(2_FIDELITY_LOGOS)
VARIABLE INSURANCE PRODUCTS
FUND II
INVESTMENT GRADE BOND PORTFOLIO
ASSET MANAGER PORTFOLIO
INDEX 500 PORTFOLIO
ASSET MANAGER: GROWTH PORTFOLIO
CONTRAFUND PORTFOLIO
SEMIANNUAL REPORT
JUNE 30, 1996
CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT GRADE BOND PORTFOLIO VIPFII-3 PERFORMANCE AND INVESTMENT SUMMARY
VIPFII-4 FUND TALK: THE MANAGER'S OVERVIEW
VIPFII-5 INVESTMENTS
VIPFII-9 FINANCIAL STATEMENTS
ASSET MANAGER PORTFOLIO VIPFII-11 PERFORMANCE AND INVESTMENT SUMMARY
VIPFII-12 FUND TALK: THE MANAGER'S OVERVIEW
VIPFII-13 INVESTMENTS
VIPFII-22 FINANCIAL STATEMENTS
INDEX 500 PORTFOLIO VIPFII-24 PERFORMANCE AND INVESTMENT SUMMARY
VIPFII-25 FUND TALK: THE MANAGER'S OVERVIEW
VIPFII-26 INVESTMENTS
VIPFII-33 FINANCIAL STATEMENTS
ASSET MANAGER: GROWTH PORTFOLIO VIPFII-35 PERFORMANCE AND INVESTMENT SUMMARY
VIPFII-36 FUND TALK: THE MANAGER'S OVERVIEW
VIPFII-37 INVESTMENTS
VIPFII-45 FINANCIAL STATEMENTS
CONTRAFUND PORTFOLIO VIPFII-47 PERFORMANCE AND INVESTMENT SUMMARY
VIPFII-48 FUND TALK: THE MANAGER'S OVERVIEW
VIPFII-49 INVESTMENTS
VIPFII-57 FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS VIPFII-59 NOTES TO THE FINANCIAL STATEMENTS
</TABLE>
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUNDS. THIS REPORT IS
NOT
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUNDS UNLESS
PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUNDS NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
VARIABLE INSURANCE PRODUCTS FUND II: INVESTMENT GRADE BOND PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance: total
percentage change in value, the average annual percentage change, or the
growth of a hypothetical $10,000 investment. A fund's total return includes
changes in a fund's share price, plus reinvestment of any dividends
(income) and capital gains (the profits the fund earns when it sells
securities that have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1996 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
INVESTMENT GRADE BOND 4.49% 7.75% 8.09%
Lehman Brothers Aggregate Bond Index 5.02% 8.26% n/a
AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and
show you what would have happened if the fund had performed at a constant
rate each year.
UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of
how it will do tomorrow. Bond prices, for
example, generally move in the opposite
direction of interest rates. In turn, the share price,
return, and yield of a fund that invests in bonds
will vary. That means if you sell your shares
during a market downturn, you might lose
money. But if you can ride out the market's ups
and downs, you may have a gain.
(checkmark)
You can compare these figures to the Lehman Brothers Aggregate Bond Index,
which is comprised of fixed-rate debt issues, including government,
corporate, asset-backed, and mortgage-backed securities. Issues included in
the Index are rated investment-grade or above and have maturities of at
least one year.
Figures for more than one year assume a steady compounded rate of return
and are not the fund's year-by-year results, which fluctuated over the
periods shown. The life of fund figures are from commencement of
operations, December 5, 1988.
If Fidelity had not reimbursed certain fund expenses, the past five years
and life of fund total return figures would have been lower.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, THE TOTAL RETURNS WOULD HAVE BEEN LOWER.
Past performance is no guarantee of future results. Principal and
investment return will vary and you may have a gain or loss when you
withdraw your money.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19960630 19960729 153703 S00000000000001
VIP II: Inv. Grade LB Aggregate Bond
00227 LB001
1988/12/31 10000.00 10000.00
1989/01/31 10086.92 10143.88
1989/02/28 10109.25 10070.36
1989/03/31 10172.02 10113.90
1989/04/30 10285.31 10325.54
1989/05/31 10399.91 10596.87
1989/06/30 10600.00 10919.52
1989/07/31 10765.35 11151.64
1989/08/31 10679.56 10986.42
1989/09/30 10721.69 11042.65
1989/10/31 10887.69 11314.55
1989/11/30 10981.36 11422.39
1989/12/31 11026.21 11452.96
1990/01/31 11001.11 11316.86
1990/02/28 11063.52 11353.48
1990/03/31 11097.11 11361.84
1990/04/30 11101.82 11257.75
1990/05/31 11276.11 11591.07
1990/06/30 11364.07 11777.05
1990/07/31 11476.89 11939.97
1990/08/31 11475.79 11780.51
1990/09/30 11520.66 11877.97
1990/10/31 11521.38 12028.78
1990/11/30 11590.77 12287.71
1990/12/31 11711.43 12479.17
1991/01/31 11735.04 12633.43
1991/02/28 11853.10 12741.27
1991/03/31 12053.80 12828.93
1991/04/30 12230.89 12967.91
1991/05/31 12325.33 13043.74
1991/06/30 12348.94 13037.11
1991/07/31 12455.20 13217.90
1991/08/31 12714.93 13503.94
1991/09/30 12951.04 13777.57
1991/10/31 13092.71 13930.97
1991/11/30 13234.39 14058.71
1991/12/31 13629.42 14476.23
1992/01/31 13494.11 14279.29
1992/02/29 13567.97 14372.13
1992/03/31 13543.27 14291.11
1992/04/30 13642.04 14394.34
1992/05/31 13851.92 14665.96
1992/06/30 14012.41 14867.80
1992/07/31 14296.36 15171.13
1992/08/31 14382.78 15324.82
1992/09/30 14555.62 15506.47
1992/10/31 14370.44 15300.89
1992/11/30 14333.40 15304.35
1992/12/31 14536.36 15547.71
1993/01/31 14841.14 15845.85
1993/02/28 15093.07 16123.24
1993/03/31 15159.39 16190.42
1993/04/30 15252.23 16303.16
1993/05/31 15278.75 16323.92
1993/06/30 15570.53 16619.76
1993/07/31 15676.64 16713.76
1993/08/31 15955.15 17006.72
1993/09/30 16034.73 17053.43
1993/10/31 16114.31 17117.15
1993/11/30 16034.73 16971.54
1993/12/31 16129.93 17063.52
1994/01/31 16312.59 17293.91
1994/02/28 16045.19 16993.45
1994/03/31 15678.93 16574.49
1994/04/30 15538.06 16442.14
1994/05/31 15495.80 16439.84
1994/06/30 15453.53 16403.51
1994/07/31 15707.10 16729.33
1994/08/31 15721.19 16750.09
1994/09/30 15552.14 16503.56
1994/10/31 15566.23 16488.86
1994/11/30 15594.40 16452.24
1994/12/31 15523.97 16565.84
1995/01/31 15749.36 16893.69
1995/02/28 16053.30 17295.35
1995/03/31 16155.46 17401.46
1995/04/30 16374.37 17644.53
1995/05/31 17031.09 18327.33
1995/06/30 17162.44 18461.69
1995/07/31 17104.06 18420.46
1995/08/31 17308.38 18642.77
1995/09/30 17468.91 18824.14
1995/10/31 17702.41 19068.94
1995/11/30 17965.10 19354.69
1995/12/31 18213.20 19626.31
1996/01/31 18329.95 19756.64
1996/02/29 17995.20 19413.22
1996/03/31 17857.01 19278.28
1996/04/30 17749.53 19169.86
1996/05/31 17718.82 19130.94
1996/06/30 17933.78 19387.85
IMATRL PRASUN SHR__CHT 19960630 19960729 153707 R00000000000123
Let's say hypothetically that $10,000 was invested in Investment Grade Bond
Portfolio on December 31, 1988, shortly after the fund started. As the
chart shows, by June 30, 1996, the value of the investment would have grown
to $17,934 - a 79.34% increase on the initial investment. For comparison,
look at how the Lehman Brothers Aggregate Bond Index did over the same
period. With dividends and capital gains, if any, reinvested, the same
$10,000 investment would have grown to $19,388 - a 93.88% increase.
INVESTMENT SUMMARY
QUALITY DIVERSIFICATION AS OF JUNE 30, 1996
(MOODY'S RATINGS) % OF FUND'S
INVESTMENTS
Aaa 68.8
Aa 2.0
A 12.1
Baa 8.7
Ba 0.9
B 0.0
Not rated 2.8
TABLE EXCLUDES SHORT-TERM INVESTMENTS. SECURITIES RATED AS "BA" BY MOODY'S
WERE RATED INVESTMENT GRADE BY OTHER NATIONALLY RECOGNIZED RATING AGENCIES
OR ASSIGNED AN INVESTMENT GRADE RATING AT THE TIME OF ACQUISITION BY
FIDELITY.
AVERAGE YEARS TO MATURITY AS OF JUNE 30, 1996
Years 8.0
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY DOLLAR
AMOUNT.
TOP FIVE MARKET SECTORS AS OF JUNE 30, 1996
% OF FUND'S
INVESTMENTS
Finance 13.3
Technology 2.0
Transportation 1.4
Utilities 1.3
Aerospace & Defense 1.3
VARIABLE INSURANCE PRODUCTS FUND II: INVESTMENT GRADE BOND PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
An interview with
Michael Gray, Portfolio Manager of Investment Grade Bond Portfolio
Q. MICHAEL, HOW DID THE FUND DO?
A. For the six- and 12-month periods ending June 30, 1996, the fund
slightly underperformed the Lehman Brothers Aggregate Bond Index, a broad
measure of U.S. taxable bonds, which returned -1.21% for the six month
period and 5.02% for the 12-month period.
Q. WHAT KIND OF ENVIRONMENT DID YOU FIND YOURSELF INVESTING IN DURING THE
PAST SIX MONTHS?
A. It was much different from the previous six months. The period began
with bond investors having a very positive view of the market. The economy
was weakening, inflation was low and the Federal Reserve Board was lowering
interest rates. The expectation was that these trends would continue.
However, investors got caught by surprise. The bull market of 1995 turned
abruptly into a bear market. First, the economy began to show signs of much
stronger growth than expected. This was true in employment, housing and
autos. Second, the balanced budget deal that everyone was expecting to come
out of Congress never materialized following two government shutdowns and
much political brinkmanship. Once the presidential election campaign began,
all hopes of a budget deal faded. Finally, the talk of further Fed easing
turned to talk of when the Fed would begin to increase rates. These factors
caused interest rates to rise dramatically.
Q. WHAT WAS YOUR STRATEGY IN THIS UNFAVORABLE MARKET ENVIRONMENT?
A. One important factor was that I kept the duration of the portfolio close
to the duration of the index. A duration-neutral strategy was helpful
because the fund didn't get as badly hurt as it could have during this
period of volatility in interest rates. Another important strategy was that
the fund was overweighted versus its index in corporate securities, which
performed quite well during the period.
Q. WHY WERE CORPORATE BONDS ATTRACTIVE RELATIVE TO OTHER INVESTMENTS?
A. Corporate bonds tend to perform well in a strong economy. That's because
business is strong, earnings improve and cash flow is often used to pay
down debt. All of these factors help credit quality to improve. As I sensed
a shift in the economy, I increased the fund's weighting in corporate bonds
from 19.7% at the beginning of the period to 24.2% at the end of the
period. In addition, there was a favorable technical situation in the
market in which the supply of new corporate debt was fairly limited, while
demand was rather strong.
Q. MICHAEL, WE UNDERSTAND THERE WERE SOME INVESTMENT POLICY CHANGES . . .
A. This change helps the fund maintain a degree of flexibility under usual
circumstances to invest in the lowest tier of investment-grade bonds
without significantly increasing the risk of the fund. Further, the fund
now uses two additional agencies to determine the credit quality of its
bonds. Ratings from Duff & Phelps Rating Co. and Fitch Investors Service,
L.P., may be used, along with those from Moody's Investors Service and
Standard & Poor's that had been used previously.
Q. WHAT'S YOUR OUTLOOK GOING FORWARD, MICHAEL?
A. My overall outlook is favorable. I think that the economy looks to be
growing at a reasonable rate, and that inflation appears to be under
control. However, I also feel that the risk of inflation is higher over the
next six months than it was over the past six months. In general, I think
corporate bonds should continue to perform well, and that agencies and
mortgages should increase in value going forward.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: seeks to provide a high rate of income
consistent with reasonable risk, by investing
in a broad range of investment-grade, fixed
income securities. In addition, the fund seeks
to protect capital
START DATE: December 5, 1988
SIZE: as of June 30, 1996, more than $199 million
MANAGER: Michael Gray, since August 1995;
joined Fidelity in 1982
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND II: INVESTMENT GRADE BOND PORTFOLIO
INVESTMENTS JUNE 30, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
CORPORATE BONDS - 24.2%
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
CONVERTIBLE BONDS - 0.3%
RETAIL & WHOLESALE - 0.3%
DRUG STORES - 0.3%
Rite Aid Corp. liquid yield
option notes 0%, 7/24/06 Baa1 $ 1,000,000 $ 526,250
NONCONVERTIBLE BONDS - 23.9%
AEROSPACE & DEFENSE - 1.3%
Lockheed Martin Corp.:
7 1/4%, 5/15/06 A3 1,000,000 998,080
7.70%, 6/15/08 A3 500,000 509,032
7 3/4%, 5/1/26 A3 1,000,000 996,840
2,503,952
ENERGY - 1.0%
ENERGY SERVICES - 0.5%
Petroliam Nasional BHD
yankee 6 7/8%, 7/1/03 (c) A1 1,040,000 1,024,192
OIL & GAS - 0.5%
Coastal Corp. 10 1/4%,
10/15/04 Baa3 435,000 506,544
Petro-Canada, Inc. yankee
7 7/8%, 6/15/26 Baa1 500,000 505,660
1,012,204
TOTAL ENERGY 2,036,396
FINANCE - 13.3%
ASSET BACKED SECURITIES - 3.8%
Concord Leasing, Inc. 5.04%,
7/15/98 (c) AAA 74,283 73,640
Discover Card Master Trust I
6.90%, 2/16/00 A2 260,000 262,925
Ford Credit:
Auto Loan Master Trust
7 3/8%, 4/15/99 Aaa 500,000 505,000
Grantor Trust 5.90%, 10/15/00 Aaa 795,702 792,220
Green Tree Financial Corp.
6.10%, 4/15/27 Aaa 1,135,730 1,126,680
KeyCorp Auto Grantor Trust
5.80%, 7/15/00 A3 85,760 85,228
Premier Auto Trust:
4.90%, 12/15/98 Aaa 411,098 408,467
8.05%, 4/4/00 AAA 1,430,000 1,467,538
6%, 5/6/00 AAA 500,000 497,030
Railcar Trust 7 3/4%, 6/1/04 Aaa 821,070 845,446
Sears Credit Account Master
Trust II 7%, 1/15/04 Aaa 1,000,000 1,002,200
Standard Credit Card Master
Trust I:
8 1/4%, 10/7/97 A2 285,000 286,870
7.65%, 2/15/00 A2 150,000 152,508
Union Federal Savings Bank
Grantor Trust 8.20%, 1/10/01 Baa2 79,126 80,214
7,585,966
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
BANKS - 7.1%
Bank of Boston Corp. 9 1/2%,
8/15/97 Baa1 $ 75,000 $ 77,578
Banponce Corp.:
5 3/4%, 3/1/99 Baa1 370,000 360,021
6.378%, 4/8/99 Baa1 430,000 423,997
Citicorp
euro 5.575%, 1/30/98 (d) A2 500,000 500,000
Corporacion Andina de Fomento
yankee 7.10%, 2/1/03 Baa2 1,000,000 972,890
Den Danske Bank Group AS
yankee 7 1/4%,
6/15/05 (c) A2 500,000 494,480
Export Import Bank of Korea
6 3/8%, 2/15/06 A1 880,000 816,578
First Fidelity Bancorporation
8 1/2%, 4/1/98 A2 250,000 258,083
First Maryland Bancorp
10 3/8%, 8/1/99 Baa1 500,000 547,585
Firstar Corp. 7.15%, 9/1/00 A3 640,000 643,232
Kansallis-Osake-Pankki NY
Branch 10%, 5/1/02 A3 260,000 293,298
KeyCorp:
8.40%, 4/1/99 A2 310,000 321,092
7 1/2%, 6/15/06 A2 1,100,000 1,107,876
Korea Development Bank yankee
6 1/2%, 11/15/02 A1 1,000,000 961,040
Marine Midland Bank:
euro 5.6875%, 9/27/96 (d) Baa1 1,000,000 1,000,000
8 5/8%, 3/1/97 Baa1 250,000 253,443
Mellon Financial Co. 6 1/2%,
12/1/97 A2 200,000 200,294
Meridian Bancorp, Inc. 5.625%,
12/1/96 (d) A2 900,000 900,288
Merita Bank Ltd. yankee 6 1/2%,
1/15/06 A3 1,000,000 929,640
Midland Bank PLC yankee 7 5/8%,
6/15/06 A1 700,000 709,198
National City Corp.
5.6133%, 1/31/97 (d) A2 850,000 851,054
Signet Banking Corp.
5.625%, 5/15/97 (d) Baa2 350,000 347,984
Sovran Financial Corp. 9 3/4%,
6/15/99 A3 770,000 825,286
Union Planters Corp. 6 3/4%,
11/1/05 Baa3 400,000 379,612
14,174,549
CREDIT & OTHER FINANCE - 1.8%
Finova Capital Corp. 6.14%,
11/2/98 Baa1 400,000 396,452
General Motors Acceptance Corp.:
5.65%, 12/15/97 A3 1,000,000 992,780
5 3/8%, 3/9/98 A3 1,400,000 1,380,008
Household Finance Corp. 7.80%,
11/1/96 A2 350,000 352,009
Secured Finance, Inc.
9.05%, 12/15/04 Aaa 500,000 550,595
3,671,844
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
INSURANCE - 0.4%
Metropolitan Life Insurance Co.
6.30%, 11/1/03 (c) A1 $ 770,000 $ 726,172
Nationwide Mutual Insurance Co.
6 1/2%, 2/15/04 (c) A1 130,000 122,417
848,589
SAVINGS & LOANS - 0.2%
Golden West Financial Corp.
10 1/4%, 5/15/97 A3 350,000 361,529
TOTAL FINANCE 26,642,477
INDUSTRIAL MACHINERY & EQUIPMENT - 0.6%
POLLUTION CONTROL - 0.6%
WMX Technologies, Inc.
6 1/4%, 4/1/99 A1 1,200,000 1,190,700
MEDIA & LEISURE - 0.6%
LODGING & GAMING - 0.5%
Circus Circus Enterprises, Inc.
6.45%, 2/1/06 Baa2 1,000,000 925,360
RESTAURANTS - 0.1%
Darden Restaurants, Inc.
6 3/8%, 2/1/06 A3 310,000 285,891
TOTAL MEDIA & LEISURE 1,211,251
NONDURABLES - 1.0%
FOODS - 1.0%
Nabisco, Inc.
6.85%, 6/15/05 Baa2 1,000,000 955,740
Ralcorp Holdings, Inc.
8 3/4%, 9/15/04 Ba1 1,000,000 1,019,600
1,975,340
RETAIL & WHOLESALE - 0.7%
GENERAL MERCHANDISE STORES - 0.7%
Dayton Hudson Corp.
6.40%, 2/15/03 Baa1 500,000 473,870
Sears Roebuck & Co.:
9%, 9/15/96 A2 475,000 477,921
9.23%, 8/6/98 A2 450,000 474,080
1,425,871
SERVICES - 0.7%
LEASING & RENTAL - 0.7%
Ryder System, Inc.
9 1/4%, 5/15/01 A3 1,190,000 1,300,575
TECHNOLOGY - 2.0%
COMPUTERS & OFFICE EQUIPMENT - 2.0%
Comdisco, Inc.:
9 3/4%, 1/15/97 Baa2 200,000 203,790
7 3/4%, 1/29/97 Baa2 700,000 706,566
7.73%, 2/18/97 Baa2 1,000,000 1,009,830
6 1/2%, 6/15/00 Baa2 1,200,000 1,183,584
5 3/4%, 2/15/01 Baa2 1,000,000 954,740
4,058,510
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
TRANSPORTATION - 1.4%
AIR TRANSPORTATION - 1.4%
AMR Corp.:
7 3/4%, 12/1/97 Baa3 $ 140,000 $ 142,218
9.55%, 3/6/98 Baa3 400,000 418,656
Delta Air Lines, Inc.:
equipment trust certificate
8.54%, 1/2/07 Baa1 434,123 450,481
10 1/2%, 4/30/16 Baa1 1,000,000 1,188,120
United Airlines Pass Through
Trust 7.27%, 1/30/13 Baa1 610,000 577,536
2,777,011
UTILITIES - 1.3%
CELLULAR - 0.4%
360 Degrees Communications Co.:
7 1/8%, 3/1/03 Ba2 620,000 592,881
7 1/2%, 3/1/06 Ba2 300,000 284,634
877,515
ELECTRIC UTILITY - 0.2%
British Columbia Hydro & Power
Authority yankee 12 1/2%,
1/15/14 Aa2 360,000 420,368
GAS - 0.7%
Florida Gas 7 3/4%,
11/1/97 (c) Baa2 220,000 223,826
Southwest Gas Corp., Series F,
9 3/4%, 6/15/02 Baa3 1,000,000 1,115,900
1,339,726
TOTAL UTILITIES 2,637,609
TOTAL NONCONVERTIBLE BONDS 47,759,692
TOTAL CORPORATE BONDS
(Cost $48,576,533) 48,285,942
U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS - 42.1%
U.S. TREASURY OBLIGATIONS - 34.5%
9%, 5/15/98 Aaa 9,710,000 10,200,064
9 1/4%, 8/15/98 Aaa 6,750,000 7,156,080
8 7/8%, 11/15/98 Aaa 2,332,000 2,465,717
8 7/8%, 2/15/99 Aaa 130,000 138,104
7 3/4%, 12/31/99 Aaa 10,832,000 11,285,536
6 7/8%, 3/31/00 Aaa 409,000 414,943
7 7/8%, 8/15/01 Aaa 1,615,000 1,710,883
12 3/8%, 5/15/04 Aaa 300,000 403,077
12 3/4%, 11/15/10 Aaa 2,117,000 2,972,734
13 7/8%, 5/15/11 Aaa 30,000 44,963
9%, 11/15/18 Aaa 11,640,000 14,186,250
8 7/8%, 2/15/19 Aaa 9,260,000 11,162,652
8 1/8%, 8/15/19 Aaa 2,200,000 2,469,500
12%, 8/15/23 Aaa 3,140,000 4,426,427
69,036,930
U.S. GOVERNMENT AGENCY OBLIGATIONS - 7.6%
Federal Farm Credit Bank
6.09%, 4/03/00 Aaa 420,000 413,360
U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Federal Home Loan Bank:
6.225%, 10/17/02 Aaa $ 440,000 $ 427,693
7.31%, 6/16/04 Aaa 2,850,000 2,917,688
7.36%, 7/1/04 Aaa 680,000 697,741
7.66%, 7/20/04 Aaa 1,940,000 2,024,875
7.56%, 9/1/04 Aaa 310,000 321,067
Federal Home Loan Mortgage Corp.:
8.115%, 1/31/05 Aaa 640,000 687,098
6.783%, 8/18/05 Aaa 560,000 552,037
Government Trust Certificates:
(assets of Trusts guaranteed by
U.S. Government through
Defense Security Assistance
Agency):
Class 1-C 9 1/4%, 11/15/01 Aaa 204,000 217,882
Class 2-E, 9.40%, 5/15/02 Aaa 1,000,000 1,072,120
Class T-2, 9 5/8%, 5/15/02 Aaa 80,000 85,672
(assets of Trust guaranteed by
U.S. Government through
Export-Import Bank) Series
1994-C, 6.61%, 9/15/99 Aaa 81,597 81,981
Guaranteed Export Trust
Certificates (assets of Trust
guaranteed by U.S. Government
through Export-Import Bank)
Series 1996-A, 6.55%,
6/15/04 Aaa 590,000 585,569
Private Export Funding Corp. :
Series VV, 6.24%, 5/15/02 Aaa 220,000 214,463
8 3/4%, 6/30/03 Aaa 310,000 342,159
Series SS, 5.80%, 2/1/04 Aaa 1,220,000 1,168,809
6.86%, 4/30/04 Aaa 156,800 157,288
State of Israel (guaranteed by U.S.
Government through Agency
for International Development):
7 3/4%, 4/1/98 Aaa 78,617 80,060
4 7/8%, 9/15/98 Aaa 190,000 184,359
7 1/8%, 8/15/99 Aaa 435,000 442,054
7 3/4%, 11/15/99 Aaa 144,000 149,099
5.89%, 8/15/05 Aaa 690,000 638,881
8 1/2%, 4/1/06 Aaa 750,000 810,915
U.S. Housing & Urban Development:
8.27%, 8/1/03 Aaa 415,000 448,188
8.24%, 8/1/04 participation
certificate Aaa 500,000 536,825
15,257,883
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $84,857,918) 84,294,813
U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES - 21.5%
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
FEDERAL HOME LOAN GUARANTY CORPORATION - 1.0%
7%, 2/1/97 Aaa $ 189,532 $ 190,302
8 1/2%, 3/1/20 Aaa 1,803,521 1,866,410
2,056,712
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 15.1%
5 1/2%, 5/1/00 to 7/1/01 Aaa 3,050,330 2,875,881
6%, 3/1/01 to 4/01/11 Aaa 14,640,902 14,034,224
6 1/2%, 1/1/26 to 5/1/26 Aaa 8,564,073 8,010,062
7.65%, 3/10/05 Aaa 2,000,000 2,085,000
7.35%, 3/28/05 Aaa 1,070,000 1,095,744
8%, 12/1/24 to 2/1/26 Aaa 1,978,302 1,993,141
30,094,052
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 5.4%
6%, 8/15/08 to 4/15/11 Aaa 6,117,630 5,843,121
8%, 2/15/17 to 7/15/26 Aaa 2,380,679 2,404,674
10%, 7/15/13 to 5/15/25 Aaa 2,322,586 2,532,302
10,780,097
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $43,052,877) 42,930,861
COMMERCIAL MORTGAGE SECURITIES - 4.9%
CS First Boston Mortgage Securities
Corp. commercial Series:
1994-CFB1 Class A-1,
6.0148%, 1/25/28 (d) AAA 413,577 413,060
1995-AEWI Class A1,
6.665%, 11/25/27 Aaa 460,549 453,425
Equitable Life Assurance Society
of the United States (c):
commercial Series 1996-1:
Class B-1, 7.33%, 5/15/06 Aa2 500,000 496,250
Class C-1, 7.52%, 5/15/06 A2 500,000 496,250
sequential pay series 174
Class A-1, 7.24%, 5/15/06 Aaa 1,000,000 992,500
Lennar Central Partner LP commercial
floater Series 1994-1 Class B,
6.429%, 9/15/01 (c)(d) - 733,000 733,000
Meritor Mortgage Security Corp.
commercial Series 1987-1
Class A-3, 9.40%, 6/1/99 Baa3 142,975 143,332
Nomura Asset Securities Corp.
commercial floater Series
1994-MD-II Class A-6,
6.7025% 7/4/03 (d) - 179,477 178,131
Oregon Commercial Mortgage
commercial Series 1995 Class
1-A, 7.15%, 6/25/26 (c) AAA 411,652 409,089
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
Resolution Trust Corp. Commercial:
Series 1994-N2 Class 3,
7 1/2%, 12/15/04 (b)(c) Baa2 $ 254,648 $ 255,284
Series 1995-C1 Class A-2B,
6.55%, 2/25/27 Aaa 900,000 897,047
Series 1995-C1 Class A-4B,
6.65%, 2/25/27 Aaa 740,000 728,322
floater (d):
Series 1993-C2 Class A-2,
6.37% 3/25/25 AAA 463,575 465,748
Series 1994-C1 Class A-3,
6.05%, 6/25/26 AAA 327,102 327,920
SC Finance Corp. commercial
floater 6.9875%, 8/1/04 (c)(d) - 600,000 594,750
SKW Real Estate LP commercial
Series II Class B, 7.65%,
4/15/02 (b)(c) A 99,404 99,404
Structured Asset Securities Corp.
commercial Series:
1993-C1, Class A-1,
6.60%, 10/25/24 AA+ 117,805 117,124
1995-C1, Class D,
7 3/8%, 9/25/24 BBB 650,000 602,469
1996 Class A-1A,
5.71%, 2/25/28 AAA 212,169 210,047
1996 Class A-2A,
7 3/4%, 2/25/28 AAA 1,265,516 1,274,810
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $9,854,547) 9,887,962
FOREIGN GOVERNMENT OBLIGATIONS (E) - 2.5%
Alberta Province yankee
9 1/4%, 4/1/00 Aa2 1,400,000 1,516,998
British Columbia Province
yankee 7%, 1/1/03 Aa2 500,000 503,140
Manitoba Province Canada yankee
6 3/4%, 3/1/03 A1 500,000 493,935
Ontario Province yankee
7 3/4%, 6/4/02 Aa3 1,000,000 1,043,540
Quebec Province yankee:
7 1/2%, 7/15/02 A2 500,000 511,790
7 1/8%, 2/9/24 A2 1,000,000 913,770
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $5,057,603) 4,983,173
REPURCHASE AGREEMENTS - 4.8%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.46%, dated
6/28/96 due 7/1/96 $ 9,541,339 9,537,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $200,936,478) $ 199,919,751
LEGEND
(a) Standard & Poor's Corporation credit ratings are used in the absence of
a rating by Moody's Investors Service, Inc.
(b) Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date.
(c) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $6,741,254 or 3.4% of net
assets.
(d) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(e) Some foreign government obligations have not been individually rated by
S&P or Moody's. The ratings listed are assigned to securities by FMR, the
fund's investment adviser, based principally on S&P and Moody's ratings of
the sovereign credit of the issuing government.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $118,480,304 and $86,566,848, respectively, of which U.S.
government and government agency obligations aggregated $92,757,818 and
$75,046,007, respectively.
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 82.9% AAA, AA, A 79.6%
Baa 8.7% BBB 11.8%
Ba 0.9% BB 1.0%
B 0.0% B 0.0%
Caa 0.0% CCC 0.0%
Ca, C 0.0% CC, C 0.0%
D 0.0%
For some foreign government obligations, FMR has assigned the ratings of
the sovereign credit of the issuing government. The percentage not rated by
either S&P or Moody's amounted to 0.8%.
INCOME TAX INFORMATION
At June 30, 1996, the aggregate cost of investment securities for income
tax purposes was $200,940,175. Net unrealized depreciation aggregated
$1,020,424, of which $1,981,111 related to appreciated investment
securities and $3,001,535 related to depreciated investment securities.
At December 31, 1995, the fund had a capital loss carryforward of
approximately $230,000, all of which will expire on December 31, 2002.
VARIABLE INSURANCE PRODUCTS FUND II: INVESTMENT GRADE BOND PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
ASSETS
Investm $ 199,919,751
ent in
securit
ies, at
value
(includ
ing
repurc
hase
agree
ments
of
$9,537
,000)
(cost
$200,9
36,478
) -
See
accom
panyin
g
sched
ule
Cash 2,904
Receiva 3,092,307
ble for
invest
ments
sold
Receiva 143,407
ble for
fund
shares
sold
Interest 3,021,238
receiv
able
Other 1,563
receiv
ables
TOTAL 206,181,170
ASSETS
LIABILITI
ES
Payable $ 6,824,349
for
invest
ments
purcha
sed
Accrued 72,956
manag
ement
fee
Other 38,381
payabl
es and
accrue
d
expen
ses
TOTAL 6,935,686
LIABILIT
IES
NET $ 199,245,484
ASSET
S
Net
Assets
consist
of:
Paid in $ 194,981,604
capital
Undistrib 6,350,715
uted
net
invest
ment
incom
e
Accumul (1,070,108
ated )
undistr
ibuted
net
realize
d gain
(loss)
on
invest
ments
and
foreign
curren
cy
transa
ctions
Net (1,016,727
unreali )
zed
apprec
iation
(depre
ciation
) on
invest
ments
NET $ 199,245,484
ASSET
S, for
17,064
,017
shares
outsta
nding
NET $11.68
ASSET
VALUE,
offerin
g price
and
redem
ption
price
per
share
($199,
245,48
4 (divided by)
17,064
,017
shares
)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
INVESTM $ 6,902,212
ENT
INCOME
Interest
EXPENS
ES
Manage $ 433,742
ment
fee
Transfer 43,051
agent
fees
Accounti 38,802
ng
fees
and
expen
ses
Non-inte 377
rested
trustee
s'
compe
nsatio
n
Custodia 13,783
n fees
and
expen
ses
Audit 15,056
Legal 393
Miscella 1,091
neous
Total 546,295
expen
ses
before
reducti
ons
Expen (1,395 544,900
se )
reducti
ons
NET 6,357,312
INVEST
MENT
INCOM
E
REALIZE (824,053
D AND )
UNREALIZ
ED GAIN
(LOSS)
Net
realize
d gain
(loss)
on
invest
ment
securit
ies
Change (8,631,513
in net )
unreali
zed
apprec
iation
(depre
ciation
)
on
invest
ment
securit
ies
NET GAIN (9,455,566
(LOSS) )
NET $ (3,098,254
INCREA )
SE
(DECRE
ASE) IN
NET
ASSETS
RESULTI
NG
FROM
OPERAT
IONS
OTHER $ 1,395
INFORM
ATION
Expen
se
reducti
ons
Cust
odian
interest
credits
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1996 1995
(UNAUDITED)
Operatio $ 6,357,312 $ 9,555,423
ns
Net
invest
ment
incom
e
Net (824,053) 2,634,445
realize
d gain
(loss)
Chang (8,631,513) 10,799,845
e in
net
unreali
zed
apprec
iation
(depre
ciation
)
NET (3,098,254) 22,989,713
INCR
EASE
(DEC
REAS
E) IN
NET
ASSE
TS
RESU
LTING
FROM
OPER
ATIO
NS
Distributi (9,612,980) (4,480,858)
ons to
shareh
olders
from
net
invest
ment
incom
e
Share 56,847,122 116,054,959
transa
ctions
Net
procee
ds
from
sales
of
shares
Reinve 9,612,980 4,480,858
stment
of
distrib
utions
Cost (36,049,271) (68,879,418)
of
shares
redee
med
NET 30,410,831 51,656,399
INCR
EASE
(DEC
REAS
E) IN
NET
ASSE
TS
RESU
LTING
FROM
SHAR
E
TRAN
SACTI
ONS
TOTAL 17,699,597 70,165,254
INCREA
SE
(DECRE
ASE) IN
NET
ASSETS
NET
ASSETS
Beginn 181,545,887 111,380,633
ing of
period
End of $ 199,245,484 $ 181,545,887
perio
d
(incl
udin
g
undi
strib
uted
net
inve
stme
nt
inco
me
of
$6,3
50,7
15
and
$9,5
28,2
38,
resp
ectiv
ely)
OTHER
INFORMAT
ION
Shares
Sold 4,779,399 9,944,966
Issued 807,814 413,363
in
reinve
stment
of
distrib
utions
Redee (3,075,136) (5,910,491)
med
Net 2,512,077 4,447,838
increa
se
(decre
ase)
<TABLE>
<CAPTION>
<S> <C> <C>
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS YEARS ENDED DECEMBER 31,
ENDED
JUNE 30, 1996
SELECTED PER-SHARE DATA (UNAUDITED) 1995 1994 1993 D 1992 1991
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Net $ 12.480 $ 11.020 $ 11.480 $ 10.970 $ 11.080 $ 9.920
asset
value,
beginn
ing of
period
Income .337 .320 .733 .641 .672 .455
from
Invest
ment
Operat
ions
Net
invest
ment
incom
e
Net (.517) 1.530 (1.163) .559 .058 1.165
realize
d and
unreali
zed
gain
(loss)
Total (.180) 1.850 (.430) 1.200 .730 1.620
from
invest
ment
operati
ons
Less (.620) (.390) - (.628) (.680) (.460)
Distrib
utions
From
net
invest
ment
incom
e
In - - - (.002) - -
excess
of net
invest
ment
incom
e
From - - (.010) (.050) (.160) -
net
realize
d gain
In - - (.020) (.010) - -
excess
of net
realize
d gain
Total (.620) (.390) (.030) (.690) (.840) (.460)
distrib
utions
Net $ 11.680 $ 12.480 $ 11.020 $ 11.480 $ 10.970 $ 11.080
asset
value,
end of
period
TOTAL (1.53)% 17.32% (3.76) 10.96% 6.65% 16.38%
RETUR %
N B, C
RATIOS
AND
SUPPL
EMENT
AL
DATA
Net $ 199,245 $ 181,546 $ 111,381 $ 122,376 $ 73,598 $ 44,835
assets
, end
of
period
(000
omitte
d)
Ratio of .57% A .59% .67% .68% .76% .80%
expen E
ses to
averag
e net
assets
Ratio of .56% A, .59% .67% .68% .76% .80%
expen F
ses to
averag
e net
assets
after
expen
se
reducti
ons
Ratio of 6.57% A 6.53% 6.53% 6.85% 7.11% 7.73%
net
invest
ment
incom
e to
averag
e net
assets
Portfolio 94% A 182% 143% 70% 119% 128%
turnov
er rate
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED AND DO NOT REFLECT CHARGES
ATTRIBUTABLE TO YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THOSE CHARGES WOULD
REDUCE THE TOTAL RETURNS SHOWN.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE
PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
D EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2, "DETERMINATION,
DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME, CAPITAL GAIN, AND RETURN OF
CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES." AS A RESULT, NET INVESTMENT INCOME PER SHARE
MAY REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
E FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE PERIOD. WITHOUT THIS
REIMBURSEMENT, THE EXPENSE RATIO WOULD HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR
REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
</TABLE>
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance: total
percentage change in value, the average annual percentage change, or the
growth of a hypothetical $10,000 investment. A fund's total return includes
changes in a fund's share price, plus reinvestment of any dividends
(income) and capital gains (the profits the fund earns when it sells
securities that have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1996 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Asset Manager 16.58% 11.33% 11.29%
S&P 500 26.00% 15.73% 13.19%
AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and
show you what would have happened if the fund had performed at a constant
rate each year.
UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for example,
has a history of growth in the long run and volatility
in the short run. In turn, the share price and return
of a fund that invests in stocks will vary. That
means if you sell your shares during a market
downturn, you might lose money. But if you can
ride out the market's ups and downs, you may
have a gain.
(checkmark)
You can compare the fund's returns to those of the Standard & Poor's 500
Index - a widely recognized, unmanaged index of common stocks. The S&P 500
returns reflect reinvestment of all dividends paid by stocks included in
the Index, but do not reflect any brokerage commissions or other fees you
might pay if you actually invested in those stocks.
Figures for more than one year assume a steady compounded rate of return
and are not the fund's year-by-year results, which fluctuated over the
periods shown. The life of fund figures are from commencement of
operations, September 6, 1989.
If Fidelity had not reimbursed certain fund expenses, the past five years
and life of fund total return figures would have been lower.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, THE TOTAL RETURNS WOULD HAVE BEEN LOWER.
Past performance is no guarantee of future results. Principal and
investment return will vary and you may have a gain or loss when you
withdraw your money.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19960630 19960729 091923 S00000000000001
VIP II:ASS.MAN. FI Composite SP S&P 500
00228 F0001 SP001
1989/09/30 10000.00 10000.00 10000.00
1989/10/31 10020.02 10057.20 9768.00
1989/11/30 10060.06 10176.98 9967.27
1989/12/31 10091.09 10276.92 10206.48
1990/01/31 9868.42 10029.14 9521.63
1990/02/28 9969.64 10093.23 9644.46
1990/03/31 10050.61 10192.55 9900.03
1990/04/30 9919.03 10098.47 9652.53
1990/05/31 10425.10 10527.96 10593.65
1990/06/30 10506.07 10593.55 10521.62
1990/07/31 10485.83 10658.17 10487.95
1990/08/31 10141.70 10328.51 9539.84
1990/09/30 9929.15 10236.17 9075.25
1990/10/31 9979.76 10309.57 9036.22
1990/11/30 10465.59 10618.75 9619.96
1990/12/31 10769.23 10792.69 9888.36
1991/01/31 11284.56 10998.50 10319.49
1991/02/28 11726.26 11273.90 11057.34
1991/03/31 11915.56 11396.34 11324.93
1991/04/30 12094.35 11471.10 11352.11
1991/05/31 12367.79 11653.26 11842.52
1991/06/30 12146.94 11502.23 11300.13
1991/07/31 12451.92 11733.43 11826.72
1991/08/31 12704.33 11942.28 12107.01
1991/09/30 12777.94 11999.01 11904.82
1991/10/31 12862.08 12105.80 12064.35
1991/11/30 12651.74 12022.39 11578.15
1991/12/31 13198.62 12614.73 12902.69
1992/01/31 13366.89 12476.86 12662.70
1992/02/29 13626.47 12556.58 12827.32
1992/03/31 13593.27 12465.80 12577.19
1992/04/30 13792.52 12619.13 12946.96
1992/05/31 13936.42 12743.05 13010.40
1992/06/30 13925.35 12748.65 12816.54
1992/07/31 14157.81 13094.91 13340.74
1992/08/31 14113.53 13044.62 13067.25
1992/09/30 14202.09 13188.90 13221.45
1992/10/31 14224.22 13136.41 13267.72
1992/11/30 14534.17 13311.65 13720.15
1992/12/31 14744.49 13474.85 13888.91
1993/01/31 15010.15 13643.28 14005.57
1993/02/28 15150.92 13833.47 14196.05
1993/03/31 15579.83 13975.40 14495.59
1993/04/30 15672.57 13890.43 14144.79
1993/05/31 15939.19 14039.61 14523.87
1993/06/30 16066.70 14188.71 14565.99
1993/07/31 16263.77 14206.88 14507.73
1993/08/31 16739.04 14556.36 15057.57
1993/09/30 16750.64 14541.52 14941.63
1993/10/31 17202.73 14691.00 15250.92
1993/11/30 17179.54 14577.88 15106.04
1993/12/31 17875.07 14678.76 15288.82
1994/01/31 18443.09 14967.05 15808.64
1994/02/28 17857.33 14683.28 15380.23
1994/03/31 17017.99 14303.86 14709.65
1994/04/30 17030.15 14341.05 14897.93
1994/05/31 17176.13 14437.71 15142.26
1994/06/30 16847.69 14293.33 14771.27
1994/07/31 17139.63 14595.21 15255.77
1994/08/31 17541.06 14846.54 15881.26
1994/09/30 17334.15 14628.89 15492.17
1994/10/31 17419.36 14769.03 15840.74
1994/11/30 17163.73 14554.47 15263.82
1994/12/31 16786.37 14689.71 15490.18
1995/01/31 16676.82 14964.29 15891.84
1995/02/28 16946.97 15338.22 16511.15
1995/03/31 17170.77 15572.95 16998.39
1995/04/30 17444.31 15852.95 17498.99
1995/05/31 17668.12 16378.13 18198.43
1995/06/30 17817.32 16597.47 18621.18
1995/07/31 18451.43 16808.98 19238.66
1995/08/31 18675.24 16919.65 19286.95
1995/09/30 18911.47 17285.46 20100.85
1995/10/31 18662.80 17383.85 20029.09
1995/11/30 19147.71 17812.18 20908.37
1995/12/31 19632.62 18067.68 21311.07
1996/01/31 20055.36 18375.48 22036.50
1996/02/29 20001.35 18308.01 22240.77
1996/03/31 20213.99 18330.20 22454.95
1996/04/30 20426.62 18406.38 22785.94
1996/05/31 20586.10 18600.31 23373.59
1996/06/30 20772.16 18738.77 23462.64
IMATRL PRASUN SHR__CHT 19960630 19960729 091928 R00000000000123
Let's say hypothetically that $10,000 was invested in Asset Manager
Portfolio on September 30, 1989, shortly after the fund started. As the
chart shows, by June 30, 1996, the value of the investment would have grown
to $20,772 - a 107.72% increase on the initial investment. For comparison,
look at how the S&P 500 did over the same period. With dividends and
capital gains, if any, reinvested, the same $10,000 investment would have
grown to $23,463 - a 134.63% increase.
You can also look at how the Fidelity Composite Index, a hypothetical
combination of unmanaged indices, did over the same period. Reflecting the
fund's neutral mix of 40% stocks, 40% bonds, and 20% short-term
instruments, this index combines returns from the S&P 500 (134.63%), Lehman
Brothers Treasury Bond Index (73.02%), and the Salomon Brothers 3-month
T-Bill Total Rate of Return Index (40.48%). With reinvested dividends and
capital gains, if any, a $10,000 investment in the index would have grown
to $18,739 - an 87.39% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE 30, 1996
% OF
FUND'S
INVESTMENT
S
Philip Morris Companies, Inc. 4.8
Federal National Mortgage Association 4.6
General Motors Corp. 2.4
Royal Dutch Petroleum Co. ADR 1.8
Compaq Computer Corp. 1.5
TOP FIVE FIXED-INCOME SECURITIES AS OF JUNE 30, 1996
(BY ISSUER, EXCLUDING REPURCHASE AGREEMENTS) % OF
FUND'S
INVESTMENT
S
U.S. Treasury Obligations (various issues) 22.2
Federal National Mortgage Association (various issues) 4.3
U.S. Government Agency Obligations (various issues) 1.7
Government National Mortgage Corporation (various issues) 1.3
Federal Home Loan Mortgage Corporation (various issues) 1.2
ASSET ALLOCATION AS OF JUNE 30, 1996*
Row: 1, Col: 1, Value: 12.0
Row: 1, Col: 2, Value: 32.4
Row: 1, Col: 3, Value: 25.6
Row: 1, Col: 4, Value: 25.0
Stock class 55.6%
Bond class 32.4%
Short-term class
and other 12.0%
FOREIGN INVESTMENTS 18.6%
*
ASSET ALLOCATIONS IN THIS PIE CHART REFLECT THE CATEGORIZATION OF
ASSETS AS DEFINED IN THE FUND'S PROSPECTUS. FINANCIAL STATEMENT
CATEGORIZATIONS CONFORM TO ACCOUNTING STANDARDS AND WILL DIFFER
FROM THE PIE CHART.
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
NOTE TO SHAREHOLDERS: On March 26, 1996, Richard Habermann was named the
head of a three-person team of portfolio managers of Asset Manager
Portfolio. Dick Habermann will have primary responsibility for asset
allocation decisions. George Vanderheiden, who has been with Fidelity for
25 years, will be responsible for individual stock selection. Michael Gray,
who joined Fidelity 14 years ago, will be responsible for bond selection.
The following is an interview with Dick Habermann.
Q. HOW DID THE FUND PERFORM, DICK?
A. The fund performed reasonably well in the first half of 1996. In an
environment that produced mixed returns for stocks and bonds, Asset Manager
performed roughly in line with other flexible portfolios. The Standard &
Poor's 500 Index had total returns of 10.10% and 26.00% for the past six
and 12 months, respectively. Looking back over the period, the fund held
its own during a time when the portfolio underwent some restructuring as a
result of the management change.
Q. HOW WERE THE FUND'S ASSETS DISTRIBUTED AT THE END OF THE PERIOD?
A. Around 55% in equities, 33% bonds and 12% cash equivalents. During the
past six months, the overall asset mix did not change substantially, but
the securities within the asset classes did undergo some significant
change.
Q. COULD YOU DETAIL WHAT SOME OF THOSE CHANGES WERE?
A. Sure. Within equities, we sold a substantial amount of the fund's
foreign holdings, especially in Japan. Despite the underperformance of the
the Japanese market compared to the U.S., our individual holdings in many
Japanese stocks had actually done fairly well, so we took some profits and
re-directed those assets into domestic equities. On the fixed-income side,
our holdings had been focused in the middle of the yield curve, in
securities with maturities between five and 15 years. We allocated more
assets into the high-yield, longer maturity end of the market, and
re-structured the fixed-income portion of the portfolio to more closely
reflect the composition of the Lehman Brothers Aggregate Bond Index. The
result was an increase of corporate bonds and mortgage securities and a
reduction of the fund's U.S. Treasury holdings.
Q. LET'S TURN TO THE MANAGEMENT CHANGE. WHAT WAS THE THINKING BEHIND THE
TEAM APPROACH?
A. We think this approach makes more sense than relying on a single person,
given that the fund invests in so many different kinds of securities and is
involved in so many segments of the market. Fidelity has traditionally
taken what's known as a bottom-up approach with most of its funds,
emphasizing research and individual security selection. Our hope is that by
dividing the responsibility for different parts of the fund among
sub-portfolio managers with established expertise in those areas, we can
better leverage our strength as a fund management organization.
Q. WILL THE FUND'S INVESTMENT STRATEGY CHANGE?
A. No. As always, the fund will seek competitive long-term results by
investing in a broad mix of stocks and bonds. In the past, the fund has
never tried to time the market by making sudden shifts in the asset mix,
nor will it try to do so in the future. In short, the fund's basic asset
allocation structure will not change. The shift at the top should be seen
as an attempt to better fulfill the fund's original investment objective,
not take the fund in a different direction.
Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SEVERAL MONTHS?
A. I'm guardedly optimistic. I think that the economy has shown that it's
pretty resilient so far this year. Still, there are signs that various
businesses may be slowing down, which could mean that we may see some
earnings disappointments. One other note of caution is that stimulus
packages in other countries have helped boost some foreign economies. With
a group of economies growing in sync, that could imply a degree of
inflation risk, which bears watching. I do feel that there is still room
for company managements to add value by rationalizing their businesses and
continuing to cut costs. Those efforts may not have the impact they did
over the past year or two, but they can still be meaningful. That's why
individual security selection will continue to be crucial, and I take
comfort in having George and Michael, with their valuable experience and
expertise, on the team. In the next report, each of them will provide their
views on their respective parts of the portfolio.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: high total return with reduced risk over
the long term by allocating assets among
stocks, bonds and short-term instruments
anywhere in the world
START DATE: September 6, 1989
SIZE: as of June 30, 1996, more than $3.4 billion
MANAGER: Richard Habermann, since March
1996; joined Fidelity in 1968
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO
INVESTMENTS JUNE 30, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 55.2%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 0.2%
Boeing Co. 61,200 $ 5,332,050
BASIC INDUSTRIES - 4.2%
CHEMICALS & PLASTICS - 2.6%
Air Products & Chemicals, Inc. 59,100 3,413,025
Betz Laboratories, Inc. 2,800 122,850
Dow Chemical Co. 12,700 965,200
du Pont (E.I.) de Nemours & Co. 510,400 40,385,400
Nippon Shokubai Co. Ltd. 439,000 4,241,739
Nippon Zeon Co. Ltd. 1,072,000 6,644,729
Raychem Corp. 154,600 11,111,875
Rohm & Haas Co. 8,900 558,475
Sekisui Chemical Co. Ltd. 1,178,000 14,388,770
Union Carbide Corp. 212,500 8,446,875
90,278,938
IRON & STEEL - 0.4%
Kobe Steel Ltd. (a) 2,634,000 7,563,101
NKK Corp. (a) 1,402,000 4,242,870
11,805,971
METALS & MINING - 0.3%
Aluminum Co. of America 8,100 464,738
Broken Hill Proprietary Co. Ltd. (The) 121,129 1,676,093
Reynolds Metals Co. 173,300 9,033,263
11,174,094
PACKAGING & CONTAINERS - 0.1%
Owens-Illinois, Inc. (a) 59,500 952,000
Tupperware Corp. (a) 31,300 1,322,425
2,274,425
PAPER & FOREST PRODUCTS - 0.8%
Boise Cascade Corp. 119,000 4,358,375
Champion International Corp. 212,200 8,859,350
Georgia-Pacific Corp. 18,400 1,306,400
International Paper Co. 192,100 7,083,688
Temple-Inland, Inc. 83,900 3,922,325
Willamette Industries, Inc. 47,900 2,850,050
28,380,188
TOTAL BASIC INDUSTRIES 143,913,616
CONSTRUCTION & REAL ESTATE - 0.8%
BUILDING MATERIALS - 0.2%
Armstrong World Industries, Inc. 35,100 2,022,638
Masco Corp. 33,100 1,001,275
Tecumseh Products Co. Class A 40,000 2,150,000
5,173,913
CONSTRUCTION - 0.5%
Centex Corp. 127,200 3,959,100
DR Horton, Inc. 52,524 551,502
Daito Trust Construction 726,100 10,854,601
Kaufman & Broad Home Corp. 166,400 2,412,800
Ryland Group, Inc. 9,100 136,500
17,914,503
ENGINEERING - 0.1%
Fluor Corp. 76,100 4,975,038
TOTAL CONSTRUCTION & REAL ESTATE 28,063,454
DURABLES - 4.9%
AUTOS, TIRES, & ACCESSORIES - 3.7%
Chrysler Corp. 95,200 5,902,400
Cummins Engine Co., Inc. 80,600 3,254,225
Dana Corp. 158,700 4,919,700
SHARES VALUE (NOTE 1)
Discount Auto Parts, Inc. (a) 9,700 $ 246,138
Federal-Mogul Corp. 188,900 3,471,038
Ford Motor Co. 36,700 1,188,163
General Motors Corp. 1,558,490 81,625,914
Goodyear Tire & Rubber Co. 44,700 2,156,775
Honda Motor Co. Ltd. 369,000 9,552,527
Magna International, Inc. Class A 9,300 429,687
Scania AB:
Class A 69,900 1,934,715
Class B 63,400 1,759,575
Superior Industries International, Inc. 56,400 1,494,600
Volvo AB Class B 358,600 8,145,341
126,080,798
CONSUMER DURABLES - 0.0%
Swedish Match AB 170,900 529,580
CONSUMER ELECTRONICS - 0.4%
Daiichi Corp. Ord. 145,800 4,226,280
Newell Co. 91,600 2,805,250
Whirlpool Corp. 108,400 5,379,350
12,410,880
HOME FURNISHINGS - 0.1%
Haverty Furniture Companies, Inc. 29,600 303,400
Shimachu Co. Ltd. 162,000 4,799,234
5,102,634
TEXTILES & APPAREL - 0.7%
Burlington Industries, Inc. (a) 331,900 4,688,088
Chiyoda Corp. 92,900 2,176,319
Donna Karan International, Inc. 2,700 75,600
Onward Kashiyama & Co. Ltd. 449,000 7,326,102
Tokyo Style Co. Ltd. 485,000 8,444,009
22,710,118
TOTAL DURABLES 166,834,010
ENERGY - 5.1%
ENERGY SERVICES - 0.5%
Transocean Drilling AS (a) 627,225 16,244,607
OIL & GAS - 4.6%
Amerada Hess Corp. 5,100 273,488
Amoco Corp. 27,100 1,961,363
Anadarko Petroleum Corp. 15,000 870,000
Atlantic Richfield Co. 199,500 23,640,750
British Petroleum PLC ADR 217,412 23,235,908
Burlington Resources, Inc. 175,200 7,533,600
Canada Occidental Petroleum Ltd. 80,200 1,349,851
Enron Oil & Gas Co. 16,900 471,088
Kerr-McGee Corp. 71,000 4,322,125
Noble Affiliates, Inc. 31,800 1,200,450
Occidental Petroleum Corp. 191,700 4,744,575
Royal Dutch Petroleum Co.:
ADR 397,400 61,100,250
Ord. 29,800 4,594,537
Santa Fe Energy Resources, Inc. (a) 178,500 2,119,688
Seagull Energy Corp. (a) 46,800 1,170,000
Sun Co., Inc. 173,800 5,279,175
Tosco Corp. 139,300 6,999,825
Total SA Class B 19,300 1,429,435
Total SA sponsored ADR 59,500 2,208,938
Ultramar Corp. 23,300 675,700
Union Pacific Resources Group, Inc. 42,900 1,147,575
156,328,321
TOTAL ENERGY 172,572,928
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - 10.4%
BANKS - 0.2%
Canadian Imperial Bank of Commerce 23,800 $ 768,868
Fleet Financial Group, Inc. 46,800 2,035,800
State Street Boston Corp. 49,800 2,539,800
5,344,468
CLOSED END INVESTMENT COMPANY - 0.1%
First NIS Regional Fund (Reg.) 200,000 2,134,000
CREDIT & OTHER FINANCE - 0.5%
Acom Co. Ltd. 454,200 17,761,433
Associates First Capital Corp. (a) 25,700 966,963
18,728,396
FEDERAL SPONSORED CREDIT - 6.1%
Federal Home Loan Mortgage Corporation 548,500 46,896,750
Federal National Mortgage Association 4,710,190 157,791,365
Student Loan Marketing Association 48,400 3,581,600
208,269,715
INSURANCE - 2.7%
AFLAC, Inc. 91,300 2,727,588
Allmerica Financial Corp. 60,300 1,793,925
Allstate Corp. 697,000 31,800,625
American International Group, Inc. 235,600 23,236,050
CIGNA Corp. 14,400 1,697,400
Chubb Corp. (The) 11,000 548,625
Equitable of Iowa Companies 16,000 568,000
General Re Corp. 112,500 17,128,125
MGIC Investment Corp. 39,400 2,211,325
Providian Corp. 156,200 6,697,075
Torchmark Corp. 114,000 4,987,500
Travelers/Aetna Property Casualty Corp.
Class A (a) 20,900 593,038
93,989,276
SAVINGS & LOANS - 0.3%
Golden West Financial Corp. 218,000 12,208,000
SECURITIES INDUSTRY - 0.5%
Nomura Securities Co. Ltd. 501,000 9,772,937
United Asset Management Corp. 241,400 5,914,300
15,687,237
TOTAL FINANCE 356,361,092
HEALTH - 2.2%
DRUGS & PHARMACEUTICALS - 0.5%
Pharmacia & Upjohn, Inc. 239,600 10,632,250
Sandoz AG (Reg.) 3,300 3,766,540
Schering-Plough Corp. 66,700 4,185,425
18,584,215
MEDICAL EQUIPMENT & SUPPLIES - 0.2%
Bard (C.R.), Inc. 1,500 51,000
Baxter International, Inc. 39,500 1,866,375
Biomet, Inc. (a) 212,600 3,056,125
4,973,500
MEDICAL FACILITIES MANAGEMENT - 1.5%
Columbia/HCA Healthcare Corp. 968,600 51,699,025
TOTAL HEALTH 75,256,740
HOLDING COMPANIES - 0.0%
U.S. Industries, Inc. (a) 65,400 1,577,775
SHARES VALUE (NOTE 1)
INDUSTRIAL MACHINERY & EQUIPMENT - 2.7%
ELECTRICAL EQUIPMENT - 0.6%
Emerson Electric Co. 22,800 $ 2,060,550
General Electric Co. 95,200 8,234,800
Omron Corp. 145,000 3,079,623
Scientific-Atlanta, Inc. 400 6,200
Sensormatic Electronics Corp. 248,400 4,067,550
Westinghouse Electric Corp. 101,000 1,893,750
19,342,473
INDUSTRIAL MACHINERY & EQUIPMENT - 1.8%
Caterpillar, Inc. 205,400 13,915,850
Deere & Co. 297,000 11,880,000
Dover Corp. 15,000 691,875
Komatsu Ltd. Ord. 2,460,000 24,217,675
NSK Ltd. 1,603,000 12,113,277
62,818,677
POLLUTION CONTROL - 0.3%
Browning-Ferris Industries, Inc. 396,000 11,484,000
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 93,645,150
MEDIA & LEISURE - 2.0%
BROADCASTING - 0.1%
Comcast Corp.:
Class A 10,200 187,425
Class A special 130,000 2,405,000
2,592,425
ENTERTAINMENT - 0.1%
Cedar Fair LP (depositary unit) 9,000 336,375
Royal Caribbean Cruises Ltd. 53,800 1,533,300
1,869,675
LEISURE DURABLES & TOYS - 1.2%
Brunswick Corp. 97,800 1,956,000
Fleetwood Enterprises, Inc. 34,300 1,063,300
Namco Ltd. 379,400 12,553,867
Nintendo Co. Ltd. Ord. 348,700 25,936,758
Outboard Marine Corp. 93,500 1,694,688
43,204,613
LODGING & GAMING - 0.4%
Bally Gaming International, Inc.
(warrants) (a) 38,400 115,200
Circus Circus Enterprises, Inc. (a) 352,500 14,452,500
Fitzgeralds South, Inc.
(warrants) (a)(c) 420 -
Mirage Resorts, Inc. (a) 11,900 639,625
15,207,325
PUBLISHING - 0.1%
Dow Jones & Co., Inc. 8,400 350,700
Knight-Ridder, Inc. 10,100 732,250
Times Mirror Co. Class A 18,100 787,350
1,870,300
RESTAURANTS - 0.1%
Brinker International, Inc. (a) 74,500 1,117,500
Darden Restaurants, Inc. 123,500 1,327,625
McDonald's Corp. 56,400 2,636,700
5,081,825
TOTAL MEDIA & LEISURE 69,826,163
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NONDURABLES - 6.0%
BEVERAGES - 0.3%
Compania Cervejaria Brahma PN
(Pfd. Reg.) 14,855,200 $ 8,861,489
FOODS - 0.3%
General Mills, Inc. 66,100 3,602,450
Nestle SA (Reg.) 6,000 6,838,684
Tyson Foods, Inc. 20,900 572,138
Weston George Ltd. 24,800 858,465
11,871,737
HOUSEHOLD PRODUCTS - 0.0%
Premark International, Inc. 53,900 997,150
TOBACCO - 5.4%
Philip Morris Companies, Inc. 1,570,400 163,321,600
RJR Nabisco Holdings Corp. 653,130 20,247,030
UST, Inc. 40,300 1,380,275
184,948,905
TOTAL NONDURABLES 206,679,281
PRECIOUS METALS - 0.1%
Barrick Gold Corp. 40,100 1,089,586
Santa Fe Pacific Gold Corp. 162,300 2,292,488
3,382,074
RETAIL & WHOLESALE - 6.4%
APPAREL STORES - 0.5%
Melville Corp. 47,500 1,923,750
Shimamura Corp. 127,300 5,593,054
TJX Companies, Inc. 120,200 4,056,750
Talbots, Inc. 147,400 4,772,075
16,345,629
GENERAL MERCHANDISE STORES - 2.9%
Aoyama Trading Co. Ord. 162,600 4,253,790
Dillard Department Stores, Inc. Class A 94,300 3,441,950
Federated Department Stores, Inc. (a) 272,300 9,292,238
Hankyu Department Stores, Inc. 1,123,000 14,740,623
Hanshin Department Store Ltd. 115,000 817,647
K mart Corp. 43,200 534,600
Jusco Co. Ltd. 217,000 7,101,135
Matsuzakaya Co., Ltd. 587,000 7,169,956
Price/Costco, Inc. 21,100 456,288
Takashimaya Co. Ltd. 1,182,000 18,316,394
Wal-Mart Stores, Inc. 1,242,000 31,515,750
Woolworth Corp. (a) 102,200 2,299,500
99,939,871
GROCERY STORES - 0.0%
Safeway, Inc. (a) 7,500 247,500
RETAIL & WHOLESALE, MISCELLANEOUS - 3.0%
Amway Japan Ltd. 595,500 29,855,066
Home Depot, Inc., (The) 472,100 25,493,400
Lowe's Companies, Inc. 263,200 9,508,100
Office Depot, Inc. (a) 145,500 2,964,563
Tandy Corp. 114,000 5,400,750
Toys "R" Us, Inc. 321,900 9,174,150
Uny Co. Ltd. 927,000 18,336,357
100,732,386
TOTAL RETAIL & WHOLESALE 217,265,386
SHARES VALUE (NOTE 1)
SERVICES - 0.2%
ADVERTISING - 0.2%
Interpublic Group of Companies, Inc. 16,900 $ 792,188
WPP Group PLC 1,303,200 4,389,959
5,182,147
SERVICES - 0.0%
Christies International PLC 335,200 1,097,934
TOTAL SERVICES 6,280,081
TECHNOLOGY - 5.5%
COMMUNICATIONS EQUIPMENT - 0.1%
Cisco Systems, Inc. 21,400 1,211,775
General Instrument Corp. (a) 56,000 1,617,000
2,828,775
COMPUTER SERVICES & SOFTWARE - 0.6%
Adobe Systems, Inc. 11,600 416,150
America Online, Inc. 12,300 538,125
Automatic Data Processing, Inc. 143,400 5,538,825
Electronic Data Systems Corp. 25,600 1,376,000
Metromail Corp. (a) 18,800 420,650
Microsoft Corp. (a) 24,700 2,967,088
Oracle Corp. (a) 117,500 4,633,906
Policy Management Systems Corp. (a) 78,400 3,920,000
19,810,744
COMPUTERS & OFFICE EQUIPMENT - 2.9%
Compaq Computer Corp. (a) 1,075,300 52,958,525
Hewlett-Packard Co. 66,400 6,615,100
International Business Machines Corp. 366,500 36,283,500
SCI Systems, Inc. (a) 6,800 276,250
Seagate Technology 31,300 1,408,500
Tech Data Corp. (a) 14,900 324,075
97,865,950
ELECTRONICS - 0.7%
Intel Corp. 121,300 8,907,969
Methode Electronics, Inc. Class A 5,400 91,800
Molex, Inc. 56,000 1,645,000
Solectron Corp. (a) 377,700 14,305,388
24,950,157
PHOTOGRAPHIC EQUIPMENT - 1.2%
Fuji Photo Film Co. Ltd. 1,311,000 41,347,797
TOTAL TECHNOLOGY 186,803,423
TRANSPORTATION - 0.6%
AIR TRANSPORTATION - 0.0%
Southwest Airlines Co. 9,800 285,425
RAILROADS - 0.5%
Bombardier, Inc. Class B 117,000 1,754,721
Burlington Northern Santa Fe Corp. 162,100 13,109,838
CSX Corp. 200 9,650
14,874,209
SHIPPING - 0.1%
Overseas Shipholding Group, Inc. 16,200 293,625
Sembawang Maritime Ltd. 651,000 1,761,828
Stolt-Nielsen SA 25,100 454,938
Stolt-Nielsen SA Class B sponsored ADR 80,900 1,506,763
Storli AS Class B (non-vtg.) 9,600 182,970
4,200,124
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TRANSPORTATION - CONTINUED
TRUCKING & FREIGHT - 0.0%
Caliber System, Inc. 15,300 $ 520,200
Consolidated Freightways, Inc. 27,700 585,163
1,105,363
TOTAL TRANSPORTATION 20,465,121
UTILITIES - 3.9%
CELLULAR - 1.6%
AirTouch Communications, Inc. (a) 317,100 8,958,075
Vodafone Group PLC sponsored ADR 828,900 30,565,688
Vodafone Group PLC 4,726,000 17,570,693
57,094,456
TELEPHONE SERVICES - 2.3%
Ameritech Corp. 53,500 3,176,563
Bell Atlantic Corp. 140,800 8,976,000
BellSouth Corp. 299,400 12,687,075
NYNEX Corp. 244,300 11,604,250
SBC Communications, Inc. 346,900 17,084,825
Telebras PN:
(Pfd. Reg.) 58,793,000 4,104,357
sponsored ADR 227,600 15,846,650
Telesp PN (Pfd. Reg.) 19,563,700 4,188,811
77,668,531
TOTAL UTILITIES 134,762,987
TOTAL COMMON STOCKS
(Cost $1,776,445,123) 1,889,021,331
PREFERRED STOCKS - 0.3%
CONVERTIBLE PREFERRED STOCKS - 0.0%
RETAIL & WHOLESALE - 0.0%
GROCERY STORES - 0.0%
Supermarkets General Holdings Corp.
exchangeable pay-in-kind $3.52 20,000 520,000
NONCONVERTIBLE PREFERRED STOCKS - 0.3%
ENERGY - 0.0%
OIL & GAS - 0.0%
Gulf Canada Resources Ltd.,
Series 1, adj. rate 178,000 554,802
MEDIA & LEISURE - 0.3%
BROADCASTING - 0.3%
Cablevision System Corp.
$11.125 pay-in-kind (c) 37,103 3,469,131
Time Warner, Inc., Series K
(exchangeable) 3,475 3,405,500
6,874,631
NONDURABLES - 0.0%
HOUSEHOLD PRODUCTS - 0.0%
Revlon Group, Inc., Series B,
exchangeable $14.875 5,100 510,000
SHARES VALUE (NOTE 1)
UTILITIES - 0.0%
TELEPHONE SERVICES - 0.0%
Intelecom Group USA, Inc. (a) 970 $ 1,008,800
TOTAL NONCONVERTIBLE PREFERRED STOCKS 8,948,233
TOTAL PREFERRED STOCKS
(Cost $9,500,180) 9,468,233
CORPORATE BONDS - 9.5%
MOODY'S PRINCIPAL
RATINGS (B) AMOUNT
CONVERTIBLE BONDS - 0.7%
FINANCE - 0.2%
CREDIT & OTHER FINANCE - 0.2%
Cre Fin (Caymen Islands) Ltd. 3%,
11/24/05 (c) - $ 5,000,000 7,087,500
RETAIL & WHOLESALE - 0.5%
DRUG STORES - 0.5%
Rite Aid Corp. liquid yield
option notes 0%, 7/24/06 Baa1 30,020,000 15,798,025
TECHNOLOGY - 0.0%
ELECTRONICS - 0.0%
United Microelectronics Corp.
euro 1 1/4%, 6/8/04 - 227,000 288,858
TOTAL CONVERTIBLE BONDS 23,174,383
NONCONVERTIBLE BONDS - 8.8%
AEROSPACE & DEFENSE - 0.3%
Be Aerospace, Inc.
9 7/8%, 2/1/06 B2 270,000 265,275
Lockheed Martin Corp. :
7 1/4%, 5/15/06 A3 4,000,000 3,992,320
7.70%, 6/15/08 A3 2,750,000 2,799,693
7 3/4%, 5/1/26 A3 3,000,000 2,990,520
Moog, Inc. 10%,
5/1/06 (c) B2 1,000,000 1,005,000
11,052,808
BASIC INDUSTRIES - 0.2%
CHEMICALS & PLASTICS - 0.1%
Acetex Corp. yankee
9 3/4%, 10/1/03 B1 2,140,000 2,091,850
NL Industries, Inc.
0%, 10/15/05 (e) B2 670,000 521,763
2,613,613
PACKAGING & CONTAINERS - 0.1%
Owens Illinois, Inc.
9.95%, 10/15/04 B2 3,000,000 3,045,000
TOTAL BASIC INDUSTRIES 5,658,613
CONSTRUCTION & REAL ESTATE - 0.6%
BUILDING MATERIALS - 0.1%
Building Materials Corp.
of America 0%, 7/1/04 (e) B1 2,770,000 2,063,650
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
CONSTRUCTION & REAL ESTATE - CONTINUED
CONSTRUCTION - 0.1%
Greystone Homes, Inc.
10 3/4%, 3/1/04 B1 $ 1,800,000 $ 1,764,000
REAL ESTATE - 0.4%
Henderson Capital International
Ltd. euro 4%, 10/27/96 - 18,770,000 15,672,950
TOTAL CONSTRUCTION & REAL ESTATE 19,500,600
DURABLES - 0.3%
AUTOS, TIRES, & ACCESSORIES - 0.2%
APS, Inc. 11 7/8%,
1/15/06 (c) B2 320,000 335,200
Aftermarket Technology Corp.
Series B, 12%, 8/1/04 B3 1,110,000 1,198,800
Collins & Aikman Products Co.
11 1/2%, 4/15/06 B3 2,720,000 2,767,600
Harvard Industries, Inc.
11 1/8%, 8/1/05 B3 500,000 470,000
Hayes Wheels International, Inc.
11%, 7/15/06 B3 280,000 283,500
Lear Seating Corp.
8 1/4%, 2/1/02 B2 960,000 912,000
5,967,100
CONSUMER ELECTRONICS - 0.0%
Tag Heuer International
SA yankee 12%,
12/15/05 (c) B3 1,220,000 1,271,850
HOME FURNISHINGS - 0.0%
Interlake Corp.
12 1/8%, 3/1/02 B3 770,000 770,000
Knoll, Inc.
10 7/8%, 3/15/06 B3 920,000 938,400
1,708,400
TEXTILES & APPAREL - 0.1%
CMI Industries, Inc.
9 1/2%, 10/1/03 B1 600,000 517,500
Hat Brands, Inc., Series B,
12 5/8%, 9/15/02 (d) - 380,000 285,000
Reeves Industries, Inc.
11%, 7/15/02 B2 2,270,000 1,974,900
2,777,400
TOTAL DURABLES 11,724,750
ENERGY - 0.7%
OIL & GAS - 0.7%
Apache Corp.
7.95%, 4/15/26 Baa3 5,190,000 5,144,639
Clark USA, Inc., Series B,
10 7/8%, 12/1/05 B2 880,000 902,000
Diamond Shamrock, Inc.
7.65%, 7/1/26 Baa3 2,000,000 2,033,960
Mesa Operating Co.
10 5/8%, 7/1/06 B2 130,000 132,600
Norcen Energy Resources Ltd.
yankee 7 3/8%, 5/15/06 Baa3 2,200,000 2,175,800
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
Occidental Petroleum Corp. :
10.94%, 5/17/00 Baa3 $ 2,700,000 $ 3,066,228
6.39%, 11/9/00 Baa3 1,000,000 979,880
8 1/2%, 11/9/01 Baa3 1,251,000 1,331,639
Petro-Canada, Inc. yankee
7 7/8%, 6/15/26 Baa1 3,000,000 3,033,960
Tosco Corp.
7 5/8%, 5/15/06 Ba1 3,500,000 3,489,220
USX Corp. 8 1/2%, 3/1/23 Baa3 1,020,000 1,043,134
23,333,060
FINANCE - 3.2%
ASSET-BACKED SECURITIES - 0.6%
Airplanes 10 7/8%, 3/15/19 Ba2 5,850,000 6,113,250
Caterpillar Financial Asset Trust
6.55%, 5/22/02 A3 880,000 876,014
Green Tree Financial Corp.:
6 1/2%, 6/15/27 Aaa 1,800,000 1,792,116
6.80%, 6/15/27 Aaa 1,900,000 1,892,267
Premier Auto Trust:
8.05%, 4/4/00 Aaa 6,804,000 6,982,605
6%, 5/6/00 Aaa 2,320,000 2,306,219
19,962,471
BANKS - 0.9%
Banponce Financial Corp.
7.72%, 4/13/00 Baa1 2,000,000 2,041,960
Capital One Bank
8 1/8%, 2/27/98 Baa3 1,035,000 1,058,101
Central Fidelity Banks, Inc.
8.15%, 11/15/02 Baa2 100,000 104,637
Chase Manhattan Corp.
6 1/4%, 1/15/06 A2 7,000,000 6,457,010
Den Danske Bank Group
AS yankee 7 1/4%,
6/15/05 (c) A2 2,600,000 2,571,296
Keycorp 7 1/2%, 6/15/06 A2 6,300,000 6,345,108
Korea Development Bank
yankee 7 1/4%, 5/15/06 A1 5,000,000 4,925,150
Midland Bank PLC yankee
7 5/8%, 6/15/06 A1 3,000,000 3,039,420
Signet Banking Corp.
9 5/8%, 6/1/99 Baa2 790,000 845,024
Southern National Corp.
7.05%, 5/23/03 A3 5,000,000 4,974,950
32,362,656
CREDIT & OTHER FINANCE - 1.4%
Finova Capital Corp.:
6.44%, 11/6/01 Baa1 5,500,000 5,365,910
6.12%, 5/28/02 Baa1 2,000,000 1,908,540
Ford Motor Credit:
5.73%, 2/23/00 A1 3,250,000 3,145,025
6.65%, 5/22/00 A1 9,000,000 8,962,110
5.68%, 2/15/01 A1 5,000,000 4,761,250
6.57%, 3/19/01 A1 700,000 690,235
General Motors Acceptance Corp.:
6.65%, 5/24/00 A3 10,000,000 9,957,400
5 5/8%, 2/1/99 A3 5,000,000 4,879,650
HMC Acquisition Properties, Inc.
Series B, 9%, 12/15/07 Ba3 4,730,000 4,327,950
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
Homeside, Inc. 11 1/4%,
5/15/03 (c) B+ $ 650,000 $ 669,500
Repsol International Finance BV
yankee 7%, 8/1/05 Aa3 3,000,000 2,958,720
47,626,290
INSURANCE - 0.1%
Reliance Group
9 3/4%, 11/15/03 B1 2,440,000 2,409,500
SAVINGS & LOANS - 0.2%
First Nationwide Parent Holdings
Ltd. 12 1/2%, 4/15/03 B2 4,470,000 4,659,975
Great Western Financial Corp.
8.60%, 2/1/02 Baa1 2,000,000 2,133,060
6,793,035
TOTAL FINANCE 109,153,952
HEALTH - 0.2%
MEDICAL FACILITIES MANAGEMENT - 0.2%
Tenet Healthcare Corp.
10 1/8%, 3/1/05 Ba3 4,700,000 4,970,250
INDUSTRIAL MACHINERY & EQUIPMENT - 0.2%
INDUSTRIAL MACHINERY & EQUIPMENT - 0.2%
Exide Corp.:
10 3/4%, 12/15/02 B1 705,000 719,100
10%, 4/15/05 B1 1,715,000 1,667,838
IMO Industries, Inc.
11 3/4%, 5/1/06 (c) B3 2,880,000 2,952,000
5,338,938
POLLUTION CONTROL - 0.0%
Envirosource, Inc.
9 3/4%, 6/15/03 B3 420,000 383,250
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 5,722,188
MEDIA & LEISURE - 1.2%
BROADCASTING - 0.8%
Bell Cablemedia PLC yankee
0%, 9/15/05 (e) B2 1,780,000 1,083,575
CAI Wireless system, Inc.
12 1/4%, 9/15/02 B3 320,000 334,400
CS Wireless Systems, Inc.
0%, 3/1/06 Unit (c)(e) - 210,000 432,600
Cablevision Systems Corp.
9 7/8%, 5/15/06 B2 1,100,000 1,058,750
Fundy Cable Ltd./LTEE yankee
11%, 11/15/05 B1 580,000 587,250
Granite Broadcasting Corp.:
10 3/8%, 5/15/05 B3 710,000 686,925
9 3/8%, 12/1/05 (c) B3 210,000 191,625
JCAC, Inc.
10 1/8%, 6/15/06 B2 130,000 128,700
Lenfest Communications, Inc.
10 1/2%, 6/15/06 (c) B2 1,450,000 1,457,250
NWCG Holdings Corp.
0%, 6/15/99 Caa 70,000 51,800
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
SCI Television, Inc. secured
11%, 6/30/05 B2 $ 4,850,000 $ 5,044,000
SFX Broadcasting, Inc.
10 3/4%, 5/15/06 (c) B3 3,100,000 3,084,500
Telemundo Group, Inc. 7%,
2/15/06 (f) B1 3,800,000 3,439,000
Telewest PLC 0%,
10/1/07 (e) B1 7,410,000 4,371,900
Time Warner, Inc.
7 3/4%, 6/15/05 Ba1 5,300,000 5,173,966
27,126,241
LODGING & GAMING - 0.2%
American Skiing Co.
12%, 7/15/06 (c) B3 1,770,000 1,734,600
Ballys Grand, Inc. 1st mtg.
10 3/8%, 12/15/03 B1 1,920,000 2,107,200
Casino Magic Financial Corp.
11 1/2%, 10/15/01 B1 390,000 401,700
Courtyard by Marriott II
LP/Courtyard II Finance Co.,
Series B, 10 3/4%, 2/1/08 B- 960,000 936,000
Horseshoe Gaming LLC,
Series A, 12 3/4%,
9/30/00 B1 430,000 462,250
Wyndham Hotel Corp.
10 1/2%, 5/15/06 B2 330,000 328,350
5,970,100
PUBLISHING - 0.0%
Golden Books Publishing, Inc.
7.65%, 9/15/02 B1 490,000 414,050
RESTAURANTS - 0.2%
Foodmaker, Inc.
9 3/4%, 6/1/02 B3 2,180,000 2,081,900
Host Marriott Travel Plazas, Inc.,
Series B, 9 1/2%, 5/15/05 B1 5,280,000 5,035,800
7,117,700
TOTAL MEDIA & LEISURE 40,628,091
NONDURABLES - 0.5%
FOODS - 0.4%
Chiquita Brands International, Inc.
9 5/8%, 1/15/04 B1 4,350,000 4,273,875
Foodbrands of America, Inc.
10 3/4%, 5/15/06 B3 1,150,000 1,150,000
Nabisco, Inc.
6.85%, 6/15/05 Baa2 3,000,000 2,867,220
Ralcorp Holdings, Inc.
8 3/4%, 9/15/04 Ba1 420,000 428,232
Specialty Foods Corp., Series B:
11 1/8%, 10/1/02 B3 3,200,000 3,056,000
11 1/4%, 8/15/03 Caa 1,020,000 884,850
12,660,177
HOUSEHOLD PRODUCTS - 0.1%
Revlon Consumer Products Corp.
10 1/2%, 2/15/03 B3 1,800,000 1,818,000
Revlon Worldwide Corp. secured
0%, 3/15/98 B3 1,890,000 1,573,425
3,391,425
TOTAL NONDURABLES 16,051,602
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - 0.3%
APPAREL STORES - 0.0%
Lamonts Apparel, Inc.
10 1/4%, 11/1/99
pay-in-kind (c)(d) - $ 2,816,000 $ 126,720
Loehmann's, Inc.
11 7/8%, 5/15/03 B2 1,030,000 1,060,900
1,187,620
GENERAL MERCHANDISE STORES - 0.1%
K Mart Corp.
12 1/2%, 3/01/05 Ba3 1,150,000 1,253,500
GROCERY STORES - 0.2%
Pathmark Stores, Inc.:
12 5/8%, 6/15/02 B3 1,720,000 1,732,900
9 5/8%, 5/1/03 B2 2,030,000 1,905,663
0%, 11/1/03 (e) B3 1,780,000 1,079,125
Ralph's Grocery Co.
10.45%, 6/15/04 B1 3,270,000 3,131,025
7,848,713
RETAIL & WHOLESALE, MISCELLANEOUS - 0.0%
Brylane LP, Series B
10%, 9/1/03 B2 290,000 278,400
TOTAL RETAIL & WHOLESALE 10,568,233
SERVICES - 0.0%
PRINTING - 0.0%
Sullivan Graphics, Inc.
12 3/4%, 8/1/05 Caa 1,500,000 1,449,375
TECHNOLOGY - 0.3%
COMMUNICATIONS EQUIPMENT - 0.1%
Echostar Communications Corp.
0%, 6/1/04 (e) B2 4,030,000 2,941,900
COMPUTERS & OFFICE EQUIPMENT - 0.2%
Bell & Howell Co., Series B,
0%, 3/1/05 (e) B3 2,050,000 1,404,250
Comdisco, Inc.
5 3/4%, 2/15/01 Baa2 4,000,000 3,818,960
Unisys Corp.
12%, 4/15/03 (c) B1 3,000,000 3,060,000
8,283,210
TOTAL TECHNOLOGY 11,225,110
TRANSPORTATION - 0.3%
AIR TRANSPORTATION - 0.2%
Delta Air Lines, Inc.:
9 7/8%, 5/15/00 Baa3 1,500,000 1,638,885
10 1/2%, 4/30/16 Baa1 2,500,000 2,970,300
US Air, Inc.:
9 5/8%, 2/1/01 B3 2,180,000 2,043,750
10%, 7/1/03 B3 2,200,000 2,057,000
8,709,935
RAILROADS - 0.1%
Burlington Northern Santa Fe
Corp. 7.29%, 6/1/36 Baa2 3,000,000 2,993,640
TOTAL TRANSPORTATION 11,703,575
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
UTILITIES - 0.5%
CELLULAR - 0.3%
Arch Communications Group, Inc.
0%, 3/15/08 (e) B3 $ 1,590,000 $ 818,850
Intercel, Inc. 0%, 5/1/06 (e) B2 2,690,000 1,466,050
International Cabletel, Inc.,
Series B, 0%, 2/1/06 (e) B3 1,580,000 888,750
Nextel Communications, Inc.
0%, 8/15/04 (e) B3 1,250,000 734,375
Paging Network, Inc.:
8 7/8%, 2/1/06 B2 110,000 100,100
10 1/8%, 8/1/07 B2 120,000 118,200
Rogers Cantel, Inc.
9 3/8%, 6/1/08 Ba3 2,900,000 2,805,750
360 Degrees Communications
Co. 7 1/2%, 3/1/06 Ba2 1,500,000 1,423,170
Western Wireless Corp.
10 1/2%, 6/1/06 B3 1,000,000 997,500
9,352,745
ELECTRIC UTILITY - 0.1%
El Paso Electric Co., Series E,
9.40%, 5/1/11 1st Mtg. Ba3 1,900,000 1,885,750
Hydro-Quebec
8.40%, 1/15/22 A2 1,800,000 1,896,084
3,781,834
TELEPHONE SERVICES - 0.1%
Brooks Fiber Properties, Inc.
10 7/8%, 3/1/06 (c) - 500,000 263,750
Call-Net Enterprises, Inc.
yankee 0%, 12/1/04 (e) B2 3,360,000 2,469,600
MFS Communications, Inc.
0%, 1/15/06 (e) B1 3,110,000 1,889,325
Shared Technologies Fairchild
Corp. 0%, 3/1/06 (c)(e) Caa 980,000 739,900
5,362,575
TOTAL UTILITIES 18,497,154
TOTAL NONCONVERTIBLE BONDS 301,239,361
TOTAL CORPORATE BONDS
(Cost $327,572,613) 324,413,744
U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS - 23.9%
U.S. TREASURY OBLIGATIONS - 22.2%
6.125%, 3/31/98 Aaa 234,965,000 235,148,273
7 3/4%, 12/31/99 Aaa 59,535,000 62,027,730
5 1/2%, 12/31/00 Aaa 51,080,000 49,228,350
7 7/8%, 8/15/01 Aaa 88,430,000 93,680,089
6 1/4%, 2/15/03 Aaa 21,560,000 21,179,250
11 7/8%, 11/15/03 Aaa 49,640,000 64,562,777
11 3/4%, 2/15/10 Aaa 70,770,000 93,250,798
13 7/8%, 5/15/11 Aaa 25,650,000 38,442,938
9%, 11/15/18 Aaa 76,290,000 92,978,438
8 7/8%, 2/15/19 Aaa 9,000,000 10,849,230
TOTAL U.S. TREASURY OBLIGATIONS 761,347,873
U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - 1.7%
Federal Agricultural Mortgage Corp.
7.63%, 1/16/01 Aaa $ 3,321,000 $ 3,451,748
Federal Farm Credit Bank:
8.16%, 12/7/04 Aaa 5,000,000 5,366,300
9.55%, 5/9/05 Aaa 2,500,000 2,911,500
Federal Home Loan Bank:
5.695%, 12/19/00 Aaa 4,000,000 3,857,480
7.28%, 7/25/01 Aaa 2,300,000 2,354,993
7.31%, 6/16/04 Aaa 2,470,000 2,528,663
8.22%, 11/17/04 Aaa 4,000,000 4,307,240
7.59%, 3/10/05 Aaa 3,850,000 4,007,003
6.75%, 8/1/05 Aaa 2,500,000 2,456,650
Guaranteed Export Trust Certificates
(assets of Trust guaranteed by
U.S. Government through
Export-Import Bank) Series
1996-A, 6.55%, 6/15/04 Aaa 3,162,354 3,138,605
Private Export Funding Corp.
7.03%, 10/31/03 Aaa 7,810,000 7,898,878
U.S. Housing & Urban Development:
6.67%, 8/1/01 Aaa 9,400,000 9,385,242
8.24%, 8/1/04
participation certificate Aaa 2,450,000 2,630,443
7.63%, 8/1/14 Aaa 2,825,000 2,816,808
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 57,111,553
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $829,026,007) 818,459,426
U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES - 6.8%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 1.2%
5 1/2%, 1/1/03 to 6/1/03 Aaa 4,241,998 4,002,028
7%, 2/1/97 to 6/1/01 Aaa 1,110,000 1,114,507
8 1/2%, 7/1/21 to 6/1/26 Aaa 34,838,309 35,777,181
40,893,716
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 4.3%
5 1/2%, 2/1/03 to 5/1/03 Aaa 4,241,997 3,999,398
6%, 10/1/02 to 6/1/26 Aaa 65,894,674 61,534,009
6%, 4/1/11 (g) Aaa 163,275 154,396
6 1/2%, 12/1/25 to 6/1/26 Aaa 70,119,463 65,583,434
7%, 5/1/26 Aaa 14,838,476 14,272,685
145,543,922
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 1.3%
6%, 12/15/09 to 5/15/26 Aaa 11,813,980 11,270,783
6 1/2%, 6/15/08 to 7/15/09 Aaa 22,880,033 22,287,899
8%, 7/15/26 Aaa 12,000,000 12,097,500
8 1/2%, 12/15/96 Aaa 141,337 146,764
45,802,946
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $232,674,016) 232,240,584
COMMERCIAL MORTGAGE SECURITIES - 0.7%
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
American Southwest Financial
Securities commercial Series
1994-C2 Class B2, 13.3419%,
12/25/01 (c) - $ 500,000 $ 472,500
DLJ Mortgage Acceptance
Corp. commercial
Series 1993-MF12 Class B-2,
10.10%, 9/18/03 - 600,000 540,750
Equitable Life Assurance Society
of the United States (c):
commercial Series 1996-1:
Class B-1, 7.33%,
5/15/06 Aa2 3,500,000 3,473,750
Class C-1, 7.52%,
5/15/06 A2 2,300,000 2,282,750
sequential pay series 174
Class A1, 7.24%,
5/15/06 Aaa 5,000,000 4,962,500
FSB Trust Receipts commercial
Series 1994 Class 1-B,
7.89%, 12/1/24 - 2,900,000 1,938,469
Merrill Lynch Mortgage
Investments, Inc. commercial
Series 1994 Class M1-E,
8.0698%, 6/25/22 (c)(f) Ba2 5,670,000 4,862,138
Morgan Stanley Capital One, Inc.
commercial Series 1996-MBL1:
Class E, 8.661%,
5/25/21 (c) - 1,966,807 1,687,766
Class F, 8.661%,
9/25/00 (c) - 1,040,000 872,300
Mortgage Capital Funding, Inc.
commercial Series 1996-MC1
Class G, 7.15%, 7/15/28 BB 1,000,000 746,251
Resolution Trust Corp. commercial
Series 1994-C1 Class E,
8%, 6/25/26 BB 3,213,001 2,743,100
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $24,751,290) 24,582,274
FOREIGN GOVERNMENT OBLIGATIONS - 0.2%
Mexico Value recovery rights (a) - 2,000 -
Ontario Province Canada
6%, 2/21/06
(Cost $5,209,634) Aa3 5,660,000 5,183,824
REPURCHASE AGREEMENTS - 3.4%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.46%, dated
6/28/96 due 7/1/96 $ 117,051,234 116,998,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $3,322,176,863) $ 3,420,367,416
LEGEND
(a) Non-income producing
(b) Standard & Poor's Corporation credit ratings are used in the absence of
a rating by Moody's Investors Service, Inc.
(c) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $49,066,126 or 1.4% of net
assets.
(d) Non-income producing - issuer filed for protection under the Federal
Bankruptcy Code or is in default of interest payment.
(e) Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
(f) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(g) Security purchased on a delayed delivery basis (see Note 2 of Notes to
Financial Statements).
(h) A company in which the fund has ownership of at least 5% of the voting
securities is an affiliated company. A summary of the transactions during
the period in which the issuers were affiliates is as follows:
PURCHASE SALES DIVIDEND MARKET
AFFILIATE COST COST INCOME VALUE
Barr Laboratories, Inc. $ - $ 16,365,800 $ - $ -
Synetic, Inc. - 25,400,727 - -
WMS Industries, Inc. 344,890 26,915,132 - -
$ 344,890 $68,681,659 $ - $ -
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $4,046,506,721 and $3,584,128,952, respectively, of which U.S.
govern- ment and government agency obligations aggregated $648,703,297 and
$455,919,112, respectively.
The market value of futures contracts opened and closed during the period
amounted to $16,398,668 and $180,511,750, respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company. The
commissions paid to these affiliated firms were $484,515 for the period
(see Note 4 of Notes to Financial Statements).
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 33.8% AAA, AA, A 32.9%
Baa 1.8% BBB 2.6%
Ba 1.1% BB 1.4%
B 3.3% B 2.4%
Caa 0.1% CCC 0.3%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by either S&P or Moody's amounted to 0.9%.
Distribution of investments by country of issue, as a percentage of total
value of investment in securities, is as follows:
United States 81.4%
Japan 10.0
United Kingdom 2.5
Netherland 1.9
Brazil 1.0
Others (individually less than 1%) 3.2
TOTAL 100.0%
INCOME TAX INFORMATION
At June 30, 1996, the aggregate cost of investment securities for income
tax purposes was $3,322,796,676. Net unrealized appreciation aggregated
$97,570,740, of which $158,860,567 related to appreciated investment
securities and $61,289,827 related to depreciated investment securities.
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
ASSETS
Investm $ 3,420,367,416
ent in
securit
ies, at
value
(includ
ing
repurc
hase
agree
ments
of
$116,9
98,000
) (cost
$3,322
,176,8
63) -
See
accom
panyin
g
sched
ule
Cash 343,670
Receiva 37,306,301
ble for
invest
ments
sold
Receiva 1,349,918
ble for
fund
shares
sold
Dividend 5,145,457
s
receiv
able
Interest 22,386,856
receiv
able
TOTAL 3,486,899,618
ASSETS
LIABILITI
ES
Payable $ 65,166,641
for
invest
ments
purcha
sed
Regula
r
deliver
y
Delaye 154,042
d
deliver
y
Payable 1,192,085
for
fund
shares
redee
med
Accrued 1,995,560
manag
ement
fee
Other 354,832
payabl
es and
accrue
d
expen
ses
TOTAL 68,863,160
LIABILIT
IES
NET $ 3,418,036,458
ASSET
S
Net
Assets
consist
of:
Paid in $ 3,027,860,052
capital
Undistrib 52,331,859
uted
net
invest
ment
incom
e
Accumul 239,697,920
ated
undistr
ibuted
net
realize
d gain
(loss)
on
invest
ments
and
foreign
curren
cy
transa
ctions
Net 98,146,627
unreali
zed
apprec
iation
(depre
ciation
) on
invest
ments
and
assets
and
liabiliti
es in
foreign
curren
cies
NET $ 3,418,036,458
ASSET
S, for
218,72
6,062
shares
outsta
nding
NET $15.63
ASSET
VALUE,
offerin
g price
and
redem
ption
price
per
share
($3,41
8,036,
458 (divided by)
218,72
6,062
shares
)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
INVESTM $ 17,308,134
ENT
INCOME
Dividend
s
Interest 51,408,320
TOTAL 68,716,454
INCOM
E
EXPENS
ES
Manage $ 11,935,509
ment
fee
Transfer 934,747
agent
fees
Accounti 348,841
ng
fees
and
expen
ses
Non-inte 1,166
rested
trustee
s'
compe
nsatio
n
Custodia 307,716
n fees
and
expen
ses
Registrat 8,080
ion
fees
Legal 7,587
Miscella 21,431
neous
Total 13,565,077
expen
ses
before
reducti
ons
Expen (370,594 13,194,483
se )
reducti
ons
NET 55,521,971
INVEST
MENT
INCOM
E
REALIZE
D AND
UNREALIZ
ED GAIN
(LOSS)
Net
realize
d gain
(loss)
on:
Invest 230,606,117
ment
securit
ies
(includ
ing
reali
zed
gain of
$20,25
4,123
on
sales
of
invest
ments
in
affili
ated
issuer
s)
Foreig 7,214,369
n
curren
cy
transa
ctions
Future 13,494,578 251,315,064
s
contra
cts
Change
in net
unreali
zed
apprec
iation
(depre
ciation
) on:
Invest (102,043,173
ment )
securit
ies
Assets (6,984,852
and )
liabiliti
es in
forei
gn
curren
cies
Future (8,457,295 (117,485,320
s ) )
contra
cts
NET GAIN 133,829,744
(LOSS)
NET $ 189,351,715
INCREA
SE
(DECRE
ASE) IN
NET
ASSETS
RESULTI
NG
FROM
OPERAT
IONS
OTHER $ 367,255
INFORM
ATION
Expen
se
reducti
ons
Direc
ted
broker
age
arrang
ements
Cust 3,339
odian
interest
credits
$ 370,594
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1996 1995
(UNAUDITED)
Operatio $ 55,521,971 $ 114,776,593
ns
Net
invest
ment
incom
e
Net 251,315,064 108,752,522
realize
d gain
(loss)
Chang (117,485,320) 284,744,744
e in
net
unreali
zed
apprec
iation
(depre
ciation
)
NET 189,351,715 508,273,859
INCR
EASE
(DEC
REAS
E) IN
NET
ASSE
TS
RESU
LTING
FROM
OPER
ATIO
NS
Distributi (119,397,539) (67,894,650)
ons to
shareh
olders
From
net
invest
ment
incom
e
From (98,450,602) -
net
realize
d gain
TOTAL (217,848,141) (67,894,650)
DISTRIB
UTIONS
Share 136,278,278 239,926,948
transa
ctions
Net
procee
ds
from
sales
of
shares
Reinve 217,848,141 67,894,650
stment
of
distrib
utions
Cost (240,437,844) (705,883,879)
of
shares
redee
med
NET 113,688,575 (398,062,281)
INCR
EASE
(DEC
REAS
E) IN
NET
ASSE
TS
RESU
LTING
FROM
SHAR
E
TRAN
SACTI
ONS
TOTAL 85,192,149 42,316,928
INCREA
SE
(DECRE
ASE) IN
NET
ASSETS
NET
ASSETS
Beginn 3,332,844,309 3,290,527,381
ing of
period
End of $ 3,418,036,458 $ 3,332,844,309
perio
d
(incl
udin
g
undi
strib
uted
net
inve
stme
nt
inco
me
of
$52,
331,
859
and
$105
,158,
635,
resp
ectiv
ely)
OTHER
INFORMAT
ION
Shares
Sold 8,852,245 16,731,500
Issued 14,427,030 5,014,376
in
reinve
stment
of
distrib
utions
Redee (15,599,060) (49,259,550)
med
Net 7,680,215 (27,513,674)
increa
se
(decre
ase)
<TABLE>
<CAPTION>
<S> <C> <C>
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED YEARS ENDED DECEMBER 31,
JUNE 30, 1996
SELECTED PER-SHARE DATA (UNAUDITED) 1995 1994 1993 D 1992 1991
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Net $ 15.79 $ 13.79 $ 15.42 $ 13.32 $ 12.55 $ 10.24
asset
value,
beginn
ing of
period
Income
from
Invest
ment
Operat
ions
Net .31 .30 .45 .33 .32 .35
invest
ment
incom
e
Net .57 1.99 (1.33) 2.39 1.09 1.96
realize
d and
unreali
zed
gain
(loss)
Total .88 2.29 (.88) 2.72 1.41 2.31
from
invest
ment
operati
ons
Less (.57) (.29) (.29) (.33) (.31) -
Distrib
utions
From
net
invest
ment
incom
e
In - - - (.04) - -
excess
of net
invest
ment
incom
e
From (.47) - (.46) (.25) (.33) -
net
realize
d gain
Total (1.04) (.29) (.75) (.62) (.64) -
distrib
utions
Net $ 15.63 $ 15.79 $ 13.79 $ 15.42 $ 13.32 $ 12.55
asset
value,
end of
period
TOTAL 5.80% 16.96% (6.09)% 21.23% 11.71% 22.56%
RETUR
N B, C
RATIOS
AND
SUPPL
EMENT
AL
DATA
Net $ 3,418,036 $ 3,332,844 $ 3,290,527 $ 2,422,692 $ 731,724 $ 193,518
assets
, end
of
period
(000
omitte
d)
Ratio of .81% A .81% .81% .88% .91% 1.08%
expen
ses to
averag
e net
assets
Ratio of .79% A, .79% .80% .88% .91% 1.08%
expen E E E
ses to
averag
e net
assets
after
expen
se
reducti
ons
Ratio of 3.31% A 3.54% 4.07% 3.64% 4.89% 5.89%
net
invest
ment
incom
e to
averag
e net
assets
Portfolio 256% A 256% 85% 113% 92% 110%
turnov
er rate
Average $ .0189
commi
ssion
rate F
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED
AND DO NOT REFLECT CHARGES
ATTRIBUTABLE TO YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. INCLUSION
OF THOSE CHARGES WOULD
REDUCE THE TOTAL RETURNS SHOWN.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE
PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
D EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION
93-2, "DETERMINATION,
DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME, CAPITAL
GAIN, AND RETURN OF CAPITAL
DISTRIBUTIONS BY INVESTMENT COMPANIES." AS A RESULT, NET INVESTMENT
INCOME PER SHARE MAY REFLECT
CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR
REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
F FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND
IS REQUIRED TO DISCLOSE ITS AVERAGE
COMMISSION RATE PER SHARE FOR SECURITY TRADES ON WHICH COMMISSIONS
ARE CHARGED. THIS AMOUNT
MAY VARY FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE
MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES
MAY DIFFER.
</TABLE>
VARIABLE INSURANCE PRODUCTS FUND II: INDEX 500 PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance: total
percentage change in value, the average annual percentage change, or the
growth of a hypothetical $10,000 investment. A fund's total return includes
changes in a fund's share price, plus reinvestment of any dividends
(income) and capital gains (the profits the fund earns when it sells
securities that have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1996 PAST 1 LIFE OF
YEAR FUND
INDEX 500 25.88% 16.19%
S&P 500 26.00% 16.49%
AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and
show you what would have happened if the fund had performed at a constant
rate each year.
UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for example,
has a history of growth in the long run and volatility
in the short run. In turn, the share price and return
of a fund that invests in stocks will vary. That
means if you sell your shares during a market
downturn, you might lose money. But if you can
ride out the market's ups and downs, you may
have a gain.
(checkmark)
You can compare the fund's returns to the performance of the Standard &
Poor's 500 Index - a widely recognized, unmanaged index of common stocks.
The S&P 500 returns reflect reinvestment of all dividends paid by stocks
included in the Index, but do not reflect any brokerage commissions or
other fees you might pay if you actually invested in those stocks.
Figures for more than one year assume a steady compounded rate of return
and are not the fund's year-by-year results, which fluctuated over the
periods shown. The life of fund figures are from commencement of
operations, August 27, 1992.
If Fidelity had not reimbursed certain fund expenses, the past one year and
life of fund return figures would have been lower.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, THE TOTAL RETURNS WOULD BE LOWER.
Past performance is no guarantee of future results. Principal and
investment return will vary and you may have a gain or loss when you
withdraw your money.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19960630 19960716 105341 S00000000000001
VIP II: Index 500 SP Standard & Poor 500
00157 SP001
1992/08/27 10000.00 10000.00
1992/08/31 10014.00 10018.36
1992/09/30 10130.00 10136.58
1992/10/31 10152.00 10172.06
1992/11/30 10498.00 10518.92
1992/12/31 10630.67 10648.31
1993/01/31 10707.47 10737.75
1993/02/28 10856.70 10883.79
1993/03/31 11095.84 11113.43
1993/04/30 10822.25 10844.49
1993/05/31 11103.95 11135.12
1993/06/30 11132.32 11167.41
1993/07/31 11081.66 11122.74
1993/08/31 11501.17 11544.30
1993/09/30 11407.95 11455.40
1993/10/31 11641.01 11692.53
1993/11/30 11527.52 11581.45
1993/12/31 11666.06 11721.59
1994/01/31 12059.53 12120.12
1994/02/28 11732.95 11791.67
1994/03/31 11223.46 11277.55
1994/04/30 11357.65 11421.90
1994/05/31 11533.77 11609.22
1994/06/30 11252.82 11324.80
1994/07/31 11623.93 11696.25
1994/08/31 12087.29 12175.80
1994/09/30 11793.76 11877.49
1994/10/31 12055.84 12144.73
1994/11/30 11617.64 11702.42
1994/12/31 11787.47 11875.97
1995/01/31 12099.87 12183.91
1995/02/28 12563.64 12658.72
1995/03/31 12931.02 13032.28
1995/04/30 13311.22 13416.08
1995/05/31 13834.52 13952.32
1995/06/30 14148.51 14276.43
1995/07/31 14620.55 14749.84
1995/08/31 14656.86 14786.86
1995/09/30 15269.88 15410.86
1995/10/31 15218.62 15355.85
1995/11/30 15880.76 16029.97
1995/12/31 16171.25 16338.71
1996/01/31 16724.46 16894.88
1996/02/29 16880.36 17051.49
1996/03/31 17054.17 17215.70
1996/04/30 17292.62 17469.46
1996/05/31 17733.85 17919.99
1996/06/28 17809.61 17988.27
IMATRL PRASUN SHR__CHT 19960630 19960716 105344 R00000000000050
Let's say hypothetically that $10,000 was invested in Index 500 Portfolio
on August 27, 1992, when the fund started. As the chart shows, by June 30,
1996, the value of the investment would have grown to $17,810 - a 78.10%
increase on the initial investment. For comparison, look at how the S&P 500
did over the period. With dividends and capital gains, if any, reinvested,
the same $10,000 investment would have grown to $17,988 - a 79.88%
increase.
INVESTMENT SUMMARY
TOP TEN STOCKS AS OF JUNE 30, 1996
% OF FUND'S
INVESTMENTS
General Electric Co. 2.7
Coca-Cola Co., (The) 2.3
Exxon Corp. 2.0
AT&T Corp. 1.8
Philip Morris Companies, Inc. 1.6
Royal Dutch Petroleum Co. ADR 1.5
Merck & Co., Inc. 1.5
Microsoft Corp. 1.3
Johnson & Johnson 1.2
Procter & Gamble Co. 1.2
TOP TEN MARKET SECTORS AS OF JUNE 30, 1996
% OF FUND'S
INVESTMENTS
Finance 12.7
Utilities 11.2
Nondurables 11.1
Technology 11.0
Health 9.9
Energy 8.4
Basic Industries 5.6
Industrial Machinery & Equipment 5.3
Retail & Wholesale 4.6
Media & Leisure 4.0
VARIABLE INSURANCE PRODUCTS FUND II: INDEX 500 PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
An interview with
Jennifer Farrelly,
Portfolio Manager of
Index 500 Portfolio
Q. HOW DID THE FUND PERFORM, JEN?
A. For the six months and 12 months ended June 30, 1996, the fund performed
in line with the Standard & Poor's 500 Index, which returned 10.10% for the
past six months and 26.00% for the past year. Of course, the fund's total
return is slightly lower than the index due to management expenses.
Q. WHAT'S THE MARKET BEEN LIKE IN THE PAST SIX MONTHS?
A. Price as well as trading volume records continued to be broken over the
past six months. The difference so far in 1996 compared to 1995 is higher
interest rates. While higher interest rates indicate a growing economy,
they also mean corporate borrowing costs will go up. Additionally, higher
interest rates make bonds look more attractive on a yield basis when
compared to stocks. Yet, despite rising rates, stocks continued to do
relatively well. This was due in part to strong corporate earnings in the
first quarter, a large amount of cash inflows into mutual funds and
widespread optimism about the market.
Q. MUCH HAS BEEN MADE IN THE FINANCIAL PRESS ABOUT THE MARKET'S SHIFT FROM
LARGE, MULTINATIONAL COMPANIES TO SMALLER COMPANIES. DID YOU FIND THIS TO
BE TRUE?
A. First of all, there are many large, well established companies - such as
Microsoft - that did very well. Also, many of the companies that
underperformed during the period were adversely affected by a strong
dollar. A strong dollar hurts the competitiveness of American exports as
prices for American goods would be higher relative to those of other
countries. Additionally, a company's reported profits are hurt by a strong
currency after the translation of overseas earnings back into dollars. In
the second quarter of 1996, many investors sought refuge in the large
"defensive" companies they shunned earlier in the period. This reversal was
due mainly to concerns over further interest rate increases and over future
earnings growth of smaller companies.
Q. WOULD THE FUTURE EARNINGS CONCERNS YOU JUST REFERRED TO PERTAIN TO THE
TECHNOLOGY SECTOR?
A. For the most part, yes. Stocks in two major areas of technology -
personal computers and semiconductors - were hurt during the period.
Analysts began to anticipate a drop-off in personal computer demand, and
semiconductor prices fell as a result of a worldwide supply glut. Both
events served to cloud the earnings outlook for both types of companies.
Q. DID RISING INTEREST RATES HURT ALL FINANCIAL STOCKS?
A. Although some interest-rate-sensitive stocks - such as Fannie Mae - lost
ground when interest rates rose in February, the financial sector did not
move downward in lockstep. For the most part, banks - such as Citicorp -
and brokerages - such as Merrill Lynch - continued to perform well because
of the strength of their underlying businesses and a large amount of
financial activity.
Q. WHAT DID THE PASSAGE OF THE NEW TELECOMMUNICATIONS LAW IN FEBRUARY 1996
MEAN FOR MANY S&P 500 COMPANIES?
A. The long-term effects are innumerable. The telecommunications law gave
the long-distance phone service, local phone service, broadcast and cable
industries the regulatory freedom necessary to blur the traditional lines
of their respective businesses through mergers and acquisitions. Most
recently, industry observers credited the telecom law with creating the
easier regulatory environment that resulted in the announced merger between
Westinghouse Electric and radio juggernaut Infinity Broadcasting. Some
other merger announcements that highlighted the impact of the telecom law
included: SBC Communications and Pacific Telesis, U.S. West and Continental
Cablevision, and Bell Atlantic and NYNEX.
Q. WERE THERE ANY DISAPPOINTMENTS?
A. Stocks of economically sensitive companies underperformed in the second
quarter of 1996. This was because in that time period many investors began
to favor consumer goods companies that historically have been impervious to
economic cycles.
Q. WHAT'S YOUR OUTLOOK?
A. Market valuation measures are well beyond historic highs and investors
should not be surprised if the market encounters a healthy correction.
Investors, however, should always keep their long-term financial goals in
mind and not be swayed by short-term price fluctuations in the market.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: high total return with reduced risk over
the long term by allocating assets among
stocks, bonds and short-term instruments
anywhere in the world
START DATE: September 6, 1989
SIZE: as of June 30, 1996, more than $3.4 billion
MANAGER: Richard Habermann, since March
1996; joined Fidelity in 1968
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND II: INDEX 500 PORTFOLIO
INVESTMENTS JUNE 30, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 93.7%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 1.7%
AEROSPACE & DEFENSE - 1.4%
Boeing Co. 28,700 $ 2,500,433
Lockheed Martin Corp. 16,693 1,402,212
McDonnell Douglas Corp. 18,800 911,800
Northrop Grumman Corp. 4,800 327,000
Rockwell International Corp. 18,200 1,041,950
6,183,395
DEFENSE ELECTRONICS - 0.2%
Raytheon Co. 20,300 1,047,988
SHIP BUILDING & REPAIR - 0.1%
General Dynamics Corp. 5,200 322,400
TOTAL AEROSPACE & DEFENSE 7,553,783
BASIC INDUSTRIES - 5.6%
CHEMICALS & PLASTICS - 2.9%
Air Products & Chemicals, Inc. 9,400 542,850
Avery Dennison Corp. 4,500 246,938
Dow Chemical Co. 21,800 1,656,800
du Pont (E.I.) de Nemours & Co. 46,300 3,663,488
Eastman Chemical Co. 6,775 412,428
Engelhard Corp. 12,100 278,300
FMC Corp. (a) 3,000 195,750
Goodrich (B.F.) Company 4,300 160,713
Grace (W.R.) & Co. 8,200 581,175
Great Lakes Chemical Corp. 5,500 342,375
Hercules, Inc. 9,100 502,775
Monsanto Co. 48,600 1,579,500
Morton International, Inc. 12,200 454,450
Nalco Chemical Co. 5,700 179,550
PPG Industries, Inc. 16,200 789,750
Praxair, Inc. 12,500 528,125
Raychem Corp. 3,800 273,125
Rohm & Haas Co. 5,700 357,675
Union Carbide Corp. 11,400 453,150
13,198,917
IRON & STEEL - 0.2%
Armco, Inc. (a) 8,800 44,000
Bethlehem Steel Corp. (a) 9,300 110,438
Inland Steel Industries, Inc. 4,000 78,500
Nucor Corp. 7,400 374,625
USX-U.S. Steel Group 7,000 198,625
Worthington Industries, Inc. 7,650 159,694
965,882
METALS & MINING - 0.7%
ASARCO, Inc. 3,500 96,688
Alcan Aluminium Ltd. 18,757 571,562
Aluminum Co. of America 14,700 843,413
Cyprus Amax Minerals Co. 7,850 177,606
Freeport-McMoRan Copper &
Gold, Inc. Class B 16,800 535,500
Inco Ltd. 9,936 320,258
Phelps Dodge Corp. 5,700 355,538
Reynolds Metals Co. 5,400 281,475
3,182,040
PACKAGING & CONTAINERS - 0.4%
Ball Corp. 2,600 74,750
Bemis Co., Inc. 4,500 157,500
Corning, Inc. 19,200 736,800
SHARES VALUE (NOTE 1)
Crown Cork & Seal Co., Inc. 10,500 $ 472,500
Tupperware Corp. (a) 5,200 219,700
1,661,250
PAPER & FOREST PRODUCTS - 1.4%
Boise Cascade Corp. 4,100 150,163
Champion International Corp. 8,000 334,000
Georgia-Pacific Corp. 7,600 539,600
International Paper Co. 24,600 907,125
James River Corp. 7,000 184,625
Kimberly-Clark Corp. 23,216 1,793,436
Louisiana-Pacific Corp. 9,100 201,338
Mead Corp. 4,400 228,250
Potlatch Corp. 2,500 97,813
Stone Container Corp. 8,200 112,750
Temple-Inland, Inc. 4,600 215,050
Union Camp Corp. 5,800 282,750
Westvaco Corp. 8,350 249,456
Weyerhaeuser Co. 16,900 718,250
Willamette Industries, Inc. 4,700 279,650
6,294,256
TOTAL BASIC INDUSTRIES 25,302,345
CONGLOMERATES - 1.1%
Allied-Signal, Inc. 23,700 1,353,863
Crane Co. 2,600 106,600
Dial Corp. (The) 7,900 226,138
Harris Corp. 3,200 195,200
ITT Industries, Inc. 10,000 251,250
Teledyne, Inc. 4,600 166,175
Textron, Inc. 7,000 559,125
Tyco International Ltd. 12,800 521,600
United Technologies Corp. 10,100 1,161,500
Whitman Corp. 8,700 209,888
4,751,339
CONSTRUCTION & REAL ESTATE - 0.4%
BUILDING MATERIALS - 0.2%
Armstrong World Industries, Inc. 3,000 172,875
Masco Corp. 13,500 408,375
Owens-Corning (a) 4,200 180,600
Sherwin-Williams Co. 7,000 325,500
1,087,350
CONSTRUCTION - 0.0%
Centex Corp. 2,300 71,588
Kaufman & Broad Home Corp. 3,200 46,400
Pulte Corp. 2,300 61,525
179,513
ENGINEERING - 0.2%
EG & G, Inc. 4,100 87,638
Fluor Corp. 6,900 451,088
Foster Wheeler Corp. 3,400 152,575
691,301
TOTAL CONSTRUCTION & REAL ESTATE 1,958,164
DURABLES - 4.0%
AUTOS, TIRES, & ACCESSORIES - 2.6%
Chrysler Corp. 31,500 1,953,000
Cooper Tire & Rubber Co. 6,900 153,525
Cummins Engine Co., Inc. 3,400 137,275
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
DURABLES - CONTINUED
AUTOS, TIRES, & ACCESSORIES - CONTINUED
Dana Corp. 8,400 $ 260,400
Eaton Corp. 6,400 375,200
Echlin, Inc. 5,200 196,950
Ford Motor Co. 97,500 3,156,563
General Motors Corp. 62,478 3,272,285
Genuine Parts Co. 10,200 466,650
Goodyear Tire & Rubber Co. 12,800 617,600
Johnson Controls, Inc. 3,500 243,250
NACCO Industries, Inc. Class A 800 44,300
Navistar International Corp. (a) 6,070 59,941
PACCAR, Inc. 3,145 154,105
Pep Boys-Manny, Moe & Jack 5,100 173,400
Snap-on Tools Corp. 3,300 156,338
TRW, Inc. 5,400 485,325
11,906,107
CONSUMER DURABLES - 0.6%
Minnesota Mining & Manufacturing Co. 35,100 2,421,900
CONSUMER ELECTRONICS - 0.3%
Black & Decker Corp. 7,100 274,238
Maytag Co. 9,100 189,963
Newell Co. 13,300 407,313
Whirlpool Corp. 6,100 302,713
1,174,227
TEXTILES & APPAREL - 0.5%
Fruit of the Loom, Inc. Class A (a) 5,100 130,050
Liz Claiborne, Inc. 6,100 211,213
NIKE, Inc. Class B 11,900 1,222,725
Reebok International Ltd. 6,400 215,200
Russell Corp. 3,300 91,163
Springs Industries, Inc. Class A 1,600 80,800
Stride Rite Corp. 4,200 34,650
VF Corp. 5,400 321,975
2,307,776
TOTAL DURABLES 17,810,010
ENERGY - 8.4%
ENERGY SERVICES - 0.8%
Baker Hughes, Inc. 11,800 387,925
Dresser Industries, Inc. 15,100 445,450
Halliburton Co. 9,500 527,250
Helmerich & Payne, Inc. 2,000 73,250
McDermott International, Inc. 4,500 93,938
Rowan Companies, Inc. (a) 7,000 103,250
Schlumberger Ltd. 20,100 1,693,425
Western Atlas, Inc. (a) 3,700 215,525
3,540,013
OIL & GAS - 7.6%
Amerada Hess Corp. 7,700 412,913
Amoco Corp. 41,400 2,996,325
Ashland, Inc. 5,400 213,975
Atlantic Richfield Co. 13,500 1,599,750
Burlington Resources, Inc. 10,500 451,500
Chevron Corp. 54,500 3,215,500
Coastal Corp. (The) 8,700 363,225
Exxon Corp. 103,700 9,008,938
Kerr-McGee Corp. 4,400 267,850
Louisiana Land & Exploration Co. 2,700 155,588
Mobil Corp. 33,000 3,700,125
SHARES VALUE (NOTE 1)
Occidental Petroleum Corp. 26,500 $ 655,875
Oryx Energy Co. (a) 8,800 143,000
Pennzoil Co. 3,800 175,750
Phillips Petroleum Co. 21,800 912,875
Royal Dutch Petroleum Co. ADR 44,800 6,888,000
Santa Fe Energy Resources, Inc. (a) 7,600 90,250
Sun Co., Inc. 6,200 188,325
Texaco, Inc. 22,100 1,853,638
USX-Marathon Group 23,900 480,988
Unocal Corp. 20,555 693,731
34,468,121
TOTAL ENERGY 38,008,134
FINANCE - 12.7%
BANKS - 6.3%
Banc One Corp. 37,826 1,286,084
Bank of Boston Corp. 9,283 459,509
Bank of New York Co., Inc. 13,700 702,125
BankAmerica Corp. 30,800 2,333,100
Bankers Trust New York Corp. 6,500 480,188
Barnett Banks, Inc. 8,000 488,000
Boatmen's Bancshares, Inc. 13,200 529,650
Chase Manhattan Corp. 36,473 2,575,906
Citicorp 40,662 3,359,698
Comerica, Inc. 10,000 446,250
CoreStates Financial Corp. 18,600 716,100
Fifth Third Bancorp 8,300 448,200
First Bank System, Inc. 12,100 701,800
First Union Corp. 24,049 1,463,983
Fleet Financial Group, Inc. 22,274 968,919
KeyCorp. 19,707 763,646
Mellon Bank Corp. 11,200 638,400
Morgan (J.P.) & Co., Inc. 15,600 1,320,150
National City Corp. 18,344 644,333
NationsBank Corp. 24,617 2,033,980
Norwest Corp. 29,400 1,025,325
PNC Financial Corp. 28,400 844,900
Republic New York Corp. 4,600 286,350
SunTrust Banks, Inc. 18,800 695,600
U.S. Bancorp 13,500 487,688
Wachovia Corp. 14,300 625,625
Wells Fargo & Co. 8,200 1,958,775
28,284,284
CREDIT & OTHER FINANCE - 1.2%
American Express Co. 32,979 1,471,688
Beneficial Corp. 4,500 252,563
Dean Witter, Discover & Co. 14,158 810,546
First Chicago NBD Corp. 26,859 1,050,858
Green Tree Financial Corp. 11,500 359,375
Household International, Inc. 8,110 616,360
MBNA Corp. 18,500 527,250
Transamerica Corp. 5,629 460,171
5,548,811
FEDERAL SPONSORED CREDIT - 1.0%
Federal Home Loan Mortgage Corporation 15,000 1,282,500
Federal National Mortgage Association 91,000 3,048,500
4,331,000
INSURANCE - 3.6%
Aetna Life & Casualty Co. 9,500 679,250
Alexander & Alexander Services, Inc. 3,800 75,050
Allstate Corp. 37,421 1,707,333
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - CONTINUED
INSURANCE - CONTINUED
American General Corp. 17,000 $ 618,375
American International Group, Inc. 39,475 3,893,222
Aon Corp. 9,100 461,825
CIGNA Corp. 6,400 754,400
Chubb Corp. (The) 14,500 723,188
General Re Corp. 6,900 1,050,525
ITT Hartford Group, Inc. 10,000 532,500
Jefferson Pilot Corp. 6,000 309,750
Lincoln National Corp. 8,600 397,750
Loews Corp. 9,900 780,863
Marsh & McLennan Companies, Inc. 6,200 598,300
Providian Corp. 8,000 343,000
SAFECO Corp. 10,600 374,975
St. Paul Companies, Inc. (The) 7,000 374,500
Torchmark Corp. 5,900 258,125
Travelers Group, Inc., (The) 39,525 1,803,328
UNUM Corp. 6,000 373,500
USF&G Corp. 9,300 152,288
USLIFE Corp. 2,775 91,228
16,353,275
SAVINGS & LOANS - 0.2%
Ahmanson (H.F.) & Co. 9,900 267,300
Golden West Financial Corp. 4,800 268,800
Great Western Financial Corp. 11,350 270,981
807,081
SECURITIES INDUSTRY - 0.4%
Merrill Lynch & Co., Inc. 14,600 950,825
Morgan Stanley Group, Inc. 12,900 633,713
Salomon, Inc. 8,800 387,200
1,971,738
TOTAL FINANCE 57,296,189
HEALTH - 9.9%
DRUGS & PHARMACEUTICALS - 6.0%
ALZA Corp. Class A (a) 6,800 186,150
Allergan, Inc. 5,300 208,025
American Home Products Corp. 52,300 3,144,538
Amgen, Inc. (a) 22,300 1,204,200
Bristol-Myers Squibb Co. 42,200 3,798,000
Lilly (Eli) & Co. 46,096 2,996,240
Merck & Co., Inc. 102,700 6,636,988
Pfizer, Inc. 53,100 3,790,013
Pharmacia & Upjohn, Inc. 41,960 1,861,975
Schering-Plough Corp. 30,500 1,913,875
Sigma Aldrich Corp. 4,100 219,350
Warner-Lambert Co. 22,700 1,248,500
27,207,854
MEDICAL EQUIPMENT & SUPPLIES - 2.9%
Abbott Laboratories 65,900 2,866,650
Bard (C.R.), Inc. 4,800 163,200
Bausch & Lomb, Inc. 4,700 199,750
Baxter International, Inc. 22,600 1,067,850
Becton, Dickinson & Co. 5,400 433,350
Biomet, Inc. (a) 9,700 139,438
Boston Scientific Corp. (a) 14,600 657,000
Johnson & Johnson 111,400 5,514,300
Mallinckrodt Group, Inc. 6,100 237,138
Medtronic, Inc. 19,300 1,080,800
Millipore Corp. 3,800 159,125
SHARES VALUE (NOTE 1)
Pall Corp. 9,500 $ 229,188
St. Jude Medical, Inc. (a) 6,750 226,125
U.S. Surgical Corp. 5,200 161,200
13,135,114
MEDICAL FACILITIES MANAGEMENT - 1.0%
Beverly Enterprises, Inc. (a) 8,300 99,600
Columbia/HCA Healthcare Corp. 37,075 1,978,878
Community Psychiatric Centers (a) 3,700 35,150
Humana, Inc. 13,600 243,100
Manor Care, Inc. 5,300 208,688
Tenet Healthcare Corp. (a) 17,400 371,925
United HealthCare Corp. 14,500 732,250
U.S. Healthcare, Inc. 12,900 709,500
4,379,091
TOTAL HEALTH 44,722,059
HOLDING COMPANIES - 0.3%
CINergy Corp. 13,213 422,816
Norfolk Southern Corp. 10,900 923,775
1,346,591
INDUSTRIAL MACHINERY & EQUIPMENT - 5.3%
ELECTRICAL EQUIPMENT - 3.5%
Emerson Electric Co. 18,700 1,690,013
General Electric Co. 139,500 12,066,750
General Signal Corp. 3,900 147,713
Grainger (W.W.), Inc. 4,300 333,250
Honeywell, Inc. 10,500 572,250
Scientific-Atlanta, Inc. 6,300 97,650
Westinghouse Electric Corp. 34,600 648,750
15,556,376
INDUSTRIAL MACHINERY & EQUIPMENT - 1.3%
Briggs & Stratton Corp. 2,500 102,813
Case Corp. 5,900 283,200
Caterpillar, Inc. 16,400 1,111,100
Cincinnati Milacron, Inc. 3,400 81,600
Cooper Industries, Inc. 8,946 371,259
Deere & Co. 22,000 880,000
Dover Corp. 9,400 433,575
Giddings & Lewis, Inc. 2,800 45,500
Harnischfeger Industries, Inc. 3,800 126,350
Illinois Tool Works, Inc. 9,900 669,488
Ingersoll-Rand Co. 9,000 393,750
Parker-Hannifin Corp. 6,250 264,844
Stanley Works 7,400 220,150
Tenneco, Inc. 14,600 746,425
Timken Co. 2,700 104,625
TRINOVA Corp. 2,500 83,438
Varity Corp. (a) 3,300 158,813
6,076,930
POLLUTION CONTROL - 0.5%
Browning-Ferris Industries, Inc. 17,800 516,200
Laidlaw, Inc. Class B 24,600 249,870
Ogden Corp. 4,000 72,500
Safety Kleen Corp. 4,900 85,750
WMX Technologies, Inc. 40,700 1,332,925
2,257,245
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 23,890,551
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
MEDIA & LEISURE - 4.0%
BROADCASTING - 0.8%
Comcast Corp. Class A special 19,950 $ 369,075
TCI Group Class A 54,400 986,000
Time Warner, Inc. 32,338 1,269,267
Viacom, Inc. Class B (non-vtg.) (a) 30,700 1,193,463
3,817,805
ENTERTAINMENT - 0.8%
Disney (Walt) Co. 56,600 3,558,725
King World Productions, Inc. (a) 3,000 109,125
3,667,850
LEISURE DURABLES & TOYS - 0.3%
Brunswick Corp. 8,100 162,000
Fleetwood Enterprises, Inc. 3,900 120,900
Hasbro, Inc. 7,400 264,550
Mattel, Inc. 22,976 657,688
Outboard Marine Corp. 1,600 29,000
1,234,138
LODGING & GAMING - 0.4%
Bally Entertainment Corp. 4,000 110,000
Harrah's Entertainment, Inc. 8,500 240,125
Hilton Hotels Corp. 4,100 461,250
ITT Corp. 8,200 543,250
Marriott International, Inc. 10,400 559,000
1,913,625
PUBLISHING - 1.0%
American Greetings Corp. Class A 6,300 172,463
Dow Jones & Co., Inc. 8,200 342,350
Dun & Bradstreet Corp. 14,200 887,500
Gannett Co., Inc. 11,800 834,850
Harcourt General, Inc. 6,000 300,000
Knight-Ridder, Inc. 4,000 290,000
McGraw-Hill, Inc. 8,300 379,725
Meredith Corp. 2,400 100,200
New York Times Co., (The) Class A 8,100 264,263
Times Mirror Co. Class A 9,000 391,500
Tribune Co. 5,400 392,175
4,355,026
RESTAURANTS - 0.7%
Darden Restaurants, Inc. 13,300 142,975
Luby's Cafeterias, Inc. 1,900 44,650
McDonald's Corp. 58,200 2,720,850
Ryan's Family Steak Houses, Inc. (a) 4,400 40,700
Shoney's, Inc. (a) 3,400 36,975
Wendy's International, Inc. 10,500 195,563
3,181,713
TOTAL MEDIA & LEISURE 18,170,157
NONDURABLES - 11.1%
AGRICULTURE - 0.1%
Pioneer Hi-Bred International, Inc. 6,900 364,838
BEVERAGES - 4.0%
Anheuser-Busch Companies, Inc. 21,300 1,597,500
Brown-Forman Corp. Class B 5,700 228,000
Coca-Cola Co., (The) 209,500 10,239,313
Coors (Adolph) Co. Class B 3,100 55,413
PepsiCo, Inc. 131,600 4,655,350
Seagram Co. Ltd. 31,100 1,043,471
17,819,047
SHARES VALUE (NOTE 1)
FOODS - 2.4%
Archer-Daniels-Midland Co. 43,361 $ 829,279
CPC International, Inc. 12,100 871,200
Campbell Soup Co. 20,700 1,459,350
ConAgra, Inc. 20,500 930,188
General Mills, Inc. 13,200 719,400
Heinz (H.J.) Co. 30,950 940,106
Hershey Foods Corp. 6,400 469,600
Kellogg Co. 18,200 1,333,150
Quaker Oats Co. 11,300 385,613
Ralston Purina Group 8,900 570,713
Sara Lee Corp. 40,500 1,311,188
Sysco Corp. 15,400 527,450
Wrigley (Wm.) Jr. Company 9,600 484,800
10,832,037
HOUSEHOLD PRODUCTS - 2.7%
Alberto Culver Co. Class B 2,400 111,300
Avon Products, Inc. 11,400 514,425
Clorox Co. 4,400 389,950
Colgate-Palmolive Co. 12,100 1,025,475
Gillette Co. 37,100 2,314,113
International Flavors & Fragrances, Inc. 9,200 438,150
Procter & Gamble Co. 57,200 5,183,750
Rubbermaid, Inc. 13,200 359,700
Unilever NV ADR 13,300 1,930,163
12,267,026
TOBACCO - 1.9%
American Brands, Inc. 15,100 685,163
Philip Morris Companies, Inc. 69,600 7,238,400
UST, Inc. 16,200 554,850
8,478,413
TOTAL NONDURABLES 49,761,361
PRECIOUS METALS - 0.5%
Barrick Gold Corp. 29,400 798,849
Echo Bay Mines Ltd. 10,500 112,427
Homestake Mining Co. 12,300 210,638
Newmont Mining Corp. 8,224 406,060
Placer Dome, Inc. 19,900 476,503
Santa Fe Pacific Gold Corp. 11,020 155,658
2,160,135
RETAIL & WHOLESALE - 4.6%
APPAREL STORES - 0.4%
Brown Group, Inc. 1,400 24,325
Charming Shoppes, Inc. 8,700 61,444
Gap, Inc. 24,100 774,213
Limited, Inc. (The) 22,719 488,459
Melville Corp. 8,700 352,350
TJX Companies, Inc. 6,100 205,875
1,906,666
DRUG STORES - 0.2%
Long Drug Stores, Inc. 1,600 71,400
Rite Aid Corp. 6,900 205,275
Walgreen Co. 20,600 690,100
966,775
GENERAL MERCHANDISE STORES - 2.5%
Dayton Hudson Corp. 6,100 629,063
Dillard Department Stores, Inc. Class A 9,500 346,750
Federated Department Stores, Inc. (a) 17,000 580,125
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
RETAIL & WHOLESALE - CONTINUED
GENERAL MERCHANDISE STORES - CONTINUED
K mart Corp. 38,300 $ 473,963
May Department Stores Co. (The) 20,700 905,625
Mercantile Stores Co., Inc. 3,000 175,875
Nordstrom, Inc. 6,700 298,150
Penney (J.C.) Co., Inc. 18,600 976,500
Price/Costco, Inc. (a) 16,239 351,168
Sears, Roebuck & Co. 32,600 1,585,175
Wal-Mart Stores, Inc. 191,600 4,861,850
Woolworth Corp. 11,200 252,000
11,436,244
GROCERY STORES - 0.6%
Albertson's, Inc. 21,200 877,150
American Stores Co. 12,300 507,375
Fleming Companies, Inc. 3,064 44,045
Giant Food, Inc. Class A 4,900 175,788
Great Atlantic & Pacific Tea Co., Inc. 3,100 101,913
Kroger Co. (The) (a) 10,400 410,800
Supervalu, Inc. 5,600 176,400
Winn-Dixie Stores, Inc. 12,800 452,800
2,746,271
RETAIL & WHOLESALE, MISCELLANEOUS - 0.9%
Circuit City Stores, Inc. 8,200 296,225
Home Depot, Inc., (The) 39,800 2,149,200
Lowe's Companies, Inc. 13,500 487,688
Tandy Corp. 5,400 255,825
Toys "R" Us, Inc. (a) 22,700 646,950
3,835,888
TOTAL RETAIL & WHOLESALE 20,891,844
SERVICES - 0.7%
ADVERTISING - 0.1%
Interpublic Group of Companies, Inc. 6,600 309,375
LEASING & RENTAL - 0.0%
Ryder Systems, Inc. 6,700 188,438
PRINTING - 0.3%
Alco Standard Corp. 10,600 479,650
Deluxe Corp. 6,800 241,400
Donnelley (R.R.) & Sons Co. 12,900 449,888
Harland (John H.) Co. 2,500 61,563
Moore Corporation Ltd. 8,400 157,398
1,389,899
SERVICES - 0.3%
Block (H&R), Inc. 8,600 280,575
Ecolab, Inc. 5,300 174,900
Jostens, Inc. 3,300 65,175
National Service Industries, Inc. 4,100 160,413
Service Corp. International 9,700 557,750
1,238,813
TOTAL SERVICES 3,126,525
TECHNOLOGY - 11.0%
COMMUNICATIONS EQUIPMENT - 1.4%
Andrew Corp. (a) 4,975 267,406
Cabletron Systems, Inc. (a) 6,100 418,613
Cisco Systems, Inc. (a) 46,200 2,616,075
DSC Communications Corp. (a) 9,700 292,213
General Instrument Corp. (a) 10,200 294,525
SHARES VALUE (NOTE 1)
Northern Telecom Ltd. 21,100 $ 1,148,968
Tellabs, Inc. (a) 7,300 488,188
3Com Corp. (a) 13,800 631,350
6,157,338
COMPUTER SERVICES & SOFTWARE - 3.1%
Autodesk, Inc. 3,800 113,525
Automatic Data Processing, Inc. 24,300 938,588
CUC International, Inc. (a) 15,150 537,825
Ceridian Corp. (a) 5,600 282,800
Computer Associates International, Inc. 20,250 1,442,813
Computer Sciences Corp. (a) 4,600 343,850
First Data Corp. 18,700 1,488,988
Microsoft Corp. (a) 49,500 5,946,188
Novell, Inc. (a) 30,800 427,350
Oracle Corp. (a) 54,600 2,153,288
Shared Medical Systems Corp. 2,000 128,500
13,803,715
COMPUTERS & OFFICE EQUIPMENT - 3.4%
Amdahl Corp. (a) 9,900 106,425
Apple Computer, Inc. 10,400 218,400
Bay Networks, Inc. (a) 15,300 393,975
Compaq Computer Corp. (a) 22,100 1,088,425
Data General Corp. (a) 3,100 40,300
Digital Equipment Corp. (a) 12,700 571,500
EMC Corp. (a) 19,000 353,875
Hewlett-Packard Co. 42,500 4,234,063
Intergraph Corp. (a) 3,800 46,075
International Business Machines Corp. 47,400 4,692,600
Pitney Bowes, Inc. 12,600 601,650
Silicon Graphics, Inc. (a) 13,500 324,000
Sun Microsystems, Inc. (a) 15,300 900,788
Tandem Computers, Inc. (a) 9,900 122,513
Unisys Corp. (a) 14,400 102,600
Xerox Corp. 27,100 1,449,850
15,247,039
ELECTRONIC INSTRUMENTS - 0.2%
Applied Materials, Inc. (a) 14,900 454,450
Perkin-Elmer Corp. 3,500 168,875
Tektronix, Inc. 2,700 120,825
744,150
ELECTRONICS - 2.4%
AMP, Inc. 18,096 726,102
Advanced Micro Devices, Inc. (a) 11,000 149,875
Intel Corp. 68,600 5,037,813
LSI Logic Corp. (a) 10,700 278,200
Micron Technology, Inc. 17,200 445,050
Motorola, Inc. 49,400 3,106,025
National Semiconductor Corp. (a) 11,400 176,700
Texas Instruments, Inc. 15,700 783,038
Thomas & Betts Corp. 3,400 127,500
10,830,303
PHOTOGRAPHIC EQUIPMENT - 0.5%
Eastman Kodak Co. 28,500 2,215,875
Polaroid Corp. 3,700 168,813
2,384,688
TOTAL TECHNOLOGY 49,167,233
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TRANSPORTATION - 1.2%
AIR TRANSPORTATION - 0.3%
AMR Corp. (a) 7,600 $ 691,600
Delta Air Lines, Inc. 4,200 348,600
Southwest Airlines Co. 12,100 352,413
USAir Group, Inc. (a) 5,300 95,400
1,488,013
RAILROADS - 0.8%
Burlington Northern Santa Fe Corp. 12,418 1,004,306
CSX Corp. 17,638 851,034
Conrail, Inc. 6,600 438,075
Union Pacific Corp. 17,100 1,194,863
3,488,278
TRUCKING & FREIGHT - 0.1%
Caliber System, Inc. 3,200 108,800
Consolidated Freightways, Inc. 3,700 78,163
Federal Express Corp. 4,800 393,600
Yellow Corp. 2,300 30,475
611,038
TOTAL TRANSPORTATION 5,587,329
UTILITIES - 11.2%
CELLULAR - 0.3%
AirTouch Communications, Inc. (a) 41,300 1,166,725
ELECTRIC UTILITY - 3.0%
American Electric Power Co., Inc. 15,500 660,688
Baltimore Gas & Electric Co. 12,400 351,850
Carolina Power & Light Co. 12,900 490,200
Central & South West Corp. 17,200 498,800
Consolidated Edison Co. of New York, Inc. 19,700 576,225
DTE Energy Co. 12,200 376,675
Dominion Resources, Inc. 14,600 584,000
Duke Power Co. 17,000 871,250
Edison International 37,100 653,888
Entergy Corp. 19,100 541,963
FPL Group, Inc. 15,500 713,000
General Public Utilities Corp. 10,100 356,025
Houston Industries, Inc. 22,000 541,750
Niagara Mohawk Power Corp. 12,100 93,775
Northern States Power Co. 5,600 276,500
Ohio Edison Co. 12,800 280,000
PECO Energy Co. 18,600 483,600
PP&L Resources, Inc. 13,200 311,850
Pacific Gas & Electric Co. 34,900 811,425
PacifiCorp. 24,500 545,125
Public Service Enterprise Group, Inc. 20,500 561,188
Southern Co. 55,700 1,371,613
Texas Utilities Co. 18,900 807,975
Unicom Corp. 18,000 501,750
Union Electric Co. 8,600 346,150
13,607,265
GAS - 0.7%
Columbia Gas System, Inc. (The) 4,600 239,775
Consolidated Natural Gas Co. 7,700 402,325
ENSERCH Corp. 5,800 126,150
Eastern Enterprises Co. 1,600 53,200
Enron Corp. 21,100 862,463
NICOR, Inc. 4,200 119,175
Noram Energy Corp. 10,300 112,013
ONEOK, Inc. 2,200 55,000
SHARES VALUE (NOTE 1)
Pacific Enterprises 7,000 $ 207,375
Panenergy Corp. 12,600 414,225
Peoples Energy Corp. 3,000 100,500
Sonat, Inc. 7,100 319,500
Williams Companies, Inc. 8,400 415,800
3,427,501
TELEPHONE SERVICES - 7.2%
ALLTEL Corp. 15,900 488,925
AT&T Corp. 133,500 8,277,000
Ameritech Corp. 46,300 2,749,063
Bell Atlantic Corp. 36,600 2,333,250
BellSouth Corp. 82,900 3,512,888
GTE Corp. 80,800 3,615,800
MCI Communications Corp. 56,800 1,455,500
NYNEX Corp. 35,800 1,700,500
Pacific Telesis Group 35,700 1,204,875
SBC Communications, Inc. 51,000 2,511,750
Sprint Corp. 36,400 1,528,800
U.S. West, Inc. 39,200 1,249,500
U.S. West, Inc. (Media Group) 39,300 717,225
WorldCom, Inc. (a) 16,200 897,075
32,242,151
TOTAL UTILITIES 50,443,642
TOTAL COMMON STOCKS
(Cost $368,310,535) 421,947,391
U.S. TREASURY OBLIGATIONS - 0.5%
PRINCIPAL
AMOUNT
U.S. Treasury Bills, yields at date
of purchase 5.20% to 5.22%,
10/31/96 (b)
(Cost $2,456,525) $ 2,500,000 2,456,700
REPURCHASE AGREEMENTS - 5.8%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.46% dated
6/28/96 due 7/1/96 $ 25,946,800 25,935,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $396,702,060) $ 450,339,091
FUTURES CONTRACTS
EXPIRATION UNDERLYING FACE UNREALIZED
DATE AMOUNT AT VALUE GAIN/(LOSS)
PURCHASED
86 S&P 500 Index Contracts Sept. 1996 $ 29,102,400 $ 241,531
THE FACE VALUE OF FUTURES PURCHASED AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 6.5%
LEGEND
(a) Non-income producing
(b) Security pledged to cover margin requirements for futures contracts. At
the period end, the value of securities pledged amounted to $1,768,824.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $176,324,392 and $2,743,056, respectively.
The market value of futures contracts opened and closed during the period
amounted to $190,595,793 and $186,047,133, respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company. The
commissions paid to these affiliated firms were $194 for the period (see
Note 4 of Notes to Financial Statements).
INCOME TAX INFORMATION
At June 30, 1996, the aggregate cost of investment securities for income
tax purposes was $396,702,060. Net unrealized appreciation aggregated
$53,637,031, of which $59,998,888 related to appreciated investment
securities and $6,361,857 related to depreciated investment securities.
VARIABLE INSURANCE PRODUCTS FUND II: INDEX 500 PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
ASSETS
Investm $ 450,339,091
ent in
securit
ies, at
value
(includ
ing
repurc
hase
agree
ments
of
$25,93
5,000)
(cost
$396,7
02,060
) -
See
accom
panyin
g
sched
ule
Cash 42,798
Receiva 1,581,767
ble for
fund
shares
sold
Dividend 618,471
s
receiv
able
Receiva 152,641
ble for
daily
variati
on
on
futures
contra
cts
Other 10
receiv
ables
TOTAL 452,734,778
ASSETS
LIABILITI
ES
Payable $ 396,755
for
fund
shares
redee
med
Accrued 38,829
manag
ement
fee
Other 70,081
payabl
es and
accrue
d
expen
ses
TOTAL 505,665
LIABILIT
IES
NET $ 452,229,113
ASSET
S
Net
Assets
consist
of:
Paid in $ 394,095,495
capital
Undistrib 4,052,312
uted
net
invest
ment
incom
e
Accumul 202,737
ated
undistr
ibuted
net
realize
d gain
(loss)
on
invest
ments
and
foreign
curren
cy
transa
ctions
Net 53,878,569
unreali
zed
apprec
iation
(depre
ciation
) on
invest
ments
and
assets
and
liabiliti
es in
foreign
curren
cies
NET $ 452,229,113
ASSET
S, for
5,658,
494
shares
outsta
nding
NET $79.92
ASSET
VALUE,
offerin
g price
and
redem
ption
price
per
share
($452,
229,11
3 (divided by)
5,658,
494
shares
)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
INVESTM $ 3,629,616
ENT
INCOME
Dividend
s
Interest 902,740
TOTAL 4,532,356
INCOM
E
EXPENS
ES
Manage $ 497,141
ment
fee
Transfer 135,288
agent
fees
Accounti 106,835
ng
fees
and
expen
ses
Non-inte 580
rested
trustee
s'
compe
nsatio
n
Custodia 14,183
n fees
and
expen
ses
Audit 19,778
Legal 529
Miscella 928
neous
Total 775,262
expen
ses
before
reducti
ons
Expen (294,924 480,338
se )
reducti
ons
NET 4,052,018
INVEST
MENT
INCOM
E
REALIZE
D AND
UNREALIZ
ED GAIN
(LOSS)
Net
realize
d gain
(loss)
on:
Invest 632,689
ment
securit
ies
Foreig 127
n
curren
cy
transa
ctions
Future (551,342 81,474
s )
contra
cts
Change
in net
unreali
zed
apprec
iation
(depre
ciation
) on:
Invest 27,630,841
ment
securit
ies
Assets (10
and )
liabiliti
es in
forei
gn
curren
cies
Future 367,081 27,997,912
s
contra
cts
NET GAIN 28,079,386
(LOSS)
NET $ 32,131,404
INCREA
SE
(DECRE
ASE) IN
NET
ASSETS
RESULTI
NG
FROM
OPERAT
IONS
OTHER $ 513
INFORM
ATION
Expen
se
reducti
ons
Cust
odian
interest
credits
Tran 11,997
sfer
agent
interest
credits
FMR 282,414
reimbu
rseme
nt
$ 294,924
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1996 1995
(UNAUDITED)
Operatio $ 4,052,018 $ 3,388,217
ns
Net
invest
ment
incom
e
Net 81,474 8,859,319
realize
d gain
(loss)
Chang 27,997,912 24,840,544
e in
net
unreali
zed
apprec
iation
(depre
ciation
)
NET 32,131,404 37,088,080
INCR
EASE
(DEC
REAS
E) IN
NET
ASSE
TS
RESU
LTING
FROM
OPER
ATIO
NS
Distributi (3,387,922) (1,038,071)
ons to
shareh
olders
From
net
invest
ment
incom
e
From (8,711,800) (125,271)
net
realize
d gain
In - (16,781)
excess
of net
realize
d gain
TOTAL (12,099,722) (1,180,123)
DISTRIB
UTIONS
Share 210,964,549 176,225,141
transa
ctions
Net
procee
ds
from
sales
of
shares
Reinve 12,099,722 1,180,123
stment
of
distrib
utions
Cost (36,566,535) (18,914,447)
of
shares
redee
med
NET 186,497,736 158,490,817
INCR
EASE
(DEC
REAS
E) IN
NET
ASSE
TS
RESU
LTING
FROM
SHAR
E
TRAN
SACTI
ONS
TOTAL 206,529,418 194,398,774
INCREA
SE
(DECRE
ASE) IN
NET
ASSETS
NET
ASSETS
Beginn 245,699,695 51,300,921
ing of
period
End of $ 452,229,113 $ 245,699,695
perio
d
(incl
udin
g
undi
strib
uted
net
inve
stme
nt
inco
me
of
$4,0
52,3
12
and
$3,3
89,1
30,
resp
ectiv
ely)
OTHER
INFORMAT
ION
Shares
Sold 2,725,869 2,593,616
Issued 161,200 20,470
in
reinve
stment
of
distrib
utions
Redee (473,860) (281,351)
med
Net 2,413,209 2,332,735
increa
se
(decre
ase)
<TABLE>
<CAPTION>
<S> <C> <C>
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SIX MONTHS YEARS ENDED DECEMBER 31, AUGUST 27, 1992
ENDED (COMMENCEMENT
JUNE 30, 1996 OF
OPERATIONS) TO
DECEMBER 31,
SELECTED PER-SHARE DATA (UNAUDITED) 1995 1994 1993 D 1992
</TABLE>
Net $ 75.71 $ 56.22 $ 55.74 $ 52.60 $ 50.00
asset
value,
beginn
ing of
period
Income
from
Invest
ment
Operat
ions
Net .58 .85 1.14 1.31 .44
invest
ment
incom
e
Net 6.88 19.72 (.56) 3.80 2.71
realize
d and
unreali
zed
gain
(loss)
Total 7.46 20.57 .58 5.11 3.15
from
invest
ment
operati
ons
Less (.91) (.95) - (1.28) (.47)
Distrib
utions
From
net
invest
ment
incom
e
From (2.34) (.11) (.10) (.60) (.08)
net
realize
d gain
In - (.02) - (.09) -
excess
of net
realize
d gain
Total (3.25) (1.08) (.10) (1.97) (.55)
distrib
utions
Net $ 79.92 $ 75.71 $ 56.22 $ 55.74 $ 52.60
asset
value,
end of
period
TOTAL 10.13% 37.19% 1.04% 9.74% 6.31%
RETUR
N B, C
RATIOS
AND
SUPPL
EMENT
AL
DATA
Net $ 452,229 $ 245,700 $ 51,301 $ 25,153 $ 17,961
assets
, end
of
period
(000
omitte
d)
Ratio of .28% A .28% .28% .28% .28% A,
expen E E E
ses to
averag
e net
assets
Ratio of .27% A, .28% .28% .28% .28% A
expen F
ses to
averag
e net
assets
after
expen
se
reducti
ons
Ratio of 2.30% A 2.70% 2.81% 2.65% 2.89% A
net
invest
ment
incom
e to
averag
e net
assets
Portfolio 2% A 16% 2% 9% 0%
turnov
er rate
Average $ .0238
commi
ssion
rate G
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
A ANNUALIZED B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED AND DO NOT REFLECT
CHARGES ATTRIBUTABLE TO YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THOSE CHARGES
WOULD REDUCE THE TOTAL RETURNS SHOWN. C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS). D EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME, CAPITAL GAIN, AND
RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES." AS A RESULT, NET INVESTMENT INCOME PER
SHARE MAY REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES. E FMR AGREED TO
REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE PERIOD. WITHOUT THIS REIMBURSEMENT, THE
FUND'S EXPENSE RATIO WOULD HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS). F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO
EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS). G FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS REQUIRED TO
DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY TRADES ON WHICH COMMISSIONS ARE
CHARGED. THIS AMOUNT MAY VARY FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF
TRADES EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
</TABLE>
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER: GROWTH PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance: total
percentage change in value, the average annual percentage change, or the
growth of a hypothetical $10,000 investment. A fund's total return includes
changes in a fund's share price, plus reinvestment of any dividends
(income) and capital gains (the profits the fund earns when it sells
securities that have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIOD ENDED JUNE 30, 1996 PAST 1 LIFE OF
YEAR FUND
Asset Manager: Growth 20.33% 21.83%
S&P 500 26.00% 32.05%
AVERAGE ANNUAL RETURNS take the fund's actual ( or cumulative) return and
show you what would have happened if the fund had performed at a constant
rate each year.
UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for example,
has a history of growth in the long run and volatility
in the short run. In turn, the share price and return
of a fund that invests in stocks will vary. That
means if you sell your shares during a market
downturn, you might lose money. But if you can
ride out the market's ups and downs, you may
have a gain.
(checkmark)
You can compare the fund's return to those of the Standard & Poor's 500
Index - a widely recognized, unmanaged index of common stocks. The S&P 500
returns reflect reinvestment of all dividends paid by stocks included in
the Index, but do not reflect any brokerage commissions or other fees you
might pay if you actually invested in those stocks.
Figures for more than one year assume a steady compounded rate of return
and are not the fund's year-by-year results, which fluctuated over the
periods shown. The life of the fund figures are from commencement of
operations January 3, 1995.
If Fidelity had not reimbursed certain fund expenses, the life of fund
total return figure would have been lower.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, THE TOTAL RETURN WOULD HAVE BEEN LOWER.
Past performance is no guarantee of future results. Principal and
investment return will vary and you may have a gain or loss when you
withdraw your money.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19960630 19960729 091923 S00000000000001
VIP II:ASS.MAN.AGG S&P 500 FI Aggress. Comp.
00159 SP001 F0022
1995/01/03 10000.00 10000.00 10000.00
1995/01/31 10149.70 10389.70 10319.00
1995/03/31 10289.42 10696.30 10538.79
1995/04/30 10558.88 11011.31 10784.35
1995/05/31 10708.58 11451.43 11197.39
1995/06/30 11137.72 11717.44 11395.58
1995/07/31 11546.91 12106.00 11631.47
1995/08/31 12065.87 12136.38 11693.12
1995/09/30 12245.51 12648.54 12049.76
1995/10/31 11776.45 12603.38 12081.09
1995/11/30 11986.03 13156.67 12484.60
1995/12/31 12277.71 13410.07 12696.83
1996/01/31 12569.78 13866.55 13004.10
1996/02/29 12613.39 13995.09 13005.40
1996/03/31 12840.37 14129.86 13056.12
1996/04/30 13143.01 14338.14 13159.26
1996/05/31 13348.36 14707.92 13376.39
1996/06/30 13402.41 14763.95 13465.00
IMATRL PRASUN SHR__CHT 19960630 19960729 091928 R00000000000123
Let's say hypothetically that $10,000 was invested in Asset Manager: Growth
Portfolio on January 31, 1995, shortly after the fund started. As the chart
shows, by June 30, 1996, the value of the investment would have grown to
$13,402 - a 34.02% increase on the initial investment. For comparison, look
at how the S&P 500 did over the same period. With dividends and capital
gains, if any, reinvested, the same $10,000 investment would have grown to
$14,764 - a 47.64% increase.
You can also look at how the Fidelity Aggressive Asset Allocation Composite
Index, a hypothetical combination of unmanaged indices, did over the same
period. Reflecting the fund's neutral mix of 65% stocks, 30% bonds, and 5%
short-term instruments, this index combines returns from the S&P 500
(47.64%), Lehman Brothers Treasury Bond Index (14.07%), and the Salomon
Brothers 3-month T-Bill Total Rate of Return Index (7.95%). With reinvested
dividends and capital gains, if any, a $10,000 investment in the index
would have grown to $13,465 - a 34.65% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF JUNE 30, 1996
% OF FUND'S
INVESTMENTS
Philip Morris Companies, Inc. 6.1
Federal National Mortgage Association 5.9
General Motors Corp. 3.6
Royal Dutch Petroleum Co. ADR 2.6
Columbia/HCA Healthcare Corp. 2.1
TOP FIVE MARKET SECTORS AS OF JUNE 30, 1996
(STOCKS ONLY) % OF FUND'S
INVESTMENTS
Finance 13.3
Nondurables 7.3
Durables 7.3
Energy 7.2
Retail & Wholesale 6.7
ASSET ALLOCATION AS OF JUNE 30, 1996*
Row: 1, Col: 1, Value: 5.2
Row: 1, Col: 2, Value: 20.4
Row: 1, Col: 3, Value: 34.4
Row: 1, Col: 4, Value: 40.0
Stock class 74.4%
Bond class 20.4%
Short-term class
and other 5.2%
FOREIGN INVESTMENTS 17.3%
*
ASSET ALLOCATIONS IN THIS PIE CHART REFLECT THE CATEGORIZATION OF
ASSETS AS DEFINED IN THE FUND'S PROSPECTUS. FINANCIAL STATEMENT
CATEGORIZATIONS CONFORM TO ACCOUNTING STANDARDS AND WILL DIFFER
FROM THE PIE CHART.
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER: GROWTH PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
NOTE TO SHAREHOLDERS: On March 26, 1996, Richard Habermann was named the
head of a three-person team of portfolio managers of Asset Manager: Growth
Portfolio. Dick Habermann will have primary responsibility for asset
allocation decisions. George Vanderheiden, who has been with Fidelity for
25 years, will be responsible for individual stock selection. Michael Gray,
who joined Fidelity 14 years ago, will be responsible for bond selection.
The following is an interview with Dick Habermann.
Q. HOW DID THE FUND PERFORM, DICK?
A. The fund performed quite well in the first half of 1996. In an
environment that produced mixed returns for stocks and bonds, Asset
Manager: Growth's performance nearly matched that of the broad stock
market. For the six and 12-month periods ended June 30, 1996, the Standard
& Poor's 500 Index returned 10.10% and 26.00%, respectively. Looking back
over the period, the fund benefited from its considerable weighting in
equities, even while the portfolio underwent some restructuring as a result
of the management change.
Q. HOW WERE THE FUND'S ASSETS DISTRIBUTED AT THE END OF THE PERIOD?
A. Around 75% in equities, 20% bonds and 5% cash equivalents. During the
past six months, the biggest change to the overall asset mix was a shift
from short-term investments into bonds. There was also significant change
among the securities within the asset classes.
Q. COULD YOU DETAIL WHAT SOME OF THOSE CHANGES WERE?
A. Sure. Within equities, we sold a substantial amount of the fund's
foreign holdings, especially in Japan. Despite the underperformance of the
Japanese market compared to the U.S., our individual holdings in many
Japanese stocks had actually done fairly well, so we took some profits and
re-directed those assets into domestic equities. On the fixed-income side,
our holdings had been focused in the middle of the yield curve, in
securities with maturities between five and 15 years. We allocated more
assets into the high-yield, longer maturity end of the market, and
re-structured the fixed-income portion of the portfolio to more closely
reflect the composition of the Lehman Brothers Aggregate Bond Index. The
result was an increase in corporate bonds and mortgage securities and a
reduction of the fund's U.S. Treasury holdings.
Q. LET'S TURN TO THE MANAGEMENT CHANGE. WHAT WAS THE THINKING BEHIND THE
TEAM APPROACH?
A. We think this approach makes more sense than relying on a single person,
given that the fund invests in so many different kinds of securities and is
involved in so many segments of the market. Fidelity has traditionally
taken what's known as a bottom-up approach with most of its funds,
emphasizing research and individual security selection. Our hope is that by
dividing the responsibility for different parts of the fund among
sub-portfolio managers with established expertise in those areas, we can
better leverage our strength as a fund management organization.
Q. WILL THE FUND'S INVESTMENT STRATEGY CHANGE?
A. No. As always, the fund will seek competitive long-term results by
investing in a broad mix of stocks and bonds. In the past, the fund has
never tried to time the market by making sudden shifts in the asset mix,
nor will it try to do so in the future. In short, the fund's basic asset
allocation structure will not change. The shift at the top should be seen
as an attempt to better fulfill the fund's original investment objective,
not take the fund in a different direction.
Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SEVERAL MONTHS?
A. I'm guardedly optimistic. I think that the economy has shown that it's
pretty resilient so far this year. Still, there are signs that various
businesses may be slowing down, which could mean that we may see some
earnings disappointments. One other note of caution is that stimulus
packages in other countries have helped boost some foreign economies. With
a group of economies moving in sync, that could imply a degree of inflation
risk, which bears watching. I do feel that there is still room for company
managements to add value by rationalizing their businesses and continuing
to cut costs. Those efforts may not have the impact they did over the past
year or two, but they can still be meaningful. That's why individual
security selection will continue to be crucial, and I take comfort in
having George and Michael, with their valuable experience and expertise, on
the team. In the next report, each of them will provide their views on
their respective parts of the portfolio.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: high total return with reduced risk over
the long term by allocating assets among
stocks, bonds and short-term instruments
anywhere in the world
START DATE: September 6, 1989
SIZE: as of June 30, 1996, more than $3.4 billion
MANAGER: Richard Habermann, since March
1996; joined Fidelity in 1968
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER: GROWTH PORTFOLIO
INVESTMENTS JUNE 30, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 71.9%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 0.7%
AEROSPACE & DEFENSE - 0.3%
Boeing Co. 3,200 $ 278,800
C A E Industries Ltd. 18,700 155,656
434,456
DEFENSE ELECTRONICS - 0.4%
Raytheon Co. 9,800 505,925
TOTAL AEROSPACE & DEFENSE 940,381
BASIC INDUSTRIES - 5.2%
CHEMICALS & PLASTICS - 3.2%
Air Products & Chemicals, Inc. 3,300 190,575
Betz Laboratories, Inc. 1,000 43,875
Dow Chemical Co. 700 53,200
du Pont (E.I.) de Nemours & Co. 28,800 2,278,800
Nippon Zeon Co. Ltd. 57,000 353,311
Raychem Corp. 8,300 596,563
Rohm & Haas Co. 900 56,475
Sekisui Chemical Co. Ltd. 23,000 280,935
Union Carbide Corp. 10,900 433,275
4,287,009
IRON & STEEL - 0.2%
Kobe Steel Ltd. (a) 87,000 249,806
NKK Corp. (a) 22,000 66,579
316,385
METALS & MINING - 0.5%
Broken Hill Proprietary Co. Ltd. (The) 7,770 107,515
Reynolds Metals Co. 11,700 609,863
717,378
PACKAGING & CONTAINERS - 0.1%
Owens-Illinois, Inc. (a) 2,200 35,200
Tupperware Corp. (a) 1,700 71,825
107,025
PAPER & FOREST PRODUCTS - 1.2%
Boise Cascade Corp. 6,100 223,413
Champion International Corp. 11,900 496,825
Georgia-Pacific Corp. 900 63,900
International Paper Co. 10,800 398,250
Temple-Inland, Inc. 4,700 219,725
Willamette Industries, Inc. 2,600 154,700
1,556,813
TOTAL BASIC INDUSTRIES 6,984,610
CONSTRUCTION & REAL ESTATE - 1.4%
BUILDING MATERIALS - 0.1%
Masco Corp. 2,100 63,525
Tecumseh Products Co. Class A 2,200 118,250
181,775
CONSTRUCTION - 1.0%
Centex Corp. 6,400 199,200
DR Horton, Inc. 32,500 341,250
Daito Trust Construction 45,000 672,713
Kaufman & Broad Home Corp. 9,400 136,300
Ryland Group, Inc. 500 7,500
U.S. Home Corp. (a) 1,000 24,625
1,381,588
ENGINEERING - 0.2%
Fluor Corp. 4,400 287,650
SHARES VALUE (NOTE 1)
REAL ESTATE - 0.1%
Sekiwa Real Estate Ltd. 7,000 $ 73,379
TOTAL CONSTRUCTION & REAL ESTATE 1,924,392
DURABLES - 7.3%
AUTOS, TIRES, & ACCESSORIES - 6.3%
Chrysler Corp. 4,900 303,800
Cummins Engine Co., Inc. 7,500 302,813
Dana Corp. 7,900 244,900
Discount Auto Parts, Inc. (a) 2,500 63,438
Federal-Mogul Corp. 13,200 242,550
Ford Motor Co. 2,700 87,413
General Motors Corp. 92,500 4,844,688
Gentex Corp. (a) 1,400 27,300
Goodyear Tire & Rubber Co. 2,500 120,625
Honda Motor Co. Ltd. 9,000 232,988
Magna International, Inc. Class A 25,000 1,155,073
Scania AB:
Class A (a) 3,600 99,642
Class B (a) 3,300 91,587
Superior Industries International, Inc. 9,600 254,400
Volvo AB Class B 18,300 415,671
8,486,888
CONSUMER DURABLES - 0.0%
Swedish Match AB 14,100 43,693
CONSUMER ELECTRONICS - 0.3%
Daiichi Corp. Ord. 1,000 28,987
Newell Co. 5,000 153,125
Whirlpool Corp. 5,400 267,975
450,087
HOME FURNISHINGS - 0.3%
Shimachu Co. Ltd. 13,000 385,124
TEXTILES & APPAREL - 0.4%
Burlington Industries, Inc. (a) 13,200 186,450
Onward Kashiyama & Co. Ltd. 19,000 310,013
496,463
TOTAL DURABLES 9,862,255
ENERGY - 7.2%
ENERGY SERVICES - 0.1%
McDermott International, Inc. 6,900 144,038
OIL & GAS - 7.1%
Amerada Hess Corp. 8,600 461,175
Amoco Corp. 1,500 108,563
Anadarko Petroleum Corp. 800 46,400
Atlantic Richfield Co. 11,200 1,327,200
British Petroleum PLC ADR 12,100 1,293,188
Burlington Resources, Inc. 12,100 520,300
Canada Occidental Petroleum Ltd. 12,000 201,973
Elf Aquitaine SA sponsored ADR 3,100 113,925
Enron Oil & Gas Co. 1,100 30,663
Fortune Petroleum Corp. (warrants) (a) 100,000 250,000
Kerr-McGee Corp. 2,800 170,450
Noble Affiliates, Inc. 2,200 83,050
Occidental Petroleum Corp. 10,800 267,300
Royal Dutch Petroleum Co.:
ADR 22,700 3,490,125
Ord. 800 123,343
Santa Fe Energy Resources, Inc. 9,800 116,375
Seagull Energy Corp. (a) 2,600 65,000
Sun Co., Inc. 9,700 294,638
Tosco Corp. 7,800 391,950
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Total SA:
Class B 900 $ 66,658
sponsored ADR 3,700 137,363
Ultramar Corp. 1,400 40,600
Union Pacific Resources Group, Inc. 2,500 66,875
9,667,114
TOTAL ENERGY 9,811,152
FINANCE - 13.3%
BANKS - 0.2%
Canadian Imperial Bank of Commerce 1,300 41,997
Fleet Financial Group, Inc. 2,500 108,750
State Street Boston Corp. 2,900 147,900
298,647
CLOSED END INVESTMENT COMPANY - 0.2%
First NIS Regional Fund (Reg.) 25,000 266,750
CREDIT & OTHER FINANCE - 0.3%
Acom Co. Ltd. 10,000 391,049
Associates First Capital Corp. (a) 1,800 67,725
458,774
FEDERAL SPONSORED CREDIT - 7.9%
Federal Home Loan Mortgage Corporation 30,700 2,624,850
Federal National Mortgage Association 238,000 7,973,000
Student Loan Marketing Association 2,400 177,600
10,775,450
INSURANCE - 3.9%
AFLAC, Inc. 5,100 152,363
Allmerica Financial Corp. 3,900 116,025
Allstate Corp. 38,800 1,770,250
American International Group, Inc. 13,000 1,282,125
CIGNA Corp. 800 94,300
Chubb Corp. (The) 600 29,925
Equitable of Iowa Companies 900 31,950
General Re Corp. 6,300 959,175
MGIC Investment Corp. 2,200 123,475
Providian Corp. 9,300 398,738
Torchmark Corp. 6,400 280,000
Travelers/Aetna Property Casualty Corp.
Class A (a) 800 22,700
5,261,026
SAVINGS & LOANS - 0.5%
Golden West Financial Corp. 11,200 627,200
SECURITIES INDUSTRY - 0.3%
United Asset Management Corp. 13,600 333,200
TOTAL FINANCE 18,021,047
HEALTH - 3.8%
DRUGS & PHARMACEUTICALS - 0.9%
IVAX Corp. 20,000 317,500
Pharmacia & Upjohn, Inc. 13,500 599,063
Sandoz AG (Reg.) 100 114,138
Schering-Plough Corp. 3,700 232,175
1,262,876
MEDICAL EQUIPMENT & SUPPLIES - 0.8%
Arterial Vascular Engineering, Inc. (a) 19,000 688,750
Bard (C.R.), Inc. 100 3,400
Baxter International, Inc. 3,100 146,475
Biomet, Inc. (a) 11,700 168,188
1,006,813
SHARES VALUE (NOTE 1)
MEDICAL FACILITIES MANAGEMENT - 2.1%
Columbia/HCA Healthcare Corp. 53,400 $ 2,850,225
Huntingdon International Holdings
PLC Ord. (a) 13,200 17,008
2,867,233
TOTAL HEALTH 5,136,922
INDUSTRIAL MACHINERY & EQUIPMENT - 3.0%
ELECTRICAL EQUIPMENT - 0.8%
Emerson Electric Co. 1,300 117,488
General Electric Co. 5,400 467,100
Scientific-Atlanta, Inc. 10,400 161,200
Sensormatic Electronics Corp. 14,000 229,250
Westinghouse Electric Corp. 5,600 105,000
1,080,038
INDUSTRIAL MACHINERY & EQUIPMENT - 1.9%
Caterpillar, Inc. 11,500 779,125
Deere & Co. 14,900 596,000
Dover Corp. 800 36,900
Komatsu Ltd. Ord. 72,000 708,810
NSK Ltd. 56,000 423,171
2,544,006
POLLUTION CONTROL - 0.3%
Browning-Ferris Industries, Inc. 17,000 493,000
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 4,117,044
MEDIA & LEISURE - 2.6%
BROADCASTING - 0.1%
Comcast Corp.:
Class A 600 11,025
Class A special 7,300 135,050
146,075
ENTERTAINMENT - 0.1%
Cedar Fair LP (depositary unit) 500 18,688
Royal Carribean Cruises Ltd. 1,800 51,300
69,988
LEISURE DURABLES & TOYS - 1.5%
Brunswick Corp. 5,500 110,000
Fleetwood Enterprises, Inc. 28,600 886,600
Namco Ltd. 9,000 297,799
Nintendo Co. Ltd. Ord. 7,700 572,736
Outboard Marine Corp. 5,300 96,063
1,963,198
LODGING & GAMING - 0.5%
Circus Circus Enterprises, Inc. (a) 17,100 701,100
Mirage Resorts, Inc. (a) 700 37,625
738,725
PUBLISHING - 0.1%
Dow Jones & Co., Inc. 500 20,875
Knight-Ridder, Inc. 600 43,500
Times Mirror Co. Class A 1,000 43,500
107,875
RESTAURANTS - 0.3%
Brinker International, Inc. (a) 6,600 99,000
Darden Restaurants, Inc. 6,000 64,500
Family Steak Houses of Florida, Inc. (a) 227,800 156,613
McDonald's Corp. 3,000 140,250
460,363
TOTAL MEDIA & LEISURE 3,486,224
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NONDURABLES - 7.3%
BEVERAGES - 0.4%
Compania Cervejaria Brahma PN
(Pfd. Reg.) 806,400 $ 481,037
FOODS - 0.2%
General Mills, Inc. 5,500 299,750
Tyson Foods, Inc. 1,300 35,588
335,338
HOUSEHOLD PRODUCTS - 0.0%
Premark International, Inc. 2,900 53,650
TOBACCO - 6.7%
Philip Morris Companies, Inc. 79,100 8,226,400
RJR Nabisco Holdings Corp. 23,520 729,120
UST, Inc. 2,000 68,500
9,024,020
TOTAL NONDURABLES 9,894,045
PRECIOUS METALS - 0.2%
Barrick Gold Corp. 2,300 62,495
Santa Fe Pacific Gold Corp. 9,100 128,538
191,033
RETAIL & WHOLESALE - 6.7%
APPAREL STORES - 0.1%
Melville Corp. 3,600 145,800
Talbots, Inc. 500 16,188
161,988
GENERAL MERCHANDISE STORES - 3.6%
Aoyama Trading Co. Ord. 3,200 83,715
Federated Department Stores, Inc. (a) 20,500 699,563
Hankyu Department Stores, Inc. 49,000 643,179
Hanshin Department Store Ltd. 23,000 163,529
Jusco Co. Ltd. 7,000 229,069
K mart Corp. 2,600 32,175
Matsuzakaya Co., Ltd. 25,000 305,364
Price/Costco, Inc. 1,200 25,950
Takashimaya Co. Ltd. 51,000 790,301
Wal-Mart Stores, Inc. 69,800 1,771,175
Woolworth Corp. (a) 5,500 123,750
4,867,770
GROCERY STORES - 0.0%
Safeway, Inc. (a) 900 29,700
RETAIL & WHOLESALE, MISCELLANEOUS - 3.0%
Amway Japan Ltd. 14,700 736,976
Home Depot, Inc. (The) 26,100 1,409,400
Lowe's Companies, Inc. 15,300 552,713
Office Depot, Inc. (a) 8,400 171,150
Rex Stores Corp. (a) 4,000 61,500
Tandy Corp. 6,600 312,675
Toys "R" Us, Inc. 16,500 470,250
Uny Co. Ltd. 19,000 375,826
4,090,490
TOTAL RETAIL & WHOLESALE 9,149,948
SERVICES - 0.0%
Interpublic Group of Companies, Inc. 900 42,188
SHARES VALUE (NOTE 1)
TECHNOLOGY - 6.2%
COMMUNICATIONS EQUIPMENT - 0.1%
Cisco Systems, Inc. 1,200 $ 67,950
General Instrument Corp. (a) 3,100 89,513
157,463
COMPUTER SERVICES & SOFTWARE - 0.8%
Adobe Systems, Inc. 700 25,113
America Online, Inc. 700 30,625
Automatic Data Processing, Inc. 8,200 316,725
Compuserve Corp. (a) 100 2,113
Electronic Data Systems Corp. 1,500 80,625
Metromail Corp. (a) 1,100 24,613
Microsoft Corp. (a) 1,400 168,175
Oracle Corp. (a) 6,800 268,175
Policy Management Systems Corp. (a) 5,000 250,000
1,166,164
COMPUTERS & OFFICE EQUIPMENT - 3.9%
Compaq Computer Corp. (a) 55,100 2,713,675
Hewlett-Packard Co. 3,700 368,613
International Business Machines Corp. 20,800 2,059,200
SCI Systems, Inc. (a) 300 12,188
Seagate Technology 1,600 72,000
Tech Data Corp. (a) 600 13,050
5,238,726
ELECTRONICS - 0.7%
Intel Corp. 100 7,344
Methode Electronics, Inc. Class A 300 5,100
Molex, Inc. 3,200 94,000
Solectron Corp. (a) 21,200 802,950
909,394
PHOTOGRAPHIC EQUIPMENT - 0.7%
Fuji Photo Film Co. Ltd. 29,000 914,635
TOTAL TECHNOLOGY 8,386,382
TRANSPORTATION - 0.8%
AIR TRANSPORTATION - 0.0%
Southwest Airlines Co. 1,900 55,338
RAILROADS - 0.7%
Bombardier, Inc. Class B 6,600 98,984
Burlington Northern Santa Fe Corp. (a) 9,100 735,963
CSX Corp. 100 4,825
839,772
SHIPPING - 0.1%
Overseas Shipholding Group, Inc. 900 16,313
Stolt-Nielsen SA 1,200 21,750
Stolt-Nielsen SA Class B sponsored ADR 4,900 91,263
Storli AS Class B (non-vtg.) 500 9,530
138,856
TRUCKING & FREIGHT - 0.0%
Caliber System, Inc. 1,000 34,000
Consolidated Freightways, Inc. 1,500 31,688
65,688
TOTAL TRANSPORTATION 1,099,654
UTILITIES - 6.2%
CELLULAR - 2.1%
AirTouch Communications, Inc. (a) 17,800 502,850
Vodafone Group PLC 169,600 630,552
Vodafone Group PLC sponsored ADR 45,900 1,692,563
2,825,965
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
UTILITIES - CONTINUED
TELEPHONE SERVICES - 4.1%
Ameritech Corp. 10,300 $ 611,563
Bell Atlantic Corp. 5,700 363,375
BellSouth Corp. 16,800 711,900
Lucent Technologies, Inc. 3,000 113,625
NYNEX Corp. 13,800 655,500
SBC Communications, Inc. 19,500 960,375
Telebras:
PN (Pfd. Reg.) 2,934,000 204,823
sponsored ADR 26,100 1,817,213
Telesp PN (Pfd. Reg.) 437,000 93,567
5,531,941
TOTAL UTILITIES 8,357,906
TOTAL COMMON STOCKS
(Cost $94,105,522) 97,405,183
PREFERRED STOCKS - 0.3%
CONVERTIBLE PREFERRED STOCKS - 0.0%
MEDIA & LEISURE - 0.0%
BROADCASTING - 0.0%
Triathalon Broadcasting Co.
$0.945 depositary share
representing 1/10 pfd 2,000 19,250
NONCONVERTIBLE PREFERRED STOCKS - 0.3%
ENERGY - 0.0%
OIL & GAS - 0.0%
Gulf Canada Resources Ltd.,
Series 1, adj. rate 600 1,870
MEDIA & LEISURE - 0.3%
BROADCASTING - 0.3%
Cablevision System Corp.
$11.125 pay-in-kind (c) 2,055 192,143
Time Warner, Inc.,
Series K (exchangeable) 204 199,920
TOTAL MEDIA & LEISURE 392,063
UTILITIES - 0.0%
TELEPHONE SERVICES - 0.0%
Intelecom Group USA, Inc. (a) 40 41,600
TOTAL NONCONVERTIBLE PREFERRED STOCKS 435,533
TOTAL PREFERRED STOCKS
(Cost $467,612) 454,783
CORPORATE BONDS - 6.4%
MOODY'S PRINCIPAL
RATINGS (B) AMOUNT
CONVERTIBLE BONDS - 0.6%
INDUSTRIAL MACHINERY & EQUIPMENT - 0.6%
Thermwood Corp. 12%,
2/25/03 - $ 380,000 $ 874,000
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - 5.8%
AEROSPACE & DEFENSE - 0.1%
Be Aerospace, Inc.
9 7/8%, 2/1/06 B2 $ 10,000 $ 9,825
Lockheed Martin Corp.
7.70%, 6/15/08 A3 150,000 152,711
Moog, Inc. 10%,
5/1/06 (c) B2 40,000 40,200
202,736
BASIC INDUSTRIES - 0.2%
CHEMICALS & PLASTICS - 0.1%
Acetex Corp. yankee
9 3/4%, 10/1/03 B1 100,000 97,750
PACKAGING & CONTAINERS - 0.1%
Owens Illinois, Inc.
9.95%, 10/15/04 B2 150,000 152,250
TOTAL BASIC INDUSTRIES 250,000
CONSTRUCTION & REAL ESTATE - 0.1%
BUILDING MATERIALS - 0.0%
Building Materials Corp. of
America 0%, 7/1/04 (d) B1 90,000 67,050
CONSTRUCTION - 0.1%
Greystone Homes, Inc.
10 3/4%, 3/1/04 B1 80,000 78,400
TOTAL CONSTRUCTION & REAL ESTATE 145,450
DURABLES - 0.5%
AUTOS, TIRES, & ACCESSORIES - 0.2%
APS, Inc. 11 7/8%,
1/15/06 (c) B2 20,000 20,950
Collins & Aikman Products
Co. 11 1/2%, 4/15/06 B3 170,000 172,975
Harvard Industries, Inc.
11 1/8%, 8/1/05 B3 25,000 23,500
Hayes Wheels International,
Inc. 11%, 7/15/06 B3 30,000 30,375
Lear Seating Corp.
8 1/4%, 2/1/02 B2 30,000 28,500
276,300
CONSUMER ELECTRONICS - 0.1%
Tag Heuer International
SA yankee 12%,
12/15/05 (c) B3 80,000 83,400
HOME FURNISHINGS - 0.1%
Interlake Corp.
12 1/8%, 3/1/02 B3 90,000 90,000
Knoll, Inc. 10 7/8%,
3/15/06 B3 30,000 30,600
120,600
TEXTILES & APPAREL - 0.1%
CMI Industries, Inc.
9 1/2%, 10/1/03 B1 125,000 107,813
Reeves Industries, Inc.
11%, 7/15/02 B2 130,000 113,100
220,913
TOTAL DURABLES 701,213
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
ENERGY - 0.3%
OIL & GAS - 0.3%
Clark USA, Inc., Series B,
10 7/8%, 12/1/05 B2 $ 30,000 $ 30,750
Mesa Operating Co.
10 5/8%, 7/1/06 B2 20,000 20,400
Occidental Petroleum Corp.
9 3/4%, 6/15/01 Baa3 100,000 111,381
Petro-Canada, Inc. yankee
7 7/8%, 6/15/26 Baa1 125,000 126,415
Tosco Corp.
7 5/8%, 5/15/06 Ba1 100,000 99,692
388,638
FINANCE - 1.2%
ASSET-BACKED SECURITIES - 0.4%
Airplanes 10 7/8%, 3/15/19 Ba2 260,000 271,700
Green Tree Financial Corp.:
6 1/2%, 6/15/27 Aaa 100,000 99,562
6.80%, 6/15/27 Aaa 100,000 99,593
470,855
BANKS - 0.3%
Chase Manhattan Corp.
6 1/4%, 1/15/06 A2 150,000 138,365
Keycorp 7 1/2%, 6/15/06 A2 100,000 100,716
Midland Bank PLC yankee
7 5/8%, 6/15/06 A1 125,000 126,643
Southern National Corp.
7.05%, 5/23/03 A3 100,000 99,499
465,223
CREDIT & OTHER FINANCE - 0.2%
Homeside, Inc. 11 1/4%,
5/15/03 (c) B+ 70,000 72,100
Ford Motor Credit
6.65%, 5/22/00 A1 100,000 99,579
HMC Acquisition Properties, Inc.
Series B, 9%, 12/15/07 Ba3 150,000 137,250
308,929
INSURANCE - 0.1%
Reliance Group
9 3/4%, 11/15/03 B1 150,000 148,125
SAVINGS & LOANS - 0.2%
First Nationwide Parent Holdings
Ltd. 12 1/2%, 4/15/03 B2 210,000 218,925
TOTAL FINANCE 1,612,057
HEALTH - 0.2%
MEDICAL FACILITIES MANAGEMENT - 0.2%
Tenet Healthcare Corp.
10 1/8%, 3/1/05 Ba3 200,000 211,500
INDUSTRIAL MACHINERY & EQUIPMENT - 0.2%
INDUSTRIAL MACHINERY & EQUIPMENT - 0.2%
Exide Corp. 10%, 4/15/05 B1 125,000 121,563
IMO Industries, Inc.
11 3/4%, 5/1/06 (c) B3 100,000 102,500
224,063
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
POLLUTION CONTROL - 0.0%
Envirosource, Inc.
9 3/4%, 6/15/03 B3 $ 30,000 $ 27,375
TOTAL INDUSTRIAL MACHINERY
& EQUIPMENT 251,438
MEDIA & LEISURE - 1.1%
BROADCASTING - 0.8%
Bell Cablemedia PLC yankee
0%, 9/15/05 (d) B2 110,000 66,955
CAI Wireless system, Inc.
12 1/4%, 9/15/02 B3 95,000 99,275
Cablevision Systems Corp.
9 7/8%, 5/15/06 B2 100,000 96,250
CS Wireless Systems, Inc. 0%,
3/1/06 Unit (c)(d) - 20,000 41,200
Fundy Cable Ltd./LTEE
yankee 11%, 11/15/05 B1 20,000 20,250
Granite Broadcasting Corp.:
10 3/8%, 5/15/05 B3 30,000 29,025
9 3/8%, 12/1/05 (c) B3 10,000 9,125
Lenfest Communications, Inc.
10 1/2%, 6/15/06 (c) B2 75,000 75,375
NWCG Holdings Corp.
0%, 6/15/99 Caa 20,000 14,800
SCI Television, Inc. secured
11%, 6/30/05 B2 150,000 156,000
SFX Broadcasting, Inc.
10 3/4%, 5/15/06 (c) B3 160,000 159,200
Telemundo Group, Inc. 7%,
2/15/06 (e) B1 150,000 135,750
Telewest PLC 0%,
10/1/07 (d) B1 230,000 135,700
1,038,905
LODGING & GAMING - 0.1%
American Skiing Co. 12%,
7/15/06 (c) B3 110,000 107,800
Courtyard by Marriott II
LP/Courtyard II Finance Co.,
Series B, 10 3/4%, 2/1/08 B- 30,000 29,250
Horseshoe Gaming LLC,
Series A, 12 3/4%,
9/30/00 B1 20,000 21,500
Wyndham Hotel Corp.
10 1/2%, 5/15/06 B2 50,000 49,750
208,300
PUBLISHING - 0.0%
Golden Books Publishing, Inc.
7.65%, 9/15/02 B1 40,000 33,800
RESTAURANTS - 0.2%
Foodmaker, Inc.
9 3/4%, 6/1/02 B3 120,000 114,600
Host Marriott Travel Plazas, Inc.,
Series B, 9 1/2%, 5/15/05 B1 100,000 95,375
209,975
TOTAL MEDIA & LEISURE 1,490,980
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
NONDURABLES - 0.4%
FOODS - 0.2%
Foodbrands of America, Inc.
10 3/4%, 5/15/06 B3 $ 50,000 $ 50,000
Nabisco, Inc.
6.85%, 6/15/05 Baa2 150,000 143,361
Specialty Foods Corp., Series B:
11 1/8%, 10/1/02 B3 110,000 105,050
11 1/4%, 8/15/03 Caa 15,000 13,013
311,424
HOUSEHOLD PRODUCTS - 0.2%
Revlon Consumer Products Corp.
10 1/2%, 2/15/03 B3 100,000 101,000
Revlon Worldwide Corp.
secured 0%, 3/15/98 B3 130,000 108,225
209,225
TOTAL NONDURABLES 520,649
RETAIL & WHOLESALE - 0.4%
APPAREL STORES - 0.0%
Loehmann's, Inc.
11 7/8%, 5/15/03 B2 50,000 51,500
GENERAL MERCHANDISE STORES - 0.1%
K Mart Corp.
12 1/2%, 3/01/05 Ba3 80,000 87,200
GROCERY STORES - 0.3%
Pathmark Stores, Inc. :
12 5/8%, 6/15/02 B3 40,000 40,300
9 5/8%, 5/1/03 B2 150,000 140,813
0%, 11/1/03 (d) B3 140,000 84,875
Ralph's Grocery Co.
10.45%, 6/15/04 B1 170,000 162,775
428,763
RETAIL & WHOLESALE, MISCELLANEOUS - 0.0%
Brylane LP Series B
10%, 9/1/03 B2 10,000 9,600
TOTAL RETAIL & WHOLESALE 577,063
SERVICES - 0.1%
Sullivan Graphics, Inc.
12 3/4%, 8/1/05 Caa 110,000 106,288
TECHNOLOGY - 0.3%
COMMUNICATIONS EQUIPMENT - 0.1%
Echostar Communications Corp.
0%, 6/1/04 (d) B2 150,000 109,500
COMPUTERS & OFFICE EQUIPMENT - 0.2%
Bell & Howell Co. ,
Series B, 0%, 3/1/05 (d) B3 70,000 47,950
Comdisco, Inc.
7.21%, 7/02/01 Baa2 125,000 126,511
Unisys Corp. 12%,
4/15/03 (c) B1 150,000 153,000
327,461
TOTAL TECHNOLOGY 436,961
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
TRANSPORTATION - 0.1%
US Air, Inc.:
9 5/8%, 2/1/01 B3 $ 100,000 $ 93,750
10%, 7/1/03 B3 90,000 84,150
177,900
UTILITIES - 0.6%
CELLULAR - 0.3%
Arch Communications Group, Inc.
0%, 3/15/08 (d) B3 90,000 46,350
Intercel, Inc. 0%, 5/1/06 (d) B2 100,000 54,500
International Cabletel, Inc.,
Series B, 0%, 2/1/06 (d) B3 10,000 5,625
Nextel Communications, Inc.
0%, 8/15/04 (d) B3 120,000 70,500
Paging Network, Inc.:
8 7/8%, 2/1/06 B2 20,000 18,200
10 1/8%, 8/1/07 B2 20,000 19,700
Rogers Cantel, Inc.
9 3/8%, 6/1/08 Ba3 150,000 145,125
Western Wireless Corp.
10 1/2%, 6/1/06 B3 75,000 74,813
434,813
ELECTRIC UTILITY - 0.1%
El Paso Electric Co., Series E,
9.40%, 5/1/11 1st Mtg Ba3 100,000 99,250
TELEPHONE SERVICES - 0.2%
Call-Net Enterprises, Inc. yankee
0%, 12/1/04 (d) B2 150,000 110,250
MFS Communications, Inc.
0%, 1/15/06 (d) B1 160,000 97,200
Shared Technologies Fairchild
Corp. 0%, 3/1/06 (c)(d) Caa 30,000 22,650
230,100
TOTAL UTILITIES 764,163
TOTAL NONCONVERTIBLE BONDS 7,837,036
TOTAL CORPORATE BONDS
(Cost $8,756,423) 8,711,036
U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS - 10.8%
U.S. TREASURY OBLIGATIONS - 10.5%
7 3/8%, 11/15/97 Aaa 1,000,000 1,017,810
7 7/8%, 8/15/01 Aaa 8,442,000 8,943,202
7 7/8%, 11/15/04 Aaa 3,945,000 4,240,244
TOTAL U.S. TREASURY OBLIGATIONS 14,201,256
U.S. GOVERNMENT AGENCY OBLIGATIONS - 0.3%
Federal Home Loan Bank:
7.31%, 6/16/04 Aaa 30,000 30,713
7.56%, 9/1/04 Aaa 50,000 51,785
Federal Home Loan Mortgage Corp.
6.783%, 8/18/05 Aaa 30,000 29,573
Federal National Mortgage
Association 6.44%, 6/21/05 Aaa 250,000 240,430
U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Guaranteed Export Trust Certificates
(assets of Trust guaranteed by
U.S. Government through Export-
Import Bank) Series 1996-A,
6.55%, 6/15/04 Aaa $ 37,647 $ 37,347
U.S. Housing & Urban
Development 8.24%, 8/1/04
participation certificate Aaa 20,000 21,473
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS 411,321
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS
(Cost $14,706,153). 14,612,577
U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES - 3.8%
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 2.8%
6%, 3/1/11 Aaa 1,989,165 1,880,994
6 1/2%, 2/1/26 to 3/1/26 Aaa 2,015,741 1,885,343
3,766,337
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 1.0%
6%, 5/15/11 Aaa 989,141 942,156
8%, 7/15/26 Aaa 500,000 504,063
1,446,219
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $5,259,461) 5,212,556
COMMERCIAL MORTGAGE SECURITIES - 0.3%
DLJ Mortgage Acceptance
Corp. commercial Series
1993-MF12 Class B-2,
10.10%, 9/18/03 - 250,000 225,313
Morgan Stanley Capital One, Inc.
commercial Series 1996-MBL1
Class E, 8.661%,
5/25/21 (c) - 99,838 85,673
Mortgage Capital Funding, Inc.
commercial Series 1996-MC1
Class G, 7.15%, 7/15/28 BB 100,000 74,625
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $385,202) 385,611
FOREIGN GOVERNMENT OBLIGATIONS - 0.1%
Ontario Province Canada
6%, 2/21/06
(Cost $92,043) Aa3 100,000 91,587
REPURCHASE AGREEMENTS - 6.4%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.46%, dated
6/28/96 due 7/1/96 $ 8,706,960 $8,703,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $132,475,416) $ 135,576,333
LEGEND
(a) Non-income producing
(b) Standard & Poor's Corporation credit ratings are used in the absence of
a rating by Moody's Investors Service, Inc.
(c) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $1,165,316 or 0.9% of net
assets.
(d) Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
(e) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(f) A company in which the fund has ownership of at least 5% of the voting
securities is an affiliated company. A summary of the transactions during
the period in which the issuers were affiliates is as follows:
PURCHASE SALES DIVIDEND MARKET
AFFILIATE COST COST INCOME VALUE
Cardiac Control
Systems, Inc. $ 50,600 $ 358,569 $ - $ -
IVF America, Inc. - 1,364,593 - -
$ 50,600 $ 1,723,162 $ - $ -
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $170,477,714 and $107,319,471, respectively, of which U.S.
government and government agency obligations aggregated $30,362,456 and
$13,264,439, respectively.
The market value of futures contracts opened and closed during the period
amounted to $1,122,861 and $4,735,264, respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company. The
commissions paid to these affiliated firms were $39,093 for the period (see
Note 4 of Notes to Financial Statements).
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 15.4% AAA, AA, A 15.1%
Baa 0.4% BBB 0.7%
Ba 0.8% BB 1.2%
B 3.7% B 2.8%
Caa 0.1% CCC 0.4%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by either S&P or Moody's amounted to 0.9%.
Distribution of investments by country of issue, as a percentage of total
value of investment in securities, is as follows:
United States 82.7%
Japan 6.9
United Kingdom 2.9
Netherland 2.7
Brazil 1.9
Canada 1.7
Others (individually less than 1%) 1.2
TOTAL 100.0%
INCOME TAX INFORMATION
At June 30, 1996, the aggregate cost of investment securities for income
tax purposes was $132,475,423. Net unrealized appreciation aggregated
$3,100,910, of which $5,700,787 related to appreciated investment
securities and $2,599,877 related to depreciated investment securities.
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER: GROWTH PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
ASSETS
Investm $ 135,576,333
ent in
securit
ies, at
value
(includ
ing
repurc
hase
agree
ments
of
$8,703
,000)
(cost
$132,4
75,416
) -
See
accom
panyin
g
sched
ule
Cash 280
Receiva 3,255,594
ble for
invest
ments
sold
Receiva 386,095
ble for
fund
shares
sold
Dividend 245,700
s
receiv
able
Interest 463,464
receiv
able
TOTAL 139,927,466
ASSETS
LIABILITI
ES
Payable $ 7,909,609
for
invest
ments
purcha
sed
Payable 4,755
for
fund
shares
redee
med
Accrued 73,679
manag
ement
fee
Other 58,814
payabl
es and
accrue
d
expen
ses
TOTAL 8,046,857
LIABILIT
IES
NET $ 131,880,609
ASSET
S
Net
Assets
consist
of:
Paid in $ 122,341,516
capital
Undistrib 1,037,114
uted
net
invest
ment
incom
e
Accumul 5,401,908
ated
undistr
ibuted
net
realize
d gain
(loss)
on
invest
ments
and
foreign
curren
cy
transa
ctions
Net 3,100,071
unreali
zed
apprec
iation
(depre
ciation
) on
invest
ments
and
assets
and
liabiliti
es in
foreign
curren
cies
NET $ 131,880,609
ASSET
S, for
10,634
,247
shares
outsta
nding
NET $12.40
ASSET
VALUE,
offerin
g price
and
redem
ption
price
per
share
($131,
880,60
9 (divided by)
10,634
,247
shares
)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
INVESTM $ 671,334
ENT
INCOME
Dividend
s
Interest 842,362
TOTAL 1,513,696
INCOM
E
EXPENS
ES
Manage $ 341,139
ment
fee
Transfer 33,070
agent
fees
Accounti 32,012
ng
fees
and
expen
ses
Non-inte 167
rested
trustee
s'
compe
nsatio
n
Custodia 45,238
n fees
and
expen
ses
Audit 14,657
Legal 140
Miscella 135
neous
Total 466,558
expen
ses
before
reducti
ons
Expen (21,701 444,857
se )
reducti
ons
NET 1,068,839
INVEST
MENT
INCOM
E
REALIZE
D AND
UNREALIZ
ED GAIN
(LOSS)
Net
realize
d gain
(loss)
on:
Invest 5,292,153
ment
securiti
es
(includi
ng
realiz
ed gain
of
$267,4
51 on
sales
of
invest
ments
in
affiliate
d
issuers
)
Foreig 219,878
n
curren
cy
transa
ctions
Future 262,658 5,774,689
s
contra
cts
Change
in net
unreali
zed
apprec
iation
(depre
ciation
) on:
Invest 1,606,997
ment
securit
ies
Assets (133,480
and )
liabiliti
es in
forei
gn
curren
cies
Future (160,755 1,312,762
s )
contra
cts
NET GAIN 7,087,451
(LOSS)
NET $ 8,156,290
INCREA
SE
(DECRE
ASE) IN
NET
ASSETS
RESULTI
NG
FROM
OPERAT
IONS
OTHER $ 21,701
INFORM
ATION
Expen
se
reducti
ons
Direc
ted
broker
age
arrang
ements
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS JANUARY 3, 1995
ENDED (COMMENCEMENT
JUNE 30, 1996 OF
(UNAUDITED) OPERATIONS) TO
DECEMBER 31,
1995
Operatio $ 1,068,839 $ 621,277
ns
Net
invest
ment
incom
e
Net 5,774,689 4,773,781
realize
d gain
(loss)
Chang 1,312,762 1,787,309
e in
net
unreali
zed
apprec
iation
(depre
ciation
)
NET 8,156,290 7,182,367
INCR
EASE
(DEC
REAS
E) IN
NET
ASSE
TS
RESU
LTING
FROM
OPER
ATIO
NS
Distributi - (591,903)
ons to
shareh
olders
From
net
invest
ment
incom
e
From (2,735,270) (2,259,995)
net
realize
d gain
TOTAL (2,735,270) (2,851,898)
DISTRIB
UTIONS
Share 66,961,120 68,544,838
transa
ctions
Net
procee
ds
from
sales
of
shares
Reinve 2,735,270 2,851,898
stment
of
distrib
utions
Cost (11,483,416) (7,480,590)
of
shares
redee
med
NET 58,212,974 63,916,146
INCR
EASE
(DEC
REAS
E) IN
NET
ASSE
TS
RESU
LTING
FROM
SHAR
E
TRAN
SACTI
ONS
TOTAL 63,633,994 68,246,615
INCREA
SE
(DECRE
ASE) IN
NET
ASSETS
NET
ASSETS
Beginn 68,246,615 -
ing of
period
End of $ 131,880,609 $ 68,246,615
perio
d
(inclu
ding
unde
r
(over
)
distri
butio
n of
net
inves
tmen
t
inco
me
of
$1,0
37,11
4
and
$(31,
082),
resp
ectiv
ely)
OTHER
INFORMAT
ION
Shares
Sold 5,573,284 6,215,852
Issued 235,393 243,336
in
reinve
stment
of
distrib
utions
Redee (970,860) (662,758)
med
Net 4,837,817 5,796,430
increa
se
(decre
ase)
<TABLE>
<CAPTION>
<S> <C> <C>
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
FINANCIAL HIGHLIGHTS
SIX MONTHS JANUARY 3, 1995
ENDED (COMMENCEMENT
JUNE 30, 1996 OF
(UNAUDITED) OPERATIONS) TO
DECEMBER 31,
1995
SELECTE $ 11.77 $ 10.00
D
PER-S
HARE
DATA
Net
asset
value,
beginn
ing of
period
Income
from
Invest
ment
Operat
ions
Net .10 .10
invest
ment
incom
e
Net .95 2.20
realize
d and
unreali
zed
gain
(loss)
Total 1.05 2.30
from
invest
ment
operati
ons
Less - (.11)
Distrib
utions
From
net
invest
ment
incom
e
From (.42) (.42)
net
realize
d gain
Total (.42) (.53)
distrib
utions
Net $ 12.40 $ 11.77
asset
value,
end of
period
TOTAL 9.16% 23.02%
RETUR
N B, C
RATIOS
AND
SUPPL
EMENT
AL
DATA
Net $ 131,881 $ 68,247
assets
, end
of
period
(000
omitte
d)
Ratio of .98% A 1.00% D
expen
ses to
averag
e net
assets
Ratio of .93% A, 1.00%
expen E
ses to
averag
e net
assets
after
expen
se
reducti
ons
Ratio of 2.24% A 1.69%
net
invest
ment
incom
e to
averag
e net
assets
Portfolio 253% A 343%
turnov
er rate
Average $ .0285
commi
ssion
rate F
A ANNUALIZED B TOTAL RETURNS FOR PERIODS OF LESS
THAN ONE YEAR ARE NOT ANNUALIZED AND DO NOT
REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF
THOSE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD
CERTAIN EXPENSES NOT BEEN REDUCED DURING THE
PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS). D FMR AGREED TO REIMBURSE A
PORTION OF THE FUND'S EXPENSES DURING THE PERIOD.
WITHOUT THIS REIMBURSEMENT, THE EXPENSE RATIO
WOULD HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS). E FMR OR THE FUND HAS
ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE
FUND'S
EXPENSES (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS). F FOR FISCAL YEARS BEGINNING ON OR
AFTER SEPTEMBER 1, 1995, A FUND IS REQUIRED TO
DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE
CHARGED. THIS AMOUNT MAY VARY FROM PERIOD TO
PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF
TRADES EXECUTED IN VARIOUS MARKETS WHERE TRADING
PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
VARIABLE INSURANCE PRODUCTS FUND II: CONTRAFUND PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY
PERFORMANCE
There are several ways to evaluate a fund's historical performance: total
percentage change in value, the average annual percentage change, or the
growth of a hypothetical $10,000 investment. A fund's total return includes
changes in a fund's share price, plus reinvestment of any dividends
(income) and capital gains (the profits the fund earns when it sells
securities that have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1996 PAST 1 LIFE OF
YEAR FUND
CONTRAFUND 21.03% 31.88%
S&P 500 26.00% 32.05%
AVERAGE ANNUAL RETURNS take the fund's actual ( or cumulative) return and
show you what would have happened if the fund had performed at a constant
rate each year.
UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for example,
has a history of growth in the long run and volatility
in the short run. In turn, the share price and return
of a fund that invests in stocks will vary. That
means if you sell your shares during a market
downturn, you might lose money. But if you can
ride out the market's ups and downs, you may
have a gain.
(checkmark)
You can compare the fund's return to the performance of the Standard &
Poor's 500 Index - a widely recognized, unmanaged index of common stocks.
The S&P 500 returns reflect reinvestment of all dividends paid by stocks
included in the Index, but do not reflect any brokerage commissions or
other fees you might pay if you actually invested in those stocks.
Figures for more than one year assume a steady compounded rate of return
and are not the fund's year-by-year results, which fluctuated over the
periods shown. The life of the fund figures are from commencement of
operations January 3, 1995.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, THE TOTAL RETURN WOULD BE LOWER.
Past performance is no guarantee of future results. Principal and
investment return will vary and you may have a gain or loss when you
withdraw your money.
$10,000 OVER LIFE OF FUND
Contrafund Portfolio S&P 500
$15,145
$15,116
$
1995 1996
Let's say hypothetically that $10,000 was invested in Contrafund Portfolio
on January 3, 1995, when the fund started. As the chart shows, by June 30,
1996, the value of the investment would have grown to $15,116 - a 51.16%
increase on the initial investment. For comparison, look at how the S&P 500
did over the same period. With dividends and capital gains, if any,
reinvested, the same $10,000 investment would have grown to $15,145 - a
51.45% increase.
INVESTMENT SUMMARY
TOP TEN STOCKS AS OF JUNE 30, 1996
% OF FUND'S
INVESTMENTS
Schlumberger Ltd. 1.9
Royal Dutch Petroleum Co. ADR 1.5
General Motors Corp. 1.1
Home Depot, Inc. (The) 1.0
Halliburton Co. 1.0
WorldCom, Inc. 0.9
du Pont (E.I.) de Nemours & Co. 0.9
Chrysler Corp. 0.9
Tidewater, Inc. 0.8
Ford Motor Co. 0.8
TOP TEN MARKET SECTORS AS OF JUNE 30, 1996
% OF FUND'S
INVESTMENTS
Energy 21.8
Retail & Wholesale 8.2
Durables 6.9
Finance 6.8
Media & Leisure 6.5
Technology 6.4
Basic Industries 5.5
Industrial Machinery & Equipment 4.8
Health 2.7
Precious Metals 2.6
VARIABLE INSURANCE PRODUCTS FUND II: CONTRAFUND PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW
An interview with Will Danoff, Portfolio Manager of Contrafund Portfolio
Q. HOW DID THE FUND PERFORM, WILL?
A. The fund slightly underperformed the Standard & Poor's 500 Index, which
returned 10.10% for the six-month period ended June 30, 1996, and 26.00%
for the year.
Q. WHAT'S YOUR EVALUATION OF THE FUND'S PERFORMANCE?
A. The fund performed in line with its peers despite taking, in my opinion,
much less risk than the average growth fund. While it is difficult to
quantify risk in a fund, one measure is the fund's price-to-earnings (P/E)
ratio - or the price the fund is paying for one dollar of earnings.
Contrafund's average P/E ratio was about 21 times at the end of the period,
lower than the average growth fund's approximately 27 P/E ratio.
Additionally, the fund carried a higher-than-average percentage of
short-term investments (cash) during the period. Contrafund had between 13%
and about 15% of total investments in cash for the entire period, much more
than the cash position for the average growth fund, which was about 8%.
Thus, with the market up 10% for the period, the fund's cash position hurt
its performance by approximately one percentage point.
Q. WHY DID THE FUND HOLD A LARGE CASH POSITION?
A. While in the short term it would have been better for the fund to have
stayed fully invested in stocks, the fund held its relatively high cash
position because I believed that the market was paying incredibly high
prices for most growth companies - particularly small and rapidly growing
companies. While small growth companies produced some of the best returns
in the market during the period, many of these companies were trading at
P/E ratios of more than 60 - which is more than three times as much as the
average stock in Contrafund. I was simply unwilling to buy these expensive
stocks in order to produce better than average returns for a single
six-month period. If interest rates increase, this year's historically huge
cash flows into mutual funds slow, or earnings growth diminishes, these
very expensive stocks could fall precipitously.
Q. WHICH SECTORS HELPED THE FUND DURING THE PERIOD? WHICH ONES HURT IT?
A. The energy and energy-services sector contributed nicely to the fund's
performance during the first half of the year despite suffering what I
consider a mild - and healthy - correction in the second quarter. The
sector rose about 15% in the first six months of the year, handily beating
all of the market averages and generating the best returns of all sectors
with the exception of the volatile precious metals group. One dampening
influence on the fund during the period, other than the high cash position,
was its underweighting of the consumer products sector. While the fund was
adequately represented in the retailing sector - which rebounded sharply
after a disastrous 1995 - it missed the strong performance of the consumer
nondurables, which includes tobacco, soft drink and personal care
multinationals. Although I underestimated the excellent overseas unit
growth of these companies, their stocks trade at very high P/E multiples
relative to their expected - and admittedly very predictable - earnings
growth rates and they are not the best investments for the fund.
Q. DID YOU FEEL AS OPTIMISTIC ABOUT THE ENERGY SECTOR AS YOU DID AT THE
BEGINNING OF THE YEAR?
A. Yes, right now I still believe that the energy sector is one of the most
attractive segments of the stock market. As I outlined in a letter to
shareholders last year, new technological breakthroughs such as
three-dimensional seismic analysis and horizontal drilling techniques now
enable exploration companies to find and extract oil and natural gas much
more economically than in the past. Thus, these energy companies are more
profitable and can grow faster even if the prices of oil and natural gas
stay at current levels. Additionally, the entire energy industry is
operating very close to effective capacity. In the past decade, the weaker
energy companies have closed part of their operations, gone out of business
entirely, or sold themselves to the stronger players. My research showed
that the industry's capacity utilization is approaching 95% - a level not
seen since the last oil crisis in 1979. This tightness suggests that global
oil and gas prices should remain firm and rates charged by firms in the
energy services sector should begin to increase for the first time in 15
years. These higher prices are extremely positive for the profit growth of
the surviving companies and consequently their performance in the stock
market. Based on this optimistic view, the fund held large positions in
Schlumberger, Royal Dutch Petroleum, Halliburton, British Petroleum and
Tidewater - all leading companies in this sector.
Q. GIVEN THE RECORD HIGHS IN THE STOCK MARKET, HOW DO YOU PLAN TO MANAGE
THE FUND GOING FORWARD?
A. Looking forward, the fund will remain defensively postured by holding a
substantial cash position, owning less economically sensitive stocks and
holding fewer high P/E stocks. Nevertheless, I will continue to look for
companies with the potential of good earnings growth over time.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: high total return with reduced risk over
the long term by allocating assets among
stocks, bonds and short-term instruments
anywhere in the world
START DATE: September 6, 1989
SIZE: as of June 30, 1996, more than $3.4 billion
MANAGER: Richard Habermann, since March
1996; joined Fidelity in 1968
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND II: CONTRAFUND PORTFOLIO
INVESTMENTS JUNE 30, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 82.4%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 1.5%
AEROSPACE & DEFENSE - 0.8%
Boeing Co. 31,500 $ 2,744,438
C A E Industries Ltd. 302,700 2,519,633
General Motors Corp. Class H 63,900 3,841,988
Harsco Corp. 17,800 1,197,050
Northrop Grumman Corp. 19,300 1,314,813
Orbital Sciences Corp. (a) 3,700 60,125
Sundstrand Corp. 55,600 2,036,350
13,714,397
DEFENSE ELECTRONICS - 0.4%
KVH Industries, Inc. (a) 130,500 1,190,813
Raytheon Co. 55,800 2,880,675
Tech-Sym Corp. (a) 9,100 270,725
Tracor, Inc. (a) 113,000 1,949,250
6,291,463
SHIP BUILDING & REPAIR - 0.3%
Avondale Industries, Inc. (a) 47,300 851,400
General Dynamics Corp. 61,000 3,782,000
4,633,400
TOTAL AEROSPACE & DEFENSE 24,639,260
BASIC INDUSTRIES - 5.5%
CHEMICALS & PLASTICS - 3.5%
Air Products & Chemicals, Inc. 26,700 1,541,925
Asahi Chemical Industry Co. Ltd. 294,000 2,095,693
Cambrex Corp. 29,300 1,497,963
Crompton & Knowles Corp. 188,500 3,157,375
Dow Chemical Co. 25,300 1,922,800
du Pont (E.I.) de Nemours & Co. 182,500 14,440,313
Furon Co. 13,300 329,175
Grace (W.R.) & Co. 43,700 3,097,238
Hercules, Inc. 61,300 3,386,825
ICI (Imperial Chemical Industries)
PLC Ord. 7,800 95,414
International Specialty Products, Inc. (a) 72,400 796,400
Monsanto Co. 20,400 663,000
Praxair, Inc. 103,900 4,389,775
Raychem Corp. 38,800 2,788,750
Rohm & Haas Co. 9,100 571,025
Sealed Air Corp. (a) 235,800 7,928,775
Union Carbide Corp. 107,800 4,285,050
Uniroyal Chemical Corp. (a) 104,200 1,549,975
Witco Corp. 40,000 1,375,000
55,912,471
IRON & STEEL - 0.2%
Kobe Steel Ltd. (a) 1,011,000 2,902,922
Mueller Industries, Inc. (a) 10,400 431,600
3,334,522
METALS & MINING - 1.1%
Aluminum Co. of America 25,500 1,463,063
Belden, Inc. 30,000 900,000
Falconbridge Ltd. 49,600 1,080,356
Falconbridge Ltd.
1st Installment Receipt (d) 86,900 701,038
Freeport-McMoRan Copper & Gold, Inc.
Class B 179,600 5,724,750
Inco Ltd. 147,300 4,747,780
QNI Ltd. 700,482 1,566,727
SHARES VALUE (NOTE 1)
SGL Carbon AG 9,400 $ 1,097,540
Titanium Metals Corp. (a) 16,700 432,113
17,713,367
PACKAGING & CONTAINERS - 0.4%
Bemis Co., Inc. 14,600 511,000
Corning, Inc. 52,900 2,030,038
Owens-Illinois, Inc. (a) 240,700 3,851,200
6,392,238
PAPER & FOREST PRODUCTS - 0.3%
Boise Cascade Corp. 8,900 325,963
Champion International Corp. 35,700 1,490,475
Fort Howard Corp. (a) 28,000 556,500
Georgia-Pacific Corp. 24,100 1,711,100
International Paper Co. 6,900 254,438
Pentair, Inc. 22,100 663,000
5,001,476
TOTAL BASIC INDUSTRIES 88,354,074
CONGLOMERATES - 1.1%
Alexander & Baldwin, Inc. 8,700 209,888
Allied-Signal, Inc. 93,600 5,346,900
American Standard Companies, Inc. (a) 21,900 722,700
Brascan Ltd. Class A 53,600 998,453
Crane Co. 27,100 1,111,100
Mark IV Industries, Inc. 4,500 101,813
Suncor, Inc. 3,500 110,630
Tyco International Ltd. 216,100 8,806,075
United Technologies Corp. 3,200 368,000
17,775,559
CONSTRUCTION & REAL ESTATE - 1.7%
BUILDING MATERIALS - 0.2%
Dexter Corp. 5,700 169,575
Elcor Corp. 19,400 354,050
Masco Corp. 24,400 738,100
Schuller Corp. 63,500 658,813
Southdown, Inc. 16,600 390,100
York International Corp. 2,900 150,075
2,460,713
CONSTRUCTION - 0.4%
Centex Corp. 6,900 214,763
Crossman Communities, Inc. (a) 25,000 487,500
Daiwa House Industry Co. Ltd. 193,000 2,990,748
Lennar Corp. 45,744 1,143,600
Oakwood Homes Corp. 92,600 1,909,875
Skyline Corp. 500 12,500
6,758,986
ENGINEERING - 0.4%
EG & G, Inc. 50,500 1,079,438
Fluor Corp. 68,700 4,491,263
Foster Wheeler Corp. 26,800 1,202,650
MasTec, Inc. (a) 15,200 383,800
7,157,151
REAL ESTATE - 0.4%
Catellus Development Corp. 9,100 83,038
Metroplex BHD 2,078,000 2,232,080
Rouse Co. (The) 125,900 3,257,663
5,572,781
REAL ESTATE INVESTMENT TRUSTS - 0.3%
Crescent Real Estate Equities, Inc. 39,500 1,451,625
Felcor Suite Hotels, Inc. 17,300 527,650
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
CONSTRUCTION & REAL ESTATE - CONTINUED
REAL ESTATE INVESTMENT TRUSTS - CONTINUED
General Growth Properties, Inc. 10,300 $ 248,488
Speiker Properties, Inc. 85,300 2,324,425
Starwood Lodging Trust combined
certificate (SBI) 8,200 298,275
4,850,463
TOTAL CONSTRUCTION & REAL ESTATE 26,800,094
DURABLES - 6.9%
AUTOS, TIRES, & ACCESSORIES - 4.8%
Autozone, Inc. (a) 42,400 1,473,400
Chrysler Corp. 231,100 14,328,200
Dana Corp. 117,700 3,648,700
Danaher Corp. 85,900 3,736,650
Ford Motor Co. 374,800 12,134,150
General Motors Corp. 343,300 17,980,338
Goodyear Tire & Rubber Co. 34,900 1,683,925
Honda Motor Co. Ltd. 187,000 4,840,983
Intermet Corp. (a) 81,400 1,134,513
Lear Seating Corp. (a) 200,400 7,064,100
Magna International, Inc. Class A 30,800 1,423,050
PACCAR, Inc. 12,600 617,400
SPX Corp. 36,400 891,800
Scania AB:
Class A 22,900 633,834
Class B 24,000 666,085
Standard Products Co. 12,900 299,925
TRW, Inc. 30,700 2,759,163
Toyota Motor Corp. 102,000 2,547,559
77,863,775
CONSUMER DURABLES - 0.0%
Syratech Corp. (a) 14,100 317,250
CONSUMER ELECTRONICS - 0.5%
Harman International Industries, Inc. 32,600 1,605,550
Maytag Co. 134,200 2,801,425
Sony Corp. 55,400 3,640,983
8,047,958
HOME FURNISHINGS - 0.2%
Furniture Brands International, Inc. (a) 148,600 1,634,600
Kinetic Concepts, Inc. 55,000 852,500
Miller (Herman), Inc. 8,100 248,063
2,735,163
TEXTILES & APPAREL - 1.4%
Adidas AG 22,200 1,862,499
Andayani Megah PT 1,000,000 494,305
Designer Holdings Ltd. (a) 42,800 1,139,550
Fila Holding Spa sponsored ADR 3,300 284,571
Fruit of the Loom, Inc. Class A (a) 20,500 522,750
Gucci Group NV 15,000 967,500
Intimate Brands, Inc. Class A 67,600 1,546,350
Jones Apparel Group, Inc. (a) 45,700 2,245,013
Kellwood Co. 50,000 918,750
Liz Claiborne, Inc. 78,200 2,707,675
Mohawk Industries, Inc. (a) 55,000 976,250
NIKE, Inc. Class B 44,200 4,541,550
Stride Rite Corp. 30,300 249,975
Unifi, Inc. 19,200 540,000
SHARES VALUE (NOTE 1)
Vans, Inc. (a) 106,800 $ 1,815,600
Warnaco Group, Inc. Class A 84,800 2,183,600
22,995,938
TOTAL DURABLES 111,960,084
ENERGY - 21.5%
ENERGY SERVICES - 8.8%
BJ Services Co. (a) 65,600 2,304,200
Baker Hughes, Inc. 209,100 6,874,163
Carbo Ceramics, Inc. (a) 21,500 473,000
Diamond Offshore Drilling, Inc. (a) 61,000 3,492,250
Dresser Industries, Inc. 346,500 10,221,750
ENSCO International, Inc. (a) 308,087 10,012,828
Energy Ventures, Inc. (a) 55,800 1,813,500
Falcon Drilling, Inc. (a) 41,100 1,114,838
Global Marine, Inc. (a) 228,000 3,163,500
Halliburton Co. 286,800 15,917,400
Helmerich & Payne, Inc. 88,500 3,241,313
Nabors Industries, Inc. (a) 453,400 7,367,750
Newpark Resources, Inc. 18,800 690,900
Noble Drilling Corp. 173,400 2,405,925
Powell Industries, Inc. (a) 3,400 39,525
Reading & Bates Corp. (a) 137,700 3,046,613
Rowan Companies, Inc. (a) 38,800 572,300
Schlumberger Ltd. 368,600 31,054,550
Seacor Holdings, Inc. (a) 16,400 733,900
Smedvig AS 12,900 298,409
Smith International, Inc. (a) 395,400 11,911,425
Sonat Offshore Drilling, Inc. 120,600 6,090,300
Tidewater, Inc. 289,559 12,704,401
Transocean Drilling AS (a) 11,600 300,430
Varco International, Inc. (a) 49,100 889,938
Weatherford Enterra, Inc. (a) 196,200 5,886,000
142,621,108
INDEPENDENT POWER - 0.2%
Thermo Electron Corp. (a) 62,500 2,601,563
OIL & GAS - 12.5%
Amerada Hess Corp. 48,600 2,606,175
Amoco Corp. 5,900 427,013
Anadarko Petroleum Corp. 98,000 5,684,000
Atlantic Richfield Co. 73,200 8,674,200
Barrett Resources Corp. (a) 70,900 2,109,275
Belco Oil & Gas Corp. (a) 25,000 887,500
Benton Oil & Gas Co. (a) 57,200 1,258,400
British Petroleum PLC ADR 110,882 11,850,514
Burlington Resources, Inc. 104,000 4,472,000
Camco International, Inc. 270,200 9,153,025
Canada Occidental Petroleum Ltd. 159,900 2,691,287
Canadian Natural Resources Ltd. (a) 36,100 673,789
Chesapeake Energy Corp. (a) 51,600 3,091,700
Chieftain International, Inc. (a) 50,000 999,230
Coastal Corp. (The) 112,700 4,705,225
Cooper Cameron Corp. (a) 199,920 8,746,500
Devon Energy Corp. 2,400 58,800
Diamond Shamrock R&M, Inc. 136,700 3,947,213
Elan Energy, Inc. (a) 12,700 116,424
Enron Oil & Gas Co. 206,200 5,747,825
Enterprise Oil PLC 149,200 1,065,409
Exxon Corp. 57,800 5,021,375
Flores & Rucks, Inc. (a) 55,500 1,914,750
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Forcenergy Gas Exploration, Inc. (a) 26,200 $ 494,525
Imperial Oil Ltd. 21,100 891,320
Kerr-McGee Corp. 37,200 2,264,550
Lomak Petroleum, Inc. 66,500 947,625
Louisiana Land & Exploration Co. 11,300 651,163
NGC Corp. 33,300 499,500
Newfield Exploration Co. (a) 83,600 3,249,950
Noble Affiliates, Inc. (a) 81,900 3,091,725
Norcen Energy Resources Ltd. 8,800 154,567
Northstar Energy Corp. (a) 122,000 1,185,508
Occidental Petroleum Corp. 361,900 8,957,025
Petro-Canada 99,400 1,235,620
Petro-Canada
1st installment receipt (d) 124,800 777,969
Phillips Petroleum Co. 266,100 11,142,938
Pogo Producing Co. 132,300 5,043,938
Renaissance Energy Ltd. (a) 220,400 5,818,929
Rio Alto Exploration Ltd. (a)(c) 39,300 216,164
Royal Dutch Petroleum Co.
ADR 135,100 20,771,625
Ord. 20,600 3,176,089
Rutherford-Moran Oil Corp. 1,900 46,313
Santa Fe Energy Resources, Inc. (a) 174,900 2,076,938
Swift Energy Co. (a) 377,900 6,802,200
Texaco, Inc. 99,000 8,303,625
Tosco Corp. 49,400 2,482,350
USX-Marathon Group 214,900 4,324,863
Union Pacific Resources Group, Inc. 126,700 3,389,225
United Meridian Corp. (a) 65,200 2,347,200
Unocal Corp. 332,300 11,215,125
Valero Energy Corp. 35,800 895,000
Vastar Resources, Inc. 30,300 1,132,463
Vintage Petroleum, Inc. 81,800 2,085,900
201,573,561
TOTAL ENERGY 346,796,232
FINANCE - 6.8%
BANKS - 3.0%
Bank of New York Co., Inc. 25,800 1,322,250
BankAmerica Corp. 127,800 9,680,850
Chase Manhattan Corp. 36,700 2,591,938
Citicorp 72,100 5,957,263
Cullen Frost Bankers, Inc. 19,400 538,350
First Bank System, Inc. 115,000 6,670,000
First Commerce Corp. 28,800 1,018,800
Firstar Corp. 8,200 378,225
HSBC Holdings PLC 296,000 4,530,627
HUBCO, Inc. 13,500 285,188
Hang Seng Bank Ltd. 78,000 785,945
Mitsui Trust and Banking Co. Ltd. 185,000 2,158,516
NationsBank Corp. 35,900 2,966,238
Regions Financial Corp. 3,600 168,300
Sakura Bank Ltd. 104,000 1,156,556
Texas Regional Bancshares, Inc.
Class A (vtg.) 7,800 195,000
U.S. Bancorp. 165,800 5,989,525
Westpac Banking Corp. 295,500 1,310,219
Zions Bancorp. 7,600 552,900
48,256,690
SHARES VALUE (NOTE 1)
CLOSED END INVESTMENT COMPANY - 0.1%
Alliance Global Environment Fund 12,800 $ 168,000
Morgan Stanley Asia-Pacific Fund, Inc. 82,100 985,200
Morgan Stanley Emerging Markets
Fund, Inc. 23,900 403,313
TCW/DW Emerging Markets
Opportunities Trust (SBI) 14,200 156,200
Templeton Dragon Fund, Inc. 43,400 575,050
2,287,763
CREDIT & OTHER FINANCE - 1.4%
Aames Financial Corp. 200 7,175
Acom Co. Ltd. 20,100 786,008
American Express Co. 105,800 4,721,325
Associates First Capital Corp. (a) 39,600 1,489,950
Cityscape Financial Corp. 18,300 937,875
Greenpoint Financial Corp. 90,500 2,556,625
Household International, Inc. 153,700 11,681,200
PHH Corp. 18,700 1,065,900
23,246,058
FEDERAL SPONSORED CREDIT - 0.5%
Federal Home Loan Mortgage
Corporation 9,700 829,350
Federal National Mortgage Association 198,400 6,646,400
7,475,750
INSURANCE - 1.2%
ACE Ltd. 1,300 61,100
Allmerica Financial Corp. 15,000 446,250
Allstate Corp. 144,100 6,574,563
Conseco, Inc. 95,500 3,820,000
Everest Reinsurance Holdings, Inc. 4,000 103,500
Gainsco, Inc. 47,000 464,125
ITT Hartford Group, Inc. 1,000 53,250
Riscorp, Inc. (a) 65,000 1,186,250
SunAmerica, Inc. 41,200 2,327,800
Tokio Marine & Fire Insurance
Co. Ltd. (The) 38,000 505,720
Travelers/Aetna Property Casualty
Corp. Class A (a) 35,800 1,015,825
Travelers Group, Inc., (The) 53,250 2,429,531
18,987,914
SAVINGS & LOANS - 0.3%
Glendale Federal Bank Federal Savings
Bank (a) 112,600 2,040,875
Golden West Financial Corp. 42,980 2,406,880
4,447,755
SECURITIES INDUSTRY - 0.3%
Nikko Securities Co. Ltd. 245,000 2,746,912
Nomura Securities Co. Ltd. 78,000 1,521,535
Peregrine Investments Holdings Ltd. 842,000 1,212,802
5,481,249
TOTAL FINANCE 110,183,179
HEALTH - 2.6%
DRUGS & PHARMACEUTICALS - 0.3%
Alliance Pharmaceutical Corp. (a) 42,000 693,000
Andrx Corp. (a) 6,300 95,288
CIBA-GEIGY AG (Reg.) 200 243,270
Sandoz AG (Reg.) 200 228,275
Sepracor, Inc. (a) 104,200 1,563,000
Takeda Chemical Industries Ltd. 107,000 1,892,165
4,714,998
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
HEALTH - CONTINUED
MEDICAL EQUIPMENT & SUPPLIES - 0.7%
Acuson Corp. (a) 11,400 $ 182,400
Bard (C.R.), Inc. 4,400 149,600
Becton, Dickinson & Co. 5,700 457,425
Biomet, Inc. (a) 55,100 792,063
Cardinal Health, Inc. 3,200 230,800
Hoya Corp. 114,000 3,678,593
InControl, Inc. (a) 44,200 519,350
Pall Corp. 14,000 337,750
Sofamor/Danek Group, Inc. 13,800 382,950
U.S. Surgical Corp. 107,300 3,326,300
Zoll Medical Corp. (a) 40,000 640,000
10,697,231
MEDICAL FACILITIES MANAGEMENT - 1.6%
Columbia/HCA Healthcare Corp. 102,100 5,449,588
HEALTHSOUTH Rehabilitation Corp. (a) 306,600 11,037,600
Health Management Associates, Inc.
Class A (a) 130,000 2,632,500
Multicare Companies, Inc. (a) 18,500 351,500
National Surgery Centers, Inc. (a) 17,450 462,425
OrNda Healthcorp (a) 24,500 588,000
Physicians Resource Group, Inc. (a) 14,600 487,275
Quorum Health Group, Inc. (a) 15,400 406,175
Safeguard Health Enterprises, Inc. (a) 61,300 1,095,738
Tenet Healthcare Corp. (a) 120,400 2,573,550
Total Renal Care Holdings, Inc. (a) 14,800 625,300
Vencor, Inc. (a) 33,600 1,024,800
26,734,451
TOTAL HEALTH 42,146,680
HOLDING COMPANIES - 0.2%
Citic Pacific Ltd. Ord. 190,000 768,247
First Pacific Co. Ltd. 660,586 1,015,498
Lonrho Ltd. Ord. 304,500 874,478
2,658,223
INDUSTRIAL MACHINERY & EQUIPMENT - 4.8%
ELECTRICAL EQUIPMENT - 1.1%
AMETEK, Inc. 25,200 548,100
Alcatel Alsthom Cie Generale
d'Electricite SA 34,100 2,970,107
Avid Technology, Inc. (a) 35,000 647,500
Charter Power Systems, Inc. 12,900 448,275
Computer Products, Inc. (a) 48,200 825,425
Emerson Electric Co. 24,200 2,187,075
Hutchison Whampoa Ltd. Ord. 24,000 150,988
Loral Space & Communications Ltd. (a) 264,000 3,597,000
Omron Corp. 123,000 2,612,370
Roper Industries, Inc. 4,900 238,875
Sensormatic Electronics Corp. 14,400 235,800
Westinghouse Electric Corp. 202,600 3,798,750
18,260,265
INDUSTRIAL MACHINERY & EQUIPMENT - 2.4%
BW/IP Holdings, Inc. Class A 45,300 860,700
Case Corp. 113,100 5,428,800
Caterpillar, Inc. 118,000 7,994,500
Cooper Industries, Inc. 54,800 2,274,200
Deere & Co. 65,300 2,612,000
Detroit Diesel Corp. (a) 11,800 228,625
Dover Corp. 49,300 2,273,963
SHARES VALUE (NOTE 1)
Global Industrial Technologies, Inc. (a) 3,500 $ 56,000
Graham-Field Health Products, Inc. (a) 64,900 559,763
Harnischfeger Industries, Inc. 38,700 1,286,775
Ingersoll-Rand Co. 81,000 3,543,750
Kaydon Corp. 58,800 2,528,406
Lindsay Manufacturing Co. (a) 49,900 2,008,475
Parker-Hannifin Corp. 13,700 580,538
Stanley Works 88,800 2,641,800
Thermo Fibertek, Inc. (a) 20,850 351,844
UCAR International, Inc. (a) 87,900 3,658,838
38,888,977
POLLUTION CONTROL - 1.3%
Allied Waste Industries, Inc. (a) 88,900 788,988
Republic Industries, Inc. 10,700 311,638
Sanifill, Inc. (a) 64,400 3,171,700
Sevenson Environmental Services, Inc. 31,500 547,313
Superior Services, Inc. (a) 134,700 2,289,900
Thermo Instrument Systems, Inc. (a) 8,500 274,125
USA Waste Services, Inc. (a) 96,000 2,844,000
United Waste Systems, Inc. (a) 108,700 3,505,575
WMX Technologies, Inc. 201,400 6,595,850
20,329,089
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 77,478,331
MEDIA & LEISURE - 6.5%
BROADCASTING - 1.2%
American Radio Systems Corp.
Class A (a) 61,900 2,661,700
Asia Satellite Telecommunications
Holdings Ltd. 173,700 514,974
Chancellor Corp. Class A 4,200 131,250
Clear Channel Communications, Inc. (a) 13,400 1,103,825
EZ Communications, Inc. Class A 700 16,625
Emmis Broadcasting Corp. Class A (a) 7,500 375,000
Home Shopping Network, Inc. (a) 166,000 1,992,000
Infinity Broadcasting Corp. Class A 190,050 5,701,500
Jacor Communications, Inc. Class A (a) 24,500 756,438
PanAmSat Corp. (a) 28,900 838,100
Paxson Communications Corp. (a) 51,300 545,063
Renaissance Communications Corp. (a) 58,200 1,876,950
TCI Group Class A 41,400 750,375
Telemundo Group, Inc. Class A (a) 39,000 906,750
U.S. Satellite Broadcasting Co., Inc.
Class A (a) 16,000 604,000
Viacom, Inc. Class A (a) 1,100 41,938
18,816,488
ENTERTAINMENT - 0.1%
Ameristar Casinos, Inc. 7,600 98,800
Carmike Cinemas, Inc. Class A (a) 2,200 59,400
Disney (Walt) Co. 8,100 509,288
MGM Grand, Inc. (a) 1,100 43,863
Regal Cinemas, Inc. (a) 17,200 786,900
1,498,251
LEISURE DURABLES & TOYS - 1.2%
Brunswick Corp. 1,200 24,000
Callaway Golf Co. 22,700 754,775
Champion Enterprises, Inc. (a) 125,100 2,611,463
Coleman, Inc. (a) 31,100 1,317,863
Harley Davidson, Inc. 61,500 2,529,188
Hasbro, Inc. 125,800 4,497,350
K2, Inc. (a) 6,400 173,600
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
MEDIA & LEISURE - CONTINUED
LEISURE DURABLES & TOYS - CONTINUED
Mattel, Inc. 132,950 $ 3,805,694
Nintendo Co. Ltd. Ord. 42,200 3,138,891
Polaris Industries, Inc. 34,600 1,180,725
20,033,549
LODGING & GAMING - 2.4%
Bally Entertainment Corp. 161,000 4,427,500
Circus Circus Enterprises, Inc. (a) 152,400 6,248,400
HFS, Inc. (a) 71,600 5,012,000
Hilton Hotels Corp. 83,500 9,393,750
Host Marriott Corp. (a) 245,000 3,215,625
ITT Corp. 67,700 4,485,125
International Game Technology Corp. 72,800 1,228,500
Interstate Hotels Co. 11,800 262,550
Mirage Resorts, Inc. (a) 34,600 1,859,750
Penske Motorsports, Inc. (a) 6,400 169,600
Promus Hotel Corp. (a) 900 26,663
Renaissance Hotel Group NV 2,400 51,000
Showboat, Inc. 51,100 1,539,388
Sun International Hotels Ltd. Ord. (a) 14,100 683,850
38,603,701
PUBLISHING - 1.1%
Belo (A.H.) Corp. Class A 2,300 85,675
Dow Jones & Co., Inc. 2,500 104,375
Harcourt General, Inc. 74,400 3,720,000
K-III Communications Corp. (a) 79,200 990,000
Knight-Ridder, Inc. 51,200 3,712,000
New York Times Co., (The) Class A 110,700 3,611,588
Playboy Enterprises, Inc. Class B (a) 40,400 595,900
Times Mirror Co. Class A 104,900 4,563,150
17,382,688
RESTAURANTS - 0.5%
CKE Restaurants, Inc. 1,900 48,450
Daka International, Inc. (a) 1,500 35,250
Landry's Seafood Restaurants, Inc. (a) 92,100 2,279,475
Mortons Restaurant Group, Inc. (a) 122,400 2,142,000
Outback Steakhouse, Inc. (a) 60,200 2,075,959
Papa John's International, Inc. (a) 14,600 711,750
Shoney's, Inc. (a) 38,100 414,338
7,707,222
TOTAL MEDIA & LEISURE 104,041,899
NONDURABLES - 0.4%
BEVERAGES - 0.1%
Coca-Cola Enterprises, Inc. 4,000 138,500
PepsiCo, Inc. 29,600 1,047,100
Seagram Co. Ltd. 24,400 818,672
2,004,272
HOUSEHOLD PRODUCTS - 0.3%
Gillette Co. 25,400 1,584,325
Inbrand Corp. (a) 15,400 431,200
Premark International, Inc. 31,800 588,300
Safeskin Corp. (a) 39,800 1,651,700
4,255,525
TOTAL NONDURABLES 6,259,797
PRECIOUS METALS - 2.6%
Agnico Eagle Mines Ltd. 22,000 358,989
Barrick Gold Corp. 150,300 4,083,910
Bre-X Minerals Ltd. (a) 357,400 5,976,106
SHARES VALUE (NOTE 1)
Bresea Resources Ltd. (a) 25,300 $ 236,570
Euro-Nevada Mining Ltd. 8,000 343,222
Franco Nevada Mining Corp. 62,700 3,977,522
Free State Consolidated Gold Mines
Ltd. Ord. 129,200 1,215,772
Getchell Gold Corp. 10,800 356,400
Greenstone Resources Ltd. (a) 39,900 468,190
Indochina Goldfields Ltd. (c) 75,600 651,461
Kinross Gold Corp. (a) 373,200 2,819,083
Newmont Gold Co. 39,600 1,994,850
Newmont Mining Corp. 241,400 11,919,125
Placer Dome, Inc. 150,700 3,608,489
TVI Pacific, Inc. (a) 68,500 86,407
TVI Pacific, Inc. (a)(c) 123,300 155,532
Western Mining Holdings Ltd. 590,300 4,230,506
42,482,134
RETAIL & WHOLESALE - 8.1%
APPAREL STORES - 2.3%
AnnTaylor Stores Corp. (a) 39,700 803,925
Burton Group PLC Ord. 319,700 769,244
Cato Corp. Class A 115,200 691,200
Charming Shoppes, Inc. 606,500 4,283,406
Gap, Inc. 233,300 7,494,763
Goody's Family Clothing 77,200 791,300
Limited, Inc. (The) 172,012 3,698,258
Loehmanns, Inc. (a) 26,600 611,800
Melville Corp. 215,800 8,739,900
Payless Shoesource, Inc. (a) 83,888 2,663,444
Ross Stores, Inc. 35,700 1,240,575
Saks Holdings, Inc. (a) 32,300 1,102,238
TJX Companies, Inc. 141,100 4,762,125
37,652,178
GENERAL MERCHANDISE STORES - 1.9%
Consolidated Stores Corp. (a) 15,700 576,975
Dayton Hudson Corp. 55,900 5,764,688
Dillard Department Stores, Inc. Class A 87,200 3,182,800
Federated Department Stores, Inc. (a) 27,300 931,613
K mart Corp. 232,700 2,879,663
Kohls Corp. 10,900 399,213
May Department Stores Co. (The) 14,600 638,750
Mercantile Stores Co., Inc. 13,300 779,713
Meyer (Fred), Inc. (a) 12,900 378,938
Michaels Stores, Inc. (a) 90,100 1,531,700
Price/Costco, Inc. (a) 107,300 2,320,363
Stein Mart, Inc. 64,800 1,182,600
Value City Department Stores, Inc. (a) 43,800 481,800
Woolworth Corp. (a) 410,300 9,231,750
30,280,566
GROCERY STORES - 1.9%
Albertson's, Inc. 35,200 1,456,400
American Stores Co. 49,000 2,021,250
Central Garden & Pet Co. (a) 36,100 649,800
Food Lion, Inc.:
Class A 428,700 3,402,806
Class B 33,700 261,175
Giant Food, Inc. Class A 8,600 308,525
Great Atlantic & Pacific Tea Co., Inc. 91,900 3,021,213
Loblaw Companies Ltd. 131,800 1,068,087
Performance Food Group Co. (a) 35,200 915,200
Provigo, Inc. (a) 338,600 1,812,753
Quality Food Centers, Inc. (a) 9,100 234,325
Richfood Holdings, Inc. Class A 188,500 6,126,250
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
RETAIL & WHOLESALE - CONTINUED
GROCERY STORES - CONTINUED
Safeway, Inc. (a) 231,000 $ 7,623,000
Vons Companies, Inc. (a) 12,600 470,925
Weis Markets, Inc. 5,100 166,388
Whole Foods Market, Inc. (a) 26,900 712,850
30,250,947
RETAIL & WHOLESALE, MISCELLANEOUS - 2.0%
Circuit City Stores, Inc. 87,300 3,153,713
Daisytek International Corp. 1,000 42,000
Duty Free International, Inc. 27,500 419,375
Home Depot, Inc. (The) 304,000 16,416,000
Lowe's Companies, Inc. 72,500 2,619,063
Orchard Supply Hardware Corp. (a) 15,400 463,925
Petco Animal Supplies, Inc. (a) 7,000 201,250
PETsMART, Inc. (a) 15,200 725,800
Tiffany & Co., Inc. 9,900 722,700
Toys "R" Us, Inc. 255,300 7,276,050
32,039,876
TOTAL RETAIL & WHOLESALE 130,223,567
SERVICES - 1.1%
ADVERTISING - 0.0%
Interpublic Group of Companies, Inc. 6,500 304,688
WPP Group PLC 187,700 632,286
936,974
LEASING & RENTAL - 0.0%
Team Rental Group, Inc. Class A (a) 400 5,600
PRINTING - 0.1%
Deluxe Corp. 24,900 883,950
Harland (John H.) Co. 10,700 263,488
1,147,438
SERVICES - 1.0%
APAC Teleservices, Inc. (a) 41,100 1,479,600
Block (H & R), Inc. 5,600 182,700
Career Horizons, Inc. (a) 73,800 2,583,000
Coach USA, Inc. (a) 9,400 209,150
Craig (Jenny), Inc. (a) 210,300 3,759,113
HCIA, Inc. (a) 25,200 1,587,600
Lawyers Title Corp. 30,000 540,000
Manpower, Inc. 28,800 1,130,400
National Service Industries, Inc. 68,500 2,680,063
Norrell Corp. GA 2,000 98,250
Robert Half International, Inc. (a) 4,400 122,650
Service Corp. International 21,600 1,242,000
Sitel Corp. (a) 4,800 198,600
15,813,126
TOTAL SERVICES 17,903,138
TECHNOLOGY - 6.4%
COMMUNICATIONS EQUIPMENT - 0.4%
Cisco Systems, Inc. (a) 53,500 3,029,438
Dynatech Corp. 45,000 1,462,500
Echostar Communications Corp.
Class A (a) 21,600 610,200
Northern Telecom Ltd. 42,900 2,336,053
7,438,191
COMPUTER SERVICES & SOFTWARE - 2.5%
Acxiom Corp. (a) 3,600 122,850
American Management Systems, Inc. (a) 73,350 2,145,488
SHARES VALUE (NOTE 1)
Ascend Communications, Inc. (a) 6,900 $ 388,125
BBN Corp. 9,100 197,925
BMC Software, Inc. (a) 13,100 782,725
Broadway & Seymour, Inc. (a) 3,300 39,600
CUC International, Inc. (a) 50,600 1,796,300
Ceridian Corp. (a) 158,916 8,025,258
Computer Sciences Corp. (a) 19,000 1,420,250
Compuware Corp. (a) 2,900 114,550
Documentum, Inc. (a) 30,800 939,400
ECI Telecom Ltd. 94,000 2,185,500
Electronic Arts, Inc. (a) 16,000 428,000
Equifax, Inc. 52,900 1,388,625
Fair Issac & Company, Inc. 1,600 70,800
First Data Corp. 29,000 2,309,125
Fiserv, Inc. 4,300 129,000
GT Interactive Software, Inc. (a) 17,700 296,475
ICT Group, Inc. (a) 5,900 113,575
Keane, Inc. (a) 32,800 1,209,500
May & Speh, Inc. (a) 65,600 1,033,200
Metromail Corp. (a) 29,000 648,875
Micrografx, Inc. (a) 23,000 336,375
National Data Corp. 5,000 171,250
Oracle Corp. (a) 48,900 1,928,494
PC Docs Group International, Inc. (a) 55,200 1,093,029
Physician Support Systems, Inc. (a) 156,300 3,536,288
Policy Management Systems Corp. (a) 7,000 350,000
Rational Software Corp. (a) 53,000 2,848,750
SunGard Data Systems, Inc. (a) 14,800 593,850
Technology Solutions, Inc. 53,000 1,835,125
Vanstar Corp. (a) 74,300 1,244,525
39,722,832
COMPUTERS & OFFICE EQUIPMENT - 1.6%
Diebold, Inc. 31,250 1,507,812
Bell & Howell Co. (a) 79,400 2,590,425
Canon, Inc. 356,000 7,398,751
Compaq Computer Corp. (a) 24,500 1,206,625
Data General Corp. (a) 19,000 247,000
Dell Computer Corp. (a) 12,600 641,025
FileNet Corp. (a) 66,100 2,412,650
Hewlett-Packard Co. 7,000 697,375
Kronos, Inc. (a) 62,900 2,232,950
Pomeroy Computer Resources, Inc. 81,000 1,215,000
Proxim, Inc. (a) 50,000 2,012,500
Stratus Computer, Inc. (a) 65,300 1,893,700
Sun Microsystems, Inc. (a) 8,000 471,000
VeriFone, Inc. (a) 19,200 811,200
25,338,013
ELECTRONIC INSTRUMENTS - 0.6%
ADE Corp. 11,300 161,025
Kollmorgen Corp. 26,700 393,825
Milltronics Ltd. (a) 50,000 1,420,923
Perkin-Elmer Corp. 127,800 6,166,350
Thermoquest Corp. (a) 89,900 1,247,363
Waters Corp. (a) 31,100 1,026,300
10,415,786
ELECTRONICS - 0.7%
ESS Technology, Inc. (a) 34,000 629,000
Griffon Corp. (a) 54,300 441,188
Intel Corp. 49,200 3,613,125
OnTrak Systems, Inc. (a) 3,300 53,625
Samsung Electronics Co. Ltd. GDS (c):
(vtg.) 630 32,130
(vtg.) (bonus issue 3/96) 189 9,633
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TECHNOLOGY - CONTINUED
ELECTRONICS - CONTINUED
Storage Technology Corp. (a) 137,800 $ 5,270,850
Zero Corp. 39,000 833,625
10,883,176
PHOTOGRAPHIC EQUIPMENT - 0.6%
Eastman Kodak Co. 23,600 1,834,900
Fuji Photo Film Co. Ltd. 181,000 5,708,582
Polaroid Corp. 36,070 1,645,694
9,189,176
TOTAL TECHNOLOGY 102,987,174
TRANSPORTATION - 2.2%
AIR TRANSPORTATION - 0.6%
AMR Corp. 9,000 819,000
Atlantic Southeast Airlines, Inc. 43,800 1,237,350
Comair Holdings, Inc. 17,500 472,500
Delta Air Lines, Inc. 57,800 4,797,400
Mesa Airlines, Inc. (a) 19,000 225,625
Northwest Airlines Corp. Class A (a) 10,000 395,000
UAL Corp. (a) 34,400 1,849,000
USAir Group, Inc. 15,900 286,200
10,082,075
RAILROADS - 1.6%
Bombardier, Inc. Class B 194,800 2,921,536
Burlington Northern Santa Fe Corp. 136,919 11,073,324
CSX Corp. 23,400 1,129,050
Canadian Pacific Ltd. Ord. 197,100 4,322,020
Tranz Rail Holdings Ltd.
sponsored ADR (a) 22,100 306,638
Wisconsin Central
Transportation Corp. (a) 163,800 5,323,500
25,076,068
SHIPPING - 0.0%
Trico Marine Services, Inc. (a) 8,100 180,225
TRUCKING & FREIGHT - 0.0%
Expeditors International of Washington, Inc. 200 6,200
Hunt (J.B.) Transport Services, Inc. 600 12,525
USFreightways Corp. 24,100 469,950
Yellow Corp. (a) 8,000 106,000
594,675
TOTAL TRANSPORTATION 35,933,043
UTILITIES - 2.5%
CELLULAR - 0.1%
Commnet Cellular, Inc. (a) 1,800 54,000
Palmer Wireless, Inc. (a) 53,000 1,060,000
360 Degrees Communications Co. (a) 33,700 808,800
1,922,800
ELECTRIC UTILITY - 0.1%
Iberdrola SA 71,900 737,537
GAS - 0.4%
Consolidated Natural Gas Co. 800 41,800
Enron Corp. 58,300 2,383,013
Nova Corp. 273,700 2,478,967
Sonat, Inc. 41,600 1,872,000
Williams Companies, Inc. 2,000 99,000
6,874,780
SHARES VALUE (NOTE 1)
TELEPHONE SERVICES - 1.9%
BCE, Inc. 135,000 $ 5,321,587
Cincinnati Bell, Inc. 14,900 776,663
Comsat Corp., Series 1 35,000 910,000
DDI Corp. Ord. 17 148,143
LCI International, Inc. (a) 72,700 2,280,963
Lucent Technologies, Inc. 50,800 1,924,050
Sprint Corp. 102,600 4,309,200
WorldCom, Inc. (a) 261,200 14,463,950
30,134,556
TOTAL UTILITIES 39,669,673
TOTAL COMMON STOCKS
(Cost $1,213,025,713) 1,328,292,141
CONVERTIBLE PREFERRED STOCKS - 0.2%
CONSTRUCTION & REAL ESTATE - 0.0%
REAL ESTATE - 0.0%
Rouse Co., Series A 11,400 661,200
ENERGY - 0.0%
OIL & GAS - 0.0%
Diamond Shamrock, Inc. $2.50 (c) 4,200 254,100
Valero Energy Corp. $3.125 8,800 462,000
716,100
MEDIA & LEISURE - 0.0%
BROADCASTING - 0.0%
American Radio System Corp. $3.50
depository shares representing
1/20 (c) 5,800 342,200
RETAIL & WHOLESALE - 0.2%
APPAREL STORES - 0.1%
TJX Companies, Inc., Series E,
$7.00 5,900 1,109,200
GENERAL MERCHANDISE STORES - 0.1%
K Mart Financing I $3.875 16,800 911,400
TOTAL RETAIL & WHOLESALE 2,020,600
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $3,531,423) 3,740,100
CONVERTIBLE BONDS - 0.3%
MOODY'S PRINCIPAL
RATINGS (B) AMOUNT
ENERGY - 0.2%
ENERGY SERVICES - 0.1%
Nabors Industries, Inc. 5%,
5/1/06 Ba2 $ 730,000 810,300
OIL & GAS - 0.1%
Pogo Producing Co. 5 1/2%,
6/15/06 (c) - 1,100,000 1,182,500
TOTAL ENERGY 1,992,800
HEALTH - 0.1%
MEDICAL FACILITIES MANAGEMENT - 0.1%
NovaCare, Inc. 5 1/2%,
1/15/00 B1 1,600,000 1,408,000
CONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
MEDIA & LEISURE - 0.0%
BROADCASTING - 0.0%
Home Shopping Network, Inc.
5 7/8%, 3/1/06 (c) B- $ 270,000 $ 310,500
Jacor Communications, Inc.
liquid yield option notes
0%, 6/12/11 B 302,000 142,695
TOTAL MEDIA & LEISURE 453,195
TECHNOLOGY - 0.0%
ELECTRONICS - 0.0%
National Semiconductor Corp.
6 1/2%, 10/1/02 (c) Ba2 220,000 190,300
TOTAL CONVERTIBLE BONDS
(Cost $3,838,023) 4,044,295
U.S. TREASURY OBLIGATIONS - 2.0%
7 1/4%, 2/15/23 Aaa 6,300,000 6,367,914
6 1/4%, 8/15/23 Aaa 15,100,000 13,689,056
7 1/2%, 11/15/24 Aaa 2,290,000 2,427,400
7 5/8%, 2/15/25 Aaa 1,000,000 1,077,500
6%, 2/15/26 Aaa 10,000,000 8,867,200
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $33,796,327) 32,429,070
REPURCHASE AGREEMENTS - 15.1%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.46%, dated
6/28/96 due 7/1/96 $ 243,674,822 243,564,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $1,497,755,486) $ 1,612,069,606
CURRENCY ABBREVIATIONS
CAD - Canadian dollar
LEGEND
(a) Non-income producing
(b) Standard & Poor's Corporation credit ratings are used in the absence of
a rating by Moody's Investors Service, Inc.
(c) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $3,344,520 or 0.2% of net
assets.
(d) Purchased on an installment basis. Market value reflects only those
payments made through June 30, 1996. The remaining installments for
Falconbridge Ltd., aggregating CAD 1,647,300 are due July 31, 1996 and
January 31, 1997. The remaining installments for Petro-Canada, aggregating
CAD 1,060,800 are due September 23, 1996 and March 24, 1997.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $1,860,607,319 and $1,265,592,243, respectively, of which U.S.
government and government agency obligations aggregated $20,258,179 and
$68,039,188, respectively.
The market value of futures contracts opened and closed during the period
amounted to $19,149,114 and $19,177,886, respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company. The
commissions paid to these affiliated firms were $572,129 for the period
(see Note 4 of Notes to Financial Statements).
Distribution of investments by country of issue, as a percentage of total
value of investment in securities, is as follows:
United States 87.5%
Canada 4.5
Japan 3.3
Netherland 1.5
Others (individually less than 1%) 3.2
TOTAL 100.0%
INCOME TAX INFORMATION
At June 30, 1996, the aggregate cost of investment securities for income
tax purposes was $1,497,823,527. Net unrealized appreciation aggregated
$114,246,079, of which $138,882,033 related to appreciated investment
securities and $24,635,954 related to depreciated investment securities.
VARIABLE INSURANCE PRODUCTS FUND II: CONTRAFUND PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
ASSETS
Investm $ 1,612,069,606
ent in
securit
ies, at
value
(includ
ing
repurc
hase
agree
ments
of
$243,5
64,000
) (cost
$1,497
,755,4
86) -
See
accom
panyin
g
sched
ule
Cash 817,881
Receiva 23,045,827
ble for
invest
ments
sold
Receiva 3,963,561
ble for
fund
shares
sold
Dividend 1,514,047
s
receiv
able
Interest 850,004
receiv
able
TOTAL 1,642,260,926
ASSETS
LIABILITI
ES
Payable $ 43,036,497
for
invest
ments
purcha
sed
Payable 97,055
for
fund
shares
redee
med
Accrued 784,129
manag
ement
fee
Other 213,869
payabl
es and
accrue
d
expen
ses
TOTAL 44,131,550
LIABILIT
IES
NET $ 1,598,129,376
ASSET
S
Net
Assets
consist
of:
Paid in $ 1,434,322,316
capital
Undistrib 10,092,878
uted
net
invest
ment
incom
e
Accumul 39,408,751
ated
undistr
ibuted
net
realize
d gain
(loss)
on
invest
ments
and
foreign
curren
cy
transa
ctions
Net 114,305,431
unreali
zed
apprec
iation
(depre
ciation
) on
invest
ments
and
assets
and
liabiliti
es in
foreign
curren
cies
NET $ 1,598,129,376
ASSET
S, for
108,09
5,047
shares
outsta
nding
NET $14.78
ASSET
VALUE,
offerin
g price
and
redem
ption
price
per
share
($1,59
8,129,
376 (divided by)
108,09
5,047
shares
)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
INVESTM $ 6,837,463
ENT
INCOME
Dividend
s
Special 1,135,200
dividen
d from
Schulle
r Corp.
Interest 6,281,376
TOTAL 14,254,039
INCOM
E
EXPENS
ES
Manage $ 3,737,061
ment
fee
Transfer 439,345
agent
fees
Accounti 260,873
ng
fees
and
expen
ses
Non-inte 2,156
rested
trustee
s'
compe
nsatio
n
Custodia 135,205
n fees
and
expen
ses
Registrat 3,452
ion
fees
Audit 21,902
Legal 1,814
Miscella 1,033
neous
Total 4,602,841
expen
ses
before
reducti
ons
Expen (166,529 4,436,312
se )
reducti
ons
NET 9,817,727
INVEST
MENT
INCOM
E
REALIZE
D AND
UNREALIZ
ED GAIN
(LOSS)
Net
realize
d gain
(loss)
on:
Invest 40,313,620
ment
securit
ies
Foreig (129,883
n )
curren
cy
transa
ctions
Future 28,772 40,212,509
s
contra
cts
Change
in net
unreali
zed
apprec
iation
(depre
ciation
) on:
Invest 45,861,051
ment
securit
ies
Assets (8,719 45,852,332
and )
liabiliti
es in
forei
gn
curren
cies
NET GAIN 86,064,841
(LOSS)
NET $ 95,882,568
INCREA
SE
(DECRE
ASE) IN
NET
ASSETS
RESULTI
NG
FROM
OPERAT
IONS
OTHER $ 163,906
INFORM
ATION
Expen
se
reducti
ons
Direc
ted
broker
age
arrang
ements
Cust 2,623
odian
interest
credits
$ 166,529
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS JANUARY 3, 1995
ENDED (COMMENCEMENT
JUNE 30, 1996 OF
(UNAUDITED) OPERATIONS) TO
DECEMBER 31,
1995
Operatio $ 9,817,727 $ 4,056,021
ns
Net
invest
ment
incom
e
Net 40,212,509 16,037,745
realize
d gain
(loss)
Chang 45,852,332 68,453,099
e in
net
unreali
zed
apprec
iation
(depre
ciation
)
NET 95,882,568 88,546,865
INCR
EASE
(DEC
REAS
E) IN
NET
ASSE
TS
RESU
LTING
FROM
OPER
ATIO
NS
Distributi - (3,710,433)
ons to
shareh
olders
From
net
invest
ment
incom
e
From (9,296,351) (7,420,866)
net
realize
d gain
TOTAL (9,296,351) (11,131,299)
DISTRIB
UTIONS
Share 662,955,008 806,897,529
transa
ctions
Net
procee
ds
from
sales
of
shares
Reinve 9,296,351 11,131,299
stment
of
distrib
utions
Cost (37,707,944) (18,444,650)
of
shares
redee
med
NET 634,543,415 799,584,178
INCR
EASE
(DEC
REAS
E) IN
NET
ASSE
TS
RESU
LTING
FROM
SHAR
E
TRAN
SACTI
ONS
TOTAL 721,129,632 876,999,744
INCREA
SE
(DECRE
ASE) IN
NET
ASSETS
NET
ASSETS
Beginn 876,999,744 -
ing of
period
End of $ 1,598,129,376 $ 876,999,744
perio
d
(incl
udin
g
undi
strib
uted
net
inve
stme
nt
inco
me
of
$10,
092,
878
and
$275
,151,
resp
ectiv
ely)
OTHER
INFORMAT
ION
Shares
Sold 46,441,942 64,153,925
Issued 674,626 816,078
in
reinve
stment
of
distrib
utions
Redee (2,615,032) (1,376,492)
med
Net 44,501,536 63,593,511
increa
se
(decre
ase)
<TABLE>
<CAPTION>
<S> <C> <C>
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED JANUARY 3, 1995
JUNE 30, 1996 (COMMENCEMENT
(UNAUDITED) OF
OPERATIONS) TO
DECEMBER 31,
1995
SELECTE $ 13.79 $ 10.00
D
PER-SHA
RE DATA
Net
asset
value,
beginn
ing of
period
Income
from
Invest
ment
Operat
ions
Net .09 C .06
invest
ment
incom
e
Net 1.03 3.91
realize
d and
unreali
zed
gain
(loss)
Total 1.12 3.97
from
invest
ment
operati
ons
Less - (.06)
Distrib
utions
From
net
invest
ment
incom
e
From (.13) (.12)
net
realize
d gain
Total (.13) (.18)
distrib
utions
Net $ 14.78 $ 13.79
asset
value,
end of
period
TOTAL 8.19% 39.72%
RETUR
N B
RATIOS
AND
SUPPL
EMENT
AL
DATA
Net $ 1,598,129 $ 877,000
assets
, end
of
period
(000
omitte
d)
Ratio of .75% A .72%
expen
ses to
averag
e net
assets
Ratio of .73% A, .72%
expen D
ses to
averag
e net
assets
after
expen
se
reducti
ons
Ratio of 1.61% A 1.07%
net
invest
ment
incom
e to
averag
e net
assets
Portfolio 244% A 132%
turnov
er rate
Average $ .0337
commi
ssion
rate E
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR
ARE NOT ANNUALIZED AND DO NOT REFLECT CHARGES
ATTRIBUTABLE TO YOUR INSURANCE COMPANY'S
SEPARATE ACCOUNT. INCLUSION OF THOSE CHARGES
WOULD REDUCE THE TOTAL RETURNS SHOWN.
C INVESTMENT INCOME PER SHARE REFLECTS A SPECIAL
DIVIDEND (FROM SCHULLER CORP.) WHICH AMOUNTED
TO $.01 PER SHARE.
D FMR OR THE FUND HAS ENTERED INTO VARYING
ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID
OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE
NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
E FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER
1, 1995, A FUND IS REQUIRED TO DISCLOSE ITS
AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS
AMOUNT MAY VARY FROM PERIOD TO PERIOD AND FUND
TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED
IN VARIOUS MARKETS WHERE TRADING PRACTICES AND
COMMISSION RATE STRUCTURES MAY DIFFER.
NOTES TO FINANCIAL STATEMENTS
For the period ended June 30, 1996 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Investment Grade Bond Portfolio, Asset Manager Portfolio, Index 500
Portfolio, Asset Manager: Growth Portfolio and Contrafund Portfolio (the
funds) are funds of Variable Insurance Products Fund II (the trust). The
trust is registered under the Investment Company Act of 1940, as amended
(the 1940 Act), as an open-end management investment company organized as a
Massachusetts business trust. Each fund is authorized to issue an unlimited
number of shares. Shares of each fund may only be purchased by insurance
companies for the purpose of funding variable annuity or variable life
insurance contracts. The financial statements have been prepared in
conformity with generally accepted accounting principles which permit
management to make certain estimates and assumptions at the date of the
financial statements. The following summarizes the significant accounting
policies of the funds:
SECURITY VALUATION.
INVESTMENT GRADE BOND FUND. Securities are valued based upon a computerized
matrix system and/or appraisals by a pricing service, both of which
consider market transactions and dealer-supplied valuations. Short-term
securities maturing within sixty days of their purchase date are valued
either at amortized cost or original cost plus accrued interest, both of
which approximate current value. Securities (including restricted
securities) for which market quotations are not readily available are
valued at their fair value as determined in good faith under consistently
applied procedures under the general supervision of the Board of Trustees.
ASSET MANAGER PORTFOLIO, INDEX 500 PORTFOLIO, ASSET MANAGER: GROWTH
PORTFOLIO AND CONTRAFUND PORTFOLIO. Securities for which exchange
quotations are readily available are valued at the last sale price, or if
no sale price, at the closing bid price. Securities (including restricted
securities) for which exchange quotations are not readily available (and in
certain cases debt securities which trade on an exchange) are valued
primarily using dealer-supplied valuations or at their fair value as
determined in good faith under consistently applied procedures under the
general supervision of the Board of Trustees. Short-term securities
maturing within sixty days of their purchase date are valued at amortized
cost or original cost plus accrued interest, both of which approximate
current value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the funds' are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Purchases and
sales of securities, income receipts, and expense payments are translated
into U.S. dollars at the prevailing exchange rate on the respective dates
of the transactions.
Net realized gains and losses on foreign currency transactions represent
net gains and losses from sales and maturities of forward
currency contracts and foreign currency options, disposition of foreign
currencies, currency gains and losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amount of net investment income accrued and the U.S. dollar amount actually
received. The effects of changes in foreign currency exchange rates on
investments in securities are included with the net realized and unrealized
gain or loss on investment securities.
INCOME TAXES. As qualified regulated investment companies under Subchapter
M of the Internal Revenue Code, each fund is not subject to income taxes to
the extent that each fund distributes substantially all of its taxable
income for the fiscal year. The Asset Manager and Asset Manager: Growth
Portfolios may be subject to foreign taxes on income, gains on investments
or currency repatriation. The schedules of investments include information
regarding income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date,
except certain dividends from foreign securities where the ex-dividend date
may have passed, are recorded as soon as the funds are informed of the
ex-dividend date. Interest income, which includes accretion of original
issue discount, is accrued as earned. Investment income is recorded net of
foreign taxes withheld where recovery of such taxes is uncertain.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for
litigation, paydown gains/losses on certain securities, futures and options
transactions, defaulted bonds, foreign currency transactions, passive
foreign investment companies (PFIC), market discount, partnerships,
non-taxable dividends, capital loss carryforwards and losses deferred due
to wash sales.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and may
affect the per-share allocation between net investment income and realized
and unrealized gain (loss). Undistributed net investment income and
accumulated undistributed net realized gain (loss) on investments and
foreign currency transactions may include temporary book and tax basis
differences which will reverse in a subsequent period. Any taxable income
or gain remaining at fiscal year end is distributed in the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
2. OPERATING POLICIES.
FORWARD FOREIGN CURRENCY CONTRACTS. Each fund may use foreign currency
contracts to facilitate transactions in foreign securities and to manage
the fund's currency exposure. Contracts to buy generally are used to
acquire exposure to foreign currencies, while contracts to sell are used to
hedge the fund's investments against currency fluctuations. Also, a
contract to buy or sell can offset a previous contract. Losses may arise
from changes in the value of the foreign currency or if the counterparties
do not perform under the contracts' terms.
The U.S. dollar value of forward foreign currency contracts is determined
using forward currency exchange rates supplied by a quotation service.
Purchases and sales of forward foreign currency contracts having the same
settlement date and broker are offset and any realized gain (loss) is
recognized on the date of offset; otherwise, gain (loss) is recognized on
settlement date.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the funds, along with other
affiliated entities of Fidelity Management & Research Company (FMR), may
transfer uninvested cash balances into one or more joint trading accounts.
These balances are invested in one or more repurchase agreements that
mature in 60 days or less from the date of purchase, and are collateralized
by U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
Securities are transferred to an account of the funds, or to the Joint
Trading Account, at a bank custodian. The securities are marked-to-market
daily and maintained at a value at least equal to the principal amount of
the repurchase agreement (including accrued interest). FMR, the funds'
investment adviser, is responsible for determining that the value of the
underlying securities remains in accordance with the market value
requirements stated above.
DELAYED DELIVERY TRANSACTIONS. Each fund may purchase or sell securities on
a when-issued or forward commitment basis. Payment and delivery may take
place a month or more after the date of the transaction. The price of the
underlying securities and the date when the securities will be delivered
and paid for are fixed at the time the transaction is negotiated. The
market value of the securities purchased or sold on a when-issued or
forward commitment basis are identified as such in the fund's schedule of
investments. Losses may arise due to changes in the market value of the
underlying securities or if the counterparty does not perform under the
contract.
FUTURES CONTRACTS AND OPTIONS. Each fund may use futures and options
contracts to manage its exposure to the stock market. Buying futures,
writing puts, and buying calls tend to increase the funds' exposure to the
underlying instrument. Selling futures, buying puts, and writing calls tend
to decrease the funds' exposure to the underlying instrument, or hedge
other fund investments. Futures contracts involve, to varying degrees, risk
of loss in excess of the futures variation margin reflected in the
Statement of Assets and Liabilities. The underlying face amount at value of
any open futures contracts at period end, is shown in the schedule of
investments under the caption "Futures Contracts." This amount reflects
each contract's exposure to the underlying instrument at period end. Losses
may arise from changes in the value of the underlying instruments, if there
is an illiquid secondary market for the contracts, or if the counterparties
do not perform under the contracts' terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. Exchange-traded
options are valued using the last sale price or, in the absence of a sale,
the last offering price. Options traded over-the-counter are valued using
dealer-supplied valuations.
RESTRICTED SECURITIES. Each fund is permitted to invest in securities that
are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from registration
or to the public if the securities are registered. Disposal of these
securities may involve time-consuming negotiations and expense, and prompt
sale at an acceptable price may be difficult. At the end of the period, the
funds' had no investments in restricted securities (excluding 144A issues).
3. PURCHASES AND SALES OF INVESTMENTS.
Information regarding purchases and sales of securities (other than
short-term securities), the market value of future contracts opened and
closed, is included under the caption "Other Information" at the end of
each applicable fund's schedule of investments.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE.
INVESTMENT GRADE BOND, ASSET MANAGER, ASSET MANAGER: GROWTH AND CONTRAFUND
PORTFOLIOS. As each fund's investment adviser, FMR receives a monthly fee
that is calculated on the basis of a group fee rate plus a fixed individual
fund fee rate applied to the average net assets of each fund. The group fee
rate is the weighted average of a series of rates and is based on the
monthly average net assets of all the mutual funds advised by FMR. The
rates ranged from .2500% to .5200% for the period for the Asset Manager,
Asset Manager: Growth and Contrafund Portfolios, and from .1100% to .3700%
for the period for the Investment Grade Bond Portfolio.
In the event that these rates were lower than the contractual rates in
effect during the period, FMR voluntarily implemented the above rates, as
they resulted in the same or a lower management fee. The annual individual
fund fee rate is .40% for the Asset Manager and Asset Manager: Growth
Portfolios and .30% for the Investment Grade Bond and Contrafund
Portfolios. For the period, the management fees were equivalent to rates of
.45%, .71%, .71% and .61%, respectively, of average net assets for the
Investment Grade Bond, Asset Manager, Asset Manager: Growth and Contrafund
Portfolios, respectively. Effective August 1, 1996, FMR voluntarily agreed
to reduce Asset Manager and Asset Manager: Growth Portfolios' individual
fund fee rates from .40% to .25%, and .40% to .30%, respectively.
4. FEES AND OTHER TRANSACTIONS WITH
AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
INDEX 500 PORTFOLIO. As the fund's investment adviser, FMR receives a fee
that is computed at an annual rate of .28% of the fund's average net
assets.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations Company
(FIIOC), an affiliate of FMR, is the funds' transfer, dividend disbursing
and shareholder servicing agent. FIIOC receives account fees and
asset-based fees that vary according to account size and type of account.
FIIOC pays for typesetting, printing and mailing of all shareholder
reports, except proxy statements. For the period, the transfer agent fees
were equivalent to an annualized rate of .04%, .06%, .08%, .07% and .07% of
the average net assets of Investment Grade Bond, Asset Manager, Index 500,
Asset Manager: Growth and Contrafund Portfolios, respectivly.
ACCOUNTING FEES. Fidelity Service Co. (FSC), an affiliate of FMR, maintains
the funds' accounting records. The fee is based on the level of average net
assets for the month plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. Certain funds placed a portion of their portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms are shown under the caption
"Other Information" at the end of each applicable fund's schedule of
investments.
5. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse the funds' operating expenses
(excluding interest, taxes, brokerage commissions and extraordinary
expenses) above an annual rate of .80%, 1.25%, .28%, 1.00% and 1.00% of
average net assets for Investment Grade, Asset Manager, Index 500, Asset
Manager: Growth and Contrafund Portfolios, respectively.
FMR has directed certain portfolio trades to brokers who paid a portion of
certain funds' expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest
earned on uninvested cash balances was used to offset a portion of certain
funds' expenses.
For the period, the reduction under these arrangements are shown under the
caption "Other Information" on each applicable fund's Statement of
Operations.
6. TRANSACTIONS WITH AFFILIATED COMPANIES.
Information regarding transactions with affiliated companies is included
under the caption "Legend" at the end of each applicable fund's schedule of
investments.
7. BENEFICIAL INTEREST.
At the end of the period, Fidelity Investments Life Insurance Company
(FILI) and its subsidiaries, affiliates of FMR, were the record owners of
more than 5% of the outstanding shares of the funds and certain
unaffiliated insurance companies were record owners of more than 10% of the
total outstanding shares of the following funds:
FILI UNAFFILIATED INSURANCE COMPANIES
FUND % OF OWNERSHIP # OF % OF OWNERSHIP
Investment Grade Bond 43 2 23
Asset Manager 22 3 50
Index 500 49 1 12
Asset Manager: Growth 82 0 0
Contrafund 49 1 19
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research (U.K.) Inc.,
London, England
ASSET MANAGER, ASSET MANAGER: GROWTH,
AND CONTRAFUND PORTFOLIOS
Fidelity Management & Research (Far East) Inc.,
Tokyo, Japan
ASSET MANAGER, ASSET MANAGER: GROWTH,
AND CONTRAFUND PORTFOLIOS
OFFICERS
Edward C. Johnson 3d, PRESIDENT
J. Gary Burkhead, SENIOR VICE PRESIDENT
William J. Hayes, VICE PRESIDENT
Fred L. Henning, Jr., VICE PRESIDENT
Robert A. Lawrence, VICE PRESIDENT
William Danoff, VICE PRESIDENT
Jennifer G. Farrelly, VICE PRESIDENT
Michael S. Gray, VICE PRESIDENT
Richard C. Habermann, VICE PRESIDENT
George Vanderheiden, VICE PRESIDENT
Arthur S. Loring, SECRETARY
Kenneth A. Rathgeber, TREASURER
Robert H. Morrison, MANAGER, SECURITY TRANSACTIONS
John H. Costello, ASSISTANT TREASURER
Leonard M. Rush, ASSISTANT TREASURER
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
Richard J. Flynn *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Edward H. Malone *
Marvin L. Mann *
Gerald C. McDonough *
Thomas R. Williams
ADVISORY BOARD
William O. McCoy
* INDEPENDENT TRUSTEES
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER SERVICING AGENT
Fidelity Investments Institutional Operations Co.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
INVESTMENT GRADE BOND PORTFOLIO
The Chase Manhattan Bank, N.A.
New York, NY
ASSET MANAGER PORTFOLIO AND ASSET MANAGER: GROWTH PORTFOLIO
Brown Brothers Harriman & Co.
Boston, MA
INDEX 500 PORTFOLIO AND CONTRAFUND PORTFOLIO
