. Ultimately, this led to the Mexican
government's decision that it couldn't stick with its policies and needed
to devalue the peso.
Q. DOES THE FUND STILL HAVE HOLDINGS THERE?
A. No, I sold all of the fund's peso-denominated debt by December 31. The
fund sold them at a loss, but I'm starting the new year without any
peso-denominated investments.
Q. THERE WAS A LOT OF TALK ABOUT DERIVATIVES IN 1994. DOES THE FUND HOLD
ANY OF THESE INSTRUMENTS?
A. I have used currency forward contracts to hedge the fund's exposure to
foreign currencies. These work to take unwanted currency risk out of an
investment. Unfortunately, with the dollar falling against many other
currencies, the fund would have been better off not hedging these
positions.
Q. WHAT'S YOUR OUTLOOK GOING INTO 1995?
A. It appears the Fed will raise interest rates again because the economy
is going into the new year with a lot of momentum. It seems to be committed
to slowing growth and heading off inflation. There are some key questions.
When will the Fed finish? How many interest rate hikes will it take to get
there? And, once it gets to that point, will interest rates stabilize or
will they begin to fall? I'll be looking to position the fund more
aggressively if it looks like rates may drop, increasing the value of the
bonds. There is also the risk of a weak equity market. If that happens, the
Treasury market can rally very quickly and go a long way. I'd like to keep
the fund positioned to take advantage of that kind of situation.
FUND FACTS
GOAL: seeks to provide a high rate of income
consistent with reasonable risk, by investing in
a broad range of fixed-income securities. In
addition, the fund seeks to protect capital.
Where appropriate, the fund will take
advantage of opportunities to realize capital
appreciation.
START DATE: December 5, 1988
SIZE: As of December 31, 1994, more than
$111 million
MANAGER: Donald Taylor, since 1989; joined
Fidelity in 1986
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND II: INVESTMENT GRADE BOND PORTFOLIO
INVESTMENTS/DECEMBER 31, 1994
Showing Percentage of Total Value of Investment in Securities
CORPORATE BONDS - 36.7%
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (A) (NOTE 1)
CONVERTIBLE BONDS - 0.9%
ENERGY - 0.5%
ENERGY SERVICES - 0.5%
Halliburton Co. liquid yield
option 0%, 3/31/06 A3 $ 1,000,000 $ 501,750
RETAIL & WHOLESALE - 0.4%
DRUG STORES - 0.4%
Rite Aid Corp. liquid yield
option 0%, 7/24/06 Baa1 1,000,000 455,000
TOTAL CONVERTIBLE BONDS 956,750
NONCONVERTIBLE BONDS - 35.8%
ENERGY - 1.4%
ENERGY SERVICES - 1.4%
McDermott International, Inc.
10 1/4%, 6/1/95 Baa3 1,055,000 1,066,679
Petroliam Nasional Berhad
6 7/8%, 7/1/03 (d) A2 500,000 448,135
1,514,814
FINANCE - 25.6%
ASSET-BACKED SECURITIES - 4.8%
Concord Leasing, Inc. 5.04%,
7/15/98 (d) AAA 290,369 281,301
Discover Card Master Trust I
6.90%, 2/16/00 A2 260,000 251,225
Discover Card Trust:
7 1/5%, 4/16/98 Aaa 500,000 497,340
6 1/8%, 5/15/98 A2 200,000 194,374
Ford Credit Auto Loan Master
Trust 7 3/8%, 4/15/99 Aaa 500,000 491,450
Ford Credit 1991-B Grantor Trust
6 1/2%, 11/15/96 Aaa 6,823 6,813
General Motors Acceptance
Corp. Grantor Trust
5.70%, 12/15/96 Aaa 8,623 8,571
Premier Auto Trust 1993-3
4.90%, 12/15/98 Aaa 899,994 862,588
Railcar Trust 7 3/4%, 6/1/04 Aaa 910,330 887,572
Standard Credit Card
Master Trust:
5 7/8%, 7/7/96 Aaa 500,000 497,188
Class A, Series 1990-1,
9%, 3/10/95 Aaa 1,000,000 1,004,844
Union Federal Savings 1994-D
8.20%, 1/10/01 Baa2 145,099 143,702
5,126,968
BANKS - 10.9%
Bank of Boston Corp.:
9 1/2%, 8/15/97 Baa2 75,000 76,722
euro 6.05%, 8/28/98 (c) Baa2 450,000 444,375
6 5/8%, 2/1/04 Baa2 50,000 43,289
Citicorp:
9.47%, 5/22/96 A3 750,000 766,830
euro 6.20%, 1/30/98 (c) A2 500,000 496,250
Continental Bank Corp. 6.3125%,
5/18/00 (c) A2 500,000 497,500
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (A) (NOTE 1)
Crestar Finanical Corp.
8 3/4%, 11/15/04 Baa1 $ 100,000 $ 99,500
Czech National Bank Prague
euro 7%, 4/6/96 Baa2 175,000 171,955
Export-Import Bank Korea
7.85%, 11/1/96 A1 275,000 273,056
First of America Bank Corp.
7 3/4%, 7/15/04 A3 1,000,000 930,370
First Bank System, Inc. euro
6 1/8%, 11/30/10 (c) A3 900,000 886,500
First Fidelity Bancorporation
9 3/4%, 5/25/95 A3 50,000 50,493
First Hawaiian Bank secured
6.93%, 12/1/03 (d) A1 960,000 844,608
First Interstate Bancorp
9 1/8%, 2/1/04 A3 195,000 199,557
First Maryland Bancorp:
10 3/8%, 8/1/99 Baa1 500,000 533,035
8 3/8%, 5/15/02 Baa1 300,000 292,674
KeyCorp 8.40%, 4/1/99 A2 310,000 308,785
Marine Midland Banks, Inc.
8 5/8%, 3/1/97 Baa1 250,000 248,995
Mellon Financial Co.:
6 1/8%, 11/15/95 A2 225,000 222,257
6 1/2%, 12/1/97 A2 200,000 191,220
Meridian Bancorp, Inc.
6.1875%, 12/1/96 (c) Baa1 900,000 897,867
Midland American Capital Corp.
gtd. 12 3/4%, 11/15/03 A1 815,000 921,113
Moore Financial Group, Inc.
6 1/4%, 11/18/97 (c) Baa1 250,000 248,750
National City Corp. 5.8125%,
1/31/97 (c) A2 850,000 845,750
Provident Bank
6 3/8%, 1/15/04 Baa2 50,000 42,491
Security Pacific Corp.
10.05%, 5/1/95 A2 300,000 303,057
Shawmut National Corp.
7.20%, 4/15/03 Baa2 100,000 91,683
Signet Banking Corp. 5.9375%,
5/15/97 (c) Baa1 100,000 98,750
Sovran Financial Corp.
9 3/4%, 6/15/99 A3 550,000 569,751
11,597,183
CREDIT & OTHER FINANCE - 5.3%
Aristar, Inc. 8.55%, 6/1/95 A3 125,000 125,719
Beneficial Corp.:
9 3/8%, 6/2/95 A2 300,000 302,664
9.40%, 2/7/96 A2 150,000 152,696
Caterpillar Financial Services
Corp. 7.14%, 4/10/95 A3 150,000 150,122
Chrysler Financial Corp.:
6%, 4/15/96 Baa3 500,000 488,235
6.40%, 6/17/97 A3 1,000,000 957,900
Fleet Mortgage Group
6 1/2%, 9/15/99 A3 1,000,000 920,600
Ford Motor Credit Co.:
6 1/2%, 1/17/95 A2 350,000 350,028
euro 9 5/8%, 2/27/96 A2 250,000 255,625
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (A) (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
General Motors Acceptance Corp.:
7.40%, 4/3/95 Baa1 $ 200,000 $ 200,144
8.60%, 4/5/95 Baa1 300,000 301,044
9.40%, 5/18/95 Baa1 200,000 201,478
Greyhound Financial Corp.
8 1/4%, 3/11/97 Baa2 460,000 458,744
Household Finance Corp.
7.80%, 11/1/96 A2 350,000 347,701
Westinghouse Credit Corp.:
9.15%, 7/12/95 Ba1 75,000 75,366
8 3/4%, 11/15/96 Ba1 258,000 257,345
8.93%, 6/22/99 Ba1 100,000 97,896
5,643,307
INSURANCE - 3.3%
ITT Hartford Group, Inc.
8 1/5%, 10/15/98 A1 650,000 644,904
Ohio National Life Insurance Co.
8 7/8%, 7/15/04 (d) A3 900,000 878,310
Protective Life Corp.
7.95%, 7/1/04 A3 1,000,000 951,500
Western National Corp.
7 1/8%, 2/15/04 Ba1 1,200,000 1,050,960
3,525,674
SAVINGS & LOANS - 1.3%
Ahmanson (H.F.) & Co.:
8 1/4%, 10/1/02 Baa1 140,000 135,796
7 7/8%, 9/1/04 Baa2 50,000 47,054
Golden West Financial Corp.
10 1/4%, 5/15/97 A3 350,000 362,873
Great Western Financial Corp.:
6 3/8%, 7/1/00 Baa1 640,000 578,605
8.60%, 2/1/02 Baa1 30,000 29,788
World Savings & Loan Association
(Oakland CA) 9.90%, 7/1/00 A2 200,000 209,398
1,363,514
TOTAL FINANCE 27,256,646
INDUSTRIAL MACHINERY & EQUIPMENT - 0.4%
ELECTRICAL EQUIPMENT - 0.4%
Westinghouse Electric Corp.:
8.68%, 12/10/97 Ba1 200,000 197,664
9%, 2/6/98 Ba1 200,000 199,124
396,788
MEDIA & LEISURE - 1.5%
BROADCASTING - 1.5%
Telecommunications, Inc.
6.58%, 2/15/05 Baa3 700,000 646,863
Time Warner, Inc.
6.05%, 7/1/95 (d) Ba1 1,000,000 991,630
1,638,493
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (A) (NOTE 1)
NONDURABLES - 1.1%
BEVERAGES - 0.9%
Coca-Cola Enterprises, Inc.:
7 7/8%, 2/1/02 A3 $ 500,000 $ 486,585
8 1/2%, 2/1/22 A3 500,000 490,200
976,785
FOODS - 0.1%
Ralcorp Holdings, Inc.
8 3/4%, 9/15/04 Ba1 150,000 145,125
TOBACCO - 0.1%
Philip Morris Companies, Inc.
8 7/8%, 7/1/96 A2 100,000 101,045
TOTAL NONDURABLES 1,222,955
RETAIL & WHOLESALE - 0.9%
GENERAL MERCHANDISE STORES - 0.9%
Sears Roebuck & Co.:
9%, 9/15/96 Baa1 475,000 480,733
9.23%, 8/6/98 Baa1 450,000 458,942
939,675
SERVICES - 0.3%
ADVERTISING - 0.1%
Valassis Inserts 9 3/8%,
3/15/99 Ba2 100,000 98,250
LEASING & RENTAL - 0.2%
Ryder System, Inc.
9 1/4%, 5/15/01 A3 200,000 206,104
TOTAL SERVICES 304,354
TECHNOLOGY - 0.8%
COMPUTERS & OFFICE EQUIPMENT - 0.8%
Comdisco, Inc.:
9 3/4%, 1/15/97 Baa2 200,000 204,306
7 3/4%, 1/29/97 Baa2 700,000 690,193
894,499
TRANSPORTATION - 1.4%
AIR TRANSPORTATION - 1.4%
AMR Corp.
9.76%, 1/11/96 Baa3 100,000 100,725
Delta Air Lines, Inc.
8.54%, 1/2/07 Baa3 465,945 415,828
Qantas Airways Ltd.
6 5/8%, 6/30/98 (d) Baa2 500,000 467,070
Southwest Airlines Co.
8 3/4%, 10/15/03 Baa1 500,000 506,750
1,490,373
UTILITIES - 2.4%
ELECTRIC UTILITY - 1.9%
Castle Peak Power Ltd.
6.87%, 8/1/03 A3 1,000,000 867,500
Iberdrola International BV gtd.
7 1/8%, 6/1/03 (d) A1 1,300,000 1,168,375
2,035,875
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (A) (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
GAS - 0.5%
Florida Gas 7 3/4%,
11/1/97 (d) Baa2 $ 220,000 $ 216,656
Houston Natural Gas Corp.
12 1/8%, 4/15/95 Baa2 150,000 151,838
Panhandle Eastern Pipe Line Co.
9 7/8%, 10/15/96 Baa2 123,000 124,370
492,864
TOTAL UTILITIES 2,528,739
TOTAL NONCONVERTIBLE BONDS 38,187,336
TOTAL CORPORATE BONDS
(Cost $40,632,393) 39,144,086
U.S. TREASURY OBLIGATIONS - 25.1%
7 3/4%, 11/30/99 Aaa 530,000 528,013
5 3/4%, 8/15/03 Aaa 5,420,000 4,710,305
7 7/8%, 11/15/04 Aaa 3,980,000 3,991,184
8 7/8%, 8/15/17 Aaa 900,000 980,433
8 1/8%, 8/15/19 Aaa 14,920,000 15,118,138
Principal STRIPS 8/15/17 Aaa 8,700,000 1,455,162
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $27,733,778) 26,783,235
U.S. GOVERNMENT AGENCY OBLIGATIONS - 5.0%
Federal National Mortgage
Association discount note,
0%, 4/6/95 - 4,140,000 4,078,852
Government Trust Certificates,
Series 1994-F (assets of Trust
guaranteed by U.S. Government
through Export-Import Bank)
8.187%, 12/15/04 Aaa 1,238,796 1,234,538
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS (Cost $5,319,439) 5,313,390
U.S. GOV'T. AGENCY - MORTGAGE-BACKED SECURITIES - 3.9%
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.1%
12%, 3/1/17 Aaa 62,562 68,522
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 3.8%
7 1/2%, 2/15/23 to 12/15/23 Aaa 2,747,962 2,549,587
8%, 2/15/17 to 3/15/23 Aaa 543,119 526,041
10%, 7/15/13 to 3/15/16 Aaa 920,343 973,868
4,049,496
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $4,447,676) 4,118,018
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.9%
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (A) (NOTE 1)
U.S. GOVERNMENT AGENCY - 0.9%
Federal Home Loan Mortgage Corp.
Z bond series 1 Class 1-Z,
9.30%, 4/15/19 Aaa $ 927,245 $ 928,549
PRIVATE SPONSOR - 0.0%
Maryland National Bank
pass thru series 1990-1 Class A,
9 1/2%, 10/25/20 Aaa 25,474 25,403
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS (Cost $1,023,316) 953,952
COMMERCIAL MORTGAGE SECURITIES - 4.7%
CS First Boston Mortgage
Securities Corp. commercial
series 1994-CFB1 Class
A-1, 6 7/8%, 1/25/28 (c) Aaa 654,955 654,136
FDIC:
commercial series 1994-C1
Class II-A1, 6.30%, 9/25/25 Aaa 74,825 74,077
commercial series 1994-C1
Class II-A2, 7.85%, 9/25/25 Aaa 600,000 582,750
Lennar Central Partner LP
commercial floater series 1994-1
Class B, 6.8125%,
9/15/01 (c)(d) - 600,000 600,000
Nomura Asset Securities Corp.
commercial floater series
1994-MD-II Class A-6,
5.765%, 7/4/03 (c) - 220,325 219,908
Resolution Trust Corp. commercial
floater series:
1994-N2 Class 3, 7 1/2%,
12/15/04 (d) Baa2 400,000 395,625
1993-C2 Class A-2,
5.6825%, 3/25/25 (c) AAA 640,060 640,860
1994-C2 Class A-2,
7 3/4%, 4/25/25 AAA 99,394 98,400
1994-C2 Class A-4,
7 1/2%, 4/25/25 AAA 177,421 175,093
1994-C1 Class A-3,
5.6125%, 6/25/26 (c) AAA 394,897 393,416
1994-C1 Class A-4,
7 1/4%, 6/25/26 AAA 307,399 301,636
Ryland Mortgage Securities Corp.
commercial floater series
1992-C3 Class A-2,
7 1/2%, 8/1/23 Aaa 53,899 53,680
SC Finance Corp. commercial
6.05%, 8/1/04 (c)(d) - 600,000 597,375
Structured Asset Securities Corp.
commercial Series 1993-C1
Class A-1, 6.60%, 10/25/24 AA+ 245,311 229,519
TOTAL COMMERCIAL MORTGAGE
SECURITIES (Cost $5,064,066) 5,016,475
FOREIGN GOVERNMENT OBLIGATIONS - 8.7%
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (A) (NOTE 1)
Alberta Province
9 1/4%, 4/1/00 Aa2 $ 1,400,000 $ 1,459,514
Commonwealth of Australia:
7%, 4/15/00 Aaa AUD 750,000 503,095
6 3/4%, 11/15/06 Aaa AUD 840,000 498,417
British Columbia Province
7%, 1/1/03 Aa1 500,000 465,945
Canadian Government
8 1/4%, 3/1/97 Aaa CAD 590,000 416,228
French Government OAT:
8 1/2%, 4/25/03 Aaa FRF 830,000 158,084
6 3/4%, 10/25/03 Aaa FRF 6,100,000 1,040,669
Italian Government
8 1/2%, 4/1/99 (e) - ITL 800,000 438,080
Manitoba Province Canada
6 3/4%, 3/1/03 A1 500,000 453,755
New Zealand Government:
10%, 7/15/97 Aaa NZD 1,225,000 795,241
10%, 3/15/02 Aaa NZD 750,000 521,324
8%, 4/15/04 Aaa NZD 1,730,000 1,104,691
Quebec Province:
7 1/2%, 7/15/02 A1 500,000 469,000
8.24%, 2/28/96 A1 500,000 501,575
Victorian Public Authorities
Finance Agency
8.45%, 10/1/01 Aa3 500,000 501,315
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $9,626,079) 9,326,933
REPURCHASE AGREEMENTS - 15.0%
MATURITY
AMOUNT
Investments in repurchase agreements,
(U.S.Treasury obligations), in a joint
trading account at 5.77%, dated
12/30/94 due 1/3/95 $ 16,038,276 16,028,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $109,874,747) $ 106,684,089
FOWARD FOREIGN CURRENCY CONTRACTS
SETTLEMENT UNREALIZED
DATE(S) VALUE GAIN/(LOSS)
CONTRACTS TO BUY
50,208,000 ITL 1/9/95 $ 30,966 $ (1,034)
(Payable amount $32,000)
THE VALUE OF CONTRACTS TO BUY AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 0.0%
CONTRACTS TO SELL
658,601 AUD 6/6/94 to 3/14/95 507,228 (4,478)
64,602 DEM 6/6/95 41,955 (705)
6,461,255 FRF 3/7/95 1,211,153 (14,624)
52,202 GBP 6/5/95 81,743 (243)
767,465,320 ITL 1/9/95 473,336 15,950
19,849,415 JPY 6/5/95 202,906 344
TOTAL CONTRACTS TO SELL
(Receivable amount $2,514,565) $ 2,518,321 (3,756)
THE VALUE OF CONTRACTS TO SELL AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 2.4%
$ (4,790)
CURRENCY ABBREVIATIONS
AUD - Australian dollar
CAD - Canadian dollar
DEM - German deutsche mark
FRF - French franc
GBP - British pound
ITL - Italian lira
JPY - Japanese yen
NZD - New Zealand dollar
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 $6,889,085 or 6.2% of net
assets.
(e) Principal amount in thousands.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $136,357,241 and $147,688,869, respectively, of which U.S.
government and government agency obligations aggregated $95,765,339 and
$97,912,855, respectively.
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 62.6% AAA, AA, A 63.0%
Baa 11.9% BBB 16.1%
Ba 2.9% BB 0.3%
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 1.7%
Distribution of investments by country of issue, as a percentage of total
value of investment in securities, is as follows:
United States 88.1%
Canada 3.5
New Zealand 2.3
Australia 1.8
France 1.1
Spain 1.1
Others (individually less than 1%) 2.1
TOTAL 100.0%
INCOME TAX INFORMATION
At December 31, 1994, the aggregate cost of investment securities for
income tax purposes was $110,222,468. Net unrealized depreciation
aggregated $3,538,379, of which $444,522 related to appreciated investment
securities and $3,982,901 related to depreciated investment securities.
At December 31, 1994, the fund had a capital loss carryforward of
approximately $2,468,000 all of which will expire on December 31, 2002.
VARIABLE INSURANCE PRODUCTS FUND II: INVESTMENT GRADE BOND PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31, 1994
ASSETS
Investment in securities, at value (including repurchase agreements of $16,028,000) (cost $109,874,747) - See $ 106,684,089
accompanying schedule
Cash 444
Receivable for investments sold 2,480,534
Unrealized appreciation on foreign currency contracts 16,294
Receivable for fund shares sold 551,785
Interest receivable 1,773,496
TOTAL ASSETS 111,506,642
LIABILITIES
Unrealized depreciation on foreign currency contracts $ 21,084
Payable for closed foreign currency contracts 20,574
Accrued management fee 42,218
Other payables and accrued expenses 42,133
TOTAL LIABILITIES 126,009
NET ASSETS $ 111,380,633
Net Assets consist of:
Paid in capital $ 112,916,398
Undistributed net investment income 7,322,731
Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions (5,673,437
)
Net unrealized appreciation (depreciation) on investments and assets (3,185,059
and liabilities in foreign currencies )
NET ASSETS, for 10,104,102 shares outstanding $ 111,380,633
NET ASSET VALUE, offering price and redemption price per share ($111,380,633 (divided by) 10,104,102 shares) $11.02
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1994
INVESTMENT INCOME 8,174,456
Interest
EXPENSES
Management fee $ 520,469
Transfer agent fees 90,382
Accounting fees and expenses 46,617
Non-interested trustees' compensation 594
Custodian fees and expenses 67,323
Registration fees 1,279
Audit 31,803
Legal 1,220
Miscellaneous 1,711
TOTAL EXPENSES 761,398
NET INVESTMENT INCOME 7,413,058
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities (4,818,059
)
Foreign currency transactions (788,951 (5,607,010
) )
Change in net unrealized appreciation (depreciation) on:
Investment securities (6,244,177
)
Assets and liabilities in foreign currencies (61,339 (6,305,516
) )
NET GAIN (LOSS) (11,912,526
)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (4,499,468
)
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1993
Operations $ 7,413,058 $ 6,778,747
Net investment income
Net realized gain (loss) (5,607,010 466,133
)
Change in net unrealized appreciation (depreciation) (6,305,516 2,326,336
)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (4,499,468 9,571,216
)
Distributions to shareholders: - (6,271,862
From net investment income )
In excess of net investment income - (20,655
)
From net realized gain (90,529 (466,133
) )
In excess of net realized gain (226,505 (136,034
) )
TOTAL DISTRIBUTIONS (317,034 (6,894,684
) )
Share transactions 53,245,805 79,979,898
Net proceeds from sales of shares
Reinvestment of distributions 317,034 6,894,684
Cost of shares redeemed (59,742,109 (40,773,056
) )
Net increase (decrease) in net assets resulting from share transactions (6,179,270 46,101,526
)
TOTAL INCREASE (DECREASE) IN NET ASSETS (10,995,772 48,778,058
)
NET ASSETS
Beginning of period 122,376,405 73,598,347
End of period (including undistributed net investment income (loss) of $7,322,731 and $(90,327),
respectively) $ 111,380,633 $ 122,376,405
OTHER INFORMATION
Shares
Sold 4,760,105 6,824,727
Issued in reinvestment of distributions 27,544 602,270
Redeemed (5,343,262 (3,478,667
) )
Net increase (decrease) (555,613 3,948,330
)
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31,
SELECTED PER-SHARE DATA 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 11.480 $ 10.970 $ 11.080 $ 9.920 $ 10.140
Income from Investment Operations .733 .641 .672 .455 .826
Net investment income
Net realized and unrealized gain (loss) (1.163) .559 .058 1.165 (.220)
Total from investment operations (.430) 1.200 .730 1.620 .606
Less Distributions - (.628) (.680) (.460) (.826)
From net investment income
In excess of net investment income - (.002) - - -
From net realized gain on investments (.010) (.050) (.160) - -
In excess of net realized gain on investments (.020) (.010) - - -
Total distributions (.030) (.690) (.840) (.460) (.826)
Net asset value, end of period $ 11.020 $ 11.480 $ 10.970 $ 11.080 $ 9.920
TOTAL RETURN A (3.76)% 10.96% 6.65% 16.38% 6.21%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 111,381 $ 122,376 $ 73,598 $ 44,835 $ 14,348
Ratio of expenses to average net assets .67% .68% .76% .80% .80%
Ratio of expenses to average net assets before
expense reductions .67% .68% .76% 1.16% 2.20%
Ratio of net investment income to average net assets 6.53% 6.85% 7.11% 7.73% 8.26%
Portfolio turnover rate 143% 70% 119% 128% 122%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN. (SEE NOTE 4 OF NOTES TO FINANCIAL
STATEMENTS.)
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance: total
percentage change in value, the average annual percentage change, or the
growth of a hypothetical $10,000 investment. Each performance figure
includes changes in a fund's share price, plus reinvestment of any
dividends (income) and capital gains (the profits the fund earns when it
sells securities that have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED PAST 1 PAST 5 LIFE OF
DECEMBER 31, 1994 YEAR YEARS FUND
Asset Manager -6.09% 10.71% 10.20%
S&P 500 1.32% 8.70% 8.41%
Consumer Price Index 2.67% 3.49% 3.50%
AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and
show you what would have happened if the fund had performed at a constant
rate each year.
UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for example,
has a history of growth in the long run and volatility
in the short run. In turn, the share price and return
of a fund that invests in stocks will vary. That
means if you sell your shares during a market
downturn, you might lose money. But if you can
ride out the market's ups and downs, you may
have a gain.
(checkmark)
You can compare the fund's returns to those of the Standard & Poor's
Composite Index of 500 Stocks - a common proxy for the U.S. stock market.
This benchmark includes reinvested dividends and capital gains, if any.
Comparing the fund's performance to the consumer price index (CPI) helps
show how your investment did compared to inflation. (The CPI returns begin
on the month end closest to the fund's start date.)
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 HAVE BEEN LOWER.
Past performance is no guarantee of future results. Principal and
investment return will vary and you may have a gain or loss when you
withdraw your money.
$10,000 OVER LIFE OF FUND
VIP II: Asset ManageStandard & Poor's 50Fidelity Composite I
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
07/31/94 17139.64 15255.77 14595.21
08/31/94 17541.06 15881.26 14846.54
09/30/94 17334.17 15492.17 14628.89
10/31/94 17419.38 15840.74 14769.03
11/30/94 17163.75 15263.82 14554.47
12/30/94 16786.39 15490.18 14689.71
Let's say you invested $10,000 in Asset Manager Portfolio on September 30,
1989, shortly after the fund started. By December 31, 1994, your investment
would have grown to $16,786 - a 67.86% increase. That compares to $10,000
invested in the S&P 500, which would have grown to $15,490 over the same
period - a 54.90% increase.
You can also look at how the Asset Allocation Composite Index, a
hypothetical combination of unmanaged indices, did over the same period.
Reflecting the fund's neutral mix of 40% stocks, 40% bonds, and 20%
short-term instruments, this index combines returns from the S&P 500
(99.88%), Lehman Brothers Treasury Bond Index (63.64%), and the Salomon
Brothers 3-month T-Bill Total Rate of Return Index (36.21%). With
reinvested dividends and capital gains, if any, a $10,000 investment in the
index would have grown to $14,690 - a 46.90% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF DECEMBER 31, 1994
% OF FUND'S
INVESTMENTS
Philip Morris Companies, Inc. 0.8
British Petroleum PLC ADR 0.7
International Business Machines Corp. 0.7
Compaq Computer Corp. 0.5
Chrysler Corp. 0.5
TOP FIVE FIXED-INCOME SECURITIES AS OF DECEMBER 31, 1994
(BY ISSUER, EXCLUDING REPURCHASE AGREEMENTS) % OF FUND'S
INVESTMENTS
U.S. Government 27.0
Mexican Government 2.9
Argentina Republic 1.6
TransTexas Gas Corp. 0.6
SCI Television, Inc. 0.6
ASSET ALLOCATION AS OF DECEMBER 31, 1994*
Row: 1, Col: 1, Value: 26.0
Row: 1, Col: 2, Value: 37.0
Row: 1, Col: 3, Value: 37.0
Stock class 37%
Bond class 37%
Short-term class
and other 26%
Foreign investments 27%
*
ASSET ALLOCATIONS IN THIS PIE CHART REFLECT THE CATEGORIZATION OF
ASSETS AS DEFINED IN THE FUND'S PROSPECTUS. FINANCIAL STATEMENT
CATEGORIZATIONS CONFORM TO ACCOUNTING STANDARDS AND WILL DIFFER
FROM THE PIE CHART.
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
An interview with Bob Beckwitt, Portfolio Manager of Asset Manager
Portfolio
Q. BOB, THIS HAS BEEN A DISAPPOINTING YEAR FOR ASSET MANAGER. WHY DID THE
FUND'S SHARE PRICE FALL IN 1994?
A. Asset Manager aims for above-average returns with below-average exposure
to risk by investing in a broad range of financial assets - mainly
stocks, bonds and cash equivalents. Unfortunately, when there are few safe
havens to be found anywhere in the investment universe, not even a
diversified strategy can protect the fund against losses.
Q. HOW DID THE INVESTMENT CLIMATE CHANGE DURING THE YEAR?
A. Dramatically and suddenly. As recently as January 1994, interest rates
were falling around the world, inflation was a non-issue, and many foreign
securities looked like bargains. Then in February the Federal Reserve
reversed three years of monetary policies designed to stimulate economic
growth, and interest rates began to rise. Higher rates not only meant lower
bond prices in the United States; they also drove up the cost of borrowing
for highly leveraged investors in Europe. When those investors began to
sell, foreign bond prices plunged. In Japan, the uncertainty surrounding
trade talks with the United States boosted the yen and led Japanese
investors to withdraw from world markets. And in Mexico, social and
economic instability undermined the peso, driving down the value of stocks
and bonds throughout Latin America. The upshot was bleak: higher interest
rates in most countries, lower bond prices and increased pressure on
stocks.
Q. HOW DID YOU ADJUST TO THE NEW REALITY?
A. During the first half of the year, I reduced the fund's stake in stocks
and bonds, and accumulated cash. Since then, however, as interest rates
have continued to climb, bonds have begun to look more attractive. By the
end of December, cash was back down to 26% of the fund's assets, stocks
were 37% and bonds had climbed to 37%, including a 21% stake in 10-year
Treasury bonds. The other major change I made was to cut back sharply on
foreign investments, which began the period at 46% of the fund's total
investments and ended at 27%. I've been particularly concerned lately about
the fund's stake in Mexican stocks and bonds - it has fallen from about 18%
a year ago to about 6% at the end of the period.
Q. HOW DID U.S. STOCKS FARE DURING THE PERIOD?
A. While it was a horrible year for bonds, stocks did much better. The
biggest story in recent months has been the utilities. After falling more
sharply than any other sector of the market in response to rising interest
rates and regulatory concerns, utilities suddenly looked attractive again;
they totaled 3.7% of the fund at the end of December. Finance company
stocks - led by Fannie Mae, a cheap growth story - made up the second
largest sector at 4.0% of total assets. Technology stocks, led by IBM, were
first at 4.1%.
Q. DOES THE FUND STILL INVEST IN DERIVATIVES?
A. Yes. I have about a 2.5% investment in structured notes, which are like
customized bonds. They let me tailor a portion of the fund's investments to
match my outlook in specific segments of the market. With them, I'm able to
take advantage of investment opportunities I might otherwise miss. Early in
the year, I invested in derivatives that were designed to capitalize on
falling short-term interest rates in Europe. When rates rose instead, the
fund lost money. Fortunately, those losses were offset by corresponding
gains in other derivatives that were tied to commodity prices. The net
effect on the fund's performance was still negative, but the loss was
small. In addition, I had about a 5% position in futures to hedge my equity
portfolio.
Q. WHAT'S THE OUTLOOK FOR 1995?
A. That depends largely on the outlook for inflation, and signs are a bit
worrisome. Until recently, most of the world's economies were lagging
behind the United States. Now it seems like the whole world is recovering
at once. That has led to a surge in demand for commodities, increasing the
possibility that inflationary pressures will build and the Fed will have no
choice but to keep raising rates. On the other hand, now that rates have
risen from their historic lows, bonds have a better cushion against the
possibility of further rate increases down the road. That's why I've been
buying Treasuries lately. Stock prices, on the other hand, went mostly
sideways during the past year, and could be especially vulnerable to a
further upturn in rates; until and unless the market corrects, I'll likely
maintain a more defensive position in stocks. As for Mexico, my short-term
outlook has changed for the worse. When the markets fell in late 1994, my
position was already greatly reduced from what it had been in previous
years; I'll probably remain on the sidelines for the near future.
FUND FACTS
GOAL: high total return with reduced risk over
the long term by allocating assets among stocks,
bonds and short-term instruments anywhere in
the world
START DATE: September 6, 1989
SIZE: as of December 31, 1994, more than
$3.2 billion
MANAGER: Robert Beckwitt, since 1989; joined
Fidelity in 1986
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO
INVESTMENTS/DECEMBER 31, 1994
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 41.3%
SHARES VALUE
(NOTE 1)
AEROSPACE & DEFENSE - 0.4%
AEROSPACE & DEFENSE - 0.2%
Aviall, Inc. 825 $ 6,291
Boeing Co. 25,900 1,210,735
Flightsafety International, Inc. (a) 31,500 1,279,688
Lockheed Corp. 13,000 944,125
Martin Marietta Corp. 41,200 1,827,989
McDonnell Douglas Corp. 1,300 184,600
Oerlikon-Buhrle Holding Ltd. (Reg.) (a) 7,600 754,775
Samsung Aerospace Industries (a) 671 22,211
6,230,414
DEFENSE ELECTRONICS - 0.1%
Loral Corp. 45,500 1,723,313
Raytheon Co. 37,300 2,382,538
4,105,851
SHIP BUILDING & REPAIR - 0.1%
Bremer Vulkan AG (a) 4,600 279,355
Far East-Levingston Shipbuilding Ltd. 62,000 287,037
Han Jin Heavy Industries Co. Ltd. (a) 32,700 447,888
Keppel Corp. Ltd. 72,000 612,346
1,626,626
TOTAL AEROSPACE & DEFENSE 11,962,891
BASIC INDUSTRIES - 2.6%
CHEMICALS & PLASTICS - 1.1%
ARCO Chemical Co. 22,900 1,007,600
Akzo NV Ord. 2,200 254,139
Albemarle Corp. 58,800 815,850
BASF AG 7,200 1,484,608
Betz Laboratories, Inc. 11,600 513,300
DESC (Soc. de Fomento Industrial SA) 121,500 583,200
DSM NV 3,400 270,267
du Pont (E.I.) de Nemours & Co. 44,200 2,486,250
Eastman Chemical Co. 10,300 520,150
Ferro Corp. 40,000 955,000
Geon Co. 7,500 205,313
Grace (W.R.) & Co. 44,200 1,707,225
Grasim Industries Ltd. RFD GDR (a) 17,200 404,200
Great Lakes Chemical Corp. 58,700 3,345,900
Han Wha Corp. (a) 3,000 58,973
Hanwha Chemical Corp. (a) 4,680 113,958
Hercules, Inc. 8,700 1,003,763
Hoechst AG Ord. 13,400 2,914,359
Imperial Chemical Industries Ord. 4,353 51,040
Indo Gulf Fertilizer and Chemicals
Corp. Ltd. GDR (a)(g) 201,400 533,710
Kemira OY sponsored ADR (a)(g) 108,500 1,546,125
Kureha Chemical Industries Co. Ltd. 71,000 384,361
Lucky Co. Ltd. 64,320 1,827,226
Lucky Co. Ltd. RFD (a) 3,792 110,610
Lyondell Petrochemical Co. 10,000 258,750
Minnesota Mining & Manufacturing Co. 8,300 443,013
Monsanto Co. 5,700 401,850
Nalco Chemical Co. 63,600 2,130,600
OM Group, Inc. 12,500 300,000
Oriental Chemical Industry Co. Ltd. (a) 22,173 801,427
Oriental Chemical Industry Co. Ltd. RFD (a) 1,081 38,384
Perez Companc Class B 360,900 1,486,832
Potash Corp. of Saskatchewan 1,500 50,958
Praxair, Inc. 3,500 71,750
SHARES VALUE
(NOTE 1)
Reliance Industries Ltd.:
GDS (g) 25,500 $ 484,500
GDS E/C (a) 47,100 918,450
Shinetsu Chemical 18,000 357,293
Union Carbide Corp. 138,500 4,068,438
TPI Polene PCL:
(For. Reg.) 47,700 425,605
(Loc. Reg.) 3,600 32,121
RFD (a) 4,850 42,888
Wellman, Inc. 36,100 1,019,825
36,429,811
IRON & STEEL - 0.2%
Bethlehem Steel Corp. (a) 11,600 208,800
Compania Siderurgica Nacional ON 40,242,800 1,370,670
Dongkuk Steel Mill Co. (a) 1,500 44,705
Dongkuk Steel Mill Co. RFD (a) 360 10,318
Dongkuk Steel Mill Co. 2nd issue (a) 714 17,024
Hyundai Pipe Co. Ltd. (a) 20,850 396,639
Hoogovens en Staalfabrieken (a) 4,600 208,946
Inland Steel Industries, Inc. (a) 10,100 354,763
Kawasaki Steel Corp. 167,000 698,135
Mannesmann AG Ord. 2,200 599,161
Nucor Corp. 2,500 138,750
Pohang Iron & Steel Co. Ltd. 4,700 442,345
Schnitzer Steel, Inc. Class A 13,500 293,625
Thyssen AG Ord. 6,100 1,163,311
USX-U.S. Steel Group 11,800 418,900
6,366,092
METALS & MINING - 0.6%
Alcan Aluminium Ltd. 229,054 5,820,707
Alumax, Inc. (a) 16,450 466,769
Aluminum Co. of America 31,700 2,746,013
Castech Aluminum Group (a) 26,000 396,500
Castle A.M. & Co. 5,700 79,088
Compania Vale do Rao Doce PN Ord. 1,720,200 329,005
Dae Chang Industrial Co. 316 7,375
English China Clay PLC 173,700 1,001,332
Kanamoto Co. Ltd. 23,400 485,594
Korea Tungsten Mining Co. 290 18,382
Noranda, Inc. 151,700 2,867,573
Reynolds Metals Co. 115,400 5,654,600
Sam Sun Industry (a) 3,360 30,681
Sungei Way Holdings 144,000 575,211
20,478,830
PACKAGING & CONTAINERS - 0.2%
Carnaudmetalbox SA 26,710 903,346
Corning, Inc. 25,200 752,850
Owens-Illinois, Inc. (a) 285,200 3,137,200
Sonoco Products Co. 21,000 459,375
5,252,771
PAPER & FOREST PRODUCTS - 0.5%
Abitibi-Price, Inc. (a) 65,500 905,245
Aokam Perdana BHD 21,000 129,939
Bowater, Inc. 71,500 1,903,688
Champion International Corp. 20,200 737,300
Consolidated Papers, Inc. 6,500 292,500
Eagon Industrial Co. Ltd. 4,395 108,691
Georgia-Pacific Corp. 12,900 922,350
Industrial Oxygen, Inc. BHD 226,000 270,829
International Paper Co. 8,900 670,838
Jefferson Smurfit Corp. (a) 6,500 110,500
COMMON STOCKS - CONTINUED
SHARES VALUE
(NOTE 1)
BASIC INDUSTRIES - CONTINUED
PAPER & FOREST PRODUCTS - CONTINUED
Kimberly Clark de Mexico SA Class A 56,100 $ 654,126
Kokuyo Co. Ltd. 43,000 1,034,586
Kumpulan Guthrie BHD 472,000 802,225
Klabin Industria de Papel e Celulose PN 176,000 261,818
Land & General BHD 136,000 564,559
Maderas Y Sinteticos SA sponsored ADR 11,500 293,250
Malakoff BHD 222,000 512,942
Mead Corp. 9,300 452,213
Scott Paper Co. 44,700 3,089,888
Sung Chang Enterprise Co. 4,070 309,702
Stone Consolidated Corp. (a) 56,700 667,344
Stone Container Corp. (a) 10,900 188,025
Temple-Inland, Inc. 21,500 970,188
Union Camp Corp. 29,200 1,376,050
Weyerhaeuser Co. 2,300 86,250
17,315,046
TOTAL BASIC INDUSTRIES 85,842,550
CONGLOMERATES - 0.2%
Alexander & Baldwin, Inc. 22,100 491,725
Allied-Signal, Inc. 36,300 1,234,200
Textron, Inc. 8,200 413,075
Tyco Laboratories, Inc. 43,554 2,068,815
United Technologies Corp. 43,200 2,716,200
6,924,015
CONSTRUCTION & REAL ESTATE - 1.3%
BUILDING MATERIALS - 0.5%
Armstrong World Industries, Inc. 11,700 450,450
Cementos Apasco SA de CV Class A 276,300 1,370,448
Cemex `A' (Reg.) 68,175 335,421
Cemex SA, Series B 1,043,550 5,436,896
Insilco Corp. (a) 6,700 166,663
Ishikawajima Construction Materials Co. 27,000 460,150
Keum Kang Ltd. (a) 3,700 333,164
Lafarge Corp. 27,226 483,262
Lilly Industrial Coatings, Inc. Class A 9,450 132,300
Medusa Corp. 10,850 265,825
National Gypsum Co. (a) 6,600 268,950
Pioneer International Ltd. 116,700 289,509
Ssangyong Cement Co. 7,020 268,870
Siam Cement Ltd. (For. Reg.) 7,600 455,304
Siam City Cement Co. Ltd. (For. Reg.) 7,900 134,682
Tecumseh Products Co. Class A 26,500 1,192,500
Tolmex SA Class B2 360,200 3,025,680
Tong Yang Cement Co. 3,000 110,336
15,180,410
CONSTRUCTION - 0.2%
Centex Corp. 24,500 557,375
DR Horton, Inc. 19,387 176,910
Daelim Industrial Co. (a) 34,578 1,074,482
Dong Ah Construction Industries Co. Ltd. (a) 13,000 519,225
Eiffage SA 1,600 242,533
Empresas Ica Sociedad Controladora SA
de CV sponsored ADR representing Ord.
(Part. Cert.) 102,100 1,582,550
Hopewell Holdings Ltd. 941,000 778,292
Japan Foundation Engineering 30,000 616,541
Kaneshita Construction Co. Ltd Ord. 26,000 354,486
Kun Young Construction Corp. 4,030 98,131
Kun Young Construction Corp. RFD (a) 939 22,031
SHARES VALUE
(NOTE 1)
Lucky Development Co. Ltd. RFD (a) 607 $ 14,473
NCI Building Systems, Inc. (a) 18,800 324,300
Pulte Corp. 43,400 998,200
Samsung Engineering & Construction
Co. (a) 605 22,021
Samsung Engineering & Construction
Co. Ltd. (a) 1,627 62,524
Standard Pacific Corp. 41,800 266,475
YTL Corp. BHD 105,000 674,369
8,384,918
ENGINEERING - 0.1%
EA Engineering Science &
Technology, Inc. (a) 5,550 31,913
Glenayre Technologies, Inc. (a) 8,300 479,325
Hanil Development Co. (a) 28,708 808,265
Hanjin Engineering &
Construction Co. Ltd. (a) 9,592 189,042
Hyundai Engineering &
Construction Co. Ltd. 19,686 986,173
Nippon Denwa Shisetsu Ord. 21,000 275,789
2,770,507
REAL ESTATE - 0.3%
Bolton Properties BHD 177,000 262,017
Cheung Kong Ltd. 211,000 858,943
City Development 60,000 335,391
Daiman Development BHD 94,000 129,579
Fondo Opcion SA de CV Class 2,
Series B (a) 106,000 220,480
Henderson Land 155,000 739,144
Hong Kong Land Holdings Ltd. 301,000 587,374
Immeubles de France, Ste Des 2,450 185,919
Malaysian Resources Corp. BHD (a) 363,000 670,984
Mitsubishi Estate Co. Ltd. 75,000 804,512
Nichimo Corp. (a) 30,000 139,850
Sime UEP Properties BHD 128,000 265,674
Sun Hung Kai Properties Ltd. 237,000 1,415,018
Tan & Tan Development BHD 1,042,000 1,395,592
Wharf Holdings (g) 184,000 620,625
8,631,102
REAL ESTATE INVESTMENT TRUSTS - 0.2%
Associated Estates Realty Corp. 6,000 126,000
Bay Apartment Community 2,400 48,300
Colonial Property Trust (SBI) 6,100 137,250
DeBartolo Realty Corp. 6,100 91,500
Developers Diversified Realty 5,700 178,125
Duke Realty Investors, Inc. (a) 47,000 1,327,750
Excel Realty Trust, Inc. 18,100 298,650
Felcor Suite Hotels, Inc. 12,700 247,650
Glimcher Realty Trust 2,100 45,938
Kimco Realty Corp. 11,800 446,925
Liberty Property Trust (SBI) 2,300 45,138
Macerich Company 19,700 421,088
Merry Land & Investment Co., Inc. 35,517 776,934
Oasis Residential, Inc. 37,800 926,100
RFS Hotel Investors, Inc. 68,400 1,000,350
Simon Properties Group, Inc. 27,400 664,450
Storage USA, Inc. 17,700 486,750
Storage Equities, Inc. 9,900 142,313
Tanger Factory Outlet Centers, Inc. 14,200 333,700
Vornado Realty Trust 5,500 197,313
Weeks Corp. 5,800 126,875
8,069,099
TOTAL CONSTRUCTION & REAL ESTATE 43,036,036
COMMON STOCKS - CONTINUED
SHARES VALUE
(NOTE 1)
DURABLES - 2.4%
AUTOS, TIRES, & ACCESSORIES - 1.5%
Aisin Seiki Co. Ltd. 23,000 $ 320,501
Allen Group, Inc. (The) 11,900 284,113
Asia Motors Co., Inc. 16,830 275,342
Asia Motors Co., Inc. FP 2,527 40,060
Automotive Industries Holding, Inc. (a) 8,900 180,225
BMW AG 5,400 2,683,446
Bandag, Inc. 12,400 750,200
Breed Technologies, Inc. 22,900 649,788
Bridgestone Corp. 37,000 578,647
Capaco Automotive Products Corp. 26,100 313,200
Chrysler Corp. 347,400 17,022,600
Cummins Engine Co., Inc. 5,200 235,300
Dae Won Kang Up Co. (a) 3,224 118,156
Discount Auto Parts, Inc. (a) 51,900 979,613
Eaton Corp. 3,900 193,050
Echlin, Inc. 18,100 543,000
Federal-Mogul Corp. 9,400 189,175
General Motors Corp. 247,841 10,471,282
Genuine Parts Company 16,700 601,200
Hyundai Motor Service Co. (a) 1,200 60,571
Hyundai Motor Service Co. Ltd. (a) 120 4,240
Hyundai Motor Service Co. Ltd. RFD (a) 380 15,345
Johnson Controls, Inc. 23,400 1,146,600
Kia Motors Corp. GDR (a)(g):
Trust #2 15,500 271,250
Trust #3 25,000 437,500
Magna International, Inc. Class A 36,000 1,386,689
Pirelli Tyre Holdings NV Ord. 120,900 724,787
Raymond Corp. (The) 17,850 330,225
Renault SA Ord. (a)(g) 23,000 760,633
Smith (A.O.) Corp. Class B 11,700 286,650
Snap-on Tools Corp. 13,100 435,575
Standard Products Co. 8,825 211,800
Sumitomo Rubber Industries 31,930 309,537
Suzuki Motor Corp. 91,000 1,067,368
Toyota Motor Corp. 172,000 3,621,052
Toyoda Machine Works 32,000 270,757
Volvo Aktiebolaget Class B 63,100 1,188,372
48,957,849
CONSUMER DURABLES - 0.0%
Sankyo Co. Ltd. 1,000 67,168
CONSUMER ELECTRONICS - 0.4%
Aktiebolaget Electrolux AB 20,100 1,019,371
Brasmotor PN 1,348,500 546,089
Harman International Industries, Inc. 9,100 336,700
Jeewon Industrial Co. 3,201 150,201
Jeewon Industrial Co. (New) (a) 857 39,454
Matsushita Electric Industrial Co. Ltd. 345,000 5,672,180
Radiotechnique 2,700 265,599
Sharp Corp. 54,000 974,436
Sony Corp. 48,800 2,764,111
Sunbeam-Oster, Inc. 6,700 172,525
11,940,666
HOME FURNISHINGS - 0.1%
Dapta-Mallinjoud SA 8,200 195,589
LADD Furniture, Inc. 73,900 480,350
Miller (Herman), Inc. 101,700 2,669,625
3,345,564
TEXTILES & APPAREL - 0.4%
Arvind Mills Ltd. Unit (a)(g) 15,800 73,154
SHARES VALUE
(NOTE 1)
Burlington Industries, Inc. (a) 148,600 $ 1,467,425
Coteminas PN 316,100 108,226
Fruit of the Loom, Inc. Class A (a) 22,400 604,800
Indian Rayon & Industries, Inc. GDR 5,600 96,600
Indian Rayon & Industries, Inc.
GDR (a)(g) 11,800 203,550
Jones Apparel Group, Inc. (a) 2,200 56,650
Kellwood Co. 15,600 327,600
Korea Moolsan Co. (a) 15,140 395,541
Liz Claiborne, Inc. 16,400 276,750
Nam Yeung Corp. (a) 1,470 225,890
Nisshinbo Industries 159,000 1,833,082
Reebok International Ltd. 11,500 454,250
Russell Corp. 31,500 988,313
Tokyo Style Co. Ltd. 52,000 881,003
Unifi, Inc. 113,100 2,884,050
Warnaco Group, Inc. Class A (a) 42,400 731,400
Westpoint Stevens, Inc. Class A (a) 91,100 1,309,563
Youngone Corp. 416 7,281
12,925,128
TOTAL DURABLES 77,236,375
ENERGY - 4.3%
ENERGY SERVICES - 0.9%
BJ Services Co. (a) 25,500 430,313
Baker Hughes, Inc. 130,900 2,388,925
Commercial del Plata 173,500 442,402
Dreco Energy Services Ltd. Class A (a) 8,900 67,863
Dual Drilling Co. (a) 32,500 276,250
Enterra Corp. (a) 26,800 509,200
Global Industries Ltd. (a) 17,300 395,738
Global Marine, Inc. (a) 126,300 457,838
Halliburton Co. 125,300 4,150,563
Helmerich & Payne, Inc. 8,800 225,500
Marine Drilling Cos., Inc. (a) 100,000 300,000
McDermott International, Inc. 20,500 507,375
Nabors Industries, Inc. (a) 72,300 469,950
Noble Drilling Corp. (a) 52,000 305,500
Nowsco Well Service Ltd. 55,500 603,734
Precision Drilling Class A (a) 42,400 370,497
Schlumberger Ltd. 304,700 15,349,263
Smith International, Inc. 54,600 682,500
Tidewater, Inc. 58,200 1,076,700
Tuboscope Vetco Corp. (a) 15,000 90,000
Weatherford International, Inc. (a) 53,300 519,675
29,619,786
INDEPENDENT POWER - 0.0%
California Energy Co., Inc. 12,500 195,313
Magma Power Co. 8,200 309,038
Thermo Electron Corp. 21,850 980,519
1,484,870
OIL & GAS - 3.4%
Amerada Hess Corp. 198,500 9,056,563
Amoco Corp. 101,700 6,013,013
Anderson Exploration Ltd. (a) 40,400 363,828
Apache Corp. 43,200 1,080,000
Ashland Oil, Inc. 11,600 400,200
Atlantic Richfield Co. 33,100 3,367,925
Blue Range Resource Corp. Class A 35,900 240,076
British Petroleum PLC ADR 291,298 23,267,428
Burlington Resources, Inc. 179,400 6,279,000
Cabot Oil & Gas Corp. Class A 1,613 23,389
Camco International, Inc. 39,300 741,788
COMMON STOCKS - CONTINUED
SHARES VALUE
(NOTE 1)
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Canadian Natural Resources Ltd. (a) 80,600 $ 790,534
Chevron Corp. 50,100 2,235,713
Coastal Corp. (The) 23,900 615,425
Diamond Shamrock R&M, Inc. (a) 3,800 98,325
Enron Oil & Gas Co. 11,800 221,250
Exxon Corp. 47,200 2,867,400
Isu Chemical Co. (a) 1 22
Kerr-McGee Corp. (a) 26,500 1,219,000
Louis Dreyfus Natural Gas Corp. (a) 46,000 586,500
Louisiana Land & Exploration Co. 75,400 2,742,675
Mark Resources, Inc. (a) 89,400 446,394
Mobil Corp. 55,400 4,667,450
Murphy Oil Corp. 61,500 2,613,750
Newfield Exploration Co. (a) 37,200 734,700
Noble Affiliates, Inc. 18,100 447,975
Norsk Hydro AS 37,117 1,459,787
Norsk Hydro AS ADR 47,600 1,862,350
Oryx Energy Co. 33,500 397,813
Pancanadian Petroleum Ltd. 19,500 559,865
Parker & Parsley Petroleum Co. 17,400 356,700
Petrobras PN (Pfd. Reg.) 4,230,600 534,409
Phillips Petroleum Co. 22,200 727,050
Renaissance Energy Ltd. (a) 109,000 2,109,013
Renaissance Energy Ltd. (a)(g) 75,000 1,451,156
Rio Alto Exploration Ltd. (a) 197,400 739,247
Royal Dutch Petroleum Co. 15,000 1,612,500
Sun Company, Inc. 20,200 580,750
Tesoro Petroleum Corp. (a) 5,000 46,250
Texaco, Inc. 143,300 8,580,088
Tosco Corp. 124,400 3,623,150
Total SA Class B 50,727 2,948,382
Total SA sponsored ADR 134,954 3,981,143
Triton Energy Corp. (a) 20,300 690,200
Unocal Corp. 234,678 6,394,976
Vintage Petroleum, Inc. 46,400 783,000
Western Gas Resources, Inc. 19,500 375,375
Yukong Ltd. 11,850 550,044
Yukong Ltd. (New) 331 15,112
111,498,683
TOTAL ENERGY 142,603,339
FINANCE - 6.3%
BANKS - 2.1%
BNP CI Ord. 51,220 2,356,101
Banacci SA de CV:
Class C 688,700 2,024,778
Class L 14,100 40,608
Banc One Corp. 63,040 1,599,640
Banco Bilbao Vizcaya SA Ord. (Reg.) 49,700 1,232,122
Banco de Galicia Y Buenos Aires SA
sponsored ADR representing Class B
shares 23,799 410,537
Banco de Santander Ord. (Reg.) 17,800 681,184
Banco Frances Del Rio de la Prata SA 60,106 396,680
Bangkok Bank 150,600 1,607,679
Banco Intercontinental Espanol 11,200 924,404
Banco Popular Espanol (a) 4,025 478,293
Bank of Asia PCL:
(For. Reg.) 11,900 28,678
(Loc. Reg.) 102,900 247,977
Bank of Boston Corp. 149,507 3,868,494
Bank International Indonesia Ord. 119,100 379,299
SHARES VALUE
(NOTE 1)
Bank of New York Co., Inc. 39,108 $ 1,134,132
BanPonce Corp. 2,535 71,297
Barnett Banks, Inc. 19,900 763,663
Boram Bank 28,520 376,167
Boram Bank (New) 6,778 89,399
Bradesco PN 67,240,000 575,574
Chase Manhattan Corp. 72 2,475
Chemical Banking Corp. 24,589 882,130
Cho Hung Bank Co. Ltd. 55,750 858,257
Cho Hung Bank Co. Ltd. (New) (a) 12,252 177,137
Citicorp 28,428 1,176,209
C.S. Holdings (Bearer) 4,516 1,931,979
Comerica, Inc. 51,400 1,252,875
Commerce Asset Holding BHD 74,000 298,492
Deutsche Bank AG 5,900 2,741,530
Development Bank of Singapore
(For. Reg.) (a) 29,000 298,354
Fifth Third Bancorp 13,500 648,000
First Fidelity Bancorporation 10,313 462,796
First Union Corp. 107,797 4,460,101
Fleet Financial Group, Inc. 58,428 1,898,910
Grupo Financiero Bancomer SA
de CV sponsored ADR, Series C (g) 95,652 1,052,172
Grupo Financiero Banorte SA Class C 359,600 870,232
HSBC Holdings:
Ord. 63,895 707,146
PLC 128,000 1,381,235
Hana Bank 4,680 102,087
Hanil Bank 13,450 175,694
Hanil Bank RFD (a) 2,983 37,453
Hyundai International Merchant Bank 3,000 156,373
Istituto Mobiliare Italiano 106,100 650,581
Keycorp. 82,739 2,068,475
Korea First Bank, Inc. Ltd. 3,750 52,315
Korea First Bank, Inc. Ltd. RFD (a) 883 8,623
Krung Thai Bank:
(For. Reg.) (a) 330,800 1,093,661
(Loc. Reg.) 307,200 1,015,637
Kyung Nam Bank (a) 13,500 155,802
Kyungki Bank Ltd. (a) 5,410 40,824
Kyungki Bank Ltd. FP (a) 20,000 215,599
Mellon Bank Corp. 92 2,802
Midlantic Corp. 8,700 230,550
Mitsubishi Trust & Banking 82,000 1,224,862
NationsBank Corp. 69,536 3,137,812
North Fork Bancorporation, Inc. 38,301 526,639
Northern Trust Corp. 7,500 262,500
Overseas Union Bank Ltd. (For. Reg.) 263,000 1,533,264
Panin Bank PT (For. Reg.) 241,500 346,098
Republic New York Corp. 8,000 362,000
Siam City Bank PCL (For. Reg.) 374,000 476,719
Shawmut National Corp. 338,650 5,545,394
Signet Banking Corp. 68 1,947
State Street Boston Corp. 37,400 1,070,575
Swiss Bank Corp. (Bearer) 5,735 1,585,997
Trustmark Corp. 14,600 255,500
Thai Farmers Bank 226,900 1,843,760
Thai Military Bank (For. Reg.) 213,000 899,344
Union Planters Corp. 48 1,002
United Overseas Bank Ltd.:
(For. Reg.) 47,000 496,433
(warrants) (a) 147,000 826,749
Unidanmark AS Class A (a) 7,500 288,481
Shinhan Bank 24,850 614,553
COMMON STOCKS - CONTINUED
SHARES VALUE
(NOTE 1)
FINANCE - CONTINUED
BANKS - CONTINUED
West One Bancorp 420 $ 11,130
Zions Bancorporation 1,600 57,400
67,761,371
CLOSED END INVESTMENT COMPANY - 0.2%
ASA Ltd. 3,200 143,600
Austria Fund, Inc. 53,300 426,400
Emerging Tigers Fund, Inc. 500 5,688
Europe Fund, Inc. 8,200 88,150
First Australia Fund, Inc. 2,600 23,075
France Growth Fund, Inc. (a) 49,400 450,775
Germany Fund, Inc. 3,200 34,400
Growth Fund of Spain, Inc. 132,700 1,260,650
Morgan Stanley Africa Investment Fund 700 7,963
Morgan Stanley India Investment Fund 355,700 4,001,625
The New Germany Fund, Inc. 1,500 17,250
Thai Fund, Inc. 7,900 176,763
6,636,339
CREDIT & OTHER FINANCE - 0.5%
American Express Co. 263,191 7,764,135
Beneficial Corp. 30,200 1,177,800
Central Investment & Finance Corp. (a) 6,000 165,124
Dean Witter Discover & Co. 28,250 956,969
Equitable Companies, Inc. 32,600 590,875
First NIS Regional Fund (a) 200,000 800,000
GFC Financial Corp. 8,600 273,050
Gemina Ord. 1,937,300 1,561,561
General Finance & Securities PCL:
(For. Reg.) 13,200 64,672
(rights) (a) 26,400 92,539
Hong Leong Credit BHD (a) 125,000 607,010
Industrial Finance Corp.:
(For. Reg.) 179,900 383,376
(Loc. Reg.) 3,900 8,311
JCG Holdings 318,000 165,411
LG Merchant Banking Corp. (a) 1,440 77,616
Promise Co. Ltd. 8,000 408,221
Tong Yang Securities Co., Ltd. (a) 488 8,788
TA Enterprise BHD 184,000 482,788
15,588,246
FEDERAL SPONSORED CREDIT - 1.2%
Federal Home Loan Mortgage Corporation 110,700 5,590,350
Federal National Mortgage Association 474,000 34,542,750
40,133,100
INSURANCE - 1.3%
Ace Ltd. (a) 12,400 289,850
Alexander & Alexander Services, Inc. 49,600 917,600
Allstate Corp. 216,200 5,107,725
American International Group, Inc. 2,400 235,200
American Reinsurance Corp. (a) 1,800 58,050
American Travellers Corp. (a) 13,400 219,425
Assicurazioni Generali Spa 4,560 107,124
Assurances Generales (Reg.) 20,300 806,371
Baloise Holding (Reg.) 1,200 2,181,818
Berkley (W.R.) Corp. 30,900 1,158,750
Corporacion Mapfre International
Reassurance (Reg.) 28,900 1,206,910
Dai-Tokyo Fire & Marine Insurance Ord. 90,000 655,038
GAN (Groupe Des Assur Natl.) 10,220 522,777
General Re Corp. 29,400 3,638,250
Gryphon Holdings, Inc. (a) 3,200 42,800
SHARES VALUE
(NOTE 1)
International Nederlanden Groep CVA 27,521 $ 1,300,854
John Alden Financial Corp. 105,900 3,044,625
Loews Corp. 21,700 1,885,188
MBIA, Inc. 27,700 1,554,663
Mapfre Vida Sa 1,280 55,204
Mutual Assurance, Inc. 724 18,833
NAC Re Corp. 19,900 666,650
Prudential Corp. 97,772 485,517
Providian Corp. 71,200 2,198,300
Royale Insurance Co. Ltd. 228,455 1,002,049
SAFECO Corp. 19,600 1,019,200
St. Paul Companies, Inc. (The) 49,300 2,206,175
Skandia International Holding Co.
AB ADR 17,800 307,693
Tokio Marine & Fire Insurance Co.
Ltd. (The) 110,000 1,345,364
Travelers, Inc. (The) 159,100 5,170,750
UNUM Corp. 114,800 4,333,700
43,742,453
SAVINGS & LOANS - 0.3%
Ahmanson (H.F.) & Co. 166,274 2,681,168
American Savings of Florida FSB (a) 5,600 109,900
Astoria Financial Corp. (a) 3,500 91,875
Charter One Financial Corp. 15,850 301,150
Commercial Federal Corp. (a) 14,800 312,650
FirstFed Michigan Corp. 5,100 104,550
Golden West Financial Corp. 116,200 4,096,050
Standard Federal Bank 45,600 1,088,700
Washington Mutual, Inc. 10,500 177,188
8,963,231
SECURITIES INDUSTRY - 0.7%
Bear Stearns Companies, Inc. 30,830 474,011
Coryo Securities 11,200 187,495
Daehan Korean Blue-Chip
Investment Trust (a)(f)(g) 475,000 10,488,000
Guoco Group Ltd. 65,000 278,043
Hanshin Securities Co. Ltd. 3,000 79,518
Hyundai Securities Co. Ltd. (a) 4,896 130,394
Korea First Securities Co. Ltd. (a) 24,888 429,267
Korea First Securities Co. Ltd. (New) (a) 2,564 39,996
Lehman Brothers Holdings, Inc. 129,480 1,909,830
Lucky Securities Co. 18,100 449,918
Merrill Lynch & Co., Inc. 50,500 1,805,375
Midland Walwyn, Inc. 114,000 620,052
Morgan Stanley Group, Inc. 38,300 2,259,700
Nomura Securities Ltd. 143,000 2,967,519
PaineWebber Group, Inc. 59,600 894,000
Ssangyong Investment & Securities Co. Ltd. 2,950 77,445
Ssangyong Investment & Securities Co. Ltd.
(New) (a) 295 7,071
Schwab (Charles) Corp. 14,800 516,150
Sunkyong Securities Co. Ltd. (a) 25,800 494,077
United Asset Management Corp. 14,400 531,000
24,638,861
TOTAL FINANCE 207,463,601
HEALTH - 3.0%
DRUGS & PHARMACEUTICALS - 1.8%
ALZA Corp. Class A (a) 12,300 221,400
Allergan, Inc. 108,600 3,067,950
American Home Products Corp. 78,400 4,919,600
Biogen, Inc. (a) 95,500 3,987,125
COMMON STOCKS - CONTINUED
SHARES VALUE
(NOTE 1)
HEALTH - CONTINUED
DRUGS & PHARMACEUTICALS - CONTINUED
Bristol-Myers Squibb Co. 48,100 $ 2,783,788
Carter-Wallace, Inc. 54,200 704,600
Cephalon, Inc. (a) 6,400 52,800
Elan PLC:
ADR (a) 79,500 2,832,188
(1 Advanced Therapeutic Systems
Common & 1 ADR warrant) (a) 3,762 102,985
Forest Laboratories, Inc. (a) 3,400 158,525
Idexx Laboratories (a) 8,000 288,000
Noven Pharmaceuticals, Inc. (a) 3,500 43,313
Pfizer, Inc. 182,500 14,098,125
Pharmacia AB A Free shares 26,700 427,418
Rhone Poulenc Rorer, Inc. 15,500 565,750
Rhone Poulenc SA Class A 75,100 1,743,468
Sankyo Co. Ltd. 105,000 2,610,527
Schering AG 2,500 1,640,852
Schering-Plough Corp. 116,800 8,643,200
Sigma Aldrich Corp. 24,600 811,800
Takeda Chemical Industries Ltd. 47,000 570,126
Warner-Lambert Co. 94,300 7,261,100
Yamanouchi Pharmaceutical 45,000 924,812
58,459,452
MEDICAL EQUIPMENT & SUPPLIES - 0.8%
Acuson Corp. (a) 55,300 898,625
Advanced Technology Laboratories, Inc. (a) 54,400 1,006,400
Baxter International, Inc. 174,000 4,915,500
Beckman Instruments, Inc. 5,500 153,313
Becton, Dickinson & Co. 59,100 2,836,800
Bergen Brunswig Corp. Class A 53,300 1,112,638
Boston Scientific Corp. (a) 138,900 2,413,388
Cardinal Health, Inc. 5,850 271,294
Johnson & Johnson 76,300 4,177,425
Medtronic, Inc. 15,560 865,525
Mentor Corp. 9,600 166,800
Nellcor, Inc. (a) 25,600 844,800
Owens and Minor, Inc. 49,975 712,144
Pall Corp. 117,300 2,199,375
St. Jude Medical, Inc. 71,200 2,830,200
Spacelabs Medical, Inc. (a) 25,400 590,550
Sybron Corp. (a) 13,100 451,950
Thermedics, Inc. (a) 42,150 537,413
26,984,140
MEDICAL FACILITIES MANAGEMENT - 0.4%
Columbia/HCA Healthcare Corp. 128,600 4,693,900
Community Health Systems, Inc. (a) 1 27
Humana, Inc. (a) 68,500 1,549,813
Lincare Holdings, Inc. (a) 7,500 217,500
Oxford Health Plans, Inc. (a) 21,200 1,680,100
United HealthCare Corp. 37,600 1,696,700
U.S. Healthcare, Inc. 56,000 2,310,000
12,148,040
TOTAL HEALTH 97,591,632
HOLDING COMPANIES - 0.7%
America Group Ltd. Class A 15,500 268,279
Brierley Investments Ltd. 7,151,966 5,173,518
Cinergy Corp. 83,876 1,960,602
Sanluis Corp. Ord., Series A-2 89,600 734,720
Grupo Carso SA de CV Class A-1 (a) 1,148,300 8,382,590
SHARES VALUE
(NOTE 1)
Grupo Sidek SA de CV Class L
sponsored ADR 134,200 $ 1,358,775
Jardine Matheson Holdings Ltd. 225,600 1,610,804
Lagardere Groupe SCA (Reg.) 95,600 2,221,173
Man AG ord. 3,700 1,012,456
SDW Holdings Corp. (g) 20,200 525,200
Westmont Land (Asis) BHD (a) 293,000 555,364
23,803,481
INDUSTRIAL MACHINERY & EQUIPMENT - 1.7%
ELECTRICAL EQUIPMENT - 0.7%
Alcatel Alsthom CGE 7,800 666,442
Amphenol Corp. Class A (a) 37,200 892,800
C COR Electronics, Inc. 7,500 232,500
Cherry Corp. (a) 18,800 263,200
Cherry Corp. Class A (a) 10,800 156,600
Fanuc Ltd. 6,000 282,105
General Electric Co. 130,900 6,675,900
General Signal Corp. 15,700 500,438
Hitachi Koki Co. Ord. 87,000 867,820
Hutchison Whampoa Ltd. Ord. 374,000 1,512,819
Mitsubishi Electric Co. Ord. 459,000 3,253,263
Mori Seiki Co. Ltd. Ord. 37,000 886,516
Omron Corp. 123,000 2,268,873
Philips Electronics 48,300 1,431,070
Philips Electronics NV 30,200 887,125
Scientific-Atlanta, Inc. 21,900 459,900
United Engineers BHD 228,000 1,125,043
United Communication Industry:
(For. Reg.) 20,200 281,617
(For. Reg.) (rights) (a) 37,000 501,095
(Loc. Reg.) 16,800 234,216
Samsung Electro-Mechanics Co. (a) 14,220 712,353
Samsung Electro-Mechanics Co. (rights) (a) 7,083 248,377
24,340,072
INDUSTRIAL MACHINERY & EQUIPMENT - 0.8%
AIDA Engineering Ltd. Ord. 82,000 723,409
Amada Ltd. 55,000 689,223
Amada Metrecs Co. Ltd. 42,000 720,000
Amadasonoike Co. Ltd. 113,000 983,298
Caterpillar, Inc. 131,700 7,259,963
Clark Equipment Co. (a) 6,100 330,925
Cooper Industries, Inc. 44,700 1,525,388
Daewoo Heavy Industries Ltd. (a) 7,500 116,994
Deere & Co. 128,600 8,519,750
Enerflex Systems Ltd. 6,000 74,363
Finning Ltd. 53,700 761,315
Han Wha Machinery Co. Ltd. (a) 15,000 279,645
Harnischfeger Industries, Inc. (a) 17,869 502,566
Hwacheon Machinery Works 1,500 59,543
Indresco, Inc. (a) 30,000 427,500
Hitachi Construction Machinery Co. Ltd. 21,000 275,789
Keystone International, Inc. 15,800 268,600
Goldstar Industrials
Systems Co. Ltd. RFD (a) 5,300 225,174
Parker-Hannifin Corp. 4,100 186,550
Regal-Beloit Corp. 40,000 545,000
SKF AB Ord. (a) 31,900 525,680
Soosan Heavy Industrial Co. (a) 3,502 95,489
Soosan Heavy Industrial Co. RFD (a) 820 15,651
Ssangyong Heavy Industries Co. Ltd. (a) 21,350 311,382
Svedala 12,200 283,923
TRINOVA Corp. 7,500 220,313
COMMON STOCKS - CONTINUED
SHARES VALUE
(NOTE 1)
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
Tsugami Corp. 71,000 $ 412,120
Toshiba Machine Co. Ltd. 53,000 367,148
Valmet Corp. Ord. (a) 18,000 342,325
27,049,026
POLLUTION CONTROL - 0.2%
Browning-Ferris Industries, Inc. 46,900 1,330,788
Safety Kleen Corp. 13,400 197,650
Sanifill, Inc. (a) 14,900 372,500
Sevenson Environmental Services, Inc. 5,500 92,125
TETRA Technologies, Inc. (a) 24,600 292,125
United Waste Systems, Inc. (a) 4,100 102,500
WMX Technologies, Inc. 69,200 1,816,500
Western Waste Industries, Inc. (a) 5,500 82,500
Wheelabrator Technologies, Inc. 61,900 913,025
5,199,713
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 56,588,811
MEDIA & LEISURE - 1.3%
BROADCASTING - 0.4%
British Sky Broadcasting Group ADR (a) 32,200 772,800
CBS, Inc. 7,000 387,625
Capital Cities/ABC, Inc. 21,900 1,866,975
Heritage Media Corp. Class A (a) 5,000 134,375
Home Shopping Network, Inc. (a) 67,910 679,100
People's Choice TV Corp. (a) 5,600 88,200
Tele-Communications, Inc. Class A (a) 262,100 5,700,675
Television Francaise 1 SA 5,500 498,988
Viacom, Inc. (a) 992 41,292
Viacom, Inc. (non-vtg.) (a) 43,116 1,751,588
Viacom, Inc. (rights) (a) 12,400 13,950
11,935,568
ENTERTAINMENT - 0.0%
Royal Carribean Cruises Ltd. 29,500 840,750
LEISURE DURABLES & TOYS - 0.1%
ARCTCO, Inc. 42,900 831,188
Brunswick Corp. 8,100 152,888
Callaway Golf Co. 9,800 324,625
Champion Enterprises, Inc. (a) 5,600 170,800
Fleetwood Enterprises, Inc. 8,500 159,375
Hasbro, Inc. (a) 13,300 389,025
Outboard Marine Corp. 59,000 1,157,875
Sports and Recreation, Inc. (a) 9,750 251,063
West Marine, Inc. (a) 3,000 57,750
3,494,589
LODGING & GAMING - 0.5%
Accor SA 15,300 1,662,732
Bally Gaming International,
Inc. (warrants) (a) 38,400 268,800
Caesars World, Inc. (a) 12,400 827,700
Four Seasons Hotels, Inc. 46,113 534,515
Genting BHD 141,500 1,213,569
Grupo Posadas SA de CV Class L (a) 129,200 99,226
Grupo Situr SA de CV Class B (a) 1,940,040 3,957,682
Host Marriott Corp. (a) 44,841 431,595
La Quinta Motor Inns, Inc. 87,150 1,862,831
Marriott International, Inc. 21,641 608,653
Mirage Resorts, Inc. (a) 23,600 483,800
Promus Companies, Inc. (a) 69,500 2,154,500
Resorts International, Inc. (a) 651 570
Resorts World BHD 116,000 681,418
SHARES VALUE
(NOTE 1)
Sun International Hotels Ltd. (a) 2,560 $ 100,480
Trump Plaza Holding Associates
(warrants) (a) 60 24,000
14,912,071
PUBLISHING - 0.2%
American Media, Inc. Class A 24,200 393,250
Editoriale L'Espresso SPA 107,800 278,108
Gannett Co., Inc. (a) 20,000 1,065,000
McGraw-Hill, Inc. 6,000 401,250
Meredith Corp. 10,800 503,550
New York Times Co. (The) Class A 9,700 214,613
Scripps (E.W.) Co. Class A 18,800 568,700
Singapore Press Holdings Ltd. (For. Reg.) 41,000 745,199
Telegraaf 3,000 345,861
Thomson Corp. 48,800 600,471
Times Mirror Co. Series A 27,600 865,950
Torstar Corp. Class B 107,900 1,779,861
7,761,813
RESTAURANTS - 0.1%
Au Bon Pain, Inc. Class A (a) 13,400 214,400
Bertucci's, Inc. (a) 14,700 161,700
Boston Chicken, Inc. (a) 5,600 97,300
Brinker International, Inc. (a) 27,800 503,875
Cracker Barrel Old Country Store, Inc. 3,000 55,500
McDonald's Corp. 50,600 1,480,050
Outback Steakhouse, Inc. (a) 13,500 317,250
2,830,075
TOTAL MEDIA & LEISURE 41,774,866
NONDURABLES - 2.2%
AGRICULTURE - 0.0%
Delta & Pine Land Co. 200 3,500
Molinos Rio de La Plata SA (Reg.) (a) 107,452 597,403
600,903
BEVERAGES - 0.5%
Buenos Aires Embotelladora SA
sponsored ADR 17,300 557,925
Compania Cervecerias Unidas SA ADR 39,100 982,388
Dr. Pepper/Seven-Up Companies, Inc. (a) 26,900 689,313
Emvasa del Valle de Enah Ord. (a) 311,400 722,448
Fomento Economico Mexicano SA
(FEMSA) Class B 248,200 632,414
Grupo Embotellador de Mexico
CPO GDR 105,000 1,509,375
Kirin Brewery Co. Ltd. 16,000 178,045
LVMH 12,200 1,927,038
Panamerican Beverages, Inc. Class A 44,900 1,419,963
PepsiCo, Inc. 46,800 1,696,500
Quilmes Industries, SA 47,000 1,081,000
Seagram Co. Ltd. 99,400 2,969,096
Whitbread Class A 50,145 443,820
14,809,325
FOODS - 0.3%
Archer-Daniels-Midland Co. 48,075 991,547
Borden, Inc. 216,200 2,675,475
Chiquita Brands International, Inc. 17,500 238,438
ConAgra, Inc. 26,700 834,375
Dean Foods Co. 18,300 530,700
Dole Food, Inc. 17,700 407,100
Goodman Fielder Ltd. Ord. 380,362 318,661
Herdez SA de CV Class A 539,200 258,816
IBP, Inc. (a) 9,193 278,088
COMMON STOCKS - CONTINUED
SHARES VALUE
(NOTE 1)
NONDURABLES - CONTINUED
FOODS - CONTINUED
Miwon Co. Ltd. 95 $ 53,975
Miwon Co. Ltd. (New) (a) 3,501 125,654
Nestle SA (Reg.) 800 762,108
Nippon Suisan Kaisha Ltd. (a) 147,000 689,684
Ottogi Foods RFD (a) 4,700 190,146
Samyang Foods Co. (a) 3,000 151,807
Tyson Foods, Inc. 5,800 123,250
Viscofan Envolturas Celulo SA 39,400 598,330
Weston George Ltd. 54,500 1,642,503
10,870,657
HOUSEHOLD PRODUCTS - 0.1%
Avon Products, Inc. 7,900 472,025
Colgate-Palmolive Co. 6,000 380,250
NCH Corp. 6,200 414,625
Pyung HWA Industrial Co. 4,400 185,821
Rubbermaid, Inc. 32,000 920,000
Stanhome, Inc. 1,400 44,275
Tambrands, Inc. 37,600 1,452,300
3,869,296
TOBACCO - 1.3%
Imasco Ltd. 47,500 1,346,833
Philip Morris Companies, Inc. 478,200 27,496,500
RJR Nabisco Holdings Corp. (a) 2,278,800 12,533,400
41,376,733
TOTAL NONDURABLES 71,526,914
PRECIOUS METALS - 0.6%
Agnico Eagle Mines Ltd. 83,100 874,332
American Barrick Resources Corp. 261,400 5,850,221
Echo Bay Mines Ltd. 43,500 469,318
Franco Nevada Mining Corp. 31,700 1,557,413
Free State Consolidated Gold Mines
Ltd. ADR 116,800 1,795,800
Hecla Mining Co. (a) 22,500 227,813
Homestake Mining Co. 113,800 1,948,825
Kloof Gold Mining Co. Ltd. Ord. 41,200 612,131
Newmont Mining Corp. 46,400 1,670,400
Pegasus Gold, Inc. 19,900 228,895
Placer Dome, Inc. 145,200 3,146,051
St. Barbara Mines Ltd. 251,600 302,333
Santa Fe Pacific Gold Corp. (a) 166,262 2,140,623
20,824,155
RETAIL & WHOLESALE - 2.3%
APPAREL STORES - 0.2%
AnnTaylor Stores Corp. (a) 27,300 938,439
Edison Brothers Stores, Inc. 1,700 31,450
Esprit Asia Holdings Ltd. 714,000 332,181
Lamonts Apparel, Inc. (a) 45,916 34,437
Lamonts Apparel, Inc. (warrants) (a) 84,729 -
Limited, Inc. (The) 77,200 1,399,250
Ross Stores, Inc. 12,900 145,125
TJX Companies, Inc. 153,100 2,392,188
United States Shoe Corp. 18,100 339,375
Xebio Co. Ltd. 11,600 458,186
6,070,631
SHARES VALUE
(NOTE 1)
DRUG STORES - 0.0%
Revco (D.S.), Inc. (a) 5,600 $ 132,300
Rite Aid Corp. 52,300 1,222,513
1,354,813
GENERAL MERCHANDISE STORES - 1.0%
Caldor Corp. (a) 3,500 77,875
Cifra SA Class C 1,518,200 2,884,580
Consolidated Stores Corp. (a) 3,500 65,188
Dayton Hudson Corp. 4,800 339,600
Dillard Department Stores, Inc. Class A 75,200 2,011,600
Federated Department Stores, Inc. (a) 353,400 6,802,950
Hornbach Baumarket AG BR 1,500 769,603
Ito Yokado Co. Ltd. 50,000 2,671,680
Keum Kang Development Industries Co. (a) 2,250 54,217
Lechters, Inc. (a) 13,500 231,188
May Department Stores Co. (The) 12,000 405,000
Michaels Stores, Inc. (a) 14,400 500,400
Price/Costco, Inc. (a) 53,700 691,388
Sears, Roebuck & Co. 186,800 8,592,800
Sears Roebuck de Mexico SA de CV (a) 155,800 950,380
Sears Roebuck de Mexico SA de CV
ADR representing Series B-1 (a)(g) 13,300 159,600
Value City Department Stores, Inc. (a) 47,100 412,125
Wal-Mart Stores, Inc. 246,400 5,236,000
32,856,174
GROCERY STORES - 0.2%
Argyll Group PLC Ord. 95,500 402,426
Fleming Companies, Inc. 22,240 517,080
Food Lion, Inc. Class A 168,000 861,000
Great Atlantic & Pacific Tea Co., Inc. 18,800 340,750
Izumi Co. Ord. 33,000 843,609
Kroger Co. (The) (a) 10,000 241,250
Loblaw Companies Ltd. 35,500 604,581
Safeway, Inc. (a) 43,000 1,370,625
Stop & Shop Companies, Inc. (a) 46,400 1,183,200
Supervalu, Inc. 33,400 818,300
Tae Gu Department Store Co. (a) 1,554 61,884
7,244,705
RETAIL & WHOLESALE, MISCELLANEOUS - 0.9%
Barnes & Noble, Inc. (a) 13,500 421,875
Best Buy Co., Inc. (a) 135,600 4,237,500
Body Shop International PLC 68,900 206,151
Cannondale Corp. (a) 3,000 30,750
Circuit City Stores, Inc. 84,000 1,869,000
Duty Free International, Inc. 12,300 136,838
Gateway 2000, Inc. (a) 45,000 973,125
Good Guys, Inc. 19,300 229,188
Home Depot, Inc. (The) 76,300 3,509,800
Lowe's Companies, Inc. 51,800 1,800,050
Micro Warehouse, Inc. (a) 32,900 1,151,500
Musicland Stores Corp. (a) 13,500 121,500
Officemax, Inc. (a) 56,700 1,502,550
Office Depot, Inc. (a) 38,400 921,600
Petsmart, Inc. (a) 27,100 934,950
Rex Stores Corp. (a) 75,300 1,223,625
Smith (W H) Group Ord. 78,400 589,505
Sotheby's Holdings, Inc. Class A 34,800 400,200
Spiegel, Inc. Class A 19,100 193,388
Staples, Inc. (a) 39,450 976,388
Tiffany & Company, Inc. 7,400 288,600
COMMON STOCKS - CONTINUED
SHARES VALUE
(NOTE 1)
RETAIL & WHOLESALE - CONTINUED
RETAIL & WHOLESALE, MISCELLANEOUS - CONTINUED
Toys "R" Us, Inc. (a) 168,300 $ 5,133,150
Uny Co. Ltd. 27,000 449,323
Viking Office Products, Inc. (a) 15,400 471,625
Williams-Sonoma, Inc. (a) 18,975 570,436
28,342,617
TRADING COMPANIES - 0.0%
Hyundai Corp. (a) 3,681 103,171
Kanematsu-Gosho Ltd. 84,000 442,105
545,276
TOTAL RETAIL & WHOLESALE 76,414,216
SERVICES - 0.4%
ADVERTISING - 0.0%
WPP Group PLC 554,300 950,802
LEASING & RENTAL - 0.1%
GATX Corp. 500 22,000
Hollywood Entertainment Corp. (a) 21,000 635,250
Orix Corp. 31,000 1,143,659
1,800,909
PRINTING - 0.1%
Deluxe Corp. 17,900 474,350
Donnelley (R.R.) & Sons Co. 52,400 1,545,800
Komori Corp. 20,000 535,338
New England Business Service, Inc. 60,800 1,140,000
Standard Register Co. 2,000 35,000
3,730,488
SERVICES - 0.2%
ADT Ltd. 69,200 743,900
BET PLC Ord. 414,800 659,532
Borg Warner Securities Corp. (a) 25,600 249,600
CDI Corp. (a) 5,500 109,313
CPI Corp. 25,300 452,238
Heidemij NV 30,600 275,400
Jostens, Inc. 20,400 379,950
Manpower, Inc. 23,600 663,750
Norrell Corp. GA 5,600 107,800
Pinkertons, Inc. (a) 17,100 333,450
Robert Half International, Inc. (a) 6,800 163,200
Supercuts, Inc. (a) 11,200 92,400
Western Atlas, Inc. 63,900 2,404,238
Zebra Technologies Corp. Class A (a) 17,400 679,688
7,314,459
TOTAL SERVICES 13,796,658
TECHNOLOGY - 5.0%
COMMUNICATIONS EQUIPMENT - 0.4%
Ascom Holding Ltd. (Bearer) (a) 200 212,376
Cabletron Systems, Inc. (a) 67,850 3,155,025
Cisco Systems, Inc. (a) 60,800 2,135,600
DSC Communications Corp. (a) 16,600 595,525
Ericsson (L.M.) Telefon AB Class B ADR 19,500 1,074,938
General Instrument Corp. (a) 39,700 1,191,000
Nokia Corp. AB 2,000 294,664
Nokia AB free shares 2,000 295,508
Tellabs, Inc. (a) 13,300 741,475
3Com Corp. (a) 65,200 3,361,875
13,057,986
SHARES VALUE
(NOTE 1)
COMPUTER SERVICES & SOFTWARE - 0.6%
ACT Group PLC 7 $ 11
BancTec, Inc. 9,000 195,750
Computer Associates International, Inc. 11,800 572,300
Compuware Corp. (a) 5,600 201,600
EIS International, Inc. 31,200 475,800
Harris Computer Systems Corp. (a) 880 10,780
Informix Corp. (a) 60,000 1,927,500
Lotus Development Corp. (a) 39,600 1,623,600
Microsoft Corp. (a) 30,500 1,864,313
Novell, Inc. (a) 82,300 1,409,388
Oracle Systems Corp. (a) 37,800 1,667,925
Parametric Technology Corp. (a) 24,900 859,050
Peoplesoft, Inc. (a) 54,000 2,038,500
Platinum Technology, Inc. (a) 55,200 1,248,900
Powersoft Corp. (a) 200 16,450
SHL Systemhouse, Inc. (a) 121,900 624,738
Softdesk, Inc. (a) 3,500 67,813
Stratacom, Inc. (a) 44,600 1,561,000
SunGard Data Systems, Inc. (a) 5,600 215,600
Sybase, Inc. (a) 19,100 993,200
Symantec Corp. (a) 20,200 353,500
Synopsys, Inc. (a) 8,700 380,625
Viewlogic Systems, Inc. (a) 30,300 560,550
Wonderware Corp. (a) 13,100 442,125
19,311,018
COMPUTERS & OFFICE EQUIPMENT - 2.1%
AST Research, Inc. (a) 21,100 308,588
ADAPTEC, Inc. (a) 26,900 635,513
Bay Networks, Inc. (a) 20,100 592,950
Canon, Inc. 263,000 4,455,841
Compaq Computer Corp. (a) 432,300 17,075,850
Daewoo Telecommunication (a) 213 3,651
Daewoo Telecommunication (New) 1,245 20,526
Diebold, Inc. 22,750 935,594
Digital Equipment Corp. (a) 94,000 3,125,500
EMC Corp. (a) 60,500 1,308,313
Fujitsu Ltd. 147,000 1,488,421
Hewlett-Packard Co. 49,700 4,963,788
International Business Machines Corp. 299,800 22,035,300
Plannar Systems, Inc. (a) 22,500 517,500
Read Rite Corp. (a) 28,200 523,463
SCI Systems, Inc. (a) 108,400 1,951,200
Silicon Graphics, Inc. (a) 96,000 2,964,000
Sun Microsystems, Inc. (a) 99,700 3,539,350
Tandem Computers, Inc. (a) 38,900 666,163
Tech Data Corp. (a) 104,200 1,771,400
Trigem Computer, Inc. 7,490 284,972
Xerox Corp. 6,200 613,800
69,781,683
ELECTRONIC INSTRUMENTS - 0.1%
KLA Instruments Corp. (a) 12,400 607,600
Kulicke & Soffa Industries, Inc. (a) 26,900 564,900
Lam Research Corp. (a) 100 3,725
Measurex Corp. 2,200 51,975
Microfluidics International Corp. (a) 5,600 21,700
Tektronix, Inc. 12,500 428,125
1,678,025
ELECTRONICS - 1.7%
Aiwa Co. Ltd. 34,000 835,088
Allgon AB B Free shares 26,000 489,662
COMMON STOCKS - CONTINUED
SHARES VALUE
(NOTE 1)
TECHNOLOGY - CONTINUED
ELECTRONICS - CONTINUED
Arrow Electronics, Inc. (a) 8,887 $ 318,821
Atmel Corp. (a) 11,800 395,300
Daewoo Electronics Components Co. 1,081 19,193
GTI Corp. (a) 1,300 21,775
Hirose Electric Co. Ltd. 18,000 1,102,556
Hitachi Ltd. 629,000 6,236,403
Intel Corp. 260,700 16,652,213
LSI Logic Corp. (a) 19,100 771,163
Maxim Integrated Products, Inc. (a) 10,200 357,000
Methode Electronics, Inc. Class A 15,900 270,300
Microchip Technology, Inc. (a) 15,600 429,000
Micron Technology, Inc. 56,050 2,473,206
Molex, Inc. 35,375 1,096,625
Motorola, Inc. 177,400 10,267,025
Nitto Denko Corp. 66,000 1,045,414
Nichicon Corp. 115,000 1,683,208
Ryoyo Electro Corp. Ord. 40,000 1,090,727
Rohm Co. Ltd. 31,000 1,311,479
SGS-Thomson Microelectronic NV (a) 128,000 2,912,000
Samsung Electronics Co. Ltd. (a)(g):
GDR 950 45,125
GDR Part Dividend 879 29,582
GDS 10,150 482,125
Solectron Corp. (a) 155,400 4,273,500
TDK Corp. 14,000 677,895
Texas Instruments, Inc. 4,000 299,500
Thomas & Betts Corp. 8,400 563,850
Toshiba Corp. 129,000 935,007
57,084,742
PHOTOGRAPHIC EQUIPMENT - 0.1%
Fuji Photo Film Co. Ltd. 14,000 324,211
Polaroid Corp. 41,600 1,352,000
1,676,211
TOTAL TECHNOLOGY 162,589,665
TRANSPORTATION - 1.0%
AIR TRANSPORTATION - 0.2%
AMR Corp. (a) 46,300 2,465,475
Comair Holdings, Inc. 6,200 108,500
Delta Air Lines, Inc. 15,800 797,900
Japan Airlines Co. Ltd. 36,000 253,714
KLM Royal Dutch Airlines Ord. (a) 36,700 901,210
Korea Air Lines RFD (a) 3,099 94,326
Korean Air 25,227 821,103
Swire Pacific Class A 191,000 1,189,739
6,631,967
RAILROADS - 0.6%
Burlington Northern, Inc. 38,200 1,838,375
CSX Corp. 63,700 4,435,113
Canadian Pacific Ltd. Ord. 411,700 6,130,423
Conrail, Inc. 5,400 272,700
East Japan Railway Ord. 138 688,962
Illinois Central Corp. Series A 36,200 1,113,150
Santa Fe Pacific Corp. 149,000 2,607,500
Southern Pacific Rail Corp. (a) 181,200 3,284,250
Wisconsin Central Transportation Corp. (a) 14,100 581,625
20,952,098
SHIPPING - 0.1%
Han Jin Transportation Co. (a) 11,122 490,862
Kawasaki Kisen Kaisha Ltd. (a) 146,000 585,464
SHARES VALUE
(NOTE 1)
Kirby Corp. (a) 13,300 $ 262,675
Mitsui OSK Lines Ltd. 281,000 1,064,841
Transportacion Maritima Mexicana SA
de CV sponsored ADR, Series L 47,800 364,475
2,768,317
TRUCKING & FREIGHT - 0.1%
Expeditors International of
Washington, Inc. 6,700 145,725
Hitachi Transport System Co. 62,000 665,063
Roadway Services, Inc. 30,700 1,742,225
2,553,013
TOTAL TRANSPORTATION 32,905,395
UTILITIES - 5.6%
CELLULAR - 0.6%
Advanced Information Services
(For. Reg.) 41,100 569,719
Airtouch Communications (a) 132,400 3,856,150
BCE Mobile Communications, Inc. (a) 17,500 555,496
Cellular Communications, Inc.
Series A (redeemable) (a) 4,400 235,400
Korea Mobile Telecommunications
Corp. (a) 50 32,625
Rogers Cantel Mobile Communications, Inc.
Class B (non-vtg.) (a) 34,600 1,018,083
Technology Resources Industries BHD (a) 1,135,000 3,622,580
USA Mobile Communications 24,150 238,481
Vanguard Cellular Systems, Inc. Class A (a) 13,400 345,050
Vodafone Group PLC sponsored ADR 230,100 7,737,113
18,210,697
ELECTRIC UTILITY - 1.6%
AES Corp. 144,900 2,825,550
American Electric Power Co., Inc. 37,200 1,222,950
Baltimore Gas & Electric Co. 63,700 1,409,363
Boston Edison Co. 24,800 592,100
Carolina Power & Light Co. 40,000 1,065,000
Central & South West Corp. 33,400 755,675
Central Costanera SA ADR (g) 12,000 312,000
Central Louisiana Electric Co., Inc. 32,700 772,538
Consolidated Electric Power Asia Ltd. 1,000,200 2,197,389
Consolidated Edison Co. of New York, Inc. 41,400 1,066,050
DPL, Inc. 7,800 159,900
DQE, Inc. 36,500 1,081,313
Detroit Edison Company 34,800 909,150
Dominion Resources, Inc. 17,400 622,050
Duke Power Co. 20,400 777,750
Eastern Utilities Associates 33,628 739,816
Electrobras PN 1,469,800 510,182
Empresa Nacional De Electricidad SA
sponsored ADR 27,900 1,129,950
Entergy Corp. 12,800 280,000
EVN (Energie-Versor Nieder) 2,300 298,794
FECSA (Fuerzas Electricas de Cataluna
SA) Class A 280,200 1,487,167
FPL Group, Inc. 29,900 1,050,238
Fuji Electric Co. Ltd. 244,000 1,338,025
General Public Utilities Corp. 3,200 84,000
Hong Kong Electric Holdings Ord. 536,000 1,465,027
Houston Industries, Inc. 21,700 773,063
Huaneng Power International, Inc.
Class N sponsored ADR (a) 35,500 523,625
Illinova Corp. 43,400 943,950
Iberdrola SA 120,280 741,590
COMMON STOCKS - CONTINUED
SHARES VALUE
(NOTE 1)
UTILITIES - CONTINUED
ELECTRIC UTILITY - CONTINUED
Korea Elecric Power Corp. 89,200 $ 3,146,266
Korea Elecric Power Corp. ADR 134,800 2,881,350
Light (Servicos de Electricidade) SA Ord. 1,150,200 415,544
Montana Power Co. 27,900 641,700
NIPSCO Industries, Inc. 26,100 776,475
New England Electric Systems 2,200 70,675
Northern States Power Co. 13,200 580,800
Ohio Edison Co. 48,700 900,950
Pacific Gas & Electric Co. 41,000 999,375
PacifiCorp. 71,600 1,297,750
Peco Energy Co. 71,000 1,739,500
Portland General Corp. 9,100 175,175
Public Service Co. of Colorado 10,000 293,750
Public Service Enterprise Group, Inc. 36,200 959,300
SCECorp. 69,300 1,013,513
Scottish Power PLC 127,650 701,873
Sevillana de Electricidad 206,600 975,741
Southern Co. 42,100 842,000
Texas Utilities Co. 20,900 668,800
Unicom Corp. 31,300 751,200
Union Electrica Fenosa 263,700 1,097,248
United Illuminating Co. 12,700 374,650
Veba Vereinigte Elektrizitaets &
Bergwerks AG Ord. 12,800 4,460,794
52,898,634
GAS - 0.6%
Columbia Gas System, Inc. (The) (a) 34,900 820,150
ENSERCH Corp. 44,400 582,750
El Paso Natural Gas Co. 9,700 295,850
Energen Corp. 9,900 217,800
Enron Corp. 158,100 4,822,050
Equitable Resources, Inc. 4,600 124,775
Gas Natural SDG SA Series E 7,400 636,052
MCN Corp. 171,200 3,103,000
National Fuel Gas Co. 10,700 272,850
NICOR, Inc. 13,400 304,850
Noram Energy Corp. 51,800 278,425
ONEOK, Inc. 12,400 223,200
Pacific Enterprises 12,100 257,125
Questar Corp. 69,400 1,908,500
Sonat, Inc. 22,400 627,200
Tejas Gas Corp. (a) 6,900 328,613
UGI Corp. 13,400 273,025
WICOR, Inc. 6,500 184,438
Westcoat Energy, Inc. 78,700 1,249,073
Williams Companies, Inc. 154,200 3,874,275
20,384,001
TELEPHONE SERVICES - 2.8%
ALC Communications Corp. (a) 5,000 155,625
ALLTEL Corp. 22,100 665,763
AT&T Corp. 96,000 4,824,000
Ameritech Corp. 358,700 14,482,513
Bell Atlantic Corp. 142,700 7,099,325
BellSouth Corp. 178,800 9,677,550
British Telecommunications PLC ADR 15,600 937,950
GTE Corp. 103,700 3,149,888
Hong Kong Telecommunications Ltd. 656,000 1,250,454
Indosat (Indonesia Satellite) sponsored
ADR (a) 31,200 1,115,400
Koninklijke PPT Nederland 51,900 1,750,144
MCI Communications Corp. 96,600 1,775,025
SHARES VALUE
(NOTE 1)
NYNEX Corp. 280,000 $ 10,290,000
Nippon Telegraph & Telephone Corp. Ord. 211 1,863,569
Pacific Telesis Group 40,500 1,154,250
Pakistan Telecommunications Voucher
GDR (a)(g) 20,040 2,505,000
Southwestern Bell Corp. 349,000 14,090,875
Sprint Corp. 3,200 88,400
Tele Danmark AS Class B ADR 9,900 252,450
Telebras PN (Pfd. Reg.) 42,749,700 1,913,049
Telecom Argentina Stet France Telecom SA 161,400 790,821
Telefonica de Argentina SA Class B 154,900 797,695
Telefonica de Espana SA:
Ord. 120,800 1,426,303
sponsored ADR 13,900 488,238
Telefonos de Mexico SA sponsored ADR
representing shares Ord. Class L 96,100 3,940,100
Telephone & Data Systems, Inc. 8,717 402,072
Telesp PN (Pfd. Reg.) 5,736,000 816,061
Telecom Italia Ord. 1,078,800 2,799,788
U.S. West, Inc. 63,600 2,265,750
92,768,058
TOTAL UTILITIES 184,261,390
TOTAL COMMON STOCKS
(Cost $1,369,921,925) 1,357,145,990
PREFERRED STOCKS - 0.6%
CONVERTIBLE PREFERRED STOCKS - 0.2%
BASIC INDUSTRIES - 0.1%
METALS & MINING - 0.1%
Alumax, Inc., Series A, $4.00 100 12,025
Reynolds Metals Co. $3.31 20,200 977,175
989,200
DURABLES - 0.0%
AUTOS, TIRES, & ACCESSORIES - 0.0%
Chrysler Corp., Series A, $4.625 (g) 7,000 949,375
ENERGY - 0.1%
ENERGY SERVICES - 0.0%
Noble Drilling Corp. 1.5 20,000 420,000
OIL & GAS - 0.1%
Atlantic Richfield Co. exchangeable (a) 25,000 653,125
Unocal Corp. $3.50 (g) 16,600 813,400
1,466,525
TOTAL ENERGY 1,886,525
HEALTH - 0.0%
MEDICAL EQUIPMENT & SUPPLIES - 0.0%
U.S. Surgical Corp. $2.20 (g) 27,500 632,500
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
ELECTRICAL EQUIPMENT - 0.0%
Westinghouse Electric Corp. $1.30 (g) 30,200 403,925
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
Cooper Industries, Inc. $8.00
exchangeable 34,600 704,975
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 1,108,900
PREFERRED STOCKS - CONTINUED
SHARES VALUE
(NOTE 1)
NONDURABLES - 0.0%
HOUSEHOLD PRODUCTS - 0.0%
Revlon Group, Inc., Series B,
pay-in-kind $14.875 exchangeable 5,100 $ 494,700
TOBACCO - 0.0%
RJR Nabisco Holdings Corp. Series C,
depositary shares representing
1/10 share 64,100 384,600
TOTAL NONDURABLES 879,300
RETAIL & WHOLESALE - 0.0%
GROCERY STORES - 0.0%
Supermarkets General Holdings Corp.
pay-in-kind $3.52 exchangeable 20,000 415,000
TECHNOLOGY - 0.0%
COMPUTER SERVICES & SOFTWARE - 0.0%
Ceridian Corp. 7,500 472,500
TOTAL CONVERTIBLE PREFERRED STOCKS 7,333,300
NONCONVERTIBLE PREFERRED STOCKS - 0.4%
BASIC INDUSTRIES - 0.1%
IRON & STEEL - 0.1%
Dongbu Steel Co. Ltd. 10,500 173,114
Geneva Steel Co. 14% Series B,
exchangable (a) 8,000 896,000
1,069,114
CONSTRUCTION & REAL ESTATE - 0.0%
CONSTRUCTION - 0.0%
Dongbu Construction (a) 800 9,639
DURABLES - 0.0%
AUTOS, TIRES, & ACCESSORIES - 0.0%
Hyundai Motor Service Co. (a) 1,900 58,554
Hyundai Motor Service Co. Ltd. (a) 190 4,099
62,653
ENERGY - 0.0%
OIL & GAS - 0.0%
Gulf Canada Resources Ltd.,
Series 1, adj. rate 178,000 445,000
FINANCE - 0.1%
CREDIT & OTHER FINANCE - 0.0%
Tong Yang Securities (a) 24,400 306,354
INSURANCE - 0.0%
SAI (Sta Assicur Industriale) N/C Risp 111,600 585,466
SAVINGS & LOANS - 0.1%
California Federal Bank Series B, 10 5/8% 16,900 1,694,225
TOTAL FINANCE 2,586,045
TECHNOLOGY - 0.0%
COMPUTER SERVICES & SOFTWARE - 0.0%
Sap AG 1,500 849,952
UTILITIES - 0.2%
ELECTRIC UTILITY - 0.0%
Public Service Co. of New Hampshire Co.
Series A 6,000 153,000
SHARES VALUE
(NOTE 1)
TELEPHONE SERVICES - 0.2%
Stet (Societa Finanziaria Telefonica) Spa 2,487,100 $ 5,899,053
TOTAL UTILITIES 6,052,053
TOTAL NONCONVERTIBLE PREFERRED STOCKS 11,074,456
TOTAL PREFERRED STOCKS
(Cost $17,094,835) 18,407,756
CORPORATE BONDS - 10.1%
MOODY'S RATINGS PRINCIPAL
(UNAUDITED)(D) AMOUNT (C)
CONVERTIBLE BONDS - 0.1%
BASIC INDUSTRIES - 0.0%
IRON & STEEL - 0.0%
Essar Gujarat Ltd.
5 1/2%, 8/5/98 - $ 225,000 384,750
PAPER & FOREST PRODUCTS - 0.0%
Stone Consolidated Corp.
8%, 12/31/03 - CAD 560,000 479,349
TOTAL BASIC INDUSTRIES 864,099
CONSTRUCTION & REAL ESTATE - 0.1%
CONSTRUCTION - 0.1%
Renong BHD 2 1/2%,
1/15/05 (g) - 1,800,000 1,656,000
DURABLES - 0.0%
TEXTILES & APPAREL - 0.0%
Shinwon Corp. 0.5%,
12/31/08 - 120,000 126,000
FINANCE - 0.0%
CREDIT & OTHER FINANCE - 0.0%
Industrial Credit & Investment Corp.
2 1/2%, 4/3/00 (g) - 485,000 356,475
SCICI Ltd. 3 1/2%, 4/1/04 - 225,000 195,750
552,225
SECURITIES INDUSTRY - 0.0%
Peregrine Investment Financial
Cayman Ltd. 4 1/2%,
12/1/00 (g) - 290,000 197,200
TOTAL FINANCE 749,425
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
ELECTRICAL EQUIPMENT - 0.0%
Daewoo Electronics euro
3 1/2%, 12/31/07 - 300,000 384,000
NONDURABLES - 0.0%
BEVERAGES - 0.0%
Jinro Ltd. euro 0.25%, 9/30/09 - 120,000 108,000
TECHNOLOGY - 0.0%
COMPUTERS & OFFICE EQUIPMENT - 0.0%
Unisys Corp. 8 1/4%,
8/1/00 B2 350,000 352,625
TOTAL CONVERTIBLE BONDS 4,240,149
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (A) (NOTE 1)
NONCONVERTIBLE BONDS - 10.0%
AEROSPACE & DEFENSE - 0.0%
DEFENSE ELECTRONICS - 0.0%
Tracor, Inc. 10 7/8%, 8/15/01 B2 $ 470,000 $ 451,200
BASIC INDUSTRIES - 0.8%
CHEMICALS & PLASTICS - 0.3%
G-I Holdings, Inc., Series B,
0%, 10/1/98 Ba3 8,820,000 5,402,250
IMC Fertilizer Group, Inc.
10 1/8%, 6/15/01 B1 1,350,000 1,360,125
NL Industires, Inc. 11 3/4%,
10/15/03 B1 580,000 580,000
OSI Specialties, Inc.
9 1/4%, 10/1/02 B1 370,000 336,700
UCC Corp. 9%, 9/1/00 B1 3,300,000 3,077,250
10,756,325
IRON & STEEL - 0.0%
WCI Steel, Inc. Series B,
10 1/2%, 3/1/02 B1 640,000 617,600
METALS & MINING - 0.1%
Kaiser Aluminum & Chemical
Corp. 12 3/4%, 2/1/03 B2 300,000 302,250
Sherritt Incorporated
11%, 3/31/04 B1 850,000 578,468
Sifto Canada, Inc.
8 1/2%, 7/15/00 B1 1,600,000 1,444,000
2,324,718
PAPER & FOREST PRODUCTS - 0.4%
Container Corp. America
9 3/4%, 4/1/03 B2 1,125,000 1,065,938
Repap Wisconsin, Inc.:
9 1/4%, 2/1/02 B1 5,050,000 4,507,125
9 7/8%, 5/1/06 B3 840,000 735,000
Stone Container Corp.:
12 5/8%, 7/15/98 B1 1,350,000 1,417,500
9 7/8%, 2/1/01 B1 2,820,000 2,664,900
Triangle Pacific Corp.
10 1/2%, 8/1/03 B2 1,580,000 1,508,900
Valcor, Inc. 9 5/8%, 11/1/03 B1 90,000 80,100
11,979,463
TOTAL BASIC INDUSTRIES 25,678,106
CONGLOMERATES - 0.0%
Sequa Corp.
9 3/8%, 12/15/03 B3 440,000 367,400
CONSTRUCTION & REAL ESTATE - 1.6%
BUILDING MATERIALS - 1.3%
Adience, Inc. 11%, 6/15/02 - 1,000,000 725,000
Building Materials Corp. of
America 11 3/4%, 7/1/04 B1 3,900,000 1,950,000
Cemex SA 8 7/8%,
6/10/98 (g) Ba2 12,465,000 10,860,131
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (A) (NOTE 1)
Cemex SA and Tolmex
SA de CV:
8 7/8%, 6/10/98 Ba2 $ 11,610,000 $ 10,115,213
10%, 11/5/99 Ba2 4,170,000 3,648,750
Tolmex SA de CV
8 3/8%, 11/1/03 Ba2 10,335,000 7,501,350
USG Corp.:
10 1/4%, 12/15/02 B2 1,050,000 1,068,375
Series B, 9 1/4%, 9/15/01 B1 8,450,000 7,900,750
Series B, 10 1/4%, 12/15/02 B1 826,000 842,520
44,612,089
CONSTRUCTION - 0.3%
Baldwin Co. Series B,
10 3/8%, 8/1/03 B2 280,000 156,800
Empresas ICA Sociedad
Controladora SA de CV
9 3/4%, 2/11/98 (g) Ba3 990,000 861,300
ICA euro 9 3/4%, 2/11/98 Ba3 1,903,000 1,655,610
Kaufman & Broad Home Corp.
9 3/8%, 5/1/03 Ba3 306,000 266,220
MDC Holdings, Inc.
11 1/8%, 7/15/03 B 510,000 415,650
Ryland Group, Inc.
9 5/8%, 6/1/04 Ba3 900,000 756,000
U.S. Home Corp.
9 3/4%, 6/15/03 Ba3 6,175,000 5,341,375
9,452,955
TOTAL CONSTRUCTION & REAL ESTATE 54,065,044
DURABLES - 0.1%
TEXTILES & APPAREL - 0.1%
Hat Brands, Inc.:
8 3/4%, 12/15/01 B1 1,120,000 1,033,200
12 5/8%, 9/15/02 - 270,000 284,175
9 3/8%, 12/15/05 B3 770,000 691,075
2,008,450
ENERGY - 0.9%
ENERGY SERVICES - 0.7%
Falcon Drilling, Inc.
9 3/4%, 1/15/01 B2 3,340,000 3,181,350
TransTexas Gas Corp.
10 1/2%, 9/1/00 B1 20,890,000 20,106,625
23,287,975
INDEPENDENT POWER - 0.0%
Consolidated Hydro Series B,
0%, 7/15/03 (e) - 1,585,000 887,600
OIL & GAS - 0.2%
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 710,000 657,638
Mesa Capital Corp. secured
0%, 6/30/98 (e) B3 3,079,000 2,647,940
7,509,978
TOTAL ENERGY 31,685,553
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (A) (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - 1.2%
BANKS - 0.5%
Bancomer SA:
9%, 6/1/00 (g) Ba2 $ 5,000,000 $ 4,000,000
euro 8%, 7/7/98 (g) Ba2 6,620,000 5,362,200
SNC euro 8%, 7/7/98 Ba2 7,375,000 5,973,750
Signet Banking Corp.
9 5/8%, 6/1/99 Baa1 790,000 813,921
16,149,871
CREDIT & OTHER FINANCE - 0.0%
Tiphook Finance Corp.:
7 1/8%, 5/1/98 Caa 255,000 188,063
8%, 3/15/00 Caa 700,000 490,000
678,063
INSURANCE - 0.6%
American Annuity Group, Inc.
11 1/8%, 2/1/03 B2 2,460,000 2,423,100
American Financial Corp.:
12%, 9/3/99 - 3,010,000 3,017,525
Series B,12%, 9/3/99 - 1,410,000 1,413,525
American Life Holdings
11 1/4%, 9/15/04 B1 900,000 873,000
Americo Life, Inc.
9 1/4%, 6/1/05 Ba2 1,600,000 1,352,000
Nacolah, Inc.
9 1/2%, 12/1/03 B1 760,000 672,600
Penncorp Financial Group, Inc.
9 1/4%, 12/15/03 B1 930,000 818,400
Reliance Financial Services:
9.273%, 11/1/00 BBB 1,930,000 1,794,900
10.36%, 12/1/00 BBB 2,300,000 2,294,250
Reliance Group:
9%, 11/15/00 Ba3 3,700,000 3,376,250
9 3/4%, 11/15/03 B1 2,190,000 1,927,200
19,962,750
SAVINGS & LOANS - 0.1%
Western Financial Savings
Bank Orange Calif.
8 1/2%, 7/1/03 Ba3 1,600,000 1,440,000
TOTAL FINANCE 38,230,684
HEALTH - 0.3%
MEDICAL FACILITIES MANAGEMENT - 0.3%
American Medical International,
Inc. Series B, 9 1/2%,
4/15/06 B1 1,280,000 1,283,200
Health South Rehabilitation Co.
9 1/2%, 4/1/01 Ba3 620,000 601,400
Healthtrust, Inc. - The Hospital Co.:
10 3/4%, 5/1/02 B1 6,100,000 6,496,500
8 3/4%, 3/15/05 B1 1,375,000 1,320,000
Integrated Health Services, Inc.
10 3/4%, 7/15/04 B2 680,000 680,000
10,381,100
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (A) (NOTE 1)
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
IMO Industries, Inc.
12%, 11/1/00 B3 $ 240,000 $ 240,600
Specialty Equipment Cos., Inc.
11 3/8%, 12/1/03 B3 1,780,000 1,726,600
1,967,200
MEDIA & LEISURE - 2.7%
BROADCASTING - 0.9%
Act III Broadcasting, Inc.
9 5/8%, 12/15/03 B3 400,000 372,000
Chancellor Broadcasting
12 1/2%, 10/1/04 B3 570,000 555,750
Citicasters, Inc.
9 3/4%, 2/15/04 B- 5,325,000 5,178,563
Continental Cablevision, Inc.:
8 5/8%, 8/15/03 Ba2 400,000 365,000
9%, 9/1/08 Ba2 626,000 563,400
Helicon Group LP/Helicon
Capital Corp. Series B,
9%, 11/1/03 Caa 1,000,000 840,000
NWCG Holdings Corp.
0%, 6/15/99 Caa 910,000 459,550
PTI Holdings, Inc.
7%, 12/17/02 - 140,000 84,000
Robin Media Group, Inc.
11 1/8%, 4/1/97 - 1,340,000 1,293,100
Rogers Cablesystems
9.65%, 1/15/14 Ba3 CAD 860,000 506,099
SCI Television, Inc. secured:
7 1/2%, 6/30/98 (i) - 10,199,174 9,918,697
11%, 6/30/05 B3 10,608,000 10,740,600
Univision Network Holdings
LP 7%, 12/17/02 - 960,000 576,000
Viacom, Inc. 8%, 7/7/06 B2 740,000 634,550
32,087,309
LODGING & GAMING - 1.6%
Aztar Corp. 11%, 10/1/02 B2 2,900,000 2,653,500
Ballys Grand, Inc., 1st mtg.
10 3/8%, 12/15/03 B2 2,300,000 2,001,000
Bally's Casino Holdings, Inc.
10 1/2%, 6/15/98 B3 11,830,000 7,393,750
Bally's Park Place Funding, Inc.
9 1/4%, 3/15/04 B1 3,650,000 3,120,750
Boyd Gaming Corp.
10 3/4%, 9/3/03 B2 150,000 136,500
California Hotel Finance Corp.
gtd. 11%, 12/1/02 B2 12,145,000 11,112,675
Embassy Suites, Inc.:
gtd 8 3/4%, 3/15/00 (g) Ba3 4,900,000 4,630,500
10 7/8%, 4/15/02 Ba3 4,750,000 4,845,000
First Mexican Acceptance Corp.
euro 10 3/4%, 9/15/96 - 600,000 591,276
Fitzgeralds Gaming Corp.
(unit $1,000 sr. secured
note & warrants)
13 1/2%, 3/15/96 - 420,000 231,000
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (A) (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
LODGING & GAMING - CONTINUED
GNF Corp. Series B,
10 5/8%, 4/1/03 B2 $ 370,000 $ 244,200
GNS Finance Corp.
9 1/4%, 3/15/03 Ba3 480,000 459,600
Grand Casino Resorts, Inc. gtd.
1st mtg. 12 1/2%, 2/1/00 - 4,150,000 3,921,750
HWCC-Tunica, Inc. 1st mtg.
13 1/2%, 9/30/98 (g) - 850,000 739,500
Harrah's Jazz Co.
14 1/4%, 11/15/01 B1 4,120,000 4,315,700
Host Marriott Corp.:
9 1/8%, 12/1/00 B1 119,000 115,430
10 1/2%, 5/1/06 B1 2,003,000 1,992,985
11%, 5/1/06 B1 240,000 240,000
Host Marriott Hospitality, Inc.:
10 5/8%, 2/1/00 B1 271,000 269,645
11 1/4%, 7/18/05 B1 3,000 3,015
Red Roof Inns
9 5/8%, 12/15/03 B3 3,030,000 2,757,300
Showboat, Inc. 13%, 8/1/09 B2 390,000 372,450
Sun International Hotels Ltd.
10 1/2%, 12/12/95 (h) - 19,304 19,304
52,166,830
RESTAURANTS - 0.2%
Family Restaurants, Inc.
9 3/4%, 2/1/02 B1 3,670,000 2,844,250
Flagstar Corp.:
10 3/4%, 9/15/01 B2 240,000 223,800
10 7/8%, 12/1/02 B2 560,000 522,200
11 1/4%, 11/1/04 Caa 1,380,000 1,135,050
4,725,300
TOTAL MEDIA & LEISURE 88,979,439
NONDURABLES - 1.0%
BEVERAGES - 0.1%
Dr. Pepper/Seven-Up Companies,
Inc. 0%, 11/1/02 (e) B3 800,000 632,000
Fomento Economico Mexicano
SA de CV euro 9 1/2%,
7/22/97 - 1,780,000 1,586,425
2,218,425
FOODS - 0.0%
Chiquita Brands International, Inc.
9 1/8%, 3/1/04 B1 420,000 365,400
Specialty Foods Corp.
10 1/4%, 8/15/01 B2 800,000 724,000
1,089,400
HOUSEHOLD PRODUCTS - 0.8%
Revlon Consumer Products Corp.:
9 1/2%, 6/1/99 B2 2,235,000 2,067,375
9 3/8%, 4/1/01 B2 5,755,000 5,150,725
10 1/2%, 2/15/03 B3 4,430,000 3,876,250
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (A) (NOTE 1)
Revlon Worldwide Corp. secured
0%, 3/15/98 B3 $ 25,040,000 $ 14,648,400
25,742,750
TOBACCO - 0.1%
Empresas La Moderna SA
10 1/4%, 11/12/97 (g) - 3,895,000 3,388,650
TOTAL NONDURABLES 32,439,225
RETAIL & WHOLESALE - 0.4%
APPAREL STORES - 0.1%
Apparel Retailers, Inc.
12 3/4%, 8/15/05 Caa 2,710,000 1,463,400
Lamonts Apparel Corp.
10 1/4%, 11/1/99 (b) - 2,645,000 1,679,575
3,142,975
DRUG STORES - 0.1%
Thrifty Payless, Inc.:
11 3/4%, 4/15/03 B2 1,380,000 1,352,400
12 1/4%, 4/15/04 B3 2,390,000 2,258,550
3,610,950
GENERAL MERCHANDISE STORES - 0.1%
Hills Stores Co. 10 1/4%,
9/30/03 - 1,610,000 1,481,200
Parisian, Inc.
9 7/8%, 7/15/03 B3 2,810,000 2,163,700
3,644,900
GROCERY STORES - 0.1%
Penn Traffic Co.
9 5/8%, 4/15/05 B2 1,625,000 1,411,719
Ralph's Grocery Co.
9%, 4/1/03 B2 625,000 600,000
2,011,719
RETAIL & WHOLESALE, MISCELLANEOUS - 0.0%
Finlay Fine Jewelry Corp.
10 5/8%, 5/1/03 B1 1,025,000 937,875
Musicland Group, Inc.
9%, 6/15/03 B1 390,000 325,650
1,263,525
TOTAL RETAIL & WHOLESALE 13,674,069
SERVICES - 0.0%
ADVERTISING - 0.0%
Outdoor Systems, Inc.
10 3/4%, 8/15/03 B2 910,000 819,000
EDUCATIONAL SERVICES - 0.0%
Kindercare Learning Centers,
Inc. 10 3/8%, 6/1/01 Ba3 860,000 864,300
TOTAL SERVICES 1,683,300
TECHNOLOGY - 0.2%
COMMUNICATIONS EQUIPMENT - 0.1%
Echostar Communications Corp.
0%, 6/1/04 ($1,000 sr.
secured disc. notes
& 6 warrants) (e) Caa 2,810,000 1,454,175
COMPUTERS & OFFICE EQUIPMENT - 0.1%
Unisys Corp.
9 3/4%, 9/15/96 Ba3 2,725,000 2,745,438
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (A) (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
TECHNOLOGY - CONTINUED
ELECTRONICS - 0.0%
Berg Electronics, Inc.
11 3/8%, 5/1/03 B3 $ 485,000 $ 481,363
Grupo Condumex SA de CV
7 3/8%, 7/27/98 (g) - 1,000,000 835,000
1,316,363
TOTAL TECHNOLOGY 5,515,976
TRANSPORTATION - 0.3%
RAILROADS - 0.2%
Southern Pacific Rail Corp.
9 3/8%, 8/15/05 Ba3 3,050,000 2,813,625
Transtar Holdings LP/Transtar
Capital Corp. Series B,
0%, 12/15/03 (e) B- 3,160,000 1,635,300
4,448,925
SHIPPING - 0.0%
Sea Containers Ltd.
9 1/2%, 7/1/03 Ba3 450,000 398,250
TRUCKING & FREIGHT - 0.1%
MC-Cuernavaca Trust
9 1/4%, 7/25/01 (g) A 4,710,449 3,956,777
TOTAL TRANSPORTATION 8,803,952
UTILITIES - 0.4%
CELLULAR - 0.1%
Horizon Cellular Telephone
0%, 10/1/00 (e) Caa 720,000 520,200
Mobilmedia Communications,
Inc. 0%, 12/1/03 (e) B3 2,820,000 1,522,800
2,043,000
ELECTRIC UTILITY - 0.1%
AES Corp. 9 3/4%, 6/15/00 Ba2 2,025,000 1,933,875
Del Norte Funding Corp.
9.05%, 1/2/93 (b) Ca 180,000 91,800
El Paso Funding Corp.
lease oblig. (b):
9 3/8%, 10/1/96 Ca 210,000 109,200
9 1/5%, 7/2/97 Ca 70,000 37,800
10 3/4%, 4/1/13 Ca 1,040,000 540,800
2,713,475
TELEPHONE SERVICES - 0.2%
MFS Communications
0%, 1/15/04 B3 10,320,000 6,114,600
TOTAL UTILITIES 10,871,075
TOTAL NONCONVERTIBLE BONDS 326,801,773
TOTAL CORPORATE BONDS
(Cost $364,250,592) 331,041,922
U.S. TREASURY OBLIGATIONS - 27.0%
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (A) (NOTE 1)
U.S. Treasury Bill, yield at
date of purchase
5.59%, 3/30/95 Aaa $ 200,000,000 $197,354,000
6 1/4%, 2/15/03 (n) Aaa 498,690,000 451,000,275
5 3/4%, 8/15/03 Aaa 97,000,000 84,298,820
7 7/8%, 11/15/04 Aaa 154,470,000 154,904,061
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $899,124,462) 887,557,156
U.S. GOV'T. AGENCY - MORTGAGE-BACKED SECURITIES - 0.0%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.0%
8 1/2% 12/15/16
(Cost $183,081) Aaa 171,504 170,445
COMMERCIAL MORTGAGE SECURITIES - 0.1%
CBA Mortgage Corp.
commercial Series 1993-C1
Class E, 7.158%,
12/25/03 (g) Ba2 536,000 429,135
CS First Boston Mortgage
Securities Corp. commercial
Series 1994-CFB1 (g):
Class E, 6.4769%,
1/25/28 Ba2 917,928 650,581
Class F, 6.48%, 1/25/28 - 537,037 326,082
Nomura Asset Securities Corp.
commercial Series 1994-MD-I
Class B-2, 8.4263%,
3/15/98 (g) - 510,000 383,138
Resolution Trust Corp.
commercial Series 1994-C1
Class E, 8%, 6/25/26 BB 890,961 677,965
SML, Inc. commercial Series
1994-C1:
Class B-3, 11.69%,
9/18/99 - 1,100,000 965,800
Class C, 9.28%,
9/18/99 (h) - 1,475,000 962,438
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $4,551,257) 4,395,139
COMPLEX MORTGAGE SECURITIES - 0.0%
INTEREST ONLY STRIPS - 0.0%
SML, Inc. commercial
Series 1994-C1 Class S,
0.81%, 9/18/99 (l)
(Cost $1,062,998) - 36,095,000 1,010,660
FOREIGN GOVERNMENT OBLIGATIONS - 5.7%
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (A) (NOTE 1)
Province of Cordoba, Argentina
10%, 1/28/95 (h) - $ 581,250 $ 540,563
Argentina Republic:
0%, 2/24/95 B 7,600,000 7,486,760
6 1/2%, 3/31/05 (g)(i) - 822,000 524,025
euro, 6 1/2%, 3/31/05 BB- 62,150,000 39,620,625
Brady euro, 4 1/4%,
3/31/23 (i) B1 14,805,000 6,218,100
Brazil Federative Republic IDU
euro 7.8125%, 1/1/01 B1 BRR 17,150,000 14,320,250
Mexican Government Tesabono:
0%, 1/26/95 - 69,080,000 68,059,115
0%, 2/23/95 - 9,669,000 9,382,318
0%, 3/16/95 - 20,035,000 19,223,348
New Zealand Government
8%, 4/15/04 Aaa NZD 21,000,000 13,409,542
Republic of Ecuador:
30 year discount bond (g)(j) - 2,250,000 1,215,000
past due interest (g)(j) - 6,500,000 2,388,750
Siderurgica Brasileiras inflation
indexed 6%, 8/15/99 (m) - BRR 22,372,700 3,968,103
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $197,221,047) 186,356,499
INDEXED SECURITIES - 2.5%
INTEREST INDEXED - 0.8%
Bankers Trust Company
note 14.8959%, 3/3/95 (inversely
indexed to 1-year GBP LIBOR,
multiplied by 7.63) 3,930,000 3,745,290
Citibank Nassau 15.41%, 3/3/95
(inversely indexed to 1-year GBP
swap rate, multiplied by 7.7381) 7,750,000 7,373,350
Citibank Nassau cert. of dep.:
6.4125%, 12/22/95 (inversely
indexed to 3-month GBP LIBOR,
multiplied by 7.25) 2,160,000 2,100,167
6.43%, 12/22/95 (inversely
indexed to 3-month GBP LIBOR,
multiplied by 7.25) 3,830,000 3,703,610
6.46%, 12/22/95 (inversely
indexed to 3-month GBP LIBOR,
multiplied by 7.25) 5,750,000 5,599,515
E.I. du Pont de Nemours
0%, 3/8/95 (coupon inversely
indexed to GBP LIBOR and
principal indexed to value of
1-year United Kingdom securities,
both multiplied by 10) (k) 3,100,000 2,167,210
24,689,142
PRINCIPAL VALUE
AMOUNT (C) (NOTE 1)
COMMODITY INDEXED - 1.7%
Goldman Sachs Group, L.P. note:
5.03%, 3/13/95
(indexed to Goldman Sachs
Commodity Index) $ 17,680,000 $ 17,029,376
6.21%, 3/15/95
(indexed to crude oil price) 9,340,000 9,729,478
5.45% - 5.50%, 3/27/95
(indexed to gold price) 18,650,000 17,736,765
Morgan Guaranty Trust Co. cert.
of dep. 5.40411%, 3/27/95
(indexed to gold price) 13,300,000 12,653,620
57,149,239
TOTAL INDEXED SECURITIES
(Cost $85,490,000) 81,838,381
PURCHASED BANK DEBT - 0.2%
Republic of Ecuador:
7 5/8%, 12/21/04 (g) (i) 733,000 498,440
loan participation 3,000,000 1,443,750
loan participation (a) 3,200,000 1,480,000
loan participation under 1985
multi-year refinancing
agreement (o) JPY 600,000 2,640,878
par 30 year bonds (g)(j) 3,750,000 1,115,625
Resorts International, Inc.
unfunded revolver loan (i) 66,000 -
TOTAL PURCHASED BANK DEBT
(Cost $6,975,454) 7,178,693
REPURCHASE AGREEMENTS - 12.5%
MATURITY
AMOUNT
Investments in repurchase agreements,
(U.S.Treasury obligations), in a joint
trading account at 5.77%, dated
12/30/94 due 1/3/95 $ 412,214,106 411,950,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $3,357,825,651) $ 3,287,052,641
FUTURES CONTRACTS
EXPIRATION UNDERLYING FACE UNREALIZED
DATE AMOUNT AT VALUE GAIN/(LOSS)
PURCHASED
86 Midcap 400 Stock
Index Futures March 1995 $ 7,342,250 $ 178,490
THE FACE VALUE OF FUTURES PURCHASED AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 0.2%
SOLD
778 S&P 500 Stock
Index Futures March 1995 $ 179,465,150 $ (2,679,378)
THE FACE VALUE OF FUTURES SOLD AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 5.5%
$ (2,500,888)
FOWARD FOREIGN CURRENCY CONTRACTS
SETTLEMENT UNREALIZED
DATE(S) VALUE GAIN/(LOSS)
CONTRACTS TO BUY
29,945,090 NZD 1/6/95 to 1/11/95 $ 19,154,274 $ 1,147,090
(Payable amount $18,007,184)
THE VALUE OF CONTRACTS TO BUY AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 0.6%
CONTRACTS TO SELL
6,889,215,414 JPY 1/6/95 to 2/6/95 $69,341,405 $2,229,190
(Receivable amount $71,570,595)
THE VALUE OF CONTRACTS TO SELL AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 2.1%
$ 3,376,280
CURRENCY ABBREVIATIONS
BRR - Brazilian Real
CAD - Canadian dollar
JPY - Japanese yen
NZD - New Zealand dollar
LEGEND
(a) Non-income producing
(b) Non-income producing - issuer filed for protection under the Federal
Bankruptcy Code or is in default of interest payment.
(c) Principal amount is stated in United States dollars unless otherwise
noted.
(d) Standard & Poor's Corporation credit ratings are used in the absence of
a rating by Moody's Investors Service, Inc.
(e) Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
(f) An affiliated company is a company in which the fund has ownership of
at least 5% of the voting securities. Transactions with companies which are
or were affiliates are as follows:
PURCHASE SALES DIVIDEND MARKET
AFFILIATE COST COST INCOME VALUE
Daehan Korean
Blue-Chip Investment
Trust (a) $ 5,027,875 $ - $ - $ 10,488,000
(g) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $69,154,716 or 2.1% of net
assets.
(h) 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
Province of Cordoba,
Argentina 10%, 1/28/95 1/27/94 $581,250
SML, Inc. commercial
Series 1994-C1 Class C,
9.28%, 9/18/99 8/11/94 $959,119
Sun International Hotels
Ltd. 10 1/2%, 12/12/95 12/12/94 $19,304
(i) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(j) Security purchased on a delayed delivery basis (see Note 2 of Notes to
Financial Statements).
(k) 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.
(l) Security represents right to receive monthly interest payments on an
underlying pool of mortgages. Principal shown is the par amount of the
mortgage pool.
(m) Principal amount shown is original face amount and does not reflect the
inflation adjustments.
(n) A portion of the Security was pledged to cover margin requirements for
futures contracts and delayed delivery purchases. At the period end, the
value of securities pledged amounted to $9,902,852.
(o) Principal amount in thousands.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $1,914,263,150 and $2,292,240,159, respectively, of which U.S.
government and government agency obligations aggregated $323,871,269 and
$514,688,565, respectively.
The face value of futures contracts opened and closed amounted to
$746,993,421 and $633,558,288, respectively.
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 21.4% AAA, AA, A 21.5%
Baa 0.0% BBB 0.1%
Ba 2.7% BB 3.5%
B 6.2% B 4.6%
Caa 0.2% CCC 0.1%
Ca, C 0.2% 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 1.8% 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 72.9%
Korea 6.4
Mexico 6.1
Japan 2.5
Argentina 1.8
Canada 1.8
United Kingdom 1.2
Others (individually less than 1%) 7.3
100.0%
INCOME TAX INFORMATION
At December 31, 1994, the aggregate cost of investment securities for
income
tax purposes was $3,360,216,014. Net unrealized depreciation aggregated
$73,163,373, of which $108,990,205 related to appreciated investment
securities and $182,153,578 related to depreciated investment securities.
At December 31, 1994, the fund had a capital loss carryforward of
approximately $10,388,000 all of which will expire on December 31, 2002.
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31, 1994
ASSETS
Investment in securities, at value (including repurchase agreements of $411,950,000) (cost $3,357,825,651) - $ 3,287,052,641
See accompanying schedule
Receivable for investments sold 15,085,203
Unrealized appreciation on foreign currency contracts 3,376,280
Receivable for fund shares sold 13,414,997
Dividends receivable 3,717,093
Interest receivable 26,311,723
Receivable for daily variation on futures contracts 1,219,128
Other receivables 12,222
TOTAL ASSETS 3,350,189,287
LIABILITIES
Payable to custodian bank $ 896,997
Payable for investments purchased 45,344,465
Regular delivery
Delayed delivery 4,678,142
Payable for fund shares redeemed 5,781,084
Accrued management fee 1,984,627
Other payables and accrued expenses 976,591
TOTAL LIABILITIES 59,661,906
NET ASSETS $ 3,290,527,381
Net Assets consist of:
Paid in capital $ 3,312,239,729
Undistributed net investment income 117,158,735
Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions (69,758,286)
Net unrealized appreciation (depreciation) on investments and assets and liabilities in foreign currencies (69,112,797)
NET ASSETS, for 238,559,521 shares outstanding $ 3,290,527,381
NET ASSET VALUE, offering price and redemption price per share ($3,290,527,381 (divided by) 238,559,521 shares) $13.79
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1994
INVESTMENT INCOME $ 25,485,926
Dividends
Interest 123,845,743
TOTAL INCOME 149,331,669
EXPENSES
Management fee $ 22,080,801
Transfer agent fees 181,816
Accounting fees and expenses 751,546
Non-interested trustees' compensation 15,286
Custodian fees and expenses 1,140,626
Registration fees 398,328
Audit 145,226
Legal 36,882
Miscellaneous 24,418
Total expenses before reductions 24,774,929
Expense reductions (131,585 24,643,344
)
NET INVESTMENT INCOME 124,688,325
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities (63,531,474
)
Foreign currency transactions (9,565,083
)
Futures contracts 4,190,266 (68,906,291
)
Change in net unrealized appreciation (depreciation) on:
Investment securities (244,589,127
)
Futures contracts (2,532,238
)
Assets and liabilities in foreign currencies (3,324,111 (250,445,476
) )
NET GAIN (LOSS) (319,351,767
)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (194,663,442
)
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1993
INCREASE (DECREASE) IN NET ASSETS
Operations $ 124,688,325 $ 52,166,548
Net investment income
Net realized gain (loss) (68,906,291 71,627,167
)
Change in net unrealized appreciation (depreciation) (250,445,476 164,876,596
)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (194,663,442 288,670,311
)
Distributions to shareholders: (50,526,762 (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 (129,726,445 (38,229,689
) )
Share transactions 1,290,034,795 1,430,436,639
Net proceeds from sales of shares
Reinvestment of distributions 129,726,445 38,229,689
Cost of shares redeemed (227,536,355 (28,138,506
) )
Net increase (decrease) in net assets resulting from share transactions 1,192,224,885 1,440,527,822
TOTAL INCREASE (DECREASE) IN NET ASSETS 867,834,998 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 $117,158,735 and $51,341,945, $ 3,290,527,381 $ 2,422,692,383
respectively)
OTHER INFORMATION
Shares
Sold 88,946,611 101,223,825
Issued in reinvestment of distributions 8,660,857 2,911,629
Redeemed (16,144,437 (1,958,476
) )
Net increase (decrease) 81,463,031 102,176,978
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31,
1994 1993 1992 1991 1990
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 15.42 $ 13.32 $ 12.55 $ 10.24 $ 9.97
Income from Investment Operations
Net investment income .45 .33 .32 .35 .41
Net realized and unrealized gain (loss) (1.33) 2.39 1.09 1.96 .26
Total from investment operations (.88) 2.72 1.41 2.31 .67
Less Distributions (.29) (.33) (.31) - (.40)
From net investment income
In excess of net investment income - (.04) - - -
From net realized gain (.46) (.25) (.33) - -
Total distributions (.75) (.62) (.64) - (.40)
Net asset value, end of period $ 13.79 $ 15.42 $ 13.32 $ 12.55 $ 10.24
TOTAL RETURN A (6.09)% 21.23% 11.71% 22.56% 6.72%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $ 3,290,527 $ 2,422,692 $ 731,724 $ 193,518 $ 35,858
Ratio of expenses to average net assets .80% .88% .91% 1.08% 1.25%
Ratio of expenses to average net assets before
expense reductions .81% .88% .91% 1.08% 1.54%
Ratio of net investment income to average net assets 4.07% 3.64% 4.89% 5.89% 5.92%
Portfolio turnover rate 85% 113% 92% 110% 117%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN. (SEE NOTE 4 OF NOTES TO FINANCIAL
STATEMENTS.)
VARIABLE INSURANCE PRODUCTS FUND II: INDEX 500 PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance: total
percentage change in value, the average annual percentage change, or the
growth of a hypothetical $10,000 investment. Each performance figure
includes changes in a fund's share price, plus reinvestment of any
dividends (income) and capital gains (the profits the fund earns when it
sells stocks that have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED PAST 1 LIFE OF
DECEMBER 31, 1994 YEAR FUND
INDEX 500 1.04% 7.26%
S&P 500 1.32% 7.60%
AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and
show you what would have happened if the fund had performed at a constant
rate each year.
UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for example,
has a history of growth in the long run and volatility
in the short run. In turn, the share price and return
of a fund that invests in stocks will vary. That
means if you sell your shares during a market
downturn, you might lose money. But if you can
ride out the market's ups and downs, you may
have a gain.
(checkmark)
You can compare the fund's returns to the performance of the Standard &
Poor's Composite Index of 500 Stocks - a common proxy for the U.S. stock
market. This benchmark includes reinvested dividends and capital gains, if
any.
Figures for more than one year assume a steady compounded rate of return
and are not the fund's year-by-year results, which fluctuated over the
periods shown. The life of fund figures are from commencement of
operations, August 27, 1992.
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.
$10,000 OVER LIFE OF FUND
VIP II: Index 500 PStandard & Poor's 50
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
07/31/94 11623.94 11696.25
08/31/94 12087.30 12175.80
09/30/94 11793.77 11877.49
10/31/94 12055.85 12144.73
11/30/94 11617.65 11702.42
12/30/94 11787.48 11875.97
Let's say you invested $10,000 in Index 500 Portfolio on August 27, 1992,
when the fund started. By December 31, 1994, your investment would have
grown to $11,787 - a 17.87% increase. With reinvested dividends and capital
gains, if any, a $10,000 investment in the S&P 500 would have grown to
$11,876 over the same period - an 18.76% increase.
INVESTMENT SUMMARY
TOP TEN STOCKS AS OF DECEMBER 31, 1994
% OF FUND'S
INVESTMENTS
General Electric Co. 2.3
AT&T Corp. 2.1
Exxon Corp. 2.0
Coca-Cola Co. (The) 1.7
Royal Dutch Petroleum Co. 1.5
Philip Morris Companies, Inc. 1.3
Wal-Mart Stores, Inc. 1.3
Merck & Co., Inc. 1.3
Procter & Gamble Co. 1.1
International Business Machine Corp. 1.1
TOP TEN INDUSTRIES AS OF DECEMBER 31, 1994
% OF FUND'S
INVESTMENTS
Utilities 11.6
Nondurables 10.6
Finance 9.6
Energy 8.7
Technology 8.5
Health 8.1
Basic Industries 6.7
Retail & Wholesale 5.2
Industrial Machinery & Equipment 4.9
Media & Leisure 4.5
VARIABLE INSURANCE PRODUCTS FUND II: INDEX 500 PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
An interview with Jennifer Farrelly, Portfolio Manager of Index 500
Portfolio
Q. JENNIFER, HOW DID THE FUND PERFORM?
A. It's been a difficult past 12 months for stock investors. For the year
ended December 31, 1994, the Standard & Poor's 500 stock index had a total
return of 1.32%. The fund's performance was slightly lower due to
management expenses.
Q. AFTER FALLING EARLY IN 1994, IT APPEARS THAT THE MARKET MADE UP SOME
GROUND IN THE SECOND HALF OF THE YEAR. WHAT WAS BEHIND THE GAINS?
A. In short: improving corporate earnings brought on by the strengthening
economy. Since February - when the Federal Reserve Board began raising
short-term interest rates for the first time in five years - there has been
a tug-of-war within the stock market. On one end you have rising interest
rates and inflation worries. They tend to drag down stocks because higher
rates make it more expensive for corporations to borrow money - which can
dampen their earnings down the line. On the other end, however, are very
strong CURRENT earnings reports. Throughout the year, many U.S. companies
logged record earnings growth. When interest rate worries eased from time
to time, investors focused on these strong current earnings, which drove
stock prices somewhat higher.
Q. WHICH SECTORS OF THE INDEX TURNED IN THE BEST PERFORMANCE OVER THE PAST
YEAR?
A. As a group, technology stocks - which make up nearly 15% of the index
according to Standard & Poor's sector classifications - did quite well
during the year. The continued strong growth of personal computers has
fueled strong earnings for companies with a stake in that market. The
stocks of computer companies such as Compaq, IBM and Apple all performed
well during 1994, as did the stocks of PC software companies such as
Microsoft and relational database software companies such as Oracle.
Q. CONSUMER NONDURABLE STOCKS - THE LARGEST SECTOR IN THE INDEX AT MORE
THAN 21% ON DECEMBER 31 - LAGGED THE BROAD MARKET IN 1993. DID THEIR
PERFORMANCE IMPROVE IN 1994?
A. It did. Health care stocks are among nondurables that took off over the
past six months. The health care sector benefited from the shelving of
health care reform for the time being, and from the realization on the part
of investors that health care companies could indeed cut costs and grow
earnings. As a result, the prices of pharmaceutical stocks such as Eli
Lilly, Merck and Pfizer, and medical equipment stocks such as Medtronic,
Becton Dickinson and St. Jude Medical, rose over the past six months. As
for the rest of the consumer nondurable group, selected food, beverage and
tobacco stocks rose from depressed levels as investors sought out companies
whose earnings might remain steady in the face of higher interest rates.
Q. CYCLICAL STOCKS - THOSE THAT TEND TO RISE AND FALL WITH THE ECONOMY -
HAD STRONG PERFORMANCE EARLY IN 1994. DID THAT CONTINUE?
A. No. Generally, cyclicals lagged in the second half of the year as
investors worried that higher rates might slow the economy enough to dampen
the future earnings of these companies. Transportation cyclicals such as
airlines, autos and railroads fell after strong performance in late 1993
and early 1994. Examples include Southwest Airlines, General Motors and
Burlington Northern. And more recently, the stocks of commodity companies
in basic industries such as aluminum, copper and paper corrected after a
run of strong performance through the spring, summer and early fall.
Q. WHICH OTHER STOCKS WERE HIT PARTICULARLY HARD BY RISING
INTEREST RATES?
A. Utilities and financial stocks - which together make up nearly 20% of
the index - also suffered. In addition to rising interest rates, increased
competition and regulatory concerns hurt utility stocks. As for financial
stocks, investors feared that rising rates could hurt their profit margins
over the long term.
Q. WHAT'S YOUR OUTLOOK FOR THE FIRST SIX MONTHS OF 1995?
A. I think we have yet to realize the extent to which higher interest rates
might dampen economic growth, and in turn, corporate profits. The direction
of interest rates over the next six months could have a big impact on stock
performance. If rates level out and the economy remains relatively strong,
earnings could drive the market. In that case, the stocks of those
companies showing the best earnings improvement could do well. However, if
further rate hikes slow the economy enough to dampen earnings, stocks would
be negatively impacted. Market volatility increased in 1994 compared to
1993, and - in an uncertain interest rate environment - I expect that could
continue.
FUND FACTS
GOAL: to provide returns consistent with
those of the Standard & Poor's 500 index
START DATE: August 27, 1992
SIZE: as of December 31, 1994, more than
$51 million
MANAGER: Jennifer Farrelly, since January
1994; manager, Fidelity U.S. Equity Index
Portfolio and Fidelity Market Index Fund since
January 1994; manager, institutional
enhanced index funds, since 1988; joined
Fidelity in 1988
(checkmark)
