PROVIDIAN LIFE & HEALTH INSURANCE CO SEPARATE ACCOUNT V, N-30D, 1996-03-08

PROVIDIAN LIFE & HEALTH INSURANCE CO SEPARATE ACCOUNT V
N-30D, 1996-03-08

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[LETTERHEAD OF PROVIDIAN CORPORATION] [LOGO]

February 1996

Dear Valued Customer:

Enclosed are the annual reports for the portfolios available in your Providian
Life and Health variable annuity contract.

Please take some time to review these reports, and if you have any questions,
just call one of our customer service representatives at 1-800-866-6007, 8 a.m.
to 6 p.m. EST, Monday through Friday.

Providian Life and Health is proud to have you as our customer.

Sincerely,

Jeff Lammers
Senior Vice President
National Sales Director

Providian Life and Health Insurance Company provides the variable annuity.
Securities are offered through Providian Securities Corporation, 400 West Market
Street, Louisville, KY 40202. Both are subsidiaries of Providian Corporation.

(2_FIDELITY_LOGOS)
VARIABLE INSURANCE PRODUCTS
FUND
MONEY MARKET PORTFOLIO
HIGH INCOME PORTFOLIO
EQUITY-INCOME PORTFOLIO
GROWTH PORTFOLIO
OVERSEAS PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 1995
CONTENTS

<TABLE>
<CAPTION>
<S> <C> <C>
MARKET ENVIRONMENT VIPF-3 A REVIEW OF WHAT HAPPENED DURING THE PAST YEAR

MONEY MARKET PORTFOLIO VIPF-4 PERFORMANCE
VIPF-5 FUND TALK: THE MANAGER'S OVERVIEW
VIPF-6 INVESTMENTS
VIPF-9 FINANCIAL STATEMENTS

HIGH INCOME PORTFOLIO VIPF-11 PERFORMANCE AND INVESTMENT SUMMARY
VIPF-12 FUND TALK: THE MANAGER'S OVERVIEW
VIPF-13 INVESTMENTS
VIPF-19 FINANCIAL STATEMENTS

EQUITY-INCOME PORTFOLIO VIPF-21 PERFORMANCE AND INVESTMENT SUMMARY
VIPF-22 FUND TALK: THE MANAGER'S OVERVIEW
VIPF-23 INVESTMENTS
VIPF-27 FINANCIAL STATEMENTS

GROWTH PORTFOLIO VIPF-29 PERFORMANCE AND INVESTMENT SUMMARY
VIPF-30 FUND TALK: THE MANAGER'S OVERVIEW
VIPF-31 INVESTMENTS
VIPF-35 FINANCIAL STATEMENTS

OVERSEAS PORTFOLIO VIPF-37 PERFORMANCE AND INVESTMENT SUMMARY
VIPF-38 FUND TALK: THE MANAGER'S OVERVIEW
VIPF-39 INVESTMENTS
VIPF-44 FINANCIAL STATEMENTS

NOTES TO FINANCIAL STATEMENTS VIPF-46 NOTES TO THE FINANCIAL STATEMENTS

REPORT OF INDEPENDENT ACCOUNTANTS VIPF-50 THE AUDITORS' OPINION

DISTRIBUTIONS VIPF-51

</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.
MARKET ENVIRONMENT

Most stock and bond markets rebounded in 1995, after experiencing
volatility and inconsistent returns in 1994. Returns were fueled by
declining interest rates, moderate economic growth, sustained corporate
earnings growth and a relative absence of inflation. The U.S. stock market
outpaced counterparts in the developed world and those in emerging markets.
Returns from bond markets overseas generally topped those provided by the
U.S., although the U.S. bond market still was quite strong.
U.S. STOCK MARKETS
The Standard & Poor's Composite Index of 500 Stocks - a broad measure of
U.S. stock performance - rose 37.58% for the 12 months ended December 31,
1995, well above the market's long-term average annual return. The NASDAQ
Composite Index - a measure of small stock performance - rose 39.92%
(excluding dividends). The Dow Jones Industrial Average - an index of 30
blue-chip stocks - posted a return of 36.72%, closing above 5000 for the
first time in November.
Strong corporate earnings and a favorable interest rate environment helped
the U.S. stock market post robust returns. With inflation posing little
threat, interest rates fell during much of 1995. The Federal Reserve Board
cut short-term interest rates twice, in July and December. Lower interest
rates helped bolster earnings, as they reduced companies' borrowing costs.
A relatively weak dollar also helped sustain earnings, with American
products and services remaining fairly cheap overseas. Investor sentiment
toward the stock market was extremely positive, evidenced by a flurry of
successful initial public offerings throughout the year.
Market activity was marked by rapid sector rotation, with investors
reacting swiftly to breaking news. Technology was one of the best
performing market sectors until the fourth quarter, fueled by improving
earnings associated with strong growth in personal computers and related
products. Internet-related stocks posted extremely strong share price
gains. Although increases in cellular subscriptions helped semiconductor
stocks earlier in the year, that industry saw share price drops later in
the year due to concerns about over-capacity. Expanding inventories and
evidence of an economic slowdown hurt technology stocks later in the year.
Biotechnology issues saw a resurgence, partly because the sector had
struggled to the point where valuations - stock prices relative to other
measures such as earnings - appeared attractive. Consumer nondurables -
such as food, beverage and tobacco companies - health care and traditional
big-name growth stocks showed strength as investors sought companies that
traditionally have steady earnings growth regardless of the economic
environment.
Cyclical stocks - those that usually rise and fall with the economy -
provided subpar returns during 1995 as a result of over-capacity and
evidence the economy was slowing. Industrial commodities, such as chemicals
and paper, faltered due to decreased demand, despite the prospect for
renewed economic growth - and concurrent future earnings growth - resulting
from interest rate declines. On the other hand, lower interest rates and
continued merger and acquisition activity helped financial stocks perform
well. Regional Bell operating companies - RBOCs or "Baby Bells"-performed
well in the second half of the year, because they offered strong yields,
and because of their potential for growth as they enter new businesses.
FOREIGN STOCK MARKETS
Foreign stock markets showed mixed results in 1995. The Morgan Stanley EAFE
(Europe, Australasia, Far East) index was up 11.21%. Although interest
rates declined in most European countries, economies were generally
stagnant. While equity indexes in some countries posted strong returns, in
some cases these results were due to the strong performance of large
companies that made up a significant portion of the index, such as Nokia in
Finland and Ericsson in Sweden. The Morgan Stanley Europe Index rose 21.62%
in 1995. Japanese companies were hindered by a strong yen - which made
their products expensive overseas - and a weak economy earlier in the year.
However, in the fourth quarter of the year, both the Japanese market and
economy started to rebound. According to Morgan Stanley Capital
International, Japanese stocks rose 0.69% in U.S. dollars for the year.
Emerging markets struggled in 1995, hurt by a lack of capital inflows
caused by Mexico's peso devaluation in December 1994. This negative
sentiment contributed to the -5.21% return of the Morgan Stanley Emerging
Markets Free Index in 1995.
U.S. BOND MARKETS
U.S. bond markets posted strong returns in 1995. The Lehman Brothers
Aggregate Bond Index - a broad measure of U.S. taxable bonds - posted a
total return of 18.47% in 1995. A strong, year-long rally helped bonds
recover from the effects of the sharply rising interest rates seen in 1994.
Indications of a slowing economy and a relative absence of inflation
pressures encouraged bond investors, helping to push interest rates lower.
Prospects for a balanced budget agreement also helped to fuel optimism in
the markets. Monetary policy also played a role in the bond market's
performance. In an effort to thwart the possibility of a recession, the
Federal Reserve Board lowered the fed funds rates twice, in July and
December. Mortgage-backed securities also benefited from this environment,
as illustrated by the performance of the Salomon Brothers Mortgage Index,
which returned 16.77% during the year. The high-yield bond market also
turned in a strong performance in 1995, driven by generally good earnings,
strong demand for high-yield bonds among investors searching for high
current income and declining interest rates. The Merrill Lynch High Yield
Master Index rose 19.91%.
FOREIGN BOND MARKETS
Both developed and emerging fixed-income markets recorded strong returns in
1995. For the 12 months ended December 31, 1995, the Salomon Brothers World
Government Bond Index - a proxy of bond market performance in developed
nations including the U.S. - rose 19.04%. Bond markets in developed
countries benefited from slow economic growth and relatively low inflation
pressures. This led to a more favorable interest rate environment, as the
central banks of the U.S., Germany and Great Britain all lowered their
respective short-term interest rates. Emerging markets shrugged off the
fallout from December 1994's Mexican peso devaluation to record strong
returns. The J.P. Morgan Emerging Markets Bond Index posted a 27.54% return
for the year. The bulk of emerging markets' total return came from a
springtime rally following the announcement of a $50 billion bailout
package for Mexico by the U.S. Treasury and the International Monetary
Fund.
VARIABLE INSURANCE PRODUCTS FUND: MONEY MARKET PORTFOLIO
PERFORMANCE

To measure a money market fund's performance, you can look at either total
return or yield. Total return reflects both the change
in a fund's share price over a given period, and reinvestment of its
dividends (or income). Yield measures the income paid by a fund. Since a
money market fund tries to maintain a $1 share price, yield is an important
measure of performance.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED PAST 1 PAST 5 PAST 10
DECEMBER 31, 1995 YEAR YEARS YEARS

Money Market 5.87% 4.66% 6.09%

AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return
and show you what would have happened if the fund had achieved that return
by performing at a constant rate each year.
Recent U.S. Consumer Price Index information is not available from the U.S.
Department of Labor. Therefore, the CPI comparison has not been included in
this report.AVERAGETURNS
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, THE TOTAL RETURNS WOULD HAVE BEEN LOWER.
If Fidelity had not reimbursed certain fund expenses, the past five and ten
year total returns would have been lower. Yield will vary.
YIELD
Row: 1, Col: 1, Value: 5.609999999999999
Row: 1, Col: 2, Value: 2.74
Row: 2, Col: 1, Value: 5.91
Row: 2, Col: 2, Value: 2.89
Row: 3, Col: 1, Value: 5.85
Row: 3, Col: 2, Value: 2.87
Row: 4, Col: 1, Value: 5.64
Row: 4, Col: 2, Value: 2.86
Row: 5, Col: 1, Value: 5.56
Row: 5, Col: 2, Value: 2.83
Money Market
MMDA
6% -
5% -
4% -
3% -
2% -
1% -
0%
12/28/94 3/29/95 6/28/95 9/27/95 12/27/95

Money Market 5.61% 5.91% 5.85% 5.64% 5.56%

MMDA 2.74% 2.89% 2.87% 2.86% 2.83%
YIELD refers to the income paid by the fund over a given period. Yields for
money market funds are usually for seven-day periods,
expressed as annual percentage rates. A yield that assumes income earned is
reinvested or compounded is called an effective yield. The chart above
shows the fund's current seven-day yield at quarterly intervals over the
past year. This is compared to similar yields for the average bank money
market deposit account (MMDA). The MMDA average is supplied by BANK RATE
MONITOR.(Trademark)

COMPARING PERFORMANCE
There are some important differences between
a bank money market deposit account (MMDA)
and a money market fund. First, the U.S.
government neither insures nor guarantees a
money market fund. In fact, there is no
assurance that a money fund will maintain a $1
share price. Second, a money market fund
returns to its shareholders income earned by the
fund's investments after expenses. This is in
contrast to banks, which set their MMDA rates
periodically based on current interest rates,
competitors' rates, and internal criteria.
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND: MONEY MARKET PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW

An interview with
Bob Litterst, Portfolio
Manager of Money
Market Portfolio
Q. BOB, HOW HAVE MARKET CONDITIONS CHANGED DURING THE PAST YEAR?
A. Ironically, the interest rate banks charge each other for overnight
loans-known as the federal funds rate-ended the year exactly where it
started, at 5.50%. But if we compare market conditions a year ago to those
that prevailed at the close of the period, the difference is like night and
day. As 1995 began, the Fed was still in a restrictive mode, raising
interest rates as a means of slowing down the economic growth rate and
preventing an outbreak of inflation. After a torrid fourth quarter-during
which the economy expanded at an annual rate of more than 5%-most market
participants expected growth to continue at a fast pace and interest rates
to keep rising in 1995. That view was apparently confirmed when the Fed
increased the federal funds rate again in February to 6.00%. As it turned
out, however, that was the last rate increase in the cycle. Already, signs
of weakness were appearing among the key economic indicators, heralding a
dramatic slowdown in the first half of 1995.
Q. HOW DID THE FED REACT TO CHANGING CONDITIONS?
A. By gradually lowering interest rates. When growth slowed to an annual
growth rate of 1.3% during the second quarter of 1995, from 2.7% during the
first quarter, warnings arose from some quarters that the economy was in
danger of slipping back into recession. Such warnings were undoubtedly a
factor in the Fed's decision to lower the federal funds rate one-quarter
percentage point on July 6, 1995. Growth picked up again in the third
quarter, when the economy expanded at an annual rate of 4.2%. But
indications are that the fourth quarter numbers, when they're released in
January, will show a return to slower growth. The Fed apparently thinks so.
It lowered the federal funds rate another one-quarter percentage point on
December 19, 1995, bringing it back down to 5.50%. At present, conditions
appear stable, characterized by moderate growth, stable to declining
interest rates and mild inflation.
Q. HOW DID YOU POSITION THE FUND DURING THE PERIOD?
A. The fund's average maturity a year ago December, when the period began,
was 39 days. That's a rather defensive number and reflects my expectation
at the time that interest rates were likely to go higher. However, after
the Fed rate increase in February, I began extending the fund's average
maturity out towards 60 days. By then, market expectations for higher rates
struck me as too severe, and therefore unlikely to be realized. I shortened
up slightly during the third quarter in response to a shift in the money
market yield curve that favored shorter trades over longer trades. By
year-end, however, I was back out around 70 days. That's anywhere from 10
to 15 days longer than most other funds in my competitive universe, and
reflects my view that short-term rates are more likely to fall than rise
over the next six months.
Q. HOW HAS THE COMPOSITION OF ASSETS CHANGED DURING THE PERIOD?
A. The percentage of variable rate instruments has risen slightly since
last fall to around 23%. Variable rate securities have interest rates that
reset at daily, weekly, monthly and quarterly intervals. Most of those the
fund invests in are pegged to traditional money market interest rates, such
as the federal funds rate, the prime rate and the London Interbank Offered
Rate, or LIBOR. In the current environment, with interest rates likely to
keep falling, I've tended to favor variable rate securities that reset
quarterly over those that reset more frequently.
Q. WHAT'S THE OUTLOOK?
A. Not at all what it was a year ago, at least for the short-term. I'm
basing my investment decisions on the likelihood of continued moderate
growth, stable to declining interest rates and mild inflationary pressures.
I think there's a good chance the Fed will lower interest rates at least
one more time, possibly if and when the warring parties in Washington
finally agree on a balanced budget. The Fed has long been an advocate of a
balanced budget, and would likely respond to a credible agreement with a
rate cut. On the other hand, with the economy expanding near the Fed's
target growth rate and little chance of a recession, I don't expect further
dramatic reductions in interest rates. That's why I'll likely keep the
fund's average around 60 days, possibly longer. That puts the fund in a
good position to benefit from stable to declining rates while leaving me
with some flexibility to respond if market conditions suddenly change.
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: income and share price stability by
investing in high quality, short-term instruments
START DATE: April 1, 1982
SIZE: As of December 31, 1995, more than
$808 million
MANAGER: Robert Litterst, since 1992; manager,
Capital Reserves Money Market, Fidelity Cash
Reserves, Fidelity Money Market Trust:
Retirement Money Market, since 1992; joined
Fidelity in 1991
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND: MONEY MARKET PORTFOLIO
INVESTMENTS DECEMBER 31, 1995

Showing Percentage of Total Value of Investment in Securities

BANKERS' ACCEPTANCES - 0.3%
ANNUALIZED
YIELD AT
DUE TIME OF PRINCIPAL VALUE
DATE PURCHASE AMOUNT (NOTE 1)
DOMESTIC BANKERS' ACCEPTANCES
CHEMICAL BANK
1/31/96 5.94% $ 524,312 $ 521,619
3/26/96 5.88 2,000,000 1,972,354
TOTAL BANKERS' ACCEPTANCES 2,493,973
CERTIFICATES OF DEPOSIT - 22.2%
NEW YORK BRANCH, EURODOLLAR, DOMESTIC BANKS - 0.6%
BANK OF NEW YORK
5/9/96 5.65 5,000,000 5,009,008
NEW YORK BRANCH, YANKEE DOLLAR, FOREIGN BANKS - 11.6%
BANQUE NATIONALE DE PARIS
2/9/96 5.80 1,000,000 1,001,059
BAYERISCHE HYPOTHEKEN-UND WESCHEL
4/12/96 5.77 10,000,000 10,000,281
BAYERISCHE LANDESBANK GIROZENTRALE
10/30/96 5.87 10,000,000 10,000,000
BAYERISCHE VEREINSBANK A.G.
1/4/96 5.95 10,000,000 10,000,000
COMMERZBANK, GERMANY
3/8/96 5.80 5,000,000 5,007,235
DEUTSCHE BANK, A.G.
4/22/96 5.77 5,000,000 5,000,000
DRESDNER BANK, A.G.
3/15/96 5.87 3,000,000 3,003,713
3/15/96 6.44 1,000,000 1,000,257
ROYAL BANK OF CANADA
3/27/96 5.75 5,000,000 5,000,000
SOCIETE GENERALE
1/16/96 5.84 5,000,000 5,000,000
SWISS BANK CORP.
2/29/96 5.73 15,000,000 15,000,000
3/25/96 5.75 5,000,000 5,000,000
5/6/96 5.47 (c) 10,000,000 10,000,000
WESTDEUTSCHE LANDESBANK
4/3/96 5.78 5,000,000 5,009,308
WESTPAC BANKING CORP.
4/3/96 5.68 5,000,000 5,010,707
95,032,560
LONDON BRANCH, EURODOLLAR, DOMESTIC BANKS - 2.5%
CHEMICAL BANK
3/27/96 5.81 10,000,000 10,000,000
MORGAN GUARANTY TRUST CO.
2/7/96 5.78 5,000,000 5,000,104
4/4/96 5.74 5,000,000 5,000,564
20,000,668
LONDON BRANCH, EURODOLLAR, FOREIGN BANKS - 7.5%
ABN-AMRO BANK
3/13/96 5.72 3,000,000 3,000,975
4/22/96 5.70 1,000,000 1,000,104
ABBEY NATIONAL (UK), PLC
4/9/96 5.77 5,000,000 4,998,282
4/23/96 5.75 5,000,000 5,000,000

ANNUALIZED
YIELD AT
DUE TIME OF PRINCIPAL VALUE
DATE PURCHASE AMOUNT (NOTE 1)
BAYERISCHE HYPOTHEKEN-UND WESCHEL
2/26/96 5.74% $ 10,000,000 $ 10,000,115
2/28/96 5.74 5,000,000 5,000,081
DEUTSCHE BANK, A.G.
2/26/96 5.76 10,000,000 10,000,198
3/1/96 5.72 5,000,000 4,999,993
LANDESBANK HESSEN - THURINGEN
3/14/96 5.71 5,000,000 5,000,050
NORDDEUTSCHE LANDESBANK
4/29/96 5.70 2,000,000 2,000,324
ROYAL BANK OF SCOTLAND, PLC
3/18/96 5.71 5,000,000 5,000,000
TORONTO-DOMINION BANK
2/26/96 5.71 5,000,000 5,001,789
61,001,911
TOTAL CERTIFICATES OF DEPOSIT 181,044,147
COMMERCIAL PAPER - 54.4%
A.H. ROBINS COMPANY, INCORPORATED
2/6/96 5.80 5,740,000 5,705,343
AT&T CAPITAL CORP.
2/5/96 5.78 4,000,000 3,976,566
2/5/96 5.78 6,000,000 5,964,788
3/8/96 5.63 4,000,000 3,957,297
3/27/96 5.58 10,000,000 9,865,556
AVCO FINANCIAL SERVICES, INC.
3/5/96 5.76 5,000,000 4,948,025
AMERICAN EXPRESS CREDIT CORP.
3/1/96 5.80 5,000,000 4,951,433
3/13/96 5.72 5,000,000 4,942,342
AMERICAN HOME PRODUCTS
2/2/96 5.79 9,500,000 9,448,679
2/6/96 5.85 2,000,000 1,987,851
2/7/96 5.85 1,000,000 993,765
3/7/96 5.77 8,300,000 8,211,264
4/3/96 5.71 4,000,000 3,940,888
AMERICAN TELEPHONE & TELEGRAPH
3/14/96 5.75 5,000,000 4,941,354
3/14/96 5.80 5,000,000 4,941,146
3/25/96 5.77 10,000,000 9,865,745
ASSOCIATES CORP. OF NORTH AMERICA
3/14/96 5.72 5,000,000 4,941,562
3/15/96 5.75 7,000,000 6,916,210
4/8/96 5.67 5,000,000 4,922,778
4/11/96 5.64 5,000,000 4,920,890
BENEFICIAL CORP.
2/13/96 5.86 5,000,000 4,963,750
BRADFORD & BINGLEY BUILDING SOCIETY
2/6/96 5.76 3,000,000 2,982,014
2/8/96 5.75 10,000,000 9,937,000
CIT GROUP HOLDINGS, INC.
1/2/96 5.90 (a) 5,000,000 4,996,787
2/15/96 5.87 5,000,000 4,962,792
2/16/96 5.77 5,000,000 4,962,000
COMMERCIAL PAPER - CONTINUED
ANNUALIZED
YIELD AT
DUE TIME OF PRINCIPAL VALUE
DATE PURCHASE AMOUNT (NOTE 1)
CAISSE DES DEPOTS ET CONSIGNATIONS
1/26/96 5.80% $ 7,000,000 $ 6,969,813
CHEMICAL BANKING CORP.
3/15/96 5.69 5,000,000 4,940,890
CHRYSLER FINANCIAL CORPORATION
2/2/96 5.87 5,000,000 4,972,564
2/8/96 5.84 5,000,000 4,967,890
2/9/96 5.84 3,000,000 2,980,252
COMMERZBANK U.S. FINANCE, INC.
1/5/96 5.89 1,994,000 1,992,049
COMPAGNIE BANCAIRE
1/18/96 5.84 6,000,000 5,981,729
CORESTATES CAPITAL CORP.
1/2/96 5.84 (a) 5,000,000 5,000,000
1/8/96 5.83 (a) 5,000,000 5,000,000
1/8/96 5.86 (a) 5,000,000 4,999,827
DAKOTA
1/11/96 5.86 5,000,000 4,990,284
DU PONT (E.I.) DE NEMOURS & CO.
2/13/96 5.76 4,350,000 4,319,604
3/28/96 5.70 2,000,000 1,972,410
EIGER CAPITAL CORP.
1/30/96 5.85 5,000,000 4,975,006
ENTERPRISE FUNDING CORP.
1/19/96 6.02 2,144,000 2,136,853
FLEET FUNDING CORPORATION
1/18/96 5.84 1,045,000 1,041,801
FORD MOTOR CREDIT CORP.
2/15/96 5.77 5,000,000 4,962,792
4/4/96 5.77 4,000,000 3,939,947
GTE CORP.
1/17/96 5.91 5,000,000 4,985,326
GENERAL ELECTRIC CAPITAL CORP.
3/15/96 5.69 5,000,000 4,941,100
3/27/96 5.80 10,000,000 9,862,134
4/1/96 5.71 5,000,000 4,927,667
4/29/96 5.73 5,000,000 4,906,393
GENERAL MOTORS ACCEPTANCE CORP.
1/30/96 5.87 3,000,000 2,985,069
2/6/96 5.84 9,000,000 8,945,375
2/15/96 5.84 4,000,000 3,969,972
2/20/96 5.84 4,000,000 3,966,777
3/5/96 5.83 5,000,000 4,947,475
GLAXO WELLCOME, PLC
2/23/96 5.75 5,000,000 4,956,764
GOLDMAN SACHS GROUP, L.P. (THE)
3/18/96 5.75 9,000,000 8,888,412
HANSON FINANCE (UK), PLC
1/26/96 5.85 1,500,000 1,493,475
2/9/96 5.86 1,000,000 993,395
IBM CORP.
3/12/96 5.72 12,000,000 11,863,490
JOHN DEERE CAPITAL CORP.
4/26/96 5.73 5,000,000 4,908,714
LILLY (ELI) & CO.
4/8/96 5.54 5,000,000 4,924,305
5/6/96 5.53 8,000,000 7,845,831

ANNUALIZED
YIELD AT
DUE TIME OF PRINCIPAL VALUE
DATE PURCHASE AMOUNT (NOTE 1)
MERRILL LYNCH & CO., INC.
3/8/96 5.76% $ 9,250,000 $ 9,150,716
MORGAN STANLEY GROUP, INC.
1/2/96 6.08 10,000,000 9,994,933
1/25/96 5.83 12,000,000 11,950,167
5/16/96 5.95 5,000,000 4,890,807
NEW CENTER ASSET TRUST
2/16/96 5.81 5,000,000 4,961,667
2/28/96 5.82 5,000,000 4,952,083
NORWEST CORP.
3/13/96 5.71 5,000,000 4,942,445
NORWEST FINANCIAL
1/17/96 5.87 5,000,000 4,985,388
2/28/96 5.80 5,000,000 4,952,584
PHH CORP.
1/22/96 5.94 3,000,000 2,999,251
PREFERRED RECEIVABLES FUNDING CORP.
2/5/96 5.79 10,000,000 9,941,416
REXAM PLC
1/8/96 5.92 5,000,000 4,992,625
1/16/96 5.95 10,000,000 9,972,044
SEARS ROEBUCK ACCEPTANCE CORP.
2/7/96 5.80 8,000,000 7,950,427
2/21/96 5.81 5,000,000 4,958,042
SHERWOOD MEDICAL COMPANY
1/18/96 5.98 1,351,000 1,346,757
SOCIETE GENERALE NORTH AMERICA
3/4/96 5.75 10,000,000 9,898,167
TRANSAMERICA FINANCE CORP.
2/9/96 5.85 5,000,000 4,966,972
TEXTRON, INC.
1/10/96 5.98 2,000,000 1,996,364
WOOL INTERNATIONAL
2/27/96 5.84 4,250,000 4,210,507
TOTAL COMMERCIAL PAPER 443,616,572
FEDERAL AGENCIES (A) - 2.4%
FEDERAL FARM CREDIT BANK - AGENCY COUPONS - 0.6%
1/2/96 5.76 5,000,000 4,999,430
FEDERAL HOME LOAN BANK - AGENCY COUPONS - 1.2%
1/4/96 5.60 (c) 5,000,000 4,996,700
3/20/96 5.69 5,000,000 4,996,948
9,993,648
STUDENT LOAN MARKETING ASSOC. - AGENCY COUPONS - 0.6%
10/16/96 5.95 5,000,000 5,000,000
TOTAL FEDERAL AGENCIES 19,993,078
BANK NOTES - 7.6%
BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOC.
1/2/96 5.93 (a) 4,000,000 3,998,425
BANK OF NEW YORK - DELAWARE
10/30/96 5.88 (a) 8,000,000 8,000,000
BANK NOTES - CONTINUED
ANNUALIZED
YIELD AT
DUE TIME OF PRINCIPAL VALUE
DATE PURCHASE AMOUNT (NOTE 1)
BOATMEN'S NATIONAL BANK OF ST. LOUIS
3/22/96 5.84%(a) $ 5,000,000 $ 4,998,063
COMERICA BANK-DETROIT
3/1/96 5.83 (a) 5,000,000 4,997,517
5/28/96 5.83 5,000,000 5,006,677
HUNTINGTON NATIONAL BANK
10/30/96 5.87 (a) 10,000,000 10,000,000
NATIONSBANK OF TEXAS
10/17/96 5.78 10,000,000 9,993,870
PNC BANK, N.A.
1/20/96 5.93 (a) 5,000,000 4,997,642
SEATTLE FIRST NATIONAL BANK
1/4/96 5.97 (a) 5,000,000 4,994,482
WACHOVIA BANK OF NORTH CAROLINA
1/26/96 5.71 (a) 5,000,000 4,996,865
TOTAL BANK NOTES 61,983,541
MASTER NOTES (A) - 1.7%
J.P. MORGAN SECURITIES
1/16/96 5.94 3,000,000 3,000,000
1/22/96 5.93 6,000,000 6,000,000
NORWEST CORP.
1/2/96 5.86 5,000,000 5,000,000
TOTAL MASTER NOTES 14,000,000
MEDIUM-TERM NOTES (A) - 6.6%
ABBEY NATIONAL TREASURY SERVICES (B)
3/9/96 5.69 10,000,000 10,000,000
BEAR STEARNS COS., INC.
1/11/96 5.82 5,000,000 5,001,190
BENEFICIAL CORP.
2/3/96 5.85 3,000,000 2,998,186
DEAN WITTER, DISCOVER & CO.
1/17/96 5.92 5,000,000 5,001,138
GENERAL ELECTRIC CAPITAL CORP.
1/2/96 5.78 5,000,000 4,999,670
GENERAL MOTORS ACCEPTANCE CORP.
2/7/96 6.00 3,000,000 3,000,000
2/22/96 5.87 6,000,000 6,001,174
GOLDMAN SACHS GROUP, L.P. (THE) (B)
3/1/96 5.91 3,000,000 3,000,000
MERRILL LYNCH & CO., INC.
2/27/96 6.95 5,000,000 5,007,264
NORWEST CORP.
3/10/96 5.83 6,000,000 6,000,000
TRANSAMERICA LIFE INSURANCE & ANNUITY CO.
3/15/96 5.84 3,000,000 3,000,000
TOTAL MEDIUM-TERM NOTES 54,008,622
SHORT-TERM NOTES (A) - 4.6%
ANNUALIZED
YIELD AT
DUE TIME OF PRINCIPAL VALUE
DATE PURCHASE AMOUNT (NOTE 1)
CAPITAL ONE FUNDING CORP.
1/8/96 5.83% $ 6,000,000 $ 6,000,000
1/8/96 5.83 3,648,000 3,648,000
SMM TRUST COMPANY (1995-B) (B)
1/2/96 6.03 2,500,000 2,500,000
SMM TRUST COMPANY (1995-D) (B)
1/27/96 5.99 4,000,000 4,000,000
SMM TRUST COMPANY (1995-I) (B)
1/29/96 5.80 6,000,000 5,999,284
SMM TRUST COMPANY (1995-J) (B)
1/15/96 5.96 11,000,000 11,000,000
SMM TRUST COMPANY (1995-N) (B)
2/8/96 5.93 3,000,000 3,000,000
SMM TRUST COMPANY (1995-P) (B)
3/15/96 5.86 1,000,000 1,000,000
TOTAL SHORT-TERM NOTES 37,147,284
REPURCHASE AGREEMENTS - 0.2%
MATURITY
AMOUNT
In a joint trading account
(U.S. Government Obligations)
dated 12/29/95 due 1/2/96:
At 6.14% $ 1,938,322 1,937,000
TOTAL INVESTMENTS - 100% $ 816,224,217
Total Cost for Income Tax Purposes - $816,224,217

LEGEND
1. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end. The due date on these types of
securities reflects the next interest rate reset date or, when applicable,
the final maturity date.
2. Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $40,499,284 or 5.0% of net
assets.
3. Security purchased on a delayed delivery basis (see Note 2 of Notes to
Financial Statements).
INCOME TAX INFORMATION
At December 31, 1995, the fund had a capital loss carryforward of
approximately $78,000 which will expire on December 31, 2002.
VARIABLE INSURANCE PRODUCTS FUND: MONEY MARKET PORTFOLIO
FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES

<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31, 1995

ASSETS

Investment in securities, at value (including repurchase agreements of $1,937,000) - See accompanying $ 816,224,217
schedule

Cash 3,514,660

Receivable for investments sold 70,000
Delayed delivery

Interest receivable 4,269,714

TOTAL ASSETS 824,078,591

LIABILITIES

Payable for investments purchased $ 14,998,205
Delayed delivery

Accrued management fee 147,208

Other payables and accrued expenses 59,193

TOTAL LIABILITIES 15,204,606

NET ASSETS $ 808,873,985

Net Assets consist of:

Paid in capital $ 808,936,711

Accumulated net realized gain (loss) on investments (62,726
)

NET ASSETS, for 808,936,711 shares outstanding $ 808,873,985

NET ASSET VALUE, offering price $1.00
and redemption price per share ($808,873,985 (divided by) 808,936,711 shares)

</TABLE>

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1995

INTEREST INCOME $ 46,489,428

EXPENSES

Management fee $ 1,881,213

Transfer agent fees 390,358

Accounting fees and expenses 107,886

Non-interested trustees' compensation 5,034

Custodian fees and expenses 64,835

Registration fees 20,803

Audit 28,200

Legal 4,046

Miscellaneous 2,687

TOTAL EXPENSES 2,505,062

NET INTEREST INCOME 43,984,366

NET REALIZED GAIN (LOSS) 16,876
ON INVESTMENTS

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 44,001,242

</TABLE>

STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994

<TABLE>
<CAPTION>
<S> <C> <C>
Operations $ 43,984,366 $ 25,859,424
Net interest income

Net realized gain (loss) 16,876 (80,853)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 44,001,242 25,778,571

Distributions to shareholders from net interest income (43,984,366) (25,859,424)

Share transactions at net asset value of $1.00 per share 1,212,453,074 1,187,546,448
Proceeds from sales of shares

Reinvestment of distributions from net interest income 43,984,366 25,859,424

Cost of shares redeemed (1,196,186,142) (817,822,836)

NET INCREASE (DECREASE) IN NET ASSETS AND SHARES RESULTING FROM SHARE TRANSACTIONS 60,251,298 395,583,036

TOTAL INCREASE (DECREASE) IN NET ASSETS 60,268,174 395,502,183

NET ASSETS

Beginning of period 748,605,811 353,103,628

End of period $ 808,873,985 $ 748,605,811

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C>
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

</TABLE>

FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31,

SELECTED PER-SHARE DATA 1995 1994 1993 1992 1991

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000

Income from Investment Operations .057 .042 .032 .038 .059
Net interest income

Less Distributions (.057) (.042) (.032) (.038) (.059)
From net interest income

Net asset value, end of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000

TOTAL RETURN A 5.87% 4.25% 3.23%B 3.90% 6.09%

RATIOS AND SUPPLEMENTAL DATA

Net assets, end of period (000
omitted) $ 808,874 $ 748,606 $ 353,104 $ 301,002 $ 271,123

Ratio of expenses to average net
assets .33% .27% .22%C .24% .38%

Ratio of net interest income to
average net assets 5.72% 4.32% 3.16% 3.85% 5.93%

A TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE THE
TOTAL RETURNS.
B THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES HAD NOT
BEEN REDUCED DURING THE PERIOD.
C FMR VOLUNTARILY 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.

</TABLE>

VARIABLE INSURANCE PRODUCTS FUND: HIGH INCOME PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY

PERFORMANCE
There are several ways to evaluate a fund's historical performance: total
percentage change in value, the average annual percentage change, or the
growth of a hypothetical $10,000 investment. A fund's total return includes
changes in a fund's share price, plus reinvestment of any dividends
(income) and capital gains (the profits the fund earns when it sells
securities that have grown in value).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED PAST 1 PAST 5 PAST 10
DECEMBER 31, 1995 YEAR YEARS YEARS

HIGH INCOME 20.72% 18.92% 11.47%

Merrill Lynch High Yield Master Index 19.91% 17.17% 11.77%

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 the fund's returns to those of the Merrill Lynch High Yield
Master Index - a broad measure of the high yield bond market. This
benchmark includes reinvested dividends and capital gains, if any. Consumer
Price Index information is not available from the U.S. Department of Labor.
Therefore, the CPI comparison has not been included in this report.
Figures for more than one year assume a steady compounded rate of return
and are not the fund's year-by-year results, which fluctuated over the
periods shown.
If Fidelity had not reimbursed certain fund expenses, the fund's five and
ten year total returns would have been lower.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, THE TOTAL RETURNS WOULD HAVE BEEN LOWER.
Past performance is no guarantee of future results. Principal and
investment return will vary and you may have a gain or loss when you
withdraw your money. The fund includes high yielding, lower-rated
securities which are subject to greater price volatility and may involve
greater risk of default. The market for these securities may be less
liquid.
$10,000 OVER 10 YEARS
VIP High IncomHigh Yield Maste
12/31/85 10000.00 10000
01/31/86 10123.85 10067.864366073
02/28/86 10466.32 10495.670585261
03/31/86 10724.48 10725.334976615
04/30/86 10906.45 10892.823284035
05/31/86 11072.99 11019.861585135
06/30/86 11212.15 11131.494122108
07/31/86 11178.06 10984.941853116
08/31/86 11223.19 11187.665908229
09/30/86 11318.50 11280.258500822
10/31/86 11656.67 11478.716344331
11/30/86 11694.04 11572.177980028
12/31/86 11767.99 11634.670079636
01/31/87 12197.01 11963.642396663
02/28/87 12408.07 12161.152193149
03/31/87 12521.09 12295.616862596
04/30/87 12129.79 12027.477562887
05/31/87 12017.03 11973.280874731
06/30/87 12276.56 12138.794084187
07/31/87 12289.69 12204.841360131
08/31/87 12391.50 12327.139426116
09/30/87 11960.00 12043.515358362
10/31/87 11388.07 11721.732397927
11/30/87 11723.48 12018.155100493
12/31/87 11911.11 12177.743016054
01/31/88 12302.71 12510.981544685
02/29/88 12671.05 12850.461382885
03/31/88 12580.01 12829.209328783
04/30/88 12678.07 12866.262166603
05/31/88 12659.22 12933.415497409
06/30/88 12924.54 13180.697762609
07/31/88 13059.08 13319.981671091
08/31/88 12996.70 13363.749841992
09/30/88 13100.89 13498.451523196
10/31/88 13243.51 13708.759954494
11/30/88 13192.94 13760.11250158
12/31/88 13297.78 13818.338389584
01/31/89 13617.33 14025.565668057
02/28/89 13684.31 14119.81734294
03/31/89 13508.47 14107.255719884
04/30/89 13358.87 14148.890784983
05/31/89 13605.70 14409.366704589
06/30/89 13995.39 14613.512830236
07/31/89 13903.25 14682.720262925
08/31/89 13822.61 14755.245860195
09/30/89 13338.96 14614.776892934
10/31/89 12767.11 14383.611427127
11/30/89 12777.86 14415.845025913
12/31/89 12742.84 14402.809379345
01/31/90 12461.16 14121.318417394
02/28/90 12269.28 13915.671217292
03/31/90 12139.83 14103.779547466
04/30/90 12175.79 14175.436101631
05/31/90 12425.97 14431.487801795
06/30/90 12621.71 14711.0826697
07/31/90 12816.66 15021.963089369
08/31/90 12602.26 14446.893565921
09/30/90 12303.44 13818.57540134
10/31/90 12004.88 13466.928959676
11/30/90 12286.47 13581.010618127
12/31/90 12458.27 13776.703324485
01/31/91 12722.59 13971.44798382
02/28/91 13427.45 15008.45341929
03/31/91 13903.22 15653.757426368
04/30/91 14396.62 16211.20907597
05/31/91 14608.07 16290.371002402
06/30/91 14925.26 16618.079256731
07/31/91 15489.14 17016.259006447
08/31/91 15700.60 17373.909745923
09/30/91 16053.02 17595.199721906
10/31/91 16599.28 18118.047655164
11/30/91 16740.25 18327.32903552
12/31/91 16828.36 18540.244596132
01/31/92 17727.05 19188.471748199
02/29/92 18370.68 19665.02338516
03/31/92 18964.52 19939.403994438
04/30/92 19098.61 20084.534192896
05/31/92 19328.48 20404.895082796
06/30/92 19539.20 20658.418657565
07/31/92 19922.32 21076.981418278
08/31/92 20343.76 21356.023258754
09/30/92 20554.47 21599.355328024
10/31/92 20247.98 21326.554797118
11/30/92 20497.01 21628.586777904
12/31/92 20726.88 21907.075590949
01/31/93 21282.41 22446.514347112
02/28/93 21645.44 22871.397421312
03/31/93 22144.95 23267.918088737
04/30/93 22290.64 23434.932372646
05/31/93 22623.65 23750.395019593
06/30/93 23206.41 24196.609151814
07/31/93 23435.35 24456.690051827
08/31/93 23685.11 24689.830615599
09/30/93 23768.36 24811.654658071
10/31/93 24330.31 25279.041840475
11/30/93 24559.25 25417.298698015
12/31/93 24954.69 25671.454304133
01/31/94 25787.21 26234.041208444
02/28/94 25756.30 26045.379850841
03/31/94 24888.62 25196.640753381
04/30/94 24637.45 24902.19314878
05/31/94 24683.12 24813.471748199
06/30/94 24591.78 24904.800278094
07/31/94 24683.12 25079.872961699
08/31/94 24683.12 25254.076602199
09/30/94 24865.78 25244.51712805
10/31/94 24637.45 25308.668309948
11/30/94 24431.95 25093.382631779
12/31/94 24546.11 25372.503476172
01/31/95 24820.12 25731.023258754
02/28/95 25671.99 26533.86107951
03/31/95 25991.66 26903.12539502
04/30/95 26753.95 27533.023637972
05/31/95 27442.47 28393.218303628
06/30/95 27516.24 28610.084060169
07/31/95 28180.17 28937.16028315
08/31/95 28401.48 29112.785994185
09/30/95 28868.69 29445.866514979
10/31/95 29139.18 29654.594867905
11/30/95 29286.72 29944.065225635
12/29/95 29630.98 30424.725066363

Let's say you invested $10,000 in High Income Portfolio on December 31,
1985. By December 31, 1995, your investment would have grown to $29,631 - a
196.31% increase. That compares to $10,000 invested in the Merrill Lynch
High Yield Master Index, which would have grown to $30,425 over the same
period - a 204.25% increase.
INVESTMENT SUMMARY
TOP FIVE HOLDINGS AS OF DECEMBER 31, 1995
(BY ISSUER, EXCLUDING REPURCHASE AGREEMENTS) % OF FUND'S
INVESTMENTS

PanAmSat Corp. (various issues) 4.3

American Financial Corp. (various issues) 3.9

Marvel Parent Holdings, Inc. (various issues) 3.4

Transtexas Gas Corp. (various issues) 2.7

Mother's Work, Inc. 12 5/8%, 8/1/05 2.2

TOP FIVE MARKET SECTORS AS OF DECEMBER 31, 1995
% OF FUND'S
INVESTMENTS

Media & Leisure 30.3

Retail & Wholesale 11.1

Basic Industries 10.6

Finance 7.5

Energy 6.4

QUALITY DIVERSIFICATION AS OF DECEMBER 31, 1995
(MOODY'S RATINGS) % OF FUND'S
INVESTMENTS

Aaa, Aa, A 0.0

Baa 0.0

Ba 8.9

B 48.5

Caa, Ca, C 9.6

Nonrated 10.8

TABLE EXCLUDES SHORT-TERM INVESTMENTS. UNRATED DEBT SECURITIES THAT ARE
EQUIVALENT TO BA AND BELOW AT DECEMBER 31, 1995, ACCOUNT FOR 6.6% OF THE
FUND'S INVESTMENTS.
VARIABLE INSURANCE PRODUCTS FUND: HIGH INCOME PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW

An interview with Barry Coffman, Portfolio Manager of High Income Portfolio
Q. HOW HAS THE FUND PERFORMED, BARRY?
A. It did well relative to its peers and to its benchmark. For the 12
months ended December 31, 1995, the Merrill Lynch High Yield Master Index
returned 19.91%.
Q. WHAT KIND OF YEAR WAS 1995 FOR THE HIGH-YIELD MARKET?
A. 1995 was very strong in absolute terms, but it was unusual in that it
was the first time in several years that the high-yield bond market
underperformed both the Treasury and stock markets. Some of the same
factors that boosted the Treasury market - namely concerns about a slowing
economy and fears of a recession - kept high-yield bonds from performing as
well as Treasuries. That's because investors feared that a slowing economy
would translate into lower earnings and deteriorating credit quality for
some high-yield companies. In addition, a slight increase in the number of
companies that defaulted on their debt last year - and rising expectations
that the default rate will increase slightly in 1996 - caused the
high-yield market to underperform the stock market.
Q. WAS THERE ANY PARTICULAR REASON THE FUND OUTPERFORMED BOTH ITS PEERS AND
ITS BENCHMARK?
A. I think it's important to point out that the fund outperformed even
though it was underweighted, relative to the index, in securities rated Ba.
Those securities outperformed as a group due to their higher sensitivity to
interest rates and the widening of credit spreads during the year. The key
to the fund's better performance can be attributed to the strength of its
individual holdings and its lower exposure to some sectors - like retail -
which significantly underperformed. The fund's largest holding at the end
of the period - PanAmSat Corp., which operates an international satellite
communications system and provides satellite services to the broadcasting
and business communications market, performed quite well. The company
launched a third satellite and continued to have a large backlog of
contracted time from companies, including ESPN and Viacom, for its existing
and yet-to-be-launched satellites. Another of the fund's strong performers
was Big Flower Press, a large specialty printer of advertising inserts,
comics and television guides. I invested in the bonds and equity of this
company, both of which did well as its fortunes improved.
Q. HOW DID THE FUND'S GAMING HOLDINGS DO?
A. Performance was mixed. On one hand, there were few new jurisdictions
that approved gaming facilities in 1995. That lack of new competition and
good growth in the Atlantic City market, in particular, helped many of our
casino holdings. On the other hand, Harrah's Jazz was a disappointment. In
November, the company filed for bankruptcy protection. I sold the bonds
after the bankruptcy declaration. However, Harrah's problems don't appear
to have had any residual effects on other casino holdings.
Q. WHAT TYPES OF INVESTMENTS DID YOU ADD OVER THE PAST SIX MONTHS?
A. I focused on finding smaller companies that didn't have much visibility
in the market - meaning that few investors followed them. I bought
companies in which I developed a high degree of confidence regarding their
future business prospects. As an example, one recent addition to the fund
was Mother's Work, the largest retailer of maternity clothes. In 1995, the
company bought two of its primary competitors and now controls more than
half of the country's maternity stores.
Q. WHAT'S YOUR OUTLOOK?
A. The high-yield market's performance will obviously be dependent on the
health of the economy. And in my view, there's no way of knowing for sure
what the environment will be. So I'll continue to look at each company,
attempting to assess how it's likely to do in a variety of economic
environments. I'll focus on finding companies that are properly
capitalized, with sufficient financial flexibility and business
fundamentals that can withstand a downturn in the economy.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.

FUND FACTS
GOAL: seeks high current income by investing in
high yielding, lower-rated fixed income
securities
START DATE: September 19, 1985
SIZE: as of December 31, 1995, more than
$1.0 billion
MANAGER: Barry Coffman, since 1990; joined
Fidelity in 1986
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND: HIGH INCOME PORTFOLIO
INVESTMENTS DECEMBER 31, 1995

Showing Percentage of Total Value of Investment in Securities

CORPORATE BONDS - 77.6%
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (NOTE 1)
CONVERTIBLE BONDS - 0.2%
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
ELECTRICAL EQUIPMENT - 0.1%
Ampex Corp., Series C
0%, 6/3 0/97 - $ 469,000 $ 584,329
RETAIL & WHOLESALE - 0.1%
GROCERY STORES - 0.1%
Farm Fresh, Inc.
7 1/2%, 3/1/10 B3 1,686,000 988,434
TOTAL CONVERTIBLE BONDS 1,572,763
NONCONVERTIBLE BONDS - 77.4%
AEROSPACE & DEFENSE - 0.7%
RHI Holdings, Inc.
11 7/8%, 3/1/99 B2 2,160,000 2,170,800
Wyman-Gordon Co.
10 3/4%, 3/15/03 B1 4,490,000 4,714,500
6,885,300
BASIC INDUSTRIES - 10.0%
CHEMICALS & PLASTICS - 2.6%
Acetex Corp.
9 3/4%, 10/1/03 (e) B1 1,860,000 1,934,400
American Pacific Corp.
11%, 2/21/02 (e) - 850,000 765,000
Atlantis Group, Inc.
11%, 2/15/03 B2 9,610,000 8,456,800
NL Industries, Inc.
11 3/4%, 10/15/03 B1 8,070,000 8,634,900
Pioneer Americas Acquisition
Corp. 13 3/8%, 4/1/05 (e) B2 5,960,000 6,183,500
Trans Resources, Inc.
14 1/2%, 9/1/96 B2 580,000 591,600
26,566,200
IRON & STEEL - 1.3%
Republic Engineered Steels, Inc.
9 7/8%, 12/15/01 B2 14,560,000 13,067,600
METALS & MINING - 1.9%
International Wire Group, Inc.
11 3/4%, 6/1/05 B3 5,850,000 5,630,625
Kaiser Aluminum & Chemical
Corp. 12 3/4%, 2/1/03 B2 12,050,000 13,194,750
18,825,375
PACKAGING & CONTAINERS - 0.4%
Crown Packaging Holdings Ltd.
0%, 11/1/03 (c) Caa 6,840,000 3,026,700
Gaylord Container
0%, 5/15/05 (c) Caa 600,000 586,500
3,613,200
PAPER & FOREST PRODUCTS - 3.8%
Rapp International Finance Co. BV
yankee 13 1/4%, 12/15/05 Ba3 12,280,000 12,065,100
Stone Container Corp.:
9 7/8%, 2/1/01 B1 2,950,000 2,868,875
10 3/4%, 10/1/02 B1 900,000 931,500
11 1/2%, 10/1/04 B1 1,120,000 1,120,000

MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (NOTE 1)
Tembec Finance Corp. yankee
9 7/8%, 9/30/05 B1 $ 13,120,000 $ 12,939,600
Williamhouse Regency
Delaware, Inc.
13%, 11/15/05 (e) B3 8,500,000 8,903,750
38,828,825
TOTAL BASIC INDUSTRIES 100,901,200
CONGLOMERATES - 0.8%
Jordan Industries, Inc.:
10 3/8%, 8/1/03 B3 9,155,000 7,781,750
0%, 8/1/05 (c) Caa 1,955,000 1,114,350
8,896,100
CONSTRUCTION & REAL ESTATE - 1.1%
CONSTRUCTION - 0.9%
Continental Homes Holding
Corp. sr. notes
12%, 8/1/99 Ba3 3,000,000 3,232,500
UDC Homes, Inc.:
Series A, 12 1/2%, 5/1/00 - 800,000 756,000
Series B, 12 1/2%, 5/1/00 - 40,000 37,800
WCI Communities LP
17%, 7/24/98 (d) - 5,000,000 5,000,000
9,026,300
REAL ESTATE - 0.2%
Littlefield Co. 10%, 9/30/97 (d) - 2,750,000 1,988,525
TOTAL CONSTRUCTION & REAL ESTATE 11,014,825
DURABLES - 2.7%
AUTOS, TIRES, & ACCESSORIES - 1.0%
Harvard Industries, Inc.
11 1/8%, 8/1/05 B3 9,870,000 9,870,000
TEXTILES & APPAREL - 1.7%
Hat Brands, Inc.,:
Series B, 12 5/8%, 9/15/02 - 1,520,000 1,596,000
Series D, 12 5/8%, 9/15/02 - 680,000 714,000
Interface, Inc.
9 1/2%, 11/15/05 (e) Ba3 10,070,000 10,384,688
Leslie Fay Cos., Inc. (d)(g):
9.53%, 1/15/00 - 676,319 405,791
10.54%, 1/15/02 - 611,353 213,974
United States Leather, Inc.
10 1/4%, 7/31/03 B2 6,010,000 4,357,250
17,671,703
TOTAL DURABLES 27,541,703
ENERGY - 5.1%
OIL & GAS - 5.1%
Harcor Energy, Inc., Series B,
14 7/8%, 7/15/02 B3 15,000,000 14,536,079
Plains Resources, Inc.,
12%, 8/15/99 B3 2,257,000 2,369,850
Transamerican Refining Corp.
16 1/2%, 2/15/02 (f) Caa 7,590,000 7,134,600
Transtexas Gas Corp.
11 1/2%, 6/15/02 B2 23,235,000 23,873,963
Vintage Petroleum, Inc.
9%, 12/15/05 B1 3,500,000 3,552,500
51,466,992
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - 4.6%
INSURANCE - 4.0%
American Financial Corp.:
9 3/4%, 4/20/04 Ba3 $ 21,340,000 $ 22,220,276
American Life Holdings
11 1/4%, 9/15/04 B1 13,350,000 14,017,500
Americo Life, Inc.
9 1/4%, 6/1/05 Ba2 3,900,000 3,705,000
39,942,776
SAVINGS & LOANS - 0.6%
First Nationwide Holdings, Inc.
12 1/4%, 5/15/01 Ba3 5,790,000 6,426,900
SECURITIES INDUSTRY - 0.0%
ECM Corp. 14%, 6/1/02 (e) - 489,990 538,989
TOTAL FINANCE 46,908,665
HEALTH - 0.8%
MEDICAL EQUIPMENT & SUPPLIES - 0.8%
Wright Medical Technology, Inc.,
Series B, 10 3/4%, 7/1/00 B3 7,450,000 7,636,250
INDUSTRIAL MACHINERY & EQUIPMENT - 3.4%
INDUSTRIAL MACHINERY & EQUIPMENT - 2.5%
Howmet Corp.
10%, 12/1/03 (e) B3 1,910,000 2,005,500
MVE, Inc.
12 1/2%, 2/15/02 B3 5,595,000 5,511,075
Specialty Equipment Cos., Inc.
11 3/8%, 12/1/03 B3 10,640,000 10,799,600
Thermadyne Holdings Corp.:
10 1/4%, 5/1/02 B3 1,484,000 1,495,130
10 3/4%, 11/1/03 Caa 5,756,000 5,770,390
25,581,695
POLLUTION CONTROL - 0.9%
Norcal Waste System, Inc.
12 1/2%, 11/15/05 (e)(f) B3 8,890,000 8,978,900
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 34,560,595
MEDIA & LEISURE - 23.5%
BROADCASTING - 7.2%
Bell Cablemedia PLC
0%, 9/15/05 (c)(e) B2 14,500,000 9,098,750
Chancellor Broadcasting
12 1/2%, 10/1/04 B3 10,570,000 11,309,900
Citicasters, Inc.
9 3/4%, 2/15/04 B- 7,812,000 7,968,240
Cooke Media Group, Inc.
11 5/8%, 4/1/99 - 350,000 332,500
Diamond Cable Communications
PLC yankee 0%,
12/15/05 (c) B3 5,920,000 3,478,000
NWCG Holdings Corp.
0%, 6/15/99 Caa 18,695,000 12,806,075
Peoples Choice TV Corp.
Unit 0%, 6/1/04 (c) Caa 20,380,000 11,871,350

MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (NOTE 1)
Robin Media Group, Inc.
11 1/8%, 4/1/97 - $ 12,340,000 $ 12,340,000
Telewest PLC
0%, 10/1/07 (c) B1 5,330,000 3,151,363
72,356,178
LEISURE DURABLES & TOYS - 1.3%
ICON Health and Fitness, Inc.
13%, 7/15/02 B3 5,890,000 6,361,200
IHF Holdings, Inc.
0%, 11/15/04 (c) Caa 10,250,000 6,457,500
12,818,700
LODGING & GAMING - 8.4%
Bally Gaming International, Inc.
10 3/8%, 7/15/98 - 3,000,000 3,090,000
Boyd Gaming Corp.
10 3/4%, 9/3/03 B2 3,320,000 3,481,850
Casino America, Inc.
11 1/2%, 11/15/96 B1 590,000 554,600
GNF Corp., Series B,
10 5/8%, 4/1/03 B2 2,840,000 2,648,300
Grand Casinos, Inc.
10 1/8%, 12/1/03 Ba3 14,690,000 15,314,325
HMH Properties, Inc., Series B,
9 1/2%, 5/15/05 (e) B1 13,470,000 13,739,400
Hollywood Casino Corp.
12 3/4%, 11/1/03 B2 8,500,000 7,735,000
Horseshoe Gaming LLC
12 3/4%, 9/30/00 (e) - 5,000,000 4,993,750
Maritime Group Ltd. pay-in-kind
14%, 2/15/97 (g) - 1,648,399 296,712
Mohegan Tribal Gaming
Authority 13 1/2%,
11/15/02 (e) - 8,880,000 9,634,800
Players International, Inc.
10 7/8%, 4/15/05 Ba3 18,180,000 17,043,750
President Riverboat Casinos
13%, 9/15/01 B1 8,210,000 6,732,200
85,264,687
PUBLISHING - 3.4%
Marvel Holdings, Inc., Series B
0%, 4/15/98 B3 25,350,000 18,125,250
Marvel Parent Holdings, Inc.
0%, 4/15/98 B3 22,440,000 16,280,220
34,405,470
RESTAURANTS - 3.2%
Cafeteria Operators LP:
11%, 6/30/98 (d) - 5,548,126 943,181
12%, 12/31/01 - 1,451,874 115,177
Host Marriott Travel Plazas, Inc.,
Series B, 9 1/2%, 5/15/05 B1 20,690,000 20,457,238
SC International Services, Inc.
13%, 10/1/05 B3 10,640,000 11,278,400
32,793,996
TOTAL MEDIA & LEISURE 237,639,031
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
NONDURABLES - 3.3%
FOODS - 1.4%
Specialty Foods Corp.:
10 1/4%, 8/15/01 B3 3,430,000 3,258,500
Series B
11 1/8%, 10/1/02 B3 6,780,000 6,576,600
11 1/4%, 8/15/03 Caa 4,610,000 4,102,900
13,938,000
HOUSEHOLD PRODUCTS - 1.9%
McAndrews & Forbes Group, Inc.
12 1/4%, 7/1/96 - 1,360,000 1,366,800
Revlon Consumer Products Corp.
10 1/2%, 2/15/03 B3 7,230,000 7,410,750
Revlon Worldwide Corp. secured
0%, 3/15/98 B3 14,140,000 10,481,275
19,258,825
TOTAL NONDURABLES 33,196,825
RETAIL & WHOLESALE - 10.6%
APPAREL STORES - 4.8%
Apparel Retailers, Inc.
0%, 8/15/05 (c) Caa 11,230,000 6,513,400
Lamonts Apparel, Inc.
10 1/4%, 11/1/99 (e)(g) - 2,201,000 550,250
Mother's Work, Inc.
12 5/8%, 8/1/05 B3 22,500,000 22,106,250
Specialty Retailers, Inc.:
10%, 8/15/00 B1 2,890,000 2,687,700
11%, 8/15/03 B3 12,220,000 10,875,800
Series D, 11%, 8/15/03 B- 6,750,000 6,007,500
48,740,900
GROCERY STORES - 4.1%
Food 4 Less Holdings, Inc.
0%, 7/15/05 (c) Caa 22,750,000 10,578,750
Ralph's Grocery Co. :
10.45%, 6/15/04 B1 6,470,000 6,567,050
11%, 6/15/05 B3 9,970,000 9,870,300
Star Markets, Inc.
13%, 11/1/04 B3 13,905,000 14,148,338
41,164,438
RETAIL & WHOLESALE, MISCELLANEOUS - 1.7%
Alliance Entertainment Corp.,
Series B, 11 1/4%, 7/15/05 B3 12,780,000 12,859,875
Barry's Jewelers, Inc.
11%, 12/22/00 - 1,139,000 1,116,220
Finlay Fine Jewelry Corp.
10 5/8%, 5/1/03 B1 3,460,000 3,287,000
17,263,095
TOTAL RETAIL & WHOLESALE 107,168,433

MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (NOTE 1)
SERVICES - 5.0%
LEASING & RENTAL - 1.1%
GPA Delaware, Inc.:
8 1/2%, 3/3/97 - $ 3,500,000 $ 3,412,500
8 3/4%, 12/15/98 Caa 4,960,000 4,625,200
8 5/8%, 1/15/99 - 2,600,000 2,353,000
Scotsman Holdings, Inc.
pay-in-kind 11%, 3/1/04 - 1,258,343 1,099,339
11,490,039
PRINTING - 2.4%
Big Flower Press :
10 3/4%, 8/1/03 B2 4,865,000 5,205,550
Class A, 10 3/4%, 8/1/03 B3 3,219,000 3,444,330
Class B, 10 3/4%, 8/1/03 B2 967,000 1,034,690
Sullivan Graphics, Inc.
12 3/4%, 8/1/05 Caa 14,830,000 14,422,175
24,106,745
SERVICES - 1.5%
Protection One Alarm
Monitoring, Inc. 13 5/8%,
6/30/05 Caa 18,300,000 14,823,000
TOTAL SERVICES 50,419,784
TECHNOLOGY - 0.6%
COMMUNICATIONS EQUIPMENT - 0.6%
Echostar Communications Corp.
0%, 6/1/04 (c) Caa 9,000,000 6,030,000
TRANSPORTATION - 3.4%
AIR TRANSPORTATION - 2.1%
Trans World Airlines, Inc.
12%, 11/3/98 - 1,260,000 1,102,500
US Air Inc.:
Series 1993-A1 Pass Thru
Trust 8 5/8%, 9/1/98 B1 5,000,000 4,900,000
10 3/8%, 3/1/13 B1 15,975,000 15,016,500
21,019,000
RAILROADS - 1.2%
Transtar Holdings L.P./Transtar
Cap Corp., Series B,
0%, 12/15/03 (c) B- 17,941,000 12,199,880
TRUCKING & FREIGHT - 0.1%
Burlington Motor Holdings, Inc.
11 1/2%, 11/1/03 (g) Ca 4,750,000 855,000
TOTAL TRANSPORTATION 34,073,880
UTILITIES - 1.8%
CELLULAR - 0.7%
Comunicaciones Celulares SA
Unit 0%, 11/15/03 (c)(e) B3 12,000,000 6,810,000
USA Mobile Communications, Inc.
9 1/2%, 2/1/04 B3 210,000 207,900
7,017,900
ELECTRIC UTILITY - 0.1%
El Paso Funding Corp.
lease oblig. (g):
9 3/8%, 10/1/96 Ca 790,000 537,200
9.20%, 7/2/97 Ca 380,000 256,500
793,700
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - 1.0%
Winstar Communications, Inc.
Unit 0%, 10/15/05 (c)(e) - $ 6,550,000 $ 10,398,125
TOTAL UTILITIES 18,209,725
TOTAL NONCONVERTIBLE BONDS 782,549,308
TOTAL CORPORATE BONDS
(Cost $780,639,572) 784,122,071
COMMERCIAL MORTGAGE SECURITIES - 0.2%
Meritor Mortgage Security Corp.
commercial Series 1987-1
Class B, 9.40%, 2/1/00 (e)(g) - 1,350,000 243,000
SKW Real Estate LP commercial
Series II Class E, 11%,
4/15/05 (e) B 1,500,000 1,507,500
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $1,762,853) 1,750,500
COMMON STOCKS - 5.3%
SHARES
BASIC INDUSTRIES - 0.6%
METALS & MINING - 0.5%
Kaiser Aluminum Corp. (a) 383,500 4,985,500
PAPER & FOREST PRODUCTS - 0.1%
Mail-Well Holdings, Inc. (a)(e) 26,279 308,778
Repap Enterprises, Inc. (a) 300,000 1,319,310
1,628,088
TOTAL BASIC INDUSTRIES 6,613,588
DURABLES - 0.1%
HOME FURNISHINGS - 0.0%
Polyvision Corp. (a) 2,993 6,173
TEXTILES & APPAREL - 0.1%
Hat Brands, Inc. (warrants) (a)(d) 27,466 302,121
HM/Hat Brands Trust Class I Unit (a)(d) 340,000 340,000
642,121
TOTAL DURABLES 648,294
ENERGY - 0.9%
OIL & GAS - 0.9%
Flores & Rucks, Inc. (a) 341,400 4,950,300
Harcor Energy, Inc. (warrants) (a) 330,000 382,807
TransTexas Gas Corp. (a) 275,300 3,716,550
9,049,657
FINANCE - 1.7%
INSURANCE - 1.7%
American Financial Group, Inc. 565,800 17,327,625

SHARES VALUE (NOTE 1)
SECURITIES INDUSTRY - 0.0%
ECM Corp. LP (e) 3,000 $ 300,000
TOTAL FINANCE 17,627,625
HEALTH - 0.1%
MEDICAL EQUIPMENT & SUPPLIES - 0.1%
MVE, Inc. (warrants) (a) 10,555 158,325
Wright Medical
Technology, Inc. (warrants) (a) 1,976 335,970
494,295
HOLDING COMPANIES - 0.1%
SDW Holdings Corp.(a)
Unit (e) 4,450 1,335,000
(warrants) 3,720 18,600
1,353,600
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
ELECTRICAL EQUIPMENT - 0.0%
Ampex Corp. Class A (warrants) (a) 57,599 230,396
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
Terex Corp. (rights) (a)(d) 3,150 315
Thermadyne Holdings Corp. (a) 65,419 1,185,719
1,186,034
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 1,416,430
MEDIA & LEISURE - 1.1%
BROADCASTING - 0.3%
PanAmSat Corp. (a) 115,300 2,543,806
ENTERTAINMENT - 0.0%
Live Entertainment, Inc. (a)
$2.00 (warrant) (d) 232,000 11,600
$2.72 (warrant) (d) 221,765 11,088
22,688
LEISURE DURABLES & TOYS - 0.1%
IHF Capital, Inc.(a)(e):
Series H (warrants) 10,250 820,000
Series I (warrants) 5,890 147,250
967,250
LODGING & GAMING - 0.7%
Bally Gaming International, Inc.
(warrants)(a) 90,000 483,750
Horseshoe Gaming LLC (warrants) (a) 2,500,000 25,000
Host Marriott Corp. (a) 389,800 5,164,850
Maritime Group Ltd. (warrants) (a) 17,880 179
Motels of America, Inc. (a) 3,000 225,000
Sun International Hotels Ltd. (a) 30,570 1,008,810
Sun Internaitonal Hotels Ltd. Class B (a) 6,418 211,794
7,119,383
PUBLISHING - 0.0%
General Media, Inc. (warrants) (a) 1,310 6,550
TOTAL MEDIA & LEISURE 10,659,677
RETAIL & WHOLESALE - 0.4%
APPAREL STORES - 0.0%
Lamonts Apparel, Inc. (a) 35,870 2,242
Lamonts Apparel, Inc. (warrants) (a) 66,214 1
2,243
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
RETAIL & WHOLESALE - CONTINUED
GROCERY STORES - 0.4%
FF Holdings Corp. (a)(d) 33,900 $ 67,800
MAFCO (warrants) (a) 59 -
Food 4 Less Holdings, Inc.
(warrants) (a)(d) 9,348 283,712
Stop & Shop Companies, Inc. (a) 150,300 3,475,688
3,827,200
RETAIL & WHOLESALE, MISCELLANEOUS - 0.0%
Barry's Jewelers, Inc. (a) 45,576 182,304
Barry's Jewelers, Inc. (warrants) (a) 5,697 1,424
183,728
TOTAL RETAIL & WHOLESALE 4,013,171
SERVICES - 0.1%
LEASING & RENTAL - 0.0%
Scotsman Holdings, Inc. (a) 8,689 119,908
SERVICES - 0.1%
Protection One, Inc. (warrants) (a) 74,560 410,080
Vestar/LPA Investment Corp. (a) 5,177 93,186
503,266
TOTAL SERVICES 623,174
TECHNOLOGY - 0.1%
COMMUNICATIONS EQUIPMENT - 0.1%
Echostar Communications Corp. Class A 40,500 982,125
ELECTRONICS - 0.0%
Berg Electronics Holdings Corp. (a)(e) 20,853 125,118
TOTAL TECHNOLOGY 1,107,243
UTILITIES - 0.0%
ELECTRIC UTILITY - 0.0%
Eastern Utilities Associates 3 71
Northeast Utilities Associates (warrants) (a) 21,789 29,960
30,031
GAS - 0.0%
UGI Corp. (warrants) (a) 14,033 2,104
TOTAL UTILITIES 32,135
TOTAL COMMON STOCKS
(Cost $45,860,829) 53,638,889
PREFERRED STOCKS - 8.2%
CONVERTIBLE PREFERRED STOCKS - 0.3%
RETAIL & WHOLESALE - 0.0%
RETAIL & WHOLESALE, MISCELLANEOUS - 0.0%
Town & Country Corp. (a) 4,065 3,252
SERVICES - 0.3%
La Petite Holdings Corp. exchangeable (a) 160,800 3,216,000
TECHNOLOGY - 0.0%
ELECTRONICS - 0.0%
Alpine Group, Inc. 8% cumulative 1,594 71,730
UTILITIES - 0.0%
GAS - 0.0%
Columbia Gas System, Inc. 1,511 61,762
TOTAL CONVERTIBLE PREFERRED STOCKS 3,352,744

SHARES VALUE (NOTE 1)
NONCONVERTIBLE PREFERRED STOCKS - 7.9%
BASIC INDUSTRIES - 0.0%
PAPER & FOREST PRODUCTS - 0.0%
S D Warren Co. exchangeable
pay-in-kind 3,720 $ 117,180
DURABLES - 0.0%
AUTOS, TIRES, & ACCESSORIES - 0.0%
Harvard Industries, Inc. pay-in-kind $14.25 25,979 681,949
ENERGY - 0.4%
OIL & GAS - 0.4%
Gulf Canada Resources Ltd.,
Series 1, adj. rate 1,321,942 3,827,222
Gulf Canada Resources Ltd. (d) 31,009 89,151
3,916,373
FINANCE - 1.2%
SAVINGS & LOANS - 1.2%
First Nationwide Bank 11 1/2%, 103,582 11,627,080
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
ELECTRICAL EQUIPMENT - 0.1%
Ampex Corp. 8% (a)(d) 1,589 1,015,927
MEDIA & LEISURE - 5.7%
BROADCASTING - 5.7%
Cablevision System Corp., Series G
exchangeable pay-in-kind (e) 159,107 16,467,575
PanAmSat Corp. 12 3/4% pay-in-kind 36,616 41,009,920
57,477,495
TECHNOLOGY - 0.5%
ELECTRONICS - 0.5%
Berg Electronics Holding Corp., Series E,
$3.4687 pay-in-kind 168,137 4,707,832
UTILITIES - 0.0%
GAS - 0.0%
Columbia Gas System, Inc. 2,467 60,750
TOTAL NONCONVERTIBLE PREFERRED STOCKS 79,604,586
TOTAL PREFERRED STOCKS
(Cost $77,990,307) 82,957,330
PURCHASED BANK DEBT - 0.1%
PRINCIPAL
AMOUNT
Leslie Fay Cos., Inc.:
term loan - $ 777,600 466,560
revolving loan - 685,856 411,514
TOTAL PURCHASED BANK DEBT
(Cost $1,190,771) 878,074
REPURCHASE AGREEMENTS - 8.6%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.91% dated
12/29/95 due 1/2/96 $ 87,453,390 $ 87,396,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $994,840,332) $ 1,010,742,864
LEGEND
1. Non-income producing
2. Standard & Poor's Corporation credit ratings are used in the absence of
a rating by Moody's Investors Service, Inc.
3. Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
4. Restricted securities - Investment in securities not registered under
the Securities Act of 1933 (see Note 2 of Notes to Financial Statements).
Additional information on each holding is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
Ampex Corp. 8% 2/16/95 $ 834,225
Cafeteria Operators LP
11%, 6/30/98 6/24/93 $ 4,438,501
FF Holdings Corp. 10/2/92
to 1/14/94 $ 135,752
Food 4 Less Holdings, 12/30/92
Inc. (warrants) to 5/17/93 $ 229,281
Gulf Canada Resources Ltd. 10/15/93 $ 76,940
Hat Brands, Inc. (warrants) 9/2/92
to 2/23/94 $ -
HM/Hat Brands Trust
Class I Unit 2/22/94 $ 340,000
Leslie Fay Cos., Inc.:
9.53%, 1/15/00 7/19/93 $ 512,312
10.54%, 1/15/02 7/19/93
to 11/11/93 $ 404,156
Littlefield Co.
10%, 9/30/97 2/28/94 $ 2,750,000
Live Entertainment, Inc.
(warrants):
$2.00 3/23/93 $ 220,717
$2.72 3/23/93 $ 131,863
Terex Corp. (rights) 7/29/92 $ -
WCI Communities LP
17%, 7/24/98 7/24/95 $ 4,937,231
5. Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $116,174,023 or 11.2% of net
assets.
6. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
7. Non-income producing - issuer filed for protection under the Federal
Bankruptcy Code or is in default of interest payment.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $1,312,680,785 and $949,022,493, respectively.
The fund placed a portion of its portfolio securities with brokerage firms
which are affiliates of Fidelity Management & Research Company. The
commissions paid to these affiliated firms were $21,896 for the period (see
Note 3 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 0.0% AAA, AA, A 0.0%
Baa 0.0% BBB 0.0%
Ba 8.9% BB 16.6%
B 48.5% B 46.4%
Caa 9.4% CCC 2.4%
Ca, C 0.2% CC, C 0.0%
D 0.2%
The percentage not rated by either S&P or Moody's amounted to 6.6%
including long-term debt categorized as other securities. FMR has
determined that unrated debt securities that are lower quality account for
6.6% of the total value of investment in securities.
INCOME TAX INFORMATION
At December 31, 1995, the aggregate cost of investment securities for
income tax purposes was $996,121,824. Net unrealized appreciation
aggregated $14,621,040, of which $38,646,371 related to appreciated
investment securities and $24,025,331 related to depreciated investment
securities.
VARIABLE INSURANCE PRODUCTS FUND: HIGH INCOME PORTFOLIO
FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES

<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31, 1995

ASSETS

Investment in securities, at value (including repurchase agreements of $87,396,000) (cost $994,840,332) - $ 1,010,742,864
See accompanying schedule

Cash 254

Receivable for investments sold 6,165,833

Receivable for fund shares sold 7,120,279

Dividends receivable 517,158

Interest receivable 16,852,344

Other receivables 3,728

TOTAL ASSETS 1,041,402,460

LIABILITIES

Payable for investments purchased $ 495,248

Payable for fund shares redeemed 170,468

Accrued management fee 507,064

Other payables and accrued expenses 230,122

TOTAL LIABILITIES 1,402,902

NET ASSETS $ 1,039,999,558

Net Assets consist of:

Paid in capital $ 927,473,751

Undistributed net investment income 76,334,012

Accumulated undistributed net realized gain (loss) on investments and foreign 20,293,833
currency transactions

Net unrealized appreciation (depreciation) on investments 15,897,962
and assets and liabilities in foreign currencies

NET ASSETS, for 86,302,481 shares outstanding $ 1,039,999,558

NET ASSET VALUE, offering price and redemption price per share ($1,039,999,558 (divided by) 86,302,481 shares) $12.05

</TABLE>

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1995

INVESTMENT INCOME $ 5,754,603
Dividends

Interest 76,991,507

TOTAL INCOME 82,746,110

EXPENSES

Management fee $ 4,956,133

Transfer agent fees 427,444

Accounting fees and expenses 266,623

Non-interested trustees' compensation 3,485

Custodian fees and expenses 12,918

Registration fees 126,417

Audit 43,210

Legal 35,431

Interest 2,621

Miscellaneous 2,484

Total expenses before reductions 5,876,766

Expense reductions (9,702 5,867,064
)

NET INVESTMENT INCOME 76,879,046

REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:

Investment securities 21,707,506

Foreign currency transactions (1,190 21,706,316
)

Change in net unrealized appreciation (depreciation) on:

Investment securities 49,316,944

Assets and liabilities in (756 49,316,188
foreign currencies )

NET GAIN (LOSS) 71,022,504

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 147,901,550

</TABLE>

STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994

<TABLE>
<CAPTION>
<S> <C> <C>
Operations $ 76,879,046 $ 43,091,356
Net investment income

Net realized gain (loss) 21,706,316 (726,075)

Change in net unrealized appreciation (depreciation) 49,316,188 (49,793,238)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 147,901,550 (7,427,957)

Distributions to shareholders (43,871,918) (30,631,598)
From net investment income

From net realized gain - (15,525,605)

TOTAL DISTRIBUTIONS (43,871,918) (46,157,203)

Share transactions 747,404,302 498,543,147
Net proceeds from sales of shares

Reinvestment of distributions 43,871,918 46,157,203

Cost of shares redeemed (424,723,050) (385,629,739)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 366,553,170 159,070,611

TOTAL INCREASE (DECREASE) IN NET ASSETS 470,582,802 105,485,451

NET ASSETS

Beginning of period 569,416,756 463,931,305

End of period (including undistributed net investment income of $76,334,012 and
$42,834,969, respectively) $ 1,039,999,558 $ 569,416,756

OTHER INFORMATION
Shares

Sold 66,375,373 45,102,882

Issued in reinvestment of distributions 4,326,619 4,073,892

Redeemed (37,385,468) (34,899,979)

Net increase (decrease) 33,316,524 14,276,795

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C>
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

</TABLE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31,

SELECTED PER-SHARE DATA 1995 1994 1993 C 1992 1991

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.750 $ 11.990 $ 10.820 $ 9.550 $ 7.070

Income from Investment Operations .856 .770 .728 .790 .890
Net investment income

Net realized and unrealized gain (loss) 1.224 (.910) 1.332 1.290 1.590

Total from investment operations 2.080 (.140) 2.060 2.080 2.480

Less Distributions (.780) (.730) (.794) (.810) -
From net investment income

In excess of net investment income - - (.036) - -

From net realized gain - (.370) (.060) - -

Total distributions (.780) (1.100) (.890) (.810) -

Net asset value, end of period $ 12.050 $ 10.750 $ 11.990 $ 10.820 $ 9.550

TOTAL RETURN A, B 20.72% (1.64)% 20.40% 23.17% 35.08%

RATIOS AND SUPPLEMENTAL DATA

Net assets, end of period (000 omitted) $ 1,040,000 $ 569,417 $ 463,931 $ 200,591 $ 70,060

Ratio of expenses to average net assets .71% .71% .64% .67% .97%
D

Ratio of net investment income to average net assets 9.32% 8.75% 8.69% 10.98% 12.94%

Portfolio turnover rate 132% 122% 155% 160% 154%

A 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).
B TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE
THE TOTAL RETURNS SHOWN.
C 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.
D FMR VOLUNTARILY REIMBURSED A PORTION OF THE FUND'S EXPENSES DURING
THE PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.

</TABLE>

VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY

Equity-Income 35.09% 21.32% 13.33%

S&P 500 37.58% 16.60% 14.46%

AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and
show you what would have happened if the fund had performed at a constant
rate each year.

UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for
example, has a history of growth in the long run
and volatility in the short run. In turn, the share
price and return of a fund that invests in stocks
will vary. That means if you sell your shares
during a market downturn, you might lose
money. But if you can ride out the market's ups
and downs, you may have a gain.
(checkmark)
You can compare these figures to the performance of the Standard & Poor's
Composite Index of 500 Stocks - a common proxy for the U.S. stock market.
This benchmark includes reinvested dividends and capital gains, if any.
Figures for more than one year assume a steady compounded rate of return
and are not the fund's year-by-year results, which fluctuated over the
periods shown. The life of fund figures are from commencement of
operations, October 9, 1986.
If Fidelity had not reimbursed certain fund expenses, the fund's past five
year and life of fund total returns would have been lower.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, THE TOTAL RETURNS WOULD HAVE BEEN LOWER.
Past performance is no guarantee of future results. Principal and
investment return will vary and you may have a gain or loss when you
withdraw your money.
$10,000 OVER LIFE OF FUND
VIP Equity IncomStandard & Poor'
10/09/86 10000.00 10000.00
10/31/86 10110.00 10329.97
11/30/86 10330.00 10580.99
12/31/86 10020.00 10311.18
01/31/87 11170.00 11700.09
02/28/87 11430.00 12162.25
03/31/87 11720.18 12513.74
04/30/87 11428.43 12402.36
05/31/87 11498.86 12510.26
06/30/87 11738.55 13142.03
07/31/87 12185.73 13808.33
08/31/87 12521.12 14323.38
09/30/87 12258.32 14009.70
10/31/87 9866.20 10992.01
11/30/87 9424.74 10086.27
12/31/87 9906.52 10853.84
01/31/88 10611.13 11310.78
02/29/88 11136.95 11837.86
03/31/88 10943.07 11472.07
04/30/88 11124.21 11599.41
05/31/88 11273.39 11700.33
06/30/88 11914.76 12237.37
07/31/88 11893.18 12190.87
08/31/88 11688.12 11776.38
09/30/88 12035.42 12278.06
10/31/88 12243.12 12619.39
11/30/88 12046.36 12438.93
12/31/88 12156.33 12656.61
01/31/89 12907.13 13583.07
02/28/89 12840.88 13244.86
03/31/89 13119.01 13553.46
04/30/89 13625.32 14256.89
05/31/89 14030.37 14834.29
06/30/89 14039.98 14749.73
07/31/89 14858.50 16081.64
08/31/89 15097.24 16396.84
09/30/89 14927.51 16329.61
10/31/89 14066.31 15950.76
11/30/89 14146.69 16276.16
12/31/89 14264.74 16666.78
01/31/90 13301.38 15548.44
02/28/90 13380.20 15749.02
03/31/90 13402.27 16166.37
04/30/90 12937.59 15762.21
05/31/90 13793.57 17299.02
06/30/90 13656.23 17181.39
07/31/90 13322.25 17126.41
08/31/90 12258.45 15578.18
09/30/90 11307.54 14819.52
10/31/90 11019.21 14755.80
11/30/90 11808.98 15709.03
12/31/90 12083.75 16147.31
01/31/91 12731.78 16851.33
02/28/91 13608.52 18056.20
03/31/91 13890.81 18493.16
04/30/91 13955.72 18537.54
05/31/91 14721.66 19338.37
06/30/91 14119.72 18452.67
07/31/91 14920.19 19312.56
08/31/91 15235.12 19770.27
09/30/91 15130.56 19440.11
10/31/91 15382.51 19700.60
11/30/91 14719.47 18906.67
12/31/91 15882.70 21069.59
01/31/92 16097.15 20677.70
02/29/92 16619.87 20946.51
03/31/92 16416.22 20538.05
04/30/92 16930.49 21141.87
05/31/92 17065.83 21245.47
06/30/92 16916.41 20928.91
07/31/92 17434.82 21784.90
08/31/92 17052.84 21338.31
09/30/92 17229.86 21590.10
10/31/92 17436.12 21665.67
11/30/92 18068.66 22404.47
12/31/92 18564.83 22680.04
01/31/93 19119.01 22870.55
02/28/93 19548.49 23181.59
03/31/93 20131.05 23670.73
04/30/93 20047.35 23097.89
05/31/93 20410.07 23716.92
06/30/93 20650.14 23785.70
07/31/93 20931.09 23690.55
08/31/93 21731.81 24588.43
09/30/93 21648.73 24399.09
10/31/93 21846.69 24904.16
11/30/93 21464.91 24667.57
12/31/93 21961.06 24966.04
01/31/94 22928.26 25814.89
02/28/94 22337.82 25115.31
03/31/94 21403.32 24020.28
04/30/94 22140.85 24327.74
05/31/94 22351.57 24726.71
06/30/94 22213.48 24120.91
07/31/94 22955.44 24912.07
08/31/94 24136.53 25933.47
09/30/94 23741.11 25298.10
10/31/94 24228.42 25867.31
11/30/94 23436.54 24925.22
12/31/94 23512.77 25294.86
01/31/95 23880.40 25950.76
02/28/95 24790.97 26962.06
03/31/95 25646.99 27757.71
04/30/95 26360.31 28575.17
05/31/95 27154.68 29717.32
06/30/95 27544.83 30407.65
07/31/95 28604.87 31415.97
08/31/95 28963.65 31494.83
09/30/95 29925.22 32823.91
10/31/95 29580.88 32706.73
11/30/95 30859.87 34142.55
12/29/95 31763.97 34800.14

Let's say you invested $10,000 in Equity-Income Portfolio on October 9,
1986, when the fund started. By December 31, 1995, your investment would
have grown to $31,764 - a 217.64% increase. That compares to $10,000
invested in the S&P 500, which would have grown to $34,800 over the same
period - a 248% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF DECEMBER 31, 1995
% OF FUND'S
INVESTMENTS

Philip Morris Companies, Inc. 4.7

Federal National Mortgage Association 3.5

General Electric Co. 2.4

NYNEX Corp. 1.9

Citicorp 1.7

TOP FIVE MARKET SECTORS AS OF DECEMBER 31, 1995
% OF FUND'S
INVESTMENTS

Finance 19.2

Nondurables 10.0

Utilities 7.8

Industrial Machinery & Equipment 6.8

Health 6.6

ASSET ALLOCATION AS OF DECEMBER 31, 1995*
Row: 1, Col: 1, Value: 9.4
Row: 1, Col: 2, Value: 8.699999999999999
Row: 1, Col: 3, Value: 81.90000000000001
Stocks 81.9%
Bonds 8.7%
Short-term investments 9.4%
FOREIGN INVESTMENTS 3.4%
*
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW

An interview with Bettina Doulton, Portfolio Manager of Equity-Income
Portfolio
Q. HOW DID THE FUND PERFORM, BETTINA?
A. Compared to its peers, the fund did very well over the past 12 months.
However, it slightly trailed the performance of the Standard & Poor's
Composite Index for the 12-month period. The index had a total return of
37.58% for the 12 months ended December 31, 1995. The stock market rally in
1995 was narrow - led by the technology and finance sectors, as well as
large-cap and blue-chip stocks - and many funds did not beat the
performance of the index during the past 12 months.
Q. WHAT HELPED THE FUND'S PERFORMANCE?
A. The fund's performance came from a number of sectors, including finance
and telephone utilities, as well as from some of the larger holdings,
including the fund's largest investment, Philip Morris. This company's
business was propelled by gains in market share for its Marlboro brand
domestically, and by increased volumes and profits in its international
tobacco business.
Q. LET'S TAKE A LOOK AT YOUR INVESTMENTS IN THE FINANCE SECTOR. WHICH
STOCKS HAVE TURNED OUT WELL?
A. The fund's finance investments are fairly diverse. I pick the stocks for
the fund one-by-one, but many of the top performers over the past 12 months
came from this sector. Among them, Citicorp benefited from growth in its
emerging market credit card business. Fannie Mae - the Federal National
Mortgage Association - was helped by improved business conditions, a strong
supply of mortgages and widening spreads, such that profit growth was
solid. And American Express, having restructured in order to reduce costs,
posted strong and consistent earnings growth from improved marketing of its
existing and new credit card products. Beyond that, some of the fund's
insurance stocks - GenRe, American International Group, Aetna and CIGNA -
contributed well to the fund's return.
Q. HOW ABOUT TELEPHONE UTILITIES?
A. I've owned several of the regional Bell operating companies (RBOCs),
such as Ameritech, BellSouth, Bell Atlantic, NYNEX and SBC Communications.
The regulatory environment is improving on a state-by-state basis, allowing
these companies to focus more on profitability and competitiveness. They've
also been able to improve revenues by offering value-added services, such
as call waiting and caller identification, cellular services, and
additional access lines for computer modem use.
Q. WHICH STOCKS DIDN'T TURN OUT AS WELL AS YOU WOULD HAVE LIKED?
A. A couple of areas were disappointing. First, Wal-Mart struggled as it
went through a major transition. It was upgrading and expanding its older,
most profitable stores, converting them into so-called super centers -
general merchandise stores with grocery stores attached. The negative
impact on the company's profits associated with this process - as well as
the difficult retail environment - was worse and more prolonged than
anticipated. Second, despite better managing their account bases and
internal operations, WMX Technologies and Browning-Ferris Industries -
broadly based pollution control companies - were hurt by the weakening
economy, such that the pace of revenue and profit growth was not as strong
as expected.
Q. GENERAL ELECTRIC WAS ONE OF THE FUND'S TOP FIVE STOCKS AT THE END OF THE
PERIOD. WHY WAS IT ATTRACTIVE TO YOU?
A. GE offered a diverse business portfolio, shareholder-oriented management
and a consistent earnings history, qualities that appeared attractive given
the economic climate. I felt the same way about Emerson Electric and
Allied-Signal. These companies - through geographical expansion and
improvements in productivity - were able to sustain consistent earnings and
free cash flow. I believed the economy was weakening to an extent that the
relative performance expected from these companies would be rewarded.
Q. DOES THAT MEAN YOUR OUTLOOK IS COLORED BY CONCERNS FOR THE ECONOMY?
A. Yes it does. Economic indicators point out that the economy is slowing.
Wages have been stagnant and consumers' disposable income is down. Interest
rates will have to decline, in part so that capital will flow back into the
developing economies, believed to be a prime driver for future global
economic growth including U.S. exports. As it stands at the end of 1995,
economies outside of the U.S. also have slowed, leading me to believe that
demand for U.S. exports will wane. Given this backdrop, I have concerns
about corporate profitability in 1996 and think it will be a tough
investing environment. As a result, I'll be looking for companies with
aspects to their business that will enable them to sustain good earnings
growth despite a weakening economy.

FUND FACTS
GOAL: seeks high current income by investing in
high yielding, lower-rated fixed income
securities
START DATE: September 19, 1985
SIZE: as of December 31, 1995, more than
$1.0 billion
MANAGER: Barry Coffman, since 1990; joined
Fidelity in 1986
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
INVESTMENTS DECEMBER 31, 1995

Showing Percentage of Total Value of Investment in Securities

COMMON STOCKS - 81.3%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 6.0%
AEROSPACE & DEFENSE - 3.3%
Alliant Techsystems, Inc. (a) 447,100 $ 22,634,438
Boeing Co. 344,600 27,008,025
Lockheed Martin Corp. 329,303 26,014,937
McDonnell Douglas Corp. 289,800 26,661,600
Rockwell International Corp. 634,000 33,522,750
Sundstrand Corp. 183,000 12,878,625
Thiokol Corp. 232,700 7,882,713
156,603,088
DEFENSE ELECTRONICS - 2.0%
Litton Industries, Inc. (a) 546,300 24,310,350
Loral Corp. 538,800 19,060,050
Raytheon Co. 1,164,600 55,027,350
98,397,750
SHIP BUILDING & REPAIR - 0.7%
General Dynamics Corp. 592,600 35,037,475
TOTAL AEROSPACE & DEFENSE 290,038,313
BASIC INDUSTRIES - 5.5%
CHEMICALS & PLASTICS - 4.3%
du Pont (E.I.) de Nemours & Co. 585,500 40,911,813
Ethyl Corp. 723,100 9,038,750
Great Lakes Chemical Corp. 179,800 12,945,600
Hercules, Inc. 521,400 29,393,925
Minnesota Mining &
Manufacturing Co. 516,000 34,185,000
Monsanto Co. 190,000 23,275,000
Nalco Chemical Co. 221,200 6,663,650
Raychem Corp. 248,400 14,127,750
Schulman (A.), Inc. 70,600 1,588,500
Union Carbide Corp. 1,013,700 38,013,750
210,143,738
IRON & STEEL - 0.2%
Nucor Corp. 177,000 10,111,125
METALS & MINING - 0.7%
Alcan Aluminium Ltd. 409,114 12,706,568
Aluminum Co. of America 375,000 19,828,125
32,534,693
PACKAGING & CONTAINERS - 0.1%
Crown Cork & Seal Co., Inc. (a) 98,500 4,112,375
PAPER & FOREST PRODUCTS - 0.2%
James River Corp. of Virginia 451,700 10,897,263
TOTAL BASIC INDUSTRIES 267,799,194
CONGLOMERATES - 3.1%
Allied-Signal, Inc. 748,700 35,563,250
ITT Industries, Inc. 292,600 7,022,400
Tyco International Ltd. 1,752,742 62,441,434
United Technologies Corp. 422,300 40,065,713
Whitman Corp. 152,200 3,538,650
148,631,447
CONSTRUCTION & REAL ESTATE - 0.3%
BUILDING MATERIALS - 0.3%
Cooper Cameron Corp. (a) 200,628 7,122,294
Sherwin-Williams Co. 196,900 8,023,675
15,145,969

SHARES VALUE (NOTE 1)
CONSTRUCTION - 0.0%
Castle & Cooke, Inc. 74,767 $ 1,252,331
TOTAL CONSTRUCTION & REAL ESTATE 16,398,300
DURABLES - 2.3%
AUTOS, TIRES, & ACCESSORIES - 1.7%
Chrysler Corp. 237,100 13,129,413
Dana Corp. 406,100 11,878,425
General Motors Corp. 683,376 36,133,506
Johnson Controls, Inc. 61,100 4,200,625
PACCAR, Inc. 55,300 2,329,513
Snap-on Tools Corp. 374,000 16,923,500
84,594,982
CONSUMER ELECTRONICS - 0.4%
Whirlpool Corp. 342,500 18,238,125
TEXTILES & APPAREL - 0.2%
Westpoint Stevens, Inc. Class A 358,900 7,200,431
TOTAL DURABLES 110,033,538
ENERGY - 5.6%
ENERGY SERVICES - 1.5%
Baker Hughes, Inc. 521,800 12,718,875
Dresser Industries, Inc. 158,700 3,868,313
Helmerich & Payne, Inc. 95,000 2,826,250
McDermott International, Inc. 348,400 7,664,800
Schlumberger Ltd. 646,900 44,797,825
71,876,063
OIL & GAS - 4.1%
Amerada Hess Corp. 910,200 48,240,600
British Petroleum PLC ADR 825,877 84,342,689
Canada Occidental Petroleum Ltd. 161,100 5,284,000
Coastal Corp. (The) 380,000 14,155,000
Kerr-McGee Corp. 118,400 7,518,400
Occidental Petroleum Corp. 1,047,000 22,379,625
Petro-Canada 1st Installment Receipt (b) 185,600 1,071,279
Total SA:
Class B 210,425 14,174,149
sponsored ADR 10,978 373,252
197,538,994
TOTAL ENERGY 269,415,057
FINANCE - 19.2%
BANKS - 6.6%
Bank of Boston Corp. 257,877 11,926,811
Barnett Banks, Inc. 86,800 5,121,200
Boatmen's Bancshares, Inc. 55,100 2,252,213
Chase Manhattan Corp. 205,460 12,456,013
Chemical Banking Corp. 604,400 35,508,500
Citicorp 1,262,400 84,896,400
First Bank System, Inc. 181,600 9,011,900
First Interstate Bancorp 372,500 50,846,250
First Union Corp. 393,990 21,915,694
Fleet Financial Group, Inc. 628,054 25,593,201
KeyCorp. 369,200 13,383,500
NationsBank Corp. 428,400 29,827,350
Wells Fargo & Co. 92,600 20,001,600
322,740,632
CREDIT & OTHER FINANCE - 2.2%
American Express Co. 1,974,572 81,697,917
Greenpoint Financial Corp. 327,900 8,771,325
Household International, Inc. 234,011 13,835,900
104,305,142
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - CONTINUED
FEDERAL SPONSORED CREDIT - 4.7%
Federal Home Loan
Mortgage Corporation 636,000 $ 53,106,000
Federal National
Mortgage Association 1,359,000 168,685,875
Student Loan Marketing Association 124,000 8,168,500
229,960,375
INSURANCE - 5.6%
Aetna Life & Casualty Co. 649,000 44,943,250
Allstate Corp. 893,900 36,761,638
American International Group, Inc. 423,000 39,127,500
CIGNA Corp. 308,800 31,883,600
General Re Corp. 320,000 49,600,000
ITT Hartford Group, Inc. 292,600 14,154,525
Loews Corp. 533,000 41,773,875
Prudential Reinsurance Holdings, Inc. 202,100 4,724,088
Travelers, Inc. (The) 147,933 9,301,287
272,269,763
SAVINGS & LOANS - 0.1%
Charter One Financial Corp. 149,000 4,563,125
TOTAL FINANCE 933,839,037
HEALTH - 6.3%
DRUGS & PHARMACEUTICALS - 4.3%
Allergan, Inc. 388,100 12,613,250
American Home Products Corp. 438,100 42,495,700
Bristol-Myers Squibb Co. 646,800 55,543,950
Lilly (Eli) & Co. 66,800 3,757,500
Merck & Co., Inc. 151,400 9,954,550
Pharmacia & Upjohn, Inc. 1,193,400 46,244,250
Schering-Plough Corp. 112,900 6,181,275
SmithKline Beecham PLC ADR 580,700 32,228,850
209,019,325
MEDICAL EQUIPMENT & SUPPLIES - 1.2%
Baxter International, Inc. 1,022,300 42,808,813
Hillenbrand Industries, Inc. 29,000 982,375
I-Stat Corporation (a) 149,400 4,855,500
Nellcor, Inc. (a) 188,324 10,922,792
59,569,480
MEDICAL FACILITIES MANAGEMENT - 0.8%
Columbia/HCA Healthcare Corp. 548,100 27,816,075
Tenet Healthcare Corp. (a) 137,600 2,855,200
U.S. Healthcare, Inc. 134,700 6,263,550
36,934,825
TOTAL HEALTH 305,523,630
INDUSTRIAL MACHINERY & EQUIPMENT - 6.8%
ELECTRICAL EQUIPMENT - 3.2%
Emerson Electric Co. 457,500 37,400,625
General Electric Co. 1,620,200 116,654,400
154,055,025
INDUSTRIAL MACHINERY & EQUIPMENT - 2.0%
Caterpillar, Inc. 335,800 19,728,250
Cooper Industries, Inc. 240,832 8,850,576
Deere & Co. 1,423,200 50,167,800
Ingersoll-Rand Co. 559,000 19,634,875
Varity Corp. (a) 62,700 2,327,738
100,709,239

SHARES VALUE (NOTE 1)
POLLUTION CONTROL - 1.6%
Browning-Ferris Industries, Inc. 1,364,800 $ 40,261,600
WMX Technologies, Inc. 1,222,200 36,513,225
76,774,825
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 331,539,089
MEDIA & LEISURE - 2.1%
BROADCASTING - 0.8%
Viacom, Inc. Class B (non-vtg.) (a) 833,014 39,464,038
LODGING & GAMING - 0.6%
ITT Corp. 594,700 31,519,100
PUBLISHING - 0.6%
Knight-Ridder, Inc. 201,700 12,606,250
Meredith Corp. 224,600 9,405,125
Times Mirror Co. Class A 212,100 7,184,888
29,196,263
RESTAURANTS - 0.1%
Darden Restaurants, Inc. 332,900 3,953,188
TOTAL MEDIA & LEISURE 104,132,589
NONDURABLES - 9.9%
BEVERAGES - 2.1%
Anheuser-Busch Companies, Inc. 649,300 43,421,938
PepsiCo, Inc. 1,077,200 60,188,550
103,610,488
FOODS - 0.7%
ConAgra, Inc. 298,300 12,304,875
Dole Food, Inc. 224,300 7,850,500
Kellogg Co. 75,800 5,855,550
Nabisco Holdings Class A 232,500 7,585,313
33,596,238
HOUSEHOLD PRODUCTS - 1.4%
Avon Products, Inc. 423,880 31,949,955
Colgate-Palmolive Co. 223,600 15,707,900
First Brands Corp. 329,200 15,678,150
Rubbermaid, Inc. 231,000 5,890,500
69,226,505
TOBACCO - 5.7%
Imasco Ltd. 113,700 2,208,414
Philip Morris Companies, Inc. 2,521,100 228,159,550
RJR Nabisco Holdings Corp. 986,839 30,468,654
UST, Inc. 448,500 14,968,688
275,805,306
TOTAL NONDURABLES 482,238,537
RETAIL & WHOLESALE - 2.0%
APPAREL STORES - 0.3%
Limited, Inc. (The) 906,500 15,750,438
GENERAL MERCHANDISE STORES - 1.2%
Dayton Hudson Corp. 71,100 5,332,500
May Department Stores Co. (The) 93,500 3,950,375
Sears, Roebuck & Co. 403,000 15,717,000
Wal-Mart Stores, Inc. 1,596,300 35,717,213
60,717,088
GROCERY STORES - 0.3%
Great Atlantic & Pacific Tea Co., Inc. 312,700 7,192,100
Vons Companies, Inc. (a) 231,900 6,551,175
13,743,275
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
RETAIL & WHOLESALE - CONTINUED
RETAIL & WHOLESALE, MISCELLANEOUS - 0.2%
Home Depot, Inc. (The) 151,400 $ 7,248,275
Tandy Corp. 36,300 1,506,450
8,754,725
TOTAL RETAIL & WHOLESALE 98,965,526
SERVICES - 0.3%
ADT Ltd. (a) 711,600 10,674,000
National Service Industries, Inc. 80,400 2,602,950
13,276,950
TECHNOLOGY - 2.3%
COMPUTERS & OFFICE EQUIPMENT - 1.7%
International Business Machines Corp. 320,700 29,424,225
Pitney Bowes, Inc. 1,111,300 52,231,100
81,655,325
ELECTRONICS - 0.6%
AMP, Inc. 659,600 25,312,150
Thomas & Betts Corp. 81,200 5,988,500
31,300,650
TOTAL TECHNOLOGY 112,955,975
TRANSPORTATION - 1.8%
RAILROADS - 1.7%
Burlington Northern Santa Fe Corp. 625,940 48,823,320
CSX Corp. 390,600 17,821,125
Union Pacific Corp. 237,900 15,701,400
82,345,845
TRUCKING & FREIGHT - 0.1%
Roadway Services, Inc. 105,200 5,141,650
TOTAL TRANSPORTATION 87,487,495
UTILITIES - 7.8%
TELEPHONE SERVICES - 7.8%
Ameritech Corp. 1,067,900 63,006,100
Bell Atlantic Corp. 790,400 52,858,000
BellSouth Corp. 1,632,200 71,000,700
NYNEX Corp. 1,754,600 94,748,400
Pacific Telesis Group 639,500 21,503,188
Koninklijke PPT Nederland 236,700 8,581,847
Koninklijke PPT Nederland (d) 104,400 3,785,149
SBC Communications, Inc. 950,300 54,642,250
Southern New England
Telecommunications Corp. 251,900 10,013,025
TOTAL UTILITIES 380,138,659
TOTAL COMMON STOCKS
(Cost $3,211,246,320) 3,952,413,336
PREFERRED STOCKS - 0.6%
CONVERTIBLE PREFERRED STOCKS - 0.6%
BASIC INDUSTRIES - 0.1%
PAPER & FOREST PRODUCTS - 0.1%
James River Corp. cum, Series P 278,200 6,502,925

SHARES VALUE (NOTE 1)
ENERGY - 0.5%
OIL & GAS - 0.5%
Atlantic Richfield Co.
exchangeable $.5575 431,300 $ 10,135,550
Occidental Petroleum Corp.
Indexed $3.00 218,900 13,599,163
23,734,713
UTILITIES - 0.0%
GAS - 0.0%
Columbia Gas System, Inc. 403 16,473
TOTAL CONVERTIBLE PREFERRED STOCKS 30,254,111
NONCONVERTIBLE PREFERRED STOCKS - 0.0%
UTILITIES - 0.0%
ELECTRIC UTILITY - 0.0%
Gulf States Utilities Co., Series B,
adj. rate 586 28,128
GAS - 0.0%
Columbia Gas System, Inc. 658 16,203
TOTAL NONCONVERTIBLE PREFERRED STOCKS 44,331
TOTAL PREFERRED STOCKS
(Cost $34,163,788) 30,298,442
CORPORATE BONDS - 1.3%
MOODY'S RATINGS PRINCIPAL
(UNAUDITED) (C) AMOUNT
CONVERTIBLE BONDS - 0.3%
CONSTRUCTION & REAL ESTATE - 0.0%
REAL ESTATE INVESTMENT TRUSTS - 0.0%
Liberty Property exchangeable
8%, 7/1/01 - $ 750,000 769,688
HEALTH - 0.2%
DRUGS & PHARMACEUTICALS - 0.2%
Roche Holdings, Inc. liquid yield
option notes 0%, 4/20/10 (d) - 19,580,000 8,664,150
PRECIOUS METALS - 0.1%
Pegasus Gold, Inc. euro
6 1/4%, 4/30/02 (d) Baa3 1,860,000 2,055,300
SERVICES - 0.0%
ADT Operations, Inc. liquid yield
option notes 0%, 7/6/10 Ba3 3,670,000 1,752,425
UTILITIES - 0.0%
GAS - 0.0%
SFP Pipeline Holdings, Inc.
exchangeable 0%,
8/15/10 (e) Baa3 470,000 611,000
TOTAL CONVERTIBLE BONDS 13,852,563
NONCONVERTIBLE BONDS - 1.0%
AEROSPACE & DEFENSE - 0.0%
DEFENSE ELECTRONICS - 0.0%
Tracor, Inc.
10 7/8%, 8/15/01 B2 1,220,000 1,268,800
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
BASIC INDUSTRIES - 0.2%
PACKAGING & CONTAINERS - 0.0%
Owens Illinois, Inc.
10 1/4%, 4/1/99 B2 $ 350,000 $ 360,500
PAPER & FOREST PRODUCTS - 0.2%
Stone Container Corp.
9 7/8%, 2/1/01 B1 7,760,000 7,546,600
TOTAL BASIC INDUSTRIES 7,907,100
DURABLES - 0.2%
TEXTILES & APPAREL - 0.2%
Westpoint Stevens, Inc.:
8 3/4%, 12/15/01 B1 2,660,000 2,660,000
9 3/8%, 12/15/05 B3 7,850,000 7,732,250
10,392,250
FINANCE - 0.0%
BANKS - 0.0%
Signet Banking Corp. (e):
6%, 5/15/97 Baa2 340,000 337,753
6 1/8%, 4/15/98 Baa2 190,000 187,866
525,619
HEALTH - 0.1%
MEDICAL FACILITIES MANAGEMENT - 0.1%
Tenet Healthcare Corp.:
9 5/8%, 9/1/02 Ba2 1,760,000 1,925,000
8 5/8%, 12/1/03 Ba2 3,480,000 3,636,600
5,561,600
MEDIA & LEISURE - 0.4%
BROADCASTING - 0.4%
Viacom, Inc. 8%, 7/7/06 B1 18,890,000 19,220,575
NONDURABLES - 0.1%
BEVERAGES - 0.1%
Canandaigua Wine, Inc.
8 3/4%, 12/15/03 B1 5,700,000 5,671,500
TOTAL NONCONVERTIBLE BONDS 50,547,444
TOTAL CORPORATE BONDS
(Cost $59,279,783) 64,400,007
U.S. TREASURY OBLIGATIONS - 7.4%
5 3/4%, 8/15/03 Aaa 68,000,000 68,818,040
7 1/4%, 2/15/23 Aaa 17,690,000 20,227,442
6 1/4%, 8/15/23 Aaa 8,790,000 9,044,119
7 1/2%, 11/15/24 Aaa 15,390,000 18,499,242
7 5/8%, 2/15/25 Aaa 29,540,000 36,121,807
6 7/8%, 8/15/25 Aaa 35,210,000 39,710,190
Principal STRIPS:
0%, 11/15/18 Aaa 345,000,000 83,797,050
0%, 2/15/19 Aaa 350,000,000 83,699,000
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $332,219,484) 359,916,890
REPURCHASE AGREEMENTS - 9.4%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.91% dated
12/29/95 due 1/2/96 $ 455,467,894 $ 455,169,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $4,092,078,375) $ 4,862,197,675
LEGEND
1. Non-income producing
2. Purchased on an installment basis. Market value reflects only those
payments made through December 31, 1995. The remaining installments for
Petro-Canada, aggregating CAD 1,577,600, are due September 23, 1996 and
March 24, 1997.
3. Standard & Poor's Corporation credit ratings are used in the absence of
a rating by Moody's Investors Service, Inc.
4. Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $14,504,599 or 0.3% of net
assets.
5. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $4,313,419,496 and $2,742,014,794, respectively, of which U.S.
government and government agency obligations aggregated $409,364,645 and
$205,227,833, respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company. The
commissions paid to these affiliated firms were $2,077,039 for the period
(see Note 3 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 7.4% AAA, AA, A 7.4%
Baa 0.1% BBB 0.0%
Ba 0.1% BB 0.6%
B 0.9% B 0.5%
Caa 0.0% CCC 0.0%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by either S&P or Moody's amounted to 0.2%. FMR has
determined that unrated debt securities that are lower quality account for
0.2% of the total value of investment in securities.
INCOME TAX INFORMATION
At December 31, 1995, the aggregate cost of investment securities for
income tax purposes was $4,098,146,199. Net unrealized appreciation
aggregated $764,051,476, of which $793,759,941 related to appreciated
investment securities and $29,708,465 related to depreciated investment
securities.
The fund hereby designates approximately $64,818,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO
FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES

<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31, 1995

ASSETS

Investment in securities, at value (including repurchase agreements of $455,169,000) (cost $4,092,078,375) $ 4,862,197,675
- - See accompanying schedule

Cash 719

Receivable for investments sold 1,835,507

Receivable for fund shares sold 10,941,112

Dividends receivable 10,792,285

Interest receivable 5,307,245

Other receivables 126,974

TOTAL ASSETS 4,891,201,517

LIABILITIES

Payable for investments purchased $ 7,521,288

Payable for fund shares redeemed 1,339,589

Accrued management fee 2,004,252

Other payables and accrued expenses 901,707

TOTAL LIABILITIES 11,766,836

NET ASSETS $ 4,879,434,681

Net Assets consist of:

Paid in capital $ 3,883,373,607

Undistributed net investment income 8,997,355

Accumulated undistributed net realized gain (loss) on investments and foreign 216,938,284
currency transactions

Net unrealized appreciation (depreciation) on investments 770,125,435
and assets and liabilities in foreign currencies

NET ASSETS, for 253,263,397 shares outstanding $ 4,879,434,681

NET ASSET VALUE, offering price and redemption price per share ($4,879,434,681 (divided by) 253,263,397 shares) $19.27

</TABLE>

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1995

INVESTMENT INCOME $ 74,462,683
Dividends

Interest 35,486,492

TOTAL INCOME 109,949,175

EXPENSES

Management fee $ 17,818,979

Transfer agent fees 1,660,720

Accounting fees and expenses 760,752

Non-interested trustees' compensation 13,087

Custodian fees and expenses 91,612

Registration fees 607,587

Audit 49,196

Legal 15,555

Interest 9,801

Miscellaneous 7,729

TOTAL EXPENSES 21,035,018

NET INVESTMENT INCOME 88,914,157

REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:

Investment securities 220,993,365

Foreign currency transactions 4,100 220,997,465

Change in net unrealized appreciation (depreciation) on:

Investment securities 715,594,560

Assets and liabilities in (6,641 715,587,919
foreign currencies )

NET GAIN (LOSS) 936,585,384

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 1,025,499,541

</TABLE>

STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994

<TABLE>
<CAPTION>
<S> <C> <C>
Operations $ 88,914,157 $ 49,846,224
Net investment income

Net realized gain (loss) 220,997,465 121,898,471

Change in net unrealized appreciation (depreciation) 715,587,919 (61,690,963)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 1,025,499,541 110,053,732

Distributions to shareholders (84,729,039) (44,739,784)
From net investment income

From net realized gain (121,254,353) (68,533,800)

TOTAL DISTRIBUTIONS (205,983,392) (113,273,584)

Share transactions 1,784,340,253 1,048,772,904
Net proceeds from sales of shares

Reinvestment of distributions 205,981,922 113,273,584

Cost of shares redeemed (214,815,736) (192,914,992)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 1,775,506,439 969,131,496

TOTAL INCREASE (DECREASE) IN NET ASSETS 2,595,022,588 965,911,644

NET ASSETS

Beginning of period 2,284,412,093 1,318,500,449

End of period (including undistributed net investment income of $8,997,355 and $4,150,957,
respectively) $ 4,879,434,681 $ 2,284,412,093

OTHER INFORMATION
Shares

Sold 103,951,843 68,815,564

Issued in reinvestment of distributions 12,868,445 7,484,681

Redeemed (12,384,683) (12,882,315)

Net increase (decrease) 104,435,605 63,417,930

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C>
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

</TABLE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31,

SELECTED PER-SHARE DATA 1995 1994 1993 C 1992 1991

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 15.35 $ 15.44 $ 13.40 $ 11.85 $ 9.51

Income from Investment Operations

Net investment income .41 .41 .37 .40 .50

Net realized and unrealized gain (loss) 4.69 .64 2.06 1.57 2.43

Total from investment operations 5.10 1.05 2.43 1.97 2.93

Less Distributions (.40) (.37) (.35) (.42) (.59)
From net investment income

In excess of net investment income - - (.04) - -

From net realized gain (.78) (.77) - - -

Total distributions (1.18) (1.14) (.39) (.42) (.59)

Net asset value, end of period $ 19.27 $ 15.35 $ 15.44 $ 13.40 $ 11.85

TOTAL RETURN A, B 35.09% 7.07% 18.29% 16.89% 31.44%

RATIOS AND SUPPLEMENTAL DATA

Net assets, end of period (000 omitted) $ 4,879,435 $ 2,284,412 $ 1,318,500 $ 592,880 $ 282,171

Ratio of expenses to average net assets .61% .60% .62% .65% .74%

Ratio of expenses to average net assets after expense
reductions .61% .58% .62% .65% .74%
D

Ratio of net investment income to average net assets 2.56% 2.83% 2.87% 3.52% 4.83%

Portfolio turnover rate 87% 134% 120% 74% 107%

</TABLE>

VARIABLE INSURANCE PRODUCTS FUND: GROWTH PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY

Growth 35.36% 20.78% 14.83%

S&P 500 37.58% 16.60% 14.46%

AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and
show you what would have happened if the fund had performed at a constant
rate each year.

UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for
example, has a history of growth in the long run
and volatility in the short run. In turn, the share
price and return of a fund that invests in stocks
will vary. That means if you sell your shares
during a market downturn, you might lose
money. But if you can ride out the market's ups
and downs, you may have a gain.
(checkmark)
You can compare these figures to the performance of the Standard & Poor's
Composite Index of 500 Stocks- a common proxy for the U.S. stock market.
This benchmark includes reinvested dividends and capital gains, if any.
Figures for more than one year assume a steady compounded rate of return
and are not the fund's year-by-year results, which fluctuated over the
periods shown. The life of fund figures are from commencement of
operations, October 9, 1986.
If Fidelity had not reimbursed certain fund expenses, the fund's life of
fund total return would have been lower.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, THE TOTAL RETURNS WOULD HAVE BEEN LOWER.
Past performance is no guarantee of future results. Principal and
investment return will vary and you may have a gain or loss when you
withdraw your money.
$10,000 OVER LIFE OF FUND
VIP Growth (2Standard &
10/09/86 10000.00 10000.00
10/31/86 10000.00 10329.97
11/30/86 10220.00 10580.99
12/31/86 10030.00 10311.18
01/31/87 11100.00 11700.09
02/28/87 11650.00 12162.25
03/31/87 11839.97 12513.74
04/30/87 11839.97 12402.36
05/31/87 11920.10 12510.26
06/30/87 12270.69 13142.03
07/31/87 12761.52 13808.33
08/31/87 13142.16 14323.38
09/30/87 12991.91 14009.70
10/31/87 10137.09 10992.01
11/30/87 9425.90 10086.27
12/31/87 10397.53 10853.84
01/31/88 10623.12 11310.78
02/29/88 11484.46 11837.86
03/31/88 11381.92 11472.07
04/30/88 11525.47 11599.41
05/31/88 11422.93 11700.33
06/30/88 11997.15 12237.37
07/31/88 11935.63 12190.87
08/31/88 11648.52 11776.38
09/30/88 11976.65 12278.06
10/31/88 12007.41 12619.39
11/30/88 11894.61 12438.93
12/31/88 12017.66 12656.61
01/31/89 12879.00 13583.07
02/28/89 12612.39 13244.86
03/31/89 12993.68 13553.46
04/30/89 13680.85 14256.89
05/31/89 14170.19 14834.29
06/30/89 13982.78 14749.73
07/31/89 15232.18 16081.64
08/31/89 15492.47 16396.84
09/30/89 15627.82 16329.61
10/31/89 15190.53 15950.76
11/30/89 15440.41 16276.16
12/31/89 15804.81 16666.78
01/31/90 14888.59 15548.44
02/28/90 15030.81 15749.02
03/31/90 15214.51 16166.37
04/30/90 14771.47 15762.21
05/31/90 16078.97 17299.02
06/30/90 16413.95 17181.39
07/31/90 16154.61 17126.41
08/31/90 14490.52 15578.18
09/30/90 12999.33 14819.52
10/31/90 12534.68 14755.80
11/30/90 13550.42 15709.03
12/31/90 13950.23 16147.31
01/31/91 14879.53 16851.33
02/28/91 15989.61 18056.20
03/31/91 16472.15 18493.16
04/30/91 16318.61 18537.54
05/31/91 17283.69 19338.37
06/30/91 16000.57 18452.67
07/31/91 17524.96 19312.56
08/31/91 18303.60 19770.27
09/30/91 18446.17 19440.11
10/31/91 19016.45 19700.60
11/30/91 17930.73 18906.67
12/31/91 20299.56 21069.59
01/31/92 21538.81 20677.70
02/29/92 21989.40 20946.51
03/31/92 20641.73 20538.05
04/30/92 19833.13 21141.87
05/31/92 19664.67 21245.47
06/30/92 18901.00 20928.91
07/31/92 19630.98 21784.90
08/31/92 19091.92 21338.31
09/30/92 19428.83 21590.10
10/31/92 20181.28 21665.67
11/30/92 21528.94 22404.47
12/31/92 22191.55 22680.04
01/31/93 22629.54 22870.55
02/28/93 22163.03 23181.59
03/31/93 23046.80 23670.73
04/30/93 22805.77 23097.89
05/31/93 24504.44 23716.92
06/30/93 24756.94 23785.70
07/31/93 24688.08 23690.55
08/31/93 25927.65 24588.43
09/30/93 26409.70 24399.09
10/31/93 26662.20 24904.16
11/30/93 25583.32 24667.57
12/31/93 26490.04 24966.04
01/31/94 27155.74 25814.89
02/28/94 26875.65 25115.31
03/31/94 25654.59 24020.28
04/30/94 25813.32 24327.74
05/31/94 25215.00 24726.71
06/30/94 23932.88 24120.91
07/31/94 24763.21 24912.07
08/31/94 26167.43 25933.47
09/30/94 25849.96 25298.10
10/31/94 26900.07 25867.31
11/30/94 25825.53 24925.22
12/31/94 26484.91 25294.86
01/31/95 25984.27 25950.76
02/28/95 27060.36 26962.06
03/31/95 28042.58 27757.71
04/30/95 28987.98 28575.17
05/31/95 30117.54 29717.32
06/30/95 32781.83 30407.65
07/31/95 36023.18 31415.97
08/31/95 36465.18 31494.83
09/30/95 37410.57 32823.91
10/31/95 37029.96 32706.73
11/30/95 37005.40 34142.55
12/29/95 35851.29 34800.14

Let's say you invested $10,000 in Growth Portfolio on October 9, 1986, when
the fund started. By December 31, 1995, your investment would have grown to
$35,851 - a 258.51% increase. That compares to $10,000 invested in the S&P
500, which would have grown to $34,800 over the same period - a 248%
increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF DECEMBER 31, 1995
% OF FUND'S
INVESTMENTS

Oracle Systems Corp. 2.9

Cisco Systems, Inc. 2.5

Microsoft Corp. 2.4

AirTouch Communications, Inc. 2.2

General Electric Co. 1.7

TOP FIVE MARKET SECTORS AS OF DECEMBER 31, 1995
% OF FUND'S
INVESTMENTS

Technology 32.7

Utilities 9.4

Health 8.5

Retail & Wholesale 7.7

Finance 4.1

ASSET ALLOCATION AS OF DECEMBER 31, 1995*
Row: 1, Col: 1, Value: 15.4
Row: 1, Col: 2, Value: 1.7
Row: 1, Col: 3, Value: 82.90000000000001
Stocks 82.9%
Bonds 1.7%
Short-term investments 15.4%
FOREIGN INVESTMENTS 2.7%
*
VARIABLE INSURANCE PRODUCTS FUND: GROWTH PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW

An interview with Lawrence Greenberg, Portfolio
Manager of Growth Portfolio
Q. LARRY, HOW DID THE FUND PERFORM?
A. Although the fund did well compared to its peers, it slightly lagged the
Standard & Poor's 500 Index, which returned 37.58% for the 12-month period
ended December 31, 1995.
Q. WHY WAS THE STOCK MARKET SO STRONG IN 1995?
A. In my opinion, two things really drive the equity market: strong
earnings and declining interest rates. During most of 1995, we had both.
This really played into the hands of the kinds of growth stocks the fund
owns. Many of these stocks represent fast-growing companies which are able
to grow faster than other companies in a slow but expanding economic
environment. They also can benefit more from a declining interest rate
environment.
Q. THE FUND'S TECHNOLOGY WEIGHTING HAS BEEN REDUCED, BUT, AT APPROXIMATELY
32.7%, IT REMAINED THE LARGEST SECTOR AS OF DECEMBER 31, 1995. DO YOU THINK
THIS AREA OF THE MARKET CAN KEEP UP THE TORRID PACE OF GROWTH WE SAW IN
1995?
A. Probably not. What we saw in 1995 was strength across the board. For the
most part, earnings grew as fast as the stock prices went up. Therefore,
despite good appreciation, price-to-earnings multiples didn't go up that
much. I don't think investors can expect the same level of growth in 1996
as they did in 1995. I think investors can expect to see more of an
environment of the haves and have-nots, with specific companies leaving
others behind.
Q. SO HOW WILL YOU MANAGE THE FUND'S TECHNOLOGY HOLDINGS GOING FORWARD?
A. I intend to approach the technology sector on a more selective basis,
looking at individual areas showing strength. For example, corporate
America's move from mainframe computing to client-server computing, along
with the rise of the Internet, may continue to benefit networking and
database companies. These companies provide the hardware and software for
the new corporate networks.
Q. WHAT WAS THE ATTRACTION TO UTILITY STOCKS, WHICH MADE UP 9.4% OF THE
FUND'S INVESTMENTS AT THE END OF DECEMBER?
A. All of the fund's utility holdings are in the telecommunications
industry. I believe the telecommunications industry offers excellent growth
opportunities both domestically and abroad as diversification,
privatization, globalization and proliferation of wireless communications
continue to create a strong demand outlook.
Q. IN THE FUND'S SEMIANNUAL REPORT, YOU DISCUSSED THAT YOU HAD CUT BACK ON
THE FUND'S HEALTH CARE EXPOSURE BECAUSE OF CONCERNS SURROUNDING FEDERAL
HEALTH CARE REFORM. WHAT'S HAPPENED SINCE THEN?
A. I slowly raised the fund's stake in health care stocks as values
presented themselves. Congress and the president continue to haggle over
the future of Medicare and Medicaid, but I anticipate that government
cutbacks in spending could force more Medicare users toward HMOs.
Therefore, I added more HMOs to the portfolio.
Q. WERE THERE ANY DISAPPOINTMENTS IN 1995?
A. Sure. Disappointments came on two fronts. First, in September, the
technology sector slowed somewhat as several corporate earnings
disappointments fueled investors' concerns that the sector had become
overvalued. As this occurred, investors moved to more defensive,
consumer-oriented stocks such as Coca-Cola, PepsiCo, Merck and Pfizer. In
hindsight, I wish I had been able to make this shift earlier. Second, the
underperformance of several of the fund's retail stocks hindered
performance. Building supply companies Home Depot and Lowe's, for example,
were hurt by falling lumber prices and a drop in demand with the slowdown
in the housing market.
Q. SO WHAT'S YOUR OUTLOOK?
A. As I mentioned earlier, the real fuel for a strong market - good
corporate earnings and declining interest rates - will probably not be as
strong in 1996 as it was in 1995. Given what we know now, though, I
believe, barring any unforeseen changes, the market environment may still
be constructive for stocks this year.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.

Showing Percentage of Total Value of Investment in Securities

COMMON STOCKS - 82.7%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 0.9%
AEROSPACE & DEFENSE - 0.6%
C A E Industries Ltd. 535,900 $ 4,075,173
General Motors Corp. Class H 150,000 7,368,750
Rockwell International Corp. 225,000 11,896,875
Special Devices, Inc. (a) 246,700 3,207,100
26,547,898
DEFENSE ELECTRONICS - 0.3%
Loral Corp. 75,000 2,653,125
Raytheon Co. 165,000 7,796,250
10,449,375
TOTAL AEROSPACE & DEFENSE 36,997,273
BASIC INDUSTRIES - 1.5%
CHEMICALS & PLASTICS - 0.6%
Airgas, Inc. (a) 179,600 5,971,700
du Pont (E.I.) de Nemours & Co. 135,000 9,433,125
Minnesota Mining & Manufacturing Co. 100,000 6,490,900
Union Carbide Corp. 100,000 3,750,000
25,645,725
METALS & MINING - 0.9%
Alcan Aluminium Ltd. 100,000 3,105,875
Aluminum Co. of America 225,000 11,896,875
Freeport McMoRan Copper & Gold, Inc.
Class A 85,000 2,380,000
IMCO Recycling, Inc. 299,000 7,325,500
Inco Ltd. 175,000 5,788,013
Reynolds Metals Co. 125,000 7,078,125
37,574,388
TOTAL BASIC INDUSTRIES 63,220,113
CONGLOMERATES - 0.9%
Allied-Signal, Inc. 265,000 12,587,500
Harris Corp. 60,000 3,277,500
ITT Industries, Inc. 85,000 2,040,000
Tyco International Ltd. 350,000 12,468,750
United Technologies Corp. 65,000 6,166,875
36,540,625
CONSTRUCTION & REAL ESTATE - 0.6%
BUILDING MATERIALS - 0.1%
York International Corp. 60,000 2,820,000
CONSTRUCTION - 0.4%
Oakwood Homes Corp. 440,000 16,885,000
ENGINEERING - 0.1%
Fluor Corp. 85,000 5,610,000
TOTAL CONSTRUCTION & REAL ESTATE 25,315,000
DURABLES - 3.0%
AUTOS, TIRES, & ACCESSORIES - 2.1%
Chrysler Corp. 750,000 41,531,250
General Motors Corp. 825,146 43,629,595
Safety Components International, Inc. (a) 228,200 3,594,150
88,754,995
CONSUMER ELECTRONICS - 0.1%
Whirlpool Corp. 40,000 2,130,000
HOME FURNISHINGS - 0.1%
Leggett & Platt, Inc. 150,000 3,637,500

SHARES VALUE (NOTE 1)
TEXTILES & APPAREL - 0.7%
Adidas AG 71,400 $ 3,768,609
Adidas AG (a)(b) 45,600 2,406,843
NIKE, Inc. Class B 200,000 13,925,000
Tommy Hilfiger (a) 180,000 7,627,500
27,727,952
TOTAL DURABLES 122,250,447
ENERGY - 1.2%
ENERGY SERVICES - 0.3%
Schlumberger Ltd. 185,000 12,811,250
INDEPENDENT POWER - 0.2%
Thermo Electron Corp. (a) 175,000 9,100,000
OIL & GAS - 0.7%
Amerada Hess Corp. 225,000 11,925,000
Barrett Resources Corp. (a) 87,300 2,564,438
British Petroleum PLC ADR 75,000 7,659,375
Unocal Corp. 225,000 6,553,125
28,701,938
TOTAL ENERGY 50,613,188
FINANCE - 4.1%
BANKS - 0.8%
Banc One Corp. 350,000 13,212,500
BankAmerica Corp. 125,000 8,093,750
Chemical Banking Corp. 200,000 11,750,000
33,056,250
CREDIT & OTHER FINANCE - 0.5%
American Express Co. 435,000 17,998,125
Household International, Inc. 20,000 1,165,000
19,163,125
FEDERAL SPONSORED CREDIT - 1.6%
Federal National Mortgage Association 550,000 68,268,750
INSURANCE - 0.8%
Allstate Corp. 285,000 11,720,625
American International Group, Inc. 1,600 146,883
General Re Corp. 81,200 12,586,000
ITT Hartford Group, Inc. 85,000 4,111,875
Travelers, Inc. (The) 100,000 6,287,500
34,852,883
SECURITIES INDUSTRY - 0.4%
Alliance Entertainment Corp. (a) 684,800 6,505,600
Edwards (A.G.), Inc. 144,900 3,459,488
Merrill Lynch & Co., Inc. 100,000 5,100,000
15,065,088
TOTAL FINANCE 170,406,096
HEALTH - 8.5%
DRUGS & PHARMACEUTICALS - 2.4%
Amgen, Inc. (a) 225,000 13,359,375
Biogen, Inc. (a) 117,700 7,238,550
Bristol-Myers Squibb Co. 175,000 15,028,125
Dura Pharmaceuticals, Inc. (a) 125,000 4,343,750
Genentech, Inc. special (a) 125,000 6,625,000
Merck & Co., Inc. 300,000 19,725,000
Pharmacia & Upjohn, Inc. 400,000 15,500,000
Pfizer, Inc. 265,000 16,695,000
98,514,800
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
HEALTH - CONTINUED
MEDICAL EQUIPMENT & SUPPLIES - 2.6%
Abbott Laboratories 225,000 $ 9,393,750
Baxter International, Inc. 275,000 11,515,625
Biomet, Inc. (a) 185,000 3,306,875
Cardinal Health, Inc. 151,600 8,300,100
Conmed Corp. 7,700 192,500
Johnson & Johnson 120,000 10,275,000
Medtronic, Inc. 300,000 16,762,500
Millipore Corp. 175,000 7,196,875
Nellcor, Inc. 38,500 2,243,588
Oakley, Inc. (a) 100,000 3,400,000
Pall Corp. 235,000 6,315,625
Physician Sales & Service, Inc. (a) 300,000 8,550,000
St. Jude Medical, Inc. (a) 186,500 8,019,500
Thermedics, Inc. (a) 175,000 4,856,250
Thermo Cardiosystems, Inc. (a) 75,000 5,793,750
106,121,938
MEDICAL FACILITIES MANAGEMENT - 3.5%
American Medical Response 360,000 11,700,000
Columbia/HCA Healthcare Corp. 400,025 20,301,269
Foundation Health Corp. (a) 215,000 9,245,000
HEALTHSOUTH Rehabilitation Corp. (a) 1,000,000 29,125,000
Healthsource, Inc. (a) 95,000 3,420,000
Humana, Inc. 200,000 5,475,000
Multicare Companies, Inc. (a) 175,000 4,200,000
Oxford Health Plans, Inc. (a) 81,500 6,020,813
Physician Reliance Network, Inc. (a) 200,000 7,950,000
Sterling Healthcare Group, Inc. (a) 70,000 743,750
United HealthCare Corp. 260,000 17,030,000
U.S. Healthcare, Inc. 425,000 19,762,500
Vencor, Inc. (a) 360,025 11,700,813
146,674,145
TOTAL HEALTH 351,310,883
INDUSTRIAL MACHINERY & EQUIPMENT - 4.1%
ELECTRICAL EQUIPMENT - 2.8%
Avid Technology, Inc. (a) 225,050 4,275,950
Emerson Electric Co. 125,000 10,218,750
General Electric Co. 975,000 70,200,000
Glenayre Technologies, Inc. 350,175 21,798,373
Pinnacle Systems (a) 257,600 6,375,600
United Communication Industry
PCL (For. Reg.) 154,000 1,968,559
114,837,232
INDUSTRIAL MACHINERY & EQUIPMENT - 1.0%
Case Corp. 115,000 5,261,250
Caterpillar, Inc. 500,000 29,375,000
Global Industrial Technologies, Inc. (a) 65,800 1,241,975
Semitool, Inc. (a) 6,200 80,600
Singer Company 235,200 6,556,200
42,515,025
POLLUTION CONTROL - 0.3%
TETRA Technologies, Inc. (a) 200,000 3,475,000
WMX Technologies, Inc. 175,000 5,228,125
Zurn Industries, Inc. 125,000 2,671,875
11,375,000
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 168,727,257

SHARES VALUE (NOTE 1)
MEDIA & LEISURE - 2.6%
BROADCASTING - 0.1%
Emmis Broadcasting Corp. Class A (a) 25,900 802,900
Evergreen Media Corp. Class A (a) 88,800 2,841,600
3,644,500
ENTERTAINMENT - 0.2%
Disney (Walt) Co. 150,000 8,850,000
LEISURE DURABLES & TOYS - 0.1%
Mattel, Inc. 135,000 4,151,250
LODGING & GAMING - 1.4%
Doubletree Corp. (a) 285,900 7,504,875
HFS, Inc. (a) 525,000 42,918,750
ITT Corp. 85,000 4,505,000
Showboat, Inc. 150,000 3,956,250
58,884,875
RESTAURANTS - 0.8%
Applebee's International, Inc. 235,000 5,346,250
Apple South, Inc. 425,000 9,137,500
Lone Star Steakhouse Saloon (a) 235,000 9,018,125
Outback Steakhouse, Inc. (a) 245,000 8,789,375
Starbucks Corp. (a) 100,000 2,100,000
34,391,250
TOTAL MEDIA & LEISURE 109,921,875
NONDURABLES - 2.6%
AGRICULTURE - 0.1%
Pioneer Hi-Bred International, Inc. 70,000 3,893,750
BEVERAGES - 0.9%
Coca-Cola Company (The) 200,000 14,850,000
PepsiCo, Inc. 390,000 21,791,250
36,641,250
TOBACCO - 1.6%
Philip Morris Companies, Inc. 735,400 66,553,700
TOTAL NONDURABLES 107,088,700
PRECIOUS METALS - 0.5%
Barrick Gold Corp. 325,000 8,575,512
Firstmiss Gold, Inc. (a) 113,353 2,522,104
Newmont Mining Corp. 200,000 9,050,000
20,147,616
RETAIL & WHOLESALE - 7.7%
APPAREL STORES - 0.7%
Baby Superstore, Inc. (a) 75,000 4,275,000
Gap, Inc. 100,000 4,200,000
Just For Feet, Inc. (a) 575,000 20,556,250
29,031,250
APPLIANCE STORES - 0.4%
Cellstar Corp. (a) 710,000 18,460,000
DRUG STORES - 0.5%
General Nutrition Companies, Inc. (a) 735,000 16,905,000
Rite Aid Corp. 140,000 4,795,000
21,700,000
GENERAL MERCHANDISE STORES - 0.5%
Dollar General Corp. 260,050 5,396,038
Wal-Mart Stores, Inc. 681,700 15,253,038
20,649,076
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
RETAIL & WHOLESALE - CONTINUED
RETAIL & WHOLESALE, MISCELLANEOUS - 5.6%
Barnes & Noble, Inc. (a) 75,000 $ 2,175,000
Bed Bath & Beyond, Inc. (a) 250,000 9,703,125
Corporate Express (a) 400,000 12,050,000
Home Depot, Inc. (The) 425,000 20,346,875
Lowe's Companies, Inc. 1,275,000 42,712,500
Micro Warehouse, Inc. (a) 100,000 4,325,000
Officemax, Inc. (a) 950,000 21,256,250
Office Depot, Inc. (a) 300,000 5,925,000
Petco Animal Supplies, Inc. (a) 416,600 12,185,550
Petsmart, Inc. (a) 691,300 21,430,300
Staples, Inc. (a) 750,000 18,281,250
Sunglass Hut International, Inc. (a) 1,935,000 45,956,250
U.S. Office Products Co. (a) 235,000 5,346,250
Viking Office Products, Inc. (a) 175,000 8,137,500
229,830,850
TOTAL RETAIL & WHOLESALE 319,671,176
SERVICES - 1.3%
LEASING & RENTAL - 0.7%
Hollywood Entertainment Corp. (a) 1,345,400 11,267,725
Movie Gallery, Inc. (a) 500,000 15,250,000
26,517,725
SERVICES - 0.6%
Medaphis Corp. (a) 575,000 21,275,000
Zebra Technologies Corp. Class A (a) 120,000 4,080,000
25,355,000
TOTAL SERVICES 51,872,725
TECHNOLOGY - 32.5%
COMMUNICATIONS EQUIPMENT - 5.9%
Aspect Telecommunications Corp. (a) 110,000 3,685,000
Cisco Systems, Inc. (a) 1,400,000 104,475,000
DSC Communications Corp. (a) 1,800,000 66,375,000
Ericsson (L.M.) Telephone Co.
Class B ADR 178,500 3,480,750
Global Village Communication (a) 735,000 14,240,625
InterVoice, Inc. (a) 182,000 3,458,000
Jabil Circuit, Inc. (a) 235,700 2,651,625
Microtest, Inc. (a) 96,600 966,000
Microwave Power Devices, Inc. (a)(c) 253,000 2,814,625
U.S. Robotics Corp. 500,000 43,875,000
246,021,625
COMPUTER SERVICES & SOFTWARE - 14.2%
Access Health Marketing, Inc. (a) 50,000 2,212,500
Affiliated Computer Services Class A (a) 14,600 547,500
America Online, Inc. (a) 1,225,000 45,937,500
American Management Systems, Inc. (a) 240,800 7,224,000
Ascend Communications, Inc. (a) 400,000 32,450,000
Automatic Data Processing, Inc. 200,000 14,850,000
Broderbund Software, Inc. (a) 75,000 4,556,250
Business Objects SA sponsored ADR (a) 185,000 8,949,375
CUC International, Inc. (a) 665,000 22,693,125
Ceridian Corp. (a) 100,000 4,125,000
CompUSA, Inc. (a) 415,000 12,916,875
Computer Sciences Corp. (a) 250,000 17,562,500
DST Systems, Inc. (a) 100,000 2,850,000
Data Broadcasting Corp. (a) 203,800 2,522,025
Electronic Arts, Inc. (a) 195,800 5,115,275
FTP Software, Inc. (a) 250,000 7,250,000

SHARES VALUE (NOTE 1)
First Data Corp. 125,090 $ 8,365,394
General Motors Corp. Class E 435,000 22,620,000
HBO & Co. 250,000 19,156,250
Hummingbird Communications Ltd. (a) 140,000 5,746,326
Inso Corp. (a) 178,800 7,599,000
Macromedia, Inc. (a) 27,600 1,442,100
McAfee Associates, Inc. (a) 200,000 8,775,000
Medic Computer Systems, Inc. (a) 110,000 6,655,000
Metatools, Inc. (a) 4,000 104,000
Mercury Interactive Group Corp. (a) 329,800 6,018,850
Microsoft Corp. (a) 1,150,000 100,912,500
NETCOM On-Line Communication
Services, Inc. (a) 152,000 5,472,000
Netscape Communications Corp. (a) 15,000 2,085,000
Oracle Systems Corp. (a) 2,850,000 120,768,750
Parametric Technology Corp. (a) 125,000 8,312,500
Peoplesoft, Inc. (a) 779,300 33,509,900
Progress Software Corp. (a) 85,000 3,187,500
Project Software & Development, Inc. (a) 400 13,950
PsiNet, Inc. (a) 450,000 10,293,750
Stratacom, Inc. (a) 85,000 6,247,500
SunGard Data Systems, Inc. (a) 250,000 7,125,000
Systems & Computer Technology Corp. (a) 224,700 4,465,913
Technology Solutions, Inc. (a) 107,700 2,100,150
UUNET Technologies, Inc. (a) 40,000 2,520,000
585,258,258
COMPUTERS & OFFICE EQUIPMENT - 7.2%
Adaptec, Inc. (a) 625,000 25,625,000
Bay Networks, Inc. (a) 1,250,000 51,406,250
Compaq Computer Corp. (a) 1,425,000 68,400,000
Dell Computer Corp. (a) 350,000 12,118,750
Digital Equipment Corp. (a) 250,000 16,031,250
Discreet Logic, Inc. (a) 47,200 1,180,000
Gateway 2000, Inc. (a) 200,000 4,900,000
International Business Machines Corp. 153,500 14,083,625
Madge NV (a) 185,064 8,281,614
Pitney Bowes, Inc. 165,000 7,755,000
Read Rite Corp. (a) 250,026 5,813,105
SCI Systems, Inc. (a) 200,000 6,200,000
Seagate Technology (a) 225,000 10,687,500
Silicon Graphics, Inc. (a) 1,259,700 34,641,750
Sun Microsystems, Inc. (a) 320,000 14,600,000
Tech Data Corp. (a) 25,200 378,000
Western Digital Corp. (a) 440,000 7,865,000
Xerox Corp. 55,000 7,535,000
297,501,844
ELECTRONIC INSTRUMENTS - 0.0%
Cohu, Inc. 72,300 1,843,650
ELECTRONICS - 5.1%
Altera Corp. (a) 650,000 32,337,500
Analog Devices, Inc. (a) 572,300 20,245,113
Atmel Corp. (a) 725,000 16,221,875
Brightpoint, Inc. (a) 390,200 5,511,575
Cascade Communications Corp. (a) 35,000 2,983,750
Flextronics International (a) 50,000 1,500,000
International Rectifier Corp. (a) 175,000 4,375,000
Kemet Corp. (a) 250,000 5,968,750
LSI Logic Corp. (a) 835,030 27,347,233
Linear Technology Corp. 465,700 18,278,725
Marshall Industries (a) 4,100 131,713
Maxim Integrated Products, Inc. (a) 1,000,000 38,500,000
Microchip Technology, Inc. (a) 425,050 15,514,325
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TECHNOLOGY - CONTINUED
ELECTRONICS - CONTINUED
Solectron Corp. (a) 150,000 $ 6,618,750
Xilinx, Inc. (a) 450,000 13,725,000
209,259,309
PHOTOGRAPHIC EQUIPMENT - 0.1%
3D Systems Corp. (Del) (a) 204,600 4,859,250
TOTAL TECHNOLOGY 1,344,743,936
TRANSPORTATION - 1.3%
AIR TRANSPORTATION - 0.5%
AMR Corp. (a) 90,000 6,682,500
America West Airlines, Inc. Class B (a) 200,000 3,400,000
Delta Air Lines, Inc. 55,000 4,063,125
Southwest Airlines Co. 200,000 4,650,000
Trans World Airlines, Inc. (a) 275,000 2,853,125
21,648,750
RAILROADS - 0.8%
Burlington Northern Santa Fe Corp. 140,025 10,921,950
CSX Corp. 302,400 13,797,000
Union Pacific Corp. 115,000 7,590,000
32,308,950
TOTAL TRANSPORTATION 53,957,700
UTILITIES - 9.4%
CELLULAR - 4.8%
AirTouch Communications, Inc. (a) 3,150,000 88,987,500
Arch Communications Group, Inc. (a) 250,043 6,001,032
BCE Mobile Communications, Inc. (a) 13,000 439,495
Metrocall, Inc. (a) 229,300 4,385,363
Mobile Telecommunications
Technologies, Inc. (a) 210,000 4,488,750
Mobilemedia Corp. (a) 128,600 2,861,350
Palmer Wireless, Inc. (a) 975,000 21,450,000
United States Cellular Corp. (a) 471,300 15,906,375
Vanguard Cellular Systems, Inc.
Class A (a)(c) 2,625,000 53,156,250
197,676,115
TELEPHONE SERVICES - 4.6%
AT&T Corp. 600,000 38,850,000
Ameritech Corp. 525,000 30,975,000
Bell Atlantic Corp. 450,000 30,093,750
BellSouth Corp. 600,000 26,100,000
Frontier Corp. 585,000 17,550,000
LCI International, Inc. (a) 324,300 6,648,150
Lincoln Telecommunications Co. 107,700 2,275,163
SBC Communications, Inc. 575,000 33,062,500
WorldCom, Inc. (a) 115,300 4,064,325
189,618,888
TOTAL UTILITIES 387,295,003
TOTAL COMMON STOCKS
(Cost $2,664,143,877) 3,420,079,613
NONCONVERTIBLE PREFERRED STOCKS - 0.2%
SHARES VALUE (NOTE 1)
TECHNOLOGY - 0.2%
COMPUTERS & OFFICE EQUIPMENT - 0.2%
Silicon Graphics CDA Ltd.
exchangeable (a)
(Cost $11,098,161) 280,080 $ 7,702,107
U.S. TREASURY OBLIGATION - 1.7%
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (NOTE 1)
6.25%, 8/15/23
(Cost $68,683,766) Aaa 67,700,000 69,657,211
REPURCHASE AGREEMENTS - 15.4%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in repurchase agreements
(U.S. Treasury obligations) in a
joint trading account at 5.91%
dated 12/29/95 due 1/2/96 $ 637,818,559 637,400,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $3,381,325,804) $ 4,134,838,931
LEGEND
1. Non-income producing
2. Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $2,406,843 or 0.1% of net
assets.
3. An affiliated company is a company in which the fund has ownership of at
least 5% of the voting securities. Transactions with companies that are or
were affiliates are as follows:
PURCHASES SALES DIVIDEND MARKET
AFFILIATE COST COST INCOME VALUE
Just For Feet, Inc. $ 2,342,009 $ 659,304 - $ -
Microwave Power Devices, Inc. - 216,000 - 2,814,625
Vanguard Cellular Systems, Inc.
Class A 12,954,211 - - 53,156,250
TOTAL $ 15,296,220 $ 875,304 $ - $ 55,970,875
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $3,908,904,414 and $3,139,228,624, respectively, of which U.S.
government and government agency obligations aggregated $68,683,766 and $0,
respectively.
The fund placed a portion of its portfolio transactions with brokerage
firms which are affiliates of Fidelity Management & Research Company. The
commissions paid to these affiliated firms were $1,250,453 for the period
(see Note 3 of Notes to Financial Statements).
INCOME TAX INFORMATION
At December 31, 1995, the aggregate cost of investment securities for
income tax purposes was $3,395,126,667. Net unrealized appreciation
aggregated $739,712,264, of which $816,952,982 related to appreciated
investment securities and $77,240,718 related to depreciated investment
securities.
The fund hereby designates approximately $188,205,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
VARIABLE INSURANCE PRODUCTS FUND: GROWTH PORTFOLIO
FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES

<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31, 1995

ASSETS

Investment in securities, at value (including repurchase agreements of $637,400,000) (cost $3,381,325,804) $ 4,134,838,931
- - See accompanying schedule

Cash 470

Receivable for investments sold 111,607,416

Receivable for fund shares sold 9,321,438

Dividends receivable 2,825,313

Interest receivable 1,586,719

Other receivables 361,034

TOTAL ASSETS 4,260,541,321

LIABILITIES

Payable for investments purchased $ 94,809,749

Payable for fund shares redeemed 237,116

Accrued management fee 2,089,504

Other payables and accrued expenses 703,141

TOTAL LIABILITIES 97,839,510

NET ASSETS $ 4,162,701,811

Net Assets consist of:

Paid in capital $ 3,119,102,643

Undistributed net investment income 10,790,283

Accumulated undistributed net realized gain (loss) on investments and foreign 279,295,633
currency transactions

Net unrealized appreciation (depreciation) on investments 753,513,252
and assets and liabilities
in foreign currencies

NET ASSETS, for 142,576,497 shares outstanding $ 4,162,701,811

NET ASSET VALUE, offering price $29.20
and redemption price per
share ($4,162,701,811 (divided by) 142,576,497 shares)

</TABLE>

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1995

INVESTMENT INCOME $ 19,321,500
Dividends

Interest 14,884,599

TOTAL INCOME 34,206,099

EXPENSES

Management fee $ 19,591,048

Transfer agent fees 1,536,285

Accounting fees and expenses 760,478

Non-interested trustees' compensation 15,959

Custodian fees and expenses 155,218

Registration fees 404,037

Audit 47,036

Legal 14,321

Miscellaneous 7,492

TOTAL EXPENSES 22,531,874

NET INVESTMENT INCOME 11,674,225

REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:

Investment securities (including 361,330,988
realized gain of $736,446
on sales of investments in
affiliated issuers)

Foreign currency transactions (11,163 361,319,825
)

Change in net unrealized appreciation (depreciation) on:

Investment securities 474,991,138

Assets and liabilities in 125 474,991,263
foreign currencies

NET GAIN (LOSS) 836,311,088

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 847,985,313

</TABLE>

STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994

<TABLE>
<CAPTION>
<S> <C> <C>
Operations $ 11,674,225 $ 11,810,184
Net investment income

Net realized gain (loss) 361,319,825 (74,102,658)

Change in net unrealized appreciation (depreciation) 474,991,263 80,193,945

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 847,985,313 17,901,471

Distributions to shareholders (12,404,421) (7,589,523)
From net investment income

From net realized gain - (80,320,550)

TOTAL DISTRIBUTIONS (12,404,421) (87,910,073)

Share transactions 2,059,928,760 1,289,938,019
Net proceeds from sales of shares

Reinvestment of distributions 12,404,421 87,909,946

Cost of shares redeemed (887,081,596) (549,819,377)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 1,185,251,585 828,028,588

TOTAL INCREASE (DECREASE) IN NET ASSETS 2,020,832,477 758,019,986

NET ASSETS

Beginning of period 2,141,869,334 1,383,849,348

End of period (including undistributed net investment income of $10,790,283 and $11,472,202,
respectively) $ 4,162,701,811 $ 2,141,869,334

OTHER INFORMATION
Shares

Sold 76,302,442 60,676,019

Issued in reinvestment of distributions 568,749 4,039,985

Redeemed (33,037,870) (25,920,211)

Net increase (decrease) 43,833,321 38,795,793

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C>
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

</TABLE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31,

SELECTED PER-SHARE DATA 1995 1994 1993 E 1992 1991

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 21.69 $ 23.08 $ 19.76 $ 18.51 $ 12.91

Income from Investment Operations

Net investment income .08 .12 .12 .09 .09 C

Net realized and unrealized gain (loss) 7.55 (.12) D 3.64 1.64 5.72

Total from investment operations 7.63 - 3.76 1.73 5.81

Less Distributions (.12) (.12) (.11) (.05) (.21)
From net investment income

From net realized gain - (1.27) (.21) (.43) -

In excess of net realized gain - - (.12) - -

Total distributions (.12) (1.39) (.44) (.48) (.21)

Net asset value, end of period $ 29.20 $ 21.69 $ 23.08 $ 19.76 $ 18.51

TOTAL RETURN A, B 35.36% (.02)% 19.37% 9.32% 45.51%

RATIOS AND SUPPLEMENTAL DATA

Net assets, end of period (000 omitted) $ 4,162,702 $ 2,141,869 $ 1,383,849 $ 749,837 $ 371,462

Ratio of expenses to average net assets .70% .70% .71% .75% .84%

Ratio of expenses to average net assets after expense reductions .70% .69% .71% .75% .84%
F

Ratio of net investment income to average net assets .37% .69% .72% .83% .56%

Portfolio turnover rate 108% 122% 159% 262% 261%

A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
B TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR
INSURANCE COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES
WOULD REDUCE THE TOTAL RETURNS SHOWN.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON
AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
D THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH
THE AGGREGATE NET GAIN ON INVESTMENTS FOR THE PERIOD ENDED DUE TO
THE TIMING OF SALES AND
REPURCHASES OF FUND SHARES IN RELATION TO FLUCTUATING MARKET VALUES
OF THE INVESTMENTS OF THE FUND.
E 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.
F FMR HAS DIRECTED CERTAIN PORTFOLIO TRADES TO BROKERS WHO PAID A
PORTION OF THE FUND'S EXPENSES.

</TABLE>

VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY

OVERSEAS 9.74% 8.13% 7.31%

Morgan Stanley EAFE Index 11.21% 9.37% 7.53%

AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and
show you what would have happened if the fund had performed at a constant
rate each year.

UNDERSTANDING PERFORMANCE
Many markets around the globe offer the potential
for significant growth over time; however,
investing in foreign markets means assuming
greater risks than investing in the United States.
Factors like changes in a country's financial
markets, its local political and economic
climate, and the fluctuating value of its currency
create these risks. For these reasons an
international fund's performance may be more
volatile than a fund that invests exclusively in the
United States.
(checkmark)
You can compare the fund's figures to the performance of the Morgan Stanley
EAFE index - a broad measure of the performance of stocks in Europe,
Australia, and the Far East. This benchmark includes reinvested dividends
and capital gains, if any.
Figures for more than one year assume a steady compounded rate of return
and are not the fund's year-by-year results, which fluctuated over the
periods shown. The life of fund figures are from commencement of operations
January 28, 1987.
If Fidelity had not reimbursed certain fund expenses, the fund's life of
fund total return would have been lower.
PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, THE TOTAL RETURNS WOULD HAVE BEEN LOWER.
Past performance is no guarantee of future results. Principal and
investment return will vary and you may have a gain or loss when you
withdraw your money. Foreign investments involve greater risks and
potential rewards than U.S. investments. These risks include political and
economic uncertainties of foreign countries, as well as the risk of
currency fluctuations.
$10,000 OVER LIFE OF FUND
VIP OverseasEurope, A
01/28/87 10000.00 10000
01/31/87 10000.00 9997.463
02/28/87 10010.00 10296.66
03/31/87 10460.00 11140.41
04/30/87 11220.00 12319.18
05/31/87 11060.00 12319.14
06/30/87 10520.00 11926.66
07/31/87 10400.00 11905.82
08/31/87 11320.00 12798.54
09/30/87 11070.00 12597.05
10/31/87 8760.00 10777
11/30/87 8840.00 10938.65
12/31/87 9462.16 11263.46
01/31/88 9138.32 11464.55
02/29/88 9381.20 12228.75
03/31/88 9806.24 12980.64
04/30/88 9968.16 13169.27
05/31/88 9786.00 12747.12
06/30/88 9613.96 12411.13
07/31/88 9543.12 12800.51
08/31/88 9209.16 11968.24
09/30/88 9603.84 12491.19
10/31/88 10028.88 13559.96
11/30/88 10211.04 14367.68
12/31/88 10231.28 14447.79
01/31/89 10534.87 14701.99
02/28/89 10717.03 14777.56
03/31/89 10707.38 14487.53
04/30/89 11023.50 14621.89
05/31/89 10615.60 13826.42
06/30/89 10574.81 13593.67
07/31/89 11563.97 15300.67
08/31/89 11482.39 14612.54
09/30/89 12196.21 15278.16
10/31/89 11533.38 14664.33
11/30/89 12155.42 15401.5
12/31/89 12920.24 15969.77
01/31/90 12746.88 15375.56
02/28/90 12449.36 14302.43
03/31/90 12919.92 12812.46
04/30/90 12991.52 12710.78
05/31/90 13840.58 14161.09
06/30/90 14147.46 14036.37
07/31/90 14863.53 14234.08
08/31/90 13349.56 12851.83
09/30/90 12081.09 11060.74
10/31/90 13206.34 12784.21
11/30/90 12797.16 12030.1
12/31/90 12705.10 12224.98
01/31/91 12827.85 12620.4
02/28/91 13260.02 13973.29
03/31/91 12872.18 13134.44
04/30/91 13155.20 13263.42
05/31/91 13186.64 13401.82
06/30/91 12463.37 12417.04
07/31/91 13081.82 13027.11
08/31/91 13123.75 12762.56
09/30/91 13658.34 13481.84
10/31/91 13752.68 13672.96
11/30/91 13260.02 13034.64
12/31/91 13721.24 13707.79
01/31/92 13888.95 13415
02/29/92 13599.52 12934.85
03/31/92 13323.28 12080.93
04/30/92 14152.01 12138.36
05/31/92 14768.23 12950.85
06/30/92 14491.99 12336.56
07/31/92 13567.65 12020.83
08/31/92 13450.78 12774.79
09/30/92 12908.92 12522.52
10/31/92 12027.08 11865.66
11/30/92 11963.33 11977.32
12/31/92 12250.20 12039.27
01/31/93 12600.81 12037.79
02/28/93 12847.62 12401.41
03/31/93 13738.91 13482.39
04/30/93 14651.94 14761.9
05/31/93 14967.16 15073.67
06/30/93 14597.60 14838.49
07/31/93 15173.67 15357.91
08/31/93 15988.88 16186.97
09/30/93 15901.92 15822.62
10/31/93 16478.00 16310.23
11/30/93 15782.36 14884.55
12/31/93 16825.82 15959.32
01/31/94 17923.63 17308.6
02/28/94 17607.51 17260.66
03/31/94 17170.60 16517.22
04/30/94 17738.58 17218.03
05/31/94 17520.13 17119.18
06/30/94 17334.44 17361.11
07/31/94 17793.20 17528.07
08/31/94 18000.73 17943.05
09/30/94 17531.05 17377.92
10/31/94 17891.50 17956.61
11/30/94 17214.29 17093.61
12/31/94 17115.99 17200.65
01/31/95 16406.01 16539.88
02/28/95 16449.17 16492.41
03/31/95 16955.64 17521.06
04/30/95 17440.09 18180
05/31/95 17682.31 17963.28
06/30/95 17847.46 17648.27
07/31/95 18640.19 18746.98
08/31/95 18122.72 18031.85
09/30/95 18386.96 18384.02
10/31/95 18023.62 17889.85
11/30/95 18232.82 18387.61
12/29/95 18783.33 19128.45

Let's say you invested $10,000 in Overseas Portfolio on January 28, 1987,
when the fund started. By December 31, 1995, your investment would have
grown to $18,783 - an 87.83% increase. That compares to $10,000 invested in
the Morgan Stanley EAFE Index, which would have grown to $19,128 over the
same period - a 91.28% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF DECEMBER 31, 1995
% OF FUND'S
INVESTMENTS

C. S. Holdings (Reg.) 2.0

Unilever NV Ord. 1.3

Nomura Securities Co. Ltd. 1.2

ING Groep NV 1.1

Banco Bilbao Vizcaya SA Ord. (Reg.) 1.0

TOP FIVE MARKET SECTORS AS OF DECEMBER 31, 1995
% OF FUND'S
INVESTMENTS

Finance 26.4

Utilities 8.9

Nondurables 8.7

Durables 7.7

Basic Industries 5.4

GEOGRAPHIC DIVERSIFICATION AS OF DECEMBER 31, 1995
(BY LOCATION OF ISSUER) % OF FUND'S
INVESTMENTS

Japan 21.2

United Kingdom 12.9

Switzerland 8.0

Netherlands 6.4

France 5.1

VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW

An interview with John Hickling, Portfolio Manager of Overseas Portfolio
Q. JOHN, HOW HAS THE FUND PERFORMED?
A. For the 12 months ended December 31, 1995, the fund's performance
slightly trailed that of the Morgan Stanley EAFE Index - a broad measure of
stocks in Europe, Australia and the Far East. The index had a total return
of 11.21% for the 12-month period.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
A. I think the main factor was that I thought the effects of slowing
economic growth on earnings estimates would have an impact on stock prices
somewhat before their effect was really felt. For example, I avoided
cyclical stocks - those that tend to rise and fall with the economy, such
as paper and forest product companies - but they didn't start to come down
until the fourth quarter. Instead, I focused the fund on what I would call
defensive stocks. These investments included Unilever, a consumer
nondurable stock that tends to post solid earnings regardless of the
economic climate, and financial investments such as ING Groep, which
generally benefit from the interest rate declines we've seen during the
year. These stocks helped the fund, but not until the fourth quarter.
Q. LET'S TAKE A CLOSER LOOK AT HOW YOU POSITIONED THE FUND DURING THE PAST
YEAR.
A. Most of 1995 was frustrating because, historically, markets around the
world have shown a higher correlation to the U.S. market than we've seen
this year. In addition, foreign stock market performance generally did not
coincide with the strong performance seen in many bond markets. The
slowdown experienced by many economies led to lower interest rates, an
environment that generally is supportive for stock markets as well. That's
because lower rates can reduce companies' borrowing costs and make
alternatives to stock investing less attractive. Furthermore, the good
performance in several foreign markets was narrow, driven by the strength
of only a few stocks. Looking specifically at the fund, more investments
were in Japan than elsewhere -21.2% at the end of the period - although the
fund held less there than is included in the EAFE index. This is a market
that struggled through most of the year, although it rebounded in the
fourth quarter. The Japanese banking sector performed well through the
first part of the year and in the fourth quarter. However, the fund didn't
participate, because its Japanese investments were focused on exporters;
companies with electronics or technology-oriented businesses, such as
Matsushita Electric, Hitachi and Omron; retailers such as Ito-Yodako; and
financial stocks such as Nomura Securities. In the second half of the year,
though, some of these stocks rebounded, because the yen started to weaken
versus the dollar, making these companies' products less expensive abroad.
Q. YOU ALSO INVESTED A FAIR AMOUNT IN THE UNITED KINGDOM...
A. That's right, 12.9%, about as much as is included in the EAFE index.
This has been one of the best performing markets outside of the U.S., led,
for the most part, by financial stocks including Barclays and National
Westminster Bank. In the early part of 1995, a number of consumer
nondurable stocks helped the fund, including brewers Bass and Whitbread.
Q. LET'S TURN TO EMERGING MARKETS...
A. At the end of last year, when emerging markets dropped sharply after
Mexico's devaluation of the peso, I had minimal investments in emerging
markets. I started adding some emerging market stocks in May, including
Mexican banks as well as investments in Brazil, Chile and Southeast Asia.
One stock that turned in a very good performance was Sampoerna, an
Indonesian cigarette company. One of the main reasons I owned this stock
and Matahari, an Indonesian retailer, was that the standard of living for
many Indonesians has been on the rise. With wages and disposable income
growing, demand for items such as cigarettes, beer, toothpaste and clothing
has been increasing. The fund's investments in Unilever and Nestle also
gave it some exposure to this growth in consumer nondurable spending in
emerging markets.
Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS?
A. At the end of the year, overseas markets started to catch up to the U.S.
market. Investors have started to become more actively interested in
opportunities abroad, attracted by, among other things, cheap stock
valuations. Prospects for foreign markets seem to be improving, in absolute
terms and relative to the U.S. After the mixed performance we've seen from
international markets over the past few years, a contrarian investor might
become more interested in foreign markets from a risk/reward perspective.
I'm hoping we'll see some signs of a rebound in overseas markets, with
investors finding better buys abroad than domestically.
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.

Showing Percentage of Total Value of Investment in Securities

COMMON STOCKS - 86.7%
SHARES VALUE (NOTE 1)
ARGENTINA - 0.8%
Buenos Aires Embotelladora SA
sponsored ADR 41,800 $ 862,130
Perez Companc Class B 308,452 1,634,550
Telecom Argentina sponsored ADR
Class B 83,400 3,971,925
Telecom Argentina Stet France
Telecom SA 263,600 1,251,912
YPF Sociedad Anonima sponsored
ADR representing Class D shares 150,500 3,254,563
10,975,080
AUSTRALIA - 2.2%
Amcor Ltd. 190,700 1,345,603
Brambles Industries Ltd. 276,500 3,080,556
FAI Insurance Ltd. Ord. 2,037,900 1,104,965
Fosters Brewing Group Ltd. 903,100 1,482,418
Lend Lease Corp. Ltd. 81,000 1,173,174
Pioneer International Ltd. 493,300 1,271,403
Qantas Airways Ltd. sponsored ADR (b) 48,400 810,700
TNT Ltd. 1,106,800 1,463,295
Western Mining Holdings Ltd. 414,100 2,657,429
Westpac Banking Corp. 2,912,700 12,893,911
Woolworths Ltd. 991,200 2,385,333
29,668,787
AUSTRIA - 0.3%
EVN (Energie-Versor Nieder) 12,200 1,671,729
VA Technologie AG 6,800 861,143
VA Technologie AG (b) 15,000 1,899,580
4,432,452
BELGIUM - 1.2%
Bekaert SA 11,255 9,272,120
Delhaize Freres & Cie Le Lion SA 135,300 5,617,835
Petrofina SA 5,100 1,566,600
Petrofina SA (warrants) (a) 595 7,254
16,463,809
BERMUDA - 0.0%
Consolidated Electric Power Asia Ltd.
sponsored ADR (b) 39,800 701,475
BRAZIL - 0.7%
Brahma (Cia Cervejaria) PN Class B
(Pfd. Reg.) 3,204,300 1,318,743
Coteminas PN 2,500,000 835,948
Telebras PN:
(Pfd. Reg.) 103,879,970 5,001,883
sponsored ADR (a) 52,500 2,487,188
9,643,762
CANADA - 0.4%
Midland Walwyn, Inc. 269,900 1,730,952
Noranda, Inc. 191,100 3,939,385
5,670,337
CHILE - 0.3%
Santa Isabel SA sponsored ADR (a) 90,900 2,181,600
Vina Concha Stet y Toro SA
sponsored ADR 81,300 1,463,400
3,645,000

SHARES VALUE (NOTE 1)
FINLAND - 0.7%
Cultor OY, Series 1 71,100 $ 2,933,908
Pohjola Class B 334,000 4,287,843
Valmet OY Class A 91,700 2,291,396
9,513,147
FRANCE - 5.1%
Accor SA 65,158 8,419,479
Alcatel Alsthom CGE 77,300 6,651,597
Axa SA 158,018 10,627,930
Club Mediterranee SA Ord. 28,200 2,247,264
Compagnie Bancaire Ord. 65,670 7,334,589
Elf Aquitaine 38,528 2,833,161
Generale des Eaux 60,582 6,036,592
IMETAL SA Ord. 40,700 4,852,644
Lafarge Coppee SA 41,590 2,674,339
Michelin SA Cie Generale des
Etablissements Class B 128,100 5,098,936
Total SA Class B 144,400 9,726,730
Vallourec SA (a) 60,000 2,127,790
68,631,051
GERMANY - 4.2%
Asko 2,900 1,512,517
Bayer AG 12,000 3,158,554
Bayerische Vereinsbank AG Ord. 99,500 2,947,636
Continental Gummi-Werke AG 256,000 3,560,501
Daimler-Benz AG Ord. 8,700 4,368,150
Deutsche Bank AG 273,300 12,918,081
Gildemeister AG 18 1,627
Hoechst AG Ord. 14,500 3,922,462
Kaufhof Holding AG 14,500 4,406,467
Mannesmann AG Ord. 16,400 5,208,540
Metallgesellschaft AG Ord. 88,300 1,928,108
Metallgesellschaft AG (b) 86,700 1,893,171
Veba AG Ord. 170,900 7,237,698
Volkswagen AG 8,900 2,968,317
56,031,829
HONG KONG - 2.9%
Amoy Properties Ltd. 2,208,000 2,198,720
Consolidated Electric Power Asia Ltd. 1,464,000 2,660,097
Dickson Concepts International Ltd. 2,578,000 2,400,449
Great Eagle Holdings Ltd. 948,000 2,451,988
HSBC Holdings PLC 834,000 12,619,205
Hong Kong Land Holdings Ltd. 2,544,000 4,706,400
Hong Kong Telecommunications Ltd. 1,838,000 3,280,233
Hopewell Holdings Ltd. 3,944,000 2,269,745
Hysan Development Co. Ltd. 1,383,000 3,657,595
Peregrine Investments Holdings Ltd. 832,000 1,075,978
Semi-Tech (Global) Ltd. 102,006 164,239
Sun Hung Kai Properties Ltd. (a) 153,000 1,251,503
38,736,152
INDIA - 0.1%
Reliance Industries Ltd. GDS 106,400 1,423,632
INDONESIA - 1.6%
Astra International PT (For. Reg.) 1,596,500 3,316,589
Bank International Indonesia PT Ord. 921,000 3,051,205
Bank Niaga PT 330,000 656,681
Gudang Garam PT Perusahaan 271,500 2,837,899
Jakarta International Hotels &
Development Ord. 1,541,000 1,887,078
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
INDONESIA - CONTINUED
Matahari Putra Prima PT (For. Reg.) 1,011,500 $ 1,780,578
Sampoerna Hanjaya Mandala (For. Reg.) 735,750 7,658,370
Semen Gresik (For. Reg.) 268,500 751,542
21,939,942
IRELAND - 0.9%
Bank of Ireland U.S. Holdings, Inc. 1,009,200 7,355,579
Fyffes PLC 1,358,000 2,169,096
Independent Newspapers PLC 521,050 3,151,271
12,675,946
ITALY - 1.7%
Assicurazioni Generali Spa 198,470 4,800,400
Benetton Group Spa 126,200 1,494,691
Bulgari Spa (a) 163,400 1,393,736
Fiat Spa 396,500 1,286,128
Istituto Mobiliare Italiano 301,400 1,897,985
Istituto Nazionale Delle Assicurazioni Spa 976,500 1,294,416
Italgas Spa 734,700 2,236,486
Magneti Marelli Spa 1,169,000 1,406,775
Montedison Spa Ord. (a) 1,604,600 1,075,123
Olivetti Ing C & Co. Spa Ord. 4,324,750 3,496,838
SAI Sta Assieuratrice Industriale Spa 211,200 2,156,554
22,539,132
JAPAN - 21.2%
ADO Electronic Industrial Co. Ltd. 19,000 486,944
Acom Co. Ltd. 1,000 41,779
Aida Engineering Ltd. Ord. 176,000 1,348,085
Amada Metrecs Co. Ltd. 86,000 1,372,340
Amadasonoike Co. Ltd. 282,000 1,808,182
Amway Japan Ltd. 78,100 3,293,192
Aoyama Trading Co. Ord. (a) 114,600 3,657,447
Bridgestone Corp. 339,000 5,376,789
Canon, Inc. 548,000 9,910,638
Citizen Watch Co. Ltd. Ord. 422,000 3,224,178
Daiwa House Industry Co. Ltd. 218,000 3,584,139
East Japan Railway Co. Ord. 700 3,398,453
Fanuc Ltd. 98,200 4,245,203
Fuji Bank 126,000 2,778,337
Fuji Photo Film Co. Ltd. 261,000 7,522,050
Fujitsu Ltd. 370,000 4,115,087
Futaba Industrial Co. Ltd. 126,000 2,059,381
Hanshin Department Store Ltd. 29,000 222,969
Hirose Electric Co. Ltd. 25,200 1,447,660
Hitachi Ltd. 1,126,000 11,325,339
Honda Motor Co. Ltd. 597,000 12,297,969
Ishihara Sangyo Kaisha Ltd. (a) 343,000 1,111,267
Isetan Co. Ltd. 289,000 4,751,451
Ito-Yokado Co. Ltd. 27,000 1,660,735
Izumi Co. Ord. 112,000 2,469,633
Japan Airlines Co. Ltd. (a) 302,000 2,000,677
Kao Corp. 114,000 1,411,219
Kobe Steel (a) 1,187,000 3,662,021
Komatsu Ltd. Ord. 410,000 3,370,406
Komatsu Seiren 30,000 275,629
Marubeni Corp. 339,000 1,832,698
Matsushita Electric Industrial Co. Ltd. 303,000 4,923,017
Marukyo Corp. 16,000 286,267
Minebea Co. Ltd. 546,000 4,572,882
Mitsubishi Estate Co. Ltd. 264,000 3,293,617
Mitsubishi Heavy Industries Ltd. 492,000 3,916,016
Mitsubishi Trust & Banking Corp. 191,000 3,177,176

SHARES VALUE (NOTE 1)
Mitsui Trust and Banking 449,000 $ 4,906,867
Mitsukoshi Ltd. 315,000 2,955,029
Murata Manufacturing Co. Ltd. 132,000 4,851,064
Nichido Fire & Marine
Insurance Co. Ltd. 591,000 4,744,004
Nikko Securities Co. Ltd. 521,000 6,701,451
Nintendo Co. Ltd. Ord. 46,000 3,492,263
Nissan Motor Co. Ltd. Ord. 468,000 3,589,207
Nitto Denko Corp. 97,000 1,500,967
Nomura Securities Co. Ltd. 711,000 15,471,470
Omron Corp. 139,000 3,199,420
Onward Kashiyama & Co. Ltd. 291,000 4,728,046
Orix Corp. 242,000 9,946,809
Rohm Co. Ltd. 120,000 6,765,958
Sakura Bank Ltd. 265,000 3,357,350
Sankyo Co. Ltd. 142,000 3,186,074
Seino Transpotation Co. Ltd. 144,000 2,409,284
Sekisui Chemical Co. Ltd. (a) 325,000 4,777,563
Sony Corp. 141,500 8,470,841
Sumitomo Marine and Fire
Insurance Co. Ltd. 420,000 3,444,487
Sumitomo Realty & Development Co. Ltd. 648,000 4,574,855
Sumitomo Trust & Banking Co. Ltd. 315,000 4,447,776
TDK Corp. 44,000 2,242,553
Takashimaya Co. Ltd. 322,000 5,138,298
Takeda Chemical Industries Ltd. 487,000 8,006,770
Tokio Marine & Fire
Insurance Co. Ltd. (The) 1,065,000 13,904,739
Toshiba Corp. 629,000 4,921,286
Toyota Motor Corp. 397,000 8,408,414
Tsugami Corp. 253,000 1,409,362
Uny Co. Ltd. 103,000 1,932,495
Yamanouchi Pharmaceutical Co. Ltd. 209,000 4,487,234
284,202,808
KOREA (SOUTH) - 0.9%
Cho Hung Bank Co. Ltd. 191,504 2,409,736
Korea Electric Power Corp. 147,470 6,329,338
Korea First Securities Co. Ltd. 16,203 194,248
Kyungki Bank 171,523 1,680,406
Seoul Securities Co. 74,592 903,854
11,517,582
MEXICO - 1.2%
Banacci SA de CV:
Class B 352,200 591,348
Class L 17,610 26,226
Cemex SA, Series B 1,152,800 4,194,724
Cifra SA Class C 1,559,100 1,580,374
Consorcio G Grupo Dina SA ADR 34,800 65,250
Empresas Ica Sociedad Controladora SA
de CV sponsored ADR representing Ord.
(participation certificates) 208,700 2,139,175
Grupo Carso SA de CV Class A-1 (a) 287,800 1,555,878
Grupo Dina sponsored ADR, Series L 12,543 17,247
Grupo Financiero Bancomer SA de CV (a):
Class B 5,151,800 1,439,424
Series L 216,879 56,369
sponsored ADR, Series C (b) 70,200 386,100
Telefonos de Mexico SA sponsored ADR
representing shares Ord. Class L 121,400 3,869,625
15,921,740
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
MALAYSIA - 0.9%
Kuala Lumpur Industries Holdings BHD (a) 290,000 $ 332,375
Magnum Corp. BHD 567,500 1,072,863
Malayan Banking BHD 133,000 1,120,993
Resorts World BHD 443,000 2,372,903
Telekom Malaysia BHD 792,000 6,176,290
Tenega Nasional BHD 251,000 988,578
Time Engineering BHD 161,000 374,124
12,438,126
NETHERLANDS - 6.4%
ABN-AMRO Holdings NV 46,500 2,113,899
AKZO NV 103,800 11,980,896
IHC Caland NV 93,200 3,129,851
ING Groep NV 228,108 15,207,200
KLM Royal Dutch Airlines Ord. 271,873 9,535,844
Koninklijke PPT Nederland 221,500 8,030,752
Oce Van der Grinten NV 136,700 8,297,214
Pirelli Tyre Holdings NV Ord.(a) 546,100 4,754,602
Royal Dutch Petroleum Co. Ord. 29,500 4,091,107
Unilever NV Ord. 122,000 17,108,831
Vendex International NV (b) 81,400 2,414,664
86,664,860
NORWAY - 2.2%
Bergesen Group:
Class A 35,500 705,031
Class B 301,600 5,894,710
Christiania Bank Free shares Ord. 1,475,000 3,417,581
Den Norske Bank Class A Free shares 1,146,800 2,964,428
Norsk Hydro AS 85,150 3,570,062
Orkla AS:
Class A Free shares 93,250 4,622,521
Class B (non-vtg.) 47,800 2,275,329
Saga Petroleum AS Class B 261,600 3,257,424
Unitor AS 192,300 2,636,987
29,344,073
PAKISTAN - 0.0%
Hub Power Co. Ltd. GDR (a) 36,200 629,880
PHILIPPINES - 0.2%
Philippine Long Distance Telephone Co.
sponsored ADR 51,400 2,782,025
POLAND - 0.1%
Bank Gdanski SA GDR (b) 92,600 900,998
SINGAPORE - 0.4%
Kim Engineering Holdings Ltd. 2,455,000 2,256,593
Overseas Union Bank Ltd. (For.) 265,000 1,826,875
Van Der Horst Ltd. 156,000 788,659
4,872,127
SOUTH AFRICA - 0.1%
De Beers Consolidated Mines Ltd. ADR 24,000 726,000
SPAIN - 4.9%
Banco Bilbao Vizcaya SA Ord. (Reg.) 389,200 13,974,807
Banco de Santander SA Ord. (Reg.) 51,000 2,551,990
Banco Intercontinental Espanol 59,550 5,773,715
Corporacion Mapfrecia International de
Reaseguros SA (Reg.) 183,400 10,232,003
Repsol SA Ord. 139,500 4,556,201
Tabacalera SA, Series A 205,200 7,755,803
Telefonica de Espana SA Ord. 971,750 13,413,910
Union Electrica Fenosa SA 1,152,700 6,914,021
65,172,450

SHARES VALUE (NOTE 1)
SWEDEN - 2.7%
Investor AB Class B Free shares 314,700 $ 10,356,174
Mo Och Domsjoe AB Class B 30,800 1,309,772
SKF AB Ord. 133,700 2,551,488
Skandia Foersaekrings AB 35,400 954,830
Skandinaviska Enskilda Banken
Class A Free shares 948,300 7,837,308
Volvo AB Class B 637,400 13,025,951
36,035,523
SWITZERLAND - 8.0%
Adia SA (Bearer) (a) 27,500 4,480,069
Alusuisse-Lonza Holding AG (Reg.) 12,739 10,089,641
Baloise Holding (Reg.) 3,802 7,907,106
CIBA-GEIGY AG (Reg.) 15,680 13,791,334
C.S. Holdings (Reg.) 258,405 26,478,675
Fischer (Georg) AG (Reg.) 11,600 2,915,078
Nestle SA (Reg.) 11,425 12,632,842
Roche Holdings Ltd. (participation
certificates) 1,700 13,442,374
Surveillance, Societe Generale (Bearer) 1,010 2,004,246
Swiss Bank Corp. (Bearer) 33,500 13,672,877
107,414,242
THAILAND - 1.4%
Bank of Asia PCL (For. Reg.) 354,310 815,799
Krung Thai Bank:
(Loc. Reg.) 179,300 740,262
(For. Reg.) 1,816,640 7,500,221
Ruang Khao Unit Trust (For. Reg.) 836,800 498,293
Siam City Bank PCL (For. Reg.) 6,882,800 7,923,827
Telecomasia Corp. PCL (For. Reg.) (a) 394,000 1,196,546
18,674,948
TURKEY - 0.1%
Aksigorta 350,000 27,918
Aksigorta (b) 1,190,000 94,922
Tofas Turk Otomobil Fabrikasi
AS ADR (b) 662,400 331,200
Tofas Turk Otomobil Fabrikasi AS 9,602,400 951,393
1,405,433
UNITED KINGDOM - 12.9%
Allied Lyons PLC 421,100 3,421,829
Argyll Group PLC Ord. 506,900 2,672,656
Avon Rubber 81,900 609,631
BTR PLC Ord. 625,100 3,179,546
Barclays PLC Ord. 980,300 11,219,078
Barratt Developments PLC 1,162,000 4,441,860
Bass PLC Ord. 576,600 6,424,554
Berkeley Group PLC 532,200 4,151,305
Booker PLC 364,200 2,050,163
Boots Co. PLC (The) 287,600 2,600,155
British Airways PLC Ord. 517,100 3,736,821
British Land Ord. 337,750 1,995,548
Burmah Oil 100,017 1,447,871
Cable & Wireless PLC Ord. 318,900 2,279,803
Cadbury-Schweppes PLC Ord. 955,700 7,877,105
Christies International PLC 50,200 162,702
De la Rue PLC 266,700 2,692,439
Dixons Group PLC 955,800 6,580,998
Glaxo Holdings PLC 363,400 5,156,414
Grand Metropolitan PLC 1,137,000 8,172,445
Great Universal Stores PLC Ord Class A 381,600 4,050,640
Guinness PLC Ord. 1,210,500 8,888,461
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
UNITED KINGDOM - CONTINUED
Hanson Trust PLC Ord. 674,000 $ 2,006,795
Lloyds Abbey Life PLC 549,600 3,835,315
Lloyds TSB Group PLC 554,620 2,851,155
London International Group PLC 2,111,000 4,222,987
MFI Furniture Group PLC 1,223,700 3,036,244
Mirror Group Newspaper PLC 1,440,500 3,931,585
National Westminster Bank PLC Ord. 891,820 8,968,689
North West Water Group PLC Ord. 337,700 3,225,920
Prudential Corp. PLC 702,000 4,512,357
Reuters Holdings PLC Ord. 409,200 3,740,772
Rolls Royce PLC Ord. 874,433 2,549,331
Royal Insurance Holdings PLC 992,600 5,872,332
Scottish Hydro-Electric PLC Ord. 723,700 4,034,589
Scottish Power PLC ADR 960,500 5,511,133
South West Water PLC Ord. 383,200 3,084,144
Telegraph (The) PLC 452,100 2,909,540
Tesco PLC Ord. 401,397 1,848,725
Unigate Ltd. Ord. 312,800 1,991,231
Vodafone Group PLC 1,250,204 4,478,521
Whitbread Co. PLC Class A 525,900 5,549,746
Wickes PLC 718,200 1,381,048
173,354,183
TOTAL COMMON STOCKS
(Cost $1,007,219,327) 1,164,748,531
NONCONVERTIBLE PREFERRED STOCKS - 2.0%
AUSTRIA - 0.4%
Creditanstalt Bankverein 105,900 5,427,277
GERMANY - 0.3%
Porsche AG Ord (a). 6,050 3,147,010
ITALY - 1.3%
Banco Ambro Veneto 1,197,000 1,539,216
Fiat Spa 1,350,600 2,462,209
SAI Sta Assicuratrice Industriale Spa 650,500 2,700,722
Stet (Societa Finanziaria Telefonica) Spa 5,173,500 10,542,473
17,244,620
KOREA (SOUTH) - 0.0%
Korea First Securities Co. Ltd. (a) 66,140 549,923
TOTAL NONCONVERTIBLE PREFERRED STOCKS
(Cost $25,830,942) 26,368,830
FOREIGN GOVERNMENT OBLIGATIONS (D) - 0.5%
MOODY'S RATINGS PRINCIPAL
(UNAUDITED) AMOUNT
ARGENTINA - 0.4%
Argentina Republic BOCON
5.8359%, 4/1/01 (c) B1 $ 6,173,130 4,841,146
BRAZIL - 0.1%
Brazil Federative Republic IDU
euro 6 3/8%, 1/1/01 (c) B1 2,517,500 2,161,903
TOTAL GOVERNMENT OBLIGATIONS
(Cost $6,510,574) 7,003,049
CLOSED-END INVESTMENT COMPANIES - 0.0%
SHARES VALUE (NOTE 1)
THAILAND - 0.0%
Ruam Pattana Fund II (For. Reg.)
(Cost $620,880) 1,117,000 $ 676,231
REPURCHASE AGREEMENTS - 10.8%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.91% dated
12/29/95 due 1/2/96 $ 144,975,138 144,880,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $1,185,061,723) $ 1,343,676,641
LEGEND
1. Non-income producing
2. Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $9,432,810 or 0.7% of net
assets.
3. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
4. 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 $571,464,933 and $579,186,586, respectively.
The fund placed a portion of its portfolio securities with brokerage firms
which are affiliates of Fidelity Management & Research Company. The
commissions paid to these affiliated firms were $250,227 for the period
(see Note 3 of Notes to Financial Statements).
INCOME TAX INFORMATION
At December 31, 1995, the aggregate cost of investment securities for
income tax purposes was $1,185,652,116. Net unrealized appreciation
aggregated $158,024,525, of which $205,005,861 related to appreciated
investment securities and $46,981,336 related to depreciated investment
securities.
The fund hereby designates approximately $18,341,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
MARKET SECTOR DIVERSIFICATION (UNAUDITED)
As a Percentage of Total Value of Investment in Securities
Aerospace & Defense 0.2%
Basic Industries 5.4
Conglomerates 0.3
Construction & Real Estate 4.4
Durables 7.7
Energy 3.0
Finance 26.4
Government obligations 0.5
Health 3.6
Industrial Machinery & Equipment 2.8
Media & Leisure 2.2
Nondurables 8.7
Precious Metals 0.2
Retail & Wholesale 5.3
Services 1.8
Repurchase Agreements 10.8
Technology 5.3
Transportation 2.5
Utilities 8.9
100.0%
VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO
FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES

<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31, 1995

ASSETS

Investment in securities, at value (including repurchase agreements of $144,880,000) (cost $1,185,061,723) $ 1,343,676,641
- - See accompanying schedule

Cash 209

Receivable for investments sold 7,686,625

Receivable for fund shares sold 1,628,036

Dividends receivable 3,238,530

Interest receivable 115,469

TOTAL ASSETS 1,356,345,510

LIABILITIES

Payable for investments purchased $ 10,926,264

Payable for fund shares redeemed 1,146,930

Accrued management fee 826,884

Other payables and accrued expenses 311,487

TOTAL LIABILITIES 13,211,565

NET ASSETS $ 1,343,133,945

Net Assets consist of:

Paid in capital $ 1,155,673,842

Undistributed net investment income 18,738,964

Accumulated undistributed net realized gain (loss) on investments and foreign 10,104,988
currency transactions

Net unrealized appreciation (depreciation) on investments 158,616,151
and assets and liabilities in foreign currencies

NET ASSETS, for 78,751,394 shares outstanding $ 1,343,133,945

NET ASSET VALUE, offering price $17.06
and redemption price per
share ($1,343,133,945 (divided by) 78,751,394 shares)

</TABLE>

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1995

INVESTMENT INCOME $ 30,921,016
Dividends

Interest 8,867,312

39,788,328

Less foreign taxes withheld (3,740,466
)

TOTAL INCOME 36,047,862

EXPENSES

Management fee $ 9,837,952

Transfer agent fees 612,828

Accounting fees and expenses 551,039

Non-interested trustees' compensation 10,958

Custodian fees and expenses 656,865

Registration fees 46

Audit 51,981

Legal 58,187

Miscellaneous 2,343

TOTAL EXPENSES 11,782,199

NET INVESTMENT INCOME 24,265,663

REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:

Investment securities 18,618,705

Foreign currency transactions (7,976,330 10,642,375
)

Change in net unrealized appreciation (depreciation) on:

Investment securities 86,115,339

Assets and liabilities in (983,694 85,131,645
foreign currencies )

NET GAIN (LOSS) 95,774,020

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 120,039,683

</TABLE>

STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994

<TABLE>
<CAPTION>
<S> <C> <C>
Operations $ 24,265,663 $ 14,354,948
Net investment income

Net realized gain (loss) 10,642,375 1,588,422

Change in net unrealized appreciation (depreciation) 85,131,645 (19,420,073)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 120,039,683 (3,476,703)

Distributions to shareholders (4,893,543) (4,465,195)
From net investment income

From net realized gain (1,797,170) -

In excess of net realized gain (3,096,373) -

TOTAL DISTRIBUTIONS (9,787,086) (4,465,195)

Share transactions 466,436,535 1,000,905,405
Net proceeds from sales of shares

Reinvestment of distributions 9,787,086 4,465,195

Cost of shares redeemed (541,043,324) (477,688,222)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (64,819,703) 527,682,378

TOTAL INCREASE (DECREASE) IN NET ASSETS 45,432,894 519,740,480

NET ASSETS

Beginning of period 1,297,701,051 777,960,571

End of period (including undistributed net investment income of $18,738,964 and $10,987,509,
respectively) $ 1,343,133,945 $ 1,297,701,051

OTHER INFORMATION
Shares

Sold 29,090,043 62,240,900

Issued in reinvestment of distributions 652,472 274,107

Redeemed (33,802,732) (29,967,241)

Net increase (decrease) (4,060,217) 32,547,766

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C>
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

</TABLE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31,

SELECTED PER-SHARE DATA 1995 1994 1993 C 1992 1991

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 15.67 $ 15.48 $ 11.53 $ 13.09 $ 12.42

Income from Investment Operations

Net investment income .17 .19 .06 .16 .24

Net realized and unrealized gain (loss) 1.34 .08 B 4.16 (1.54) .74

Total from investment operations 1.51 .27 4.22 (1.38) .98

Less Distributions (.06) (.08) (.18) (.18) (.17)
From net investment income

In excess of net investment income - - (.04) - -

From net realized gain (.02) - - - (.14) D

In excess of net realized gain (.04) - (.05) - -

Total distributions (.12) (.08) (.27) (.18) (.31)

Net asset value, end of period $ 17.06 $ 15.67 $ 15.48 $ 11.53 $ 13.09

TOTAL RETURN A 9.74% 1.72% 37.35% (10.72)% 8.00%

RATIOS AND SUPPLEMENTAL DATA

Net assets, end of period (000 omitted) $ 1,343,134 $ 1,297,701 $ 777,961 $ 180,837 $ 126,490

Ratio of expenses to average net assets .91% .92% 1.03% 1.14% 1.26%

Ratio of net investment income to average net assets 1.88% 1.28% 1.21% 1.86% 2.33%

Portfolio turnover rate 50% 42% 42% 61% 168%

A TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE
THE TOTAL RETURNS SHOWN.
B THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH
THE AGGREGATE NET GAIN ON INVESTMENTS FOR THE PERIOD ENDED DUE TO
THE TIMING OF SALES AND
REPURCHASES OF FUND SHARES IN RELATION TO FLUCTUATING MARKET VALUES
OF THE INVESTMENTS OF THE FUND.
C 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.
D INCLUDES AMOUNTS DISTRIBUTED FROM NET REALIZED GAINS ON FOREIGN
CURRENCY RELATED TRANSACTIONS TAXABLE AS ORDINARY INCOME.

</TABLE>

NOTES TO FINANCIAL STATEMENTS
For the period ended December 31, 1995

1. SIGNIFICANT ACCOUNTING POLICIES.
The Money Market Portfolio, High Income Portfolio, Equity-Income Portfolio,
Growth Portfolio and Overseas Portfolio (the funds) are funds of Variable
Insurance Products Fund (the trust). The trust is registered under the
Investment Company Act of 1940, as amended (the 1940 Act), as an open-end
management investment company organized as a Massachusetts business trust.
Each fund is authorized to issue an unlimited number of shares. Shares of
each fund may only be purchased by insurance companies for the purpose of
funding variable annuity or variable life insurance contracts. The
following summarizes the significant accounting policies of the funds:
SECURITY VALUATION:
MONEY MARKET PORTFOLIO. As permitted under Rule 2a-7 of the 1940 Act, and
certain conditions therein, securities are valued initially at cost and
thereafter assume a constant amortization to maturity of any discount or
premium.
HIGH INCOME PORTFOLIO. Debt securities for which quotations are readily
available are valued by a pricing service at their market values as
determined by their most recent bid prices in the principal market (sales
prices if the principal market is an exchange) in which such securities are
normally traded. Equity securities for which quotations are readily
available are valued at the last sale price, or if no sale price, at the
closing bid price. Securities (including restricted securities) for which
market quotations are not readily available are valued at their fair value
as determined in good faith under consistently applied procedures under the
general supervision of the Board of Trustees. Short-term securities
maturing within sixty days of their purchase date are valued at amortized
cost or original cost plus accrued interest, both of which approximate
current value.
EQUITY-INCOME AND GROWTH PORTFOLIOS. Securities for which exchange
quotations are readily available are valued at the last sale price, or if
no sale price, at the closing bid price. Securities for which exchange
quotations are not readily available (and in certain cases debt securities
which trade on an exchange) are valued primarily using dealer-supplied
valuations or at their fair value as determined in good faith under
consistently applied procedures under the general supervision of the Board
of Trustees. Short-term securities maturing within sixty days of their
purchase date are valued at amortized cost or original cost plus accrued
interest, both of which approximate current value.
OVERSEAS PORTFOLIO. Securities for which quotations are readily available
are valued at the last sale price, or if no sale price, at the closing bid
price in the principal market in which such securities are normally traded.
Securities for which quotations are not readily available are valued
primarily
using dealer-supplied valuations or at their fair value as determined in
good faith under consistently applied procedures under the general
supervision of the Board of Trustees. Short-term securities maturing within
sixty days of their purchase date are valued at amortized cost or original
cost plus accrued interest, both of which approximate current value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Purchases and
sales of securities, income receipts, and expense payments are translated
into U.S. dollars at the prevailing exchange rate on the respective dates
of the transactions.
Net realized gains and losses on foreign currency transactions represent
net gains and losses from sales and maturities of forward currency
contracts, disposition of foreign currencies, currency gains and losses
realized between the trade and settlement dates on securities transactions,
and the difference between the amount of net investment income accrued and
the U.S. dollar amount actually received. The effects of changes in foreign
currency exchange rates on investments in securities are included with the
net realized and unrealized gain or loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the Money Market, High Income,
Equity-Income, Growth and Overseas Portfolios are not subject to income
taxes to the extent that each distributes substantially all of its taxable
income for the fiscal year. The Overseas Portfolio may be subject to
foreign taxes on income, gains on investments or currency repatriation. The
schedules of investments include information regarding income taxes under
the caption "Income Tax Information."
INVESTMENT INCOME:
MONEY MARKET PORTFOLIO. Interest income, which includes amortization of
premium and accretion of discount, is accrued as earned.
HIGH INCOME, EQUITY-INCOME, GROWTH AND OVERSEAS PORTFOLIOS. Dividend income
is recorded on the ex-dividend date, except certain dividends from foreign
securities where the ex-dividend date may have passed, are recorded as soon
as the funds are informed of the ex-dividend date. Interest income, which
includes accretion of original issue discount, is accrued as earned.
Investment income is recorded net of foreign taxes withheld where recovery
of such taxes is uncertain.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS. Dividends are declared daily and paid
monthly from net interest income for the Money Market Portfolio.
Distributions are recorded on the ex-dividend date for all other funds.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for defaulted
bonds, foreign currency transactions, passive foreign investment companies
(PFIC), market discount, partnerships, non-taxable dividends, capital loss
carryforwards and losses deferred due to wash sales. Certain foreign
currency gains (losses) are taxable as ordinary income and, therefore,
increase (decrease) taxable ordinary income available for distributions
with respect to the Overseas Portfolio.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and may
affect the per-share allocation between net investment income and realized
and unrealized gain (loss). Undistributed net investment income and
accumulated undistributed net realized gain (loss) on investments and
foreign currency transactions may include temporary book and tax basis
differences which will reverse in a subsequent period. Any taxable income
or gain remaining at fiscal year end is distributed in the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
2. OPERATING POLICIES.
FORWARD FOREIGN CURRENCY CONTRACTS. The funds, except the Money Market
Portfolio 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 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 funds, through their custodian, receive delivery
of the underlying U.S. Treasury or Federal Agency securities, the market
value of which is required to be at least equal to the repurchase price.
For term repurchase agreement transactions, the underlying securities are
marked-to-market daily and maintained at a value at least equal to the
repurchase price. FMR, the funds' investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
DELAYED DELIVERY TRANSACTIONS. The funds may purchase or sell securities on
a when-issued or forward commitment basis. Payment and delivery may take
place a month or more after the date of the transaction. The price of the
underlying securities and the date when the securities will be delivered
and paid for are fixed at the time the transaction is negotiated. The
market value of the securities purchased or sold on a when-issued or
forward commitment basis is identified as such in the fund's schedule of
investments. The funds may receive compensation for interest forgone in the
purchase of a delayed delivery security. Losses may arise due to changes in
the market value of the underlying securities or if the counterparty does
not perform under the contract.
INDEXED SECURITIES. The funds (excluding the Money Market Portfolio) may
invest in indexed securities whose values are linked either directly or
inversely to changes in foreign currencies, interest rates, commodities,
indices, or other underlying instruments. The funds use these securities to
increase or decrease its exposure to different underlying instruments and
to gain exposure to markets that might be difficult to invest in through
conventional securities. Indexed securities may be more volatile than their
underlying instruments, but any loss is limited to the amount of the
original investment.
RESTRICTED SECURITIES. The funds are permitted to invest in securities that
are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from registration
or to the public if the securities are registered. Disposal of these
securities may involve time-consuming negotiations and expense, and prompt
sale at an acceptable price may be difficult. At the end of the period,
restricted securities (excluding 144A issues) amounted to $10,584,034 or
1.0% of net assets of the the High Income Portfolio.
3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As each fund's investment adviser, FMR receives a monthly
fee.
For the Money Market Portfolio, FMR receives a monthly fee that is
calculated on the basis of a basic fund fee rate of .03% of
3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
the fund's average net assets, plus a fixed income group fee rate and an
income-based fee. The group fee rate is the weighted average of a series of
rates ranging from .1200% to .3700% and is based on the monthly average net
assets of all the mutual funds advised by FMR. The income-based fee is
added only when the fund's gross yield exceeds 5%. At that time the
income-based fee would equal 6% of that portion of the fund's gross income
that represents a gross yield of more than 5% per year. The maximum
income-based component is 0.24% of average net assets. For the period, the
management fee was equivalent to an annual rate of .24% of average net
assets.
For all other funds, FMR receives a monthly fee that is calculated on the
basis of a group fee rate plus a fixed individual fund fee rate applied to
the average net assets of the fund. The group fee rate is the weighted
average of a series of rates and is based on the monthly average net assets
of all the mutual funds advised by FMR. The rates ranged from .1200% to
.3700% for the High Income Portfolio and .2700% to .5200% for the
Equity-Income, Growth, and Overseas Portfolios for the period. In the event
that these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted in
the same or a lower management fee. The annual individual fund fee rates
are .45%, .20%, .30% and .45% for High Income, Equity-Income, Growth, and
Overseas Portfolios, respectively. For the period, the management fee was
equivalent to an annual rate of .60%, .51%, .61%, and .76% of average net
assets for the High Income, Equity-Income, Growth, and Overseas Portfolios,
respectively.
The Board of Trustees has approved a new group fee rate schedule with rates
ranging from .1100% to .3700% for the Money Market and High Income
Portfolios and .2500% to .5200% for the Equity-Income, Growth, and Overseas
Portfolios. Effective January 1, 1996, FMR voluntarily agreed to implement
this new group fee rate schedule as it results in the same or a lower
management fee.
SUB-ADVISER FEE. As the Money Market Portfolio's investment sub-adviser,
FMR Texas Inc., a wholly owned subsidiary of FMR, receives a fee from FMR
of 50% of the management fee payable to FMR. The fee is paid prior to any
voluntary expense reimbursements which may be in effect.
FMR, on behalf of the High Income and Overseas Portfolios, entered into
sub-advisory agreements with Fidelity Management & Research (U.K.) Inc.,
Fidelity Management & Research (Far East) Inc., and with respect only to
Overseas Fidelity International Investment Advisors (FIIA). In addition,
FIIA entered into a sub-advisory agreement with its subsidiary, Fidelity
International Investment Advisors (U.K.) Limited (FIIAL U.K.). Under the
sub-advisory arrangements, FMR may receive investment advice and research
services and may grant the sub-advisers investment management authority to
buy and sell securities. FMR pays its sub-advisers either a portion of its
management fee or a fee based on costs incurred for these services. FIIA
pays FIIAL U.K. a fee based on costs incurred for either service.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations Company
(FIIOC), an affiliate of FMR, is the funds' transfer, dividend disbursing
and shareholder servicing agent. FIIOC receives account fees and
asset-based fees that vary according to account size and type of account.
FIIOC pays for typesetting, printing and mailing of all shareholder
reports, except proxy statements. For the period, transfer agent fees were
equivalent to an annual rate of .05% of average net assets for each of the
funds.
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.
4. BANK BORROWINGS.
The funds are permitted to have bank borrowings for temporary or emergency
purposes to fund shareholder redemptions. Each fund has established
borrowing arrangements with certain banks. Under the most restrictive
arrangement, each fund must pledge to the bank securities having a market
value in excess of 220% of the total bank borrowings. The interest rate on
the borrowings is the bank's base rate, as revised from time to time. For
the High Income and Equity-Income Portfolios, the maximum loans and the
average daily loan balances during the period for which loans were
outstanding amounted to $4,885,000 and $18,269,000, respectively. The
weighted average interest rate was 6.4% for both the High Income Portfolio
and the Equity-Income Portfolio.
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 1.00% of average net assets for the High
Income Portfolio and 1.50% of average net assets for the Equity-Income,
Growth, and Overseas Portfolios. For the period, there was no reimbursement
under this arrangement.
FMR has directed certain portfolio trades of the High Income Portfolio to
brokers who paid a portion of the fund's expenses. For the period, the High
Income Portfolio's expenses were reduced by $9,702 under this arrangement.
6. BENEFICIAL INTEREST.
At the end of the period, Fidelity Investments Life Insurance Company
(FILI) and its subsidiaries, affiliates of FMR, were the record owners of
more than 5% of the outstanding shares and certain unaffiliated insurance
companies were record owners of approximately 10% or more of the total
outstanding shares of the following funds:
FILI UNAFFILIATED INSURANCE COMPANIES
FUND % OF OWNERSHIP # OF % OF OWNERSHIP
Money Market 52 1 14
High Income 18 1 42
Equity-Income 27 1 30
Growth 18 1 30
Overseas 15 1 39
7. PURCHASES AND SALES OF INVESTMENTS.
Information regarding purchases and sales of securities (other than
short-term securities) is included under the caption "Other Information" at
the end of each applicable fund's schedule of investments.
8. TRANSACTIONS WITH AFFILIATED COMPANIES.
Information regarding transactions with affiliated companies is included
under the caption "Other Information" at the end of each applicable fund's
schedule of investments.
REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees of Variable Insurance Products Fund and the Shareholders of
Money Market Portfolio, High Income Portfolio, Equity-Income Portfolio,
Growth Portfolio and Overseas Portfolio:
We have audited the accompanying statements of assets and liabilities of
Variable Insurance Products Fund: Money Market Portfolio, High Income
Portfolio, Equity-Income Portfolio, Growth Portfolio and Overseas
Portfolio, including the schedules of portfolio investments, as of December
31, 1995, and the related statements of operations for the year then ended,
the statements of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the five years
in the period then ended. These financial statements and financial
highlights are the responsibility of the fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1995 by correspondence with the
custodians and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Variable Insurance Products Fund: Money Market Portfolio, High Income
Portfolio, Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio
as of December 31, 1995, the results of their operations for the year then
ended, the changes in their net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years
in the period then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 6, 1996
DISTRIBUTIONS

The Board of Trustees of Variable Insurance Products Fund voted to pay on
February 2, 1996, to shareholders of record at the opening of business on
February 2, 1996, the following distributions derived from capital gains
realized from sales of portfolio securities, and dividends derived from net
investment income:
DIVIDENDS CAPITAL GAINS
High Income $.92 $.18
Equity-Income $.03 $.86
Growth $.08 $2.02
Overseas $.20 $.22
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
FMR Texas Inc., Irving, TX
MONEY MARKET PORTFOLIO
Fidelity Management & Research (U.K.) Inc.,
London, England
HIGH INCOME AND OVERSEAS PORTFOLIOS
Fidelity Management & Research (Far East) Inc.,
Tokyo, Japan
HIGH INCOME AND OVERSEAS PORTFOLIOS
Fidelity International Investment Advisors
Pembroke, Bermuda
OVERSEAS PORTFOLIO
Fidelity International Investment Advisors (U.K.) Limited
Kent, England
OVERSEAS PORTFOLIO
OFFICERS
Edward C. Johnson 3d, PRESIDENT
J. Gary Burkhead, SENIOR VICE PRESIDENT
William J. Hayes, VICE PRESIDENT
Fred L. Henning, Jr., VICE PRESIDENT
Robert A. Lawrence, VICE PRESIDENT
Lawrence Greenberg, VICE PRESIDENT
Barry J. Coffman, VICE PRESIDENT
Robert Litterst, VICE PRESIDENT
John R. Hickling, VICE PRESIDENT
Bettina Doulton, 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
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Investments Institutional Operations Co.
Boston, MA
CUSTODIAN
The Bank of New York, New York, NY
MONEY MARKET AND HIGH INCOME PORTFOLIOS
The Chase Manhattan Bank, N.A., New York, NY
EQUITY-INCOME AND OVERSEAS PORTFOLIOS
Brown Brothers Harriman & Co., Boston, MA
GROWTH PORTFOLIO

(2_FIDELITY_LOGOS)
VARIABLE INSURANCE PRODUCTS
FUND II
INVESTMENT GRADE BOND PORTFOLIO
ASSET MANAGER PORTFOLIO
INDEX 500 PORTFOLIO
ASSET MANAGER: GROWTH PORTFOLIO
CONTRAFUND PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 1995
CONTENTS

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MARKET ENVIRONMENT VIPFII-3 A REVIEW OF WHAT HAPPENED DURING THE PAST YEAR

INVESTMENT GRADE BOND PORTFOLIO VIPFII-4 PERFORMANCE AND INVESTMENT SUMMARY
VIPFII-5 FUND TALK: THE MANAGER'S OVERVIEW
VIPFII-6 INVESTMENTS
VIPFII-10 FINANCIAL STATEMENTS

ASSET MANAGER PORTFOLIO VIPFII-12 PERFORMANCE AND INVESTMENT SUMMARY
VIPFII-13 FUND TALK: THE MANAGER'S OVERVIEW
VIPFII-14 INVESTMENTS
VIPFII-21 FINANCIAL STATEMENTS

INDEX 500 PORTFOLIO VIPFII-23 PERFORMANCE AND INVESTMENT SUMMARY
VIPFII-24 FUND TALK: THE MANAGER'S OVERVIEW
VIPFII-25 INVESTMENTS
VIPFII-32 FINANCIAL STATEMENTS

ASSET MANAGER: GROWTH PORTFOLIO VIPFII-34 PERFORMANCE AND INVESTMENT SUMMARY
VIPFII-35 FUND TALK: THE MANAGER'S OVERVIEW
VIPFII-36 INVESTMENTS
VIPFII-39 FINANCIAL STATEMENTS

CONTRAFUND PORTFOLIO VIPFII-41 PERFORMANCE AND INVESTMENT SUMMARY
VIPFII-42 FUND TALK: THE MANAGER'S OVERVIEW
VIPFII-43 INVESTMENTS
VIPFII-48 FINANCIAL STATEMENTS

NOTES TO FINANCIAL STATEMENTS VIPFII-50 NOTES TO THE FINANCIAL STATEMENTS

REPORT OF INDEPENDENT ACCOUNTANTS VIPFII-53 THE AUDITORS' OPINION

DISTRIBUTIONS VIPFII-54

</TABLE>

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 DECEMBER 31, 1995 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND

Investment Grade Bond 17.32% 9.23% 8.92%

Lehman Brothers Intermediate 15.33% 8.61% n/a
Government-Corporate Bond Index

Lehman Brothers Aggregate Bond Index 18.47% 9.48% 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.

Let's say you invested $10,000 in Investment Grade Bond Portfolio on
December 31, 1988, shortly after the fund started. By December 31, 1995,
your investment would have grown to $18,213 - an 82.13% increase. With
reinvested dividends and capital gains, if any, a $10,000 investment in the
Lehman Brothers Aggregate Bond Index would have grown to $19,626 over the
same period - a 96.26% increase. Henceforth, the fund will compare its
performance to the Lehman Brothers Aggregate Bond Index rather than the
Lehman Brothers Intermediate Government-Corporate Bond Index. The Lehman
Brothers Aggregate Bond Index average maturity is closer to the range
permitted for the fund, which normally maintains an average maturity of up
to ten years. For comparison purposes, both indexes are shown under the
heading "Average Annual Total Returns."
INVESTMENT SUMMARY
QUALITY DIVERSIFICATION AS OF DECEMBER 31, 1995
(MOODY'S RATINGS) % OF FUND'S
INVESTMENTS

Aaa 69.0

Aa 2.4

A 9.4

Baa 6.8

Ba 1.4

B 0.0

Not rated 2.6

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 DECEMBER 31, 1995
Years 7.5

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 DECEMBER 31, 1995
% OF FUND'S
INVESTMENTS

Finance 13.3

Technology 1.7

Nondurables 1.6

Utilities 1.1

Retail & Wholesale 0.8

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
NOTE TO SHAREHOLDERS: On August 24, 1995, Michael Gray became portfolio
manager of Investment Grade Bond Portfolio.
Q. HOW HAS THE FUND PERFORMED OVER THE PAST YEAR, MICHAEL?
A. During the 12 months ended December 31, 1995, the fund performed better
than the 15.33% return of the Lehman Brothers Intermediate
Government-Corporate Bond Index, a broad measure of the performance of
intermediate (one- to 10-year) bonds, but underperformed the 18.47% return
of the Lehman Brothers Aggregate Bond Index, a broad measure of U.S.
taxable bonds.
Q. WHAT INFLUENCED THE FUND'S PERFORMANCE RELATIVE TO THESE TWO INDEXES?
A. The fund's performance used to be compared against the Lehman Brothers
Intermediate Government-Corporate Bond Index. However, earlier in the year
that changed, and performance started to be compared to the Lehman Brothers
Aggregate Bond Index. While this change has effectively broadened the
fund's investment universe to include a larger slice of the domestic bond
market, the fund's relative performance against the two indexes had more to
do with its duration. Duration is a way to estimate how sensitive a bond
fund's share price is to changes in interest rates. The longer the duration
of the fund, the more likely its share price is to move up as interest
rates fall, or down as interest rates rise. During the period, the fund's
duration - which was 4.3 years as of December 31 - started to be managed so
that it is in line with the Lehman Brothers Aggregate Bond Index. The
aggregate bond index has a duration that is longer than that of the
intermediate government-corporate index. As interest rates fell during
1995, the fund's new, longer duration helped it outperform the
government-corporate index. At the same time, the fund didn't have this
longer duration during the whole period, leading it to underperform the
aggregate bond index.
Q. MICHAEL, WHAT MOVES HAVE YOU MADE SINCE TAKING OVER THE FUND IN AUGUST?
A. I've reduced corporate exposure, increased investments in Treasury
securities and moderately reduced mortgage-backed securities. The corporate
market has been very strong over the course of the year. Valuation levels
have become very high and my view on a risk/reward basis is that corporates
have become over-valued. I've used that strength to reduce corporate
exposure. After selling corporates, I've been buying government securities,
mainly Treasuries because they made more sense on a risk/reward basis. I've
reduced mortgage-backed securities moderately because they've lagged
Treasuries.
Q. MICHAEL, THIS IS YOUR FIRST REPORT AS MANAGER OF THE FUND. CAN YOU
DESCRIBE YOUR INVESTMENT APPROACH TO US?
A. First of all, I don't predict the direction of interest rates. Instead,
I structure the fund so that its duration is roughly the same as the
aggregate index. Beyond that, my approach is to add relative value one bond
at a time by buying cheap securities and selling rich ones. I also seek out
value in sectors or in particular parts of the market, trying to overweight
those that will perform well and underweight those where I think there is
risk. The process is one of using Fidelity's resources to analyze
individual securities and valuations, trying to find the best opportunities
for the fund.
Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS?
A. Even though 1995 was a stellar year for bonds, the outlook for the
market is reasonably good. That's because the Fed could continue to lower
short-term interest rates as long as the economy remains fairly weak and
inflation remains low. The corporate area is one where there is potential
risk. If the economy deteriorates, corporate earnings could suffer. With
valuations at their richest levels in quite some time, the upside in the
corporate market is limited while the potential downside is notable.
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 December 31, 1995, more than
$181 million
MANAGER: Michael Gray, since August 1995;
manager, Fidelity Investment Grade Bond
Fund since 1987; Spartan Investment Grade
Bond Fund, since 1992; previously managed
Fidelity Advisor Limited Term Bond Fund (now
Fidelity Advisor Intermediate Bond Fund), Fidelity
Mortgage Securities Fund, Fidelity Ginnie Mae
Fund, Fidelity Government Securities Fund, and
Fidelity Intermediate Bond Fund; joined Fidelity
in 1982
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND II: INVESTMENT GRADE BOND PORTFOLIO
INVESTMENTS DECEMBER 31, 1995

Showing Percentage of Total Value of Investment in Securities

CORPORATE BONDS - 19.7%
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (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 $ 558,750
NONCONVERTIBLE BONDS - 19.4%
FINANCE - 13.3%
ASSET BACKED SECURITIES - 3.5%
Concord Leasing, Inc. 5.04%,
7/15/98 (b) AAA 132,632 131,554
Discover Card Master Trust I
6.90%, 2/16/00 A2 260,000 264,956
Discover Card Trust:
7 7/8%, 4/16/98 A2 100,000 100,500
6 1/8%, 5/15/98 A2 200,000 199,936
Ford Credit:
Auto Loan Master Trust
7 3/8%, 4/15/99 Aaa 500,000 510,350
Grantor Trust 5.90%, 10/15/00 Aaa 972,697 977,104
General Motors Acceptance Corp.
Grantor Trust 5.70%, 12/15/96 Aaa 2,623 2,625
KeyCorp Auto Grantor Trust
5.80%, 7/15/00 A3 118,544 118,615
Premier Auto Trust:
4.90%, 12/15/98 Aaa 601,312 598,024
8.05%, 4/4/00 Aaa 1,000,000 1,055,313
Railcar Trust 7 3/4%, 6/1/04 Aaa 857,690 922,821
Sears Credit Account Master
Trust II 7%, 1/15/04 Aaa 1,000,000 1,046,250
Standard Credit Card Master Trust I:
8 1/4%, 10/7/97 A2 285,000 290,299
7.65%, 2/15/00 A2 150,000 155,578
Union Federal Savings 1994-D
8.20%, 1/10/01 Baa2 98,963 101,870
6,475,795
BANKS - 5.5%
Bank of Boston Corp. 9 1/2%,
8/15/97 Baa1 75,000 79,544
Citicorp:
9.47%, 5/22/96 A2 750,000 760,260
euro 5.825%, 1/30/98 (d) A2 500,000 497,000
First Fidelity Bancorporation
8 1/2%, 4/1/98 A3 250,000 264,550
First Hawaiian Bank secured
6.93%, 12/1/03 (b) A1 960,000 969,216
First Maryland Bancorp 10 3/8%,
8/1/99 Baa1 500,000 571,805
Firstar Corp. 7.15%,
9/1/00 A3 640,000 663,898
KeyCorp 8.40%, 4/1/99 A2 310,000 332,128
Korea Development Bank yankee
6 1/2%, 11/15/02 A1 1,000,000 1,012,680
Marine Midland Bank:
euro 5.8125%, 9/27/96 (d) Baa1 1,000,000 997,500
8 5/8%, 3/1/97 Baa1 250,000 257,283

MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
Mellon Financial Co. 6 1/2%,
12/1/97 A2 $ 200,000 $ 203,214
Meridian Bancorp, Inc. 6%,
12/1/96 (d) Baa1 900,000 898,434
National City Corp.
5.8125%, 1/31/97 (d) A2 850,000 850,689
Signet Banking Corp. 6%,
5/15/97 (d) Baa2 350,000 347,687
Sovran Financial Corp. 9 3/4%,
6/15/99 A3 770,000 858,311
Union Planters Corp. 6 3/4%,
11/1/05 Baa3 400,000 407,008
9,971,207
CREDIT & OTHER FINANCE - 3.1%
Beneficial Corp. 9.40%, 2/7/96 A2 150,000 150,453
Chrysler Financial Corp. 6%,
4/15/96 A3 500,000 500,140
Ford Motor Credit Co. euro
9 5/8%, 2/27/96 A1 250,000 252,500
General Motors Acceptance Corp.:
5.65%, 12/15/97 A3 1,000,000 1,001,350
8%, 2/3/97 A3 1,400,000 1,436,274
Greyhound Financial Corp.
8 1/4%, 3/11/97 Baa1 460,000 472,558
Household Finance Corp.:
7.80%, 11/1/96 A2 350,000 355,765
6 3/4%, 6/1/00 A2 520,000 535,600
6 3/8% 6/30/00 A2 300,000 305,625
Westinghouse Credit Corp.:
8 3/4%,11/15/96 Ba1 258,000 261,359
8.93%, 6/30/99 Ba1 400,000 419,632
5,691,256
INSURANCE - 1.0%
Metropolitan Life Insurance Co.
6.30%, 11/1/03 (b) Aa3 770,000 761,992
Nationwide Mutual Insurance Co.
6 1/2%, 2/15/04 (b) Aa3 130,000 129,628
Ohio National Life Insurance Co.
8 7/8%, 7/15/04 (b) A3 830,000 941,801
1,833,421
SAVINGS & LOANS - 0.2%
Golden West Financial Corp.
10 1/4%, 5/15/97 A3 350,000 370,468
TOTAL FINANCE 24,342,147
INDUSTRIAL MACHINERY & EQUIPMENT - 0.4%
ELECTRICAL EQUIPMENT - 0.4%
Westinghouse Electric Corp.:
7 3/4%, 4/15/96 Ba1 300,000 301,263
8.68%, 12/10/97 Ba1 200,000 205,288
9%, 2/6/98 Ba1 200,000 206,728
713,279
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
NONDURABLES - 1.6%
BEVERAGES - 0.3%
Coca-Cola Enterprises, Inc.
7 7/8%, 2/1/02 A3 $ 500,000 $ 548,290
FOODS - 1.2%
Nabisco Inc. 6.70%, 6/15/02 Baa2 1,055,000 1,072,819
Ralcorp Holdings, Inc. 8 3/4%,
9/15/04 Ba1 1,000,000 1,125,000
2,197,819
TOBACCO - 0.1%
Philip Morris Companies, Inc.
8 7/8%, 7/1/96 A2 100,000 101,643
TOTAL NONDURABLES 2,847,752
RETAIL & WHOLESALE - 0.5%
GENERAL MERCHANDISE STORES - 0.5%
Sears Roebuck & Co.:
9%, 9/15/96 A2 475,000 485,393
9.23%, 8/6/98 A2 450,000 486,810
972,203
SERVICES - 0.1%
LEASING & RENTAL - 0.1%
Ryder System, Inc. 9 1/4%,
5/15/01 A3 200,000 227,530
TECHNOLOGY - 1.7%
COMPUTERS & OFFICE EQUIPMENT - 1.7%
Comdisco, Inc.:
9 3/4%, 1/15/97 Baa2 200,000 207,890
7 3/4%, 1/29/97 Baa2 700,000 713,678
7.73%, 2/18/97 Baa2 1,000,000 1,020,220
6 1/2%, 6/15/00 Baa2 1,200,000 1,221,540
3,163,328
TRANSPORTATION - 0.7%
AIR TRANSPORTATION - 0.7%
AMR Corp.:
9.76%, 1/11/96 Baa3 100,000 100,074
7 3/4%, 12/1/97 Baa3 140,000 143,777
9.55%, 3/6/98 Baa3 400,000 428,370
Delta Air Lines, Inc. equipment
trust certificate 8.54%, 1/2/07 Baa2 450,689 495,181
1,167,402
UTILITIES - 1.1%
ELECTRIC UTILITY - 0.2%
British Columbia Hydro & Power
Authority yankee 12 1/2%,
1/15/14 Aa2 290,000 354,073
GAS - 0.9%
Florida Gas 7 3/4%,
11/1/97 (b) Baa2 220,000 227,368
Southwest Gas Co. 9 3/4%,
6/15/02 Baa3 1,000,000 1,174,910

MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
Transcontinental Gas Pipe
Line Corp. extendible
6.21%, 5/15/00 Baa1 $ 300,000 $ 300,282
1,702,560
TOTAL UTILITIES 2,056,633
TOTAL NONCONVERTIBLE BONDS 35,490,274
TOTAL CORPORATE BONDS
(Cost $35,092,425) 36,049,024
U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS - 44.4%
U.S. TREASURY OBLIGATIONS - 39.9%
7 1/4%, 11/15/96 Aaa 930,000 945,401
9%, 5/15/98 Aaa 10,070,000 10,903,897
9 1/4%, 8/15/98 Aaa 6,550,000 7,184,499
5 1/8%, 12/31/98 Aaa 2,365,000 2,356,864
9 1/8%, 5/15/99 Aaa 62,000 69,188
7 3/4%, 12/31/99 Aaa 8,070,000 8,757,241
12 3/8%, 5/15/04 Aaa 5,125,000 7,420,026
11 3/4%, 2/15/10 Aaa 620,000 884,083
12 3/4%, 11/15/10 Aaa 545,000 830,100
13 7/8%, 5/15/11 Aaa 30,000 48,830
9%, 11/15/18 Aaa 8,540,000 11,631,736
8 7/8%, 2/15/19 Aaa 9,260,000 12,482,202
8 1/8%, 8/15/19 Aaa 3,870,000 4,865,906
12%, 8/15/23 Aaa 3,140,000 4,838,049
73,218,022
U.S. GOVERNMENT AGENCY OBLIGATIONS - 4.5%
Federal Home Loan Mortgage
Corp. 4.78%, 2/10/97
(callable) Aaa 170,000 168,679
Government Trust Certificate:
(assets of Trust guaranteed by
U.S. Government through
Defense Security Assistance
Agency):
Class 1-C, 9 1/4%, 11/15/01 Aaa 284,000 315,496
Class 2-E, 9.40%, 5/15/02 Aaa 1,000,000 1,115,670
Class T-2, 9.40%, 11/15/96 Aaa 448,480 457,198
Class T-2, 9 5/8%, 5/15/02 Aaa 80,000 89,325
(assets of Trust guaranteed by
U.S. Government through
Export-Import Bank):
Series 1994-C,
6.61%, 9/15/99 Aaa 94,397 96,102
Series 1994-F,
8.178%, 12/15/04 Aaa 1,333,390 1,450,289
Series 1995-A,
6.28%, 6/15/04 Aaa 510,000 519,450
Private Export Funding Corp.:
9 1/2%, 3/31/99 Aaa 80,000 89,467
8 3/4%, 6/30/03 Aaa 310,000 363,911
5.80%, 2/1/04 Aaa 80,000 80,056
6.86%, 4/30/04 Aaa 166,600 172,101
U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
State of Israel (guaranteed by U.S.
Government through Agency
for International Development):
5 1/4%, 3/15/98 Aaa $ 250,000 $ 249,453
7 3/4%, 4/1/98 Aaa 96,474 98,972
4 7/8%, 9/15/98 Aaa 190,000 187,566
6%, 2/15/99 Aaa 90,000 91,406
7 1/8%, 8/15/99 Aaa 520,000 546,881
7 3/4%, 11/15/99 Aaa 144,000 154,138
5 3/4%, 3/15/00 Aaa 380,000 381,900
8 1/2%, 4/1/06 Aaa 750,000 863,906
Tennessee Valley Authority 4.60%,
12/15/96 Aaa 215,000 213,357
U.S. Housing & Urban
Development 8.27%, 8/1/03 Aaa 415,000 470,636
8,175,959
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $75,939,750) 81,393,981
U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES - 20.6%
FEDERAL HOME LOAN GUARANTY CORPORATION - 1.2%
8 1/2%, 3/1/20 Aaa 2,110,090 2,220,448
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 9.0%
5 1/2%, 5/1/00 to 7/1/01 Aaa 3,242,006 3,186,335
6%, 3/1/01 to 10/1/02 Aaa 10,841,849 10,821,467
6 1/2%, 1/1/26 Aaa 2,500,000 2,469,525
16,477,327
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 10.4%
6%, 8/15/08 to 5/15/09 Aaa 4,266,814 4,236,135
6%, 1/15/11 (c) Aaa 2,050,000 2,035,261
6 1/2%, 10/15/23 to 4/15/24 Aaa 4,535,175 4,498,304
7 1/2%, 10/15/22 to 6/15/24 Aaa 4,765,562 4,903,076
8%, 2/15/17 Aaa 423,450 445,291
10%, 7/15/13 to 11/15/24 Aaa 2,749,852 3,030,208
19,148,275
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $36,935,085) 37,846,050
COMMERCIAL MORTGAGE SECURITIES - 4.3%
CS First Boston Mortgage Securities
Corp. commercial Series:
1994-CFB1 Class A-1,
6.4255%, 1/25/28 (d) Aaa 512,139 511,499
1995-AEWI Class A1,
6.665%, 11/25/27 Aaa 474,745 479,863
FDIC commercial Series 1994-C1
Class II-A1, 6.30%, 9/25/25 Aaa 101,643 101,580

MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
Lennar Central Partner LP
commercial floater Series 1994-1
Class B, 6.1825%,
9/15/01 (b)(d) - $ 733,000 $ 733,687
Meritor Mortgage Security Corp.
commercial Series 1987-1
Class A-3, 9.40%, 6/1/99 Baa3 192,363 193,806
Nomura Asset Securities Corp.
commercial floater Series
1994 MD-II Class A-6,
6.9525%, 7/4/03 (d) - 179,477 178,327
Oregon pass thru certificates
commercial Series 1995
Class 1-A, 7.15%, 6/25/26 (b) AAA 475,092 482,219
Resolution Trust Corp. commercial:
Series 1994-C1 Class A-4,
7 1/4%, 6/25/26 AAA 90,635 90,536
Series 1994-C2 Class A-2,
7 3/4%, 4/25/25 AAA 28,667 28,756
Series 1994-C2 Class A-4,
7 1/2%, 4/25/25 AAA 68,153 68,345
Series 1994-N2 Class 3, 7 1/2%
12/15/04 (b)(e) Baa2 400,000 402,500
Series 1995-C1 Class A-2B,
6.55%, 2/25/27 Aaa 900,000 905,906
Series 1995-C1 Class A-4B,
6.65%, 2/25/27 Aaa 740,000 746,128
Series 1995-C1 Class C,
6.90%, 2/25/27 A2 500,000 496,094
floater (d):
Series 1993-C2 Class A-2,
6.745%, 3/25/25 AAA 550,631 554,072
Series 1994-C1 Class A-3,
6.425%, 6/25/26 AAA 367,236 367,236
SC Finance Corp. commercial
floater 7.2375%, 8/1/04 (b)(d) - 600,000 606,000
SKW Real Estate LP commercial (b):
Class A, 6.45%,
4/15/02 (d) AA 132,990 133,364
Series II Class B, 6.90%,
4/15/02 (e) A 100,000 100,375
Structured Asset Securities Corp.
commercial Series:
1993-C1 Class A-1,
6.60%, 10/25/24 AA+ 158,639 159,086
1995-C1 Class D,
7 3/8%, 9/25/24 BBB 650,000 633,547
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $7,789,886) 7,972,926
FOREIGN GOVERNMENT OBLIGATIONS (F) - 2.6%
Alberta Province yankee
9 1/4%, 4/1/00 Aa2 1,400,000 1,584,464
British Columbia Province
yankee 7%, 1/1/03 Aa2 500,000 532,020
Manitoba Province yankee
6 3/4%, 3/1/03 A1 500,000 518,735
FOREIGN GOVERNMENT OBLIGATIONS (F) - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
Ontario Province yankee
7 3/4%, 6/4/02 Aa3 $ 1,000,000 $ 1,088,670
Quebec Province yankee:
8.24%, 2/28/96 A2 500,000 501,654
7 1/2%, 7/15/02 A2 500,000 530,885
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $4,646,477) 4,756,428
REPURCHASE AGREEMENTS - 8.4%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.91% dated
12/29/95 due 1/2/96 $ 15,398,105 15,388,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $175,791,623) $ 183,406,409
LEGEND
(a) Standard & Poor's Corporation credit ratings are used in the absence of
a rating by Moody's Investors Service, Inc.
(b) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $5,619,704 or 3.1% of net
assets.
(c) Security purchased on a delayed delivery basis (see Note 2 of Notes to
Financial Statements).
(d) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(e) Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date.
(f) 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 $310,380,224 and $245,594,124, respectively, of which U.S.
government and government agency obligations aggregated $258,308,405 and
$200,692,243, 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 80.8% AAA, AA, A 79.6%
Baa 6.8% BBB 8.2%
Ba 1.4% BB 0.8%
B 0.0% B 0.2%
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 December 31, 1995, the aggregate cost of investment securities for
income tax purposes was $175,807,019. Net unrealized appreciation
aggregated $7,599,390, of which $7,892,920 related to appreciated
investment securities and $293,530 related to depreciated investment
securities.
At December 31, 1995, the fund had a capital loss carryforward of
approximately $229,877, 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
DECEMBER 31, 1995

ASSETS

Investment in $ 183,406,409
securities, at
value (including
repurchase
agreements of
$15,388,000)
(cost
$175,791,623)
- - See
accompanying
schedule

Cash 34,004

Receivable for 711,197
fund shares sold

Interest receivable 2,451,500

Other receivables 1,563

TOTAL ASSETS 186,604,673

LIABILITIES

Payable for $ 2,780,849
investments
purchased
Regular delivery

Delayed delivery 2,030,183

Accrued 65,589
management
fee

Payable for fund 122,146
shares
redeemed

Other payables 60,019
and accrued
expenses

TOTAL LIABILITIES 5,058,786

NET ASSETS $ 181,545,887

Net Assets
consist of:

Paid in capital $ 164,573,578

Undistributed net 9,528,238
investment
income

Accumulated (170,715
undistributed net )
realized gain
(loss) on
investments and
foreign currency
transactions

Net unrealized 7,614,786
appreciation
(depreciation)
on investments
and assets and
liabilities in
foreign
currencies

NET ASSETS, for $ 181,545,887
14,551,940
shares
outstanding

NET ASSET VALUE, $12.48
offering price
and redemption
price per share
($181,545,887 (divided by)
14,551,940
shares)

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1995

INVESTMENT INCOME $ 10,413,518
Interest

EXPENSES

Management fee $ 660,058

Transfer agent fees 81,906

Accounting fees and expenses 58,943

Non-interested trustees' compensation 624

Custodian fees and expenses 3,480

Audit 35,732

Legal 793

Miscellaneous 16,559

TOTAL EXPENSES 858,095

NET INVESTMENT INCOME 9,555,423

REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:

Investment securities 2,631,902

Foreign currency transactions 2,543 2,634,445

Change in net unrealized appreciation (depreciation) on:

Investment securities 10,805,444

Assets and liabilities in (5,599 10,799,845
foreign currencies )

NET GAIN (LOSS) 13,434,290

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 22,989,713

</TABLE>

STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994

Operations $ 9,555,423 $ 7,413,058
Net investment income

Net realized gain (loss) 2,634,445 (5,607,010)

Change in net unrealized appreciation 10,799,845 (6,305,516)
(depreciation)

NET INCREASE (DECREASE) IN NET ASSETS 22,989,713 (4,499,468)
RESULTING FROM OPERATIONS

Distributions to shareholders (4,480,858) -
From net investment income

From net realized gain - (90,529)

In excess of net realized gain - (226,505)

TOTAL DISTRIBUTIONS (4,480,858) (317,034)

Share transactions 116,054,959 53,245,805
Net proceeds from sales of shares

Reinvestment of distributions 4,480,858 317,034

Cost of shares redeemed (68,879,418) (59,742,109)

NET INCREASE (DECREASE) IN NET ASSETS 51,656,399 (6,179,270)
RESULTING FROM SHARE TRANSACTIONS

TOTAL INCREASE (DECREASE) IN NET ASSETS 70,165,254 (10,995,772)

NET ASSETS

Beginning of period 111,380,633 122,376,405

End of period (including undistributed net $ 181,545,887 $ 111,380,633
investment income of $9,528,238 and
$7,322,731, respectively)

OTHER INFORMATION
Shares

Sold 9,944,966 4,760,105

Issued in reinvestment of distributions 413,363 27,544

Redeemed (5,910,491) (5,343,262)

Net increase (decrease) 4,447,838 (555,613)

<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>
YEARS ENDED DECEMBER 31,

SELECTED PER-SHARE DATA 1995 1994 1993 C 1992 1991

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.020 $ 11.480 $ 10.970 $ 11.080 $ 9.920

Income from Investment Operations .320 .733 .641 .672 .455
Net investment income

Net realized and unrealized gain (loss) 1.530 (1.163) .559 .058 1.165

Total from investment operations 1.850 (.430) 1.200 .730 1.620

Less Distributions (.390) - (.628) (.680) (.460)
From net investment income

In excess of net investment income - - (.002) - -

From net realized gain - (.010) (.050) (.160) -

In excess of net realized gain - (.020) (.010) - -

Total distributions (.390) (.030) (.690) (.840) (.460)

Net asset value, end of period $ 12.480 $ 11.020 $ 11.480 $ 10.970 $ 11.080

TOTAL RETURN A, B 17.32% (3.76)% 10.96% 6.65% 16.38%

RATIOS AND SUPPLEMENTAL DATA

Net assets, end of period (000 omitted) $ 181,546 $ 111,381 $ 122,376 $ 73,598 $ 44,835

Ratio of expenses to average net assets .59% .67% .68% .76% .80%
D

Ratio of net investment income to average net 6.53% 6.53% 6.85% 7.11% 7.73%
assets

Portfolio turnover rate 182% 143% 70% 119% 128%

</TABLE>

<TABLE>
<CAPTION>
<S> <C>
<C> <C> <C> <C>
A TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THOSE CHARGES
WOULD REDUCE THE TOTAL RETURNS SHOWN.
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 6 OF
NOTES TO FINANCIAL STATEMENTS).
C 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.
D FMR VOLUNTARILY 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.

</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 DECEMBER 31, 1995 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND

Asset Manager 16.96% 12.76% 11.24%

S&P 500 37.58% 16.60% 12.58%

AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and
show you what would have happened if the fund had performed at a constant
rate each year.

UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of how
it will do tomorrow. The stock market, for example,
has a history of growth in the long run and volatility
in the short run. In turn, the share price and return
of a fund that invests in stocks will vary. That
means if you sell your shares during a market
downturn, you might lose money. But if you can
ride out the market's ups and downs, you may
have a gain.
(checkmark)
You can compare the fund's returns to those of the Standard & Poor's
Composite Index of 500 Stocks - a common proxy for the U.S. stock market.
This benchmark includes reinvested dividends and capital gains, if any.
Consumer Price Index information is not available from the U.S. Department
of Labor. Therefore, the CPI comparison has not been included in this
report.
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
VIP II: Asset ManStandard & PoFidelity C
09/30/89 10000 10000.00 10000
10/31/89 10020.02002002 9768.00 10057
11/30/89 10060.0600600601 9967.27 10176.68
12/31/89 10091.0931174089 10206.48 10276.41
01/31/90 9868.42105263158 9521.63 10028.75
02/28/90 9969.63562753036 9644.46 10092.93
03/31/90 10050.6072874494 9900.03 10191.84
04/30/90 9919.02834008097 9652.53 10098.08
05/31/90 10425.1012145749 10593.65 10527.25
06/30/90 10506.0728744939 10521.62 10592.52
07/31/90 10485.8299595142 10487.95 10657.13
08/31/90 10141.7004048583 9539.84 10327.82
09/30/90 9929.14979757085 9075.25 10235.91
10/31/90 9979.75708502024 9036.22 10309.61
11/30/90 10465.5870445344 9619.96 10618.89
12/31/90 10769.2307692308 9888.36 10793.04
01/31/91 11284.5552884615 10319.49 10999.19
02/28/91 11726.2620192308 11057.34 11274.17
03/31/91 11915.5649038462 11324.93 11397.06
04/30/91 12094.3509615385 11352.11 11472.28
05/31/91 12367.7884615385 11842.52 11654.69
06/30/91 12146.9350961538 11300.13 11503.18
07/31/91 12451.9230769231 11826.72 11734.39
08/31/91 12704.3269230769 12107.01 11943.26
09/30/91 12777.9447115385 11904.82 12000.59
10/31/91 12862.0793269231 12064.35 12107.4
11/30/91 12651.7427884615 11578.15 12023.86
12/31/91 13198.6177884615 12902.69 12616.63
01/31/92 13366.8870192308 12662.70 12479.11
02/29/92 13626.4747734306 12827.32 12558.98
03/31/92 13593.2664677277 12577.19 12468.55
04/30/92 13792.5163019452 12946.96 12621.92
05/31/92 13936.4189599912 13010.40 12745.61
06/30/92 13925.3495247569 12816.54 12750.71
07/31/92 14157.8076646773 13340.74 13097.53
08/31/92 14113.5299237401 13067.25 13047.76
09/30/92 14202.0854056145 13221.45 13192.59
10/31/92 14224.2242760831 13267.72 13139.82
11/30/92 14534.1684626437 13720.15 13314.58
12/31/92 14744.4877320955 13888.91 13478.35
01/31/93 15010.1541777188 14005.57 13646.82
02/28/93 15150.9206362925 14196.05 13836.52
03/31/93 15579.8296367078 14495.59 13979.03
04/30/93 15672.5667178787 14144.79 13893.76
05/31/93 15939.185826245 14523.87 14042.42
06/30/93 16066.6993128549 14565.99 14191.27
07/31/93 16263.765610343 14507.73 14209.72
08/31/93 16739.0431513438 15057.57 14559.28
09/30/93 16750.6352864902 14941.63 14544.72
10/31/93 17202.7285571982 15250.92 14694.53
11/30/93 17179.5442869055 15106.04 14581.38
12/31/93 17875.0723956871 15288.82 14682
01/31/94 18443.0870178587 15808.64 14969.76
02/28/94 17857.332330293 15380.23 14685.34
03/31/94 17017.9890531879 14709.65 14306.46
04/30/94 17030.1534485083 14897.93 14343.65
05/31/94 17176.1261923527 15142.26 14439.75
06/30/94 16847.6875187028 14771.27 14295.36
07/31/94 17139.6330063916 15255.77 14596.99
08/31/94 17541.0580519635 15881.26 14848.06
09/30/94 17334.1532847956 15492.17 14629.79
10/31/94 17419.3633079653 15840.74 14770.24
11/30/94 17163.7332384563 15263.82 14556.07
12/31/94 16786.3745644193 15490.18 14691.44
01/31/95 16676.8188203441 15891.84 14966.17
02/28/95 16946.968217498 16511.15 15340.32
03/31/95 17170.7726400328 16998.39 15575.03
04/30/95 17444.3113786865 17498.99 15855.38
05/31/95 17668.1158012213 18198.43 16380.19
06/30/95 17817.3187495779 18621.18 16599.69
07/31/95 18451.4312800932 19238.66 16810.51
08/31/95 18675.235702628 19286.95 16921.45
09/30/95 18911.4737041925 20100.85 17286.96
10/31/95 18662.8021235983 20029.09 17385.49
11/30/95 19147.7117057571 20908.37 17813.18
12/29/95 19632.6212879159 21311.07 18067.91

Let's say you invested $10,000 in Asset Manager Portfolio on September 30,
1989, shortly after the fund started. By December 31, 1995, your investment
would have grown to $19,633 - a 96.33% increase. That compares to $10,000
invested in the S&P 500, which would have grown to $21,311 over the same
period - a 113.11% 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 (113.11%), Lehman
Brothers Treasury Bond Index (76.26%), and the Salomon Brothers 3-month
T-Bill Total Rate of Return Index (36.97%). With reinvested dividends and
capital gains, if any, a $10,000 investment in the index would have grown
to $18,068 - an 80.68% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF DECEMBER 31, 1995
% OF FUND'S
INVESTMENTS

Chrysler Corp. 2.3

Northrop Grumman Corp. 1.6

Aluminum Co. of America 1.4

General Dynamics Corp. 1.3

General Motors Corp. 1.1

TOP FIVE FIXED-INCOME SECURITIES AS OF DECEMBER 31, 1995
(BY ISSUER, EXCLUDING REPURCHASE AGREEMENTS) % OF FUND'S
INVESTMENTS

U.S Treasury Obligations 17.5

MBL International Finance Bermuda Trust 2.2

Brazil Federative Republic IDU 1.1

Inco Ltd. 1.1

Chubb Corp. (The) 1.0

ASSET ALLOCATION AS OF DECEMBER 31, 1995*
Row: 1, Col: 1, Value: 12.0
Row: 1, Col: 2, Value: 30.0
Row: 1, Col: 3, Value: 28.0
Row: 1, Col: 4, Value: 30.0
Stock class 58%
Bond class 30%
Short-term class
and other 12%
FOREIGN INVESTMENTS 30.5%
*

ASSET ALLOCATIONS IN THIS PIE CHART REFLECT THE CATEGORIZATION OF ASSETS
AS
DEFINED IN THE FUND'S PROSPECTUS.
FINANCIAL STATEMENT CATEGORIZATIONS CONFORM TO ACCOUNTING STANDARDS
AND WILL DIFFER FROM THE PIE CHART.

VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO
FUND TALK: THE MANAGER'S OVERVIEW

An interview with Andy
Offit, Portfolio Manager of Asset Manager Portfolio
Q. ANDY, HOW DID THE FUND PERFORM?
A. Quite well in absolute terms, reasonably well in relative terms, during
a year in which the performance standard was unusually high. During 1995,
Asset Manager produced a double-digit total return, in line with the
average for all global funds that invest in stocks and bonds. Looking back,
there was both good news and bad news. The good news had to do with asset
allocation. When I took over the fund in early spring, only about 30% of
the fund's assets were invested in stocks. I immediately set about
increasing that allocation, nearly reaching Asset Manager's 60% cap on
stocks by the end of May, and the fund profited as a result. The bad news
had to do with country allocation. Asset Manager included both foreign and
domestic stocks in its mix, and during 1995, foreign markets failed to keep
pace.
Q. HOW WERE THE FUND'S ASSETS DISTRIBUTED AT THE END OF THE PERIOD?
A. About 58% stocks, 30% bonds and 12% cash equivalents. Foreign
investments, mostly stocks, totaled about 31% of the fund's assets. Those
numbers have not changed appreciably during the past six months. Compared
to a year ago, however, the fund has significantly more stocks, fewer bonds
and less cash. Also, the fund had an 18% stake in emerging markets one year
ago, but only 8% at the end of the period.
Q. HOW DID YOU APPROACH INVESTING IN TECHNOLOGY STOCKS?
A. I certainly didn't ignore the sector. At one time, technology stocks
totaled almost 10% of the fund's assets. I look for compelling situations
where the potential for gain exceeds the potential for loss. When I find
those companies, I like to make large commitments. That's evident in the
declining number of individual securities in the fund-about 250 at the end
of the period, down from over 500 six months ago. Using my bottom-up
criteria, I saw opportunities in several technology stocks early in the
year, and staked out big positions in companies such as IBM, Compaq, Intel
and Microsoft. However, as the summer wore on, my outlook shifted. I began
to see more room for technology stocks to fall if things went wrong than to
continue rising if things went well. At that point I began taking profits
and investing the proceeds elsewhere.
Q. WHERE ELSE DID YOU LOOK FOR VALUE IN U.S. STOCKS DURING 1995?
A. Several of the fund's best investments were defense stocks, including
Northrop Grumman and General Dynamics. Both have achieved strong positions
in a consolidating industry by generating cash and using that cash to pay
down debt and make acquisitions. The fund also did well with energy stocks,
including Kerr-McGee, an oil company, and two oil-service companies:
Reading & Bates and Tidewater. Unfortunately, several of the fund's larger
positions, including Chrysler, were flat performers.
Q. WHERE WAS THE FUND'S FOREIGN EXPOSURE?
A. Mainly in Japan, about 18% of total assets. While results so far have
been less than those achieved in the U.S., I see Japan as one of the larger
turnaround opportunities in the world. With its market down 50% from its
peak in 1989, the yen has started to weaken, consumer sentiment is
improving and the economy is beginning to grow for the first time in five
years. I began last spring investing in Japanese electronics companies,
however, lately my focus has shifted to cyclical sectors that could benefit
from an economic rebound, such as retail and steel companies.
Q. WHAT WAS YOUR BOND STRATEGY?
A. Earlier in the year, the fund had fairly large exposure to so-called
junk bonds-those with credit ratings below Baa or BBB from one of the bond
rating agencies. Most did quite well, but as the economy has slowed down,
I've moved increasingly into U.S. Treasuries. As the difference between
long-term and short-term interest rates has narrowed, I've concentrated on
securities in the middle of the yield curve, with maturities between five
and 15 years. They seem to offer the best balance between attractive yield
and the potential for price gains going forward.
Q. WHAT'S THE OUTLOOK?
A. Promising. Moderate growth and benign inflation mean interest rates
could head still lower in the months ahead, providing an attractive
backdrop for both stocks and bonds. Another key in 1996 will be how well
foreign stocks perform, especially the fund's 18% stake in Japan. I believe
Japan, rather than Europe or the United States, has the greatest potential
for gain in the months ahead.
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 December 31, 1995, more than
$3.3 billion
MANAGER: Andy Offit, since February 1995;
joined Fidelity in 1987
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO
INVESTMENTS DECEMBER 31, 1995

Showing Percentage of Total Value of Investment in Securities

COMMON STOCKS - 52.4%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 3.2%
AEROSPACE & DEFENSE - 1.9%
Northrop Grumman Corp. 811,500 $ 52,029,722
Thiokol Corp. 317,900 10,768,863
62,798,585
SHIP BUILDING & REPAIR - 1.3%
General Dynamics Corp. 703,800 41,612,175
TOTAL AEROSPACE & DEFENSE 104,410,760
BASIC INDUSTRIES - 5.3%
CHEMICALS & PLASTICS - 1.8%
Raychem Corp. 193,600 11,011,000
Sekisui Chemical Co. Ltd. 1,174,000 17,258,027
Synetic, Inc. (a)(m) 1,080,882 31,480,688
59,749,715
IRON & STEEL - 1.0%
Bakrie & Brothers PT Ord. (For. Reg.) 2,812,000 5,103,787
Kobe Steel (a) 4,389,000 13,540,532
NKK Corp. (a) 4,363,000 11,730,309
Sumitomo Metal Industries Ltd. (a) 851,000 2,576,044
32,950,672
METALS & MINING - 2.5%
Aluminum Co. of America 898,300 47,497,613
Falconbridge Ltd. 29,400 624,913
Falconbridge Ltd.
1st installment receipt (h) 1,257,300 10,943,260
Inco Ltd. 372,100 12,306,969
Pechiney SA Class A 320,000 11,074,289
Tongkah Holdings BHD 181,000 307,964
82,755,008
TOTAL BASIC INDUSTRIES 175,455,395
CONGLOMERATES - 1.9%
Figgie International Holdings,
Inc. Class A (a) 161,300 1,673,488
ITT Industries, Inc. 353,300 8,479,200
Koor Industries Ltd. (a) 34,140 3,376,731
Koor Industries Ltd. sponsored ADR 550,900 11,155,725
United Technologies Corp. 390,200 37,020,225
61,705,369
CONSTRUCTION & REAL ESTATE - 1.6%
BUILDING MATERIALS - 0.6%
Hume Industries BHD 56,000 269,082
Masco Corp. 541,900 17,002,113
Mulia Industrindo PT (For. Reg.) 302,000 851,914
Tostem Corp. 90,000 2,985,493
21,108,602
CONSTRUCTION - 0.7%
Daito Trust Construction 215,600 2,543,830
Daiwa House Industry Co. Ltd. 555,000 9,124,758
Higashi Nihon House Co. Ltd. 98,000 1,611,219
Kaufman & Broad Home Corp. 249,600 3,712,800
Nichiei Construction Co. Ltd. 34,000 384,720
Obayashi Corp. 180,000 1,427,466
Taisei Corp. 809,000 5,390,725
24,195,518
REAL ESTATE - 0.3%
Bandar Raya Development BHD 805,000 1,147,735
Ciputra Development PT (For. Reg.) 1,558,000 2,453,009
Country Heights Holdings BHD 1,357,000 2,661,623

SHARES VALUE (NOTE 1)
Guoco Holdings, Inc. Class B 58,000 $ 8,955
Hysan Development Co. Ltd. 1,188,000 3,141,882
Pakuwon Jati PT (For. Reg.) 2,127,500 1,349,170
10,762,374
TOTAL CONSTRUCTION & REAL ESTATE 56,066,494
DURABLES - 6.4%
AUTOS, TIRES, & ACCESSORIES - 3.7%
Chrysler Corp. 1,360,300 75,326,613
Federal-Mogul Corp. 200,000 3,925,000
General Motors Corp. 716,990 37,910,846
Honda Motor Co. Ltd. 340,000 7,003,869
124,166,328
CONSUMER ELECTRONICS - 1.2%
Daiichi Corp. Ord. 358,600 8,462,128
Sony Corp. 515,600 30,866,190
39,328,318
HOME FURNISHINGS - 0.2%
Polyvision Corp. (a) 1,515 3,125
Shimachu 162,000 5,185,880
5,189,005
TEXTILES & APPAREL - 1.3%
APAC Centertex Corp. PT (For. Reg.)(a) 4,973,500 2,827,708
Andayani Megah PT 3,028,500 2,152,337
Aoki International Co. Ltd. 214,000 5,215,474
Benetton Group Spa 263,400 3,119,665
Bossa Ticaret Ve Sanayi
Isletmeleri (a)(f) 4,460,300 325,823
Chiyoda Corp. 307,000 7,125,725
Christian Dior SA 22,500 2,421,278
Coteminas PN 7,197,900 2,406,829
Namyeung Vivien Corp. (a) 1,470 189,494
Onward Kashiyama & Co. Ltd. 424,000 6,888,975
Roda Vivatex PT (For. Reg.) 3,690,500 2,178,954
Tokyo Style Co. Ltd. 426,000 7,292,263
42,144,525
TOTAL DURABLES 210,828,176
ENERGY - 2.6%
ENERGY SERVICES - 1.0%
Baker Hughes, Inc. 355,800 8,672,625
Hornbeck Offshore Services, Inc. (a) 194,300 3,813,138
Reading & Bates Corp. (a) 756,900 11,353,500
Transocean Drilling AS (a) 627,225 10,825,474
34,664,737
OIL & GAS - 1.6%
Amerada Hess Corp. 245,700 13,022,100
British Petroleum PLC ADR 60,131 6,140,878
Kerr-McGee Corp. 323,200 20,523,200
Texaco, Inc. 100,000 7,850,000
Total SA Class B 68,008 4,580,993
52,117,171
TOTAL ENERGY 86,781,908
FINANCE - 4.6%
BANKS - 1.5%
Cho Hung Bank Co. Ltd. 68,002 855,684
First International Bank of Israel:
#1 270 31,538
#5 19,815 2,394,764
Fleet Financial Group, Inc. 414,091 16,874,208
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - CONTINUED
BANKS - CONTINUED
Fuji Bank 378,000 $ 8,335,010
HSBC Holdings PLC 155,046 2,345,992
Hong Leong Bank BHD 1,557,000 4,292,635
Hong Leong Bank BHD (rights)(a) 233,550 46,912
Kookmin Bank (a) 12,970 256,300
Mitsubishi Trust & Banking Corp. 84,000 1,397,292
Mitsui Trust and Banking 317,000 3,464,313
Sakura Bank Ltd. 407,000 5,156,383
Sumitomo Trust & Banking Co. Ltd. 236,000 3,332,302
48,783,333
CLOSED END INVESTMENT COMPANY - 0.2%
First NIS Regional Fund, Inc. (a)(h) 200,000 1,100,000
R.O.C. Taiwan Fund (SBI) 516,000 5,418,000
6,518,000
CREDIT & OTHER FINANCE - 0.8%
Acom Co. Ltd. 383,000 16,001,548
American Express Co. 66,691 2,759,340
Benpress Holdings Corp. GDR (a) 492,300 2,338,425
Hong Leong Credit BHD 779,000 3,865,853
24,965,166
FEDERAL SPONSORED CREDIT - 0.6%
Federal National Mortgage Association 98,600 12,238,725
Student Loan Marketing Association 98,400 6,482,100
18,720,825
INSURANCE - 0.7%
Allstate Corp. 95,000 3,906,875
ITT Hartford Group, Inc. 353,300 17,090,888
Malaysian Assurance Alliance BHD 629,000 2,848,956
23,846,719
SECURITIES INDUSTRY - 0.8%
Daiwa Securities Co. Ltd. 713,000 10,894,971
Nomura Securities Co. Ltd. 768,000 16,711,799
27,606,770
TOTAL FINANCE 150,440,813
HEALTH - 3.6%
DRUGS & PHARMACEUTICALS - 2.5%
Barr Laboratories, Inc. (a)(m) 761,200 22,645,700
Genentech, Inc. (a) 634,400 33,623,200
IVAX Corp. 864,800 24,646,800
Kalbe Farma (For. Reg.) 331,000 1,121,912
82,037,612
MEDICAL EQUIPMENT & SUPPLIES - 1.1%
Bausch & Lomb, Inc. 275,900 10,932,538
Benson Eyecare Corp. (a) 57,125 514,125
U.S. Surgical Corp. 1,105,500 23,630,063
35,076,726
TOTAL HEALTH 117,114,338
HOLDING COMPANIES - 0.3%
Berjaya Group BHD 4,625,000 2,987,397
Israel Corp. #1 (a) 12,810 898,208
Malaysian Plantations BHD 233,000 252,363
Perdigao SA Comercio
e Industria PDG (a) 4,124,176 10,608
Transmarco Ltd. 740,000 6,801,951
10,950,527

SHARES VALUE (NOTE 1)
INDUSTRIAL MACHINERY & EQUIPMENT - 4.9%
ELECTRICAL EQUIPMENT - 2.2%
General Electric Co. 314,100 $ 22,615,200
Mitsubishi Electric Co. Ord. 3,103,000 22,297,186
Murata Manufacturing Co. Ltd. 10,000 367,505
Omron Corp. 1,221,000 28,104,256
73,384,147
INDUSTRIAL MACHINERY & EQUIPMENT - 0.7%
Komatsu Ltd. Ord. 239,000 1,964,700
NSK Ltd. 1,207,000 8,754,836
Nippon Thompson Co. Ltd. 327,000 2,877,853
Van Der Horst Ltd. 2,022,000 10,222,230
23,819,619
POLLUTION CONTROL - 2.0%
Browning-Ferris Industries, Inc. 1,207,100 35,609,450
WMX Technologies, Inc. 1,029,300 30,750,338
66,359,788
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 163,563,554
MEDIA & LEISURE - 3.8%
ENTERTAINMENT - 0.1%
Multi-Purpose Holdings BHD 1,192,000 1,746,451
LEISURE DURABLES & TOYS - 1.1%
Namco Ltd. 350,200 11,650,754
Nintendo Co. Ltd. Ord. 308,000 23,382,979
35,033,733
LODGING & GAMING - 2.1%
Bally Gaming International,
Inc. (warrants)(a) 38,400 206,400
Circus Circus Enterprises, Inc. 216,000 6,021,000
Fitzgeralds South, Inc.
(warrants) (a)(f) 420 -
ITT Corp. 353,300 18,724,900
Mirage Resorts, Inc. (a) 699,300 24,125,850
Sun International Hotels Ltd. Class B (a) 1,074 35,442
WMS Industries, Inc. (a)(m) 1,301,800 21,316,975
70,430,567
PUBLISHING - 0.2%
Times Mirror Co. Class A 200,000 6,775,000
RESTAURANTS - 0.3%
Denny's Japan Co. Ltd. 170,000 5,672,147
Yoshinoya D&C Co. Ltd. Ord. 193 3,359,768
9,031,915
TOTAL MEDIA & LEISURE 123,017,666
NONDURABLES - 2.1%
BEVERAGES - 0.3%
Brahma (Cia Cervejaria) PN
Class B (Pfd. Reg.) 14,855,200 6,113,718
Chosun Brewery Co. Ltd. 8,000 295,972
Panamerican Beverages, Inc. Class A 70,000 2,240,000
8,649,690
FOODS - 0.1%
Osem Investment Ltd. 157,802 937,671
Weston George Ltd. 37,200 1,370,103
2,307,774
HOUSEHOLD PRODUCTS - 0.6%
Maybelline, Inc. 411,500 14,916,875
Metro Pacific, Inc. Class B 26,668,000 4,930,988
19,847,863
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NONDURABLES - CONTINUED
TOBACCO - 1.1%
Philip Morris Companies, Inc. 268,700 $ 24,317,350
RJR Nabisco Holdings Corp. 388,400 11,991,850
Souza Cruz Industria Comerico 22,000 124,039
36,433,239
TOTAL NONDURABLES 67,238,566
PRECIOUS METALS - 0.0%
Agnico Eagle Mines Ltd. 83,100 1,043,052
RETAIL & WHOLESALE - 7.2%
APPAREL STORES - 1.0%
Ross Stores, Inc. 900,000 17,212,500
Shimamura Corp. 127,300 4,912,253
TJX Companies, Inc. 180,900 3,414,488
Talbots, Inc. 211,800 6,089,250
31,628,491
GENERAL MERCHANDISE STORES - 4.0%
Aoyama Trading Co. Ord. 637,300 20,339,362
Carrefour 6,100 3,693,692
Hankyu Department Stores, Inc. 1,326,000 19,620,697
Hanshin Department Store Ltd. 138,000 1,061,025
Isetan Co. Ltd. 186,000 3,058,027
Ito-Yokado Co. Ltd. 323,000 19,867,312
Jusco Co. Ltd. 536,000 13,944,294
Lojas Americanas 28,247,300 662,625
Matahari Putra Prima PT (For. Reg.) 6,956,000 12,244,882
Matsuzakaya Co., Ltd. 722,000 9,147,195
Mitsukoshi Ltd. 742,000 6,960,735
Takashimaya Co. Ltd. 1,110,000 17,712,766
Tokyu Department Stores Co., Ltd. 721,000 4,762,505
133,075,117
GROCERY STORES - 0.3%
Heiwado Co. Ltd. 154,000 3,157,447
Izumi Co. Ord. 231,000 5,093,617
Loblaw Companies Ltd. 35,500 803,359
9,054,423
RETAIL & WHOLESALE, MISCELLANEOUS - 1.7%
Amway Japan Ltd. 552,500 23,296,906
Home Depot, Inc. (The) 282,500 13,524,688
Modern Photo Film PT 99,000 573,694
Tsutsumi Jewelry Co. Ltd. 36,100 1,805,000
Uny Co. Ltd. 933,000 17,505,029
56,705,317
TRADING COMPANIES - 0.2%
Bimantara Citra (For. Reg.) (a) 9,313,500 7,739,193
TOTAL RETAIL & WHOLESALE 238,202,541
SERVICES - 0.1%
ADVERTISING - 0.1%
WPP Group PLC 1,303,200 3,314,337
SERVICES - 0.0%
Christies International PLC 335,200 1,086,406
Sotheby's Holdings, Inc. Class A 34,800 495,900
1,582,306
TOTAL SERVICES 4,896,643

SHARES VALUE (NOTE 1)
TECHNOLOGY - 3.2%
COMPUTERS & OFFICE EQUIPMENT - 1.3%
Canon, Inc. 157,000 $ 2,839,362
Compaq Computer Corp. (a) 359,800 17,270,400
Pitney Bowes, Inc. 510,200 23,979,400
44,089,162
ELECTRONICS - 0.7%
Hitachi Ltd. 1,788,000 17,983,753
Nitto Denko Corp. 366,000 5,663,443
Samsung Electronics Co. Ltd.
GDR representing shares (a)(f) 12 1,148
23,648,344
PHOTOGRAPHIC EQUIPMENT - 1.2%
Fuji Photo Film Co. Ltd. 1,178,000 33,950,097
Konica Corp. 646,000 4,673,192
38,623,289
TOTAL TECHNOLOGY 106,360,795
TRANSPORTATION - 0.4%
AIR TRANSPORTATION - 0.1%
Nippon Express 417,000 4,008,685
SHIPPING - 0.2%
Seacor Holdings, Inc. (a) 200,000 5,400,000
Sembawang Maritime Ltd. 801,000 2,548,611
7,948,611
TRUCKING & FREIGHT - 0.1%
Fukuyama Transporting Co. Ltd. 408,000 3,827,466
TOTAL TRANSPORTATION 15,784,762
UTILITIES - 1.2%
CELLULAR - 0.0%
Korea Mobile Telecommunications Corp. 800 860,954
Netas SA Ord. 492,300 142,609
1,003,563
ELECTRIC UTILITY - 0.1%
Aboitiz Equity Ventures, Inc. (a) 9,791,000 1,866,374
Korea Electric Power Corp. 47,355 2,032,453
Mosenergo AO sponsored
ADR (a)(f) 89,600 705,600
4,604,427
TELEPHONE SERVICES - 1.1%
Bell Atlantic Corp. 206,900 13,836,438
Telebras PN:
(Pfd. Reg.) 58,793,000 2,830,918
sponsored ADR 177,600 8,413,800
Telecomunicacoes de Minas Gerais
SA (Telemig) 1,269,000 65,281
Telefonos de Mexico SA sponsored ADR
representing shares Ord. Class L 207,800 6,623,625
Telepar PN 5,462,000 1,736,466
Telesp PN (Pfd. Reg.) 19,563,700 2,878,347
36,384,875
TOTAL UTILITIES 41,992,865
TOTAL COMMON STOCKS
(Cost $1,564,808,795) 1,735,854,224
PREFERRED STOCKS - 0.9%
SHARES VALUE (NOTE 1)
CONVERTIBLE PREFERRED STOCKS - 0.9%
HEALTH - 0.9%
MEDICAL EQUIPMENT & SUPPLIES - 0.9%
U.S. Surgical Corp. $2.20 (f) 1,159,800 $ 29,284,950
RETAIL & WHOLESALE - 0.0%
GROCERY STORES - 0.0%
Supermarkets General Holdings Corp.
exchangeable pay-in-kind $3.52 20,000 545,000
TECHNOLOGY - 0.0%
ELECTRONICS - 0.0%
Alpine Group, Inc. 8% cumulative 1,018 45,810
TOTAL CONVERTIBLE PREFERRED STOCKS 29,875,760
NONCONVERTIBLE PREFERRED STOCKS - 0.0%
ENERGY - 0.0%
OIL & GAS - 0.0%
Gulf Canada Resources Ltd.,
Series 1, adj. rate 178,000 515,337
NONDURABLES - 0.0%
HOUSEHOLD PRODUCTS - 0.0%
Revlon Group, Inc., Series B,
exchangeable $14.875 5,100 504,900
TOTAL NONCONVERTIBLE PREFERRED STOCKS 1,020,237
TOTAL PREFERRED STOCKS
(Cost $31,201,505) 30,895,997
CORPORATE BONDS - 10.4%
MOODY'S RATINGS PRINCIPAL
(UNAUDITED) (C) AMOUNT (B)
CONVERTIBLE BONDS - 8.3%
BASIC INDUSTRIES - 1.8%
CHEMICALS & PLASTICS - 0.7%
Valhi, Inc. liquid yield option
notes 0%, 10/20/07 B1 $ 55,465,000 21,631,350
METALS & MINING - 1.1%
Inco Ltd. 5 3/4%, 7/1/04 Baa2 27,870,000 36,788,400
TOTAL BASIC INDUSTRIES 58,419,750
FINANCE - 4.1%
BANKS - 0.2%
Banco De Galicia Y Buenos Aire
7%, 8/01/02 B1 2,360,000 2,171,200
Bangkok Bank PCL euro
3 1/4%, 3/3/04 (f) - 4,185,000 4,436,100
6,607,300
CREDIT & OTHER FINANCE - 2.5%
AC International Finance
3%, 6/8/00 - 5,140,000 5,808,200
Cre Fin (Caymen Islands) Ltd.
3%, 11/24/05 (f) - 5,000,000 5,487,500
MBL International Finance Bermuda
Trust 3%, 11/30/02 Aa3 61,860,000 71,448,300
82,744,000

MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (C) AMOUNT (B) (NOTE 1)
INSURANCE - 1.4%
Chubb Corp. (The) 6%,
5/15/98 Aa3 $ 29,180,000 $ 32,681,600
Fremont General Corp. liquid
yield option notes
0%, 10/12/13 Ba2 8,410,000 4,162,950
Mutual Risk Management Ltd.
exchangeable 0%,
10/30/15 (f) - 20,000,000 8,150,000
44,994,550
TOTAL FINANCE 134,345,850
HEALTH - 0.1%
MEDICAL EQUIPMENT & SUPPLIES - 0.1%
Phoenix Shannon PLC 9 1/2%,
11/1/00 (f) - 3,310,000 3,310,000
MEDIA & LEISURE - 0.8%
BROADCASTING - 0.6%
Time Warner, Inc. liquid yield
option notes 0%, 12/17/12 Ba1 56,280,000 19,768,350
LEISURE DURABLES & TOYS - 0.2%
Hasbro Corp. 6%, 11/15/98 A3 4,720,000 5,168,400
TOTAL MEDIA & LEISURE 24,936,750
RETAIL & WHOLESALE - 0.7%
DRUG STORES - 0.5%
Rite Aid Corp. liquid yield option
notes 0%, 7/24/06 Baa1 30,020,000 16,773,675
GENERAL MERCHANDISE STORES - 0.2%
General Host Corp.
8%, 2/15/02 B3 7,550,000 6,040,000
RETAIL & WHOLESALE, MISCELLANEOUS - 0.0%
Pier 1 Imports, Inc. exchangeable
8 1/2%, 12/1/00 (e) - 1,000,000 835,000
TOTAL RETAIL & WHOLESALE 23,648,675
SERVICES - 0.0%
ADT Operations, Inc. liquid
yield option notes
0%, 7/6/10 Ba3 896,000 427,840
TECHNOLOGY - 0.1%
COMPUTERS & OFFICE EQUIPMENT - 0.0%
Unisys Corp. 8 1/4%, 8/1/00 B2 350,000 309,313
ELECTRONICS - 0.1%
United Microelectronics Corp.
euro 1 1/4%, 6/8/04 - 1,718,000 2,147,500
TOTAL TECHNOLOGY 2,456,813
UTILITIES - 0.7%
TELEPHONE SERVICES - 0.7%
US West, Inc. liquid yield option
notes 0%, 6/25/11 A3 67,770,000 24,227,775
TOTAL CONVERTIBLE BONDS 271,773,453
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (C) AMOUNT (B) (NOTE 1)
NONCONVERTIBLE BONDS - 2.1%
CONSTRUCTION & REAL ESTATE - 0.6%
CONSTRUCTION - 0.0%
U.S. Home Corp.
9 3/4%, 6/15/03 Ba3 $ 1,090,000 $ 1,115,888
REAL ESTATE - 0.6%
Henderson Capital International
Ltd. euro 4%, 10/27/96 - 18,770,000 19,145,400
TOTAL CONSTRUCTION & REAL ESTATE 20,261,288
DURABLES - 0.2%
TEXTILES & APPAREL - 0.2%
Alpargatas SA Industrial y Comercial:
euro 10 1/2%, 10/21/96 - 2,820,000 2,495,700
9%, 11/26/96 - 4,230,000 3,807,000
Hat Brands, Inc., Series B,
12 5/8%, 9/15/02 - 380,000 399,000
6,701,700
ENERGY - 0.1%
ENERGY SERVICES - 0.1%
Global Marine, Inc.
12 3/4%, 12/15/99 B1 2,480,000 2,740,400
INDEPENDENT POWER - 0.0%
Consolidated Hydro, Inc.,
Series B, 0%, 7/15/03 (d) - 1,700,000 680,000
TOTAL ENERGY 3,420,400
FINANCE - 0.0%
BANKS - 0.0%
Signet Banking Corp.
9 5/8%, 6/1/99 Baa2 790,000 872,381
MEDIA & LEISURE - 1.1%
BROADCASTING - 0.9%
Chancellor Broadcasting
12 1/2%, 10/1/04 B3 610,000 652,700
Viacom, Inc. 8%, 7/7/06 B1 29,010,000 29,517,675
30,170,375
LODGING & GAMING - 0.1%
Ballys Grand, Inc. 1st mtg.
10 3/8%, 12/15/03 B1 1,920,000 1,958,400
RESTAURANTS - 0.1%
Host Marriott Travel Plazas, Inc.,
Series B, 9 1/2%, 5/15/05 B1 3,380,000 3,341,975
TOTAL MEDIA & LEISURE 35,470,750
NONDURABLES - 0.0%
BEVERAGES - 0.0%
Dr. Pepper/Seven-Up Companies,
Inc. 0%, 11/1/02 (d) Baa1 870,000 809,100

MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (C) AMOUNT (B) (NOTE 1)
RETAIL & WHOLESALE - 0.0%
APPAREL STORES - 0.0%
Apparel Retailers, Inc.
0%, 8/15/05 (d) Caa $ 1,410,000 $ 817,800
Lamonts Apparel, Inc.
10 1/4%, 11/1/99 (f)(l) - 2,816,000 704,000
1,521,800
TECHNOLOGY - 0.0%
COMPUTERS & OFFICE EQUIPMENT - 0.0%
Unisys Corp.
9 3/4%, 9/15/96 Ba3 695,000 677,625
TRANSPORTATION - 0.1%
TRUCKING & FREIGHT - 0.1%
MC-Cuernavaca Trust
9 1/4%, 7/25/01 (f) BBB 4,308,191 2,951,111
TOTAL NONCONVERTIBLE BONDS 72,686,155
TOTAL CORPORATE BONDS
(Cost $331,361,222) 344,459,608
U.S. TREASURY OBLIGATIONS - 22.2%
7 3/4%, 12/31/99 Aaa 64,935,000 70,464,865
5 1/2%, 12/31/00 Aaa 30,000,000 30,154,800
6 1/4%, 2/15/03 Aaa 91,695,000 95,663,560
11 7/8%, 11/15/03 (g) Aaa 51,950,000 72,575,709
12 3/8%, 5/15/04 Aaa 8,510,000 12,320,863
6 1/2%, 8/15/05 Aaa 57,100,000 60,829,201
5 7/8%, 11/15/05 Aaa 29,500,000 30,163,750
11 3/4%, 2/15/10 Aaa 70,770,000 100,913,774
12 3/4%, 11/15/10 Aaa 22,010,000 33,523,871
13 7/8%, 5/15/11 Aaa 31,340,000 51,010,864
14%, 11/15/11 Aaa 7,730,000 12,820,901
6 7/8%, 8/15/25 Aaa 8,750,000 9,868,338
U.S. Treasury Bills, yield at date of
purchase 5.2187%, 3/21/96 158,000,000 156,214,114
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $719,506,492) 736,524,610
U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES - 0.0%
Government National Mortgage
Association 8 1/2%, 12/15/16
(cost $152,538) Aaa 142,893 151,198
COMMERCIAL MORTGAGE SECURITIES - 0.0%
CS First Boston Mortgage Securities
Corp. commercial Series 1994-CFB1
Class E, 6.4255%, 1/25/28 (i)
(cost $3,232) Ba2 3,993 3,209
FOREIGN GOVERNMENT OBLIGATIONS (K) - 1.6%
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (C) AMOUNT (B) (NOTE 1)
Argentina Republic Brady FRB euro
6.8125%, 3/31/05 (i) B2 $ 8,940,000 $ 6,369,750
Brazil Federative Republic IDU euro
6 3/8%, 1/1/01 (i) B1 43,415,000 37,282,608
New Zealand Government
8%, 4/15/04 Aaa NZD 10,500,000 7,161,612
Siderurgica Brasileiras inflation
indexed 6%, 8/15/99 (j) - BRL 18,482,700 2,669,804
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $50,413,473) 53,483,774
REPURCHASE AGREEMENTS - 11.7%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.91% dated
12/29/95 due 1/2/96 $ 386,677,752 386,424,000
PURCHASED OPTIONS - 0.8%
EXPIRATION DATE/ UNDERLYING FACE
STRIKE PRICE AMOUNT AT VALUE
269,266 Merrill Lynch Capital
Markets PLC OTC Put Option
on S&P 500 Apr. 96/577.44 $ 165,849,007 1,190,156
260,000,000 J. Aron and Co.
OTC Put Option on
Japanese Yen Feb. 96/94.03 236,187,808 21,814,000
70,000,000 Swiss Bank Corp.
OTC Put Option on
Japanese Yen Mar. 96/97.56 65,976,234 3,773,000
TOTAL PURCHASED OPTIONS
(Cost $23,525,293) 26,777,156
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $3,107,396,550) $ 3,314,573,776
FUTURES CONTRACTS
EXPIRATION UNDERLYING FACE UNREALIZED
DATE AMOUNT AT VALUE GAIN/(LOSS)
PURCHASED
1,586 Nikkei 225 Index
Futures Contracts Mar. 1996 $ 159,075,800 $ 8,457,295
THE FACE VALUE OF FUTURES PURCHASED AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 4.8%
CURRENCY ABBREVIATIONS
BRL - Brazilian real
CAD - Canadian dollar
NZD - New Zealand dollar
LEGEND
(a) Non-income producing
(b) Principal amount is stated in United States dollars unless otherwise
noted.
(c) Standard & Poor's Corporation credit ratings are used in the absence of
a rating by Moody's Investors Service, Inc.
(d) Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
(e) Restricted securities - Investment in securities not registered under
the Securities Act of 1933 (see Note 2 of Notes to Financial Statements).
Additional information on each holding is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
Pier 1 Imports, Inc.
exchangeable 8 1/2%,
12/1/00 2/14/95 $ 1,020,000
(f) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $55,356,232 or 1.7% of net
assets.
(g) Security pledged to cover margin requirements for futures contracts. At
the period end, the value of securities pledged amounted to $12,852,676.
(h) Purchased on an installment basis. Market value reflects only those
payments made through December 31, 1995. The remaining installments for
Falconbridge Ltd., aggregating CAD 23,888,700, are due July 31, 1996 and
January 31, 1997. The remaining installment for First NIS Regional Fund,
Inc., amounting to $600,000, is due March 1996.
(i) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(j) Principal amount shown is original face amount and does not reflect the
inflation adjustments.
(k) 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.
(l) Non-income producing - issuer filed for protection under the Federal
Bankruptcy Code or is in default of interest payment.
(m) 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. $ - $ - $ - $22,645,700
Daehan Korean Blue-Chip
Investment Trust - 5,027,875 - -
IVF America, Inc. 131,250 406,875 - -
Synetic, Inc. - - - 31,480,688
WMS Industries, Inc. 312,588 - - 21,316,975
$ 443,838 $5,434,750 - $ 75,443,363

OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $6,964,009,493 and $7,132,057,926, respectively, of which U.S.
government and government agency obligations aggregated $1,807,998,151 and
$1,999,754,181, respectively.
The market value of futures contracts opened and closed during the period
amounted to $499,261,361 and $557,177,398, respectively.
The fund placed a portion of its portfolio securities with brokerage firms
which are affiliates of Fidelity Management & Research Company. The
commissions paid to these affiliated firms were $2,011,688 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 21.8% AAA, AA, A 21.8%
Baa 1.7% BBB 2.3%
Ba 0.8% BB 1.5%
B 3.4% B 0.8%
Caa 0.0% CCC 0.2%
Ca, C 0.0% CC, C 0.0%
D 0.0%
For some foreign government obligations, FMR has assigned the ratings of
the sovereign credit of the issuing government.The percentage not rated by
either S&P or Moody's amounted to 1.8%.
Distribution of investments by country of issue, as a percentage of total
value of investment in securities, is as follows:
United States 69.5%
Japan 17.5
Bermuda 2.2
Brazil 2.1
Canada 1.8
Indonesia 1.2
Others (individually less than 1%) 5.7
TOTAL 100.0%
INCOME TAX INFORMATION
At December 31, 1995, the aggregate cost of investment securities for
income tax purposes was $3,110,871,403. Net unrealized appreciation
aggregated $203,702,373, of which $237,164,017 related to appreciated
investment securities and $33,461,644 related to depreciated investment
securities.
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO
FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995

ASSETS

Investment in $ 3,314,573,776
securities, at
value (including
repurchase
agreements of
$386,424,000)
(cost
$3,107,396,550)
- - See
accompanying
schedule

Receivable for 57,608,395
investments
sold

Receivable for 2,570,742
fund shares sold

Dividends 3,860,516
receivable

Interest receivable 17,483,191

Receivable for 713,700
daily variation
on futures
contracts

Other receivables 69,447

TOTAL ASSETS 3,396,879,767

LIABILITIES

Payable to $ 2,493,280
custodian bank

Payable for 58,215,626
investments
purchased

Payable for fund 944,615
shares
redeemed

Accrued 1,954,094
management
fee

Other payables 427,843
and accrued
expenses

TOTAL LIABILITIES 64,035,458

NET ASSETS $ 3,332,844,309

Net Assets
consist of:

Paid in capital $ 2,914,158,302

Undistributed net 105,158,635
investment
income

Accumulated 97,895,425
undistributed
net realized gain
(loss) on
investments and
foreign
currency
transactions

Net unrealized 215,631,947
appreciation
(depreciation)
on investments
and assets and
liabilities in
foreign
currencies

NET ASSETS, for $ 3,332,844,309
211,045,847
shares
outstanding

NET ASSET VALUE, $15.79
offering price
and redemption
price per
share
($3,332,844,309
(divided by) 211,045,847
shares)

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1995

INVESTMENT INCOME $ 34,063,952
Dividends

Interest 106,493,577

TOTAL INCOME 140,557,529

EXPENSES

Management fee $ 23,174,840

Transfer agent fees 1,545,902

Accounting fees and expenses 758,063

Non-interested trustees' compensation 21,188

Custodian fees and expenses 593,323

Audit 266,026

Legal 8,687

Interest 1,636

Total expenses before reductions 26,369,665

Expense reductions (588,729 25,780,936
)

NET INVESTMENT INCOME 114,776,593

REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:

Investment securities (including realized gain of $4,664,757 114,027,551
on sales of investments in
affiliated issues)

Foreign currency transactions 7,982,127

Futures contracts (13,257,156 108,752,522
)

Change in net unrealized appreciation (depreciation) on:

Investment securities 271,006,736

Assets and liabilities in foreign currencies 2,779,825

Futures contracts 10,958,183 284,744,744

NET GAIN (LOSS) 393,497,266

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 508,273,859

</TABLE>

STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994

<TABLE>
<CAPTION>
<S> <C> <C>
Operations $ 114,776,593 $ 124,688,325
Net investment income

Net realized gain (loss) 108,752,522 (68,906,291)

Change in net unrealized appreciation 284,744,744 (250,445,476)
(depreciation)

NET INCREASE (DECREASE) IN NET ASSETS 508,273,859 (194,663,442)
RESULTING FROM OPERATIONS

Distributions to shareholders (67,894,650) (50,526,762)
From net investment income

From net realized gain - (79,199,683)

TOTAL DISTRIBUTIONS (67,894,650) (129,726,445)

Share transactions 239,926,948 1,290,034,795
Net proceeds from sales of shares

Reinvestment of distributions 67,894,650 129,726,445

Cost of shares redeemed (705,883,879) (227,536,355)

NET INCREASE (DECREASE) IN NET ASSETS (398,062,281) 1,192,224,885
RESULTING FROM SHARE TRANSACTIONS

TOTAL INCREASE (DECREASE) IN NET ASSETS 42,316,928 867,834,998

NET ASSETS

Beginning of period 3,290,527,381 2,422,692,383

End of period (including undistributed net $ 3,332,844,309 $ 3,290,527,381
investment income of $105,158,635 and
$117,158,735, respectively)

OTHER INFORMATION
Shares

Sold 16,731,500 88,946,611

Issued in reinvestment of distributions 5,014,376 8,660,857

Redeemed (49,259,550) (16,144,437)

Net increase (decrease) (27,513,674) 81,463,031

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C>
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

</TABLE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31,

SELECTED PER-SHARE DATA 1995 1994 1993 C 1992 1991

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.79 $ 15.42 $ 13.32 $ 12.55 $ 10.24

Income from Investment Operations

Net investment income .30 .45 .33 .32 .35

Net realized and unrealized gain (loss) 1.99 (1.33) 2.39 1.09 1.96

Total from investment operations 2.29 (.88) 2.72 1.41 2.31

Less Distributions (.29) (.29) (.33) (.31) -
From net investment income

In excess of net investment income - - (.04) - -

From net realized gain - (.46) (.25) (.33) -

Total distributions (.29) (.75) (.62) (.64) -

Net asset value, end of period $ 15.79 $ 13.79 $ 15.42 $ 13.32 $ 12.55

TOTAL RETURN A, B 16.96% (6.09)% 21.23% 11.71% 22.56%

RATIOS AND SUPPLEMENTAL DATA

Net assets, end of period (000 omitted) $ 3,332,844 $ 3,290,527 $ 2,422,692 $ 731,724 $ 193,518

Ratio of expenses to average net assets .81% .81% .88% .91% 1.08%

Ratio of expenses to average net assets after .79% D .80% .88% .91% 1.08%
expense reductions D

Ratio of net investment income to average net 3.54% 4.07% 3.64% 4.89% 5.89%
assets

Portfolio turnover rate 256% 85% 113% 92% 110%

</TABLE>

<TABLE>
<CAPTION>
<S> <C>
<C> <C> <C> <C>
A TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THOSE CHARGES
WOULD REDUCE THE TOTAL RETURNS SHOWN.
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 6 OF
NOTES TO FINANCIAL STATEMENTS).
C 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.
D FMR HAS DIRECTED CERTAIN PORTFOLIO TRADES TO BROKERS WHO PAID A
PORTION OF THE FUND'S EXPENSES (SEE NOTE 6 OF NOTES TO
FINANCIAL STATEMENTS).

</TABLE>

VARIABLE INSURANCE PRODUCTS FUND II: INDEX 500 PORTFOLIO
PERFORMANCE AND INVESTMENT SUMMARY

INDEX 500 37.19% 15.44%

S&P 500 37.58% 15.79%

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.

Let's say you invested $10,000 in Index 500 Portfolio on August 27, 1992,
when the fund started. By December 31, 1995, your investment would have
grown to $16,171 - a 61.71% increase. With reinvested dividends and capital
gains, if any, a $10,000 investment in the S&P 500 would have grown to
$16,339 over the same period - a 63.39% increase.
INVESTMENT SUMMARY
TOP TEN STOCKS AS OF DECEMBER 31, 1995
% OF FUND'S
INVESTMENTS

General Electric Co. 2.4

AT&T Corp. 2.0

Exxon Corp. 2.0

Coca-Cola Co. (The) 1.8

Merck & Co., Inc. 1.6

Philip Morris Companies, Inc. 1.5

Royal Dutch Petroleum Co. 1.5

Procter & Gamble Co. 1.1

Johnson & Johnson 1.1

International Business Machines Corp. 1.0

TOP TEN MARKET SECTORS AS OF DECEMBER 31, 1995
% OF FUND'S
INVESTMENTS

Utilities 11.8

Finance 11.8

Nondurables 10.4

Health 9.8

Technology 9.6

Energy 8.2

Basic Industries 6.1

Industrial Machinery & Equipment 4.8

Media & Leisure 4.2

Retail & Wholesale 4.2

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, JENNIFER?
A. For the 12-month period ended December 31, 1995, the fund performed in
line with the 37.58% return of the Standard & Poor's Composite Index of 500
Stocks. Of course, the fund's total return is slightly lower than the index
due to management expenses.
Q. PEOPLE HAVE HEARD AND READ SO MANY DIFFERENT OPINIONS ON WHY THE U.S.
STOCK MARKET PERFORMED SO WELL. IN YOUR OPINION, WHAT WERE THE MOST
IMPORTANT FACTORS IN THE 1995 RALLY?
A. Falling interest rates and growing corporate profits played a big part
in this year's rally. The Federal Reserve Board eased short-term interest
rates twice - in July and December. These actions were a confirmation that
the economy was growing at a slow but steady pace with relatively low
inflation. Lower interest rates were important to the equity market because
they indicated corporate borrowing costs would be less of a burden on
profits.
Q. WAS THERE ANYTHING ELSE THAT ADDED TO THE BULLISH SENTIMENT IN THE
MARKET?
A. The flurry of initial public offerings - particularly the eye-popping
leaps in the prices of technology-related issues - helped to confirm the
market's strong demand for equities. It was also a record year for mergers
and acquisitions, as more than $400 billion in deals were announced. I
should point out that much of this year's M&A activity involved S&P 500
companies. These included Walt Disney's agreement to purchase Capital
Cities/ABC, Westinghouse's decision to buy CBS, the proposed merger of
money-center banks Chase and Chemical, regional bank Fleet Financial's
acquisition of rival Shawmut, the announced merger of Bank of Boston with
cross-town retail specialist BayBanks, and Kimberly Clark's agreement to
buy rival Scott Paper.
Q. CORPORATE SPIN-OFFS HAD A BIG IMPACT ON THE S&P 500 AS WELL. . .
A. They certainly did. Like M&A activity, it was also a record year for
corporate spin-offs and restructuring. AT&T broke off into three units
during 1995, while ITT Corp. and Minnesota Mining & Manufacturing made
similar announcements. Additionally, in a long anticipated move, General
Motors announced it would spin off its computer subsidiary, Electronic Data
Systems.
Q. AS YOU NOTED AT THE END OF JUNE, HIGH-TECH COMPANY STOCKS HAVE HAD A
BANNER YEAR. IT CERTAINLY APPEARS, THOUGH, THAT THEY BEGAN TO LOSE SOME OF
THEIR LUSTER IN THE FOURTH QUARTER. . .
A. Stocks of large semiconductor firms held the spotlight for most of the
year and really seemed to drive the performance of other technology-related
stocks. Beginning in the second quarter, some semiconductor and software
firms began reporting earnings below analysts' estimates. Additionally, in
the fourth quarter, some semiconductor companies showed continued weakness
in earnings. I should point out, however, that many software and personal
computer stocks were able to perform well despite weakness in the
technology sector.
Q. ASIDE FROM TECHNOLOGY, WHAT WERE SOME OTHER SECTORS THAT PERFORMED WELL?
A. Demand was high for consumer nondurables - or less economically
sensitive stocks. This benefited health care stocks and pharmaceutical
companies. Following the trend toward consumer nondurables was a resurgence
in biotechnology and medical device companies. These stocks were also
helped by a large number of approvals from the Food and Drug
Administration. Additionally, the financial sector - particularly
money-center banks - was the beneficiary of the increased loan activity and
investing that goes along with lower interest rates.
Q. WERE THERE ANY DISAPPOINTMENTS?
A. Cyclical - or economically sensitive - stocks underperformed as the
economy slowed this year. These stocks generally do well in the first
stages of a recovery. One widely publicized underperforming sector has also
been the retail sector. The combination of several high-profile
bankruptcies, intense competition and a slow Christmas season hurt retail
stocks.
Q. WHAT'S YOUR OUTLOOK?
A. History has shown that the stock market generally has not been able to
sustain this level of growth for two years in a row. That said, however,
should the economy continue to grow at a sustainable pace and corporate
earnings remain fairly strong, the equity markets should show some positive
returns.
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.

Showing Percentage of Total Value of Investment in Securities

COMMON STOCKS - 90.0%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 1.7%
AEROSPACE & DEFENSE - 1.3%
Boeing Co. 16,500 $ 1,293,129
Lockheed Martin Corp. 9,693 765,747
McDonnell Douglas Corp. 5,500 506,000
Northrop Grumman Corp. 2,300 147,200
Rockwell International Corp. 10,500 555,188
3,267,264
DEFENSE ELECTRONICS - 0.3%
Loral Corp. 8,300 293,613
Raytheon Co. 11,800 557,550
851,163
SHIP BUILDING & REPAIR - 0.1%
General Dynamics Corp. 3,100 183,288
TOTAL AEROSPACE & DEFENSE 4,301,715
BASIC INDUSTRIES - 6.1%
CHEMICALS & PLASTICS - 3.3%
Air Products & Chemicals, Inc. 5,300 279,575
Avery Dennison Corp. 2,500 125,313
Dow Chemical Co. 13,000 914,875
du Pont (E.I.) de Nemours & Co. 26,600 1,858,675
Eastman Chemical Co. 3,975 248,934
Engelhard Corp. 6,800 147,900
FMC Corp. (a) 1,700 114,963
Goodrich (B.F.) Company 1,300 88,563
Grace (W.R.) & Co. 4,600 271,975
Great Lakes Chemical Corp. 3,200 230,400
Hercules, Inc. 5,300 298,788
Minnesota Mining & Manufacturing Co. 20,100 1,331,625
Monsanto Co. 5,600 686,000
Morton International, Inc. 7,200 258,300
Nalco Chemical Co. 3,300 99,413
PPG Industries, Inc. 9,800 448,350
Praxair, Inc. 6,700 225,288
Raychem Corp. 1,900 108,063
Rohm & Haas Co. 3,300 212,438
Union Carbide Corp. 6,500 243,750
8,193,188
IRON & STEEL - 0.3%
Armco, Inc. (a) 5,100 29,963
Bethlehem Steel Corp. (a) 5,400 75,600
Inland Steel Industries, Inc. 2,400 60,300
Nucor Corp. 4,300 245,638
USX-U.S. Steel Group 4,000 123,000
Worthington Industries, Inc. 4,450 92,616
627,117
METALS & MINING - 0.7%
Alcan Aluminium Ltd. 10,757 334,099
Aluminum Co. of America 8,500 449,438
ASARCO, Inc. 2,100 67,200
Cyprus Amax Minerals Co. 4,550 118,869
Freeport-McMoRan Copper & Gold, Inc.
Class B 9,700 272,813
Inco Ltd. 5,336 176,485
Phelps Dodge Corp. 3,400 211,650
Reynolds Metals Co. 3,100 175,538
1,806,092

SHARES VALUE (NOTE 1)
PACKAGING & CONTAINERS - 0.3%
Ball Corp. 1,500 $ 41,250
Bemis Co., Inc. 2,400 61,500
Corning, Inc. 11,100 355,200
Crown Cork & Seal Co., Inc. (a) 4,400 183,700
641,650
PAPER & FOREST PRODUCTS - 1.5%
Boise Cascade Corp. 2,200 76,175
Champion International Corp. 4,700 197,400
Federal Paper Board Co., Inc. 2,200 114,125
Georgia-Pacific Corp. 4,300 295,088
International Paper Co. 12,300 465,863
James River Corp. 3,900 94,088
Kimberly-Clark Corp. 13,416 1,110,174
Louisiana-Pacific Corp. 5,100 123,675
Mead Corp. 2,500 130,625
Potlatch Corp. 1,500 60,000
Stone Container Corp. 4,600 66,125
Temple-Inland, Inc. 2,600 114,725
Union Camp Corp. 3,300 157,163
Westvaco Corp. 4,950 137,363
Weyerhaeuser Co. 9,700 419,525
Willamette Industries, Inc. 2,700 151,875
3,713,989
TOTAL BASIC INDUSTRIES 14,982,036
CONGLOMERATES - 1.0%
Allied-Signal, Inc. 13,700 650,750
Crane Co. 1,400 51,625
Dial Corp. (The) 4,400 130,350
Harris Corp. 1,800 98,325
ITT Industries, Inc. 5,500 132,000
Teledyne, Inc. 2,600 66,625
Textron, Inc. 4,000 270,000
Tyco International Ltd. 7,400 263,625
United Technologies Corp. 6,000 569,250
Whitman Corp. 5,100 118,575
2,351,125
CONSTRUCTION & REAL ESTATE - 0.4%
BUILDING MATERIALS - 0.2%
Armstrong World Industries, Inc. 1,300 80,600
Masco Corp. 7,700 241,588
Owens-Corning Fiberglas Corp. (a) 2,500 112,188
Sherwin-Williams Co. 4,000 163,000
597,376
CONSTRUCTION - 0.0%
Centex Corp. 1,400 48,650
Kaufman & Broad Home Corp. 1,600 23,800
Morrison-Knudsen Corp. 1,500 6,375
Pulte Corp. 1,200 40,350
119,175
ENGINEERING - 0.2%
EG & G, Inc. 2,600 63,050
Fluor Corp. 3,900 257,400
Foster Wheeler Corp. 2,000 85,000
405,450
TOTAL CONSTRUCTION & REAL ESTATE 1,122,001
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
DURABLES - 3.3%
AUTOS, TIRES, & ACCESSORIES - 2.6%
Chrysler Corp. 18,300 $ 1,013,363
Cooper Tire & Rubber Co. 4,100 100,963
Cummins Engine Co., Inc. 2,000 74,000
Dana Corp. 4,800 140,400
Eaton Corp. 3,800 203,775
Echlin, Inc. 2,800 102,200
Ford Motor Co. 51,700 1,499,300
General Motors Corp. 35,978 1,902,337
Genuine Parts Co. 5,800 237,800
Goodyear Tire & Rubber Co. 7,400 335,775
Johnson Controls, Inc. 1,900 130,625
NACCO Industries, Inc. Class A 500 27,750
Navistar International Corp. (a) 3,670 38,535
PACCAR, Inc. 1,945 81,933
Pep Boys Manny, Moe & Jack 2,900 74,313
Snap-on Tools Corp. 1,700 76,925
TRW, Inc. 3,200 248,000
6,287,994
CONSUMER ELECTRONICS - 0.3%
Black & Decker Corp. 4,200 148,050
Maytag Co. 5,100 103,275
Newell Co. 7,700 199,238
Whirlpool Corp. 3,600 191,700
642,263
TEXTILES & APPAREL - 0.4%
Fruit of the Loom, Inc. Class A (a) 3,700 90,188
Liz Claiborne, Inc. 3,700 102,675
NIKE, Inc. Class B 6,800 473,450
Reebok International Ltd. 3,700 104,525
Russell Corp. 1,800 49,950
Springs Industries, Inc. Class A 900 37,238
Stride Rite Corp. 2,400 18,000
VF Corp. 3,000 158,250
1,034,276
TOTAL DURABLES 7,964,533
ENERGY - 8.2%
COAL - 0.0%
Eastern Enterprises Co. 900 31,725
ENERGY SERVICES - 0.7%
Baker Hughes, Inc. 6,700 163,313
Dresser Industries, Inc. 8,700 212,063
Halliburton Co. 5,400 273,375
Helmerich & Payne, Inc. 1,100 32,725
McDermott International, Inc. 2,700 59,400
Rowan Companies, Inc. (a) 4,100 40,488
Schlumberger Ltd. 11,700 810,225
1,591,589
OIL & GAS - 7.5%
Amerada Hess Corp. 4,400 233,200
Amoco Corp. 23,900 1,717,813
Ashland, Inc. 3,000 105,375
Atlantic Richfield Co. 7,800 863,850
Burlington Resources, Inc. 6,000 235,500
Chevron Corp. 31,400 1,648,500
Coastal Corp. (The) 5,100 189,975
Exxon Corp. 59,600 4,775,450
Kerr-McGee Corp. 2,400 152,400
Louisiana Land & Exploration Co. 1,700 72,888

SHARES VALUE (NOTE 1)
Mobil Corp. 19,100 $ 2,139,200
Occidental Petroleum Corp. 15,200 324,900
Oryx Energy Co. (a) 4,900 65,538
Pennzoil Co. 2,300 97,175
Phillips Petroleum Co. 12,500 426,563
Royal Dutch Petroleum Co. 25,700 3,626,913
Santa Fe Energy Resources, Inc. (a) 4,400 42,350
Sun Company, Inc. 3,700 101,288
Texaco, Inc. 12,400 973,400
USX-Marathon Group 14,200 276,900
Unocal Corp. 11,765 342,656
18,411,834
TOTAL ENERGY 20,035,148
FINANCE - 11.8%
BANKS - 5.5%
Banc One Corp. 18,860 711,965
Bank of Boston Corp. 5,436 251,415
Bank of New York Co., Inc. 9,300 453,375
BankAmerica Corp. 17,900 1,159,025
Bankers Trust New York Corp. 3,700 246,050
Barnett Banks, Inc. 4,600 271,400
Boatmen's Bancshares, Inc. 6,100 249,338
Chase Manhattan Corp. 8,382 508,159
Chemical Banking Corp. 12,200 716,750
Citicorp 20,362 1,369,345
Comerica, Inc. 5,600 224,700
CoreStates Financial Corp. 6,700 253,763
First Bank System, Inc. 6,600 327,525
First Fidelity Bancorporation 3,756 283,109
First Interstate Bancorp 3,600 491,400
First Union Corp. 8,246 458,684
Fleet Financial Group, Inc. 11,374 463,491
KeyCorp. 11,007 399,004
Mellon Bank Corp. 7,100 381,625
Morgan (J.P.) & Co., Inc. 9,100 730,275
National City Corp. 7,159 237,142
NationsBank Corp. 13,117 913,271
Norwest Corp. 16,900 557,700
PNC Financial Corp. 11,100 357,975
Republic New York Corp. 2,600 161,525
SunTrust Banks, Inc. 5,400 369,900
U.S. Bancorp 4,800 161,400
Wachovia Corp. 8,300 379,725
Wells Fargo & Co. 2,400 518,400
13,607,436
CREDIT & OTHER FINANCE - 1.2%
American Express Co. 23,379 967,306
Beneficial Corp. 2,600 121,225
Dean Witter Discover & Co. 8,058 378,726
First Chicago NBD Corp. 15,159 598,781
Household International, Inc. 4,610 272,566
MBNA Corp. 7,200 265,500
Transamerica Corp. 3,229 235,313
2,839,417
FEDERAL SPONSORED CREDIT - 1.0%
Federal Home Loan
Mortgage Corp. 8,600 718,100
Federal National
Mortgage Association 13,200 1,638,450
2,356,550
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - CONTINUED
INSURANCE - 3.5%
Aetna Life & Casualty Co. 5,500 $ 380,875
Alexander & Alexander Services, Inc. 2,200 41,800
Allstate Corp. 21,621 889,164
American General Corp. 9,900 345,263
American International Group, Inc. 22,875 2,115,938
CIGNA Corp. 3,400 351,050
Chubb Corp. (The) 4,100 396,675
General Re Corp. 4,000 620,000
ITT Hartford Group, Inc. 5,500 266,063
Jefferson Pilot Corp. 3,300 153,450
Lincoln National Corp. 4,900 263,375
Loews Corp. 5,600 438,900
Marsh & McLennan Companies, Inc. 3,400 301,750
Providian Corp. 4,500 183,375
SAFECO Corp. 6,100 210,450
St. Paul Companies, Inc. (The) 4,000 222,500
Torchmark Corp. 3,500 158,375
Travelers, Inc. (The) 15,417 969,344
UNUM Corp. 3,400 187,000
USF&G Corp. 5,300 89,438
USLIFE Corp. 1,575 47,053
8,631,838
SAVINGS & LOANS - 0.2%
Ahmanson (H.F.) & Co. 5,700 151,050
Golden West Financial Corp. 2,900 160,225
Great Western Financial Corp. 6,650 169,575
480,850
SECURITIES INDUSTRY - 0.4%
Merrill Lynch & Co., Inc. 8,400 428,400
Morgan Stanley Group, Inc. 3,600 290,250
Salomon, Inc. 5,200 184,600
903,250
TOTAL FINANCE 28,819,341
HEALTH - 9.8%
DRUGS & PHARMACEUTICALS - 5.9%
Allergan, Inc. 3,000 97,500
ALZA Corp. Class A (a) 3,900 96,525
American Home Products Corp. 14,800 1,435,600
Amgen, Inc. (a) 12,800 760,000
Bristol-Myers Squibb Co. 24,300 2,086,763
Lilly (Eli) & Co. 26,596 1,496,025
Merck & Co., Inc. 59,500 3,912,125
Pharmacia & Upjohn, Inc. 24,260 940,075
Pfizer, Inc. 30,400 1,915,200
Schering-Plough Corp. 17,800 974,550
Sigma Aldrich Corp. 2,300 113,850
Warner-Lambert Co. 6,400 621,600
14,449,813
MEDICAL EQUIPMENT & SUPPLIES - 2.8%
Abbott Laboratories 38,200 1,594,850
Bard (C.R.), Inc. 2,600 83,850
Bausch & Lomb, Inc. 2,800 110,950
Baxter International, Inc. 13,200 552,750
Becton, Dickinson & Co. 3,100 232,500
Biomet, Inc. (a) 5,600 100,100
Boston Scientific Corp. (a) 7,700 377,300
Johnson & Johnson 31,100 2,662,938
Mallinckrodt Group, Inc. 3,600 130,950

SHARES VALUE (NOTE 1)
Medtronic, Inc. 11,100 $ 620,213
Millipore Corp. 2,200 90,475
Pall Corp. 5,400 145,125
St. Jude Medical, Inc. (a) 3,450 148,350
U.S. Surgical Corp. 2,800 59,850
6,910,201
MEDICAL FACILITIES MANAGEMENT - 1.1%
Beverly Enterprises, Inc. (a) 4,800 51,000
Columbia/HCA Healthcare Corp. 21,375 1,084,781
Community Psychiatric Centers 2,000 24,500
Humana, Inc. 7,700 210,788
Manor Care, Inc. 2,900 101,500
Tenet Healthcare Corp. (a) 9,700 201,275
United HealthCare Corp. 8,400 550,200
U.S. Healthcare, Inc. 7,300 339,450
2,563,494
TOTAL HEALTH 23,923,508
HOLDING COMPANIES - 0.3%
CINergy Corp. 7,413 227,023
Norfolk Southern Corp. 6,200 492,125
719,148
INDUSTRIAL MACHINERY & EQUIPMENT - 4.8%
ELECTRICAL EQUIPMENT - 3.1%
Emerson Electric Co. 10,700 874,725
General Electric Co. 81,300 5,853,600
General Signal Corp. 2,200 71,225
Grainger (W.W.), Inc. 2,500 165,625
Honeywell, Inc. 6,200 301,475
Scientific-Atlanta, Inc. 3,600 54,000
Westinghouse Electric Corp. 18,900 311,850
7,632,500
INDUSTRIAL MACHINERY & EQUIPMENT - 1.2%
Briggs & Stratton Corp. 1,500 65,063
Caterpillar, Inc. 9,500 558,125
Cincinnati Milacron, Inc. 1,700 44,625
Cooper Industries, Inc. 5,246 192,791
Deere & Co. 11,400 401,850
Dover Corp. 5,500 202,813
Giddings & Lewis, Inc. 1,700 28,050
Harnischfeger Industries, Inc. 2,400 79,800
Illinois Tool Works, Inc. 5,700 336,300
Ingersoll-Rand Co. 5,000 175,625
Parker-Hannifin Corp. 3,450 118,163
Stanley Works 2,200 113,300
Tenneco, Inc. 8,600 426,775
Timken Co. 1,400 53,550
TRINOVA Corp. 1,300 37,213
Varity Corp. (a) 1,900 70,538
2,904,581
POLLUTION CONTROL - 0.5%
Browning-Ferris Industries, Inc. 10,300 303,850
Laidlaw, Inc. Class B 14,200 143,108
Ogden Corp. 2,400 51,300
Safety Kleen Corp. 2,700 42,188
WMX Technologies, Inc. 23,200 693,100
Zurn Industries, Inc. 600 12,825
1,246,371
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 11,783,452
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
MEDIA & LEISURE - 4.2%
BROADCASTING - 1.3%
Capital Cities/ABC, Inc. 7,300 $ 900,638
Comcast Corp. Class A special 11,450 208,247
TCI Group Class A 31,400 624,075
Time Warner, Inc. 18,517 701,331
Viacom, Inc. Class B (non-vtg.) (a) 17,400 824,325
3,258,616
ENTERTAINMENT - 0.6%
Disney (Walt) Co. 25,100 1,480,900
King World Productions, Inc. (a) 1,700 66,088
1,546,988
LEISURE DURABLES & TOYS - 0.3%
Brunswick Corp. 4,700 112,800
Fleetwood Enterprises, Inc. 1,800 46,350
Hasbro, Inc. 4,300 133,300
Mattel, Inc. 10,581 325,366
Outboard Marine Corp. 900 18,338
636,154
LODGING & GAMING - 0.3%
Bally Entertainment Corp. 2,200 30,800
Harrah's Entertainment, Inc. 5,000 121,250
Hilton Hotels Corp. 2,400 147,600
ITT Corp. 5,500 291,500
Marriott International, Inc. 6,100 233,325
824,475
PUBLISHING - 1.0%
American Greetings Corp. Class A 3,500 96,688
Dow Jones & Co., Inc. 4,700 187,413
Dun & Bradstreet Corp. 8,200 530,950
Gannett Co., Inc. 6,800 417,350
Harcourt General, Inc. 3,400 142,375
Knight-Ridder, Inc. 2,300 143,750
McGraw-Hill, Inc. 2,300 200,388
Meredith Corp. 1,400 58,625
New York Times Co. (The) Class A 4,700 139,238
Times Mirror Co. Class A 5,300 179,538
Tribune Co. 3,200 195,600
2,291,915
RESTAURANTS - 0.7%
Darden Restaurants, Inc. 7,500 89,063
Luby's Cafeterias, Inc. 1,200 26,700
McDonald's Corp. 33,300 1,502,663
Ryan's Family Steak Houses, Inc. (a) 2,600 18,200
Shoney's, Inc. (a) 1,900 19,475
Wendy's International, Inc. 5,000 106,250
1,762,351
TOTAL MEDIA & LEISURE 10,320,499
NONDURABLES - 10.4%
AGRICULTURE - 0.1%
Pioneer Hi-Bred International, Inc. 4,100 228,063
BEVERAGES - 3.3%
Anheuser-Busch Companies, Inc. 12,200 815,875
Brown-Forman Corp. Class B 3,400 124,100
Coca-Cola Company (The) 60,500 4,492,125
Coors (Adolph) Co. Class B 1,900 42,038
PepsiCo, Inc. 37,900 2,117,663
Seagram Co. Ltd. 17,800 613,186
8,204,987

SHARES VALUE (NOTE 1)
FOODS - 2.5%
Archer-Daniels-Midland Co. 25,961 $ 467,298
CPC International, Inc. 7,100 487,238
Campbell Soup Co. 11,900 714,000
ConAgra, Inc. 11,800 486,750
General Mills, Inc. 7,700 444,675
Heinz (H.J.) Co. 17,450 578,031
Hershey Foods Corp. 3,800 247,000
Kellogg Co. 10,600 818,850
Quaker Oats Co. 6,500 224,250
Ralston Purina Co. 5,100 318,113
Sara Lee Corp. 23,100 736,313
Sysco Corp. 8,700 282,750
Wrigley (Wm.) Jr. Co. 5,500 288,750
6,094,018
HOUSEHOLD PRODUCTS - 2.7%
Alberto Culver Co. Class B 1,400 48,125
Avon Products, Inc. 3,200 241,200
Clorox Co. 2,500 179,063
Colgate-Palmolive Co. 6,900 484,725
Gillette Co. 21,400 1,115,475
International Flavors & Fragrances, Inc. 5,400 259,200
Premark International, Inc. 3,100 156,938
Procter & Gamble Co. 33,100 2,747,300
Rubbermaid, Inc. 7,500 191,250
Unilever NV ADR 7,600 1,069,700
6,492,976
TOBACCO - 1.8%
American Brands, Inc. 9,000 401,625
Philip Morris Companies, Inc. 40,300 3,647,150
UST, Inc. 9,300 310,388
4,359,163
TOTAL NONDURABLES 25,379,207
PRECIOUS METALS - 0.5%
Barrick Gold Corp. 16,900 445,927
Echo Bay Mines Ltd. 5,500 57,445
Homestake Mining Co. 6,700 104,688
Newmont Mining Corp. 4,224 191,136
Placer Dome, Inc. 11,400 275,736
Santa Fe Pacific Gold Corp. 6,220 75,418
1,150,350
RETAIL & WHOLESALE - 4.2%
APPAREL STORES - 0.3%
Brown Group, Inc. 800 11,400
Charming Shoppes, Inc. 5,000 14,375
Gap, Inc. 7,000 294,000
Limited, Inc. (The) 17,200 298,850
Melville Corp. 5,100 156,825
TJX Companies, Inc. 3,400 64,175
839,625
DRUG STORES - 0.2%
Long Drug Stores, Inc. 1,000 47,875
Rite Aid Corp. 4,100 140,425
Walgreen Co. 11,900 355,513
543,813
GENERAL MERCHANDISE STORES - 2.3%
Dayton Hudson Corp. 3,500 262,500
Dillard Department Stores, Inc. Class A 5,500 156,750
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
RETAIL & WHOLESALE - CONTINUED
GENERAL MERCHANDISE STORES - CONTINUED
Federated Department Stores, Inc. (a) 9,800 $ 269,500
K mart Corp. 22,100 160,225
May Department Stores Co. (The) 12,000 507,000
Mercantile Stores Co., Inc. 1,700 78,625
Nordstrom, Inc. 3,900 157,950
Penney (J.C.) Co., Inc. 11,000 523,875
Price/Costco, Inc. (a) 9,439 143,945
Sears, Roebuck & Co. 18,800 733,200
Wal-Mart Stores, Inc. 110,300 2,467,963
Woolworth Corp. 6,300 81,900
5,543,433
GROCERY STORES - 0.6%
Albertson's, Inc. 12,300 404,363
American Stores Co. 7,200 192,600
Fleming Companies, Inc. 1,729 35,661
Giant Food, Inc. Class A 2,900 91,350
Great Atlantic & Pacific Tea Co., Inc. 1,900 43,700
Kroger Co. (The) (a) 5,800 217,500
Supervalu, Inc. 3,200 100,800
Winn-Dixie Stores, Inc. 7,300 269,188
1,355,162
RETAIL & WHOLESALE, MISCELLANEOUS - 0.8%
Circuit City Stores, Inc. 4,700 129,838
Handleman Co. 1,700 9,775
Home Depot, Inc. (The) 22,800 1,091,550
Lowe's Companies, Inc. 7,600 254,600
Tandy Corp. 3,200 132,800
Toys "R" Us, Inc. (a) 13,200 287,100
1,905,663
TOTAL RETAIL & WHOLESALE 10,187,696
SERVICES - 0.7%
ADVERTISING - 0.1%
Interpublic Group of Companies, Inc. 3,800 164,825
LEASING & RENTAL - 0.0%
Ryder Systems, Inc. 3,700 91,575
PRINTING - 0.3%
Alco Standard Corp. 5,400 246,375
Deluxe Corp. 3,900 113,100
Donnelley (R.R.) & Sons Co. 7,300 287,438
Harland (John H.) Co. 1,400 29,225
Moore Corp. Ltd. 4,700 88,275
764,413
SERVICES - 0.3%
Block (H & R), Inc. 5,100 206,550
Ecolab, Inc. 3,000 90,000
Jostens, Inc. 1,900 46,075
National Service Industries, Inc. 2,400 77,700
Service Corp. International 4,900 215,600
Western Atlas, Inc. (a) 2,600 131,300
767,225
TOTAL SERVICES 1,788,038
TECHNOLOGY - 9.6%
COMMUNICATIONS EQUIPMENT - 0.9%
Andrew Corp. (a) 1,950 74,588
Cabletron Systems, Inc. (a) 3,500 283,500

SHARES VALUE (NOTE 1)
Cisco Systems, Inc. (a) 13,100 $ 977,588
DSC Communications Corp. (a) 5,600 206,500
Northern Telecom Ltd. 12,100 517,710
Tellabs, Inc. (a) 4,300 159,100
2,218,986
COMPUTER SERVICES & SOFTWARE - 2.5%
Autodesk, Inc. 2,300 78,775
Automatic Data Processing, Inc. 14,000 519,750
CUC International, Inc. (a) 8,450 288,356
Ceridian Corp. (a) 2,100 86,625
Computer Associates International, Inc. 11,450 651,219
Computer Sciences Corp. (a) 2,600 182,650
First Data Corp. 10,500 702,188
Microsoft Corp. (a) 28,200 2,474,550
Novell, Inc. (a) 17,800 253,650
Oracle Systems Corp. (a) 20,900 885,638
Shared Medical Systems Corp. 1,200 65,250
6,188,651
COMPUTERS & OFFICE EQUIPMENT - 3.2%
Amdahl Corp. (a) 5,800 49,300
Apple Computer, Inc. 5,900 188,063
Compaq Computer Corp. (a) 12,600 604,800
Cray Research, Inc. (a) 1,300 32,175
Data General Corp. (a) 1,700 23,375
Digital Equipment Corp. (a) 7,100 455,288
Hewlett-Packard Co. 24,500 2,051,875
Intergraph Corp. (a) 2,300 36,225
International Business Machines Corp. 27,400 2,513,950
Pitney Bowes, Inc. 7,200 338,400
Silicon Graphics, Inc. (a) 7,700 211,750
Sun Microsystems, Inc. (a) 9,000 410,625
Tandem Computers, Inc. (a) 5,500 58,438
Unisys Corp. (a) 8,300 46,688
Xerox Corp. 5,100 698,700
7,719,652
ELECTRONIC INSTRUMENTS - 0.2%
Applied Materials, Inc. (a) 8,400 330,750
Perkin-Elmer Corp. 2,100 79,275
Tektronix, Inc. 1,700 83,513
493,538
ELECTRONICS - 2.3%
Advanced Micro Devices, Inc. 4,900 80,850
AMP, Inc. 10,396 398,947
Intel Corp. 39,500 2,241,625
LSI Logic Corp. (a) 6,100 199,775
Micron Technology, Inc. 10,000 396,250
Motorola, Inc. 28,400 1,618,800
National Semiconductor Corp. (a) 6,000 133,500
Texas Instruments, Inc. 9,100 470,925
Thomas & Betts Corp. 1,000 73,750
5,614,422
PHOTOGRAPHIC EQUIPMENT - 0.5%
Eastman Kodak Co. 16,500 1,105,500
Polaroid Corp. 2,100 99,488
1,204,988
TOTAL TECHNOLOGY 23,440,237
TRANSPORTATION - 1.2%
AIR TRANSPORTATION - 0.3%
AMR Corp. (a) 3,600 267,300
Delta Air Lines, Inc. 2,500 184,688
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TRANSPORTATION - CONTINUED
AIR TRANSPORTATION - CONTINUED
Southwest Airlines Co. 6,800 $ 158,100
USAir Group, Inc. (a) 2,900 38,425
648,513
RAILROADS - 0.7%
Burlington Northern Santa Fe Corp. 6,918 539,604
CSX Corp. 8,038 366,734
Conrail, Inc. 3,700 259,000
Union Pacific Corp. 9,800 646,800
1,812,138
TRUCKING & FREIGHT - 0.2%
Consolidated Freightways, Inc. 2,000 53,000
Federal Express Corp. (a) 2,600 192,075
Pittston Co. Services Group 2,100 65,888
Roadway Services, Inc. 1,800 87,975
Yellow Corp. 1,400 17,325
416,263
TOTAL TRANSPORTATION 2,876,914
UTILITIES - 11.8%
CELLULAR - 0.3%
AirTouch Communications, Inc. (a) 23,800 672,350
ELECTRIC UTILITY - 3.3%
American Electric Power Co., Inc. 9,000 364,500
Baltimore Gas & Electric Co. 7,000 199,500
Carolina Power & Light Co. 7,400 255,300
Central & South West Corp. 9,300 259,238
Consolidated Edison Co. of
New York, Inc. 11,200 358,400
Detroit Edison Co. 7,000 241,500
Dominion Resources, Inc. 8,400 346,500
Duke Power Co. 9,900 469,013
Entergy Corp. 11,000 321,750
FPL Group, Inc. 8,800 408,100
General Public Utilities Corp. 5,500 187,000
Houston Industries, Inc. 12,700 307,975
Niagara Mohawk Power Corp. 7,000 67,375
Northern States Power Co. 3,300 162,113
Ohio Edison Co. 7,400 173,900
PP&L Resources, Inc. 7,700 192,500
Pacific Gas & Electric Co. 20,300 576,013
PacifiCorp. 13,600 289,000
Peco Energy Co. 10,600 319,325
Public Service Enterprise Group, Inc. 11,700 358,313
SCEcorp 21,500 381,625
Southern Co. 31,900 785,538
Texas Utilities Co. 10,900 448,263
Unicom Corp. 10,400 340,600
Union Electric Co. 5,000 208,750
8,022,091
GAS - 0.7%
Columbia Gas System, Inc. (The) (a) 2,500 109,688
Consolidated Natural Gas Co. 4,400 199,650
Enron Corp. 12,200 465,125
ENSERCH Corp. 3,200 52,000
NICOR, Inc. 2,500 68,750
Noram Energy Corp. 6,000 53,250
ONEOK, Inc. 1,200 27,450
Pacific Enterprises 4,000 113,000
Panhandle Eastern Corp. 7,100 197,913

SHARES VALUE (NOTE 1)
Peoples Energy Corp. 1,600 $ 50,800
Sonat, Inc. 4,200 149,625
Williams Companies, Inc. 5,000 219,375
1,706,626
TELEPHONE SERVICES - 7.5%
ALLTEL Corp. 9,000 265,500
AT&T Corp. 76,300 4,940,425
Ameritech Corp. 26,700 1,575,300
Bell Atlantic Corp. 20,900 1,397,688
BellSouth Corp. 47,800 2,079,300
GTE Corp. 46,700 2,054,800
MCI Communications Corp. 32,500 849,063
NYNEX Corp. 20,600 1,112,400
Pacific Telesis Group 20,500 689,313
SBC Communications, Inc. 29,200 1,679,000
Sprint Corp. 16,800 669,900
U.S. West, Inc. 22,700 811,525
U.S. West, Inc. (Media Group) 22,700 431,300
18,555,514
TOTAL UTILITIES 28,956,581
TOTAL COMMON STOCKS
(Cost $194,096,879) 220,101,529
U.S. TREASURY OBLIGATIONS - 0.6%
PRINCIPAL
AMOUNT
U.S. Treasury Bill, yields at date
of purchase 5.38% - 5.47%,
3/7/96 (b) (Cost $1,386,126) $ 1,400,000 1,387,666
REPURCHASE AGREEMENTS - 9.4%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations) in a
joint trading account at 5.91%
dated 12/29/95 due 1/2/96 $ 23,113,168 23,098,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $218,581,005) $ 244,587,195
FUTURES CONTRACTS
EXPIRATION UNDERLYING FACE UNREALIZED
DATE AMOUNT AT VALUE GAIN/(LOSS)
PURCHASED
80 S&P 500 Stock Index
Futures Contracts Mar. 1996 $ 24,738,000 $ (125,550)
THE FACE VALUE OF FUTURES PURCHASED AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 10.1%
LEGEND
(a) Non-income producing
(b) Security was pledged to cover margin requirements for futures
contracts. At the period end, the value of securities pledged amounted to
$1,387,666.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $162,711,402 and $18,251,610, respectively, of which U.S.
government and government agency obligations aggregated $0 and $250,000,
respectively.
The market value of futures contracts opened and closed during the period
amounted to $176,769,835 and $161,385,360, respectively.
INCOME TAX INFORMATION
At December 31, 1995, the aggregate cost of investment securities for
income tax purposes was $218,581,005. Net unrealized appreciation
aggregated $26,006,190, of which $30,258,155 related to appreciated
investment securities and $4,251,965 related to depreciated investment
securities.
The fund hereby designates $5,017,474 as a capital gain dividend for the
purpose of the dividend paid deduction.
VARIABLE INSURANCE PRODUCTS FUND II: INDEX 500 PORTFOLIO
FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995

ASSETS

Investment in $ 244,587,195
securities, at
value (including
repurchase
agreements of
$23,098,000)
(cost
$218,581,005)
- - See
accompanying
schedule

Cash 762

Receivable for 4,311,497
investments
sold

Receivable for 791,953
fund shares sold

Dividends 432,625
receivable

Receivable for 22,540
daily variation
on futures
contracts

TOTAL ASSETS 250,146,572

LIABILITIES

Payable for $ 4,317,485
investments
purchased

Payable for fund 20,561
shares
redeemed

Accrued 69,545
management
fee

Other payables 39,286
and accrued
expenses

TOTAL LIABILITIES 4,446,877

NET ASSETS $ 245,699,695

Net Assets
consist of:

Paid in capital $ 207,597,570

Undistributed net 3,389,130
investment
income

Accumulated 8,832,338
undistributed net
realized gain
(loss) on
investments and
foreign currency
transactions

Net unrealized 25,880,657
appreciation
(depreciation)
on investments
and assets and
liabilities in
foreign
currencies

NET ASSETS, for $ 245,699,695
3,245,285
shares
outstanding

NET ASSET VALUE, $75.71
offering price
and redemption
price per share
($245,699,695 (divided by)
3,245,285
shares)

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1995

INVESTMENT INCOME $ 2,798,476
Dividends

Interest 940,739

TOTAL INCOME 3,739,215

EXPENSES

Management fee $ 351,136

Transfer agent fees 65,837

Accounting fees and expenses 76,868

Non-interested trustees' compensation 420

Custodian fees and expenses 44,226

Registration fees 4,030

Audit 49,038

Legal 492

Miscellaneous 388

Total expenses before reductions 592,435

Expense reductions (241,437 350,998
)

NET INVESTMENT INCOME 3,388,217

REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:

Investment securities 5,357,375

Foreign currency transactions 34

Futures contracts 3,501,910 8,859,319

Change in net unrealized appreciation (depreciation) on:

Investment securities 24,986,430

Assets and liabilities in 49
foreign currencies

Futures contracts (145,935 24,840,544
)

NET GAIN (LOSS) 33,699,863

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 37,088,080

</TABLE>

STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994

Operations $ 3,388,217 $ 1,039,047
Net investment income

Net realized gain (loss) 8,859,319 122,656

Change in net unrealized appreciation 24,840,544 (622,569)
(depreciation)

NET INCREASE (DECREASE) IN NET ASSETS 37,088,080 539,134
RESULTING FROM OPERATIONS

Distributions to shareholders (1,038,071) -
From net investment income

From net realized gain (125,271) (48,645)

In excess of net realized gain (16,781) -

TOTAL DISTRIBUTIONS (1,180,123) (48,645)

Share transactions 176,225,141 33,081,459
Net proceeds from sales of shares

Reinvestment of distributions 1,180,123 48,645

Cost of shares redeemed (18,914,447) (7,472,350)

NET INCREASE (DECREASE) IN NET ASSETS 158,490,817 25,657,754
RESULTING FROM SHARE TRANSACTIONS

TOTAL INCREASE (DECREASE) IN NET ASSETS 194,398,774 26,148,243

NET ASSETS

Beginning of period 51,300,921 25,152,678

End of period (including undistributed net $ 245,699,695 $ 51,300,921
investment income of $3,389,130 and
$1,040,212, respectively)

OTHER INFORMATION
Shares

Sold 2,593,616 593,458

Issued in reinvestment of distributions 20,470 866

Redeemed (281,351) (133,026)

Net increase (decrease) 2,332,735 461,298

<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>
YEARS ENDED DECEMBER 31, AUGUST 27, 1992
(COMMENCEMENT
OF
OPERATIONS) TO
DECEMBER 31,

SELECTED PER-SHARE DATA 1995 1994 1993 D 1992

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 56.22 $ 55.74 $ 52.60 $ 50.00

Income from Investment Operations

Net investment income .85 1.14 1.31 .44

Net realized and unrealized gain (loss) 19.72 (.56) 3.80 2.71

Total from investment operations 20.57 .58 5.11 3.15

Less Distributions (.95) - (1.28) (.47)
From net investment income

From net realized gain (.11) (.10) (.60) (.08)

In excess of net realized gain (.02) - (.09) -

Total distributions (1.08) (.10) (1.97) (.55)

Net asset value, end of period $ 75.71 $ 56.22 $ 55.74 $ 52.60

TOTAL RETURN B, C 37.19% 1.04% 9.74% 6.31%

RATIOS AND SUPPLEMENTAL DATA

Net assets, end of period (000 omitted) $ 245,700 $ 51,301 $ 25,153 $ 17,961

Ratio of expenses to average net assets E .28% .28% .28% .28%
A

Ratio of net investment income to average net 2.70% 2.81% 2.65% 2.89%
assets A

Portfolio turnover rate 16% 2% 9% 0%

</TABLE>

<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C>
A ANNUALIZED

B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
TOTAL RETURNS 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 6 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 VOLUNTARILY AGREED TO REIMBURSE A PORTION OF THE FUND'S
EXPENSES DURING THE PERIOD. WITHOUT THIS REIMBURSEMENT, THE EXPENSE
RATIO WOULD HAVE BEEN HIGHER.

</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).
CUMULATIVE TOTAL RETURNS
PERIOD ENDED DECEMBER 31, 1995 LIFE OF
FUND

Asset Manager: Growth 23.02%

S&P 500 37.56%

CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - in this case, since the fund started on January 3,
1995.

Let's say you invested $10,000 in Asset Manager: Growth Portfolio on
January 31, 1995, shortly after the fund began. By December 31, 1995, your
investment would have grown to $12,278 - a 22.78% increase. That compares
to $10,000 invested in the S&P 500, which would have grown to $13,410 over
the same period - a 34.10% 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
(34.10%), Lehman Brothers Treasury Bond Index (16.20%), and the Salomon
Brothers 3-month T-Bill Total Rate of Return Index (5.25%). With reinvested
dividends and capital gains, if any, a $10,000 investment in the index
would have grown to $12,699 - a 26.99% increase.
INVESTMENT SUMMARY
TOP FIVE STOCKS AS OF DECEMBER 31, 1995
% OF FUND'S
INVESTMENTS

Chrysler Corp. 3.5

IVF America, Inc. 3.1

Inco Ltd. 2.2

Compaq Computer Corp. 2.1

IVAX Corp. 1.9

TOP FIVE MARKET SECTORS AS OF DECEMBER 31, 1995
(STOCKS ONLY) % OF FUND'S
INVESTMENTS

Durables 11.2

Retail & Wholesale 11.1

Basic Industries 8.4

Media & Leisure 7.6

Health 7.4

ASSET ALLOCATION AS OF DECEMBER 31, 1995*
Row: 1, Col: 1, Value: 20.0
Row: 1, Col: 2, Value: 10.0
Row: 1, Col: 3, Value: 70.0
Stock class 70%
Bond class 10%
Short-term class
and other 20%
FOREIGN INVESTMENTS 37.9%
*
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

An interview with
Andy Offit, Portfolio Manager of Asset
Manager: Growth Portfolio
Q. ANDY, HOW DID THE FUND PERFORM?
A. Nineteen ninety-five was a terrific year for domestic investments,
including both stocks and bonds, and the fund's double-digit performance
reflects that. By emphasizing stocks all year, especially U.S. stocks,
Asset Manager: Growth achieved returns that compare favorably with those of
most other funds that have a diversified investment strategy. If I was
disappointed by anything during the past 12 months, it was the fund's stake
in foreign stocks, including French aluminum manufacturer Pechiney, which
lagged its domestic counterpart. Long-term, I expect the fund's foreign
investments to contribute more meaningfully to performance, but this was
not their year.
Q. HOW WERE THE FUND'S ASSETS DISTRIBUTED AT THE END OF THE PERIOD?
A. About 70% stocks, 20% cash and 10% bonds. Foreign investments, mostly
stocks, totaled 38% of the fund's assets. The biggest development during
the past six months has been the rise in foreign investments, mainly
Japanese stocks, which totaled 24% at the end of the period. Emerging
market investments represented 9% of total assets.
Q. WHAT PRINCIPLES DID YOU APPLY TO STOCK SELECTION?
A. I use what's called a bottom-up analysis, meaning I focus on individual
companies and their prospects, rather than sector outlooks or macroeconomic
trends. I look for compelling situations where the potential for gain
exceeds the potential for loss. When I find attractive situations, I like
to make bets that are large enough to have an impact on the fund's
performance. That's why there were only 121 securities in the fund at the
end of December.
Q. WHERE DID YOU FIND VALUE IN THE U.S. STOCK MARKET?
A. Because Asset Manager: Growth is a relatively new fund and total assets
under management remain relatively small, I've been able to capitalize on a
number of unique opportunities among small and mid-sized companies. One
example was IVF America, a fast-growing healthcare company whose six
clinics nationwide perform in vitro fertilization. IVF America represented
more than 3% of the fund's assets at the end of the period and its price
tripled during 1995. Another large holding was U.S. Surgical, one of the
world's largest manufacturers of surgical staplers and sutures. The company
is completing a two-year restructuring designed to produce improved
results. Among mid-sized stocks, the fund did well with defense contractor
Northrop Grumman. The company achieved a strong position in a consolidating
industry by generating a lot of cash and using that cash to pay down debt
and make acquisitions.
Q. WHY SUCH A LARGE STAKE IN JAPAN?
A. While results so far have been less than those achieved in the U.S., I
see Japan as one of the larger turnaround opportunities in the world. With
its market down 50% from its peak in 1989, the yen has started to weaken,
consumer sentiment is improving and the economy is beginning to grow for
the first time in five years. I began last spring investing in Japanese
electronics companies, however, lately my focus has shifted to cyclical
sectors that could benefit from an economic rebound. Large holdings at the
end of the period included retailers Takashimaya, Aoyama Trading and Hankyu
Department stores; steel producers Kobe Steel and NKK, and software
developer Nintendo.
Q. WHAT WAS YOUR BOND STRATEGY?
A. Asset Manager: Growth made only limited investments in bonds during the
year, seeking the greater potential return of investing in stocks. That
said, as the difference between long-term and short-term interest rates has
narrowed, I concentrated my small bond holdings on Treasury securities in
the middle of the yield curve, with current maturities between five and 15
years. They seemed to offer the best balance between attractive yield and
the potential for price gains going forward.
Q. WHAT'S THE OUTLOOK?
A. Promising. Moderate growth and benign inflation mean interest rates
could head still lower in the months ahead, providing an attractive
backdrop for both stocks and bonds. Among the fund's larger holdings,
Alcoa, the world's largest producer of aluminum, as well as waste haulers
Browning-Ferris and WMX Technologies and automaker Chrysler remained
attractive values as of December 31. Another key in 1996 will be how well
foreign stocks perform, especially the fund's stake in Japan. I believe
Japan, rather than in the United States and Europe, may have the greatest
potential for gain in the months ahead.
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: maximum total return over the long term
through investment in stocks, bonds and
short-term instruments anywhere in the world
START DATE: January 3, 1995
SIZE: as of December 31, 1995, more than
$68 million
MANAGER: Andy Offit, since January 1995;
joined Fidelity in 1987
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER: GROWTH PORTFOLIO
INVESTMENTS DECEMBER 31, 1995

Showing Percentage of Total Value of Investment in Securities

COMMON STOCKS - 74.4%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 0.7%
C A E Industries Ltd. 18,700 $ 142,193
Northrop Grumman Corp. 5,200 332,800
474,993
BASIC INDUSTRIES - 8.4%
CHEMICALS & PLASTICS - 1.8%
Raychem Corp. 700 39,813
Sekisui Chemical Co. Ltd. 42,000 617,408
Synetic, Inc. (a) 19,700 573,763
1,230,984
IRON & STEEL - 1.6%
Bakrie & Brothers PT Ord. (For. Reg.) 75,500 137,033
Kobe Steel (a) 143,000 441,170
NKK Corp. (a) 193,000 518,897
1,097,100
METALS & MINING - 5.0%
Aluminum Co. of America 25,000 1,321,875
Falconbridge Ltd. 28,800 250,669
Inco Ltd. 44,800 1,481,731
Pechiney SA Class A 11,000 380,679
3,434,954
TOTAL BASIC INDUSTRIES 5,763,038
CONGLOMERATES - 1.9%
Figgie International Holdings, Inc.
Class A (a) 80,000 830,000
Koor Industries Ltd. sponsored ADR (a) 1,400 28,350
United Technologies Corp. 5,000 474,375
1,332,725
CONSTRUCTION & REAL ESTATE - 2.8%
BUILDING MATERIALS - 0.5%
Tostem Corp. 10,000 331,721
CONSTRUCTION - 1.9%
Daito Trust Construction 4,300 50,735
Daiwa House Industry Co. Ltd. 25,000 411,025
NCI Building Systems, Inc. 13,000 321,750
Nichiei Construction Co. Ltd. 2,000 22,631
Taisei Corp. 78,000 519,749
1,325,890
REAL ESTATE - 0.4%
Ciputra Development PT (For. Reg.) 27,000 42,510
Pakuwon Jati PT (For. Reg.) 33,500 21,244
Sekiwa Real Estate Ltd. 23,000 195,745
259,499
TOTAL CONSTRUCTION & REAL ESTATE 1,917,110
DURABLES - 11.2%
AUTOS, TIRES, & ACCESSORIES - 6.8%
Chrysler Corp. 43,700 2,419,888
Federal-Mogul Corp. 21,000 412,125
General Motors Corp. 10,000 528,750
Honda Motor Co. Ltd. 33,000 679,787
Mirgor Sacifia Class C
sponsored ADR (b) 10,000 22,500
Titan Wheel International, Inc. 36,100 586,625
4,649,675
CONSUMER ELECTRONICS - 1.2%
Sony Corp. 14,100 844,091
HOME FURNISHINGS - 0.6%
Shimachu 13,000 416,151

SHARES VALUE (NOTE 1)
TEXTILES & APPAREL - 2.6%
APAC Centertex Corp. PT (For. Reg.) (a) 225,500 $ 128,209
Alpargatas SA Industrias Y
Comercial (Reg.) (a) 715,000 375,319
Aoki International Co. Ltd. 15,000 365,571
Coteminas PN 112,400 37,584
Fruit of the Loom, Inc. Class A 2,000 48,750
Hartmarx Corp. (a) 86,100 376,688
Onward Kashiyama & Co. Ltd. 20,000 324,952
Roda Vivatex PT (For. Reg.) 237,500 140,225
1,797,298
TOTAL DURABLES 7,707,215
ENERGY - 2.0%
OIL & GAS - 2.0%
Fortune Petroleum Corp. 47,500 231,563
Fortune Petroleum Corp. (warrants) (a) 100,000 337,500
Texaco, Inc. 10,000 785,000
1,354,063
FINANCE - 6.1%
BANKS - 1.0%
Fokus Bank AS (a)(b) 2,000 10,781
Fuji Bank 14,000 308,704
Hong Leong Bank BHD 45,000 124,065
Hong Leong Bank BHD (rights) (a) 6,750 1,356
Kookmin Bank (a) 2,010 39,720
Sakura Bank Ltd. 17,000 215,377
700,003
CLOSED END INVESTMENT COMPANY - 1.9%
First NIS Regional Fund, Inc. (a)(e) 25,000 137,500
Korea Fund, Inc. 6,336 139,392
R.O.C. Taiwan Fund (SBI) 10,000 105,000
Taiwan Fund, Inc. 45,000 922,500
1,304,392
CREDIT & OTHER FINANCE - 0.3%
Acom Co. Ltd. 5,000 208,897
FEDERAL SPONSORED CREDIT - 1.8%
Federal National Mortgage Association 10,000 1,241,250
SECURITIES INDUSTRY - 1.1%
Daiwa Securities Co. Ltd. 31,000 473,694
Nomura Securities Co. Ltd. 11,000 239,362
713,056
TOTAL FINANCE 4,167,598
HEALTH - 7.4%
DRUGS & PHARMACEUTICALS - 2.0%
IVAX Corp. 46,800 1,333,800
MEDICAL EQUIPMENT & SUPPLIES - 2.0%
Advanced Medical, Inc. (a) 121,100 363,300
Cardiac Control Systems, Inc. (d) 85,000 260,313
U.S. Surgical Corp. 36,000 769,500
1,393,113
MEDICAL FACILITIES MANAGEMENT - 3.4%
Huntingdon International Holdings
PLC Ord. 175,000 203,536
IVF America, Inc. (a)(d) 585,500 2,122,438
2,325,974
TOTAL HEALTH 5,052,887
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
INDUSTRIAL MACHINERY & EQUIPMENT - 5.3%
ELECTRICAL EQUIPMENT - 2.2%
General Electric Co. 15,300 $ 1,101,600
Mitsubishi Electric Co. Ord. 23,000 165,271
Omron Corp. 10,000 230,174
1,497,045
INDUSTRIAL MACHINERY & EQUIPMENT - 1.1%
NSK Ltd. 28,000 203,095
Thermwood Corp. (a) 155,500 359,594
Van Der Horst Ltd. 36,000 181,998
744,687
POLLUTION CONTROL - 2.0%
Browning-Ferris Industries, Inc. 33,300 982,350
WMX Technologies, Inc. 13,000 388,375
1,370,725
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 3,612,457
MEDIA & LEISURE - 7.6%
ENTERTAINMENT - 0.5%
All American Communications (a) 25,900 249,288
Kushner Locke Co. (a) 105,200 62,463
311,751
LEISURE DURABLES & TOYS - 1.9%
Namco Ltd. 9,000 299,420
Nintendo Co. Ltd. Ord. 13,000 986,944
1,286,364
LODGING & GAMING - 4.0%
Circus Circus Enterprises, Inc. 10,900 303,838
Mirage Resorts, Inc. (a) 32,500 1,121,250
Speedway Motorsports (a) 20,200 606,000
WMS Industries, Inc. (a) 45,300 741,788
2,772,876
PUBLISHING - 0.9%
Score Board, Inc. (a) 60,700 265,563
Times Mirror Co. Class A 10,000 338,750
604,313
RESTAURANTS - 0.3%
Family Steak Houses of Florida, Inc. (a) 270,000 210,938
TOTAL MEDIA & LEISURE 5,186,242
NONDURABLES - 2.6%
BEVERAGES - 0.5%
Brahma (Cia Cervejaria) PN
Class B (Pfd. Reg.) 806,400 331,877
FOODS - 1.0%
Chock Full-O-Nuts Corp. 132,500 695,625
HOUSEHOLD PRODUCTS - 0.8%
Maybelline, Inc. 15,000 543,750
TOBACCO - 0.3%
RJR Nabisco Holdings Corp. 7,500 231,563
TOTAL NONDURABLES 1,802,815
PRECIOUS METALS - 0.9%
Naxos Resources Ltd. (a) 174,100 580,610
RETAIL & WHOLESALE - 11.1%
APPAREL STORES - 1.0%
Ross Stores, Inc. 35,500 678,938

SHARES VALUE (NOTE 1)
GENERAL MERCHANDISE STORES - 6.6%
Aoyama Trading Co. Ord. 24,700 $ 788,298
Hankyu Department Stores, Inc. 48,000 710,251
Hanshin Department Store Ltd. 23,000 176,838
Jusco Co. Ltd. 15,000 390,232
Matahari Putra Prima PT (For. Reg.) 77,000 135,546
Matsuzakaya Co. Ltd. 50,000 633,462
Mitsukoshi Ltd. 48,000 450,290
Takashimaya Co. Ltd. 49,000 781,915
Tokyu Department Stores Co. Ltd. 69,000 455,774
4,522,606
RETAIL & WHOLESALE, MISCELLANEOUS - 3.2%
Amway Japan Ltd. 14,700 619,845
Fabri-Centers of America, Inc.
Class B (non-vtg) (a) 71,400 767,550
Home Depot, Inc. (The) 10,000 478,750
Uny Co. Ltd. 17,000 318,956
2,185,101
TRADING COMPANIES - 0.3%
Bimantara Citra (For. Reg.) (a) 268,000 222,699
TOTAL RETAIL & WHOLESALE 7,609,344
SERVICES - 0.6%
LCS Industries, Inc. 1,000 14,000
Sotheby's Holdings, Inc. Class A 25,400 361,950
375,950
TECHNOLOGY - 4.0%
COMPUTERS & OFFICE EQUIPMENT - 2.4%
Canon, Inc. 11,000 198,936
Compaq Computer Corp. (a) 30,000 1,440,000
1,638,936
ELECTRONICS - 0.4%
Hitachi Ltd. 28,000 281,625
PHOTOGRAPHIC EQUIPMENT - 1.2%
Fuji Photo Film Co. Ltd. 29,000 835,783
TOTAL TECHNOLOGY 2,756,344
TRANSPORTATION - 0.4%
SHIPPING - 0.4%
Seacor Holdings, Inc. (a) 10,000 270,000
UTILITIES - 1.4%
ELECTRIC UTILITY - 0.0%
Mosenergo AO sponsored
ADR (a)(b) 1,000 7,875
TELEPHONE SERVICES - 1.4%
Telebras:
PN (Pfd. Reg.) 2,934,000 141,274
sponsored ADR 16,100 762,738
Telesp PN (Pfd. Reg.) 437,000 64,294
968,306
TOTAL UTILITIES 976,181
TOTAL COMMON STOCKS
(Cost $49,498,259) 50,939,572
NONCONVERTIBLE PREFERRED STOCKS - 0.0%
SHARES VALUE (NOTE 1)
ENERGY - 0.0%
OIL & GAS - 0.0%
Gulf Canada Resources Ltd.,
Series 1, adj. rate (Cost $1,471) 600 $ 1,737
CONVERTIBLE BONDS - 3.5%
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
FINANCE - 2.2%
BANKS - 0.5%
Bangkok Bank PCL euro
3 1/4%, 3/3/04 (b) - $ 300,000 318,000
CREDIT & OTHER FINANCE - 1.7%
MBL International Finance Bermuda
Trust 3%, 11/30/02 Aa3 1,000,000 1,155,000
TOTAL FINANCE 1,473,000
INDUSTRIAL MACHINERY & EQUIPMENT - 1.3%
Thermwood Corp. 12%, 2/25/03 - 380,000 902,500
TOTAL CONVERTIBLE BONDS
(Cost $2,318,930) 2,375,500
U.S. TREASURY OBLIGATIONS - 5.1%
7 3/4%, 12/31/99 (c)
(Cost $3,458,420) Aaa 3,205,000 3,477,938
REPURCHASE AGREEMENTS - 16.3%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.91% dated
12/29/95 due 1/2/96 $ 11,192,345 11,185,000
PURCHASED OPTIONS - 0.7%
EXPIRATION DATE/ UNDERLYING FACE
STRIKE PRICE AMOUNT AT VALUE
4,500,000 J. Aron and Co.
OTC Put Options on
Japanese Yen Feb. 96/94.03 $ 4,087,866 377,550
1,650,000 Bank of America
OTC Put Options on
Japanese Yen May 96/96.85 1,543,836 99,165
1,732 Merrill Lynch
Capital Markets
PLC OTC Put Options
on S&P 500 Apr. 96/577.44 1,066,791 7,655
TOTAL PURCHASED OPTIONS
(Cost $375,479) 484,370
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $66,837,559) $ 68,464,117
FUTURES CONTRACTS
EXPIRATION UNDERLYING FACE UNREALIZED
DATE AMOUNT AT VALUE GAIN/(LOSS)
PURCHASED
35 Nikkei 225
Index Futures March 1996 $ 3,510,500 $ 160,755
THE FACE VALUE OF FUTURES PURCHASED AS A PERCENTAGE OF TOTAL INVESTMENT
IN SECURITIES - 5.1%
LEGEND
(a) Non-income producing
(b) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $359,156 or 0.5% of net
assets.
(c) A portion of the Security was pledged to cover margin requirements for
futures contracts. At the period end, the value of securities pledged
amounted to $210,000.
(d) 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. $ 122,031 $ - - $ 260,313
IVF America, Inc. 630,749 643,469 - 2,122,438
TOTAL $ 752,780 $ 643,469 $ - $ 2,382,751
(e) Purchased on an installment basis. Market value reflects only those
payments made through December 31, 1995. The remaining installment of
$75,000, is due March 1996.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $153,113,740 and $102,646,431, respectively, of which U.S.
government and govern- ment agency obligations aggregated $27,299,232 and
$24,353,637, respectively.
The market value of futures contracts opened and closed during the period
amounted to $5,813,544 and $2,444,903, respectively.
The fund placed a portion of its portfolio securities with brokerage firms
which are affiliates of Fidelity Management & Research Company. The
commissions paid to these affiliated firms were $44,554 for the period (see
Note 5 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 62.1%
Japan 23.7
Canada 3.7
Brazil 3.0
Bermuda 1.7
Free China 1.5
Indonesia 1.3
Others (individually less than 1%) 3.0
TOTAL 100.0%
INCOME TAX INFORMATION
At December 31, 1995, the aggregate cost of investment securities for
income tax purposes was $66,968,509. Net unrealized appreciation aggregated
$1,495,608, of which $3,126,666 related to appreciated investment
securities and $1,631,058 related to depreciated investment securities.
The fund hereby designates $69,000 as a capital gain dividend for the
purpose of the dividend paid deduction.
VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER: GROWTH PORTFOLIO
FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995

ASSETS

Investment in $ 68,464,117
securities, at
value (including
repurchase
agreements of
$11,185,000)
(cost
$66,837,559) -
See
accompanying
schedule

Cash 688

Receivable for 591,546
investments
sold

Receivable for 188,123
fund shares sold

Dividends 48,156
receivable

Interest receivable 146,058

Receivable for 15,750
daily variation
on futures
contracts

TOTAL ASSETS 69,454,438

LIABILITIES

Payable for $ 1,135,685
investments
purchased

Accrued 47,232
management
fee

Other payables 24,906
and accrued
expenses

TOTAL LIABILITIES 1,207,823

NET ASSETS $ 68,246,615

Net Assets
consist of:

Paid in capital $ 63,916,144

Distributions in (31,082
excess of net )
investment
income

Accumulated 2,574,244
undistributed net
realized gain
(loss) on
investments and
foreign currency
transactions

Net unrealized 1,787,309
appreciation
(depreciation)
on investments
and assets and
liabilities in
foreign
currencies

NET ASSETS, for $ 68,246,615
5,796,430
shares
outstanding

NET ASSET VALUE, $11.77
offering price
and redemption
price per share
($68,246,615 (divided by)
5,796,430
shares)

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
<S> <C> <C>
JANUARY 3, 1995 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995

INVESTMENT INCOME $ 252,825
Dividends

Interest 735,553

TOTAL INCOME 988,378

EXPENSES

Management fee $ 261,324

Transfer agent fees 18,490

Accounting fees and expenses 44,863

Non-interested trustees' compensation 101

Custodian fees and expenses 62,335

Audit 27,233

Legal 99

Miscellaneous 31

Total expenses before reductions 414,476

Expense reductions (47,375 367,101
)

NET INVESTMENT INCOME 621,277

REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:

Investment securities 4,809,779

Foreign currency transactions (17,102
)

Futures contracts (18,896 4,773,781
)

Change in net unrealized appreciation (depreciation) on:

Investment securities 1,493,920

Assets and liabilities in 132,634
foreign currencies

Futures contracts 160,755 1,787,309

NET GAIN (LOSS) 6,561,090

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 7,182,367

</TABLE>

STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS JANUARY 3, 1995
(COMMENCEMENT
OF
OPERATIONS) TO
DECEMBER 31,
1995

Operations $ 621,277
Net investment income

Net realized gain (loss) 4,773,781

Change in net unrealized appreciation 1,787,309
(depreciation)

NET INCREASE (DECREASE) IN NET ASSETS 7,182,367
RESULTING FROM OPERATIONS

Distributions to shareholders (591,903)
From net investment income

From net realized gain (2,259,995)

TOTAL DISTRIBUTIONS (2,851,898)

Share transactions 68,544,838
Net proceeds from sales of shares

Reinvestment of distributions 2,851,898

Cost of shares redeemed (7,480,590)

NET INCREASE (DECREASE) IN NET ASSETS 63,916,146
RESULTING FROM SHARE TRANSACTIONS

TOTAL INCREASE (DECREASE) IN NET ASSETS 68,246,615

NET ASSETS

Beginning of period -

End of period (including distributions in $ 68,246,615
excess of net investment income of
$(31,082))

OTHER INFORMATION
Shares

Sold 6,215,852

Issued in reinvestment of distributions 243,336

Redeemed (662,758)

Net increase (decrease) 5,796,430

<TABLE>
<CAPTION>
<S> <C> <C>
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

</TABLE>

FINANCIAL HIGHLIGHTS
JANUARY 3, 1995
(COMMENCEMENT
OF
OPERATIONS) TO
DECEMBER 31,

SELECTED PER-SHARE DATA 1995

Net asset value, beginning of period $ 10.00

Income from Investment Operations

Net investment income .10

Net realized and unrealized gain (loss) 2.20

Total from investment operations 2.30

Less Distributions (.11)
From net investment income

From net realized gain (.42)

Total distributions (.53)

Net asset value, end of period $ 11.77

TOTAL RETURN A, B 23.02%

RATIOS AND SUPPLEMENTAL DATA

Net assets, end of period (000 omitted) $ 68,247

Ratio of expenses to average net assets 1.00%
C

Ratio of net investment income to average net 1.69%
assets

Portfolio turnover rate 343%

A TOTAL RETURN DOES NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THOSE CHARGES WOULD REDUCE THE
TOTAL RETURNS SHOWN.
B THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIOD SHOWN (SEE NOTE 6 OF NOTES TO FINANCIAL
STATEMENTS).
C FMR VOLUNTARILY AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES
DURING THE PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO
WOULD HAVE BEEN HIGHER.
VARIABLE INSURANCE PRODUCTS FUND 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).
CUMULATIVE TOTAL RETURNS
PERIOD ENDED DECEMBER 31, 1995 LIFE OF
FUND

CONTRAFUND 39.72%

S&P 500 37.56%

CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - in this case, since the fund started on January 3,
1995.

Let's say you invested $10,000 in Contrafund Portfolio on January 3, 1995,
when the fund started. By December 31, 1995, your investment would have
grown to $13,972 - a 39.72% increase. With reinvested dividends and capital
gains, if any, a $10,000 investment in the S&P 500 would have grown to
$13,756 over the same period - a 37.56% increase.
INVESTMENT SUMMARY
TOP TEN STOCKS AS OF DECEMBER 31, 1995
% OF FUND'S
INVESTMENTS

General Motors Corp. 1.7

Burlington Northern Sante Fe Corp. 1.7

Federal National Mortgage Association 1.2

Travelers, Inc. (The) 1.1

Schlumberger Ltd. 1.1

American Express Co. 1.0

Nomura Securities Co. Ltd. 0.9

Boeing Co. 0.9

Cisco Systems, Inc. 0.9

WorldCom, Inc. 0.8

TOP TEN MARKET SECTORS AS OF DECEMBER 31, 1995
% OF FUND'S
INVESTMENTS

Technology 17.8

Finance 13.3

Energy 5.7

Durables 4.9

Health 4.4

Industrial Machinery & Equipment 4.3

Retail & Wholesale 3.6

Transportation 3.5

Basic Industries 2.9

Aerospace & Defense 2.5

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 performed well. Since its inception on January 3, 1995 through
the end of the period December 31, 1995, the fund outperformed the S&P 500
Index, which rose 37.56% during the same period.
Q. WHAT FACTORS INFLUENCED THE FUND'S PERFORMANCE?
A. The fund beat the average growth fund in 1995 primarily because it
invested heavily in technology stocks in the first three quarters of the
year and took profits earlier than most funds in the fourth quarter. The
fund also de-emphasized sectors sensitive to the consumer and the economy,
such as retailing and transportation, which performed poorly in 1995. The
second half of the year was dominated by the slowing U.S. economy, which
boosted prices of bonds and interest rate-sensitive stocks, but caused many
companies, particularly those sensitive to the economy, to report
disappointing earnings. The major factor influencing results of the fund
and the overall market in the second half of the year was the peaking of
the technology sector. The fund reduced its weighting in technology stocks
from 32% at the end of June to about 18% at the end of the year.
Q. YOU CONTINUED TO INCREASE THE FUND'S HOLDINGS IN THE ENERGY SECTOR
DURING THE PERIOD. WHAT WAS YOUR STRATEGY?
A. Expectations in the sector were low. I recently read an article in THE
WALL STREET JOURNAL entitled, "For Oil Traders, 1996 Is Looking Bad or
Worse." This headline captured the market's pessimistic view of oil prices
and also was indicative of its negative bias toward energy stocks. Most
energy service stocks have traded sideways for the last five years,
performing dramatically worse than the average stock, which has more than
doubled during the same period. But, while oil and gas prices have held
steady, many of the energy service companies have improved their operations
significantly. Many of these companies, including the fund's holdings
Schlumberger and Camco International, have cut costs and capital needs
meaningfully, increased market shares by acquiring smaller competitors or
watching them go out of business, and strengthened their product lines by
introducing or acquiring new, often high tech solutions for their
customers.
Q. WHERE ELSE DID YOU FIND INVESTMENT OPPORTUNITIES?
A. The fund has raised its weightings in Japan during the past six months.
Japanese securities accounted for about 3% of the fund at the end of 1995.
Japan has been in a bear market for the last five years and the average
stock has fallen more than 50% during that time. Expectations for the
market and the economy have been extremely low, with many local investors
having put their savings everywhere but the Japanese stock market despite
near-record low valuations on many stocks. In contrast to the lousy
investor sentiment, corporate fundamentals have been improving. Forced by
the strengthening yen and the weak domestic economy, Japanese companies
have cut costs significantly to stay competitive in the world marketplace
and stabilize their eroding profits.
Q. WHAT INVESTMENTS HAVEN'T WORKED OUT AS YOU WOULD HAVE LIKED?
A. The biggest disappointment during the past six months was not selling
the technology holdings sooner and faster. The investing environment was
characterized by excessive optimism, as seen in the record numbers of
initial public offerings of small technology companies, the media
excitement over Microsoft's Windows 95 and the growing popularity of the
Internet, as well as record asset growth for technology sector mutual funds
and extremely high valuations relative to corporate profits.
Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS?
A. The fund is positioned cautiously for the first half of the year. Last
year's near-record bond market performance, which helped propel the stock
market to new highs throughout the year, is unlikely to repeat itself. The
Federal Reserve Board has already cut interest rates twice in the last six
months so the economy, although weak in spots, will probably not
deteriorate further. A stronger - or better than expected - economy should
push interest rates up and could force the stock market to fall. In
addition, the stock market has been trading at very high historic valuation
levels relative to corporate earnings and dividends. The market has gone
without a 12% correction for over five years - the longest streak ever.
Given the expensive prices of U.S. stocks currently, the fund is positioned
conservatively for opportunities if the market falls this year.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.

FUND FACTS
GOAL: to increase the value of the fund's
shares over the long term by investing in
companies undergoing positive changes and
turnarounds
START DATE: January 3, 1995
SIZE: as of December 31, 1995, more than
$876 million
MANAGER: Will Danoff, since January 1995;
manager, Fidelity Contrafund, since 1990;
assistant Fidelity Magellan Fund, 1990;
manager, Fidelity Select Retailing Portfolio,
1986 -1989; joined Fidelity in 1986
(checkmark)
VARIABLE INSURANCE PRODUCTS FUND II: CONTRAFUND PORTFOLIO
INVESTMENTS DECEMBER 31, 1995

Showing Percentage of Total Value of Investment in Securities

COMMON STOCKS - 71.1%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 2.5%
AEROSPACE & DEFENSE - 1.7%
Alliant Techsystems, Inc. 21,600 $ 1,093,500
Boeing Co. 100,900 7,908,038
C A E Industries Ltd. 216,900 1,649,384
General Motors Corp. Class H 26,800 1,316,550
McDonnell Douglas Corp. 30,000 2,760,000
14,727,472
DEFENSE ELECTRONICS - 0.8%
Logicon, Inc. 43,200 1,188,000
Loral Corp. 150,000 5,306,250
Tracor, Inc. (a) 11,600 168,200
Trimble Navigation Ltd. (a) 30,000 558,750
7,221,200
TOTAL AEROSPACE & DEFENSE 21,948,672
BASIC INDUSTRIES - 2.9%
CHEMICALS & PLASTICS - 1.4%
Cambrex Corp. 55,000 2,275,625
Cytec Industries, Inc. (a) 46,500 2,900,438
Potash Corp. of Saskatchewan 22,500 1,595,540
Raychem Corp. 1,700 96,688
Sealed Air Corp. (a) 180,000 5,062,500
11,930,791
METALS & MINING - 1.2%
Aluminum Co. of America 80,000 4,230,000
Brush Wellman, Inc. 25,000 431,250
Dayton Mining Corp. (a) 176,000 741,745
Inco Ltd. 150,000 4,961,154
10,364,149
PAPER & FOREST PRODUCTS - 0.3%
Kimberly-Clark Corp. 31,200 2,581,800
TOTAL BASIC INDUSTRIES 24,876,740
CONGLOMERATES - 1.0%
Tyco International Ltd. 105,400 3,754,875
United Technologies Corp. 50,000 4,743,750
8,498,625
CONSTRUCTION & REAL ESTATE - 1.5%
BUILDING MATERIALS - 0.2%
Cooper Cameron Corp. 15,700 557,350
USG Corp. (a) 42,000 1,260,000
1,817,350
CONSTRUCTION - 0.6%
Continental Homes Holding Corp. 50,000 1,231,250
Pulte Corp. 45,800 1,540,025
Redman Industries, Inc. (a) 60,000 2,025,000
4,796,275
ENGINEERING - 0.2%
Fluor Corp. 25,000 1,650,000
REAL ESTATE - 0.2%
Metroplex BHD 2,078,000 1,694,155
REAL ESTATE INVESTMENT TRUSTS - 0.3%
Crescent Real Estate Equities, Inc. 30,200 1,030,575
Felcor Suite Hotels, Inc. 20,000 555,000
Public Storage, Inc. 70,000 1,330,000
2,915,575
TOTAL CONSTRUCTION & REAL ESTATE 12,873,355

SHARES VALUE (NOTE 1)
DURABLES - 4.9%
AUTOS, TIRES, & ACCESSORIES - 3.6%
Chrysler Corp. 108,900 $ 6,030,338
Dana Corp. 102,200 2,989,350
General Motors Corp. 275,000 14,540,625
Honda Motor Co. Ltd. 86,000 1,744,875
Lear Seating Corp. (a) 174,800 5,069,200
30,374,388
TEXTILES & APPAREL - 1.3%
Andayani Megah PT 1,000,000 710,694
Intimate Brands, Inc. Class A 65,400 981,000
NIKE, Inc. Class B 80,000 5,570,000
Oshkosh B'Gosh, Inc. Class A 90,000 1,575,000
Warnaco Group, Inc. Class A 75,000 1,875,000
10,711,694
TOTAL DURABLES 41,086,082
ENERGY - 5.7%
ENERGY SERVICES - 3.5%
Diamond Offshore Drilling, Inc. (a) 15,000 506,250
ENSCO International, Inc. (a) 34,000 782,000
Halliburton Co. 113,800 5,761,125
Nabors Industries, Inc. 72,700 808,788
Pride Petroleum Services, Inc. (a) 227,600 2,418,250
Schlumberger Ltd. 129,100 8,940,175
Smith International, Inc. (a) 272,400 6,401,400
Sonat Offshore Drilling, Inc. 19,900 890,525
Tidewater, Inc. 112,600 3,546,900
30,055,413
INDEPENDENT POWER - 0.5%
Thermo Electron Corp. (a) 74,300 3,863,600
OIL & GAS - 1.7%
Anderson Exploration Ltd. (a) 100,000 1,026,130
Blue Range Resource Corp. Class A (a) 132,100 1,161,872
Camco International, Inc. 153,200 4,289,600
Renaissance Energy Ltd. (a) 100,000 2,492,029
Rio Alto Exploration Ltd. (a) 820,900 3,234,022
Rio Alto Exploration Ltd. (a)(b) 237,000 933,686
Union Pacific Resources Group, Inc. 25,000 634,375
Vintage Petroleum, Inc. 43,000 967,500
14,739,214
TOTAL ENERGY 48,658,227
FINANCE - 13.0%
BANKS - 2.7%
Bank of New York Co., Inc. 86,000 4,192,500
Chase Manhattan Corp. 100,000 6,062,500
Chemical Banking Corp. 50,000 2,937,500
First Bank System, Inc. 100,000 4,962,500
First Interstate Bancorp 34,800 4,750,200
Fuji Bank 9,000 197,183
23,102,383
CREDIT & OTHER FINANCE - 2.6%
Aames Financial Corp. 30,100 839,038
American Express Co. 200,000 8,275,000
Bank of Tokyo 11,000 190,827
Beneficial Corp. 31,400 1,464,025
Green Tree Acceptance, Inc. 122,000 3,217,750
Greenpoint Financial Corp. 105,700 2,827,475
Household International, Inc. 65,400 3,866,775
Rockford Industries, Inc. (a) 100,000 950,000
21,630,890
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - CONTINUED
FEDERAL SPONSORED CREDIT - 1.9%
Federal Home Loan Mortgage Corp. 70,000 $ 5,845,000
Federal National Mortgage Association 80,000 9,930,000
15,775,000
INSURANCE - 2.2%
Allmerica Financial Corp. 11,200 302,400
Allstate Corp. 100,000 4,112,500
American Financial Group, Inc. 22,000 673,750
American International Group, Inc. 15,000 1,387,500
Enhance Financial Services Group Corp. 9,600 255,600
MGIC Investment Corp. 34,500 1,871,625
Philadelphia Consolidated
Holding Corp. (a) 25,000 406,250
SunAmerica, Inc. 10,200 484,500
Travelers, Inc. (The) 150,000 9,431,250
18,925,375
SAVINGS & LOANS - 1.7%
Astoria Financial Corp. 42,900 1,957,313
California Federal Bank Class A (a) 80,000 1,260,000
Glendale Federal Bank Federal Savings
Bank (a) 100,000 1,750,000
Golden West Financial Corp. 35,180 1,943,695
Great Western Financial Corp. 152,600 3,891,300
Leader Financial Corp. 59,100 2,208,863
Long Island Bancorp, Inc. 55,000 1,450,625
14,461,796
SECURITIES INDUSTRY - 1.9%
Edwards (A.G.), Inc. 50,000 1,193,750
Lehman Brothers Holdings, Inc. 26,600 565,250
Merrill Lynch & Co., Inc. 50,000 2,550,000
Morgan Stanley Group, Inc. 10,000 806,250
Nikko Securities Co. Ltd. 10,000 127,447
Nomura Securities Co. Ltd. 367,000 7,985,977
PaineWebber Group, Inc. 28,800 576,000
Quick & Reilly Group, Inc. (The) 114,075 2,338,538
16,143,212
TOTAL FINANCE 110,038,656
HEALTH - 4.4%
DRUGS & PHARMACEUTICALS - 1.5%
Alliance Pharmaceutical Corp. (a) 100,000 1,362,500
Biovail Corp. International, Inc. 28,200 2,165,097
Dura Pharmaceuticals, Inc. 35,600 1,237,100
Meridian Diagnostics, Inc. 230,000 2,587,500
Neurogen (a) 55,000 1,478,125
Rexall Sundown, Inc. (a) 44,500 979,000
Sepracor, Inc. (a) 82,000 1,506,750
Sequus Pharmaceuticals, Inc. (a) 50,000 712,500
Watson Pharmaceuticals, Inc. (a) 17,200 842,800
12,871,372
MEDICAL EQUIPMENT & SUPPLIES - 1.5%
Baxter International, Inc. 50,000 2,093,750
Becton, Dickinson & Co. 20,000 1,500,000
Cardinal Health, Inc. 24,600 1,346,850
Coherent, Inc. (a) 28,000 1,134,000
Hemasure, Inc. (a) 205,000 2,613,750
Medtronic, Inc. 60,000 3,352,500
Thermedics, Inc. (a) 30,000 832,500
12,873,350

SHARES VALUE (NOTE 1)
MEDICAL FACILITIES MANAGEMENT - 1.4%
ARV Assisted Living, Inc. (a) 8,200 $ 96,350
Columbia/HCA Healthcare Corp. 50,000 2,537,500
Emeritus Corp. (a) 8,100 94,163
HEALTHSOUTH Rehabilitation Corp. (a) 150,000 4,368,750
Health Management Associates, Inc.
Class A (a) 100,000 2,612,500
Medical Resources, Inc. (a) 20,000 112,500
Total Renal Care Holdings, Inc. (a) 23,100 681,450
United Dental Care, Inc. (a) 25,000 1,031,250
11,534,463
TOTAL HEALTH 37,279,185
INDUSTRIAL MACHINERY & EQUIPMENT - 4.3%
ELECTRICAL EQUIPMENT - 1.9%
Adflex Solutions (a) 35,000 936,250
Allen Group, Inc. (The) 20,000 447,500
BMC Industries, Inc. 140,000 3,255,000
Computer Products, Inc. (a) 157,000 1,805,500
Leitch Technology (a) 125,700 3,155,514
Omron Corp. 254,000 5,846,422
Telular Corp. (a) 16,500 142,313
15,588,499
INDUSTRIAL MACHINERY & EQUIPMENT - 2.0%
AGCO Corp. 19,500 994,500
ATS Automation (a) 174,000 2,789,790
Cascade Corp. 37,400 523,600
Case Corp. 25,500 1,166,625
Caterpillar, Inc. 88,900 5,222,875
Deere & Co. 33,000 1,163,250
Kaydon Corp. 11,900 361,463
MTS Systems Corp. 70,000 2,310,000
Toro Co. 20,000 657,500
Tylan General, Inc. (a) 67,700 829,325
Veeco Instruments, Inc. (a) 57,300 830,850
16,849,778
POLLUTION CONTROL - 0.4%
Sanifill, Inc. (a) 40,000 1,335,000
United Waste Systems, Inc. (a) 59,900 2,231,275
3,566,275
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 36,004,552
MEDIA & LEISURE - 1.9%
BROADCASTING - 0.4%
Heritage Media Corp. Class A (a) 9,700 248,563
Infinity Broadcasting Corp. (a) 15,000 558,750
Jacor Communications, Inc. Class A (a) 50,400 882,000
Lin Television Corp. (a) 26,300 782,425
Renaissance Communications Corp. (a) 15,000 331,875
2,803,613
ENTERTAINMENT - 0.1%
IMAX Corp. (a) 50,000 1,137,500
LEISURE DURABLES & TOYS - 0.2%
Champion Enterprises, Inc. (a) 58,400 1,803,100
LODGING & GAMING - 0.8%
Extended Stay America, Inc. (a) 19,000 522,500
HFS, Inc. (a) 66,000 5,395,500
Players International, Inc. (a) 32,100 343,069
WMS Industries, Inc. (a) 31,800 520,725
6,781,794
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
MEDIA & LEISURE - CONTINUED
PUBLISHING - 0.1%
Pulitzer Publishing Co. 18,000 $ 859,500
RESTAURANTS - 0.3%
Dave & Busters, Inc. (a) 21,960 266,265
Outback Steakhouse, Inc. (a) 65,000 2,331,875
2,598,140
TOTAL MEDIA & LEISURE 15,983,647
NONDURABLES - 0.2%
HOUSEHOLD PRODUCTS - 0.2%
Estee Lauder Companies, Inc. (a) 12,000 418,500
Helen of Troy Corp. (a) 71,900 1,509,900
1,928,400
PRECIOUS METALS - 0.7%
Ashanti Goldfields GDR (b) 15,000 300,000
Barrick Gold Corp. 30,000 791,586
Franco Nevada Mining Corp. 5,200 303,954
Free State Consolidated Gold Mines
Ltd. Ord. 129,200 965,766
Kinross Gold Corp. (a) 75,000 584,069
Newmont Mining Corp. 50,000 2,262,500
Pegasus Gold, Inc. (a) 35,000 487,412
5,695,287
RETAIL & WHOLESALE - 3.6%
APPAREL STORES - 0.7%
Cato Corp. Class A 74,700 578,925
Gap, Inc. 101,500 4,263,000
Goody's Family Clothing 52,300 457,625
TJX Companies, Inc. 5,600 105,700
5,405,250
DRUG STORES - 0.4%
General Nutrition Companies, Inc. (a) 50,000 1,150,000
Revco (D.S.), Inc. (a) 58,300 1,646,975
Rite Aid Corp. 25,000 856,250
3,653,225
GENERAL MERCHANDISE STORES - 0.3%
Neiman-Marcus Group, Inc. 90,800 2,133,800
Service Merchandise Co., Inc. (a) 93,700 468,500
2,602,300
GROCERY STORES - 1.1%
Giant Food, Inc. Class A 17,500 551,250
Provigo, Inc. (a) 250,000 1,511,709
Richfood Holdings, Inc. Class A 85,700 2,292,475
Rykoff-Sexton, Inc. 99,200 1,736,000
Safeway, Inc. (a) 45,000 2,317,500
Stop & Shop Companies, Inc. (a) 50,000 1,156,250
9,565,184
RETAIL & WHOLESALE, MISCELLANEOUS - 1.1%
Corporate Express (a) 50,000 1,506,250
Finlay Enterprises, Inc. (a) 44,000 506,000
Gadzooks, Inc. (a) 136,800 3,454,200
Office Depot, Inc. (a) 100,000 1,975,000
Sunglass Hut International, Inc. (a) 71,000 1,686,250
9,127,700
TOTAL RETAIL & WHOLESALE 30,353,659

SHARES VALUE (NOTE 1)
SERVICES - 1.1%
ADVERTISING - 0.1%
HA-LO Industries, Inc. (a) 14,300 $ 439,725
PRINTING - 0.1%
Devon Group, Inc. (a) 32,500 944,531
SERVICES - 0.9%
APAC Teleservices, Inc. (a) 45,500 1,518,563
Career Horizons, Inc. (a) 41,900 1,414,125
HCIA, Inc. (a) 30,000 1,402,500
Medaphis Corp. (a) 50,000 1,850,000
Service Corp. International 25,000 1,100,000
Veterinary Centers of America, Inc. (a) 23,200 391,500
7,676,688
TOTAL SERVICES 9,060,944
TECHNOLOGY - 17.8%
COMMUNICATIONS EQUIPMENT - 2.6%
ADC Telecommunications, Inc. (a) 50,000 1,825,000
Brite Voice Systems, Inc. (a) 60,000 832,500
Cisco Systems, Inc. (a) 97,200 7,253,550
DSC Communications Corp. (a) 25,000 921,875
Jabil Circuit, Inc. (a) 45,000 506,250
Microdyne Corp. (a) 86,500 1,470,500
Network Equipment Technologies (a) 38,300 1,048,463
Octel Communications Corp. (a) 82,700 2,667,075
Perceptron, Inc. 67,000 1,490,750
U.S. Robotics Corp. 45,000 3,948,750
21,964,713
COMPUTER SERVICES & SOFTWARE - 6.5%
ATI Technologies, Inc. (a) 55,000 433,357
Acxiom Corp. (a) 25,000 684,375
American Business Information, Inc. (a) 30,000 581,250
American Management Systems, Inc. (a) 22,100 663,000
Analysts International Corp. 97,500 2,925,000
Ascend Communications, Inc. (a) 63,200 5,127,100
Astea International, Inc. (a) 25,000 571,875
CUC International, Inc. (a) 32,700 1,115,888
Ceridian Corp. (a) 103,416 4,265,910
CompuCom Systems, Inc. (a) 47,000 446,500
Computer Data Systems, Inc. 17,000 221,000
Computer Sciences Corp. (a) 44,200 3,105,050
CyCare Systems, Inc. (a) 20,000 512,500
Datastream Systems, Inc. (a) 29,800 566,200
Electronic Arts, Inc. (a) 39,800 1,039,775
Electronics for Imaging, Inc. (a) 17,000 743,750
First Data Corp. 39,647 2,651,393
General Motors Corp. Class E 50,000 2,600,000
Harris Computer Systems Corp. (a) 51,400 693,900
Lanoptics Ltd. (Reg.) (a) 40,000 780,000
Legato Systems, Inc. (a) 10,000 310,000
MDL Information Systems, Inc. (a) 97,500 2,242,500
Mercury Interactive Group Corp. (a) 14,400 262,800
Metatools, Inc. (a) 10,600 275,600
Microsoft Corp. (a) 48,300 4,238,325
Netstar, Inc. (a) 5,000 91,250
Oracle Systems Corp. (a) 147,300 6,241,838
Paychex, Inc. 58,000 2,892,750
Progress Software Corp. (a) 44,200 1,657,500
Rand A Technology Corp. (a) 50,800 828,453
Reuters Holdings PLC ADR Class B 14,700 810,338
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TECHNOLOGY - CONTINUED
COMPUTER SERVICES & SOFTWARE - CONTINUED
Softkey International, Inc. (a) 30,000 $ 693,750
SunGard Data Systems, Inc. (a) 40,000 1,140,000
TCSI Corp. (a) 115,000 2,127,500
Technology Solutions, Inc. 58,000 1,131,000
54,671,427
COMPUTERS & OFFICE EQUIPMENT - 3.8%
Compaq Computer Corp. (a) 65,000 3,120,000
Comverse Technology, Inc. (a) 35,000 700,000
Dell Computer Corp. (a) 65,200 2,257,550
Digital Equipment Corp. (a) 100,000 6,412,500
Discreet Logic, Inc. (a) 38,000 950,000
Filenet Corp. (a) 4,900 230,300
Gateway 2000, Inc. (a) 75,000 1,837,500
Hewlett-Packard Co. 50,500 4,229,375
Kronos, Inc. (a) 27,100 1,287,250
MICROS Systems, Inc. (a) 42,000 2,068,500
Sun Microsystems, Inc. (a) 144,500 6,592,813
Western Digital Corp. (a) 50,600 904,475
Xerox Corp. 9,000 1,233,000
31,823,263
ELECTRONIC INSTRUMENTS - 0.6%
Credence Systems Corp. (a) 37,800 864,675
Cubic Corp. 30,000 855,000
Measurex Corp. 52,700 1,488,775
Teradyne, Inc. (a) 45,000 1,125,000
Varian Associates, Inc. 26,300 1,255,825
5,589,275
ELECTRONICS - 4.3%
ARC International Corp. (a) 152,900 324,913
Altera Corp. (a) 53,600 2,666,600
Arrow Electronics, Inc. (a) 35,000 1,509,375
Atmel Corp. (a) 60,000 1,342,500
Burr-Brown Corp. (a) 30,800 785,400
Chips & Technologies, Inc. (a) 36,500 328,500
Continental Circuits Corp. (a) 55,000 893,750
International Rectifier Corp. (a) 81,000 2,025,000
Kemet Corp. (a) 100,000 2,387,500
Kent Electronics Corp. (a) 28,000 1,634,500
Linear Technology Corp. 60,000 2,355,000
Maxim Integrated Products, Inc. (a) 50,000 1,925,000
Percon Acquisition, Inc. (a) 101,700 1,322,100
Pioneer Standard Electronics, Inc. 22,500 298,125
Rohm Co. Ltd. 50,000 2,819,149
SGS Thomson Microelectronics NV (a) 20,000 805,000
Samsung Electronics Co. Ltd. GDS
(vtg.) (b) 41,000 3,925,750
Sanmina Corp. (a) 75,400 3,911,375
Solectron Corp. (a) 50,000 2,206,250
Thomas & Betts Corp. 34,800 2,566,500
Truevision, Inc. (a) 48,700 240,456
36,272,743
PHOTOGRAPHIC EQUIPMENT - 0.0%
Fuji Photo Film Co. Ltd. 2,000 58,279
TOTAL TECHNOLOGY 150,379,700

SHARES VALUE (NOTE 1)
TRANSPORTATION - 3.5%
AIR TRANSPORTATION - 1.5%
Atlantic Coast Airlines, Inc. (a) 14,100 $ 144,525
Atlantic Southeast Airlines, Inc. 50,000 1,075,000
Comair Holdings, Inc. 85,200 2,289,750
Delta Air Lines, Inc. 39,800 2,940,225
Midwest Express Holdings, Inc. (a) 31,800 882,450
Northwest Airlines Corp. Class A (a) 60,000 3,060,000
Southwest Airlines Co. 100,000 2,325,000
12,716,950
RAILROADS - 1.8%
Burlington Northern Santa Fe Corp. 182,819 14,259,882
CSX Corp. 24,400 1,113,250
15,373,132
TRUCKING & FREIGHT - 0.2%
Air Express International Corp. 53,900 1,239,700
TOTAL TRANSPORTATION 29,329,782
UTILITIES - 2.1%
CELLULAR - 0.7%
A Plus Network, Inc. 17,200 202,100
AirTouch Communications, Inc. (a) 100,000 2,825,000
Mobile Telecommunications
Technologies, Inc. (a) 150,000 3,206,250
6,233,350
GAS - 0.2%
Southern Union Company 50,085 1,264,646
TELEPHONE SERVICES - 1.2%
Ameritech Corp 30,000 1,770,000
Frontier Corp. 44,000 1,320,000
WorldCom, Inc. (a) 200,000 7,050,000
10,140,000
TOTAL UTILITIES 17,637,996
TOTAL COMMON STOCKS
(Cost $536,098,938) 601,633,509
CONVERTIBLE PREFERRED STOCKS - 0.3%
FINANCE - 0.3%
SAVINGS & LOANS - 0.3%
California Federal Bank, Series A, $1.94
(Cost $2,022,443) 90,000 $ 2,193,750
U.S. TREASURY OBLIGATIONS - 9.9%
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
7 1/4%, 2/15/23 Aaa $ 11,800,000 13,492,592
6 1/4%, 8/15/23 Aaa 6,100,000 6,276,351
7 1/2%, 11/15/24 Aaa 10,740,000 12,909,802
7 5/8%, 2/15/25 Aaa 20,450,000 25,006,465
6 7/8%, 8/15/25 Aaa 23,000,000 25,939,630
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $80,877,649) 83,624,840
REPURCHASE AGREEMENTS - 18.7%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.91% dated
12/29/95 due 1/2/96 $ 157,875,604 $ 157,772,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $776,771,030) $ 845,224,099
LEGEND
(a) Non-income producing
(b) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $5,159,436 or 0.6% of net
assets.
OTHER INFORMATION
Purchases and sales of securities, other than short-term securities,
aggregated $1,043,025,668 and $440,065,149, respectively, of which U.S.
government and government agency obligations aggregated $152,051,487 and
$72,484,388, respectively.
The fund placed a portion of its portfolio securities with brokerage firms
which are affiliates of Fidelity Management & Research Company. The
commissions paid to these affiliated firms were $246,389 for the period
(see Note 5 of Notes to Financial Statements).
INCOME TAX INFORMATION
At December 31, 1995, the aggregate cost of investment securities for
income tax purposes was $777,506,842. Net unrealized appreciation
aggregated $67,717,257, of which $83,570,275 related to appreciated
investment securities and $15,853,018 related to depreciated investment
securities.
VARIABLE INSURANCE PRODUCTS FUND II: CONTRAFUND PORTFOLIO
FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995

ASSETS

Investment in $ 845,224,099
securities, at
value (including
repurchase
agreements of
$157,772,000)
(cost
$776,771,030)
- - See
accompanying
schedule

Cash 971

Receivable for 71,837,052
investments
sold

Receivable for 3,832,525
fund shares sold

Dividends 445,224
receivable

Interest receivable 1,737,755

TOTAL ASSETS 923,077,626

LIABILITIES

Payable for $ 45,549,625
investments
purchased

Payable for fund 35,777
shares
redeemed

Accrued 421,996
management
fee

Other payables 70,484
and accrued
expenses

TOTAL LIABILITIES 46,077,882

NET ASSETS $ 876,999,744

Net Assets
consist of:

Paid in capital $ 799,584,178

Undistributed net 275,151
investment
income

Accumulated 8,687,316
undistributed net
realized gain
(loss) on
investments and
foreign currency
transactions

Net unrealized 68,453,099
appreciation
(depreciation)
on investments
and assets and
liabilities in
foreign
currencies

NET ASSETS, for $ 876,999,744
63,593,511
shares
outstanding

NET ASSET VALUE, $13.79
offering price
and redemption
price per share
($876,999,744 (divided by)
63,593,511
shares)

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
<S> <C> <C>
JANUARY 3, 1995 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995

INVESTMENT INCOME $ 2,786,375
Dividends

Interest 4,013,638

TOTAL INCOME 6,800,013

EXPENSES

Management fee $ 2,316,458

Transfer agent fees 185,309

Accounting fees and expenses 210,939

Non-interested trustees' compensation 962

Custodian fees and expenses 39,295

Registration fees 568

Audit 15,700

Legal 893

Miscellaneous 25

Total expenses before reductions 2,770,149

Expense reductions (26,157 2,743,992
)

NET INVESTMENT INCOME 4,056,021

REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:

Investment securities 16,038,511

Foreign currency transactions (766 16,037,745
)

Change in net unrealized appreciation (depreciation) on:

Investment securities 68,453,069

Assets and liabilities in 30 68,453,099
foreign currencies

NET GAIN (LOSS) 84,490,844

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 88,546,865

</TABLE>

STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS JANUARY 3, 1995
(COMMENCEMENT
OF
OPERATIONS) TO
DECEMBER 31,
1995

Operations $ 4,056,021
Net investment income

Net realized gain (loss) 16,037,745

Change in net unrealized appreciation 68,453,099
(depreciation)

NET INCREASE (DECREASE) IN NET ASSETS 88,546,865
RESULTING FROM OPERATIONS

Distributions to shareholders (3,710,433)
From net investment income

From net realized gain (7,420,866)

TOTAL DISTRIBUTIONS (11,131,299)

Share transactions 806,897,529
Net proceeds from sales of shares

Reinvestment of distributions 11,131,299

Cost of shares redeemed (18,444,650)

NET INCREASE (DECREASE) IN NET ASSETS 799,584,178
RESULTING FROM SHARE TRANSACTIONS

TOTAL INCREASE (DECREASE) IN NET ASSETS 876,999,744

NET ASSETS

Beginning of period -

End of period (including undistributed net $ 876,999,744
investment income of $275,151)

OTHER INFORMATION
Shares

Sold 64,153,925

Issued in reinvestment of distributions 816,078

Redeemed (1,376,492)

Net increase (decrease) 63,593,511

<TABLE>
<CAPTION>
<S> <C> <C>
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

</TABLE>

FINANCIAL HIGHLIGHTS
JANUARY 3, 1995
(COMMENCEMENT
OF
OPERATIONS) TO
DECEMBER 31,

SELECTED PER-SHARE DATA 1995

Net asset value, beginning of period $ 10.00

Income from Investment Operations

Net investment income .06

Net realized and unrealized gain (loss) 3.91

Total from investment operations 3.97

Less Distributions (.06)
From net investment income

From net realized gain (.12)

Total distributions (.18)

Net asset value, end of period $ 13.79

TOTAL RETURN A 39.72%

RATIOS AND SUPPLEMENTAL DATA

Net assets, end of period (000 omitted) $ 877,000

Ratio of expenses to average net assets .72%

Ratio of net investment income to average net assets 1.07%

Portfolio turnover rate 132%

A TOTAL RETURN DOES NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THOSE CHARGES WOULD REDUCE THE
TOTAL RETURNS SHOWN.
NOTES TO FINANCIAL STATEMENTS
For the period ended December 31, 1995

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. 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 for which quotations are not
readily available through the pricing service 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 fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Purchases and
sales of securities, income receipts, and expense payments are translated
into U.S. dollars at the prevailing exchange rate on the respective dates
of the transactions.
Net realized gains and losses on foreign currency transactions represent
net gains and losses from sales and maturities of 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, Investment Grade Bond, Asset Manager and
Index 500 Portfolios are 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: Growth and Contrafund Portfolios intend to
qualify as regulated investment companies under Subchapter M of the
Internal Revenue Code. 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 funds, through their custodian, receive delivery
of the underlying U.S. Treasury or Federal Agency securities, the market
value of which is required to be at least equal to the repurchase price.
For term repurchase agreement transactions, the underlying securities are
marked-to-market daily and maintained at a value at least equal to the
repurchase price. 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 fund's exposure to the
underlying instrument. Selling futures, buying puts, and writing calls tend
to decrease the fund's exposure to the underlying instrument, or hedge
other fund investments. Futures contracts involve, to varying degrees, risk
of loss in excess of the futures variation margin reflected in the
Statement of Assets and Liabilities. The underlying face amount at value of
any open futures contracts or purchased options at period end, is shown in
the schedule of investments under the captions "Purchased Options," and
"Futures Contracts," respectively. 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.
INDEXED SECURITIES. Each fund may invest in indexed securities whose values
are linked either directly or inversely to changes in foreign currencies,
interest rates, commodities, indices, or other underlying instruments. Each
fund uses these securities to increase or decrease its exposure to
different underlying instruments and to gain exposure to markets that might
be difficult to invest in through conventional securities. Indexed
securities may be more volatile than their underlying instruments, but any
loss is limited to the amount of the original investment.
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,
restricted securities (excluding 144A issues) amounted to $835,000 or 0.0%
of net assets of the Asset Manager Portfolio.
3. PURCHASES AND SALES OF INVESTMENTS
Information regarding purchases and sales of securities (other than
short-term securities) is included under the caption "Other Information" at
the end of each applicable fund's schedule of investments.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE.
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 .2700% to .5200% for the Asset Manager, Asset Manager:
Growth and Contrafund Portfolios, and from .1200% to .3700% for the
Investment Grade Bond Portfolio. 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.
4. FEES AND OTHER TRANSACTIONS WITH
AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
In the event that these rates were lower than the contractual rates in
effect during the period, FMR voluntarily implemented the above rates, as
they resulted in the same or a lower management fee. For the period, the
management 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.
The Board of Trustees has approved a new group fee rate schedule with rates
ranging from .1100% to .3700% for the Investment Grade Bond Portfolio and
from .2500% to .5200% for the Asset Manager, Asset Manager: Growth and
Contrafund Portfolios. Effective January 1, 1996, FMR voluntarily agreed to
implement these new group fee rate schedules as each results in the same or
a lower management fee.
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. Effective January 1, 1995, the Board of
Trustees approved a revised transfer agent contract pursuant to which FIIOC
receives account fees and asset-based fees that vary according to account
size and type of account. FIIOC pays for typesetting, printing and mailing
of all shareholder reports, except proxy statements. For the period,
transfer agent fees were equivalent to an annual rate of .05% of average
net assets for each of the funds.
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. BANK BORROWINGS.
Each fund is permitted to have bank borrowings for temporary or emergency
purposes to fund shareholder redemptions. Each fund has established
borrowing arrangements with certain banks. Under the most restrictive
arrangement, each fund must pledge to the bank securities having a market
value in excess of 220% of the total bank borrowings. The interest rate on
the borrowings is the bank's base rate, as revised from time to time. For
the Asset Manager Portfolio, the maximum loan and the average daily loan
balance during the period for which the loan was outstanding amounted to
$3,050,000. The weighted average interest rate was 6.4%.
6. 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. For the period,
the reimbursement reduced expenses by $241,437 and $46,008 for Index 500
and Asset Manager: Growth, respectively.
FMR has directed certain portfolio trades to brokers who paid a portion of
each fund's expenses. For the period, expenses were reduced by $588,729,
$1,367 and $26,157 for Asset Manager, Asset Manager: Growth and Contrafund
Portfolios, respectively, under this arrangement.
7. TRANSACTIONS WITH AFFILIATED COMPANIES.
Information regarding transactions with affiliated companies is included
under the caption "Other Information" at the end of each applicable fund's
schedule of investments.
8. BENEFICIAL INTEREST.
At the end of the period, Fidelity Investments Life Insurance Company
(FILI) and its subsidiaries, affiliates of FMR, were the record owners of
more than 5% of the outstanding shares 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 41 2 25
Asset Manager 24 3 50
Index 500 53 0 0
Asset Manager: Growth 82 0 0
Contrafund 58 1 14
REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees and the Shareholders of Variable Insurance Products Fund
II:
In our opinion, the accompanying statements of assets and liabilities,
including the schedules of investments (except for Moody's and Standard &
Poor's ratings), and the related statements of operations and of changes in
net assets and the financial highlights present fairly, in all material
respects, the financial position of each of the five portfolios
constituting Variable Insurance Products Fund II (the "Trust") at December
31, 1995, the results of their operations for the year then ended, and the
changes in their net assets and the financial highlights for the periods
indicated in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation of securities at December 31,
1995 by correspondence with the custodians and brokers and the application
of alternative auditing procedures where confirmations from brokers were
not received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 9, 1996
DISTRIBUTIONS

The Board of Trustees of Variable Insurance Products Fund II voted to pay
on February 2, 1996, to shareholders of record at the opening of business
on February 2, 1996, the following distributions derived from capital gains
realized from sales of portfolio securities, and dividends derived from net
investment income:
DIVIDENDS CAPITAL GAINS
Invetsment Grade Bond $.62 -
Asset Manager $.57 $.47
Index 500 $.91 $2.34
Asset Manager: Growth - $.42
Contrafund - $.13
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
Andrew Offit, VICE PRESIDENT
William Danoff, VICE PRESIDENT
Michael Gray, 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
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

<PAGE>
DREYFUS VARIABLE INVESTMENT FUND, Managed Assets Portfolio
LETTER TO SHAREHOLDERS
Dear Shareholder:
For the fiscal year ended December 31, 1995, the Managed Assets Portfolio
of Dreyfus Variable Investment Fund posted a total return of -.26% per
share,* while the Standard & Poor's 500 Composite Stock Price Index rose
37.53%.**
During this past year, the Portfolio was positioned to benefit from a
declining stock market and a rising price in gold shares. However, the stock
market experienced extraordinary returns, while gold stocks remained
essentially unchanged.
THE EQUITY MARKET
The Portfolio holds index put options and short positions intended to
benefit from declines in the equity markets. The value of the options has
declined, but the loss has been limited to the premiums paid. The Portfolio
has also lost value by selling both stocks and S&P 500 Futures short. Through
a discipline of "limiting losses" the Portfolio has exited these positions
during certain periods. The bulk of the Portfolio's losses during the last
fiscal year can be attributed to these positions.
The general stock market has risen sharply during the past year in
parallel with long-term Treasury bonds and strong earnings. The stock market
remains at what has in the past proven to be very expensive valuation levels,
particularly as measured by dividend yields on both an absolute basis and
relative to Treasury bill yields. The future direction of the market becomes
more complex when one considers that inflation remains tame, earnings
continue to be strong, and interest rates are declining. The correction of
the overvaluation of financial assets will ultimately be triggered by a
change in the direction of any one of these bullish supports for stock
prices.
GOLD MINING SHARES
The Portfolio's gold share position stands at approximately 25% of the
total Portfolio. Gold bullion has failed to penetrate the $400 per ounce
level significantly for the past 5 years. Each rally approaching $400 per
ounce is met by supply from either central banks or gold mining companies
selling their production forward. At some point this supply could shift
sharply into demand. Forward selling is essentially a short position that
producers may scramble to reverse in a rising gold market, while the complacen
cy of central banks may be altered should there be a shift in the public's
current positive attitude toward financial assets. The gold shares have done
little to alter the performance of the Portfolio in the last year with the
exception of some net trading profits. We still believe that should the gold
market penetrate the $400 per ounce level, the following rise will be quick
and sharp, warranting our core position.
SPECIAL SITUATIONS
We have maintained a 20% position in debt securities denominated in
Deutsche Marks, Swiss Francs, and South African Rands. The currency profits
have been locked in through hedging after the dollar dropped to 1.42 DM/$. We
will continue to monitor this position in the hope that the Portfolio can
take advantage of another dollar slide. The Portfolio has purchased
securities in a number of emerging markets. These include Venezuelan and
Argentine debt securities along with closed-end investment funds that invest
in Vietnam and Russia. In total, this asset class has proven to be very
profitable for the Portfolio.
The Portfolio purchased put options that would benefit if either the
Japanese bond market or the Japanese yen declined. Japan, a land mass the
size of California, has a Gross Domestic Product in dollars roughly equal to
the U.S. This high level, along with recent trade figures, real estate
problems and other valuation techniques points to a lower yen and higher
interest rates. This position was recently sold at a profit as the yen/$
foreign exchange rate moved from 85 to above 102.
The Portfolio has purchased Japanese equities while hedging the currency
exposure. The Japanese stock market appears to offer value after declining
over 50% from its peak in 1989. Even though Japan is facing a
difficult real estate problem, and the stock market still appears expensive
relative to earnings, there seem to be some signs of a change. The market is
cheap relative to book value and short-term interest rates. Technical
indicators such as volatility and volume patterns point to an end to the
six-year bear market. Most importantly, earnings are due to rebound as the
government provides liquidity to the economy due to its real estate problems,
a situation similar to the U.S. in 1991. Additionally, a weaker yen will
markedly improve the health of export-oriented Japan by making the price of
its goods more competitive.
The Portfolio holds Interest Only securities (IOs). After they dropped
almost 50% due to lower interest rates, the Fund began purchasing the IOs
again. The IO securities are one of the cheapest and most liquid means of
benefiting from rising interest rates. Even though rates have continued to
decline, the Portfolio is roughly break-even on the IO investment.
The Portfolio continues to search for value in the stock market and a few
names have surfaced such as Castle & Cooke, Hartmarx, Horsham, PT TriPolyta
Indonesia, A.D.R., Duty Free International, and Teledyne. While profits have
been realized on a number of equities as they have reached what we feel is a
fair valuation, the remaining companies continue to trade substantially below
our estimates of their market values.
THE OUTLOOK
In summary, the Portfolio's positions will generally benefit from stock
market declines, interest rate increases, rising gold shares, and a number of
special situations both in the U.S. and abroad. In addition, it will continue
to hold a significant U.S. Treasury Bill position in anticipation of buying
stocks at much cheaper levels.
The performance of the Portfolio has been poor over the last fiscal year.
While many themes that the Portfolio invested in have worked out well, the
primary one, profiting during a bear stock market, has proven to be a
disaster of late. The investment committee has always realized the price for
being bearish too early is poor performance, both absolute and relative. In
an attempt to limit the losses during a rising market and minimize weak
absolute returns, the Portfolio has adhered to a policy of buying put options
along with a strict discipline of exiting short positions. The markets have
surely tested our conviction over the last few years, but we feel more
strongly than ever that at present investors should take a cautious and
conservative stance toward financial assets.
Sincerely,

Comstock Partners, Inc.
Investment Policy Committee
January 15, 1996
Jersey City, New Jersey

DREYFUS VARIABLE INVESTMENT FUND, Managed Assets Portfolio
DECEMBER 31, 1995
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS VARIABLE
INVESTMENT FUND, MANAGED ASSETS PORTFOLIO AND THE STANDARD & POOR'S 500
COMPOSITE STOCK PRICE INDEX AND
THE DOW JONES INDUSTRIAL AVERAGE
[Exhibit A:
Dollars
$22,924
Dow Jones
Industrial Average*
$22,306
Standard & Poor's 500
Composite Stock
Price Index*
$14,385
Dreyfus Variable
Investment Fund,
Managed Assets Portfolio
*Source: Lipper Analytical Services, Inc.]
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR ENDED FIVE YEARS ENDED FROM INCEPTION (8/31/90)
DECEMBER 31, 1995 DECEMBER 31, 1995 TO DECEMBER 31, 1995
__________- __________- _____________-
(0.26)% 7.14% 7.05%
Past performance is not predictive of future performance.
THE PORTFOLIO'S PERFORMANCE DOES NOT REFLECT THE DEDUCTION OF ADDITIONAL
CHARGES APPLICABLE TO SEPARATE ACCOUNTS OF PARTICIPATING INSURANCE COMPANIES
USING THE PORTFOLIO AS AN UNDERLYING INVESTMENT.
The above graph compares a $10,000 investment made in Dreyfus Variable
Investment Fund, Managed Assets Portfolio on 8/31/90 (Inception Date) to a
$10,000 investment made in the Standard & Poor's 500 Composite Stock Price
Index and the Dow Jones Industrial Average on that date. All dividends and
capital gain distributions are reinvested.
The Portfolio's performance shown in the line graph takes into account all
applicable fees and expenses. The Standard & Poor's 500 Composite Stock Price
Index and the Dow Jones Industrial Average are widely accepted, unmanaged
indices of overall stock market performance, which do not take into account
charges, fees and other expenses. Further information relating to Portfolio
performance, including expense reimbursements, if applicable, is contained in
the Financial Highlights section of the Prospectus and elsewhere in this
report.
DREYFUS VARIABLE INVESTMENT FUND, Managed Assets Portfolio
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS DECEMBER 31, 1995
COMMON STOCKS-35.4% SHARES VALUE
_______ ______
<S> <C> <C>
BROADCASTING-1.2% P.T. Telekomunikasi Indonesia, A.D.R. .(a) ..... 6,900 $ 174,225
Tele-Communications Liberty Media, Cl. A.....(a) 1,250 33,594
Tele-Communications - TCI, Cl. A.............(a) 5,000 99,375
_____-
307,194
_____-
CHEMICALS-.7% P.T. Tri Polyta Indonesia, A.D.R. 12,500 171,875
_____-
CONGLOMERATES-.5%.................. Teledyne 5,300 135,813
_____-
CONSUMER GROWTH
STAPLES-.6%............. Paragon Trade Brands (a) 6,000 140,250
_____-
ELECTRICAL EQUIPMENT-.3%.... Hitachi, A.D.R. 800 80,400
_____-
ENERGY-.7%...................... Baker Hughes 5,500 134,062
Basin Exploration.................... (a) 10,500 51,844
_____-
185,906
_____-
FINANCE-.3%.................... Pioneer Group 2,800 76,300
_____-
FOODS & BEVERAGES-.6%......... Castle & Cooke 1,133 18,983
Dole Food.............................. 3,400 119,000
_____-
137,983
_____-
GOLD MINING-21.1%.................Amax Gold (a) 30,000 217,500
Ashanti Goldfields, G.D.R. ..................(b) 14,000 281,750
Bema Gold............................ (a) 87,000 174,000
Buffelsfontein Gold Mining, A.D.R. ..........(a) 13,000 37,375
Canyon Resources..................... (a) 68,000 165,750
Crystallex International............. (a) 16,000 27,429
Dakota Mining........................ (a) 25,000 37,500
Driefontein Consolidated, A.D.R. ...... 16,300 201,713
East Rand Gold & Uranium, A.D.R. ............... 30,000 81,000
El Callao Mining..................... (a) 8,000 3,516
Elandsrand Gold Mining, A.D.R. ................. 25,000 121,875
Firstmiss Gold....................... (a) 11,200 249,200
Free State Consolidated Gold Mines, A.D.R. ..... 9,800 71,050
Goldcorp, Cl. A........................ 15,040 177,670
Golden Shamrock Mines................ (a) 60,000 36,977
Greenstone Resources................. (a) 58,200 168,418
Homestake Mining....................... 3,200 50,000
International Gold Resources.................(a) 80,000 210,989
Kinross Mines, A.D.R. ................. 9,000 84,375
Kloof Gold Mining, A.D.R. ............. 6,300 59,456
MK Gold.............................. (a) 99,000 247,500
Menzies Gold......................... (a) 250,000 83,531
Newmont Mining......................... 5,771 261,138
Pegasus Gold......................... (a) 37,500 520,313
Prime Resource Group................. (a) 26,000 178,571
Randfontein Estates Gold Mining, A.D.R. ........ 7,200 46,420
</TABLE>
DREYFUS VARIABLE INVESTMENT FUND, Managed Assets Portfolio
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS (CONTINUED) DECEMBER 31, 1995
COMMON STOCKS (CONTINUED) SHARES VALUE
_______ ______
<S> <C> <C>
GOLD MINING (CONTINUED).. Rio Amarillo Mining (a,b) 80,000 $ 32,234
Royal Oak Mines...................... (a) 118,000 420,375
Santa Fe Pacific Gold.................. 16,000 194,000
Southwestern Gold.................... (a) 18,000 102,198
TVX Gold............................. (a) 59,200 419,647
Vaal Reefs Exploration & Mining, A.D.R......... 28,000 178,500
Vengold.............................. (a) 82,000 66,359
Winkelhaak Mines, A.D.R. .............. 18,000 126,000
_____-
5,334,329
_____-
HEALTH CARE-.7%............. Tenet Healthcare (a) 8,500 176,375
_____-
HOLDING COMPANIES-.5%........... Horsham 10,000 135,000
_____-
INDUSTRIAL-1.3%..................Anglovaal 5,000 213,991
....ISCOR 103,400 93,046
Johnnies Industrial.................... 1,414 21,336
_____-
328,373
_____-
METALS-1.1% Freeport-McMoRan Copper & Gold, Cl. A. ....... 3,800 106,400
Silver Standard Resources (Warrants).........(a,b) 40,000 164,835
_____-
271,235
_____-
MINING-1.3%.......................Eldorado (a,b) 57,000 177,473
JCI, A.D.R. ........................... 1,400 11,042
Triton Mining...................... (a,b) 40,000 146,520
_____-
335,035
_____-
MISCELLANEOUS-.8% Fleming Russia Securities Fund (a) 15,000 86,250
Lazard Vietnam Fund.................. (a) 10,000 106,250
_____-
192,500
_____-
OIL-1.5%........................ Amerada Hess 2,600 137,800
HS Resources......................... (a) 7,700 99,138
Total S.A., A.D.R. .................... 4,000 136,000
_____-
372,938
_____-
OIL & GAS EXPLORATION-.5%....... Petro-Canada 11,500 132,692
_____-
RETAIL TRADE-1.0%.... Duty Free International 8,200 131,200
Hartmarx............................. (a) 30,000 131,250
_____-
262,450
_____-
SEMICONDUCTORS-.7%.................Fujitsu 3,000 33,333
NEC, A.D.R. ........................... 1,600 97,600
OKI Electric Industry................ (a) 3,000 26,899
Toshiba................................ 3,000 23,449
_____-
181,281
_____-
TOTAL COMMON STOCKS
(cost $9,164,105).................... $ 8,957,929
=======
</TABLE>
DREYFUS VARIABLE INVESTMENT FUND, Managed Assets Portfolio
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS (CONTINUED) DECEMBER 31, 1995
PREFERRED STOCKS-.6% SHARES VALUE
_____________
<S> <C> <C>
CONGLOMERATES;............ Teledyne, Series E 160 $ 2,300
METALS; Freeport-McMoRan Copper & Gold, Cl. A. 4,500 136,688
_____-
TOTAL PREFERRED STOCKS
(cost $177,297)...................... $ 138,988
======

CONTRACTS
SUBJECT
PUT OPTIONS-3.2% TO PUT
______-
AMEX Security Broker/Dealer Index;
January `96 @ $355................... 2,600 $ 55,900
Standard & Poor's 500 Index Flex Options;
December `96 @ $525.................. 1,300 7,231
Standard & Poor's 500 Index:
March `96 @ $453................... (k) 4,546 0
March `96 @ $500..................... 7,500 2,813
March `96 @ $525..................... 7,000 4,375
March `96 @ $625..................... 6,000 97,500
June `96 @ $450...................... 1,600 500
June `96 @ $475...................... 7,600 5,700
June `96 @ $500...................... 5,000 6,250
June `96 @ $550...................... 2,100 8,137
September `96 @ $550................. 12,700 84,138
September `96 @ $575................. 7,500 76,875
December `96 @ $525.................. 1,300 7,962
December `96 @ $550.................. 21,500 190,813
December `96 @ $600.................. 6,000 116,250
June `97 @ $550...................... 6,000 76,125
June `97 @ $600...................... 3,000 69,750

PRINCIPAL
AMOUNT
SUBJECT
TO PUT
______-
U.S. Treasury Bond;
7.625%, 2/15/2025;
April `96 @ $103.078 (k) $..1,950,000 19
_____-
TOTAL PUT OPTIONS
(cost $1,608,836).................... $ 810,338
======
</TABLE>

DREYFUS VARIABLE INVESTMENT FUND, Managed Assets Portfolio
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS (CONTINUED) DECEMBER 31, 1995
PRINCIPAL
BONDS & NOTES-22.6% AMOUNT VALUE
_____________
<S> <C> <C>
BONDS-21.8%.......... Argentinian Securities;
Republic of Argentina,
..5%, 3/31/2023 (c,d,e) $.....250,000 $ 142,656
Austrian Securities;
Republic of Austria,
..4.50%, 2/12/2000 (f) 1,993,068 2,108,666
German Securities;
Bundesrepublik Deutschland,
.. 9%, 10/20/2000 (g) 1,740,341 2,027,497
South African Securities;
Eskom,
. 11%, 6/1/2008 (h) 987,654 804,444
Venezuelan Securities;
Republic of Venezuela,
... 6.75%, 3/31/2020 (c,d) 750,000 429,844
_____-
5,513,107
_____-
NOTES-.8% Federal National Mortgage Association,
Non-Callable Strips, (collateralized by
FNMA Strip, 10/1/2024) Cl. 267-2,
8.50%, 10/25/2024 (Interest Only Obligation) 951,427(i) 195,043
_____-
TOTAL BONDS AND NOTES
(cost $5,028,183).................... $ 5,708,150
======
SHORT-TERM INVESTMENTS-32.0%
U.S. TREASURY BILLS:...5.26%, 1/11/96 (j) $.....574,000 $ 573,099
5.26%, 2/29/96......................... 126,000 124,999
4.89%, 3/7/96.......................... 5,434,000 5,384,007
4.85%, 3/14/96......................... 2,036,000 2,015,131
_____-
TOTAL SHORT-TERM INVESTMENTS
(cost $8,099,336).................... $ 8,097,236
======
TOTAL INVESTMENTS (cost $24,077,757)........................................ 93.8% $23,712,641
===== ======
CASH AND RECEIVABLES (NET).................................................. 6.2% $ 1,559,160
===== ======
NET ASSETS.................................................................. 100.0% $25,271,801
===== ======
</TABLE>

DREYFUS VARIABLE INVESTMENT FUND, Managed Assets Portfolio

NOTES TO STATEMENT OF INVESTMENTS:
(a) Non-income producing.
(b) Securities 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
December 31,1995, these securities amounted to $802,812 or 3.2% of net
assets.
(c) Denominated in U.S. Dollars.
(d) Secured by U.S. Treasury Securities.
(e) Scheduled variable interest rate.
(f) Denominated in Swiss Francs.
(g) Denominated in German Marks.
(h) Denominated in South African Rand.
(i) Notional face amount.
(j) Partially held by the custodian in a segregated account as
collateral for open financial futures positions.
(k) Securities restricted as to public resale. Investments in restricted
securities, with an aggregate market value of $19 represents
approximately 0.00% of net assets:

<TABLE>
<CAPTION>
ACQUISITION PURCHASE PERCENTAGE OF
PUT OPTIONS: DATE PRICE NET ASSETS VALUATION*
______- ______ _____ _______- ______
<S> <C> <C> <C> <C>
Standard & Poor's 500 Index
March `96 @ $453 ........................ . 12/14/94 $21.99 0.00 fair value
U.S. Treasury Bond;
7.625%, 2/15/2025, April `96 @ $103.078.. 4/12/95 $4.72 0.00 fair value
*The valuation of these securities has been determined in good faith
under the direction of the Board of Trustees.
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF FINANCIAL FUTURES DECEMBER 31, 1995
UNREALIZED
MARKET VALUE APPRECIATION
NUMBER OF COVERED (DEPRECIATION)
FINANCIAL FUTURES PURCHASED; CONTRACTS BY CONTRACTS EXPIRATION AT 12/31/95
_______ _____- _______ ______-
<S> <C> <C> <C> <C>
Nikkei 225................................... 2 $ 200,600 March `96 $ 300
FINANCIAL FUTURES SOLD SHORT:
Hang Seng.................................... 10 $ (655,633) January `96 (4,204)
Japanese Yen............................ ...... 2 $ (244,325) March `96 20,600
Standard & Poor's 500........................ 13 $ (4,019,925) March `96 (24,600)
_____
$ (7,904)
======
</TABLE>

See notes to financial statements.

DREYFUS VARIABLE INVESTMENT FUND, Managed Assets Portfolio
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1995
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $24,077,757)-see statement...................................... $23,712,641
Cash.................................................................... 1,522,261
Dividends and interest receivable....................................... 148,197
Net unrealized appreciation on forward currency
exchange contracts-Note 4(a).......................................... 88,822
Receivable for investment securities sold............................... 73,303
Prepaid expenses........................................................ 143
_____-
25,545,367
LIABILITIES:
Due to The Dreyfus Corporation.......................................... $ 8,040
Due to Comstock Partners, Inc. ......................................... 8,040
Payable for investment securities purchased............................. 223,860
Payable for futures variation margin-Note 4(a).......................... 5,341
Accrued expenses........................................................ 28,285 273,566
____ _____-
NET ASSETS.................................................................. $25,271,801
======
REPRESENTED BY:
Paid-in capital......................................................... $26,973,355
Accumulated distributions in excess of
investment income-net................................................. (9,863)
Accumulated net realized (loss) on investments.......................... (1,407,423)
Accumulated net unrealized (depreciation) on investments and
foreign currency transactions [including ($7,904) net unrealized
(depreciation) on financial futures-Note 4(b)].............................. (284,268)
_____-
NET ASSETS at value applicable to 2,159,141 shares outstanding
(unlimited number of $.001 par value shares of Beneficial Interest
authorized)............................................................. $25,271,801
======
NET ASSET VALUE, offering and redemption price per share
($25,271,801 / 2,159,141 shares)........................................ $11.70
======
</TABLE>

See notes to financial statements.

DREYFUS VARIABLE INVESTMENT FUND, Managed Assets Portfolio
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1995
<S> <C> <C>
INVESTMENT INCOME:
INCOME:
Interest.............................................................. $1,207,565
Cash dividends (net of $4,177 foreign taxes withheld at source)....... 98,715
_____
TOTAL INCOME.................................................... $ 1,306,280
EXPENSES:
Investment advisory fee-Note 3(a)..................................... 108,913
Sub-investment advisory fee-Note 3(a)................................. 108,913
Professional fees..................................................... 18,419
Custodian fees........................................................ 15,533
Prospectus and shareholders' reports.................................. 10,499
Trustees' fees and expenses-Note 3(b)................................. 2,158
Shareholder servicing costs........................................... 422
Registration fees..................................................... 100
Miscellaneous......................................................... 6,832
_____
TOTAL EXPENSES.................................................. 271,789
_____
INVESTMENT INCOME-NET........................................... 1,034,491
_____
REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS:
Net realized (loss) on investments, options and foreign currency
transactions-Note 4(a)................................................ $ (153,738)
Net realized gain (loss) on forward currency exchange contracts-Note
4(a):
Long transactions..................................................... (357,372)
Short transactions.................................................... 7,883
Net realized gain (loss) on financial futures-Note 4(a):
Long transactions..................................................... 15,924
Short transactions.................................................... (767,400)
_____
NET REALIZED (LOSS)............................................. (1,254,703)
Net unrealized appreciation on investments and foreign currency
transactions [including $26,197 net unrealized appreciation on
financial futures].................................................... 162,896
_____
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS............... (1,091,807)
_____
NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS...................... $ (57,316)
=====
</TABLE>

See notes to financial statements.

DREYFUS VARIABLE INVESTMENT FUND, Managed Assets Portfolio
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
_______________________________
<S> <C> <C>
1994 1995
______- ______-
OPERATIONS:
Investment income-net................................................... $ 745,232 $ 1,034,491
Net realized gain (loss) on investments................................. 146,575 (1,254,703)
Net unrealized appreciation (depreciation) on investments for the year.. (1,091,304) 162,896
______ ______
NET (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS........................................................ (199,497) (57,316)
______ ______
DIVIDENDS TO SHAREHOLDERS:
From investment income-net.............................................. (769,916) (1,307,692)
In excess of investment income-net...................................... (48,981) (9,863)
______ ______
TOTAL DIVIDENDS....................................................... (818,897) (1,317,555)
______ ______
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold........................................... 26,699,972 8,040,165
Dividends reinvested.................................................... 818,897 1,317,555
Cost of shares redeemed................................................. (3,947,678) (13,220,570)
______ ______
INCREASE (DECREASE) IN NET ASSETS FROM BENEFICIAL INTEREST
TRANSACTIONS...................................................... 23,571,191 (3,862,850)
______ ______
TOTAL INCREASE (DECREASE) IN NET ASSETS........................... 22,552,797 (5,237,721)
NET ASSETS:
Beginning of year....................................................... 7,956,725 30,509,522
______ ______
End of year [including distributions in excess of investment
income-net: $(48,981) in 1994 and $(9,863) in 1995]................... $ 30,509,522 $ 25,271,801
====== ======

SHARES SHARES
______ ______
CAPITAL SHARE TRANSACTIONS:
Shares sold............................................................. 2,094,088 654,797
Shares issued for dividends reinvested.................................. 67,318 112,098
Shares redeemed......................................................... (310,779) (1,074,101)
______ ______
NET INCREASE (DECREASE) IN SHARES OUTSTANDING......................... 1,850,627 (307,206)
====== ======
</TABLE>

See notes to financial statements.

DREYFUS VARIABLE INVESTMENT FUND, Managed Assets Portfolio
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
Beneficial Interest outstanding, total investment return, ratios to average
net assets and other supplemental data for each year indicated. This
information has been derived from the Series' financial statements.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
____________________________________________________________
PER SHARE DATA: 1991 1992 1993 1994 1995
___- ___- ___- ___- ___-
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year........... $10.11 $10.76 $10.14 $12.92 $12.37
___- ___- ___- ___- ___-
INVESTMENT OPERATIONS:
Investment income-net........................ .41 .22 .20 .35 .51
Net realized and unrealized gain (loss) on investments .66 (.11) 2.71 (.56) (.54)
___- ___- ___- ___- ___-
TOTAL FROM INVESTMENT OPERATIONS........... 1.07 .11 2.91 (.21) (.03)
___- ___- ___- ___- ___-
DISTRIBUTIONS:
Dividends from investment income-net......... (.42) (.31) (.13) (.32) (.64)
Dividends in excess of investment income-net. .- .- .- (.02) .-
Dividends from net realized gain on investments .- (.42) .- .- .-
___- ___- ___- ___- ___-
TOTAL DISTRIBUTIONS........................ (.42) (.73) (.13) (.34) (.64)
___- ___- ___- ___- ___-
Net asset value, end of year................. $10.76 $10.14 $12.92 $12.37 $11.70
==== ==== ==== ==== ====
TOTAL INVESTMENT RETURN.......................... 10.60% 1.07% 28.59% (1.56%) (.26%)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets...... 1.00% .97% .27% .25% .94%
Ratio of net investment income to average net assets 4.46% 1.88% 1.87% 3.54% 3.56%
Decrease reflected in above expense ratios due to
undertakings by The Dreyfus Corporation
and Comstock Partners, Inc. ............... 2.83% 1.70% 2.25% .88% -
Portfolio Turnover Rate...................... 91.97% 118.78% 99.08% 25.96% 53.88%
Net Assets, end of year (000's Omitted)...... $2,179 $1,865 $7,957 $30,510 $25,272
</TABLE>

See notes to financial statements.

DREYFUS VARIABLE INVESTMENT FUND, Managed Assets Portfolio
NOTES TO FINANCIAL STATEMENTS
NOTE 1-GENERAL:
The Dreyfus Variable Investment Fund (the "Fund") is registered under the
Investment Company Act of 1940 ("Act") as an open-end management investment
company operating as a series company currently offering eight series,
including the Managed Assets Portfolio, (the "Series") and is intended to be
a funding vehicle for variable annuity contracts and variable life insurance
policies to be offered by the separate accounts of life insurance companies.
The Series is a diversified portfolio. The Dreyfus Corporation ("Dreyfus")
serves as the Fund's investment adviser. Dreyfus is a direct subsidiary of
Mellon Bank, N.A. Comstock Partners, Inc. ("Comstock Partners") serves as the
Series' sub-investment adviser. Premier Mutual Fund Services, Inc. (the
"Distributor") acts as the distributor of the Fund's shares, which are sold
without a sales charge. The Distributor, located at One Exchange Place,
Boston, Massachusetts 02109, is a wholly-owned subsidiary of FDI Distribution
Services, Inc., a provider of mutual fund administration services, which in
turn is a wholly-owned subsidiary of FDI Holdings, Inc., the parent company
of which is Boston Institutional Group, Inc.
The Fund currently functions as the funding vehicle for the Dreyfus
Series 2000 Variable Annuity Contract (the "Account") issued by Mutual
Benefit Life Insurance Company ("Mutual Benefit Life"). On July 16, 1991, the
Superior Court of New Jersey entered an Order (the "Order") appointing the
New Jersey Insurance Commissioner as Rehabilitator of Mutual Benefit Life.
The Commissioner was granted immediate exclusive possession and control of,
and title to, the business and assets of Mutual Benefit Life, including the
assets and liabilities of the Account.
The Commissioner was empowered by the Order to take such steps as he
deemed appropriate toward removing the cause and conditions that made
rehabilitation necessary. On January 15, 1993, the Commissioner filed the
First Amended Plan of Rehabilitation ("Plan") with the Court. The Plan
stipulated that the assets and liabilities of the Account would be
transferred to a separate account of MBL Life Assurance Corporation
("MBLLAC"), a wholly-owned subsidiary of Mutual Benefit Life. The Plan also
provided for the transfer of the ownership of the stock of MBLLAC to a Trust.
The Commissioner was designated as the sole Trustee of the Trust. On August
12, 1993, the Court rendered an opinion approving the Plan with certain
modifications. Two subsequent amendments to the Plan were filed and approved
by the Court. None of the modifications or amendments affected the status of
the Account. On November 10, 1993, the Court issued an Order of Confirmation
permitting the implementation of the Plan.
An order was also issued by the Court on January 28, 1994, approving the
form of the Third Amended Plan of Rehabilitation, the Election Materials and
related documents. On April 29, 1994, the Plan was implemented. Substantially
all of the assets of Mutual Benefit Life were transferred to MBLLAC which
assumed and reinsured Mutual Benefit Life's restructured insurance
liabilities. The stock of MBLLAC was assigned to the Stock Trust and the
Commissioner was designated as Trustee.
In view of the terms and conditions of both the Order and the Plan,
applications for new contracts and additional purchase payments under
existing contracts are currently not being accepted by the Account. The terms
of the Order and the Plan permit redemptions from the Account to continue as
requested.
The proceedings of the New Jersey Insurance Commissioner with respect to
Mutual Benefit Life or the Account do not apply to the separate accounts of
other life insurance companies that may use the Fund as a funding vehicle for
contracts or policies issued by them.

DREYFUS VARIABLE INVESTMENT FUND, Managed Assets Portfolio
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2-SIGNIFICANT ACCOUNTING POLICIES:
(A) PORTFOLIO VALUATION: Investments in securities (including options and
financial futures) are valued at the last sales price on the securities
exchange on which such securities are primarily traded or at the last sales
price on the national securities market. Securities not listed on an exchange
or the national securities market, or securities for which there were no
transactions, are valued at the average of the most recent bid and asked
prices, except for open short positions, where the asked price is used for
valuation purposes. Bid price is used when no asked price is available.
Investments denominated in foreign currencies are translated to U.S. dollars
at the prevailing rates of exchange. Forward currency exchange contracts are
valued at the forward rate.
The Fund accounts separately for the assets, liabilities and operations
of each series. Expenses directly attributable to each series are charged to
that series' operations; expenses which are applicable to all series are
allocated among them on a pro rata basis.
(B) FOREIGN CURRENCY TRANSACTIONS: The Series does not isolate that
portion of the results of operations resulting from changes in foreign
exchange rates on investments from the fluctuations arising from changes in
market prices of securities held. Such fluctuations are included with the net
realized and unrealized gain or loss from investments.
Net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency
gains or losses realized on securities transactions, the difference between
the amounts of dividends, interest and foreign withholding taxes recorded on
the Series' books, and the U.S. dollar equivalent of the amounts actually
received or paid. Net unrealized foreign exchange gains or losses arise from
changes in the value of assets and liabilities other than investments in
securities, resulting from changes in exchange rates. Such gains and losses
are included with net realized and unrealized gain or loss on investments.
(C) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Dividend
income is recognized on the ex-dividend date and interest income, including,
where applicable, amortization of discount on investments, is recognized on
the accrual basis.
(D) DIVIDENDS TO SHAREHOLDERS: Dividends are recorded on the ex-dividend
date. Dividends from investment income-net and dividends from net realized
capital gain are normally declared and paid annually, but the Series may make
distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code. To the extent that the net
realized capital gain can be offset by capital loss carryovers, it is the
policy of the Series not to distribute such gain.
The Series had dividends in excess of investment income-net for financial
statement purposes resulting from Federal income tax distribution
requirements.
During the year ended December 31, 1995, the Series reclassified $27,993
charged to undistributed income-net in prior years to paid-in capital. In
addition, the Series reclassified $350,175 charged to net realized gains to
undistributed income-net.

DREYFUS VARIABLE INVESTMENT FUND, Managed Assets Portfolio
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(E) FEDERAL INCOME TAXES: It is the policy of the Series to continue to
qualify as a regulated investment company, if such
qualification is in the best interests of its shareholders, by complying with
the applicable provisions of the Internal Revenue Code, and to make
distributions of taxable income sufficient to relieve it from substantially
all Federal income and excise taxes. For Federal income tax purposes, each
series is treated as a single entity for the purpose of determining such
qualification.
The Series has an unused capital loss carryover of approximately
$1,782,000 available for Federal income tax purposes to be applied against
future net securities profits, if any, realized subsequent to December 31,
1995. The carryover does not include net realized securities losses from
November 1, 1995 through December 31, 1995 which are treated, for Federal
income tax purposes, as arising in fiscal 1996. If not applied, $5,500 of the
carryover expires in fiscal 2001, $364,100 expires in fiscal 2002 and
$1,412,400 expires in fiscal 2003.
NOTE 3-INVESTMENT ADVISORY FEE, SUB-INVESTMENT ADVISORY FEES AND OTHER TRANSAC
TIONS WITH AFFILIATES:
(A) Pursuant to the provisions of an Investment Advisory Agreement
("Agreement") with Dreyfus, the investment advisory fee is computed at the
annual rate of .375 of 1% of the average daily value of the Series' net
assets and is payable monthly. Pursuant to a Sub-Investment Advisory
Agreement with Comstock Partners, the sub-investment advisory fee is computed
at an annual rate of .375 of 1% of the average daily value of the Series' net
assets and is payable monthly.
The agreements further provide that if in any full year the aggregate
expenses of the Series, exclusive of taxes, brokerage, interest on borrowings
and extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Series, the Series may deduct from the payments to be
made to Dreyfus and Comstock Partners, or Dreyfus and Comstock Partners will
bear the amount of such excess to the extent required by state law. There was
no expense reimbursement for the year ended December 31, 1995.
Effective December 1, 1995, the Fund entered into a transfer agency
agreement with Dreyfus Transfer, Inc., a wholly-owned subsidiary of the
Manager, to provide personnel and facilities to perform transfer agency
services for the Fund.
(B) Each trustee who is not an "affiliated person," as defined in the Act
receives from the Fund an annual fee of $2,500 and an attendance fee of $250
per meeting. The Chairman of the Board receives an additional 25% of such
compensation.
NOTE 4-SECURITIES TRANSACTIONS:
(A) The aggregate amount of purchases and sales of investment securities,
excluding short-term securities, options and forward currency exchange
contracts during the year ended December 31, 1995 amounted to $8,587,045 and
$8,299,160, respectively.

DREYFUS VARIABLE INVESTMENT FUND, Managed Assets Portfolio
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following summarizes open forward currency exchange contracts at
December 31, 1995:
<TABLE>
<CAPTION>
FOREIGN UNREALIZED
CURRENCY U.S. DOLLAR APPRECIATION
FORWARD CURRENCY CONTRACTS AMOUNTS PROCEEDS VALUE (DEPRECIATION)
________________ ______ _______ ______- ______-
<S> <C> <C> <C> <C>
SALES:
German Deutschemarks, expiring 2/20/96... 2,700,000 $1,935,484 $1,886,133 $49,351
Swiss Francs, expiring 2/20/96........... 2,140,000 1,903,914 1,864,436 39,478
COST
_______
PURCHASES;
Hong Kong Dollars, expiring 1/2/96....... 180,951 $ 23,408 23,401 (7)
___-
TOTAL.................................. $88,822
====
</TABLE>

The Series enters into forward currency exchange contracts in order to
hedge its exposure to changes in foreign currency
exchange rates on its foreign portfolio holdings. When executing forward
currency exchange contracts, the Series is obligated to buy or sell a foreign
currency at a specified rate on a certain date in the future. With respect to
sales of forward currency exchange contracts, the Series would incur a loss
if the value of the contract increases between the date the forward contract
is opened and the date the forward contract is closed. The Series realizes a
gain if the value of the contract decreases between those dates. With respect
to purchases of forward currency exchange contracts, the Series would incur a
loss if the value of the contract decreases between the date the forward
contract is opened and the date the forward contract is closed. The Series
realizes a gain if the value of the contract increases between those dates.
The Series is also exposed to credit risk associated with counter party
nonperformance on these forward currency exchange contracts which is
typically limited to the unrealized gains on such contracts that are
recognized in the Statement of Assets and Liabilities.
The Series may invest in financial futures contracts in order to gain
exposure to or protect against changes in the market. The Series is exposed
to market risk as a result of changes in the value of the underlying
financial instruments (see the Statement of Financial Futures). Investments
in financial futures require the Series to "mark to market" on a daily basis,
which reflects the change in the market value of the contracts at the close
of each day's trading. Typically, variation margin payments are received or
made to reflect daily unrealized gains or losses. When the contracts are
closed, the Series recognizes a realized gain or loss. These investments
require initial margin deposits with a custodian, which consist of cash or
cash equivalents, up to approximately 10% of the contract amount. The amount
of these deposits is determined by the exchange or Board of Trade on which
the contract is traded and is subject to change. Contracts open at December
31, 1995, and their related unrealized market appreciation (depreciation) are
set forth in the Statement of Financial Futures.
The Series may purchase put and call options, including restricted
options, which are not exchange traded, in order to gain exposure to or
protect against changes in the market. The Series' exposure to credit risk
associated with counterparty nonperformance on these investments is typically
limited to the market value of such investments that are disclosed in the
Statement of Investments.
(B) At December 31, 1995, accumulated net unrealized depreciation on
investments and forward currency exchange contracts was $284,198, consisting
of $1,818,850 gross unrealized appreciation and $2,103,048 gross unrealized
depreciation.
At December 31, 1995, the cost of investments for Federal income tax
purposes was substantially the same as the cost for financial reporting
purposes (see the Statement of Investments).

DREYFUS VARIABLE INVESTMENT FUND, Managed Assets Portfolio
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
DREYFUS VARIABLE INVESTMENT FUND
We have audited the accompanying statement of assets and liabilities,
including the statements of investments and financial futures of Dreyfus
Variable Investment Fund, Managed Assets Portfolio (one of the series
constituting the Dreyfus Variable Investment Fund), as of December 31, 1995,
and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period
then ended, and financial highlights for each of the years indicated therein.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1995 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Dreyfus Variable Investment Fund, Managed Assets Portfolio at
December 31, 1995, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and the financial highlights for each of the indicated years, in conformity
with generally accepted accounting principles.

[Ernst and Young LLP signature logo]

New York, New York
February 9, 1996

[Dreyfus lion "d" logo]
DREYFUS VARIABLE
INVESTMENT FUND,
MANAGED ASSETS PORTFOLIO
200 Park Avenue
New York, NY 10166
INVESTMENT ADVISER
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
SUB-INVESTMENT ADVISER
Comstock Partners, Inc.
10 Exchange Place
Jersey City, NJ 07302
CUSTODIAN
The Bank of New York
90 Washington Street
New York, NY 10286
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc.
One American Express Plaza
Providence, RI 02903

Further information is contained
in the Prospectus, which must
precede or accompany this report.

Printed in U.S.A. 118AR9512
[Dreyfus logo]
Variable
Investment Fund,
MANAGED ASSETS
PORTFOLIO
Annual Report
December 31, 1995

<PAGE>

DREYFUS VARIABLE INVESTMENT FUND, Growth and Income Portfolio
LETTER TO SHAREHOLDERS
Dear Shareholder:
For its fiscal year ended December 31, 1995, the total return for the
Growth and Income Portfolio of Dreyfus Variable Investment Fund was 61.89%.*
This compares with a return of 37.53% for the Standard and Poor's 500
Composite Stock Price Index.** The Portfolio's performance does not reflect
the deduction of additional charges imposed in connection with investing in
variable annuity contracts and variable life insurance policies.
There were several reasons for this 61.89% total return of the Portfolio
in 1995. First, it was a favorable period for the overall stock market.
Second, the Portfolio was invested in several dozen holdings. We believe this
degree of concentration provides a combination of diversification with a
substantial sensitivity to the performance of individual holdings. Third, the
Portfolio was fortunate to have several individual investments which
performed quite well during the period. Given its relative concentration, the
Portfolio's performance is sensitive to the performance of the larger
individual holdings.
The Portfolio benefited from several holdings that were subject to
successful takeover bids in 1995, including Midlantic and Cordis. In
addition, several technology stocks held by the Portfolio were bid up sharply
by favorable fundamentals and market enthusiasm. While these were purchased
as long-term investments, the valuations rose to such relaltively high levels
that we felt prudence required that profits on such stocks as UUNET
Technologies and Premisys Communications be realized and they are no longer
held in the Portfolio.
To help achieve the income objective, several convertible bonds and
preferred stocks were included in the Portfolio. The Portfolio's performance
benefited from its position in the convertible bonds of American Travelers,
which sells insurance for long-term care in nursing homes. The convertible
preferred stocks of several REITs provided income, but no significant
contribution to capital appreciation in the Portfolio.
There are several long-term positive forces that have provided a
supportive background for the financial markets. First, the trend of
inflation has remained favorable in the last several years. Second, we are in
the early stages of a key demographic shift as the baby boom generation
begins to focus on the need for a permanent program of saving to provide for
future retirement income. Third, U.S. productivity growth in manufacturing
has been favorable. Finally, a broad consensus has begun to emerge on the
importance of limiting the U.S. budget deficit.
We believe that the period of strongest earnings growth in the U.S.
economy is behind us for the time being. Corporate cost-cutting is very far
advanced in many companies as are the benefits of refinancing high-cost debt.
The rate of growth of the U.S. economy is decelerating. Many multinational
companies have already reaped a significant portion of the profit benefits of
a decline in the dollar. Thus we believe that strong profit growth will
become increasingly scarce over the next year. Many of the largest positions
held by the Portfolio are companies that we believe have a good chance of
sustaining strong earnings growth even in this more challenging environment.
While overall market valuations have risen, we continue to find good
companies available in the stock market at reasonable valuation levels.
The active stock market of 1995 provided favorable opportunities for
capital appreciation. Shareholders should be aware, however, that the
Portfolio's 61.89% total return in 1995 was unusual. We would be surprised if
it were to be repeated even if market conditions are favorable in 1996.

We appreciate the willingness of our shareholders to invest in the Growth
and Income Portfolio of Dreyfus Variable Investment Fund. We will endeavor to
realize a favorable return for the shareholders commensurate with a
reasonable level of risk. There is likely to be an alternation of periods
where the net asset value of the Portfolio declines and periods when the net
asset value rises. Our focus is on achieving a satisfactory return for the
shareholders over a period of time.
Very truly yours,

[Richard B. Hoey signature logo]

Richard B. Hoey
Portfolio Manager
January 25, 1996
New York, N.Y.

* Total return represents the change during the period in a hypothetical
account with dividends reinvested.
**SOURCE: LIPPER ANALYTICAL SERVICES, INC. - Reflects the reinvestment of
income dividends and, where applicable, capital gain distributions. The
Standard & Poor's 500 Composite Stock Price Index is a widely accepted
unmanaged Index of stock market performance.

DREYFUS VARIABLE INVESTMENT FUND, Growth and Income Portfolio
DECEMBER 31, 1995
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS VARIABLE
INVESTMENT FUND, GROWTH AND INCOME PORTFOLIO AND THE STANDARD & POOR'S 500
COMPOSITE STOCK PRICE INDEX
[Exhibit A
Dollars
$15,992
Dreyfus Variable
Investment Fund,
Growth and Income
Portfolio
$14,299
Standard & Poor's 500
Composite Stock Price
Index*
*Source: Lipper Analytical Services, Inc.]
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR ENDED FROM INCEPTION (5/2/94)
DECEMBER 31, 1995 TO DECEMBER 31, 1995
__________- _____________-
61.89% 32.46%
Past performance is not predictive of future performance.
THE PORTFOLIO'S PERFORMANCE DOES NOT REFLECT THE DEDUCTION OF ADDITIONAL CHARG
ES APPLICABLE TO SEPARATE ACCOUNTS OF PARTICIPATING INSURANCE COMPANIES USING
THE PORTFOLIO AS AN UNDERLYING INVESTMENT.
The above graph compares a $10,000 investment in Dreyfus Variable Investment
Fund, Growth and Income Portfolio on 5/2/94 (Inception Date) to a $10,000
investment made in the Standard & Poor's 500 Composite Stock Price Index on
that date. For comparative purposes, the value of the Index on 4/30/94 is
used as the beginning value on 5/2/94. All dividends and capital gain
distributions are reinvested.
The Portfolio's performance shown in the line graph takes into account all
applicable fees and expenses. The Standard & Poor's 500 Composite Stock Price
Index is a widely accepted, unmanaged index of overall stock market
performance, which does not take into account charges, fees and other
expenses. Further information relating to Portfolio performance, including
expense reimbursements, if applicable, is contained in the Financial
Highlights section of the Prospectus and elsewhere in this report.

DREYFUS VARIABLE INVESTMENT FUND, Growth and Income Portfolio
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS DECEMBER 31, 1995
COMMON STOCKS-73.4% SHARES VALUE
_____________
<S> <C> <C>
BANKING-3.4%..................BayBanks 25,000 $ 2,456,250
_____-
BASIC INDUSTRIES-7.4%.... Consolidated Papers 15,000 841,875
Crown Cork & Seal...................... 40,000 (a) 1,670,000
...Olin 20,000 1,485,000
Rohm & Haas............................ 20,000 1,287,500
_____-
5,284,375
_____-
CAPITAL GOODS-2.0%........ Coltec Industries. 125,000 (a) 1,453,125
_____-
CONSUMER-12.5%............Amway Asia Pacific 50,000 1,781,250
Ethan Allen Interiors.................. 81,200 (a) 1,654,450
Harcourt General....................... 20,000 837,500
Lauder (Estee)......................... 45,000 (a) 1,569,375
Lowe's................................. 75,000 2,512,500
West Marine............................ 17,500 (a) 546,875
_____-
8,901,950
_____-
ENERGY-9.1%.............Texaco 20,000 1,570,000
Triton Energy.......................... 20,000 1,147,500
Union Pacific Resources Group.......... 100,000 2,537,500
Western Gas Resources.................. 74,400 1,199,700
_____-
6,454,700
_____-
HEALTH CARE-3.2%.......... Mentor 60,000 1,380,000
ONCOR.................................. 200,000 (a) 900,000
_____-
2,280,000
_____-
INSURANCE-6.0%........... Allmerica Financial 55,000 (a) 1,485,000
CMAC Investment........................ 20,000 880,000
Prudential Reinsurance Holdings........ 80,000 1,870,000
_____-
4,235,000
_____-
MEDIA/ENTERTAINMENT-4.1%...... Disney (Walt) . . 50,000 2,950,000
_____-
MINING & METALS-3.4%... Santa Fe Pacific Gold 200,000 2,425,000
_____-
REAL ESTATE-5.1% Patriot American Hospitality 50,000 1,287,500
Simon Property Group................... 30,000 731,250
Sizeler Property Investors............. 180,000 1,597,500
_____-
3,616,250
_____-
TECHNOLOGY-5.1%............ FSI International 50,000 (a) 1,012,500
... Zoran 124,500 (a) 2,583,375
_____-
3,595,875
_____-
TELECOMMUNICATIONS-7.5%......GTE 65,000 2,860,000
IntelCom Group......................... 200,000 (a) 2,475,000
_____-
5,335,000
_____-
TRANSPORTATION-1.1%..... American Freightways 75,000 (a) 778,125
_____-
UTILITIES-3.5%.............Texas Utilities 60,000 2,467,500
_____-
TOTAL COMMON STOCKS
(cost $48,824,332)................... $52,233,150
=======
</TABLE>

DREYFUS VARIABLE INVESTMENT FUND, Growth and Income Portfolio
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS (CONTINUED) DECEMBER 31, 1995
CONVERTIBLE PREFERRED STOCKS-4.1% SHARES VALUE
______ _______
<S> <C> <C>
BANKING-2.1% Ahmanson (H.F.) Ser D., Cum., $3.00 25,000 $1,478,125
_____-
REAL ESTATE-2.0% Merry Land & Investment, Ser. C, Cum., $2.15 15,000 431,250
Oasis Residential, Ser. A, Cum., $2.25. 20,000 515,000
Tanger Factory Outlet Centers, Cum., $1.80 20,000 460,000
_____-
1,406,250
_____-
TOTAL CONVERTIBLE PREFERRED STOCKS
(cost $2,784,690).................... $ 2,884,375
=======

PRINCIPAL
CONVERTIBLE CORPORATE NOTES & BONDS-15.2% AMOUNT
______-
CONSUMER-3.5% Staples, Sub Deb., 4.50%, 10/1/2000 $ 2,500,000 (b) $ 2,500,000
_____-
ENERGY-3.4%.. Enron, Notes, 6.25%, 12/13/1998 100,000 2,400,000
_____-
HEALTH CARE-3.3% Sandoz Capital, Sub. Deb., 2%, 10/6/2002 2,500,000 (b) 2,375,000
_____-
INSURANCE-5.0%..............American Travellers, Sub. Deb., 6.50%, 10/1/2005 2,600,000...........3,581,500
_____-
TOTAL CONVERTIBLE CORPORATE BONDS
(cost $9,351,583).................... $10,856,500
=======
SHORT-TERM INVESTMENT-8.2%
U.S. TREASURY BILL;. 6.075%, 3/7/1996
(cost $5,815,953).................... $ 5,870,000 $ 5,815,996
=======
TOTAL INVESTMENTS (cost $66,776,558)....... 100.9% $71,790,021
===== =======
LIABILITIES, LESS CASH AND RECEIVABLES..... (.9%)$ (628,861)
===== =======
NET ASSETS.................................................................. 100.0% $71,161,160
===== =======
</TABLE>

NOTES TO STATEMENT OF INVESTMENTS:
(a) Non-income producing.
(b) Security exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At December 31,
1995, these securities amounted to $4,875,000 or approximately 6.8% of
net assets.

See notes to financial statements.

DREYFUS VARIABLE INVESTMENT FUND, Growth and Income Portfolio
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1995
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $66,776,558)-see statement...................................... $71,790,021
Cash.................................................................... 408,581
Receivable for investment securities sold............................... 3,206,994
Dividends and interest receivable....................................... 154,300
Prepaid expenses........................................................ 199
_____-
75,560,095
LIABILITIES:
Due to The Dreyfus Corporation.......................................... $ 42,336
Payable for investment securities purchased............................. 4,324,665
Accrued expenses and other liabilities.................................. 31,934 4,398,935
_____ _____-
NET ASSETS.................................................................. $71,161,160
=======
REPRESENTED BY:
Paid-in capital......................................................... $64,667,080
Accumulated undistributed investment income-net......................... 24,857
Accumulated undistributed net realized gain on investments.............. 1,455,760
Accumulated net unrealized appreciation on investments-Note 4(b)........ 5,013,463
_____-
NET ASSETS at value applicable to 3,882,738 shares outstanding
(unlimited number of $.001 par value shares of Beneficial
Interest authorized).................................................... $71,161,160
=======
NET ASSET VALUE, offering and redemption price per share
($71,161,160 / 3,882,738 shares)........................................ $18.33
=======
</TABLE>

See notes to financial statements.

DREYFUS VARIABLE INVESTMENT FUND, Growth and Income Portfolio
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1995
<S> <C> <C>
INVESTMENT INCOME:
INCOME:
Cash dividends (net of $837 foreign taxes withheld at source)......... $ 415,869
Interest.............................................................. 395,795
_____-
TOTAL INCOME...................................................... $ 811,664
EXPENSES:
Investment advisory fee-Note 3(a)..................................... 194,344
Registration fees..................................................... 21,928
Auditing fees......................................................... 15,490
Custodian fees........................................................ 7,548
Prospectus and shareholders' reports.................................. 3,587
Trustees' fees and expenses-Note 3(b)................................. 1,946
Legal fees............................................................ 1,569
Shareholder servicing costs-Note 3(a)................................. 421
Miscellaneous......................................................... 753
_____-
TOTAL EXPENSES.................................................... 247,586
Less-reduction in investment advisory fee due to undertakings-Note 3(a) 8,743
_____-
NET EXPENSES.................................................... 238,843
_____
INVESTMENT INCOME-NET........................................... 572,821
_____
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain (loss) on investments-Note 4(a):
Long transactions..................................................... $ 4,307,148
Short sale transactions............................................... (224,625)
_____-
NET REALIZED GAIN................................................. 4,082,523
Net unrealized appreciation on investments.............................. 5,056,480
_____
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS....................... 9,139,003
_____
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $9,711,824
=======
</TABLE>

See notes to financial statements.

DREYFUS VARIABLE INVESTMENT FUND, Growth and Income Portfolio
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
________________________________
1994* 1995
_______ _______
<S> <C> <C>
OPERATIONS:
Investment income-net................................................... $ 22,787 $ 572,821
Net realized gain on investments........................................ 7,824 4,082,523
Net unrealized appreciation (depreciation) on investments for the year.. (43,017) 5,056,480
______ ______
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS........................................................ (12,406) 9,711,824
______ ______
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net................................................... (22,729) (548,022)
Net realized gain on investments........................................ (7,302) (2,627,285)
______ ______
TOTAL DIVIDENDS....................................................... (30,031) (3,175,307)
______ ______
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold........................................... 1,053,630 71,235,254
Dividends reinvested.................................................... 30,031 3,175,307
Cost of shares redeemed................................................. (1,330) (10,825,812)
______ ______
INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST
TRANSACTIONS...................................................... 1,082,331 63,584,749
______ ______
TOTAL INCREASE IN NET ASSETS...................................... 1,039,894 70,121,266
NET ASSETS:
Beginning of year....................................................... _- 1,039,894
______ ______
End of year (including undistributed investment income-net:
$58 in 1994 and $24,857 in 1995)...................................... $ 1,039,894 $ 71,161,160
====== ======

SHARES SHARES
______ ______
CAPITAL SHARE TRANSACTIONS:
Shares sold............................................................. 84,474 4,269,435
Shares issued for dividends reinvested.................................. 2,457 179,268
Shares redeemed......................................................... (109) (652,787)
______ ______
NET INCREASE IN SHARES OUTSTANDING.................................... 86,822 3,795,916
====== ======
</TABLE>
*From May 2, 1994 (commencement of operations) to December 31, 1994.

See notes to financial statements.

DREYFUS VARIABLE INVESTMENT FUND, Growth and Income Portfolio
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
Beneficial Interest outstanding, total investment return, ratios to average
net assets and other supplemental data for each year indicated. This
information has been derived from the Series' financial statements.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
____________________________
PER SHARE DATA: 1994(1) 1995
___- ___-
<S> <C> <C>
Net asset value, beginning of year.......................................... $12.50 $11.98
___ ___
INVESTMENT OPERATIONS:
Investment income-net....................................................... .28 .28
Net realized and unrealized gain (loss) on investments...................... (.43) 7.07
___ ___
TOTAL FROM INVESTMENT OPERATIONS.......................................... (.15) 7.35
___ ___
DISTRIBUTIONS:
Dividends from investment income-net........................................ (.28) (.27)
Dividends from net realized gain on investments............................. (.09) (.73)
___ ___
TOTAL DISTRIBUTIONS....................................................... (.37) (1.00)
___ ___
Net asset value, end of year................................................ $11.98 $18.33
___ ___
___ ___
TOTAL INVESTMENT RETURN......................................................... (1.22%)(2) 61.89%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets..................................... .22%(2) .92%
Ratio of net investment income to average net assets........................ 2.25%(2) 2.21%
Decrease reflected in above expense ratios due to undertakings
by The Dreyfus Corporation................................................ 1.28%(2) .03%
Portfolio Turnover Rate..................................................... 237.09%(2) 255.42%
Net assets, end of year (000's Omitted)..................................... $1,040 $71,161
</TABLE>

(1) From May 2, 1994 (commencement of operations) to December 31, 1994.
(2) Not annualized.

See notes to financial statements.

DREYFUS VARIABLE INVESTMENT FUND, Growth and Income Portfolio
NOTES TO FINANCIAL STATEMENTS
NOTE 1-GENERAL:
The Dreyfus Variable Investment Fund (the "Fund") is registered under the
Investment Company Act of 1940 ("Act") as an open-end management investment
company, operating as a series company currently offering eight series,
including the Growth and Income Portfolio series (the "Series") and is
intended to be a funding vehicle for variable annuity contracts and variable
life insurance policies to be offered by the separate accounts of life
insurance companies. The Series is a non-diversified portfolio. The Dreyfus
Corporation ("Dreyfus") serves as the Fund's investment adviser. Dreyfus is a
direct subsidiary of Mellon Bank, N.A. Premier Mutual Fund Services, Inc.
(the "Distributor") acts as the distributor of the Fund's shares, which are
sold without a sales charge. The Distributor, located at One Exchange Place,
Boston, Massachusetts 02109, is a wholly-owned subsidiary of FDI Distribution
Services, Inc., a provider of mutual fund administration services, which in
turn is a wholly-owned subsidiary of FDI Holdings, Inc., the parent company
of which is Boston Institutional Group, Inc.
NOTE 2-SIGNIFICANT ACCOUNTING POLICIES:
(A) PORTFOLIO VALUATION: Investments in securities (including options and
financial futures) are valued at the last sales price on the securities
exchange on which such securities are primarily traded or at the last sales
price on the national securities market. Securities not listed on an exchange
or the national securities market, or securities for which there were no
transactions, are valued at the average of the most recent bid and asked
prices, except for open short positions, where the asked price is used for
valuation purposes. Bid price is used when no asked price is available.
Investments denominated in foreign currencies are translated to U.S. dollars
at the prevailing rates of exchange. Forward currency exchange contracts are
valued at the forward rate.
The Fund accounts separately for the assets, liabilities and operations
of each series. Expenses directly attributable to each series are charged to
that series' operations; expenses which are applicable to all series are
allocated among them on a pro rata basis.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Dividend
income is recognized on the ex-dividend date and interest income, including,
where applicable, amortization of discount on investments, is recognized on
the accrual basis.
(C) DIVIDENDS TO SHAREHOLDERS: Dividends are recorded on the ex-dividend
date. The Series declares and pays dividends from investment income-net
quarterly. Dividends from net realized capital gain, if any, are normally
declared and paid annually, but the Series may make distributions on a more
frequent basis to comply with the distribution requirements of the Internal
Revenue Code. To the extent that the net realized capital gain can be offset
by capital loss carryovers, it is the policy of the Series not to distribute
such gain.

DREYFUS VARIABLE INVESTMENT FUND, Growth and Income Portfolio
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(D) FEDERAL INCOME TAXES: It is the policy of the Series to continue to
qualify as a regulated investment company, if such
qualification is in the best interests of its shareholders, by complying with
the applicable provisions of the Internal Revenue Code, and to make
distributions of taxable income sufficient to relieve it from substantially
all Federal income and excise taxes. For Federal income tax purposes, each
series is treated as a single entity for the purpose of determining such
qualification.
NOTE 3-INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to the provisions of an Investment Advisory Agreement
("Agreement") with Dreyfus, the investment advisory fee is computed at the
annual rate of .75 of 1% of the average daily value of the Series' net assets
and is payable monthly.
The Agreement further provides that if in any full year the aggregate
expenses of the Series, exclusive of taxes, brokerage, interest on borrowings
and extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Series, the Series may deduct from the payments to be
made to Dreyfus, or Dreyfus will bear the amount of such excess to the extent
required by state law.
However, Dreyfus had undertaken, from January 1, 1995 through July 5,
1995, to reduce the investment advisory fee paid by the Series, to the extent
that the Series' aggregate expenses (exclusive of certain expenses as
described above) exceeded specified annual percentages of the Series' average
daily net assets. The reduction in investment advisory fee, pursuant to the
undertakings amounted to $8,743 for the year ended December 31, 1995.
Effective December 1, 1995, the Series compensates Dreyfus Transfer,
Inc., a wholly-owned subsidiary of Dreyfus, under a transfer agency agreement
for providing personnel and facilities to perform transfer agency services
for the Series. Such compensation amounted to $36 for the period from
December 1, 1995 through December 31, 1995.
(B) Each trustee who is not an "affiliated person," as defined in the
Act, receives from the Fund an annual fee of $2,500 and an attendance fee of
$250 per meeting. The Chairman of the Board receives an additional 25% of
such compensation.
NOTE 4-SECURITIES TRANSACTIONS:
(A) The following summarizes the aggregate amount of purchases and sales
of investment securities and securities sold short, excluding short-term
securities during the year ended December 31, 1995:

<TABLE>
<CAPTION>
PURCHASES SALES
_________ ________
<S> <C> <C>
Long transactions.................................................... $113,942,466 $ 58,087,517
Short sale transactions.............................................. 1,034,500 809,875
_______- _______-
TOTAL.......................................................... $114,976,966 $ 58,897,392
======== ========
</TABLE>

DREYFUS VARIABLE INVESTMENT FUND, Growth and Income Portfolio
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Series is engaged in short-selling which obligates the Series to
replace the security borrowed by purchasing the security
at current market value. The Series would incur a loss if the price of the
security increases between the date of the short sale and the date on which
the Series replaces the borrowed security. The Series would realize a gain if
the price of the security declines between those dates. Until the Series
replaces the borrowed security, the Series will maintain daily, a segregated
account with a broker and custodian of cash and/or U.S. Government securities
sufficient to cover its short position. At December 31, 1995, there were no
securities sold short outstanding.
(B) At December 31, 1995, accumulated net unrealized appreciation on
investments was $5,013,463, consisting of $6,536,158 gross unrealized
appreciation and $1,522,695 gross unrealized depreciation.
At December 31, 1995, the cost of investments for Federal income tax
purposes was substantially the same as the cost for financial reporting
purposes (see the Statement of Investments).

DREYFUS VARIABLE INVESTMENT FUND, Growth and Income Portfolio
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
DREYFUS VARIABLE INVESTMENT FUND, GROWTH AND INCOME PORTFOLIO
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Dreyfus Variable Investment Fund,
Growth and Income Portfolio (one of the series constituting the Dreyfus
Variable Investment Fund), as of December 31, 1995, and the related statement
of operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and financial highlights
for each of the years indicated therein. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1995 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Dreyfus Variable Investment Fund, Growth and Income Portfolio at
December 31, 1995, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and the financial highlights for each of the indicated years, in conformity
with generally accepted accounting principles.

[Ernst and Young LLP signature logo]

New York, New York
February 9, 1996

[Dreyfus lion "d" logo]
DREYFUS VARIABLE INVESTMENT FUND,
GROWTH AND INCOME PORTFOLIO
200 Park Avenue
New York, NY 10166
INVESTMENT ADVISER
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
CUSTODIAN
The Bank of New York
90 Washington Street
New York, NY 10286
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc.
One American Express Plaza
Providence, RI 02903

Further information is contained
in the Prospectus, which must
precede or accompany this report.

Printed in U.S.A. 108AR9512
[Dreyfus logo]
Variable
Investment Fund,
GROWTH AND INCOME
PORTFOLIO
Annual Report
December 31, 1995

<PAGE>
DREYFUS VARIABLE INVESTMENT FUND, Quality Bond Portfolio
LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to provide you with this report on the Dreyfus Variable
Investment Fund, Quality Bond Portfolio. For its annual reporting period
ended December 31, 1995, your Fund produced a total return of 20.42% per
share,* compared to 18.35% for the Merrill Lynch Domestic Master Index
(subindex D010).** Income dividends of $.686 per share were paid during the
period representing a distribution rate of 5.75% per share based on the
closing net asset value, adjusted for capital gain distributions.
THE ECONOMY
Additional evidence that economic activity remained sluggish and that
inflation continued to be under control moved the Federal Reserve Board to
further ease the Federal Funds rate in December. (The Federal Funds rate is
the rate at which the nation's banks borrow money from each other and all
other short-term rates are based on it.) This was the second reduction for
this important short-term rate in 1995, the first occurring in July. The
latest 25-basis-point reduction in December put the rate at 5.50%. Major
incentives for this additional reduction were the inflation report in
November - the increase in the Consumer Price Index was flat for the first
time in 4 1/2 years - and the generally slow rate of economic growth. As it
did in July, the Federal Reserve left unchanged the discount rate - the rate
at which the Federal Reserve lends to member banks. The discount rate
remained at 5.25% throughout 1995.
Signs of economic slowdown increased during the latter half of the year.
Weakening retail sales and very modest industrial production lent credence to
fears about the possibility of recession. Consumer spending was inhibited
last year by the slow rate of new job creation, sluggish growth in wages and
salaries, and the continued trend of corporate cost-related layoffs. The
lethargic pace of consumer spending last year culminated in one of the worst
holiday sales periods since the business slump in 1990-1991, despite steep
price markdowns by retailers.
Industrial production climbed modestly during the year. By November, the
nation's factories operated at only 83.1% of capacity, down for the third
consecutive month. This was a reflection of weakening demand and further
evidence of the diminishing pressure to raise prices. Furthermore,
inventories built up by year-end, another sign of slackening demand.
The political stalemate in Washington over the balanced budget adds
additional uncertainty to the economy; ultimately an accord will be reached
and fiscal policy will likely be a restraining force on the economy. As we go
forward without a budget agreement, reductions in annually appropriated
spending will tend to retard the economy. With an agreement, the combination
of cuts in appropriations and other spending reductions should have the same
effect.
There are strong indications that inflation is under control. Until
mid-year 1995, fear of inflation was the overriding concern of the Federal
Reserve. Now, the focus seems to have shifted to actions designed to avoid
recession. In an election year, few things are less desirable for political
incumbents than recession.
PORTFOLIO OVERVIEW
During the course of the year, the Fund's average duration was between 5 3
/4 years and 6 years. Among funds of this type, these durations were somewhat
longer than the average fund. As a result of our maintaining these longer
durations, our Fund was ranked in the top 1/3 of 116 portfolios in the
Corporate Debt A Rated category by Lipper for one year and ranked 1 out of 71
funds for its five-year return***. We have eliminated holdings of USF&G
Corp., Rite Aid Corp. and Heller Financial. We have added Commercial Credit,
Dresdner Banks, Emerson Electric, and General Motors Acceptance Corp. to
the Portfolio. These changes occurred as a result of our attempt at
increasing the quality of the Portfolio. The Fund has received a four star
overall rating from Morningstar, Inc. out of 258 portfolios in the Fixed
Income category.
Included in this report is a series of detailed statements about your
Fund's holdings and its financial condition. We hope they are informative.
Please know that we appreciate greatly your continued confidence in the Fund
and in The Dreyfus Corporation.
Very truly yours,

[Garitt Kono signature logo]

Garitt Kono
Portfolio Manager
Jauuary 15, 1996
New York, N.Y.

* Total return includes reinvestment of dividends and any capital gains
paid. The Portfolio's performance does not reflect the deduction of
additional charges imposed in connection with investing in variable annuity
contracts and variable life insurance policies.
**Source: Merrill Lynch, Pierce, Fenner and Smith, Inc. - Unlike the
Portfolio, the Merrill Lynch Domestic Master Index (subindex D010) is an
unmanaged performance benchmark for portfolios that include U.S. Government,
mortgage and investment grade securities rated A and better.
*** SOURCE: LIPPER ANALYTICAL SERVICES, INC.
SOURCE: MORNINGSTAR, INC. - Morningstar proprietary ratings reflect
historical risk-adjusted performance as of December 31, 1995 and are subject
to change every month. Past performance is no guarantee of future results.
Morningstar ratings are calculated from the Portfolio's three-, five- and
ten-year average annual returns (as applicable) with appropriate fee
adjustments and a risk factor that reflects Portfolio performance relative to
three-month Treasury bill monthly returns. 10% of funds in an investment
category receive 5 stars; 22.5% receive 4 stars. For the 3-year period, the
Portfolio received 4 stars out of 258 portfolios, and for the 5-year period,
the Portfolio received 4 stars out of 220 portfolios.

DREYFUS VARIABLE INVESTMENT FUND, Quality Bond Portfolio
DECEMBER 31, 1995
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS VARIABLE
INVESTMENT FUND, QUALITY BOND PORTFOLIO AND THE MERRILL LYNCH DOMESTIC MASTER
INDEX (SUBINDEX D010)
[Exhibit A
$17,357
Dreyfus Variable
Investment Fund,
Quality Bond Portfolio
Dollars
$16,713
Merrill Lynch Domestic Master Index
(Subindex D010)*
*Source: Merrill Lynch, Pierce, Fenner and Smith Inc.]
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR ENDED FIVE YEARS ENDED FROM INCEPTION (8/31/90)
DECEMBER 31, 1995 DECEMBER 31, 1995 TO DECEMBER 31, 1995
__________- __________- _____________-
20.42% 11.11% 10.88%
Past performance is not predictive of future performance.
THE PORTFOLIO'S PERFORMANCE DOES NOT REFLECT THE DEDUCTION OF ADDITIONAL CHARG
ES APPLICABLE TO SEPARATE ACCOUNTS OF PARTICIPATING INSURANCE COMPANIES USING
THE PORTFOLIO AS AN UNDERLYING INVESTMENT.
The above graph compares a $10,000 investment made in Dreyfus Variable
Investment Fund, Quality Bond Portfolio on 8/31/90 (Inception Date) to a
$10,000 investment made in the Merrill Lynch Domestic Master Index (Subindex
D010) on that date. All dividends and capital gain distributions are
reinvested.
The Portfolio's performance shown in the line graph takes into account all
applicable fees and expenses. The Merrill Lynch Domestic Master Index
(Subindex D010) is an unmanaged performance benchmark for portfolios that
include U.S. Government, mortgage and investment-grade corporate securities
rated A and better. The Index does not take into account charges, fees and
other expenses. Further information relating to Portfolio performance,
including expense reimbursements, if applicable, is contained in the
Financial Highlights section of the Prospectus and elsewhere in this report.
DREYFUS VARIABLE INVESTMENT FUND, Quality Bond Portfolio
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS DECEMBER 31, 1995
PRINCIPAL
BONDS AND NOTES-76.2% AMOUNT VALUE
_____________
<S> <C> <C>
AEROSPACE-1.2%..................Boeing,
Deb., 7 1/4%, 2025................... $.....200,000 $ 216,940
McDonnell Douglas,
Notes, 8 1/4%, 2000.................. 200,000 216,815
_____-
433,755
_____-
BANKING-3.6%.................... BankAmerica,
Sub. Notes, 6 3/4%, 2005............. 1,000,000 1,033,750
First Chicago, Sub. Notes:
8 1/4%, 2002......................... 15,000 16,742
6 7/8%, 2003......................... 100,000 104,313
NationsBank,
Sub. Notes, 6 1/2%, 2003............. 175,000 178,141
_____-
1,332,946
_____-
CONSUMER-.7% News America Holdings (Gtd. by News):
Sr. Deb., 8 1/4%, 2018............... 100,000 109,378
Sr. Notes, 9 1/8%, 1999.............. 25,000 27,564
Time Warner,
Deb., 9.15%, 2023.................... 125,000 142,539
_____-
279,481
_____-
FINANCE-19.9%....... American Express Credit,
Sr. Notes, 6 1/8%, 2001.............. 1,000,000 1,012,940
Avco Financial Services,
Sr. Notes, 6.35%, 2000............... 1,000,000 1,020,368
Commercial Credit,
Notes, 7 3/4%, 2005.................. 1,000,000 1,106,038
Dresdner Bank AG,
Sub. Notes, 6 5/8%, 2005............. 2,000,000 2,071,292
Ford Motor Credit,
Notes, 7 1/2%, 2004.................. 1,000,000 1,082,303
General Motors Acceptance,
Notes, 8 3/4%, 1997.................. 1,000,000 (a) 1,175,100
_____-
7,468,041
_____-
INDUSTRIAL-8.3%............. American Brands,
Deb., 8 5/8%, 2021................... 400,000 487,180
Archer-Daniels-Midland,
Deb., 10 1/4%, 2006.................. 400,000 523,667
Eastman Kodak,
Deb., 9.95%, 2018.................... 400,000 548,778
Emerson Electric,
Notes, 6.30%, 2005................... 1,000,000 1,028,404
</TABLE>

DREYFUS VARIABLE INVESTMENT FUND, Quality Bond Portfolio
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS (CONTINUED) DECEMBER 31, 1995
PRINCIPAL
BONDS AND NOTES (CONTINUED) AMOUNT VALUE
_____________
<S> <C> <C>
INDUSTRIAL (CONTINUED)....Ford Motor,
Deb., 8 7/8%, 2022................... $.....400,000 $ 499,648
_____-
3,087,677
_____-
INSURANCE-.4%................ SunAmerica:
Deb., 9.95%, 2012.................... 13,000 16,801
Notes, 9%, 1999...................... 130,000 140,728
_____-
157,529
_____-
FOREIGN-5.5%....... Generalitat de Catalunya,
Notes, 6 3/8%, 2007.................. 2,000,000 2,017,382
Kingdom of Sweden,
Bonds, Ser. A, Zero Coupon, 1997.............. 60,000 56,057
_____-
2,073,439
_____-
OTHER-.3%.................. City of New York,
General Obligation Bonds, Ser. D, 10%, 2007 25,000 29,594
FICO Coupon Strips,
Ser. 1, Zero Coupon, 5/11/2000................ 95,000 75,048
_____-
104,642
_____-
U.S. GOVERNMENT
AND AGENCIES-36.3% Federal National Mortgage Association,
Callable Principal Strips,
Ser. 1, Zero Coupon, 8/21/1996............ 55,000 (b) 52,968
Government National Mortgage Association
I:
7 1/2%, 3/15/2008.................... 4,264,086 4,415,974
7 1/2%, 8/15/2008.................... 2,039,383 2,112,026
U.S. Treasury Bonds:
10 3/4%, 8/15/2005................... 100,000 137,500
11 1/4%, 2/15/2015................... 100,000 160,078
7 1/4%, 5/15/2016.................... 1,200,000 1,370,626
U.S. Treasury Notes:
7 1/4%, 8/31/1996.................... 230,000 232,839
7 3/8%, 11/15/1997................... 1,000,000 1,037,969
8 1/2%, 11/15/2000................... 600,000 679,219
7 1/2%, 2/15/2005.................... 3,000,000 3,403,593
_____-
13,602,792
_____-
TOTAL BONDS AND NOTES
(cost $27,289,775)................... $28,540,302
======
</TABLE>

<TABLE>
<CAPTION>
DREYFUS VARIABLE INVESTMENT FUND, Quality Bond Portfolio
STATEMENT OF INVESTMENTS (CONTINUED) DECEMBER 31, 1995
PRINCIPAL
SHORT-TERM INVESTMENTS 22.4% AMOUNT VALUE
_______ ______
<S> <C> <C>
AGENCY DISCOUNT NOTE;Federal Home Loan Mortgage Corp.,
5 1/2%, 1/2/1996
(cost $8,385,719).................... $..8,387,000 $ 8,385,719
======
TOTAL INVESTMENTS (cost $35,675,494)........................................ 98.6% $36,926,021
==== ======
CASH AND RECEIVABLES (NET).................................................. 1.4% $ 520,820
==== ======
NET ASSETS.................................................................. 100.0% $37,446,841
==== ======
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(a) Security is subject to repurchase by the issuer at the option of the
holder. Final maturity is 7/15/2005.
(b) Zero coupon until 8/21/96, date on which a stated coupon rate of
8.40% becomes effective; the stated maturity date is 2001.

See notes to financial statements.

DREYFUS VARIABLE INVESTMENT FUND, Quality Bond Portfolio
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1995
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $35,675,494)-see statement...................................... $36,926,021
Cash.................................................................... 139,573
Interest receivable..................................................... 423,842
Prepaid expenses........................................................ 5,883
_____-
37,495,319
LIABILITIES:
Due to The Dreyfus Corporation.......................................... . $19,674
Payable for shares of Beneficial Interest redeemed...................... 1,329
Accrued expenses........................................................ 27,475 48,478
___- _____-
NET ASSETS.................................................................. $37,446,841
======
REPRESENTED BY:
Paid-in capital......................................................... $36,053,663
Accumulated undistributed investment income-net......................... 2,898
Accumulated undistributed net realized gain on investments.............. 139,753
Accumulated net unrealized appreciation on investments-Note 4........... 1,250,527
_____-
NET ASSETS at value applicable to 3,170,647 shares outstanding
(unlimited number of $.001 par value shares of Beneficial
Interest authorized).................................................... $37,446,841
======
NET ASSET VALUE, offering and redemption price per share
($37,446,841 / 3,170,647 shares)........................................ $11.81
======

</TABLE>

See notes to financial statements.

DREYFUS VARIABLE INVESTMENT FUND, Quality Bond Portfolio
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1995
<S> <C> <C>
INVESTMENT INCOME:
INTEREST INCOME......................................................... $1,580,221
EXPENSES:
Investment advisory fee-Note 3(a)..................................... $ 147,830
Custodian fees........................................................ 12,957
Auditing fees......................................................... 12,766
Registration fees..................................................... 7,573
Organization expenses................................................. 4,310
Prospectus and shareholders' reports.................................. 2,874
Trustees' fees and expenses-Note 3(b)................................. 1,463
Legal fees............................................................ 608
Shareholder servicing costs........................................... 396
Miscellaneous......................................................... 4,520
_____
TOTAL EXPENSES.................................................... 195,297
Less-reduction in investment advisory fee due to undertakings-Note 3(a) 10,017
_____
NET EXPENSES...................................................... 185,280
_____
INVESTMENT INCOME-NET............................................. 1,394,941
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments-Note 4................................. $ 628,024
Net unrealized appreciation on investments.............................. 2,002,134
_____
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS................... 2,630,158
_____
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $4,025,099
======

</TABLE>

See notes to financial statements.

DREYFUS VARIABLE INVESTMENT FUND, Quality Bond Portfolio
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
_______________-_______________-
1994 1995
_______ ______
<S> <C> <C>
OPERATIONS:
Investment income-net................................................... $ 649,784 $ 1,394,941
Net realized gain (loss) on investments................................. (101,063) 628,024
Net unrealized appreciation (depreciation) on investments for the year.. (776,871) 2,002,134
_____- _____-
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS........................................................ (228,150) 4,025,099
_____- _____-
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net................................................... (645,868) (1,396,840)
Net realized gain on investments........................................ (11,191) (387,055)
_____- _____-
TOTAL DIVIDENDS....................................................... (657,059) (1,783,895)
_____- _____-
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold........................................... 10,900,540 25,461,134
Dividends reinvested.................................................... 657,134 1,783,895
Cost of shares redeemed................................................. (2,134,797) (5,283,531)
_____- _____-
INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST
TRANSACTIONS...................................................... 9,422,877 21,961,498
_____- _____-
TOTAL INCREASE IN NET ASSETS...................................... 8,537,668 24,202,702
NET ASSETS:
Beginning of year....................................................... 4,706,471 13,244,139
_____- _____-
End of year (including undistributed investment income-net:
$4,797 in 1994 and $2,898 in 1995).................................... . $13,244,139 $37,446,841
====== ======

SHARES SHARES
_____- _____-
CAPITAL SHARE TRANSACTIONS:
Shares sold............................................................. 991,178 2,224,658
Shares issued for dividends reinvested.................................. 61,022 155,421
Shares redeemed......................................................... (193,286) (466,867)
_____- _____-
NET INCREASE IN SHARES OUTSTANDING.................................... 858,914 1,913,212
====== ======

</TABLE>

See notes to financial statements.

DREYFUS VARIABLE INVESTMENT FUND, Quality Bond Portfolio
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
Beneficial Interest outstanding, total investment return, ratios to average
net assets and other supplemental data for each year indicated. This
information has been derived from the Series' financial statements.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
____________________________________________________________
PER SHARE DATA: 1991 1992 1993 1994 1995
___- ___- ___- ___- ___-
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year........... $10.01 $10.67 $10.94 $11.81 $10.53
___- ___- ___- ___- ___-
INVESTMENT OPERATIONS:
Investment income-net........................ .70 .92 .76 .73 .68
Net realized and unrealized gain (loss) on investments .66 .30 .88 (1.27) 1.42
___- ___- ___- ___- ___-
TOTAL FROM INVESTMENT OPERATIONS........... 1.36 1.22 1.64 (.54) 2.10
___- ___- ___- ___- ___-
DISTRIBUTIONS:
Dividends from investment income-net......... (.70) (.92) (.76) (.73) (.69)
Dividends from net realized gain on investments .- (.03) (.01) (.01) (.13)
___- ___- ___- ___- ___-
TOTAL DISTRIBUTIONS........................ (.70) (.95) (.77) (.74) (.82)
___- ___- ___- ___- ___-
Net asset value, end of year................. $10.67 $10.94 $11.81 $10.53 $11.81
___- ___- ___- ___- ___-
___- ___- ___- ___- ___-
TOTAL INVESTMENT RETURN.......................... 14.12% 12.09% 15.33% (4.59%) 20.42%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets...... - - - - .81%
Ratio of net investment income to average net assets 7.52% 8.54% 6.51% 7.03% 6.13%
Decrease reflected in above expense ratios
due to undertakings by The Dreyfus Corporation 13.13% 5.33% 3.51% 1.20% .04%
Portfolio Turnover Rate...................... - 9.39% 110.62% 64.80% 263.53%
Net Assets, end of year (000's Omitted)...... $ 410 $ 405 $4,706 $13,244 $37,447

</TABLE>

See notes to financial statements.

DREYFUS VARIABLE INVESTMENT FUND, Quality Bond Portfolio
NOTES TO FINANCIAL STATEMENTS
NOTE 1-GENERAL:
The Dreyfus Variable Investment Fund (the "Fund") is registered under the
Investment Company Act of 1940 ("Act") as an open-end management investment
company, operating as a series company currently offering eight series,
including the Quality Bond Portfolio series (the "Series") which is intended
to be a funding vehicle for variable annuity contracts and variable life
insurance policies to be offered by the separate accounts of life insurance
companies. The Series is a diversified portfolio. The Dreyfus Corporation
("Dreyfus") serves as the Fund's investment adviser. Dreyfus is a direct
subsidiary of Mellon Bank, N.A. Premier Mutual Fund Services, Inc. (the
"Distributor") acts as the distributor of the Fund's shares, which are sold
without a sales charge. The Distributor, located at One Exchange Place,
Boston, Massachusetts 02109, is a wholly-owned subsidiary of FDI Distribution
Services, Inc., a provider of mutual fund administration services, which in
turn is a wholly-owned subsidiary of FDI Holdings, Inc., the parent company
of which is Boston Institutional Group, Inc.
The Fund currently functions as the funding vehicle for the Dreyfus
Series 2000 Variable Annuity Contract (the "Account") issued by Mutual
Benefit Life Insurance Company ("Mutual Benefit Life"). On July 16, 1991, the
Superior Court of New Jersey entered an Order (the "Order") appointing the
New Jersey Insurance Commissioner as Rehabilitator of Mutual Benefit Life.
The Commissioner was granted immediate exclusive possession and control of,
and title to, the business and assets of Mutual Benefit Life, including the
assets and liabilities of the Account.
The Commissioner was empowered by the Order to take such steps as he
deemed appropriate toward removing the cause and conditions that made
rehabilitation necessary. On January 15, 1993, the Commissioner filed the
First Amended Plan of Rehabilitation ("Plan") with the Court. The Plan
stipulated that the assets and liabilities of the Account would be
transferred to a separate account of MBL Life Assurance Corporation
("MBLLAC"), a wholly-owned subsidiary of Mutual Benefit Life. The Plan also
provided for the transfer of the ownership of the stock of MBLLAC to a Trust.
The Commissioner was designated as the sole Trustee of the Trust. On August
12, 1993, the Court rendered an opinion approving the Plan with certain
modifications. Two subsequent amendments to the Plan were filed and approved
by the Court. None of the modifications or amendments affected the status of
the Account. On November 10, 1993, the Court issued an Order of Confirmation
permitting the implementation of the Plan.
An order was also issued by the Court on January 28, 1994, approving the
form of the Third Amended Plan of Rehabilitation, the Election Materials and
related documents. On April 29, 1994, the Plan was implemented. Substantially
all of the assets of Mutual Benefit Life were transferred to MBLLAC which
assumed and reinsured Mutual Benefit's Life's restructured insurance
liabilities. The stock of MBLLAC was assigned to the Stock Trust and the
Commissioner was designated as Trustee.
In view of the terms and conditions of both the Order and the Plan,
applications for new contracts and additional purchase payments under
existing contracts are currently not being accepted by the Account. The terms
of the Order and the Plan permit redemptions from the Account to continue as
requested.
The proceedings of the New Jersey Insurance Commissioner with respect to
Mutual Benefit Life or the Account do not apply to the separate accounts of
other life insurance companies that may use the Fund as a funding vehicle for
contracts or policies issued by them.

DREYFUS VARIABLE INVESTMENT FUND, Quality Bond Portfolio
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 2-SIGNIFICANT ACCOUNTING POLICIES:
(A) PORTFOLIO VALUATION: Investments (excluding short-term investments
and U.S. Government obligations) are valued each business day by an
independent pricing service ("Service") approved by the Board of Trustees.
Investments for which quoted bid prices are readily available and are
representative of the bid side of the market in the judgement of the Service
are valued at the mean between the quoted bid prices (as obtained by the
Service from dealers in such securities) and asked prices (as calculated by
the Service based upon its evaluation of the market for such securities).
Other investments (which constitute a majority of the portfolios' securities)
are carried at fair value as determined by the Service, based on methods
which include consideration of: yields or prices of securities of comparable
quality, coupon, maturity and type; indications as to values from dealers;
and general market conditions. Investments in U.S. Government obligations are
valued at the mean between quoted bid and asked prices. Short-term investments
are carried at amortized cost, which approximates value.
The Fund accounts separately for the assets, liabilities and operations
of each series. Expenses directly attributable to each series are charged to
that series' operations; expenses which are applicable to all series are
allocated among them on a pro rata basis.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Interest
income, including, where applicable, amortization of discount on investments,
is recognized on the accrual basis.
(C) DIVIDENDS TO SHAREHOLDERS: Dividends are recorded on the ex-dividend
date. Dividends from investment income-net are declared and paid monthly.
Dividends from net realized capital gain are normally declared and paid
annually, but the Series may make distributions on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, if any, it is the policy of the Series not to distribute such
gain.
(D) FEDERAL INCOME TAXES: It is the policy of the Series to continue to
qualify as a regulated investment company, if such qualification is in the
best interests of its shareholders, by complying with the applicable
provisions of the Internal Revenue Code, and to make distributions of taxable
income sufficient to relieve it from substantially all Federal income and
excise taxes. For Federal income tax purposes, each series is treated as a
single entity for the purpose of determining such qualification.
NOTE 3-INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to the provisions of an Investment Advisory Agreement
("Agreement") with Dreyfus, the investment advisory fee is computed at the
annual rate of .65 of 1% of the average daily value of the Series' net assets
and is payable monthly.
The Agreement further provides that if in any full year the aggregate
expenses of the Series, exclusive of taxes, brokerage, interest on borrowings
and extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Series, the Series may deduct from the payments to be
made to Dreyfus, or Dreyfus will bear the amount of such excess to the extent
required by state law.

DREYFUS VARIABLE INVESTMENT FUND, Quality Bond Portfolio
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
However, Dreyfus had undertaken, from January 1, 1995 through July 5, 1995,
to reduce the investment advisory fee paid by the
Series, to the extent that the Series' aggregate expenses (exclusive of
certain expenses as described above) exceeded specified annual percentages of
the Series' average daily net assets. The reduction in investment advisory
fee, pursuant to the undertakings amounted to $10,017 for the year ended
December 31, 1995.
Effective December 1, 1995, the Fund entered into a transfer agency
agreement with Dreyfus Transfer, Inc., a wholly-owned subsidiary of Dreyfus,
to provide personnel and facilities to perform transfer agency services for
the Series.
(B) Each trustee who is not an "affiliated person," as defined in the
Act, receives from the Fund an annual fee of $2,500 and an attendance fee of
$250 per meeting. The Chairman of the Board receives an additional 25% of
such compensation.
NOTE 4-SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales of investment securities,
excluding short-term securities, during the year ended December 31, 1995,
amounted to $61,453,426 and $47,766,543, respectively.
At December 31, 1995, accumulated net unrealized appreciation on
investments was $1,250,527, consisting of $1,300,586 gross unrealized
appreciation and $50,059 gross unrealized depreciation.
At December 31, 1995, the cost of investments for Federal income tax
purposes was substantially the same as the cost for financial reporting
purposes (see Statement of Investments).

DREYFUS VARIABLE INVESTMENT FUND, Quality Bond Portfolio
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
DREYFUS VARIABLE INVESTMENT FUND, QUALITY BOND PORTFOLIO
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Dreyfus Variable Investment Fund,
Quality Bond Portfolio (one of the series constituting the Dreyfus Variable
Investment Fund), as of December 31, 1995, and the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and financial highlights
for each of the years indicated therein. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1995 by correspondence with the custodian.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Dreyfus Variable Investment Fund, Quality Bond Portfolio at
December 31, 1995, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and the financial highlights for each of the indicated years, in conformity
with generally accepted accounting principles.

[Ernst and Young LLP signature logo]

New York, New York
February 9, 1996

[Dreyfus lion "d" logo]
DREYFUS VARIABLE INVESTMENT FUND,
QUALITY BOND PORTFOLIO
200 Park Avenue
New York, NY 10166
INVESTMENT ADVISER
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
CUSTODIAN
The Bank of New York
90 Washington Street
New York, NY 10286
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc.
One American Express Plaza
Providence, RI 02903

Further information is contained
in the Prospectus, which must
precede or accompany this report.

Printed in U.S.A. 120AR9512
[Dreyfus logo]
Variable
Investment Fund,
QUALITY BOND
PORTFOLIO
Annual Report
December 31, 1995
<PAGE>

T. Rowe Price International Stock Portfolio

Annual Report
December 31, 1995

Dear Investor
Your fund finished 1995 in line with its benchmark, the unmanaged Morgan
Stanley Capital International Europe, Australia, and Far East Index, and
somewhat behind it over the past six months. Many international markets
continued to move ahead in the fourth quarter, capping a respectable year.
Performance was reasonable except when compared with the remarkable U.S.
stock market, which returned 37.6% as measured by the Standard & Poor's 500
Stock Index. Only Switzerland surpassed U.S. stocks in dollar terms.
Established markets outperformed emerging markets worldwide. During the year,
Japan, Germany, and France rose, while Brazil, Mexico, China, Korea, and many
other markets fell in value.

Performance Comparison

Periods Ended 12/31/95

6 Months 12 Months
________ _________

International Stock Portfolio 7.03% 11.18%
MSCI EAFE* 8.39 11.21

* Net of withholding taxes.

During the second half of 1995, your fund's underweighted position in
the strong Japanese market impaired fund performance. This was balanced to
some extent by favorable stock selection in the U.K. and Continental Europe.
The direction of interest rates played a significant role in the equity
market advances. With the outlook for inflation benign throughout the world,
and many governments anxious to tighten their fiscal policies, yields fell and
bonds rallied strongly, boosting stock returns. There was also help from
accommodative central banks looking to stimulate softening economies. Both the
Federal Reserve and the Bundesbank cut short-term rates, while the Bank of
Japan pumped liquidity into the economic system.
Perhaps the major difference between the U.S. and foreign markets during
the latter part of the year was that U.S. corporate earnings lived up to
expectations, while earnings were generally disappointing elsewhere. This was
most likely a result of less mature economic recoveries overseas and a less
aggressive approach to cost-cutting than in the U.S.

Market Review
European stock markets continued their steady ascent, making the Continent the
best performing foreign region over the year. The U.K. led the round of
interest rate cuts overseas after economic growth slowed to 2.4% annually in
the third quarter, and inflation eased. Signs of weakening industrial
production, slower monetary growth, and inflation below 2% were all
contributing factors.

Market Performance
Six Months Ended 12/31/95
____________________________________
Local
Currency
In Local vs. U.S. In U.S.
Currency* Dollars** Dollars*
____________________________________

Australia 7.66% 4.94% 12.98%

France 2.33 -0.88 1.43

Germany 7.41 -3.30 3.86

Hong Kong 8.44 0.07 8.51

Italy -0.09 3.19 3.09

Japan 33.56 -17.70 9.92

Netherlands 14.71 -3.28 10.95

Norway 1.63 -2.42 -0.83

Singapore 7.14 -1.20 5.85

Spain 14.17 -0.19 13.95

Sweden 4.61 9.87 14.93

Switzerland 17.58 0.13 17.73

United Kingdom 12.29 -2.41 9.59

* Source: MSCI "Perspective," net of withholding taxes.
** Source: NatWest Securities "Quant."

Bond yields fell everywhere, justifying higher equity prices. Lower
German yields were welcomed in France by President Chirac and Prime Minister
Juppe, since they then had room to reduce French rates to cope with stubbornly
high unemployment of 11.5%. We expect slow but steady growth across Europe
into 1997, with inflation under control.
Our major overweighting in Europe continued to be the Netherlands at the
expense of Germany and Switzerland. This was not necessarily because the Dutch
economy is particularly robust, but rather because the Netherlands is home to
some of the best and most reasonably priced stocks on the Continent, in our
view.
In contrast to the steady climb in European markets, the year divided
into different halves for Japan. Following a miserable first half, Japanese
equities sprang to life in the third quarter and continued strong through
year-end. However, the gain in stocks was trimmed for U.S. investors by the
yen's weakness versus the dollar.
For the year as a whole, both the yen and Japanese stocks moved less
than 5%, masking volatility in both markets. The catalyst was aggressive
reflation from the Bank of Japan following continued signs of price deflation.
The central bank bought bonds, increased issuance of bank notes, and
intervened in currency markets.

CHART #1 Geographical Diversification

Early signs of success have begun to appear. Bank lending is growing,
the money supply is expanding, and emergence from recession seems likely.
However, we believe the recovery will be weak. While valuations look
attractive, many Japanese companies earn a low return on equity, and we found
more compelling opportunities elsewhere.
With the spotlight back on Japan, many other Asian markets were in
eclipse, although Hong Kong and New Zealand performed reasonably well. The
smaller markets in the region had a difficult year, with China and India
experiencing the worst problems.
A common thread throughout the region was the continuing downgrading of
earnings expectations. Many economies overheated after several years of
superior growth, and interest rates rose as a result in Malaysia, Thailand,
and the Philippines. The combination of rising rates and disappointing
earnings was poorly received by investors.
Despite this negative environment, however, we added to holdings in the
area since we believe the Pacific region outside of Japan remains an
attractive long-term growth story, with high savings and investment coupled
with sound financial management. Most markets are as cheaply valued as at any
time in the past 10 years.
Confidence is returning to the real estate market in Hong Kong, which is
also benefiting from falling inflation in China. Singapore remained in good
shape, buoyed by strong demand for exports of its electronic products. Korea's
economy was healthy, although its stock market was hard hit by the scandal
involving former President Roh. We added to these three markets during the
past few months.
Markets in Latin America were generally down, although performance
varied from country to country. Argentine stocks were up while Brazilian
equities fell. There were grounds for guarded optimism in Mexico. The
political situation was murky, but a quick recession followed by a soundly
based recovery now appears likely. The current account posted a healthy $500
million surplus after showing a $7.6 billion deficit a year ago - a major
factor in the massive peso devaluation of late 1994.

Performance by Region

Six Months Ended 12/31/95
_______________________

Europe 7.98%

Japan 9.92

Asia (ex-Japan) 5.78

Latin America -0.29

Source: MSCI "Perspective."

The steady economic transformation in Brazil was on track. With the real
(local currency) pegged to the U.S. dollar, inflation fell, and the
privatization and deregulation of public sector industries continued. Brazil
dropped its proposed capital gains tax on foreigners and pursued policies
friendly to stock investors.
Chile is the role model for the region. Its high savings rate and
economic deregulation have underpinned Chile's long-term dynamism, although
recent signs of overheating led to some monetary tightening. We are optimistic
about the long-term prospects for Latin America in general.

Summary and Outlook
We believe there are persuasive reasons to pursue a policy of international
diversification over the long term, despite the superior performance of
domestic equities last year. Foreign markets account for nearly two-thirds of
world capitalization, and many of them offer the potential for stronger
economic growth than the U.S.
We see earnings growth slowing in the U.S. during 1996, while remaining
strong internationally. Inflation is under control in Europe, monetary policy
is easing, and earnings growth is approximately two years behind the U.S.
cycle. Japan shows signs of responding to aggressive government policies to
trigger an economic recovery. Asian earnings growth may look pedestrian
measured against historical standards, but it is still projected at around
20%. Asian stock markets currently look cheaper than they did after both the
1987 crash and the last recession. Similarly, much of the bad news in Latin
America is already reflected in regional stock prices.
Therefore, we expect international stocks to perform reasonably well in
1996 and we will remain focused on buying shares at appealing prices.

Respectfully submitted,

Martin G. Wade
President

January 31, 1996

Twenty-Five Largest Holdings
December 31, 1995
Percent of
Company Net Assets
________________________________________ ____________
Wolters Kluwer, Netherlands 2.3%

Elsevier, Netherlands 1.7

Royal Dutch Petroleum, Netherlands 1.5

SmithKline Beecham, United Kingdom 1.2

National Westminster Bank, United Kingdom 1.2

Reed International, United Kingdom 1.1

Eaux Cie Generale, France 0.9

Kyocera, Japan 0.9

Roche Holdings, Switzerland 0.9

Nestle, Switzerland 0.8

Astra, Sweden 0.8

Telecomunicacoes Brasilias, Brazil 0.8

Hutchison Whampoa, Hong Kong 0.8

Shell Transport & Trading, United Kingdom 0.8

Nomura Securities, Japan 0.8

United Engineers, Malaysia 0.8

Mitsubishi Heavy Industries, Japan 0.7

BBC Brown Boveri, Switzerland 0.7

Ito-Yokado, Japan 0.7

Abbey National, United Kingdom 0.7

Nippon Denso, Japan 0.7

Canon, Japan 0.7

Wharf Holdings, Hong Kong 0.7

Norsk Hydro, Norway 0.7

NEC, Japan 0.6
____________________________________________________________

Total 23.5%

Chart #2 Performance Comparison

*Net of withholding taxes.

Note: The index return does not reflect expenses, which have been deducted
from the fund's return. Past performance does not predict future results.

Security Classification
December 31, 1995
Percent Market
of Net Cost Value
Percent of Net Assets Assets (000) (000)
_______________________________ _______ _______ _______

Common Stocks and Warrants 85.9% $42,692 $44,399
Preferred Stocks and Rights 2.2 656 1,154

Short-Term Investments 9.1 4,683 4,683
____ _______ _______

Total Investments 97.2 48,031 50,236

Other Assets Less Liabilities 2.8% 1,426 1,425

Net Assets 100.0% $49,457 $51,661

Industry Diversification
December 31, 1995
Percent of
Net Assets
___________

Services 22.5%

Finance 15.7

Capital Equipment 14.8

Consumer Goods 14.7

Energy 9.9

Materials 7.5

Multi-Industry 3.0

Reserves 11.9

Net Assets 100.0%

Average Annual Compound Total Return
Periods Ended December 31, 1995

Since Inception
1 Year 3/31/94
_______ ________________

11.18% 7.31%

Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original
purchase.

Total returns do not include charges imposed by your insurance company's
separate account. If these were included, performance would have been lower.

Statement of Net Assets
T. Rowe Price International Stock Portfolio / December 31, 1995
Value

ARGENTINA - 0.7%

COMMON STOCKS
1,926 shs Banco de Galicia
Buenos Aires
(Class B) ADR (USD) . . . . . . . $39,724
644 Banco Frances del Rio de
la Plata ADR (USD). . . . . . . . 17,307
353 Buenos Aires
Embotelladora (Class B)
ADR (USD) . . . . . . . . . . . . 7,281
520 Enron Global Power &
Pipeline (USD) . . . . . . . . . 12,870
7,721 Naviera Perez (Class B) . . . . . . . 40,913
5,630 * Sociedad Comercial
del Plata . . . . . . . . . . . . 14,916
250 * Sociedad Comercial
del Plata ADS (USD) . . . . . . . 6,625
310 Telecom Argentina
ADS (USD) . . . . . . . . . . . . 14,764
3,260 Telecom Argentina Stet
(Class B) . . . . . . . . . . . . 15,384
3,900 Telefonica de Argentina
(Class B) ADR (USD) . . . . . . . 106,275
1,200 Transportadora de Gas
del Sur ADR (USD) . . . . . . . . 15,450
3,400 YPF Sociedad Anonima
(Class D) ADR (USD). . . . . . . 73,525
Total Argentina 365,034

AUSTRALIA - 1.6%

COMMON STOCKS
6,000 Amcor . . . . . . . . . . . . . . . 42,367
29,241 Australia Gas & Light . . . . . . . . 109,757
8,352 Broken Hill Proprietary . . . . . . . 117,949
22,153 Burns Philip & Company. . . . . . . . 49,562
3,781 Coca Cola Amatil . . . . . . . . . . 30,155
5,073 Lend Lease Corporation . . . . . . . 73,527
11,032 News Corporation . . . . . . . . . . 58,874
10,000 Publishing & Broadcasting . . . . . . 34,860
11,600 * TNT . . . . . . . . . . . . . . . 15,347
17,000 Tabcorp Holdings . . . . . . . . . . 48,015
7,500 Western Mining . . . . . . . . . . . 48,164
19,000 Westpac Banking . . . . . . . . . . . 84,168
14,000 Woodside Petroleum . . . . . . . . . 71,592
784,337

PREFERRED STOCKS
21,000 * Sydney Harbour
Casino Holdings . . . . . . . . . 26,535
3,000 TNT, Cum. Cv., 8.00% . . . . . . . . 4,259
30,794
Total Australia 815,131

AUSTRIA - 0.2%

COMMON STOCKS
130 shs EVN . . . . . . . . . . . . . . $ 17,865
320 Flughafen Wien . . . . . . . . . . . 21,591
410 Oesterreichische
Elektrizitats . . . . . . . . . . 24,652
64,108
PREFERRED STOCK
360 Creditanstalt Bankverein. . . . . . . 18,503

Total Austria 82,611

BELGIUM - 0.9%

COMMON STOCKS
330 Generale Banque . . . . . . . . . . . 114,373
890 Kredietbank . . . . . . . . . . . . . 243,140
89 UCB . . . . . . . . . . . . . . . 118,243

Total Belgium 475,756

BRAZIL - 2.3%

COMMON STOCKS
1,700 * Brazil Fund (USD) . . . . . . . . . . 35,913
1,350,000 Companhia Siderurgica
Nacional . . . . . . . . . . . . 27,778
268,820 Eletrobras . . . . . . . . . . . . . 72,736
3,390 Eletrobras ADR (USD) . . . . . . . . 45,765
1,018,000 Telecomunicacoes
Brasilias . . . . . . . . . . . . 39,379
221,571
PREFERRED STOCKS & RIGHTS
10,302,407 Banco Bradesco . . . . . . . . . . . . . 90,093
240,891 rts * Banco Bradesco . . . . . . . . . . . 397
69,000 shs Banco Itau . . . . . . . . . . . . . 19,238
156,158 Brahma . . . . . . . . . . . . . . . 64,264
135,300 Brasmotor . . . . . . . . . . . . . . 26,865
117,040 Cia Cimento Portland Itau . . . . . . 27,935
330 * Cia Energetica de Sao
Paulo Sponsored
ADR (USD) . . . . . . . . . . . . 2,867
440 * Cia Energetica de Sao
Paulo ADS (USD) . . . . . . . . . 3,823
500 * Cia Energetica de Sao
Paulo Non-Voting
ADS (USD) . . . . . . . . . . . . 4,344
1,574,468 Cia Energetica Minas
Gerais . . . . . . . . . . . . . 34,826
1,476 Cia Energetica Minas
Gerais Non-Voting
ADR (USD) . . . . . . . . . . . . 32,656
138,000 Cia Tecidos Norte
de Minas . . . . . . . . . . . . 46,142
1,040,000 Lojas Americanas . . . . . . . . . . 24,395
220,000 Petrol Brasileiros . . . . . . . . . 18,784
Value
1,715,760 shs Telecomunicacoes
Brasilias . . . . . . . . . . . . $82,611
6,284 * Telecomunicacoes
Brasilias ADR (USD) . . . . . . . 297,704
320,000 Telecomunicacoes de
Sao Paulo . . . . . . . . . . . . 47,078
650,000 Unibanco . . . . . . . . . . . . . . 25,412
327,684 rts * Unibanco . . . . . . . . . . . . . . 0
77,289,350 shs Usiminas . . . . . . . . . . . . . . 62,817
8,220 Usiminas ADS (USD) . . . . . . . . . 67,815
980,066

Total Brazil 1,201,637

CANADA - 0.3%

COMMON STOCKS
3,500 Alcan Aluminum . . . . . . . . . . . 108,614
2,070 MacMillan Bloedel . . . . . . . . . . 25,581
1,390 Royal Bank of Canada . . . . . . . . 31,684

Total Canada 165,879

CHILE - 0.9%

COMMON STOCKS
141 AFP Providia ADR (USD). . . . . . . . 3,895
2,440 Chile Fund (USD) . . . . . . . . . . 63,440
740 Chilectra ADR (USD) . . . . . . . . . 37,000
1,070 Chilgener ADS (USD) . . . . . . . . . 26,750
1,150 Compania Cervecerias
Unidas ADS (USD) . . . . . . . . 26,738
498 Compania
Telecomunicaciones
ADR (USD) . . . . . . . . . . . . 41,272
2,992 Empresa Nacional de
Electric ADS (USD) . . . . . . . 68,068
1,249 Enersis ADS (USD) . . . . . . . . . . 35,596
18,990 Five Arrows Chile
Investment
Trust (USD) . . . . . . . . . . . 56,210
2,120 Genesis Chile Fund (USD). . . . . . . 85,860

Total Chile 444,829

CHINA - 0.6%

COMMON STOCKS
10,500 * Huaneng Power
International (Class N)
ADR (USD) . . . . . . . . . . . . 156,187
164,000 Maanshan Iron &
Steel (HKD) . . . . . . . . . . . 22,906
250,000 Shanghai Petrochemical
(Class H) (HKD) . . . . . . . . . 71,937
212,000 Yizheng Chemical Fibre
(Class H) (HKD) . . . . . . . . . 47,705

Total China 298,735

DENMARK - 0.2%

COMMON STOCKS
1,000 shs Den Danske Bank . . . . . . . . . . . $68,978
290 Tele Danmark (Class B) . . . . . . . 15,825
900 Unidanmark (Class A) . . . . . . . . 44,575

Total Denmark 129,378

FINLAND - 0.1%

COMMON STOCK
1,820 Nokia Oy (Class A) . . . . . . . . . 70,299

FRANCE - 7.0%
COMMON STOCKS & WARRANTS
995 Accor . . . . . . . . . . . . . . . 128,820
1,455 Assurances Generales
de France . . . . . . . . . . . . 48,728
535 Carrefour . . . . . . . . . . . . . . 324,583
628 Castorama Dubois . . . . . . . . . . 102,850
655 Chargeurs . . . . . . . . . . . . . . 131,348
2,180 Cie de St. Gobain . . . . . . . . . . 237,721
559 Credit Local de France . . . . . . . 44,747
4,730 Eaux Cie Generale . . . . . . . . . . 472,227
1,090 Ecco . . . . . . . . . . . . . . . 164,936
2,200 Elf Aquitaine . . . . . . . . . . . . 162,091
800 GTM Entrepose . . . . . . . . . . . . 56,116
408 Guilbert . . . . . . . . . . . . . . 47,907
28 Hermes International . . . . . . . . 5,260
230 L'Oreal . . . . . . . . . . . . . . . 61,574
1,165 LVMH . . . . . . . . . . . . . . . 242,659
1,724 Lafarge-Coppee . . . . . . . . . . . 111,073
1,370 Lapeyre . . . . . . . . . . . . . . . 68,262
480 Legrand . . . . . . . . . . . . . . . 74,103
1,000 Pinault Printemps . . . . . . . . . . 199,510
1,300 Poliet . . . . . . . . . . . . . . . 105,603
662 Primagaz . . . . . . . . . . . . . . 52,587
37 wts * Primagaz, 6/30/98 . . . . . . . . . . 317
350 shs Rexel . . . . . . . . . . . . . . . 59,108
826 Sanofi . . . . . . . . . . . . . . . 52,947
330 Societe Generale
de France . . . . . . . . . . . . 40,770
250 Sodexho . . . . . . . . . . . . . . . 73,514
2,700 Television Francaise . . . . . . . . 289,463
2,450 Total (Class B) . . . . . . . . . . . 165,351
1,999 Valeo . . . . . . . . . . . . . . . 92,582

Total France 3,616,757

GERMANY - 4.0%

COMMON STOCKS & WARRANTS
150 Allianz Holdings . . . . . . . . . . 292,994
88 Altana . . . . . . . . . . . . . . . 51,223
760 Bayer . . . . . . . . . . . . . . . 201,828
170 Bilfinger & Berger . . . . . . . . . 64,350
126 Buderus . . . . . . . . . . . . . . . 49,012
2,510 shs Deutsche Bank . . . . . . . . . . . . $119,157
513 Gehe . . . . . . . . . . . . . . . 261,060
50 * Gehe, new . . . . . . . . . . . . . . 24,765
162 Hoechst . . . . . . . . . . . . . . . 44,043
300 * Hornbach Baumarkt . . . . . . . . . . 12,904
486 Mannesmann . . . . . . . . . . . . . 154,727
843 * Praktiker . . . . . . . . . . . . . . 24,212
1,590 Rhon Klinikum . . . . . . . . . . . . 158,501
1,801 Schering . . . . . . . . . . . . . . 119,761
79 Siemens . . . . . . . . . . . . . . . 43,231
4,760 Veba . . . . . . . . . . . . . . . 202,080
160 wts * Veba, 4/6/98 . . . . . . . . . . . . 25,207
273 shs Volkswagen . . . . . . . . . . . . . 91,539
80 wts * Volkswagen International
Finance, 10/27/98 . . . . . . . . 7,111
1,947,705

PREFERRED STOCKS
222 shs Fielmann . . . . . . . . . . . . . . 11,452
830 Hornbach . . . . . . . . . . . . . . 71,168
107 Krones . . . . . . . . . . . . . . . 42,442
125,062

Total Germany 2,072,767

HONG KONG - 4.1%

COMMON STOCKS
33,000 Dao Heng Bank Group . . . . . . . . . 118,642
178,461 First Pacific . . . . . . . . . . . . 198,482
130,000 Guangdong Investment . . . . . . . . 78,177
471,000 Guangzhou Investment . . . . . . . . 90,149
40,000 Guoco Group . . . . . . . . . . . . . 192,952
156,399 Hong Kong Land
Holdings (USD) . . . . . . . . . 289,338
68,000 Hutchison Whampoa . . . . . . . . . . 414,200
47,000 New World Development . . . . . . . . 204,837
24,000 Swire Pacific (Class A) . . . . . . . 186,227
101,000 Wharf Holdings . . . . . . . . . . . 336,340

Total Hong Kong 2,109,344

INDONESIA - 0.2%

COMMON STOCK
4,000 * Telekom Indonesia
ADS (USD) . . . . . . . . . . . . 101,000
ITALY - 1.7%

COMMON STOCKS
2,506 Arnoldo Mondadori
Editore . . . . . . . . . . . . . 21,713
8,109 Assicurazioni Generali . . . . . . . 196,327
30,480 Banca Fideuram . . . . . . . . . . . 35,218
5,000 Danieli & Company,
savings shares . . . . . . . . . 13,538
14,000 * ENI . . . . . . . . . . . . . . . 48,926
1,700 Imi . . . . . . . . . . . . . . . 10,704
Value
11,500 shs Istituto Naz delle
Assicurazioni . . . . . . . . . . $15,243
14,000 Italgas . . . . . . . . . . . . . . . 42,579
1,000 RAS . . . . . . . . . . . . . . . 11,362
4,000 Rinascente . . . . . . . . . . . . . 24,205
7,031 SME . . . . . . . . . . . . . . . 14,366
3,668 Sasib . . . . . . . . . . . . . . . 16,167
11,000 Sasib, savings shares . . . . . . . . 26,874
42,900 Stet . . . . . . . . . . . . . . . 121,288
22,000 Stet, savings shares . . . . . . . . 44,883
66,503 Telecom Italia . . . . . . . . . . . 103,432
23,697 Telecom Italia,
savings shares . . . . . . . . . 28,977
55,966 Telecom Italia Mobile . . . . . . . . 98,497
1,740 Unicem . . . . . . . . . . . . . . . 9,368

Total Italy 883,667

JAPAN - 21.8%

COMMON STOCKS
1,000 Advantest . . . . . . . . . . . . . . 51,332
9,000 Alps Electric . . . . . . . . . . . . 103,729
17,000 Amada . . . . . . . . . . . . . . . 167,942
19,000 Canon . . . . . . . . . . . . . . . 344,116
9,000 Citizen Watch . . . . . . . . . . . . 68,862
12 DDI . . . . . . . . . . . . . . . 92,978
14,000 * Dai Nippon Screen
Manufacturing . . . . . . . . . . 122,847
4,000 Daifuku . . . . . . . . . . . . . . . 56,562
16,000 Daiichi Pharmaceutical . . . . . . . 227,797
18,000 Daiwa House . . . . . . . . . . . . . 296,368
49 East Japan Railway . . . . . . . . . 238,237
4,000 Fanuc . . . . . . . . . . . . . . . 173,172
26,000 Hitachi . . . . . . . . . . . . . . . 261,889
25,000 Hitachi Zosen . . . . . . . . . . . . 129,540
6,000 Honda Motor . . . . . . . . . . . . . 123,777
8,000 Inax . . . . . . . . . . . . . . . 75,932
9,000 * Ishihara Sangyo Kaisha . . . . . . . 29,201
6,000 Ito-Yokado . . . . . . . . . . . . . 369,588
7,000 Kokuyo . . . . . . . . . . . . . . . 162,712
21,000 Komatsu . . . . . . . . . . . . . . . 172,881
6,000 Komori . . . . . . . . . . . . . . . 151,090
17,000 Kumagai Gumi . . . . . . . . . . . . 68,329
16,000 Kuraray . . . . . . . . . . . . . . . 175,109
6,000 Kyocera . . . . . . . . . . . . . . . 445,714
11,000 Makita . . . . . . . . . . . . . . . 175,787
13,000 Marui . . . . . . . . . . . . . . . 270,702
17,000 Matsushita Electric
Industrial . . . . . . . . . . . 276,610
11,000 Mitsubishi . . . . . . . . . . . . . 135,303
48,000 Mitsubishi Heavy
Industries . . . . . . . . . . . 382,605
12,000 Mitsubishi Paper Mills . . . . . . . 72,174
25,000 Mitsui Fudosan . . . . . . . . . . . 307,506
7,000 Mitsui Petrochemical
Industries . . . . . . . . . . . 57,288
Value
5,000 shs Murata Manufacturing . . . . . . . . $184,019
27,000 NEC . . . . . . . . . . . . . . . 329,492
5,000 National House . . . . . . . . . . . 91,525
19,000 Nippon Denso . . . . . . . . . . . . 355,157
5,000 Nippon Hodo . . . . . . . . . . . . . 84,746
92,000 Nippon Steel . . . . . . . . . . . . 315,429
22 Nippon Telephone &
Telecom . . . . . . . . . . . . . 177,918
18,000 Nomura Securities . . . . . . . . . . 392,252
9,000 Pioneer Electronic . . . . . . . . . 164,746
3,000 Sangetsu . . . . . . . . . . . . . . 75,545
11,000 Sankyo . . . . . . . . . . . . . . . 247,167
2,000 Sega Enterprises . . . . . . . . . . 110,412
20,000 Sekisui Chemical . . . . . . . . . . 294,431
14,000 Sekisui House . . . . . . . . . . . . 178,983
1,000 Seven-Eleven Japan . . . . . . . . . 70,508
18,000 Sharp . . . . . . . . . . . . . . . 287,651
6,000 Shinetsu Chemical . . . . . . . . . . 124,358
5,000 Sony . . . . . . . . . . . . . . . 299,758
28,000 Sumitomo . . . . . . . . . . . . . . 284,746
27,000 Sumitomo Electric . . . . . . . . . . 324,262
10,000 Sumitomo Forestry . . . . . . . . . . 153,027
5,000 TDK . . . . . . . . . . . . . . . 255,206
29,000 Teijin . . . . . . . . . . . . . . . 148,300
9,000 Tokio Marine & Fire
Insurance . . . . . . . . . . . . 117,676
3,000 Tokyo Electronics . . . . . . . . . . 116,223
8,000 Tokyo Steel
Manufacturing . . . . . . . . . . 147,216
6,000 Toppan Printing . . . . . . . . . . . 79,031
5,000 Yurtec . . . . . . . . . . . . . . . 87,651

Total Japan 11,285,114

MALAYSIA - 2.8%

COMMON STOCKS & WARRANTS
122,000 Affin Holdings . . . . . . . . . . . 235,382
17,200 wts * Affin Holdings, 11/15/99. . . . . . . 11,310
43,000 shs Berjaya Sports Toto . . . . . . . . . 99,894
21,000 wts * Commerce Asset Holdings,
6/27/98 . . . . . . . . . . . . 54,160
63,000 shs MBF Capital . . . . . . . . . . . . . 63,752
106,000 Multi-Purpose Holding . . . . . . . . 155,262
91,000 Renong . . . . . . . . . . . . . . . 134,725
107,000 * Technology Resources
Industries . . . . . . . . . . . 315,982
61,000 United Engineers . . . . . . . . . . 389,101

Total Malaysia 1,459,568

MEXICO - 1.5%

COMMON STOCKS
8,187 Cemex (Class B) . . . . . . . . . . . 29,235
111,962 Cifra (Class B)
ADR (USD) . . . . . . . . . . . . 113,082
18,609 Fomentos Economico
Mexicano (Class B) . . . . . . . 41,970
5,420 shs * Gruma (Class B) . . . . . . . . . . . $15,245
27,945 * Grupo Embotellador
de Mexico . . . . . . . . . . . . 46,726
21,585 Grupo Financiero
Banamex (Class B) . . . . . . . . 36,092
33 Grupo Financiero
Banamex (Class L) . . . . . . . . 48
820 * Grupo Financiero
Bancomer (Class B)
GDS (USD) . . . . . . . . . . . . 4,664
607 * Grupo Financiero
Bancomer (Class L) . . . . . . . 157
43,010 Grupo Industrial Maseca
(Class B) . . . . . . . . . . . . 26,313
1,844 Grupo Modelo (Class C) . . . . . . . 8,604
4,060 Grupo Sidek (Class B) . . . . . . . . 1,684
3,160 Grupo Televisa
GDR (USD) . . . . . . . . . . . . 71,100
2,922 Kimberly-Clark Mexico
(Class A) . . . . . . . . . . . . 44,086
1,950 Panamerican Beverages
(Class A) (USD) . . . . . . . . . 62,400
5,606 Telefonos de Mexico
(Class L) ADS (USD) . . . . . . . 178,691
20,434 Tolmex (Class B) . . . . . . . . . . 91,907

Total Mexico 772,004

NETHERLANDS - 8.9%

COMMON STOCKS
3,300 ABN Amro Holdings . . . . . . . . . . 150,327
2,420 Ahold . . . . . . . . . . . . . . . 98,779
356 Akzo Nobel . . . . . . . . . . . . . 41,175
5,086 CSM . . . . . . . . . . . . . . . 221,861
66,033 Elsevier . . . . . . . . . . . . . . 880,605
2,052 Fortis AMEV . . . . . . . . . . . . . 137,465
1,040 Hagemeyer . . . . . . . . . . . . . . 54,310
4,880 Internationale Nederlanden
Groep . . . . . . . . . . . . . . 326,002
3,238 Koninklijke PTT
Nederland . . . . . . . . . . . . 117,639
970 Nutricia . . . . . . . . . . . . . . 78,461
5,071 Polygram . . . . . . . . . . . . . . 269,240
5,490 Royal Dutch Petroleum . . . . . . . . 767,033
1,880 Unilever . . . . . . . . . . . . . . 264,186
12,588 Wolters Kluwer . . . . . . . . . . . 1,190,789

Total Netherlands 4,597,872

NEW ZEALAND - 0.4%

COMMON STOCKS
13,000 Air New Zealand
(Class B) . . . . . . . . . . . . 44,195
19,000 Carter Holt Harvey . . . . . . . . . 40,991
10,000 Fernz . . . . . . . . . . . . . . . 26,412
12,000 Fletcher Challenge . . . . . . . . . 27,693
Value
34,702 shs Fletcher Challenge,
Forests Division . . . . . . . . $49,458
21,000 Telecom Corporation of
New Zealand . . . . . . . . . . . 90,612

Total New Zealand 279,361

NORWAY - 1.4%

COMMON STOCKS
1,450 Bergesen (Class A) . . . . . . . . . 28,844
1,680 Kvaerner (Class A) . . . . . . . . . 59,412
8,007 Norsk Hydro . . . . . . . . . . . . . 336,253
5,130 Orkla (Class A) . . . . . . . . . . . 254,714
1,970 Saga Petroleum (Class B). . . . . . . 24,570

Total Norway 703,793

PERU - 0.1%

COMMON STOCK
7,030 Telefonica de Peru
(Class B) . . . . . . . . . . . . 15,058

PORTUGAL - 0.3%

COMMON STOCK
2,770 Jeronimo Martins . . . . . . . . . . 153,606

SINGAPORE - 2.5%
COMMON STOCKS & WARRANTS
29,000 DBS Land . . . . . . . . . . . . . . 97,999
7,000 Development Bank of
Singapore . . . . . . . . . . . . 87,098
8,000 Far East Levingston
Shipbuilding . . . . . . . . . . 37,611
4,000 Fraser & Neave . . . . . . . . . . . 50,901
9,000 Jurong Shipyard . . . . . . . . . . . 69,353
5,000 Keppel . . . . . . . . . . . . . . . 44,539
26,000 Neptune Orient Lines . . . . . . . . 29,226
19,000 Overseas Union Bank . . . . . . . . . 130,965
11,000 Overseas Union
Enterprises . . . . . . . . . . . 55,603
13,000 Sembawang . . . . . . . . . . . . . . 72,146
7,000 Singapore Airlines . . . . . . . . . 65,323
28,000 Singapore Land . . . . . . . . . . . 181,124
5,600 Singapore Press . . . . . . . . . . . 98,975
49,000 United Industrial . . . . . . . . . . 48,151
19,480 United Overseas Bank . . . . . . . . 187,294
6,400 wts * United Overseas Bank,
6/17/97 . . . . . . . . . . . . . 25,790

Total Singapore 1,282,098

SOUTH KOREA - 0.1%

COMMON STOCKS
14 shs * Samsung Electronics
1/2 voting
GDR (USD) . . . . . . . . . . . . 1,267
Value
1,000 shs * Samsung Electronics
1/2 Non-Voting
GDS (USD) . . . . . . . . . . . . $58,500
197 * Samsung Electronics
1/2 Non-Voting
GDS, new (USD) . . . . . . . . . 11,524

Total South Korea 71,291

SPAIN - 2.2%

COMMON STOCKS
440 Banco Popular Espanol . . . . . . . . 81,144
3,228 Banco Santander . . . . . . . . . . . 162,065
5,766 Centros Comerciales
Pryca . . . . . . . . . . . . . . 120,977
4,920 Empresa Nacional de
Electricidad . . . . . . . . . . 278,651
620 Fomento de Construcciones
y Contra . . . . . . . . . . . . 47,535
804 Gas Natural . . . . . . . . . . . . . 125,273
11,440 Iberdrola . . . . . . . . . . . . . . 104,686
4,738 Repsol . . . . . . . . . . . . . . . 155,264
90 Repsol ADR (USD) . . . . . . . . . . 2,970
7,014 Sevillana de Electricidad . . . . . . 54,470

Total Spain 1,133,035

SWEDEN - 2.0%

COMMON STOCKS
980 Asea (Class A) . . . . . . . . . . . 95,200
10,620 Astra (Class B) . . . . . . . . . . . 420,661
6,020 Atlas Copco (Class B) . . . . . . . . 90,667
3,620 Electrolux (Class B) . . . . . . . . 148,568
1,300 Esselte (Class B) . . . . . . . . . . 19,481
1,350 Hennes & Mauritz
(Class B) . . . . . . . . . . . . 75,229
840 Sandvik (Class A) . . . . . . . . . . 14,739
5,780 Sandvik (Class B) . . . . . . . . . . 101,416
990 Scribona (Class B) . . . . . . . . . 10,586
3,680 Stora Kopparbergs
(Class B) . . . . . . . . . . . . 44,062

Total Sweden 1,020,609

SWITZERLAND - 4.0%

COMMON STOCKS
322 BBC Brown Boveri . . . . . . . . . . 374,061
1,000 CS Holding . . . . . . . . . . . . . 102,514
150 Ciba Geigy . . . . . . . . . . . . . 131,990
387 Nestle . . . . . . . . . . . . . . . 428,099
56 Roche Holdings . . . . . . . . . . . 443,000
260 Sandoz . . . . . . . . . . . . . . . 238,023
138 Schweizerische
Bankgesellschaft . . . . . . . . 149,545
430 Schweizerischer
Bankverein . . . . . . . . . . . 175,579

Total Switzerland 2,042,811

THAILAND - 0.9%

COMMON STOCKS
3,700 shs Advanced Information
Service Public . . . . . . . . . $65,510
1,000 Advanced Information
Service Public (L) . . . . . . . 17,705
8,800 Bangkok Bank Public . . . . . . . . . 106,900
8,100 Bank of Ayudhya . . . . . . . . . . . 45,339
1,600 Land & Houses . . . . . . . . . . . . 26,296
1,000 Siam Cement . . . . . . . . . . . . . 55,419
5,900 Siam Commercial Bank . . . . . . . . 77,761
5,300 Thai Farmers Bank . . . . . . . . . . 53,442
3,500 * Total Access . . . . . . . . . . . .
Communications
(USD) . . . . . . . . . . . . . . 22,750

Total Thailand 471,122

UNITED KINGDOM - 14.4%

COMMON STOCKS
36,000 Abbey National . . . . . . . . . . . 355,583
24,000 Argos . . . . . . . . . . . . . . . 221,960
33,500 Argyll Group . . . . . . . . . . . . 176,891
100,000 Asda Group . . . . . . . . . . . . . 171,611
5,000 BAA . . . . . . . . . . . . . . . 37,661
22,000 British Gas . . . . . . . . . . . . . 86,784
14,000 British Petroleum . . . . . . . . . . 117,083
36,000 Cable & Wireless . . . . . . . . . . 257,183
30,860 Cadbury Schweppes . . . . . . . . . . 254,730
50,000 Caradon . . . . . . . . . . . . . . . 151,809
29,000 Coats Viyella . . . . . . . . . . . . 78,591
14,000 Compass Group . . . . . . . . . . . . 106,321
25,000 David S. Smith . . . . . . . . . . . 109,877
14,100 East Midlands Electricity . . . . . . 145,949
10,000 Electrocomponents . . . . . . . . . . 55,832
4,000 GKN . . . . . . . . . . . . . . . 48,393
22,000 Glaxo . . . . . . . . . . . . . . . 312,626
41,000 Grand Metropolitan . . . . . . . . . 295,131
33,000 Guinness . . . . . . . . . . . . . . 242,670
6,000 Heywood Williams Group. . . . . . . . 23,016
15,000 Hillsdown Holdings . . . . . . . . . 39,602
20,000 John Laing (Class A) . . . . . . . . 85,106
34,000 Kingfisher . . . . . . . . . . . . . 286,194
26,000 Ladbroke Group . . . . . . . . . . . 59,155
17,000 London Electricity . . . . . . . . . 151,413
22,984 National Grid Group . . . . . . . . . 71,212
60,000 National Westminster
Bank . . . . . . . . . . . . . . 604,286
16,000 RTZ . . . . . . . . . . . . . . . 232,583
30,000 Rank Organisation . . . . . . . . . . 217,115
36,000 Reed International . . . . . . . . . 548,750
13,480 Rolls Royce . . . . . . . . . . . . . 39,567
12,000 Sears . . . . . . . . . . . . . . . 19,382
30,500 shs Shell Transport & Trading . . . . . . $403,335
58,000 SmithKline Beecham,
equity units . . . . . . . . . . 632,334
37,000 T & N . . . . . . . . . . . . . . . 93,089
27,000 Tesco . . . . . . . . . . . . . . . 124,538
74,500 Tomkins . . . . . . . . . . . . . . . 325,699
29,000 United Newspapers . . . . . . . . . . 249,704

Total United Kingdom 7,432,765

SHORT-TERM INVESTMENTS - 9.1%

COMMERCIAL PAPER
$1,000,000 Commonwealth Bank
of Australia,
5.75%, 1/18/96 . . . . . . . . . 991,854
1,000,000 Falcon Asset
Securitization,
5.65%, 1/29/96 . . . . . . . . . 993,879
725,000 General Electric Capital,
5.675%, 1/19/96 . . . . . . . . . 721,800
1,000,000 Vermont American,
5.70%, 1/29/96 . . . . . . . . . 993,983
1,000,000 Wool International,
5.65%, 2/16/96 . . . . . . . . . 981,795

Total Short-Term Investments 4,683,311

Total Investments in Securities - 97.2% of
Net Assets (Cost $48,031,319) 50,236,242
Other Assets Less Liabilities . . . . . . . . . . . . . . . 1,424,458
__________
Net Assets Consist of: Value
_________
Accumulated net
investment income -
net of distributions . . . . . . $352,312
Accumulated net
realized gain/loss -
net of distributions . . . . . . 120,316
Net unrealized gain (loss) . . . . . 2,203,404
Paid-in-capital applicable
to 4,589,541 shares of
$0.0001 par value capital stock
outstanding; 1,000,000,000
shares authorized. . . . . . . . 48,984,668
__________

NET ASSETS . . . . . . . . . . . . .$51,660,700
__________
__________

NET ASSET VALUE PER SHARE. . . . . . $ 11.26
______
______

* Non-income producing
HKD Hong Kong dollar
USD U.S. dollar
L Local registered shares

The accompanying notes are an integral part of these financial statements.

Statement of Operations
T. Rowe Price International Stock Portfolio / Year Ended December 31, 1995

INVESTMENT INCOME
Income
Dividend (net of foreign taxes
of $58,657). . . . . . . . . . . . . $ 392,295
Interest . . . . . . . . . . . . . . 211,706
Other. . . . . . . . . . . . . . . . 756
_________

Total income . . . . . . . . . . . . 604,757

Expenses
Investment management and
administrative . . . . . . . . . . . 252,223
_________

Net investment income. . . . . . . . . . 352,534
_________

REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Securities . . . . . . . . . . . . . 201,807
Foreign currency transactions. . . . (64,312)
_________

Net realized gain (loss) . . . . . . 137,495
_________
Change in net unrealized gain
or loss on:
Securities . . . . . . . . . . . . . 2,414,951
Other assets and liabilities
denominated . . . . . . .in foreign
currencies . . . . . . . . . . . . . (1,608)
_________
Change in net unrealized
gain or loss . . . . . . . . . . . . 2,413,343
_________
Net realized and unrealized gain (loss). 2,550,838
_________

INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS . . . . . . . . . $ 2,903,372
_________
_________

The accompanying notes are an integral part of these financial statements.

Statement of Changes in Net Assets
T. Rowe Price International Stock Portfolio

From March 31,
1994 (Commencement
Year Ended of Operations) to
December 31, 1995 December 31, 1994
________________ __________________

INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income. . . . . . . $ 352,534 $ 51,545
Net realized gain (loss) . . . . . 137,495 (17,179)
Change in net unrealized gain
or loss. . . . . . . . . . . . . . 2,413,343 (209,939)
. . . . . . . . . . . . . . . . . __________ __________

Increase (decrease) in net assets
from operations. . . . . . . . . . 2,903,372 (175,573)
__________ __________

Distributions to shareholders
Net investment income. . . . . . . (51,767) -
. . . . . . . . . . . . . . . . . __________ __________
Capital share transactions*
Shares sold. . . . . . . . . . . . 41,948,150 9,293,133
Distributions reinvested . . . . . 51,767 -
Shares redeemed. . . . . . . . . . (2,285,782) (122,600)
. . . . . . . . . . . . . . . . . __________ __________

Increase (decrease) in net assets
from capital share transactions. . 39,714,135 9,170,533
. . . . . . . . . . . . . . . . . __________ __________
Increase (decrease) in net assets. . . . 42,565,740 8,994,960
. . . . . . . . . . . . . . . . . __________ __________

NET ASSETS
Beginning of period. . . . . . . . . . . 9,094,960 100,000
. . . . . . . . . . . . . . . . . __________ __________
End of period. . . . . . . . . . . . . . $51,660,700 $9,094,960
. . . . . . . . . . . . . . . . . __________ __________
. . . . . . . . . . . . . . . . . __________ __________

*Share information
Shares sold. . . . . . . . . . . . 3,905,704 894,837
Shares reinvested. . . . . . . . . 5,320 -
Shares redeemed. . . . . . . . . . (214,523) (11,797)
. . . . . . . . . . . . . . . . . __________ __________
Increase (decrease) in shares
outstanding. . . . . . . . . . . . . . . 3,696,501 883,040
. . . . . . . . . . . . . . . . . __________ __________
. . . . . . . . . . . . . . . . . __________ __________

The accompanying notes are an integral part of these financial statements.

Notes To Financial Statements
T. Rowe Price International Stock Portfolio / December 31, 1995

Note 1 - Significant Accounting Policies
T. Rowe Price International Series, Inc. (the Corporation) is registered under
the Investment Company Act of 1940. The International Stock Portfolio (the
fund), a diversified, open-end management investment company, is the sole
portfolio currently established by the Corporation. The shares of the fund are
currently being offered only to separate accounts of certain insurance
companies as an investment medium for both variable annuity contracts and
variable life insurance policies.

A) Valuation - Equity securities listed or regularly traded on a securities
exchange (including Nasdaq) are valued at the last quoted sales price at the
time the valuations are made. A security which is listed or traded on more
than one exchange is valued at the quotation on the exchange determined to be
the primary market for such security. Other equity securities and those listed
securities that are not traded on a particular day are valued at a price
within the limits of the latest bid and asked prices deemed by the Board of
Directors, or by persons delegated by the Board best to reflect fair value.
Short-term debt securities are valued at their cost which, when combined
with accrued interest, approximates fair value.
For purposes of determining the fund's net asset value per share, the
U.S. dollar value of all assets and liabilities initially expressed in foreign
currencies is determined by using the mean of the bid and offer prices of such
currencies against U.S. dollars quoted by a major bank.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by or under the supervision of the officers of the
fund, as authorized by the Board of Directors.

B) Currency Translation - Assets and liabilities are translated into U.S.
dollars at the prevailing exchange rate at the end of the reporting period.
Purchases and sales of securities and income and expenses are translated into
U.S. dollars at the prevailing exchange rate on the dates of such
transactions. The effect of changes in foreign exchange rates on realized and
unrealized security gains and losses is reflected as a component of such gains
and losses.

C) Other - Income and expenses are recorded on the accrual basis.
Investment transactions are accounted for on the trade date. Realized gains
and losses are reported on the identified cost basis. Dividend income and
distributions to shareholders are recorded by the fund on the ex-dividend
date. Income and capital gain distributions are determined in accordance with
federal income tax regulations and may differ from those determined in
accordance with generally accepted accounting principles.

Note 2 - Investment Transactions
Consistent with its investment objective, the fund engages in the following
practices to manage exposure to certain risks or enhance performance. The
investment objective, policies, program, and risk factors of the fund are
described more fully in the fund's prospectus and Statement of Additional
Information.

A) Emerging Markets - At December 31, 1995, the fund held investments in
securities of companies located in emerging markets. Future economic or
political developments could adversely affect the liquidity or value, or both,
of such securities.

B) Securities Lending - To earn additional income, the fund lends its
securities to approved brokers. At December 31, 1995, the market value of
securities on loan was $918,834, which was fully collateralized with cash.
Although the risk is mitigated by the collateral, the fund could experience a
delay in recovering its securities and a possible loss of income or value if
the borrower fails to return them.

C) Other - Purchases and sales of portfolio securities, other than
short-term securities, aggregated $40,279,036 and $3,696,433, respectively,
for the year ended December 31, 1995.

Note 3 - Federal Income Taxes
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of
its taxable income. Capital loss carryforwards utilized in 1995 amounted to
$949. The fund intends to retain gains realized in future periods that may be
offset by available capital loss carryforwards.
At December 31, 1995, the aggregate cost of investments for federal
income tax and financial reporting purposes was $48,031,319 and net unrealized
gain aggregated $2,204,923, of which $3,313,763 related to appreciated
investments and $1,108,840 to depreciated investments.

Note 4 - Related Party Transactions
The fund is managed by Rowe Price-Fleming International, Inc. (the Manager),
which is owned by T. Rowe Price Associates, Inc., Robert Fleming Holdings
Limited, and Jardine Fleming Holdings Limited under a joint venture agreement.
The investment management and administrative agreement between the fund
and the Manager provides for an all-inclusive annual fee, computed daily and
paid monthly, equal to 1.05% of the fund's average daily net assets.
Pursuant to the agreement, investment management, shareholder servicing,
transfer agency, accounting, and custody services are provided to the fund,
and interest, taxes, brokerage commissions, and extraordinary expenses are
paid directly by the fund.
During the year ended December 31, 1995, the fund, in the ordinary
course of business, paid commissions of $5,341 to, and placed security
purchase and sale orders aggregating $1,613,544 with certain affiliates of the
Manager in connection with the execution of various portfolio transactions.

Financial Highlights
T. Rowe Price International Stock Portfolio

For a share outstanding throughout each period
_______________________________________
From March 31, 1994
(Commencement of
Year EndedOperations) to
December 31, 1995December 31, 1994
__________________________________
NET ASSET VALUE, BEGINNING
OF PERIOD. . . . . . . . . . . . . . $ 10.18 $ 10.00
______ ______
Investment Activities
Net investment income. . . . . 0.07 0.06
Net realized and unrealized
gain (loss). . . . . . . . . . 1.06 0.12*
______ ______
Total from investment
activities . . . . . . . . . . 1.13 0.18
______ ______
Distributions
Net investment income. . . . . (0.05) -
______ ______
NET ASSET VALUE, END OF PERIOD . . . $ 11.26 $ 10.18
______ ______
______ ______

RATIOS/SUPPLEMENTAL DATA
Total return . . . . . . . . . . . . 11.2% 1.8%
Ratio of expenses to average net assets 1.05% 1.05%!
Ratio of net investment income to
average net assets . . . . . . . . . 1.47% 1.50%!
Portfolio turnover rate. . . . . . . 17.4% 4.6%!
Net assets, end of period . . . . . $ 51,660,700 $ 9,094,960

! Annualized.
* The amount presented is calculated pursuant to a methodology prescribed
by the Securities and Exchange Commission for a share outstanding
throughout the period. This amount is inconsistent with the fund's
aggregate gains and losses because of the timing of sales and
redemptions of fund shares in relation to fluctuating market values for
the investment portfolio.

Report of Independent Accountants

To the Board of Directors of T. Rowe Price International Series, Inc.
and Shareholders of the International Stock Portfolio

In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the International Stock Portfolio (constituting T. Rowe Price International
Series, Inc., hereafter referred to as the "Fund") at December 31, 1995, and
the results of its operations, the changes in its net assets and the financial
highlights for each of the fiscal years presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at December 31, 1995 by
correspondence with custodians and brokers, provide a reasonable basis for the
opinion expressed above.

PRICE WATERHOUSE LLP

Baltimore, Maryland
January 18, 1996

Chart #1:Geographic diversification pie chart showing Europe 47%, Japan 22%,
Far East 11%, Latin America 6%, Other and Reserves 14%]

Chart #2: Performance Comparison chart: A line chart showing $10,000 growing to
$11,318 for ISP and to $11,581 for MSCI EAFE from 03/31/94 through 12/31/95
<PAGE>

T. Rowe Price Equity Income Portfolio
Annual Report
December 31, 1995

Dear Investor
The equity market continued to perform well in the second half of 1995,
reflecting strong corporate earnings, low inflation, a benign interest rate
environment, and strong investor demand. The unmanaged Standard & Poor's 500
Stock Index concluded its best year since 1958 and posted one of the strongest
12-month returns in history.
As shown in the table below, your fund did particularly well over the
past six months with a return of 16.4%, surpassing the returns of both the
broad market and the Lipper Equity Income Funds Average. For the year as a
whole, the fund comfortably exceeded the peer group average of similarly
managed funds and trailed the exceptionally powerful S&P 500.
Since our conservative investment approach sometimes lags the broad
index in unusually robust markets, we were pleased with the year's results.
Keep in mind that the generally conservative nature of your fund's investments
is also tailored to protect shareholders in the event of market declines.

Performance Comparison
Periods Ended 12/31/95

6 Months 12 Months
________ _________

Equity Income Portfolio 16.4% 34.8%
S&P 500 14.5 37.6
Lipper Equity Income
Funds Average 13.3 30.2

Dividend Distribution
On December 26, your Board of Trustees declared a fourth quarter dividend of
$0.11 per share, bringing 1995 total distributions to $0.70, including a $0.26
first quarter capital gain distribution. The fourth quarter dividend was paid
on December 28, 1995, to shareholders of record on December 26.

Portfolio Review
The strong performance of many financial stocks, the positive contribution of
our holdings in the health care sector, and gains generated by
large-capitalization consumer products stocks were among the most important
influences on 1995 fund results. Our investments in companies such as J.P.
Morgan, First Interstate, Sallie Mae, and Travelers Group were particularly
profitable.
Pharmaceutical stocks also performed extremely well. As you can see in
the Major Portfolio Changes table following this letter, some of the
successful investments we made in this sector were trimmed in the second half
of the year. After stocks such as Eli Lilly and Schering-Plough appreciated,
our valuation discipline encouraged us to reinvest some of the assets in more
undervalued stocks with attractive dividend yields. We also eliminated
Halliburton, an oil well services and engineering firm, following an advance
in its share price.
Over the past six months, the prices of many cyclical stocks fell as
investors worried about the durability of corporate earnings gains in 1996.
The decline in the value of such stocks as Union Camp, Betz Laboratories,
International Paper, and DuPont, among others, rendered them exceedingly
attractive, in our view.
For example, in 1995, Union Camp announced two dividend increases and a
stock buyback. With its substantially higher-than-market dividend yield and a
share price that had fallen sharply before our purchase, we believed it
prudent to buy shares and wait for the fundamentals of this quality company to
improve and for investor perceptions of the company to change for the better.
Regarding asset allocation, we increased your fund's exposure to both
stocks and cash reserves slightly during the past six months and lowered its
component of bonds.

CHART 1: Security Diversification Pie Chart

Summary and Outlook
We anticipate positive but slowing economic growth along with a more
challenging stock market environment in 1996. Instead of making detailed
economic and market forecasts, we would like to reiterate our primary
emphasis, which is on sound, conservatively based investments on your behalf.
This has been the hallmark of our approach for more than a decade. In almost
any market environment, we believe there will be intriguing opportunities on
which to capitalize profitably.
As always, we appreciate your continued confidence and support.

Respectfully submitted,

Brian C. Rogers
President and Chairman of the
Investment Advisory Committee

January 31, 1996

A Word on Market Corrections
_____________________________________________________________________________

After the stock market's spectacular run in 1995, concerns about a
"correction" have intensified. Most market observers consider a correction to
be a short and sometimes steep decline following a period of rising prices.
Moderate corrections of around 10% have been quite common, occurring on
average about once every two years over the last half-century, according to
Ned Davis Research.
The market as measured by the Dow Jones Industrial Average has not
experienced a moderate correction since early 1994. Furthermore, the Dow last
hit a bear market bottom - defined as a drop of at least 20% - in October
1990. Therefore, it would not be surprising to see a modest pullback in 1996,
on the order of 5% to 10%.
Corrections are not only common, but can be beneficial for long-term
investors, especially those who invest in regular amounts through dollar cost
averaging. In a correction, overall stock prices decline, often leading to
more attractive valuations and good buying opportunities. History has shown
that investors who continue to buy through a downturn fare quite well. In
fact, the Dow has proven resilient in the aftermath of past corrections of
around 10%, taking an average of just six months to recover its losses,
according to Ned Davis. (To realize the benefits of dollar cost averaging, you
should be prepared to continuously purchase securities over a period of time,
in up and down markets. This approach does not assure a gain nor protect you
from a loss in declining markets.)
We raise the issue of a market correction not as a prediction, but as a
reminder that stock prices do not move in only one direction. If you are
satisfied that your investments are appropriate for your various objectives,
we recommend that you stay the course when a correction eventually occurs.

Average Annual Compound Total Return
_____________________________________________________________________________

Periods Ended December 31, 1995

Since Inception
1 Year 3/31/94
_______ ________________

34.76% 23.31%

Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original
purchase.
Total returns do not include charges imposed by your insurance company's
separate account. If these were included, performance would have been lower.

Chart 2: Performance Comparison Line Graph

Note: The index return does not reflect expenses, which have been deducted
from the fund's return. Past performance does not predict future results.

Twenty-Five Largest Holdings
December 31, 1995

Percent of
Company Net Assets
________________________________________ ____________

SmithKline Beecham 1.9%

Atlantic Richfield 1.8

Pharmacia & Upjohn 1.6

Exxon 1.6

Philip Morris 1.5

GE 1.5

Mellon Bank 1.4

DuPont 1.4

Texaco 1.3

American Brands 1.3

Eli Lilly 1.3

First Interstate 1.3

Warner-Lambert 1.3

3M 1.2

American Express 1.2

J. P. Morgan 1.2

American Home Products 1.2

British Petroleum 1.2

GTE 1.2

Honeywell 1.2

Royal Dutch Petroleum 1.2

Kimberly-Clark 1.0

B. F. Saul REIT 1.0

Travelers Group 1.0

Fannie Mae 1.0
______________________________________________________________

Total 32.8%

Major Portfolio Changes

Six Months Ended December 31, 1995
Listed in descending order of size

LARGEST PURCHASES
____________________________________________________________
Atlantic Richfield

B. F. Saul REIT Bond*

SmithKline Beecham

DuPont

Exxon

Union Camp*

American Brands

British Petroleum

LARGEST SALES
____________________________________________________________

Maytag**

Halliburton**

Crown Central Petroleum Bond**

WestPoint Stevens Bond**

NationsBank**

Allstate**

Times Mirror**

Melville**

Time Warner Bond

TJX**

*Position added
**Position eliminated

Statement of Net Assets
T. Rowe Price Equity Income Portfolio / December 31, 1995

Value
_________
Common Stocks - 79.8%

FINANCIAL - 15.0%
________________________________________________________________________

BANK AND TRUST - 8.2%
2,700 shs BANC ONE . . . . . . . . . . . . . . . . $101,925
1,200 Bankers Trust New York . . . . . . . . . 79,800
600 * Brooklyn Bancorp . . . . . . . . . . . . 24,375
1,800 Chase Manhattan. . . . . . . . . . . . . 109,125
1,400 Chemical Banking . . . . . . . . . . . . 82,250
1,400 First Interstate . . . . . . . . . . . . 191,100
2,200 J. P. Morgan . . . . . . . . . . . . . . 176,550
3,800 Mellon Bank. . . . . . . . . . . . . . . 204,250
2,600 National City. . . . . . . . . . . . . . 86,125
2,100 PNC Bank . . . . . . . . . . . . . . . . 67,725
5,200 S-E-Banken (SEK) . . . . . . . . . . . . 43,074
1,200 U. S. Bancorp. . . . . . . . . . . . . . 40,275
1,206,574
INSURANCE - 2.1%
1,100 American General . . . . . . . . . . . . 38,363
1,000 Hilb, Rogal and Hamilton . . . . . . . . 13,375
1,500 Loews . . . . . . . . . . . . . . . . 117,562
3,000 Provident. . . . . . . . . . . . . . . . 101,625
400 UNUM . . . . . . . . . . . . . . . . 22,000
1,000 Willis-Corroon ADR . . . . . . . . . . . 11,625
304,550
FINANCIAL SERVICES - 4.7%
4,300 American Express . . . . . . . . . . . . 177,913
1,200 Fannie Mae . . . . . . . . . . . . . . . 148,950
2,100 H&R Block. . . . . . . . . . . . . . . . 85,050
2,000 Sallie Mae . . . . . . . . . . . . . . . 131,750
2,400 Travelers Group. . . . . . . . . . . . . 150,900
694,563
Total Financial 2,205,687

UTILITIES - 10.8%
_________________________________________________________________________

TELEPHONE - 4.8%
3,700 ALLTEL . . . . . . . . . . . . . . . . 109,150
2,350 BCE . . . . . . . . . . . . . . . . 81,075
700 Bell Atlantic. . . . . . . . . . . . . . 46,812
1,600 BellSouth. . . . . . . . . . . . . . . . 69,600
300 COMSAT . . . . . . . . . . . . . . . . 5,588
3,900 GTE . . . . . . . . . . . . . . . . 171,600
400 Pacific Telesis. . . . . . . . . . . . . 13,450
2,500 Southern New England
Telecommunications . . . . . . . . . 99,375
3,050 U. S. WEST . . . . . . . . . . . . . . . 109,037
705,687
ELECTRIC UTILITIES - 6.0%
1,900 BGE . . . . . . . . . . . . . . . . 54,150
9,500 Centerior Energy . . . . . . . . . . . . 84,312
1,250 Dominion Resources . . . . . . . . . . . 51,563
2,012 DQE . . . . . . . . . . . . . . . . 61,869
3,800 Entergy. . . . . . . . . . . . . . . . . 111,150
2,000 Florida Progress . . . . . . . . . . . . 70,750
1,500 General Public Utilities . . . . . . . . 51,000
2,800 Pacific Gas and Electric . . . . . . . . 79,450
5,300 shs PacifiCorp . . . . . . . . . . . . . . . $112,625
4,000 SCEcorp. . . . . . . . . . . . . . . . . 71,000
3,200 Southern Company . . . . . . . . . . . . 78,800
1,500 Unicom . . . . . . . . . . . . . . . . 49,125
875,794
Total Utilities 1,581,481

CONSUMER NONDURABLES - 18.7%
_________________________________________________________________________

BEVERAGES - 1.3%
2,000 Anheuser-Busch . . . . . . . . . . . . . 133,750
1,700 Brown-Forman (Class B) . . . . . . . . . 62,050
195,800

FOOD PROCESSING - 3.3%
1,400 CPC International. . . . . . . . . . . . 96,075
2,000 General Mills. . . . . . . . . . . . . . 115,500
3,700 Heinz . . . . . . . . . . . . . . . . 122,563
1,700 Quaker Oats. . . . . . . . . . . . . . . 58,650
2,800 Sara Lee . . . . . . . . . . . . . . . . 89,250
482,038

HOSPITAL SUPPLIES/HOSPITAL
MANAGEMENT - 0.9%
900 Bausch & Lomb. . . . . . . . . . . . . . 35,663
2,400 Baxter International . . . . . . . . . . 100,500
136,163

PHARMACEUTICALS - 7.7%
1,800 American Home Products . . . . . . . . . 174,600
3,400 Eli Lilly. . . . . . . . . . . . . . . . 191,250
6,192 Pharmacia & Upjohn . . . . . . . . . . . 239,940
1,200 Schering-Plough. . . . . . . . . . . . . 65,700
4,900 SmithKline Beecham
ADR. . . . . . . . . . . . . . . . . 271,950
1,900 Warner-Lambert . . . . . . . . . . . . . 184,537
1,127,977
MISCELLANEOUS CONSUMER
PRODUCTS - 5.5%
4,300 American Brands. . . . . . . . . . . . . 191,887
1,000 Clorox . . . . . . . . . . . . . . . . 71,625
1,400 Hanson ADR . . . . . . . . . . . . . . . 21,350
2,400 Philip Morris. . . . . . . . . . . . . . 217,200
1,800 RJR Nabisco. . . . . . . . . . . . . . . 55,575
2,000 Tambrands. . . . . . . . . . . . . . . . 95,500
300 Unilever N.V. ADR. . . . . . . . . . . . 42,225
3,200 UST . . . . . . . . . . . . . . . . 106,800
802,162

Total Consumer Nondurables 2,744,140

CONSUMER SERVICES - 4.9%
________________________________________________________________________

GENERAL MERCHANDISERS - 2.0%
800 Dayton Hudson. . . . . . . . . . . . . . 60,000
1,900 J.C. Penney. . . . . . . . . . . . . . . 90,488
2,200 May Department Stores. . . . . . . . . . 92,950
1,500 Sears . . . . . . . . . . . . . . . . 58,500
301,938
SPECIALTY MERCHANDISERS - 0.1%
400 Fleming Companies. . . . . . . . . . . . 8,250

ENTERTAINMENT AND LEISURE - 0.1%
100 shs Reader's Digest (Class A),
non-voting . . . . . . . . . . . . . $ 5,125
200 Reader's Digest (Class B). . . . . . . . 9,450
14,575
MEDIA AND COMMUNICATIONS - 2.7%
2,200 Dun & Bradstreet . . . . . . . . . . . . 142,450
1,600 Gannett. . . . . . . . . . . . . . . . . 98,200
1,300 McGraw-Hill. . . . . . . . . . . . . . . 113,262
2,050 U. S. West Media Group . . . . . . . . . 38,950
392,862
Total Consumer Services 717,625
_____________________________________________________________________________
CONSUMER CYCLICALS - 4.5%

AUTOMOBILES AND RELATED - 1.1%
1,200 Eaton . . . . . . . . . . . . . . . . 64,350
300 Genuine Parts. . . . . . . . . . . . . . 12,300
1,200 TRW . . . . . . . . . . . . . . . . 93,000
169,650
BUILDING AND REAL ESTATE - 1.8%
3,400 DeBartolo Realty, REIT . . . . . . . . . 44,200
2,200 General Growth
Properties, REIT . . . . . . . . . . 45,650
3,000 Simon Property
Group, REIT. . . . . . . . . . . . . 73,125
2,500 Weingarten Realty
Investors, REIT. . . . . . . . . . . 95,000
257,975
MISCELLANEOUS CONSUMER
DURABLES - 1.6%
3,500 Corning. . . . . . . . . . . . . . . . . 112,000
1,800 Eastman Kodak. . . . . . . . . . . . . . 120,600
232,600

Total Consumer Cyclicals 660,225

TECHNOLOGY - 1.7%
__________________________________________________________________________

ELECTRONIC SYSTEMS - 1.4%
1,500 EG&G . . . . . . . . . . . . . . . . 36,375
3,500 Honeywell. . . . . . . . . . . . . . . . 170,188
206,563
OFFICE AUTOMATION - 0.3%
900 Pitney Bowes . . . . . . . . . . . . . . 42,300

Total Technology 248,863

CAPITAL EQUIPMENT - 2.6%
_________________________________________________________________________

ELECTRICAL EQUIPMENT - 2.0%
3,000 GE . . . . . . . . . . . . . . . . 216,000
1,200 Hubbell (Class B). . . . . . . . . . . . 78,900
294,900

MACHINERY - 0.6%
2,267 Cooper Industries. . . . . . . . . . . . 83,312

Total Capital Equipment 378,212

ENERGY - 10.0%
_________________________________________________________________________

ENERGY SERVICES - 0.4%
411 shs * Cooper Cameron . . . . . . . . . . . . . $ 14,591
1,600 McDermott International. . . . . . . . . 35,200
200 Witco . . . . . . . . . . . . . . . . 5,850
55,641
INTEGRATED PETROLEUM -
DOMESTIC - 4.1%
2,400 Atlantic Richfield . . . . . . . . . . . 265,800
1,700 British Petroleum ADR. . . . . . . . . . 173,613
1,600 Pennzoil . . . . . . . . . . . . . . . . 67,600
1,310 Sun Company. . . . . . . . . . . . . . . 35,861
3,500 USX-Marathon . . . . . . . . . . . . . . 68,250
611,124
INTEGRATED PETROLEUM -
INTERNATIONAL - 5.4%
1,150 Chevron. . . . . . . . . . . . . . . . . 60,375
2,900 Exxon . . . . . . . . . . . . . . . . 232,362
1,200 Mobil . . . . . . . . . . . . . . . . 134,400
1,200 Royal Dutch Petroleum
ADR. . . . . . . . . . . . . . . . . 169,350
2,500 Texaco . . . . . . . . . . . . . . . . 196,250
792,737
GAS TRANSMISSION - 0.1%
700 TransCanada PipeLines. . . . . . . . . . 9,625

Total Energy 1,469,127

PROCESS INDUSTRIES - 8.0%
_________________________________________________________________________

DIVERSIFIED CHEMICALS - 2.2%
2,900 DuPont . . . . . . . . . . . . . . . . 202,637
1,000 Monsanto . . . . . . . . . . . . . . . . 122,500
325,137
SPECIALTY CHEMICALS - 2.7%
2,700 3M . . . . . . . . . . . . . . . . 178,875
2,600 Betz Laboratories. . . . . . . . . . . . 106,600
1,500 Crompton & Knowles . . . . . . . . . . . 19,875
3,200 Lubrizol . . . . . . . . . . . . . . . . 89,200
394,550
PAPER AND PAPER PRODUCTS - 2.7%
2,700 International Paper. . . . . . . . . . . 102,263
1,850 Kimberly-Clark . . . . . . . . . . . . . 153,087
2,800 Union Camp . . . . . . . . . . . . . . . 133,350
388,700
FOREST PRODUCTS - 0.4%
900 Georgia-Pacific. . . . . . . . . . . . . 61,763

Total Process Industries 1,170,150

BASIC MATERIALS - 0.8%
_____________________________________________________________________________

MINING - 0.8%
2,449 Newmont Mining . . . . . . . . . . . . . 110,817

Total Basic Materials 110,817

BUSINESS SERVICES AND
TRANSPORTATION - 2.2%
__________________________________________________________________________

TRANSPORTATION SERVICES - 0.6%
1,550 shs Alexander & Baldwin. . . . . . . . . . . $ 36,037
1,200 PHH . . . . . . . . . . . . . . . . 56,100
92,137
MISCELLANEOUS BUSINESS
SERVICES - 0.3%
800 Deluxe . . . . . . . . . . . . . . . . . 23,200
500 GATX . . . . . . . . . . . . . . . . 24,313
47,513
RAILROADS - 1.3%
1,300 Conrail. . . . . . . . . . . . . . . . . 91,000
1,500 Union Pacific. . . . . . . . . . . . . . 99,000

190,000

Total Business Services and Transportation329,650

CONGLOMERATES - 0.6%
31,200 LONRHO (GBP) . . . . . . . . . . . . . . 85,280
_____________________________________________________________________________

Total Conglomerates 85,280

Total Common Stocks (Cost $10,292,058) 11,701,257

Convertible Bonds - 0.7%
$ 8,250 Time Warner, Sub. Deb.,
8.75%, 1/10/15 . . . . . . . . . . . 8,560

Miscellaneous Convertible Bonds 102,000

Total Convertible Bonds (Cost $106,970) 110,560

Corporate Bonds - 1.6%
150,000 B.F. Saul, REIT, Sr.
Secured Notes,
11.625%, 4/1/02. . . . . . . . . . . 153,000
25,000 Coca-Cola Bottling Group,
Sr. Sub. Notes,
9.00%, 11/15/03. . . . . . . . . . . 25,000
30,000 Continental Cablevision,
Sr. Deb.,
9.00%, 9/1/08. . . . . . . . . . . . 31,500
25,000 Paging Network, Sr. Sub.
Notes, 8.875%, 2/1/06. . . . . . . . 25,625

Total Corporate Bonds (Cost $230,312) 235,125

U.S. Government Obligations/Agencies - 0.6%
U.S. Treasury Bonds
20,000 6.25%, 8/15/23 . . . . . . . . . . . 20,578
U.S. Treasury Notes
20,000 5.875%, 2/15/04. . . . . . . . . . . 20,422
25,000 6.125%, 7/31/96. . . . . . . . . . . 25,121
$ 20,000 7.375%, 11/15/97 . . . . . . . . . . $ 20,756

Total U.S. Government Obligations/Agencies
(Cost $81,116) 86,877

Short-Term Investments - 19.8%

COMMERCIAL PAPER - 19.8%
500,000 Bayer, 4(2),
5.52%, 2/28/96 . . . . . . . . . . . 495,323
500,000 Caisse des Depots
et Consignations, 4(2),
5.76%, 1/17/96 . . . . . . . . . . . 496,560
300,000 Countrywide Funding,
5.84%, 1/9/96. . . . . . . . . . . . 298,686
200,000 Finnish Export Credit Ltd.,
5.71%, 1/17/96 . . . . . . . . . . . 196,923
715,889 Investments in
Commercial Paper
through a joint account,
5.90-6.05%, 1/2/96 . . . . . . . . . 715,416
300,000 Reed Elsevier,
5.80%, 1/12/96 . . . . . . . . . . . 298,598
300,000 SBNSW (Delaware),
5.77%, 1/10/96 . . . . . . . . . . . 298,365
100,000 Wool International,
5.64%, 2/2/96. . . . . . . . . . . . 97,572

Total Short-Term Investments
(Cost $2,897,443) 2,897,443

Total Investments in Securities - 102.5%
of Net Assets (Cost $13,607,899) 15,031,262

Other Assets Less Liabilities . . . . . . . . . . . . . . . . (373,707)
_________

Net Assets Consist of: Value
Accumulated net
realized gain/loss -
net of distributions . . . . . . . . . . . $ 13,704
Net unrealized gain (loss). . . . . . . . . . . 1,423,366
Paid-in-capital applicable
to 1,109,928 shares of $0.0001
par value capital stock
outstanding; 1,000,000,000
shares authorized. . . . . . . . . . . . . 13,220,485
__________
NET ASSETS. . . . . . . . . . . . . . . . . . . $14,657,555
__________
__________

NET ASSET VALUE PER SHARE . . . . . . . . . . . $ 13.21
______
______

* Non-income producing
REIT Real Estate Investment Trust
4(2) Commercial paper sold within terms of a private placement
memorandum, exempt from registration under section 4.2 of the
Securities Act of 1933, as amended, and may be sold only to dealers
in that program or other "accredited investors."
GBP British sterling
SEK Swedish krona

The accompanying notes are an integral part of these financial statements.

Statement of Operations
T. Rowe Price Equity Income Portfolio / Year Ended December 31, 1995

INVESTMENT INCOME

Income
Dividend . . . . . . . . . . . . . . . . . $ 160,762
Interest . . . . . . . . . . . . . . . . . 79,558
_________
Total income . . . . . . . . . . . . . . . 240,320
_________

Expenses
Investment management and
administrative . . . . . . . . . . . . . . 45,705
_________
Net investment income . . . . . . . . . . . . . 194,615
_________
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Securities . . . . . . . . . . . . . . . . 59,139
Foreign currency transactions. . . . . . . 150
_________
Net realized gain (loss) . . . . . . . . . 59,289
Change in net unrealized gain or loss
on securities. . . . . . . . . . . . . . . 1,397,674
_________
Net realized and unrealized gain
(loss) . . . . . . . . . . . . . . . . . . . 1,456,963
_________
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS . . . . . . . . . . . . . . . . $ 1,651,578
_________
_________

The accompanying notes are an integral part of these financial statements.

Statement of Changes in Net Assets
T. Rowe Price Equity Income Portfolio

From
March 31,
1994
(Commencement
Year Ended of Operations)
Dec. 31,1995 to Dec. 31,1994
___________ _____________

INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income. . . . . . . . . . . $ 194,615 $ 61,507
Net realized gain (loss) . . . . . . . . . 59,289 55,180
Change in net unrealized gain or
loss . . . . . . . . . . . . . . . . . . . 1,397,674 25,692
__________ __________
Increase (decrease) in net assets
from operations. . . . . . . . . . . . . . 1,651,578 142,379
__________ __________
Distributions to shareholders
Net investment income. . . . . . . . . . . (242,394) (59,148)
Net realized gain. . . . . . . . . . . . . (55,345) -
__________ __________
Decrease in net assets from
distributions. . . . . . . . . . . . . . . (297,739) (59,148)
__________ __________
Capital share transactions*
Shares sold. . . . . . . . . . . . . . . . 12,026,041 1,998,875
Distributions reinvested . . . . . . . . . 297,705 59,128
Shares redeemed. . . . . . . . . . . . . . (1,266,204) (168)
__________ __________
Increase (decrease) in net assets
from capital share transactions. . . . . . 11,057,542 2,057,835
__________ __________
Net equalization. . . . . . . . . . . . . . . . 54,818 290
__________ __________
Increase (decrease) in net assets . . . . . . . 12,466,199 2,141,356
NET ASSETS
Beginning of period . . . . . . . . . . . . . . 2,191,356 50,000
__________ __________
End of period . . . . . . . . . . . . . . . . . $14,657,555 $ 2,191,356
__________ __________
__________ __________

*Share information
Shares sold. . . . . . . . . . . . . . . . 977,781 199,651
Distributions reinvested . . . . . . . . . 24,844 5,711
Shares redeemed. . . . . . . . . . . . . . (103,043) (16)
__________ __________
Increase (decrease) in shares
outstanding. . . . . . . . . . . . . . . . 899,582 205,346
__________ __________
__________ __________

The accompanying notes are an integral part of these financial statements.

Notes To Financial Statements
T. Rowe Price Equity Income Portfolio / December 31, 1995

Note 1 - Significant Accounting Policies
T. Rowe Price Equity Series, Inc. (the Corporation) is registered under the
Investment Company Act of 1940. The Equity Income Portfolio (the fund), a
diversified, open-end management investment company, is one of the portfolios
established by the Corporation. The shares of the fund are currently being
offered only to separate accounts of certain insurance companies as an
investment medium for both variable annuity contracts and variable life
insurance policies.

A) Valuation - Equity securities listed or regularly traded on a securities
exchange are valued at the last quoted sales price at the time the valuations
are made. A security which is listed or traded on more than one exchange is
valued at the quotation on the exchange determined to be the primary market
for such security. Listed securities that are not traded on a particular day
and securities that are regularly traded in the over-the-counter market are
valued at the mean of the latest bid and asked prices. Other equity securities
are valued at a price within the limits of the latest bid and asked prices
deemed by the Board of Directors, or by persons delegated by the Board, best
to reflect fair value.
Debt securities are generally traded in the over-the-counter market and
are valued at a price deemed best to reflect fair value as quoted by dealers
who make markets in these securities or by an independent pricing service.
Short-term debt securities are valued at their cost which, when combined with
accrued interest, approximates fair value.
For purposes of determining the fund's net asset value per share, the
U.S. dollar value of all assets and liabilities initially expressed in foreign
currencies is determined by using the mean of the bid and offer prices of such
currencies against U.S. dollars quoted by a major bank.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by or under the supervision of the officers of the
fund, as authorized by the Board of Directors.

C) Premiums and Discounts - Premiums and discounts on debt securities are
amortized for both financial reporting and tax purposes.

D) Other - Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses
are reported on the identified cost basis. Dividend income and distributions
to shareholders are recorded by the fund on the ex-dividend date. Income and
capital gain distributions are determined in accordance with federal income
tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. The fund follows the practice of
equalization under which undistributed net investment income per share is
unaffected by fund shares sold or redeemed.

Note 2 - Investment Transactions
A) Commercial Paper Joint Account - The fund, and other affiliated funds, may
transfer uninvested cash into a commercial paper joint account, the daily
aggregate balance of which is invested in high-grade commercial paper. All
securities purchased by the joint account satisfy the fund's criteria as to
quality, yield, and liquidity.

B) Other - Purchases and sales of portfolio securities, other than short-term
securities, aggregated $9,180,712 and $475,059, respectively, for the year
ended December 31, 1995.

Note 3 - Federal Income Taxes
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of
its taxable income.
In order for the fund's capital accounts and distributions to
shareholders to reflect the tax character of certain transactions, $9,398 of
undistributed net investment income and $45,420 of undistributed net realized
gains were reclassified as a $54,818 increase to paid-in-capital during the
year ended December 31, 1995. The results of operations and net assets were
not affected by the reclassifications.
At December 31, 1995, the aggregate cost of investments for federal
income tax and financial reporting purposes was $13,607,899 and net unrealized
gain aggregated $1,423,363, of which $1,451,863 related to appreciated
investments and $28,500 to depreciated investments.
For federal income tax purposes the fund paid a distribution from net
long-term capital gains of $31,315 ($0.0296 per share to shareholders of
record on December 26, 1995). This amount may differ from that cited elsewhere
in this report due to differences in the calculation for financial reporting
and federal income tax purposes.

Note 4 - Related Party Transactions
The investment management and administrative agreement between the fund and T.
Rowe Price Associates, Inc. (the Manager) provides for an all-inclusive annual
fee, computed daily and paid monthly, equal to 0.85% of the fund's average
daily net assets. Pursuant to the agreement, investment management,
shareholder servicing, transfer agency, accounting, and custody services are
provided to the fund, and interest, taxes, brokerage commissions, and
extraordinary expenses are paid directly by the fund.

Financial Highlights
T. Rowe Price Equity Income Portfolio

For a share outstanding throughout each period
_______________________________________
From March 31,
1994 (Commencement
Year Ended of Operations) to
December 31, December 31,
1995 1994
________________ _______________

NET ASSET VALUE, BEGINNING OF PERIOD $ 10.42 $ 10.00
______ ______
Investment activities
Net investment income 0.44 0.30
Net realized and unrealized gain (loss) 3.05 0.41
______ ______

Total from investment activities 3.49 0.71
______ ______
Distributions
Net investment income (0.44) (0.29)
Net realized gain (0.26) -
______ ______
Total distributions (0.70) (0.29)
______ ______
NET ASSET VALUE, END OF PERIOD $13.21 $10.42
______ ______
______ ______

RATIOS / SUPPLEMENTAL DATA
Total return 34.8% 7.2%
Ratio of expenses to average net assets 0.85% 0.85%!
Ratio of net investment income to average
net assets 3.61% 3.88%!
Portfolio turnover rate 10.1% 21.3%!
Net assets, end of period $14,657,555 $2,191,356

! Annualized.

Report of Independent Accountants

To the Board of Directors of T. Rowe Price Equity Series, Inc.
and Shareholders of the Equity Income Portfolio

In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Equity Income Portfolio (one of the portfolios constituting T. Rowe Price
Equity Series, Inc., hereafter referred to as the "Fund") at December 31,
1995, and the results of its operations, the changes in its net assets and the
financial highlights for each of the fiscal periods presented, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at December 31, 1995 by
correspondence with custodians and brokers, provide a reasonable basis for the
opinion expressed above.

PRICE WATERHOUSE LLP

Baltimore, Maryland
January 18, 1996

Chart 1: Security Diversification Pie Chart showing stocks 80%, bonds 2%,
convertibles 1%, reserves 17%

Chart 2: Performance Comparison line graph showing $10,000 growing to
$14,439 for EIP and to $14,489 for S & P 500 from 3/31/94 through 12/31/95.

<PAGE>

QUEST FOR VALUE ACCUMULATION TRUST
Managed by

LOGO

We at OpCap Advisors are pleased to report on the investment activities
and results of the portfolios in the Quest for Value Accumulation Trust for
1995, a very favorable year for investors. Prices of stocks and bonds rose
sharply during the year in an environment of declining interest rates, low
inflation, strong corporate profits and slow economic growth.

Our Value-Based Investment Philosophy

The portfolios in the Quest for Value Accumulation Trust are intended for
the long-term investor who seeks to preserve capital and make it grow. Our
objective in managing the portfolios is to deliver above-average returns with
below-average risk.

Our philosophy in buying common stocks is to purchase quality companies
at reasonable prices. We believe the single most important determinant of
whether a stock will increase in value is the rate of return on invested
capital within the company. In our view, companies with high returns can
compound their capital and increase their value for extended periods.
Therefore, we look for companies with above-average returns where those
returns are protected by strong competitive positions. Moreover, we want these
companies to use their cash flow to benefit shareholders -- through stock
buybacks or astute acquisitions, for instance. We stick with good companies
until their value is reflected in the stock price, or until we find companies
that offer even better value.

Similarly, we are value investors in the bond market. We seek to preserve
capital and maximize income by looking for sector, maturity and quality groups
that provide the highest yield at the lowest price with the least amount of
risk. We avoid such techniques as interest rate forecasting and market timing,
which in our view tend to increase volatility and add to risk.

Name Changes

In November, the Trust's investment adviser changed its name from Quest
for Value Advisors to OpCap Advisors. Effective May 1, 1996, the name of the
Accumulation Trust will become OCC Accumulation Trust. These name changes will
link both the Trust and its adviser more closely to Oppenheimer Capital, the
adviser's parent. OpCap is short for Oppenheimer Capital, while OCC is the New
York Stock Exchange symbol of the publicly traded partnership which owns a
majority interest in Oppenheimer Capital. Most important of all, these name
changes have no effect on the investment philosophy or structure of the
Accumulation Trust. The same professionals continue to manage the portfolios
of the Trust, employing the same value philosophy and backed by the same
organization and support staff.
<PAGE>

SMALL CAP PORTFOLIO

The Small Cap Portfolio, which as its name implies invests primarily in
the common stocks of smaller companies, had a total return of 15.2% in 1995,
below the total return of 28.5% with dividends included for the Russell 2000
Index, a widely followed benchmark which includes smaller capitalization
stocks. The Portfolio's performance was 25th among the 28 small company growth
funds in Lipper's Variable Insurance Products Performance Analysis Service
Report. In the 1995 second half, the Portfolio provided a total return of
8.8%, compared with 12.3% for the Russell 2000.

The Portfolio underperformed the index, in large part, because it did not
own many technology or financial service company stocks, two of the small cap
market's strongest sectors in 1995. Conversely, the Portfolio was overweighted
in real estate investment trusts (REITs). Many quality REITs appear to be
significantly undervalued. However, with their defensive investment
characteristics, they did not perform well during 1995 in a rising market.

For the five years ended December 31, 1995, the Portfolio provided an
average annual total return of 19.7%*, compared with the 21.0% average annual
return for the Russell 2000 Index. The Portfolio's five-year performance was
sixth among seven funds in the Lipper small company growth fund category. From
its inception on August 1, 1988 through December 31, 1995, the Portfolio
provided an average annual total return of 14.2%*, exceeding the 12.6% annual
total return for the Russell Index. Returns for the Portfolio take into
account expenses incurred by the Portfolio, but not any of the charges imposed
by the Variable Accounts.

Technology issues are only part of the small cap universe, and an
expensive and volatile part at that. The rest of the small cap market carries
valuations that are, in many cases, quite reasonable. We are conservative
investors in small cap stocks, seeking to control volatility and generate
superior returns by purchasing quality businesses that are mispriced by the
market. The Portfolio owns a diverse group of companies distinguished by their
excellent business and financial characteristics, including high cash flow and
strong competitive positions. An example is Oak Industries, Inc., the
Portfolio's largest equity position. Oak Industries is the dominant supplier
of coaxial cable connectors to the cable television industry and is benefiting
from systems upgrading throughout the industry. The telecommunications bill
before the Congress, if passed in its current form, should further boost Oak's
business by promoting increased competition in the delivery of
telecommunications services to the home. Moreover, international revenues
account for approximately 40% of the sales of Oak's major subsidiary, and
these revenues are increasing at a rate of about 40% a year as Oak capitalizes
on the rapid growth of cable TV overseas. Oak Industries earns a high return
on capital and has increased its gross margins from 18.7% in 1989 to 40.1% in
1995. We believe the stock is significantly undervalued at 11 times reported
earnings.

We remain disciplined and confident in our approach and continue to
perform the rigorous, in-depth analysis to identify quality businesses, such
as Oak Industries, where the value of the franchise is underpriced in the
market. Our goal is to provide above-average returns with below-average risk
over time as the market recognizes the merits of the undervalued stocks we
own.

As of December 31, 1995, the Portfolio's net assets were allocated 85% to
common stocks and securities convertible into common stocks, 14% to cash and
cash equivalents, and 1% to assets in excess of liabilities. The Portfolio
owned the common stocks of 74 companies. Major industry positions were in the
manufacturing, electronics, energy, real estate and insurance sectors. The
Portfolio's five largest equity holdings were Oak Industries, Inc., with its
core business of manufacturing coaxial cable connectors for the cable
television industry; BancTec, Inc., which provides electronic systems and
software for processing financial documents and transactions; Westpoint
Stevens, Inc., a leading manufacturer of home textiles, including sheets and
other bedding products; Crane Co., which manufactures aerospace, fluid
handling and controls components and vending machines and distributes and
manufactures housing-related building products; and True North Communications,
Inc., an advertising agency holding company owning Foote, Cone & Belding
Communications, Inc., one of the largest advertising agencies in North
America.
- ---------------

* Based on results of the Quest for Value Accumulation Trust and its
predecessor. On September 16, 1994, an investment company which had commenced
operations on August 1, 1988, then called Quest for Value Accumulation Trust
(the "Old Trust"), was effectively divided into two investment funds -- the
Old Trust and the present Quest for Value Accumulation Trust (the "Present
Trust") -- at which time the Present Trust commenced operations. The total net
assets of the Small Cap Portfolio immediately after the transaction were
$139,812,573 in the Old Trust and $8,129,274 in the Present Trust. For the
periods prior to September 16, 1994, the performance reflects the performance
of the corresponding Small Cap Portfolio of the Old Trust.

COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
QUEST FOR VALUE ACCUMULATION TRUST SMALL CAP PORTFOLIO FROM INCEPTION (8/1/88)*
THROUGH 12/31/95 AND TOTAL RETURN ON RUSSELL 2000 INDEX+

<TABLE>
<CAPTION>
Measurement Period Small Cap Russell 2000
(Fiscal Year Covered) Portfolio Index
<S> <C> <C>
08/01/88 10000 10000
12/31/88 10190 9936
12/31/89 12060 11549
12/31/90 10883 9295
12/31/91 16120 13575
12/31/92 19584 16076
12/31/93 23405 19127
12/31/94 23170 18778
12/31/95 26698 24121
</TABLE>

Past performance is not predictive of future performance.
Assumes reinvestment of all dividends and distributions.
+with dividends.
The performance graph does not reflect charges imposed by the Variable
Accounts.
<PAGE>

QUEST FOR VALUE ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS

December 31, 1995

<TABLE>
<CAPTION>
Principal
Amount Value
- --------- -----------
<C> <S> <C>
SHORT-TERM CORPORATE NOTES - 13.9%

Banking - 3.9%
$ 625,000 Norwest Financial, Inc., 5.62%, 1/23/96............................... $ 622,853
-----------
Conglomerates - 1.6%
150,000 General Electric Capital Corp., 5.76%, 1/8/96......................... 149,832
100,000 General Electric Capital Services, Inc., 5.76%, 1/8/96................ 99,888
-----------
249,720
-----------
Insurance - 1.2%
200,000 Prudential Funding Corp., 5.75%, 1/17/96.............................. 199,489
-----------
Machinery - 2.8%
Deere (John) Capital Corp.,
300,000 5.63%, 1/17/96........................................................ 299,249
150,000 5.73%, 1/4/96......................................................... 149,929
-----------
449,178
-----------
Miscellaneous Financial Services - 4.4%
Beneficial Corp.,
500,000 5.70%, 1/5/96......................................................... 499,683
100,000 5.76%, 1/8/96......................................................... 99,888
100,000 Household Finance Corp., 5.67%, 1/23/96............................... 99,654
-----------
699,225
-----------
Total Short-Term Corporate Notes (amortized cost-$2,220,465).......... $ 2,220,465
-----------
CORPORATE NOTES - .1%
Automotive - .0%
$ 2,148 Collins Industries, Inc., 8.75%, 1/11/00.............................. $ 2,005
-----------
Energy - .1%
15,125 Global Marine, Inc., 12.75%, 12/15/99................................. 16,713
-----------
Total Corporate Notes (cost - $18,363)................................ $ 18,718
-----------
CONVERTIBLE CORPORATE BONDS - .3%
Real Estate - .3%
Security Capital Realty, Inc., 12.00%, 6/30/14(A)(B) (cost -
$ 51,487 $46,860).............................................................. $ 51,487
-----------
</TABLE>

<TABLE>
<CAPTION>
Shares
- ---------
<C> <S> <C>
CONVERTIBLE PREFERRED STOCK - .6%
Retail - .1%
2,200 Family Bargain Corp. $.95 Conv. Pfd................................... $ 12,925

Transportation - .5%
825 Interpool, Inc., 5.75%, Conv. Pfd..................................... 77,550
-----------
Total Convertible Preferred Stock (cost-$81,675)...................... $ 90,475
-----------
</TABLE>
<PAGE>

QUEST FOR VALUE ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS (continued)

December 31, 1995

<TABLE>
<CAPTION>
Shares Value
- --------- -----------
<C> <S> <C>
COMMON STOCKS - 83.9%
Advertising - 6.2%
20,000 Katz Media Group, Inc.*............................................... $ 352,500
6,000 Omnicom Group, Inc.................................................... 223,500
22,864 True North Communications, Inc. ...................................... 422,984
-----------
998,984
-----------

Automotive - 1.1%
4,400 Collins Industries, Inc.*............................................. 7,150
12,000 Masland Corp. ........................................................ 168,000
-----------
175,150
-----------
Banking - .8%
6,800 First Financial Caribbean Corp........................................ 127,500
-----------
Building & Construction - 3.1%
9,739 D.R. Horton, Inc. .................................................... 114,433
3,000 Insituform Technologies (Class A)*.................................... 34,875
16,500 Martin Marietta Materials, Inc. ...................................... 340,313
-----------
489,621
-----------
Chemicals - 1.3%
6,500 OM Group, Inc......................................................... 215,312
-----------
Computer Services - 3.5%
25,867 BancTec, Inc.*........................................................ 478,539
3,394 Globalink, Inc.*...................................................... 22,061
2,800 Keane, Inc.*.......................................................... 61,950
-----------
562,550
-----------
Conglomerates - 1.8%
12,100 Ralcorp Holdings, Inc.*............................................... 293,425
-----------
Drugs & Medical Products - 2.8%
5,000 Dentsply International, Inc. ......................................... 200,000
5,000 Spacelabs, Inc........................................................ 143,750
4,600 Sybron International Corp.*........................................... 109,250
-----------
453,000
-----------
Electrical Equipment - 8.6%
17,200 EG & G, Inc........................................................... 417,100
11,800 Marshall Industries*.................................................. 379,075
30,920 Oak Industries, Inc. ................................................. 579,750
-----------
1,375,925
-----------
</TABLE>
<PAGE>

QUEST FOR VALUE ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS (continued)

December 31, 1995

<TABLE>
<CAPTION>
Shares Value
- --------- -----------
<C> <S> <C>
COMMON STOCKS (continued)
Energy - 8.2%
7,948 Aquila Gas Pipeline Corp. ............................................ $ 102,330
12,600 Belden & Blake Corp.*................................................. 220,500
15,500 Global Natural Resources, Inc.*....................................... 162,750
13,000 Noble Drilling Corp.*................................................. 117,000
11,200 Petroleum Heat & Power Company, Inc. (Class A)........................ 91,000
10,100 St. Mary Land & Exploration Co........................................ 141,400
25,942 Sithe Energies, Inc.*................................................. 155,652
8,000 Tesoro Petroleum Corp.*............................................... 69,000
2,000 Triton Energy Corp.*.................................................. 114,750
6,900 UGI Corp. ............................................................ 143,175
-----------
1,317,557
-----------
Entertainment - .4%
6,000 Hollywood Park, Inc................................................... 60,375
15,983 Spectravision, Inc. (Class B)*........................................ 2,997
-----------
63,372
-----------
Food Services - 1.1%
7,000 IHOP Corp.*........................................................... 182,000
-----------
Health & Hospitals - 3.4%
1,700 Community Health Services, Inc.*...................................... 60,562
20,200 Magellan Health Services, Inc.*....................................... 484,800
-----------
545,362
-----------
Household Products - .2%
3,200 Crown Crafts, Inc..................................................... 36,800
-----------
Insurance - 6.7%
4,100 Ace, LTD. ............................................................ 162,975
15,000 Capsure Holdings Corp.*............................................... 264,375
12,000 E.W. Blanch Holdings, Inc. ........................................... 280,500
9,453 Guaranty National Corp................................................ 145,340
7,000 Penn-America Group, Inc.*............................................. 99,750
5,400 Prudential Reinsurance Holdings, Inc. ................................ 126,225
-----------
1,079,165
-----------
Manufacturing - 12.1%
3,800 Alltrista Corp.*...................................................... 68,400
13,000 Baldwin Technology Co. (Class A)...................................... 65,813
5,700 Briggs & Stratton Corp................................................ 247,237
9,000 Carlisle Companies, Inc............................................... 363,375
11,800 Crane Co. ............................................................ 435,125
12,700 Exabyte Corp.*........................................................ 185,737
</TABLE>
<PAGE>

QUEST FOR VALUE ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS (continued)

December 31, 1995

<TABLE>
<CAPTION>
Shares Value
- --------- -----------
<C> <S> <C>
COMMON STOCKS (continued)
Manufacturing (continued)
12,000 Harmon Industries, Inc. .............................................. $ 189,000
6,048 North American Watch Co............................................... 116,424
9,400 Singer Co. N.V........................................................ 262,025
-----------
1,933,136
-----------
Paper Products - 3.3%
44,800 Repap Enterprises, Inc.*.............................................. 198,800
22,800 Shorewood Packaging Corp.*............................................ 324,900
-----------
523,700
-----------
Printing & Publishing - 2.3%
8,300 International Imaging Materials, Inc.*................................ 209,575
8,900 Nu-Kote Holdings, Inc. (Class A)*..................................... 151,300
-----------
360,875
-----------
Real Estate - 6.8%
13,291 Cousins Properties, Inc. ............................................. 269,143
6,161 Post Properties, Inc.................................................. 196,382
17,500 Security Capital Industrial Trust, Inc................................ 306,250
12,752 Security Capital Pacific Trust........................................ 251,852
66 Security Capital Realty, Inc. (A)..................................... 58,212
-----------
1,081,839
-----------
Retail - .3%
3,500 Maxim Group, Inc.*.................................................... 47,250
-----------
Security/Investigation - .1%
10,801 Automated Security (Holdings) PLC ADS*................................ 8,101
-----------
Technology - .3%
1,500 Unitrode Corp......................................................... 42,375
-----------
Telecommunication - 1.0%
7,000 ECI Telecom, Ltd. .................................................... 159,688
-----------
Textiles/Apparel - 4.4%
11,000 Dyersburg Corp........................................................ 55,000
3,426 Fab Industries, Inc. ................................................. 109,204
6,400 Mohawk Industries, Inc.*.............................................. 100,000
22,000 Westpoint Stevens, Inc. (Class A)*.................................... 441,375
-----------
705,579
-----------
Tobacco/Beverages/Food Products - 1.1%
12,900 Morningstar Group, Inc.*.............................................. 103,200
6,000 Sylvan Foods Holdings, Inc.*.......................................... 71,250
-----------
174,450
-----------
</TABLE>
<PAGE>

QUEST FOR VALUE ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS (continued)

December 31, 1995

<TABLE>
<CAPTION>
Shares Value
- --------- -----------
<C> <S> <C>
COMMON STOCKS (continued)
Transportation - 1.7%
8,300 Interpool, Inc. *..................................................... $ 148,363
8,500 MTL, Inc*............................................................. 119,000
-----------
267,363
-----------
Other - 1.3%
8,250 McGrath RentCorp...................................................... 156,750
6,470 Olympic Steel, Inc.*.................................................. 56,612
-----------
213,362
-----------
Total Common Stocks (cost - $12,333,334).............................. $13,433,441
-----------
Contracts
PURCHASED PUT OPTIONS - .0%
Triton Energy Corp., expiring August '96 @ $50 (premium
20 paid - $5,511)........................................................ $ 4,125
-----------

Total Investments(C) (cost - $14,706,208)................... 98.8% $15,818,711
Other Assets in Excess of Other Liabilities................. 1.2 185,681
----- -----------
Total Net Assets............................................ 100.0% $16,004,392
===== ==========
</TABLE>
- ---------------

* Non-income producing security.

(A) Restricted securities (the Portfolio will not bear any costs, including
those involved in registration under the Securities Act of 1933, in
connection with the disposition of these securities):

<TABLE>
<CAPTION>
Date of Par Unit Unit Valuation as of
Description Acquisition Amount Shares Cost December 31, 1995
- ---------------------------------------------------- ----------- ------- ------ ---- --------------------
<S> <C> <C> <C> <C> <C>
Security Capital Realty, Inc.
12.00%, 6/30/14................................... 9/16/94.. $51,487 -- $ 91 $100
Security Capital Realty, Inc.
Common Stock...................................... 9/16/94 -- 66 $949 $882
</TABLE>

(B) Security Capital at its discretion may defer interest payments.

(C) Aggregate gross unrealized appreciation for securities in which there is
an excess of value over tax cost is $1,745,435, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over
value is $632,932, and net unrealized appreciation for Federal income tax
purposes is $1,112,503. Federal income tax basis of portfolio securities
is substantially the same as for financial reporting purposes.

See accompanying notes to financial statements.
<PAGE>

QUEST FOR VALUE ACCUMULATION TRUST
SMALL CAP PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES

December 31, 1995

<TABLE>
<S> <C>
Assets
Investments, at value (cost - $14,706,208)...................................... $15,818,711
Cash............................................................................ 2,921
Receivable from investments sold................................................ 158,499
Receivable from fund shares sold................................................ 24,462
Dividends receivable............................................................ 18,425
Interest receivable............................................................. 3,421
Other assets.................................................................... 169
-----------
Total Assets.................................................................. 16,026,608
-----------
Liabilities
Payable for fund shares redeemed................................................ 200
Investment advisory fee payable................................................. 1,050
Other payables and accrued expenses............................................. 20,966
-----------
Total Liabilities............................................................. 22,216
-----------
Net Assets
Par value ($.01 per share)...................................................... 8,037
Paid-in-surplus................................................................. 14,215,173
Accumulated undistributed net investment income................................. 211,870
Accumulated undistributed net realized gain on investments...................... 456,809
Net unrealized appreciation on investments...................................... 1,112,503
-----------
Total Net Assets.............................................................. $16,004,392
===========
Fund shares outstanding......................................................... 803,674
-----------
Net asset value per share....................................................... $ 19.91
===========
</TABLE>

See accompanying notes to financial statements.
<PAGE>

QUEST FOR VALUE ACCUMULATION TRUST
SMALL CAP PORTFOLIO
STATEMENT OF OPERATIONS

For the year ended December 31, 1995

<TABLE>
<S> <C>
Investment Income
Dividends...................................................................... $ 143,632
Interest....................................................................... 157,866
----------
Total investment income..................................................... 301,498
----------
Operating Expenses
Investment advisory fee (note 2a).............................................. 72,770
Custodian fees................................................................. 15,454
Auditing, consulting and tax return preparation fees........................... 10,095
Transfer and dividend disbursing agent fees.................................... 9,197
Legal fees..................................................................... 3,156
Reports and notices to shareholders............................................ 2,392
Miscellaneous.................................................................. 6,639
----------
Total operating expenses.................................................... 119,703
Less: Investment advisory fee waived (note 2a).............................. (30,075)
----------
Net operating expenses................................................. 89,628
----------
Net investment income.................................................. 211,870
----------
Realized and Unrealized Gain (Loss) on Investments - Net
Net realized gain on investments................................................. 456,809
Net change in unrealized appreciation (depreciation) on investments.............. 1,189,804
----------
Net realized gain and change in unrealized appreciation (depreciation)
on investments......................................................... 1,646,613
----------
Net increase in net assets resulting from operations................... $1,858,483
==========
</TABLE>

See accompanying notes to financial statements.
<PAGE>

QUEST FOR VALUE ACCUMULATION TRUST
SMALL CAP PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
Year ended September 16, 1994(1)
December 31, 1995 to December 31, 1994
----------------- ---------------------
<S> <C> <C>
Operations
Net investment income...................................... $ 211,870 $ 29,623
Net realized gain on investments........................... 456,809 26,352
Net change in unrealized appreciation (depreciation) on
investments.............................................. 1,189,804 (77,301)
----------- ----------
Net increase (decrease) in net assets resulting from
operations.......................................... 1,858,483 (21,326)
----------- ----------
Dividends and Distributions to Shareholders
Net investment income...................................... (29,623) --
Net realized gains......................................... (26,352) --
----------- ----------
Total dividends and distributions to shareholders..... (55,975) --
----------- ----------
Fund Share Transactions
Net proceeds from sales.................................... 7,801,061 1,287,020
Net value of securities received (note 1).................. -- 8,129,274
Reinvestment of dividends and distributions................ 55,975 --
Cost of shares redeemed.................................... (2,865,595) (184,525)
----------- ----------
Net increase in net assets from fund share
transactions........................................ 4,991,441 9,231,769
----------- ----------
Total increase in net assets..................... 6,793,949 9,210,443
Net Assets
Beginning of period........................................ 9,210,443 0
----------- ----------
End of period (including undistributed net investment
income of $211,870 and $29,623, respectively)............ $16,004,392 $ 9,210,443
=========== ==========
Shares Issued and Redeemed
Issued..................................................... 427,444 75,859
Issued in exchange for securities (note 1)................. -- 464,795
Issued in reinvestment of dividends and distributions...... 3,289 --
Redeemed................................................... (156,903) (10,810)
----------- ----------
Net increase.......................................... 273,830 529,844
=========== ==========
</TABLE>

- ---------------

(1) Commencement of operations.

See accompanying notes to financial statements.
<PAGE>

QUEST FOR VALUE ACCUMULATION TRUST
SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS

December 31, 1995

(1) Organization and Significant Accounting Policies

Quest for Value Accumulation Trust (the "Trust") was organized on May 12,
1994 as a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Trust is authorized to issue an unlimited number of
seven classes of shares of beneficial interest at $.01 par value: the Equity
Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the Managed
Portfolio, the Bond Portfolio, the U. S. Government Income Portfolio and the
Money Market Portfolio. OpCap Advisors (formerly called Quest for Value
Advisors; the "Adviser"), a majority-owned (99%) subsidiary of Oppenheimer
Capital, serves as the Trust's investment adviser. The Small Cap Portfolio
(the "Portfolio"), one of the Trust's seven portfolios, had no operations
until September 16, 1994, when the Enterprise Accumulation Trust Small Cap
Portfolio (formerly known as Quest for Value Accumulation Trust Small Cap
Portfolio), distributed cash and securities with an aggregate market value of
$8,129,274 in exchange for 464,795 shares of the Portfolio. The following is a
summary of significant accounting policies consistently followed by the
Portfolio in the preparation of its financial statements:

(A) Valuation of Investments

Investment securities, other than debt securities, listed on a national
exchange or traded in the over-the-counter National Market System are valued
each business day at the last reported sale price; if there are no such
reported sales, the securities are valued at their last quoted bid price.
Other securities traded over-the-counter and not part of the National Market
System are valued at the last quoted bid price. Investment debt securities
(other than short-term obligations) are valued each business day by an
independent pricing service approved by the Board of Trustees. Investments are
valued by the pricing service using methods which include current market
quotations from a major market maker in the securities and trader-reviewed
"matrix" prices. Short-term debt securities having a remaining maturity of
more than sixty days are valued on a "marked-to-market" basis, that is, at
prices based upon market quotations for securities of similar type, yield,
quality and maturity. Short-term debt securities having a remaining maturity
of sixty days or less are valued at amortized cost, which approximates market
value. Any securities or other assets for which market quotations are not
readily available are valued at their fair value as determined in good faith
by the Board of Trustees. The ability of issuers of debt instruments to meet
their obligations may be affected by economic developments in a specific
industry or region.

(B) Federal Income Taxes

It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders;
accordingly, no Federal income tax provision is required.

Security transactions are accounted for on the trade date. In determining
the gain or loss from the sale of securities, the cost of securities sold has
been determined on the basis of identified cost. Dividend income is recorded
on the ex-dividend date and interest income is accrued as earned. Discounts or
premiums on debt securities purchased are accreted or amortized to interest
income over the lives of the respective securities.

(D) Dividends and Distributions

Dividends and distributions to shareholders from net investment income
and net realized capital gains, if any, are declared and paid at least
annually.

QUEST FOR VALUE ACCUMULATION TRUST
SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 1995

(1) Organization and Significant Accounting Policies (continued)
(D) Dividends and Distributions (continued)
accordance with Federal income tax regulations, which may differ from
generally accepted accounting principles. These "book-tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their Federal tax-basis treatment: temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in
excess of net investment income or distributions in excess of net realized
capital gains, respectively. To the extent distributions exceed current and
accumulated earnings and profits for Federal income tax purposes, they are
reported as distributions of paid-in-surplus or tax return of capital. At
December 31, 1995, the Portfolio did not have any permanent book-tax
differences.

(E) Allocation of Expenses

Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its
net assets in relation to the total net assets of all the applicable
portfolios of the Trust or another reasonable basis.

(F) Use of Estimates

The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.

(G) Purchased Put Option Accounting Policy

When a Portfolio purchases a put option, it pays a premium and an amount
equal to the premium is recorded as an investment. The option is subsequently
marked-to-market to reflect its current market value. The Portfolio, as
purchaser of an option, has control over whether the option is exercised. If
an option expires unexercised, the Portfolio realizes a loss in the amount of
the premium paid. If an option is exercised, the premium paid is an adjustment
to the proceeds from the sale in determining whether the Portfolio has
realized a gain or loss. The difference between the premium paid and the
amount received on effecting a closing sale transaction is the realized gain
or loss. The Portfolio, as a purchaser of an option, bears the risk of the
potential inability of the counterparties to meet the terms of their
contracts.

(2) Investment Advisory Fee and Other Transactions with Affiliates

(a) The investment advisory fee is accrued daily and payable monthly to
the Adviser, and is computed as a percentage of the Portfolio's net assets as
of the close of business each day at the annual rate of .60%.

The Adviser has agreed to waive that portion of the advisory fee and to
reimburse any necessary expenses to limit operating expenses of the Portfolio
to .74% of average daily net assets on an annual basis through at least
December 31, 1995.

(b) Total brokerage commissions paid by the Portfolio for the year ended
December 31, 1995, amounted to $35,395, of which Oppenheimer & Co., Inc., an
affiliate of the Adviser, received $12,805.

(3) Purchases and Sales of Securities

For the year ended December 31, 1995, purchases and sales of investment
securities, other than short-term securities were $10,968,368 and $6,786,171,
respectively.

(4) Capital Loss Deferral

Capital losses incurred after October 31, 1995 are deemed to arise on the
first business day of the following fiscal year. Accordingly, the Portfolio
incurred and elected to defer $87,890 in net capital losses.
<PAGE>

QUEST FOR VALUE ACCUMULATION TRUST
SMALL CAP PORTFOLIO
FINANCIAL HIGHLIGHTS

For a share outstanding throughout each period:

<TABLE>
<CAPTION>
Year ended September 16, 1994(1)
December 31, 1995 to December 31, 1994
----------------- ---------------------
<S> <C> <C>
Net asset value, beginning of period..................... $ 17.38 $ 17.49
Income from investment operations:
Net investment income.................................... 0.26 0.06
Net realized and unrealized gain (loss) on investments... 2.37 (0.17)
----------- ----------
Total from investment operations....................... 2.63 (0.11)
----------- ----------
Dividends and distributions to shareholders:
Dividends to shareholders from net investment income..... (0.05) --
Distributions to shareholders from net realized capital
gains.................................................. (0.05) --
----------- ----------
Total dividends and distributions...................... (0.10) --
----------- ----------
Net asset value, end of period........................... $ 19.91 $ 17.38
=========== ==========
Total return(2).......................................... 15.2% (.6%)
=========== ==========
Net assets, end of period................................ $16,004,392 $ 9,210,443
----------- ----------
Ratio of net operating expenses to average net
assets(5).............................................. 0.74%(4) 0.74%(3)
----------- ----------
Ratio of net investment income to average net
assets(5).............................................. 1.75%(4) 1.22%(3)
----------- ----------
Portfolio turnover....................................... 69% 32%
----------- ----------
</TABLE>
- ---------------

(1) Commencement of operations.

(2) Assumes reinvestment of all dividends and distributions.

(3) Annualized.

(4) Average net assets for the year ended December 31, 1995 were $12,128,267.

(5) During the periods presented above, the Adviser waived a portion or all of
its fees and reimbursed the Portfolio for a portion of its operating
expenses. If such waivers and reimbursements had not been in effect, the
ratio of net operating expenses to average net assets would have been
0.99% and 1.64% and the ratio of net investment income to average net
assets would have been 1.50% and 0.32%, respectively.
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Trustees of
Quest for Value Accumulation Trust -- Small Cap Portfolio

In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of the Small Cap
Portfolio (one of the portfolios constituting Quest for Value Accumulation
Trust hereafter referred to as the "Portfolio") at December 31, 1995, the
results of its operations for the year then ended, and the changes in its net
assets and the financial highlights for the year ended December 31, 1995 and
for the period September 16, 1994 (commencement of operations) through
December 31, 1994, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
Portfolio's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at December 31, 1995 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.

PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 16, 1996
<PAGE>

MANAGED PORTFOLIO

The Managed Portfolio, which invests in stocks, bonds and cash
equivalents, has consistently ranked among the top funds in its category. It
continued its outstanding performance in 1995, providing a total return of
45.6%, well above the total return of 37.6% with dividends included for the
Standard & Poor's 500 Index (S&P 500), an unmanaged index of 500 of the
largest corporations weighted by market capitalization. This performance
ranked second best among the 68 flexible portfolio funds in Lipper's Variable
Insurance Products Performance Analysis Service Report. In the 1995 second
half, the Portfolio provided a total return of 12.2%, compared with 14.4% for
the S&P 500.

The Portfolio has been a consistently excellent performer over time. This
fact was recognized by Morningstar, Inc., when it named Richard J. Glasebrook
II, manager of the Portfolio, as its 1995 Variable Fund Manager of the Year.
Morningstar is a well-known commentator on variable annuity performance
results. For the five years ended December 31, 1995, the Portfolio's average
annual total return of 23.3%* exceeded by a wide margin the 16.6% return of
the S&P 500. This performance was second best among the 54 flexible portfolio
funds in the Lipper universe. From inception on August 1, 1988 through
December 31, 1995, the Portfolio provided an average annual total return of
19.7%*, compared with 15.2% for the S&P 500. Returns for the Portfolio take
into account expenses incurred by the Portfolio, but not other charges imposed
by the Variable Accounts.

The Portfolio has achieved its superior long-term performance by
investing in quality undervalued stocks and holding them for price
appreciation. Its three largest holdings, McDonnell Douglas Corp., Federal
Home Loan Mortgage Corp. (Freddie Mac) and Citicorp, all reached new highs in
the 1995 fourth quarter. However, the market price of its fourth largest
holding, Intel Corp., declined in the quarter due to fears that a poorer
business environment might lead to reduced demand for the company's
semiconductor products. Intel is the Portfolio's only significant investment
in the technology sector.

Although the Portfolio can buy bonds and money market securities, in
practice it invests primarily in common stocks based on the premise that
stocks provide the best returns over time. As of December 31, 1995, 84% of the
Portfolio's net assets were invested in common stocks and securities
convertible into common stocks, 2% in Treasury notes and bonds, and 14% in
cash and cash equivalents.

In the 1995 second half, the Portfolio increased its existing positions
or added new positions in the common stocks of such companies as Becton,
Dickinson & Co., Champion International Corp., Reebok International Ltd.,
First Interstate Bancorp, Mattel, Inc. and Tenneco, Inc. Reduced or eliminated
during the second half were investments in such stocks as Mellon Bank Corp.,
Shaw Industries, Inc. and Northrop Grumman Corp.

The Portfolio owned the common stocks of 34 companies as of December 31,
1995. Major industry positions were in the banking, financial services,
aerospace and defense, consumer products, and insurance sectors. The
Portfolio's five largest equity holdings were McDonnell Douglas Corp., the
nation's largest manufacturer of military aircraft and an important competitor
in commercial aircraft; Federal Home Loan Mortgage Corp. (Freddie Mac), the
second largest insurer of home mortgages in the United States; Citicorp, a
leading bank; Intel Corp., a major producer of semiconductors; and Freeport
McMoRan Copper & Gold (class B), which produces copper and gold at a mine in
the Indonesian region of Irian Jaya.
- ---------------

* Based on results of the Quest for Value Accumulation Trust and its
predecessor. On September 16, 1994, an investment company which had commenced
operations on August 1, 1988, then called Quest for Value Accumulation Trust
(the "Old Trust"), was effectively divided into two investment funds -- the
Old Trust and the present Quest for Value Accumulation Trust (the "Present
Trust") -- at which time the Present Trust commenced operations. The total net
assets of the Managed Portfolio immediately after the transaction were
$682,601,380 in the Old Trust and $51,354,102 in the Present Trust. For the
periods prior to September 16, 1994, the performance reflects the performance
of the corresponding Managed Portfolio of the Old Trust.

COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
QUEST FOR VALUE ACCUMULATION TRUST MANAGED PORTFOLIO FROM INCEPTION (8/1/88)*
THROUGH 12/31/95 AND TOTAL RETURN ON S&P 500 INDEX+

<TABLE>
<CAPTION>
Measurement Period Managed S&P 500 In-
(Fiscal Year Covered) Portfolio dex
<S> <C> <C>
08/01/88 10000 10000
12/31/88 10440 10383
12/31/89 13839 13673
12/31/90 13336 13249
12/31/91 19458 17285
12/31/92 23098 18602
12/31/93 25498 20475
12/31/94 26165 20746
12/31/95 38083 25842
</TABLE>

December 31, 1995

<TABLE>
<CAPTION>
Principal
Amount Value
- ---------- -----------
<C> <S> <C>
SHORT-TERM CORPORATE NOTES - 14.3%
Automotive - 2.5%
Ford Motor Credit Co.,
$ 150,000 5.74%, 1/8/96........................................................ $ 149,833
2,310,000 5.76%, 1/10/96....................................................... 2,306,674
-----------
2,456,507
-----------

Banking - .2%
180,000 Norwest Financial, Inc., 5.62%, 1/22/96.............................. 179,410
-----------
Insurance - 6.3%
Prudential Funding Corp.,
3,130,000 5.80%, 1/17/96....................................................... 3,121,932
3,150,000 5.81%, 1/9/96........................................................ 3,145,933
-----------
6,267,865
-----------
Machinery/Engineering - .4%
420,000 Deere (John) Capital Corp., 5.55%, 1/17/96........................... 418,964
-----------
Miscellaneous Financial Services - 4.6%
1,370,000 Beneficial Corp., 5.80%, 1/23/96..................................... 1,365,144
3,000,000 Household Finance Corp., 5.75%, 1/10/96.............................. 2,995,687
130,000 Merrill Lynch & Co., Inc., 5.75%, 1/3/96............................. 129,958
-----------
4,490,789
-----------
Tobacco/Beverages/Food Products - .3%
330,000 Philip Morris Companies, Inc., 5.92%, 1/3/96......................... 329,891
-----------
Total Short-Term Corporate Notes (amortized cost - $14,143,426)...... $14,143,426
-----------
U.S. TREASURY NOTES AND BONDS - 1.7%
$ 700,000 6.25%, 8/15/23....................................................... $ 720,237
630,000 7.875%, 4/15/98...................................................... 665,242
297,500 7.875%, 8/15/01...................................................... 332,269
-----------
Total U.S. Treasury Notes and Bonds (cost - $1,520,076).............. $ 1,717,748
-----------
CONVERTIBLE CORPORATE BONDS - .7%
Real Estate - .7%
$ 632,708 Security Capital Realty, Inc., 12.00%, 6/30/14(A)(B)
(cost - $575,845).................................................... $ 632,708
-----------
Shares
- ----------
CONVERTIBLE PREFERRED STOCKS - .0%
Retail - .0%
2,478 Venture Stores, Inc., $3.25 Conv. Pfd. (cost - $102,527)............. $ 24,780
-----------
</TABLE>
<PAGE>

QUEST FOR VALUE ACCUMULATION TRUST
MANAGED PORTFOLIO
SCHEDULE OF INVESTMENTS (continued)

December 31, 1995

<TABLE>
<CAPTION>
Shares Value
- ---------- -----------
<C> <S> <C>
COMMON STOCKS - 83.2%
Aerospace/Defense - 7.6%
20,000 Lockheed Martin Corp. ............................................... $ 1,580,000
63,000 McDonnell Douglas Corp............................................... 5,796,000
2,200 Northrop Grumman Corp. .............................................. 140,800
-----------
7,516,800
-----------

Automotive - 1.7%
31,300 General Motors Corp.................................................. 1,654,987
-----------
Banking - 16.1%
74,100 Citicorp............................................................. 4,983,225
7,400 First Empire State Corp. ............................................ 1,613,200
15,000 First Interstate Bancorp............................................. 2,047,500
60,000 Mellon Bank Corp..................................................... 3,225,000
19,000 Wells Fargo & Co. ................................................... 4,104,000
-----------
15,972,925
-----------
Chemicals - 3.5%
40,000 Hercules, Inc. ...................................................... 2,255,000
10,000 Monsanto Co. ........................................................ 1,225,000
-----------
3,480,000
-----------
Consumer Products - 7.0%
16,350 Avon Products, Inc. ................................................. 1,232,381
100,000 Mattel, Inc. ........................................................ 3,075,000
93,000 Reebok International Ltd. ........................................... 2,627,250
-----------
6,934,631
-----------
Drugs & Medical Products - 3.0%
40,000 Becton, Dickinson & Co. ............................................. 3,000,000
-----------
Energy - 5.6%
20,000 MAPCO, Inc. ......................................................... 1,092,500
60,000 Tenneco, Inc......................................................... 2,977,500
25,700 Triton Energy Corp.*................................................. 1,474,537
-----------
5,544,537
-----------
Insurance - 6.4%
51,400 EXEL Ltd. ........................................................... 3,135,400
15,400 Transamerica Corp. .................................................. 1,122,275
180 Transport Holdings, Inc.*............................................ 7,335
33,000 Travelers, Inc. ..................................................... 2,074,875
-----------
6,339,885
-----------
Manufacturing - 1.6%
110,000 Shaw Industries, Inc. ............................................... 1,622,500
-----------
</TABLE>
<PAGE>

QUEST FOR VALUE ACCUMULATION TRUST
MANAGED PORTFOLIO
SCHEDULE OF INVESTMENTS (continued)

December 31, 1995

<TABLE>
<CAPTION>
Shares Value
- ---------- -----------
<C> <S> <C>
COMMON STOCKS (continued)
Metals & Mining - 4.6%
149,132 Freeport McMoRan Copper & Gold (Class B)............................. $ 4,194,338
9,389 Freeport McMoRan, Inc................................................ 347,393
-----------
4,541,731
-----------
Miscellaneous Financial Services - 13.8%
74,000 American Express Co.................................................. 3,061,750
90,000 Countrywide Credit Industries, Inc................................... 1,957,500
61,100 Federal Home Loan Mortgage Corp...................................... 5,101,850
29,100 Federal National Mortgage Association................................ 3,612,038
-----------
13,733,138
-----------
Paper Products - 3.6%
84,000 Champion International Corp.......................................... 3,528,000
-----------
Real Estate - .7%
811 Security Capital Realty, Inc.(A)..................................... 715,302
-----------
Technology - 6.0%
75,000 Intel Corp........................................................... 4,256,250
60,000 Unitrode Corp.*...................................................... 1,695,000
-----------
5,951,250
-----------
Telecommunications - 2.0%
50,000 Sprint Corp.......................................................... 1,993,750
-----------
Total Common Stocks (cost - $61,380,303)............................. $82,529,436
-----------

Total Investments(C) (cost - $77,722,177).................. 99.9% $99,048,098
Other Assets in Excess of Other Liabilities................ 0.1 140,049
----- -----------
Total Net Assets........................................... 100.0% $99,188,147
===== ==========
</TABLE>
- ---------------

* Non-income producing security.

(A) Restricted Securities (the Portfolio will not bear any costs, including
those involved in registration under the Securities Act of 1933, in
connection with the disposition of these securities):

<TABLE>
<CAPTION>
Unit Valuation
Date of Par Unit as of
Description Acquisition Amount Shares Cost December 31, 1995
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------
Security Capital Realty, Inc.
12.00%, 6/30/14................................ 9/16/94 $632,708 -- $ 91 $ 100
Security Capital Realty, Inc.
Common Stock................................... 9/16/94 -- 811 $949 $ 882
</TABLE>

(B) Security Capital at its discretion may defer interest payments.

(C) Aggregate gross unrealized appreciation for securities in which there is
an excess of value over tax cost is $22,384,125, aggregate gross
unrealized depreciation for securities in which there is an excess of tax
cost over value is $1,058,204 and net unrealized appreciation for Federal
income tax purpose is $21,325,921. Federal income tax basis of portfolio
securities is substantially the same as for financial reporting purposes.
<PAGE>

QUEST FOR VALUE ACCUMULATION TRUST
MANAGED PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES

December 31, 1995

<TABLE>
<S> <C>
Assets
Investments, at value (cost-$77,722,177)........................................ $99,048,098
Receivable from fund shares sold................................................ 42,863
Dividends receivable............................................................ 89,385
Interest receivable............................................................. 74,121
Receivable from Adviser......................................................... 1,313
Other assets.................................................................... 385
-----------
Total Assets.................................................................. 99,256,165
-----------
Liabilities
Payable for fund shares redeemed................................................ 964
Due to custodian................................................................ 24,356
Other payables and accrued expenses............................................. 42,698
-----------
Total Liabilities............................................................. 68,018
-----------
Net Assets
Par value ($.01 per share)...................................................... 32,907
Paid-in-surplus................................................................. 75,572,376
Accumulated undistributed net investment income................................. 1,378,069
Accumulated undistributed net realized gain on investments...................... 878,874
Net unrealized appreciation on investments...................................... 21,325,921
-----------
Total Net Assets.............................................................. $99,188,147
===========
Fund shares outstanding......................................................... 3,290,749
-----------
Net asset value per share....................................................... $ 30.14
===========
</TABLE>

See accompanying notes to financial statements.
<PAGE>

QUEST FOR VALUE ACCUMULATION TRUST
MANAGED PORTFOLIO
STATEMENT OF OPERATIONS

For the year ended December 31, 1995

<TABLE>
<S> <C>
Investment Income
Dividends..................................................................... $1,270,963
Interest...................................................................... 600,998
-----------
Total investment income.................................................... 1,871,961
-----------
Operating Expenses
Investment advisory fee (note 2a)............................................. 447,678
Trustee's fees and expenses................................................... 17,443
Custodian fees................................................................ 16,004
Auditing, consulting and tax return preparation fees.......................... 14,421
Transfer and dividend disbursing agent fees................................... 10,207
Reports and notices to shareholders........................................... 9,949
Legal fees.................................................................... 8,106
Miscellaneous................................................................. 25,120
-----------
Total operating expenses................................................... 548,928
Less: Investment advisory fee waived (note 2a)............................. (55,036)
-----------
Net operating expenses................................................ 493,892
-----------
Net investment income................................................. 1,378,069
-----------
Realized and Unrealized Gain (Loss) on Investments - Net
Net realized gain on investments................................................ 1,023,914
Net change in unrealized appreciation (depreciation) on investments............. 23,901,028
-----------
Net realized gain and change in unrealized appreciation (depreciation)
on investments........................................................ 24,924,942
-----------
Net increase in net assets resulting from operations.................. $26,303,011
===========
</TABLE>

See accompanying notes to financial statements.
<PAGE>

QUEST FOR VALUE ACCUMULATION TRUST
MANAGED PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
Year ended September 16, 1994(1)
December 31, 1995 to December 31, 1994
----------------- ----------------------
<S> <C> <C>
Operations
Net investment income................................... $ 1,378,069 $ 360,801
Net realized gain (loss) on investments................. 1,023,914 (145,040)
Net change in unrealized appreciation (depreciation) on
investments........................................... 23,901,028 (2,575,107)
----------- -----------
Net increase (decrease) in net assets resulting
from operations.................................. 26,303,011 (2,359,346)
----------- -----------
Dividends to Shareholders
Net investment income................................... (360,801) --
----------- -----------
Fund Share Transactions
Net proceeds from sales................................. 27,913,098 6,980,338
Net value of securities received (note 1)............... -- 51,354,102
Reinvestment of dividends............................... 360,801 --
Cost of shares redeemed................................. (9,971,333) (1,031,723)
----------- -----------
Net increase in net assets from fund share
transactions..................................... 18,302,566 57,302,717
----------- -----------
Total increase in net assets.................. 44,244,776 54,943,371
Net Assets
Beginning of period..................................... 54,943,371 0
----------- -----------
End of period (including undistributed net investment
income of $1,378,069 and $360,801, respectively)...... $99,188,147 $54,943,371
=========== ===========
Shares Issued and Redeemed
Issued.................................................. 1,016,970 330,594
Issued in exchange for securities (note 1).............. -- 2,355,693
Issued in reinvestment of dividends..................... 15,866 --
Redeemed................................................ (379,452) (48,922)
----------- -----------
Net increase....................................... 653,384 2,637,365
=========== ===========
</TABLE>

- ---------------

(1) Commencement of operations.

See accompanying notes to financial statements.
<PAGE>

QUEST FOR VALUE ACCUMULATION TRUST
MANAGED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS

December 31, 1995

(1) Organization and Significant Accounting Policies

Quest for Value Accumulation Trust (the "Trust") was organized on May 12,
1994 as a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Trust is authorized to issue an unlimited number of
seven classes of shares of beneficial interest at $.01 par value: the Equity
Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the Managed
Portfolio, the Bond Portfolio, the U. S. Government Income Portfolio and the
Money Market Portfolio. OpCap Advisors (formerly called Quest for Value
Advisors; the "Adviser"), a majority-owned (99%) subsidiary of Oppenheimer
Capital, serves as the Trust's investment adviser. The Managed Portfolio (the
"Portfolio"), one of the Trust's seven portfolios, had no operations until
September 16, 1994, when the Enterprise Accumulation Trust Managed Portfolio
(formerly known as Quest for Value Accumulation Trust Managed Portfolio),
distributed cash and securities with an aggregate market value of $51,354,102
in exchange for 2,355,693 shares of the Portfolio. The following is a summary
of significant accounting policies consistently followed by the Portfolio in
the preparation of its financial statements:

(A) Valuation of Investments

(B) Federal Income Taxes

(D) Dividends and Distributions

Dividends and distributions to shareholders from net investment income
and net realized capital gains, if any, are declared and paid at least
annually.
<PAGE>

QUEST FOR VALUE ACCUMULATION TRUST
MANAGED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 1995

(1) Organization and Significant Accounting Policies (continued)
(D) Dividends and Distributions (continued)
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting principles. These "book-tax" differences are either considered
temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the capital accounts
based on their Federal tax-basis treatment: temporary differences do not
require reclassification. Dividends and distributions which exceed net
investment income and net realized capital gains for financial reporting
purposes but not for tax purposes are reported as dividends in excess of net
investment income or distributions in excess of net realized capital gains,
respectively. To the extent distributions exceed current and accumulated
earnings and profits for Federal income tax purposes, they are reported as
distributions of paid-in-surplus or tax return of capital. At December 31,
1995, the Portfolio did not have any permanent book-tax differences.

(E) Allocation of Expenses

(F) Use of Estimates

(2) Investment Advisory Fee and Other Transactions with Affiliates

The Adviser has agreed to waive that portion of the advisory fee and to
reimburse any necessary expenses to limit operating expenses of the Portfolio
to .66% of average daily net assets on an annual basis through at least
December 31, 1995.

(b) Total brokerage commissions paid by the Portfolio for the year ended
December 31, 1995, amounted to $65,136, of which Oppenheimer & Co., Inc., an
affiliate of the Adviser, received $26,544.

(3) Purchases and Sales of Securities

For the year ended December 31, 1995, purchases and sales of investment
securities, other than short-term securities were $30,484,410 and $15,035,906
respectively.

(4) Capital Loss Carryforward

For the fiscal year ended December 31, 1995, the Portfolio will utilize
$145,040 of net capital loss carryforwards.
<PAGE>

QUEST FOR VALUE ACCUMULATION TRUST
MANAGED PORTFOLIO
FINANCIAL HIGHLIGHTS

For a share outstanding throughout each period:

<TABLE>
<CAPTION>
September 16, 1994
Year ended (1)
December 31, 1995 to December 31, 1994
----------------- ---------------------
<S> <C> <C>
Net asset value, beginning of period....................... $ 20.83 $ 21.80
Income from investment operations:
Net investment income...................................... 0.42 0.14
Net realized and unrealized gain (loss) on investments..... 9.02 (1.11)
----------- -----------
Total from investment operations......................... 9.44 (0.97)
----------- -----------
Dividends to shareholders:
Dividends to shareholders from net investment income....... (0.13) --
----------- -----------
Net asset value, end of period............................. $ 30.14 $ 20.83
=========== ===========
Total return(2)............................................ 45.6% (4.4%)
=========== ===========
Net assets, end of period.................................. $99,188,147 $54,943,371
----------- -----------
Ratio of net operating expenses to average net assets(5)... 0.66%(4) 0.66%(3)
----------- -----------
Ratio of net investment income to average net assets(5).... 1.85%(4) 2.34%(3)
----------- -----------
Portfolio turnover......................................... 22% 8%
----------- -----------
</TABLE>

- ---------------

(1) Commencement of operations.

(2) Assumes reinvestment of all dividends and distributions.

(3) Annualized.

(4) Average net assets for the year ended December 31, 1995 were $74,612,954.

(5) During the periods presented above, the Adviser waived a portion of its
fees. If such waivers had not been in effect, the ratio of net operating
expenses to average net assets would have been 0.74% and 0.96% and the
ratio of net investment income to average net assets would have been 1.77%
and 2.04%, respectively.
<PAGE>

Report of Independent Accountants

To the Shareholders and Trustees of
Quest for Value Accumulation Trust -- Managed Portfolio

In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of the Managed
Portfolio (one of the portfolios constituting Quest for Value Accumulation
Trust, hereafter referred to as the "Portfolio") at December 31, 1995, the
results of its operations for the year then ended, and the changes in its net
assets and the financial highlights for the year ended December 31, 1995 and
for the period September 16, 1994 (commencement of operations) through
December 31, 1994, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
Portfolio's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at December 31, 1995 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.

PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 16, 1996
<PAGE>

U.S. GOVERNMENT INCOME PORTFOLIO

We introduced the U.S. Government Income Portfolio on January 3, 1995,
for investors seeking favorable returns from investments in government
securities. The Portfolio, which seeks to provide a combination of high
current income and protection of capital, invests in debt obligations issued
or guaranteed by the U.S. Government and its agencies or intermediaries. These
issues are considered to carry the least credit risk. The Portfolio invests
primarily in intermediate-term securities and places a priority on maintaining
a relatively stable net asset value (NAV) per share.

The Portfolio provided a total return of 13.1% from its inception through
December 31, 1995. This compared with a total return of 14.4% for the Lehman
Brothers Intermediate Government Bond Index. Returns take into account
expenses incurred by the Portfolio, but not other charges imposed by the
Variable Accounts.

We have invested the Portfolio in a diversified group of government
securities, as we seek to generate above-average returns with below-average
risk. At the end of December, the Portfolio's assets were allocated 46% to
Treasuries, 52% to U.S. Government agency securities, 1% cash and 1% to assets
in excess of liabilities. The average maturity of the Portfolio's investments
was 3.4 years.

COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
QUEST FOR VALUE aCCUMULATION TRUST U.S. GOVERNMENT INCOME PORTFOLIO FROM
INCEPTION (1/3/95)
THROUGH 12/31/95 AND TOTAL RETURN ON LEHMAN INTERMEDIATE GOV'T. BOND INDEX*

<TABLE>
<CAPTION>
LEHMAN IN-
U.S. GOVERN- TERMEDIATE
MEASUREMENT PERIOD MENT INCOME GOV'T BOND
(FISCAL YEAR COVERED) PORTFOLIO INDEX*
<S> <C> <C>
01/03/95 10000 10000
12/31/95 11313 11441
</TABLE>

Past performance is not predictive of future performance.
Assumes reinvestment of all dividends and distributions.
The performance graph does not reflect charges imposed by the Variable
Accounts.
*with dividends.
<PAGE>

QUEST FOR VALUE ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS

December 31, 1995

<TABLE>
<CAPTION>
Principal
Amount Value
- --------- -----------
<C> <S> <C>
U. S. TREASURY NOTES -- 46.4%
$ 95,000 5.75%, 8/15/03....................................................... $ 96,143
65,000 6.375%, 8/15/02...................................................... 68,158
125,000 7.25%, 2/15/98....................................................... 129,980
35,000 7.25%, 5/15/04....................................................... 38,850
140,000 7.375%, 11/15/97..................................................... 145,294
175,000 7.75%, 12/31/99...................................................... 189,903
----------
Total U.S. Treasury Notes (cost -- $646,868)......................... $ 668,328
----------
U.S. GOVERNMENT AGENCY NOTES -- 51.5%
Federal Farm Credit Bank
$ 35,000 5.08%, 1/15/96....................................................... $ 35,000
40,000 6.50%, 4/1/96........................................................ 40,106
75,000 8.65%, 10/1/99....................................................... 82,817
Federal Home Loan Bank
60,000 6.94%, 3/14/97....................................................... 61,078
145,000 8.60%, 8/25/99....................................................... 159,613
175,000 Federal Home Loan Mortgage Corp., 6.22%, 3/24/03..................... 179,730
Federal National Mortgage Association
60,000 5.375%, 6/10/98...................................................... 60,000
25,000 8.80%, 7/25/97....................................................... 26,309
20,000 9.20%, 6/10/97....................................................... 21,056
75,000 Student Loan Marketing Association, 7.00%, 3/03/98................... 77,543
----------
Total U.S. Government Agency Notes (cost -- $722,722)................ $ 743,252
----------

Total Investments (A) (cost -- $1,369,590)..................... 97.9% $1,411,580
Other Assets in Excess of Other Liabilities.................... 2.1 30,878
----- -----------
Total Net Assets............................................... 100.0% $1,442,458
===== =========
</TABLE>

- ---------------

(A) Aggregate gross unrealized appreciation for securities in which there is
an excess of value over tax cost is $41,990, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over
value is $0, and net unrealized appreciation for Federal income tax
purposes is $41,990. Federal income tax basis of portfolio securities is
substantially the same as for financial reporting purposes.

See accompanying notes to financial statements.
<PAGE>

QUEST FOR VALUE ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES

December 31, 1995

<TABLE>
<S> <C>
Assets
Investments, at value (cost -- $1,369,590)....................................... $1,411,580
Cash............................................................................. 11,231
Receivable from fund shares sold................................................. 2,400
Interest receivable.............................................................. 30,127
Receivable from Adviser.......................................................... 552
Other assets..................................................................... 113
----------
Total Assets................................................................... 1,456,003
----------
Liabilities
Payable for fund shares redeemed................................................. 23
Dividends payable................................................................ 611
Other payables and accrued expenses.............................................. 12,911
----------
Total Liabilities.............................................................. 13,545
----------
Net Assets
Par value ($.01 per share)....................................................... 1,358
Paid-in-surplus.................................................................. 1,399,110
Net unrealized appreciation on investments....................................... 41,990
----------
Total Net Assets............................................................... $1,442,458
==========
Fund shares outstanding.......................................................... 135,799
----------
Net asset value per share........................................................ $ 10.62
==========
</TABLE>

See accompanying notes to financial statements.
<PAGE>

QUEST FOR VALUE ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF OPERATIONS

For the period January 3, 1995 (commencement of operations) to December 31,
1995

<TABLE>
<S> <C>
Investment Income
Interest......................................................................... $52,801
--------
Operating Expenses
Investment advisory fee (note 2a)................................................ 4,873
Custodian fees................................................................... 12,078
Auditing, consulting and tax return preparation fees............................. 8,452
Transfer and dividend disbursing agent fees...................................... 8,260
Legal fees....................................................................... 2,079
Reports and notices to shareholders.............................................. 722
Miscellaneous.................................................................... 1,934
--------
Total operating expenses...................................................... 38,398
Less: Investment advisory fee waived and expenses reimbursed (note 2a)........ (32,307)
--------
Net operating expenses................................................... 6,091
--------
Net investment income.................................................... 46,710
--------
Realized and Unrealized Gain (Loss) on Investments - Net
Net realized gain on investments................................................... 7,795
Net unrealized appreciation on investments......................................... 41,990
--------
Net realized gain and unrealized appreciation on investments............. 49,785
--------
Net increase in net assets resulting from operations..................... $96,495
========
</TABLE>

See accompanying notes to financial statements.
<PAGE>

QUEST FOR VALUE ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
January 3, 1995(1)
to December 31, 1995
--------------------
<S> <C>
Operations
Net investment income...................................................... $ 46,710
Net realized gain on investments........................................... 7,795
Net unrealized appreciation on investments................................. 41,990
----------
Net increase in net assets resulting from operations.................. 96,495
----------
Dividends and Distributions to Shareholders
Net investment income...................................................... (46,710)
Net realized gains......................................................... (7,795)
----------
Total dividends and distributions to shareholders..................... (54,505)
----------
Fund Share Transactions
Net proceeds from sales.................................................... 1,442,074
Reinvestment of dividends and distributions................................ 53,894
Cost of shares redeemed.................................................... (95,500)
----------
Net increase in net assets from fund share transactions............... 1,400,468
----------
Total increase in net assets..................................... 1,442,458
Net Assets
Beginning of period........................................................ 0
----------
End of period.............................................................. $1,442,458
==========
Shares Issued and Redeemed
Issued..................................................................... 139,749
Issued in reinvestment of dividends and distributions...................... 5,140
Redeemed................................................................... (9,090)
----------
Net increase.......................................................... 135,799
==========
</TABLE>
- ---------------

(1) Commencement of operations.

See accompanying notes to financial statements.
<PAGE>

QUEST FOR VALUE ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS

December 31, 1995

(1) Organization and Significant Accounting Policies

Quest for Value Accumulation Trust (the "Trust") was organized on May 12,
1994 as a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Trust is authorized to issue an unlimited number of
seven classes of shares of beneficial interest at $.01 par value; the Equity
Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the Managed
Portfolio, the Bond Portfolio, the U. S. Government Income Portfolio and the
Money Market Portfolio. OpCap Advisors (formerly called Quest for Value
Advisors; the "Adviser"), a majority-owned (99%) subsidiary of Oppenheimer
Capital, serves as the Trust's investment adviser. The U.S. Government Income
Portfolio (the "Portfolio") one of the Trust's seven portfolios, commenced
operations on January 3, 1995. The following is a summary of significant
accounting policies consistently followed by the Portfolio in the preparation
of its financial statements:

(A) Valuation of Investments

Investment debt securities (other than short-term obligations) are valued
each business day by an independent pricing service approved by the Board of
Trustees. Investments are valued by the pricing service using methods which
include current market quotations from a major market maker in the securities
and trader-reviewed "matrix" prices. Short-term debt securities having a
remaining maturity of more than sixty days are valued on a "marked-to-market"
basis, that is, at prices based upon market quotations for securities of
similar type, yield, quality and maturity. Short-term debt securities having a
remaining maturity of sixty days or less are valued at amortized cost, which
approximates market value. Any securities or other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith by the Board of Trustees. The ability of issuers of
debt instruments to meet their obligations may be affected by economic
developments in a specific industry or region.

(B) Federal Income Taxes

Security transactions are accounted for on the trade date. In determining
the gain or loss from the sale of securities, the cost of securities sold has
been determined on the basis of identified cost. Interest income is accrued as
earned. Discounts or premiums on debt securities purchased are accreted or
amortized to interest income over the lives of the respective securities.

(D) Dividends and Distributions

Dividends from net investment income are declared daily and paid monthly.
Distributions from net realized capital gains, if any, are declared and paid
at least annually.

The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting principles. These "book-tax" differences are either considered
temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the capital accounts
based on their Federal tax-basis treatment: temporary differences do not
require reclassification. Dividends and distributions which exceed net
investment income and net realized capital gains for financial reporting
purposes but not for tax purposes are reported as dividends in excess of net
investment income or distributions
<PAGE>

QUEST FOR VALUE ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 1995

(1) Organization and Significant Accounting Policies (continued)
(D) Dividends and Distributions (continued)
in excess of net realized capital gains, respectively. To the extent
distributions exceed current and accumulated earnings and profits for Federal
income tax purposes, they are reported as distributions of paid-in-surplus or
tax return of capital. At December 31, 1995, the Portfolio did not have any
permanent book-tax differences.

(E) Allocation of Expenses

(F) Use of Estimates

(2) Investment Advisory Fee and Other Transactions with Affiliates

(a) The investment advisory fee is payable monthly to the Adviser, and is
computed as a percentage of the Portfolio's net assets as of the close of
business each day at the annual rate of .60%.

The Adviser has agreed to waive that portion of the advisory fee and to
reimburse any necessary expenses to limit operating expenses of the Portfolio
to .75% of average daily net assets on an annual basis through at least
December 31, 1995.

(3) Purchases and Sales of Securities

For the period January 3, 1995 (commencement of operations) to December
31, 1995, purchases and sales of investment securities, other than short-term
securities, were $1,827,604 and $465,316, respectively.
<PAGE>

QUEST FOR VALUE ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS

For a share outstanding throughout the period:

<TABLE>
<CAPTION>
January 3, 1995 (1)
to December 31, 1995
--------------------
<S> <C>
Net asset value, beginning of period....................................... $ 10.00
Income from investment operations:
Net investment income...................................................... 0.60
Net realized and unrealized gain on investments............................ 0.68
----------
Total from investment operations......................................... 1.28
----------
Dividends and distributions to shareholders:
Dividends to shareholders from net investment income....................... (0.60)
Distributions to shareholders from net realized capital gains.............. (0.06)
----------
Total dividends and distributions........................................ (0.66)
----------
Net asset value, end of period............................................. $ 10.62
==========
Total return............................................................... 13.1% (2)
==========
Net assets, end of period.................................................. $1,442,458
----------
Ratio of net operating expenses to average net assets...................... 0.75% (3,4,5)
----------
Ratio of net investment income to average net assets....................... 5.75% (3,4,5)
----------
Portfolio turnover......................................................... 65%
----------
</TABLE>
- ---------------

(1) Commencement of operations.

(2) Assumes reinvestment of all dividends and distributions.

(3) Annualized.

(4) Average net assets for the period January 3, 1995 (commencement of
operations) to December 31, 1995 were $816,660.

(5) During the period presented above, the Adviser waived its fees and
reimbursed the Portfolio for a portion of its operating expenses. If such
waivers and reimbursements had not been in effect, the ratio of net
operating expenses to average net assets and the ratio of net investment
income to average net assets would have been 4.73% and 1.77%,
respectively.
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Trustees of
Quest for Value Accumulation Trust - U.S. Government Income Portfolio

In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of the U.S.
Government Income Portfolio (one of the portfolios constituting Quest for
Value Accumulation Trust, hereafter referred to as the "Portfolio") at
December 31, 1995, and the results of its operations, the changes in its net
assets and the financial highlights for the period January 3, 1995
(commencement of operations) through December 31, 1995, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management; our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit, which included confirmation of securities at December 31, 1995 by
correspondence with the custodian, provides a reasonable basis for the opinion
expressed above.

PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 16, 1996

<PAGE>

EQUITY
- --------------------------------------------------------------------------------
GROWTH
- --------------------------------------------------------------------------------
AND INCOME
- --------------------------------------------------------------------------------
FUND
- --------------------------------------------------------------------------------

ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1995

Insurance Management Series

[LOGO] FEDERATED SECURITIES CORP. --------------------------------
DISTRIBUTOR
--------------------------------
A subsidiary of FEDERATED INVESTORS
--------------------------------
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779 --------------------------------

Cusip 458043502
G00843-01 (2/96) [RECYCLED LOGO]

PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------

Dear Investor:

I am pleased to present the Annual Report to Shareholders for Equity Growth and
Income Fund, a portfolio of Insurance Management Series, for the twelve-month
period ended December 31, 1995. The report begins with the management discussion
and analysis by the fund's portfolio manager. Following the management
discussion and analysis is a complete listing of the fund's holdings and its
financial statements.

Equity Growth and Income Fund helps your money earn income and grow in value by
investing in a portfolio of high-quality stocks. Many of these stocks are issued
by companies whose names you will recognize. At the end of the period, the
fund's portfolio included Du Pont, Mattel, Avon, Philip Morris, RJR Nabisco,
Reebok, Chevron, Texaco, American Express, Bristol-Myers Squib, General
Electric, Sears, Hewlett-Packard, and AT&T to name a few.

Consistent with a highly favorable environment for stocks during 1995, the fund
delivered a total return of 33.71%* during the twelve-month period ended
December 31, 1995. The fund's net asset value increased significantly, from
$9.74 at the beginning of the period to $12.80 at the period's end. Dividends
totaled $0.20 per share, while net realized and unrealized gains totaled $3.06
per share during the period. At the end of the twelve-month report period, total
assets grew to reach $48.5 million.

Thank you for participating in the growth and income opportunities of U.S.
stocks through Equity Growth and Income Fund. We look forward to keeping you
informed about your investment's progress.

Sincerely,

J. Christopher Donahue
President
February 15, 1996

* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.

EQUITY GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------

MANAGEMENT DISCUSSION AND ANALYSIS

In the fiscal year ended December 31, 1995, the U.S. stock market advanced
strongly, with the Standard & Poor's 500 Index* ("S&P 500") recording a total
return of 37.6%. This compares to a modest 1.3% total return for the twelve
months ended December 31, 1994. Total return for Equity Growth and Income Fund
for the fiscal year ended December 31, 1995, was 33.71%** versus 30.8% for the
average Lipper Growth and Income Fund.

Recent market strength was concentrated in large-capitalization stocks which
substantially influence the performance of the S&P 500. In contrast, the
Standard & Poor's 600 Small Cap Index*, a popular benchmark for
small-capitalization stocks, had a total return of only 29.9% for the year ended
December 31, 1995.

Market strength over the past year has been largely due to declining interest
rates and continuing strong growth in corporate profits. The 30-year U.S.
Treasury bond yield has declined from 8.1% to roughly 6.2%. Aggregate corporate
earnings for U.S. companies have shown 12%-15% gains in the past three quarters
versus 1994. The consensus forecast at this time is for a rather benign
inflation and interest rate environment and moderate real growth in U.S.
economic activity, perhaps at the 2.0%-2.5% level (annual rate). This backdrop
and the substantial rise in the stock market over the past year dictates
increased selectivity in stock selection at this time.

The best performing sector over the past year has been Technology, although many
stocks in this area have experienced corrections over the past few months. We
reduced our weighting in Technology a few months ago, but remain modestly
overweight relative to the S&P 500, given the excellent long-term outlook. The
Finance sector has also performed well over the past year and the fund continues
to have a significant exposure to this group.

As part of our portfolio management process in determining relative sector
weightings, we also attempt to identify underlying investment themes. Some
companies fit more than one theme. At this time, the major themes in the fund's
portfolio are as follows:

(1) Beneficiaries of corporate "restructuring" such as AT&T, ITT, and CIGNA;

(2) Industry consolidation--Lockheed Martin in the Aerospace/defense industry
and First Interstate in banking are examples;

(3) Companies which generate significant excess cash flow such as Philip Morris
and FMC;

* The Standard & Poor's Daily Stock Price Index of 500 Common Stocks, a
composite index of common stocks in industry, transportation, and financial
and public utility companies, can be used to compare to the total returns of
funds whose portfolios are invested primarily in common stocks. The Standard
& Poor's 600 Small Cap Index is an unmanaged index of 600 smaller
capitalization stocks. These indices are unmanaged and actual investments
cannot be made in indices.
** Performance quoted represents past performance. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost.

(4) Dominant companies with superior management such as General Electric,
Citicorp and Philip Morris; and

(5) The Technology revolution--major "plays" include Hewlett Packard, IBM, and
General Motors, Class "E" (EDS).

While some market observers express concern with overvaluation in the current
market, we believe good long-term values can be identified by our disciplined
process and careful fundamental research. An important part of our process is
our emphasis on controlling risk through diversification and attention to
valuation of individual stocks.

EQUITY GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------

GROWTH OF $10,000 INVESTED IN EQUITY GROWTH AND INCOME FUND

The graph below illustrates the hypothetical investment of $10,000 in the
Equity Growth and Income Fund (the "Fund") from February 10, 1994 (start of
performance), to December 31, 1995, compared to the Standard & Poor's 500 Index
(S&P 500)+, and the Lipper Growth and Income Funds Average (LGIFA).+
GRAPHIC REPRESENTATION A1 OMITTED. SEE APPENDIX.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.

*The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P 500 and the LGIFA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.

The S&P 500 is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. The index is
unmanaged.

+The LGIFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into the
category, and is not adjusted to reflect any sales charges. However, these
total returns are reported net of expenses or other fees that the SEC requires
to be reflected in a fund's performance.

EQUITY GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<S> <S> <C>
STOCKS--88.6% -------------------------------------------------------------------------------------
BASIC INDUSTRY--8.3%
-------------------------------------------------------------------------------------
38,800 Allegheny Ludlum Corp. $ 717,800
-------------------------------------------------------------------------------------
17,100 Aluminum Co. of America 904,162
-------------------------------------------------------------------------------------
16,000 Du Pont (E.I.) de Nemours & Co. 1,118,000
-------------------------------------------------------------------------------------
4,500 Eastman Chemical Co. 281,812
-------------------------------------------------------------------------------------
13,300 International Paper Co. 503,737
-------------------------------------------------------------------------------------
15,000 Praxair, Inc. 504,375
------------------------------------------------------------------------------------- -------------
Total 4,029,886
------------------------------------------------------------------------------------- -------------
CONSUMER DURABLES--2.7%
-------------------------------------------------------------------------------------
25,000 Mattel, Inc. 768,750
-------------------------------------------------------------------------------------
25,400 Volvo, ADR 523,081
------------------------------------------------------------------------------------- -------------
Total 1,291,831
------------------------------------------------------------------------------------- -------------
CONSUMER NON-DURABLES--7.5%
-------------------------------------------------------------------------------------
10,400 Avon Products, Inc. 783,900
-------------------------------------------------------------------------------------
15,300 IBP, Inc. 772,650
-------------------------------------------------------------------------------------
16,500 Philip Morris Cos., Inc. 1,493,250
-------------------------------------------------------------------------------------
5,100 RJR Nabisco Holdings Corp. 157,463
-------------------------------------------------------------------------------------
15,500 Reebok International Ltd. 437,875
------------------------------------------------------------------------------------- -------------
Total 3,645,138
------------------------------------------------------------------------------------- -------------
ENERGY MINERALS--6.1%
-------------------------------------------------------------------------------------
15,800 Chevron Corp. 829,500
-------------------------------------------------------------------------------------
1,800 Mobil Corp. 201,600
-------------------------------------------------------------------------------------
20,500 Occidental Petroleum Corp. 438,188
-------------------------------------------------------------------------------------
11,200 Texaco, Inc. 879,200
-------------------------------------------------------------------------------------
32,000 USX Marathon Group 624,000
------------------------------------------------------------------------------------- -------------
Total 2,972,488
------------------------------------------------------------------------------------- -------------
</TABLE>

EQUITY GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------------------------
FINANCE--15.5%
-------------------------------------------------------------------------------------
20,408 Allstate Corp. $ 839,279
-------------------------------------------------------------------------------------
10,400 American Express Co. 430,300
-------------------------------------------------------------------------------------
9,700 Bank of Boston Corp. 448,625
-------------------------------------------------------------------------------------
9,400 CIGNA Corp. 970,550
-------------------------------------------------------------------------------------
10,700 Chemical Banking Corp. 628,625
-------------------------------------------------------------------------------------
17,157 Citicorp 1,153,808
-------------------------------------------------------------------------------------
13,400 Dean Witter, Discover & Co. 629,800
-------------------------------------------------------------------------------------
19,100 Mellon Bank Corp. 1,026,625
-------------------------------------------------------------------------------------
12,500 Providian Corp. 509,375
-------------------------------------------------------------------------------------
13,550 Travelers Group, Inc. 851,956
------------------------------------------------------------------------------------- -------------
Total 7,488,943
------------------------------------------------------------------------------------- -------------
HEALTH CARE--9.2%
-------------------------------------------------------------------------------------
8,700 American Home Products Corp. 843,900
-------------------------------------------------------------------------------------
14,400 Becton, Dickinson & Co. 1,080,000
-------------------------------------------------------------------------------------
14,900 Bristol-Myers Squibb Co. 1,279,537
-------------------------------------------------------------------------------------
11,900 Merck & Co., Inc. 782,425
-------------------------------------------------------------------------------------
8,900 Smithkline Beecham Corp., ADR 493,950
------------------------------------------------------------------------------------- -------------
Total 4,479,812
------------------------------------------------------------------------------------- -------------
PRODUCER MANUFACTURING--8.9%
-------------------------------------------------------------------------------------
9,200 (a)FMC Corp. 622,150
-------------------------------------------------------------------------------------
16,300 General Electric Co. 1,173,600
-------------------------------------------------------------------------------------
12,000 Loews Corp. 940,500
-------------------------------------------------------------------------------------
10,500 Philips Electronics N.V., ADR 376,688
-------------------------------------------------------------------------------------
13,700 Textron, Inc. 924,750
-------------------------------------------------------------------------------------
18,200 Westinghouse Electric Corp. 300,300
------------------------------------------------------------------------------------- -------------
Total 4,337,988
------------------------------------------------------------------------------------- -------------
</TABLE>

EQUITY GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------------------------
RETAIL TRADE--2.8%
-------------------------------------------------------------------------------------
17,800 American Stores Co. $ 476,150
-------------------------------------------------------------------------------------
22,000 Sears, Roebuck & Co. 858,000
------------------------------------------------------------------------------------- -------------
Total 1,334,150
------------------------------------------------------------------------------------- -------------
SERVICES--2.7%
-------------------------------------------------------------------------------------
18,500 Baker Hughes, Inc. 450,938
-------------------------------------------------------------------------------------
6,300 Gannett Co., Inc. 386,662
-------------------------------------------------------------------------------------
9,200 (a)Western Atlas, Inc. 464,600
------------------------------------------------------------------------------------- -------------
Total 1,302,200
------------------------------------------------------------------------------------- -------------
TECHNOLOGY--16.0%
-------------------------------------------------------------------------------------
5,000 (a)DST Systems, Inc. 142,500
-------------------------------------------------------------------------------------
23,200 General Motors Corp., Class E 1,206,400
-------------------------------------------------------------------------------------
10,800 Hewlett-Packard Co. 904,500
-------------------------------------------------------------------------------------
14,100 Intel Corp. 800,175
-------------------------------------------------------------------------------------
13,500 International Business Machines Corp. 1,238,625
-------------------------------------------------------------------------------------
10,500 (a)Litton Industries, Inc. 467,250
-------------------------------------------------------------------------------------
19,300 Lockheed Martin Corp. 1,524,700
-------------------------------------------------------------------------------------
10,300 Raytheon Co. 486,675
-------------------------------------------------------------------------------------
18,700 Rockwell International Corp. 988,763
------------------------------------------------------------------------------------- -------------
Total 7,759,588
------------------------------------------------------------------------------------- -------------
TRANSPORTATION--1.5%
-------------------------------------------------------------------------------------
10,200 Conrail, Inc. 714,000
------------------------------------------------------------------------------------- -------------
UTILITIES--7.4%
-------------------------------------------------------------------------------------
18,400 AT&T Corp. 1,191,400
-------------------------------------------------------------------------------------
10,900 CMS Energy Corp. 325,637
-------------------------------------------------------------------------------------
9,600 (a)Columbia Gas System, Inc. 421,200
-------------------------------------------------------------------------------------
19,000 Enron Corp. 724,375
-------------------------------------------------------------------------------------
6,000 FPL Group, Inc. 278,250
-------------------------------------------------------------------------------------
</TABLE>

EQUITY GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------------------------
UTILITIES--CONTINUED
-------------------------------------------------------------------------------------
25,500 MCI Communications Corp. $ 666,188
------------------------------------------------------------------------------------- -------------
Total 3,607,050
------------------------------------------------------------------------------------- -------------
TOTAL COMMON STOCKS (IDENTIFIED COST $38,914,802) 42,963,074
------------------------------------------------------------------------------------- -------------
PREFERRED STOCKS--4.3%
- ---------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLES--0.9%
-------------------------------------------------------------------------------------
71,700 RJR Nabisco Holdings Corp., Conv. Pfd., Series C, $.60 457,088
------------------------------------------------------------------------------------- -------------
FINANCE--2.0%
-------------------------------------------------------------------------------------
9,300 Merrill Lynch & Co., Inc., STRYPES, Series MGIC, $3.12 481,275
-------------------------------------------------------------------------------------
7,400 Sunamerica, Inc., Conv. Pfd., Series E, $3.10 484,700
------------------------------------------------------------------------------------- -------------
Total 965,975
------------------------------------------------------------------------------------- -------------
PRODUCER MANUFACTURING--1.4%
-------------------------------------------------------------------------------------
41,700 Westinghouse Electric Corp., PEPS, Series C, $1.30 667,617
------------------------------------------------------------------------------------- -------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST $2,018,173) 2,090,680
------------------------------------------------------------------------------------- -------------
CORPORATE BOND--0.4%
- ---------------------------------------------------------------------------------------------------
TECHNOLOGY--0.4%
-------------------------------------------------------------------------------------
$ 165,000 Analog Devices, Inc., Conv. Bond, 3.50%, 12/1/2000 172,631
------------------------------------------------------------------------------------- -------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $165,000) 172,631
------------------------------------------------------------------------------------- -------------
(B) REPURCHASE AGREEMENT--13.5%
- ---------------------------------------------------------------------------------------------------
6,560,000 J.P. Morgan Securities, Inc., 5.85%, dated 12/29/1995, due 1/2/1996 (at amortized
cost) 6,560,000
------------------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST $47,657,975)(C) $ 51,786,385
------------------------------------------------------------------------------------- -------------
</TABLE>

(a) Non-income producing.

(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.

(c) The cost of investments for federal tax purposes amounts to $47,702,372.
The net unrealized appreciation of investments on a federal tax cost basis
amounts to $4,084,013, and is comprised of $4,491,513 appreciation and
$407,500 depreciation at December 31, 1995.

EQUITY GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------

The following acronyms are used throughout this portfolio:

ADR--American Depository Receipt

PEPS--Participating Equity Preferred Stock

STRYPES--Structured Yield Product Exchangeable for Stock

Note: The categories of investments are shown as a percentage of net assets
($48,513,534) at
December 31, 1995.

(See Notes which are an integral part of the Financial Statements)

EQUITY GROWTH AND INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------------------------
Investments in repurchase agreements $ 6,560,000
- -----------------------------------------------------------------------------------
Investments in securities 45,226,385
- ----------------------------------------------------------------------------------- -------------
Total investments in securities, at value
(identified cost, $47,657,975 and tax cost, $47,702,372) $ 51,786,385
- --------------------------------------------------------------------------------------------------
Cash 507
- --------------------------------------------------------------------------------------------------
Receivable for shares sold 270,500
- --------------------------------------------------------------------------------------------------
Income receivable 89,416
- --------------------------------------------------------------------------------------------------
Prepaid expenses 365
- -------------------------------------------------------------------------------------------------- -------------
Total assets 52,147,173
- --------------------------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------------------------
Payable for investments purchased 3,601,406
- -----------------------------------------------------------------------------------
Payable for shares redeemed 1,855
- -----------------------------------------------------------------------------------
Accrued expenses 30,378
- ----------------------------------------------------------------------------------- -------------
Total liabilities 3,633,639
- -------------------------------------------------------------------------------------------------- -------------
NET ASSETS for 3,790,198 shares outstanding $ 48,513,534
- -------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------------------------
Paid in capital $ 43,990,489
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 4,128,410
- --------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 404,645
- --------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (10,010)
- -------------------------------------------------------------------------------------------------- -------------
Total Net Assets $ 48,513,534
- -------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- --------------------------------------------------------------------------------------------------
$48,513,534 / 3,790,198 shares outstanding $12.80
- -------------------------------------------------------------------------------------------------- -------------
</TABLE>

(See Notes which are an integral part of the Financial Statements)

EQUITY GROWTH AND INCOME FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Dividends $ 416,256
- ----------------------------------------------------------------------------------------------------
Interest 131,596
- ---------------------------------------------------------------------------------------------------- ------------
Total income 547,852
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------------------
Investment advisory fee $ 142,579
- ---------------------------------------------------------------------------------------
Administrative personnel and services fee 125,000
- ---------------------------------------------------------------------------------------
Custodian fees 43,505
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 14,286
- ---------------------------------------------------------------------------------------
Directors'/Trustees' fees 1,440
- ---------------------------------------------------------------------------------------
Auditing fees 8,738
- ---------------------------------------------------------------------------------------
Legal fees 2,016
- ---------------------------------------------------------------------------------------
Portfolio accounting fees 33,828
- ---------------------------------------------------------------------------------------
Share registration costs 15,619
- ---------------------------------------------------------------------------------------
Printing and postage 21,456
- ---------------------------------------------------------------------------------------
Insurance premiums 3,572
- ---------------------------------------------------------------------------------------
Miscellaneous 8,628
- --------------------------------------------------------------------------------------- -----------
Total expenses 420,667
- ---------------------------------------------------------------------------------------
Waiver and reimbursements--
- ---------------------------------------------------------------------------------------
Waiver of investment advisory fee ($ 142,579)
- --------------------------------------------------------------------------
Reimbursement of other operating expenses (115,765)
- -------------------------------------------------------------------------- -----------
Total waiver and reimbursements (258,344)
- --------------------------------------------------------------------------------------- -----------
Net expenses 162,323
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income 385,529
- ---------------------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------------------------
Net realized gain on investments 418,832
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 4,129,761
- ---------------------------------------------------------------------------------------------------- ------------
Net realized and unrealized gain on investments 4,548,593
- ---------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 4,934,122
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>

(See Notes which are an integral part of the Financial Statements)

EQUITY GROWTH AND INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994(A)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------------------
Net investment income $ 385,529 $ 15,142
- -------------------------------------------------------------------------------------
Net realized gain (loss) on investments ($460,510 net gain and ($11,469) net loss,
respectively, as computed for federal tax purposes) 418,832 (14,187)
- -------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 4,129,761 (1,351)
- ------------------------------------------------------------------------------------- ------------- ------------
Change in net assets resulting from operations 4,934,122 (396)
- ------------------------------------------------------------------------------------- ------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------------------------------
Distributions from net investment income (386,024) (14,647)
- -------------------------------------------------------------------------------------
Distributions in excess of net investment income (10,010) --
- ------------------------------------------------------------------------------------- ------------- ------------
Change in net assets resulting from distributions to shareholders (396,034) (14,647)
- ------------------------------------------------------------------------------------- ------------- ------------
SHARE TRANSACTIONS--
- -------------------------------------------------------------------------------------
Proceeds from sale of shares 45,176,314 3,287,097
- -------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of distributions declared 396,398 7,346
- -------------------------------------------------------------------------------------
Cost of shares redeemed (3,997,296) (879,370)
- ------------------------------------------------------------------------------------- ------------- ------------
Change in net assets resulting from share transactions 41,575,416 2,415,073
- ------------------------------------------------------------------------------------- ------------- ------------
Change in net assets 46,113,504 2,400,030
- -------------------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------------------
Beginning of period 2,400,030 --
- ------------------------------------------------------------------------------------- ------------- ------------
End of period (including undistributed net investment income of $0 and $495,
respectively) $ 48,513,534 $ 2,400,030
- ------------------------------------------------------------------------------------- ------------- ------------
</TABLE>

(a) For the period from December 9, 1993 (start of business) to December 31,
1994.

(See Notes which are an integral part of the Financial Statements)

EQUITY GROWTH AND INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.74 $ 10.00
- ----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------
Net investment income 0.20 0.19
- ----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 3.06 (0.26)
- ---------------------------------------------------------------------------------------------- --------- -----------
Total from investment operations 3.26 (0.07)
- ----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------------
Distributions from net investment income (0.19) (0.19)
- ----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (b) (0.01) --
- ---------------------------------------------------------------------------------------------- --------- -----------
Total distributions from net investment income (0.20) (0.19)
- ---------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 12.80 $ 9.74
- ---------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN (C) 33.71% (0.70%)
- ----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------------
Expenses 0.85% 0.54%*
- ----------------------------------------------------------------------------------------------
Net investment income 2.03% 2.58%*
- ----------------------------------------------------------------------------------------------
Expense waiver/ reimbursement (d) 1.36% 25.42%*
- ----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $48,514 $2,400
- ----------------------------------------------------------------------------------------------
Portfolio turnover 43% 32 %
- ----------------------------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from February 10, 1994 (date of initial
public investment) to December 31, 1994. For the period from December 9,
1993 (start of business) to January 31, 1994, the Fund had no investment
activity.

(b) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.

(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

(See Notes which are an integral part of the Financial Statements)

EQUITY GROWTH AND INCOME FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------

1. ORGANIZATION

Insurance Management Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end, management
investment company. The Trust consists of seven portfolios. The financial
statements included herein are only those of Equity Growth and Income Fund (the
"Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held.

2. SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.

INVESTMENT VALUATIONS--Short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized cost,
which approximates fair market value. All other securities are valued at
prices provided by an independent pricing service.

REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.

The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the
"Trustees"). Risks may arise from the potential inability of counterparties
to honor the terms of the repurchase agreement. Accordingly, the Fund could
receive less than the repurchase price on the sale of collateral
securities.

EQUITY GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------

Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
OTHER--Investment transactions are accounted for on the trade date.

3. SHARES OF BENEFICIAL INTEREST

The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994(A)
<S> <C> <C>
Shares sold 3,870,639 334,265
- ------------------------------------------------------------------------------------------
Shares issued to shareholders in payment
of distributions declared 32,670 752
- ------------------------------------------------------------------------------------------
Shares redeemed (359,502) (88,626)
- ------------------------------------------------------------------------------------------ ---------- ---------
Net change resulting from share transactions 3,543,807 246,391
- ------------------------------------------------------------------------------------------ ---------- ---------
</TABLE>

(a) For the period from December 9, 1993 (start of business) to December 31,
1994.

4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser, (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.75 of 1% of the Fund's average daily net assets.

The Adviser may voluntarily choose to waive any portion of its fee and/or
reimburse certain operating expenses of the Fund. The Adviser can modify or
terminate this voluntary waiver and/or reimbursement at any time at its sole
discretion.

ADMINISTRATIVE FEE--Federated Administrative Services, under the Administrative
Services Agreement, provides the Fund with administrative personnel and
services. This fee is based on the

EQUITY GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
level of average aggregate daily net assets of all funds advised by subsidiaries
of Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least $125,000
per portfolio and $30,000 per each additional class of shares.

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services
Company ("FServ") serves as transfer and dividend disbursing agent for the Fund.
This fee is based on the size, type, and number of accounts and transactions
made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.

ORGANIZATIONAL EXPENSES--Organizational expenses of $16,348 and start-up
administrative service expenses of $31,507 were borne initially by the Adviser.
The Fund has agreed to reimburse the Adviser for the organizational and start-up
administrative expenses during the five year period following effective date.
For the period ended December 31, 1995, the Fund paid $2,180 and $4,201,
respectively, pursuant to this agreement.

GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.

5. INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended December 31, 1995, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 46,464,211
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 7,752,424
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>

INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------

To the Board of Trustees of the Insurance Management Series
and the Shareholders of EQUITY GROWTH AND INCOME FUND:

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Equity Growth and Income Fund (a portfolio of
the Insurance Management Series) as of December 31, 1995, the related statement
of operations for the year then ended and the statement of changes in net assets
and financial highlights for the periods presented. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Equity Growth and
Income Fund as of December 31, 1995, the results of its operations, the changes
in its net assets and its financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
February 7, 1996

TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. J. Christopher Donahue
William J. Copeland President
J. Christopher Donahue Edward C. Gonzales
James E. Dowd Executive Vice President
Lawrence D. Ellis, M.D. John W. McGonigle
Edward L. Flaherty, Jr. Executive Vice President and Secretary
Peter E. Madden Richard B. Fisher
Gregor F. Meyer Vice President
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar Treasurer
Marjorie P. Smuts S. Elliott Cohan
Assistant Secretary
</TABLE>

This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the fund's prospectus which contains facts concerning its
objective and policies, management fees, expenses and other information.

- --------------------------------------------------------------------------------
UTILITY
- --------------------------------------------------------------------------------
FUND
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1995

Insurance Management Series

Cusip 458043205
G00845-01 (2/96) [RECYCLED LOGO]

PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------

Dear Investor:

I am pleased to present the Annual Report to Shareholders for Utility Fund, a
portfolio of Insurance Management Series, for the twelve-month period ended
December 31, 1995. The report begins with the management discussion and analysis
by your fund's portfolio manager. Following the management discussion and
analysis is a complete listing of the fund's holdings and its financial
statements.

Utility Fund puts your money to work in a portfolio of common and preferred
stocks issued by companies that provide essential services. Consistent with a
very favorable economic environment during 1995, your fund delivered a total
return of 24.18%* for the period ended December 31, 1995. The fund's net asset
value increased from $9.29 at the beginning of the period to $11.03 at the
period's end. Dividends paid to shareholders over the twelve-month report period
totaled $0.45 per share. At the end of the twelve-month report period, total
assets stood at $29.7 million.

Thank you for participating in the investment opportunities of utility companies
through Utility Fund. We look forward to keeping you informed about your
investment's progress.

Sincerely,

J. Christopher Donahue
President
February 15, 1996

UTILITY FUND
- --------------------------------------------------------------------------------

MANAGEMENT DISCUSSION AND ANALYSIS

During 1995, utilities rose from the ashes of 1994 like a phoenix. In 1994,
utilities were hurt primarily by rapidly rising interest rates and also by fears
of restructuring. The predominantly electric utility-weighted Dow Jones ("DJ")
Utility Index* lost 15.81% on a total return basis in 1994, while the Standard &
Poors ("S&P") Utility Index* (comprised 53% by the Regional Bell Operating
companies and GTE) fell 8.31%. In 1995 rapidly falling interest rates, subsiding
restructuring fears and strong earnings growth, led to a handsome 32.37% gain in
the DJ Utility Index and a stunning gain of 42.11% in the S&P Utility Index,
which even outpaced the 37.58% return of the S&P 500 Index*. There have only
been six other years since 1929 in which the S&P Utility Index posted returns
exceeding 40%. The average annual return in subsequent years was a quite
respectable 13.55%.

The key variable determining utility stocks' 1996 performance will continue to
be earnings and interest rates. The yield on long-term Treasuries fell by 192
basis points in 1995, giving utilities their initial thrust. It is difficult to
foresee a similar decline in 1996, but with an accommodative Federal Reserve
Board, an election, and a slowing economy, it is equally difficult to expect
much upside risk to interest rates. Earnings growth was a pleasant surprise in
1995 as companies benefited from increased efficiencies in the face of a slower
than expected industry restructuring, particularly for telephone and electric
utilities. We expect this positive trend to continue in 1996. While we do not
expect a repeat of 1995 for utility stocks, we do believe that most investors
will be pleased with 1996's performance.

While the Utility Fund posted a very respectable total return of 24.18%** in
1995, it lagged the peer group average return of 27.7% (average utility fund
performance as calculated by Lipper Analytical Services). This relative
underperformance was due in part to the conservative structure of our fund,
which holds certain convertible securities that outperform in rising interest
rate environments in order to cushion the interest-rate sensitivity of utility
stocks. This strategy has allowed the fund to perform well above average versus
its peer group in weak utility markets, and to perform well over long periods of
time. Another significant reason for the fund's underperformance in 1995 was its
relative underweighting in the Baby Bells, which as a group advanced 50.8% in
1995. While we believe that the coming of long distance, cellular, and cable
competition will lead to lower profit margins for the Baby Bells, it now appears
that true competition is years away. In the meantime, the telephone companies
are enjoying strong minute and subscriber growth while cost cutting efforts

*DJ Utility Index is comprised of fifteen utility stocks that track changes in
price daily and over a six month period. The S&P Utility Index is comprised of
forty different utilities that track daily changes in the price of stocks. The
S&P 500 Daily Stock Price Index of 500 Common Stocks, a composite index of
common stocks in industry, transportation, and financial and public utility
companies, can be used to compare the total returns of funds whose portfolios
are invested primarily in common stocks. These indices are unmanaged and
actual investments can not be made in indices.
**Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.

are also enhancing earnings. Therefore, we have increased our portfolio
weighting in the U.S. telecom sector from 9% to over 20%.

We currently have 37% of the portfolio in domestic electric utilities. Because
of this group's relative underperformance in 1995, we believe it is poised to
perform well in 1996. Additionally, the reform movement to bring down
competitive barriers is proceeding much more slowly than expected, while
companies continue to cut costs. The natural gas stocks which comprise 10% of
our portfolio are reacting to an excellent start to the winter.

We participated in many very positive stock performances in 1995. These included
Williams Cos. which rose 75% on a total return basis, GTE which rose 72%, DQE,
Inc. which rose 53%, Pinnacle West which rose 45%, PNC Financial which rose 42%,
and AT&T Corp. which rose 29%. Our focus in 1996 will be to seek companies with
competitive managements who excel in their regulated environment while
successfully growing diversified non-regulated operations, and which have
accelerating earnings and above-average dividend growth potential.

We also believe that the weakness in international markets over the last two
years has led to some attractive valuations. Consequently, we have initiated
positions in Compania Telecomunicacion Chile and Telebras. The international
utility markets offer superior growth and some of the best relative valuations
in years.

Overall, we are optimistic as we enter 1996. Each of the utility sectors is
enjoying relatively positive fundamentals, and the defensive nature of this
asset class will provide a strong measure of protection from a bear market.

UTILITY FUND
- --------------------------------------------------------------------------------

GROWTH OF $10,000 INVESTED IN THE UTILITY FUND

The graph below illustrates the hypothetical investment of $10,000 in the
Utility Fund (the "Fund") from February 10, 1994 (start of performance) to
December 31, 1995, compared to the Standard and Poor's 500 Index (S&P 500)+, and
the Standard and Poor's Utility Index (SPUX)+.

["Graphic representation A2 omitted. See Appendix."]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK, AND ARE NOT FEDERALLY INSURED.

*The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P 500 and the SPUX have been adjusted to
reflect reinvestment of dividends on securities in the indices.

+The S&P 500 and the SPUX are not adjusted to reflect sales charges,
expenses, or other fees that the SEC requires to be reflected in the
Fund's performance. The indices are unmanaged.

UTILITY FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--77.1% -----------------------------------------------------------------------------------
CONSUMER NON-DURABLES--1.0%
--------------------------------------------------------------------------------
3,200 Philip Morris Cos., Inc. $ 289,600
-------------------------------------------------------------------------------- ---------------
ELECTRIC UTILITIES: CENTRAL--14.6%
--------------------------------------------------------------------------------
12,600 Cinergy Corp. 385,875
--------------------------------------------------------------------------------
25,000 CMS Energy Corp. 746,875
--------------------------------------------------------------------------------
28,000 DPL, Inc. 693,000
--------------------------------------------------------------------------------
22,300 Illinova Corp. 669,000
--------------------------------------------------------------------------------
15,700 NIPSCO Industries, Inc. 600,525
--------------------------------------------------------------------------------
7,400 Ohio Edison Co. 173,900
--------------------------------------------------------------------------------
4,900 Unicom Corp. 160,475
--------------------------------------------------------------------------------
16,600 Utilicorp United, Inc. 487,625
--------------------------------------------------------------------------------
12,800 Western Resources, Inc. 427,200
-------------------------------------------------------------------------------- ---------------
Total 4,344,475
-------------------------------------------------------------------------------- ---------------
ELECTRIC UTILITIES: EAST--6.3%
--------------------------------------------------------------------------------
12,000 Baltimore Gas & Electric Co. 342,000
--------------------------------------------------------------------------------
21,400 DQE, Inc. 658,050
--------------------------------------------------------------------------------
13,200 General Public Utilities 448,800
--------------------------------------------------------------------------------
14,300 Peco Energy Co. 430,788
-------------------------------------------------------------------------------- ---------------
Total 1,879,638
-------------------------------------------------------------------------------- ---------------
ELECTRIC UTILITIES: SOUTH--12.7%
--------------------------------------------------------------------------------
22,200 Duke Power Co. 1,051,725
--------------------------------------------------------------------------------
12,100 Florida Progress Corp. 428,037
--------------------------------------------------------------------------------
23,500 FPL Group, Inc. 1,089,812
--------------------------------------------------------------------------------
22,000 Southern Co. 541,750
--------------------------------------------------------------------------------
16,400 Texas Utilities Co. 674,450
-------------------------------------------------------------------------------- ---------------
Total 3,785,774
-------------------------------------------------------------------------------- ---------------
</TABLE>

UTILITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<S> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES: WEST--3.8%
--------------------------------------------------------------------------------
20,300 Pacificorp $ 431,375
--------------------------------------------------------------------------------
23,800 Pinnacle West Capital Corp. 684,250
-------------------------------------------------------------------------------- ---------------
Total 1,115,625
-------------------------------------------------------------------------------- ---------------
ENERGY MINERALS--1.3%
--------------------------------------------------------------------------------
4,800 Exxon Corp. 384,600
-------------------------------------------------------------------------------- ---------------
FINANCE--2.2%
--------------------------------------------------------------------------------
16,300 Meditrust, REIT 568,463
--------------------------------------------------------------------------------
2,900 PNC Financial Corp. 93,525
-------------------------------------------------------------------------------- ---------------
Total 661,988
-------------------------------------------------------------------------------- ---------------
MAJOR U.S. TELECOMMUNICATIONS--21.2%
--------------------------------------------------------------------------------
14,600 Ameritech Corp. 861,400
--------------------------------------------------------------------------------
16,700 AT&T Corp. 1,081,325
--------------------------------------------------------------------------------
24,700 BellSouth Corp. 1,074,450
--------------------------------------------------------------------------------
25,600 GTE Corp. 1,126,400
--------------------------------------------------------------------------------
45,500 MCI Communications Corp. 1,188,688
--------------------------------------------------------------------------------
16,800 SBC Communications, Inc. 966,000
-------------------------------------------------------------------------------- ---------------
Total 6,298,263
-------------------------------------------------------------------------------- ---------------
NATURAL GAS DISTRIBUTION--3.7%
--------------------------------------------------------------------------------
22,800 MCN Corp. 530,100
--------------------------------------------------------------------------------
19,700 Pacific Enterprises 556,525
-------------------------------------------------------------------------------- ---------------
Total 1,086,625
-------------------------------------------------------------------------------- ---------------
NON-U.S. UTILITIES--2.5%
--------------------------------------------------------------------------------
18,800 National Power Co. PLC, ADR 173,900
--------------------------------------------------------------------------------
3,500 Telecomunicacoes Brasileras, ADR 165,813
--------------------------------------------------------------------------------
6,000 Telefonica de Espana, ADR 251,250
--------------------------------------------------------------------------------
</TABLE>

UTILITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<S> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
NON-U.S. UTILITIES--CONTINUED
--------------------------------------------------------------------------------
10,100 Westcoast Energy, Inc. $ 147,713
-------------------------------------------------------------------------------- ---------------
Total 738,676
-------------------------------------------------------------------------------- ---------------
OIL/GAS TRANSMISSION--6.1%
--------------------------------------------------------------------------------
14,700 Enron Corp. 560,437
--------------------------------------------------------------------------------
8,200 Enron Global Power & Pipelines, L.L.C. 203,975
--------------------------------------------------------------------------------
5,800 Panhandle Eastern Corp. 161,675
--------------------------------------------------------------------------------
15,400 Sonat, Inc. 548,625
--------------------------------------------------------------------------------
7,400 Williams Companies, Inc. (The) 324,675
-------------------------------------------------------------------------------- ---------------
Total 1,799,387
-------------------------------------------------------------------------------- ---------------
OTHER TELEPHONE/COMMUNICATIONS--0.8%
--------------------------------------------------------------------------------
2,700 Cable & Wireless, ADR 57,037
--------------------------------------------------------------------------------
2,100 Compania Telecomunicacion Chile, ADR 174,037
-------------------------------------------------------------------------------- ---------------
Total 231,074
-------------------------------------------------------------------------------- ---------------
TECHNOLOGY--0.9%
--------------------------------------------------------------------------------
7,200 Nokia (AB), ADR 279,900
-------------------------------------------------------------------------------- ---------------
TOTAL COMMON STOCKS (IDENTIFIED COST $20,751,220) 22,895,625
-------------------------------------------------------------------------------- ---------------
PREFERRED STOCKS--14.7%
- -------------------------------------------------------------------------------------------------
BASIC INDUSTRY--2.8%
--------------------------------------------------------------------------------
3,000 (a)International Paper Co., Cumulative Conv. Pfd., Series 144A, $2.63 137,025
--------------------------------------------------------------------------------
11,900 James River Corp. of Virginia, Cumulative DECS, Series P, $1.55 278,162
--------------------------------------------------------------------------------
8,300 Reynolds Metals Co., PRIDES, $3.30 412,925
-------------------------------------------------------------------------------- ---------------
Total 828,112
-------------------------------------------------------------------------------- ---------------
CONSUMER DURABLES--0.5%
--------------------------------------------------------------------------------
10,800 Kaufman & Broad Homes Corp., Conv. Pfd., Series B, $1.52 160,650
-------------------------------------------------------------------------------- ---------------
CONSUMER NON-DURABLES--4.0%
--------------------------------------------------------------------------------
187,900 RJR Nabisco Holdings Corp., Conv. Pfd., Series C, $.60 1,197,863
-------------------------------------------------------------------------------- ---------------
</TABLE>

UTILITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<S> <S> <C>
PREFERRED STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
FINANCE--3.9%
--------------------------------------------------------------------------------
1,400 First USA, Inc., Cumulative PRIDES, $1.99 $ 55,300
--------------------------------------------------------------------------------
7,600 Merrill Lynch & Co., Inc., STRYPES, Series MGIC, $3.12 393,300
--------------------------------------------------------------------------------
9,900 Sunamerica, Inc., Conv. Pfd., Series D, $2.78 473,963
--------------------------------------------------------------------------------
3,600 Sunamerica, Inc., Conv. Pfd., Series E, $3.10 235,800
-------------------------------------------------------------------------------- ---------------
Total 1,158,363
-------------------------------------------------------------------------------- ---------------
NON-U.S. UTILITIES--1.7%
--------------------------------------------------------------------------------
8,700 (a)Cointel, Telefonica de Argentina SA, PRIDES, $5.04 493,725
-------------------------------------------------------------------------------- ---------------
OIL/GAS TRANSMISSION--0.8%
--------------------------------------------------------------------------------
3,100 Williams Companies, Inc. (The), Conv. Pfd., $7.00 229,400
-------------------------------------------------------------------------------- ---------------
TECHNOLOGY--1.0%
--------------------------------------------------------------------------------
3,900 General Motors Corp., Cumulative Conv. Pfd., Series C (GME), $3.25 285,675
-------------------------------------------------------------------------------- ---------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST $4,209,060) 4,353,788
-------------------------------------------------------------------------------- ---------------
PRINCIPAL OR
FOREIGN
PAR AMOUNT
CORPORATE BONDS--3.6%
- -------------------------------------------------------------------------------------------------
BASIC INDUSTRY--0.3%
--------------------------------------------------------------------------------
$ 90,000 Analog Devices, Inc., Conv. Bond, 3.50%, 12/1/2000 94,162
-------------------------------------------------------------------------------- ---------------
FINANCE--0.9%
--------------------------------------------------------------------------------
250,000 Equitable Cos., Inc., Conv. Sub. Deb., 6.125%, 12/15/2024 282,907
-------------------------------------------------------------------------------- ---------------
NON-U.S. UTILITIES--1.3%
--------------------------------------------------------------------------------
525,000,000 Softe SA, Conv. Bond, 4.25%, 7/30/1998 382,645
-------------------------------------------------------------------------------- ---------------
RETAIL TRADE--0.3%
--------------------------------------------------------------------------------
80,000 Federated Department Stores, Inc., Conv. Bond, 5.00%, 10/1/2003 80,408
-------------------------------------------------------------------------------- ---------------
TECHNOLOGY--0.8%
--------------------------------------------------------------------------------
85,000 (a)3Com Corp., Conv. Bond, 10.25%, 11/1/2001 130,050
--------------------------------------------------------------------------------
</TABLE>

UTILITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE IN
AMOUNT U.S. DOLLARS
<S> <S> <C>
CORPORATE BONDS--CONTINUED
- -------------------------------------------------------------------------------------------------
TECHNOLOGY--CONTINUED
--------------------------------------------------------------------------------
$ 60,000 (a)National Semiconductor Corp., Conv. Bond, 6.50%, 10/1/2002 $ 56,475
--------------------------------------------------------------------------------
60,000 VLSI Technology, Inc., Conv. Bond, 8.25%, 10/1/2005 55,385
-------------------------------------------------------------------------------- ---------------
Total 241,910
-------------------------------------------------------------------------------- ---------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $1,097,790) 1,082,032
-------------------------------------------------------------------------------- ---------------
(B) REPURCHASE AGREEMENT--3.9%
- -------------------------------------------------------------------------------------------------
1,165,000 J.P. Morgan Securities, Inc., 5.85%, dated 12/29/1995, due 1/2/1996
(AT AMORTIZED COST) 1,165,000
-------------------------------------------------------------------------------- ---------------
TOTAL INVESTMENTS (IDENTIFIED COST $27,223,070)(C) $ 29,496,445
-------------------------------------------------------------------------------- ---------------
</TABLE>

(a) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. These securities have been determined to be
liquid under criteria established by the Board of Trustees. At the end of
the period, these securities amounted to $817,275 which represents 2.8% of
net assets.

(c) The cost for federal tax purposes amounts to $27,232,529. The net
unrealized appreciation on a federal tax cost basis amounts to $2,263,916,
which is comprised of $2,489,511 appreciation and $225,595 depreciation at
December 31, 1995.

Note: The categories of investments are shown as a percentage of net assets
($29,679,406) at December 31, 1995.

The following acronyms are used throughout this portfolio:

ADR--American Depository Receipt
DECS--Dividend Enhanced Convertible Stock
LLC--Limited Liability Company
PLC--Public Limited Company
PRIDES--Preferred Redeemable Increased Dividend Equity Securities
REIT--Real Estate Investment Trust
STRYPES--Structured Yield Product Exchangeable for Stock

(See Notes which are an integral part of the Financial Statements)

UTILITY FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $27,223,070 and
tax cost $27,232,529) $ 29,496,445
- ---------------------------------------------------------------------------------------------------
Cash 2,219
- ---------------------------------------------------------------------------------------------------
Income receivable 102,025
- ---------------------------------------------------------------------------------------------------
Receivable for investments sold 27,338
- ---------------------------------------------------------------------------------------------------
Receivable for shares sold 73,914
- --------------------------------------------------------------------------------------------------- -------------
Total assets 29,701,941
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------------------------
Payable for taxes withheld $ 1,354
- ----------------------------------------------------------------------------------------
Accrued expenses 21,181
- ---------------------------------------------------------------------------------------- ---------
Total liabilities 22,535
- --------------------------------------------------------------------------------------------------- -------------
Net Assets for 2,691,470 shares outstanding $ 29,679,406
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid in capital $ 27,216,105
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and translation of assets and liabilities in foreign
currency 2,273,428
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign
currency transactions 184,237
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income 5,636
- --------------------------------------------------------------------------------------------------- -------------
Total Net Assets $ 29,679,406
- --------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
$29,679,406 / 2,691,470 shares outstanding $11.03
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>

(See Notes which are an integral part of the Financial Statements)

UTILITY FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $3,213) $ 548,785
- ----------------------------------------------------------------------------------------------------
Interest 106,379
- ---------------------------------------------------------------------------------------------------- ------------
Total income 655,164
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------------------
Investment advisory fee $ 89,752
- ---------------------------------------------------------------------------------------
Administrative personnel and services fee 125,000
- ---------------------------------------------------------------------------------------
Custodian fees 48,162
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 13,856
- ---------------------------------------------------------------------------------------
Directors'/Trustees' fees 1,893
- ---------------------------------------------------------------------------------------
Auditing fees 7,675
- ---------------------------------------------------------------------------------------
Legal fees 2,014
- ---------------------------------------------------------------------------------------
Portfolio accounting fees 34,776
- ---------------------------------------------------------------------------------------
Share registration costs 9,857
- ---------------------------------------------------------------------------------------
Printing and postage 27,381
- ---------------------------------------------------------------------------------------
Insurance premiums 3,515
- ---------------------------------------------------------------------------------------
Miscellaneous 5,884
- --------------------------------------------------------------------------------------- -----------
Total expenses 369,765
- ---------------------------------------------------------------------------------------
Waiver and reimbursements--
- ---------------------------------------------------------------------------------------
Waiver of investment advisory fee ($ 89,752)
- --------------------------------------------------------------------------
Reimbursement of other operating expenses (177,842)
- -------------------------------------------------------------------------- -----------
Total waivers and reimbursements (267,594)
- --------------------------------------------------------------------------------------- -----------
Net expenses 102,171
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income 552,993
- ---------------------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
- ----------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency transactions 192,681
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments and translation of assets and liabilities in
foreign currency 2,281,446
- ---------------------------------------------------------------------------------------------------- ------------
Net realized and unrealized gain on investments and foreign currency 2,474,127
- ---------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 3,027,120
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>

(See Notes which are an integral part of the Financial Statements)

UTILITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994(A)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------------
Net investment income $ 552,993 $ 13,207
- -----------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions ($202,587
net gain and $9,887 net loss, respectively, as computed for federal tax purposes) 192,681 (10,881)
- -----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments and translation
of assets and liabilities in foreign currency 2,281,446 (8,018)
- ----------------------------------------------------------------------------------- ------------- ------------
Change in net assets resulting from operations 3,027,120 (5,692)
- ----------------------------------------------------------------------------------- ------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -----------------------------------------------------------------------------------
Distributions from net investment income (545,930) (13,191)
- ----------------------------------------------------------------------------------- ------------- ------------
SHARE TRANSACTIONS--
- -----------------------------------------------------------------------------------
Proceeds from sale of shares 27,140,255 1,195,580
- -----------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 542,617 9,439
- -----------------------------------------------------------------------------------
Cost of shares redeemed (1,458,826) (211,966)
- ----------------------------------------------------------------------------------- ------------- ------------
Change in net assets resulting from share
transactions 26,224,046 993,053
- ----------------------------------------------------------------------------------- ------------- ------------
Change in net assets 28,705,236 974,170
- -----------------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------------
Beginning of period 974,170 --
- ----------------------------------------------------------------------------------- ------------- ------------
End of period (including undistributed net investment income of $5,636 and $16,
respectively) $ 29,679,406 $ 974,170
- ----------------------------------------------------------------------------------- ------------- ------------
</TABLE>

(a) For the period from December 9, 1993 (start of business), to December 31,
1994.

(See Notes which are an integral part of the Financial Statements)

UTILITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.29 $ 9.48
- --------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------
Net investment income 0.45 0.34
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency transactions 1.74 (0.19)
- -------------------------------------------------------------------------------------------- --------- -----------
Total from investment operations 2.19 0.15
- --------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------
Distributions from net investment income (0.45) (0.34)
- -------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.03 $ 9.29
- -------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN (B) 24.18% 1.12%
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------
Expenses 0.85% 0.60%*
- --------------------------------------------------------------------------------------------
Net investment income 4.62% 4.77%*
- --------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 2.24% 54.83%*
- --------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $29,679 $974
- --------------------------------------------------------------------------------------------
Portfolio turnover 62% 73 %
- --------------------------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from April 14, 1994 (date of initial
public investment) to December 31, 1994. For the period from December 9,
1993 (the start of business) to April 13, 1994, the net investment income
was distributed to the Fund's adviser.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(See Notes which are an integral part of the Financial Statements)

UTILITY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------

(1) ORGANIZATION

Insurance Management Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end, management
investment company. The Trust consists of seven portfolios. The financial
statements included herein are only those of the Utility Fund (the "Fund"), a
diversified portfolio. The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held.

(2) SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT VALUATIONS--Short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized cost,
which approximates fair market value. Equity securities are valued at the
last sale price reported on national security exchanges. Unlisted equity
securities are valued at prices provided by independent pricing services.

Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
foreign currency transactions. Amounts as of December 31, 1995 have been
reclassified to reflect the following:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
ACCUMULATED NET REALIZED
PAID-IN CAPITAL GAIN/LOSS UNDISTRIBUTED NET INVESTMENT INCOME
<S> <C> <C>
$(994) $2,437 $(1,443)
</TABLE>

Net investment income, net realized gains/losses, and net assets were not
affected by this change.

UTILITY FUND
- --------------------------------------------------------------------------------

The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the
"Directors"). Risks may arise from the potential inability of
counterparties to honor the terms of the repurchase agreement. Accordingly,
the Fund could receive less than the repurchase price on the sale of
collateral securities.

INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS--Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the
"Code"). Dividend income and distributions to shareholders are recorded on
the ex-dividend date.

CONCENTRATION OF CREDIT RISK--The Fund invests in securities of non-U.S.
issuers. Although the Fund maintains a diversified investment portfolio,
the political or economic developments within a particular country or
region may have an adverse effect on the ability of domiciled issuers to
meet their obligations. Additionally, political or economic developments
may have an effect on the liquidity and volatility of portfolio securities
and currency holdings.

At December 31, 1995, the portfolio was diversified with the following
countries:
<TABLE>
<CAPTION>
COUNTRY % OF NET ASSETS
<S> <C>
Argentina 1.6
Brazil 0.6
Canada 0.5
Chile 0.6
Finland 0.9
Great Britain 0.8
Italy 1.3
Spain 0.9
</TABLE>

UTILITY FUND
- --------------------------------------------------------------------------------
exchange quoted on the respective date that such transactions are recorded.
Differences between income and expense amounts recorded and collected or
paid are adjusted when reported by the custodian bank. The Fund does not
isolate that portion of the results of operations resulting from changes in
foreign exchange rates on investments from the fluctuations arising from
changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.

Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales
of FCs, currency gains or losses realized between the trade and settlement
dates on securities transactions, the difference between the amounts of
dividends, interest, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes
in the value of assets and liabilities other than investments in securities
at fiscal year end, resulting from changes in the exchange rate.

RESTRICTED SECURITIES--Restricted securities are securities that may only
be resold upon registration under federal securities laws or in
transactions exempt from such registration. In some cases, the issuer of
restricted securities has agreed to register such securities for resale, at
the issuer's expense either upon demand by the Fund or in connection with
another registered offering of the securities. Many restricted securities
may be resold in the secondary market in transactions exempt from
registration. Such restricted securities may be determined to be liquid
under criteria established by the Board of Trustees. The Fund will not
incur any registration costs upon such resales. The Fund's restricted
securities are valued at the price provided by dealers in the secondary
market or, if no market prices are available, at the fair value as
determined by the Fund's pricing committee.

Additional information on each restricted security held at December 31,
1995 is as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATES COST
<S> <C> <C>
International Paper Co. Cum. Conv. Pref 12/4/95-12/7/95 $ 135,750
Cointel, Telefonica de Argentina SA, 5/3/94-10/16/95 $ 445,081
3Com Corp., Conv. Bond 11/30/95-12/1/95 $ 135,011
National Semiconductor Corp., Conv. Bond 10/12/95-10/16/95 $ 58,214
</TABLE>

OTHER--Investment transactions are accounted for on the trade date.

(3) SHARES OF BENEFICIAL INTEREST

The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).

UTILITY FUND
- --------------------------------------------------------------------------------

Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994(A)
<S> <C> <C>
Shares sold 2,677,407 126,510
- ---------------------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 52,774 1,007
- ---------------------------------------------------------------
Shares redeemed (143,617) (22,611)
- --------------------------------------------------------------- ------------ ----------
Net change resulting from share transactions 2,586,564 104,906
- --------------------------------------------------------------- ------------ ----------
</TABLE>

(a) For the period from December 9, 1993 (start of business), to December 31,
1994.

(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.75 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive any portion of its fee and/or reimburse certain operating
expenses of the Fund. The Adviser can modify or terminate this voluntary waiver
and/or reimbursement at any time at its sole discretion.

ADMINISTRATIVE FEE--Federated Administrative Services ("FAS"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. This fee is based on the level of average aggregate
daily net assets of all funds advised by subsidiaries of Federated Investors for
the period. The administrative fee received during the period of the
Administrative Services Agreement shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.

PORTFOLIO ACCOUNTING FEES--FServ also maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.

ORGANIZATIONAL EXPENSES--Organizational expenses of $17,759 and start-up
administrative service expenses of $31,507 were borne initially by the Adviser.
The Fund has agreed to reimburse the Adviser for the organizational and start-up
administrative expenses during the five year period following effective date.
For the period ended December 31, 1995, the Fund paid $2,368 and $4,201,
respectively, pursuant to this agreement.

GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.

UTILITY FUND
- --------------------------------------------------------------------------------

(5) INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended December 31, 1995, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 32,182,273
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 7,096,446
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>

INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------

To the Board of Trustees of the Insurance Management Series
and the Shareholders of UTILITY FUND:

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Utility Fund (a portfolio of the Insurance
Management Series) as of December 31, 1995, the related statement of operations
for the year then ended and the statement of changes in net assets and financial
highlights for the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
December 31, 1995 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Utility Fund as of
December 31, 1995, the results of its operations, the changes in its net assets
and its financial highlights for the respective stated periods ended in
conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
February 7, 1996

- --------------------------------------------------------------------------------
U.S.
- --------------------------------------------------------------------------------
GOVERNMENT
- --------------------------------------------------------------------------------
BOND
- --------------------------------------------------------------------------------
FUND
- --------------------------------------------------------------------------------

ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1995

Insurance Management Series

Cusip 458043304
G00846-01 (2/96) [RECYCLED LOGO]

PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------

Dear Investor:

I am pleased to present the Annual Report to Shareholders for U.S. Government
Bond Fund, a portfolio of Insurance Management Series, for the twelve-month
period ended December 31, 1995. The report begins with the management discussion
and analysis by your fund's portfolio manager. Following the management
discussion and analysis is a complete listing of the fund's holdings and its
financial statements.

As a shareholder in U.S. Government Bond Fund, you are pursuing current income
and a degree of capital appreciation through a portfolio of U.S. government
mortgage-backed securities. While the Fund itself is not guaranteed, the payment
of principal and interest on all these securities are issued or guaranteed by
agencies of the U.S. government.

During the period ended December 31, 1995, your fund achieved a total return of
8.77%.* The net asset value increased from $9.99 at the beginning of the period
to $10.29 at the period's end. Dividends paid to shareholders over the
twelve-month report period totaled $0.54 per share. At the end of the
twelve-month report period, total assets stood at $12.3 million.

Thank you for participating in the income opportunities of U.S. Government Bond
Fund. We look forward to keeping you informed about your investment's progress.

Sincerely,

J. Christopher Donahue
President
February 15, 1996

*Performance quoted represents past performance. Investment return and principal
value will fluctuate, so that an investor's shares, when redeemed, may be worth
more or less than their original cost.

U.S. GOVERNMENT BOND FUND
- --------------------------------------------------------------------------------

MANAGEMENT DISCUSSION AND ANALYSIS
In 1995, the U.S. bond market experienced its best year in over a decade. As
yields declined, bond prices rose, fueled by a series of data indicating that
the U.S. economy was slowing and growing anticipation that the Federal Reserve
Board (the "Fed") would reverse its monetary policy.

During the first six months of 1995, yields of bonds with between two- and
five-year maturities declined by nearly 2%. The difference in spread between
short-term (two-year) and long-term (30-year) bonds increased from .18% to .82%
over the course of 1995.

The second half of 1995 saw a shift in market expectations about the Fed's
monetary policy. Investors struggled with the realization that the Fed was
transitioning toward "easing," or lowering, interest rates, at a slower pace
than expected. With the view by investors that inflation was well under control,
long-term U.S. Treasury securities became the star performers.

The dominant trend in the mortgage market during 1995 was the market directional
mortgage/ Treasury basis trade. Throughout 1995, mortgage to Treasury yield
spreads widened in market rallies and narrowed in market sell-offs. The first
and third quarters were rewarding time periods for mortgage investors, while the
second quarter was painful and the fourth quarter was uneventful. For the year,
the mortgage market did outperform the U.S. Treasury market on a
duration-adjusted basis.

U.S. Government Bond Fund invests in securities with average maturities ranging
from three to seven years. At the end of 1995, nearly 60% of the fund's assets
were invested in mortgage-backed securities, with the remainder invested in U.S.
Treasury obligations, including a repurchase agreement backed by U.S. government
obligations.

This focus on the mortgage-backed market is expected to continue, as decreased
volatility in interest rates, concerns about potential downgrades in corporate
bonds, and an increase in demand by financial institutions should result in
relatively strong performance by mortgage-backed securities in 1996.

U.S. GOVERNMENT BOND FUND
- --------------------------------------------------------------------------------

GROWTH OF $10,000 INVESTED IN U.S. GOVERNMENT BOND FUND

The graph below illustrates the hypothetical investment of $10,000 in U.S.
Government Bond Fund (the "Fund") from March 28, 1994 (start of performance), to
December 31, 1995, compared to the Lehman Brothers 5 Year Treasury Bellwether
Index (LB5TB)+ and the Lipper U.S. Mortgage Funds Average (LUSMFA)++.

[Graphic representation A3 omitted. See Appendix."]

*The Fund's performance assumes the reinvestment of all dividends and
distributions. The LB5TB and the LUSMFA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.

+The LB5TB is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. The index
is unmanaged.
++The LUSMFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into the
category, and is not adjusted to reflect any sales charges. However, these
total returns are reported net of expenses or other fees that the SEC requires
to be reflected in a fund's performance.

U.S. GOVERNMENT BOND FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------- -------------
LONG-TERM U.S. GOVERNMENT OBLIGATIONS--57.6%
- ---------------------------------------------------------------------------------------------------
$ 2,345,316 Federal Home Loan PC, 7.50% - 8.00%, 10/1/2010 - 7/1/2025 $ 2,413,239
-------------------------------------------------------------------------------------
2,397,319 Federal National Mortgage Association, 7.00% - 8.00%, 10/1/2010 -
8/1/2025 2,433,523
-------------------------------------------------------------------------------------
2,073,755 Government National Mortgage Association, 8.00% - 9.50%, 11/15/2016 - 10/15/2024 2,216,146
------------------------------------------------------------------------------------- -------------
TOTAL LONG-TERM U.S. GOVERNMENT OBLIGATIONS 7,062,908
------------------------------------------------------------------------------------- -------------
U.S. TREASURY OBLIGATIONS--28.7%
- ---------------------------------------------------------------------------------------------------
3,485,000 U.S. Treasury Notes, 5.625%, 11/30/2000 3,519,362
------------------------------------------------------------------------------------- -------------
(A) REPURCHASE AGREEMENT--12.2%
- ---------------------------------------------------------------------------------------------------
1,500,000 J.P. Morgan Securities, Inc., 5.85%, dated 12/29/1995, due 1/2/1996 (AT AMORTIZED
COST) 1,500,000
------------------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST $11,905,595)(B) $ 12,082,270
------------------------------------------------------------------------------------- -------------
</TABLE>

(a) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investments in the repurchase agreement is through participation in a joint
account with other Federated funds.

(b) The cost of investments for federal tax purposes amounts to $11,905,595. The
net unrealized appreciation of investments on a federal tax cost basis
amounts to $176,675, and is comprised of $176,675 appreciation and $0
depreciation at December 31, 1995.

Note: The categories of investments are shown as a percentage of net assets
($12,264,229) at December 31, 1995.

The following acronym is used throughout this portfolio:

PC--Participation Certificate

(See Notes which are an integral part of the Financial Statements)

U.S. GOVERNMENT BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------------------------
Investments in repurchase agreement $ 1,500,000
- -----------------------------------------------------------------------------------
Investments in securities 10,582,270
- ----------------------------------------------------------------------------------- -------------
Total investments in securities, at value
(identified and tax cost $11,905,595) $ 12,082,270
- --------------------------------------------------------------------------------------------------
Cash 7,398
- --------------------------------------------------------------------------------------------------
Income receivable 65,114
- --------------------------------------------------------------------------------------------------
Receivable for shares sold 124,058
- -------------------------------------------------------------------------------------------------- -------------
Total assets 12,278,840
- --------------------------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------------------------
Payable for shares redeemed 1,038
- -----------------------------------------------------------------------------------
Income distribution payable 327
- -----------------------------------------------------------------------------------
Accrued expenses 13,246
- ----------------------------------------------------------------------------------- -------------
Total liabilities 14,611
- -------------------------------------------------------------------------------------------------- -------------
NET ASSETS for 1,191,893 shares outstanding $ 12,264,229
- -------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------------------------
Paid in capital $ 12,016,048
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 176,675
- --------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 68,239
- --------------------------------------------------------------------------------------------------
Undistributed net investment income 3,267
- -------------------------------------------------------------------------------------------------- -------------
Total Net Assets $ 12,264,229
- -------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- --------------------------------------------------------------------------------------------------
$12,264,229 / 1,191,893 shares outstanding $10.29
- -------------------------------------------------------------------------------------------------- -------------
</TABLE>

(See Notes which are an integral part of the Financial Statements)

U.S. GOVERNMENT BOND FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------------------------------------
Interest $ 345,164
- ------------------------------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------------------------------
Investment advisory fee $ 30,456
- -------------------------------------------------------------------------------------------
Administrative personnel and services fee 125,000
- -------------------------------------------------------------------------------------------
Custodian fees 28,952
- -------------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 18,763
- -------------------------------------------------------------------------------------------
Directors'/Trustees' fees 1,543
- -------------------------------------------------------------------------------------------
Auditing fees 4,800
- -------------------------------------------------------------------------------------------
Legal fees 2,056
- -------------------------------------------------------------------------------------------
Portfolio accounting fees 32,688
- -------------------------------------------------------------------------------------------
Share registration costs 4,726
- -------------------------------------------------------------------------------------------
Printing and postage 24,263
- -------------------------------------------------------------------------------------------
Insurance premiums 3,455
- -------------------------------------------------------------------------------------------
Miscellaneous 8,112
- ------------------------------------------------------------------------------------------- ---------
Total expenses 284,814
- -------------------------------------------------------------------------------------------
Waiver and reimbursements--
- -------------------------------------------------------------------------------------------
Waiver of investment advisory fee ($ 30,456)
- --------------------------------------------------------------------------------
Reimbursement of other operating expenses (213,565)
- -------------------------------------------------------------------------------- ---------
Total waiver and reimbursements (244,021)
- ------------------------------------------------------------------------------------------- ---------
Net expenses 40,793
- ------------------------------------------------------------------------------------------------------ ---------
Net investment income 304,371
- ------------------------------------------------------------------------------------------------------ ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ------------------------------------------------------------------------------------------------------
Net realized gain on investments 68,245
- ------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 176,675
- ------------------------------------------------------------------------------------------------------ ---------
Net realized and unrealized gain on investments 244,920
- ------------------------------------------------------------------------------------------------------ ---------
Change in net assets resulting from operations $ 549,291
- ------------------------------------------------------------------------------------------------------ ---------
</TABLE>

(See Notes which are an integral part of the Financial Statements)

U.S. GOVERNMENT BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994(A)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------------------
Net investment income $ 304,371 $ 18,762
- -------------------------------------------------------------------------------------
Net realized gain (loss) on investments ($68,245 net gain and, $6 net loss),
respectively, as computed for federal tax purposes) 68,245 (6)
- -------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 176,675 --
- ------------------------------------------------------------------------------------- ------------- ------------
Change in net assets resulting from operations 549,291 18,756
- ------------------------------------------------------------------------------------- ------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------------------------------
Distributions from net investment income (301,104) (18,762)
- ------------------------------------------------------------------------------------- ------------- ------------
SHARE TRANSACTIONS--
- -------------------------------------------------------------------------------------
Proceeds from sale of shares 13,444,158 1,519,262
- -------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of distributions declared 292,129 11,969
- -------------------------------------------------------------------------------------
Cost of shares redeemed (2,964,009) (387,461)
- ------------------------------------------------------------------------------------- ------------- ------------
Change in net assets resulting from share transactions 10,772,278 1,143,770
- ------------------------------------------------------------------------------------- ------------- ------------
Change in net assets 11,020,465 1,143,764
- -------------------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------------------
Beginning of period 1,243,764 100,000
- ------------------------------------------------------------------------------------- ------------- ------------
End of period (including undistributed net investment income of $3,267 and $0,
respectively) $ 12,264,229 $ 1,243,764
- ------------------------------------------------------------------------------------- ------------- ------------
</TABLE>

(a) For the period from December 8, 1993 (start of business) to December 31,
1994.

(See Notes which are an integral part of the Financial Statements)

U.S. GOVERNMENT BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.99 $ 9.99
- --------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------
Net investment income 0.54 0.27
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.30 --
- -------------------------------------------------------------------------------------------- --------- -----------
TOTAL FROM INVESTMENT OPERATIONS 0.84 0.27
- -------------------------------------------------------------------------------------------- --------- -----------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------
Distributions from net investment income (0.54) (0.27)
- -------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 10.29 $ 9.99
- -------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN (B) 8.77% 2.62%
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------
Expenses 0.80% 0.48%*
- --------------------------------------------------------------------------------------------
Net investment income 6.00% 3.99%*
- --------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 4.81% 32.83%*
- --------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $12,264 $1,244
- --------------------------------------------------------------------------------------------
Portfolio turnover 65% 0 %
- --------------------------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from March 29, 1994 (date of initial
public investment), to December 31, 1994. For the period from December 8,
1993 (start of business), to March 28, 1994, net investment income was
distributed to the Fund's adviser.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(See Notes which are an integral part of the Financial Statements)

U.S. GOVERNMENT BOND FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION

Insurance Management Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end, management
investment company. The Trust consists of seven portfolios. The financial
statements included herein are only those of U.S. Government Bond Fund (the
"Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held.

(2) SIGNIFICANT ACCOUNTING POLICIES

U.S. GOVERNMENT BOND FUND
- --------------------------------------------------------------------------------

OTHER--Investment transactions are accounted for on the trade date.

(3) SHARES OF BENEFICIAL INTEREST

The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transaction in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994(A)
<S> <C> <C>
Shares sold 1,332,658 152,142
- ------------------------------------------------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 28,952 1,200
- ------------------------------------------------------------------------------------------
Shares redeemed (294,269) (38,790)
- ------------------------------------------------------------------------------------------ ---------- ---------
Net change resulting from Fund share
transactions 1,067,341 114,552
- ------------------------------------------------------------------------------------------ ---------- ---------
</TABLE>

(a) For the period from December 8, 1993, (start of business) to December 31,
1994.

(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser, (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.60 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive any portion of its fee and/or reimburse certain operating
expenses of the Fund. The Adviser can modify or terminate this voluntary waiver
and/or reimbursement at any time at its sole discretion.

ADMINISTRATIVE FEE--Federated Administrative Services, under the Administrative
Services Agreement, provides the Fund with administrative personnel and
services. This fee is based on the level of average aggregate daily net assets
of all funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.

U.S. GOVERNMENT BOND FUND
- --------------------------------------------------------------------------------

PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.

ORGANIZATIONAL EXPENSES--Organizational expenses of ($20,065) and start-up
administrative service expenses of ($31,057) were borne initially by Adviser.
The Fund has agreed to reimburse Adviser for the organizational and start-up
administrative expenses during the five year period following effective date.
For the period ended December 31, 1995, the Fund paid $2,675 and $8,402
respectively to this agreement.

GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.

(5) INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended
December 31, 1995, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 15,400,668
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 5,065,042
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>

INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------

To the Board of Trustees of the Insurance Management Series
and the Shareholders of U.S. GOVERNMENT BOND FUND:

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of U.S. Government Bond Fund (a portfolio of the
Insurance Management Series) as of December 31, 1995, the related statement of
operations for the year then ended and the statement of changes in net assets
and financial highlights for the periods presented. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of U.S. Government Bond
Fund as of December 31, 1995, the results of its operations, the changes in its
net assets and its financial highlights for the respective stated periods ended
in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania
February 7, 1996

- --------------------------------------------------------------------------------
CORPORATE
- --------------------------------------------------------------------------------
BOND
- --------------------------------------------------------------------------------
FUND
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1995

Insurance Management Series

Cusip 458043403
G00844-01 (2/96) [RECYCLED LOGO]

PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------

Dear Investor:

I am pleased to present the Annual Report to Shareholders for Corporate Bond
Fund, a portfolio of Insurance Management Series, for the twelve-month period
ended December 31, 1995. The report begins with the management discussion and
analysis by your fund's portfolio manager. Following the management discussion
and analysis is a complete listing of the fund's holdings and its financial
statements.

As a shareholder in Corporate Bond Fund, you are pursuing a high level of
current income and growth through a carefully researched portfolio of
lower-rated corporate bonds.

Consistent with a very favorable environment for bonds during the period, your
fund achieved a total return of 20.38%* for the period ended December 31, 1995.
The net asset value increased from $8.87 at the beginning of the period to $9.79
at the period's end. Dividends paid to shareholders over the twelve-month report
period totaled $0.82 per share. At the end of the twelve-month report period,
total assets stood at $20.2 million.

Thank you for participating in the income and growth opportunities of Corporate
Bond Fund. We look forward to keeping you informed about your investment's
progress.

Sincerely,

J. Christopher Donahue
President
February 15, 1996

CORPORATE BOND FUND
- --------------------------------------------------------------------------------

MANAGEMENT DISCUSSION AND ANALYSIS
The Corporate Bond Fund invests in lower quality corporate bonds to pursue high
current income and capital appreciation. Two major factors impacted the
performance of high-yield bonds during 1995. First, interest rates fell
substantially, positively impacting all fixed-income securities including
high-yield bonds. For example, the yield on 10-year Treasuries declined
approximately 2.25%. However, the yield difference between high-yield securities
and Treasuries increased as investors became more concerned with the credit
outlook for high-yield bonds as the economy slowed from its rapid pace of 1994.
Default rates also increased in 1995, impacting investors' perception of the
risk associated with owning high-yield bonds. The overall impact of these two
factors resulted in high-yield corporate bonds delivering attractive absolute
returns, although these returns trailed the returns of high-quality corporate
bonds.

The fund outperformed both the Lipper High Current Yield Funds Average and the
Lehman Brothers Single B Index* during 1995. Several factors were responsible
for this performance. First, the fund experienced no defaults during the year
and avoided the majority of near-default situations such as Color Tile, which
had substantial price declines while not officially defaulting. Second, the fund
maintained a higher quality portfolio profile than normal. This has been the
case since the fourth quarter of 1994. Higher quality high-yield bonds turned in
strong performance during the quarter as they were impacted less by the spread
widening, which impacted the overall market. Third, several industries that the
fund has recently focused on have performed well to include cable TV,
telecommunications and broadcasting. Finally, various portfolio holdings
performed well due to issuer specific fundamentals including Australis Media,
Cellular Communications International, People's Choice TV, IXC Communications,
and Affiliated Newspapers.

The fund's management expects the economy to be characterized by slow growth and
low inflation over the next few quarters. This should be a rewarding environment
for carefully selected portfolios of high-yield bonds. Selectivity will continue
to be important as financial performance across high-yield issuers will vary
widely. Given this environment, the Corporate Bond Fund continues to emphasize
companies with superior operating profiles, companies with the potential to grow
unit volume above the rate of growth of the overall economy, and companies with
highly predictable financial performance. These areas of emphasis have not
changed significantly over the past several quarters. However, given the spread
widening that has occurred, fund management is attempting to identify selected
lower quality issuers that we believe are attractive on a risk return basis.
These lower quality issuers may be superior performers in a stronger growth
environment which we believe may occur in the second half of 1996.

* The Lehman Brothers Single B Index measures the performance of bonds rated
Single B which have at least $100 million outstanding and have at least 1 year
until maturity. This index is unmanaged and actual investments cannot be made
in an index.

CORPORATE BOND FUND
- --------------------------------------------------------------------------------

GROWTH OF $10,000 INVESTED IN THE CORPORATE BOND FUND

The graph below illustrates the hypothetical investment of $10,000 in the
Corporate Bond Fund (the "Fund") from March 1, 1994 (start of performance), to
December 31, 1995, compared to the Lehman Brothers Single B Rated Index
(LBSBRI)+ and the Lipper High Current Yields Fund Average (LHCYFA).++

["Graphic representation A4 omitted. See Appendix."]

*The Fund's performance assumes the reinvestment of all dividends and
distributions. The LBSBRI and the LHCYFA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.

+The LBSBRI is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance.
The index is unmanaged.

++The LHCYFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category, and is not adjusted to reflect any sales charges. However, these
total returns are reported net of expenses or other fees that the SEC requires
to be reflected in a fund's performance.

CORPORATE BOND FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ -------------
CORPORATE BONDS--88.7%
- --------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--0.9%
------------------------------------------------------------------------------------
$ 25,000 (a)Howmet Corp., Sr. Sub. Note, 10.00%, 12/1/2003 $ 26,063
------------------------------------------------------------------------------------
150,000 Tracor, Inc., Sr. Sub. Note, 10.875%, 8/15/2001 156,563
------------------------------------------------------------------------------------ -------------
Total 182,626
------------------------------------------------------------------------------------ -------------
AUTOMOTIVE--2.3%
------------------------------------------------------------------------------------
200,000 Aftermarket Technology Co., Sr. Sub. Note, 12.00%, 8/1/2004 212,000
------------------------------------------------------------------------------------
150,000 Exide Corp., Sr. Note, 10.00%, 4/15/2005 163,125
------------------------------------------------------------------------------------
100,000 Lear Seating Corp., Sub. Note, 8.25%, 2/1/2002 98,625
------------------------------------------------------------------------------------ -------------
Total 473,750
------------------------------------------------------------------------------------ -------------
BANKING--0.8%
------------------------------------------------------------------------------------
150,000 First Nationwide Holdings, Inc., Sr. Note, 12.25%, 5/15/2001 168,750
------------------------------------------------------------------------------------ -------------
BEVERAGE & TOBACCO--1.1%
------------------------------------------------------------------------------------
100,000 Cott Corp., Sr. Note, 9.375%, 7/1/2005 100,000
------------------------------------------------------------------------------------
150,000 Dr Pepper Bottling Holdings Co., Sr. Disc. Note, 0/11.625%, 2/15/2003 123,000
------------------------------------------------------------------------------------ -------------
Total 223,000
------------------------------------------------------------------------------------ -------------
BROADCAST RADIO & TV--7.0%
------------------------------------------------------------------------------------
50,000 A-3 Holdings, Inc., Unit, 13.25%, 12/15/2006 51,000
------------------------------------------------------------------------------------
200,000 Act III Broadcasting, Inc., Sr. Sub. Note, 10.25%, 12/15/2005 205,000
------------------------------------------------------------------------------------
100,000 Allbritton Communication Co., Sr. Sub. Note, 11.50%, 8/15/2004 106,000
------------------------------------------------------------------------------------
200,000 Argyle Television, Inc., Sr. Sub., 9.75%, 11/1/2005 200,250
------------------------------------------------------------------------------------
120,000 Chancellor Broadcasting Co., Sr. Sub. Note, 12.50%, 10/1/2004 129,000
------------------------------------------------------------------------------------
200,000 NWCG Holding Corp., Sr. Disc. Note, 13.50% accrual, 6/15/1999 139,000
------------------------------------------------------------------------------------
100,000 (a)Pegasus Media, Note, 12.50%, 7/1/2005 100,000
------------------------------------------------------------------------------------
150,000 SCI Television, Inc., Sr. Secd. Note, 11.00%, 6/30/2005 160,125
------------------------------------------------------------------------------------
50,000 Sinclair Broadcast Group, Sr. Sub. Note, 10.00%, 12/15/2003 51,375
------------------------------------------------------------------------------------
</TABLE>

CORPORATE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ -------------
CORPORATE BONDS--CONTINUED
- --------------------------------------------------------------------------------------------------
BROADCAST RADIO & TV--CONTINUED
------------------------------------------------------------------------------------
$ 150,000 Sinclair Broadcast Group, Sr. Sub. Note, 10.00%, 9/30/2005 $ 154,125
------------------------------------------------------------------------------------
100,000 Young Broadcasting, Inc., Sr. Sub. Note, 10.125%, 2/15/2005 105,875
------------------------------------------------------------------------------------ -------------
Total 1,401,750
------------------------------------------------------------------------------------ -------------
BUSINESS EQUIPMENT & SERVICES--1.1%
------------------------------------------------------------------------------------
100,000 Monarch Acqusition Corp., Sr. Note, 12.50%, 7/1/2003 106,000
------------------------------------------------------------------------------------
100,000 United Stationers Supply Co., Sr. Sub. Note, 12.75%, 5/1/2005 109,750
------------------------------------------------------------------------------------ -------------
Total 215,750
------------------------------------------------------------------------------------ -------------
CABLE TELEVISION--10.8%
------------------------------------------------------------------------------------
50,000 Australis Media Limited, Unit, 0/14.00%, 5/15/2003 36,375
------------------------------------------------------------------------------------
50,000 Bell Cablemedia PLC, Sr. Disc. Note, 0/11.95%, 7/15/2004 35,625
------------------------------------------------------------------------------------
100,000 Cablevision Systems Co., Sr. Sub. Note, 9.25%, 11/1/2005 104,125
------------------------------------------------------------------------------------
75,000 CAI Wireless Systems, Inc., Sr. Note, 12.25%, 9/15/2002 80,437
------------------------------------------------------------------------------------
100,000 CF Cable TV, Inc., Sr. Secd. 2nd Priority Note, 11.625%, 2/15/2005 110,250
------------------------------------------------------------------------------------
300,000 Continental Cablevision, Sr. Deb., 9.50%, 8/1/2013 318,750
------------------------------------------------------------------------------------
250,000 Diamond Cable Co., Sr. Disc. Note, 0/11.75%, 12/15/2005 147,812
------------------------------------------------------------------------------------
200,000 Insight Communication Co., Sr. Sub. Note, 8.25%, 3/1/2000 203,500
------------------------------------------------------------------------------------
200,000 International Cabletel, Inc., Sr. Note, 0/12.75%, 4/15/2005 127,500
------------------------------------------------------------------------------------
150,000 Le Groupe Videotron Ltee, Sr. Note, 10.625%, 2/15/2005 161,625
------------------------------------------------------------------------------------
250,000 Peoples Choice TV Corp., Unit, 0/13.125%, 6/1/2004 146,875
------------------------------------------------------------------------------------
100,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority Note, 10.00%,
3/15/2005 107,875
------------------------------------------------------------------------------------
150,000 Rogers Cablesystems Ltd., Sr. Sub. GTD Note, 11.00%, 12/1/2015 161,625
------------------------------------------------------------------------------------
575,000 TeleWest PLC, Sr. Disc. Deb., 0/11.00%, 10/1/2007 348,594
------------------------------------------------------------------------------------
75,000 Wireless One, Inc., Unit, 13.00%, 10/15/2003 79,500
------------------------------------------------------------------------------------ -------------
Total 2,170,468
------------------------------------------------------------------------------------ -------------
</TABLE>

CORPORATE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ -------------
CORPORATE BONDS--CONTINUED
- --------------------------------------------------------------------------------------------------
CHEMICALS & PLASTICS--6.4%
------------------------------------------------------------------------------------
$ 175,000 Arcadian Partners L.P., Sr. Note, Series B, 10.75%, 5/1/2005 $ 193,375
------------------------------------------------------------------------------------
150,000 (a)Crain Industries, Inc., Sr. Sub. Note, 13.50%, 8/15/2005 152,250
------------------------------------------------------------------------------------
50,000 Foamex L.P., Sr. Note, 11.25%, 10/1/2002 49,250
------------------------------------------------------------------------------------
100,000 Foamex L.P., Sr. Sub. Deb., 11.875%, 10/1/2004 98,500
------------------------------------------------------------------------------------
325,000 G-I Holdings, Inc., Sr. Disc. Note, 11.375% accrual, 10/1/1998 251,062
------------------------------------------------------------------------------------
150,000 Harris Chemical North America, Inc., Sr. Secd. Disc. Note, 0/10.25%,
7/15/2001 146,250
------------------------------------------------------------------------------------
100,000 Polymer Group, Inc., Sr. Note, 12.25%, 7/15/2002 103,500
------------------------------------------------------------------------------------
100,000 (a)RBX Corp., Sr. Sub. Note, 11.25%, 10/15/2005 98,500
------------------------------------------------------------------------------------
50,000 UCC Investors Holdings, Inc., Sr. Sub. Note, 11.00%, 5/1/2003 51,250
------------------------------------------------------------------------------------
150,000 Uniroyal Technology Corp., Sr. Secd. Note, 11.75%, 6/1/2003 144,750
------------------------------------------------------------------------------------ -------------
Total 1,288,687
------------------------------------------------------------------------------------ -------------
CLOTHING & TEXTILES--2.2%
------------------------------------------------------------------------------------
150,000 Dan River, Inc., Sr. Sub. Note, 10.125%, 12/15/2003 139,125
------------------------------------------------------------------------------------
300,000 WestPoint Stevens, Inc., Sr. Sub. Deb., 9.375%, 12/15/2005 297,750
------------------------------------------------------------------------------------ -------------
Total 436,875
------------------------------------------------------------------------------------ -------------
CONGLOMERATES--2.1%
------------------------------------------------------------------------------------
100,000 Fairchild Industries, Inc., Sr. Secd. Note, 12.25%, 2/1/1999 107,750
------------------------------------------------------------------------------------
300,000 Sherritt Gordon Ltd., Sr. Note, 9.75%, 4/1/2003 319,500
------------------------------------------------------------------------------------ -------------
Total 427,250
------------------------------------------------------------------------------------ -------------
CONSUMER PRODUCTS--3.8%
------------------------------------------------------------------------------------
150,000 American Safety Razor Co., Sr. Note, 9.875%, 8/1/2005 153,000
------------------------------------------------------------------------------------
150,000 Herff Jones, Inc., Sr. Sub. Note, 11.00%, 8/15/2005 161,250
------------------------------------------------------------------------------------
100,000 Hosiery Corp. of America, Inc., Sr. Sub. Note, 13.75%, 8/1/2002 108,250
------------------------------------------------------------------------------------
150,000 ICON Health & Fitness, Inc., Sr. Sub. Note, 13.00%, 7/15/2002 162,750
------------------------------------------------------------------------------------
200,000 Playtex Family Products Corp., Sr. Sub. Note, 9.00%, 12/15/2003 178,000
------------------------------------------------------------------------------------ -------------
Total 763,250
------------------------------------------------------------------------------------ -------------
</TABLE>

CORPORATE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ -------------
CORPORATE BONDS--CONTINUED
- --------------------------------------------------------------------------------------------------
CONTAINER & GLASS PRODUCTS--3.7%
------------------------------------------------------------------------------------
$ 50,000 Owens-Illinois, Inc., Sr. Amort. Deb., 11.00%, 12/1/2003 $ 56,750
------------------------------------------------------------------------------------
100,000 Owens-Illinois, Inc., Sr. Sub. Note, 9.75%, 8/15/2004 105,125
------------------------------------------------------------------------------------
350,000 Owens-Illinois, Inc., Sr. Sub. Note, 9.95%, 10/15/2004 372,750
------------------------------------------------------------------------------------
150,000 Portola Packaging, Inc., Sr. Note, 10.75%, 10/1/2005 154,875
------------------------------------------------------------------------------------
50,000 Silgan Corp., Sr. Sub. Note, 11.75%, 6/15/2002 53,750
------------------------------------------------------------------------------------ -------------
Total 743,250
------------------------------------------------------------------------------------ -------------
COSMETICS & TOILETRIES--0.6%
------------------------------------------------------------------------------------
50,000 Revlon Consumer Products Corp., Note, 9.375%, 4/1/2001 50,750
------------------------------------------------------------------------------------
75,000 Revlon Consumer Products Corp., Sr. Sub. Note, 10.50%, 2/15/2003 76,875
------------------------------------------------------------------------------------ -------------
Total 127,625
------------------------------------------------------------------------------------ -------------
ECOLOGICAL SERVICES & EQUIPMENT--1.6%
------------------------------------------------------------------------------------
50,000 Allied Waste Industries, Inc., Sr. Sub. Note, 12.00%, 2/1/2004 54,375
------------------------------------------------------------------------------------
100,000 ICF Kaiser International, Inc., Sr. Sub. Note, 12.00%, 12/31/2003 94,500
------------------------------------------------------------------------------------
200,000 Mid-American Waste Systems, Inc., Sr. Sub. Note, 12.25%, 2/15/2003 182,000
------------------------------------------------------------------------------------ -------------
Total 330,875
------------------------------------------------------------------------------------ -------------
FARMING & AGRICULTURE--0.5%
------------------------------------------------------------------------------------
100,000 Spreckels Industries, Inc., Sr. Secd. Note, 11.50%, 9/1/2000 99,000
------------------------------------------------------------------------------------ -------------
FOOD & DRUG RETAILERS--2.4%
------------------------------------------------------------------------------------
100,000 (a)Carr-Gottstein Foods Co., Sr. Sub. Note, 12.00%, 11/15/2005 101,000
------------------------------------------------------------------------------------
125,000 Pathmark Stores, Inc., Sr. Sub. Note, 9.625%, 5/1/2003 121,875
------------------------------------------------------------------------------------
200,000 Ralph's Grocery Co., Sr. Note, 10.45%, 6/15/2004 203,500
------------------------------------------------------------------------------------
50,000 Ralph's Grocery Co., Sr. Sub. Note, 11.00%, 6/15/2005 49,625
------------------------------------------------------------------------------------ -------------
Total 476,000
------------------------------------------------------------------------------------ -------------
</TABLE>

CORPORATE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ -------------
CORPORATE BONDS--CONTINUED
- --------------------------------------------------------------------------------------------------
FOOD PRODUCTS--3.7%
------------------------------------------------------------------------------------
$ 200,000 Curtice-Burns Foods, Inc., Sr. Sub. Note, 12.25%, 2/1/2005 $ 207,000
------------------------------------------------------------------------------------
100,000 Doskocil Cos., Inc., Sr. Sub. Note, 9.75%, 7/15/2000 96,000
------------------------------------------------------------------------------------
100,000 PMI Acquisition Corp., Sr. Sub. Note, 10.25%, 9/1/2003 103,000
------------------------------------------------------------------------------------
200,000 Specialty Foods Corp., Sr. Note, 11.125%, 10/1/2002 191,000
------------------------------------------------------------------------------------
50,000 Specialty Foods Corp., Sr. Sub. Note, 11.25%, 8/15/2003 44,750
------------------------------------------------------------------------------------
100,000 Van de Kamp's, Inc., Sr. Sub. Note, 12.00%, 9/15/2005 104,000
------------------------------------------------------------------------------------ -------------
Total 745,750
------------------------------------------------------------------------------------ -------------
FOOD SERVICES--0.9%
------------------------------------------------------------------------------------
200,000 Flagstar Corp., Sr. Note, 10.875%, 12/1/2002 182,000
------------------------------------------------------------------------------------ -------------
FOREST PRODUCTS--2.8%
------------------------------------------------------------------------------------
50,000 Container Corp. of America, Sr. Note, 11.25%, 5/1/2004 51,625
------------------------------------------------------------------------------------
100,000 Container Corp. of America, Sr. Note, 9.75%, 4/1/2003 97,750
------------------------------------------------------------------------------------
50,000 Repap New Brunswick, 1st Priority Sr. Secd. Note, 9.875%, 7/15/2000 50,500
------------------------------------------------------------------------------------
100,000 Repap New Brunswick, 2nd Priority Sr. Secd. Note, 10.625%, 4/15/2005 98,000
------------------------------------------------------------------------------------
50,000 Riverwood International Corp., Sr. Sub. Note, 11.25%, 6/15/2002 54,500
------------------------------------------------------------------------------------
100,000 S. D. Warren Co., Sr. Sub. Note, 12.00%, 12/15/2004 110,000
------------------------------------------------------------------------------------
100,000 Stone Container Corp., Sr. Note, 9.875%, 2/1/2001 97,500
------------------------------------------------------------------------------------ -------------
Total 559,875
------------------------------------------------------------------------------------ -------------
HEALTHCARE--2.7%
------------------------------------------------------------------------------------
100,000 AmeriSource Health Corp., Sr. Deb., 11.25%, 7/15/2005 110,500
------------------------------------------------------------------------------------
100,000 Genesis Health Ventures, Inc., Sr. Sub. Note, 9.75%, 6/15/2005 106,000
------------------------------------------------------------------------------------
300,000 Tenet Healthcare Corp., Sr. Sub. Note, 10.125%, 3/1/2005 333,750
------------------------------------------------------------------------------------ -------------
Total 550,250
------------------------------------------------------------------------------------ -------------
HOME PRODUCTS & FURNISHINGS--1.4%
------------------------------------------------------------------------------------
150,000 American Standard, Inc., Sr. Sub. Disc. Deb., 0/10.50%, 6/1/2005 129,375
------------------------------------------------------------------------------------
150,000 Triangle Pacific Corp., Sr. Note, 10.50%, 8/1/2003 159,750
------------------------------------------------------------------------------------ -------------
Total 289,125
------------------------------------------------------------------------------------ -------------
</TABLE>

CORPORATE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ -------------
CORPORATE BONDS--CONTINUED
- --------------------------------------------------------------------------------------------------
HOTELS, MOTELS, INNS & CASINOS--0.5%
------------------------------------------------------------------------------------
$ 100,000 Motels of America, Inc., Sr. Sub. Note, 12.00%, 4/15/2004 $ 99,625
------------------------------------------------------------------------------------ -------------
INDUSTRIAL PRODUCTS & EQUIPMENT--2.0%
------------------------------------------------------------------------------------
200,000 Cabot Safety Acquisition Corp., Sr. Sub. Note, 12.50%, 7/15/2005 214,000
------------------------------------------------------------------------------------
100,000 Fairfield Manufacturing Co., Inc., Sr. Sub. Note, 11.375%, 7/1/2001 98,250
------------------------------------------------------------------------------------
100,000 Pace Industries, Inc., Sr. Note, 10.625%, 12/1/2002 88,500
------------------------------------------------------------------------------------ -------------
Total 400,750
------------------------------------------------------------------------------------ -------------
LEISURE & ENTERTAINMENT--3.3%
------------------------------------------------------------------------------------
100,000 Affinity Group, Inc., Sr. Sub. Note, 11.50%, 10/15/2003 102,000
------------------------------------------------------------------------------------
100,000 Alliance Entertainment Corp., Sr. Sub. Note, 11.25%, 7/15/2005 101,000
------------------------------------------------------------------------------------
150,000 Premier Parks, Inc., Sr. Note, 12.00%, 8/15/2003 154,875
------------------------------------------------------------------------------------
400,000 Six Flags Theme Parks, Sr. Sub. Disc. Note, 0/12.25%, 6/15/2005 314,500
------------------------------------------------------------------------------------ -------------
Total 672,375
------------------------------------------------------------------------------------ -------------
MACHINERY & EQUIPMENT--1.1%
------------------------------------------------------------------------------------
100,000 Primeco, Inc., Sr. Sub. Note, 12.75%, 3/1/2005 105,000
------------------------------------------------------------------------------------
100,000 Waters Corp., Sr. Sub. Note, 12.75%, 9/30/2004 113,000
------------------------------------------------------------------------------------ -------------
Total 218,000
------------------------------------------------------------------------------------ -------------
OIL & GAS--3.7%
------------------------------------------------------------------------------------
200,000 (a)Clark USA, Inc., Sr. Note, 10.875%, 12/1/2005 208,750
------------------------------------------------------------------------------------
150,000 Falcon Drilling Co., Inc., Sr. Note, 9.75%, 1/15/2001 153,750
------------------------------------------------------------------------------------
50,000 Falcon Drilling Co., Inc., Sr. Sub. Note, 12.50%, 3/15/2005 55,000
------------------------------------------------------------------------------------
100,000 Giant Industries, Inc., Sr. Sub. Note, 9.75%, 11/15/2003 101,625
------------------------------------------------------------------------------------
50,000 H.S. Resources, Inc., Sr. Sub. Note, 9.875%, 12/1/2003 49,313
------------------------------------------------------------------------------------
175,000 United Meridian Corp., Sr. Sub. Note, 10.375%, 10/15/2005 185,063
------------------------------------------------------------------------------------ -------------
Total 753,501
------------------------------------------------------------------------------------ -------------
PRINTING & PUBLISHING--1.5%
------------------------------------------------------------------------------------
150,000 Affiliated Newspaper, Sr. Disc. Note, 0/13.25%, 7/1/2006 94,875
------------------------------------------------------------------------------------
100,000 Garden State Newspapers, Inc., Sr. Sub. Note, 12.00%, 7/1/2004 102,000
------------------------------------------------------------------------------------
</TABLE>

CORPORATE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ -------------
CORPORATE BONDS--CONTINUED
- --------------------------------------------------------------------------------------------------
PRINTING & PUBLISHING--CONTINUED
------------------------------------------------------------------------------------
$ 100,000 Webcraft Technologies, Inc., Sr. Sub. Note, 9.375%, 2/15/2002 $ 98,000
------------------------------------------------------------------------------------ -------------
Total 294,875
------------------------------------------------------------------------------------ -------------
REAL ESTATE--0.8%
------------------------------------------------------------------------------------
150,000 Trizec Finance Ltd., Sr. Note, 10.875%, 10/15/2005 155,625
------------------------------------------------------------------------------------ -------------
RETAILERS--0.7%
------------------------------------------------------------------------------------
150,000 Brylane Capital Corp., Sr. Sub. Note, 10.00%, 9/1/2003 133,500
------------------------------------------------------------------------------------ -------------
SERVICES--1.0%
------------------------------------------------------------------------------------
200,000 (a)Coinmach Corp., Sr. Note, 11.75%, 11/15/2005 203,500
------------------------------------------------------------------------------------ -------------
STEEL--2.9%
------------------------------------------------------------------------------------
100,000 Acme Metals, Inc., Sr. Secd. Disc. Note, 0/13.50%, 8/1/2004 80,625
------------------------------------------------------------------------------------
100,000 Bayou Steel Corp., 1st Mtg. Note, 10.25%, 3/1/2001 89,000
------------------------------------------------------------------------------------
200,000 EnviroSource, Inc., Sr. Note, 9.75%, 6/15/2003 176,000
------------------------------------------------------------------------------------
200,000 GS Technologies Operating Co., Inc., Sr. Note, 12.00%, 9/1/2004 199,000
------------------------------------------------------------------------------------
50,000 Northwestern Steel & Wire Co., Sr. Note, 9.50%, 6/15/2001 49,250
------------------------------------------------------------------------------------ -------------
Total 593,875
------------------------------------------------------------------------------------ -------------
SURFACE TRANSPORTATION--4.7%
------------------------------------------------------------------------------------
125,000 (a)AmeriTruck Distribution Corp., Sr. Sub. Note, 12.25%, 11/15/2005 124,062
------------------------------------------------------------------------------------
200,000 Gearbulk Holding Limited, Sr. Note, 11.25%, 12/1/2004 216,000
------------------------------------------------------------------------------------
100,000 Great Dane Holdings, Inc., Sr. Sub. Deb., 12.75%, 8/1/2001 91,750
------------------------------------------------------------------------------------
100,000 Sea Containers Ltd., Sr. Note, 9.50%, 7/1/2003 99,500
------------------------------------------------------------------------------------
200,000 Stena AB, Sr. Note, 10.50%, 12/15/2005 206,500
------------------------------------------------------------------------------------
100,000 Trans Ocean Container Corp., Sr. Sub. Note, 12.25%, 7/1/2004 104,500
------------------------------------------------------------------------------------
100,000 Trism, Inc., Sr. Sub. Note, 10.75%, 12/15/2000 98,000
------------------------------------------------------------------------------------ -------------
Total 940,312
------------------------------------------------------------------------------------ -------------
TELECOMMUNICATIONS & CELLULAR--6.4%
------------------------------------------------------------------------------------
150,000 Cellular Communications International, Inc., Unit, 13.25% accrual,
8/15/2000 93,000
------------------------------------------------------------------------------------
</TABLE>

CORPORATE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ -------------
CORPORATE BONDS--CONTINUED
- --------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS & CELLULAR--CONTINUED
------------------------------------------------------------------------------------
$ 50,000 Fonorola, Inc., Sr. Secd. Note, 12.50%, 8/15/2002 $ 52,750
------------------------------------------------------------------------------------
200,000 (a)IXC Communications, Inc., Sr. Note, 13.00%, 10/1/2005 214,500
------------------------------------------------------------------------------------
50,000 MobileMedia Communications, Inc., Sr. Sub. Note, 9.375%, 11/1/2007 51,500
------------------------------------------------------------------------------------
150,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/11.50%, 9/1/2003 94,500
------------------------------------------------------------------------------------
50,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/9.75%, 8/15/2004 27,500
------------------------------------------------------------------------------------
250,000 Paging Network, Inc., Sr. Sub. Note, 10.125%, 8/1/2007 273,125
------------------------------------------------------------------------------------
300,000 PanAmSat, Corp., Sr. Sub. Disc. Note, 0/11.375%, 8/1/2003 246,000
------------------------------------------------------------------------------------
50,000 Peoples Telephone Co., Sr. Note, 12.25%, 7/15/2002 40,500
------------------------------------------------------------------------------------
50,000 ProNet, Inc., Sr. Sub. Note, 11.875%, 6/15/2005 55,313
------------------------------------------------------------------------------------
150,000 USA Mobile Communications, Inc., Sr. Note, 9.50%, 2/1/2004 149,250
------------------------------------------------------------------------------------ -------------
Total 1,297,938
------------------------------------------------------------------------------------ -------------
UTILITIES--1.3%
------------------------------------------------------------------------------------
225,000 California Energy Co., Inc., Sr. Disc. Note, 0/10.25%, 1/15/2004 212,625
------------------------------------------------------------------------------------
50,000 California Energy Co., Inc., Sr. Secd. Note, 9.875%, 6/30/2003 52,375
------------------------------------------------------------------------------------ -------------
Total 265,000
------------------------------------------------------------------------------------ -------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $17,515,643) 17,884,782
------------------------------------------------------------------------------------ -------------
PREFERRED STOCKS--0.3%
- --------------------------------------------------------------------------------------------------
PRINTING & PUBLISHING--0.3%
------------------------------------------------------------------------------------
515 K-III Communications Corp., Cumulative PIK Pfd., Series B, 11.625% 51,453
------------------------------------------------------------------------------------ -------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST $48,888) 51,453
------------------------------------------------------------------------------------ -------------
COMMON STOCKS--0.0%
- --------------------------------------------------------------------------------------------------
BROADCAST RADIO & TV--0.0%
------------------------------------------------------------------------------------
10 (a)Pegasus Media, Class B 3,000
------------------------------------------------------------------------------------ -------------
FOOD & DRUG RETAILERS--0.0%
------------------------------------------------------------------------------------
883 Grand Union Co. 6,622
------------------------------------------------------------------------------------ -------------
</TABLE>

(a) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At the end of the period, these securities
amounted to $1,231,625 which represents 6.1% of net assets.

(c) The cost of investments for federal tax purposes amounts to $19,956,406.
The unrealized appreciation on a federal tax cost basis amounts to
$325,701, which is comprised of $499,312 appreciation and $173,611
depreciation at December 31, 1995.

Note: The categories of investments are shown as a percentage of net assets
($20,165,015) at December 31, 1995.

The following acronyms are used throughout this portfolio:

GTD--Guarantee
PIK--Payment in Kind
PLC--Public Limited Company

(See Notes which are an integral part of the Financial Statements)

CORPORATE BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -----------------------------------------------------------------------------------
Investment in repurchase agreement $ 2,335,000
- -----------------------------------------------------------------------------------
Investments in securities 17,947,107
- ----------------------------------------------------------------------------------- -------------
Total investments in securities, at value (identified cost $19,954,156, and
tax cost $19,956,406) $ 20,282,107
- --------------------------------------------------------------------------------------------------
Cash 480
- --------------------------------------------------------------------------------------------------
Income receivable 426,146
- --------------------------------------------------------------------------------------------------
Receivable for investments sold 52,764
- --------------------------------------------------------------------------------------------------
Receivable for shares sold 50,510
- -------------------------------------------------------------------------------------------------- -------------
Total assets 20,812,007
- --------------------------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------------------------
Payable for investments purchased 633,610
- -----------------------------------------------------------------------------------
Payable for shares redeemed 355
- -----------------------------------------------------------------------------------
Accrued expenses 13,027
- ----------------------------------------------------------------------------------- -------------
Total liabilities 646,992
- -------------------------------------------------------------------------------------------------- -------------
Net Assets for 2,058,766 shares outstanding $ 20,165,015
- -------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------------------------
Paid in capital $ 19,816,165
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 327,951
- --------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (6,564)
- --------------------------------------------------------------------------------------------------
Undistributed net investment income 27,463
- -------------------------------------------------------------------------------------------------- -------------
Total Net Assets $ 20,165,015
- -------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$20,165,015 / 2,058,766 shares outstanding $9.79
- -------------------------------------------------------------------------------------------------- -------------
</TABLE>

(See Notes which are an integral part of the Financial Statements)

CORPORATE BOND FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Dividends $ 1,388
- ----------------------------------------------------------------------------------------------------
Interest 777,957
- ---------------------------------------------------------------------------------------------------- ------------
Total income 779,345
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------------------
Investment advisory fee $ 46,425
- ---------------------------------------------------------------------------------------
Administrative personnel and services fee 125,000
- ---------------------------------------------------------------------------------------
Custodian fees 32,179
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 14,343
- ---------------------------------------------------------------------------------------
Directors'/Trustees' fees 2,107
- ---------------------------------------------------------------------------------------
Auditing fees 8,238
- ---------------------------------------------------------------------------------------
Legal fees 2,828
- ---------------------------------------------------------------------------------------
Portfolio accounting fees 41,428
- ---------------------------------------------------------------------------------------
Share registration costs 7,109
- ---------------------------------------------------------------------------------------
Printing and postage 34,900
- ---------------------------------------------------------------------------------------
Insurance premiums 3,464
- ---------------------------------------------------------------------------------------
Miscellaneous 7,166
- --------------------------------------------------------------------------------------- -----------
Total expenses 325,187
- ---------------------------------------------------------------------------------------
Waiver and reimbursements--
- ---------------------------------------------------------------------------------------
]Waiver of investment advisory fee ($46,425)
- --------------------------------------------------------------------------
Reimbursement of other operating expenses (216,562)
- -------------------------------------------------------------------------- -----------
Total waiver and reimbursements (262,987)
- --------------------------------------------------------------------------------------- -----------
Net expenses 62,200
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income 717,145
- ---------------------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------------------------
Net realized gain on investments 5,784
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 493,099
- ---------------------------------------------------------------------------------------------------- ------------
Net realized and unrealized gain on investments 498,883
- ---------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 1,216,028
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>

(See Notes which are an integral part of the Financial Statements)

CORPORATE BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
<S> <C> <C>
1995 1994(A)
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------------------
Net investment income $ 717,145 $ 121,011
- -------------------------------------------------------------------------------------
Net realized gain (loss) on investments ($8,035 net gain and $12,348 net loss,
respectively, as computed for federal tax purposes) 5,784 (12,348)
- -------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 493,099 (165,148)
- ------------------------------------------------------------------------------------- ------------- ------------
Change in assets resulting from operations 1,216,028 (56,485)
- ------------------------------------------------------------------------------------- ------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------------------------------
Distributions from net investment income (687,618) (121,011)
- -------------------------------------------------------------------------------------
Distributions in excess of net investment income -- (2,064)
- ------------------------------------------------------------------------------------- ------------- ------------
Change in net assets resulting from distributions to shareholders (687,618) (123,075)
- ------------------------------------------------------------------------------------- ------------- ------------
SHARE TRANSACTIONS--
- -------------------------------------------------------------------------------------
Proceeds from sale of shares 21,185,904 2,484,492
- -------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 686,601 20,705
- -------------------------------------------------------------------------------------
Cost of shares redeemed (3,692,843) (868,694)
- ------------------------------------------------------------------------------------- ------------- ------------
Change in net assets resulting from share
transactions 18,179,662 1,636,503
- ------------------------------------------------------------------------------------- ------------- ------------
Change in net assets 18,708,072 1,456,943
- -------------------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------------------
Beginning of period 1,456,943 --
- ------------------------------------------------------------------------------------- ------------- ------------
End of period (including undistributed net investment income of $27,463 and $0,
respectively) $ 20,165,015 $ 1,456,943
- ------------------------------------------------------------------------------------- ------------- ------------
</TABLE>

(a) For the period from December 9, 1993 (start of business) to December 31,
1994.

(See Notes which are an integral part of the Financial Statements)

CORPORATE BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.87 $ 10.00
- --------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------
Net investment income 0.85 0.75
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.89 (1.12)
- -------------------------------------------------------------------------------------------- --------- -----------
Total from investment operations 1.74 (0.37)
- --------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------
Distributions from net investment income (0.82) (0.75)
- --------------------------------------------------------------------------------------------
Distributions in excess of net investment income (d) -- (0.01)
- -------------------------------------------------------------------------------------------- --------- -----------
Total distributions (0.82) (0.76)
- -------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.79 $ 8.87
- -------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN (B) 20.38% (3.73%)
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------
Expenses 0.80% 0.41%*
- --------------------------------------------------------------------------------------------
Net investment income 9.27% 9.11%*
- --------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 3.40% 10.01%*
- --------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $20,165 $1,457
- --------------------------------------------------------------------------------------------
Portfolio turnover 48% 18%
- --------------------------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from February 2, 1994 (date of initial
public investment) to December 31, 1994. For the period from December 9,
1993 (the start of business) to February 1, 1994, the Fund had no public
investment.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(d) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.

(See Notes which are an integral part of the Financial Statements)

CORPORATE BOND FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
1. ORGANIZATION

Insurance Management Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end, management
investment company. The Trust consists of seven portfolios. The financial
statements included herein are only those of Corporate Bond Fund (the "Fund"), a
diversified portfolio. The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held.

2. SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code"). Dividend
income and distributions to shareholders are recorded on the ex-dividend
date. Distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These distributions do not represent a return of capital for federal income
tax purposes.

CORPORATE BOND FUND
- --------------------------------------------------------------------------------

FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary. At December 31, 1995, the Fund,
for federal tax purposes, had a capital loss carryforward of $4,313, which
will reduce the Fund's taxable income arising from future net realized gain
on investments, if any, to the extent permitted by the Code, and thus will
reduce the amount of the distributions to shareholders which would
otherwise be necessary to relieve the Fund of any liability for federal
tax. Pursuant to the Code, such capital loss carryforward will expire as
follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<S> <C>
2002 $4,313
</TABLE>

Additional information on each restricted security held at December 31,
1995 is as follows:
<TABLE>
<CAPTION>
FUND
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
AmeriTruck Distribution Corp. 11/1/95-12/21/95 $ 123,696
Carr-Gottstein Foods Co. 11/9/95 $ 100,000
Clark USA, Inc. 12/8/95 $ 206,500
Coinmach Corp. 11/14/95-12/28/95 $ 200,938
Crain Industries, Inc. 8/22/95-12/14/95 $ 150,375
Howmet Corp. 11/22/95 $ 25,000
IXC Communications, Inc. 9/25/95-10/31/95 $ 199,528
Pegasus Media 6/30/95-11/17/95 $ 101,000
RBX Corp. 10/6/95 $ 100,000
</TABLE>

CORPORATE BOND FUND
- --------------------------------------------------------------------------------

INVESTMENT RISKS--Although the Fund has a diversified portfolio, the Fund
has 100% of its portfolio invested in lower rated and comparable quality
unrated high yield securities. Investments in higher yield securities are
accomplished by a greater degree of credit risk and the risk tends to be
more sensitive to economic conditions than higher rated securities. The
risk of loss due to default by the issuer may be significantly greater for
the holders of high yielding securities because such securities are
generally unsecured and are often subordinated to other creditors of the
isser. The Fund held no defaulted securities at December 31, 1995.

OTHER--Investment transactions are accounted for on the trade date.

3. SHARES OF BENEFICIAL INTEREST

The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994(A)
<S> <C> <C>
Shares sold 2,211,100 257,641
- ------------------------------------------------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 71,640 2,295
- ------------------------------------------------------------------------------------------
Shares redeemed (388,244) (95,666)
- ------------------------------------------------------------------------------------------ ---------- ---------
Net change resulting from share transactions 1,894,496 164,270
- ------------------------------------------------------------------------------------------ ---------- ---------
</TABLE>

(a) For the period from December 9, 1993 (start of business) to December 31,
1994.

4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.60 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive any portion of its fee and/or reimburse certain operating
expenses of the Fund. The Adviser can modify or terminate this voluntary waiver
and/or reimbursement at any time at its sole discretion.

CORPORATE BOND FUND
- --------------------------------------------------------------------------------

ORGANIZATIONAL EXPENSES--Organizational expenses ($16,313) and start-up
administrative service expenses ($31,507) were borne initially by the Adviser.
The Fund has agreed to reimburse the Adviser for the organizational expenses and
start-up administrative expenses during the five year period following December
15, 1993 (date the Fund became effective). For the period ended December 31,
1995, the Fund paid $2,175 and $4,201, respectively, pursuant to this agreement.

GENERAL--Certain of the Officers and Trustees of the Fund are Officers and
Directors or Trustees of the above companies.

5. INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended December 31, 1995, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 19,507,549
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 3,541,470
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>

INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------

To the Board of Trustees of the Insurance Management Series
and the Shareholders of CORPORATE BOND FUND:

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Corporate Bond Fund (a portfolio of the
Insurance Management Series) as of December 31, 1995, the related statement of
operations for the year then ended and the statement of changes in net assets
and financial highlights for the periods presented. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Corporate Bond Fund
as of December 31, 1995, the results of its operations, the changes in its net
assets and its financial highlights for the respective stated periods ended in
conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
February 7, 1996

- --------------------------------------------------------------------------------
PRIME
- --------------------------------------------------------------------------------
MONEY
- --------------------------------------------------------------------------------
FUND
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1995

Insurance Management Series

Cusip 458043106
G00842-01 (2/96) [RECYCLED LOGO]

PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------

Dear Investor:

I am pleased to present the Annual Report to Shareholders of Prime Money Fund, a
portfolio of Insurance Management Series, for the twelve-month period ended
December 31, 1995. This report includes an investment review by the fund's
portfolio manager, a listing of your fund's investments, and complete financial
information.
During the report period, the fund's portfolio of high-quality money market
securities provided shareholders with dividends of $0.05 per share. Of course,
the fund also maintained a stable share value of $1.00.* The fund's net assets
reached $17.8 million on the last day of the report period.

Thank you for using Prime Money Fund as a way to pursue daily income on your
ready cash. We look forward to keeping you informed about your investment's
progress.

Sincerely,

J. Christopher Donahue
President
February 15, 1996

* Money market funds seek to maintain a stable net asset value of $1.00 per
share. There is no assurance that they will be able to do so. An investment in
the fund is neither insured nor guaranteed by the U.S. government.

INVESTMENT REVIEW
- --------------------------------------------------------------------------------

During the reporting period, short-term interest rates held steady for the first
quarter of 1995 despite a hike in the Federal Funds target rate from 5.50% to
6.00% on February 1, 1995. From the end of April however, short-term rates began
to decline with the biggest drop of 25 basis points coming on July 6, 1995,
following a rate cut. At that time, the Federal Reserve Board (the "Fed")
lowered the Federal Funds target rate from 6.00% to 5.75%. Rates then held
steady for the third quarter of 1995 before continuing to decline modestly in
the last several months of the year. The Fed took action one more time on
December 19, 1995, and lowered the Federal Funds target rate from 5.75% to
5.50%, precisely the same level at which 1995 began.

In response to this rate environment, the fund's average maturity target range
was lengthened from 30-40 days to 40-50 days. This reflects management's bias
towards a neutral to modestly easing Fed through early 1996. In addition,
management continues to invest the fund in a barbelled style with 25%-30% of
fund investments in variable rate demand notes, 10%-15% in overnight securities
and the remainder of the portfolio laddered out to the six-month to twelve-month
area of the yield curve. Management's outlook is for a modestly easing to
neutral Fed for the beginning of 1996. The structure of a barbell should allow
the fund to pursue the higher yields of longer-dated securities. In addition,
the longer average maturity should also be beneficial in a declining rate
environment.

Given the market conditions, the fund has performed as follows: during the
twelve-months ended December 31, 1995, the net assets of the fund increased from
$0.6 to $17.8 million, while the
7-day net yield increased from 4.16% to 4.95%.* The effective average maturity
of the fund on
December 29, 1995, was 42 days.

* Performance quoted represents past performance and is not indicative of future
results. Yield will vary. Performance information does not reflect the charges
and expenses of a variable annuity or variable life insurance contract.

PRIME MONEY FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ----------- -------------------------------------------------------------------------------------- -------------
BANK NOTES--2.8%
- ---------------------------------------------------------------------------------------------------
BANKING--2.8%
--------------------------------------------------------------------------------------
$ 500,000 Bank of New York, New York, 5.570%, 5/30/1996 $ 499,899
-------------------------------------------------------------------------------------- -------------
BANKERS ACCEPTANCE--0.8%
- ---------------------------------------------------------------------------------------------------
BANKING--0.8%
--------------------------------------------------------------------------------------
146,839 Citibank NA, New York, 5.897%, 4/12/1996 144,447
-------------------------------------------------------------------------------------- -------------
TIME DEPOSIT--1.1%
- ---------------------------------------------------------------------------------------------------
BANKING--1.1%
--------------------------------------------------------------------------------------
200,000 Bank of Nova Scotia, Toronto, 7.000%, 1/2/1996 200,000
-------------------------------------------------------------------------------------- -------------
(A) COMMERCIAL PAPER--38.3%
- ---------------------------------------------------------------------------------------------------
BANKING--11.4%
--------------------------------------------------------------------------------------
750,000 ABN AMRO N.A., Finance, Inc., (Guaranteed by ABN AMRO Bank N.V., Amsterdam), 5.640% -
5.860%, 2/16/1996 - 4/25/1996 739,398
--------------------------------------------------------------------------------------
600,000 Abbey National N.A. Corp., (Guaranteed by Abbey National Bank PLC, London), 5.697% -
5.709%, 1/8/1996 - 1/22/1996 598,918
--------------------------------------------------------------------------------------
200,000 J.P. Morgan & Co., Inc., 5.756%, 1/22/1996 199,348
--------------------------------------------------------------------------------------
500,000 Svenska Handelsbanken, Inc., (Guaranteed by Svenska Handelsbanken, Stockholm), 5.811%,
3/29/1996 493,094
-------------------------------------------------------------------------------------- -------------
Total 2,030,758
-------------------------------------------------------------------------------------- -------------
FINANCE - AUTOMOTIVE--0.5%
--------------------------------------------------------------------------------------
100,000 Ford Motor Credit Co., 5.771%, 2/5/1996 99,447
-------------------------------------------------------------------------------------- -------------
FINANCE - COMMERCIAL--20.3%
--------------------------------------------------------------------------------------
650,000 Asset Securitization Cooperative Corp., 5.738% - 5.824%,
1/19/1996 - 2/15/1996 646,756
--------------------------------------------------------------------------------------
900,000 Beta Finance, Inc., 5.611% - 5.768%, 2/5/1996 - 5/17/1996 890,818
--------------------------------------------------------------------------------------
300,000 CIT Group Holdings, Inc., 5.696% - 5.802%, 1/29/1996 - 3/22/1996 297,850
--------------------------------------------------------------------------------------
300,000 Falcon Asset Securitization Corp., 5.701%, 5/3/1996 294,321
--------------------------------------------------------------------------------------
$ 400,000 General Electric Capital Corp., 5.772%, 2/5/1996 $ 397,787
</TABLE>

PRIME MONEY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ----------- -------------------------------------------------------------------------------------- -------------
(A) COMMERCIAL PAPER--CONTINUED
- ---------------------------------------------------------------------------------------------------
FINANCE - COMMERCIAL--CONTINUED
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
800,000 Greenwich Funding Corp., 5.749%, 2/15/1996 794,330
--------------------------------------------------------------------------------------
300,000 PREFCO, 5.671%, 3/25/1996 296,094
-------------------------------------------------------------------------------------- -------------
Total 3,617,956
-------------------------------------------------------------------------------------- -------------
FINANCE - RETAIL--6.1%
--------------------------------------------------------------------------------------
600,000 American Express Credit Corp., 5.653% - 5.758%, 3/8/1996 - 6/4/1996 588,075
--------------------------------------------------------------------------------------
500,000 Associates Corp. of North America, 5.550% - 5.780%, 1/18/1996 - 6/5/1996 494,514
-------------------------------------------------------------------------------------- -------------
Total 1,082,589
-------------------------------------------------------------------------------------- -------------
TOTAL COMMERCIAL PAPER 6,830,750
-------------------------------------------------------------------------------------- -------------
CORPORATE NOTES--3.9%
- ---------------------------------------------------------------------------------------------------
FINANCE - EQUIPMENT--3.9%
--------------------------------------------------------------------------------------
137,768 Case Equipment Loan Trust 1995-B Class A-1, 5.825%, 9/15/1996 137,768
--------------------------------------------------------------------------------------
565,640 Navistar Financial 1995-A Owner Trust, 5.750%, 11/15/1996 565,632
-------------------------------------------------------------------------------------- -------------
TOTAL CORPORATE NOTES 703,400
-------------------------------------------------------------------------------------- -------------
(B) NOTES - VARIABLE--11.7%
- ---------------------------------------------------------------------------------------------------
BANKING--11.7%
--------------------------------------------------------------------------------------
200,000 Capital One Funding Corp., Series 1995-A, (Bank One, Indianapolis, IN LOC), 5.869%,
1/4/1996 200,000
--------------------------------------------------------------------------------------
200,000 Denver Urban Renewal Authority, Series 1992-B, (Banque Paribas, Paris LOC), 6.150%,
1/4/1996 200,000
--------------------------------------------------------------------------------------
200,000 Franklin, OH County of, (Huntington National Bank, Columbus, OH LOC), 5.994%, 1/4/1996 200,000
--------------------------------------------------------------------------------------
300,000 KBL Capital Fund, (Old Kent Bank & Trust Co., Grand Rapids LOC), 5.850%, 1/4/1996 300,000
--------------------------------------------------------------------------------------
800,000 PNC Bank, N.A., 5.580%, 1/2/1996 799,360
--------------------------------------------------------------------------------------
190,000 Southeast Regional Holdings, LLC Series 1995-A, (Columbus Bank and Trust Co., GA LOC),
6.069%, 1/4/1996 190,000
--------------------------------------------------------------------------------------
</TABLE>

PRIME MONEY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ----------- -------------------------------------------------------------------------------------- -------------
(B) NOTES - VARIABLE--CONTINUED
- ---------------------------------------------------------------------------------------------------
BANKING--CONTINUED
--------------------------------------------------------------------------------------
$ 200,000 Alabama State IDA, TRB Wellborn Cabinet, Inc., (Amsouth Bank N.A., Birmingham LOC),
5.930%, 1/3/1996 $ 200,000
-------------------------------------------------------------------------------------- -------------
TOTAL NOTES - VARIABLE 2,089,360
-------------------------------------------------------------------------------------- -------------
(A) GOVERNMENT AGENCY OBLIGATIONS--33.6%
- ---------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN BANK, DISCOUNT NOTES--16.8%
--------------------------------------------------------------------------------------
3,000,000 5.700%, 1/2/1996 2,999,525
-------------------------------------------------------------------------------------- -------------
FEDERAL HOME LOAN MORTGAGE ASSOCIATION, DISCOUNT NOTES--16.8%
--------------------------------------------------------------------------------------
3,000,000 5.750%, 1/2/1996 2,999,521
-------------------------------------------------------------------------------------- -------------
TOTAL GOVERNMENT AGENCY OBLIGATIONS 5,999,046
-------------------------------------------------------------------------------------- -------------
(C) REPURCHASE AGREEMENTS--7.6%
- ---------------------------------------------------------------------------------------------------
353,000 First Chicago Capital Markets, Inc., 5.900%, dated 12/29/1995, due
1/2/1996 353,000
--------------------------------------------------------------------------------------
294,000 Goldman, Sachs & Co., 5.900%, dated 12/29/1995, due 1/2/1996 294,000
--------------------------------------------------------------------------------------
700,000 PaineWebber, Inc., 5.930%, dated 12/29/1995, due 1/2/1996 700,000
-------------------------------------------------------------------------------------- -------------
TOTAL REPURCHASE AGREEMENTS 1,347,000
-------------------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (AT AMORTIZED COST) (D) $ 17,813,902
-------------------------------------------------------------------------------------- -------------
</TABLE>

(a) Each issue shows the rate of discount at time of purchase for discount
issues.
(b) Current rate and next reset date shown.
(c) The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investments in the repurchase agreements are through participation in joint
accounts with other Federated funds.
(d) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($17,837,904) at December 31, 1995.

The following acronyms are used throughout this portfolio:

IDA--Industrial Development Authority
LOC--Letter of Credit
LLC--Limited Liability Corporation
PLC--Public Limited Company
PREFCO--Preferred Receivables Funding Company
TRB--Taxable Revenue Bond

(See Notes which are an integral part of the Financial Statements)

PRIME MONEY FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $ 17,813,902
- ---------------------------------------------------------------------------------------------------
Income receivable 24,136
- ---------------------------------------------------------------------------------------------------
Receivable for shares sold 95,020
- --------------------------------------------------------------------------------------------------- -------------
Total assets 17,933,058
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------------------------
Payable for shares redeemed $ 71,317
- ----------------------------------------------------------------------------------------
Payable to Bank 975
- ----------------------------------------------------------------------------------------
Accrued expenses 22,862
- ---------------------------------------------------------------------------------------- ---------
Total liabilities 95,154
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS for 17,837,904 shares outstanding $ 17,837,904
- --------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ---------------------------------------------------------------------------------------------------
$17,837,904 / 17,837,904 shares outstanding $1.00
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>

(See Notes which are an integral part of the Financial Statements)

PRIME MONEY FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------------------------------------
Interest $ 480,779
- ------------------------------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------------------------------
Investment advisory fee $ 40,601
- -----------------------------------------------------------------------------------------
Administrative personnel and services fee 125,000
- -----------------------------------------------------------------------------------------
Custodian fees 31,687
- -----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 14,133
- -----------------------------------------------------------------------------------------
Directors'/Trustees' fees 1,394
- -----------------------------------------------------------------------------------------
Auditing fees 3,675
- -----------------------------------------------------------------------------------------
Legal fees 1,746
- -----------------------------------------------------------------------------------------
Portfolio accounting fees 32,519
- -----------------------------------------------------------------------------------------
Share registration costs 6,341
- -----------------------------------------------------------------------------------------
Printing and postage 19,469
- -----------------------------------------------------------------------------------------
Insurance premiums 3,483
- -----------------------------------------------------------------------------------------
Miscellaneous 3,609
- ----------------------------------------------------------------------------------------- -----------
Total expenses 283,657
- -----------------------------------------------------------------------------------------
Waivers and reimbursements--
- -----------------------------------------------------------------------------------------
Waiver of investment advisory fee ($40,601)
- ----------------------------------------------------------------------------
Reimbursement of other operating expenses (177,807)
- ---------------------------------------------------------------------------- -----------
Total waivers and reimbursements (218,408)
- ----------------------------------------------------------------------------------------- -----------
Net expenses 65,249
- ------------------------------------------------------------------------------------------------------ ----------
Net investment income $ 415,530
- ------------------------------------------------------------------------------------------------------ ----------
</TABLE>

(See Notes which are an integral part of the Financial Statements)

PRIME MONEY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994(A)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------
Net investment income $ 415,530 $ 2,449
- -------------------------------------------------------------- ---------------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------------
Distributions from net investment income (415,530) (2,449)
- -------------------------------------------------------------- ---------------------- ------------
SHARE TRANSACTIONS--
- --------------------------------------------------------------
Proceeds from sale of shares 39,232,023 1,276,510
- --------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 414,549 2,491
- --------------------------------------------------------------
Cost of shares redeemed (22,360,936) (726,733)
- -------------------------------------------------------------- ---------------------- ------------
Change in net assets resulting from share
transactions 17,285,636 552,268
- -------------------------------------------------------------- ---------------------- ------------
Change in net assets 17,285,636 552,268
- --------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------
Beginning of period 552,268 --
- -------------------------------------------------------------- ---------------------- ------------
End of period $ 17,837,904 $ 552,268
- -------------------------------------------------------------- ---------------------- ------------
</TABLE>

(a) For the period from December 10, 1993 (start of business), to December 31,
1994.

(See Notes which are an integral part of the Financial Statements)

PRIME MONEY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
- ---------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------
Net investment income 0.05 0.01
- ---------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------
Distributions from net investment income (0.05) (0.01)
- --------------------------------------------------------------- ------- ------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
- --------------------------------------------------------------- ------- ------
TOTAL RETURN (B) 5.20% 0.50%
- ---------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------
Expenses 0.80% 0.80%*
- ---------------------------------------------------------------
Net investment income 5.12% 4.26%*
- ---------------------------------------------------------------
Expense waiver/reimbursement (c) 2.69% 71.84%*
- ---------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------
Net assets, end of period (000 omitted) $17,838 $552
- ---------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from November 18, 1994, (date of initial
public investment) to December 31, 1994. For the period from December 10,
1993, (start of business) to November 17, 1994, the Fund had no public
investment.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(See Notes which are an integral part of the Financial Statements)

PRIME MONEY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION

Insurance Management Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of seven portfolios. The financial
statements included herein are only those of Prime Money Fund (the "Fund"), a
diversified portfolio. The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT VALUATIONS--The Fund uses the amortized cost method to value its
portfolio securities in accordance with Rule 2a-7 under the Act.

INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.

PRIME MONEY FUND
- --------------------------------------------------------------------------------

OTHER--Investment transactions are accounted for on the trade date.

(3) SHARES OF BENEFICIAL INTEREST

The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At
December 31, 1995, capital paid-in aggregated $17,837,904. Transactions in
shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994(A)
<S> <C> <C>
Shares sold 39,232,023 1,276,510
- ---------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 414,549 2,491
- ---------------------------------------------------------------
Shares redeemed (22,360,936) (726,733)
- --------------------------------------------------------------- ---------------------- ------------
Net change resulting from share transactions 17,285,636 552,268
- --------------------------------------------------------------- ---------------------- ------------
</TABLE>

(a) For the period from December 10, 1993, (start of business) to December 31,
1994.

(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser, (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.50 of 1% of the Fund's average daily net assets.

PRIME MONEY FUND
- --------------------------------------------------------------------------------
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.

ORGANIZATIONAL EXPENSES--Organizational expenses of ($22,431) were borne
initially by Adviser. The Fund has agreed to reimburse Adviser for the
organizational expenses during the five year period following effective date.
For the year ended December 31, 1995, the Fund paid $2,991 pursuant to this
agreement.

GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.

INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------

To the Board of Trustees of the Insurance Management Series
and the Shareholders of PRIME MONEY FUND:

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Prime Money Fund (a portfolio of the Insurance
Management Series) as of December 31, 1995, the related statement of operations
for the year then ended, the statement of changes in net assets and financial
highlights for the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prime Money Fund as
of December 31, 1995, the results of its operations, the changes in its net
assets and its financial highlights for the respective stated periods ended in
conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
February 7, 1996

Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are
not insured or guaranteed by the U.S. government, the Federal Deposit Insurance
Corporation,
the Federal Reserve Board, or any other government agency. Investment in mutual
funds
involves investment risk, including the possible loss of principal. Althogh
money market funds
seek to maintain a stable net asset value of $1.00 per share, there is no
assurance they will be
able to do so.

- --------------------------------------------------------------------------------
INTERNATIONAL
- --------------------------------------------------------------------------------
STOCK
- --------------------------------------------------------------------------------
FUND
- --------------------------------------------------------------------------------

ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1995

Insurance Management Series

Cusip 458043601
G01077-01 (2/96) [RECYCLED LOGO]

PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------

Dear Investor:

I am pleased to present the Annual Report to Shareholders for International
Stock Fund, a portfolio of Insurance Management Series. This report covers the
period from May 5, 1995, when the fund first began operations, through December
31, 1995. The report begins with the management discussion and analysis by the
fund's portfolio manager. As the fund's portfolio manager discusses in the
management discussion and analysis, there appears to be reason for optimism for
the international stock markets as we enter 1996. Following the management
discussion and analysis is a complete listing of the fund's international
holdings and its financial statements.

International Stock Fund brings you long-term growth opportunities through a
broadly diversified portfolio of stocks issued by companies throughout the
world. As you pursue your long-term financial goals, international stocks can be
a wise complement to U.S. stocks. Because international stocks respond to
different influences than U.S. stocks, adding international stocks to U.S. stock
holdings may enhance the overall performance of your stock investments by
smoothing out periodic ups and downs in the U.S. market.

International stocks and U.S. stocks can perform well at different times, as was
true in the extreme during 1995. While U.S. stocks soared, international stocks
recorded only very weak gains. Consistent with the overall international market,
the fund achieved a total return of 3.50% for the period ended December 31,
1995.* The fund's net asset value increased from $10.00 at the beginning of the
period to $10.35 at the period's end. At the end of the report period, total
assets stood at $4.8 million.

Thank you for participating in the long-term growth opportunities of
international stocks through International Stock Fund. We look forward to
keeping you informed about your investment's progress.

Sincerely,

J. Christopher Donahue
President
February 15, 1996

INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------

MANAGEMENT DISCUSSION AND ANALYSIS

We are starting 1996 on a very positive note for the international equity
markets, and the International Stock Fund is exceptionally well positioned to
take advantage of the developments now emerging. Our investment approach is to
make significant market bets only when both our quantitative and qualitative
analysis reinforces our conviction that a particular market is undervalued or
overvalued. Having raised the fund's exposure to Japan to just over 36.8% at the
end of 1995, we are very encouraged by the strong move in that market on the
first trading day of 1996 (the Tokyo Stock Price Index* rose 3.4% on January 4).
All of the elements appear to be in place for a recovery in that market.
Valuations in Japan, especially looking at price to book value and price to
cashflow, are reasonable, liquidity growth is strongly positive, and earnings
momentum is strong.

Other Asian markets are exhibiting some of the same characteristics, which lead
us to expect strong earnings growth and attractive valuations. Our remaining
Asian investments are concentrated in Singapore (2.2%), Malaysia (2.1%), and
Indonesia (1.1%). Singapore, whose gross domestic product ("GDP") grew by 8.3%
for the first three quarters of 1995, continues to exhibit low inflation and a
dynamic economy. In Malaysia, while there are concerns about the economy being
too strong (GDP rose at around 9% through September), we believe the fears of a
slowdown are already priced into the market. In Indonesia, strong economic
growth of over 7% has been accompanied by inflation rates approaching the
government's policy limit of 10%, and fiscal policy is likely to tighten.
Nonetheless, with healthy earnings growth expected for the market in 1996, we
have been able to find some very interesting companies to include in the
portfolio. The story for Thailand is similar to the rest of the region, with
strong economic growth accompanied by generally controlled inflation and high
earnings growth.

Turning to Europe, economic growth expectations are being adjusted downward
along with earnings expectations for many of the companies in the market. At the
same time, interest rates have the potential to decrease further, which should
tend to support equity values. The fund's exposure to this part of the world was
38.0% of net assets at year-end.

In Latin America, the markets are beginning to rally after a generally dismal
1995. Events such as the continuing financial problems in Mexico and the
Venezuelan devaluation have served to remind investors of the potential pitfalls
of investing in that region. Going forward, we expect to be adding to our
positions.

* The Tokyo Stock Price Index is a broad market-capitalization weighted index
for the Tokyo stock exchange. This index is unmanaged and actual investments
cannot be made in an index.

Concerning the last quarter of 1995, the fund showed a return of 1.97%** versus
a return of 4.05% for the Europe, Australia, and Far East Index ("EAFE").***
This performance was negatively impacted by our exposure (as small as it was) to
Latin America as well as some disappointing results being reported by some of
the companies held in the European portion of the portfolio. With regard to
Latin America, as mentioned earlier, the outlook is improving, and we see the
markets in Europe as having overreacted by selling off companies with good
long-term prospects for temporary reasons.

New stocks purchased during the quarter included Royal PTT Nederland, the
recently privatized Dutch telecommunications services provider. Currently valued
at less than six times cashflow and showing earnings growth in the double
digits, this is one of the cheapest telecom plays in Europe. We also bought
shares in Yamanouchi Pharmaceutical in Japan, which is now selling at less than
18-times prospective earnings, and is very attractively valued in the Japanese
context. We also bought into Nomura Securities, which gives the fund exposure to
what we believe is the premier brokerage and financial services company in
Japan. One of the long-term growth stories for Nomura is likely to be its
emergence as one of the leaders in Japan's underdeveloped corporate bond market.

** Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.

*** The Morgan Stanley Europe, Australia, and Far East Index is a market
capitalization weighted foreign securities index, which is widely used to
measure the performance of European, Australian, New Zealand and Far Eastern
stock markets. This index is unmanaged and actual investments cannot be made
in an index.

INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------

GROWTH OF $10,000 INVESTED IN INTERNATIONAL STOCK FUND

The graph below illustrates the hypothetical investment of $10,000 in
International Stock Fund (the "Fund") from May 8, 1995 (start of performance),
to December 31, 1995, compared to the Morgan Stanley Capital International
Europe Australia Far East Index (EAFE).+

GRAPHIC REPRESENTATION A5 OMITTED. SEE APPENDIX.

*The Fund's performance assumes the reinvestment of all dividends and
distributions. The EAFE has been adjusted to reflect reinvestment of dividends
on securities in the index.

+The EAFE is not adjusted to reflect sales charges, expenses, or other fees that
the SEC requires to be reflected in the Fund's performance. The index is
unmanaged.

INTERNATIONAL STOCK FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--84.3%
- -------------------------------------------------------------------------------------------------
EQUITY--84.3% ----------------------------------------------------------------------
ARGENTINA--0.4%
------------------------------------------------------------------------------------
BANKING--0.1%
------------------------------------------------------------------------------------
230 Banco Frances del Rio de la Plata S.A., ADR $ 6,181
------------------------------------------------------------------------------------ ---------------
ENERGY SOURCES--0.1%
------------------------------------------------------------------------------------
200 YPF Sociedad Anonima, ADR 4,325
------------------------------------------------------------------------------------ ---------------
MULTI-INDUSTRY--0.1%
------------------------------------------------------------------------------------
900 Compania Naviera Perez Companc SA, Class B 4,768
------------------------------------------------------------------------------------ ---------------
REAL ESTATE--0.1%
------------------------------------------------------------------------------------
202 (a)IRSA Inversiones Y Representaciones S.A., GDR 5,151
------------------------------------------------------------------------------------ ---------------
TOTAL ARGENTINA 20,425
------------------------------------------------------------------------------------ ---------------
AUSTRALIA--1.6%
------------------------------------------------------------------------------------
BROADCASTING & PUBLISHING--0.5%
------------------------------------------------------------------------------------
4,500 News Corp., Ltd. 24,015
------------------------------------------------------------------------------------ ---------------
ENERGY SOURCES--0.6%
------------------------------------------------------------------------------------
5,000 Woodside Petroleum, Ltd. 25,569
------------------------------------------------------------------------------------ ---------------
MERCHANDISING--0.5%
------------------------------------------------------------------------------------
10,000 Woolworth's, Ltd. 24,082
------------------------------------------------------------------------------------ ---------------
TOTAL AUSTRALIA 73,666
------------------------------------------------------------------------------------ ---------------
FRANCE--4.6%
------------------------------------------------------------------------------------
BANKING--0.5%
------------------------------------------------------------------------------------
400 Compagnie Financiere de Paribas, Class A 21,932
------------------------------------------------------------------------------------ ---------------
BEVERAGE & TOBACCO--0.7%
------------------------------------------------------------------------------------
165 LVMH (Moet-Hennessy) 34,368
------------------------------------------------------------------------------------ ---------------
</TABLE>

INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
FOREIGN EQUITY--CONTINUED
------------------------------------------------------------------------------------
FRANCE--CONTINUED
------------------------------------------------------------------------------------
BUILDING MATERIALS & COMPONENTS--0.6%
------------------------------------------------------------------------------------
460 Lafarge-Coppee $ 29,637
------------------------------------------------------------------------------------ ---------------
HEALTH & PERSONAL CARE--0.5%
------------------------------------------------------------------------------------
228 Clarins 21,697
------------------------------------------------------------------------------------ ---------------
INSURANCE--0.8%
------------------------------------------------------------------------------------
350 AXA 23,586
------------------------------------------------------------------------------------
500 Assurances Generales de France 16,745
------------------------------------------------------------------------------------ ---------------
Total 40,331
------------------------------------------------------------------------------------ ---------------
LEISURE & TOURISM--0.4%
------------------------------------------------------------------------------------
150 Accor SA 19,420
------------------------------------------------------------------------------------ ---------------
MULTI-INDUSTRY--1.1%
------------------------------------------------------------------------------------
1,400 Lagardere Groupe 25,730
------------------------------------------------------------------------------------
270 Lyonnaise Des Eaux SA 25,997
------------------------------------------------------------------------------------ ---------------
Total 51,727
------------------------------------------------------------------------------------ ---------------
TOTAL FRANCE 219,112
------------------------------------------------------------------------------------ ---------------
GERMANY--3.8%
------------------------------------------------------------------------------------
BANKING--1.2%
------------------------------------------------------------------------------------
115 Commerzbank AG, Frankfurt 27,177
------------------------------------------------------------------------------------
660 Deutsche Bank, AG 31,272
------------------------------------------------------------------------------------ ---------------
Total 58,449
------------------------------------------------------------------------------------ ---------------
CHEMICALS--0.3%
------------------------------------------------------------------------------------
65 BASF AG 14,477
------------------------------------------------------------------------------------ ---------------
CONSTRUCTION & HOUSING--0.4%
------------------------------------------------------------------------------------
50 Hochtief AG 21,332
------------------------------------------------------------------------------------ ---------------
ELECTRICAL & ELECTRONICS--0.6%
------------------------------------------------------------------------------------
50 Siemens AG 27,362
------------------------------------------------------------------------------------ ---------------
</TABLE>

INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
FOREIGN EQUITY--CONTINUED
------------------------------------------------------------------------------------
GERMANY--CONTINUED
------------------------------------------------------------------------------------
MACHINERY & ENGINEERING--1.0%
------------------------------------------------------------------------------------
30 Linde AG $ 17,504
------------------------------------------------------------------------------------
90 Mannesmann AG 28,653
------------------------------------------------------------------------------------ ---------------
Total 46,157
------------------------------------------------------------------------------------ ---------------
MERCHANDISING--0.3%
------------------------------------------------------------------------------------
40 Kaufhof Holding AG 12,185
------------------------------------------------------------------------------------ ---------------
TOTAL GERMANY 179,962
------------------------------------------------------------------------------------ ---------------
HONG KONG--2.7%
------------------------------------------------------------------------------------
BANKING--0.3%
------------------------------------------------------------------------------------
1,000 HSBC Holdings 15,131
------------------------------------------------------------------------------------ ---------------
BROADCASTING & PUBLISHING--0.5%
------------------------------------------------------------------------------------
6,000 Television Broadcasting 21,377
------------------------------------------------------------------------------------ ---------------
FINANCIAL SERVICES--0.4%
------------------------------------------------------------------------------------
48,000 Manhattan Card Co., Ltd. 20,485
------------------------------------------------------------------------------------ ---------------
REAL ESTATE--1.0%
------------------------------------------------------------------------------------
23,000 Amoy Properties, Ltd. 22,903
------------------------------------------------------------------------------------
3,000 Sun Hung Kai Properties 24,539
------------------------------------------------------------------------------------ ---------------
Total 47,442
------------------------------------------------------------------------------------ ---------------
TELECOMMUNICATIONS--0.5%
------------------------------------------------------------------------------------
13,200 Hong Kong Telecom 23,558
------------------------------------------------------------------------------------ ---------------
TOTAL HONG KONG 127,993
------------------------------------------------------------------------------------ ---------------
INDONESIA--1.1%
------------------------------------------------------------------------------------
AUTOMOBILE--0.6%
------------------------------------------------------------------------------------
8,000 PT Astra International 16,619
------------------------------------------------------------------------------------
5,000 PT United Tractors 9,403
------------------------------------------------------------------------------------ ---------------
Total 26,022
------------------------------------------------------------------------------------ ---------------
</TABLE>

INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
FOREIGN EQUITY--CONTINUED
------------------------------------------------------------------------------------
INDONESIA--CONTINUED
------------------------------------------------------------------------------------
BANKING--0.1%
------------------------------------------------------------------------------------
4,000 Lippo Bank $ 6,167
------------------------------------------------------------------------------------ ---------------
BUILDING MATERIALS & COMPONENTS--0.2%
------------------------------------------------------------------------------------
3,000 PT Indocement 10,070
------------------------------------------------------------------------------------ ---------------
MERCHANDISING--0.2%
------------------------------------------------------------------------------------
5,000 PT Hero Supermarket 10,715
------------------------------------------------------------------------------------ ---------------
TOTAL INDONESIA 52,974
------------------------------------------------------------------------------------ ---------------
ITALY--1.4%
------------------------------------------------------------------------------------
MERCHANDISING--0.8%
------------------------------------------------------------------------------------
5,700 La Rinascente S.P.A. 34,492
------------------------------------------------------------------------------------ ---------------
TELECOMMUNICATIONS--0.6%
------------------------------------------------------------------------------------
17,150 (a)Telecom Italia Mobile 30,183
------------------------------------------------------------------------------------ ---------------
TOTAL ITALY 64,675
------------------------------------------------------------------------------------ ---------------
JAPAN--36.8%
------------------------------------------------------------------------------------
BANKING--0.8%
------------------------------------------------------------------------------------
3,000 Sakura Bank Ltd., Tokyo 38,063
------------------------------------------------------------------------------------ ---------------
BUILDING MATERIALS & COMPONENTS--2.1%
------------------------------------------------------------------------------------
5,000 Nihon Cement Co., Ltd. 33,414
------------------------------------------------------------------------------------
2,000 Tostem Corp. 66,441
------------------------------------------------------------------------------------ ---------------
Total 99,855
------------------------------------------------------------------------------------ ---------------
BUSINESS & PUBLIC SERVICES--3.5%
------------------------------------------------------------------------------------
3,000 Dai Nippon Printing Co., Ltd. 50,848
------------------------------------------------------------------------------------
2,000 Kokuyo Co. 46,489
------------------------------------------------------------------------------------
1,000 Secom Co. 69,540
------------------------------------------------------------------------------------ ---------------
Total 166,877
------------------------------------------------------------------------------------ ---------------
</TABLE>

INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
FOREIGN EQUITY--CONTINUED
------------------------------------------------------------------------------------
JAPAN--CONTINUED
------------------------------------------------------------------------------------
CHEMICALS--3.1%
------------------------------------------------------------------------------------
5,000 Asahi Chemical Industry Co. Ltd. $ 38,257
------------------------------------------------------------------------------------
10,000 Dainippon Ink and Chemical, Inc. 46,586
------------------------------------------------------------------------------------
3,000 Kuraray Co., Ltd. 32,833
------------------------------------------------------------------------------------
6,000 Sumitomo Chemical Co. 29,927
------------------------------------------------------------------------------------ ---------------
Total 147,603
------------------------------------------------------------------------------------ ---------------
CONSTRUCTION & HOUSING--3.5%
------------------------------------------------------------------------------------
3,000 Kandenko Co., Ltd. 37,482
------------------------------------------------------------------------------------
5,000 Nichiei Construction 56,659
------------------------------------------------------------------------------------
3,000 Nishimatsu Construction 35,157
------------------------------------------------------------------------------------
3,000 Sekisui House, Ltd. 38,354
------------------------------------------------------------------------------------ ---------------
Total 167,652
------------------------------------------------------------------------------------ ---------------
DATA PROCESSING & REPRODUCTION--0.4%
------------------------------------------------------------------------------------
1,000 Canon, Inc. 18,111
------------------------------------------------------------------------------------ ---------------
ELECTRICAL & ELECTRONICS--0.5%
------------------------------------------------------------------------------------
2,000 NEC Corp. 24,407
------------------------------------------------------------------------------------ ---------------
FINANCIAL SERVICES--2.6%
------------------------------------------------------------------------------------
5,000 Jaccs 51,816
------------------------------------------------------------------------------------
2,000 Nomura Securities Co., Ltd. 43,584
------------------------------------------------------------------------------------
3,000 Wako Securities Co., Ltd. 26,673
------------------------------------------------------------------------------------ ---------------
Total 122,073
------------------------------------------------------------------------------------ ---------------
HEALTH & PERSONAL CARE--2.0%
------------------------------------------------------------------------------------
4,000 Kyowa Hakko Kogyo Co. 37,734
------------------------------------------------------------------------------------
1,000 Takeda Chemical Industries 16,465
------------------------------------------------------------------------------------
2,000 Yamanouchi Pharmaceutical 43,002
------------------------------------------------------------------------------------ ---------------
Total 97,201
------------------------------------------------------------------------------------ ---------------
</TABLE>

INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
FOREIGN EQUITY--CONTINUED
------------------------------------------------------------------------------------
JAPAN--CONTINUED
------------------------------------------------------------------------------------
INDUSTRIAL COMPONENTS--3.3%
------------------------------------------------------------------------------------
3,000 Bridgestone Corp. $ 47,651
------------------------------------------------------------------------------------
6,000 Minebea Co. 50,324
------------------------------------------------------------------------------------
2,000 NGK Insulators 19,952
------------------------------------------------------------------------------------
2,000 Nippon Electric Glass Co., Ltd. 37,966
------------------------------------------------------------------------------------ ---------------
Total 155,893
------------------------------------------------------------------------------------ ---------------
INSURANCE--1.7%
------------------------------------------------------------------------------------
6,000 Mitsui Marine & Fire Insurance Co. 42,770
------------------------------------------------------------------------------------
3,000 Tokio Marine and Fire 39,225
------------------------------------------------------------------------------------ ---------------
Total 81,995
------------------------------------------------------------------------------------ ---------------
MACHINERY & ENGINEERING--3.0%
------------------------------------------------------------------------------------
7,000 Kawasaki Heavy Industries 32,203
------------------------------------------------------------------------------------
7,000 Kubota Corp. 45,085
------------------------------------------------------------------------------------
4,000 Mitsubishi Heavy Industries 31,884
------------------------------------------------------------------------------------
10,000 Sumitomo Heavy Industries 35,932
------------------------------------------------------------------------------------ ---------------
Total 145,104
------------------------------------------------------------------------------------ ---------------
MERCHANDISING--1.2%
------------------------------------------------------------------------------------
6,000 Daimaru, Inc. 46,489
------------------------------------------------------------------------------------
1,000 Matsuzakaya Co., Ltd. 12,688
------------------------------------------------------------------------------------ ---------------
Total 59,177
------------------------------------------------------------------------------------ ---------------
METALS-STEEL--1.4%
------------------------------------------------------------------------------------
9,000 Kawasaki Steel 31,380
------------------------------------------------------------------------------------
14,000 (a)NKK Corp. 37,695
------------------------------------------------------------------------------------ ---------------
Total 69,075
------------------------------------------------------------------------------------ ---------------
MISCELLANEOUS MATERIALS & COMMODITIES--0.5%
------------------------------------------------------------------------------------
5,000 Nippon Sheet Glass Co. 21,743
------------------------------------------------------------------------------------ ---------------
</TABLE>

INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
FOREIGN EQUITY--CONTINUED
------------------------------------------------------------------------------------
JAPAN--CONTINUED
------------------------------------------------------------------------------------
REAL ESTATE--0.9%
------------------------------------------------------------------------------------
9,000 Tokyo Tatemono Co., Ltd. $ 42,712
------------------------------------------------------------------------------------ ---------------
RECREATION, OTHER CONSUMER GOODS--2.3%
------------------------------------------------------------------------------------
1,000 Sega Enterprises 55,206
------------------------------------------------------------------------------------
1,000 Sony Music Entertainment, Inc. 52,300
------------------------------------------------------------------------------------ ---------------
Total 107,506
------------------------------------------------------------------------------------ ---------------
TELECOMMUNICATIONS--1.0%
------------------------------------------------------------------------------------
6 DDI Corp. 46,489
------------------------------------------------------------------------------------ ---------------
TRANSPORTATION--AIRLINES--0.7%
------------------------------------------------------------------------------------
5,000 (a)Japan Airlines Co. 33,172
------------------------------------------------------------------------------------ ---------------
TRANSPORTATION--AUTOMOTIVE--0.4%
------------------------------------------------------------------------------------
2,000 Toyoda Machine Works 19,274
------------------------------------------------------------------------------------ ---------------
TRANSPORTATION-ROAD & RAIL--1.9%
------------------------------------------------------------------------------------
8,000 Nagoya Railroad Co., Ltd. 40,291
------------------------------------------------------------------------------------
5,000 Nippon Express Co., Ltd. 48,136
------------------------------------------------------------------------------------ ---------------
Total 88,427
------------------------------------------------------------------------------------ ---------------
TOTAL JAPAN 1,752,409
------------------------------------------------------------------------------------ ---------------
MALAYSIA--2.1%
------------------------------------------------------------------------------------
BANKING--0.4%
------------------------------------------------------------------------------------
2,000 Malayan Banking Berhad 16,852
------------------------------------------------------------------------------------ ---------------
FINANCIAL SERVICES--0.4%
------------------------------------------------------------------------------------
4,000 Hong Leong Credit Berhad 19,845
------------------------------------------------------------------------------------ ---------------
MACHINERY & ENGINEERING--0.4%
------------------------------------------------------------------------------------
7,000 UMW Holdings Bhd 18,742
------------------------------------------------------------------------------------ ---------------
METALS-STEEL--0.3%
------------------------------------------------------------------------------------
10,000 Malayawata Steel Berhad 16,301
------------------------------------------------------------------------------------ ---------------
</TABLE>

INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
FOREIGN EQUITY--CONTINUED
------------------------------------------------------------------------------------
MALAYSIA--CONTINUED
------------------------------------------------------------------------------------
MULTI-INDUSTRY--0.2%
------------------------------------------------------------------------------------
12,000 Malayan United Industries Bhd $ 9,733
------------------------------------------------------------------------------------ ---------------
UTILITIES-ELECTRICAL & GAS--0.4%
------------------------------------------------------------------------------------
5,000 Tenaga Nasional Berhad 19,687
------------------------------------------------------------------------------------ ---------------
TOTAL MALAYSIA 101,160
------------------------------------------------------------------------------------ ---------------
MEXICO--0.6%
------------------------------------------------------------------------------------
BANKING--0.1%
------------------------------------------------------------------------------------
900 (a)Grupo Financiero Bancomer, S.A. de C.V., Class B, ADR 5,063
------------------------------------------------------------------------------------ ---------------
BEVERAGE & TOBACCO--0.1%
------------------------------------------------------------------------------------
200 Pan American Beverage, Class A 6,400
------------------------------------------------------------------------------------ ---------------
BUILDING MATERIALS & COMPONENTS--0.1%
------------------------------------------------------------------------------------
800 Cemex S.A., Class B, ADR 5,625
------------------------------------------------------------------------------------ ---------------
CONSTRUCTION & HOUSING--0.1%
------------------------------------------------------------------------------------
600 Empresas ICA Sociedad Controladora S.A., ADR 6,150
------------------------------------------------------------------------------------ ---------------
TRANSPORTATION--SHIPPING--0.2%
------------------------------------------------------------------------------------
800 (a)Transportacion Maritima Mexicana S.A., Class L, ADR 6,700
------------------------------------------------------------------------------------ ---------------
TOTAL MEXICO 29,938
------------------------------------------------------------------------------------ ---------------
NETHERLANDS--3.0%
------------------------------------------------------------------------------------
BROADCASTING & PUBLISHING--1.0%
------------------------------------------------------------------------------------
3,800 Elsevier NV 50,676
------------------------------------------------------------------------------------ ---------------
RECREATION, OTHER CONSUMER GOODS--1.0%
------------------------------------------------------------------------------------
870 Polygram 46,192
------------------------------------------------------------------------------------ ---------------
TELECOMMUNICATIONS--1.0%
------------------------------------------------------------------------------------
1,285 Royal PTT Nederland NV 46,685
------------------------------------------------------------------------------------ ---------------
TOTAL NETHERLANDS 143,553
------------------------------------------------------------------------------------ ---------------
</TABLE>

INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
FOREIGN EQUITY--CONTINUED
------------------------------------------------------------------------------------
SINGAPORE--2.2%
------------------------------------------------------------------------------------
BANKING--0.4%
------------------------------------------------------------------------------------
2,000 United Overseas Bank, Ltd. $ 19,229
------------------------------------------------------------------------------------ ---------------
BEVERAGE & TOBACCO--0.2%
------------------------------------------------------------------------------------
1,000 Fraser and Neave Ltd. 12,725
------------------------------------------------------------------------------------ ---------------
BROADCASTING & PUBLISHING--0.4%
------------------------------------------------------------------------------------
1,000 Singapore Press Holdings, Ltd. 17,674
------------------------------------------------------------------------------------ ---------------
REAL ESTATE--0.8%
------------------------------------------------------------------------------------
6,000 First Capital Corp., Ltd. 16,628
------------------------------------------------------------------------------------
6,000 (a)Straits Steamship Land, Ltd. 20,276
------------------------------------------------------------------------------------ ---------------
Total 36,904
------------------------------------------------------------------------------------ ---------------
TRANSPORTATION-AIRLINES--0.4%
------------------------------------------------------------------------------------
2,000 Singapore Airlines Ltd. 18,664
------------------------------------------------------------------------------------ ---------------
TOTAL SINGAPORE 105,196
------------------------------------------------------------------------------------ ---------------
SPAIN--1.4%
------------------------------------------------------------------------------------
ENERGY SOURCES--0.2%
------------------------------------------------------------------------------------
350 Repsol SA 11,469
------------------------------------------------------------------------------------ ---------------
MACHINERY & ENGINEERING--0.8%
------------------------------------------------------------------------------------
350 Zardoya-Otis SA 38,232
------------------------------------------------------------------------------------ ---------------
MERCHANDISING--0.2%
------------------------------------------------------------------------------------
400 Centros Comerciales Pryca, SA 8,392
------------------------------------------------------------------------------------ ---------------
METALS-STEEL--0.2%
------------------------------------------------------------------------------------
100 Acerinox SA 10,115
------------------------------------------------------------------------------------ ---------------
TOTAL SPAIN 68,208
------------------------------------------------------------------------------------ ---------------
SWEDEN--1.6%
------------------------------------------------------------------------------------
FOREST PRODUCTS & PAPER--0.5%
------------------------------------------------------------------------------------
2,100 Stora Kopparbergs, Class A 24,670
------------------------------------------------------------------------------------ ---------------
</TABLE>

INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
FOREIGN EQUITY--CONTINUED
------------------------------------------------------------------------------------
SWEDEN--CONTINUED
------------------------------------------------------------------------------------
INDUSTRIAL COMPONENTS--0.6%
------------------------------------------------------------------------------------
450 Autoliv AB $ 26,296
------------------------------------------------------------------------------------ ---------------
MACHINERY & ENGINEERING--0.5%
------------------------------------------------------------------------------------
1,000 Svedala Industri 25,754
------------------------------------------------------------------------------------ ---------------
TOTAL SWEDEN 76,720
------------------------------------------------------------------------------------ ---------------
SWITZERLAND--4.9%
------------------------------------------------------------------------------------
BANKING--0.7%
------------------------------------------------------------------------------------
300 CS Holding 30,754
------------------------------------------------------------------------------------ ---------------
CHEMICALS--0.7%
------------------------------------------------------------------------------------
40 Ciba-Giegy AG-R 35,197
------------------------------------------------------------------------------------ ---------------
ELECTRICAL & ELECTRONICS--0.6%
------------------------------------------------------------------------------------
25 BBC Brown Boveri 29,042
------------------------------------------------------------------------------------ ---------------
FOOD & HOUSEHOLD PRODUCTS--1.2%
------------------------------------------------------------------------------------
51 Nestle SA 56,416
------------------------------------------------------------------------------------ ---------------
HEALTH & PERSONAL CARE--0.5%
------------------------------------------------------------------------------------
3 Roche Holding AG 23,732
------------------------------------------------------------------------------------ ---------------
INSURANCE--0.7%
------------------------------------------------------------------------------------
105 Zurich Versicherungsgesellschaft 31,404
------------------------------------------------------------------------------------ ---------------
MACHINERY & ENGINEERING--0.5%
------------------------------------------------------------------------------------
45 Sulzer AG 25,748
------------------------------------------------------------------------------------ ---------------
TOTAL SWITZERLAND 232,293
------------------------------------------------------------------------------------ ---------------
UNITED KINGDOM--16.1%
------------------------------------------------------------------------------------
BEVERAGE & TOBACCO--0.8%
------------------------------------------------------------------------------------
4,650 Allied Domecq PLC 37,841
------------------------------------------------------------------------------------ ---------------
BUILDING MATERIALS & COMPONENTS--0.7%
------------------------------------------------------------------------------------
18,500 Rugby Group PLC 31,604
------------------------------------------------------------------------------------ ---------------
</TABLE>

INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
FOREIGN EQUITY--CONTINUED
------------------------------------------------------------------------------------
UNITED KINGDOM--CONTINUED
------------------------------------------------------------------------------------
BUSINESS & PUBLIC SERVICES--1.3%
------------------------------------------------------------------------------------
4,000 Associated British Ports Holdings PLC $ 17,953
------------------------------------------------------------------------------------
3,600 Chubb Security 17,807
------------------------------------------------------------------------------------
3,300 Thames Water PLC 28,777
------------------------------------------------------------------------------------ ---------------
Total 64,537
------------------------------------------------------------------------------------ ---------------
CHEMICALS--0.3%
------------------------------------------------------------------------------------
1,200 Imperial Chemical Industries 14,210
------------------------------------------------------------------------------------ ---------------
FOOD & HOUSEHOLD PRODUCTS--2.2%
------------------------------------------------------------------------------------
2,500 Cadbury Schweppes 20,636
------------------------------------------------------------------------------------
6,800 Grand Metropolitan PLC 48,949
------------------------------------------------------------------------------------
3,300 Reckitt & Colman PLC 36,516
------------------------------------------------------------------------------------ ---------------
Total 106,101
------------------------------------------------------------------------------------ ---------------
INSURANCE--0.4%
------------------------------------------------------------------------------------
10,200 Sedgwick Group PLC 19,168
------------------------------------------------------------------------------------ ---------------
LEISURE & TOURISM--1.7%
------------------------------------------------------------------------------------
5,500 Compass Group 41,854
------------------------------------------------------------------------------------
5,400 Rank Organisation PLC 39,081
------------------------------------------------------------------------------------ ---------------
Total 80,935
------------------------------------------------------------------------------------ ---------------
MERCHANDISING--2.6%
------------------------------------------------------------------------------------
3,800 Boots Co. PLC 34,406
------------------------------------------------------------------------------------
4,800 Marks & Spencer PLC 33,546
------------------------------------------------------------------------------------
8,600 Smith, W.H. Group PLC 56,630
------------------------------------------------------------------------------------ ---------------
Total 124,582
------------------------------------------------------------------------------------ ---------------
METALS-NON FERROUS--0.4%
------------------------------------------------------------------------------------
1,300 RTZ Corp. PLC 18,897
------------------------------------------------------------------------------------ ---------------
</TABLE>

INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
FOREIGN EQUITY--CONTINUED
------------------------------------------------------------------------------------
UNITED KINGDOM--CONTINUED
------------------------------------------------------------------------------------
METALS-STEEL--0.4%
------------------------------------------------------------------------------------
6,700 British Steel PLC $ 16,935
------------------------------------------------------------------------------------ ---------------
MISCELLANEOUS MATERIALS & COMMODITIES--0.3%
------------------------------------------------------------------------------------
4,600 Caradon PLC 13,967
------------------------------------------------------------------------------------ ---------------
MULTI-INDUSTRY--1.6%
------------------------------------------------------------------------------------
7,600 BTR PLC 38,714
------------------------------------------------------------------------------------
8,300 Tomkins PLC 36,286
------------------------------------------------------------------------------------ ---------------
Total 75,000
------------------------------------------------------------------------------------ ---------------
TELECOMMUNICATIONS--1.6%
------------------------------------------------------------------------------------
5,400 Cable & Wireless 38,661
------------------------------------------------------------------------------------
10,000 Vodafone Group PLC 35,875
------------------------------------------------------------------------------------ ---------------
Total 74,536
------------------------------------------------------------------------------------ ---------------
UTILITIES--ELECTRICAL & GAS--1.8%
------------------------------------------------------------------------------------
4,700 British Gas PLC 18,540
------------------------------------------------------------------------------------
4,500 National Power Co. PLC 31,414
------------------------------------------------------------------------------------
6,600 Scottish Power PLC 37,925
------------------------------------------------------------------------------------ ---------------
Total 87,879
------------------------------------------------------------------------------------ ---------------
TOTAL UNITED KINGDOM 766,192
------------------------------------------------------------------------------------ ---------------
TOTAL FOREIGN EQUITY (IDENTIFIED COST $3,892,911) 4,014,476
------------------------------------------------------------------------------------ ---------------
PREFERRED STOCKS--1.2%
- -------------------------------------------------------------------------------------------------
GERMANY--1.2%
------------------------------------------------------------------------------------
FOOD & HOUSEHOLD PRODUCTS--0.3%
------------------------------------------------------------------------------------
38 Henkel KGaA--Vorzug, Pfd. 14,291
------------------------------------------------------------------------------------ ---------------
HEALTH & PERSONAL CARE--0.3%
------------------------------------------------------------------------------------
30 Wella AG, Pfd. 16,145
------------------------------------------------------------------------------------ ---------------
</TABLE>

INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<S> <S> <C>
PREFERRED STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
MACHINERY & ENGINEERING--0.6%
------------------------------------------------------------------------------------
90 Gea AG, Pfd. $ 27,605
------------------------------------------------------------------------------------ ---------------
TOTAL GERMANY 58,041
------------------------------------------------------------------------------------ ---------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST $65,328) 58,041
------------------------------------------------------------------------------------ ---------------
PRINCIPAL
AMOUNT
(B) REPURCHASE AGREEMENT--14.5%
- -------------------------------------------------------------------------------------------------
$ 690,000 J.P. Morgan Securities, Inc., 5.85%, dated 12/29/1995, due 1/2/1996
(at amortized cost) 690,000
------------------------------------------------------------------------------------ ---------------
TOTAL INVESTMENTS (IDENTIFIED COST $4,648,239) (C) $ 4,762,517
------------------------------------------------------------------------------------ ---------------
</TABLE>

(a) Non-income producing.

(c) The cost for federal income tax purposes amounts to $4,652,535. The net
unrealized appreciation on a federal tax basis amounts to $109,982, which
is comprised of $183,935 appreciation and $73,953 depreciation at December
31, 1995.

Note: The categories of investments are shown as a percentage of net assets
($4,759,559) at
December 31, 1995.

The following acronyms are used throughout this portfolio:

ADR--American Depository Receipt
GDR--Global Depository Receipts
PLC--Public Limited Company

(See Notes which are an integral part of the Financial Statements)

INTERNATIONAL STOCK FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ----------------------------------------------------------------------------------------------------
Investments in repurchase agreements $ 690,000
- --------------------------------------------------------------------------------------
Investments in securities 4,072,517
- -------------------------------------------------------------------------------------- ------------
Total investments in securities, at value
(identified cost $4,648,239 and tax cost $4,652,535) $ 4,762,517
- ----------------------------------------------------------------------------------------------------
Cash denominated in foreign currencies (identified cost $1,661) 1,661
- ----------------------------------------------------------------------------------------------------
Cash 2,330
- ----------------------------------------------------------------------------------------------------
Income receivable 3,930
- ----------------------------------------------------------------------------------------------------
Receivable for shares sold 13,292
- ---------------------------------------------------------------------------------------------------- ------------
Total assets 4,783,730
- ----------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------------------
Payable for shares redeemed 181
- --------------------------------------------------------------------------------------
Payable for taxes withheld 482
- --------------------------------------------------------------------------------------
Accrued expenses 23,508
- -------------------------------------------------------------------------------------- ------------
Total liabilities 24,171
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSETS for 459,652 shares outstanding $ 4,759,559
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- ----------------------------------------------------------------------------------------------------
Paid in capital $ 4,632,634
- ----------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and translation of assets and liabilities in foreign
currency 114,269
- ----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions (18,741)
- ----------------------------------------------------------------------------------------------------
Undistributed net investment income 31,397
- ---------------------------------------------------------------------------------------------------- ------------
Total Net Assets $ 4,759,559
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ----------------------------------------------------------------------------------------------------
$4,759,559 / 459,652 shares outstanding $10.35
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>

(See Notes which are an integral part of the Financial Statements)

INTERNATIONAL STOCK FUND
STATEMENT OF OPERATIONS
PERIOD ENDED DECEMBER 31, 1995(A)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $1,148) $ 8,482
- ------------------------------------------------------------------------------------------------------
Interest 26,991
- ------------------------------------------------------------------------------------------------------ ----------
Total income 35,473
- ------------------------------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------------------------------
Investment advisory fee $ 12,476
- -----------------------------------------------------------------------------------------
Administrative personnel and services fee 81,165
- -----------------------------------------------------------------------------------------
Custodian fees 24,779
- -----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 4,619
- -----------------------------------------------------------------------------------------
Legal fees 250
- -----------------------------------------------------------------------------------------
Portfolio accounting fees 27,110
- -----------------------------------------------------------------------------------------
Share registration costs 1,918
- -----------------------------------------------------------------------------------------
Printing and postage 1,116
- -----------------------------------------------------------------------------------------
Insurance premiums 3,394
- -----------------------------------------------------------------------------------------
Taxes 35
- -----------------------------------------------------------------------------------------
Miscellaneous 805
- ----------------------------------------------------------------------------------------- -----------
Total expenses 157,667
- -----------------------------------------------------------------------------------------
Waiver and reimbursements--
- -----------------------------------------------------------------------------------------
Waiver of investment advisory fee ($ 12,476)
- ----------------------------------------------------------------------------
Reimbursement of other operating expenses (130,021)
- ---------------------------------------------------------------------------- -----------
Total waiver and reimbursements (142,497)
- ----------------------------------------------------------------------------------------- -----------
Net expenses 15,170
- ------------------------------------------------------------------------------------------------------ ----------
Net investment income 20,303
- ------------------------------------------------------------------------------------------------------ ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
- ------------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign currency transactions (10,299)
- ------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments and translation of assets and liabilities in
foreign currency 114,269
- ------------------------------------------------------------------------------------------------------ ----------
Net realized and unrealized gain on investments and foreign currency 103,970
- ------------------------------------------------------------------------------------------------------ ----------
Change in net assets resulting from operations $ 124,273
- ------------------------------------------------------------------------------------------------------ ----------
</TABLE>

(a) For the period from May 5, 1995 (date of initial public investment) to
December 31, 1995.

(See Notes which are an integral part of the Financial Statements)

INTERNATIONAL STOCK FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1995(A)
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------------------------
Net investment income $ 20,303
- ---------------------------------------------------------------------------------------
Net realized loss on investments and foreign currency transactions ($17,096 net loss,
as computed for federal tax purposes) (10,299)
- ---------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments and translation of assets and
liabilities in foreign currency 114,269
- --------------------------------------------------------------------------------------- -------------
Change in net assets resulting from operations 124,273
- --------------------------------------------------------------------------------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------------------------------------
Distributions from net investment income --
- --------------------------------------------------------------------------------------- -------------
SHARE TRANSACTIONS--
- ---------------------------------------------------------------------------------------
Proceeds from sale of shares 4,707,043
- ---------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of distributions declared --
- ---------------------------------------------------------------------------------------
Cost of shares redeemed (71,757)
- --------------------------------------------------------------------------------------- -------------
Change in net assets resulting from share transactions 4,635,286
- --------------------------------------------------------------------------------------- -------------
Change in net assets 4,759,559
- ---------------------------------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------------------------------
Beginning of period --
- --------------------------------------------------------------------------------------- -------------
End of period (including undistributed net investment income of $31,397) $ 4,759,559
- --------------------------------------------------------------------------------------- -------------
</TABLE>

(a) For the period from May 5, 1995 (date of initial public investment) to
December 31, 1995.

(See Notes which are an integral part of the Financial Statements)

INTERNATIONAL STOCK FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1995(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ---------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------
Net investment income 0.07
- ---------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.28
- --------------------------------------------------------------------------------------- -------
Total from investment operations 0.35
- --------------------------------------------------------------------------------------- -------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------
Distributions from net investment income --
- --------------------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $ 10.35
- --------------------------------------------------------------------------------------- -------
TOTAL RETURN (B) 3.50%
- ---------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------
Expenses 1.22%*
- ---------------------------------------------------------------------------------------
Net investment income 1.63%*
- ---------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 11.42%*
- ---------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $4,760
- ---------------------------------------------------------------------------------------
Portfolio turnover 34 %
- ---------------------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from May 5, 1995 (date of initial public
investment) to December 31, 1995.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(See Notes which are an integral part of the Financial Statements)

INTERNATIONAL STOCK FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------

1. ORGANIZATION

Insurance Management Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of seven portfolios. The financial
statements included herein are only those of International Stock Fund (the
"Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held.

2. SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT VALUATIONS--Short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized cost,
which approximates fair market value. Listed equity securities are valued
at the last sale price reported on national security exchanges. All other
securities are valued at prices provided by an independent pricing service.

INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------

FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary. However, federal taxes may be
imposed on the Fund upon the disposition of certain investments in passive
foreign investment companies. Withholding taxes on foreign interest and
dividends have been provided for in accordance with the Fund's
understanding of the applicable country's tax rules and rates. At December
31, 1995, the Fund, for federal tax purposes, had a capital loss
carryforward of $17,096, which will reduce the Fund's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Fund of
any liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire as follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<S> <C>
2003 $17,096
</TABLE>

FOREIGN CURRENCY TRANSLATION--The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in
foreign currencies ("FC") are translated into U.S. dollars based on the
rate of exchange of such currencies against U.S. dollars on the date of
valuation. Purchases and sales of securities, income and expenses are
translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income and expense amounts
recorded and collected or paid are adjusted when reported by the custodian
bank. The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.

Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of FCs, currency gains or losses
realized between the trade and settlement dates on securities transactions,
the difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end,
resulting from changes in the exchange rate.

OTHER--Investment transactions are accounted for on the trade date.

INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------

3. SHARES OF BENEFICIAL INTEREST

The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1995(A)
<S> <C>
Shares sold 466,748
- ---------------------------------------------------------------------------------------
Shares issued to shareholders in payment
of distributions declared --
- ---------------------------------------------------------------------------------------
Shares redeemed (7,096)
- --------------------------------------------------------------------------------------- ----------
Net change resulting from share transactions 459,652
- --------------------------------------------------------------------------------------- ----------
</TABLE>

(a) For the period from May 5, 1995 (date of initial public investment) to
December 31, 1995.

4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE--Federated Global Research Corp., the Fund's investment
adviser, (the "Adviser"), receives for its services an annual investment
advisory fee equal to 1.00% of the Fund's average daily net assets. The Adviser
may voluntarily choose to waive any portion of its fee and/or reimburse certain
operating expenses of the Fund. The Adviser can modify or terminate this
voluntary waiver and/or reimbursement at any time at its sole discretion.

ADMINISTRATIVE FEE--Federated Administrative Services under the Administrative
Services Agreement, provides the Fund with administrative personnel and
services. This fee is based on the level of average aggregate daily net assets
of all funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.

ORGANIZATIONAL EXPENSES--Organizational expenses of $15,465 were borne initially
by the Adviser. The Fund has agreed to reimburse the Adviser for the
organizational expenses during the five year period following the effective
date. For the period ended December 31, 1995, the Fund paid $773 pursuant to
this agreement.

INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------

GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.

5. INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended December 31, 1995, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 4,494,929
- ---------------------------------------------------------------------------------------------------- ------------
SALES $ 517,949
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>

INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------

To the Board of Trustees of the Insurance Management Series
and the Shareholders of INTERNATIONAL STOCK FUND:

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of International Stock Fund (a portfolio of the
Insurance Management Series) as of December 31, 1995, the related statement of
operations, the statement of changes in net assets and financial highlights for
the period. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1995 by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of International Stock
Fund as of December 31, 1995, the results of its operations, the changes in its
net assets and its financial highlights for the period ended December 31, 1995
in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
February 7, 1996

- --------------------------------------------------------------------------------
GROWTH
- --------------------------------------------------------------------------------
STOCK
- --------------------------------------------------------------------------------
FUND
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1995

Insurance Management Series

Cusip 458043700
G00433-07 (2/96) [RECYCLED LOGO]

PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------

Dear Investor:

I am pleased to present the Annual Report to Shareholders for Growth Stock Fund,
a portfolio of Insurance Management Series. This report covers the period
between November 9, 1995, when the fund first began operation, through December
31, 1995. The report begins with the management discussion and analysis by your
fund's portfolio manager. Following the management discussion and analysis is a
complete listing of the fund's holdings and its financial statements.

Growth Stock Fund is managed to help your money grow over the long-term. The
fund's portfolio consists of U.S. stocks selected for their potential to grow in
value. Many of these stocks are issued by well-known companies. At the end of
the period, the fund's portfolio included stocks issued by Brunswick, Coca-Cola,
Nike, Philip Morris, Viacom, Wendy's, Digital Equipment, Intel, Citicorp,
Travelers Group, Johnson & Johnson, Lilly, Merck, Pfizer, Westinghouse Electric,
Safeway, and AT&T, to name a few.

Thank you for participating in the growth opportunities of U.S. stocks through
Growth Stock Fund. We look forward to keeping you informed about your
investment's progress.

Sincerely,

J. Christopher Donahue
President
February 15, 1996

GROWTH STOCK FUND
- --------------------------------------------------------------------------------

MANAGEMENT DISCUSSION AND ANALYSIS

The fourth quarter of 1995, the first quarter of Growth Stock Fund's existence,
was marked by major changes in leadership among the various sectors within our
investable universe. Most notably, after leading the market for the first three
quarters of 1995, Technology was the worst performing sector in the fourth
quarter. Health Care stocks, in a close second place through September 30, 1995,
maintained their strength and led performance in the fourth quarter. Energy
stocks were a big surprise as they were one of the worst performers through the
first three quarters and yet were the second strongest during the last quarter.
Various smaller, more cyclically sensitive sectors, which lagged through
September, similarly did well to end the year. Finance stocks, also very strong
through the third quarter of 1995, maintained strength and modestly outperformed
the overall market. Retail stocks stayed weak.

The year also ended with markedly different performance between different sized
stocks, as measured by the appropriate Standard & Poor's ("S&P") indexes: the
S&P 500 Index* outperformed the S&P 400 Midcap Index* by 4.6%, which, in turn,
outperformed the S&P 600 Smallcap Index* by almost 1.0%. This was in sharp
contrast to the first three quarters of 1995, when the three S&P indexes traded
basically in-line and had similar total returns at the end of October 1995.

The fund's technology exposure was a net drag on performance in the fourth
quarter of 1995. The sector's negative effect on the fund was, however, somewhat
muted (especially versus our peers in the universe of growth funds) thanks to a
bias within our sector exposure toward defense technology and software, both of
which held in fairly well. The fund benefited from having its second largest
exposures in Health Care and Finance, which, as mentioned above, outperformed
the overall market. The fund failed to benefit, at least on a relative basis,
from the strong performance in Energy stocks and other more cyclically sensitive
sectors, as the fund was initiated modestly underweighted in most of those
areas.

Fund management is presently content with the way its exposures are allocated
across sectors, as our heavier weightings are in sectors that we expect will
experience the fastest earnings growth. We believe that the fund is properly
situated with regard to the average market capitalization of its holdings.
Despite the recent rally in the large-cap stocks, which does not appear to be
the start of a longer-term trend, the mid-cap area offers the most attractive
combination of growth potential, fair pricing and liquidity. We like the size
and potential of stocks in the mid-cap range and do not foresee a major
portfolio shift for the fund in the immediate future.
In the fourth quarter, value stocks modestly outperformed growth stocks, mildly
bucking the trend of growth outperformance which had been in place since about
July 1994. The trend paused in the

* The S&P 500 Daily Stock Price Index of 500 Common Stocks, a composite index of
common stocks in industry, transportation, and financial and public utility
companies, can be used to compare the total returns of funds whose portfolios
are invested primarily in common stocks. The S&P 400 Midcap Index is an
unmanaged index of 400 middle capitalization stocks. The S&P 600 Smallcap
Index is an unmanaged index of 600 smaller capitalization stocks. These
indices are unmanaged and actual investments cannot be made in indices.

first quarter of 1995, as both styles traded up in tandem, but resumed in the
second and third quarters with strong quarters for growth. In the face of more
macro-economic printing about a slowing in the growth rate of the domestic
economy, the market appears to be willing to bid up secular growth stocks more
aggressively. Management believes the trend of growth outperformance will not be
reversed, but will continue as the slowdown begins to be reflected in the
earnings and fundamental reports from more cyclical companies. These reports
could occur as we move through the next several quarters earnings announcements;
consequently, the trend of growth doing better than value should continue into
1996.

GROWTH STOCK FUND
- --------------------------------------------------------------------------------

GROWTH OF $10,000 INVESTED IN GROWTH STOCK FUND

The graph below illustrates the hypothetical investment of $10,000 in the
Growth Stock Fund (the "Fund") from November 9, 1995 (start of performance) to
December 31, 1995, compared to the Standard and Poor's 500 Index (S&P 500)+ and
the Lipper Growth Fund Index (LGFI)++.

[Graphic representation A6 omitted. See Appendix."]

*The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P 500 and the LGFI have been adjusted to reflect
reinvestment of dividends on securities in the indices.

+The S&P 500 is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. The index is
unmanaged.

++The LGFI is not adjusted to reflect any sales charges. However, these total
returns are reported net of expenses or other fees that the SEC requires to be
reflected in a fund's performance. The index is unmanaged.

GROWTH STOCK FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
SHARES VALUE
<S> <S> <C>
COMMON STOCKS--90.5% -------------------------------------------------------------------------------------
COMMERCIAL SERVICES--3.2%
-------------------------------------------------------------------------------------
100 Corrections Corp. America $ 3,712
-------------------------------------------------------------------------------------
100 Olsten Corp. 3,950
-------------------------------------------------------------------------------------
100 Reynolds & Reynolds Co., Class A 3,888
------------------------------------------------------------------------------------- -------------
Total 11,550
------------------------------------------------------------------------------------- -------------
CONSUMER DURABLES--0.6%
-------------------------------------------------------------------------------------
100 Brunswick Corp. 2,400
------------------------------------------------------------------------------------- -------------
CONSUMER NON-DURABLES--7.9%
-------------------------------------------------------------------------------------
100 Coca-Cola Co. 7,425
-------------------------------------------------------------------------------------
100 Gymboree Corp. 2,062
-------------------------------------------------------------------------------------
100 Nike, Inc., Class B 6,963
-------------------------------------------------------------------------------------
100 Oakley, Inc. 3,400
-------------------------------------------------------------------------------------
100 Philip Morris Cos., Inc. 9,050
------------------------------------------------------------------------------------- -------------
Total 28,900
------------------------------------------------------------------------------------- -------------
CONSUMER SERVICES--3.1%
-------------------------------------------------------------------------------------
100 Service Corp. International 4,400
-------------------------------------------------------------------------------------
100 Viacom, Inc., Class B 4,738
-------------------------------------------------------------------------------------
100 Wendy's International, Inc. 2,125
------------------------------------------------------------------------------------- -------------
Total 11,263
------------------------------------------------------------------------------------- -------------
ELECTRONIC TECHNOLOGY--12.7%
-------------------------------------------------------------------------------------
100 Applied Materials, Inc. 3,937
-------------------------------------------------------------------------------------
100 Cisco Systems, Inc. 7,462
-------------------------------------------------------------------------------------
100 Digital Equipment Corp. 6,412
-------------------------------------------------------------------------------------
100 Ericsson LM 1,950
-------------------------------------------------------------------------------------
100 Intel Corp. 5,675
-------------------------------------------------------------------------------------
100 LSI Logic Corp. 3,275
-------------------------------------------------------------------------------------
</TABLE>

GROWTH STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<S> <S> <C>
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------------------------
ELECTRONIC TECHNOLOGY--CONTINUED
-------------------------------------------------------------------------------------
100 Loral Corp. $ 3,537
-------------------------------------------------------------------------------------
100 Nokia (AB), ADR 3,888
-------------------------------------------------------------------------------------
100 Pairgain Technologies, Inc. 5,475
-------------------------------------------------------------------------------------
100 Texas Instruments, Inc. 5,175
------------------------------------------------------------------------------------- -------------
Total 46,786
------------------------------------------------------------------------------------- -------------
ENERGY MINERALS--3.4%
-------------------------------------------------------------------------------------
100 British Petroleum, Ltd., ADR 10,212
-------------------------------------------------------------------------------------
100 YPF Sociedad Anonima, ADR 2,163
------------------------------------------------------------------------------------- -------------
Total 12,375
------------------------------------------------------------------------------------- -------------
FINANCE--15.4%
-------------------------------------------------------------------------------------
100 Aflac, Inc. 4,337
-------------------------------------------------------------------------------------
100 Amerin Corp. 2,675
-------------------------------------------------------------------------------------
100 Bank of New York Co., Inc. 4,875
-------------------------------------------------------------------------------------
100 Citicorp 6,725
-------------------------------------------------------------------------------------
100 MBNA Corp. 3,687
-------------------------------------------------------------------------------------
100 MGIC Investment Corp. 5,425
-------------------------------------------------------------------------------------
100 Mellon Bank Corp. 5,375
-------------------------------------------------------------------------------------
100 NationsBank Corp. 6,963
-------------------------------------------------------------------------------------
100 Schwab (Charles) Corp. 2,013
-------------------------------------------------------------------------------------
100 Sunamerica, Inc. 4,750
-------------------------------------------------------------------------------------
100 TCF Financial Corp. 3,313
-------------------------------------------------------------------------------------
100 Travelers Group, Inc. 6,288
------------------------------------------------------------------------------------- -------------
Total 56,426
------------------------------------------------------------------------------------- -------------
HEALTH SERVICES--1.8%
-------------------------------------------------------------------------------------
100 Foundation Health Corp 4,300
-------------------------------------------------------------------------------------
100 Ornda Healthcorp 2,325
------------------------------------------------------------------------------------- -------------
Total 6,625
------------------------------------------------------------------------------------- -------------
</TABLE>

GROWTH STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<S> <S> <C>
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------------------------
HEALTH TECHNOLOGY--15.6%
-------------------------------------------------------------------------------------
100 Amgen, Inc. $ 5,937
-------------------------------------------------------------------------------------
100 Genzyme Corp. 6,237
-------------------------------------------------------------------------------------
100 Johnson & Johnson 8,562
-------------------------------------------------------------------------------------
200 Lilly (Eli) & Co. 11,250
-------------------------------------------------------------------------------------
100 Medtronic, Inc. 5,587
-------------------------------------------------------------------------------------
100 Merck & Co., Inc. 6,575
-------------------------------------------------------------------------------------
100 Mylan Laboratories, Inc. 2,350
-------------------------------------------------------------------------------------
100 Pfizer, Inc. 6,300
-------------------------------------------------------------------------------------
100 Teva Pharmaceutical Industries, Ltd., ADR 4,638
------------------------------------------------------------------------------------- -------------
Total 57,436
------------------------------------------------------------------------------------- -------------
INDUSTRIAL SERVICES--2.6%
-------------------------------------------------------------------------------------
100 Coflexip, ADR 1,887
-------------------------------------------------------------------------------------
100 Global Marine, Inc. 875
-------------------------------------------------------------------------------------
100 USA Waste Services, Inc. 1,888
-------------------------------------------------------------------------------------
100 Western Atlas, Inc. 5,050
------------------------------------------------------------------------------------- -------------
Total 9,700
------------------------------------------------------------------------------------- -------------
NON-ENERGY MINERALS--2.8%
-------------------------------------------------------------------------------------
100 Potash Corporation of Saskatchewan, Inc. 7,088
-------------------------------------------------------------------------------------
100 UCAR Global Enterprises, Inc. 3,375
------------------------------------------------------------------------------------- -------------
Total 10,463
------------------------------------------------------------------------------------- -------------
PROCESS INDUSTRIES--0.9%
-------------------------------------------------------------------------------------
100 Praxair, Inc. 3,363
------------------------------------------------------------------------------------- -------------
PRODUCER MANUFACTURING--4.5%
-------------------------------------------------------------------------------------
100 American Standard Cos. 2,800
-------------------------------------------------------------------------------------
100 Greenfield Industries, Inc. 3,125
-------------------------------------------------------------------------------------
100 Magna International, Inc., Class A 4,325
-------------------------------------------------------------------------------------
100 Thermo Electron Corp. 5,200
-------------------------------------------------------------------------------------
</TABLE>

GROWTH STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<S> <S> <C>
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------------------------
PRODUCER MANUFACTURING--CONTINUED
-------------------------------------------------------------------------------------
100 Westinghouse Air Brake Co. $ 1,063
------------------------------------------------------------------------------------- -------------
Total 16,513
------------------------------------------------------------------------------------- -------------
RETAIL TRADE--2.8%
-------------------------------------------------------------------------------------
100 Premark International, Inc. 5,063
-------------------------------------------------------------------------------------
100 Safeway, Inc. 5,150
------------------------------------------------------------------------------------- -------------
Total 10,213
------------------------------------------------------------------------------------- -------------
TECHNOLOGY SERVICES--2.7%
-------------------------------------------------------------------------------------
100 (a)DST Systems, Inc. 2,850
-------------------------------------------------------------------------------------
100 FTP Software, Inc. 2,900
-------------------------------------------------------------------------------------
100 Oracle Corp. 4,238
------------------------------------------------------------------------------------- -------------
Total 9,988
------------------------------------------------------------------------------------- -------------
TRANSPORTATION--2.0%
-------------------------------------------------------------------------------------
100 Delta Air Lines, Inc. 7,387
------------------------------------------------------------------------------------- -------------
UNASSIGNED--0.7%
-------------------------------------------------------------------------------------
100 MSC Industrial Direct Co. 2,750
------------------------------------------------------------------------------------- -------------
UTILITIES--7.8%
-------------------------------------------------------------------------------------
100 AT&T Corp. 6,475
-------------------------------------------------------------------------------------
100 CMS Energy Corp. 2,987
-------------------------------------------------------------------------------------
100 FPL Group, Inc. 4,637
-------------------------------------------------------------------------------------
200 MCI Communications Corp. 5,225
-------------------------------------------------------------------------------------
100 PanAmSat Corp. 2,206
-------------------------------------------------------------------------------------
100 Sonat, Inc. 3,563
-------------------------------------------------------------------------------------
100 Vodafone Group PLC, ADR 3,526
------------------------------------------------------------------------------------- -------------
Total 28,619
------------------------------------------------------------------------------------- -------------
TOTAL COMMON STOCKS (IDENTIFIED COST $325,141) 332,757
------------------------------------------------------------------------------------- -------------
</TABLE>

GROWTH STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<S> <S> <C>
PREFERRED STOCK--1.1%
- ---------------------------------------------------------------------------------------------------
FINANCE--1.1%
-------------------------------------------------------------------------------------
100 First USA, Inc., Cumulative PRIDES, $1.99 (identified cost $3,994) $ 3,950
------------------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST $329,135)(B) $ 336,707
------------------------------------------------------------------------------------- -------------
</TABLE>

(a) Non-income producing.

(b) The cost of investments for federal tax purposes amounts to $329,135. The
net unrealized appreciation on a federal tax cost basis amounts to $7,572,
and is comprised of $13,451 appreciation and $5,879 depreciation at December
31, 1995.

Note: The categories of investments are shown as a percentage of net assets
($367,532) at
December 31, 1995.

The following acronyms are used throughout this portfolio:

ADR--American Depositary Receipt
PLC--Public Limited Company
PRIDES--Preferred Redeemable Increased Dividend Equity Securities

(See Notes which are an integral part of the Financial Statements)

GROWTH STOCK FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $329,135) $ 336,707
- ------------------------------------------------------------------------------------------------------
Cash 56,898
- ------------------------------------------------------------------------------------------------------
Income receivable 283
- ------------------------------------------------------------------------------------------------------
Receivable for investments sold 5,767
- ------------------------------------------------------------------------------------------------------
Receivable for shares sold 12,480
- ------------------------------------------------------------------------------------------------------ ----------
Total assets 412,135
- ------------------------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------------------------------
Payable for investments purchased $ 39,343
- -------------------------------------------------------------------------------------------
Accrued expenses 5,260
- ------------------------------------------------------------------------------------------- ---------
Total liabilities 44,603
- ------------------------------------------------------------------------------------------------------ ----------
NET ASSETS for 35,686 shares outstanding $ 367,532
- ------------------------------------------------------------------------------------------------------ ----------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------------------------------------------
Paid in capital $ 359,233
- ------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 7,572
- ------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (368)
- ------------------------------------------------------------------------------------------------------
Undistributed net investment income 1,095
- ------------------------------------------------------------------------------------------------------ ----------
Total Net Assets $ 367,532
- ------------------------------------------------------------------------------------------------------ ----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ------------------------------------------------------------------------------------------------------
$367,532 / 35,686 shares outstanding $10.30
- ------------------------------------------------------------------------------------------------------ ----------
</TABLE>

(See Notes which are an integral part of the Financial Statements)

GROWTH STOCK FUND
STATEMENT OF OPERATIONS
PERIOD ENDED DECEMBER 31, 1995*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $9) $ 382
- -------------------------------------------------------------------------------------------------------
Interest 470
- ------------------------------------------------------------------------------------------------------- ---------
Total income 852
- -------------------------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------------------------------
Investment advisory fee $ 231
- --------------------------------------------------------------------------------------------
Administrative personnel and services fee 17,808
- --------------------------------------------------------------------------------------------
Custodian fees 2,821
- --------------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 114
- --------------------------------------------------------------------------------------------
Portfolio accounting fees 2,000
- --------------------------------------------------------------------------------------------
Share registration costs 480
- --------------------------------------------------------------------------------------------
Printing and postage 521
- -------------------------------------------------------------------------------------------- ---------
Total expenses 23,975
- --------------------------------------------------------------------------------------------
Waivers and reimbursements--
- --------------------------------------------------------------------------------------------
Waiver of investment advisory fee ($231)
- ---------------------------------------------------------------------------------
Reimbursement of other operating expenses (23,481)
- --------------------------------------------------------------------------------- ---------
Total waivers and reimbursements (23,712)
- -------------------------------------------------------------------------------------------- ---------
Net expenses 263
- ------------------------------------------------------------------------------------------------------- ---------
Net investment income 589
- ------------------------------------------------------------------------------------------------------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -------------------------------------------------------------------------------------------------------
Net realized loss on investments (368)
- -------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 7,572
- ------------------------------------------------------------------------------------------------------- ---------
Net realized and unrealized gain on investments 7,204
- ------------------------------------------------------------------------------------------------------- ---------
Change in net assets resulting from operations $ 7,793
- ------------------------------------------------------------------------------------------------------- ---------
</TABLE>

* For the period from November 9, 1995 (date of initial public investment) to
December 31, 1995.

(See Notes which are an integral part of the Financial Statements)

GROWTH STOCK FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1995(A)
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------------------------
Net investment income $ 589
- ---------------------------------------------------------------------------------------
Net realized gain (loss) on investments ($368 net loss as computed for federal tax
purposes) (368)
- ---------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 7,572
- --------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations 7,793
- --------------------------------------------------------------------------------------- -----------
NET EQUALIZATION CREDITS (DEBITS) -- 506
- --------------------------------------------------------------------------------------- -----------
SHARE TRANSACTIONS (EXCLUSIVE OF AMOUNTS ALLOCATED TO NET INVESTMENT INCOME) --
- ---------------------------------------------------------------------------------------
Proceeds from sale of shares 365,048
- ---------------------------------------------------------------------------------------
Cost of shares redeemed (5,815)
- --------------------------------------------------------------------------------------- -----------
Change in net assets resulting from share transactions 359,233
- --------------------------------------------------------------------------------------- -----------
Change in net assets 367,532
- ---------------------------------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------------------------------
Beginning of period 0
- --------------------------------------------------------------------------------------- -----------
End of period (including undistributed net investment income of $1,095) $ 367,532
- --------------------------------------------------------------------------------------- -----------
</TABLE>

(a) For the period from November 9, 1995 (date of initial public investment) to
December 31, 1995.

(See Notes which are an integral part of the Financial Statements)

GROWTH STOCK FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1995(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ---------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------
Net investment income 0.03
- ---------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.27
- --------------------------------------------------------------------------------------- -------
Total from investment operations 0.30
- ---------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.30
- --------------------------------------------------------------------------------------- -------
TOTAL RETURN (B) 3.00%
- ---------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------
Expenses 0.85%*
- ---------------------------------------------------------------------------------------
Net investment income 1.91%*
- ---------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 76.95%*
- ---------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------
Net assets, end of period
(000 omitted) $368
- ---------------------------------------------------------------------------------------
Portfolio turnover 4%
- ---------------------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from November 9, 1995 (date of initial
public investment) to December 31, 1995.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(See Notes which are an integral part of the Financial Statements)

GROWTH STOCK FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------

(1) ORGANIZATION

Insurance Management Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end, management
investment company. The Trust consists of seven portfolios. The financial
statements included herein are only those of Growth Stock Fund (the "Fund"), a
diversified portfolio. The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT VALUATIONS--Short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized cost,
which approximates fair market value. Listed equity securities are valued
at the last sale price reported on national security exchanges. All other
securities are valued at prices provided by an independent pricing service.

At December 31, 1995, the Fund, for federal tax purposes, had a capital
loss carryforward of $368, which will reduce the Fund's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Fund of
any liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire as follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<S> <C>
2003 $368
</TABLE>

Withholding taxes on foreign interest and dividends have been provided for
in accordance with the Fund's understanding of the applicable country's tax
rules and rates.

GROWTH STOCK FUND
- --------------------------------------------------------------------------------

EQUALIZATION--The Fund follows the accounting practice known as
equalization. With equalization, a portion of the proceeds from sales and
costs of redemptions of fund shares (equivalent, on a per share basis, to
the amount of undistributed net investment income on the date of the
transaction) is credited or charged to undistributed net investment income.
As a result, undistributed net investment income per share is unaffected by
sales or redemptions of fund shares.

CONCENTRATION OF CREDIT RISK--The Fund invests in securities of non-U.S.
issuers. Although the Fund maintains a diversified investment portfolio,
the political or economic developments within a particular country or
region may have an adverse effect on the ability of domiciled issuers to
meet their obligatioins. Additionally, political or economic developments
may have an effect on the liquidity and volatility of portfolio securities
and currency holdings.

At December 31, 1995, the portfolio was diversified with the following
countries:
<TABLE>
<CAPTION>
COUNTRY % OF NET ASSETS
<S> <C>
Argentina 1.3
Canada 1.9
Finland 1.1
France 0.5
Great Britain 3.7
Israel 1.3
Sweden 0.5
</TABLE>

Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales
of FCs, currency gains or losses realized

GROWTH STOCK FUND
- --------------------------------------------------------------------------------
between the trade and settlement dates on securities transactions, the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end,
resulting from changes in the exchange rate.

OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST

The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).

Transactions in shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1995 (A)
<S> <C>
Shares sold 36,267
- --------------------------------------------------------------------------------------
Shares redeemed (581)
- -------------------------------------------------------------------------------------- -------
Net change resulting from share transactions 35,686
- -------------------------------------------------------------------------------------- -------
</TABLE>

(a) For the period from November 9, 1995 (date of initial public investment) to
December 31, 1995.

(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

GROWTH STOCK FUND
- --------------------------------------------------------------------------------
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.

GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.

(5) INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended December 31, 1995, were as follows:
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------
PURCHASES $ 338,891
- ------------------------------------------------------------------------------------------------------ ----------
SALES $ 9,389
- ------------------------------------------------------------------------------------------------------ ----------
</TABLE>

INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------

To the Board of Trustees of the Insurance Management Series
and the Shareholders of GROWTH STOCK FUND:

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Growth Stock Fund (a portfolio of the Insurance
Management Series) as of December 31, 1995, the related statement of operations,
the statement of changes in net assets and financial highlights for the period
ended December 31, 1995. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned as of December 31, 1995
by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Growth Stock Fund as
of December 31, 1995, the results of its operations, the changes in its net
assets and its financial highlights for the period ended Decem-
ber 31, 1995 in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
February 7, 1996

Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal. This report is authorized for
distribution to prospective investors only when preceded or accompanied by the
fund's prospectus which contains facts concerning its objective and policies,
management fees, expenses and other information.

APPENDIX

A1. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Equity
Growth and Income Fund ( the "Fund") is represented by a solid line. The
Standard & Poor's 500 Index (the "S&P 500") is represented by a broken solid
line and the Lipper Growth and Income Funds Average ("LGIFA") is represented by
a dotted line. The line graph is a visual representation of a comparison of
change in value of a $10,000 hypothetical investment in the Fund and the S&P
500 and the LGIFA. The "x" axis reflects computation periods from 2/10/94 to
12/31/95. The "y" axis reflects the cost of the investment. The right margin
reflects the ending value of the hypothetical investment in the Fund as
compared to the S&P 500 and the LGIFA; the ending values were $13,227, $13,824,
and $12,778, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the Fund's Average Annual Total Returns for the period
ended 12/31/95; beginning with the start of performance date of the Fund
(2/10/94), and the one-year period thereafter; the Average Annual Total Returns
were 16.19% and 33.71%, respectively.
A2. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Utility
Fund ( the "Fund") is represented by a solid line. The Standard & Poor's 500
Index (the "S&P 500") is represented by a broken solid line and the Standard &
Poor's Utility Index ("SPUX") is represented by a dotted line. The line graph
is a visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Fund and the S&P 500 and the SPUX. The "x" axis
reflects computation periods from 2/10/94 to 12/31/95. The "y" axis reflects
the cost of the investment. The right margin reflects the ending value of the
hypothetical investment in the Fund as compared to the S&P 500 and the SPUX;
the ending values were $12,002, $13,824, and $13,053, respectively. The legend
in the bottom quadrant of the graphic presentation indicates the Fund's Average
Annual Total Returns for the period ended 12/31/95; beginning with the start of
performance date of the Fund (2/10/94), and the one-year period thereafter; the
Average Annual Total Returns were 10.14% and 24.18%, respectively.

A3. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The U.S.
Goverment Bond Fund ( the "Fund") is represented by a solid line. The Lipper
U.S. Mortgage Funds Average (the "LUSMFA") is represented by a broken solid
line and Lehman Brothers 5 Year Treasury Bellwether Index (the "LB5TB") is
represented by a dotted line. The line graph is a visual representation of a
comparison of change in value of a $10,000 hypothetical investment in the Fund
and the LUSMFA and the LB5TB. The "x" axis reflects computation periods from
3/28/94 to 12/31/95. The "y" axis reflects the cost of the investment. The
right margin reflects the ending value of the hypothetical investment in the
Fund as compared to the LUSMFA and the LB5TB; the ending values were $11,162,
$11,458, and $11,561, respectively. The legend in the bottom quadrant of the
graphic presentation indicates the Fund's Average Annual Total Returns for the
period ended 12/31/95; beginning with the start of performance date of the Fund
(3/28/94), and the one-year period thereafter; the Average Annual Total Returns
were 6.44% and 8.77%, respectively.

A4. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Corporate
Bond Fund ( the "Fund") is represented by a solid line. The Lehman Brothers
Single B Rated Index (the "LBSBRI") is represented by a broken solid line and
the Lipper High Yields Fund Average (the "LHCYFA") is represented by a dotted
line. The line graph is a visual representation of a comparison of change in
value of a $10,000 hypothetical investment in the Fund and the LBSBRI and the
LHCYFA. The "x" axis reflects computation periods from 3/1/94 to 12/31/95. The
"y" axis reflects the cost of the investment. The right margin reflects the
ending value of the hypothetical investment in the Fund as compared to the
LBSBRI and the LHCYFA; the ending values were $11,603, $11,442, and $10,954,
respectively. The legend in the bottom quadrant of the graphic presentation
indicates the Fund's Average Annual Total Returns for the period ended
12/31/95; beginning with the start of performance date of the Fund (3/1/94),
and the one-year period thereafter; the Average Annual Total Returns were 8.45%
and 20.38%, respectively.

A5. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
International Stock Fund ( the "Fund") is represented by a solid line. The
Morgan Stanley Capital International Europe Austrailia Far East Index (the
"EAFE") is represented by a broken solid line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the Fund and the EAFE. The "x" axis reflects computation periods
from 5/8/95 to 12/31/95. The "y" axis reflects the cost of the investment. The
right margin reflects the ending value of the hypothetical investment in the
Fund as compared to the EAFE; the ending values were $10,350 and $10,522,
respectively. The legend in the bottom quadrant of the graphic presentation
indicates the Fund's Average Annual Total Return (cumulative) for the period
from 5/8/95 (start of performance) to 12/31/95; the Average Annual Total Return
was 3.50%.

A6. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Growth
Stock Fund ( the "Fund") is represented by a solid line. The Lipper Growth Fund
Index (the "LGFI") is represented by a broken solid line and the The Standard &
Poor's 500 Index (the "S&P 500") is represented by a dotted line. The line
graph is a visual representation of a comparison of change in value of a
$10,000 hypothetical investment in the Fund and the LGFI and the S&P 500. The
"x" axis reflects computation periods from 11/9/95 to 12/31/95. The "y" axis
reflects the cost of the investment. The right margin reflects the ending value
of the hypothetical investment in the Fund as compared to the LGFI and the S&P
500; the ending values were $10,300, $10,291, and $10,640, respectively. The
legend in the bottom quadrant of the graphic presentation indicates the Fund's
Average Annual Total Return (cumulative) for the period from 11/9/95 (start of
performance) to 12/31/95; the Average Annual Total Return was 3.50%.
<PAGE>
- --------------------------------------------------------------------------------

[LOGO]
Wanger U.S. Small Cap Advisor

Annual Report
December 31, 1995

<PAGE>

- -------------------------------------------------------------------------------
Wanger U.S. Small Cap Advisor Annual Report 1995

In a Nutshell
- --------------------------------------------------------------------------------

Wanger U.S. Small Cap Advisor returned 16% to investors during the eight months
the Fund was in operation during 1995. Through September, our performance was
boosted by a number of winners in our information and finance groups. Our best
stocks were Silver King (TV stations), Sierra On-line (computer games) and Aames
(home equity lending). We more than doubled our money in each stock.

The fourth quarter of 1995 was more of a struggle. Rising U.S. consumer debt
delinquencies and bankruptcies spooked our credit card stocks (First USA,
Peoples Bank). A few weak energy stocks also hurt performance. Our disappointing
fourth quarter results pushed us slightly below the market averages shown in the
table for the period from the commencement of the Fund's operations (May 3,
1995) through the end of the year.

Our approach to investing is to buy the stocks of small- and medium-size
companies that we believe will benefit from favorable long-term social,
economic, or political trends. We have packed our portfolio with these companies
and are ready for the new year. Bring on 1996!

Results to December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

Since
4th quarter May 3, 1995
------------------------
<S> <C> <C>
Wanger U.S. Small Cap Advisor -- 3.8% 16.0%
Dow-Jones 7.5% 20.4%
Standard & Poor's 500 6.0% 21.8%
Standard & Poor's MidCap 1.4% 18.7%
Russell 2000 2.2% 20.1%

</TABLE>

The Dow Jones Industrial Average includes 30 big companies. The S&P 500 is a
broad market-weighted average, still blue chip dominated. The S&P MidCap 400 is
a market value weighted index of 400 stocks that are in the next tier down from
the S&P 500. The Russell 2000 is formed by taking 3,000 companies and then
eliminating the largest 1,000 leaving a good small company index. All indices
are unmanaged and returns include reinvested dividends.

Net Asset Value Per Share as of 12/31/95: $11.60

- --------------------------------------------------------------------------------
The Value of a $10,000 Investment in Wanger U.S. Small Cap Advisor
May 3, 1995 through December 31, 1995

[GRAPH APPEARS HERE]

Wanger US Small Cap Russell 2000
------------------- ------------

5/3/95 $10,000 $10,000
5/31/95 $ 9,870 $10,172
6/30/95 $10,770 $10,700
7/31/95 $11,560 $11,316
8/31/95 $11,940 $11,550
9/30/95 $12,060 $11,757
10/31/95 $11,380 $11,231
11/30/95 $11,640 $11,703
12/31/95 $11,600 $12,012

This graph compares the results of $10,000 invested in Wanger U.S. Small Cap
Advisor on May 3, 1995 (the date the Fund began operations) with the Russell
2000 with dividends reinvested. Past performance does not guarantee future
results. The investment return and principal value of an investment in the Fund
will fluctuate so that Fund shares, when redeemed, may be worth more or less
than their original cost.

2
<PAGE>
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap Advisor Statement of Investments December 31, 1995

<TABLE>
<CAPTION>
Number of Shares Value
- --------------------------------------------------------------------------------
Common Stocks and Other Equity-Like
Securities--94.9%
Information Group--24.5%
- --------------------------------------------------------------------------------
Broadcasting and CATV--4.6%
<S> <C> <C>
20,000 Tele-Communications, Liberty $ 537,500
Media Group (b)
19,000 International Family Entertainment (b) 311,125
12,000 Jones Intercable, Cl. A (b) 148,500
- --------------------------------------------------------------------------------
997,125
Mobile Communications--4.6%
15,000 Cellular Communications of 416,250
Puerto Rico (b)
18,000 Vanguard Cellular Systems (b) 364,500
10,600 Mobile Telecommunication 226,575
Technologies (b)
- --------------------------------------------------------------------------------
1,007,325
Software--2.2%
25,500 CACI International (b) 302,813
4,300 Business Records Corporation (b) 169,850
- --------------------------------------------------------------------------------
472,663
Instrumentation--2.7%
30,000 COMARCO (b) 435,000
10,000 Thermo Spectra (b) 156,250
- --------------------------------------------------------------------------------
591,250
Computer Systems--2.5%
12,500 Solectron (b) 551,563

Distribution--2.1%
22,200 Richey Electronics (b) 288,600
23,000 Bell Microproducts (b) 166,750
- --------------------------------------------------------------------------------
455,350
Components and Peripherals--5.8%
15,000 In Focus Systems (b) 541,875
25,000 Oak Industries (b) 468,750
14,000 Planar Systems (b) 267,750
- --------------------------------------------------------------------------------
1,278,375
- --------------------------------------------------------------------------------
Information Group--Total 5,353,651

Health Care Group--8.9%
- --------------------------------------------------------------------------------
Medical Equipment--7.2%
42,000 Kinetic Concepts $ 504,000
30,000 AMSCO International (b) 446,250
14,000 Thermedics (b) 388,500
9,000 Invacare 227,250
- --------------------------------------------------------------------------------
1,566,000
Services--1.7%
15,000 Lincare Holding (b) 375,000
- --------------------------------------------------------------------------------
Health Care Group--Total 1,941,000

Consumer Goods and Services Group--14.0%
- --------------------------------------------------------------------------------
Retail--4.0%
30,000 Borders (b) 555,000
18,500 Dave & Buster's 224,312
10,000 Duckwall Alco Stores (b) 102,500
- --------------------------------------------------------------------------------
881,812
Entertainment and Leisure--3.3%
20,000 Rio Hotel & Casino (b) 237,500
13,000 Station Casinos (b) 190,125
5,000 GC Companies (b) 167,500
35,000 Monarch Casino & Resort (b) 122,500
- --------------------------------------------------------------------------------
717,625
Restaurants--1.8%
35,000 Quantum Restaurant Group (b) 393,750

Manufacturers--4.9%
21,000 Newell Companies 543,375
15,000 Liz Claiborne 416,250
10,000 Hampshire Group (b) 120,000
- --------------------------------------------------------------------------------
1,079,625
- --------------------------------------------------------------------------------
Consumer Group--Total 3,072,812
</TABLE>

3
<PAGE>

================================================================================
Wanger U.S. Small Cap Advisor Statement of Investments December 31, 1995

Number of Shares Value
- --------------------------------------------------------------------------------
<S> <C>
Finance Group-22.7%
- --------------------------------------------------------------------------------
Savings & Loans-5.7%
18,000 Washington Federal $ 461,250
22,000 Peoples Bank Bridgeport 418,000
10,000 Bell Bancorp 357,500
- --------------------------------------------------------------------------------
1,236,750
Insurance-3.9%
18,000 Transnational Re 441,000
17,000 Leucadia National 425,000
- --------------------------------------------------------------------------------
866,000
Money Management-1.7%
17,000 SEI Corporation 369,750

Credit Cards-4.3%
20,000 National Data 495,000
10,000 First USA 443,750
- --------------------------------------------------------------------------------
938,750
Other-7.1%
35,000 Baker Fentress 586,250
30,000 DVI Health Services (b) 420,000
28,000 Americredit (b) 381,500
30,000 Cash America International 165,000
- --------------------------------------------------------------------------------
1,552,750
- --------------------------------------------------------------------------------
Finance Group-Total 4,964,000

Industrial Goods and Services-14.1%
- --------------------------------------------------------------------------------
Machinery-2.8%
25,000 Zoltek Companies (b) $ 418,750
10,600 Atchison Casting (b) 127,200
3,750 Baldor Electric 75,468
- --------------------------------------------------------------------------------
621,418
Steel-1.2%
8,000 UCAR International (b) 270,000

Furniture and Textiles-3.9%
33,000 Lilly Industries, Cl. A 420,750
19,000 Unifi 420,375
- --------------------------------------------------------------------------------
841,125
Services-6.2%
29,000 Wackenhut, Cl. B 449,500
35,000 AG Services of America (b) 332,500
25,000 NuCo2 (b) 325,000
19,000 Thomas Group (b) 256,500
- --------------------------------------------------------------------------------
1,363,500
- --------------------------------------------------------------------------------
Industrial Group-Total 3,096,043
</TABLE>

4
<PAGE>

================================================================================
Wanger U.S. Small Cap Advisor Statement of Investments December 31, 1995

Number of Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Energy and Minerals Group--10.7%
- --------------------------------------------------------------------------------
Cogeneration--4.8%
24,000 The AES Corporation (b) $ 573,000
29,000 Thermo Ecotek (b) 485,750
- --------------------------------------------------------------------------------
1,058,750
Oil & Gas Producer--3.5%
36,000 Abraxas Petroleum (b) 225,000
25,000 Tesoro Petroleum (b) 215,625
10,000 United Meridian (b) 173,750
14,700 Global Natural Resources (b) 154,350
- --------------------------------------------------------------------------------
768,725
Refining/Marketing--1.0%
24,000 NGC Corporation 213,000

Oil Services--1.4%
7,000 Atwood Oceanics (b) 176,750
5,000 Seacor Holdings (b) 135,000
- --------------------------------------------------------------------------------
311,750
- --------------------------------------------------------------------------------
Energy Group--Total 2,352,225
- --------------------------------------------------------------------------------
Total Common Stocks and Other
Equity-Like Securities--94.9% $20,779,731
- --------------------------------------------------------------------------------
(Cost: $20,340,288)
Cash and Other Assets
Less Liabilities--5.1% 1,123,805
- --------------------------------------------------------------------------------
Total Net Assets--100% $21,903,536
- --------------------------------------------------------------------------------

</TABLE>
Notes To Statement of Investments:

a) At December 31, 1995, for federal income tax purposes cost of investments
was $20,340,288 and net unrealized appreciation was $439,443 consisting of
gross unrealized appreciation of $1,596,638 and gross unrealized
depreciation of $1,157,195.

b) Non-income producing security.

See accompanying notes to financial statements.

5
<PAGE>

================================================================================
Report of Independent Auditors

To the Shareholders of Wanger U.S. Small
Cap Advisor and the Trustees of
Wanger Advisors Trust

We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Wanger U.S. Small Cap Advisor as of December
31, 1995, the related statements of operations and changes in net assets and the
financial highlights for the period from May 3, 1995 (commencement of
operations) through December 31, 1995. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Wanger
U.S. Small Cap Advisor at December 31, 1995, the results of its operations and
changes in its net assets and the financial highlights for the period from May
3, 1995 through December 31, 1995 in conformity with generally accepted
accounting principles.

ERNST & YOUNG LLP
Chicago, Illinois
January 31, 1996

6
<PAGE>

================================================================================
Wanger U.S. Small Cap Advisor Statement of Assets December 31, 1995
and Liabilities

<S> <C> <C>
Assets
Investments, at value (cost: $20,340,288) $20,779,731
Cash 1,045,491
Organization costs 86,672
Receivable for:
Fund shares sold $305,337
Dividends 13,525 318,862
- -------------------------------------------------------------------------------
Total assets 22,230,756

Liabilities and Net Assets
Payable for:
Securities purchased 225,000
Amount owed to advisor 86,780
Other 15,440
- -------------------------------------------------------------------------------
Total liabilities 327,220
- -------------------------------------------------------------------------------

Net assets applicable to Fund shares outstanding $21,903,536
- -------------------------------------------------------------------------------
Fund shares outstanding 1,888,396
- -------------------------------------------------------------------------------

Pricing of Shares
Net asset value, offering price and redemption price per share $ 11.60
- -------------------------------------------------------------------------------

Analysis of Net Assets
Paid-in capital $21,506,936
Undistributed net realized gain on sales of investments 59,816
Unrealized appreciation of investments 439,443
Net investment loss (102,659)
- -------------------------------------------------------------------------------
Net assets applicable to Fund shares outstanding $21,903,536
- -------------------------------------------------------------------------------
</TABLE>

See accompanying notes to financial statements.

7
<PAGE>

<TABLE>
<CAPTION>
================================================================================
U.S. Small Cap Advisor Statement of Operations December 31, 1995

May 3, 1995 through December 31, 1995

<S> <C>
Investment Income:
Dividends $ 40,287
Interest 46
- -------------------------------------------------------------------------------
Total investment income 40,333

Expenses:
Investment advisory fee 71,496
Custodian fees and expenses 5,384
Legal and audit fees and expenses 52,389
Reports to shareholders 4,437
Transfer agent fees and expenses 2,172
Amortization of organization costs 13,328
Trustees' fees and other expenses 13,000
Insurance 4,941
Other expenses 1,025
- -------------------------------------------------------------------------------
Total Expenses 168,172
Less custodian fees paid indirectly (5,384)
Less reimbursement of expenses by advisor (19,796)
- -------------------------------------------------------------------------------
Net expenses 142,992
- -------------------------------------------------------------------------------
Net investment loss (102,659)
Net realized and unrealized gain on investments:
Net realized gain on sales of investments 59,816
Net change in unrealized appreciation 439,443
- -------------------------------------------------------------------------------
Net realized and unrealized gain on investments 499,259
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 396,600

================================================================================
Wanger U.S. Small Cap Advisor Statement May 3, 1995 through December 31, 1995
of Changes in Net Assets
- -------------------------------------------------------------------------------
From operations:
- -------------------------------------------------------------------------------
Net investment loss $ (102,659)
Net realized gain on sales of investments 59,816
Net change in unrealized appreciation 439,443
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations 396,600
From Fund share transactions:
Proceeds from shares sold 24,819,962
Payments for shares redeemed (3,438,708)
- -------------------------------------------------------------------------------
Net increase in net assets from Fund share transactions 21,381,254
- -------------------------------------------------------------------------------
Total increase in net assets 21,777,854

Net assets:
Beginning of period (May 3, 1995) 125,682
- -------------------------------------------------------------------------------
End of period (including net investment loss of $102,659) $21,903,536
- -------------------------------------------------------------------------------
</TABLE>

See accompanying notes to financial statements.

8
<PAGE>

<TABLE>
<CAPTION>
================================================================================================
Wanger U.S. Small Cap Advisor Financial Highlights December 31, 1995

May 3, 1995 through December 31, 1995
- ------------------------------------------------------------------------------------------------
<S> <C>
Net Asset Value, beginning of period $ 10.00
Income From Investment Operations
Net investment loss (.05)
Net realized and unrealized gain on investments 1.65
- ------------------------------------------------------------------------------------------------
Total from investment operations 1.60
Net Asset Value, end of period $ 11.60
================================================================================================
Total Return 16.00%
Ratios / Supplemental Data:
Ratio of expenses to average net assets (a) (b) 2.08%*
Ratio of net investment loss to average net assets (b) (1.44)%*
Portfolio turnover rate 59%*
Net assets at end of period $21,903,536
================================================================================================
</TABLE>

* Annualized

a) In accordance with a requirement by the Securities and Exchange Commission,
this ratio reflects gross custodian fees. This ratio net of custodian fees
paid indirectly would have been 2.00%.

b) The Fund was reimbursed by the Advisor for certain net expenses from May 3,
1995 through December 31, 1995. Without the reimbursement, the ratio of
expenses to average net assets and the ratio of net investment loss to
average net assets would have been 2.35% and (1.71%), respectively.

See accompanying notes to financial statements.

9
<PAGE>

===============================================================================
Wanger U.S. Small Cap Advisor Notes to Financial Statements December 31, 1995

1. Nature of operations

Wanger U.S. Small Cap Advisor (the "Fund") is a series of Wanger Advisors Trust
(the "Trust"), an open-end management investment company organized as a
Massachusetts business trust. The investment objective of the Fund is to seek
long-term growth of capital. The Fund is available only for allocation to
certain life insurance company separate accounts established for the purpose of
funding qualified and non-qualified variable annuity contracts, and may also be
offered directly to certain types of pension plans and retirement arrangements.
The Fund commenced operations on May 3, 1995.

2. Significant Accounting Policies

Security valuation

Investments are stated at current value. Securities traded on securities
exchanges or in over-the-counter markets in which transaction prices are
reported are valued at the last sales price at the time of valuation, or lacking
any reported sales on that day, at the midpoint of the most recent bid and
offer. Money market instruments having a maturity of 60 days or less from the
valuation date are valued on an amortized cost basis. Securities for which
quotations are not readily available and any other assets are valued at a fair
value as determined in good faith by the Board of Trustees.

Security transactions and investment income

Security transactions are accounted for on the trade date (date the order to buy
or sell is executed) and dividend income is recorded on the ex-dividend date.
Interest income is recorded on the accrual basis and includes amortization of
discounts on money market instruments and long-term debt instruments when
required for federal income tax purposes. Realized gains and losses from
security transactions are reported on an identified cost basis.

Fund share valuation

Fund shares are sold and redeemed on a continuing basis at net asset value. Net
asset value per share is determined daily as of the close of trading on the New
York Stock Exchange on each day the Exchange is open for trading by dividing the
total value of the Fund's investments and other assets, less liabilities, by the
number of Fund shares outstanding.

Custodian fees

Custodian fees are reduced based on the Fund's cash balances maintained with the
custodian. This presentation does not affect the determination of net investment
income.

10
<PAGE>

===============================================================================
Wanger U.S. Small Cap Advisor Notes to Financial Statements December 31, 1995

Federal income taxes, dividends and distributions to shareholders

It is the Fund's policy to comply with the special provisions of the Internal
Revenue Code available to regulated investment companies and, in the manner
provided therein, to distribute all of its taxable income, as well as any net
realized gain on sales of investments reportable for federal income tax
purposes.

Dividends and distributions payable to its shareholders are recorded by the
Fund on the ex-dividend date.

3. Transactions with Affiliates

The Fund's portfolio and business affairs are managed by its investment advisor,
Wanger Asset Management, L.P. ("WAM"). The Fund pays WAM a monthly advisory fee
based upon average daily net assets at the following annual rates: 1% up to $100
million, .95% in excess of $100 million and up to $250 million, and .90% in
excess of $250 million.

The investment advisory agreement also provides that WAM will reimburse the
Fund to the extent that ordinary operating expenses (computed based on net
custodian fees) exceed 2% of average net assets. For the period ended December
31, 1995, WAM reimbursed the Fund $19,796.

Certain officers and trustees of the Trust are also principals of WAM. The
Trust makes no direct payments to its officers and trustees who are affiliated
with WAM. The Fund incurred trustees' fees and expenses of $13,000 in 1995 to
trustees not affiliated with WAM.

WAM advanced $100,000 in connection with the organization and initial
registration of the Fund. These costs are being amortized and reimbursed to WAM
over the period May, 1995 through April, 2000.

4. Fund Share Transactions

Proceeds and payments on Fund shares as shown in the statement of changes in net
assets are in respect of the following numbers of shares:

<TABLE>
<CAPTION>
Period ended 12/31/95
- ---------------------------------------------------------------
<S> <C>
Shares sold 2,170,461
Less shares redeemed 294,633
- ---------------------------------------------------------------
Net increase in shares outstanding 1,875,828
===============================================================
</TABLE>

5. Investment transactions

<TABLE>
<CAPTION>
Period ended 12/31/95
- ---------------------------------------------------------------
<S> <C>
Investment securities
(excluding money market instruments):
Purchases $24,736,475
Proceeds from sales 4,456,003
===============================================================
</TABLE>

11
<PAGE>

<TABLE>
<CAPTION>
========================================================================================================================
Wanger U.S. Small Cap Advisor

- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Trustees Fred D. Hasselbring James A. Star
Terence M. Hogan Ralph Wanger
Charles P. McQuaid Leah J. Zell
P. Michael Phelps
- ------------------------------------------------------------------------------------------------------------------------
Officers Ralph Wanger, President Merrillyn J. Kosier,
Charles P. McQuaid, Senior Vice President Vice President and Secretary
Terence M. Hogan, Vice President Bruce H. Lauer, Vice President and Treasurer
Leah J. Zell, Vice President Kenneth A. Kalina, Assistant Treasurer
- ------------------------------------------------------------------------------------------------------------------------
Transfer Agent, Dividend State Street Bank and Trust Company
Disbursing Agent and Attention: Wanger Advisors Trust
Custodian P.O. Box 8502
Boston, Massachusetts 02266-8502
1-800-4-WANGER
(1-800-492-6437)
- ------------------------------------------------------------------------------------------------------------------------
Investment Advisor Wanger Asset Management, L.P.
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
(312) 634-9200
- ------------------------------------------------------------------------------------------------------------------------
Legal Counsel Bell, Boyd & Lloyd
Chicago, Illinois
- ------------------------------------------------------------------------------------------------------------------------
Auditors Ernst & Young LLP
Chicago, Illinois
</TABLE>

This report, including the audited financial statements contained herein, is
submitted for the general information of the shareholders of the Fund. This
report is not authorized for distribution unless preceded or accompanied by a
prospectus.
<PAGE>

=============================================================================
[LOGO] Wanger International Small Cap Advisor

Annual Report

December 31, 1995

<PAGE>

=============================================================================
Wanger International Small Cap Advisor Annual Report 1995

In a Nutshell
- -----------------------------------------------------------------------------
Wanger International Small Cap Advisor had an extraordinary 1995. We began
operations on May 3, 1995. For the period from May 3 to the end of the year,
the foreign markets were up about 2%. Your fund went up 34.5%.

For the fourth quarter of 1995, your fund was up 4.2%, ahead of the two
market averages shown in the table.

Many of the best stocks of 1995 were in Europe. Our fund is a small cap
fund, not an emerging markets fund, so we have the majority of our investments
in the developed markets of Europe, Japan, Canada, and Australia. We
participate in the high-risk, high-return emerging markets, but only with part
of our money.

Results to December 31, 1995
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Since
4th quarter May 3, 1995
-------------------------
<S> <C> <C>
Wanger Int'l Small Cap 4.2% 34.5%
EAFE 3.6% 4.1%
Lipper Int'l Small Co. -0.3% 7.5%
Funds Average
</TABLE>

EAFE is Morgan Stanley's Europe, Australia and Far East Index. EAFE is an
unmanaged index of companies throughout the world in proportion to world stock
market capitalization, excluding the U.S. and Canada. The Lipper International
Small Company Funds Average is a new group comprised of twelve small company
international funds.

Net Asset Value Per Share as of 12/31/95: $13.45

=============================================================================
The Value of a $10,000 Investment in
Wanger International Small Cap Advisor
May 3, 1995 through December 31, 1995

[GRAPH APPEARS HERE]

Total Return
Life of Fund 34.5%

<TABLE>
<CAPTION>
Wanger International
Measurement Period Small Cap Advisor EAFE
- ------------------ -------------------- ----------
<S> <C> <C>
5/3/95 $10,000 $10,000
5/31/95 $10,790 $ 9,867
6/30/95 $10,970 $ 9,681
7/31/95 $11,910 $10,270
8/31/95 $12,290 $ 9,864
9/30/95 $12,910 $10,044
10/31/95 $12,700 $ 9,760
11/30/95 $12,660 $10,019
12/31/95 $13,450 $10,409
</TABLE>

This graph compares the results of $10,000 invested in Wanger International
Small Cap Advisor on May 3, 1995 (the date the Fund began operations) with
Morgan Stanley's Europe, Australia and Far East Index (EAFE). Past performance
does not guarantee future results. The investment return and principal value of
an investment in the Fund will fluctuate so that Fund shares, when redeemed, may
be worth more or less than their original cost.

===================================================================
5/95 6/95 9/95 12/31/95

+9.7% +17.7% +4.2%
-------------------------------------------------------------------
Wanger International Small Cap Advisor Total Return for Each Period

2
<PAGE>

==================================================================================================
Wanger International Small Cap Advisor Statement of Investments December 31, 1995

Number of Shares Value
- --------------------------------------------------------------------------------
<S> <C>
Common Stocks and Other Equity-Like

Securities--95.3%
Europe--45.8%
- --------------------------------------------------------------------------------
Germany/Austria--4.6%
- --------------------------------------------------------------------------------
3,120 Rhoen Klinikum Ord. $ 309,537
Hospital Management
1,200 BWT 123,324
Water Filtration Systems (Austria)
1,000 Fresenius Pfd. 95,019
Dialysis Equipment and Solutions
- --------------------------------------------------------------------------------
527,880
Denmark--2.7%
- --------------------------------------------------------------------------------
6,000 Martin Group (b) 313,966
Computer Controlled Lights

Netherlands--3.4%
- --------------------------------------------------------------------------------
20,000 Axxicon Group (b) 368,037
Plastic Injection Moulds for Compact Discs

Finland--2.9%
- --------------------------------------------------------------------------------
10,000 Tietotehdas, Cl. B 324,720
Computer Services/Consulting

Norway--1.7%
- --------------------------------------------------------------------------------
8,000 Elkjoeb Norge 198,797
Consumer Electronics Retailer

Sweden--6.2%
- --------------------------------------------------------------------------------
12,000 Pricer, Cl. B (b) 202,807
Electronic Shelf Labels for Supermarkets
9,000 Althin Medical AB 183,341
Dialysis & Other Medical Equipment
15,000 HL Display 165,233
Retail Display Systems
5,250 Frontec, Series B (b) 151,313
Computer Consulting and Software
- --------------------------------------------------------------------------------
702,694
France--8.4%
- --------------------------------------------------------------------------------
6,000 Axime Ex Segin (b) 462,529
Computer Services/Consulting
10,000 Coflexip 188,750
Flexible Pipe for Subsea Oil Wells
1,500 Guilbert 176,362
Office Supplies Distributor
1,400 Spir Communication 128,535
Newspaper Publisher & Printer
- --------------------------------------------------------------------------------
956,176
United Kingdom/Ireland--10.5%
- --------------------------------------------------------------------------------
55,000 Oriflame International 345,842
Natural Cosmetics
44,500 Serco Group 253,563
Facilities Management
30,000 Capita Group 132,747
Outsourcing Government Services
5,000 International Cabletel (b) 122,500
Cable TV & Telephone System
20,000 N. Brown Group 83,219
Mail Order Women's Clothing
12,400 Seton Healthcare Group 76,046
Pharmaceuticals
10,000 Biocompatibles International (b) 73,749
Contact Lenses, Coronary Stents & Other
Medical Devices
50,000 City Centre Restaurants 72,972
Fast Food Restaurants
15,000 Body Shop International 35,399
Natural Cosmetics and Toiletries
- --------------------------------------------------------------------------------
1,196,037
Switzerland--2.1%
- --------------------------------------------------------------------------------
300 Phoenix Mecano 150,691
Electrical Components Manufacturer
80 Suedelektra Holding (b) 86,208
Diversified Pool of Commodity-Related Projects
- --------------------------------------------------------------------------------
236,899
Italy--3.3%
- --------------------------------------------------------------------------------
16,000 Brembo (b) 185,334
Manufacturer of Disk Brake Systems
50,000 Costa Crociere Ord. 122,156
Cruise Ship Line
46,000 Tecnost 75,386
ATM, Lotto and Toll Collection Equipment
Manufacturer
- --------------------------------------------------------------------------------
382,876
- --------------------------------------------------------------------------------
Europe--Total 5,208,082
</TABLE>

3
<PAGE>

===========================================================================================
Wanger International Small Cap Advisor Statement of Investments December 31, 1995

Number of Shares Value
- --------------------------------------------------------------------------------
Asia--31.9%
- --------------------------------------------------------------------------------
Hong Kong/China--7.7%
- --------------------------------------------------------------------------------
<S> <C> <C>
1,000,000 Golden Harvest Entertainment $265,132
Movie Distribution & Exhibition
90,000 New World Infrastructure (b) 172,271
Infrastructure Investments (China)
150,000 Li and Fung 133,859
Sourcing of Consumer Goods
60,000 Varitronix International 111,355
LCD Manufacturer
200,000 Chen Hsong Holdings 104,759
Plastic Injection Machines
120,000 JCG Holdings 87,688
Consumer Finance
- --------------------------------------------------------------------------------
875,064
Japan--9.6%
- --------------------------------------------------------------------------------
7,000 Hokuto 254,459
Mushroom Grower
2,500 Autobacs Seven 207,929
Auto Parts Retailer
3,600 Sankyo Company 167,507
Pachinko Machine Manufacturer
3,300 Aucnet 159,946
Used Auto Auctions Via Satellite
6,000 Heiwa 156,456
Pachinko Machine Manufacturer
2,000 Paramount Bed 139,589
Hospital Bed Manufacturer
- --------------------------------------------------------------------------------
1,085,886
Malaysia--3.8%
- --------------------------------------------------------------------------------
50,000 Sistem Televisyen Malaysia 180,189
Television Franchise
33,750 Malaysian Assurance Alliance 152,865
Insurance
13,000 O.Y.L. Industries 100,866
Air Conditioners
- --------------------------------------------------------------------------------
433,920
Indonesia/Philippines--7.2%
- --------------------------------------------------------------------------------
280,000 Suba Indah 186,748
Beverage and Food Manufacturer
350,000 Int'l Container Terminal Services (b) 183,473
Container Handling Terminals & Port
Management (Philippines)
350,000 Universal Robina 173,466
Snack Foods (Philippines)
150,000 PILTEL (b) 151,544
Mobile Communications (Philippines)
80,000 Mustika Ratu (b) 127,706
Traditional Cosmetics
- --------------------------------------------------------------------------------
822,937
Singapore--3.6%
- --------------------------------------------------------------------------------
70,000 Venture Manufacturing Warrants 111,347
7/26/99 (b)
Contract Manufacturer of Electronic Goods
17,000 Clipsal Industries 38,420
Electrical Components
160,000 Genting International 260,800
Cruise Line
- --------------------------------------------------------------------------------
410,567
- --------------------------------------------------------------------------------
Asia--Total 3,628,374
</TABLE>

4
<PAGE>

<TABLE>
<CAPTION>
====================================================================================================
Wanger International Small Cap Advisor Statement of Investments December 31, 1995

Number of Shares Value
- --------------------------------------------------------------
<S> <C> <C>
Latin America--8.0%
- --------------------------------------------------------------
Mexico--5.8%
- --------------------------------------------------------------
61,500 Nadro, Series L $207,528
Pharmaceutical Distributor

21,000 Grupo Radio Centro 154,875
Radio Stations and Networks

10,000 Kimberly Clark De Mexico 151,071
Paper Products

10,000 Bufete Industrial (b) 150,000
Engineering and Construction
- --------------------------------------------------------------
663,474
Brazil/Chile--2.2%
- --------------------------------------------------------------
5,000 Genesis Chile Fund 202,500
Closed-End Fund (Chile)

70,000 Brazilian Smaller Companies Warrants (b) 49,000
Closed-End Fund (Brazil)
- --------------------------------------------------------------
251,500
- --------------------------------------------------------------
Latin America--Total 914,974

Other Countries--9.6%
- --------------------------------------------------------------
Australia/New Zealand--6.5%
- --------------------------------------------------------------
60,000 Publishing & Broadcasting 209,333
Media & TV Broadcasting

114,300 Austereo 161,553
Media - Radio
25,000 PDL Holdings 138,933
Electrical Equipment Manufacturer &
Distributor (New Zealand)

80,000 Just Jeans Holdings 115,453
Jeans & Fashion Retail Stores

350,000 Command Petroleum Holdings (b) 106,750
Oil and Gas Exploration
- --------------------------------------------------------------
732,022
- --------------------------------------------------------------
Canada--3.1%
- --------------------------------------------------------------
50,000 Tesco (b) 242,870
Rental of Drilling Equipment

20,000 Veritas Energy Services (b) 109,979
Geophysical Contractor
- --------------------------------------------------------------
352,849
- --------------------------------------------------------------
Other--Total 1,084,871

Total Common Stocks and Other
Equity-Like Securities--95.3% 10,836,301
- --------------------------------------------------------------
(Cost:$9,726,347)
Cash and Other Assets
Less Liabilities--4.7% 532,623
- --------------------------------------------------------------
Total Net Assets--100% $11,368,924
- --------------------------------------------------------------
</TABLE>

Notes to Statement of Investments:

a) At December 31, 1995, for federal income tax purposes cost of investments
was $9,759,245 and net unrealized appreciation was $1,077,056 consisting of
gross unrealized appreciation of $1,329,208 and gross unrealized depreciation
of $252,152.

b) Non-income producing security.

See accompanying notes to financial statements.

5
<PAGE>

<TABLE>
<CAPTION>
==========================================================================================================
Wanger International Small Cap Advisor Statement of Investments December 31, 1995

At December 31, 1995, the Fund's portfolio of investments as a percentage of net assets was diversified
as follows:
Value Percent
- ----------------------------------------------------
<S> <C> <C>
Information Group
- ----------------------------------------------------
Computer Systems $ 936,666 8.2%
- ----------------------------------------------------
Broadcasting and CATV 828,450 7.3
- ----------------------------------------------------
Consumer Electronics 499,263 4.4
- ----------------------------------------------------
Mobile Communications 151,544 1.3
- ----------------------------------------------------
Software 151,313 1.3
- ----------------------------------------------------
Distribution 128,535 1.2
- ----------------------------------------------------
2,695,771 23.7
Health Care
- ----------------------------------------------------
Biotechnology/Drug Delivery 388,333 3.4
- ----------------------------------------------------
Services 383,286 3.4
- ----------------------------------------------------
Hospital/Laboratory Supplies 234,608 2.1
- ----------------------------------------------------
Equipment 183,341 1.6
- ----------------------------------------------------
1,189,568 10.5

Consumer Goods and Services
- ----------------------------------------------------
Retail 1,650,847 14.5
- ----------------------------------------------------
Entertainment and Leisure 706,919 6.2
- ----------------------------------------------------
Manufacturers 705,024 6.2
- ----------------------------------------------------
Food 687,645 6.1
- ----------------------------------------------------
3,750,435 33.0

Finance Group
- ----------------------------------------------------
Money Management 423,771 3.7
- ----------------------------------------------------
Other 1,042,853 9.2
- ----------------------------------------------------
1,466,624 12.9

Industrial Goods and Services
- ----------------------------------------------------
Machinery Processing 752,081 6.6
- ----------------------------------------------------
Services 183,473 1.6
- ----------------------------------------------------
Forest Products and Construction 150,000 1.3
- ----------------------------------------------------
1,085,554 9.5

Energy and Minerals
- ----------------------------------------------------
Oil Services 431,620 3.8
- ----------------------------------------------------
Oil and Gas Producers 216,729 1.9
- ----------------------------------------------------
648,349 5.7

Total Common Stocks and
Other Equity-Like Securities 10,836,301 95.3
- ----------------------------------------------------
Cash and Other Assets
less Liabilities 532,623 4.7
- ----------------------------------------------------
Net Assets $11,368,924 100.0%
- ----------------------------------------------------
</TABLE>

===============================================================================
Report of Independent Auditors

To the Shareholders of Wanger International Small Cap Advisor and the Trustees
of Wanger Advisors Trust

We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Wanger International Small Cap Advisor as of
December 31, 1995, the related statements of operations and changes in net
assets and the financial highlights for the period from May 3, 1995
(commencement of operations) through December 31, 1995. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Wanger
International Small Cap Advisor at December 31, 1995, the results of its
operations and changes in its net assets and the financial highlights for the
period from May 3, 1995 through December 31, 1995 in conformity with generally
accepted accounting principles.

ERNST & YOUNG LLP
Chicago, Illinois
January 31, 1996

6
<PAGE>

<TABLE>
<CAPTION>
===============================================================================================================
Wanger International Small Cap Advisor Statement of Assets and Liabilities December 31, 1995

<S> <C> <C>
Assets
Investments, at value (cost: $9,726,347) $10,836,301
Cash 883,814
Organization costs 86,672
Receivable for:
Securities sold 79,781
Dividends 2,963
Fund shares sold 177,438 260,182
- ---------------------------------------------------------------------------------------------------------------
Total assets 12,066,969

Liabilities and Net Assets
Payable for:
Securities purchased 594,769
Fund shares redeemed 81
Amount owed to advisor 86,740
Other 16,455
- ---------------------------------------------------------------------------------------------------------------
Total liabilities 698,045
- ---------------------------------------------------------------------------------------------------------------
Net assets applicable to Fund shares outstanding $11,368,924
- ---------------------------------------------------------------------------------------------------------------
Fund shares outstanding 845,182
===============================================================================================================

Pricing of Shares
Net asset value, offering price and redemption price per share $13.45
- ---------------------------------------------------------------------------------------------------------------

Analysis of Net Assets
Paid-in capital $10,233,014
Accumulated net realized gain on sales of investments and foreign currency transactions 53,357
Unrealized appreciation of investments and foreign currency transactions 1,109,954
Net investment loss (27,401)
- ---------------------------------------------------------------------------------------------------------------
Net assets applicable to Fund shares outstanding $11,368,924
===============================================================================================================
</TABLE>

See accompanying notes to financial statements.

7
<PAGE>

<TABLE>
<CAPTION>
==============================================================================================
Wanger International Small Cap Advisor Statement of Operations December 31, 1995

May 3, 1995 through December 31, 1995
- ----------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividends (net of foreign taxes of $5,769) $ 39,708
Interest 161
- ----------------------------------------------------------------------------------------------
Total investment income 39,869
Expenses:
Investment advisory fee 43,726
Custodian fees and expenses 19,208
Legal and audit fees and expenses 40,560
Reports to shareholders 3,199
Amortization of organization costs 13,328
Trustees' fees 13,000
Insurance 4,941
Other expenses 3,186
- ----------------------------------------------------------------------------------------------
Total expenses 141,148
Less custodian fees paid indirectly (10,886)
Less reimbursement of expenses by advisor (62,992)
- ----------------------------------------------------------------------------------------------
Net expenses 67,270
- ----------------------------------------------------------------------------------------------
Net investment loss (27,401)
Net realized and unrealized gain on investments:
Net realized gain on sales of investments 53,290
Net realized gain on foreign currency transactions 67
Net change in unrealized appreciation 1,109,954
- ----------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 1,163,311
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 1,135,910
==============================================================================================

Wanger International Small Cap Advisor Statement of Changes in Net Assets
==============================================================================================
From operations:
Net investment loss $ (27,401)
Net realized gain on sales of investments 53,290
Net realized gain on foreign currency transactions 67
Net change in unrealized appreciation 1,109,954
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,135,910

From Fund share transactions:
Proceeds from shares sold 11,951,601
Payments for shares redeemed (1,844,269)
- ----------------------------------------------------------------------------------------------
Net increase in net assets from Fund share transactions 10,107,332
- ----------------------------------------------------------------------------------------------
Total increase in net assets 11,243,242

Net Assets:
- ----------------------------------------------------------------------------------------------
Beginning of period (May 3, 1995) 125,682
- ----------------------------------------------------------------------------------------------
End of period (including net investment loss of $27,401) $11,368,924
==============================================================================================
</TABLE>

See accompanying notes to financial statements.

8
<PAGE>

<TABLE>
<CAPTION>
================================================================================
Wanger International Small Cap Advisor Financial Highlights December 31, 1995

May 3, 1995 through December 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
Net Asset Value, beginning of period $ 10.00
Income From Investment Operations
Net investment loss (.03)
Net realized and unrealized gain on investments 3.48
- --------------------------------------------------------------------------------
Total from investment operations 3.45

Net Asset Value, end of period $ 13.45
================================================================================

Total Return 34.50%
Ratios/Supplemental Data
Ratio of expenses to average net assets (a) (b) 2.32%*
Ratio of net investment loss to average net assets (b) (0.81)%*
Portfolio turnover rate 14%*
Net assets at end of period $11,368,924
================================================================================
</TABLE>

* Annualized

a) In accordance with a requirement by the Securities and Exchange Commission,
this ratio reflects gross custodian fees. This ratio net of custodian fees
paid indirectly would have been 2.00%.

See accompanying notes to financial statements.

9
<PAGE>

==============================================================================
Wanger International Small Cap Advisor
Notes to Financial Statements December 31, 1995

1. Nature of operations

Wanger International Small Cap Advisor (the "Fund") is a series of Wanger
Advisors Trust (the "Trust"), an open-end management investment company
organized as a Massachusetts business trust. The investment objective of the
Fund is to seek long-term growth of capital. The Fund is available only for
allocation to certain life insurance company separate accounts established for
the purpose of funding qualified and non-qualified variable annuity contracts,
and may also be offered directly to certain types of pension plans and
retirement arrangements. The Fund commenced operations on May 3, 1995.

2. Significant Accounting Policies

Security valuation

Foreign currency translations

Values of investments denominated in foreign currencies are converted into U.S.
dollars using the spot market rate of exchange at the time of valuation.
Purchases and sales of investments and dividend and interest income are
translated into U.S. dollars using the spot market rate of exchange prevailing
on the respective dates of such transactions. The gain or loss on investments
resulting from changes in foreign exchange rates is included with net realized
and unrealized gain or loss as appropriate.

Security transactions and investment income

Security transactions are accounted for on the trade date (date the order to buy
or sell is executed) and dividend income is recorded on the ex-dividend date,
except that certain dividends from foreign securities are recorded as soon as
the information is available to the Fund. Interest income is recorded on the
accrual basis and includes amortization of discounts on money market instruments
and on long-term debt instruments when required for federal income tax purposes.
Realized gains and losses from security transactions are reported on an
identified cost basis.

Fund share valuation

Custodian fees

Custodian fees are reduced based on the Fund's cash balances maintained with the
custodian. This presentation does not affect the determination of net investment
income.

Federal income taxes, dividends and distributions
to shareholders

The Fund will elect to mark-to-market its investment in Passive Foreign
Investment Companies ("PFICs") for income tax purposes. In accordance with this
election, the Fund recognized unrealized appreciation on PFICs of $32,898 for
the period ended December 31, 1995.

Dividends and distributions payable to its shareholders are recorded by the
Fund on the ex-dividend date.

10
<PAGE>

==============================================================================
Wanger International Small Cap Advisor
Notes to Financial Statements December 31, 1995

3. Transactions with Affiliates

The Fund's investment advisor, Wanger Asset Management, L.P., ("WAM") furnishes
continuing investment supervision to the Fund and is responsible for overall
management of the Fund's business affairs. The Fund pays WAM a monthly advisory
fee based upon average daily net assets at the following rates: 1.3% up to $100
million, 1.2% in excess of $100 million and up to $250 million and 1.1% in
excess of $250 million.

The investment advisory agreement also provides that WAM will reimburse the
Fund to the extent that ordinary operating expenses (computed based on net
custodian fees) exceed 2% of average net assets. For the year ended December 31,
1995, WAM reimbursed the Fund $62,992.

WAM advanced $100,000 in connection with the organization and initial
registration of the Fund. These costs are being amortized and reimbursed to WAM
over the period May, 1995 through April, 2000.

4. Fund Share Transactions

Proceeds and payments on Fund shares as shown in the statement of changes in net
assets are in respect of the following numbers of shares:

<TABLE>
<CAPTION>
Period ended 12/31/95
- ------------------------------------------------------------------------------
<S> <C>
Shares sold 986,106
Less shares redeemed 153,492
- ------------------------------------------------------------------------------
Net increase in shares outstanding 832,614
==============================================================================
</TABLE>

5. Investment transactions

<TABLE>
<CAPTION>
Period ended 12/31/95
- ------------------------------------------------------------------------------
<S> <C>
Investment securities
(excluding money market instruments):
Purchases $10,188,942
Proceeds from sales 516,063
==============================================================================
</TABLE>

11
<PAGE>

<TABLE>
<CAPTION>
========================================================================================================================
Wanger International Small Cap Advisor

Acacia Capital

Corporation

Calvert

Responsibly

Invested

Portfolios

Annual

Report

December 31, 1995
<PAGE>

Annual Report-December 31, 1995

==================

CALVERT RESPONSIBLY INVESTED
MONEY MARKET PORTFOLIO

Managed by Calvert Asset Management Company, Inc.

Dear Investor:

The 12-month period ended December 31, 1995 proved to be an excellent one for
investors as a cooling economy, tame inflation and falling interest rates worked
together to push stock and bond prices higher. Gross Domestic Product (GDP)
slowed to below 2% annualized, based on estimates of fourth quarter data. To
stimulate the economy, the Federal Reserve lowered interest rates twice in the
second half of 1995, reducing its target for the federal funds rate to 5.5% by
year end.

Performance and Strategy

The Portfolio's dividend yield moved higher during the course of the year
due to higher rates available in the latter half of 1994 and the first half of
1995. The annualized compound dividend yield for the period was 5.37%, up from
3.96% one year ago. Currently, the Portfolio's average maturity is 29 days.

Outlook

Our forecast for the year calls for continued slow economic growth, low
inflation and low interest rates. With a sluggish economy at hand, we would not
be surprised to see the Federal Reserve cut short-term rates another 50 basis
points, possibly as early as the first quarter.

We appreciate your investment in the CRI Money Market Portfolio.

Sincerely,

/s/ Clifton S. Sorrell
Clifton S. Sorrell
President

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED MONEY MARKET PORTFOLIO - 1
<PAGE>

Report of Independent Accountants

==============

To the Board of Directors of Acacia Capital Corporation and Shareholders of the
Calvert Responsibly Invested Money Market Portfolio:

We have audited the accompanying statement of assets and liabilities of
Calvert Responsibly Invested Money Market Portfolio (one of the portfolios
comprising the Acacia Capital Corporation), including the portfolio of
investments, as of December 31, 1995, and the related statement of operations
for the year then ended, and statement of changes in net assets and financial
highlights for each of the two years then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for each of
the preceding years were audited by other auditors whose report dated January
31, 1994 expressed an unqualified opinion thereon.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Calvert Responsibly Invested Money Market Portfolio as of December 31, 1995, the
results of its operations for the year then ended, and the changes in its net
assets and financial highlights for each of the two years in the period then
ended, in conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Baltimore, Maryland
January 26, 1996

2 - CALVERT RESPONSIBLY INVESTED MONEY MARKET PORTFOLIO ANNUAL REPORT
<PAGE>

Acacia Capital Corporation

Calvert Responsibly Invested

Money Market Portfolio

Portfolio of Investments

December 31, 1995
<TABLE>
<CAPTION>

Principal
Municipal Obligations (26.3%) Amount Value
=========================================================================================
<S> <C> <C>
Alabama State Industrial Development Authority VRDN, 6.00%,
5/1/10, LOC: First Alabama Bank*.................................$ 240,000 $ 240,000
Alabama State Industrial Development Authority VRDN, 6.05%,
12/1/19, LOC: Chemical Bank*.................................... 240,000 240,000
Detroit, Michigan VRDN, 6.15%, 5/1/06, LOC: Sumitomo Bank Ltd.*... 240,000 240,000
Broome County, New York Industrial Development Authority VRDN,
5.85%, 6/1/00, LOC: First Union Bank, NC*........................ 225,000 225,000
Mahoning County, Ohio VRDN, 6.24%, 11/1/98, LOC: PNC
Bank*............................................................ 150,000 150,000
Montgomery County, Kentucky Industrial Development Authority
VRDN, 6.05%, 8/1/15, LOC: Shawmut Bank*.......................... 250,000 250,000
----------
Total Municipal Obligations (Cost $1,345,000)................... 1,345,000
----------
U.S. Government Agencies and
Instrumentalities (72.5%)
=========================================================================================

Federal Farm Credit Bank, 5.63%, 1/19/96.......................... 150,000 149,578
Federal Farm Credit Bank, 5.56%, 2/5/96........................... 350,000 348,108
Federal Home Loan Bank, 5.67%, 1/17/96............................ 300,000 299,244
Federal Home Loan Bank, 5.63%, 1/24/96............................ 300,000 298,921
Federal Home Loan Bank, 5.60%, 1/29/96............................ 620,000 617,300
Federal Home Loan Bank, 5.54%, 2/21/96............................ 550,000 545,683
Federal Home Loan Mortgage, 5.50%, 1/4/96......................... 125,000 124,943
Federal National Mortgage Assn., 5.57%, 1/29/96................... 750,000 746,751
Federal National Mortgage Assn., 5.56%, 2/13/96................... 400,000 397,343
Federal National Mortgage Assn., 5.44%, 4/4/96.................... 195,000 192,230
----------
Total U.S. Government Agencies and Instrumentalities
(Cost $3,720,101)............................................... 3,720,101
----------
TOTAL INVESTMENTS (98.8%)
(Cost $5,065,101 +)......................................... $5,065,101
==========
</TABLE>
Notes to Portfolio of Investments:
*Optional tender features give these securities a shorter effective maturity
date.
+Cost of investments is substantially the same for federal income tax
purposes.
Percentages shown represent the percentage of investments to net assets.
Explanation of Guarantees:
LOC: Letter of Credit
Abbreviations:
VRDN: Variable Rate Demand Notes

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED MONEY MARKET PORTFOLIO - 3
<PAGE>

Acacia Capital Corporation

Calvert Responsibly Invested

Money Market Portfolio

Statement of Assets and Liabilities

December 31, 1995
<TABLE>
<CAPTION>

Assets
====================================================================================
<S> <C>
Investments in securities, at value - see accompanying portfolio......... $5,065,101
Cash..................................................................... 61,927
Interest receivable...................................................... 5,947
Other assets............................................................. 107
----------
Total assets............................................................ 5,133,082
----------

Liabilities
====================================================================================
Payable to Calvert Asset Management Company, Inc......................... 2,258
Accrued expenses and other liabilities................................... 2,290
----------
Total liabilities....................................................... 4,548
----------
Net assets............................................................. $5,128,534
==========
Net Assets Consist of:
====================================================================================
Par value and paid-in capital applicable to 5,132,581 shares of common
stock outstanding; $1 par value, 14,000,000 shares authorized........... $5,128,005
Undistributed net investment income (loss)............................... 399
Accumulated net realized gains (losses).................................. 130
----------
Net Assets............................................................ $5,128,534
==========
Net Asset Value per Share.............................................. $1.00
==========
</TABLE>

See notes to financial statements.

4 - CALVERT RESPONSIBLY INVESTED MONEY MARKET PORTFOLIO ANNUAL REPORT
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Money Market Portfolio
Statement of Operations
Year Ended December 31, 1995

=======

Net Investment Income
- -------------------------------------------------------------------------------
<S> <C>
Investment Income
Interest income.................................................... $321,021
--------
Total investment income.......................................... 321,021
--------

Expenses
Investment advisory fee............................................ 27,591
Directors' fees and expenses....................................... 242
Custodian fees..................................................... 4,314
Reports to shareholders............................................ 3,408
Professional fees.................................................. 1,065
Miscellaneous...................................................... 67
--------
Total expenses................................................... 36,687
Fees paid indirectly............................................. (4,319)
--------
Net expenses................................................... 32,368
--------
Net Investment Income........................................ 288,653
--------

Realized Gain (Loss) on Investments
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments.............................. 150
--------

Net Realized Gain (Loss)
On Investments................................................... 150
--------

Increase (Decrease) In Net Assets
Resulting From Operations........................................ $288,803
========
</TABLE>

See notes to financial statements.

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED MONEY MARKET PORTFOLIO - 5
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Money Market Portfolio
Statement of Changes in Net Assets
Years Ended December 31, 1995 and 1994

==========

Increase (Decrease)
In Net Assets Resulting
From Operations............................... 288,803 212,888
------------ ------------

Distributions to shareholders from:
Net investment income........................... (288,254) (216,901)
------------ ------------
Total distributions........................... (288,254) (216,901)
------------ ------------

Capital share transactions
Shares sold..................................... 10,858,696 23,556,988
Reinvestment of distributions................... 266,798 216,901
Shares redeemed................................. (12,476,524) (21,322,381)
------------ ------------
Total capital share transactions.............. (1,351,030) 2,451,508
------------ ------------

Total Increase (Decrease)
In Net Assets..................................... (1,350,481) 2,447,495

Net Assets
- --------------------------------------------------------------------------------
Beginning of year............................... 6,479,015 4,031,520
------------ ------------
End of year (including undistributed net invest-
ment income of $399 and $0, respectively.).... $ 5,128,534 $ 6,479,015
============ ============

Capital Share Activity
- --------------------------------------------------------------------------------
Shares sold..................................... 10,858,696 23,556,988
Reinvestment of distributions................... 266,798 216,901
Shares redeemed................................. (12,476,524) (21,322,381)
------------ ------------
Total capital share activity.................. (1,351,030) 2,451,508
============ ============
</TABLE>

See notes to financial statements.

6 - CALVERT RESPONSIBLY INVESTED MONEY MARKET PORTFOLIO ANNUAL REPORT

<PAGE>

Notes to Financial Statements

Note A-Significant Accounting Policies

General: The Money Market Portfolio (the "Portfolio"), a series of Acacia
Capital Corporation's Calvert Responsibly Invested (CRI) Portfolios, is
registered under the Investment Company Act of 1940 as a diversified, open-end
management investment company. The operations of each series are accounted for
separately. The shares of the Portfolio are sold to affiliated and unaffiliated
insurance companies for allocation to certain of their variable separate
accounts.

Security Valuation: All securities are valued at amortized cost, which
approximates market.

Security Transactions and Investment Income: Security transactions are
accounted for on trade date. Realized gains and losses are recorded on an
identified cost basis. Interest income, accretion of discount and amortization
of premium are recorded on an accrual basis.

Distributions to Shareholders: Distributions to shareholders are recorded by
the Portfolio on ex-dividend date. Dividends from net investment income are paid
monthly. Distributions from net realized capital gains, if any, are paid at
least annually. Distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles,
accordingly, periodic reclassifications are made within the Portfolio's capital
accounts to reflect income and gains available for distribution under income tax
regulations.

Expense Offset Arrangements: The Portfolio has an arrangement with its
custodian bank whereby the custodian's fees are paid indirectly by credits
earned on the Portfolio's cash on deposit with the bank. Such deposit
arrangement is an alternative to overnight investments.

Federal Income Taxes: No provision for federal income or excise tax is required
since the Portfolio intends to continue to qualify as a regulated investment
company under the Internal Revenue Code and to distribute substantially all of
its earnings.

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED MONEY MARKET PORTFOLIO - 7

<PAGE>

Note B-Related Party Transactions

Calvert Asset Management Company, Inc. (the "Advisor") is wholly-owned by
Calvert Group, Ltd. ("Calvert"), which is indirectly wholly-owned by Acacia
Mutual Life Insurance Company. The Advisor provides investment advisory services
and pays the salaries and fees of officers and affiliated Directors of the
Portfolio. For its services, the Advisor receives a monthly fee based on an
annual rate of .50% of the Portfolio's average daily net assets.

Calvert Shareholder Services, Inc., an affiliate of the Advisor, acts as
transfer, dividend disbursing and shareholder servicing agent for the Portfolio.

Each Director who is not affiliated with the Advisor receives a fee of $500 for
each Board meeting attended plus an annual fee of $2,000 for Directors not
serving on other Calvert Fund Boards. Director's fees are allocated to each of
the portfolios served.

NOTE C - Investment Activity

The cost of investments owned at December 31, 1995 was substantially the same
for federal income tax and financial reporting purposes.

8 - CALVERT RESPONSIBLY INVESTED MONEY MARKET PORTFOLIO ANNUAL REPORT

<PAGE>

<TABLE>
<CAPTION>
Acacia Capital Corporation
Calvert Responsibly Invested
Money Market Portfolio
Financial Highlights
=========

From Inception
June 30, 1992
Year Ended Year Ended Year Ended Through
December 31, December 31, December 31, December 31,
1995 1994 1993 1992
=====================================================================================================
<S> <C> <C> <C> <C>
Net asset value, beginning............ $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== ===========
Income from investment operations
Net investment income............... .055 .039 .031 .009
Net realized gain (loss)............ ---- ---- ---- ----
----------- ----------- ----------- -----------
Total from investment operations.. .055 .039 .031 .009
----------- ----------- ----------- -----------

Distributions from
Net investment income............... (.055) (.039) (.031) (.009)
----------- ----------- ----------- -----------
Total distributions............... (.055) (.039) (.031) (.009)
----------- ----------- ----------- -----------
Total increase (decrease)
in net asset value.................. ---- ---- ---- ----
----------- ----------- ----------- -----------
Net asset value, ending............... $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== ===========
Total return*......................... 5.37% 3.96% 3.09% 2.11%(a)
=========== =========== =========== ===========
Ratios to average net assets:
Net investment income............... 5.23% 3.91% 3.07% 3.02%(a)
=========== =========== =========== ===========
Total expenses+..................... .66% ---- ---- ----
=========== =========== =========== ===========
Net expenses........................ .59% .45% ---- ----
=========== =========== =========== ===========
Expenses reimbursed................. ---- .36% .11% .85%(a)
=========== =========== =========== ===========
Net assets, ending (in thousands)..... $5,129 $6,479 $4,032 $1,795
=========== =========== =========== ===========
Number of shares outstanding,
ending (in thousands)............... 5,133 6,484 4,032 1,795
=========== =========== =========== ===========
</TABLE>

(a) Annualized
* Total return is not annualized for periods of less than one year.
+ Effective December 31, 1995, this ratio reflects total expenses before
reduction for fees paid indirectly; such reductions are included in the ratio
of net expenses.

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED MONEY MARKET PORTFOLIO - 9
<PAGE>

Annual Report--December 31, 1995

======

CALVERT RESPONSIBLY INVESTED
STRATEGIC GROWTH PORTFOLIO

Managed by Portfolio Advisory Services, Inc.

Dear Investor:

Portfolio Advisory Services, Inc., the subadvisor to the Calvert Responsibly
Invested Strategic Growth Portfolio, has a distinct management style founded on
strict investment disciplines. The disciplines include:

. In-depth stock selection;
. Strict fundamental and technical benchmarks for selling stocks;
. Ongoing reference to the Five Market Principles, an econometric timing tool
used to assess the level of intermediate and long-term risk associated with
investing in the stock market.

Market Summary

Nineteen ninety-five marked the fifth year of the stock market rally, making
it the longest period in history that blue-chip indices have advanced without at
least a 10% correction. The rally has been driven primarily by speculation,
aggressive investing by institutional investors and a high level of investor
optimism.

Performance and Strategy

With the five Market Principles negative on balance and pointing to a High
Risk level, the Portfolio's exposure was limited. During the first three
quarters of 1995, the manager's strategy focused on preservation of capital and,
accordingly, the Portfolio's cash levels were above average.

Calvert Responsibly Invested
Strategic Growth Portfolio

[GRAPH APPEARS HERE]
- ------------------------------------------------------------------------------
Comparison of change in value of a
hypothetical $10,000 investment.

CRI Russell S&P
Strategic Growth 2000 500(R)
-------------------------------------------------
3/95 $10,000 $10,000 $10,000
6/95 9,990 10,938 10,955
9/95 10,190 12,019 11,826
12/95 10,954 12,279 12,538

Average Annual Total Return
(period ending 12/31/95)

6 Months 9.65% Life of Fund 9.65% (3/95)
- ------------------------------------------------------------------------------
Performance information is for the Portfolio only and does not
reflect charges and expenses of the variable annuity. Past
performance does not indicate future results.
- ------------------------------------------------------------------------------

10 - CALVERT RESPONSIBLY INVESTED STRATEGIC GROWTH PORTFOLIO ANNUAL REPORT
<PAGE>

From its inception on March 1, 1995 through December 31, 1995, the Portfolio
returned 9.65% compared to 23.20% for the Russell 2000 and 29.12% for the S&P
500(R) for the same period.

Outlook
After market indicators showed improvement in the fourth quarter, we increased
the Portfolio's long positions, with favorable results. The manager used the
market's seasonal strength period - the week of Thanksgiving through the first
week of January - to add stock holdings to the Portfolio.

The Fund's current strategy is to maintain a cautiously invested position. The
Five Market Principles indicate the market's risk level at this point in time is
moderately High Risk. If market indicators deteriorate again or if momentum
fails, the manager would return to a more defensive position.

As the bull market enters its sixth consecutive year without a correction of
10% or more, we believe the current market is overvalued and vulnerable to a
sell-off. Our current strategy is to maintain a cautiously invested position
until confirmation of a market top. We are looking for a break in the upward
trend of the NYSE Advance/Decline Line and further deterioration of market
indicators before increasing the Portfolio's defensive position.

We appreciate your investment in the CRI Strategic Growth Portfolio.

Sincerely,

/s/ Clifton S. Sorrell

Clifton S. Sorrell
President

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED STRATEGIC GROWTH PORTFOLIO - 11

<PAGE>

Report of Independent Accountants

========

To the Board of Directors of Acacia Capital Corporation, and Shareholders of the
Calvert Responsibly Invested Strategic Growth Portfolio:

We have audited the accompanying statement of assets and liabilities of
Calvert Responsibly Invested Strategic Growth Portfolio (one of the portfolios
comprising Acacia Capital Corporation), including the portfolio of investments,
as of December 31, 1995, and the related statement of operations, statement of
changes in net assets and financial highlights for the period March 1, 1995
(commencement of operations) through December 31, 1995. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Calvert Responsibly Invested Strategic Growth Portfolio as of December 31, 1995,
and the results of its operations, the changes in its net assets, and the
financial highlights for the period referred to above, in conformity with
generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Baltimore, Maryland
January 26, 1996

12 - CALVERT RESPONSIBLY INVESTED STRATEGIC GROWTH PORTFOLIO ANNUAL REPORT
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Strategic Growth Portfolio
Portfolio of Investments
December 31, 1995

========

Equity Securities (57.1%) Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Business Equipment and Supplies (2.4%)
Staples, Inc. *............................................. 1,200 $ 29,250
--------
29,250
--------

Computer - Graphics (1.5%)
Trident Microsystems, Inc. *................................ 800 18,800
--------
18,800
--------

Computer - Local Networks (8.4%)
Alantec Corp. *............................................. 400 23,300
Ascend Communications, Inc. *............................... 500 40,563
Cisco Systems, Inc. *....................................... 200 14,925
Madge N.V. *................................................ 500 22,375
--------
101,163
--------

Computer - Memory Devices (3.1%)
C Cube Microsystems, Inc. *................................. 600 37,500
--------
37,500
--------

Computer - Systems (5.7%)
Cognex Corp. *.............................................. 700 24,325
Discreet Logic, Inc. *...................................... 900 22,500
HCIA, Inc. *................................................ 300 14,025
Oracle Systems Corp. *...................................... 200 8,475
--------
69,325
--------

Computer - Peripheral Equipment (0.7%)
U.S. Robotics Corp........................................... 100 8,775
--------
8,775
--------

Computer - Software (19.8%)
Applix, Inc. *.............................................. 2,000 54,500
Astea International, Inc. *................................. 1,000 22,875
Atria Software, Inc. *...................................... 200 7,825
CBT Group Pub Ltd. *........................................ 200 10,600
Macromedia, Inc. *.......................................... 600 31,350
Mcafee Associates, Inc. *................................... 1,375 60,328
Microsoft Corp. *........................................... 200 17,550
Novadigm, Inc. *............................................ 500 14,188
Peoplesoft, Inc. *.......................................... 400 17,200
Quarterdeck Corp. *......................................... 100 2,750
--------
239,166
--------
</TABLE>

See notes to portfolio of investments.

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED STRATEGIC GROWTH PORTFOLIO - 13
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Strategic Growth Portfolio
Portfolio of Investments (Continued)
December 31, 1995

========

Equity Securities (Cont'd) Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Electronics - Laser Sys/Components (1.0%)
Cyberoptics Corp. *.......................................... 300 $ 11,925
--------
11,925
--------

Electronics - Semiconductors (4.8%)
Cypress Semiconductor Corp. *............................... 200 2,550
ESS Technology, Inc. *...................................... 400 9,200
Flextronics International *................................. 500 15,000
Zoran Corp. *............................................... 1,500 31,125
--------
57,875
--------

Medical (0.7%)
Compdent Corp. *............................................. 200 8,300
--------
8,300
--------

Pharmaceutical (2.0%)
Watson Pharmaceuticals, Inc. *.............................. 500 24,500
--------
24,500
--------

Telecommunications (7.0%)
Cascade Communications Corp. *.............................. 200 17,050
General Instrument Corp. *.................................. 800 18,700
Glenayre Technologies, Inc. *............................... 400 24,900
Pairgain Technologies, Inc. *............................... 200 10,950
Qualcomm, Inc. *............................................ 300 12,900
--------
84,500
--------

Total Equity Securities (Cost $592,902)................... 691,079
--------

Metal (3.2%) Ounces
- --------------------------------------------------------------------------------

Gold Bars *................................................... 99 38,408
--------

Total Metal (Cost $38,944).................................. 38,408
--------
</TABLE>

See notes to portfolio of investments.

14 - CALVERT RESPONSIBLY INVESTED STRATEGIC GROWTH PORTFOLIO ANNUAL REPORT
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Strategic Growth Portfolio
Portfolio of Investments (Continued)
December 31, 1995
==============

Principal
U.S. Treasury (29.4%) Amount Value
==============================================================

U. S. Treasury Bills, 5.31%, 3/7/96.... $250,000 $ 247,566
U. S. Treasury Bills, 5.17%, 5/9/96.... 100,000 98,147
U. S. Treasury Bills, 5.305%, 5/9/96... 10,000 9,810
----------
Total U.S. Treasury (Cost $355,524).. 355,523
----------

TOTAL INVESTMENTS (89.7%)
(Cost $987,370 +).................... $1,085,010
==========
Schedule of Investments Sold Short

Equity Securities....................... Shares
==============================================================

Avid Technology, Inc................... 200 $ 3,800
Cypress Semiconductor Corp............. 200 2,550
General Instrument Corp................ 800 18,700
Qualcomm, Inc.......................... 300 12,900
----------

TOTAL EQUITY SECURITIES SOLD SHORT
(Proceeds $45,917)................... $ 37,950
==========

Schedule of Options Written

Options Written
==============================================================
Microsoft Corp., 2 Call Contracts
Expiration 1/18/96, Strike Price 100.. $ 50
----------
TOTAL OPTIONS WRITTEN
(Premium $1,369)..................... $ 50
==========
Notes to Portfolio of Investments:
* Non-income producing.
+ Cost of investments is substantially the same for federal income tax purposes.
Percentages shown represent percentage of investments to net assets.

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED STRATEGIC GROWTH PORTFOLIO - 15
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Strategic Growth Portfolio
Statement of Assets and Liabilities
December 31, 1995
===============
<TABLE>
<CAPTION>

Assets
==================================================================================
<S> <C>
Investments in securities, at value - see accompanying portfolio....... $1,085,010
Cash................................................................... 125,034
Receivable for securities sold......................................... 10,771
Dividends receivable................................................... 111
Deposits with brokers.................................................. 40,469
Other assets........................................................... 601
----------
Total assets.......................................................... 1,261,996
----------

Liabilities
==================================================================================

Payable for securities purchased....................................... 12,250
Securities sold short, at value (proceeds $45,917)..................... 37,950
Options written, at value (premiums $1,369)............................ 50
Payable to Calvert Asset Management Company, Inc....................... 1,496
Accrued expenses and other liabilities................................. 810
----------
Total liabilities..................................................... 52,556
----------
Net assets........................................................... $1,209,440
==========

Net Assets Consist of:
==================================================================================

Par value and paid-in capital applicable to 110,586 shares of common
stock outstanding; $1 par value, 5,000,000 shares authorized.......... $1,113,146
Undistributed net investment income (loss)............................. 535
Accumulated net realized gains (losses)................................ (11,166)
Net unrealized appreciation (depreciation) on investments.............. 106,925
----------
Net Assets........................................................... $1,209,440
==========

Net Asset Value per Share............................................ $ 10.94
==========

</TABLE>
See notes to financial statements.

16 - CALVERT RESPONSIBLY INVESTED STRATEGIC GROWTH PORTFOLIO ANNUAL REPORT
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Strategic Growth Portfolio
Statement of Operations
From Inception (March 1, 1995)
Through December 31, 1995
====================

Net Investment Income
============================================================================
<S> <C>
Investment Income
Interest income................................................... $ 15,253
Dividend income................................................... 345
--------
Total investment income.......................................... 15,598
--------
Expenses
Investment advisory fee........................................... 10,886
Directors' fees and expenses...................................... 44
Administrative fees............................................... 1,505
Custodian fees.................................................... 3,953
Registration fees................................................. 418
Reports to shareholders........................................... 789
Professional fees................................................. 213
Miscellaneous..................................................... 11
Reimbursement from Advisor........................................ (1,505)
--------
Total expenses................................................... 16,314
Fees paid indirectly............................................. (3,953)
--------
Net expenses.................................................... 12,361
--------
Net Investment Income......................................... 3,237
--------
Realized and Unrealized Gain (Loss)
on Investments
============================================================================

Net realized gain (loss) on:
Securities........................................................ (7,468)
Options written................................................... 1,538
Securities sold short............................................. (5,236)
--------
(11,166)
--------

Change in unrealized appreciation or depreciation of investments... 106,925
--------
Net Realized and Unrealized Gain (Loss)
On Investments................................................... 95,759
--------
Increase (Decrease) In Net Assets
Resulting From Operations........................................ $ 98,996
========

</TABLE>
See notes to financial statements.

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED STRATEGIC GROWTH PORTFOLIO - 17
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Strategic Growth Portfolio
Statement of Changes in Net Assets
From Inception (March 1, 1995) Through
December 31, 1995
=============

Increase (Decrease) in Net Assets 1995
====================================================================
<S>..................................................... <C>
Operations
Net investment income.................................. $ 3,237
Net realized gain (loss) on investments................ (11,166)
Change in unrealized appreciation or depreciation...... 106,925
----------
Increase (Decrease) In Net Assets
Resulting From Operations............................ 98,996
----------

Distributions to shareholders from:
Net investment income.................................. (2,702)
----------
Total distributions................................... (2,702)
----------
Capital share transactions
Shares sold............................................ 1,272,662
Reinvestment of distributions.......................... 2,702
Shares redeemed........................................ (162,218)
----------
Total capital share transactions...................... 1,113,146
----------

Total Increase (Decrease)
In Net Assets........................................... 1,209,440

Net Assets
====================================================================

Beginning of period.................................... ----
----------
End of period (including undistributed net investment
income of $535)....................................... $1,209,440
==========
Capital Share Activity
====================================================================

Shares sold............................................ 126,452
Reinvestment of distributions.......................... 247
Shares redeemed........................................ (16,113)
----------
Total capital share activity.......................... 110,586
==========
</TABLE>
See notes to financial statements.

18 - CALVERT RESPONSIBLY INVESTED STRATEGIC GROWTH PORTFOLIO ANNUAL REPORT
<PAGE>

Notes to Financial Statements

Note A-Significant Accounting Policies

General: The Strategic Growth Portfolio (the "Portfolio"), a series of Acacia
Capital Corporation's Calvert Responsibly Invested (CRI) Portfolios, is
registered under the Investment Company Act of 1940 as a non-diversified, open-
end management investment company. The operations of each series are accounted
for separately. The shares of the Portfolio, which were first offered on March
1, 1995, are sold to affiliated and unaffiliated insurance companies for
allocation to certain of their variable separate accounts.

Security Valuation: Securities listed or traded on a national securities
exchange are valued at the last reported sales price or spot market price.
Unlisted securities and listed securities for which the last sale price is not
available are valued at the most recent bid price or based on a yield equivalent
obtained from the securities' market maker. Short-term securities maturing
within 60 days are valued at amortized cost which approximates market. The
Portfolio may invest in securities whose resale is subject to restrictions.
Restricted securities and other securities and assets for which market
quotations are not available or deemed inappropriate are valued in good faith
under the direction of the Board of Directors.

Options: The Portfolio may write or purchase option securities. The option
premium is the basis for recognition of unrealized or realized gain or loss on
the option. The cost of securities acquired or the proceeds from securities sold
through the exercise of the option is adjusted by the amount of the premium.

Securities Sold Short: The Portfolio may sell securities that it does not own
in anticipation of a decline in their market price. Gains or losses represent
the difference between the sale proceeds and the price of the security.

Deposits with Brokers: The Portfolio maintains liquid assets sufficient to
cover, on a daily basis, the current values of written options and securities
sold short.

Security Transactions and Investment Income: Security transactions are
accounted for on trade date. Realized gains and losses are recorded on an
identified cost basis. Dividend income is recorded on the ex-dividend date.
Interest income, accretion of discount and amortization of premium are recorded
on an accrual basis. Dividends declared on securities sold short are reported as
an expense.

Distributions to Shareholders: Distributions to shareholders are recorded by
the Portfolio on ex-dividend date. Dividends from net investment income are paid
annually. Distributions from net realized capital gains, if any, are paid at
least annually. Distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles,
accordingly, periodic reclassifications are made within the Portfolio's capital
accounts to reflect income and gains available for distribution under income tax
regulations.

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED STRATEGIC GROWTH PORTFOLIO - 19
<PAGE>

Note B-Related Party Transactions

Calvert Shareholder Services, Inc., an affiliate of the Advisor, acts as
transfer, dividend disbursing and shareholder servicing agent for the Portfolio.

Calvert Administrative Services Company, an affiliate of the Advisor, provides
administrative services to the Portfolio for a fee, payable monthly, of .20% of
the Portfolio's annual average daily net assets.

Note C-Investment Activity
During the period, purchases and sales of investments, other than short-term
securities, were $1,164,254 and $526,688, respectively.

The cost of investments owned at December 31, 1995 was substantially the same
for federal income tax and financial reporting purposes. Net unrealized
appreciation aggregated $97,640, of which $109,495 related to appreciated
securities and $11,855 related to depreciated securities.

The Portfolio has net realized capital loss carryforwards of $11,166 which may
be utilized to offset future capital gains until expiration in 2003.

The following table summarizes transactions in written call and put options
during the period:

Contracts Premiums
==========================================================
Options outstanding, beginning............ -- --
Options written........................... 6 $ 4,619
Options exercised......................... (2) (1,000)
Options closed............................ (2) (2,250)
-- -------
Options outstanding, ending............... 2 $ 1,369
== =======

Securities having an aggregate market value of $17,550 were identified to cover
open call options written at year end.

20 - CALVERT RESPONSIBLY INVESTED STRATEGIC GROWTH PORTFOLIO ANNUAL REPORT
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Strategic Growth Portfolio
Financial Highlights

================
<TABLE>
<CAPTION>
From Inception
March 1, 1995
Through
December 31,
1995
- --------------------------------------------------------------------------------

<S> <C>
Net asset value, beginning .................................... $10.00
==========
Income from investment operations
- ---------------------------------
Net investment income ..................................... .25
Net realized and unrealized gain (loss) ................... .93
----------
Total from investment operations ...................... 1.18
----------
Distributions from
- ------------------
Net investment income ..................................... (.24)
----------
Total distributions ................................... (.24)
----------
Total increase (decrease) in net asset value .................. .94
----------
Net asset value, ending ....................................... $10.94
==========
Total return* ................................................. 9.65%
==========
Ratios to average net assets:
Net investment income ..................................... .43%(a)
==========
Total expenses+ ........................................... 2.17%(a)
==========
Net expenses .............................................. 1.64%(a)
==========
Expenses reimbursed ....................................... .20%(a)
==========
Portfolio turnover ............................................ 223%
==========
Net assets, ending (in thousands) ............................. $1,209
==========
Number of shares outstanding, ending (in thousands) ........... 111
==========
</TABLE>

(a) Annualized
* Total return is not annualized for periods of less than one year.
+ This ratio reflects total expenses before reduction for fees paid indirectly;
such reductions are included in the ratio of net expenses.

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED STRATEGIC GROWTH PORTFOLIO - 21

<PAGE>

Annual Report-December 31, 1995

================

CALVERT RESPONSIBLY INVESTED
CAPITAL ACCUMULATION PORTFOLIO

Managed by Apodaca-Johnston, Brown Capital Management and
Fortaleza Asset Management

Dear Investor:

The 12-month period ended December 31, 1995 proved to be an excellent one
for most investors as a cooling economy, tame inflation and falling interest
rates worked together to push stock and bond prices higher. Gross Domestic
Product (GDP) slowed to below 2% annualized, based on estimates of fourth
quarter data. To stimulate the economy, the Federal Reserve lowered interest
rates twice in the second half of 1995, reducing its target for the federal
funds rate to 5.5% by year end.

Market Summary

The stock market, as measured by the Standard & Poor's 500(R) Index, had
its best year since 1975, rising 34% for the year. Stocks from the technology
and financial sectors were among the leading issues while trucking, steel and
transportation equipment stocks lagged behind.

As yields fell, bonds moved ahead, with the Lehman Aggregate Bond Index
advancing 18.47%. Money market investors paid a high price for security as the
average money market fund returned just over 5% for the entire year.

Calvert Responsibly Invested
Capital Accumulation Portfolio

[Performance graph appears here]

---------------------------------------------------------------
CRI S&P 500 RUSSELL S&P 400
---------------------------------------------------------------
7/91 10,000 10,000 10,000 10,000
---------------------------------------------------------------
12/91 10,725 10,908 11,048 10,000
---------------------------------------------------------------
12/92 12,198 11,738 13,082 10,000
---------------------------------------------------------------
12/93 13,120 12,919 15,554 10,000
---------------------------------------------------------------
12/94 11,818 13,153 15,271 10,092
---------------------------------------------------------------
12/95 16,498 18,089 19,274 13,095
---------------------------------------------------------------

Average Annual Total Return
(periods ending 12/31/95)

1 Year 39.46% Life of Fund 11.93% (7/91)
--------------------------------------------------------------------
Performance information is for the Portfolio only and does not
reflect charges and expenses of the variable annuity. Past
performance does not indicate future results.

Performance and Strategy

The 12-month period ended December 31, 1995 was a strongly positive one for
CRI Capital Accumulation Portfolio investors. The Portfolio's return of 39.46%
was well ahead of the Lipper Growth Funds Average of 30.79%.

22 - CALVERT RESPONSIBLY INVESTED CAPITAL ACCUMULATION PORTFOLIO ANNUAL REPORT

<PAGE>

Much of the Portfolio's performance during the period was attributable to
heavy weightings in the technology and financial sectors. Financial stocks
benefited from the favorable interest rate climate as both short- and long-term
interest rates declined throughout the year. Our technology sector holdings
focused primarily on semiconductor and networking companies, both of which
benefited from the worldwide trend towards productivity enhancement. Although
many stocks in this sector were beaten down during the fourth quarter, we
continue to view selected issues as good long-term plays.

Outlook

Looking forward to 1996, inflation and interest rates should remain low and
stocks should have very little competition from bonds. We will continue to
invest in companies that emphasize productivity enhancement, especially in the
healthcare and financial sectors. The good news is that fundamentals remain
strong for many of our favorite companies, suggesting strong earnings growth
throughout the year. Finally, 1996 is a Presidential election year, typically a
positive sign for the market. Collectively, these factors bode well for the
stocks in 1996.

As of this writing, a shareholder meeting was pending to merge the CRI Equity
Portfolio into the CRI Capital Accumulation Portfolio. Assuming the merger was
approved, we welcome all CRI Equity Portfolio shareholders.

We appreciate your investment in the CRI Capital Accumulation Portfolio.

Sincerely,

/s/ Clifton S. Sorrell
Clifton S. Sorrell
President

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED CAPITAL ACCUMULATION PORTFOLIO - 23
<PAGE>

Report of Independent Accountants

================

To the Board of Directors of Acacia Capital Corporation and Shareholders of the
Calvert Responsibly Invested Capital Accumulation Portfolio:

We have audited the accompanying statement of assets and liabilities of
Calvert Responsibly Invested Capital Accumulation Portfolio (one of the
portfolios comprising the Acacia Capital Corporation), including the portfolio
of investments, as of December 31, 1995, and the related statement of operations
for the year then ended, and statement of changes in net assets and financial
highlights for each of the two years then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for each of
the preceding years were audited by other auditors whose report dated January
31, 1994 expressed an unqualified opinion thereon.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Calvert Responsibly Invested Capital Accumulation Portfolio as of December 31,
1995, the results of its operations for the year then ended the changes in its
net assets and financial highlights for each of the two years in the period then
ended, in conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Baltimore, Maryland
January 26, 1996

24 - CALVERT RESPONSIBLY INVESTED CAPITAL ACCUMULATION PORTFOLIO ANNUAL REPORT
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Capital Accumulation Portfolio
Portfolio of Investments
December 31, 1995

============
<TABLE>
<CAPTION>

Equity Securities (89.8%) Shares Value
- ---------------------------------------------------------------
<S> <C> <C>
Airline (0.7%)
Atlantic Coast Airlines, Inc. *............ 6,000 $ 61,500
--------
61,500
--------

Biotechnology (0.6%)
Amgen, Inc. *.............................. 900 53,438
--------
53,438
--------

Business Equipment and Services (1.4%)
Corporate Express, Inc. *.................. 2,500 75,313
U.S. Office Products Co. *................. 2,000 45,500
--------
120,813
--------

Chemicals (0.7%)
Minerals Technologies, Inc................. 600 21,900
Sigma Aldrich Corp......................... 900 44,550
--------
66,450
--------

Communications (5.2%)
Apertus Technologies, Inc. *............... 4,000 31,000
Cisco Systems, Inc. *...................... 1,000 74,625
DSC Communications Corp. *................. 800 29,500
DSP Communications, Inc. *................. 700 30,538
Microwave Power Devices, Inc. *............ 3,200 35,600
P Com, Inc. *.............................. 2,100 42,000
Satellite Technology Mgmt, Inc., Class A *. 400 7,700
Tellabs, Inc. *............................ 1,000 37,000
Teltrend, Inc. *........................... 1,700 79,475
Voice Control Systems, Inc. *.............. 1,300 9,100
VSI Enterprises, Inc. *.................... 11,000 41,938
Vtel Corp. *............................... 2,500 46,250
--------
464,726
--------

Computer - Software (12.3%)
Act Networks, Inc........................... 2,200 34,925
Carnegie Group, Inc. *...................... 5,000 48,750
Cheyenne Software, Inc. *................... 1,600 41,800
Compuware Corp. *........................... 2,000 37,000
</TABLE>
See notes to portfolio of investments.

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED CAPITAL ACCUMULATION PORTFOLIO - 25
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Capital Accumulation Portfolio
Portfolio of Investments (Continued)
December 31, 1995

============

Equity Securities (Cont'd) Shares Value
- ----------------------------------------------------------
<S> <C> <C>
Computer - Software (Cont'd)
Comshare, Inc. *..................... 1,500 $ 39,000
Davidson & Assoc., Inc. *............ 2,100 46,200
Elcom International, Inc. *.......... 2,600 39,650
Enterprise Systems, Inc. *........... 800 24,400
Excalibur Technologies Corp. *....... 1,600 58,400
Firefox Communications, Inc. *....... 1,600 37,600
Fractal Design Corp. *............... 2,900 40,600
IDX Systems Corp. *.................. 1,500 52,125
Imnet Systems, Inc. *................ 3,000 72,000
Insignia Solutions *................. 2,400 28,200
MDL Information Systems, Inc. *...... 2,000 46,000
Metatools, Inc. *.................... 800 20,800
Microsoft Corp. *.................... 900 78,975
Network Gen Corp. *.................. 1,500 50,063
Number Nine Visual Technology *...... 900 7,875
Quarterdeck Corp. *.................. 1,800 49,500
Secure Computing Corp. *............. 100 5,600
Softkey International, Inc. *........ 3,500 80,938
Sterling Software, Inc............... 1,100 68,613
Veritas Software Co. *............... 1,500 57,000
Viasoft, Inc. *...................... 3,000 35,625
----------
1,101,639
----------

Computer - Systems (8.4%)
Asyst Technologies, Inc. *........... 1,000 35,250
Bay Networks, Inc. *................. 1,800 74,025
Diamond Multimedia Systems, Inc. *... 2,000 71,750
Discreet Logic, Inc. *............... 1,300 32,500
Interphase Corp. *................... 2,500 29,062
Lanoptics Ltd. *..................... 2,000 39,000
Mentor Graphics Corp................. 1,300 23,725
Meridian Data, Inc. *................ 4,300 46,763
Microcom, Inc. *..................... 2,000 52,000
Network Appliance, Inc. *............ 1,100 44,138
Oracle Systems Corp. *............... 1,425 60,384
Spacetex IMC Corp. *................. 5,000 58,750

</TABLE>
See notes to portfolio of investments.

26 - CALVERT RESPONSIBLY INVESTED CAPITAL ACCUMULATION PORTFOLIO ANNUAL REPORT
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Capital Accumulation Portfolio
Portfolio of Investments (Continued)
December 31, 1995

==============

Equity Securities (Cont'd) Shares Value
- -------------------------------------------------------
<S> <C> <C>
Computer - Systems (Cont'd)
Sync Research, Inc. *................. 1,000 $ 45,250
Verifone, Inc. *...................... 3,000 85,875
Visioneer Communications, Inc. *...... 2,300 51,175
---------
749,647
---------
Consumer Products (0.6%)
Newell Co............................. 2,100 54,338
---------
54,338
---------
Cosmetics (0.8%)
Guest Supply, Inc. *.................. 3,250 73,531
---------
73,531
---------
Electrical Equipment (2.8%)
AFC Cable Systems, Inc. *............. 2,900 39,875
Checkpoint Systems, Inc. *............ 2,000 74,750
Kulicke & Soffa Industries, Inc....... 2,000 46,500
Pacific Scientific Co................. 3,600 89,100
---------
250,225
---------
Electronics - Defense (0.5%)
Alpha Industries, Inc................. 3,500 49,437
---------
49,437
---------
Electronics - Instruments (1.8%)
Checkfree Corp. *..................... 1,500 32,250
Intermagnetics Gen Corp. *............ 2,575 54,075
Speedfam International, Inc. *........ 100 1,125
Ultratech Stepper, Inc. *............. 3,000 77,250
---------
164,700
---------
Electronics - Semiconductors (9.2%)
Adaptec, Inc. *....................... 1,000 41,000
Alantec Corp. *....................... 1,000 58,250
Ariel Corp. *......................... 3,000 32,625
E M C Corp. *......................... 2,100 32,288
Electrostar, Inc. *................... 3,000 25,875
</TABLE>
See notes to portfolio of investments.

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED CAPITAL ACCUMULATION PORTFOLIO - 27
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Capital Accumulation Portfolio
Portfolio of Investments (Continued)
December 31, 1995

=================

Equity Securities (Cont'd) Shares Value
- -----------------------------------------------------------------
<S> <C> <C>
Electronics - Semiconductors (Cont'd)
Gasonics International, Inc. *................. 3,100 $ 41,850
Input/Output, Inc. *........................... 1,100 63,525
MRV Communications, Inc. *..................... 1,700 43,138
Photronic, Inc. *.............................. 1,750 46,813
PRI Automation, Inc. *......................... 1,200 42,150
Sanmina Corp. *................................ 500 25,938
Seeq Technology, Inc. *........................ 12,400 54,250
Sheldahl Co.................................... 2,000 36,250
Sierra Semi Conductor Corp. *.................. 4,700 65,213
Silicon Storage Technology, Inc. *............. 3,600 47,700
Solectron Corp. *.............................. 1,500 66,188
Uniphase Corp. *............................... 1,200 42,900
Vishay Intertechnology, Inc.................... 1,730 54,495
-------
820,448
-------
Entertainment (0.5%)
Pinnacle Systems, Inc. *....................... 1,200 29,700
Sanctuary Woods Multimedia Corp. *............. 6,400 18,400
-------
48,100
-------
Financial Services (4.4%)
First USA, Inc................................. 1,100 48,812
Glendale Federal Bank Federal Savings Bank *... 4,800 84,000
Green Tree Financial Corp...................... 2,600 68,575
ISB Financial Corp............................. 4,500 67,500
Roosevelt Financial Group, Inc................. 1,800 34,875
T. Rowe Price Associates, Inc.................. 1,800 88,650
-------
392,412
-------
Health Care (6.7%)
American Homepatient, Inc. *................... 2,000 59,000
CRA Managed Care, Inc. *....................... 2,000 43,750
First Commonwealth, Inc. *..................... 1,500 39,000
GRC International, Inc. *...................... 1,600 61,400
HCIA, Inc. *................................... 1,900 88,825
Health Care & Retirement Corp. *............... 1,600 56,000
</TABLE>
See notes to portfolio of investments.

28 - CALVERT RESPONSIBLY INVESTED CAPITAL ACCUMULATION PORTFOLIO ANNUAL REPORT
<PAGE>
Acacia Capital Corporation
Calvert Responsibly Invested
Capital Accumulation Portfolio
Portfolio of Investments (Continued)
December 31, 1995

============

Equity Securities (Cont'd) Shares Value
============================================================
<S> <C> <C>
Health Care (Cont'd)
Healthsource, Inc.*........................ 2,000 $ 72,000
Manor Care, Inc............................ 2,300 80,500
United Healthcare Corp..................... 1,500 98,250
--------
598,725
--------

Insurance (0.8%)
AFLAC, Inc................................. 1,100 47,712
American Bankers Ins Group, Inc............ 700 27,300
--------
75,012
--------
Leisure (1.5%)
Carnival Corp., Class A.................... 2,500 60,937
Ride, Inc.*................................ 2,300 75,037
--------
135,974
--------

Machine Tools (0.5%)
FSI International, Inc.*................... 2,000 40,500
--------
40,500
--------
Medical (9.5%)
ALZA Corp.................................. 1,900 47,025
Cardinal Health, Inc....................... 1,200 65,700
Circon Corp.*.............................. 1,700 34,425
Diametrics Medical, Inc.*.................. 4,000 19,500
Hologic, Inc.*............................. 900 36,900
ICU Medical, Inc.*......................... 2,200 37,400
Inhale Therapeutic Systems*................ 3,000 29,250
Invacare Corp.............................. 1,500 37,875
Mecon, Inc.*............................... 6,100 96,837
North American Vaccine, Inc.*.............. 2,500 35,312
Northfield Laboratories, Inc.*............. 2,000 37,750
Pediatrix Medical Group*................... 1,800 49,500
QLT Phototherapeutics*..................... 1,500 15,187
Research Industries Corp.*................. 3,000 81,000
Respironics, Inc.*......................... 3,000 63,000

</TABLE>
See notes to portfolio of investments.

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED CAPITAL ACCUMULATION PORTFOLIO - 29
<PAGE>
Acacia Capital Corporation
Calvert Responsibly Invested
Capital Accumulation Portfolio
Portfolio of Investments (Continued)
December 31, 1995

============

Equity Securities (Cont'd) Shares Value
=====================================================
<S> <C> <C>
Medical (Cont'd)
Sofamor/Danek Group, Inc.*......... 1,000 $ 28,375
Steris Corp.*...................... 1,600 51,600
Visx, Inc.*........................ 1,100 42,900
Zygo Corp.*........................ 1,400 35,175
--------
844,711
--------
Oil & Gas (1.2%)
Belden & Blake Corp.*.............. 2,500 43,750
Stone Energy Corp.*................ 4,200 64,575
--------
108,325
--------
Pharmaceutical (2.5%)
Columbia Labs, Inc.*............... 5,000 42,812
Immulogic Pharmaceutical Corp.*.... 2,000 38,500
Merck & Co., Inc................... 1,500 98,625
Sequus Pharmaceuticals, Inc.*...... 3,000 42,750
--------
222,687
--------
Real Estate (1.1%)
General Growth Properties, Inc..... 2,000 41,500
Post Properties, Inc............... 1,800 57,375
--------
98,875
--------
Recycling (0.7%)
Imco Recycling, Inc................ 2,500 61,250
--------
61,250
--------
Restaurants (2.8%)
Buffets, Inc.*..................... 3,800 52,250
Cheesecake Factory, Inc.*.......... 3,300 70,950
CKE Restaurants, Inc.*............. 2,800 44,800
Daka International, Inc.*.......... 3,000 82,500
--------
250,500
</TABLE> --------

See notes to portfolio of investments.

30 - CALVERT RESPONSIBLY INVESTED CAPITAL ACCUMULATION PORTFOLIO ANNUAL REPORT
<PAGE>

Acacia Capital Corporation

Calvert Responsibly Invested

Capital Accumulation Portfolio

Portfolio of Investments (Continued)

December 31, 1995

=================

Equity Securities (Cont'd) Shares Value
=====================================================================
<S> <C> <C>
Retail (5.9%)
Autozone, Inc.*................................ 2,000 $ 57,750
Dollar General Corp............................ 4,500 93,375
Federated Department Stores, Inc.*............. 2,000 55,000
Gadzooks, Inc.*................................ 2,200 55,550
Mens Wearhouse, Inc.*.......................... 3,150 81,112
Movie Gallery, Inc.*........................... 3,000 91,500
Revco D.S., Inc.*.............................. 2,100 59,325
Whole Foods Market, Inc.*...................... 2,500 34,687
----------
528,299
----------
Specialized Services (3.6%)
Ambassadors International, Inc.*............... 5,000 48,750
Devry, Inc.*................................... 2,000 54,000
Equifax, Inc................................... 2,950 63,056
Gartner Group, Inc., Class A*.................. 1,000 47,875
Lo Jack Corp................................... 3,400 37,825
U.S. Order, Inc.*.............................. 3,000 67,125
----------
318,631
----------
Telecommunications (0.4%)
Westell Technologies, Class A*................. 1,300 32,662
----------
32,662
----------
Textiles (2.7%)
Lydall, Inc.................................... 2,000 45,500
Marisa Christina, Inc.*........................ 2,000 34,000
Quiksilver, Inc.*.............................. 2,000 68,375
St. John Knits, Inc............................ 1,700 90,312
----------
238,187
----------
Total Equity Securities (Cost $6,545,208)..... 8,025,742
----------
TOTAL INVESTMENTS (89.8%)
(Cost $6,545,208+)........................... $8,025,742
==========
</TABLE>
Notes to Portfolio of Investments:
* Non-income producing.
+ Cost of investments is substantially the same for federal income tax purposes.
Percentages shown represent the percentage of investments to net assets.

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED CAPITAL ACCUMULATION PORTFOLIO - 31

<PAGE>

Acacia Capital Corporation

Calvert Responsibly Invested

Capital Accumulation Portfolio

Statement of Assets and Liabilities

December 31, 1995

=================

Assets
======================================================================================
<S> <C>
Investments in securities, at value - see accompanying portfolio..... $8,025,742
Cash................................................................. 948,957
Receivable for securities sold....................................... 31,079
Interest and dividends receivable.................................... 3,392
Other assets......................................................... 95
----------
Total assets........................................................ 9,009,265
----------

Liabilities
======================================================================================

Payable for securities purchased..................................... 64,066
Payable to Calvert Asset Management Company, Inc..................... 6,020
Accrued expenses and other liabilities............................... 3,900
----------
Total liabilities................................................... 73,986
----------
Net assets......................................................... $8,935,279
==========

Net Assets Consist of:
======================================================================================

Par value and paid-in capital applicable to 398,463 shares of common
stock outstanding; $1 par value, 4,000,000 shares authorized........ $7,434,676
Accumulated net realized gains (losses) on investments............... 20,069
Net unrealized appreciation (depreciation) on investments............ 1,480,534
----------
Net Assets......................................................... $8,935,279
==========
Net Asset Value per Share.......................................... $22.42
==========

</TABLE>
See notes to financial statements.

32 - CALVERT RESPONSIBLY INVESTED CAPITAL ACCUMULATION PORTFOLIO ANNUAL REPORT

<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Capital Accumulation Portfolio
Statement of Operations
Year Ended December 31, 1995

===================

Net Investment Income
==============================================================================
<S> <C>
Investment Income
Interest income.................................................. $ 5,696
Dividend income.................................................. 22,183
----------
Total investment income........................................ 27,879
----------
Expenses
Investment advisory fee.......................................... 55,003
Directors' fees and expenses..................................... 930
Administrative fees.............................................. 6,905
Custodian fees................................................... 21,569
Registration fees................................................ 505
Reports to shareholders.......................................... 21,868
Professional fees................................................ 2,038
Contract Services................................................ 5,297
Miscellaneous.................................................... 358
Reimbursement from Advisor....................................... (6,905)
----------
Total expenses................................................. 107,568
Fees paid indirectly........................................... (21,569)
----------
Net expenses................................................ 85,999
----------
Net Investment Income (Loss)............................ (58,120)
----------
Realized and Unrealized Gain (Loss)
on Investments
==============================================================================

Net realized gain (loss) on investments.......................... 805,204
Change in unrealized appreciation or depreciation on investments. 1,398,962
----------

Net Realized and Unrealized Gain (Loss)
on Investments................................................. 2,204,166
----------

Increase (Decrease) in Net Assets
Resulting From Operations....................................... $2,146 046
==========
</TABLE>

See notes to financial statements.

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED CAPITAL ACCUMULATION PORTFOLIO - 33

<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Capital Accumulation Portfolio
Statement of Changes in Net Assets
Years Ended December 31, 1995 and 1994

================

Increase (Decrease)in Net Assets 1995 1994
===================================================================================
<S> <C> <C>
Operations
Net investment income................................... $ (58,120) $ 36,868
Net realized gain (loss) on investments................. 805,204 (260,154)
Change in unrealized appreciation or depreciation....... 1,398,962 (358,629)
----------- -----------
Increase (Decrease)
In Net Assets Resulting From Operations............. 2,146,046 (581,915)
----------- -----------
Distributions to shareholders from:
Net investment income................................... (3,628) (33,260)
Net realized gain on investments........................ (466,861) --
----------- -----------
Total distributions.................................... (470,489) (33,260)
----------- -----------
Capital share transactions
Shares sold............................................. 2,445,856 2,889,850
Reinvestment of distributions........................... 470,489 33,260
Shares redeemed......................................... (1,345,444) (1,605,337)
----------- -----------
Total capital share transactions...................... 1,570,901 1,317,773
----------- -----------
Total Increase (Decrease) In Net Assets.................. 3,246,458 702,598

Net Assets
===================================================================================

Beginning of year....................................... 5,688,821 4,986,223
----------- -----------
End of year (including undistributed net investment
income of $0 and $3,628, respectively.)................ $ 8,935,279 $ 5,688,821
=========== ===========
Capital Share Activity
===================================================================================

Shares sold............................................. 112,840 158,373
Reinvestment of distributions........................... 20,976 1,954
Shares redeemed......................................... (70,579) (88,169)
----------- -----------
Total capital share activity.......................... 63,237 72,158
=========== ===========
</TABLE>
See notes to financial statements.

34 - CALVERT RESPONSIBLY INVESTED CAPITAL ACCUMULATION PORTFOLIO ANNUAL REPORT
<PAGE>

Notes to Financial Statements

Note A--Significant Accounting Policies

General: The Capital Accumulation Portfolio (the "Portfolio"), a series of
Acacia Capital Corporation's Calvert Responsibly Invested (CRI) Portfolios, is
registered under the Investment Company Act of 1940 as a non-diversified, open-
end management investment company. Capital Accumulation was formerly Calvert-
Ariel Appreciation II Portfolio. The operations of each series are accounted for
separately. The shares of the Portfolio are sold to affiliated and unaffiliated
insurance companies for allocation to certain of their variable separate
accounts.

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED CAPITAL ACCUMULATION PORTFOLIO - 35
<PAGE>

Note B--Related Party Transactions

Calvert Shareholder Services, Inc., an affiliate of the Advisor, acts as
transfer, dividend disbursing and shareholder servicing agent for the Portfolio.

Calvert Administrative Services Company, an affiliate of the Advisor, provides
administrative services to the Portfolio for an annual fee, payable monthly, of
.10% of the Portfolio's annual average daily net assets.

Note C--Investment Activity

During the year, purchases and sales of investments, other than short-term
securities, were $11,778,141 and $8,448,713, respectively.

The cost of investments owned at December 31, 1995 was substantially the same
for federal income tax and financial reporting purposes. Net unrealized
appreciation aggregated $1,480,534, of which $1,821,342 related to appreciated
securities and $340,808 related to depreciated securities.

Note D--Subsequent Event

The shareholders of CRI Equity Portfolio have been asked to vote (under the
instructions of the contract holders) on February 16, 1996 on a merger into the
Portfolio effected by a tax-free exchange of net assets of CRI Equity,
approximately $4.5 million, for shares of the Portfolio.

36 - CALVERT RESPONSIBLY INVESTED CAPITAL ACCUMULATION PORTFOLIO ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
Acacia Capital Corporation
Calvert Responsibly Invested
Capital Accumulation Portfolio
Financial Highlights
=========

From
Inception
July 16,
Year Year Year Year 1991
Ended Ended Ended Ended Through
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1994 1993 1992 1991
===========================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning................ $16.97 $18.95 $17.87 $15.82 $15.00
====== ====== ====== ====== ======
Income from investment operations
Net investment income.................... (.15) .10 .08 .09 .26
Net realized and unrealized gain (loss).. 6.85 (1.98) 1.27 2.09 .82
------ ------ ------ ------ ------
Total from investment operations........ 6.70 (1.88) 1.35 2.18 1.08
------ ------ ------ ------ ------

Distributions from
Net investment income.................... (.01) (.10) (.08) (.09) (.26)
Net realized gains....................... (1.24) ---- (.19) (.04) ----
------ ------ ------ ------ ------
Total distributions..................... (1.25) (.10) (.27) (.13) (.26)
------ ------ ------ ------ ------
Total increase (decrease) in
net asset value.......................... 5.45 (1.98) 1.08 2.05 .82
------ ------ ------ ------ ------
Net asset value, ending................... $22.42 $16.97 $18.95 $17.87 $15.82
====== ====== ====== ====== ======
Total return*............................. 39.46% (9.92%) 7.56% 13.73% 7.25%
====== ====== ====== ====== ======
Ratios to average net assets:
Net investment income.................... (.84%) .68% .66% 1.19% .84%(a)
====== ====== ====== ====== ======
Total expenses+.......................... 1.56% ---- ---- ---- ----
====== ====== ====== ====== ======
Net expenses............................. 1.25% .79% .80% .39% ----
====== ====== ====== ====== ======
Expenses reimbursed...................... .10% ---- ---- .87% 4.23%(a)
====== ====== ====== ====== ======
Portfolio turnover........................ 135% 79% 26% 2% 5%
====== ====== ====== ====== ======
Net assets, ending (in thousands)......... $8,935 $5,689 $4,986 $ 870 $ 268
====== ====== ====== ====== ======
Number of shares outstanding,
ending (in thousands).................... 398 335 263 49 17
====== ====== ====== ====== ======
</TABLE>

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED CAPITAL ACCUMULATION PORTFOLIO - 37
<PAGE>

Annual Report--December 31, 1995

=========

CALVERT RESPONSIBLY INVESTED
GLOBAL EQUITY PORTFOLIO

Managed by Murray Johnstone, Ltd.

Dear Investor:

Nineteen ninety-five proved to be a mixed year for stock markets around the
globe. Asian markets, for example, were relatively flat while European stocks,
as measured by the Eurotop 100 Index, rose an average of 12.3%.

There was much of the same in the Americas. The U.S. market had an outstanding
year, with the Standard & Poor's 500(R) Index surging ahead 34%, while Canada's
Toronto Stock Exchange Index of 300 major issues ended the year up a modest 12%.
By contrast, Latin American markets from Mexico to Colombia recorded one of
their worst years ever.

Performance and Strategy

The Global Equity Portfolio returned 12.35% for the 12-month period ended
December 31, 1995 compared to 21.32% for the Morgan Stanley Capital
International World Index.

Initially in 1995, we focused our investments predominantly in Europe and
Southeast Asia. As the year progressed and prospects for a Japanese economic
recovery improved, we increased investment in Japan to 27% of the Portfolio.
Similarly, we increased allocations to Hong Kong and Singapore when the outlook
for their markets became more attractive. We raised cash for these purchases by
selling positions in Germany and the Netherlands. (Our sell decision was based
on the expectation that these markets would eventually suffer due to an extreme
rise in the value of their national currencies.) By year-end 1995, our
investments in Continental Europe and the Far East outperformed the overall
markets in each of these regions.

Calvert Responsibly Invested
Global Equity Portfolio

[GRAPH APPEARS HERE]
- ------------------------------------------------------------------------------
Comparison of change in value of a
hypothetical $10,000 investment.

CRI Global MSCI World Index
---------------------------------
6/92 $10,000 $10,000
12/92 9,673 9,729
12/93 12,548 11,979
12/94 12,281 12,648
12/95 13,797 15,344

Average Annual Total Return
(periods ending 12/31/95)

1 Year 12.35% Life of Fund 9.50% (6/92)
- ------------------------------------------------------------------------------
Performance information is for the Portfolio only and does not
reflect charges and expenses of the variable annuity.
Past performance does not indicate future results.
- ------------------------------------------------------------------------------

38 - CALVERT RESPONSIBLY INVESTED GLOBAL EQUITY PORTFOLIO ANNUAL REPORT
<PAGE>

Underexposure to the U.S. market and overexposure to the Mexican market were
the two factors primarily responsible for the Portfolio's underperformance. We
underweighted the U.S. market because our assessment showed that, in historical
terms, it had become overvalued and that corporate earnings were in a downward
phase. The decision proved costly because the U.S. market turned in one of the
year's best performances worldwide.

We maintained our Mexican holdings because we believed equities would recover
from their downward spiral in 1994. You may recall that Mexican stocks fell
after the peso devaluation in December of 1994 caused an economic crisis. In
January of 1995, the government arranged a series of standby loans and in March
instituted an austerity program which we anticipated would result in recession.
However, we believed that equity prices already reflected the downturn and that
stocks were poised for a comeback.

As we expected, equities recovered throughout the year. But global investors
began selling pesos when fears arose that the Mexican government might loosen
austerity measures and that corporate earnings might fall short of expectations.
The weakening of the peso reduced the dollar-denominated value of Mexican
investments and resulted in further losses for U.S. investors.

Outlook

We believe the worldwide structural shift towards lower inflation, which began
taking shape in 1995, will continue in 1996. Low interest rates will persist as
a result. Moreover, earnings will begin to exert a greater influence on stock
prices than money supply changes by the world's central banks. For this reason,
we will focus our attention on markets in the Far East, which are in a growth
phase, and reduce our exposure to markets in the U.S., the U.K. and Europe. We
will maintain our investments in Latin America as our analysis indicates it
should enjoy good growth in the year ahead.

We appreciate your investment in the CRI Global Equity Portfolio.

Sincerely,

/s/ Clifton S. Sorrell
Clifton S. Sorrell
President

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED GLOBAL EQUITY PORTFOLIO - 39
<PAGE>

Report of Independent Accountants

================

To the Board of Directors of Acacia Capital Corporation and Shareholders of the
Calvert Responsibly Invested Global Equity Portfolio:

We have audited the accompanying statement of assets and liabilities of
Calvert Responsibly Invested Global Equity Portfolio (one of the portfolios
comprising the Acacia Capital Corporation), including the portfolio of
investments, as of December 31, 1995, and the related statement of operations
for the year then ended, and statement of changes in net assets and financial
highlights for each of the two years then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for each of
the preceding years were audited by other auditors whose report dated January
31, 1994 expressed an unqualified opinion thereon.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Calvert Responsibly Invested Global Equity Portfolio as of December 31, 1995,
the results of its operations for the year then ended, and the changes in its
net assets and financial highlights for each of the two years in the period then
ended, in conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Baltimore, Maryland
January 26, 1996

40 - CALVERT RESPONSIBLY INVESTED GLOBAL EQUITY PORTFOLIO ANNUAL REPORT
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Global Equity Portfolio
Portfolio of Investments
December 31, 1995

========

Equity Securities (93.6%) Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Australia (2.1%)
National Australia Bank.................................... 23,000 $206,853
--------
206,853
--------

Belgium (0.1%)
G.I.B...................................................... 19 813
--------
813
--------

Denmark (1.5%)
Tele Danmark............................................... 2,680 146,248
--------
146,248
--------

France (3.1%)
Ass Gen de France.......................................... 3,105 103,986
CPR CIE Par Reesco......................................... 690 56,347
Credit Fonc France......................................... 2,691 38,906
Pinault Printemps Redoute, S.A. *.......................... 530 105,740
--------
304,979
--------

Hong Kong (3.6%)
Hysan Development.......................................... 55,000 145,457
Sun Hung Kai Props......................................... 25,000 204,494
--------
349,951
--------

Italy (3.5%)
IMI........................................................ 23,000 144,825
Telecom Italia *........................................... 99,300 104,419
Telecom Italia *........................................... 53,600 94,333
--------
343,577
--------

Japan (27.2%)
Canon, Inc................................................. 10,000 181,114
Futaba Corp................................................ 2,000 91,622
Itochu Corp................................................ 28,000 188,475
Kuraray Co................................................. 17,000 186,053
Mori Seiki Co.............................................. 9,000 203,099
NEC Corp................................................... 15,000 183,051
Nippon Telephone & Telegraph............................... 23 186,005
Omron Corp................................................. 7,000 161,356
Sanwa Bank................................................. 6,000 122,034
Secom Co................................................... 3,000 208,620

</TABLE>
See notes to portfolio of investments.

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED GLOBAL EQUITY PORTFOLIO - 41
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Global Equity Portfolio
Portfolio of Investments (Continued)
December 31, 1995

========

Equity Securities (Cont'd) Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Japan (Cont'd)
Sumitomo Trust & Banking................................. 14,000 $ 197,966
Takeda Chem Inds......................................... 12,000 197,579
TDK Corp................................................. 3,000 153,123
Teijin................................................... 23,000 117,617
Tokyo Style Co........................................... 10,000 171,428
Tsukishima Kikai......................................... 6,000 127,845
----------
2,676,987
----------

Netherlands (1.9%)
Elsevier, N.V........................................... 7,200 96,018
Ver Ned Uitgevers........................................ 675 92,667
----------
188,685
----------

New Zealand (2.4%)
Telecom Corp. of New Zealand............................. 55,000 237,317
----------
237,317
----------

Norway (2.0%)
Tomra Systems............................................ 25,500 201,291
----------
201,291
----------

Singapore (5.1%)
Keppel Corp.............................................. 17,000 151,432
O/Seas Chinese Bank...................................... 18,000 225,239
United Overseas, Ltd. (warrants) *....................... 149,000 126,405
----------
503,076
----------

Spain (4.4%)
Aguas de Barcelona....................................... 3,957 118,090
Dragados Y Constr........................................ 10,851 142,682
Sotogrande, S.A. *....................................... 30,650 57,105
Vallehermoso, S.A........................................ 6,340 117,862
----------
435,739
----------

Switzerland (1.7%)
Ciba Geigy, A.G.......................................... 91 80,074
Sandoz, A.G.............................................. 96 87,886
----------
167,960
----------
</TABLE>

See notes to portfolio of investments.

42 - CALVERT RESPONSIBLY INVESTED GLOBAL EQUITY PORTFOLIO ANNUAL REPORT
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Global Equity Portfolio
Portfolio of Investments (Continued)
December 31, 1995

========

Equity Securities (Cont'd) Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
United Kingdom (8.9%)
Allied Irish Banks........................................ 31,800 $173,841
Argyll Group.............................................. 12,000 63,364
Beazer Homes *............................................ 22,000 59,792
British Telecom........................................... 8,000 43,858
Cable & Wireless.......................................... 4,000 28,638
Commercial Union.......................................... 3,000 29,259
Dalgety................................................... 9,000 56,678
EMAP...................................................... 6,000 49,852
Glynwed International..................................... 10,000 49,542
Hays...................................................... 7,500 43,796
Kingfisher................................................ 5,000 42,087
Low & Bonar............................................... 7,000 50,225
Marks & Spencer........................................... 4,500 31,449
McBride *................................................. 15,000 44,960
National Westminster...................................... 5,000 50,357
Severn Trent *............................................ 5,000 53,386
--------
871,084
--------

United States (26.1%)
Banpais, S.A. ADR*....................................... 10,000 0
Cardinal Health, Inc...................................... 3,000 164,250
Cifra, S.A. de C.V........................................ 69,000 72,526
Duriron, Inc.............................................. 3,500 81,813
Enron Corp................................................ 3,000 114,375
Grupo Indl Durango, S.A. ADR*............................. 11,000 72,875
Hong Kong Land Hld........................................ 100,000 185,000
Illinois Tool Works, Inc.................................. 3,200 188,800
MBNA Corp................................................. 4,000 147,500
McGraw Hill Cos., Inc..................................... 2,000 174,250
Metrocall, Inc. *......................................... 3,000 57,375
Molex, Inc., Class A...................................... 5,000 153,125
New World Power Corp. *................................... 3,900 6,825
Northern Trust Corp. (rights)............................. 2,400 134,400
Partner Re Holding........................................ 6,700 184,250
Quorum Health Group, Inc. *............................... 6,500 143,000
Seitel, Inc. *............................................ 3,500 123,813
Telefonos de Mexico, S.A. ADR............................. 3,600 114,750

</TABLE>
See notes to portfolio of investments.

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED GLOBAL EQUITY PORTFOLIO - 43
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Global Equity Portfolio
Portfolio of Investments (Continued)
December 31, 1995

========

Equity Securities (Cont'd) Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
United States (Cont'd)
Transportadora de Gas, ADR............................. 21,000 $ 270,375
Worldcom, Inc. *....................................... 5,122 180,551
----------
2,569,853
----------

Total Equity Securities (Cost $8,959,656).............. 9,204,413
----------

Principal
Time Deposit (2.7%) Amount
- --------------------------------------------------------------------------------
State Street Bank, London, 5.625%, 1/3/96................ $261,073 261,073
----------

Total Time Deposit (Cost $261,073)..................... 261,073
----------

TOTAL INVESTMENTS (96.3%)
(Cost $9,220,729 +).................................. $9,465,486
==========

</TABLE>

Notes to Portfolio of Investments:
* Non-income producing.
+ Cost of investments is substantially the same for federal income tax purposes.
Percentages shown represent the percentage of investments to net assets.

44 - CALVERT RESPONSIBLY INVESTED GLOBAL EQUITY PORTFOLIO ANNUAL REPORT
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Global Equity Portfolio
Statement of Assets and Liabilities
December 31, 1995

========

Assets
- --------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value - see accompanying portfolio... $9,465,486
Cash............................................................... 351,453
Interest and dividends receivable.................................. 27,369
Other assets....................................................... 189
----------
Total assets..................................................... 9,844,497
----------

Liabilities
- --------------------------------------------------------------------------------
Payable to Calvert Asset Management Company, Inc................... 9,115
Accrued expenses and other liabilities............................. 4,435
Total liabilities................................................ 13,550
----------
Net assets..................................................... $9,830,947
----------

Net Assets Consist of:
- --------------------------------------------------------------------------------
Par value and paid-in capital applicable to 573,183 shares of
common stock outstanding; $1 par value, 4,000,000 shares
authorized....................................................... $9,547,475
Undistributed net investment income (loss)......................... 12,469
Accumulated net realized gains (losses) on investments and
foreign currencies............................................... 23,265
Net unrealized appreciation (depreciation) on investments and
assets and liabilities in foreign currencies..................... 247,738
----------
Net Assets..................................................... $9,830,947
==========

Net Asset Value per Share...................................... $17.15
==========

</TABLE>
See notes to financial statements.

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED GLOBAL EQUITY PORTFOLIO - 45
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Global Equity Portfolio
Statement of Operations
Year Ended December 31, 1995

========

Net Investment Income
- --------------------------------------------------------------------------------
<S> <C>
Investment Income
Interest income.................................................. $ 38,902
Dividend income (net of foreign taxes of $20,715)................ 204,454
----------
Total investment income........................................ 243,356
----------

Expenses
Investment advisory fee.......................................... 93,418
Directors' fees and expenses..................................... 419
Administrative fees.............................................. 40,000
Custodian fees................................................... 36,172
Reports to shareholders.......................................... 5,546
Professional fees................................................ 1,697
Miscellaneous.................................................... 288
Reimbursement from Advisor....................................... (36,720)
----------
Total expenses................................................. 140,820
Fees paid indirectly........................................... (36,034)
----------
Net expenses................................................. 104,786
----------
Net Investment Income (Loss).............................. 138,570
----------

Realized and Unrealized Gain (Loss)
on Investments
- --------------------------------------------------------------------------------
Net realized gain (loss) on:
Securities....................................................... 90,563
Foreign currencies............................................... 194,651
----------
285,214
----------

Change in unrealized appreciation or depreciation on:
Securities....................................................... 719,592
Assets and liabilities in foreign currencies..................... 2,725
----------
722,317
----------

Net Realized and Unrealized Gain (Loss)
On Investments................................................. 1,007,531
----------

Increase (Decrease) In Net Assets
Resulting From Operations...................................... $1,146,101
==========

</TABLE>
See notes to financial statements.

46 - CALVERT RESPONSIBLY INVESTED GLOBAL EQUITY PORTFOLIO ANNUAL REPORT
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Global Equity Portfolio
Statement of Changes in Net Assets
Years Ended December 31, 1995 and 1994

========

Increase (Decrease) in Net Assets 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income............................. $ 138,570 $ 37,962
Net realized gain (loss) on investments........... 285,214 609,785
Change in unrealized appreciation or depreciation. 722,317 (968,554)
----------- -----------
Increase (Decrease) In Net Assets
Resulting From Operations....................... 1,146,101 (320,807)
----------- -----------

Distributions to shareholders from:
Net investment income............................. (137,673) (62,195)
Net realized gain on investments.................. (249,074) (587,297)
----------- -----------
Total distributions............................. (386,747) (649,492)
----------- -----------

Capital share transactions
Shares sold....................................... 3,017,493 5,389,240
Reinvestment of distributions..................... 386,745 649,491
Shares redeemed................................... (2,097,365) (1,833,009)
----------- -----------
Total capital share transactions................ 1,306,873 4,205,722
----------- -----------

Total Increase (Decrease)
In Net Assets....................................... 2,066,227 3,235,423

Net Assets
- --------------------------------------------------------------------------------
Beginning of year................................. 7,764,720 4,529,297
----------- -----------
End of year (including undistributed net
investment income (loss) of $12,469 and
$(1,303), respectively.)........................ $ 9,830,947 $ 7,764,720
----------- -----------

Capital Share Activity
- --------------------------------------------------------------------------------
Shares sold....................................... 186,095 293,138
Reinvestment of distributions..................... 22,551 40,294
Shares redeemed................................... (123,999) (100,451)
----------- -----------
Total capital share activity.................... 84,647 232,981
=========== ===========
</TABLE>
See notes to financial statements.

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED GLOBAL EQUITY PORTFOLIO - 47
<PAGE>

Notes to Financial Statements

Note A-Significant Accounting Policies

General: The Global Equity Portfolio (the "Portfolio"), a series of Acacia
Capital Corporation's Calvert Responsibly Invested (CRI) Portfolios, is
registered under the Investment Company Act of 1940 as a diversified, open-end
management investment company. The operations of each series are accounted for
separately. The shares of the Portfolio are sold to affiliated and unaffiliated
insurance companies for allocation to certain of their variable separate
accounts.

Security Valuation: Securities listed or traded on a national securities
exchange are valued at the last reported sales price. Unlisted securities and
listed securities for which the last sale price is not available are valued at
the most recent bid price or based on a yield equivalent obtained from the
securities' market maker. Short-term securities maturing within 60 days are
valued at amortized cost which approximates market. Foreign security prices,
furnished by quotation services in the security's local currency, are translated
using the current U. S. dollar exchange rate. The Portfolio may invest in
securities whose resale is subject to restrictions. Restricted securities and
other securities and assets for which market quotations are not available or
deemed inappropriate are valued in good faith under the direction of the Board
of Directors.

Security Transactions and Investment Income: Security transactions are
accounted for on trade date. Realized gains and losses are recorded on an
identified cost basis. Dividend income is recorded on the ex-dividend date or,
in the case of dividends on certain foreign securities, as soon as the Portfolio
is informed of the ex-dividend date. Interest income, accretion of discount and
amortization of premium are recorded on an accrual basis.

Foreign Currency Transactions: The Portfolio's accounting records are
maintained in U. S. dollars. For purposes of valuation of investments, assets
and liabilities on each date of net asset value determination, the current
exchange rate is applied to foreign currencies for translation to U. S. dollars.
Security transactions, income and expenses are converted at the prevailing rate
of exchange on the date of the event. The changes in foreign exchange rates on
securities are included in the net realized and unrealized gain or loss on
securities.

48 - CALVERT RESPONSIBLY INVESTED GLOBAL EQUITY PORTFOLIO ANNUAL REPORT

<PAGE>

Note B--Related Party Transactions

Calvert Shareholder Services, Inc., an affiliate of the Advisor, acts as
transfer, dividend disbursing and shareholder servicing agent for the Portfolio.

Calvert Administrative Services Company, an affiliate of the Advisor, provides
administrative services to the Portfolio for a fee, payable monthly, of the
greater of $40,000 or .10% of the Portfolio's annual average daily net assets.

NOTE C--Investment Activity

During the year, purchases and sales of investments, other than short-term
securities, were $9,021,138 and $7,827,884, respectively.

The cost of investments owned at December 31, 1995 was substantially the same
for federal income tax and financial reporting purposes. Net unrealized
appreciation aggregated $244,757, of which $951,801 related to appreciated
securities and $707,044 related to depreciated securities.

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED GLOBAL EQUITY PORTFOLIO - 49
<PAGE>

<TABLE>
<CAPTION>
ACACIA CAPITAL CORPORATION
CALVERT RESPONSIBLY INVESTED
GLOBAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
=========

From Inception
June 30, 1992
Year Ended Year Ended Year Ended Through
December 31, December 31, December 31, December 31,
1995 1994 1993 1992
========================================================================================================
<S> <C> <C> <C> <C>
Net asset value, beginning..................... $15.89 $17.72 $14.57 $15.00
========= ========= ========= ==========
Income from investment operations
Net investment income......................... .27 .11 .11 (.02)
Net realized and unrealized gain (loss)....... 1.69 (.49) 4.07 (.41)
--------- --------- --------- ----------
Total from investment operations............. 1.96 (.38) 4.18 (.43)
--------- --------- --------- ----------

Distributions from
Net investment income......................... (.25) (.13) (.08) ----
Net realized gains............................ (.45) (1.32) (.95) ----
--------- --------- --------- ----------
Total distributions.......................... (.70) (1.45) (1.03) ----
--------- --------- --------- ----------
Total increase (decrease) in net asset value... 1.26 (1.83) 3.15 (.43)
--------- --------- --------- ----------
Net asset value, ending........................ $17.15 $15.89 $17.72 $14.57
========= ========= ========= ==========
Total return*.................................. 12.35% (2.13%) 29.72% (3.27%)
========= ========= ========= ==========
Ratios to average net assets:
Net investment income......................... 1.48% .59% 1.00% (.98%)(a)
========= ========= ========= ==========
Total expenses+............................... 1.51% ---- ---- ----
========= ========= ========= ==========
Net expenses.................................. 1.12% 1.24% .94% .98%(a)
========= ========= ========= ==========
Expenses reimbursed........................... .39% .29% .10% 1.07%(a)
========= ========= ========= ==========
Portfolio turnover............................. 90% 84% 64% ----
========= ========= ========= ==========
Net assets, ending (in thousands).............. $9,831 $7,765 $4,529 $ 236
========= ========= ========= ==========
Number of shares outstanding,
ending (in thousands)......................... 573 489 256 16
========= ========= ========= ==========
</TABLE>

50 - CALVERT RESPONSIBLY INVESTED GLOBAL EQUITY PORTFOLIO ANNUAL REPORT
<PAGE>

Annual Report--December 31, 1995

=========

CALVERT RESPONSIBLY INVESTED
BALANCED PORTFOLIO

Managed by Calvert Asset Management Company, Inc. and NCM Capital
Management, Inc., effective February 1995

Dear Investor:

In seeking to provide investors with consistently competitive returns, the
Board of Directors selected different investment managers. In February, NCM
Capital assumed responsibility for managing the equity portion of the Portfolio
and Calvert Asset Management Company, Inc. assumed responsibility for managing
the Portfolio's fixed-income assets. U.S. Trust Company of Boston was the
previous investment manager.

The 12-month period ended December 31, 1995 proved to be an excellent one for
most investors as a cooling economy, tame inflation and falling interest rates
worked together to push stock and bond prices higher. Gross Domestic Product
(GDP) slowed to 2% annualized, based on estimates of fourth quarter data. To
stimulate the economy, the Federal Reserve lowered interest rates twice in the
second half of 1995, reducing its target for the federal funds rate to 5.5% by
year end.

Market Summary

The stock market, as measured by the Standard & Poor's 500(R) Index, had its
best year since 1975, rising 34% for the year. Stocks from the technology and
financial sectors were among the leading issues. Investors sought the safety of
large-capitalization stocks which outperformed small-capitalization stocks by a
significant margin.

Calvert Responsibly Invested
Balanced Portfolio

[GRAPH APPEARS HERE]
- ------------------------------------------------------------------------------
Comparison of change in value of a
hypothetical $10,000 investment.

CRI Balanced S&P 500(R) Lehman Aggregate Bond 90-Day T-Bill
-----------------------------------------------------------------
9/86 $10,000 $ 9,667 $10,223 $10,181
12/86 9,681 10,000 10,000 10,000
12/87 10,341 10,175 10,505 10,782
12/88 11,544 12,877 11,334 11,521
12/89 13,936 16,950 12,981 12,492
12/90 14,519 16,423 14,144 13,459
12/91 16,888 21,415 16,407 14,196
12/92 18,174 23,045 17,621 14,690
12/93 19,628 25,363 19,339 15,137
12/94 18,992 25,822 18,774 15,789
12/95 24,648 35,513 22,242 16,681

Average Annual Total Return
(periods ending 12/31/95)

1 Year 29.87% 5 Year 11.16%
Life of Fund 10.15% (9/86)*
- ------------------------------------------------------------------------------
* New sub-advisors assumed management of the
Portfolio effective February 1995.

Performance information is for the Portfolio only and does not
reflect charges and expenses of the variable annuity. Past
performance does not indicate future results.
- ------------------------------------------------------------------------------

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO - 51
<PAGE>

Performance and Strategy

For the 12-month period ended December 31, 1995, the Balanced Portfolio's
total return of 29.87% was significantly ahead of the Lipper Balanced Funds
Average total return of 25.16%.

The Portfolio's above-average gain was due to its substantial equity
investments in the financial, technology and consumer-staple sectors.
Particularly, our financial service holdings benefited from declining interest
rates and from merger and acquisition activity in the banking area. The fixed-
income portion is continuing to make a significant contribution to the
Portfolio's performance. Near the end of the year, we added callable agency
securities to the Portfolio as they became undervalued by the rest of the
market. Currently, the average maturity of the Portfolio's bond portion is
approximately 7.9 years.

Outlook

Nineteen ninety-six marks the sixth year of the economic expansion. With a
sluggish economy at hand, we would not be surprised to see the Federal Reserve
cut short-term rates another 50 basis points, possibly as early as the first
quarter. Our forecast for the year calls for continued slow economic growth, low
inflation and low interest rates. Stocks and bonds should continue to move
higher in 1996, albeit at a slower rate than in 1995.

As of this writing, a shareholder meeting was pending to merge the CRI Bond
Portfolio into the CRI Balanced Portfolio. Assuming the merger was approved, we
welcome all CRI Bond Portfolio shareholders.

We appreciate your investment in the CRI Balanced Portfolio.

Sincerely,

/s/ Clifton S. Sorrell
Clifton S. Sorrell
President

52 - CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO ANNUAL REPORT
<PAGE>

Report of Independent Accountants
==============

To the Board of Directors of Acacia Capital Corporation and Shareholders of the
Calvert Responsibly Invested Balanced Portfolio:

We have audited the accompanying statement of assets and liabilities of
Calvert Responsibly Invested Balanced Portfolio (one of the portfolios
comprising the Acacia Capital Corporation), including the portfolio of
investments, as of December 31, 1995, and the related statement of operations
for the year then ended, and statement of changes in net assets and financial
highlights for each of the two years then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for each of
the preceding years were audited by other auditors whose report dated January
31, 1994 expressed an unqualified opinion thereon.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Calvert Responsibly Invested Balanced Portfolio as of December 31, 1995, the
results of its operations for the year then ended, and the changes in its net
assets and financial highlights for each of the two years in the period then
ended, in conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Baltimore, Maryland
January 26, 1996

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO - 53
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Balanced Portfolio
Portfolio of Investments
December 31, 1995
==============
<TABLE>
<CAPTION>

Principal
Corporate Debt (8.2%) Amount Value
=========================================================================================
<S> <C> <C>
BellSouth Savings, 9.19%, 7/1/03.................................. $ 395,312 $ 445,374
CIT Group Holdings, Inc., 5.82%, 5/11/98.......................... 3,000,000 2,994,132
First Union Corp., 7.50%, 4/15/35 (Tender 7/1/05 @ 100)........... 2,000,000 2,215,020
Puget Power Consv., 6.45%, 4/11/05................................ 1,904,373 1,989,544
United Dominion Reality Trust, Inc., 8.50%, 9/15/24............... 1,200,000 1,351,200
----------

Total Corporate Debt (Cost $8,687,485)........................... 8,995,270
----------

Mortgage Backed Securities (7.8%)
=========================================================================================

Advanta Corp., 5.50%, 3/25/10..................................... 2,294,773 2,209,436
Federal Home Loan Mortgage Corp., 6.00%, 12/15/19................. 1,000,000 999,470
Federal Home Loan Mortgage Corp., 6.50%, 8/15/21.................. 1,000,000 1,020,350
Federal Home Loan Mortgage Corp., 7.00%, 9/1/25................... 976,288 985,133
Federal National Mortgage Assn., 6.50%, 12/25/23.................. 1,000,000 993,090
Federal National Mortgage Assn., 7.00%, 8/1/25.................... 990,110 998,149
Government National Mortgage Assn., 6.50%, 12/15/23............... 1,447,099 1,435,797
----------

Total Mortgage Backed Securities (Cost $8,343,292)............... 8,641,425
----------

Municipal Obligations (6.7%)
=========================================================================================

Gardena, California Certificates of Participation VRDN,
6.15%, 7/1/25, LOC: Sumitomo Trust & Banking Ltd. **............. 1,500,000 1,500,000
Illinois Housing Development Authority VRDN, 6.027%,
6/1/22, AMBAC Insured (Tender 1/2/96 @ 100) **................... 1,600,000 1,600,000
Illinois Housing Development Authority, 8.35%, 8/1/26............. 1,170,000 1,247,922
Long Beach, California Pension Obligation, 7.14%, 9/1/10,
FSA Insured...................................................... 1,000,000 1,043,420
Sacramento County, California Pension Funding, 5.98%,
8/15/14, MBIA Insured (Tender 2/15/96 @ 100)..................... 2,000,000 2,000,000
----------

Total Municipal Obligations (Cost $7,277,136).................... 7,391,342
----------

Repurchase Agreements, for Deposit
at Cost, Collateralized by Securities
Issued or Guaranteed by the
U.S. Government (2.7%)
=========================================================================================

Donaldson, Lufkin, Jenerette: 5.85%, dated 12/29/95, due 1/2/96
($3,055,934, Resolution Funding Corp., Zero Coupon, 1/15/30)..... 3,000,000 3,000,000
----------

Total Repurchase Agreements (Cost $3,000,000).................... 3,000,000
----------
</TABLE>

See notes to portfolio of investments.

54 - CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO ANNUAL REPORT
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Balanced Portfolio
Portfolio of Investments (Continued)
December 31, 1995

========

U.S. Government Agencies and Principal
Instrumentalities (10.6%) Amount Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Federal Home Loan Bank, 6.83%, 11/9/00................. $ 1,000,000 $1,001,300
Federal Home Loan Mortgage Corp., 5.47%, 1/5/96........ 3,000,000 2,998,177
Federal National Mortgage Assn., 5.49%, 10/2/03........ 1,000,000 994,600
Federal National Mortgage Assn., 6.85%, 9/12/05........ 2,500,000 2,573,300
Resolution Funding Corp., 8.625%, 1/15/21.............. 1,000,000 1,309,140
Small Business Administration, 8.05%, 6/1/12........... 869,101 925,854
U.S. Department of Veteran Affairs, 8.00%, 7/15/18..... 1,000,000 1,067,830
WNH Ltd Partnership, 9.40%, 10/01/99................... 705,000 764,509
----------

Total U.S. Government Agencies and Instrumentalities
(Cost $11,303,794).................................... 11,634,710
----------

U.S. Treasury (4.5%)
- --------------------------------------------------------------------------------
U.S. Treasury Bonds, 6.875%, 8/15/25................... 3,500,000 3,949,750
U.S. Treasury Notes, 5.875%, 11/15/05 1,000,000 1,022,650
----------

Total U.S. Treasury (Cost $4,935,525 )................ 4,972,400
----------

Other Debt (0.9%)
- --------------------------------------------------------------------------------
Chickasaw Nation, Oklahoma, 10.00%, 8/1/03............. 1,000,000 1,000,000
----------

Total Other Debt (Cost $1,000,000).................... 1,000,000
----------

Equity Securities (57.8%) Shares
- --------------------------------------------------------------------------------
Beverage Hotel and Leisure (1.9%)
Delta Corp............................................ 550,000 920,719
Regal Cinemas, Inc. *................................. 39,683 1,180,554
----------
2,101,273
----------

Biotechnology (1.1%)
Amgen, Inc. *......................................... 21,160 1,256,375
----------
1,256,375
----------

Business Equipment and Services (2.3%)
Hewlett Packard Co.................................... 16,000 1,340,000
Xerox Corp............................................ 8,850 1,212,450
----------
2,552,450
----------
</TABLE>

See notes to portfolio of investments.

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO - 55
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Balanced Portfolio
Portfolio of Investments (Continued)
December 31, 1995

========

Equity Securities (Cont'd) Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Communications (2.8%)
Ameritech Corp.......................................... 22,360 $1,319,240
DSC Communications Corp. *.............................. 47,860 1,764,838
----------
3,084,078
----------

Computers (6.0%)
3Com Corp. *............................................ 26,300 1,226,238
BMC Software, Inc. *.................................... 23,470 1,003,343
Computer Associates International, Inc.................. 21,950 1,248,406
Oracle Systems Corp. *.................................. 23,405 991,787
Seagate Technology *.................................... 17,700 840,750
Sun Microsystems, Inc. *................................ 28,820 1,314,913
----------
6,625,437
----------

Consumer Products (1.3%)
Gillette Co............................................. 26,700 1,391,738
----------
1,391,738
----------

Delivery (0.6%)
Federal Express Corp. *................................. 9,300 687,038
----------
687,038
----------

Electronics (5.5%)
Arrow Electronics, Inc. *............................... 22,090 952,631
E M C Corp. *........................................... 73,350 1,127,756
Linear Technology Corp.................................. 17,900 702,575
Micron Technology, Inc.................................. 19,600 776,634
Philips Electronics N.V................................. 28,100 1,008,088
Teradyne, Inc. (rights) *............................... 58,280 1,457,000
----------
6,024,684
----------

Entertainment (1.2%)
Walt Disney Co.......................................... 21,905 1,292,395
----------
1,292,395
----------

Financial Services (9.8%)
Advanta Corp., Class A.................................. 15,100 577,575
Bank New York, Inc...................................... 25,800 1,257,750
Bank of Boston Corp. (rights)........................... 32,915 1,522,319
Baybanks, Inc. (rights)................................. 15,845 1,556,771
Federal National Mortgage Assn.......................... 12,200 1,514,325
Green Tree Finl Corp.................................... 37,830 997,766
Umbono Investment Corp., Ltd. *......................... 1,156,540 3,331,140
----------
10,757,646
----------
</TABLE>

See notes to portfolio of investments.

56 - CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO ANNUAL REPORT
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Balanced Portfolio
Portfolio of Investments (Continued)
December 31, 1995

========

Equity Securities (Cont'd) Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Food Services (2.5%)
Kellogg Co................................................. 17,150 $1,324,837
Sysco Corp. (rights)....................................... 44,300 1,439,750
----------
2,764,587
----------

Health Care (2.6%)
Healthcare Compare Corp. *................................. 33,650 1,463,775
Johnson & Johnson.......................................... 16,700 1,429,937
----------
2,893,712
----------

Industrial Products (2.8%)
Applied Materials, Inc. *.................................. 19,700 775,687
Briggs & Stratton Corp..................................... 15,600 676,650
Sigma Aldrich Corp......................................... 23,325 1,154,587
Wellman, Inc............................................... 20,200 459,550
----------
3,066,474
----------

Insurance (3.1%)
AFLAC, Inc................................................. 17,900 776,413
Allstate Corp.............................................. 31,550 1,297,494
American International Group, Inc.......................... 14,650 1,355,125
----------
3,429,032
----------

Machinery (1.3%)
AGCO Corp.................................................. 26,920 1,372,920
----------
1,372,920
----------

Manufacturing (1.0%)
Dover Corp................................................. 31,400 1,157,875
----------
1,157,875
----------

Media and Publishing (1.0%)
Scholastic Corp. *......................................... 13,665 1,062,454
----------
1,062,454
----------

Medical (3.4%)
Becton Dickinson & Co...................................... 22,700 1,702,500
Boston Scientific Corp. *.................................. 15,085 739,165
Medtronic, Inc............................................. 24,100 1,346,587
----------
3,788,252
----------

Merchandising (0.9%)
Albertson's, Inc........................................... 28,980 952,717
----------
952,717
----------
</TABLE>

See notes to portfolio of investments.

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO - 57
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Balanced Portfolio
Portfolio of Investments (Continued)
December 31, 1995

========

Equity Securities (Cont'd) Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Oil & Gas (0.7%)
Smith International, Inc. (rights) *................. 33,135 $ 778,673
------------
778,673
------------

Paper and Packaging (0.9%)
Chesapeake Corp. (rights)............................ 33,410 989,771
------------
989,771
------------

Pharmaceutical (1.4%)
Merck & Co., Inc..................................... 24,000 1,578,000
------------
1,578,000
------------

Retail (1.0%)
Consolidated Stores Corp. *.......................... 49,550 1,077,713
------------
1,077,713
------------

Telecommunications (2.7%)
Century Tel Enterprises, Inc. (rights)............... 52,045 1,652,429
Ericsson L M Tel, Co., Class B, ADR.................. 69,305 1,351,447
------------
3,003,876
------------

Total Equity Securities (Cost $53,795,240).......... 63,689,170
------------

TOTAL INVESTMENTS (99.2%)
(Cost $98,342,472)................................. $109,324,317
============
</TABLE>

Notes to Portfolio of Investments:
* Non-income producing.
** Optional tender features give these securities a shorter effective maturity
date.
Percentages shown represent the percentage of the investments to net assets.
Explanation of Guarantees:
AMBAC: American Municipal Bond Assurance Corporation
SA: Financial Security Advisor
MBIA: Municipal Bond Insurance Association
LOC: Letter of Credit
Abbreviations
VRDN: Variable Rate Demand Notes

58 - CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO ANNUAL REPORT
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Balanced Portfolio
Statement of Assets and Liabilities
December 31, 1995

========

Assets
- --------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value - see accompanying portfolio.. $109,324,317
Cash.............................................................. 529,881
Receivable for securities sold.................................... 1,118,254
Interest and dividends receivable................................. 619,319
Other assets...................................................... 1,146
------------
Total assets..................................................... 111,592,917
------------

Liabilities
- --------------------------------------------------------------------------------
Payable for securities purchased.................................. 1,285,855
Payable to Calvert Asset Management Company, Inc.................. 65,553
Accrued expenses and other liabilities............................ 4,296
------------
Total liabilities................................................ 1,355,704
------------
Net assets...................................................... $110,237,213
============

Net Assets Consist of:
- --------------------------------------------------------------------------------
Par value and paid-in capital applicable to 64,728,020 shares of
common stock outstanding; $1 par value, 70,000,000 shares
authorized....................................................... $ 98,074,699
Undistributed net investment income (loss)........................ 270,941
Accumulated net realized gains (losses) on investments and
foreign currencies............................................... 909,752
Net unrealized appreciation (depreciation) on investments and
assets and liabilities in foreign currencies..................... 10,981,821
------------
Net Assets...................................................... $110,237,213
============

Net Asset Value per Share....................................... $1.703
============

</TABLE>
See notes to financial statements.

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO - 59
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Balanced Portfolio
Statement of Operations
Year Ended December 31, 1995

========

Net Investment Income
- --------------------------------------------------------------------------------
<S> <C>
Investment Income
Interest income.................................................. $ 2,666,330
Dividend income (net of foreign taxes of $14,460)................ 724,043
-----------
Total investment income......................................... 3,390,373
-----------

Expenses
Investment advisory fee.......................................... 610,216
Directors' fees and expenses..................................... 11,987
Custodian fees................................................... 24,129
Registration fees................................................ 6,340
Reports to shareholders.......................................... 44,249
Professional fees................................................ 25,803
Miscellaneous.................................................... 3,565
-----------
Total expenses.................................................. 726,289
Fees paid indirectly............................................ (24,129)
-----------
Net expenses................................................... 702,160
-----------
Net Investment Income........................................ 2,688,213
-----------

Realized and Unrealized Gain (Loss) on Investments
- --------------------------------------------------------------------------------
Net realized gain (loss) on:
Securities....................................................... 9,151,962
Foreign currencies............................................... (20,556)
-----------
9,131,406
-----------

Change in unrealized appreciation or depreciation on:
Securities....................................................... 10,212,497
Assets and liabilities in foreign currencies..................... (24)
-----------
10,212,473
-----------

Net Realized and Unrealized Gain (Loss) on Investments.......... 19,343,879
-----------

Increase (Decrease) In Net Assets Resulting From Operations..... $22,032,092
===========
</TABLE>

See notes to financial statements.

60 - CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO ANNUAL REPORT
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Balanced Portfolio
Statement of Changes in Net Assets
Years Ended December 31, 1995 and 1994
==============
<TABLE>
<CAPTION>

Increase (Decrease) In Net Assets
Resulting From Operations............................ 22,032,092 (1,935,789)
------------ -----------

Distributions to shareholders from:
Net investment income.................................. (2,379,651) (2,067,159)
Net realized gain on investments....................... (7,467,802) --
------------ -----------
Total distributions................................... (9,847,453) (2,067,159)
------------ -----------

Capital share transactions
Shares sold............................................ 27,827,854 21,821,042
Reinvestment of distributions.......................... 9,847,453 2,067,159
Shares redeemed........................................ (6,215,413) (7,292,332)
------------ -----------
Total capital share transactions...................... 31,459,894 16,595,869
------------ -----------

Total Increase (Decrease) In Net Assets................. 43,644,533 12,592,921

Net Assets
===================================================================================

Beginning of year...................................... 66,592,680 53,999,759
------------ -----------
End of year (including undistributed net investment
income (loss) of $270,941 and $(22), respectively.)... $110,237,213 66,592,680
============ ===========

Capital Share Activity
===================================================================================

Shares sold............................................ 16,449,557 14,565,450
Reinvestment of distributions.......................... 5,782,412 1,425,675
Shares redeemed........................................ (3,747,516) (4,889,932)
------------ -----------
Total capital share activity.......................... 18,484,453 11,101,193
============ ===========
</TABLE>

See notes to financial statements.

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO - 61
<PAGE>

Notes to Financial Statements

Note A-Significant Accounting Policies

General: The Balanced Portfolio (the "Portfolio"), a series of Acacia Capital
Corporation's Calvert Responsibly Invested (CRI) Portfolios, is registered under
the Investment Company Act of 1940 as a non-diversified, open-end management
investment company. The Balanced Portfolio was formerly known as Calvert
Responsibly Invested Managed Growth Portfolio/Socially Responsible Series. The
operations of each series are accounted for separately. The shares of the
Portfolio are sold to affiliated and unaffiliated insurance companies for
allocation to certain of their variable separate accounts.

Security Valuation: Securities listed or traded on a national securities
exchange are valued at the last reported sale price. Unlisted securities and
listed securities for which the last sale price is not available are valued at
the most recent bid price or based on a yield equivalent obtained from the
securities' market maker. Short-term securities maturing within 60 days are
valued at amortized cost which approximates market. Foreign security prices,
furnished by quotation services in the security's local currency, are translated
using the current U. S. dollar exchange rate. Municipal securities are valued
utilizing the average of bid prices or at bid prices based on a matrix system
(which considers such factors as security prices, yields, maturities and
ratings) furnished by dealers through an independent pricing service. Other
securities and assets for which market quotations are not available or deemed
inappropriate are valued in good faith under the direction of the Board of
Directors.

Repurchase Agreements: The Portfolio may enter into repurchase agreements with
recognized financial institutions or registered broker/dealers and, in all
instances, holds underlying securities with a value exceeding the total
repurchase price, including accrued interest.

Security Transactions and Investment Income: Security transactions are
accounted for on trade date. Realized gains and losses are recorded on an
identified cost basis. Dividend income is recorded on the ex-dividend date or,
in the case of dividends on certain foreign securities, as soon as the Portfolio
is informed of the ex-dividend date. Interest income, accretion of discount and
amortization of premium are recorded on an accrual basis.

62 - CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO ANNUAL REPORT
<PAGE>

accordingly, periodic reclassifications are made within the Portfolio's capital
accounts to reflect income and gains available for distribution under income tax
regulations.

Note B-Related Party Transactions

Calvert Shareholder Services, Inc., an affiliate of the Advisor, acts as
transfer, dividend disbursing and shareholder servicing agent for the Portfolio.

Note C-Investment Activity
During the year, purchases and sales of investments, other than short-term
securities, were $151,831,684 and $125,197,142, respectively.

The cost of investments owned at December 31, 1995 for federal income tax
purposes was $98,398,834. Net unrealized appreciation aggregated $10,925,483, of
which $12,196,885 related to appreciated securities and $1,271,402 related to
depreciated securities.

Note D-Subsequent Event

The shareholders of CRI Bond Portfolio have been asked to vote (under the
instructions of the contract holders) on February 16, 1996 on a merger into the
Portfolio effected by a tax-free exchange of net assets of CRI Bond,
approximately $3.6 million, for shares of the Portfolio.

ANNUAL REPORT CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO - 63
<PAGE>

Acacia Capital Corporation
Calvert Responsibly Invested
Balanced Portfolio
Financial Highlights
=============
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1994 1993 1992 1992
==============================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning................. $ 1.440 $ 1.537 $ 1.465 $ 1.403 $ 1.249
======== ======= ======= ======= =======
Income from investment operations
- ---------------------------------
Net investment income..................... .050 .046 .045 .044 .050
Net realized and unrealized gain (loss)... .380 (.097) .072 .062 .154
-------- ------- ------- ------- -------
Total from investment operations......... .430 (.051) .117 .106 .204
-------- ------- ------- ------- -------

Distributions from
- ------------------
Net investment income..................... (.040) (.046) (.045) (.044) (.050)
Net realized gains........................ (.127) -- -- -- --
-------- ------- ------- ------- -------
Total distributions..................... (.167) (.046) (.045) (.044) (.050)
-------- ------- ------- ------- -------
Total increase (decrease) in
net asset value........................... .263 (.097) .072 .062 .154
-------- ------- ------- ------- -------
Net asset value, ending.................... $ 1.703 $ 1.440 $ 1.537 $ 1.465 $ 1.403
======== ======= ======= ======= =======
Total return............................... 29.87% (3.30%) 8.00% 7.61% 16.40%
======== ======= ======= ======= =======
Ratios to average net assets:
Net investment income..................... 3.08% 3.39% 3.69% 4.05% 4.49%
======== ======= ======= ======= =======
Total expenses +.......................... .83% -- -- -- --
======== ======= ======= ======= =======
Net expenses.............................. .81% .80% .81% .85% .85%
======== ======= ======= ======= =======
Portfolio turnover......................... 163% 43% 14% 15% 12%
======== ======= ======= ======= =======
Net assets, ending (in thousands).......... $110,237 $66,593 $54,000 $28,471 $14,946
======== ======= ======= ======= =======
Number of shares outstanding,
ending (in thousands)..................... 64,728 46,244 35,142 19,433 10,656
======== ======= ======= ======= =======

</TABLE>
+ Effective December 31, 1995, this ratio reflects total expenses before
reduction for fees paid indirectly; such reductions are included in the ratio of
net expenses.

64 - CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO ANNUAL REPORT
<PAGE>
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
LETTER TO SHAREHOLDERS

Dear Shareholder:
We are pleased to report that for the fiscal year ended December 31,
1995, The Dreyfus Socially Responsible Growth Fund, Inc., posted a total
return of 34.56%,* compared to a total return of 37.53% for the Standard &
Poor's 500 Composite Stock Price Index.** This performance placed the Fund in
the second quartile of the Lipper growth funds category, out of 98 funds for
the one-year period ended December 31, 1995.***
A LOOK AT THE ECONOMY
The most salient issue confronting the equity markets in 1995 continued
to be the Federal Reserve Board's vigilance in fighting inflation and overly
expansive economic growth. The Fed did this by raising interest rates an
unprecedented seven times in a 12-month period. The hope was that by doing
so, businesses would seek to grow their bottom lines via productivity
enhancements and market share growth rather than by simply raising prices, as
had been the case in previous economic cycles. The question in investors'
minds was, "Will the Fed continue to slay the inflation dragon by raising
rates and thereby establish an unprecedented soft landing in the economy?"
Investors kept a watchful eye on the economy in making decisions and for
the most part the economic reports were consistent with the soft landing
theme that we have followed all year. In a soft landing, the economy grows at
a reasonably slow to moderate pace with little to no inflation after a period
of significant growth, instead of adhering to the usual pattern of cyclical
booms and busts. After some decent economic advances in both 1993 and 1994,
investors became concerned that the Federal Reserve's vigilance in fighting
inflation might have pushed the economy to the brink of recession. However,
the economic information released through the third quarter of 1995 supported
our belief that the Fed had achieved the elusive economic soft landing. The Fe
d even sent the market a very positive signal in early July by cutting
interest rates by a quarter of a percent, the first such reduction since the
Fed began preemptive rate increases in February 1994. The Fed decreased rates
once again in December.
PORTFOLIO OVERVIEW
In terms of the economic sectors of the Fund, we made several changes in
the weightings. The primary areas of focus for the Fund have been Consumer
Staples, Technology and Financials. During the last six months, we increased
the weightings in carefully selected Technology stocks and Financials and
maintained the exposure to Consumer Staples. We also reduced the Fund's
weighting in the Industrial sector. These thematic changes are indicative of
our overall view of what is driving the current economic environment. The
shift in Technology weight represents our belief that this traditional growth
sector, in spite of recent market weakness, is experiencing a secular
improvement in demand driven by global competition and productivity growth.
We also increased the Financials, believing that the Fed would continue to
lower interest rates, and that our positions would continue to benefit from
the consolidation trend in the industry. We reduced our weighting in
industrial stocks due to continued concerns over the strength of the economy
as well as valuation, both of which we believed indicated that better
opportunities lay elsewhere.
INDIVIDUAL ISSUES
For the year ended 12/31/95, there were many individual securities that
contributed nicely to the positive performance trends of the Fund. In the
consumer cyclical sector, Regal Cinemas, Capital Cities ABC, Disney (Walt),
Nike Cl.B and Phillips Electronics N.V. had superior performance. Those names
represent stocks that we believe can grow whatever the economic environment
because of globally oriented, diversified operations. Other stocks in the
portfolio that contributed to performance are Coca-Cola, Cordis, Amgen,
Medtronic, Becton, Dickinson, Bristol-Myers Squibb and Merck & Co. The food,
beverage and household products companies benefited from more positive
investor sentiment toward their long-term, globally driven growth rates. The
health care stocks benefited from an improved outlook for their operations
due to the rising optimism for new drug approvals and investor confidence in
the consistency of their growth.
Stock selection in the financial area also contributed to the Fund's
positive results as did a more benign interest-rate outlook. ADVANTA, Cl.A.,
a credit card company, banks such as Citicorp, Bank of New York, BayBanks and
Midlantic, specialty financial services companies such as Green Tree
Financial, a provider of mobile home financing, and Federal National Mortgage
Association, performed well for most of the year. In addition, insurers
American International Group and Allstate rose on expectations of lower
interest rates and possible industry consolidation.
Our focus in the technology sector was on stocks of companies which we
believed had fairly established market positions, superior technology and
outstanding management teams. Individual issues such as 3Com, Applied
Materials, Hewlett-Packard, Linear Technology, and Sun Microsystems were all
stellar performers. We believe each of these companies stands to benefit not
just from demand for a single product, but from a broad, diversified product
offering with multiple downstream beneficiaries. We believe these qualities
lower the risk profile of the Fund's technology weighting relative to the
typical technology stock and lower the general level of volatility in the
sector.
THE TAKEOVER THEME
Overall, from a stock selection standpoint, the Fund has benefited from
the rising tide of takeovers this year. Companies are under pressure to make
revenues grow in a very competitive environment, and are therefore buying
other firms to broaden and deepen their product offerings. Several Fund
holdings were taken over this year: Cordis, a medical technology firm;
BayBanks, a large regional banking firm; Capital Cities ABC, a broadcasting
company; and Scott Paper, a paper manufacturer. There are several other names
in the portfolio that we believe could benefit from this theme over the
coming years.
Going forward, we feel that the Federal Reserve's hold on the market will
persist. However, this time the Fed's action may benefit stocks because we
believe rates will be further reduced rather than raised, as the economy
shows signs of slowing. Our goal, as ever, is to provide superior returns to
our shareholders while honoring your socially responsible investment
objectives. We are confident in the outlook for the Fund and appreciate your
continued support. We take your socially responsible directives seriously as
we endeavor to provide attractive returns on shareholder capital.
Sincerely,

[Maceo K. Sloan, CFA and Diane M. Coffey signature logos]
Maceo K. Sloan, CFA Diane M. Coffey
Portfolio Manager Portfolio Manager
NCM Capital Management Group, Inc The Dreyfus Corporation

January 16, 1996
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains paid.
The Fund's performance does not reflect the deduction of additional charges
applicable to separate accounts of participating insurance companies using
the Fund as an underlying investment.
** SOURCE: LIPPER ANALYTICAL SERVICES, Inc. - Reflects the reinvestment of
income dividends and when applicable, capital gain distributions. The
Standard & Poor's 500 Composite Stock Price Index is a widely accepted
unmanaged index of U.S. stock market performance.
***SOURCE: LIPPER ANALYTICAL SERVICES, INC.

THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. DECEMBER 31, 1995
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE DREYFUS SOCIALLY
RESPONSIBLE
GROWTH FUND AND THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX
[Exhibit A
$14,661
Dreyfus Socially Responsible
Growth Fund
Dollars
$14,257
Standard & Poor's 500
Composite Stock Price Index*
*Source: Lipper Analytical Services, Inc.]
AVERAGE ANNUAL TOTAL RETURNS

ONE YEAR ENDED FROM INCEPTION (10/7/93)
DECEMBER 31, 1995 TO DECEMBER 31, 1995
_________________ ____________________

34.56% 18.63%

Past performance is not predictive of future performance.

THE FUND'S PERFORMANCE DOES NOT REFLECT THE DEDUCTION OF ADDITIONAL CHARGES AP
PLICABLE TO SEPARATE ACCOUNTS OF PARTICIPATING INSURANCE COMPANIES USING THE
FUND AS AN UNDERLYING INVESTMENT.

The above graph compares a $10,000 investment made in The Dreyfus Socially
Responsible Growth Fund, Inc. on 10/7/93 (Inception Date) to a $10,000
investment made in the Standard & Poor's 500 Composite Stock Price Index on
that date. For comparative purposes, the value of the Index on 9/30/93 is
used as the beginning value on 10/7/93. All dividends and capital gain
distributions are reinvested.
The Fund's performance shown in the line graph takes into account all
applicable fees and expenses. The Standard & Poor's 500 Composite Stock Price
Index is a widely accepted, unmanaged index of overall stock market
performance which does not take into account charges, fees and other
expenses. Further information relating to Fund performance, including expense
reimbursements, if applicable, is contained in the Financial Highlights
section of the Prospectus and elsewhere in this report.

<TABLE>
<CAPTION>
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
STATEMENT OF INVESTMENTS DECEMBER 31, 1995
COMMON STOCKS-93.8% SHARES VALUE
_______ ______
<S> <C> <C>
CONSUMER DURABLES-.9%
Briggs &.................................. 6,500 $ 281,937
------
CONSUMER
NON-DURABLES-8.5%
Campbell Soup............................. 10,400 624,000
Coca-Cola................................. 7,800 579,150
Gillette.................................. 11,100 578,588
NIKE, Cl. B............................... 4,400 306,350
PepsiCo................................... 11,000 614,625
---------
2,702,713
---------

CONSUMER SERVICES-7.9%
Disney (Walt).......................... 7,400 436,600
Grainger (W.W.)........................ 8,000 530,000
Regal Cinemas.......................... (a) 15,450 459,638
Tribune................................ 8,750 534,843
Wendy's International.................. 25,500 541,875
------
2,502,956
---------
ELECTRONIC TECHNOLOGY-16.4%
Applied Materials...................... (a) 15,100 594,562
DSC Communications..................... (a) 17,400 641,625
EMC.................................... (a) 37,450 575,794
Hewlett-Packard........................ 7,970 667,488
Linear Technology...................... 16,600 651,550
Micron Technology...................... 10,900 431,912
Sun Microsystems....................... (a) 15,200 693,500
3Com................................... (a) 19,980 931,568
---------
5,187,999
---------
ENERGY-2.3%
Schlumberger........................... 10,420 721,585
---------
FINANCE-16.5%
ADVANTA, Cl. A......................... 7,500 286,875
AFLAC.................................. 8,600 373,025
Allstate............................... 7,600 312,550
American International Group........... 4,860 449,550
Bank of New York....................... 14,000 682,500
BankAmerica............................ 6,600 427,350
BayBanks............................... 6,300 618,975
Citicorp............................... 10,200 685,950
Federal National Mortgage Association.. 6,000 744,750
Green Tree Financial................... 24,000 633,000
---------
5,214,525
---------
HEALTH SERVICES-.8%
HealthCare COMPARE..................... (a) 5,500 239,250
---------
HEALTH TECHNOLOGY-14.0%
Amgen................................... (a) 12,000 712,500
Becton, Dickinson ...................... 8,620 646,500
Bristol-Myers Squibb.................... 8,700 747,113

THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
STATEMENT OF INVESTMENTS (CONTINUED) DECEMBER 31, 1995
COMMON STOCKS (CONTINUED) SHARES VALUE
______ _______
HEALTH TECHNOLOGY (CONTINUED)
Johnson & Johnson....................... 7,560 $ 647,325
Medtronic............................... 15,600 871,650
Merck & Co.............................. 12,460 819,245
-----------
4,444,333
-----------
NON-ENERGY MINERALS-.6%
British Steel, A.D.S.................... 7,700 197,312
-----------
PROCESS INDUSTRIES-4.3%
Bemis................................... 20,690 530,181
Sigma-Aldrich........................... 11,500 569,250
Terra Industries........................ 18,300 258,488
-----------
1,357,919
-----------
PRODUCER MANUFACTURING-4.3%
AGCO.................................... 13,600 693,600
Dover................................... 7,800 287,625
Philips Electronics, N.V................ 10,900 391,038
-----------
1,372,263
-----------
RETAIL TRADE-3.0%
Consolidated Stores..................... (a) 15,800 343,650
Sears, Roebuck & Co..................... 15,200 592,800
-----------
936,450
-----------
TECHNOLOGY SERVICES-8.1%
Arrow Electronics....................... (a) 14,600 629,625
BMC Software............................ (a) 17,500 748,125
Computer Associates International....... 11,150 634,156
Oracle.................................. (a) 13,000 550,875
-----------
2,562,781
-----------
TRANSPORTATION-1.2%
Federal Express......................... (a) 5,350 395,231
-----------
UTILITIES-5.0%
Century Telephone Enterprises........... 20,200 641,350
Ericsson (LM) Telephone, Cl. B, A.D.R... 16,500 321,750
GTE..................................... 14,260 627,440
-----------
1,590,540
-----------
TOTAL COMMON STOCKS
(cost $25,985,306).................. $29,707,794
===========

PRINCIPAL
SHORT-TERM INVESTMENTS-5.8% AMOUNT
______
U.S. TREASURY BILLS: 5.25%, 2/29/96 $704,000 $ 698,410
4.90%, 3/7/96........................... 754,000 747,063
4.83%, 3/14/96.......................... 379,000 375,115
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $1,820,458)................... $ 1,820,588
===========

THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC
STATEMENT OF INVESTMENTS (CONTINUED) DECEMBER 31, 1995

VALUE
______
TOTAL INVESTMENTS (cost $27,805,764).. 99.6% $31,528,382
===== ===========
CASH AND RECEIVABLES (NET)............ .4% $ 128,850
===== ===========
NET ASSETS............................ 100.0% $31,657,232
===== ===========
</TABLE>

NOTE TO STATEMENT OF INVESTMENTS;
(a) Non-income producing.

See notes to financial statements.
<TABLE>
<CAPTION>

THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1995
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $27,805,764)-see statement...................................... $31,528,382
Cash.................................................................... 127,477
Dividends receivable.................................................... 33,528
Prepaid expenses........................................................ 38,838
-----------
31,728,225
LIABILITIES:
Due to The Dreyfus Corporation and subsidiaries......................... $20,566
Accrued expenses........................................................ 50,427 70,993
------- -----------
NET ASSETS.................................................................. $31,657,232
===========
REPRESENTED BY:
Paid-in capital......................................................... $27,530,094
Accumulated undistributed investment income-net......................... 1,700
Accumulated undistributed net realized gain on investments.............. 402,820
Accumulated net unrealized appreciation on investments-Note 3........... 3,722,618
-----------
NET ASSETS at value applicable to 1,829,227 shares outstanding
(150 million shares of $.001 par value Common Stock authorized)......... $31,657,232
===========
NET ASSET VALUE, offering and redemption price per share
($31,657,232 / 1,829,227 shares)........................................ $ 17.31
===========
</TABLE>

See notes to financial statements.

THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1995
<S> <C> <C>
INVESTMENT INCOME:
INCOME:
Cash dividends (net of $3,898 foreign taxes withheld at source)....... $ 223,319
Interest.............................................................. 140,920
__________
TOTAL INCOME...................................................... $ 364,239
EXPENSES:
Investment advisory fee-Note 2(a)..................................... 138,453
Auditing fees......................................................... 39,288
Directors' fees and expenses-Note 2(c)................................ 14,073
Organization expenses................................................. 14,029
Shareholder servicing costs-Note 2(b)................................. 10,500
Legal fees............................................................ 10,026
Custodian fees........................................................ 7,139
Registration fees..................................................... 6,038
Prospectus and shareholders' reports.................................. 5,487
Miscellaneous......................................................... 1,543
__________
TOTAL EXPENSES.................................................... 246,576
Less-reduction in management fee due to
undertaking-Note 2(a)............................................. 11,650
__________
NET EXPENSES...................................................... 234,926
___________
INVESTMENT INCOME-NET............................................. 129,313
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments-Note 3................................. $1,186,985
Net unrealized appreciation on investments.............................. 3,840,201
__________
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS................... 5,027,186
__________
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. $5,156,499
==========
</TABLE>
See notes to financial statements.

<TABLE>
<CAPTION>
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
_________________________________
1994 1995
______ _______
<S> <C> <C>
OPERATIONS:
Investment income-net................................................... $ 264,288 $ 129,313
Net realized gain (loss) on investments................................. (61,713) 1,186,985
Net unrealized appreciation (depreciation) on investments for the year.. (146,700) 3,840,201
----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. 55,875 5,156,499
----------- -----------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net................................................... (265,951) (140,970)
Net realized gain on investments........................................ _ (722,469)
----------- -----------
TOTAL DIVIDENDS....................................................... (265,951) (863,439)
----------- -----------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold........................................... 10,922,467 19,961,839
Dividends reinvested.................................................... 265,951 863,438
Cost of shares redeemed................................................. (1,943,759) (3,867,386)
----------- -----------
INCREASE IN NET ASSETS FROM CAPITAL STOCK TRANSACTIONS................ 9,244,659 16,957,891
----------- -----------
TOTAL INCREASE IN NET ASSETS...................................... 9,034,583 21,250,951
NET ASSETS:
Beginning of year....................................................... 1,371,698 10,406,281
----------- -----------
End of year [including distributions in excess of investment
income-net; ($2,009) in 1994 and undistributed investment
income-net; $1,700 in 1995]........................................... $10,406,281 $31,657,232
----------- -----------

SHARES SHARES
_____ _____
CAPITAL SHARE TRANSACTIONS:
Shares sold............................................................. 808,182 1,237,706
Shares issued for dividends reinvested.................................. 20,087 50,113
Shares redeemed......................................................... (144,061) (245,303)
----------- -----------
NET INCREASE IN SHARES OUTSTANDING.................................... 684,208 1,042,516
=========== ===========
</TABLE>

See notes to financial statements.
<TABLE>
<CAPTION>

THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
FINANCIAL HIGHLIGHTS

Contained below is per share operating performance data for a share of
Common Stock outstanding, total investment return, ratios to average net
assets and other supplemental data for each year indicated. This information
has been derived from the Fund's financial statements.

YEAR ENDED DECEMBER 31,
_________________________________
PER SHARE DATA: 1993(1) 1994 1995
____ ____ ____
<S> <C> <C> <C>
Net asset value, beginning of year.................................... $12.50 $13.38 $13.23
------ ------ ------
INVESTMENT OPERATIONS:
Investment income-net................................................. .04 .35 .08
Net realized and unrealized gain (loss) on investments................ .88 (.15) 4.49
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS.................................... .92 .20 4.57
------ ------ ------
DISTRIBUTIONS:
Dividends from investment income-net.................................. (.04) (.35) (.08)
Dividends from net realized gain on investments....................... - - (.41)
------ ------ ------
TOTAL DISTRIBUTIONS................................................. (.04) (.35) (.49)
------ ------ ------
Net asset value, end of year.......................................... $13.38 $13.23 $17.31
====== ====== ======
TOTAL INVESTMENT RETURN................................................... 7.35%(2) 1.49% 34.56%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets............................... .06%(2) .25% 1.27%
Ratio of net investment income to average net assets.................. .64%(2) 4.58% .70%
Decrease reflected in above expense ratios due to undertakings
by Dreyfus and sub-investment adviser............................... 6.19%(2) 2.60% .06%
Portfolio Turnover Rate............................................... - 373.68% 88.52%
Net Assets, end of year (000's Omitted)............................... $1,372 $10,406 $31,657
</TABLE>

(1) From October 7, 1993 (commencement of operations) to December 31, 1993.
(2) Not annualized.

See notes to financial statements.

THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:

The Fund is registered under the Investment Company Act of 1940 ("Act")
as a diversified open-end management investment company. The Fund is intended
to be a funding vehicle for variable annuity contracts and variable life
insurance policies to be offered by the separate accounts of life insurance
companies. Premier Mutual Fund Services, Inc. (the "Distributor") acts as the
distributor of the Fund's shares which are sold without a sales charge. The
Distributor, located at One Exchange Place, Boston, Massachusetts 02109, is a
wholly-owned subsidiary of FDI Distribution Services, Inc., a provider of
mutual fund administration services, which in turn is a wholly-owned
subsidiary of FDI Holdings, Inc., the parent company of which is Boston
Institutional Group, Inc. The Dreyfus Corporation ("Dreyfus") serves as the
Fund's investment adviser. NCM Capital Management Group, Inc. serves as the
Fund's sub-investment adviser. Dreyfus is a direct subsidiary of Mellon Bank,
N.A.
(A) PORTFOLIO VALUATION: Investments in securities are valued at the last
sales price on the securities exchange on which such securities are primarily
traded or at the last sales price on the national securities market.
Securities not listed on an exchange or the national securities market, or
securities for which there were no transactions, are valued at the average of
the most recent bid and asked prices. Bid price is used when no asked price
is available.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Dividend
income is recognized on the ex-dividend date and interest income, including,
where applicable, amortization of discount on investments, is recognized on
the accrual basis.
(C) DIVIDENDS TO SHAREHOLDERS: Dividends are recorded on the ex-dividend
date. Dividends from investment income-net and dividends from net realized
capital gain are normally declared and paid annually, but the Fund may make
distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code. This may result in distributions
that are in excess of investment income-net on a fiscal year basis. To the
extent that net realized capital gain can be offset by capital loss
carryovers, if any, it is the policy of the Fund not to distribute such gain.
During the year ended December 31, 1995, the Fund reclassified $15,367
from paid-in capital to undistributed investment income-net and net assets
were not affected by the change.
(D) FEDERAL INCOME TAXES: It is the policy of the Fund to continue to
qualify as a regulated investment company, if such qualification is in the
best interests of its shareholders, by complying with the applicable
provisions of the Internal Revenue Code, and to make distributions of taxable
income sufficient to relieve it from substantially all Federal income and
excise taxes.
NOTE 2-INVESTMENT ADVISORY FEE, SUB-INVESTMENT ADVISORY FEE AND OTHER TRANSACT
IONS WITH AFFILIATES:
(A) Pursuant to an Investment Advisory Agreement with Dreyfus, the
investment advisory fee is computed at the annual rate of .75 of 1% of the
average daily value of the Fund's net assets and is payable monthly. The
Investment Advisory Agreement further provides that if in any full year the
aggregate expenses of the Fund, exclusive of taxes, brokerage, interest on
borrowings and extraordinary

THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

expenses, exceed the expense limitation of any state having jurisdiction over
the Fund, the Fund may deduct from the fee to be paid to Dreyfus, or Dreyfus
will bear, such excess expense to the extent required by state law. However,
Dreyfus had undertaken from January 1, 1995 through July 10, 1995 to reduce
the investment advisory fee paid by the Fund, to the extent that the Fund's
aggregate expenses (exclusive of certain expenses as described above)
exceeded specified annual percentages of the Fund's average daily net assets.
The reduction in management fee, pursuant to the undertaking, amounted to
$11,650 for the year ended December 31, 1995.
Pursuant to a Sub-Investment Advisory Agreement with NCM Capital
Management Group, Inc., the sub-investment advisory fee is computed at an
annual rate of .10 of 1% on the first $500 million and .20 of 1% on the
excess of the average daily value of the Fund's net assets and is payable
monthly by Dreyfus.
Effective December 1, 1995, the Fund compensates Dreyfus Transfer, Inc.,
a wholly-owned subsidiary of Dreyfus, under a transfer agency agreement for
providing personnel and facilities to perform transfer agency services for
the Fund. Such compensation amounted to $11 for the period from December 1,
1995 through December 31, 1995.
(B) Pursuant to the Fund's Shareholder Services Plan, the Fund reimburses
Dreyfus Service Corporation, a wholly-owned subsidiary of Dreyfus, an amount
not to exceed an annual rate of .25 of 1% of the value of the Fund's average
daily net assets for certain allocated expenses with respect to servicing
and/or maintaining shareholder accounts. During the year ended December 31,
1995, $2,800 was charged to the Fund pursuant to the Shareholder Services
Plan.
(C) Each director who is not an "affiliated person" as defined in the Act
receives from the Fund an annual fee of $2,500. The Chairman of the Board
receives an additional 25% of such compensation.
NOTE 3-SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales of investment securities,
excluding short-term securities, during the year ended December 31, 1995,
amounted to $32,998,822 and $14,121,334, respectively.
At December 31, 1995, accumulated net unrealized appreciation on
investments was $3,722,618, consisting of $4,326,576 gross unrealized
appreciation and $603,958 gross unrealized depreciation.
At December 31, 1995, the cost of investments for Federal income tax
purposes was substantially the same as the cost for financial reporting
purposes (see the Statement of Investments).

THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF DIRECTORS
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.

We have audited the accompanying statement of assets and liabilities of
The Dreyfus Socially Responsible Growth Fund, Inc., including the statement
of investments, as of December 31, 1995, and the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and financial highlights
for each of the years indicated therein. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1995 by correspondence with the custodian.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of The Dreyfus Socially Responsible Growth Fund, Inc. at December
31, 1995, the results of its operations for the year then ended, the changes
in its net assets for each of the two years in the period then ended, and the
financial highlights for each of the indicated years, in conformity with
generally accepted accounting principles.

[Ernst and Young LLP signature logo]

New York, New York
February 9, 1996

[Dreyfus lion "d" logo]
THE DREYFUS SOCIALLY RESPONSIBLE
GROWTH FUND, INC.
200 Park Avenue
New York, NY 10166
INVESTMENT ADVISER
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
SUB-INVESTMENT ADVISER
NCM Capital Management Group, Inc.
103 West Main Street
Durham, NC 27701
CUSTODIAN
The Bank of New York
90 Washington Street
New York, NY 10286
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc.
One American Express Plaza
Providence, RI 02903

Further information is contained
in the Prospectus, which must
precede or accompany this report.

Printed in U.S.A. 111AR9512
[Dreyfus logo]
Socially Responsible
Growth Fund, Inc.
Annual Report
December 31, 1995

COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND
AND THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE
INDEX

EXHIBIT A:
___________________________________________________________
| | STANDARD | |
| | & POOR'S 500 | DREYFUS |
| PERIOD | COMPOSITE STOCK | SOCIALLY RESPONSIBLE |
| | PRICE INDEX* | GROWTH FUND |
|--------- | --------------- | -------------------- |
| 10/7/93 | 10,000 | 10,000 |
|12/31/93 | 10,232 | 10,735 |
|12/31/94 | 10,366 | 10,895 |
|12/31/95 | 14,257 | 14,661 |
|--------- | --------------- | -------------------- |

*Source: Lipper Analytical Services, Inc.

<PAGE>

THE STRONG
DISCOVERY FUND II

ANNUAL REPORT - DECEMBER 31, 1995

[PHOTO OF FAMILY]

DESIGNED TO SEEK CAPITAL GROWTH BY EMPHASIZING INVESTMENTS IN COMPANIES WITH
ATTRACTIVE GROWTH OPPORTUNITIES

[STRONG FUNDS LOGO]

Strong Funds
THE STRONG
DISCOVERY FUND II
ANNUAL REPORT - DECEMBER 31, 1995

Table of Contents

<TABLE>
<S> <C>
INVESTMENT REVIEWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

FINANCIAL INFORMATION
Schedule of Investments in Securities . . . . . . . . . . . . . . . . . . . . . 4
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . . 8
Statement of Changes in Net Assets . . . . . . . . . . . . . . . . . . . . . . . 8
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 9
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

</TABLE>

The Strong DISCOVERY Fund II

[Photo of Component Boards]
Top Ten Sectors
based on net assets as of 12-31-95
<TABLE>
<S> <C> <C>
1. Technology 29.8%
2. Financial 13.9%
3. Consumer Cyclical 10.9%
4. Healthcare 10.6%
5. Capital Equipment 6.8%
6. Retail 4.1%
7. Transportation 1.4%
8. Consumer Staple 1.1%
9. Energy 0.7%
10. Basic Material 0.5%

</TABLE>

Please see the Schedule of Investments in Securities for a complete listing of
the Fund's portfolio.

As I begin my thirtieth year in this business, I appreciate more than ever what
it takes to survive--and to thrive--as a money manager. My experience has taught
me to be like a fox...to work with the pack without blindly following the
herd...to bide my time, always ready to pounce and take advantage of the
extraordinary opportunity when it presents itself.

I believe there are extraordinary opportunities out there right now for
incisive, agile money managers. A number of great, young growth companies--in
America and abroad--are poised to break away from their competition.

It is our goal to break away with them, using their strength and momentum to
create rewards for our shareholders.

Since its inception on May 8, 1992 through December 31, 1995 the Strong
Discovery Fund II has provided investors with a cumulative total return of
70.01%, outpacing the S&P 500 Stock Index's return of 63.88% for the same time
period.

Market Summary

STOCKS. In 1995, two of the most influential factors that drive stock
prices--earnings and interest rates--came together to create a nearly perfect
environment for U.S. common stocks. The rally was a fairly steady one, with the
S&P hitting 88 new highs during the twelve months. Most small stocks, though
they lagged their larger brethren a bit, produced solid gains as well.

LONG BONDS. Moderate inflation and slow economic growth also helped to fuel a
robust rally in long-term bonds. The benchmark 30-year Treasury bond's yield
dropped to 5.95% by December 31 from 7.88% a year ago.

SHORT BONDS. Interest rates fell at the short end of the market, too. Although,
thanks primarily to the Federal Reserve's moderated monetary policy, they
dropped less than long rates did. After raising rates in February, the central
bank lowered its federal funds rate twice, in July and in December. The easing,
however, totaled just 50 basis points (0.50%) for the year, leaving the yield
curve--the spread between short-and long-term rates--fairly flat.

Overall, 1995 was an excellent year for most investments, and we're proud to be
able to include the Strong Discovery Fund II among that group. By balancing
the Fund's holdings among a mix of resurgent, blue-chip companies and smaller,
rapidly growing companies, we were able to create a total return of 35.26% for
the year.

Strategy Review

STEADFAST COMMITMENT TO STOCKS. Throughout the year, we maintained a bullish
exposure to U.S. common stocks. Three key factors led us to hold our course:

1. two years of robust corporate earnings growth,
2. the poor performance of the market in 1994, and
3. our view that interest rates would decline.

Our willingness to stick with a market that many believed was topping out
helped the Fund participate fully in the market's year-long rally.

SELECTED THEMES. As ever, our approach to managing the portfolio included
healthy measures of both bottom-up stock selection and theme-oriented research.
For example, with the help of our energetic staff of analysts, we were able to
take advantage of the year's strong surge in technology stocks.

In fact, a number of our holdings in this sector were among the portfolio's top
performers. Examples include McAfee Associates, a California firm that
specializes in computer-virus software, and CBT Group PLC, which develops,
publishes, and markets software for networked and stand-alone personal
computers.

By year end, however, we had begun taking profits, reducing our technology
exposure significantly. As of December 31, technology issues accounted for
29.8% of the portfolio, down from a high of 50.3% at the end of September.

In addition to identifying sectors we believe show greater-than-average
opportunity, we also seek to identify areas of the market that

may be headed for trouble. The aging baby-boom generation, if it follows
historical patterns, should soon begin to consume less and save more. This is
not good news for most U.S. retailers. As a result, we have significantly
underweighted this sector in the portfolio.

OPPORTUNISTIC USE OF BONDS. Late in the year, with the economy slowing and
interest rates headed down further, we moved a portion of the portfolio into
long-term bonds. As a result, we were able to lock in some attractive long-term
yields.

Our Outlook

Overall, our outlook for U.S. stocks remains favorable. All the key variables
are pointed in the right direction: growth is moderate, inflation is low, and
we expect interest rates to ease further.

We all must keep in mind, however, that the market's huge run up in 1995 is a
lot for the system to digest. Unless the Fed is willing to take more aggressive
action to fuel the economy, the prospects for corporate earnings are, if not
dim, certainly diminished, especially when compared to last year.

Still, we wholeheartedly believe that there are terrific investment
opportunities out there for those investors who know where to look.

Thank you for choosing the Strong Discovery Fund II to help meet your
investment needs.

Sincerely,

/s/ Richard S. Strong
Richard S. Strong
Portfolio Manager

[Photo of Richard S. Strong]

Asset Allocation
as of 12-31-95

Short-Term Investments 4.8%
Government Bonds 14.0%
Common & Preferred Stocks 81.2%

This allocation is presented as a percentage of net assets and does not reflect
any options or futures positions held by the Fund. Please see the Schedule of
Investments in Securities for a complete listing of the Fund's portfolio.

<TABLE>
<CAPTION>
Growth of an Assumed $10,000 Investment
from 5-8-92 to 12-31-95

The Strong Discovery Fund II S&P 500 Stock Index
<S> <C> <C>
5-92 $10,000 $10,000
6-92 9,591 9,857
12-92 10,887 10,680
6-93 11,392 11,201
12-93 13,285 11,756
6-94 11,885 11,358
12-94 12,569 11,912
6-95 14,658 14,319
12-95 $17,001 $16,388
</TABLE>

This graph, prepared in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at its inception, with a similar investment in the
Standard & Poor's 500 Stock Index, an unmanaged index generally representative
of the U.S. stock market. Results include the reinvestment of all dividends and
capital gains distributions. Source for the index data is Micropal. Performance
is historical and does not represent future results. Investment returns and
principal value vary, and you may have a gain or loss when you sell shares.

* The Fund's returns include the effect of deducting the Fund's expenses, but
do not include charges and expenses attributable to any particular insurance
product. Excluding such fees and expenses from the Fund's return quotations has
the effect of increasing the performance quoted.

Average Annual Total Returns*
through 12-31-95
1-year 35.26%
3-year 16.02%
Since inception 15.66%
(on 5-8-92)

SCHEDULE OF INVESTMENTS IN SECURITIES December 31, 1995

<TABLE>
<CAPTION>
SHARES OR VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
--------- --------------
<S> <C> <C>
COMMON STOCKS 80.3%
AUTO & TRUCK PARTS 1.4%
Bandag, Inc. Class A 3,200 $ 170
Exide Corporation 37,200 1,707
Thompson PBE, Inc. (b) 108,500 1,519
Transpro, Inc. 4,012 43
------
3,439
AUTOMOBILE 1.5%
Chrysler Corporation 66,400 3,677

BANK - MONEY CENTER 7.0%
Bank of Tokyo, Ltd. 54,000 946
Bank of Tokyo, Ltd. ADR 1,500 263
Citicorp 28,000 1,883
Dai-Ichi Kangyo Bank, Ltd. Japan 53,000 1,041
Dai-Ichi Kangyo Bank, Ltd. Japan ADR 1,900 374
Fuji Bank, Ltd. 43,000 949
Fuji Bank, Ltd. ADR 1,200 265
HSBC Holdings PLC ADR 6,900 1,044
Long-Term Credit Bank of Japan 86,000 732
Mitsubishi Bank, Ltd. Japan 125,000 2,939
Mitsubishi Bank, Ltd. Japan ADR 14,500 353
Mitsubishi Trust & Banking Corporation 50,000 832
Mitsubishi Trust & Banking Corporation ADR 1,500 250
Mitsui Trust & Banking Company, Ltd. 118,000 1,290
Sakura Bank, Ltd. 103,000 1,306
Sakura Bank, Ltd. ADR 2,900 368
Sumitomo Trust & Banking, Ltd. 83,000 1,173
Yasuda Trust & Banking, Ltd. 126,000 745
Yasuda Trust & Banking, Ltd. ADR 5,000 296
------
17,049
BEVERAGE - ALCOHOLIC 1.1%
Canandaigua Wine Company, Inc. (b) 61,400 2,003
MSC Industrial Direct Company Class A (b) 28,400 781
-----
2,784
BROKERAGE & INVESTMENT MANAGEMENT 3.9%
CWM Mortgage Holdings, Inc. 86,200 1,465
Daiwa Securities Company, Ltd. 85,000 1,299
Daiwa Securities Company, Ltd. ADR 1,700 260
Kankaku Securities Company (b) 94,000 400
New Japan Securities, Ltd. (b) 20,000 129
New Japan Securities, Ltd. ADR (b) 4,400 284
Nikko Securities Company, Ltd. Japan 25,000 322
Nikko Securities Company, Ltd. Japan ADR (b) 3,000 387
Nomura Securities Company, Ltd. 109,000 2,373
Nomura Securities Company, Ltd. ADR 4,400 960
The Quick & Reilly Group, Inc. 52,962 1,086
Sanyo Securities, Ltd. (b) 30,000 126
Yamaichi Securities, Ltd. 39,000 303
Yamaichi Securities, Ltd. ADR 4,000 311
-----
9,705
CHEMICAL 0.1%
Monsanto Company 1,500 184

COMMERCIAL SERVICE 5.4%
Accustaff, Inc. (b) 126,300 5,557
Career Horizons Corporation (b) 25,075 846
Consolidated Graphics, Inc. (b) 46,000 1,196
Corestaff, Inc. (b) 6,300 230
Education Alternatives, Inc. (b) 61,475 277
HA-LO Industries, Inc. (b) 36,700 1,129
Paychex, Inc. 18,400 918
Sensormatic Electronics Corporation 171,550 2,981
------
13,134
COMPUTER - PERIPHERAL EQUIPMENT 1.2%
Dialogic Corporation (b) 37,800 1,455
Seagate Technology, Inc. (b) 5,100 242
VideoServer, Inc. (b) 39,500 1,244
------
2,941
COMPUTER - PERSONAL & WORKSTATION 0.3%
Sun Microsystems, Inc. (b) 16,800 766

COMPUTER SERVICE 0.4%
America Online, Inc. (b) 28,500 1,069

COMPUTER SOFTWARE 13.4%
Access Health, Inc. (b) 30,700 1,358
Adobe Systems, Inc. 3,000 186
Ascend Communications, Inc. (b) 32,800 2,661
Avant! Corporation (b) 43,000 828
CBT Group PLC ADR (b) 52,300 2,772
Cheyenne Software, Inc. (b) 53,300 1,392
Cisco Systems, Inc. (b) 750 56
Computer Associates International, Inc. 83,225 4,733
Diamond Multimedia Systems, Inc. (b) 15,900 570
Enterprise Systems, Inc. (b) 21,300 650
FORE Systems, Inc. (b) 63,000 3,748
Informix Corporation (b) 19,300 579
McAfee Associates, Inc. (b) 53,250 2,336
NTT Data Communications Systems Company 120 4,029
NETCOM On-Line Communication Services, Inc. (b) 55,575 2,001
Netscape Communications Corporation 3,800 528
Network Equipment Technologies, Inc. (b) 29,875 818
Network General Corporation (b) 17,550 586
SQA, Inc. (b) 2,500 48
Spyglass, Inc. (b) 22,300 1,271
Sybase, Inc. (b) 29,700 1,069
3Com Corporation (b) 13,050 608
------
32,827
COMPUTER SYSTEMS 3.9%
System Software Associates, Inc. 439,088 9,550

CONGLOMERATE 0.5%
Marubeni Corporation 197,000 1,066
Marubeni Corporation ADR 4,500 244
------
1,310
CONSUMER - MISCELLANEOUS 2.1%
The Loewen Group, Inc. 205,700 5,207

DIVERSIFIED OPERATIONS 0.1%
Jason, Inc. (Acquired 1/21/94; Cost $230) (b)(d) 26,125 149

ELECTRICAL EQUIPMENT 0.1%
Toshiba Corporation 45,000 352

</TABLE>

See notes to financial statements.
<TABLE>
<CAPTION>
SHARES OR VALUE
PRINCIPAL (NOTE 2)
AMOUNT (In Thousands)
--------- --------------
<S> <C> <C>
ELECTRONIC PARTS DISTRIBUTION 1.4%
Kent Electronics Corporation (b) 10,150 $ 593
Marshall Industries (b) 85,650 2,752
-----
3,345

ELECTRONIC PRODUCTS - MISCELLANEOUS 0.5%
Mitsumi Electric Company, Ltd. 15,000 361
Rohm Company, Ltd. 16,000 903
-----
1,264
ELECTRONICS - SEMICONDUCTOR/COMPONENT 0.4%
Dallas Semiconductor Corporation 5,150 107
Uniphase Corporation (b) 7,400 265
Xilinx, Inc. (b) 20,900 637
-----
1,009
FINANCE - MISCELLANEOUS 1.3%
American Express Company 11,400 472
Capital One Financial Corporation 5,900 141
Medaphis Corporation (b) 35,450 1,312
Mercury Finance Company 76,325 1,011
Sunamerica, Inc. 5,250 249
-----
3,185
HEALTHCARE - DRUG/DIVERSIFIED 1.8%
Pharmacia & Upjohn, Inc. (b) 115,370 4,471

HEALTHCARE - MEDICAL SUPPLY 2.8%
Amerisource Distribution Corporation Class A(b) 5,500 182
Dentsply International, Inc. 35,700 1,428
Gulf South Medical Supply, Inc. (b) 22,800 690
Laboratory Corporation of America Holdings
Warrants, Expire 4/28/00 (b) 9,801 7
Omnicare, Inc. 31,275 1,400
Physician Sales & Service, Inc. (b) 84,800 2,417
Sybron International Corporation (b) 27,800 660
-----
6,784

HEALTHCARE - PATIENT CARE 6.0%
American Oncology Resources, Inc. (b) 20,400 992
Community Care of America, Inc. (b) 15,350 161
Compdent Corporation (b) 8,200 340
Coram Healthcare Corporation (b) 16,700 73
Home Health Corporation of America (b) 59,100 650
Humana, Inc. (b) 46,675 1,278
Oxford Health Plans, Inc. (b) 49,200 3,635
PhyCor, Inc. (b) 5,700 288
Physicians Health Services, Inc. Class A (b) 14,300 529
Sheridan Healthcare, Inc. (b) 181,000 2,195
United Dental Care, Inc. (b) 70,900 2,925
U.S. Healthcare, Inc. 12,400 577
Vencor, Inc. (b) 22,634 736
WellPoint Health Networks, Inc. Class A (b) 10,500 337
-----
14,716
HOUSEHOLD APPLIANCE & FURNISHINGS 0.6%
Fedders Corporation Class A 280,400 1,192
Matsushita-Kotobuki Electronics Industries, Ltd.
16,000 406
-----
1,598
INSURANCE - PROPERTY & CASUALTY 0.8%
Risk Capital Holdings, Inc. (b) 80,800 1,889

LEISURE PRODUCT 3.3%
Custom Chrome, Inc. (b) 28,400 657
Harley-Davidson, Inc. 236,100 6,788
Oakley, Inc. (b) 17,100 581
-----
8,026
LEISURE SERVICE 1.2%
The Walt Disney Company 9,650 569
Harrahs Entertainment, Inc. (b) 82,400 1,998
Promus Hotel Corporation (b) 9,250 206
Sholodge, Inc. (b) 13,400 127
-----
2,900
MACHINE TOOL 0.6%
Applied Power, Inc. 48,600 1,458

MACHINERY - AGRICULTURE 0.1%
Deere & Company 7,300 257

MEDIA - RADIO/TV 0.6%
CAI Wireless Systems, Inc. 8,700 84
Evergreen Media Corporation Class A (b) 21,100 675
Heartland Wireless Communications, Inc. (b) 16,700 497
Infinity Broadcasting Corporation (b) 2,600 97
People's Choice TV Corporation 7,000 133
-----
1,486
METAL PRODUCTS & FABRICATION 0.6%
Sync Research, Inc. (b) 30,400 1,376

MORTGAGE & RELATED SERVICE 0.1%
North American Mortgage Company 7,200 153

OFFICE AUTOMATION 5.3%
Canon, Inc. 62,000 1,122
Canon, Inc. ADR 3,000 274
Danka Business Systems PLC ADR 234,975 8,694
Nu-Kote Holding, Inc. Class A (b) 91,400 1,554
Xerox Corporation 9,300 1,274
-----
12,918
OIL - NORTH AMERICAN EXPLORATION
& PRODUCTION 0.7%
Flores & Rucks, Inc. (b) 114,400 1,659

PAPER & FOREST PRODUCTS 0.5%
Buckeye Cellulose Corporation (b) 52,400 1,153

PERSONAL & COMMERCIAL LENDING 0.4%
National Auto Credit, Inc. (b) 61,300 996

RAILROAD 1.4%
Burlington Northern Santa Fe Corporation 10,273 801
East Japan Railway Company 95 461
Kansas City Southern Industries, Inc. 45,700 2,091
-----
3,353
REAL ESTATE 0.4%
Mitsui Fudosan 87,000 1,069

</TABLE>

See notes to financial statements.
<TABLE>
<CAPTION>
SHARES OR VALUE
PRINCIPAL (NOTE 2)
AMOUNT (IN THOUSANDS)
--------- --------------
<S> <C> <C>
RETAIL - DEPARTMENT STORE 0.3%
Federated Department Stores, Inc. (b) 25,100 $690

RETAIL - RESTAURANT 0.2%
Quality Dining, Inc. (b) 10,100 245
Rainforest Cafe, Inc. (b) 10,600 319
---
564
RETAIL - SPECIALTY 3.5%
CUC International, Inc. (b) 36,550 1,247
Central Garden and Pet Company (b) 177,600 1,687
Corporate Express, Inc. (b) 55,600 1,675
Hollywood Entertainment Corporation (b) 99,000 829
Movie Gallery, Inc. (b) 46,900 1,430
Office Depot, Inc. (b) 90,450 1,786
Viking Office Products, Inc. (b) 400 19
-----
8,673
SHOE & APPAREL MANUFACTURING 0.2%
Sankyo Seiki Manufacturing (b) 46,000 427

TELECOMMUNICATION EQUIPMENT 1.1%
Andrew Corporation (b) 10,200 390
Cascade Communications Corporation (b) 2,400 205
Newbridge Networks Corporation (b) 19,800 819
VTEL Corporation (b) 71,000 1,313
-----
2,727
TELECOMMUNICATION SERVICE 1.8%
DDI Corporation 554 4,288
EqualNet Holding Corporation (b) 26,900 195
-----
4,483
-------
TOTAL COMMON STOCKS (COST $186,340) 196,772

PREFERRED STOCK 0.9%
SAP AG (Cost $2,065) 14,000 2,123

UNITED STATES GOVERNMENT ISSUES 14.0%
United States Treasury Bonds, 6.875%,
Due 8/15/25 (c) (Cost $33,589) $30,375 34,276

CASH EQUIVALENTS (a) 2.6%
COMMERCIAL PAPER
DISCOUNTED 2.2%
Salomon, Inc.
Due 1/02/96 2,870 2,870
Mallinckrodt Group
Due 1/02/96 2,530 2,530
-----
5,400

INTEREST BEARING, DUE UPON DEMAND 0.4%
Sara Lee Corporation, 5.47% 661 661
Southwestern Bell Telephone Company, 5.72% 286 286
Wisconsin Electric Power Company, 5.53% 28 28
-----
975
-----
Total Cash Equivalents (Cost $6,375) 6,375
-----
TOTAL INVESTMENTS IN SECURITIES
(COST $228,369) 97.8% 239,546
Other Assets and Liabilities, Net 2.2% 5,501
-------
NET ASSETS 100.0% $245,047
=======
</TABLE>

FUTURES
- -------
<TABLE>
<CAPTION>
UNDERLYING
FACE AMOUNT UNREALIZED
EXPIRATION AT VALUE DEPRECIATION
DATE (In Thousands) (In Thousands)
---------- -------------- --------------
<S> <C> <C> <C>
Sold:
136 S&P 500 Futures 3/96 $42,055 $ 130
</TABLE>

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
- -------------------------------------------
<TABLE>
<CAPTION>
VALUE UNREALIZED
SETTLEMENT IN USD APPRECIATION
DATE (In Thousands) (In Thousands)
---------- -------------- --------------
<S> <C> <C> <C>
Sold:
3,058,973 DEM 5/17/96 $ 2,145 $ 21
3,640,578,000 JPY 5/13/96 35,232 1,432
</TABLE>

OPTIONS
- -------
<TABLE>
<CAPTION>
PREMIUMS
NUMBER (In Thousands)
------ --------------
<S> <C> <C>
Options outstanding at Beginning of Period -- $ --
Options written during the period 1,097 431
Options cancelled in closing purchase transactions (1,097) (431)
------- -------
Options outstanding at End of Period -- $ --
======= =======
</TABLE>

Exercised and expired options resulted in a capital loss (in thousands) of $87.

<TABLE>
<CAPTION>
PERCENTAGE OF
COUNTRY DIVERSIFICATION NET ASSETS
- ----------------------- -------------
<S> <C>
United States . . . . . . . . . . . . . . . . . . 75.0%
Japan . . . . . . . . . . . . . . . . . . . . . . 14.8%
United Kingdom . . . . . . . . . . . . . . . . . 3.5%
Canada . . . . . . . . . . . . . . . . . . . . . 2.1%
Ireland . . . . . . . . . . . . . . . . . . . . . 1.1%
Germany . . . . . . . . . . . . . . . . . . . . . 0.9%
Hong Kong . . . . . . . . . . . . . . . . . . . . 0.4%
Other Assets and Liabilities, Net . . . . . . . . 2.2%
------
Total . . . . . . . . . . . . . . . . . . . . . . 100.0%
======
</TABLE>

LEGEND
- ------
(a) Cash equivalents include any security which has a maturity of less than
one year.
(b) Non-income producing security.
(c) All or a portion of security pledged to cover margin requirements for
futures contracts.
(d) Restricted security.

All principal amounts and costs are stated in thousands. Percentages are
stated as a percent of net assets.

CURRENCY ABBREVIATIONS
- ----------------------
DEM German Mark
JPY Japanese Yen

See notes to financial statements.

STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>

For the Year Ended December 31, 1995 (In Thousands)
<S> <C>
INCOME:
Dividends $ 1,134
Interest 476
-------
Total Income 1,610

EXPENSES:
Investment Advisory Fees 1,677
Custodian Fees 157
Shareholder Servicing Costs 260
Reports to Shareholders 37
Federal and State Registration Fees 21
Other 45
-------
Total Expenses 2,197
-------
NET INVESTMENT LOSS (587)

REALIZED AND UNREALIZED GAIN:
Net Realized Gain on:
Investments 33,729
Futures Contracts, Options, and Hedges 145
Foreign Currencies 1
Change in Unrealized Appreciation/Depreciation on:
Investments 13,860
Futures Contracts, Options, and Hedges 1,323
-------

NET GAIN 49,058
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $48,471
=======
</TABLE>

See notes to financial statements.

STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
(In Thousands, Except Per Share Amounts)

<TABLE>
<S> <C>
ASSETS:
Investments in Securities, at Value (Cost of $228,369) $239,546
Receivable from Brokers for Securities and
Forward Foreign Currency Contracts Sold 11,287
Dividends and Interest Receivable 2,213
--------
Total Assets 253,046

LIABILITIES:
Payable to Brokers for Securities and
Forward Foreign Currency Contracts Purchased 7,434
Accrued Operating Expenses and Other Liabilities 565
--------
Total Liabilities 7,999
--------
NET ASSETS $245,047
========

Capital Shares
Authorized 300,000
Outstanding 18,233

NET ASSET VALUE PER SHARE $ 13.44
========

</TABLE>

STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Years Ended December 31, 1995 and 1994 (In Thousands)
1995 1994
-------- --------
<S> <C> <C>
OPERATIONS:
Net Investment Income (Loss) ($ 587) $ 1,047
Net Realized Gain 33,875 2,742
Change in Unrealized Appreciation/Depreciation 15,183 (8,203)
-------- --------
Increase (Decrease) in Net Assets Resulting
from Operations 48,471 (4,414)

CAPITAL SHARE TRANSACTIONS 80,827 60,218

DISTRIBUTIONS:
From Net Investment Income -- (1,047)
In Excess of Net Investment Income (3,178) (4,473)
From Net Realized Gains -- (3,295)
-------- --------

TOTAL INCREASE IN NET ASSETS 126,120 46,989

NET ASSETS:
Beginning of Year 118,927 71,938
-------- --------
End of Year $245,047 $118,927
======== ========
</TABLE>

See notes to financial statements.

NOTES TO FINANCIAL STATEMENTS
December 31, 1995

1. ORGANIZATION
The Strong Discovery Fund II is a diversified series of the Strong Variable
Insurance Funds, Inc., an open-end management investment company registered
under the Investment Company Act of 1940.

2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements.

(A) Security Valuation -- Portfolio securities traded primarily on a
principal securities exchange are valued at the last reported sales
price or the mean between the latest bid and asked prices where no
last sales price is available. Securities traded over-the-counter are
valued at the mean of the latest bid and asked prices or the last
reported sales price. Debt securities not traded on a principal
securities exchange are valued through valuation obtained from a
commercial pricing service, otherwise sale or bid prices are used.
Securities for which market quotations are not readily available are
valued at fair value as determined in good faith under consistently
applied procedures established by and under the general supervision of
the Board of Directors. Securities which are purchased within 60 days
of their stated maturity are valued at amortized cost, which
approximates current value.

The Fund may own certain investment securities which are restricted as
to resale. These securities are valued after giving due consideration
to pertinent factors, including recent private sales, market
conditions and the issuer's financial performance. The Fund generally
bears the costs, if any, associated with the disposition of restricted
securities. Aggregate cost and fair value of these restricted
securities held at December 31, 1995 were as follows (in thousands):
Aggregate Cost $230
Aggregate Fair Value 149
Percent of Net Assets 0.1%

(B) Federal Income and Excise Taxes and Distributions to Shareholders --
It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and
to distribute substantially all of its taxable income to its
shareholders in a manner which results in no tax cost to the Fund.
Therefore, no Federal income or excise tax provision is required.

The character of distributions made during the year from net
investment income or net realized gains may differ from the
characterization for Federal income tax purposes due to differences in
the recognition of income and expense items for financial statement
and tax purposes. Where appropriate, reclassifications between net
asset accounts are made for such differences that are permanent in
nature.

(C) Realized Gains and Losses on Investment Transactions -- Gains or
losses realized on investment transactions are determined by comparing
the identified cost of the security lot sold with the net sales
proceeds.

(D) Futures -- Upon entering into a futures contract, the Fund pledges to
the broker cash, U.S. government securities or other liquid,
high-grade debt obligations equal to the minimum "initial margin"
requirements of the exchange. The Fund also receives from or pays to
the broker an amount of cash equal to the daily fluctuation in the
value of the contract. Such receipts or payments are known as
"variation margin," and are recorded as unrealized gains or losses.
When the futures contract is closed, a realized gain or loss is
recorded equal to the difference between the value of the contract at
the time it was opened and the value at the time it was closed.

(E) Options -- Premiums received by the Fund upon writing put or call
options are recorded as an asset with a corresponding liability which
is subsequently adjusted to the current market value of the option.
When an option expires, is exercised, or is closed, the Fund realizes
a gain or loss, and the liability is eliminated. The Fund continues
to bear the risk of adverse movements in the price of the underlying
asset during the period of the option, although any potential loss
during the period would be reduced by the amount of the option
premium received.

(F) Foreign Currency Translation -- Investment securities and other assets
and liabilities initially expressed in foreign currencies are
converted to U.S. dollars based upon current exchange rates.
Purchases and sales of foreign investment securities and income are
converted to U.S. dollars based upon currency exchange rates
prevailing on the respective dates of such transactions. The effect
of changes in foreign exchange rates on realized and unrealized
security gains or losses is reflected as a component of such gains or
losses.

(G) Forward Foreign Currency Exchange Contracts -- Forward foreign
currency exchange contracts are valued at the forward rate and are
marked-to-market daily. The change in market value is recorded as an
unrealized gain or loss. When the contract is closed, the Fund
records an exchange gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the
time it was closed.

9
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1995

(H) Additional Investment Risk -- The use of futures contracts, options,
foreign denominated assets and forward foreign currency exchange
contracts for purposes of hedging the Fund's investment portfolio
involves, to varying degrees, elements of market risk in excess of the
amount recognized in the statement of assets and liabilities. The
predominant risk with futures contracts is an imperfect correlation
between the value of the contracts and the underlying securities.
Foreign denominated assets and forward foreign currency exchange
contracts may involve greater risks than domestic transactions,
including currency, political and economic, regulatory and market
risks.

(I) Other -- Investment security transactions are recorded as of the trade
date. Dividend income and distributions to shareholders are recorded
on the ex-dividend date. Interest income is recorded on the accrual
basis and includes amortization of premium and discounts.

3. NET ASSETS
Net assets as of December 31, 1995 were as follows (in thousands):

<TABLE>
<S> <C>
Capital Stock $204,656
Undistributed Net Investment Loss (234)
Undistributed Net Realized Gain 28,125
Net Unrealized Appreciation 12,500
--------
$245,047
========
</TABLE>

4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund for the years ended December 31, 1995
and 1994 were as follows (in thousands):

<TABLE>
<CAPTION>
1995 1994
---------------- ----------------
SHARES DOLLARS SHARES DOLLARS
------ -------- ------- -------
<S> <C> <C> <C> <C>
Shares Sold 11,517 $141,163 9,272 $101,331
Dividends Reinvested 240 3,176 851 8,807
Shares Redeemed (5,338) (63,512) (4,542) (49,920)
------ -------- ------ --------
6,419 $ 80,827 5,581 $ 60,218
</TABLE> ====== ======== ====== ========

5. RELATED PARTY TRANSACTIONS
Strong Capital Management, Inc. (the "Advisor"), with whom certain officers
and directors of the Fund are affiliated, provides investment advisory
services to the Fund. Investment advisory fees, which are established by
terms of the Advisory Agreement, are based on an annualized rate of 1.00%
of the average daily net assets of the Fund. Advisory fees are subject to
reimbursement by the Advisor if the Fund's operating expenses exceed
certain levels.

The amount payable to the Advisor at December 31, 1995 and unaffiliated
directors' fees for 1995 were (in thousands) $262 and $4, respectively.

6. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of long-term securities for the year
ended December 31, 1995 were as follows (in thousands):

<TABLE>
<S> <C>
Purchases:
U.S. Government and Agency $ 33,589
Other 929,508

Sales:
U.S. Government and Agency --
Other 873,156
</TABLE>

7. INCOME TAX INFORMATION
At December 31, 1995, the investment cost and gross unrealized appreciation
and depreciation on investments for Federal income tax purposes were as
follows (in thousands):

<TABLE>
<S> <C>
Aggregate Investment Cost $229,273
========
Aggregate Unrealized:
Appreciation $ 21,606
Depreciation (11,333)
--------
$ 10,273
========

</TABLE>
For corporate shareholders in the Fund, the percentage qualifying for the
dividends-received deduction is 20.3%.

FINANCIAL HIGHLIGHTS

The following presents information relating to a share of capital stock of the
Fund, outstanding for the entire period.
<TABLE>
<CAPTION>
1995 1994 1993 1992(a)
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.07 $ 11.54 $ 10.15 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net Investment Income (0.03) 0.10 0.05 0.04
Net Realized and Unrealized Gains
(Losses) on Investments 3.58 (0.71) 2.09 0.78
-------- -------- ------- --------
TOTAL FROM INVESTMENT OPERATIONS 3.55 (0.61) 2.14 0.82

LESS DISTRIBUTIONS
- ------------------
From Net Investment Income -- (0.10) (0.05) (0.04)
In Excess of Net Investment Income (0.18) (0.43) (0.70) --
From Net Realized Gains -- (0.33) -- (0.63)(b)
-------- -------- ------- --------

TOTAL DISTRIBUTIONS (0.18) (0.86) (0.75) (0.67)
-------- -------- ------- --------
NET ASSET VALUE, END OF PERIOD $ 13.44 $ 10.07 $ 11.54 $ 10.15
======== ======== ======= ========

Total Return +35.3% -5.4% +22.0% +8.9%

Net Assets, End of Period (In Thousands) $248,047 $118,927 $71,938 $ 26,739
Ratio of Expenses to Average Net Assets 1.3% 1.2% 1.3% 1.7%*
Ratio of Net Investment Income to Average Net Assets (0.3%) 1.1% 0.5% 0.5%*
Portfolio Turnover Rate 542.1% 662.5% 976.5% 1,149.6%
</TABLE>

* Calculated on an annualized basis.
(a) Inception date is May 8, 1992. Total return and portfolio turnover rate are
not annualized.
(b) Ordinary income distribution for tax purposes.

REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of the
Strong Discovery Fund II

We have audited the accompanying statement of assets and liabilities of Strong
Discovery Fund II (one of the portfolios constituting the Strong Variable
Insurance Funds, Inc.), including the schedule of investments in securities, as
of December 31, 1995, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of two years in the
period then ended, and the financial highlights for each of the periods
indicated. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995 by correspondence with the custodians and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Strong Discovery Fund II as of December 31, 1995, the results of its operations
for the year then ended, the changes in its net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods indicated, in conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Milwaukee, Wisconsin
January 25, 1996