-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, kgtQPIbzl+KiPZ5hkZ4DEH/Kxldw+3KQ9ylsGzg9wi5xescsXQLePuw4dcqboobB YENVlXgdERjYj/mj/qntuQ== 0000356494-94-000011.txt : 19940502 0000356494-94-000011.hdr.sgml : 19940502 ACCESSION NUMBER: 0000356494-94-000011 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19940429 EFFECTIVENESS DATE: 19940430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VARIABLE INSURANCE PRODUCTS FUND CENTRAL INDEX KEY: 0000356494 STANDARD INDUSTRIAL CLASSIFICATION: 0000 IRS NUMBER: 042766128 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-75010 FILM NUMBER: 94525050 BUSINESS ADDRESS: STREET 1: 82 DEVONSHIRE ST CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6174391269 MAIL ADDRESS: STREET 1: 82 DEVONSHIRE STREET STREET 2: MAILZONE ZH-1 CITY: BOSTON STATE: MA ZIP: 02109 FORMER COMPANY: FORMER CONFORMED NAME: FIDELITY CASH RESERVES II DATE OF NAME CHANGE: 19850825 485BPOS 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A REGISTRATION STATEMENT (NO 2-75010) UNDER THE SECURITIES ACT OF 1933 [ ] Pre-Effective Amendment No. [ ] Post-Effective Amendment No. 29 [x] and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x] Amendment No. [ ] Variable Insurance Products Fund (Exact Name of Registrant as Specified in Charter) 82 Devonshire St., Boston, MA 02109 (Address Of Principal Executive Office) Registrant's Telephone Number, Including Area Code 617-570-7000 Arthur S. Loring, Secretary, 82 Devonshire St., Boston, MA 02109 (Name and Address of Agent for Service) It is proposed that this filing will become effective ( ) Immediately upon filing pursuant to paragraph (b) (x) On April 30, 1994 pursuant to paragraph (b) ( ) 60 days after filing pursuant to paragraph (a) () On () pursuant to paragraph (a) of Rule 485 Registrant has filed a declaration pursuant to Rule 24f-2 under the Investment Company Act of 1940 and filed the notice required by such rule on February 23, 1994. VARIABLE INSURANCE PRODUCTS FUND CROSS REFERENCE SHEET Form N-1A Item Number Part A Prospectus Caption 1 a,b Cover Page 2 a,b,c * 3 a,b A Look At The Trust's Financial History c Performance 4 a(i) The Trust and the Fidelity Organization a(ii) How The Trust Works; Matching the Portfolios to Your Investment Needs; Limiting Investment Risks b,c Limiting Investment Risks; Matching the Portfolios to Your Investment Needs 5 a,b(i) The Trust and the Fidelity Organization b(ii)(iii),c Management, Distribution and Service Fees d Management, Distribution and Service Fees e A Look At The Trust's Financial History; Management, Distribution and Service Fees f Portfolio Transactions 6 a(i) The Trust and the Fidelity Organization a(ii) Redemptions a(iii) * b The Trust and the Fidelity Organization c,d * e Cover Page, Shareholder's Manual f,g Distributions and Taxes 7 a The Trust and the Fidelity Organization b(i),(ii) Financial Highlights; Share Price; Investments b(iii,iv,v) * c,d,e * f Management, Distribution and Service Fees 8 a Redemptions b,c * d Redemptions 9 * _______________ * Not Applicable Part B Statement of Information Caption 10,11 Cover Page 12 Description of The Trust 13 a,b,c Investment Policies and Limitations d Portfolio Transactions 14 a,b Trustees and Officers c * 15 a * b,c Trustees and Officers 16 a(i) FMR a(ii) Trustees and Officers a(iii),b Management Contracts c * d Contracts with Companies Affiliated with FMR e * f Distribution and Service Plans g * h Description of the Trust i Contracts with Companies Affiliated with FMR; Description of the Trust 17 a,b,c,d Portfolio Transactions e * 18 a Description of the Trust b * 19 a Additional Purchase and Redemption Information b Valuation of Portfolio Securities; Additional Purchase and Redemption Information c * 20 Taxes 21 a(i),(ii) Contracts with Companies Affiliated with FMR a(iii),b,c * 22 Performance 23 Financial Statements for the Annual period are incorporated by reference into the Statement of Additional Information _________ * Not Applicable crossreference VARIABLE INSURANCE 82 Devonshire Street PRODUCTS FUND: Boston, Massachusetts PROSPECTUS (bullet) HOW THE TRUST WORKS page APRIL 30, 1994 (bullet) SHAREHOLDER'S MANUAL page Variable Insurance Products Fund (the Trust) is designed to provide investment vehicles for variable annuity and variable life insurance contracts of various insurance companies. The Trust currently offers these funds: MONEY MARKET PORTFOLIO seeks to obtain as high a level of current income as is consistent with preserving capital and providing liquidity. The fund will invest only in high quality U.S. dollar-denominated money market securities of domestic and foreign issuers. AN INVESTMENT IN MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL MAINTAIN A STABLE $1.00 SHARE PRICE. HIGH INCOME PORTFOLIO seeks to obtain a high level of current income by investing primarily in high-yielding, lower-rated, fixed-income securities, while also considering growth of capital. High yielding, lower-rated debt securities present higher risks of untimely interest and principal payments, default, and price volatility than higher-rated securities, and may present problems of liquidity and valuation. EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily in income-producing equity securities. In choosing these securities, the fund will also consider the potential for capital appreciation. The fund's goal is to achieve a yield which exceeds the composite yield on the securities comprising the Standard & Poor's 500 Composite Stock Price Index. GROWTH PORTFOLIO seeks to achieve capital appreciation. The fund normally purchases common stocks, although its investments are not restricted to any one type of security. Capital appreciation may also be found in other types of securities, including bonds and preferred stocks. OVERSEAS PORTFOLIO seeks long term growth of capital primarily through investments in foreign securities. Overseas Portfolio provides a means for investors to diversify their own portfolios by participating in companies and economies outside of the United States. Please read this Prospectus before investing. It is designed to provide you with information and to help you decide if the goal of one or more of the funds matches your own. Retain this document for future reference. Shares of each fund may only be purchased by the separate accounts of insurance companies, for the purpose of funding variable annuity and variable life insurance contracts. Particular funds may not be available in your state due to various insurance regulations. Please check with your insurance company for available funds. Inclusion of a fund in this Prospectus which is not available in your state is not to be considered a solicitation. This Prospectus should be read in conjunction with the prospectus of the separate account of the specific insurance product which accompanies this Prospectus. A Statement of Additional Information (dated April 30, 1994) for the Trust has been filed with the Securities and Exchange Commission and is incorporated herein by reference. This free Statement is available upon request from your insurance company. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. TABLE OF CONTENTS Summary Management, Distribution and Service Fees A Look at the Fund s' Opening an Account Financial History Investment Objectives Investments and Policies Performance Redemptions Distributions and Taxes Appendix The Trust and the Fidelity Organization VARIABLE INSURANCE PRODUCTS FUND SUMMARY The Trust is an open-end, diversified management investment company offering insurance companies a selection of investment vehicles for variable annuity and variable life insurance contracts. Each fund has its own distinct INVESTMENT OBJECTIVE. There is, of course, no guarantee that any fund will achieve its investment objective. MONEY MARKET PORTFOLIO seeks to obtain its objective by investing in high-quality, U.S. dollar-denominated money market securities of domestic and foreign issuers such as certificates of deposit, obligations of governments and their agencies, and commercial paper and notes. HIGH INCOME PORTFOLIO seeks to obtain its objective by normally investing at least 65% of its total assets in income-producing debt securities and preferred stocks, including convertible securities and up to 20% in common stocks and other equity securities. EQUITY-INCOME PORTFOLIO seeks reasonable income by normally investing at least 65% of its total assets in income-producing common or preferred stock and the remainder in debt securities. GROWTH PORTFOLIO seeks capital appreciation by investing in common stock, although the fund is not limited to any one type of security. OVERSEAS PORTFOLIO seeks long term growth of capital by normally investing at least 65% of its total assets in securities of companies from at least three countries outside North America. A discussion of each fund's investment objective begins on page . Various levels of risk are involved with each fund. Investments in money market instruments are subject to the ability of the issuer to make payment at maturity. Investments in high-yielding bonds normally involve lower-rated securities which have a greater risk of default and have prices which fluctuate more than those of higher-rated securities. With any equity investment, in addition to the usual uncertainties involved, an investor should be aware that each of the equity funds has risks particular to it. Please refer to MATCHING THE FUNDS TO YOUR INVESTMENT NEEDS beginning on page for a discussion of these risks. Each of the funds abides by various insurance regulations. Please read your INSURANCE COMPANY'S SEPARATE ACCOUNT PROSPECTUS AND CONTRACT for discussions relating to insurance regulations and instructions on how to invest in and redeem from each fund. A general discussion may be found on page 26. Fidelity Management & Research Company (FMR), the funds' advisor, provides each fund with investment advice and other services. Each fund pays FMR a management fee for the management of investments and business affairs. For a discussion of these fees please see MANAGEMENT, DISTRIBUTION AND SERVICE FEES beginning on page . A LOOK AT THE FUND S' FINANCIAL HISTORY VIPF-4 FINANCIAL HIGHLIGHTS. The following tables give you information about each fund's financial history and use the Trust's fiscal year (which ends December 31). MONEY MARKET PORTFOLIO
Year Ended December 31, Year ended November 30,
1993 1992 1991 1990 1989 1988 1987 1986 1985 (dagger) 1984 (dagger) SELECTED PER-SHARE DATA Net asset value, beginning of $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 period Income from Investment .032 .038 .059 .078 .087 .071 .063 .065 .078 .100 Operations Net interest income Dividends from net interest ( .032 )(.038) (.059) (.078) (.087) (.071) (.063) (.065) (.078) (.100) income Net asset value, end of $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 period TOTAL RETURN 3.23% 3.90% 6.09% 8.04% 9.12% 7.39 6.44 6.70 8.11 10.46 % % % % % RATIOS AND SUPPLEMENTAL DATA Net assets, end of period $ 353,104 $ 301,002 $ 271,123 $ 254,585 $ 142,970 $ 105,650 $ 87,778 $ 65,250 $ 81,899 $ 84,495 (000 omitted) Ratio of expenses to .22%(dagger) (dagger) .24% .38% .56% .67% .60 .54 .50 .56 .66 average net assets % % % % % Ratio of net interest income 3.16% 3.85% 5.93% 7.76% 8.70% 7.16 6.38 6.52 7.81 9.97 to average net assets % % % % %
(dagger) DURING 1985, THE FUND CHANGED ITS FISCAL YEAR-END FROM NOVEMBER 30 TO DECEMBER 31. NET INTEREST INCOME AND DIVIDENDS FROM NET INTEREST INCOME FOR THE PERIOD DECEMBER 1, 1984 TO DECEMBER 31, 1984 WERE $.008 AND $.008, RESPECTIVELY. THE RESULTS FOR THIS ONE MONTH PERIOD ARE NOT REFLECTED IN THE ABOVE FINANCIAL HIGHLIGHTS. (dagger)(dagger) ALL EXPENSES INCURRED IN CONNECTION WITH A SPECIAL MEETING OF SHAREHOLDERS WERE REIMBURSED BY FMR. IF NO REIMBURSEMENT HAD BEEN MADE, TOTAL EXPENSES WOULD HAVE BEEN .23%.
HIGH INCOME PORTFOLIO Year Ended December 31, September 19, 1985 (commencement of operations) to SELECTED PER-SHARE DATA 1993 1992 1991 1990 1989 1988 1987 1986 December 31, 1985 Net asset value, beginning of period $ 10.820 $ 9.550 $ 7.070 $ 8.110 $ 9.660 $ 9.680 $ 10.830 $ 10.310 $ 10.000 Income from Investment Operations .728 .790 .890 .858 1.202 1.110 1.155 1.227 .319 Net investment income Net realized and unrealized gain (loss) 1.332 1.290 1.590 (1.040) (1.550) (.020) (1.000) .520 .310 on investments Total from investment operations 2.060 2.080 2.480 (.182) (.348) 1.090 .155 1.747 .629 Less Distributions (.794) (.810) -- (.858) (1.202) (1.110) (1.155) (1.227) (.319) From net investment income In excess of net investment income ( .036) -- -- -- -- -- -- -- From net realized gain on investments (.060) -- -- -- -- -- (.150) -- -- Total distributions (.890) (.810) -- (.858) (1.202) (1.110) (1.305) (1.227) (.319) Net asset value, end of period $ 11.990 $ 10.820 $ 9.550 $ 7.070 $ 8.110 $ 9.660 $ 9.680 $ 10.830 $ 10.310 TOTAL RETURN (double dagger) # 20.40% 23.17% 35.08% (2.23)% (4.17)% 11.64% 1.22% 17.68% 6.38% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 463,931 $ 200,591 $ 70,060 $ 29,990 $ 33,747 $ 30,246 $ 19,303 $ 13,057 $ 1,971 Ratio of expenses to average net assets(dagger) .64%(diamond) .67% .97% 1.00% .93% .99% 1.02% 1.00% .78%*(dagger)(dagger) Ratio of expenses to average net assets .66%(diamond) .67% .97% 1.12% .93% .99% 1.29% 1.50% 1.50%* before expense reductions(dagger) Ratio of net investment income to average 8.69% 10.98% 12.94% 11.36% 12.94% 11.41% 11.19% 11.32% 12.10%* net assets Portfolio turnover rate 155% 160% 154% 156% 124% 139% 189% 78% 27%*
* ANNUALIZED (dagger) DURING THE PERIOD SEPTEMBER 19, 1985 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1985, FMR AGREED TO VOLUNTARILY WAIVE ADVISORY AND SERVICE FEES. IN ADDITION, FMR VOLUNTARILY AGREED TO REIMBURSE THE FUND TO THE EXTENT THAT THE AGGREGATE OPERATING EXPENSES WERE IN EXCESS OF AN ANNUAL RATE OF .78% OF AVERAGE NET ASSETS. EFFECTIVE JANUARY 1, 1986, FMR VOLUNTARILY AGREED TO REIMBURSE THE FUND'S OPERATING EXPENSES (EXCLUDING INTEREST, TAXES, BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) ABOVE AN ANNUAL RATE OF 1.00% OF AVERAGE NET ASSETS. (diamond) DURING 1993, FMR REIMBURSED THE FUND FOR ALL EXPENSES IN CONNECTION WITH A SPECIAL MEETING OF SHAREHOLDERS, INCLUDING THE PREPARATION OF THE PROXY STATEMENT. (dagger)(dagger) INCLUDES $.014492 PER SHARE OF MANAGEMENT FEES WAIVED DURING 1985. (double dagger) THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. # TOTAL RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED.
EQUITY - INCOME PORTFOLIO Year Ended December 31, October 9, 1986 (commencement of operations) to 1993 1992 1991 1990 1989 1988 1987 December 31, 1986 SELECTED PER-SHARE DATA Net asset value, beginning of period $ 13.40 $ 11.85 $ 9.51 $ 12.29 $ 11.01 $ 9.42 $ 10.02 $ 10.00 Income from Investment Operations Net investment income .37 .40 .50 .58 .60 .53 .45 .06 Net realized and unrealized gain (loss) 2.06 1.57 2.43 (2.38) 1.29 1.59 (.51) (.04) on investments Total from investment operations 2.43 1.97 2.93 (1.80) 1.89 2.12 (.06) .02 Less Distributions From net investment income (.35) (.42) (.59) (.59) (.52) (.53) (.40) -- In excess of net investment income (.04) -- -- -- -- -- -- -- From net realized gain - -- -- -- (.39) (.09) -- (.14) -- Total distributions (.39) (.42) (.59) (.98) (.61) (.53) (.54) -- Net asset value, end of period $ 15.44 $ 13.40 $ 11.85 $ 9.51 $ 12.29 $ 11.01 $ 9.42 $ 10.02 TOTAL RETURN (double dagger) # 18.29% 16.89% 31.44% (15.29) 17.34% 22.71% (1.13) .20% % % RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 1,318,500 $ 592,880 $ 282,171 $ 154,080 $ 142,572 $ 51,807 $ 26,438 $ 3,850 Ratio of expenses to average net assets (dagger) .62% .65% .74% .78% .85% 1.13% 1.33% 1.50%* Ratio of expenses to average net assets before .62% .65% .74% .78% .85% 1.13% 1.33% 4.83%* expense reductions (dagger) Ratio of net investment income to average net 2.87% 3.52% 4.83% 6.01% 5.82% 5.36% 4.78% 5.23%* assets Portfolio turnover rate 120% 74% 107% 94% 78% 69% 133% 7%*
* ANNUALIZED (dagger) EFFECTIVE OCTOBER 9, 1986, FMR VOLUNTARILY AGREED TO REIMBURSE THE FUND'S OPERATING EXPENSES (EXCLUDING INTEREST, TAXES, BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) ABOVE AN ANNUAL RATE OF 1.50 % OF AVERAGE NET ASSETS. (double dagger) THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. # TOTAL RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED.
GROWTH PORTFOLIO Year Ended December 31, October 9, 1986 (commencement of operations) to 1993 1992 1991 1990 1989 1988 1987 December 31, 1986 SELECTED PER-SHARE DATA Net asset value, beginning of period $ 19.76 $ 18.51 $ 12.91 $ 15.18 $ 11.72 $ 10.14 $ 10.03 $ 10.00 Income from Investment Operations Net investment income .12 .09 .09(diamond) .24 .24 .19 .10 .04 Net realized and unrealized gain (loss) 3.64 1.64 5.72 (1.98) 3.41 1.39 .27 (.01) on investments Total from investment operations 3.76 1.73 5.81 (1.74) 3.65 1.58 .37 .03 Less Distributions From net investment income (.11) (.05) (.21) (.21) (.19) -- (.11) -- From net realized gain (.21) (.43) -- (.32) -- -- (.15) -- In excess of net realized gain (.12) -- -- -- -- -- -- -- Total distributions (.44) (.48) (.21) (.53) (.19) -- (.26) -- Net asset value, end of period $ 23.08 $ 19.76 $ 18.51 $ 12.91 $ 15.18 $ 11.72 $ 10.14 $ 10.03 TOTAL RETURN (double dagger) # 19.37 9.32 45.51 (11.73)% 31.51 15.58 3.66 .30% % % % % % % RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 1,383,849 $ 749,837 $ 371,462 $ 135,487 $ 77,261 $ 28,520 $ 18,636 $ 1,965 Ratio of expenses to average net assets (dagger) .71 .75 .84 .88% 1.02 1.24 1.50 1.50%* % % % % % % Ratio of expenses to average net assets before .71 .75 .84 .88% 1.02 1.24 1.68 5.57%* expense reductions (dagger) % % % % % % Ratio of net investment income to average net .72 .83 .56 2.69% 2.83 1.91 1.78 3.27%* assets % % % % % % Portfolio turnover rate 159 262 261 88% 111 155 37 --% % % % % % %
* ANNUALIZED (dagger) EFFECTIVE OCTOBER 9, 1986, FMR VOLUNTARILY AGREED TO REIMBURSE THE FUND'S OPERATING EXPENSES (EXCLUDING INTEREST, TAXES, BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) ABOVE AN ANNUAL RATE OF 1.50% OF AVERAGE NET ASSETS. (diamond) NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD . (double dagger) THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. # TOTAL RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED.
OVERSEAS PORTFOLIO Year Ended December 31, January 28, 1987 (commencement of operations) to 1993 1992 1991 1990 1989 1988 December 31, 1987 SELECTED PER-SHARE DATA Net asset value, beginning of period $ 11.53 $ 13.09 $ 12.42 $ 12.67 $ 10.11 $ 9.35 $ 10.00 Income from Investment Operations Net investment income .06 .16 .24 .18 .07 .09 .05 Net realized and unrealized gain (loss) on 4.16 (1.54) .74 (.39) 2.57 .67 (.59) investments Total from investment operations 4.22 (1.38) .98 (.21) 2.64 .76 (.54) Less Distributions From net investment income (.18) (.18) (.17) (.04) (.08) -- (.11) In excess of net investment income (.04) -- -- -- -- -- -- From net realized gain -- -- (.14)(diamond) -- -- -- -- In excess of net realized gain (.05) -- -- -- -- -- -- Total distributions (.27) (.18) (.31) (.04) (.08) -- (.11) Net asset value, end of period $ 15.48 $ 11.53 $ 13.09 $ 12.42 $ 12.67 $ 10.11 $ 9.35 TOTAL RETURN (double dagger) # 37.35% (10.72)% 8.00% (1.67)% 26.28% 8.13% (5.38)% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 777,961 $ 180,837 $ 126,490 $ 80,554 $ 25,865 $ 9,328 $ 6,568 Ratio of expenses to average net assets(dagger) 1.03% 1.14% 1.26% 1.41% 1.50% 1.50% 1.50%* Ratio of expenses to average net assets before 1.03% 1.14% 1.26% 1.41% 1.98% 3.17% 3.94%* expense reductions(dagger) Ratio of net investment income to average net assets 1.21% 1.86% 2.33% 1.89% .66% .84% .78%* Portfolio turnover rate 42% 61% 168% 100% 78% 95% 181%*
* ANNUALIZED (dagger) EFFECTIVE JANUARY 28, 1987, FMR VOLUNTARILY AGREED TO REIMBURSE THE FUND'S OPERATING EXPENSES (EXCLUDING INTEREST, TAXES, BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) ABOVE AN ANNUAL RATE OF 1.50% OF AVERAGE NET ASSETS. (diamond) INCLUDES AMOUNTS DISTRIBUTED FROM NET REALIZED GAINS ON FOREIGN CURRENCY RELATED TRANSACTIONS TAXABLE AS ORDINARY INCOME. (double dagger) THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. # TOTAL RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED. The Financial Highlights have been audited by Coopers & Lybrand, independent accountants. Their unqualified report is included in the Trust's Annual Report. The Annual Report is incorporated by reference into the Statement of Additional Information. At least twice a year, financial statements with a summary of each fund's composition and performance will be distributed to the Trust's participating insurance companies, which in turn will send the financial statements to you. HOW THE TRUST WORKS INVESTMENT OBJECTIVES AND POLICIES Variable Insurance Products Fund is designed to provide investment vehicles for variable annuity and variable life insurance contracts of insurance companies. The Trust offers a variety of funds with different investment objectives which are described below. FMR manages the investments of each fund. Each fund's investment objective is fundamental and can be changed only by vote of a majority of the outstanding shares of the respective fund. There is no assurance that each fund will achieve its investment objective. MONEY MARKET PORTFOLIO seeks to obtain as high a level of current income as is consistent with preserving capital and providing liquidity. FMR will invest the fund's assets in the following types of high-quality, U.S. dollar-denominated money market securities of domestic and foreign issuers: (bullet) obligations of financial institutions, such as banks, savings and loan institutions, insurance companies and mortgage bankers. These obligations include certificates of deposit, bankers' acceptances and time deposits. (bullet) obligations of governments and their agencies or instrumentalities. (bullet) short-term obligations, including high-quality debt obligations such as commercial paper, notes and bonds with remaining maturities of 397 days or less. (bullet) other short-term debt obligations with remaining maturities of 397 days or less. Many of the fund's investments are described in the APPENDIX. The fund may invest in obligations of U.S. banks, foreign branches of U.S. banks (Eurodollars), U.S. branches and agencies of foreign banks (Yankee dollars), and foreign branches of foreign banks. Euro and Yankee dollar investments involve risks that are different from investments in securities of U.S. banks. These risks may include future unfavorable political and economic developments, possible withholding of taxes, seizure of foreign deposits, currency controls, interest limitations or other governmental restrictions which might affect payment of principal or interest. Additionally, there may be less public information available about foreign banks and their branches. Foreign branches of foreign banks are not regulated by U.S. banking authorities, and generally are not bound by accounting, auditing and financial reporting standards comparable to U.S. banks. Although FMR carefully considers these factors when making investments, the fund does not limit the amount of its assets which can be invested in any one type of instrument or in any foreign country. QUALITY. Pursuant to procedures adopted by the Board of Trustees, Money Market Portfolio may purchase only high quality securities that FMR believes present minimal credit risks. To be considered high quality, a security must be a U.S. government security; rated in accordance with applicable rules in one of the two highest categories for short-term securities by at least two nationally recognized rating services (or by one, if only one rating service has rated the security); or, if unrated, judged to be of equivalent quality by FMR. High quality securities are divided into "first tier" and "second tier" securities. FIRST TIER SECURITIES have received the highest rating (e.g., Standard & Poor's A-1 rating) from at least two rating services (or one, if only one has rated the security). SECOND TIER SECURITIES have received ratings within the two highest categories (e.g., Standard & Poor's A-1 or A-2) from at least two rating services (or one, if only one has rated the security), but do not qualify as first tier securities. If a security has been assigned different ratings by different rating services, at least two rating services must have assigned the higher rating in order for FMR to determine eligibility on the basis of that higher rating. Based on procedures adopted by the Board of Trustees, FMR may determine that an unrated security is of equivalent quality to a rated first or second tier security. DIVERSIFICATION. The fund may not invest more than 5% of its total assets in second tier securities. In addition, the fund may not invest more than 1% of its total assets or $1 million (whichever is greater) in the second tier securities of a single issuer. MATURITY POLICIES. The fund must limit its investments to securities with remaining maturities of 397 days or less and must maintain a dollar-weighted average maturity of 90 days or less. HIGH INCOME PORTFOLIO seeks to obtain a high level of current income by investing primarily in high-yielding, lower-rated, fixed-income securities, while also considering growth of capital. FMR will seek high current income normally by investing the fund's total assets as follows: (bullet) at least 65% in income-producing debt securities and preferred stocks of all types, including convertible securities, zero coupon securities, and mortgage-backed and asset-backed securities; (bullet) up to 20% in common stocks and other equity securities when consistent with the fund's primary objective or when acquired as part of a unit combining fixed-income and equity securities. The fund may invest up to 15% of its assets in securities for which there is no readily available market. These illiquid securities may include privately placed restricted securities for which no institutional market exists. The absence of a trading market can make it difficult to ascertain a market value for illiquid securities. Disposing of illiquid securities may involve time-consuming negotiation and legal expenses, and it may be difficult or impossible for the fund to sell them promptly at an acceptable price. SEE THE APPENDIX FOR MORE INFORMATION. The fund may also invest a portion of its assets in debt securities that are not paying current income in anticipation of possible future income from the securities. The purchase of defaulted bonds and their future benefit to the fund depend upon FMR's ability to predict future prospects of an issuer. Higher yields are usually available on securities that have a longer-term maturity and are lower-rated or are unrated. Lower-rated securities (sometimes referred to as "junk bonds") are usually defined as those rated Ba or lower by Moody's Investors Service, Inc. (Moody's) or BB or lower by Standard & Poor's Corporation (S&P) and may be deemed to be of a speculative nature. Lower-rated securities involve greater risk of default or price changes than securities assigned a higher quality rating. Unrated securities are not necessarily of lower quality than rated securities but they may not be attractive to as many buyers. FOR A FURTHER DISCUSSION OF LOWER-RATED SECURITIES, PLEASE SEE THE "RISKS OF LOWER-RATED DEBT SECURITIES" SECTION ON PAGE . In considering investments for the fund, FMR will look for high-yielding securities of companies whose financial condition is adequate to meet future obligations or has improved or is expected to improve in the future. Among other things, yield is a function of the relative financial strength of the issuing company and of debt maturity schedules. In evaluating these factors, FMR will not rely solely on ratings assigned by Moody's and S&P but will do its own credit analysis. This is because (1) Moody's and S&P assign ratings based largely on historical financial information and the ratings may not accurately reflect the current financial outlook of companies and (2) there can be large differences between the current financial conditions of issuers within the same rating category. The prices of high-yielding, lower-rated, fixed-income securities may decline significantly in periods of general economic difficulty or rising interest rates. The fund will try to recognize these periods and then may adopt a defensive approach (i.e., temporarily invest up to 100% of its assets in high quality debt securities and preferred stocks). OTHER INVESTMENT PRACTICES. The fund may invest in foreign securities. For information on the fund's foreign investments, see the section entitled "International Investments: Special Considerations" on page . Refer to the Appendix for information on other investments the fund may make, including options and futures contracts, put options and short sales, repurchase agreements and securities loans, interfund borrowing transactions, government securities, zero-coupon bonds and pay-in-kind securities, delayed-delivery transactions, asset-backed securities and indexed securities. The fund may also invest in warrants. EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily in income-producing equity securities. In choosing these securities FMR will also consider the potential for capital appreciation. The fund's goal is to achieve a yield which exceeds the composite yield on the securities comprising the Standard & Poor's 500 Composite Stock Price Index. FMR normally will invest at least 65% of the fund's total assets in income-producing common or preferred stock. The remainder of the fund's assets will tend to be invested in debt obligations, many of which are expected to be convertible into common stock (if convertible securities present favorable investment opportunities). FMR expects to invest, as is consistent with the fund's objective, in securities of varying quality but does not intend to invest in securities of companies without proven earnings or credit. In addition, the fund may invest in high-yielding, lower-rated debt securities (sometimes referred to as "junk bonds") which are subject to greater risk than investments in higher quality securities and the fund may invest in foreign securities. FOR A FURTHER DISCUSSION OF LOWER-RATED SECURITIES AND FOREIGN INVESTING, PLEASE SEE THE "RISKS OF LOWER-RATED DEBT SECURITIES" SECTION AND "INTERNATIONAL INVESTMENTS: SPECIAL CONSIDERATIONS" ON PAGES AND , RESPECTIVELY. OTHER INVESTMENT PRACTICES. See the Appendix for more information on other investment practices including repurchase agreements and securities loans, illiquid investments, restricted securities, loans and other direct debt instruments, options and futures contracts, short sales, swap agreements, indexed securities, asset-backed securities and interfund borrowing transactions. The fund may also invest in warrants and mortgage-backed securities. GROWTH PORTFOLIO seeks to achieve capital appreciation. FMR normally will purchase common stocks for the fund, although its investments are not restricted to any one type of security. Capital appreciation may also be found in other types of securities, including bonds and preferred stocks. The emphasis on a particular security will depend on FMR's interpretation of underlying economic, financial, and security trends. The fund does not place any emphasis on dividend income from its investments except when FMR believes this income will have a favorable influence on the market value of the security. In addition, the fund may invest in high-yielding, lower-rated debt securities which are subject to greater risk than investments in higher quality securities and the fund may invest in foreign securities. FOR A FURTHER DISCUSSION OF LOWER-RATED SECURITIES AND FOREIGN INVESTING, PLEASE SEE THE "RISKS OF LOWER-RATED DEBT SECURITIES" SECTION AND "INTERNATIONAL INVESTMENTS: SPECIAL CONSIDERATIONS" ON PAGES AND , RESPECTIVELY. OTHER INVESTMENT PRACTICES. Refer to the Appendix for more information on investments the fund may make, including options and futures contracts, short sales, swap agreements, indexed securities, interfund borrowing transactions, repurchase agreements and securities loans, warrants, restricted securities, and illiquid investments. OVERSEAS PORTFOLIO seeks long term growth of capital primarily through investments in foreign securities. The fund provides a means for investors to diversify their own portfolios by participating in companies and economies outside of the United States. Foreign securities are defined as securities of issuers whose principal activities are outside of the United States. In determining whether an issuer's principal activities and interests are outside the United States, FMR will look at such factors as the location of its assets, personnel, sales and earnings. Normally, at least 65% of the fund's total assets will be invested in securities of issuers from at least three different countries outside of North America. Although the fund may invest up to 35% in securities of issuers from Canada, Mexico and the United States, FMR currently does not expect to invest a significant part of this amount in securities of U.S. issuers. When allocating the fund's investments among geographic regions and individual countries, FMR considers various criteria, such as prospects for relative economic growth among countries, expected levels of inflation, government policies influencing business conditions, and the outlook for currency relationships. FMR expects to invest most of the fund's assets in securities of issuers located in developed countries in these general geographic areas: the Americas (other than the United States), the Far East and Pacific Basin, Scandinavia and Western Europe. FMR may invest the fund's assets in all types of securities, most of which are denominated in foreign currencies. FMR expects that opportunities for long term growth of capital will come primarily from common stock, securities such as warrants or rights that are convertible into common stock, preferred stock, and depositary receipts for those securities. The fund may also invest in high-yielding, lower-rated debt securities (sometimes referred to as "junk bonds") of any type if FMR believes that doing so may result in long term growth. FOR A FURTHER DISCUSSION OF LOWER-RATED SECURITIES, PLEASE SEE THE "RISKS OF LOWER-RATED DEBT SECURITIES" SECTION ON PAGE . The fund does not place any emphasis on dividends or interest income except when FMR believes this income will have a favorable influence on the market value of the security. The fund may invest in indexed securities whose value depends on the price of foreign currencies, commodities, securities indices, or other financial indicators. In the normal course of managing the fund, FMR may invest a portion of the fund's assets in U.S. and foreign government obligations and money market securities (including repurchase agreements) when the fund has monies not yet invested, it has sold one security and is waiting to buy another one, so that it will be prepared to meet redemption requests, or to earn a return on available cash balances. When market conditions warrant, FMR can make temporary defensive investments without limit in U.S. government obligations or investment-grade obligations of companies incorporated in and having principal business activities in the United States. OTHER INVESTMENT PRACTICES. Refer to the Appendix for further information on the fund's investments, including options and futures contracts, warrants, illiquid investments, restricted securities, swap agreements, indexed securities, loans and other direct debt instruments, repurchase agreements and securities loans, and interfund borrowing transactions. MATCHING THE FUNDS TO YOUR INVESTMENT NEEDS Each fund's shares may be used only as the investment vehicle for insurance companies' variable contracts. You may enjoy certain tax benefits by purchasing a variable annuity or variable life insurance contract. (Refer to the prospectus of your insurance company's separate account for a discussion of the tax benefits.) No single fund constitutes a balanced investment plan. As described in the following paragraphs, each fund stresses a different objective. Each fund's share price (with the exception of Money Market Portfolio), yield and total return will fluctuate and an investment in a fund (except Money Market Portfolio) may be worth more or less than your original cost when shares are redeemed. Investments in MONEY MARKET PORTFOLIO earn income at current money market rates. The fund's ability to achieve its investment objective depends on the quality and maturity of its investments. Although its policies are designed to help maintain a stable $1.00 share price, all money market instruments can change in value when interest rates or issuers' creditworthiness change, or if an issuer or guarantor of a security fails to pay interest or principal when due. If these changes in value were large enough, the fund's share price could deviate from $1.00. In general, securities with longer maturities are more vulnerable to price changes, although they may provide higher yields. Money Market Portfolio will invest more than 25% of its total assets in the securities of the financial services industry, under normal conditions. Companies in the financial services industry are subject to various risks related to that industry, such as government regulation, changes in interest rates, and exposure on loans, including loans to foreign borrowers. The fund's performance may be affected by conditions affecting the financial services industry. HIGH INCOME PORTFOLIO stresses earning high income by investing in lower-rated, fixed-income securities and in equity securities. High Income Portfolio offers the potential to earn a high yield; however, since the fund has an aggressive approach to income investing, only investors who can accept the greater price movements and credit risk associated with lower quality bonds should consider this fund. Fixed-income securities are generally considered to be interest-rate sensitive, which means that their value (and the fund's share price) will tend to decrease when interest rates rise and increase when interest rates fall. In general, securities with shorter maturities offer lower yields, while providing greater price stability than longer-term securities. Longer-term securities generally are more affected by changes in interest rates; however, the lower-quality securities in which the fund invests may not be as interest-rate sensitive as higher-quality securities with equivalent maturities and are more subject to credit risks. EQUITY-INCOME PORTFOLIO stresses providing reasonable income, although the fund will also consider the potential for capital appreciation. Since capital appreciation is only a secondary consideration for the fund, you should not expect a total return comparable to funds that have capital appreciation as a primary objective. The fund may be appropriate for you if you can afford to ride out changes in the stock market, because it invests primarily in common and preferred stock. FMR also can make temporary investments without limit in securities such as investment-grade bonds, high-quality preferred stocks and short-term notes, for defensive purposes when it believes market conditions warrant. GROWTH PORTFOLIO seeks to achieve capital appreciation. This fund will invest in the securities of both well-known and established companies, and smaller, less well-known companies which may have a narrow product line or whose securities are thinly traded. These latter securities will often involve greater risk than may be found in the ordinary investment security. FMR's analysis and expertise plays an integral role in the selection of securities and, therefore, the performance of the fund. Many securities which FMR believes would have the greatest growth potential may be regarded as speculative, and an investment in the fund may involve greater risk than is inherent in other mutual funds. It is also important to point out that the fund may be appropriate for you if you can afford to ride out changes in the stock market, because it invests primarily in common stocks. FMR also can make temporary investments without limit in securities such as investment-grade bonds, high-quality preferred stocks and short-term notes, for defensive purposes when it believes market conditions warrant. OVERSEAS PORTFOLIO seeks long term growth of capital and any income return is incidental to that objective. By investing in foreign securities, FMR attempts to take advantage of differences between economic trends and the performance of securities markets in various countries. To date, the market values of securities of issuers located in many countries have moved relatively independently of each other and during certain periods the return on equity investments in some countries has exceeded the return on similar investments in the United States. At other times, the return has been less than that of similar U.S. securities. FMR believes that it may be possible to obtain significant appreciation from a portfolio of foreign investments and also achieve increased diversification in comparison to a mutual fund that invests solely in U.S. securities. The fund obtains increased diversification by combining securities from various countries that offer different investment opportunities and are affected by different economic trends. International diversification reduces the effect that events in any one country or geographic area will have on the fund's investments. Of course, negative movement by the fund's investments in one foreign market represented in the portfolio may offset potential gains from the fund's investments in another country's markets. Although the fund will normally invest primarily in issuers located in developed countries, the fund may also invest in developing countries. Compared to the United States and other developed countries, developing countries may have relatively unstable governments, economies based on only a few industries, and securities markets which trade a small number of securities. Prices on these exchanges tend to be volatile and, in the past, these exchanges have offered greater potential for gain (as well as loss) than exchanges in developed countries. See International Investments on page 16 for further information on foreign securities. RISKS OF LOWER-RATED DEBT SECURITIES Lower-rated debt securities ( sometimes referred to as "junk bonds") are usually defined as securities rated Ba or lower by Moody's or BB or lower by S&P. Lower-rated debt securities are considered speculative and involve greater risk of loss than higher-rated debt securities, and are more sensitive to changes in the issuer's capacity to pay. This is an aggressive approach to income investing. The 1980s saw a dramatic increase in the use of lower-rated debt securities to finance highly leveraged corporate acquisitions and restructurings. Past experience may not provide an accurate indication of the future performance of lower-rated debt securities, especially during periods of economic recession. In fact, from 1989 to 1991, the percentage of lower-rated debt securities that defaulted rose significantly above prior levels, although the default rate decreased in 1992 and 1993. Lower-rated debt securities may be thinly traded, which can adversely affect the prices at which these securities can be sold and can result in high transaction costs. If market quotations are not available, lower-rated debt securities will be valued in accordance with standards set by the Board of Trustees, including the use of outside pricing services. Judgment plays a greater role in valuing lower-rated debt securities than securities for which more extensive quotations and last sale information are available. Adverse publicity and changing investor perceptions may affect the ability of outside pricing services to value lower-rated debt securities, and each fund's ability to dispose of these securities. The market prices of lower-rated debt securities may decline significantly in periods of general economic difficulty which may follow periods of rising interest rates. During an economic downturn or a prolonged period of rising interest rates, the ability of issuers of lower-rated debt to service their payment obligations, meet projected goals, or obtain additional financing may be impaired. Each fund may choose, at its expense or in conjunction with others, to pursue litigation or otherwise to exercise its rights as a security holder to seek to protect the interests of security holders if it determines this to be in the interest of its shareholders. The considerations discussed above for lower-rated debt securities also apply to lower-quality, unrated debt instruments of all types, including loans and other direct indebtedness of businesses with poor credit standing. Unrated debt instruments are not necessarily of lower quality than rated instruments, but they may not be attractive to as many buyers. Each fund relies more on FMR's credit analysis when investing in debt instruments that are unrated. Please refer to the Appendix for a discussion of Moody's and S&P ratings. INTERNATIONAL INVESTMENTS: SPECIAL CONSIDERATIONS The information contained in these paragraphs is of particular importance to Overseas Portfolio; however, each fund can make foreign investments. FMR limits the amount of High Income, Equity-Income and Growth Portfolio's net assets that may be invested in foreign securities to 50%, respectively. However, each fund , including Overseas Portfolio, may not invest more than 20% of its assets in any one foreign country. Each fund may have an additional 15% invested in securities of issuers located in any one (but only one) of the following countries: Australia, Canada, France, Japan, the United Kingdom or Germany. A fund must be diversified in at least three different countries if it exceeds 20% in any one foreign country. Investing outside the U.S. involves different opportunities and different risks from U.S. investments. FMR believes that it may be possible to obtain significant returns from a portfolio of foreign investments, or a combination of foreign investments and U.S. investments, and to achieve increased diversification in comparison to a portfolio invested solely in U.S. securities. By including international investments in your investment portfolio, you may gain increased diversification by combining securities from several countries and geographic areas that offer various investment opportunities and are affected by particular economic trends. At the same time, these opportunities and trends involve risks that may not be encountered in U.S. investments. International investing in general may involve greater risks than U.S. investments. There is generally less publicly available information about foreign issuers, and there may be less government regulation and supervision of foreign stock exchanges, brokers, and listed companies. There may be difficulty in enforcing legal rights outside the United States. Foreign companies generally are not subject to uniform accounting, auditing, and financial reporting standards, practices, and requirements comparable to those that apply to U.S. companies. Security trading practices abroad may offer less protection to investors such as the funds. Settlement of transactions in some foreign markets may be delayed or may be less frequent than in the U.S., which could affect the liquidity of a fund's portfolio. Additionally, in some foreign countries, there is the possibility of expropriation or confiscatory taxation; limitations on the removal of securities, property, or other assets of a fund; political or social instability; or diplomatic developments which could affect U.S. investments in foreign countries. FMR will take these factors into consideration in managing each fund's foreign investments. Each fund may invest a portion of its assets in developing countries, or in countries with new or developing capital markets; for example, nations in Eastern Europe. The considerations noted above are generally intensified for these investments. These countries may have relatively unstable governments, economies based on only a few industries, and securities markets that trade a small number of securities. Securities of issuers located in these countries tend to have volatile prices and may offer significant potential for loss as well as gain. FOREIGN CURRENCIES. The value of each fund's foreign investments and the value of its dividends and earned interest , may be significantly affected by changes in currency exchange rates. Some foreign currency values may be volatile, and there is the possibility of governmental controls on currency exchange or governmental intervention in currency markets, which could adversely affect the funds. Although FMR may attempt to manage currency exchange rate risks, there is no assurance that FMR will do so at an appropriate time or that FMR will be able to predict exchange rates accurately. For example, if FMR increases a fund's exposure to a foreign currency, and that currency's value subsequently falls, FMR's currency management may result in increased losses to the fund. Similarly, if FMR hedges a fund's exposure to a foreign currency, and that currency's value rises, the fund will lose the opportunity to participate in the currency's appreciation. CURRENCY MANAGEMENT. The relative performance of foreign currencies is an important factor in each fund's performance. FMR may manage each fund's exposure to various currencies to take advantage of yield, risk, and return characteristics that foreign currencies can provide for U.S. investors. To manage exposure to currency fluctuations, the funds may enter into currency forward contracts (agreements to exchange one currency for another at a future date) or currency swap agreements, buy and sell options and futures contracts relating to foreign currencies, and purchase securities indexed to foreign currencies. The funds will use currency forward contracts in the normal course of business to lock in an exchange rate in connection with purchases and sales of securities denominated in foreign currencies. Other currency management strategies allow FMR to hedge portfolio securities, to shift investment exposure from one currency to another, or to attempt to profit from anticipated declines in the value of a foreign currency relative to the U.S. dollar. There is no overall limitation on the amount of the funds' assets that may be committed to currency management strategies. LIMITING INVESTMENT RISKS The following summarizes the funds' principal investment limitations. A complete listing is contained in the Statement of Additional Information. The following limitations and the policies discussed in "HOW THE TRUST WORKS" are considered at the time of purchase; the sale of securities is not required in the event of a subsequent change in circumstances. 1. Money Market Portfolio (a) normally may not invest more than 5% of its total assets in the securities of any single issuer. Under certain conditions, however, the fund may invest up to 10% of its total assets in the first tier securities of a single issuer for up to three business days; and (b) will not purchase a security if, as a result more than 25% of its total assets would be in a particular industry, except that the fund will invest more than 25% of its total assets in the financial services industry, under normal conditions. These limitations do not apply to obligations issued or guaranteed as to principal and interest by the United States government, its agencies or instrumentalities. 2. Neither High Income, Equity-Income, Growth nor Overseas Portfolios will purchase a security if, as a result; (a) (with respect to 75% its total assets) more than 5% of its total assets would be invested in the securities of any single issuer or it would hold more than 10% of the outstanding voting securities of that issuer; (b) more than 25% of its total assets would be invested in a particular industry; or (c) more than 10% (15% for High Income and Overseas Portfolios) of its net assets would be invested in illiquid securities. Limitations (a) and (b) do not apply to U.S. government securities. 3. Each fund may borrow money or engage in reverse repurchase agreements (as described in the Appendix) for temporary or emergency purposes (except for Money Market Portfolio which may do so for investment purposes as described in the Appendix), but not in an amount exceeding 25% of its net assets. 4. Each fund may temporarily lend any security or make any other loan provided that not more than 33 1/3% of a fund's total assets would be lent to other parties. Except for each fund's investment objective and limitations, 1(b), 2(a), 2(b), and 4, the policies described in this prospectus are not fundamental. Non-fundamental policies can be changed at any time without the consent of shareholders. Each fund may borrow money only from banks or other funds advised by FMR and will not purchase securities when borrowings exceed 5% of its total assets (excluding reverse repurchase agreements for Money Market Portfolio) . If a fund borrows money, its share price (except for Money Market Portfolio) may be subject to greater fluctuation until the borrowing is paid off. To this extent, (for all funds except Money Market Portfolio) purchasing securities when borrowings are outstanding may involve an element of leverage. Each fund may temporarily lend its portfolio securities to broker-dealers and institutions, but only when the loans are fully collateralized. Each fund may also make cash loans to other funds advised by FMR in an amount not exceeding 5% of net assets for Equity-Income, Growth and Overseas Portfolios, 7.5% of net assets for High Income Portfolio and 10% of net assets for Money Market Portfolio (see Appendix). INTERNAL REVENUE SERVICE (IRS) LIMITATIONS. In addition to the above, each fund also follows certain limitations imposed by the IRS on separate accounts of insurance companies relating to the tax-deferred status of variable contracts. More specific information may be contained in your insurance company's separate account prospectus. PORTFOLIO TRANSACTIONS FMR chooses broker-dealers by judging professional ability and quality of service and uses various brokerage firms to carry out a fund's equity transactions. A fund's debt obligations and money market obligations are generally traded in the over-the-counter market through broker-dealers. A broker-dealer is a securities firm or bank which makes a market for securities by offering to buy at one price and sell at a slightly higher price. The difference between the prices is known as a spread. Overseas Portfolio normally trades its securities in foreign countries since the best available market for foreign securities is often on foreign markets. In transactions on foreign stock exchanges, except in Canada, brokers' commissions are generally fixed and are often higher than in the United States, where commissions are negotiated. Since FMR places (directly or through affiliated sub-advisors) a large number of transactions, including those of Fidelity's other funds, the funds generally pay lower commissions and incur lower costs, and broker-dealers are willing to work on a more favorable spread than would be possible for most individual investors. Each fund has authorized FMR to allocate transactions to some broker-dealers who help distribute the fund's shares or shares of Fidelity's other funds, and on an agency basis, to Fidelity Brokerage Services, Inc. (FBSI) and Fidelity Brokerage Services, Ltd. (FBSL), affiliates of FMR. FMR will make such allocations if commissions are comparable to those charged by non-affiliated, qualified broker-dealers for similar services. FMR may also allocate brokerage transactions to a fund's custodian, acting as a broker-dealer, or to other broker-dealers, so long as transaction quality and commission rates are comparable to those of other broker-dealers, where the broker dealers will allocate a portion of the commissions paid toward payment of a fund's expenses. These expenses currently include transfer agent and custodian fees. The Custodian may credit a portion of the commissions paid toward payment of the funds' custodian charges. Higher commissions may be paid to those firms that provide research, valuation and other services, to the extent permitted by law. FMR also is authorized to allocate brokerage transactions to FBSI in order to secure from FBSI research services produced by third party, independent entities. FMR may use this research information in managing a fund's assets, as well as assets of other clients. A fund may engage in short-term trading when consistent with its objective. Also, a security may be sold and another of comparable quality simultaneously purchased to take advantage of what FMR believes to be a temporary disparity in the normal yield relationship of the two securities. The frequency of portfolio transactions - a fund's turnover rate - for High Income, Equity-Income, Growth and Overseas Portfolios will vary from year to year depending on market conditions. FMR buys and sells securities for the funds after considering a company's ability to repay, future business conditions, interest rate levels and the availability of new investments or higher relative yields. For fiscal year 1993, High Income, Equity-Income, Growth and Overseas Portfolios had turnover rates of 155%, 120%, 159% and 42%, respectively. Because a higher turnover rate increases transaction costs and may have certain tax consequences, FMR carefully weighs the anticipated benefits of short-term investment against this consequence. PERFORMANCE Each fund's performance may be quoted in advertising in terms of yield and total return if accompanied by performance at your insurance company's separate account. Performance is based on historical results and not intended to indicate future performance. For additional performance information, contact your insurance company for a free annual report. Money Market Portfolio's YIELD refers to the income generated by an investment in the fund over a specified seven day period, expressed as an annual percentage rate. Its EFFECTIVE YIELD is calculated similarly, but assumes that the income earned from investments is reinvested. Money Market Portfolio's effective yield will tend to be slightly higher than its yield because of this compounding effect. For High Income Portfolio, YIELD is a way of showing the rate of income the fund earns on its investments as a percentage of the fund's share price. To calculate yield, a portfolio takes the dividend and interest income, if any, it earned from its portfolio of investments for a specified 30-day period (net of expenses), divides it by the number of its shares entitled to receive dividends and expresses the result as an annualized percentage rate based on the portfolio's share price at the end of the 30-day period. Yields are calculated according to accounting methods that are standardized for all stock and bond funds. Because yield accounting methods differ from the methods used for other accounting purposes, the portfolio's yield may not equal its distribution rate, the income paid to an account or the income reported in the portfolio's financial statements. TOTAL RETURNS are based on the overall dollar or percentage change in value of a hypothetical investment in each fund, including changes in share price (except for Money Market Portfolio) and assuming each fund's dividends and capital gain distributions, if any, are reinvested. A CUMULATIVE TOTAL RETURN reflects a portfolio's performance over a stated period of time. An AVERAGE ANNUAL TOTAL RETURN reflects the hypothetical annually compounded return that would have produced the same cumulative total return if a portfolio's performance had been constant over the entire period. Because average annual returns tend to smooth out variations in a portfolio's return, you should recognize that they are not the same as actual year-by-year results. To illustrate the components of overall performance, a portfolio may separate its cumulative and average annual returns into income results and capital gain or loss. High Income, Equity-Income, Growth and Overseas Portfolios may quote their ADJUSTED NET ASSET VALUES, including all distributions paid, and may be averaged over specified periods. Equity-Income, Growth and Overseas Portfolios may use these averages to calculate the funds' MOMENTUM INDICATORS, which track changes in adjusted net asset values over specified periods. YIELDS AND TOTAL RETURNS QUOTED FOR THE FUNDS INCLUDE THE EFFECT OF DEDUCTING EACH FUND'S EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO ANY PARTICULAR INSURANCE PRODUCT. SINCE SHARES OF THE FUNDS MAY ONLY BE PURCHASED THROUGH A VARIABLE ANNUITY OR VARIABLE LIFE CONTRACT, YOU SHOULD CAREFULLY REVIEW THE PROSPECTUS OF THE INSURANCE PRODUCT YOU HAVE CHOSEN FOR INFORMATION ON RELEVANT CHARGES AND EXPENSES. Excluding these charges from quotations of each fund's performance has the effect of increasing the performance quoted. You should bear in mind the effect of these charges when comparing a fund's performance to that of other mutual funds. DISTRIBUTIONS AND TAXES For a discussion of the tax status of your variable contract, refer to the prospectus of your insurance company's separate account. It is suggested you keep all statements you receive to assist in your personal recordkeeping. It is expected that shares of the funds will be held under the terms of variable annuity or variable life insurance contracts. Under current tax law, dividends or capital gain distributions from any fund are not currently taxable when left to accumulate within a variable annuity or variable life insurance contract. Depending on the variable contract, withdrawals from the contracts may be subject to ordinary income tax and, in addition, a 10% penalty tax on withdrawals before age 59 1/2. Each fund is treated as a separate entity for federal income tax purposes. Each fund intends to pay out all of its net investment income and net realized capital gains for each year. Dividends from Money Market Portfolio are declared daily and paid monthly. Equity-Income distributes its dividends quarterly and High Income, Growth and Overseas Portfolios distribute any dividends each year. Normally, net realized capital gains, if any, are distributed each year for the funds. Such income and capital gains are automatically reinvested in additional shares for the funds. High Income, Equity-Income, Growth and Overseas Portfolios make dividend and capital gain distributions on a per-share basis. After every distribution from each of these funds, the fund's share price drops by the amount of the distribution. Because dividends and capital gain distributions are reinvested, the total value of an account will not be affected because, although the shares will have a lower price, there will be correspondingly more of them. THE TRUST AND THE FIDELITY ORGANIZATION The Trust is an open-end, diversified, management investment company organized as a Massachusetts business trust on November 13, 1981. It has its own Board of Trustees, which supervises its activities and reviews contractual arrangements with companies that provide each fund with services. The Trust is not required to hold annual shareholder meetings, although special meetings may be called for a specific fund, or the Trust as a whole, for purposes such as electing or removing Trustees, changing fundamental policies or approving a management contract. An insurance company issuing a variable contract that participates in the Trust will vote shares in the separate account as required by law and interpretations thereof, as may be amended or changed from time to time. In accordance with current law and interpretations thereof, a participating insurance company is required to request voting instructions from policyowners and must vote shares in the separate account in proportion to the voting instructions received. For a further discussion, please refer to your insurance company's separate account prospectus. Fidelity Investments is one of America's largest investment management organizations and has its principal business address at 82 Devonshire Street, Boston, Massachusetts. It includes a number of different companies, which provide a variety of financial services and products. Each fund employs various Fidelity companies to perform certain activities required for its operation. Fidelity Management & Research Company, the funds' manager, is the original Fidelity company, founded in 1946. It provides a number of mutual funds and other clients with investment research and portfolio management services. It maintains a large staff of experienced investment personnel and a full complement of related support facilities. Fidelity Management & Research (U.K.) Inc. (FMR U.K.), Fidelity Management & Research (Far East) Inc. (FMR Far East), Fidelity International Investment Advisors (FIIA) and FMR Texas Inc. (FMR Texas) are wholly owned subsidiaries of FMR that provide research, investment advice and portfolio management services for certain funds advised by FMR with respect to foreign securities (FMR U.K., FMR Far East, FIIA) and money market instruments (FMR Texas). FMR U.K., FMR Far East, FIIA, and FMR Texas maintain their principal business offices in London, Tokyo, Bermuda, and Dallas, respectively. As of December 31, 1993, FMR advised funds having more than 15 million shareholder accounts with a total value of more than $ 225 billion. Fidelity Distributors Corporation (Distributors) distributes shares for the Fidelity funds. FMR Corp. is the holding company for the Fidelity companies. Through ownership of voting common stock, Edward C. Johnson 3d, President and a Trustee of the Trust, Johnson family members, and various trusts for the benefit of the Johnson family form a controlling group with respect to FMR Corp. Each fund has an investment objective similar to that of an existing Fidelity retail fund. Money Market Portfolio is most similar to Fidelity Cash Reserves, High Income Portfolio to Spartan High Income Fund, Equity-Income Portfolio to Fidelity Equity-Income Fund, Growth Portfolio to Fidelity Retirement Growth Fund and Overseas Portfolio to Fidelity Overseas Fund. Performance of these funds is not expected to be the same as the performance of the corresponding retail fund due in part to dissimilarities in their investments. Various insurance related costs at the insurance company's separate account will also affect performance. Bettina Doulton is the manager of Equity-Income Portfolio, which she has managed since July 1993. Ms. Doulton is also manager of Fidelity Advisor Equity Portfolio Income. Previously, she managed Fidelity Select Automotive Portfolio and assisted on Fidelity Magellan Fund and Fidelity Equity-Income Fund. Ms. Doulton also served as an analyst following the domestic and European automotive and tire manufacturing industry as well as the gaming and lodging industry. She joined Fidelity in 1985. Barry Jay Coffman is vice president and manager of High Income Portfolio, which he has managed since August 1990. Mr. Coffman also assists on Fidelity Puritan Fund. Previously, he served as an assistant manager and analyst for the high yield bond group. Before joining Fidelity in 1986, Mr. Coffman was an analyst for Equitable Capital Management and was a senior auditor at Arthur Anderson & Company. Lawrence Greenberg is vice president and manager of Growth Portfolio, which he has managed since April 1991. He also manages Emerging Growth. Previously, Mr. Greenberg managed Select Environmental Services and Select Medical Delivery. He also assisted on Fidelity Magellan Fund. Mr. Greenberg joined Fidelity in 1986. John R. Hickling is manager and vice president of Overseas Portfolio, which he has managed since January 1993. Mr. Hickling also manages Fidelity Overseas Fund, International Growth & Income, Advisor Overseas Fund, and Japan Fund. Previously, he managed Emerging Markets, Europe, International Opportunities and Pacific Basin. Mr. Hickling joined Fidelity in 1982. Each fund sells its shares to separate accounts of insurance companies which are both affiliated and unaffiliated with FMR. Each fund currently does not foresee any disadvantages to policyowners arising out of the fact that each fund offers its shares to separate accounts of various insurance companies to serve as the investment medium for their variable products. Nevertheless, the Board of Trustees intends to monitor events in order to identify any material irreconcilable conflicts which may possibly arise, and to determine what action, if any, should be taken in response to such conflicts. If such a conflict were to occur, one or more insurance companies' separate accounts might be required to withdraw its investments in one or more funds and shares of another fund may be substituted. This might force a fund to sell securities at disadvantageous prices. In addition, the Board of Trustees may refuse to sell shares of any fund to any separate account or may suspend or terminate the offering of shares of any fund if such action is required by law or regulatory authority or is in the best interests of the shareholders of the fund. MANAGEMENT, DISTRIBUTION AND SERVICE FEES For managing each fund's investments and business affairs, each fund pays FMR a monthly fee. MONEY MARKET PORTFOLIO'S fee is made up of two components: (a) a basic fee rate and (b) an income-based component. The basic fee rate is the sum of the following two components: 1. A group fee rate based on the monthly average net assets of all the mutual funds advised by FMR. This rate cannot rise above .37%, and it drops (to as low as a marginal rate of .1325%) as total assets in all these funds rise. The effective group fee rate for December 1993 was .1621%. 2. An individual fund fee rate of .03%. One-twelfth of the combined annual fee rate is applied to the fund's net assets averaged over the most recent month, giving a dollar amount which is the fee for that month. If the fund's gross yield is 5% or less, the basic fee is the total management fee. The income-based component is added to the basic fee only when the fund's yield is greater than 5%. The income-based fee is 6% of that portion of the fund's yield that represents a gross yield of more than 5% per year. The maximum income-based component is .24%. For fiscal 1993, the fund's management fee was .14% of the average net assets of the fund - approximately $1.40 for every $1,000 of the fund's average net assets. HIGH INCOME PORTFOLIO'S annual fee rate is the sum of two components: 1. A group fee rate based on the monthly average net assets of all the mutual funds advised by FMR. This rate cannot rise above .37%, and it drops (to as low as a marginal rate of .1325%) as total assets in all these funds rise. The effective group fee rate for December 1993 was .1621%. 2. An individual fund fee rate of .45%. One-twelfth of the combined annual fee rate is applied to the fund's net assets averaged over the most recent month, giving a dollar amount which is the fee for that month. In fiscal year 1993, FMR's fee was .51% of the fund's average net assets or $5.10 for every $1,000 of the fund's average net assets. This fee is based on an individual fund fee rate of .35%. Shareholders of the fund voted to increase the individual fund fee rate to .45% on December 15, 1993. EQUITY-INCOME, GROWTH AND OVERSEAS PORTFOLIOS' annual fee rate is the sum of two components: 1. A group fee rate based on the monthly average net assets of all the mutual funds advised by FMR. This rate cannot rise above .52%, and it drops (to as low as a marginal rate of .30%*) as total assets in all these funds rise. The effective group fee rate for December 1993 was .3243%. 2. An individual fund fee rate of .20% for Equity-Income Portfolio, .30% for Growth Portfolio and .45% for Overseas Portfolio. *FMR voluntarily agreed to adopt a revised group fee rate schedule for these funds which provides for a marginal rate as low as .285% when average group net assets exceed $336 billion. A new management contract for each fund with a revised group fee rate schedule will be presented for approval at the next shareholder meeting. One-twelfth of the combined annual fee rate is applied to each fund's net assets averaged over the most recent month, giving a dollar amount which is the fee for that month. In fiscal year 1993, FMR's fee was .53%, .63% and .77% of Equity-Income, Growth and Overseas Portfolios' average net assets, or $5.30, $6.30 and $7.70 for every $1,000 of each fund's average net assets , respectively . Due to the greater complexity, expense and commitment of resources involved in international investing, Overseas Portfolio's management fee rate is higher than those of most domestic mutual funds, but not necessarily higher than those of the typical international fund. Each fund has adopted a Distribution and Service Plan (the Plans) pursuant to Rule 12b-1 under the Investment Company Act of 1940. No separate payments are authorized to be made by the funds under the Plans. Rather, each Plan recognizes that FMR may use its management fee or other resources to pay expenses associated with activities primarily intended to result in the sale of each fund's shares. Each Plan also provides that FMR may make payments from these sources to third parties, although the Board has not authorized these payments to date. On behalf of High Income and Overseas Portfolios, FMR has entered into sub-advisory agreements with FMR U.K. and FMR Far East. In addition, FMR, on behalf of Overseas Portfolio, has entered into a sub-advisory agreement with FIIA. FIIA, in turn, has entered into a sub-advisory agreement with its wholly owned subsidiary Fidelity International Investment Advisors (U.K.) Limited (FIIAL U.K.). Under the sub-advisory agreements, FMR may receive investment advice and research services with respect to companies based outside the U.S. and may grant the sub-advisors investment management authority as well as the authority to buy and sell securities if FMR believes it would be beneficial to the funds. Currently, FMR U.K., FMR Far East, FIIA and FIIAL U.K. each focus on companies other than the U.S., including countries in Europe, Asia and the Pacific Basin. Under the sub-advisory agreements FMR pays the fees of FMR U.K., FMR Far East, and FIIA. FIIA, in turn, pays the fees of FIIAL U.K. For providing investment advice and research services the sub-advisors are compensated as follows: (bullet) FMR pays FMR U.K. and FMR Far East fees equal to 110% and 105%, respectively, of FMR U.K.'s and FMR Far East's costs incurred in connection with providing investment advice and research services. (bullet) FMR pays FIIA 30% of its monthly management fee with respect to the average market value of investments held by each fund for which FIIA has provided FMR with investment advice. (bullet) FIIA pays FIIAL U.K. a fee equal to 110% of FIIAL U.K.'s costs incurred in connection with providing investment advice and research services. For providing investment management services, the sub-advisors are compensated according to the following formulas: (bullet) FMR pays FMR U.K., FMR Far East, and FIIA 50% of its monthly management fee with respect to each fund's average net assets managed by the sub-advisor on a discretionary basis. (bullet) FIIA pays FIIAL U.K. 110% of FIIAL U.K.'s costs incurred in connection with providing investment management services . On behalf of Money Market Portfolio, FMR has entered into a sub-advisory agreement with FMR Texas, a Texas corporation with principal offices at 400 East Las Colinas Boulevard in Irving, Texas. Pursuant to the agreement, FMR Texas has primary responsibility for providing investment management services. Under the sub-advisory agreement, FMR, and not the fund, pays FMR Texas a fee equal to 50% of the management fee payable to FMR under its management contract with the fund. (The fees paid to FMR Texas are not reduced by any voluntary or mandatory management fee waivers or expense reimbursements which may be in effect from time to time). In fiscal 1993, FMR paid FMR Texas a fee of $207,606 which was equivalent to . 07 % of Money Market Portfolio's average net assets. Each fund utilizes Fidelity Investments Institutional Operations Company (FIIOC), an affiliate of FMR, to maintain the master accounts of the participating insurance companies. Under the transfer agent agreement with FIIOC, each fund pays fees based on the type, size, and number of accounts in each fund and the number of transactions made by shareholders of each fund. For fiscal year 1993, Money Market, High Income, Equity-Income, Growth and Overseas Portfolios paid FIIOC $87,208, $108,432, $111,756, $140,122 and $143,222, respectively, for these services. Each fund also has an agreement with Fidelity Service Co. (FSC), an affiliate of FMR under which each fund pays FSC to calculate its daily share price and to maintain the portfolio and general accounting records of each fund and to administer each fund's securities lending program. The fees for pricing and bookkeeping services are based on each fund's average net assets, but must fall within a range of $20,000 to $750,000 per year for Money Market Portfolio and $45,000 to $750,000 for High Income, Equity-Income, Growth and Overseas Portfolios. The fees for securities lending services are based on the number and duration of individual securities loans. For fiscal year 1993, the fees paid to FSC (including securities lending, if any, and related out-of-pocket expenses) amounted to $53,769, $138,642, $439,891, $456,795, and $230,456 for Money Market, High Income, Equity-Income, Growth and Overseas Portfolios, respectively. Total expenses for fiscal year 1993 amounted to .22%, .64%, .62%, .71% and 1.03%, respectively of Money Market, High Income, Equity-Income, Growth and Overseas Portfolios' average net assets. FMR may, from time to time, agree to reimburse a fund for management fees and other expenses above a specified percentage of average net assets. Reimbursement arrangements, which may be terminated at any time without notice, will increase a fund's yield. If FMR discontinues a reimbursement arrangement, each fund's expenses will go up and its yield will be reduced. FMR retains the ability to be repaid by a fund for expense reimbursements if expenses fall below the limit prior to the end of the fiscal year. Repayment by a fund will lower its yield. FMR has voluntarily agreed to reimburse the total operating expenses (excluding taxes, interest and extraordinary expenses) of High Income Portfolio in excess of 1.00% of its average net assets and reimburse total operating expenses of Equity-Income, Growth and Overseas Portfolios in excess of 1.50% of their average net assets. SHAREHOLDER'S MANUAL OPENING AN ACCOUNT SINCE YOU MAY NOT PURCHASE THE PORTFOLIOS' SHARES DIRECTLY, YOU SHOULD READ THE PROSPECTUS OF THE INSURANCE COMPANY'S SEPARATE ACCOUNT TO OBTAIN INSTRUCTIONS FOR PURCHASING A VARIABLE ANNUITY OR VARIABLE LIFE INSURANCE CONTRACT. SHARE PRICE The term "net asset value" or NAV refers to the worth of one share. The NAV is computed by adding the value of each fund's investments, cash and other assets, deducting liabilities and dividing the result by the number of shares outstanding. Each fund is open for business each day the New York Stock Exchange is open. The price of one share is its NAV which FSC normally calculates as of the close of business of the New York Stock Exchange (normally 4:00 p.m. Eastern time). Money Market Portfolio's securities are valued on the basis of amortized cost. This means of valuation assumes a steady rate of amortization of any premium or discount from the date of purchase until maturity instead of looking at actual changes in market value. High Income, Equity-Income and Growth Portfolios' securities are valued primarily on the basis of market quotations. A fund's foreign securities are valued based on quotations from the primary market in which they are traded, and are translated from the local currency into U.S. dollars using current exchange rates. For all funds, other assets and securities for which market quotations are not readily available will be valued by a method which the Trust's Board believes accurately reflects fair value. INVESTMENTS Investments in each fund may be made only by separate accounts established and maintained by insurance companies for the purpose of funding variable contracts. Please refer to the prospectus of your insurance company's separate account for information on how to invest in each fund. Investments by separate accounts in each fund are expressed in terms of full and fractional shares of each fund. All investments in the funds are credited to an insurance company's separate account immediately upon acceptance of the investment by a fund. Investments will be processed at the next NAV calculated after an order is received and accepted by a fund. The offering of shares of any fund may be suspended for a period of time and each fund reserves the right to reject any specific purchase order. Purchase orders may be refused if, in FMR's opinion, they are of a size that would disrupt the management of a fund. REDEMPTIONS Shares of any fund may be redeemed on any business day. Redemptions are effected at the per share NAV next determined after receipt of the redemption request has been accepted by a fund. Redemption proceeds will normally be wired to the insurance company on the next business day after receipt of the redemption instructions by a fund but in no event later than 7 days following receipt of instructions. Each fund may suspend redemptions or postpone payment dates on days when the New York Stock Exchange is closed (other than weekend or holidays), when trading on the New York Stock Exchange is restricted, or as permitted by the Securities and Exchange Commission. Please refer to the prospectus of your insurance company's separate account for information on how to redeem from each fund. APPENDIX The following paragraphs provide a brief description of securities in which the funds may invest and transactions they may make. Each fund is not limited by this discussion, however, and may purchase other types of securities and enter into other types of transactions if they are consistent with the its investment objective and policies. MONEY MARKET refers to the marketplace where short-term, high grade debt securities are traded and i ncludes U.S. government obligations, commercial paper, certificates of deposit and bankers' acceptances, time deposits and short-term corporate obligations. Money market instruments may carry fixed rates of return or have variable or floating interest rates. COMMERCIAL PAPER represents short-term obligations issued by banks, broker-dealers, corporations and other entities for purposes such as financing their current operations. CERTIFICATES OF DEPOSIT represent a commercial bank's obligations to repay funds deposited with it earning specified rates of interest over given periods. BANKERS' ACCEPTANCES are obligations of a bank to pay a draft which has been drawn on it by a customer. These obligations are backed by large banks and usually backed by goods in international trade. TIME DEPOSITS are non-negotiable deposits in a banking institution earning a specified interest rate over a given period of time. U.S. GOVERNMENT OBLIGATIONS are debt securities issued or guaranteed as to principal and interest by the U.S. Treasury or by an agency or instrumentality of the U.S. government. Not all U.S. government obligations are backed by the full faith and credit of the United States. For example, securities issued by the Federal Farm Credit Bank or by the Federal National Mortgage Association are supported by the agency's right to borrow money from the U.S. Treasury under certain circumstances. Securities issued by the Federal Home Loan Bank are supported only by the credit of the agency. There is no guarantee that the government will support these types of securities, and therefore they involve more risk than other government obligations. DELAYED DELIVERY TRANSACTIONS. Money Market and High Income Portfolios may buy and sell securities on a when-issued or delayed-delivery basis, with payment and delivery taking place at a future date. The market value of securities purchased in this way may change before the delivery date, which could affect the market value of Money Market Portfolio's assets, and could increase fluctuations in High Income Portfolio's yield. Ordinarily, the funds will not earn interest on securities purchased until they are delivered. VARIABLE OR FLOATING RATE OBLIGATIONS, including certain participation interests in municipal obligations, have interest rate adjustment formulas that help stabilize their market values. Many variable and floating rate instruments also carry demand features that permit a fund to sell them at par value plus accrued interest on short notice. When determining the maturity of a variable or floating rate instrument, Money Market Portfolio may look to the date the demand feature can be exercised, or to the date the interest rate is readjusted, rather than to the final maturity of the instrument. CREDIT ENHANCEMENT AGREEMENTS may be purchased simultaneously with a money market instrument for guaranteeing principal and/or interest and may be considered with the instrument for purposes of determining the quality of the instruments. These include irrevocable note repurchase agreements or letters of credit issued by banks and guarantees provided by creditworthy institutions. A fund will purchase these agreements to enhance the creditworthiness of instruments when FMR (through yield and credit analysis) believes it is in the fund's best interest. CORPORATE OBLIGATIONS are bonds and notes issued by corporations and other business organizations in order to finance their long-term credit needs. OPTIONS AND FUTURES CONTRACTS are a way for a fund to manage its exposure to changing interest rates, security prices, and currency exchange rates. Some options and futures strategies, including selling futures, buying puts, and writing calls, tend to hedge a fund's investments against price fluctuations. Other strategies, including buying futures, writing puts, and buying calls, tend to increase market exposure. Options and futures may be combined with each other or with forward contracts in order to adjust the risk and return characteristics of the overall strategy. A fund may invest in options and futures based on any type of security, index, or currency, including options and futures traded on foreign exchanges and options not traded on exchanges. Options and futures can be volatile investments, and involve certain risks. If FMR applies a hedge at an inappropriate time or judges market conditions incorrectly, options and futures strategies may lower a fund's return. A fund could also experience losses if the prices of its options and futures positions were poorly correlated with its other investments, or if it could not close out its positions because of an illiquid secondary market. High Income, Equity-Income, Growth and Overseas Portfolios will not hedge more than 25% of their total assets by selling futures, buying puts, and writing calls under normal conditions. In addition, each fund will not buy futures or write puts whose underlying value exceeds 25% of its total assets, and each fund will not buy calls with a value exceeding 5% of its total assets. SHORT SALES. A fund may enter into short sales with respect to stocks underlying its convertible security holdings. These transactions may help to hedge against the effect of stock price declines, but may result in losses if a convertible security's price does not track the price of its underlying equity. Convertible securities hedged with short sales are not currently expected to exceed 15% of a fund's total assets under normal conditions. LOANS AND OTHER DIRECT DEBT INSTRUMENTS are interests in amounts owed by a corporate, governmental, or other borrower to another party. They may represent amounts owed to lenders or lending syndicates (loans and loan participations), to suppliers of goods or services (trade claims or other receivables), or to other parties. Direct debt instruments involve risk of loss in case of default or insolvency of the borrower and may offer less legal protection to a fund in the event of fraud or misrepresentation. In addition, loan participations involve a risk of insolvency of the lending bank or other financial intermediary. Direct debt instruments may also include standby financing commitments that obligate a fund to supply additional cash to the borrower on demand. ILLIQUID INVESTMENTS. Each fund (other than Money Market Portfolio) may invest up to 10% of its assets (15% for High Income and Overseas Portfolios) in illiquid investments. Money Market Portfolio will invest less than 10% of its assets in illiquid investments. Under the supervision of the Board of Trustees, FMR determines the liquidity of each fund's investments. The absence of a trading market can make it difficult to ascertain a market value for illiquid investments. Disposing of illiquid investments may involve time-consuming negotiation and legal expenses, and it may be difficult or impossible for a fund to sell them promptly at an acceptable price. RESTRICTED SECURITIES. Each fund may purchase securities which cannot be sold to the public without registration under the Securities Act of 1933 (restricted securities). Unless registered for sale, these securities can only be sold in privately negotiated transactions or pursuant to an exemption from registration. INDEXED SECURITIES values are linked to currencies, interest rates, commodities, indices, or other financial indicators. Most indexed securities are short to intermediate term fixed-income securities whose values at maturity or interest rates rise or fall according to the change in one or more specified underlying instruments. Indexed securities may be positively or negatively indexed (i.e., their value may increase or decrease if the underlying instrument appreciates), and may have return characteristics similar to direct investments in the underlying instrument or to one or more options on the underlying instrument. Indexed securities may be more volatile than the underlying instrument itself. SWAP AGREEMENTS. As one way of managing its exposure to different types of investments, a fund may enter into interest rate swaps, currency swaps, and other types of swap agreements such as caps, collars, and floors. In a typical interest rate swap, one party agrees to make regular payments equal to a floating interest rate multiplied by a "notional principal amount," in return for payments equal to a fixed rate multiplied by the same amount, for a specified period of time. If a swap agreement provides for payments in different currencies, the parties might agree to exchange the notional principal amount as well. Swaps may also depend on other prices or rates, such as the value of an index or mortgage prepayment rates. In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed-upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed-upon level. An interest rate collar combines elements of buying a cap and selling a floor. Swap agreements will tend to shift a fund's investment exposure from one type of investment to another. For example, if a fund agreed to exchange payments in dollars for payments in foreign currency, the swap agreement would tend to decrease a fund's exposure to U.S. interest rates and increase its exposure to foreign currency and interest rates. Caps and floors have an effect similar to buying or writing options. Depending on how they are used, swap agreements may increase or decrease the overall volatility of a fund's investments and its share price and yield. Swap agreements are sophisticated hedging instruments that typically involve a small investment of cash relative to the magnitude of risks assumed. As a result, swaps can be highly volatile and may have a considerable impact on a fund's performance. Swap agreements are subject to risks related to the counterparty's ability to perform, and may decline in value if the counterparty's creditworthiness deteriorates. A fund may also suffer losses if it is unable to terminate outstanding swap agreements or reduce its exposure through offsetting transactions. WARRANTS. High Income, Equity-Income, Growth and Overseas Portfolios may invest in warrants, which entitle the holder to buy equity securities at a specific price for a specific period of time. Warrants may be considered more speculative than certain other types of investments in that they do not entitle a holder to dividends or voting rights with respect to the securities which may be purchased nor do they represent any rights in the assets of the issuing company. The value of a warrant may be more volatile than the value of the warrant's underlying securities. Also, the value of the warrant does not necessarily change with the value of the underlying securities and a warrant ceases to have value if it is not exercised prior to the expiration date. MORTGAGE-BACKED SECURITIES are securities issued by government and non-government entities such as banks, mortgage lenders, or other financial institutions. A mortgage-backed security may be an obligation of the issuer backed by a mortgage or pool of mortgages or a direct interest in an underlying pool of mortgages. Some mortgage-backed securities, such as collateralized mortgage obligations or CMOs, make payments of both principal and interest at a variety of intervals; others make semiannual interest payments at a predetermined rate and repay principal at maturity (like a typical bond). Mortgage-backed securities are based on different types of mortgages including those on commercial real estate or residential properties. Other types of mortgage-backed securities will likely be developed in the future, and a fund may invest in them if FMR determines they are consistent with its investment objective and policies. The value of mortgage-backed securities may change due to shifts in the market's perception of issuers. In addition, regulatory or tax changes may adversely affect the mortgage securities market as a whole. Non-government mortgage-backed securities may offer higher yields than those issued by government entities, but also may be subject to greater price changes than government issues. Mortgage-backed securities are subject to prepayment risk. Prepayment, which occurs when unscheduled or early payments are made on the underlying mortgages, may shorten the effective maturities of these securities and may lower their total returns. STRIPPED MORTGAGE-BACKED SECURITIES are created when a U.S. government agency or a financial institution separates the interest and principal components of a mortgage-backed security and sells them as individual securities. The holder of the "principal-only" security (PO) receives the principal payments made by the underlying mortgage-backed security, while the holder of the "interest-only" security (IO) receives interest payments from the same underlying security. The prices of stripped mortgage-backed securities may be particularly affected by changes in interest rates. As interest rates fall, prepayment rates tend to increase, which tends to reduce prices of IOs and increase prices of POs. Rising interest rates can have the opposite effect. ASSET-BACKED SECURITIES may include pools of mortgages, loans, receivables or other assets. Payment of principal and interest may be largely dependent upon the cash flows generated by the assets backing the securities. ZERO COUPON BONDS do not make interest payments; instead, they are sold at a deep discount from their face value and are redeemed at face value when they mature. Because zero coupon bonds do not pay current income, their prices can be very volatile when interest rates change. In calculating its daily dividend, a fund takes into account as income a portion of the difference between a zero coupon bond's purchase price and its face value. A broker-dealer creates a derivative zero by separating the interest and principal components of a U.S. Treasury security and selling them as two individual securities. CATS (Certificates of Accrual on Treasury Securities), TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury Receipts) are examples of derivative zeros. The Federal Reserve Bank creates STRIPS (Separate Trading of Registered Interest and Principal of Securities) by separating the interest and principal components of an outstanding U.S. Treasury bond and selling them as individual securities. Bonds issued by the Resolution Funding Corporation (REFCORP) and the Financing Corporation (FICO) can also be separated in this fashion. Original issue zeros are zero coupon securities originally issued by the U.S. government, a government agency, or a corporation in zero coupon form. REPURCHASE AGREEMENTS AND SECURITIES LOANS. In a repurchase agreement, a fund buys a security at one price and simultaneously agrees to sell it back to the seller at a higher price. Each fund may also make securities loans to broker-dealers and institutional investors, including FBSI. In the event of the bankruptcy of the other party to a repurchase agreement or a securities loan, each fund could experience delays in recovering its cash or the securities it lent. To the extent that, in the meantime, the value of the securities purchased had decreased, or the value of the securities lent had increased, each fund could experience a loss. A fund may enter into a FOREIGN REPURCHASE AGREEMENT with respect to foreign securities and repurchase agreements denominated in foreign currencies. Foreign repurchase agreements may be less well secured than repurchase agreements in U.S. markets, and may involve greater risks of default. In all cases, FMR must find the creditworthiness of the other party to the transaction satisfactory. REVERSE REPURCHASE AGREEMENTS are transactions when a fund temporarily transfers possession of a portfolio instrument to another party, such as a bank or broker-dealer, in return for cash. At the same time, the fund agrees to repurchase the instrument at an agreed-upon price and time. Each fund expects that it will engage in reverse repurchase agreements for temporary purposes (except Money Market Portfolio, which may do so for any purpose) such as to fund redemptions or when it is able to invest the cash so acquired at a rate higher than the cost of the agreement, which would increase the income earned by the fund. Reverse repurchase agreements may increase the risk of fluctuation in the market value of each fund's assets or in its yield. INTERFUND BORROWING PROGRAM. Each fund has received permission from the Securities and Exchange Commission to lend money to and borrow money from other funds advised by FMR or its affiliates. Interfund loans and borrowings normally will extend overnight, but can have a maximum duration of seven days. Each fund will lend through the program only when the returns are higher than those available at the same time from other short-term instruments (such as repurchase agreements), and will borrow through the program only when the costs are equal to or lower than the cost of bank loans. Equity-Income, Growth and Overseas Portfolios cannot lend more than 5% of net assets, High Income Portfolio cannot lend more than 7.5% of net assets and Money Market Portfolio cannot lend more than 10% of net assets to other funds. Each fund will not borrow through the program if, after doing so, total outstanding borrowings would exceed 15% of its total assets. Loans may be called on one day's notice, and each fund may have to borrow from a bank at a higher interest rate if an interfund loan is called or not renewed. Any delay in repayment to a lending fund could result in a lost investment opportunity or additional borrowing costs. DEBT OBLIGATIONS. The following tables provide a summary of ratings assigned to debt holdings (not including money market instruments) held by High Income and Equity-Income Portfolios. These percentages are dollar-weighted averages of month-end portfolio holdings during the thirteen months ended December 31, 1993, presented as a percentage of total investments. These percentages are historical and not necessarily indicative of the quality of current or future portfolio holdings, which may vary . HIGH INCOME PORTFOLIO
DOLLAR- DOLLAR- RATED BY WEIGHTED RATED BY WEIGHTED S&P AVERAGE MOODY'S AVERAGE DESCRIPTION INVESTMENT GRADE AAA, AA, A 0.00 % Aaa, Aa, A 0.00 % Highest quality/high quality/upper medium grade BBB 0. 86 % Baa 0.82 % Medium grade LOWER QUALITY BB 10.13 % Ba 10.93 % Moderately speculative B 41.74 % B 37.56 % Speculative CCC 5.03 % Caa 6.26 % Highly speculative CC, C 0.25 % Ca, C 1.61 % Poor quality/lowest quality, no interest D 1.32 % 0.00% In default, in arrears
The dollar-weighted average of debt securities not rated by either S&P or Moody's amounted to 21.50 %.* EQUITY-INCOME PORTFOLIO
DOLLAR- DOLLAR- RATED BY WEIGHTED RATED BY WEIGHTED S&P AVERAGE MOODY'S AVERAGE DESCRIPTION INVESTMENT GRADE AAA, AA, A 1.28 % Aaa, Aa, A 1.45 % Highest quality/high quality/upper medium grade BBB 1.05 % Baa 0.73% Medium grade LOWER QUALITY BB 0.91 % Ba 1.26 % Moderately speculative B 1 .39 % B 1.06 % Speculative CCC 0.03 % Caa 0.03 % Highly speculative CC, C 0.00% Ca, C 0.00 % Poor quality/lowest quality, no interest D 0.02% 0.00% In default, in arrears
The dollar-weighted average of debt securities not rated by either S&P or Moody's amounted to 0.28%.* * MAY INCLUDE SECURITIES RATED BY OTHER NATIONALLY RECOGNIZED RATING ORGANIZATIONS, AS WELL AS UNRATED SECURITIES. UNRATED SECURITIES ARE NOT NECESSARILY LOWER-QUALITY SECURITIES. DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS: The descriptions that follow are examples of eligible ratings for the funds. Money Market Portfolio may, however, consider the ratings for other types of investments and the ratings assigned by other rating organizations when determining the eligibility of a particular investment. AAA - Bonds rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA - Bonds rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A - Bonds rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. BAA - Bonds rated Baa are considered as medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. BA - Bonds rated Ba are judged to have speculative elements. Their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B - Bonds rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or maintenance of other terms of the contract over any long period of time may be small. CAA - Bonds rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. CA - Bonds rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked short-comings. C - Bonds rated C are the lowest-rated class of bonds and issued so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating classification from Aa through B in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. DESCRIPTION OF STANDARD & POOR'S CORPORATION'S CORPORATE BOND RATINGS: AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's to a debt obligation. Capacity to pay interest and repay principal is extremely strong. AA - Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the higher-rated issues only in small degree. A - Debt rated A has a strong capacity to pay interest and repay principal, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions. BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher-rated categories. BB - Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. B - Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB- rating. CCC - Debt rated CCC has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, it is not likely to have the capacity to pay interest and repay principal. CC - Debt rated CC is typically applied to debt subordinated to senior debt which is assigned an actual or implied CCC debt rating. C - The rating C is typically applied to debt subordinated to senior debt which is assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed but debt service payments are continued. CI - The rating CI is reserved for income bonds on which no interest is being paid. D - Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating will also be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. The ratings from AA to CCC may be modified by the addition of a plus or minus to show relative standing within the major rating categories. VARIABLE INSURANCE PRODUCTS FUND (THE TRUST) MONEY MARKET PORTFOLIO, HIGH INCOME PORTFOLIO, EQUITY-INCOME PORTFOLIO, GROWTH PORTFOLIO AND OVERSEAS PORTFOLIO STATEMENT OF ADDITIONAL INFORMATION APRIL 30, 1994 This Statement is not a prospectus but should be read in conjunction with the Trust's current Prospectus (dated April 30, 1994). Shares of the Trust may only be purchased by the separate accounts of insurance companies. Please retain this Statement for future reference. The Annual Report to shareholders of the Trust for the year ended December 31, 1993 is incorporated herein by reference. To obtain additional copies of the Prospectus or Annual Report, please call Fidelity Distributors Corporation at 1-800-544-8888. TABLE OF CONTENTS PAGE Investment Policies and Limitations 2 Portfolio Transactions 12 Valuation of Fund Securities 13 Performance 14 General Information 18 Additional Purchase and Redemption Information 20 Taxes 20 FMR 20 Trustees and Officers 21 Management Contracts 23 Distribution and Service Plans 27 Contracts With Companies Affiliated With FMR 27 Summary of the Funds' Expenses 28 Description of the Fund 28 Financial Statements 29 Appendix 29 INVESTMENT ADVISOR Fidelity Management & Research Company SUB-ADVISORS Money Market Portfolio: FMR Texas Inc. High Income Portfolio: Fidelity Management & Research (U.K.) Inc. Fidelity Management & Research (Far East) Inc. Overseas Portfolio: Fidelity Management & Research (U.K.) Inc. Fidelity Management & Research (Far East) Inc. Fidelity International Investment Advisors Fidelity International Investment Advisors (U.K.) Limited DISTRIBUTOR Fidelity Distributors Corporation (FDC) TRANSFER AGENT Fidelity Investments Institutional Operations Company (FIIOC) VIP-ptB-494 INVESTMENT POLICIES AND LIMITATIONS The following policies and limitations supplement those set forth in the Prospectus. Unless otherwise noted, whenever an investment policy or limitation states a maximum percentage of a fund's assets that may be invested in any security or other asset, or sets forth a policy regarding quality standards, such standard or percentage limitation will be determined immediately after and as a result of the fund's acquisition of such security or other asset. Accordingly, any subsequent change in values, net assets, or other circumstances will not be considered when determining whether the investment complies with the fund's investment policies and limitations. Each fund's fundamental investment policies and limitations cannot be changed without approval by a "majority of the outstanding voting securities" (as defined in the Investment Company Act of 1940) of each fund. However, except for the fundamental investment limitations set forth below, the investment policies and limitations described in this Statement of Additional Information are not fundamental and may be changed without shareholder approval. MONEY MARKET PORTFOLIO THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS. THE FUND MAY NOT: (1) purchase the securities of any issuer (other than obligations issued or guaranteed as to principal and interest by the United States, its agencies or instrumentalities) if, as a result, more than 5% of its total assets would be invested in the securities of such issuer, provided, however, that with respect to 25% of its total assets, 10% of its assets may be invested in the securities of any single issuer; (2) issue senior securities, except as permitted under the Investment Company Act of 1940; (3) borrow money, except that the fund may (i) borrow money for temporary or emergency purposes (not for leveraging or investment) and (ii) engage in reverse repurchase agreements for any purpose; provided that (i) and (ii) in combination do not exceed 33 1/3% of the fund's total assets (including the amount borrowed) less liabilities (other than borrowings). Any borrowings that come to exceed this amount will be reduced within three days (not including Sundays and holidays) to the extent necessary to comply with the 33 1/3% limitation; (4) underwrite securities issued by others, except to the extent that the fund may be considered an underwriter within the meaning of the Securities Act of 1933 in the disposition of restricted securities; (5) purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities) if, as a result, more than 25% of the fund's total assets would be invested in the securities of companies whose principal business activities are in the same industry, except that the fund will invest more than 25% of its total assets in the financial services industry; (6) purchase or sell real estate unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business); (7) purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments; (8) lend any security or make any other loan if, as a result, more than 33 1/3% of its total assets would be lent to other parties, but this limitation does not apply to purchases of debt securities or to repurchase agreements; or (9) invest in companies for the purpose of exercising control or management. THE FOLLOWING INVESTMENT LIMITATIONS FOR MONEY MARKET PORTFOLIO ARE NOT FUNDAMENTAL AND MAY BE CHANGED WITHOUT SHAREHOLDER NOTIFICATION. (i) The fund does not currently intend to purchase a security (other than a security issued or guaranteed by the U.S. government or any of its agencies or instrumentalities) if, as a result, more than 5% of its total assets would be invested in the securities of a single issuer; provided that the fund may invest up to 10% of its total assets in the first tier securities of a single issuer for up to three business days. (ii) The fund does not currently intend to sell securities short, unless it owns or has the right to obtain securities equivalent in kind and amount to the securities sold short, and provided that transactions in futures contracts and options are not deemed to constitute selling securities short. (iii) The fund does not currently intend to purchase securities on margin, except that the fund may obtain such short-term credits as are necessary for the clearance of transactions, and provided that margin payments in connection with futures contracts and options on futures contracts shall not constitute purchasing securities on margin. (iv) The fund may borrow money only (a) from a bank or from a registered investment company or portfolio for which FMR or an affiliate serves as investment adviser or (b) by engaging in reverse repurchase agreements with any party. The fund will not borrow money in excess of 25% of net assets so long as this limitation is required for certification by certain state insurance departments. The fund will not purchase any security while borrowings (excluding reverse repurchase agreements) representing more than 5% of its total assets are outstanding. The fund will not borrow from other funds advised by FMR or its affiliates if total outstanding borrowings immediately after such borrowing would exceed 15% of the fund's total assets. (v) The fund does not currently intend to purchase any security if, as a result, more than 10% of its net assets would be invested in securities that are deemed to be illiquid because they are subject to legal or contractual restrictions on resale or because they cannot be sold or disposed of in the ordinary course of business at approximately the prices at which they are valued. (vi) The fund does not currently intend to purchase or sell futures contracts or call options. This limitation does not apply to options attached to, or acquired or traded together with, their underlying securities, and does not apply to securities that incorporate features similar to options or futures contracts. (vii) The fund does not currently intend to lend assets other than securities to other parties, except by lending money (up to 10% of the fund's net assets) to a registered investment company or portfolio for which FMR or an affiliate serves as investment advisor. (This limit does not apply to purchases of debt securities or to repurchase agreements.) (viii) The fund does not currently intend to (a) purchase securities of other investment companies, except in the open market where no commission except the ordinary broker's commission is paid, or (b) purchase or retain securities issued by other open-end investment companies. Limitations (a) and (b) do not apply to securities received as dividends, through offers of exchange, or as a result of a reorganization, consolidation, or merger. (Due to certain state insurance regulations, the fund does not currently intend to purchase the securities of other investment companies.) (ix) The fund does not currently intend to invest in oil, gas, or other mineral exploration or development programs or leases. Investments may be made in U.S. dollar-denominated time deposits, certificates of deposit and bankers' acceptances of U.S. banks and their branches located outside of the U.S., U.S. branches and agencies of foreign banks, and foreign branches of foreign banks. The fund may also invest in U.S. dollar-denominated securities issued or guaranteed by other U.S. or foreign issuers, including U.S. and foreign corporations or other business organizations, foreign governments and foreign government agencies or instrumentalities, and U.S. and foreign financial institutions, including savings and loan institutions, insurance companies, mortgage bankers and real estate investment trusts, as well as banks. The fund may purchase obligations of banks, savings and loan institutions and other financial institutions whose creditworthiness might not otherwise meet the fund's standards, provided that (i) the principal amount of the instrument acquired by the fund is insured in full by the Federal Deposit Insurance Corporation and (ii) the aggregate investment made in any one such bank or institution does not exceed $100,000. The obligations of foreign branches of U.S. banks may be general obligations of the parent bank in addition to the issuing branch, or may be limited by the terms of a specific obligation and by federal and state regulation. Payment of interest and principal upon these obligations may also be affected by governmental action in the country of domicile of the branch (generally referred to as sovereign risk). In addition, evidences of ownership of portfolio securities may be held outside of the U.S. and the fund may be subject to the risks associated with the holding of such property overseas. Various provisions of federal law governing the establishment and operation of domestic branches do not apply to foreign branches of domestic banks. Obligations of U.S. branches and agencies of foreign banks may be general obligations of the parent bank in addition to the issuing branch, or may be limited by the terms of a specific obligation and by federal and state regulation as well as by governmental action in the country in which the foreign bank has its head office. Obligations of foreign issuers also involve certain additional risks. Foreign issuers may be subject to less governmental regulation and supervision than U.S. issuers. Foreign issuers also generally are not bound by uniform accounting, auditing and financial reporting requirements comparable to those applicable to U.S. issuers. HIGH INCOME, EQUITY-INCOME, GROWTH AND OVERSEAS PORTFOLIOS THE FOLLOWING ARE HIGH INCOME, EQUITY-INCOME, GROWTH AND OVERSEAS PORTFOLIOS' FUNDAMENTAL INVESTMENT LIMITATIONS. EACH FUND MAY NOT: (1) with respect to 75% of the fund's total assets, purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities) if, as a result, (a) more than 5% of the fund's total assets would be invested in the securities of that issuer, or (b) the fund would hold more than 10% of the outstanding voting securities of that issuer; (2) issue senior securities, except as permitted under the Investment Company Act of 1940; (3) borrow money, except that the fund (i) may borrow money for temporary or emergency purposes (not for leveraging or investment) or (ii) engage in reverse repurchase agreements, provided that (i) and (ii) in combination (borrowings) do not exceed 33 1/3% of its total assets (including the amount borrowed) less liabilities (other than borrowings). Any borrowings that come to exceed 33 1/3% of the value of the fund's total assets by reason of a decline in net assets will be reduced within three days (exclusive of Sundays and holidays) to the extent necessary to comply with the 33 1/3% limitation; (4) underwrite securities issued by others, except to the extent that the fund may be considered an underwriter within the meaning of the Securities Act of 1933 in the disposition of restricted securities; (5) purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities) if, as a result, more than 25% of its total assets would be invested in the securities of companies whose principal business activities are in the same industry; (6) purchase or sell real estate unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business); (7) purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the fund from purchasing or selling options and futures contracts or from investing in securities or other instruments backed by physical commodities); or (8) lend any security or make any other loan if, as a result, more than 33 1/3% of its total assets would be lent to other parties, but this limitation does not apply to purchases of debt securities or to repurchase agreements. THE FOLLOWING INVESTMENT LIMITATIONS FOR HIGH INCOME, EQUITY-INCOME, GROWTH AND OVERSEAS PORTFOLIOS ARE NOT FUNDAMENTAL AND MAY BE CHANGED WITHOUT SHAREHOLDER NOTIFICATION. (i) Each fund does not currently intend to sell securities short, unless it owns or has the right to obtain securities equivalent in kind and amount to the securities sold short, and provided that transactions in futures contracts and options are not deemed to constitute selling securities short. (ii) Each fund does not currently intend to purchase securities on margin, except that the fund may obtain such short-term credits as are necessary for the clearance of transactions, and provided that margin payments in connection with futures contracts and options on futures contracts shall not constitute purchasing securities on margin. (iii) Each fund may borrow money only (a) from a bank or from a registered investment company or portfolio for which FMR or an affiliate serves as investment advisor or (b) by engaging in reverse repurchase agreements with any party (reverse repurchase agreements are treated as borrowings for purposes of fundamental investment limitation (3)). Each fund will not borrow money in excess of 25% of net assets so long as this limitation is required for certification by certain state insurance departments. Any borrowings that come to exceed this amount will be reduced within seven days (not including Sundays and holidays) to the extent necessary to comply with the 25% limitation. Each fund will not purchase any security while borrowings representing more than 5% of its total assets are outstanding. Each fund will not borrow from other funds advised by FMR or its affiliates if total outstanding borrowings immediately after such borrowing would exceed 15% of the fund's total assets. (iv) Each fund does not currently intend to purchase any security if, as a result, more than 10% of Equity-Income and Growth Portfolio's net assets and 15% of High Income and Overseas Portfolio's net assets would be invested in securities that are deemed to be illiquid because they are subject to legal or contractual restrictions on resale or because they cannot be sold or disposed of in the ordinary course of business at approximately the prices at which they are valued. (v) Each fund does not currently intend to lend assets other than securities to other parties, except by: (a) lending money (up to 5% of net assets for Equity-Income, Growth and Overseas Portfolios and 7.5% for High Income Portfolio's net assets) to a registered investment company or portfolio for which FMR or an affiliate serves as investment adviser or (b) acquiring loans, loan participations, or other forms of direct debt instruments and, in connection therewith, assuming any associated unfunded commitments of the sellers. (This limitation does not apply to purchases of debt securities or to repurchase agreements.) (vi) Each fund does not currently intend to (a) purchase securities of other investment companies, except in the open market where no commission except the ordinary broker's commission is paid, or (b) purchase or retain securities issued by other open-end investment companies. Limitations (a) and (b) do not apply to securities received as dividends, through offers of exchange, or as a result of a reorganization, consolidation, or merger. (Due to certain state insurance regulations, each fund does not currently intend to purchase the securities of other investment companies.) (vii) Each fund does not currently intend to invest in oil, gas, or other mineral exploration or development programs or leases. (viii) Growth and Overseas Portfolios do not currently intend to purchase a security if, as a result, greater than 5% of their net assets would be invested in debt securities rated Ba or lower by Moody's Investors Service, Inc. or BB or lower by Standard & Poor's Corporation. For each fund's limitations on futures and options transactions, see the section entitled "Limitations on Futures and Options Transactions." For each Portfolio's limitations on short sales, see the section entitled "Short Sales." Higher yielding, fixed-income securities of the type in which High Income Portfolio invests will at times be purchased at a discount from or a premium over par value. The total return on such securities includes the potential for a capital gain or loss. High Income Portfolio generally does not intend to hold securities for the purpose of achieving capital gains, however, unless current yields on these securities remain attractive. Capital gain or loss may also be realized upon the sale of portfolio securities. The U.S. government has from time to time in the past imposed restrictions, through taxation and otherwise, on foreign investments by U.S. investors such as the funds. If such restrictions should be reinstituted, it might become necessary for Overseas Portfolio to invest all or substantially all of its assets in U.S. securities. In such event, the Board of Trustees would reevaluate the fund's investment objective and policies. In accordance with the funds' fundamental investment policies, there are no limitations on the percentage of the funds' assets which may be invested in any one type of instrument. Nor are there limitations (except those imposed by certain state insurance regulations) on the percentage of the funds' assets which may be invested in any foreign country. However, in order to comply with diversification requirements under Section 817(h) of the Internal Revenue Code of 1986, as amended, in connection with FMR serving as investment advisor, each fund has agreed to certain non-fundamental limitations. Please refer to your insurance company's separate account prospectus for more information. AFFILIATED BANK TRANSACTIONS. A fund may engage in transactions with financial institutions that are, or may be considered to be, "affiliated persons" of the fund under the Investment Company Act of 1940. These transactions may include repurchase agreements with custodian banks; short-term obligations of, and repurchase agreements with, the 50 largest U.S. banks (measured by deposits); municipal securities; U.S. government securities with affiliated financial institutions that are primary dealers in these securities; short-term currency transactions; and short-term borrowings. In accordance with exemptive orders issued by the Securities and Exchange Commission (SEC), the Board of Trustees has established and periodically reviews procedures applicable to transactions involving affiliated financial institutions. FUNDS' RIGHTS AS A SHAREHOLDER. Each fund does not intend to direct or administer the day-to-day operations of any company. Each fund, however, may exercise its rights as a shareholder and may communicate its views on important matters of policy to management, the Board of Directors, and shareholders of a company when FMR determines that such matters could have a significant effect on the value of each fund's investment in the company. The activities that each fund may engage in, either individually or in conjunction with others, may include, among others, supporting or opposing proposed changes in a company's corporate structure or business activities; seeking changes in a company's directors or management; seeking changes in a company's direction or policies; seeking the sale or reorganization of the company or a portion of its assets; or supporting or opposing third party takeover efforts. This area of corporate activity is increasingly prone to litigation and it is possible that each fund could be involved in lawsuits related to such activities. FMR will monitor such activities with a view to mitigating, to the extent possible, the risk of litigation against each fund and the risk of actual liability if each fund is involved in litigation. No guarantee can be made, however, that litigation against each fund will not be undertaken or liabilities incurred. ASSET-BACKED SECURITIES may include pools of mortgages, loans, receivables or other assets. Payment of principal and interest may be largely dependent upon the cash flows generated by the assets backing the securities, and, in certain cases, supported by letters of credit, surety bonds, or other credit enhancements. The value of asset-backed securities may also be affected by the creditworthiness of the servicing agent for the pool, the originator of the loans or receivables, or the financial institution(s) providing the credit support. VARIABLE OR FLOATING RATE OBLIGATIONS bear variable or floating interest rates and carry rights that permit holders to demand payment of the unpaid principal balance plus accrued interest from the issuers or certain financial intermediaries. Floating rate instruments have interest rates that change whenever there is a change in a designated base rate while variable rate instruments provide for a specified periodic adjustment in the interest rate. These formulas are designed to result in a market value for the instrument that approximates its par value. A demand instrument with a conditional demand feature must have received both a short-term and a long-term high-quality rating or, if unrated, have been determined to be of comparable quality pursuant to procedures adopted by the Board of Trustees. A demand instrument with an unconditional demand feature may be acquired solely in reliance upon a short-term high-quality rating or, if unrated, upon a finding of comparable short-term quality pursuant to procedures adopted by the Board of Trustees. Money Market Portfolio may invest in variable or floating rate instruments that ultimately mature in more than 397 days, if the fund acquires a right to sell the instruments that meets certain requirements set forth in Rule 2a-7. Variable rate instruments (including instruments subject to a demand feature) that mature in 397 days or less and U.S. government securities with a variable rate of interest adjusted no less frequently than 762 days may be deemed to have maturities equal to the period remaining until the next readjustment of the interest rate. Other variable rate instruments with demand features may be deemed to have a maturity equal to the period remaining until the next adjustment of the interest rate or the period remaining until the principal amount can be recovered through demand. A floating rate instrument subject to a demand feature may be deemed to have a maturity equal to the period remaining until the principal amount can be recovered through demand. REPURCHASE AGREEMENTS are transactions in which a fund purchases a security and simultaneously commits to resell that security to the seller at an agreed upon price upon demand on an agreed upon date within a specified number of days from the date of purchase. The resale price reflects the purchase price plus an agreed upon incremental amount which is unrelated to the coupon rate or maturity of the purchased security. A repurchase agreement involves the obligation of the seller to pay the agreed upon price, which obligation is in effect secured by the value (at least equal to the amount of the agreed upon resale price and marked to market daily) of the underlying security. Each fund may engage in a repurchase agreement with respect to any security in which it is authorized to invest even though the underlying security's maturity may be more than one year. While it does not presently appear possible to eliminate all risks from these transactions (particularly the possibility of a decline in the market value of the underlying securities, as well as delay and costs to each fund in connection with bankruptcy proceedings), it is the policy of each fund to limit repurchase transactions to those whose creditworthiness has been reviewed and found satisfactory by FMR. Pursuant to an Exemptive Order issued by the SEC, the Money Market Portfolio, along with other registered investment companies having management contracts with FMR, may invest in a pool of one or more large overnight repurchase agreements. The repurchase agreements' underlying securities are U.S. government securities in which the fund is permitted to invest. FOREIGN REPURCHASE AGREEMENTS may include agreements to purchase and sell foreign securities in exchange for fixed U.S. dollar amounts, or in exchange for specified amounts of foreign currency. Unlike typical U.S. repurchase agreements, foreign repurchase agreements may not be fully collateralized at all times. The value of the security purchased by a fund may be more or less than the price at which the counterparty has agreed to repurchase the security. In the event of a default by the counterparty, a fund may suffer a loss if the value of the security purchased is less than the agreed-upon repurchase price, or if a fund is unable to successfully assert a claim to the collateral under foreign laws. As a result, foreign repurchase agreements may involve higher credit risks than repurchase agreements in U.S. markets, as well as risks associated with currency fluctuations. In addition, as with other emerging market investments, repurchase agreements with counterparties located in emerging markets or relating to emerging market securities may involve issuers or counterparties with lower credit ratings than typical U.S. repurchase agreements. REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a fund sells a portfolio instrument to another party, such as a bank or broker-dealer, in return for cash and agrees to repurchase the instrument at a particular price and time. While a reverse repurchase agreement is outstanding, a fund will maintain appropriate liquid assets in a segregated custodial account to cover its obligation under the agreement. A fund will enter into reverse repurchase agreements only with parties whose creditworthiness has been reviewed and found satisfactory by FMR. Such transactions may increase fluctuations in the market value of a fund's assets and may be viewed as a form of leverage. SECURITIES LENDING. Each fund may lend securities to parties such as broker-dealers or institutional investors, including Fidelity Brokerage Services, Inc. (FBSI). FBSI is a member of the New York Stock Exchange (NYSE) and a subsidiary of FMR Corp. Securities lending allows a fund to retain ownership of the securities loaned and, at the same time, to earn additional income. Since there may be delays in the recovery of loaned securities, or even a loss of rights in collateral supplied should the borrower fail financially, loans will be made only to parties deemed by FMR to be of good standing. Furthermore, they will only be made if, in FMR's judgment, the consideration to be earned from such loans would justify the risk. FMR understands that it is the current view of the SEC Staff that a fund may engage in loan transactions only under the following conditions: (1) the fund must receive 100% collateral in the form of cash or cash equivalents (e.g., U.S. Treasury bills or notes) from the borrower; (2) the borrower must increase the collateral whenever the market value of the securities loaned (determined on a daily basis) rises above the value of the collateral; (3) after giving notice, the fund must be able to terminate the loan at any time; (4) the fund must receive reasonable interest on the loan or a flat fee from the borrower, as well as amounts equivalent to any dividends, interest, or other distributions on the securities loaned and to any increase in market value; (5) the fund may pay only reasonable custodian fees in connection with the loan; and (6) the Board of Trustees must be able to vote proxies on the securities loaned, either by terminating the loan or by entering into an alternative arrangement with the borrower. Cash received through loan transactions may be invested in any security in which the fund is authorized to invest. Investing this cash subjects that investment, as well as the security loaned, to market forces (i.e., capital appreciation or depreciation). DELAYED DELIVERY TRANSACTIONS. Money Market and High Income Portfolios may buy and sell securities on a delayed delivery or when-issued basis. These transactions involve a commitment by each fund to purchase or sell specific securities at a predetermined price and/or yield, with payment and delivery taking place after the customary settlement period for that type of security (and more than seven days in the future). Typically, no interest accrues to the purchaser until the security is delivered. The High Income Portfolio may receive fees for entering into delayed-delivery transactions. When purchasing securities on a delayed-delivery basis, each fund assumes the rights and risks of ownership, including the risk of price and yield fluctuations. Because each fund is not required to pay for securities until the delivery date, these risks are in addition to the risks associated with each fund's other investments. If each fund remains substantially fully invested at a time when delayed-delivery purchases are outstanding, the delayed-delivery purchases may result in a form of leverage. When delayed-delivery purchases are outstanding, a fund will set aside appropriate liquid assets in a segregated custodial account to cover its purchase obligations. When a fund has sold a security on a delayed-delivery basis, that fund does not participate in further gains or losses with respect to the security. If the other party to a delayed-delivery transaction fails to deliver or pay for the securities, a fund could miss a favorable price or yield opportunity, or could suffer a loss. Each fund may renegotiate delayed-delivery transactions after they are entered into, and may sell underlying securities before they are delivered, which may result in capital gains or losses. ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in the ordinary course of business at approximately the prices at which they are valued. Under the supervision of the Board of Trustees, FMR determines the liquidity of each fund's investments and, through reports from FMR, the Board monitors investments in illiquid instruments. In determining the liquidity of each fund's investments, FMR may consider various factors, including (1) the frequency of trades and quotations, (2) the number of dealers and prospective purchasers in the marketplace, (3) dealer undertakings to make a market, (4) the nature of the security (including any demand or tender features), and (5) the nature of the marketplace for trades (including the ability to assign or offset each fund's rights and obligations relating to the investment). Investments currently considered by Money Market Portfolio to be illiquid include repurchase agreements not entitling the holder to payment of principal and interest within seven days. Also, FMR may determine some restricted securities and time deposits to be illiquid. Investments currently considered by High Income, Equity-Income, Growth and Overseas Portfolios to be illiquid include repurchase agreements not entitling the holder to payment of principal and interest within seven days, over-the-counter options and non-government stripped fixed-rate mortgage-backed securities. Also, FMR may determine some restricted securities, government-stripped fixed-rate mortgage-backed securities, loans and other direct debt instruments, and swap agreements to be illiquid. However, with respect to over-the-counter options a fund writes, all or a portion of the value of the underlying instrument may be illiquid depending on the assets held to cover the option and the nature and terms of any agreement each fund may have to close out the option before expiration. In the absence of market quotations, illiquid investments for Money Market Portfolio are valued for purposes of monitoring amortized cost valuation at fair value as determined in good faith by a committee appointed by the Board of Trustees . For all other funds, illiquid investments are priced at fair value as determined in good faith by a committee appointed by the Board of Trustees. If through a change in values, net assets, or other circumstances, each fund were in a position where 10% or more of Money Market Portfolio's net assets and more than 10% of Equity-Income and Growth Portfolios' net assets and 15% of High Income and Overseas Portfolio's net assets were invested in illiquid securities, it would seek to take appropriate steps to protect liquidity. RESTRICTED SECURITIES generally can be sold in privately negotiated transactions, pursuant to an exemption from registration under the Securities Act of 1933, or in a registered public offering. Where registration is required, each fund may be obligated to pay all or part of the registration expense and a considerable period may elapse between the time it decides to seek registration and the time each fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, each fund might obtain a less favorable price than prevailed when it decided to seek registration of the security. However, in general, Money Market Portfolio anticipates holding restricted securities to maturity or selling them in an exempt transaction. SWAP AGREEMENTS. (excluding Money Market Portfolio) Swap agreements can be individually negotiated and structured to include exposure to a variety of different types of investments or market factors. Depending on their structure, swap agreements may increase or decrease a fund's exposure to long or short-term interest rates (in the U.S. or abroad), foreign currency values, mortgage securities, corporate borrowing rates, or other factors such as security prices or inflation rates. Swap agreements can take many different forms and are known by a variety of names. The funds are not limited to any particular form of swap agreement if FMR determines it is consistent with a fund's investment objective and policies. In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed-upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed-upon level. An interest rate collar combines elements of buying a cap and selling a floor. Swap agreements will tend to shift a fund's investment exposure from one type of investment to another. For example, if a fund agreed to exchange payments in dollars for payments in foreign currency, the swap agreements would tend to decrease the portfolio's exposure to U.S. interest rates and increase exposure to foreign currency and interest rates. Caps and floors have an effect similar to buying or writing options. Depending on how they are used, swap agreements may increase or decrease the overall volatility of a fund's investments and its share price and yield. The most significant factor in the performance of swap agreements is the change in the specific interest rate, currency, or other factors that determine the amounts of payments due to and from a fund. If a swap agreement calls for payments by a fund, it must be prepared to make such payments when due. In addition, if the counterparty's creditworthiness declined, the value of a swap agreement would be likely to decline, potentially resulting in losses. A fund expects to be able to eliminate its exposure under swap agreements either by assignment or other disposition, or by entering into an offsetting swap agreement with the same party or a similarly creditworthy party. Each fund will maintain appropriate liquid assets in a segregated custodial account to cover its current obligations under swap agreements. If a fund enters into a swap agreement on a net basis, it will segregate assets with a daily value at least equal to the excess, if any, of its accrued obligations under the swap agreement over the accrued amount it is entitled to receive under the agreement. If a fund enters into a swap agreement on other than a net basis, it will segregate assets with a value equal to the full amount of its accrued obligations under the agreement. INDEXED SECURITIES. Each fund may purchase securities whose prices are indexed to the prices of other securities, securities indices, currencies, precious metals or other commodities, or other financial indicators. Indexed securities typically, but not always, are debt securities or deposits whose value at maturity or coupon rate is determined by reference to a specific instrument or statistic. Gold-indexed securities, for example, typically provide for a maturity value that depends on the price of gold, resulting in a security whose price tends to rise and fall together with gold prices. Currency-indexed securities typically are short-term to intermediate-term debt securities whose maturity values or interest rates are determined by reference to the values of one or more specified foreign currencies, and may offer higher yields than U.S. dollar-denominated securities of equivalent issuers. Currency-indexed securities may be positively or negatively indexed; that is, their maturity value may increase when the specified currency value increases, resulting in a security that performs similarly to a foreign-denominated instrument, or their maturity value may decline when foreign currencies increase, resulting in a security whose price characteristics are similar to a put on the underlying currency. Currency-indexed securities may also have prices that depend on the values of a number of different foreign currencies relative to each other. The performance of indexed securities depends to a great extent on the performance of the security, currency, or other instrument to which they are indexed, and may also be influenced by interest rate changes in the U.S. and abroad. At the same time, indexed securities are subject to the credit risks associated with the issuer of the security, and their values may decline substantially if the issuer's creditworthiness deteriorates. Recent issuers of indexed securities have included banks, corporations, and certain U.S. government agencies. WARRANTS (High Income, Equity-Income, Growth and Overseas Portfolios) are securities that give a fund the right to purchase equity securities from the issuer at a specific price (the strike price) for a limited period of time. The strike price of warrants typically is much lower than the current market price of the underlying securities, yet they are subject to similar price fluctuations. As a result, warrants may be more volatile investments than the underlying securities and may offer greater potential for capital appreciation as well as capital loss. Warrants do not entitle a holder to dividends or voting rights with respect to the underlying securities and do not represent any rights in the assets of the issuing company. Also, the value of the warrant does not necessarily change with the value of the underlying securities and a warrant ceases to have value if it is not exercised prior to the expiration date. These factors can make warrants more speculative than other types of investments. LOANS AND OTHER DIRECT DEBT INSTRUMENTS. (High Income, Equity-Income, Growth and Overseas Portfolios) Direct debt instruments are interests in amounts owed by a corporate, governmental, or other borrower to lenders or lending syndicates (loans and loan participations), to suppliers of goods or services (trade claims or other receivables), or to other parties. Direct debt instruments are subject to a fund's policies regarding the quality of debt securities. Purchasers of loans and other forms of direct indebtedness depend primarily upon the creditworthiness of the borrower for payment of principal and interest. Direct debt instruments may not be rated by any nationally recognized rating service. If a fund does not receive scheduled interest or principal payments on such indebtedness, a fund's share price and yield could be adversely affected. Loans that are fully secured offer a fund more protections than an unsecured loan in the event of non-payment of scheduled interest or principal. However, there is no assurance that the liquidation of collateral from a secured loan would satisfy the borrower's obligation, or that the collateral could be liquidated. Indebtedness of borrowers whose creditworthiness is poor involves substantially greater risks, and may be highly speculative. Borrowers that are in bankruptcy or restructuring may never pay off their indebtedness, or may pay only a small fraction of the amount owed. Direct indebtedness of developing countries also involves a risk that the governmental entities responsible for the repayment of the debt may be unable, or unwilling, to pay interest and repay principal when due. Investments in loans through direct assignment of a financial institution's interests with respect to a loan may involve additional risks to a fund. For example, if a loan is foreclosed, a fund could become part owner of any collateral, and would bear the costs and liabilities associated with owning and disposing of the collateral. In addition, it is conceivable that under emerging legal theories of lender liability, a fund could be held liable as a co-lender. Direct debt instruments may also involve a risk of insolvency of the lending bank or other intermediary. Direct debt instruments that are not in the form of securities may offer less legal protection to a fund in the event of fraud or misrepresentation. In the absence of definitive regulatory guidance, a fund relies on FMR's research in an attempt to avoid situations where fraud or misrepresentation could adversely affect a fund. A loan is often administered by a bank or other financial institution that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. Unless, under the terms of the loan or other indebtedness, a fund has direct recourse against the borrower, it may have to rely on the agent to apply appropriate credit remedies against a borrower. If assets held by the agent for the benefit of a fund were determined to be subject to the claims of the agent's general creditors, a fund might incur certain costs and delays in realizing payment on the loan or loan participation and could suffer a loss of principal or interest. Direct indebtedness purchased by a fund may include letters of credit, revolving credit facilities, or other standby financing commitments obligating a fund to pay additional cash on demand. These commitments may have the effect of requiring a fund to increase its investment in a borrower at a time when it would not otherwise have done so, even if the borrower's condition makes it unlikely that the amount will ever be repaid. A fund will set aside appropriate liquid assets in a segregated custodial account to cover its potential obligations under standby financing commitments. A fund limits the amount of total assets that it will invest in any one issuer or in issuers within the same industry (see limitations 1 and 5). For purposes of these limitations, a fund generally will treat the borrower as the "issuer" of indebtedness held by a fund. In the case of loan participations where a bank or other lending institution serves as financial intermediary between a fund and the borrower, if the participation does not shift to a fund the direct debtor-creditor relationship with the borrower, SEC interpretations require a fund, in appropriate circumstances, to treat both the lending bank or other lending institution and the borrower as "issuers" for these purposes. Treating a financial intermediary as an issuer of indebtedness may restrict a fund's ability to invest in indebtedness related to a single financial intermediary, or a group of intermediaries engaged in the same industry, even if the underlying borrowers represent many different companies and industries. FOREIGN INVESTMENTS. Foreign investments can involve significant risks in addition to the risks inherent in U.S. investments. The value of securities denominated in or indexed to foreign currencies, and of dividends and interest from such securities, can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets, and prices on some foreign markets can be highly volatile. Many foreign countries lack uniform accounting and disclosure standards comparable to those applicable to U.S. companies, and it may be more difficult to obtain reliable information regarding an issuer's financial condition and operations. In addition, the costs of foreign investing, including withholding taxes, brokerage commissions, and custodial costs, are generally higher than for U.S. investments. Foreign markets may offer less protection to investors than U.S. markets. Foreign issuers, brokers, and securities markets may be subject to less government supervision. Foreign security trading practices, including those involving the release of assets in advance of payment, may involve increased risks in the event of a failed trade or the insolvency of a broker-dealer, and may involve substantial delays. It may also be difficult to enforce legal rights in foreign countries. Investing abroad also involves different political and economic risks. Foreign investments may be affected by actions of foreign governments adverse to the interests of U.S. investors, including the possibility of expropriation or nationalization of assets, confiscatory taxation, restrictions on U.S. investment or on the ability to repatriate assets or convert currency into U.S. dollars, or other government intervention. There may be a greater possibility of default by foreign governments or foreign government-sponsored enterprises. Investments in foreign countries also involve a risk of local political, economic, or social instability, military action or unrest, or adverse diplomatic developments. There is no assurance that FMR will be able to anticipate these potential events or counter their effects. The considerations noted above generally are intensified for investments in developing countries. Developing countries may have relatively unstable governments, economies based on only a few industries, and securities markets that trade a small number of securities. Each fund may invest in foreign securities that impose restrictions on transfer within the U.S. or to U.S. persons. Although securities subject to transfer restrictions may be marketable abroad, they may be less liquid than foreign securities of the same class that are not subject to such restrictions. American Depositary Receipts and European Depositary Receipts (ADRs and EDRs) are certificates evidencing ownership of shares of a foreign-based issuer held in trust by a bank or similar financial institution. Designed for use in U.S. and European securities markets, respectively, ADRs and EDRs are alternatives to the purchase of the underlying securities in their national markets and currencies. FOREIGN CURRENCY TRANSACTIONS. The following information is of particular importance to Overseas Portfolio. Each fund may conduct foreign currency transactions on a spot (i.e., cash) basis or by entering into forward contracts to purchase or sell foreign currencies at a future date and price. The funds will convert currency on a spot basis from time to time, and investors should be aware of the costs of currency conversion. Although foreign exchange dealers generally do not charge a fee for conversion, they do realize a profit based on the difference between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to a fund at one rate, while offering a lesser rate of exchange should the fund desire to resell that currency to the dealer. Forward contracts are generally traded in an interbank market conducted directly between currency traders (usually large commercial banks) and their customers. The parties to a forward contract may agree to offset or terminate the contract before its maturity, or may hold the contract to maturity and complete the contemplated currency exchange. Each fund may use currency forward contracts for any purpose consistent with its investment objective. The following discussion summarizes some, but not all, of the possible currency management strategies involving forward contracts that could be used by the funds. The funds (excluding Money Market Portfolio) may also use options and futures contracts relating to foreign currencies for the same purposes. When a fund agrees to buy or sell a security denominated in a foreign currency, it may desire to "lock in" the U.S. dollar price of the security. By entering into a forward contract for the purchase or sale, for a fixed amount of U.S. dollars, of the amount of foreign currency involved in the underlying security transaction, the fund will be able to protect itself against an adverse change in foreign currency values between the date the security is purchased or sold and the date on which payment is made or received. This technique is sometimes referred to as a "settlement hedge" or "transaction hedge." The funds may also enter into forward contracts to purchase or sell a foreign currency in anticipation of future purchases or sales of securities denominated in foreign currency, even if the specific investments have not yet been selected by FMR. The funds may also use forward contracts to hedge against a decline in the value of existing investments denominated in foreign currency. For example, if a fund owned securities denominated in pounds sterling, the fund could enter into a forward contract to sell pounds sterling in return for U.S. dollars to hedge against possible declines in the pound's value. Such a hedge, sometimes referred to as a "position hedge," would tend to offset both positive and negative currency fluctuations, but would not offset changes in security values caused by other factors. A fund could also hedge the position by selling another currency expected to perform similarly to the pound sterling -- for example, by entering into a forward contract to sell Deutschemarks or European Currency Units in return for U.S. dollars. This type of hedge, sometimes referred to as a "proxy hedge," could offer advantages in terms of cost, yield or efficiency, but generally will not hedge currency exposure as effectively as a simple hedge into U.S. dollars. Proxy hedges may result in losses if the currency used to hedge does not perform similarly to the currency in which the hedged securities are denominated. Each fund may enter into forward contracts to shift its investment exposure from one currency into another currency that is expected to perform better relative to the U.S. dollar. For example, if a fund held investments denominated in Deutschemarks, the fund could enter into forward contracts to sell Deutschemarks and purchase Swiss Francs. This type of strategy, sometimes known as a "cross-hedge," will tend to reduce or eliminate exposure to the currency that is sold, and increase exposure to the currency that is purchased, much as if the fund had sold a security denominated in one currency and purchased an equivalent security denominated in another. Cross-hedges protect against losses resulting from a decline in the hedged currency, but will cause the fund to assume the risk of fluctuations in the value of the currency it purchases. Under certain conditions, SEC guidelines require mutual funds to set aside appropriate liquid assets in a segregated custodial account to cover currency forward contracts. As required by SEC guidelines, the funds will segregate assets to cover currency forward contracts, if any, whose purpose is essentially speculative. The funds will not segregate assets to cover forward contracts entered into for hedging purposes, including settlement hedges, position hedges, and proxy hedges. Successful use of currency forward contracts will depend on FMR's skill in analyzing and predicting currency values. Forward contracts may substantially change a fund's investment exposure to changes in currency exchange rates, and could result in losses to the fund if currencies do not perform as FMR anticipates. For example, if a currency's value rose at a time when FMR had hedged a fund by selling that currency in exchange for dollars, the fund would be unable to participate in the currency's appreciation. If FMR hedges currency exposure through proxy hedges, a fund could realize currency losses from the hedge and the security position at the same time if the two currencies do not move in tandem. Similarly, if FMR increases a fund's exposure to a foreign currency, and that currency's value declines, the fund will realize a loss. There is no assurance that FMR's use of currency forward contracts will be advantageous to the funds or that they will hedge at an appropriate time . SHORT SALES "AGAINST THE BOX". Money Market Portfolio may sell securities short when it owns or has the right to obtain securities equivalent in kind or amount to the securities sold short. Short sales could be used to protect the net asset value per share of the fund in anticipation of increased interest rates, without sacrificing the current yield of the securities sold short. SHORT SALES. High Income, Equity-Income, Growth and Overseas Portfolios may enter into short sales with respect to stocks underlying its convertible security holdings. For example, if FMR anticipates a decline in the price of the stock underlying a convertible security it holds, it may sell the stock short. If the stock price subsequently declines, the proceeds of the short sale could be expected to offset all or a portion of the effect of the stock's decline on the value of the convertible security. Each fund currently intends to hedge no more than 15% of its total assets with short sales on equity securities underlying its convertible security holdings under normal circumstances. When a fund enters into a short sale or short sale against the box, it will be required to set aside securities equivalent in kind and amount to those sold short (or securities convertible or exchangeable into such securities) and will be required to continue to hold them while the short sale is outstanding. Each fund will incur transaction costs, including interest expense, in connection with opening, maintaining, and closing short sales and short sales against the box. LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. High Income, Equity-Income, Growth and Overseas Portfolios have each filed a notice of eligibility for exclusion from the definition of the term "commodity pool operator" with the Commodity Futures Trading Commission (CFTC) and the National Futures Association, which regulate trading in the futures markets. The funds intend to comply with Section 4.5 of the regulations under the Commodity Exchange Act, which limits the extent to which a fund can commit assets to initial margin deposits and option premiums. In addition, each fund will not: (a) sell futures contracts, purchase put options, or write call options if, as a result, more than 25% of each fund's total assets would be hedged with futures and options under normal conditions; (b) purchase futures contracts or write put options if, as a result, each fund's total obligations upon settlement or exercise of purchased futures contracts and written put options would exceed 25% of its total assets; or (c) purchase call options if, as a result, the current value of option premiums for call options purchased by each fund would exceed 5% of its total assets. These limitations do not apply to options attached to or acquired or traded together with their underlying securities, and do not apply to securities that incorporate features similar to options. FUTURES CONTRACTS. When each fund purchases a futures contract, it agrees to purchase a specified underlying instrument at a specified future date. When each fund sells a futures contract, it agrees to sell the underlying instrument at a specified future date. The price at which the purchase and sale will take place is fixed when each fund enters into the contract. Some currently available futures contracts are based on specific securities, such as U.S. Treasury bonds or notes, and some are based on indices of securities prices, such as the Standard & Poor's 500 Composite Stock Price Index (S&P 500) and the Bond Buyer Index of municipal bonds. Futures can be held until their delivery dates, or can be closed out before then if a liquid secondary market is available. The value of a futures contract tends to increase and decrease in tandem with the value of its underlying instrument. Therefore, purchasing futures contracts will tend to increase each fund's exposure to positive and negative price fluctuations in the underlying instrument, much as if it had purchased the underlying instrument directly. When each fund sells a futures contract, by contrast, the value of its futures position will tend to move in a direction contrary to the market. Selling futures contracts, therefore, will tend to offset both positive and negative market price changes, much as if the underlying instrument had been sold. FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is not required to deliver or pay for the underlying instrument unless the contract is held until the delivery date. However, both the purchaser and seller are required to deposit "initial margin" with a futures broker, known as a futures commission merchant (FCM), when the contract is entered into. Initial margin deposits are typically equal to a percentage of the contract's value. If the value of either party's position declines, that party will be required to make additional "variation margin" payments to settle the change in value on a daily basis. The party that has a gain may be entitled to receive all or a portion of this amount. Initial and variation margin payments do not constitute purchasing securities on margin for purposes of each fund's investment limitations. In the event of the bankruptcy of an FCM that holds margin on behalf of each fund, each fund may be entitled to return of margin owed to it only in proportion to the amount received by the FCM's other customers, potentially resulting in losses to each fund. PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, each fund obtains the right (but not the obligation) to sell the option's underlying instrument at a fixed strike price. In return for this right, each fund pays the current market price for the option (known as the option premium). Options have various types of underlying instruments, including specific securities, indices of securities prices, and futures contracts. Each fund may terminate its position in a put option it has purchased by allowing it to expire or by exercising the option. If the option is allowed to expire, each fund will lose the entire premium it paid. If each fund exercises the option, it completes the sale of the underlying instrument at the strike price. Each fund may also terminate a put option position by closing it out in the secondary market at its current price, if a liquid secondary market exists. The buyer of a typical put option can expect to realize a gain if security prices fall substantially. However, if the underlying instrument's price does not fall enough to offset the cost of purchasing the option, a put buyer can expect to suffer a loss (limited to the amount of the premium paid, plus related transaction costs). The features of call options are essentially the same as those of put options, except that the purchaser of a call option obtains the right to purchase, rather than sell, the underlying instrument at the option's strike price. A call buyer typically attempts to participate in potential price increases of the underlying instrument with risk limited to the cost of the option if security prices fall. At the same time, the buyer can expect to suffer a loss if security prices do not rise sufficiently to offset the cost of the option. WRITING PUT AND CALL OPTIONS. When each fund writes a put option, it takes the opposite side of the transaction from the option's purchaser. In return for receipt of the premium, each fund assumes the obligation to pay the strike price for the option's underlying instrument if the other party to the option chooses to exercise it. When writing an option on a futures contract each fund will be required to make margin payments to an FCM as described above for futures contracts. Each fund may seek to terminate its position in a put option it writes before exercise by closing out the option in the secondary market at its current price. If the secondary market is not liquid for a put option each fund has written, however, each fund must continue to be prepared to pay the strike price while the option is outstanding, regardless of price changes, and must continue to set aside assets to cover its position. If security prices rise, a put writer would generally expect to profit, although its gain would be limited to the amount of the premium it received. If security prices remain the same over time, it is likely that the writer will also profit, because it should be able to close out the option at a lower price. If security prices fall, the put writer would expect to suffer a loss. This loss should be less than the loss from purchasing the underlying instrument directly, however, because the premium received for writing the option should mitigate the effects of the decline. Writing a call option obligates each fund to sell or deliver the option's underlying instrument, in return for the strike price, upon exercise of the option. The characteristics of writing call options are similar to those of writing put options, except that writing calls generally is a profitable strategy if prices remain the same or fall. Through receipt of the option premium, a call writer mitigates the effects of a price decline. At the same time, because a call writer must be prepared to deliver the underlying instrument in return for the strike price, even if its current value is greater, a call writer gives up some ability to participate in security price increases. COMBINED POSITIONS. Each fund may purchase and write options in combination with each other, or in combination with futures or forward contracts, to adjust the risk and return characteristics of the overall position. For example, each fund may purchase a put option and write a call option on the same underlying instrument, in order to construct a combined position whose risk and return characteristics are similar to selling a futures contract. Another possible combined position would involve writing a call option at one strike price and buying a call option at a lower price, in order to reduce the risk of the written call option in the event of a substantial price increase. Because combined options positions involve multiple trades, they result in higher transaction costs and may be more difficult to open and close out. CORRELATION OF PRICE CHANGES. Because there are a limited number of types of exchange-traded options and futures contracts, it is likely that the standardized contracts available will not match each fund's current or anticipated investments exactly. Each fund may invest in options and futures contracts based on securities with different issuers, maturities, or other characteristics from the securities in which it typically invests, which involves a risk that the options or futures position will not track the performance of each fund's other investments. Options and futures prices can also diverge from the prices of their underlying instruments, even if the underlying instruments match each fund's investments well. Options and futures prices are affected by such factors as current and anticipated short-term interest rates, changes in volatility of the underlying instrument, and the time remaining until expiration of the contract, which may not affect security prices the same way. Imperfect correlation may also result from differing levels of demand in the options and futures markets and the securities markets, from structural differences in how options and futures and securities are traded, or from imposition of daily price fluctuation limits or trading halts. Each fund may purchase or sell options and futures contracts with a greater or lesser value than the securities it wishes to hedge or intends to purchase in order to attempt to compensate for differences in volatility between the contract and the securities, although this may not be successful in all cases. If price changes in each fund's options or futures positions are poorly correlated with its other investments, the positions may fail to produce anticipated gains or result in losses that are not offset by gains in other investments. LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid secondary market will exist for any particular options or futures contract at any particular time. Options may have relatively low trading volume and liquidity if their strike prices are not close to the underlying instrument's current price. In addition, exchanges may establish daily price fluctuation limits for options and futures contracts, and may halt trading if a contract's price moves upward or downward more than the limit in a given day. On volatile trading days when the price fluctuation limit is reached or a trading halt is imposed, it may be impossible for each fund to enter into new positions or close out existing positions. If the secondary market for a contract is not liquid because of price fluctuation limits or otherwise, it could prevent prompt liquidation of unfavorable positions, and potentially could require each fund to continue to hold a position until delivery or expiration regardless of changes in its value. As a result, each fund's access to other assets held to cover its options or futures positions could also be impaired. OTC OPTIONS. Unlike exchange-traded options, which are standardized with respect to the underlying instrument, expiration date, contract size, and strike price, the terms of over-the-counter options (options not traded on exchanges) generally are established through negotiation with the other party to the option contract. While this type of arrangement allows each fund greater flexibility to tailor an option to its needs, OTC options generally involve greater credit risk than exchange-traded options, which are guaranteed by the clearing organization of the exchanges where they are traded. OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency futures contracts are similar to forward currency exchange contracts, except that they are traded on exchanges (and have margin requirements) and are standardized as to contract size and delivery date. Most currency futures contracts call for payment or delivery in U.S. dollars. The underlying instrument of a currency option may be a foreign currency, which generally is purchased or delivered in exchange for U.S. dollars, or may be a futures contract. The purchaser of a currency call obtains the right to purchase the underlying currency, and the purchaser of a currency put obtains the right to sell the underlying currency. The uses and risks of currency options and futures are similar to options and futures relating to securities or indices, as discussed above. Each fund may purchase and sell currency futures and may purchase and write currency options to increase or decrease its exposure to different foreign currencies. Each fund may also purchase and write currency options in conjunction with each other or with currency futures or forward contracts. Currency futures and options values can be expected to correlate with exchange rates, but may not reflect other factors that affect the value of each fund's investments. A currency hedge, for example, should protect a Yen-denominated security from a decline in the Yen, but will not protect each fund against a price decline resulting from deterioration in the issuer's creditworthiness. Because the value of each fund's foreign-denominated investments changes in response to many factors other than exchange rates, it may not be possible to match the amount of currency options and futures to the value of each fund's investments exactly over time. ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. Each fund will comply with guidelines established by the SEC with respect to coverage of options and futures strategies by mutual funds, and if the guidelines so require will set aside appropriate liquid assets in a segregated custodial account in the amount prescribed. Securities held in a segregated account cannot be sold while the futures or option strategy is outstanding, unless they are replaced with other suitable assets. As a result, there is a possibility that segregation of a large percentage of each fund's assets could impede portfolio management or each fund's ability to meet redemption requests or other current obligations. PORTFOLIO TRANSACTIONS All orders for the purchase or sale of portfolio securities are placed on behalf of a fund by FMR (either directly or through affiliated sub-advisors) pursuant to authority contained in each fund's Management Contract. FMR is also responsible for the placement of transaction orders for other investment companies and accounts for which it or its affiliates act as investment advisor. Money market securities purchased and sold by a fund generally will be traded on a net basis (i.e., without commission). In selecting broker-dealers, subject to applicable limitations of the federal securities laws, FMR will consider various relevant factors, including, but not limited to, the size and type of the transaction; the nature and character of the markets for the security to be purchased or sold; the execution efficiency, settlement capability and financial condition of the broker-dealer firm; the broker-dealer's execution services rendered on a continuing basis; the reasonableness of any commissions; and arrangements for payment of fund expenses. FMR may allocate brokerage transactions to broker-dealers who have entered into arrangements with FMR under which the broker-dealer allocates a portion of the commissions paid by a fund toward payment of a fund's expenses, such as transfer agent fees or custodian fees. The transaction quality must, however, be comparable to those of other qualified broker-dealers. Commissions for foreign investments traded on foreign exchanges will generally be higher than for U.S. investments and may not be subject to negotiation. Each fund may execute portfolio transactions with broker-dealers who provide research and execution services to a fund or other accounts over which FMR or its affiliates exercise investment discretion. Such services may include advice concerning the value of securities; the advisability of investing in, purchasing or selling securities; the availability of securities or the purchasers or sellers of securities; furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy and performance of accounts; and effecting securities transactions and performing functions incidental thereto (such as clearance and settlement). FMR maintains a listing of broker-dealers who provide such services on a regular basis. However, as many transactions on behalf of a fund's money market securities are placed with dealers (including broker-dealers on the list) without regard to the furnishing of such services, it is not possible to estimate the proportion of such transactions directed to such dealers solely because such services were provided. The selection of such broker-dealers is generally made by FMR (to the extent possible consistent with execution considerations) in accordance with a ranking of broker-dealers determined periodically by FMR's investment staff based upon the quality of research and execution services provided. The receipt of research from broker-dealers that execute transactions on behalf of a fund may be useful to FMR in rendering investment management services to a fund or its other clients, and conversely, such information provided by broker-dealers who have executed transaction orders on behalf of other FMR clients may be useful to FMR in carrying out its obligations to a fund. The receipt of such research has not reduced FMR's normal independent research activities; however, it enables FMR to avoid additional expenses that could be incurred if FMR tried to develop comparable information through its own efforts. Subject to applicable limitations of the federal securities laws, broker-dealers may receive commissions for agency transactions that are in excess of the amount of commissions charged by other broker-dealers in recognition of their research or execution services. In order to cause a fund to pay such higher commissions, FMR must determine in good faith that such commissions are reasonable in relation to the value of the brokerage and research services provided by such executing broker-dealers viewed in terms of a particular transaction or FMR's overall responsibilities to a fund and its other clients. In reaching this determination, FMR will not attempt to place a specific dollar value on the brokerage and research services provided or to determine what portion of the compensation should be related to those services. FMR is authorized to use research services provided by and to place portfolio transactions with brokerage firms that have provided assistance in the distribution of shares of each fund or shares of other Fidelity funds to the extent permitted by law. FMR may use research services provided by and place agency transactions with Fidelity Brokerage Services, Inc. (FBSI) and Fidelity Brokerage Services, Ltd. (FBSL), subsidiaries of FMR Corp., if the commissions are fair, reasonable, and comparable to commissions charged by non-affiliated, qualified brokerage firms for similar services. Prior to September 4, 1992, FBSL operated under the name Fidelity Portfolio Services, Ltd. (FPSL) as a wholly owned subsidiary of Fidelity International Limited (FIL). Edward C. Johnson 3d is Chairman of FIL. Mr. Johnson 3d, together with various trusts for the benefit of Johnson family members, owns directly or indirectly more than 25% of the voting common stock of FIL. Section 11(a) of the Securities Exchange Act of 1934 prohibits members of national securities exchanges from executing exchange transactions for accounts which they or their affiliates manage, except if certain requirements are satisfied. Pursuant to such requirements, the Board of Trustees has authorized FBSI to execute fund portfolio transactions on national securities exchanges in accordance with approved procedures and applicable SEC rules. The Trustees periodically review FMR's performance of its responsibilities in connection with the placement of portfolio transactions on behalf of each fund and review the commissions, if any paid by the funds over representative periods of time to determine if they are reasonable in relation to the benefits to the funds. For the fiscal years ended 1993 and 1992, High Income Portfolio's turnover rates amounted to 155% and 160%, Equity-Income Portfolio's turnover rates amounted to 120% and 74%, Growth Portfolio's turnover rates amounted to 159% and 262% and Overseas Portfolio's turnover rates amounted to 42% and 61%, respectively. Because a high turnover rate increases brokerage costs, FMR carefully weighs the added costs of short-term investment against anticipated gain. BROKERAGE COMMISSIONS. The chart below lists the percentage of the brokerage commissions paid to brokerage firms which provided research services; the total brokerage commissions paid; the commissions paid to FBSI and FBSL in dollars and as a percentage of the dollar value of all transactions in which brokerage commissions were paid for the fiscal periods ended December 31, 1993, 1992 and 1991 for each of the funds. Of the commissions paid to brokerage firms which provided research services, the providing of such services was not necessarily a factor in the placement of all this business with such firms. The funds pay both commissions and spreads in connection with the placement of portfolio transactions. The difference in the percentage of brokerage commissions paid to, and the percentage of the dollar amount of transactions effected through FBSI and FBSL, are the results of the low commission rates charged by FBSI and FBSL. HIGH INCOME PORTFOLIO
% Paid to % % Firms Transaction Transaction s s Period Providing To To % to through through Ended TOTAL Research FBSI FBSL % to FBSI FBSL FBSI FBSL
1993 $25,198 99% $0 -- -- -- -- -- 1992 9,568 100 7 -- 0.1% -- 0.1% -- 1991 6,211 74 -- -- -- -- -- -- EQUITY-INCOME PORTFOLIO
% Paid to % % Firms Transaction Transaction s s Period Providing To To % to through through Ended TOTAL Research FBSI FBSL % to FBSI FBSL FBSI FBSL
1993 $2,658,979 68% $712,270 -- 27% -- 42% -- 1992 752,271 65 263,440 -- 35 -- 46 -- 1991 462,428 55 167,858 -- 36 -- 45 -- GROWTH PORTFOLIO
% Paid to % % Firms Transaction Transacti s ons Period Providing To To % to through through Ended TOTAL Research To FBSI FBSL % to FBSI FBSL FBSI FBSL
1993 $2,137,399 49% $750,137 -- 35% -- 48% -- 1992 2,073,624 59 599,019 -- 29 -- 37 -- 1991 1,005,493 54 344,150 -- 34 -- 44 -- OVERSEAS PORTFOLIO
% Paid to % % Firms Transaction Transaction s s Period Providing To % to through through Ended TOTAL Research To FBSI FBSL % to FBSI FBSL FBSI FBSL
1993 $1,541,385 92% $3,119 -- .20% -- 0.92% -- 1992 602,862 85 -- $4,314 -- 0.7% -- 1.4% 1991 710,018 91 -- 8,816 -- 1.0 -- 2.0 From time to time the Fund's Trustees will review whether the recapture for the benefit of the funds of some portion of the brokerage commissions or similar fees paid by the funds on portfolio transactions is legally permissible and advisable. The funds seek to recapture soliciting broker-dealer fees on the tender of portfolio securities, but at present no other recapture arrangements are in effect. The Trustees intend to continue to review whether recapture opportunities are available and are legally permissible and, if so, to determine in the exercise of their business judgment whether it would be advisable for the funds to seek such recapture. Although the Fund's Trustees and officers are substantially the same as those of other funds managed by FMR, investment decisions for the funds are made independently from those of other funds managed by FMR or accounts managed by FMR affiliates. It sometimes happens that the same security is held in the portfolio of more than one of these funds or accounts. Simultaneous transactions are inevitable when several funds are managed by the same investment advisor, particularly when the same security is suitable for the investment objective of more than one fund. When two or more funds are simultaneously engaged in the purchase or sale of the same security, the prices and amounts are allocated in accordance with a formula considered by the officers of the funds involved to be equitable to each fund or portfolio. In some cases this system could have a detrimental effect on the price or volume of the security as far as the funds are concerned. In other cases, however, the ability of the fund or portfolio to participate in volume transactions will produce better executions and prices for the funds. It is the current opinion of the Trustees that the desirability of retaining FMR as investment advisor to the funds outweighs any disadvantages that may be said to exist from exposure to simultaneous transactions. VALUATION OF FUND SECURITIES MONEY MARKET PORTFOLIO Like most money market funds, the fund values its investments on the basis of amortized cost. This technique involves initially valuing an instrument at its cost and thereafter assuming a constant amortization to maturity of any discount or premium, regardless of the market value of the instrument. The amortized-cost value of an instrument may be higher or lower than the price the fund would receive if it sold the instrument. During periods of declining interest rates, the fund's yield based on amortized cost may be higher than a yield based on market prices and estimates of market prices. Under these circumstances, a new investor in the fund would be able to obtain a somewhat higher yield than would result from investment in a fund solely utilizing market quotations to determine its NAV, and existing shareholders would receive less investment income. The converse would apply in a period of rising interest rates. Valuing the fund's instruments on the basis of amortized cost and use of the term "money market fund" are permitted by Rule 2a-7 under the Investment Company Act of 1940 (the 1940 Act). The fund must adhere to certain conditions under Rule 2a-7. The Board of Trustees of the fund oversees FMR's adherence to SEC rules concerning money market funds, and has established procedures designed to stabilize the fund's NAV calculated on the basis of amortized cost. At such intervals as they deem appropriate, the Trustees review reports used to determine whether NAV calculated by using available market quotations would deviate from $1.00. If such a deviation would result in material dilution or otherwise would be unfair to shareholders, the Trustees have agreed to take such corrective action, if any, as they deem necessary and appropriate. This may include selling portfolio instruments prior to maturity to realize capital gains or losses or to shorten average portfolio maturity, withholding dividends, redeeming shares in kind, or establishing NAV by using available market quotations. HIGH INCOME PORTFOLIO Securities for which market quotations are readily available are valued at their market values 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. Securities and other assets for which market quotations are not readily available (including restricted securities, if any) are valued at their fair value as determined in good faith under consistently applied procedures under the general supervision of the Trustees of the Fund. EQUITY-INCOME, GROWTH AND OVERSEAS PORTFOLIOS Portfolio securities are valued by various methods depending on the primary market or exchange on which they trade. Some equity securities for which the primary market is the U.S. are valued at last sale price or, if no sale has occurred, at the closing bid price. Some equity securities for which the primary market is outside the U.S. are valued using the official closing price or the last sale price in the principal market where they are traded. If the last sale price (on the local exchange) is unavailable, the last evaluated quote or last bid price is normally used. Short-term securities are valued either at amortized cost or at original cost plus accrued interest, both of which approximate current value. Convertible and fixed-income securities are valued primarily by a pricing service that uses a vendor security valuation matrix which incorporates both dealer-supplied valuations and electronic data processing techniques. This twofold approach is believed to more accurately reflect fair value because it takes into account appropriate factors such as institutional trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data, without exclusive reliance upon quoted, exchange, or over-the counter prices. Use of pricing services has been approved by the Board of Trustees. Securities and other assets for which there is no readily available market are valued in good faith by a committee appointed by the Board of Trustees. The procedures set forth above need not be used to determine the value of the securities owned by the fund if, in the opinion of a committee appointed by the Board of Trustees, some other method (e.g., closing over-the-counter bid prices in the case of debt instruments traded on an exchange) would more accurately reflect the fair market value of such securities. Generally, the valuation of foreign and domestic equity securities, as well as corporate bonds, U.S. government securities, money market instruments, and repurchase agreements, is substantially completed each day at the close of the NYSE. The values of any such securities held by the fund are determined as of such time for the purpose of computing the fund's net asset value. Foreign security prices are furnished by independent brokers or quotation services which express the value of securities in their local currency. Fidelity Service Co. (FSC) gathers all exchange rates daily at the close of the NYSE using the last quoted price on the local currency and then translates the value of foreign securities from their local currency into U.S. dollars. Any changes in the value of forward contracts due to exchange rate fluctuations and days to maturity are included in the calculation of net asset value. If an extraordinary event that is expected to materially affect the value of a portfolio security occurs after the close of an exchange on which that security is traded, then the security will be valued as determined in good faith by a committee appointed by the Board of Trustees. PERFORMANCE The funds may quote their performance in various ways. All performance information supplied by the funds in advertising is historical and is not intended to indicate future returns. The funds' share prices (except for Money Market Portfolio) , yields and total returns fluctuate in response to market conditions and other factors, and the value of fund shares (except for Money Market Portfolio) when redeemed may be more or less than their original cost. YIELD CALCULATIONS. Yields (except for Money Market Portfolio) for the funds used in advertising are computed by dividing a fund's interest and dividend income for a given 30-day or one month period, net of expenses, by the average number of shares entitled to receive dividends during the period, dividing this figure by the fund's NAV per share at the end of the period and annualizing the result (assuming compounding of income) in order to arrive at an annual percentage rate. Income is calculated for purposes of yield quotations in accordance with standardized methods applicable to all stock and bond funds. Dividends from equity investments are treated as if they were accrued on a daily basis, solely for the purposes of yield calculations. In general, interest income is reduced with respect to bonds trading at a premium over their par value by subtracting a portion of the premium from income on a daily basis, and is increased with respect to bonds trading at a discount by adding a portion of the discount to daily income. Capital gains and losses, if any, generally are excluded from the calculation. Income calculated for the purpose of determining the funds' yields differs from income as determined for other accounting purposes. Because of the different accounting methods used, and because of the compounding assumed in yield calculations, the yields quoted for the funds may differ from the income the funds paid over the same period or the rate of income reported in the funds' financial statements. In computing the current yield for Money Market Portfolio for a 7-day period, the net change in value of a hypothetical account containing one share exclusive of capital gains reflects the value of additional shares purchased with dividends from the one original share and dividends declared on both the original share and any additional shares. The net change is then divided by the value of the account at the beginning of the period to obtain a base period return. This base period return is annualized to obtain a current annualized yield. Money Market Portfolio may also calculate an effective yield by annualizing the base period return through daily compounding. In addition to the current yield, the fund may quote yields in advertising based on any historical seven-day period(s). Yield information may be useful in reviewing Money Market Portfolio's performance and for providing a basis for comparison with other investment alternatives. However, yields fluctuate, unlike investments which pay a fixed interest rate for a stated period of time. Yields for the Money Market Portfolio are calculated on the same basis as other money market funds as required by applicable regulations. Investors should give consideration to the quality and maturity of the portfolio securities of the respective investment companies they have chosen to consider when comparing investment alternatives. In addition, investors should recognize that the fees associated with the separate account are not reflected in the yield quotation. Should Money Market Portfolio incur or anticipate any unusual expense, or loss or depreciation which would adversely affect its NAV per share or income for a particular period, the Trustees would at that time consider whether to adhere to the present dividend policy above or to revise it in light of the then prevailing circumstances. For example, if the fund's NAV per share was reduced or was anticipated to be reduced below $1.00, the Trustees may suspend further dividend payments until the NAV returned to $1.00. Thus, such expenses, losses or depreciation may result in a redemption price per share lower than that which was paid. TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all aspects of each fund's return, including the effect of reinvesting any dividends and capital gain distributions, and any change in each fund's NAV over the period. Average annual returns are calculated by determining the growth or decline in value of a hypothetical historical investment in each fund over a stated period, and then calculating the annually compounded percentage rate that would have produced the same result if the rate of growth or decline in value had been constant over the period. For example, a cumulative return of 100% over ten years would produce an average annual return of 7.18%, which is the steady annual rate that would equal 100% growth on a compounded basis in ten years. While average annual returns are a convenient means of comparing investment alternatives, investors should realize that each fund's performance is not constant over time, but changes from year to year, and that average annual returns represent averaged figures as opposed to the actual year-to-year performance of each fund. In addition to average annual returns, the funds may quote unaveraged or cumulative total returns reflecting the simple change in value of an investment over a stated period. Average annual and cumulative total returns may be quoted as a percentage or as a dollar amount, and may be calculated for a single investment, a series of investments, and/or a series of redemptions, over any time period. Total returns may be broken down into their components of income and capital (including capital gains and changes in share price) in order to illustrate the relationship of these factors and their contributions to total return. An example of this type of illustration is given below. Total returns, yields and other performance information may be quoted numerically or in a table, graph, or similar illustration. NET ASSET VALUE. Charts and graphs using a fund's net asset values or an insurance company's sub-account unit values, adjusted net asset values, and benchmark indices may be used to exhibit performance. An adjusted NAV includes any distributions paid by a fund and reflects all elements of its return. Unless otherwise indicated, a fund's adjusted NAVs (or an insurance company's sub-account unit values) are not adjusted for sales charges, if any. MOVING AVERAGES. A fund may illustrate performance using moving averages. A long-term moving average is the average of each week's adjusted closing NAV for a specified period. A short-term moving average is the average of each day's adjusted closing NAV for a specified period. Moving Average Activity Indicators combine adjusted closing NAVs from the last business day of each week with moving averages for a specified period to produce indicators showing when an NAV has crossed, stayed above, or stayed below its moving average. On December 31, 1993, the 13-week and 39-week long-term moving averages were 15.28 and 14.82, for Equity-Income Portfolio, 22.87 and 21.91, for Growth Portfolio, and 15.09 and 14.29, for Overseas Portfolio, respectively. HISTORICAL FUND RESULTS. The following chart shows each fund's total returns and Money Market and High Income Portfolios' yields for the period ended 12/31/93. Performance is net of each fund's expenses, but does not include charges and expenses attributable to an insurance company's separate account. If these charges were included, the returns would be lower. Average Annual Total Returns Cumulative Total Returns 7 Day 30 Day One Five Ten Life of* Life of* Yield Yield Year Year Year Fund Fund
Money Market Portfolio 3.23% N.A. 3.23% 6.05% 6.92% 7.45% 132.96% High Income Portfolio N.A. 8.82% 20.40% 13.42% N.A. 12.50% 165.46% Equity-Income Portfolio N.A. N.A. 18.29% 12.56% N.A. 11.48% 119.61% Growth Portfolio N.A. N.A. 19.37% 17.13% N.A. 14.41% 164.90% Overseas Portfolio N.A. N.A. 37.35% 10.46% N.A. 7.80% 68.26%
* Money Market Portfolio commenced operations April 1, 1982; High Income Portfolio commenced operations September 19, 1985; Equity-Income and Growth Portfolios commenced operations October 9, 1986; and Overseas Portfolio commenced operations January 28, 1987. If FMR had not reimbursed certain fund expenses during these periods, the total returns would have been lower. The following charts show the income and capital elements of each fund's total return from the date it commenced operations through the year ended December 31, 1993. The charts compare the funds' returns to the record of the Standard & Poor's 500 Composite Stock Price Index (S&P), the Dow Jones Industrial Average (DJIA), and the cost of living (measured by the Consumer Price Index, or CPI) over the same period. The comparison to the S&P shows how the funds' total returns compared to the record of a broad average of common stock prices, and the comparison to the DJIA shows how the funds' total returns compared to the record of a narrower set of stocks of major industrial companies. Each fund has the ability to invest in securities not included in either index, and its investment portfolio may or may not be similar in composition to the indices. The S&P and DJIA comparisons for High Income Portfolio are provided to show how the fund's return compared to the return of common stocks over the same period. Of course, since the High Income Portfolio invests in fixed-income securities, common stocks represent a different type of investment from the fund. The indices do not include fixed-income securities. As the information below shows, common stocks generally offer greater potential growth than the High Income Portfolio, but generally are more volatile in value and may offer greater potential for loss. In addition, common stocks generally provide lower income than a mutual fund, like High Income Portfolio, which focuses on fixed-income securities. The S&P and DJIA are based on the prices of unmanaged groups of stocks and, unlike the funds' returns, their returns do not include the effect of paying brokerage commissions and other costs of investing. MONEY MARKET PORTFOLIO: During the period from December 31, 1983 to December 31, 1993, a hypothetical $10,000 investment in the fund would have grown to $19,532, assuming all distributions were reinvested. This was a period of widely fluctuating interest rates and should not necessarily be considered a representation of the income or capital gain or loss that could be realized from an investment in the fund today.
Value of Value of INDEX Value of Reinvested Reinvested Period Initial $10,000 Dividend Capital Gain Cost of Ended Investment Distributions Distributions Total Value Living 12/31/93 $10,000 $9,532 $0 $19,532 $14,393 12/31/92 $10,000 8,920 0 18,920 14,008 12/31/91 $10,000 8,211 0 18,211 13,613 12/31/90 $10,000 7,165 0 17,165 13,208 12/31/89 $10,000 5,888 0 15,888 12,448 12/31/88 $10,000 4,560 0 14,560 11,895 12/31/87 $10,000 3,559 0 13,559 11,392 12/31/86 $10,000 2,738 0 12,738 10,908 12/31/85 $10,000 1,939 0 11,939 10,790 12/31/84 $10,000 1,043 0 11,043 10,395
Explanatory Notes: With an initial investment of $10,000 made on December 31, 1983, the net amount invested in shares of the fund was $10,000. The cost of the initial investment ($10,000), together with the aggregate cost of reinvested dividends for the period covered (that is, their cash value at the time they were reinvested), amounted to $19,532. If distributions had not been reinvested, the amount of distributions earned from the fund over time would have been smaller and the cash payments (dividends) for the period would have amounted to $6,715. There were no capital gain distributions during this period. The fund's annualized net yield for the seven days ending December 31, 1993 was 3.23% and the compound effective yield was 3.28%. The fund's yield will fluctuate daily. Tax consequences of different investments have not been factored into the above figures. HIGH INCOME PORTFOLIO: During the period from September 19, 1985 to December 31, 1993, a hypothetical $10,000 investment in the fund would have grown to $26,546, assuming all distributions were reinvested. This was a period of widely fluctuating interest rates and bond prices and should not necessarily be considered a representation of the income or capital gain or loss that could be realized from an investment in the fund today. INDICES
Value of Value of Value of Initial Reinvested Reinvested Period $10,000 Dividend Capital Gain Cost of Ended Investment Distributions Distributions Total Value S&P DJIA Living** 12/31/93 $11,990 $14,223 $333 $26,546 $33,797 $38,211 $13,463 12/31/92 10,820 11,057 172 22,049 30,702 32,661 13,102 12/31/91 9,550 8,200 152 17,902 28,522 30,440 12,733 12/31/90 7,070 6,070 112 13,253 21,859 24,481 12,355 12/31/89 8,110 5,317 129 13,556 22,562 24,613 11,644 12/31/88 9,660 4,332 154 14,146 17,133 18,680 11,127 12/31/87 9,680 2,837 154 12,671 14,693 16,114 10,656 12/31/86 10,830 1,689 0 12,519 13,958 15,284 10,203 12/31/85* 10,310 328 0 10,638 11,761 12,031 10,092
* From September 19, 1985 (commencement of operations). ** From month-end closest to initial investment date. Explanatory Notes: With an initial investment of $10,000 made on September 19, 1985, the net amount invested in shares of the fund was $10,000. The cost of the initial investment ($10,000), together with the aggregate cost of reinvested distributions for the period covered (that is, their cash value at the time they were reinvested), amounted to $21,489. If distributions had not been reinvested, the amount of distributions earned from the fund over time would have been smaller and the cash payments for the period would have amounted to $7,510 for income dividends and $210 for capital gain distributions. If FMR had not reimbursed certain fund expenses during the period shown above, the fund's returns would have been lower. Tax consequences of different investments have not been factored into the above figures. EQUITY-INCOME PORTFOLIO: During the period from October 9, 1986 to December 31, 1993, a hypothetical $10,000 investment in the fund would have grown to $21,961, assuming all distributions were reinvested. This was a period of widely fluctuating stock and bond prices and should not necessarily be considered a representation of the income or capital gain or loss that could be realized from an investment in the fund today. INDICES
Value of Value of Value of Initial Reinvested Reinvested Period $10,000 Dividend Capital Gain Cost of Ended Investment Distributions Distributions Total Value S&P DJIA Living** 12/31/93 $15,440 $5,529 $992 $21,961 $24,966 $26,491 $13,230 12/31/92 13,400 4,304 861 18,565 22,680 22,644 12,877 12/31/91 11,850 3,272 761 15,883 21,070 21,104 12,514 12/31/90 9,510 1,963 611 12,084 16,147 16,972 12,142 12/31/89 12,290 1,682 293 14,265 16,667 17,064 11,443 12/31/88 11,010 979 167 12,156 12,657 12,951 10,935 12/31/87 9,420 343 143 9,907 10,854 11,172 10,472 12/31/86* 10,020 0 0 10,020 10,311 10,596 10,027
* From October 9, 1986 (commencement of operations). ** From month-end closest to initial investment date. Explanatory Notes: With an initial investment of $10,000 made on October 9, 1986, the net amount invested in shares of the fund was $10,000. The cost of the initial investment ($10,000), together with the aggregate cost of reinvested distributions for the period covered (that is, their cash value at the time they were reinvested), amounted to $14,859. If distributions had not been reinvested, the amount of distributions earned from the fund over time would have been smaller and the cash payments for the period would have amounted to $3,440 for income dividends and $620 for capital gain distributions. If FMR had not reimbursed certain fund expenses during the period shown above, the fund's returns would have been lower. Tax consequences of different investments have not been factored into the above figures. GROWTH PORTFOLIO: During the period from October 9, 1986 to December 31, 1993, a hypothetical $10,000 investment in the fund would have grown to $26,490, assuming all distributions were reinvested. This was a period of widely fluctuating stock prices and should not necessarily be considered a representation of the income or capital gain or loss that could be realized from an investment in the fund today. INDICES
Value of Value of Value of Initial Reinvested Reinvested Period $10,000 Dividend Capital Gain Cost of Ended Investment Distributions Distributions Total Value S&P DJIA Living** 12/31/93 $23,080 $1,546 $1,864 $26,490 $24,966 $26,491 $13,230 12/31/92 19,760 1,202 1,230 22,192 22,680 22,644 12,877 12/31/91 18,510 1,075 715 20,300 21,070 21,104 12,514 12/31/90 12,910 542 499 13,950 16,147 16,972 12,142 12/31/89 15,180 400 225 15,805 16,667 17,064 11,443 12/31/88 11,720 124 174 12,018 12,657 12,951 10,935 12/31/87 10,140 107 150 10,398 10,854 11,172 10,472 12/31/86* 10,030 0 0 10,030 10,311 10,956 10,027
* From October 9, 1986 (commencement of operations). ** From month-end closest to initial investment date. Explanatory Notes: With an initial investment of $10,000 made on October 9, 1986, the net amount invested in shares of the fund was $10,000. The cost of the initial investment ($10,000), together with the aggregate cost of reinvested distributions for the period covered (that is, their cash value at the time they were reinvested), amounted to $12,255. If distributions had not been reinvested, the amount of distributions earned from the fund over time would have been smaller and the cash payments for the period would have amounted to $880 for income dividends and $1,230 for capital gain distributions. If FMR had not reimbursed certain fund expenses during the period shown above, the fund's returns would have been lower. Tax consequences of different investments have not been factored into the above figures. OVERSEAS PORTFOLIO: During the period from January 28, 1987 to December 31, 1993, a hypothetical $10,000 investment in the fund would have grown to $16,826, assuming all distributions were reinvested. This was a period of widely fluctuating stock prices and should not necessarily be considered a representation of the income or capital gain or loss that could be realized from an investment in the fund today. INDICES
Value of Value of Value of Initial Reinvested Reinvested Period $10,000 Dividend Capital Gain Cost of Ended Investment Distributions Distributions Total Value S&P DJIA Living** 12/31/93 $15,480 $1,276 $70 $16,826 $21,371 $21,996 $13,112 12/31/92 11,530 720 0 12,250 19,414 18,801 12,761 12/31/91 13,090 631 0 13,721 18,036 17,522 12,401 12/31/90 12,420 285 0 12,705 13,822 14,092 12,032 12/31/89 12,670 250 0 12,920 14,267 14,168 11,340 12/31/88 10,110 121 0 10,231 10,834 10,753 10,836 12/31/87* 9,350 112 0 9,462 9,291 9,276 10,378
* From January 28, 1987 (commencement of operations). ** From month-end closest to initial investment date. Explanatory Notes: With an initial investment of $10,000 made on January 28, 1987, the net amount invested in shares of the fund was $10,000. The cost of the initial investment ($10,000), together with the aggregate cost of reinvested dividends for the period covered (that is, their cash value at the time they were reinvested), amounted to $11,024. If distributions had not been reinvested, the amount of distributions earned from the fund over time would have been smaller and the cash payments for the period would have amounted to $940 for income dividends and $50 for capital gain distributions. If FMR had not reimbursed certain fund expenses during the period shown above, the fund's returns would have been lower. Tax consequences of different investments have not been factored into the above figures. A yield for the S&P 500 is calculated by dividing the dollar value of dividends paid by the S&P stocks during the period by the average monthly value of the S&P over the period. The S&P yield is calculated differently from the fund's yield; among other things, the fund's yield calculation treats dividends as accrued in anticipation of payment, rather than recording them when paid, and uses an ending price rather than an average price as the basis of the percentage calculation. The funds are only available for purchase through variable annuity or variable life insurance contracts offering deferral of income taxes on earnings, which may produce superior after-tax returns over time. For example, a $1,000 investment earning a taxable return of 10% annually would have an after-tax value of $1,949 after ten years, assuming tax was deducted from the return each year at a 31% rate. An equivalent tax-deferred investment would have an after-tax value of $2,100 after 10 years, assuming tax was deducted at the 31% rate from the deferred earnings at the end of the ten year period. Individuals holding shares of the funds through a variable annuity or variable life insurance contract may receive additional tax benefits from the deferral of income taxes associated with variable contracts. Individuals should consult their tax advisors to determine the effect of holding variable contracts on their individual tax situations. YIELDS AND TOTAL RETURNS QUOTED FOR A FUND INCLUDE THE EFFECT OF DEDUCTING THE FUND'S EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO ANY PARTICULAR INSURANCE PRODUCT. SINCE YOU CAN ONLY PURCHASE SHARES OF A FUND THROUGH A VARIABLE ANNUITY AND/OR A VARIABLE LIFE INSURANCE CONTRACT, YOU SHOULD CAREFULLY REVIEW THE PROSPECTUS OF THE INSURANCE PRODUCT YOU HAVE CHOSEN FOR INFORMATION ON RELEVANT CHARGES AND EXPENSES. Excluding these charges from quotations of a fund's performance has the effect of increasing the performance quoted. GENERAL INFORMATION A fund's performance may be compared to the performance of other mutual funds in general, or to the performance of particular types of mutual funds. These comparisons may be expressed as mutual fund rankings prepared by Lipper Analytical Services, Inc. (Lipper), an independent service located in Summit, New Jersey that monitors the performance of mutual funds. Lipper generally ranks funds on the basis of total return, assuming reinvestment of distributions, but does not take sales charges or redemption fees into consideration, and is prepared without regard to tax consequences. Lipper may also rank funds based on yield. In addition to the mutual fund rankings, a fund's performance may be compared to mutual fund performance indices prepared by Lipper. High Income Portfolio may compare its performance to the Salomon Brothers High Yield Composite Index, an index of high-yielding utility and corporate bonds with a minimum maturity of seven years and with total debt outstanding of at least $50 million. Issues included in the index are rated Baa or lower by Moody's Investors Service or BBB or lower by Standard & Poor's Corporation. Overseas Portfolio may quote its performance in advertising and other types of literature as compared to the performance of the Morgan Stanley Capital International EAFE Index, an unmanaged index of over 820 foreign common stocks. Each fund may also compare its performance against the Consumer Price Index (CPI) and the funds in Lipper Annuity & Closed-End Survey (LACES). LACES consists of periodic reports that track the performance of closed-end mutual funds and variable annuities at the separate account level. A fund will compare itself only to annuities, not to closed-end funds in LACES. From time to time, a fund's performance may also be compared to other mutual funds tracked by financial or business publications and periodicals. For example, a fund may quote Morningstar, Inc. in its advertising materials. Morningstar, Inc. is a mutual fund rating service that rates mutual funds on the basis of risk-adjusted performance. Rankings that compare the performance of Fidelity funds to one another in appropriate categories over specific periods of time may also be quoted in advertising. Fidelity may provide information designed to help individuals understand their investment goals and explore various financial strategies. For example, Fidelity's FundMatchsm Program includes a workbook describing general principles of investing, such as asset allocation, diversification, risk tolerance, and goal setting; a questionnaire designed to help create a personal financial profile; and an action plan offering investment alternatives. Materials may also include discussions of Fidelity's three asset allocation funds and other Fidelity funds, products, and services. Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical returns of the capital markets in the United States, including common stocks, small capitalization stocks, long-term corporate bonds, intermediate-term government bonds, long-term government bonds, Treasury bills, the U.S. rate of inflation (based on the CPI), and combinations of various capital markets. The performance of these capital markets is based on the returns of different indices. Fidelity funds may use the performance of these capital markets in order to demonstrate general risk-versus-reward investment scenarios. Performance comparisons may also include the value of a hypothetical investment in any of these capital markets. The risks associated with the security types in any capital market may or may not correspond directly to those of the funds. Ibbotson calculates total returns in the same method as the funds. The funds may also compare performance to that of other compilations or indices that may be developed and made available in the future. Money Market and High Income Portfolios each may compare its performance or the performance of securities in which it may invest to averages published by IBC USA (Publications), Inc. of Ashland, Massachusetts. These averages assume reinvestment of distributions. The IBC/Donoghue's MONEY FUND AVERAGES(trademark)/taxable money market funds, which is reported in the MONEY FUND REPORT(registered trademark), covers money market funds. The Bond Fund Report AverageS(trademark)/taxable bond funds, which is reported in the BOND FUND REPORT(registered trademark), covers bond funds. When evaluating comparisons to money market funds, investors should consider the relevant differences in investment objectives and policies. Specifically, money market funds invest in short-term, high-quality instruments and seek to maintain a stable $1.00 share price. Bond funds however, typically invest in longer-term instruments and their share price changes daily in response to a variety of factors. In advertising materials, Fidelity may reference or discuss its products and services, which may include: other Fidelity funds and insurance products; retirement investing; brokerage products and services; the effects of periodic investment plans and dollar cost averaging; saving for college; charitable giving; and the Fidelity credit card. In addition, Fidelity may quote financial or business publications and periodicals, including model portfolios or allocations, as they relate to fund management, investment philosophy, and investment techniques. Fidelity may also reprint, and use as advertising and sales literature, articles from Fidelity Focus, a quarterly magazine provided free of charge to Fidelity fund shareholders. Each fund may present its fund number, Quotron(trademark) number, and CUSIP number, and discuss or quote its current portfolio manager. VOLATILITY. A fund may quote various measures of volatility and benchmark correlation in advertising. In addition, a fund may compare these measures to those of other funds. Measures of volatility seek to compare a fund's historical share price fluctuations or total returns to those of a benchmark. Measures of benchmark correlation indicate how valid a comparative benchmark may be. All measures of volatility and correlation are calculated using averages of historical data. MOMENTUM INDICATORS indicate a fund's price movements over specific periods of time. Each point on the momentum indicator represents a fund's percentage change in price movements over that period. The funds may advertise examples of the effects of periodic investment plans, including the principle of dollar cost averaging. In such a program, a policyowner invests a fixed dollar amount in an insurance company's sub-account at periodic intervals which in turn invests in a fund, thereby purchasing fewer units when prices are high and more units when prices are low. While such a strategy does not assure a profit nor guard against loss in a declining market, the policyowner's average cost per unit can be lower than if fixed numbers of units had been purchased at those intervals. In evaluating such a plan, policyowners should consider their ability to continue purchasing units through periods of low price levels. Each fund has an investment objective similar to an existing Fidelity retail fund. Money Market Portfolio is most similar to its corresponding retail fund, Fidelity Cash Reserves. High Income Portfolio is most similar to its corresponding retail fund, Spartan High Income Fund. Equity-Income Portfolio is most similar to its corresponding retail fund, Fidelity Equity-Income Fund. Growth Portfolio is most similar to its corresponding retail fund, Fidelity Retirement Growth Fund. Overseas Portfolio is most similar to its corresponding retail fund, Fidelity Overseas Fund. Performance will differ between the funds and their corresponding retail funds due in part to differences in investment policies and the effect of insurance charges. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION High Income, Equity-Income, Growth and Overseas Portfolios are each open for business and its NAV is calculated each day the New York Stock Exchange (NYSE) is open for trading. The NYSE has designated the following holiday closings for 1994: President's Day, Good Friday, Memorial Day, Independence Day (observed), Labor Day, Thanksgiving Day, and Christmas Day (observed). Money Market Portfolio is open for business and its NAV is calculated each day that both the Federal Reserve Bank of New York City (the New York City Fed) and the New York Stock Exchange (NYSE) are open for trading. In addition to the above holidays, the following holiday closings have been scheduled for Money Market Portfolio for 1994: Dr. Martin Luther, King, Jr. Day (observed), Columbus Day (observed), and Veteran's Day. Although FMR expects the same holiday schedule, with the addition of New Year's Day, to be observed in the future, the New York City Fed or the NYSE may modify its holiday schedule at any time. On any day that the New York City Fed or the NYSE close early, or as permitted by the SEC, the right is reserved to advance the time on that day by which purchase and redemption orders must be received. To the extent that each fund's securities are traded in other markets on days when the New York City Fed or the NYSE is closed, each fund's NAV may be affected on days when investors do not have access to each fund to purchase or redeem shares. If the Trustees determine that existing conditions make cash payments undesirable, redemption payments may be made in whole or in part in securities or other property, valued for this purpose as they are valued in computing the NAV of each fund. Shareholders receiving securities or other property on redemption may realize a gain or loss for tax purposes, and will incur any costs of sale, as well as the associated inconveniences. TAXES For a discussion of tax consequences of variable contracts, please refer to your insurance company's separate account prospectus. Variable contracts purchased through insurance company separate accounts provide for the accumulation of all earnings from interest, dividends, and capital appreciation without current federal income tax liability to the owner. Depending on the variable contract, distributions from the contract may be subject to ordinary income tax and a 10% penalty tax on distributions before age 59 1/2. Only the portion of a distribution attributable to income is subject to federal income tax. Investors should consult with competent tax advisors for a more complete discussion of possible tax consequences in a particular situation. Section 817(h) of the Internal Revenue Code provides that the investments of a separate account underlying a variable insurance contract (or the investments of a mutual fund, the shares of which are owned by the variable separate account) must be "adequately diversified" in order for the contract to be treated as an annuity or life insurance for tax purposes. The Treasury Department has issued regulations prescribing these diversification requirements. Each fund intends to comply with these requirements. Each fund intends to qualify each year as a "regulated investment company" for tax purposes, so that it will not be liable for federal tax on income and capital gains distributed to shareholders. In order to qualify as a regulated investment company and avoid being subject to federal income or excise taxes, each fund intends to distribute substantially all its net taxable income and net realized capital gains within each calendar year as well as on a fiscal year basis. The funds also intend to comply with other tax rules applicable to regulated investment companies including a requirement that gross capital gains from selling securities held less than three months must constitute less than 30% of the funds' gross income for each fiscal year. Income and capital gain distributions are reinvested in additional shares of each fund. This is done to preserve the tax advantaged status of the variable contracts. Each fund is treated as a separate entity for tax purposes. MONEY MARKET PORTFOLIO. This fund may distribute any net realized short-term gains once each year, or more frequently if necessary, in order to maintain the fund's NAV at $1.00 per share and to comply with tax regulations. As of December 31, 1993, Money Market Portfolio had an aggregate capital loss carryover of approximately $13,800 arising from capital losses realized in the past, of which $4,100 will expire in 1995, $500 will expire in 1996, $4,900 will expire in 1997, and $4,300 will expire in 2000. This capital loss carryover may be used to offset future capital gains realized by the fund. HIGH INCOME PORTFOLIO. Income from this fund is primarily derived from interest rather than dividends. As of December 31, 1993 High Income Portfolio had no unused capital loss carryover. EQUITY-INCOME AND GROWTH PORTFOLIOS. As of December 31, 1993, Equity-Income and Growth Portfolios each had no unused capital loss carryover. OVERSEAS PORTFOLIO. Withholding or other taxes that the fund paid to foreign governments (if any), will reduce the fund's dividends. Foreign tax withholding from dividends and interest (if any) is typically at a rate between 10% and 35%. Shareholders will bear the cost of foreign tax withholding, but generally not be able to claim a foreign tax credit or deduction for foreign taxes paid by the fund by reason of the tax-deferred status of investments through separate accounts. As of December 31, 1993, Overseas Portfolio had an aggregate capital loss carryover of approximately $8,614,000, which may be used to offset future capital gains realized by the fund. FMR FMR is a wholly owned subsidiary of FMR Corp., a parent company organized in 1972. At present, the principal operating activities of FMR Corp. are those conducted by three of its divisions as follows: FSC, which is the transfer and shareholder servicing agent for certain of the funds advised by FMR; FIIOC, which performs shareholder servicing functions for certain institutional customers; and Fidelity Investments Retail Marketing Company, which provides marketing services to various companies within the Fidelity organization. Several affiliates of FMR are also engaged in the investment advisory business. Fidelity Management Trust Company provides trustee, investment advisory, and administrative services to retirement plans and corporate employee benefit accounts. Fidelity Management & Research (U.K.) Inc. (FMR U.K.) and Fidelity Management & Research (Far East) Inc. (FMR Far East), both wholly owned subsidiaries of FMR formed in 1986, supply investment research, and may supply portfolio management services, to FMR in connection with certain funds advised by FMR. Analysts employed by FMR, FMR U.K., and FMR Far East research and visit thousands of domestic and foreign companies each year. FMR Texas Inc., a wholly owned subsidiary of FMR formed in 1989, supplies portfolio management and research services in connection with certain money market funds advised by FMR. TRUSTEES AND OFFICERS The Fund's Trustees and executive officers are listed below. Except as indicated, each individual has held the office shown or other offices in the same company for the last five years. All persons named as Trustees and officers also serve in similar capacities for other funds advised by FMR. Unless otherwise noted, the business address of each Trustee and officer is 82 Devonshire Street, Boston, Massachusetts, 02109, which is also the address of FMR. Those Trustees who are "interested persons" (as defined in the Investment Company Act of 1940) by virtue of their affiliation with the Fund or FMR, are indicated by an asterisk (*). *EDWARD C. JOHNSON 3d, Trustee and President, is Chairman, Chief Executive Officer and a Director of FMR Corp.; a Director and Chairman of the Board and of the Executive Committee of FMR; Chairman and a Director of FMR Texas Inc. (1989), Fidelity Management & Research (U.K.) Inc., and Fidelity Management & Research (Far East) Inc. *J. GARY BURKHEAD, Trustee and Senior Vice President, is President of FMR; and President and a Director of FMR Texas Inc. (1989), Fidelity Management & Research (U.K.) Inc., and Fidelity Management & Research (Far East) Inc. RALPH F. COX, 200 Rivercrest Drive, Fort Worth, TX, Trustee (1991), is a consultant to Western Mining Corporation (1994). Prior to February 1994, he was President of Greenhill Petroleum Corporation (petroleum exploration and production, 1990). Until March 1990, Mr. Cox was President and Chief Operating Officer of Union Pacific Resources Company (exploration and production). He is a Director of Bonneville Pacific Corporation (independent power, 1989), Sanifill Corporation (non-hazardous waste, 1993), and CH2M Hill Companies (engineering). In addition, he served on the Board of Directors of the Norton Company (manufacturer of industrial devices, 1983-1990) and continues to serve on the Board of Directors of the Texas State Chamber of Commerce, and is a member of advisory boards of Texas A&M University and the University of Texas at Austin. PHYLLIS BURKE DAVIS, P.O. Box 264, Bridgehampton, NY, Trustee (1992). Prior to her retirement in September 1991, Mrs. Davis was the Senior Vice President of Corporate Affairs of Avon Products, Inc. She is currently a Director of BellSouth Corporation (telecommunications), Eaton Corporation (manufacturing, 1991), and the TJX Companies, Inc. (retail stores, 1990), and previously served as a Director of Hallmark Cards, Inc. (1985-1991) and Nabisco Brands, Inc. In addition, she serves as a Director of the New York City Chapter of the National Multiple Sclerosis Society, and is a member of the Advisory Council of the International Executive Service Corps. and the President's Advisory Council of The University of Vermont School of Business Administration. RICHARD J. FLYNN, 77 Fiske Hill, Sturbridge, MA, Trustee, is a financial consultant. Prior to September 1986, Mr. Flynn was Vice Chairman and a Director of the Norton Company (manufacturer of industrial devices). He is currently a Director of Mechanics Bank and a Trustee of College of the Holy Cross and Old Sturbridge Village, Inc. E. BRADLEY JONES, 3881-2 Lander Road, Chagrin Falls, OH, Trustee (1990). Prior to his retirement in 1984, Mr. Jones was Chairman and Chief Executive Officer of LTV Steel Company. Prior to May 1990, he was Director of National City Corporation (a bank holding company) and National City Bank of Cleveland. He is a Director of TRW Inc. (original equipment and replacement products), Cleveland-Cliffs Inc (mining), NACCO Industries, Inc. (mining and marketing), Consolidated Rail Corporation, Birmingham Steel Corporation, Hyster-Yale Materials Handling, Inc. (1989), and RPM, Inc. (manufacturer of chemical products, 1990). In addition, he serves as a Trustee of First Union Real Estate Investments, Chairman of the Board of Trustees and a member of the Executive Committee of the Cleveland Clinic Foundation, a Trustee and a member of the Executive Committee of University School (Cleveland), and a Trustee of Cleveland Clinic Florida. DONALD J. KIRK, 680 Steamboat Road, Apartment #1-North, Greenwich, CT, Trustee, is a Professor at Columbia University Graduate School of Business and a financial consultant. Prior to 1987, he was Chairman of the Financial Accounting Standards Board. Mr. Kirk is a Director of General Re Corporation (reinsurance) and Valuation Research Corp. (appraisals and valuations, 1993). In addition, he serves as Vice Chairman of the Board of Directors of the National Arts Stabilization Fund and Vice Chairman of the Board of Trustees of the Greenwich Hospital Association. *PETER S. LYNCH, Trustee (1990) is Vice Chairman of FMR (1992). Prior to his retirement on May 31, 1990, he was a Director of FMR (1989) and Executive Vice President of FMR (a position he held until March 31, 1991); Vice President of Fidelity Magellan Fund and FMR Growth Group Leader; and Managing Director of FMR Corp. Mr. Lynch was also Vice President of Fidelity Investments Corporate Services (1991-1992). He is a Director of W.R. Grace & Co. (chemicals, 1989) and Morrison Knudsen Corporation (engineering and construction). In addition, he serves as a Trustee of Boston College, Massachusetts Eye & Ear Infirmary, Historic Deerfield (1989) and Society for the Preservation of New England Antiquities, and as an Overseer of the Museum of Fine Arts of Boston (1990). GERALD C. McDONOUGH, 135 Aspenwood Drive, Cleveland, OH, Trustee (1989), is Chairman of G.M. Management Group (strategic advisory services). Prior to his retirement in July 1988, he was Chairman and Chief Executive Officer of Leaseway Transportation Corp. (physical distribution services). Mr. McDonough is a Director of ACME-Cleveland Corp. (metal working, telecommunications and electronic products), Brush-Wellman Inc. (metal refining), York International Corp. (air conditioning and refrigeration, 1989), Commercial Intertech Corp. (water treatment equipment, 1992), and Associated Estates Realty Corporation (a real estate investment trust, 1993). EDWARD H. MALONE, 5601 Turtle Bay Drive #2104, Naples, FL, Trustee. Prior to his retirement in 1985, Mr. Malone was Chairman, General Electric Investment Corporation and a Vice President of General Electric Company. He is a Director of Allegheny Power Systems, Inc. (electric utility), General Re Corporation (reinsurance) and Mattel Inc. (toy manufacturer). He is also a Trustee of Rensselaer Polytechnic Institute and of Corporate Property Investors and a member of the Advisory Boards of Butler Capital Corporation Funds and Warburg, Pincus Partnership Funds. MARVIN L. MANN, 55 Railroad Avenue, Greenwich, CT, Trustee (1993) is Chairman of the Board, President, and Chief Executive Officer of Lexmark International, Inc. (office machines, 1991). Prior to 1991, he held the positions of Vice President of International Business Machines Corporation ("IBM") and President and General Manager of various IBM divisions and subsidiaries. Mr. Mann is a Director of M.A. Hanna Company (chemicals, 1993) and Infomart (marketing services, 1991), a Trammell Crow Co. In addition, he serves as the Campaign Vice Chairman of the Tri-State United Way (1993) and is a member of the University of Alabama President's Cabinet (1990). THOMAS R. WILLIAMS, 21st Floor, 191 Peachtree Street, N.E., Atlanta, GA, Trustee, is President of The Wales Group, Inc. (management and financial advisory services). Prior to retiring in 1987, Mr. Williams served as Chairman of the Board of First Wachovia Corporation (bank holding company), and Chairman and Chief Executive Officer of The First National Bank of Atlanta and First Atlanta Corporation (bank holding company). He is currently a Director of BellSouth Corporation (telecommunications), ConAgra, Inc. (agricultural products), Fisher Business Systems, Inc. (computer software), Georgia Power Company (electric utility), Gerber Alley & Associates, Inc. (computer software), National Life Insurance Company of Vermont, American Software, Inc. (1989), and AppleSouth, Inc. (restaurants, 1992). GARY L. FRENCH, Treasurer (1991). Prior to becoming Treasurer of the Fidelity funds, Mr. French was Senior Vice President, Fund Accounting - Fidelity Accounting & Custody Services Co. (1991); Vice President, Fund Accounting - Fidelity Accounting & Custody Services Co. (1990); and Senior Vice President, Chief Financial and Operations Officer - Huntington Advisers, Inc. (1985-1990). ARTHUR S. LORING, Secretary, is Senior Vice President and General Counsel of FMR, Vice President-Legal of FMR Corp., and Vice President and Clerk of FDC. THOMAS D. MAHER, Assistant Vice President (1990), is Associate General Counsel of FMR Texas Inc. (1990). ROBERT LITTERST, Vice President of Money Market Portfolio (1992), is an employee of FMR. BARRY COFFMAN, Vice President of High Income Portfolio (1992), is an employee of FMR. ROBERT H. MORRISON, Manager, Security Transactions, is an employee of FMR. Under a retirement program that became effective on November 1, 1989, Trustees, upon reaching age 72, become eligible to participate in a defined benefit retirement program under which they receive payments during their lifetime from the fund based on their basic trustee fees and length of service. Currently, Messrs. Robert L. Johnson, William R. Spaulding, Bertram H. Witham, and David L. Yunich participate in the program. As of March 31, 1994, the Trustees and officers of the Fund owned 0% of the outstanding shares of the funds. As of February 28, 1994, significant shares of the funds were held by the following companies with the figures beneath each fund representing that company's holdings as a percentage of each fund's total outstanding shares.
Money Market High Income Equity-Income Growth Overseas Portfolio Portfolio Portfolio Portfolio Portfolio Ameritas Variable Life 9.08% -- -- -- -- Insurance Company (Lincoln, NE) Fidelity Investments Life 47.43% 21.43% 27.98% 19.47% 21.48% Insurance Company (Boston, MA) The Life Insurance 6.30% -- -- -- 5.31% Company of Virginia (Richmond, VA) PFL Life Insurance 21.59% 12.92% 10.27% 6.14% 7.43% Company (Cedar Rapids, IA) Nationwide Life -- 36.82% 30.11% 31.47% 43.21% Insurance Company (Columbus, OH) State Mutual Life -- 6.70 9.30% 7.78% 6.20% Assurance Company (Worcester, MA) The Travelers Insurance -- 5.51% -- 9.12% -- Company (Hartford, CT)
- -- Owns less than 5%. A shareholder owning more than 25% of a particular fund's shares may be considered to be a "controlling person" of that fund. Accordingly, its vote could have a more significant effect on matters presented to shareholders for approval than the votes of the funds' other shareholders. Messrs. Edward C. Johnson 3d and J. Gary Burkhead, Trustees of the fund and directors of FMR, together with Messrs. Francis D. Cabour, Richard B. Fentin, Barry A. Greenfield, Richard C. Habermann, William J. Hayes, Michael M. Kassen, Alan Leifer, Peter S. Lynch, and George A. Vanderheiden, officers or employees of FMR, are members of the Equity-Income, Growth and Overseas Portfolios' Investment Committee, which reviews recommendations of the research staff of FMR. MANAGEMENT CONTRACTS Each fund employs FMR to furnish it with investment advisory and other services. Under FMR's Management Contract with each fund, FMR acts as investment advisor and, subject to the supervision of the Board of Trustees, directs the investments of each fund in accordance with its investment objective, policies and limitations. FMR also provides each fund with all necessary office facilities and personnel for servicing each fund's investments, and compensates all officers of the Fund, all Trustees who are "interested persons" of the Fund or of FMR and all personnel of the Fund or FMR performing services relating to research, statistical and investment activities. In addition, FMR or its affiliates, subject to the supervision of the Board of Trustees, provide the management and administrative services necessary for the operation of each fund. These services include providing facilities for maintaining each fund's organization, supervising relations with custodians, transfer and pricing agents, accountants, underwriters and other persons dealing with each fund, preparing all general shareholder communications and conducting shareholder relations, maintaining each fund's records and the registration of each fund's shares under federal and state law, developing management and shareholder services for each fund and furnishing reports, evaluations and analyses on a variety of subjects to the Fund's Board of Trustees. In addition to the management fee payable to FMR and the fees payable to FSC and FIIOC, each fund pays all its expenses, without limitation, that are not assumed by those parties. Each fund pays for typesetting, printing and mailing its Prospectuses, Statements of Additional Information, reports and proxy material to existing shareholders, legal expenses and the fees of the custodian, auditor and non-interested Trustees. Other charges paid by each fund include interest, taxes, brokerage commissions, each fund's proportionate share of insurance premiums and Investment Company Institute dues, and the costs of registering shares under federal and state securities laws. Each fund is also liable for such nonrecurring expenses as may arise, including costs of litigation to which each fund may be a party and any obligation they may have to indemnify the officers and Trustees of the Fund with respect to litigation. MONEY MARKET PORTFOLIO. FMR is the fund's manager pursuant to a management contract dated January 1, 1994, which was approved by shareholders on December 15, 1993. For the services of FMR under the contract, the fund pays FMR a monthly management fee calculated by adding a basic fee, which consists of a group fee rate and an individual fund fee rate (.03% of the fund's average net assets ), to an income-based component of 6% of the fund's gross income in excess of a 5% yield, and multiplying the result by the fund's average net assets. The group fee rate is based on the monthly average net assets of all of the registered investment companies with which FMR has management contracts and is calculated on a cumulative basis pursuant to the graduated fee rate schedule shown on the left of the chart below. On the right, the effective fee rate schedule shows the results of cumulatively applying the annualized rates at varying asset levels. For example, the effective annual fee rate at $232 billion of group net assets--their approximate level for December 1993--was .1621%, which is the weighted average of the respective fee rates for each level of group net assets up to that level. GROUP FEE RATE EFFECTIVE ANNUAL SCHEDULE FEE RATES Rate Group Net Effective Asset Levels Assets Annual Fee Rate 0 - $ 3 billion .3700% $ 25 billion .2664% 3 - 6 .3400 50 .2188 6 - 9 .3100 75 .1986 9 - 12 .2800 100 .1869 12 - 15 .2500 125 .1793 15 - 18 .2200 150 .1736 18 - 21 .2000 175 .1695 21 - 24 .1900 200 .1658 24 - 30 .1800 225 .1629 30 - 36 .1750 250 .1604 36 - 42 .1700 275 .1583 42 - 48 .1650 300 .1565 48 - 66 .1600 325 .1548 66 - 84 .1550 350 .1533 84 - 120 .1500 375 .1519 120 - 174 .1450 400 .1507 174 - 228 .1400 228 - 282 .1375 282 - 336 .1350 Over - 336 .1325 The individual fund fee rate is .03% of the fund's average net assets. Based on the average net assets of funds advised by FMR for December 1993, the basic fee rate would be calculated as follows: Group Fee Rate Individual Fund Fee Rate Management Fee Rate .1621% + .03% = .1921% If the fund's gross yield is 5% or less, the basic fee is the total management fee. The income-based component of the fee is added to the basic fee when the fund's yield is greater than 5%. The income-based fee equals 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 .24% (annualized) of average net assets, at a fund gross yield of 9%. Gross income for this purpose, includes interest accrued and/or discount earned (including both original issue discount and market discount) on portfolio obligations, less amortization of premium. Realized and unrealized gains and losses, if any, are not included in gross income. One twelfth (1/12) of the basic fee plus the income-based component is applied to the fund's average net assets for the current month, giving a dollar amount which is the fee for that month. Prior to January 1, 1994, the fund's management fee was calculated as a percentage of the fund's gross income, calculated and paid monthly, and varied together with the fund's yield. The fee equaled 4% of that portion of the fund's gross income (before expenses) that was equivalent to a gross yield of 5% or less, plus 6% of the fund's gross income that was equivalent to a gross yield of more than 5%. The fee was subject to a maximum fee rate, which varied between 0.50% and 0.40% (annualized) of average net assets depending on the fund's size. For the 1993, 1992 and 1991 fiscal years, FMR's fee as investment advisor was $415,213, $487,024 and $710,490, respectively, which was equivalent to an annualized rate of .14%, .17% and .28%, respectively of the fund's average net assets. HIGH INCOME PORTFOLIO. FMR is the fund's manager pursuant to a Management Contract dated January 1, 1994, which was approved by shareholders on December 15, 1993. For the services of FMR under the Contract, the fund pays FMR a monthly management fee composed of the sum of two elements: a group fee rate and an individual fund fee rate. The group fee rate is based on the monthly average net assets of all of the registered investment companies with which FMR has management contracts and is calculated on a cumulative basis pursuant to the graduated fee rate schedule shown on the left of the chart below. On the right, the effective fee rate schedule shows the results of cumulatively applying the annualized rates at varying asset levels. For example, the effective annual fee rate at $232 billion of group net assets--their approximate level for the month of December 1993 was 1621%, which is the weighted average of the respective fee rates for each level of group net assets up to that level. GROUP FEE RATE EFFECTIVE ANNUAL SCHEDULE FEE RATES Rate Group Effective Asset Levels Net Annual Assets Fee Rate 0 - $ 3 billion .3700% $ 25 billion .2664% 3 - 6 .3400 50 .2188 6 - 9 .3100 75 .1986 9 - 12 .2800 100 .1869 12 - 15 .2500 125 .1793 15 - 18 .2200 150 .1736 18 - 21 .2000 175 .1695 21 - 24 .1900 200 .1658 24 - 30 .1800 225 .1629 30 - 36 .1750 250 .1604 36 - 42 .1700 275 .1583 42 - 48 .1650 300 .1565 48 - 66 .1600 325 .1548 66 - 84 .1550 350 .1533 84 - 120 .1500 375 .1519 120 - 174 .1450 400 .1507 174 - 228 .1400 228 - 282 .1375 282 - 336 .1350 Over - 336 .1325 The individual fund fee rate is .45%. Based on the average net assets of the funds advised by FMR for December 1993, the annual management fee rate would be calculated as follows: Group Fee Rate Individual Fund Fee Rate Management Fee Rate .1621% + .45% = .6121% One-twelfth (1/12) of this annual management fee rate is then applied to the fund's average net assets for the current month, giving a dollar amount which is the fee for that month. On November 1, 1993, FMR voluntarily adopted a revised schedule providing for extended breakpoints for group assets in excess of $174 billion. The extended schedule was approved by shareholders of the fund December 15, 1993. The schedule shown above (minus the breakpoints approved by shareholders on December 15, 1993) was voluntarily adopted by FMR on January 1, 1992. On December 16, 1992, shareholders approved the extended schedule and revised management contract dated January 1, 1993. Prior to January 1, 1992, the fund's group fee rate was based on a schedule with breakpoints ending at .150% for average group assets in excess of $120 billion. This shorter schedule was included a prior management contract with FMR dated January 1, 1990. Prior to January 1, 1994, High Income Portfolio's individual fund fee rate was .35% of the fund's average net assets. During the fiscal years ended 1993, 1992 and 1991, FMR received $1,764,257, $784,904 and $266,207, respectively, for its services as investment advisor. These fees, were equivalent to .51%, .52% and .53% of the fund's average net assets for those respective periods. EQUITY-INCOME, GROWTH AND OVERSEAS PORTFOLIOS. FMR is each fund's manager pursuant to Management Contracts dated January 1, 1993, which were approved by shareholders on December 16, 1992. For the services of FMR under the Contracts, Equity-Income, Growth and Overseas Portfolios pay FMR a monthly management fee composed of the sum of two elements: a group fee rate and an individual fund fee rate. Each fund's group fee rate is based on the monthly average net assets of all of the registered investment companies with which FMR has management contracts and is calculated on a cumulative basis pursuant to the graduated fee rate schedule shown on the left of the chart below. On the right, the effective fee rate schedule shows the results of cumulatively applying the annualized rates at varying asset levels. For example, the effective annual fee rate at $232 billion of group net assets - their approximate level for the month of December 1993 was .3243%, which is the weighted average of the respective fee rates for each level of group net assets up to that level. GROUP FEE RATE EFFECTIVE ANNUAL SCHEDULE* FEE RATES Rate Group Effective Asset Levels Net Annual Assets Fee Rate 0 - $ 3 billion .520% $ 0.5 billion .5200% 3 - 6 .490 10 .4840 6 - 9 .460 20 .4398 9 - 12 .430 30 .4115 12 - 15 .400 40 .3944 15 - 18 .385 50 .3823 18 - 21 .370 60 .3728 21 - 24 .360 70 .3656 24 - 30 .350 80 .3599 30 - 36 .345 90 .3552 36 - 42 .340 100 .3512 42 - 48 .335 110 .3475 48 - 66 .325 120 .3444 66 - 84 .320 130 .3417 84 - 102 .315 140 .3394 102 - 138 .310 150 .3371 138 - 174 .305 160 .3351 174 - 228 .300 170 .3333 228 - 282 .295 180 .3316 282 - 336 .290 190 .3299 Over 336 .285 200 .3284 *The rates shown for average group assets in excess of $174 billion were adopted by FMR on a voluntary basis on November 1, 1993. The schedule was adopted for each fund pending shareholder approval of new management contracts reflecting the extended schedule. The extended schedule provides for lower management fees as total assets under management increase. Based on the average net assets of the funds advised by FMR for December 1993, the annual management fee rates were calculated as follows: EQUITY-INCOME PORTFOLIO Group Fee Rate Individual Fund Fee Rate Management Fee Rate .3243% + .20% = .5243% GROWTH PORTFOLIO Group Fee Rate Individual Fund Fee Rate Management Fee Rate .3243% + .30% = .6243% OVERSEAS PORTFOLIO Group Fee Rate Individual Fund Fee Rate Management Fee Rate .3243% + .45% = .7743% One twelfth (1/12) of this annual management fee rate is then applied to each fund's average net assets for the current month, giving a dollar amount which is the fee for that month. EQUITY-INCOME. During the fiscal years ended 1993, 1992 and 1991, FMR received $5,004,191, $2,179,187 and $1,132,875, respectively, for its services as investment advisor. These fees were equivalent to .53%, .53% and .54% of the average net assets of the fund for those respective periods. GROWTH. During the fiscal years ended 1993, 1992 and 1991, FMR received $6,358,701, $3,305,050 and $1,468,574, respectively, for its services as investment advisor. These fees were equivalent to .63%, .63% and .64% of the average net assets of the fund for those respective periods. OVERSEAS. During the fiscal years ended 1993, 1992 and 1991, FMR received $3,078,432, $1,231,227 and $799,438, respectively, for its services as investment advisor. These fees were equivalent to .77%, .78% and .79% of the average net assets of the fund for those respective periods. SUB-ADVISERS. On behalf of OVERSEAS PORTFOLIO, FMR has entered into sub-advisory agreements with Fidelity Management & Research (U.K.) Inc. (FMR U.K.), Fidelity Management & Research (Far East) Inc. (FMR Far East), and Fidelity International Investment Advisors (FIIA). FIIA, in turn, has entered into a sub-advisory agreement with its wholly owned subsidiary Fidelity International Investment Advisors (U.K.) Limited (FIIAL U.K.). On behalf of HIGH INCOME PORTFOLIO, FMR has entered into sub-advisory agreements with FMR U.K. and FMR Far East. Pursuant to the sub-advisory agreements, FMR may receive investment advice and research services with respect to companies based outside the U.S. from the sub-advisors and may grant the sub-advisors investment management authority as well as the authority to buy and sell securities if FMR believes it would be beneficial to the Fund. Currently, FMR U.K., FMR Far East, FIIA and FIIAL U.K. each focus on companies in countries other than the United states including countries in Europe, Asia, and the Pacific Basin. FMR U.K. and FMR Far East are wholly owned subsidiaries of FMR. FIIA is a wholly owned subsidiary of Fidelity International Limited (FIL), a Bermuda company formed in 1968 which primarily provides investment advisory services to non-U.S. investment companies and institutional investors investing in securities of issuers throughout the world. FIIA was organized in Bermuda in 1983 and FIIAL U.K. was organized in the United Kingdom in 1984. Under the sub-advisory agreements FMR pays the fees of FMR U.K., FMR Far East, and FIIA. FIIA, in turn, pays the fees of FIIAL U.K. For providing investment advice and research services the sub-advisors are compensated as follows: FMR pays FMR U.K. and FMR Far East fees equal to 110% and 105%, respectively, of FMR U.K.'s and FMR Far East's costs incurred in connection with providing investment advice and research services. FMR pays FIIA 30% of FMR's monthly management fee with respect to the average market value of investments held by the Fund for which FIIA has provided FMR with investment advice. FIIA pays FIIAL U.K. a fee equal to 110% of FIIAL U.K.'s costs incurred in connection with providing investment advice and research services. For providing investment management and executing portfolio transactions, the sub-advisors are compensated as follows: FMR pays FMR U.K., FMR Far East, and FIIA 50% of its monthly management fee (including any performance adjustment) with respect to the Fund's average net assets managed by the sub-advisor on a discretionary basis. FIIA pays FIIAL U.K. 110% of FIIAL U.K.'s costs incurred with providing investment management services. FMR entered into the sub-advisory agreements described above with respect to Overseas Portfolio on April 1, 1992 following shareholder approval of the agreements on March 25, 1992. FMR entered into the sub-advisory agreements described above with respect to High Income Portfolio on January 1, 1994 following shareholder approval of the agreements on December 15, 1993. Prior to April 1, 1992, FMR had sub-advisory agreements with FMR Far East and FMR U.K. on behalf of OVERSEAS PORTFOLIO pursuant to which FMR Far East and FMR U.K. provided FMR with investment advice and research services. Under those agreements, FMR Far East and FMR U.K. were compensated for their services according to the same formulas as they are compensated currently for providing investment advice and research services. For fiscal years ended December 31, 1993, 1992 and 1991, FMR paid $63,133, $41,512 and $66,930, respectively to FMR (U.K.) and $125,264, $34,267 and $65,440, respectively to FMR Far East on behalf of Overseas Portfolio. F MR entered into a sub-advisory agreement with FMR Texas Inc. (FMR Texas), pursuant to which FMR Texas has primary responsibility for providing investment management services to MONEY MARKET PORTFOLIO. FMR Texas, a wholly owned subsidiary of FMR was formed in 1989 and registered under the Investment Advisers Act of 1940 on June 9, 1989 to provide investment management services to money market mutual funds; to advise FMR generally with respect to money market instruments; and to manage or provide advice with respect to cash flow management. The sub-advisory agreement provides that FMR and not the fund, will pay fees to FMR Texas equal to 50% of the management fee payable to FMR under its current Management Contract with the fund. The fees paid to FMR Texas are not reduced by any voluntary or mandatory fee waivers or expense reimbursements that may be in effect from time to time. For fiscal years ended December 31, 1993, 1992 and 1991, FMR paid $207,606, $243,512 and $355,245, respectively, to FMR Texas on behalf of Money Market Portfolio. DISTRIBUTION AND SERVICE PLANS Each fund has adopted a distribution and service plan (the Plans) under Rule 12b-1 under the Investment Company Act of 1940 (the Rule). The Rule provides, in substance, that a mutual fund may not engage directly or indirectly in financing any activity that is primarily intended to result in the sale of shares of the fund except pursuant to a plan adopted by the fund under the Rule. The Fund's Board of Trustees has adopted the Plans to allow each of these funds and FMR to incur certain expenses that might be considered to constitute indirect payment by the funds of distribution expenses. Under the Plans, if the payment by a fund to FMR of management fees should be deemed to be indirect financing by a fund of the distribution of its shares, such payment is authorized by the Plans. The Plans specifically recognize that FMR, either directly or through FDC, may use its management fee revenue, past profits or other resources, without limitation, to pay promotional and administrative expenses in connection with the offer and sale of shares of the funds. In addition, the Plans provide that FMR may use its resources, including its management fee revenues, to make payments to third parties that provide assistance in selling shares of the funds or to third parties including banks, that render shareholder support services. However, no such payments to third parties are currently contemplated. Each fund's Plan has been approved by the Trustees. As required by the Rule, the Trustees carefully considered all pertinent factors relating to the implementation of each Plan prior to its approval, and have determined that there is a reasonable likelihood that the Plan will benefit the respective fund and its shareholders. In particular, the Trustees noted that the Plan does not authorize payments by the fund other than those made to FMR under the Management Contract with each fund. To the extent that a Plan gives FMR and FDC greater flexibility in connection with the distribution of shares of a fund, additional sales of the fund's shares may result. Additionally, certain shareholder support services may be provided more effectively under a Plan by local entities with whom shareholders have other relationships. Money Market, High Income, Equity-Income and Growth Portfolios' Plans were approved by shareholders of their respective fund on December 11, 1986. Overseas Portfolio's Plan was approved by shareholders on November 18, 1987. CONTRACTS WITH COMPANIES AFFILIATED WITH FMR Each fund has an agreement with FSC, an affiliate of FMR Corp., under which FSC determines the NAV per share and dividends of each fund and maintains the portfolio and general accounting records of each fund. Prior to July 1, 1991, the annual fee for these pricing and bookkeeping services was based on two schedules, one pertaining to each fund's average net assets, and one pertaining to the type and number of transactions each fund made. The fee rates in effect as of July 1, 1991, are based on each fund's average net assets as follows: for Money Market Portfolio, .0175% for the first $500 million of average net assets and .0075% for average net assets in excess of $500 million. The fee is limited to a minimum of $20,000 and a maximum of $750,000 per year; for High Income Portfolio, .04% for the first $500 million of average net assets and .02% for average net assets in excess of $500 million. For Equity-Income, Growth and Overseas Portfolios, .06% for the first $500 million of average net assets and .03% for average net assets in excess of $500 million. The fee for High Income, Equity Income, Growth and Overseas Portfolios is limited to a minimum of $45,000 and a maximum of $750,000 per year. The following are the fees paid by each fund to FSC for the last three fiscal years:
Money Market High Income Equity-Income Growth Overseas Portfolio Portfolio Portfolio Portfolio Portfolio 12/31/93 $53,769 $138,642 $439,891 $456,795 $230,456 12/31/92 $52,389 $62,305 $242,745 $303,007 $109,649 12/31/91 $74,243 $54,512 $143,655 $162,678 $105,226
Each fund utilizes FIIOC, an affiliate of FMR Corp., to maintain the master accounts of the participating insurance companies. On June 1, 1989 each fund entered into a contract with FIIOC for transfer agent services. Under the contract, each fund pays a fee of $95 per shareholder account per year and a fee of $20 or $17.50 for each monetary transaction by a full service client or remote client, respectively. In addition to providing transfer agent and shareholder servicing functions, FIIOC pays all transfer agent out-of-pocket expenses and also pays for typesetting, printing and mailing Prospectuses, Statements of Additional Information, reports, notices and statements to shareholders allocable to the master account of participating insurance companies. The following are the fees paid by each fund to FIIOC (including reimbursement for out-of-pocket expenses) for the last three fiscal years:
Money Market High Income Equity-Income Growth Overseas Portfolio Portfolio Portfolio Portfolio Portfolio 12/31/93 $87,208 $108,432 $111,756 $140,122 $143,222 12/31/92 $59,118 $61,198 $68,260 $79,504 $65,240 12/31/91 $42,462 $45,665 $49,893 $53,613 $49,268
If a portion of each Portfolio's brokerage commissions had not been allocated toward payment of these fees, the transfer agent fees for the last three fiscal years would have been as follows:
Money Market High Income Equity-Income Growth Overseas Portfolio Portfolio Portfolio Portfolio Portfolio 12/31/93 N/A N/A $171,916 $228,419 -- 12/31/92 N/A N/A -- -- -- 12/31/91 N/A N/A -- -- --
Each fund has a Distribution Agreement with FDC, a Massachusetts corporation organized July 18, 1960. FDC is a broker-dealer registered under the Securities Exchange Act of 1934 and a member of the National Association of Securities Dealers, Inc. The Distribution Agreement calls for FDC to use all reasonable efforts, consistent with its other business, to secure purchasers for shares of the funds which are continuously offered at net asset value. Promotional and administrative expenses, in connection with the offer and sale of shares, are paid for by FMR. SUMMARY OF THE FUNDS' EXPENSES The expense summary format below was developed for use by all mutual funds to help you make your investment decisions. Of course you should consider this expense information along with other important information in the Prospectus and Statement of Additional Information and the funds' investment objectives. This table does not include any charges or expenses which are attributable to any particular insurance product. You should carefully review the Prospectus of the insurance product you have chosen for information or relevant charges and expenses. A. SHAREHOLDER TRANSACTION EXPENSES Money High Equity- Market Income Income Growth Overseas Portfolio Portfolio Portfolio Portfolio Portfolio
Sales Load on Purchases................................... None None None None None Sales Load on Reinvested Dividends............... None None None None None Deferred Sales Load Imposed on Redemptions. None None None None None Exchange Fees None None None None None
(as a percentage of average net assets after expense reimbursement) B. ANNUAL FUND OPERATING EXPENSES
Management Fees .20% .61% .53% .63% .77% 12b-1 Fees None None None None None Other Expenses .08% .13% .09% .08% .26% Total Fund Operating Expenses .28% .74% .62% .71% 1.03%
C. EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period:
1 $3 $8 $6 $7 $11 Year............................................................ 3 9 24 20 23 33 Years........................................................... 5 16 41 35 40 57 Years........................................................... 10 36 92 77 88 126 Years.........................................................
EXPLANATION OF TABLE: The purpose of this table is to assist you in understanding the various costs and expenses that an investor in the funds would bear directly or indirectly. A. SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell shares of a fund. There are none for these funds, other than charges which may be imposed by a particular insurance product. B. ANNUAL FUND OPERATING EXPENSES are based on each fund's historical expenses adjusted to reflect the current management contract . Management Fees are paid by each fund to Fidelity Management & Research Company (FMR) for managing its investments and business affairs. The funds incur Other Expenses for maintaining shareholder records, furnishing shareholder statements and reports and other services. FMR has voluntarily agreed to limit the Annual Fund Operating Expenses of High Income, Equity-Income, Growth and Overseas Portfolios (excluding interest, taxes, brokerage commissions and extraordinary expenses) to an annual rate of 1.00%, 1.50%, 1.50% and 1.50%, respectively. If the funds' expenses exceed these rates, FMR reimburses the fund to the extent necessary to reduce expenses to the above levels. A Special Meeting of Shareholders of Money Market and High Income Portfolios was held December 15, 1993. All expenses in connection with the meeting, including preparation of the proxy statement, its enclosures and all solicitations were reimbursed by FMR. If FMR had not reimbursed these expenses, management fee, expenses and total expenses under the former contracts would have been .14%, .09% and .23% for Money Market Portfolio and .51%, .15% and .66% for High Income Portfolio. C. EXAMPLE OF EXPENSES. The hypothetical examples illustrate the expenses associated with a $1,000 investment over periods of 1, 3, 5 and 10 years for each of the funds. These examples are based on the annual fund operating expenses detailed above and an assumed annual rate of return of 5%. The return of 5% and expenses should not be considered indications of actual or expected fund performance or expenses, both of which may vary. DESCRIPTION OF THE TRUST TRUST ORGANIZATION. Money Market Portfolio, High Income Portfolio, Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio are funds of Variable Insurance Products Fund, an open-end management investment company. In July 1985, pursuant to shareholder approval, the Declaration of Trust was amended to change the name of the Trust from Fidelity Cash Reserves II to Variable Insurance Products Fund. The Declaration of Trust permits the Trustees to create additional funds. Investments in the Trust may be made only by the separate accounts of insurance companies for the purpose of funding variable annuity and variable life insurance contracts issued by insurance companies. In the event that FMR ceases to be the investment adviser to the Trust or a fund, the right of the Trust or fund to use the identifying name "Fidelity" may be withdrawn. There is a remote possibility that one fund might become liable for any misstatement in its prospectus or statement of additional information about another fund. The assets of the Trust received for the issue or sale of shares of each fund and all income, earnings, profits, and proceeds thereof, subject only to the rights of creditors, are especially allocated to such fund, and constitute the underlying assets of such fund. The underlying assets of each fund are segregated on the books of account, and are to be charged with the liabilities with respect to such fund and with a share of the general expenses of the Trust. Expenses with respect to the Trust are to be allocated in proportion to the asset value of the respective funds, except where allocations of direct expense can otherwise be fairly made. The officers of the Trust, subject to the general supervision of the Board of Trustees, have the power to determine which expenses are allocable to a given fund, or which are general or allocable to all of the funds. In the event of the dissolution or liquidation of the Trust, shareholders of each fund are entitled to receive as a class the underlying assets of such fund available for distribution. SHAREHOLDER AND TRUSTEE LIABILITY. The Trust is an entity of the type commonly known as "Massachusetts business Trust." Under Massachusetts law, shareholders of such a Trust may, under certain circumstances, be held personally liable for the obligations of the Trust. The Declaration of Trust provides that the Trust shall not have any claim against shareholders except for the payment of the purchase price of shares and requires that each agreement, obligation, or instrument entered into or executed by the Trust or the Trustees shall include a provision limiting the obligations created thereby to the Trust and its assets. The Declaration of Trust provides for indemnification out of each fund's property of any shareholders held personally liable for the obligations of the fund. The Declaration of Trust also provides that each fund shall, upon request, assume the defense of any claim made against any shareholder for any act or obligation of the fund and satisfy any judgment thereon. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the fund itself would be unable to meet its obligations. FMR believes that, in view of the above, the risk of personal liability to shareholders is remote. The Declaration of Trust further provides that the Trustees, if they have exercised reasonable care, will not be liable for any neglect or wrongdoing, but nothing in the Declaration of Trust protects Trustees against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. VOTING RIGHTS. Each fund's capital consists of shares of beneficial interest. The shares have no preemptive or conversion rights; the voting and dividend rights, the right of redemption, and the privilege of exchange are described in the Prospectus. Shares are fully paid and nonassessable, except as set forth under the heading "Shareholder and Trustee Liability" above. Shareholders representing 10% or more of the Trust or a fund may, as set forth in the Declaration of Trust, call meetings of the Trust or a fund for any purpose related to the Trust or fund, as the case may be, including, in the case of a meeting of the entire Trust, the purpose of voting on removal of one or more Trustees. The Trust or any fund may be terminated upon the sale of its assets to another open-end management investment company, or upon liquidation and distribution of its assets, if approved by vote of the holders of a majority of the Trust or the fund. If not so terminated, the Trust and the funds will continue indefinitely. CUSTODIAN. Morgan Guaranty Trust Company, 60 Wall Street, New York, NY is custodian of Money Market Portfolio's assets; The Bank of New York, 110 Washington Street, New York NY, is custodian of High Income Portfolio's assets; The Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New York, NY 10036, is custodian of Equity-Income Portfolio's assets; and Brown Brothers Harriman & Co., 40 Water Street, Boston, MA, is custodian of Growth and Overseas Portfolios' assets. The custodians take no part in determining the investment policies of the funds or in deciding which securities are purchased or sold by the funds. The funds, however, may invest in obligations of the custodians and may purchase or sell securities from or to the custodians. Investors should understand that the expense ratio for the Overseas Portfolio may be higher than that of investment companies which invest exclusively in domestic securities since the cost of maintaining the custody of foreign securities is higher. FMR, its officers and directors and its affiliated companies from time to time have transactions with various banks, including the custodian banks for certain of the funds advised by FMR. The Boston branch of Brown Brothers Harriman & Co. leases its office space from an affiliate of FMR at a lease payment which, when entered into, was consistent with prevailing market rates. Other transactions that have occurred to date include mortgages and personal and general business loans. In the judgment of FMR, the terms and conditions of those transactions were not influenced by existing or potential custodial or other fund relationships. AUDITOR. Coopers & Lybrand, One Post Office Square, Boston, MA, serves as the Fund's independent accountant, providing services including (1) audit of annual financial statements, (2) assistance and consultation in connection with SEC filings and (3) review of the annual federal income tax return filed on behalf of the fund. FINANCIAL STATEMENTS The Annual Report to shareholders for the Trust's 1993 fiscal year is a separate report and is incorporated herein by reference and is supplied with this Statement of Additional Information. APPENDIX The DOLLAR-WEIGHTED AVERAGE MATURITY of a fund's fixed-income holdings is derived by multiplying the value of each fixed-income investment held by a fund by the number of days remaining to its maturity, adding these calculations, and then dividing the total by the value the fund's fixed-income holdings. An obligation's maturity is typically determined on a stated final maturity basis, although there are some exceptions to this rule. For example, if it is probable that the issuer of an instrument will take advantage of a maturity-shortening device, such as a call, refunding, or redemption provision, the date on which the instrument will probably be called, refunded, or redeemed may be considered to be its maturity date. Also, the maturities of mortgage-backed securities and some asset-backed securities. such as collateralized mortgage obligations, are determined on a weighted average life basis, which is the average time for principal to be repaid. For a mortgage security, this average time is calculated by assuming a constant prepayment rate for the life of the mortgage. The weighted average life of these securities is likely to be substantially shorter than their stated final maturity. DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S COMMERCIAL PAPER RATINGS: PRIME-1 (or related institutions) have a superior capacity for repayment of short-term promissory obligations. Prime-1 repayment capacity will normally be evidenced by the following characteristics: - - Leading market positions in well established industries. - - High rates of return on funds employed. - - Conservative capitalization structures with moderate reliance on debt and ample asset protection. - - Broad margins in earnings coverage of fixed financial charges with high internal cash generation. - - Well established access to a range of financial markets and assured sources of alternate liquidity. PRIME-2 (or related supporting institution) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. DESCRIPTION OF STANDARD & POOR'S CORPORATION'S COMMERCIAL PAPER RATINGS: A-1--This designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics will be denoted with a plus (+) sign designation. A-2--Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as high as for issues designated A-1. DESCRIPTION OF FITCH INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS: FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as having the strongest degree of assurance for timely payment. FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than the strongest issues. DESCRIPTION OF FITCH INVESTORS SERVICE, INC. CORPORATE BOND RATINGS: AAA--rated bonds are considered to be investment grade and of the highest quality. The obligor has an extraordinary ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. AA--rated bonds are considered to be investment grade and of high quality. The obligor's ability to pay interest and repay principal, while very strong, is somewhat less than for AAA rated securities or more subject to possible change over the term of the issue. DESCRIPTION OF DUFF & PHELPS INC. COMMERCIAL PAPER RATINGS: DUFF 1--Very high certainty of timely payment. Liquidity factors are excellent and supported by strong fundamental protection factors. Risk factors are minor. DUFF 2--Good certainty of timely payment. Liquidity factors and company fundamentals are sound. Although ongoing internal funds needs may enlarge total financing requirements, access to capital markets is good. Risk factors are small. DESCRIPTION OF DUFF & PHELPS INC. CORPORATE BOND RATINGS: DUFF 1--Highest credit quality. The risk factors are negligible, being only slightly more than for risk-free U.S. Treasury debt. DUFF 2,3,4--High credit quality. Protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. VARIABLE INSURANCE PRODUCTS FUND and VARIABLE INSURANCE PRODUCTS FUND II CROSS REFERENCE SHEET Form N-1A Item Number Part A Prospectus Caption 1 a,b Cover Page 2 a,b,c * 3 a,b A Look At The Trusts' Financial History c Performance 4 a(i) The Trusts and the Fidelity Organization a(ii) How The Trusts Work; Matching the Portfolios to Your Investment Needs; Limiting Investment Risks b,c Limiting Investment Risks; Matching the Portfolios to Your Investment Needs 5 a,b(i) The Trusts and the Fidelity Organization b(ii)(iii),c Management, Distribution and Service Fees d Management, Distribution and Service Fees e A Look At The Trusts' Financial History; Management, Distribution and Service Fees f Portfolio Transactions 6 a(i) The Trusts and the Fidelity Organization a(ii) Redemptions a(iii) * b The Trusts and the Fidelity Organization c,d * e Cover Page, Shareholder's Manual f,g Distributions and Taxes 7 a The Trusts and the Fidelity Organization b(i),(ii) Financial Highlights; Share Price; Investments b(iii,iv,v) * c,d,e * f Management, Distribution and Service Fees 8 a Redemptions b,c * d Redemptions 9 * _______________ * Not Applicable Part B Statement of Information Caption 10,11 Cover Page 12 Description of The Trusts 13 a,b,c Investment Policies and Limitations d Portfolio Transactions 14 a,b Trustees and Officers c * 15 a * b,c Trustees and Officers 16 a(i) FMR a(ii) Trustees and Officers a(iii),b Management Contracts c * d Contracts with Companies Affiliated with FMR e * f Distribution and Service Plans g * h Description of the Trusts i Contracts with Companies Affiliated with FMR; Description of the Trusts 17 a,b,c,d Portfolio Transactions e * 18 a Description of the Trusts b * 19 a Additional Purchase and Redemption Information b Valuation of Portfolio Securities; Additional Purchase and Redemption Information c * 20 Taxes 21 a(i),(ii) Contracts with Companies Affiliated with FMR a(iii),b,c * 22 Performance 23 Financial Statements for the Annual period are incorporated by reference into the Statement of Additional Information. _________ * Not Applicable crossreference VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE 82 Devonshire Street PRODUCTS FUND II: Boston, Massachusetts PROSPECTUS (bullet) HOW THE TRUSTS WORK page APRIL 30, 1994 (bullet) SHAREHOLDER'S MANUAL page Variable Insurance Products Fund and Variable Insurance Products Fund II (the Trusts) are designed to provide investment vehicles for variable annuity and variable life insurance contracts of various insurance companies. The Trusts currently offer these funds: MONEY MARKET PORTFOLIO seeks to obtain as high a level of current income as is consistent with preserving capital and providing liquidity. The fund will invest only in high quality U.S. dollar denominated money market securities of domestic and foreign issuers. AN INVESTMENT IN MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL MAINTAIN A STABLE $1.00 SHARE PRICE. HIGH INCOME PORTFOLIO seeks to obtain a high level of current income by investing primarily in high-yielding, lower-rated, fixed-income securities, while also considering growth of capital. High yielding, lower-rated debt securities present higher risks of untimely interest and principal payments, default, and price volatility than higher-rated securities, and may present problems of liquidity and valuation. EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily in income-producing equity securities. In choosing these securities, the fund will also consider the potential for capital appreciation. The fund's goal is to achieve a yield which exceeds the composite yield on the securities comprising the Standard & Poor's 500 Composite Stock Price Index. GROWTH PORTFOLIO seeks to achieve capital appreciation. The fund normally purchases common stocks, although its investments are not restricted to any one type of security. Capital appreciation may also be found in other types of securities, including bonds and preferred stocks. OVERSEAS PORTFOLIO seeks long term growth of capital primarily through investments in foreign securities. Overseas Portfolio provides a means for investors to diversify their own portfolios by participating in companies and economies outside of the United States. INVESTMENT GRADE BOND PORTFOLIO seeks as high a level of current income as is consistent with the preservation of capital by investing in a broad range of investment-grade fixed-income securities. The fund will maintain a dollar-weighted average portfolio maturity of ten years or less. ASSET MANAGER PORTFOLIO seeks high total return with reduced risk over the long-term by allocating its assets among domestic and foreign stocks, bonds and short-term fixed-income instruments. INDEX 500 PORTFOLIO seeks to provide investment results that correspond to the total return (i.e., the combination of capital changes and income) of common stocks publicly traded in the United States. In seeking this objective, the fund attempts to duplicate the composition and total return of the Standard & Poor's 500 Composite Stock Price Index while keeping transaction costs and other expenses low. The fund is designed as a long-term investment option. Please read this Prospectus before investing. It is designed to provide you with information and to help you decide if the goal of one or more of the funds matches your own. Retain this document for future reference. Shares of each fund may only be purchased by the separate accounts of insurance companies, for the purpose of funding variable annuity and variable life insurance contracts. Particular funds may not be available in your state due to various insurance regulations. Please check with your insurance company for available funds. Inclusion of a fund in this Prospectus which is not available in your state is not to be considered a solicitation. This Prospectus should be read in conjunction with the prospectus of the separate account of the specific insurance product which accompanies this Prospectus. A Statement of Additional Information (dated April 30, 1994) for each Trust has been filed with the Securities and Exchange Commission and is incorporated herein by reference. These free Statements are available upon request from your insurance company. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. TABLE OF CONTENTS A Look at the Funds' Management, Distribution and Financial History Service Fees Investment Objectives and Policies Opening an Account Performance Investments Distributions and Taxes Redemptions The Trusts and the Fidelity Appendix Organization A LOOK AT THE FUND S' FINANCIAL HISTORY 3 FINANCIAL HIGHLIGHTS. The following tables give you information about each fund's financial history and use each Trust 's fiscal year (which ends December 31). MONEY MARKET PORTFOLIO
Year Ended December 31, Year ended November 30,
1993 1992 1991 1990 1989 1988 1987 1986 1985(dagger) 1984(dagger) SELECTED PER-SHARE DATA Net asset value, beginning of $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 period Income from Investment . 032 .038 .059 .078 .087 .071 .063 .065 .078 .100 Operations Net interest income Dividends from net interest (. 032 ) (.038) (.059) (.078) (.087) (.071) (.063) (.065) (.078) (.100) income Net asset value, end of $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 period TOTAL RETURN 3.23% 3.90% 6.09% 8.04% 9.12% 7.39 6.44 6.70 8.11 10.46 % % % % % RATIOS AND SUPPLEMENTAL DATA Net assets, end of period $ 353,104 $ 301,002 $ 271,123 $ 254,585 $ 142,970 $ 105,650 $ 87,778 $ 65,250 $ 81,899 $ 84,495 (000 omitted) Ratio of expenses to .22%(dagger)(dagger).24% .38% .56% .67% .60 .54 .50 .56 .66 average net assets % % % % % Ratio of net interest income 3.16% 3.85% 5.93% 7.76% 8.70% 7.16 6.38 6.52 7.81 9.97 to average net assets % % % % %
(dagger) DURING 1985, THE FUND CHANGED ITS FISCAL YEAR-END FROM NOVEMBER 30 TO DECEMBER 31. NET INTEREST INCOME AND DIVIDENDS FROM NET INTEREST INCOME FOR THE PERIOD DECEMBER 1, 1984 TO DECEMBER 31, 1984 WERE $.008 AND $.008, RESPECTIVELY. THE RESULTS FOR THIS ONE MONTH PERIOD ARE NOT REFLECTED IN THE ABOVE FINANCIAL HIGHLIGHTS. (dagger)(dagger) ALL EXPENSES INCURRED IN CONNECTION WITH A SPECIAL MEETING OF SHAREHOLDERS WERE REIMBURSED BY FMR. IF NO REIMBURSEMENT HAD BEEN MADE, TOTAL EXPENSE WOULD HAVE BEEN .23%.
HIGH INCOME PORTFOLIO Year Ended December 31, September 19, 1985 (commencement of operations) to SELECTED PER-SHARE DATA 1993 1992 1991 1990 1989 1988 1987 1986 December 31, 1985 Net asset value, beginning of period $ 10.820 $ 9.550 $ 7.070 $ 8.110 $ 9.660 $ 9.680 $ 10.830 $ 10.310 $ 10.000 Income from Investment Operations .728 .790 .890 .858 1.202 1.110 1.155 1.227 .319 Net investment income Net realized and unrealized gain (loss) 1.332 1.290 1.590 (1.040) (1.550) (.020) (1.000) .520 .310 on investments Total from investment operations 2.060 2.080 2.480 (.182) (.348) 1.090 .155 1.747 .629 Less Distributions (.794) (.810) -- (.858) (1.202) (1.110) (1.155) (1.227) (.319) From net investment income In excess of net investment income (. 036 ) -- -- -- -- -- -- -- -- From net realized gain on investments (.060) -- -- -- -- -- (.150) -- -- Total distributions (.890) (.810) -- (.858) (1.202) (1.110) (1.305) (1.227) (.319) Net asset value, end of period $ 11.990 $ 10.820 $ 9.550 $ 7.070 $ 8.110 $ 9.660 $ 9.680 $ 10.830 $ 10.310 TOTAL RETURN (double dagger) # 20.40% 23.17% 35.08% (2.23)% (4.17)% 11.64% 1.22% 17.68% 6.38% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 463,931 $ 200,591 $ 70,060 $ 29,990 $ 33,747 $ 30,246 $ 19,303 $ 13,057 $ 1,971 Ratio of expenses to average net assets(dagger) .64%(diamond) .67% .97% 1.00% .93% .99% 1.02% 1.00% .78%*(dagger)(dagger) Ratio of expenses to average net assets .66%(diamond) .67% .97% 1.12% .93% .99% 1.29% 1.50% 1.50%* before expense reductions(dagger) Ratio of net investment income to average 8.69% 10.98% 12.94% 11.36% 12.94% 11.41% 11.19% 11.32% 12.10%* net assets Portfolio turnover rate 155% 160% 154% 156% 124% 139% 189% 78% 27%*
* ANNUALIZED (dagger) DURING THE PERIOD SEPTEMBER 19, 1985 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1985, FMR AGREED TO VOLUNTARILY WAIVE ADVISORY AND SERVICE FEES. IN ADDITION, FMR VOLUNTARILY AGREED TO REIMBURSE THE FUND TO THE EXTENT THAT THE AGGREGATE OPERATING EXPENSES WERE IN EXCESS OF AN ANNUAL RATE OF .78% OF AVERAGE NET ASSETS. EFFECTIVE JANUARY 1, 1986, FMR VOLUNTARILY AGREED TO REIMBURSE THE FUND'S OPERATING EXPENSES (EXCLUDING INTEREST, TAXES, BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) ABOVE AN ANNUAL RATE OF 1.00% OF AVERAGE NET ASSETS. (diamond) DURING 1993, FMR REIMBURSED THE FUND FOR ALL EXPENSES IN CONNECTION WITH A SPECIAL MEETING OF SHAREHOLDERS, INCLUDING THE PREPARATION OF THE PROXY STATEMENT. (dagger)(dagger) INCLUDES $.014492 PER SHARE OF MANAGEMENT FEES WAIVED DURING 1985. (double dagger) THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. # TOTAL RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED.
EQUITY - INCOME PORTFOLIO Year Ended December 31, October 9, 1986 (commencement of operations) to 1993 1992 1991 1990 1989 1988 1987 December 31, 1986 SELECTED PER-SHARE DATA Net asset value, beginning of period $ 13.40 $ 11.85 $ 9.51 $ 12.29 $ 11.01 $ 9.42 $ 10.02 $ 10.00 Income from Investment Operations Net investment income .37 .40 .50 .58 .60 .53 .45 .06 Net realized and unrealized gain (loss) 2.06 1.57 2.43 (2.38) 1.29 1.59 (.51) (.04) on investments Total from investment operations 2.43 1.97 2.93 (1.80) 1.89 2.12 (.06) .02 Less Distributions From net investment income (.35) (.42) (.59) (.59) (.52) (.53) (.40) -- In excess of net investment income (.04) -- -- -- -- -- -- -- From net realized gain - -- -- -- (.39) (.09) -- (.14) -- Total distributions (.39) (.42) (.59) (.98) (.61) (.53) (.54) -- Net asset value, end of period $ 15.44 $ 13.40 $ 11.85 $ 9.51 $ 12.29 $ 11.01 $ 9.42 $ 10.02 TOTAL RETURN (double dagger) # 18.29% 16.89% 31.44% (15.29) 17.34% 22.71% (1.13) .20% % % RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 1,318,500 $ 592,880 $ 282,171 $ 154,080 $ 142,572 $ 51,807 $ 26,438 $ 3,850 Ratio of expenses to average net assets (dagger) .62% .65% .74% .78% .85% 1.13% 1.33% 1.50%* Ratio of expenses to average net assets before .62% .65% .74% .78% .85% 1.13% 1.33% 4.83%* expense reductions (dagger) Ratio of net investment income to average net 2.87% 3.52% 4.83% 6.01% 5.82% 5.36% 4.78% 5.23%* assets Portfolio turnover rate 120% 74% 107% 94% 78% 69% 133% 7%*
* ANNUALIZED (dagger) EFFECTIVE OCTOBER 9, 1986, FMR VOLUNTARILY AGREED TO REIMBURSE THE FUND'S OPERATING EXPENSES (EXCLUDING INTEREST, TAXES, BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) ABOVE AN ANNUAL RATE OF 1.50 % OF AVERAGE NET ASSETS. (double dagger) THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. # TOTAL RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED.
GROWTH PORTFOLIO Year Ended December 31, October 9, 1986 (commencement of operations) to 1993 1992 1991 1990 1989 1988 1987 December 31, 1986 SELECTED PER-SHARE DATA Net asset value, beginning of period $ 19.76 $ 18.51 $ 12.91 $ 15.18 $ 11.72 $ 10.14 $ 10.03 $ 10.00 Income from Investment Operations Net investment income .12 .09 .09(diamond) .24 .24 .19 .10 .04 Net realized and unrealized gain (loss) 3.64 1.64 5.72 (1.98) 3.41 1.39 .27 (.01) on investments Total from investment operations 3.76 1.73 5.81 (1.74) 3.65 1.58 .37 .03 Less Distributions From net investment income (.11) (.05) (.21) (.21) (.19) -- (.11) -- From net realized gain (.21) (.43) -- (.32) -- -- (.15) -- In excess of net realized gain (.12) -- -- -- -- -- -- -- Total distributions (.44) (.48) (.21) (.53) (.19) -- (.26) -- Net asset value, end of period $ 23.08 $ 19.76 $ 18.51 $ 12.91 $ 15.18 $ 11.72 $ 10.14 $ 10.03 TOTAL RETURN (double dagger) # 19.37 9.32 45.51 (11.73)% 31.51 15.58 3.66 .30% % % % % % % RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 1,383,849 $ 749,837 $ 371,462 $ 135,487 $ 77,261 $ 28,520 $ 18,636 $ 1,965 Ratio of expenses to average net assets (dagger) .71 .75 .84 .88% 1.02 1.24 1.50 1.50%* % % % % % % Ratio of expenses to average net assets before .71 .75 .84 .88% 1.02 1.24 1.68 5.57%* expense reductions (dagger) % % % % % % Ratio of net investment income to average net .72 .83 .56 2.69% 2.83 1.91 1.78 3.27%* assets % % % % % % Portfolio turnover rate 159 262 261 88% 111 155 37 --% % % % % % %
* ANNUALIZED (dagger) EFFECTIVE OCTOBER 9, 1986, FMR VOLUNTARILY AGREED TO REIMBURSE THE FUND'S OPERATING EXPENSES (EXCLUDING INTEREST, TAXES, BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) ABOVE AN ANNUAL RATE OF 1.50% OF AVERAGE NET ASSETS. (diamond) NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. (double dagger) THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. # TOTAL RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED.
OVERSEAS PORTFOLIO Year Ended December 31, January 28, 1987 (commencement of operations) to 1993 1992 1991 1990 1989 1988 December 31, 1987 SELECTED PER-SHARE DATA Net asset value, beginning of period $ 11.53 $ 13.09 $ 12.42 $ 12.67 $ 10.11 $ 9.35 $ 10.00 Income from Investment Operations Net investment income .06 .16 .24 .18 .07 .09 .05 Net realized and unrealized gain (loss) on 4.16 (1.54) .74 (.39) 2.57 .67 (.59) investments Total from investment operations 4.22 (1.38) .98 (.21) 2.64 .76 (.54) Less Distributions From net investment income (.18) (.18) (.17) (.04) (.08) -- (.11) In excess of net investment income (.04) -- -- -- -- -- -- From net realized gain -- -- (.14)(diamond) -- -- -- -- In excess of net realized gain (.05) -- -- -- -- -- -- Total distributions (.27) (.18) (.31) (.04) (.08) -- (.11) Net asset value, end of period $ 15.48 $ 11.53 $ 13.09 $ 12.42 $ 12.67 $ 10.11 $ 9.35 TOTAL RETURN (double dagger) # 37.35% (10.72)% 8.00% (1.67)% 26.28% 8.13% (5.38)% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 777,961 $ 180,837 $ 126,490 $ 80,554 $ 25,865 $ 9,328 $ 6,568 Ratio of expenses to average net assets(dagger) 1.03% 1.14% 1.26% 1.41% 1.50% 1.50% 1.50%* Ratio of expenses to average net assets before 1.03% 1.14% 1.26% 1.41% 1.98% 3.17% 3.94%* expense reductions(dagger) Ratio of net investment income to average net assets 1.21% 1.86% 2.33% 1.89% .66% .84% .78%* Portfolio turnover rate 42% 61% 168% 100% 78% 95% 181%*
* ANNUALIZED (dagger) EFFECTIVE JANUARY 28, 1987, FMR VOLUNTARILY AGREED TO REIMBURSE THE FUND'S OPERATING EXPENSES (EXCLUDING INTEREST, TAXES, BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) ABOVE AN ANNUAL RATE OF 1.50% OF AVERAGE NET ASSETS. (diamond) INCLUDES AMOUNTS DISTRIBUTED FROM NET REALIZED GAINS ON FOREIGN CURRENCY RELATED TRANSACTIONS TAXABLE AS ORDINARY INCOME. (double dagger) THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. # TOTAL RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED. INVESTMENT GRADE BOND PORTFOLIO Year Ended December 31, December 5, 1988 (commenceme nt of operations) to December 31,
1993 1992 1991 1990 1989 1988 SELECTED PER-SHARE DATA Net asset value, $ 10.970 $ 11.080 $ 9.920 $ 10.140 $ 10.000 $ 10.000 beginning of period Income from Investment .641 .672 .455 .826 .827 .052 Operations Net investment income Net realized and .559 .058(dagger) 1.165 (.220) .160 -- unrealized gain (loss) on investments Total from investment 1.200 .730 1.620 .606 .987 .052 operations Less Distributions (.628) (.680) (.460) (.826) (.827) (.052) From net investment income In excess of net (.002) -- -- -- -- -- investment income From net realized gain (.050) (.160) -- -- (.020) -- on investments In excess of net (.010) -- -- -- -- -- realized gain Total distributions (.690) (.840) (.460) (.826) (.847) (.052) Net asset value, end of $ 11.480 $ 10.970 $ 11.080 $ 9.920 $ 10.140 $ 10.000 period TOTAL RETURN 10.96% 6.65% 16.38%* 6.21%* 10.26%* .52%* RATIOS AND SUPPLEMENTAL DATA Net assets, end of period $ 122,376 $ 73,598 $ 44,835 $ 14,348 $ 6,053 $ 2,619 (000 omitted) Ratio of expenses to .68% .76% .80% .80% .80% .80%** average net assets# Ratio of expenses to .68% .76% 1.16% 2.20% 3.53% 5.71%** average net assets before expense reductions# Ratio of net investment 6.85% 7.11% 7.73% 8.26% 8.19% 6.99%** income to average net assets Portfolio turnover rate 70% 119% 128% 122% 67% --
* THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. ** ANNUALIZED (dagger) THE AMOUNT SHOWN FOR THE FISCAL YEAR ENDED DECEMBER 31, 1992 FOR A SHARE OUTSTANDING THROUGHOUT THAT YEAR DOES NOT ACCORD WITH THE AGGREGATE NET LOSSES ON INVESTMENTS FOR THAT YEAR BECAUSE OF THE TIMING OF SALES AND PURCHASES OF THE FUND SHARES IN RELATION TO FLUCTUATING MARKET VALUES OF THE INVESTMENTS OF THE FUND. # EFFECTIVE DECEMBER 5, 1988 (COMMENCEMENT OF OPERATIONS), THE FUND'S INVESTMENT ADVISOR VOLUNTARILY AGREED TO LIMIT EXPENSES TO .80% OF AVERAGE NET ASSETS. ASSET MANAGER PORTFOLIO
Year Ended December 31, September 6, 1989 (commenceme nt of operations) to December 31, 1993 1992 1991 1990 1989 SELECTED PER-SHARE DATA Net asset value, beginning of $ 13.32 $ 12.55 $ 10.24 $ 9.97 $ 10.00 period Income from Investment Operations Net investment income .33 .32 .35 .41 .09 Net realized and unrealized 2.39 1.09 1.96 .26 (.01) gain (loss) on investments Total from investment 2.72 1.41 2.31 .67 .08 operations Less Distributions From net investment income (.33) (.31) -- (.40) (.09) In excess of net investment (.04) -- -- -- -- income From net realized gain (.25) (.33) -- -- (.02) Total distributions (.62) (.64) -- (.40) (.11) Net asset value, end of period $ 15.42 $ 13.32 $ 12.55 $ 10.24 $ 9.97 TOTAL RETURN(dagger) 21.23% 11.71% 22.56% 6.72%(double dagger) .81% (double dagger) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 $ 2,422,692 $ 731,724 $ 193,518 $ 35,858 $ 7,271 omitted) Ratio of expenses to average net .88% .91% 1.08% 1.25% 2.50%* assets# Ratio of expenses to average net .88% .91% 1.08% 1.54% 4.39%* assets before expense reductions# Ratio of net investment income 3.64% 4.89% 5.89% 5.92% 4.77%* to average net assets Portfolio turnover rate 113% 92% 110% 117% 158%*
* ANNUALIZED (dagger) TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. (double dagger) THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. # EFFECTIVE JANUARY 1, 1990, THE FUND'S INVESTMENT ADVISOR VOLUNTARILY AGREED TO LIMIT EXPENSES TO 1.25% OF AVERAGE NET ASSETS. FOR THE PERIOD SEPTEMBER 6, 1989 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1989, EXPENSES WERE VOLUNTARILY LIMITED BY THE INVESTMENT ADVISOR TO 2.50% OF AVERAGE NET ASSETS. INDEX 500 PORTFOLIO
Year Ended August 27, December 31, 1992 (commenceme nt of operations) to December 31, 1993 1992 SELECTED PER-SHARE DATA Net asset value, beginning of period $ 52.60 $ 50.00 Income from Investment Operations Net investment income 1.31 .44 Net realized and unrealized gain (loss) on investments 3.80 2.71 Total from investment operations 5.11 3.15 Less Distributions From net investment income (1.28) (.47) From net realized gain (.60) (.08) In excess of net realized gain (.09) -- Total distributions (1.97) (.55) Net asset value, end of period $ 55.74 $ 52.60 TOTAL RETURN(dagger)(double dagger) 9.74% 6.31% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 25,153 $ 17,961 Ratio of expenses to average net assets# .28% .28%* Ratio of expenses to average net assets before expense .95% 1.77%* reductions# Ratio of net investment income to average net assets 2.65% 2.89%* Portfolio turnover rate 9% --
* ANNUALIZED (dagger) TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. (double dagger) THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. # EFFECTIVE AUGUST 27, 1992 (COMMENCEMENT OF OPERATIONS) THE FUND'S INVESTMENT ADVISER VOLUNTARILY AGREED TO LIMIT EXPENSES TO .28% OF AVERAGE NET ASSETS. Financial information for funds of Variable Insurance Products Fund has been audited by Coopers & Lybrand and financial information for funds of Variable Insurance Products Fund II has been audited by Price Waterhouse, each independent accountants. Their unqualified reports are included in each Trust's Annual Report which is incorporated by reference into the Statement of Additional Information. At least twice a year, financial statements with a summary of each fund's composition and performance will be distributed to each Trust's participating insurance companies, which in turn will send the financial statements to you. HOW THE TRUSTS WORK INVESTMENT OBJECTIVES AND POLICIES Each Trust is an open-end, diversified management investment company offering insurance companies a selection of investment vehicles for variable annuity and variable life insurance contracts. Each Trust offers a variety of funds with different investment objectives which are described below. Fidelity Management & Research Company (FMR) manages the investments of each fund. For a discussion of the management fees paid to FMR by each fund, please see MANAGEMENT, DISTRIBUTION AND SERVICE FEES beginning on page . Various levels of risk are involved with each fund. Investments in money market instruments are subject to the ability of the issuer to make payment at maturity. Investments in high-yielding bonds normally involve lower-rated securities which have a greater risk of default and have prices which fluctuate more than those of higher-rated securities. With any equity investment, in addition to the usual uncertainties involved, an investor should be aware that each of the equity funds has risks particular to it. Please refer to MATCHING THE FUNDS TO YOUR INVESTMENT NEEDS beginning on page for a discussion of these risks. Each of the funds abides by various insurance regulations. Please read your INSURANCE COMPANY'S SEPARATE ACCOUNT PROSPECTUS AND CONTRACT for discussions relating to insurance regulations and instructions on how to invest in and redeem from each fund. A general discussion may be found on page . Each fund's investment objective is fundamental and can be changed only by vote of a majority of the outstanding shares of the respective fund. There is no assurance that each fund will achieve its investment objective. MONEY MARKET PORTFOLIO seeks to obtain as high a level of current income as is consistent with preserving capital and providing liquidity. FMR will invest the fund's assets in the following types of high-quality, U.S. dollar-denominated money market securities of domestic and foreign issuers: (bullet) obligations of financial institutions, such as banks, savings and loan institutions, insurance companies and mortgage bankers. These obligations include certificates of deposit, bankers' acceptances and time deposits. (bullet) obligations of governments and their agencies or instrumentalities. (bullet) short-term obligations, including high-quality debt obligations such as commercial paper, notes and bonds with remaining maturities of 397 days or less. (bullet) other short-term debt obligations with remaining maturities of 397 days or less. Many of the fund's investments are described in the APPENDIX. The fund may invest in obligations of U.S. banks, foreign branches of U.S. banks (Eurodollars), U.S. branches and agencies of foreign banks (Yankee dollars), and foreign branches of foreign banks. Euro and Yankee dollar investments involve risks that are different from investments in securities of U.S. banks. These risks may include future unfavorable political and economic developments, possible withholding of taxes, seizure of foreign deposits, currency controls, interest limitations or other governmental restrictions which might affect payment of principal or interest. Additionally, there may be less public information available about foreign banks and their branches. Foreign branches of foreign banks are not regulated by U.S. banking authorities, and generally are not bound by accounting, auditing and financial reporting standards comparable to U.S. banks. Although FMR carefully considers these factors when making investments, the fund does not limit the amount of its assets which can be invested in any one type of instrument or in any foreign country. QUALITY. Pursuant to procedures adopted by the Board of Trustees, Money Market Portfolio may purchase only high quality securities that FMR believes present minimal credit risks. To be considered high quality, a security must be a U.S. government security; rated in accordance with applicable rules in one of the two highest categories for short-term securities by at least two nationally recognized rating services (or by one, if only one rating service has rated the security); or, if unrated, judged to be of equivalent quality by FMR. High quality securities are divided into "first tier" and "second tier" securities. FIRST TIER SECURITIES have received the highest rating (e.g., Standard & Poor's A-1 rating) from at least two rating services (or one, if only one has rated the security). SECOND TIER SECURITIES have received ratings within the two highest categories (e.g., Standard & Poor's A-1 or A-2) from at least two rating services (or one, if only one has rated the security), but do not qualify as first tier securities. If a security has been assigned different ratings by different rating services, at least two rating services must have assigned the higher rating in order for FMR to determine eligibility on the basis of that higher rating. Based on procedures adopted by the Board of Trustees, FMR may determine that an unrated security is of equivalent quality to a rated first or second tier security. DIVERSIFICATION. The fund may not invest more than 5% of its total assets in second tier securities. In addition, the fund may not invest more than 1% of its total assets or $1 million (whichever is greater) in the second tier securities of a single issuer. MATURITY POLICIES. The fund must limit its investments to securities with remaining maturities of 397 days or less and must maintain a dollar-weighted average maturity of 90 days or less. HIGH INCOME PORTFOLIO seeks to obtain a high level of current income by investing primarily in high-yielding, lower-rated, fixed-income securities, while also considering growth of capital. FMR will seek high current income normally by investing the fund's total assets as follows: (bullet) at least 65% in income-producing debt securities and preferred stocks of all types, including convertible securities, zero coupon securities, and mortgage-backed and asset-backed securities; (bullet) up to 20% in common stocks and other equity securities when consistent with the fund's primary objective or when acquired as part of a unit combining fixed-income and equity securities. The fund may invest up to 15% of its assets in securities for which there is no readily available market. These illiquid securities may include privately placed restricted securities for which no institutional market exists. The absence of a trading market can make it difficult to ascertain a market value for illiquid securities. Disposing of illiquid securities may involve time-consuming negotiation and legal expenses, and it may be difficult or impossible for the fund to sell them promptly at an acceptable price. SEE THE APPENDIX FOR MORE INFORMATION. The fund may also invest a portion of its assets in debt securities that are not paying current income in anticipation of possible future income from the securities. The purchase of defaulted bonds and their future benefit to the fund depend upon FMR's ability to predict future prospects of an issuer. Higher yields are usually available on securities that have a longer-term maturity and are lower-rated or are unrated. Lower-rated securities (sometimes referred to as "junk bonds") are usually defined as those rated Ba or lower by Moody's Investors Service, Inc. (Moody's) or BB or lower by Standard & Poor's Corporation (S&P) and may be deemed to be of a speculative nature. Lower-rated securities involve greater risk of default or price changes than securities assigned a higher quality rating. Unrated securities are not necessarily of lower quality than rated securities but they may not be attractive to as many buyers. FOR A FURTHER DISCUSSION OF LOWER-RATED SECURITIES, PLEASE SEE THE "RISKS OF LOWER-RATED DEBT SECURITIES" SECTION ON PAGE . In considering investments for the fund, FMR will look for high-yielding securities of companies whose financial condition is adequate to meet future obligations or has improved or is expected to improve in the future. Among other things, yield is a function of the relative financial strength of the issuing company and of debt maturity schedules. In evaluating these factors, FMR will not rely solely on ratings assigned by Moody's and S&P but will do its own credit analysis. This is because (1) Moody's and S&P assign ratings based largely on historical financial information and the ratings may not accurately reflect the current financial outlook of companies and (2) there can be large differences between the current financial conditions of issuers within the same rating category. The prices of high-yielding, lower-rated, fixed-income securities may decline significantly in periods of general economic difficulty or rising interest rates. The fund will try to recognize these periods and then may adopt a defensive approach (i.e., temporarily invest up to 100% of its assets in high quality debt securities and preferred stocks). OTHER INVESTMENT PRACTICES. The fund may invest in foreign securities. For information on the fund's foreign investments, see the section entitled "International Investments: Special Considerations" on page . Refer to the Appendix for information on other investments the fund may make, including options and futures contracts, put options and short sales, repurchase agreements and securities loans, interfund borrowing transactions, government securities, zero-coupon bonds and pay-in-kind securities, delayed-delivery transactions, asset-backed securities and indexed securities. The fund may also invest in warrants. EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily in income-producing equity securities. In choosing these securities FMR will also consider the potential for capital appreciation. The fund's goal is to achieve a yield which exceeds the composite yield on the securities comprising the Standard & Poor's 500 Composite Stock Price Index. FMR normally will invest at least 65% of the fund's total assets in income-producing common or preferred stock. The remainder of the fund's assets will tend to be invested in debt obligations, many of which are expected to be convertible into common stock (if convertible securities present favorable investment opportunities). FMR expects to invest, as is consistent with the fund's objective, in securities of varying quality but does not intend to invest in securities of companies without proven earnings or credit. In addition, the fund may invest in high-yielding, lower-rated debt securities (sometimes referred to as "junk bonds") which are subject to greater risk than investments in higher quality securities and the fund may invest in foreign securities. FOR A FURTHER DISCUSSION OF LOWER-RATED SECURITIES AND FOREIGN INVESTING, PLEASE SEE THE "RISKS OF LOWER-RATED DEBT SECURITIES" SECTION AND "INTERNATIONAL INVESTMENTS: SPECIAL CONSIDERATIONS" ON PAGES AND , RESPECTIVELY. OTHER INVESTMENT PRACTICES. See the Appendix for more information on other investment practices including repurchase agreements and securities loans, illiquid investments, restricted securities, loans and other direct debt instruments, options and futures contracts, short sales, swap agreements, indexed securities, asset-backed securities and interfund borrowing transactions. The fund may also invest in warrants and mortgage-backed securities. GROWTH PORTFOLIO seeks to achieve capital appreciation. FMR normally will purchase common stocks for the fund, although its investments are not restricted to any one type of security. Capital appreciation may also be found in other types of securities, including bonds and preferred stocks. The emphasis on a particular security will depend on FMR's interpretation of underlying economic, financial, and security trends. The fund does not place any emphasis on dividend income from its investments except when FMR believes this income will have a favorable influence on the market value of the security. In addition, the fund may invest in high-yielding, lower-rated debt securities which are subject to greater risk than investments in higher quality securities and the fund may invest in foreign securities. FOR A FURTHER DISCUSSION OF LOWER-RATED SECURITIES AND FOREIGN INVESTING, PLEASE SEE THE "RISKS OF LOWER-RATED DEBT SECURITIES" SECTION AND "INTERNATIONAL INVESTMENTS: SPECIAL CONSIDERATIONS" ON PAGES AND , RESPECTIVELY. OTHER INVESTMENT PRACTICES. Refer to the Appendix for more information on investments the fund may make, including options and futures contracts, short sales, swap agreements, indexed securities, interfund borrowing transactions, repurchase agreements and securities loans, warrants, restricted securities, and illiquid investments. OVERSEAS PORTFOLIO seeks long term growth of capital primarily through investments in foreign securities. The fund provides a means for investors to diversify their own portfolios by participating in companies and economies outside of the United States. Foreign securities are defined as securities of issuers whose principal activities are outside of the United States. In determining whether an issuer's principal activities and interests are outside the United States, FMR will look at such factors as the location of its assets, personnel, sales and earnings. Normally, at least 65% of the fund's total assets will be invested in securities of issuers from at least three different countries outside of North America. Although the fund may invest up to 35% in securities of issuers from Canada, Mexico and the United States, FMR currently does not expect to invest a significant part of this amount in securities of U.S. issuers. When allocating the fund's investments among geographic regions and individual countries, FMR considers various criteria, such as prospects for relative economic growth among countries, expected levels of inflation, government policies influencing business conditions, and the outlook for currency relationships. FMR expects to invest most of the fund's assets in securities of issuers located in developed countries in these general geographic areas: the Americas (other than the United States), the Far East and Pacific Basin, Scandinavia and Western Europe. FMR may invest the fund's assets in all types of securities, most of which are denominated in foreign currencies. FMR expects that opportunities for long term growth of capital will come primarily from common stock, securities such as warrants or rights that are convertible into common stock, preferred stock, and depositary receipts for those securities. The fund may also invest in high-yielding, lower-rated debt securities (sometimes referred to as "junk bonds") of any type if FMR believes that doing so may result in long term growth. FOR A FURTHER DISCUSSION OF LOWER-RATED SECURITIES, PLEASE SEE THE "RISKS OF LOWER-RATED DEBT SECURITIES" SECTION ON PAGE . The fund does not place any emphasis on dividends or interest income except when FMR believes this income will have a favorable influence on the market value of the security. The fund may invest in indexed securities whose value depends on the price of foreign currencies, commodities, securities indices, or other financial indicators. In the normal course of managing the fund, FMR may invest a portion of the fund's assets in U.S. and foreign government obligations and money market securities (including repurchase agreements) when the fund has monies not yet invested, it has sold one security and is waiting to buy another one, so that it will be prepared to meet redemption requests, or to earn a return on available cash balances. When market conditions warrant, FMR can make temporary defensive investments without limit in U.S. government obligations or investment-grade obligations of companies incorporated in and having principal business activities in the United States. OTHER INVESTMENT PRACTICES. Refer to the Appendix for further information on the fund's investments, including options and futures contracts, warrants, illiquid investments, restricted securities, swap agreements, indexed securities, loans and other direct debt instruments, repurchase agreements and securities loans, and interfund borrowing transactions. INVESTMENT GRADE BOND PORTFOLIO'S investment objective is to seek as high a level of current income as is consistent with the preservation of capital. Under normal conditions, FMR invests at least 65% of the fund's total assets in investment-grade fixed-income securities such as bonds, notes and debentures. The fund's dollar-weighted average portfolio maturity may not exceed ten years. The fund may purchase individual securities with maturities of more than ten years, as long as its average maturity remains within this limit. Fixed-income securities held by the fund may include bonds, notes, mortgage securities, domestic and foreign government and government agency obligations, zero coupon securities and convertible securities, and very short-term obligations such as bankers' acceptances, certificates of deposit, repurchase agreements and securities lending, prime commercial paper and other short-term corporate obligations. Refer to the APPENDIX on page for more information on these and other types of investments the fund may make including stripped mortgage-backed and asset-backed securities, foreign securities, options and futures contracts, delayed-delivery transactions, swap agreements, indexed securities, loans and other direct debt instruments, interfund borrowing transactions, illiquid investments, and restricted securities. To achieve the fund's goal of preserving capital, the fund will not purchase fixed-income securities unless they are investment-grade or better. Investment-grade securities are those rated Baa or better by Moody's Investors Service, Inc. (Moody's) or BBB or better by Standard & Poor's Corporation (S&P), or if unrated, judged by FMR to be of equivalent quality. Investment grade securities have adequate to strong protection of principal and interest payments according to the rating agencies. Bonds rated in the lower end of the investment grade category (bonds rated Baa/BBB) may possess speculative characteristics in credit quality and may be more sensitive to economic changes and changes in the financial condition of issuers. ASSET MANAGER PORTFOLIO'S investment objective is to seek to obtain high total return with reduced risk over the long-term by allocating its assets among domestic and foreign stocks, bonds and short-term fixed-income instruments. FMR will normally allocate the fund's assets among the three asset classes within the following investment parameters: 0-70% in short-term instruments; 20-60% in bonds (intermediate to long-term debt securities); and 10-60% in stocks (equities). The expected "neutral" mix will consist of 20% in short-term instruments, 40% in bonds and 40% in stocks. The "neutral" mix represents the expected allocation when FMR's projections of relative returns for the three asset classes are equivalent to what FMR would expect over the long-term. FMR does not anticipate altering the neutral mix although it may be revised from time to time. As of February 28, 1994, the fund's asset mix consisted of approximately 12 % short-term instruments, 44 % bonds and 44 % stocks. This example illustrates the fund's asset mix at one point in time and does not necessarily indicate its current or future allocation. FMR regularly reviews the fund's investment allocations, and will gradually vary them over time to favor asset classes that, in FMR's current judgment, provide the most favorable total return outlook. In making allocation decisions, FMR will evaluate projections of risk, market and economic conditions, volatility, yields and expected return. In addition, FMR seeks to reduce risk relative to an investment in common stocks by emphasizing the bond and short-term classes when stocks appear overvalued. FMR's management will include use of database systems to help analyze past situations and trends, research specialists in each of the asset classes to help in securities selection, portfolio management professionals to determine asset allocation and to select individual securities, and its own credit analysis as well as credit analysis provided by rating services. Because the fund seeks high total return over the long-term, it will not try to pinpoint the precise moment when major reallocations should be made. Rather, asset shifts among classes will be made gradually over time and, under normal conditions, a single reallocation decision will not involve more than 10% of the fund's total assets. The fund may make temporary investments without limit in cash and money market instruments for defensive purposes when, in FMR's judgment, market conditions warrant. To provide the fund with maximum flexibility within the three asset classes, FMR will purchase portfolio securities from among a wide range of investment instruments as described in the following paragraphs. FMR believes that diversification of the fund's investments among the asset classes listed below, as opposed to investment in any one class, will, under most market conditions, better enable the fund to reduce risk while seeking high total return over the long-term. SHORT-TERM CLASS. This class includes all types of domestic and foreign securities and money market instruments with remaining maturities of three years or less. FMR will seek to maximize total return within the short-term asset class by taking advantage of yield differentials between different instruments, issuers and currencies. Short-term instruments may include corporate debt securities such as commercial paper and notes; government securities issued by U.S. or foreign governments or their agencies or instrumentalities; bank deposits and other financial institution obligations; repurchase agreements involving any type of security; and other similar short-term instruments. These instruments may be denominated in U.S. dollars or foreign currency. BOND CLASS. The bond class includes all varieties of domestic and foreign fixed-income securities with maturities greater than three years. FMR seeks to maximize total returns within the bond class by adjusting the fund's investments in securities with different credit qualities, maturities, and coupon or dividend rates, as well as by exploiting yield differentials between securities. Securities in this class may include bonds, notes, adjustable rate preferred stocks, convertible bonds, mortgage-related and asset-backed securities, domestic and foreign government and government agency securities, zero coupon bonds, and other intermediate and long-term securities (see the Appendix for a further discussion of these instruments). As with the short-term class, these securities may be denominated in U.S. dollars or foreign currency. The fund may invest in securities of any quality, including lower-rated, high-yielding debt securities ( sometimes referred to as "junk bonds") as well as higher quality securities; however, no more than 35% of the fund's assets may be invested in lower-rated debt securities (those rated Ba or lower by Moody's or BB or lower by S&P, and unrated securities judged by FMR to be of equivalent quality). However, the fund does not currently intend to invest more than 20% of its total assets in securities judged by FMR to be below investment-grade quality. Please see the section entitled "RISKS OF LOWER-RATED DEBT SECURITIES" and the APPENDIX for more information. STOCK CLASS. The stock class includes domestic and foreign equity securities of all types (other than adjustable rate preferred stocks included in the bond class). FMR seeks to maximize total return within this asset class by actively allocating assets to industries and economic sectors expected to benefit from major trends, and to individual stocks that it believes to have superior growth potential. Securities in the stock class may include common stocks, fixed-rate preferred stocks (including convertible preferred stocks), warrants, rights, depositary receipts, and other equity securities issued by companies of any size, located anywhere in the world. OTHER INVESTMENT PRACTICES. The fund may invest in options and futures contracts, currency management strategies, indexed securities, short sales, swap agreements, delayed-delivery transactions, illiquid investments, restricted securities, loans and other direct debt instruments and interfund borrowings. Refer to the Appendix for more information on these investments. The fund may also invest in foreign securities. See the section entitled "International Investments: Special Considerations" for more information. INDEX 500 PORTFOLIO seeks investment results that correspond to the total return (i.e., the combination of capital changes and income) of common stocks publicly traded in the United States, as represented by the Standard & Poor's 500 Composite Stock Price Index (the S&P 500 or Index), while keeping transaction costs and other expenses low. Index 500 Portfolio is not managed according to traditional methods of "active" investment management, which involve the buying and selling of securities based upon economic, financial, and market analyses and investment judgment. Instead, the fund, utilizing a "passive" or "indexing" investment approach, attempts to duplicate the performance of the S&P 500. The S&P 500 includes 500 selected common stocks, most of which are listed on the New York Stock Exchange. Different stocks have different weightings in the Index, depending on the amount of stock outstanding and its current price. Under normal conditions, the fund will invest at least 80% of its assets (65% if fund assets are below $20 million) in equity securities of companies which compose the S&P 500. In seeking to duplicate the performance of the S&P 500, FMR will attempt over time to allocate the fund's investments among common stocks in approximately the same weightings as the S&P 500, beginning with the heaviest-weighted stocks that make up a larger portion of the Index's value. Over the long term, FMR seeks a correlation between the performance of the fund and that of the S&P 500 of .98 or better (.95 or better so long as fund asset levels are below $20 million). A figure of 1.00 would indicate perfect correlation. FMR monitors the correlation between the performance of the fund and the S&P 500 on a regular basis. In the unlikely event that the correlation is not achieved, the Board of Trustees will consider alternative arrangements. While the fund seeks to duplicate the performance of the S&P 500, its stock portfolio may not match the Index exactly. FMR generally will seek to match the composition of the S&P 500 as much as possible, but may not always invest the fund's stock portfolio to mirror the Index exactly. Because of the difficulty and expense of executing relatively small stock transactions, the fund may not always be invested in the less heavily weighted S&P 500 stocks and may at times have its portfolio weighted differently from the S&P 500, particularly if the fund has a low level of assets. When the fund's size is greater, FMR expects to purchase more of the stocks in the S&P 500 and to match the relative weighting of the S&P 500 more closely, and anticipates that the fund will be able to mirror the performance of the S&P with little variance at asset levels of $20 million or more. In addition, the fund may omit or remove an S&P 500 stock from its portfolio if, following objective criteria, FMR judges the stock to be insufficiently liquid or believes the merit of the investment has been substantially impaired by extraordinary events or financial conditions. FMR may purchase stocks that are not included in the S&P 500 to compensate for these differences if it believes that their prices will move together with the prices of S&P 500 stocks omitted from the portfolio. Under normal conditions, FMR will attempt to invest as much of the fund's assets as is practical in common stocks, including S&P 500 stocks and other stocks held to compensate for differences between the S&P 500 and the fund's investments. However, the fund will maintain a reasonable position in high-quality short-term debt securities and money market instruments to meet redemption requests or to invest in common stocks. If FMR believes that market conditions warrant a temporary defensive posture, the fund may invest without limit in high-quality short-term debt securities and money market instruments. These securities and money market instruments may include domestic and foreign commercial paper, certificates of deposit, bankers' acceptances and time deposits, U.S. government securities, and repurchase agreements. The fund may also invest a portion of its portfolio in instruments whose return depends on stock market prices. These may include debt securities whose prices or interest rates are indexed to the return of the S&P 500, interest rate swap or similar agreements linked to the S&P 500, and stock index futures contracts. The fund would invest in these types of instruments in order to seek to match the total return of the Index in accordance with its investment objective. However, instruments linked to stock market returns may not track the return of the Index in all cases, and may involve additional credit risks. OTHER INVESTMENT PRACTICES. Refer to the Appendix for information on stock index futures contracts, illiquid investments, indexed securities, swap agreements, repurchase agreements and securities loans, and interfund loans. The fund may also invest in warrants and foreign securities. See the section entitled "International Investments: Special Considerations" for more information on foreign securities. MATCHING THE FUNDS TO YOUR INVESTMENT NEEDS Each fund's shares may be used only as the investment vehicle for insurance companies' variable contracts. You may enjoy certain tax benefits by purchasing a variable annuity or variable life insurance contract. (Refer to the prospectus of your insurance company's separate account for a discussion of the tax benefits.) No single fund constitutes a balanced investment plan. As described in the following paragraphs, each fund stresses a different objective. Each fund's share price (with the exception of Money Market Portfolio), yield and total return will fluctuate and an investment in a fund (except Money Market Portfolio) may be worth more or less than your original cost when shares are redeemed. Investments in MONEY MARKET PORTFOLIO earn income at current money market rates. The fund's ability to achieve its investment objective depends on the quality and maturity of its investments. Although its policies are designed to help maintain a stable $1.00 share price, all money market instruments can change in value when interest rates or issuers' creditworthiness change, or if an issuer or guarantor of a security fails to pay interest or principal when due. If these changes in value were large enough, the fund's share price could deviate from $1.00. In general, securities with longer maturities are more vulnerable to price changes, although they may provide higher yields. Money Market Portfolio will invest more than 25% of its total assets in the securities of the financial services industry, under normal conditions. Companies in the financial services industry are subject to various risks related to that industry, such as government regulation, changes in interest rates, and exposure on loans, including loans to foreign borrowers. The fund's performance may be affected by conditions affecting the financial services industry. HIGH INCOME PORTFOLIO stresses earning high income by investing in lower-rated, fixed-income securities and in equity securities. High Income Portfolio offers the potential to earn a high yield; however, since the fund has an aggressive approach to income investing, only investors who can accept the greater price movements and credit risk associated with lower quality bonds should consider this fund. Fixed-income securities are generally considered to be interest-rate sensitive, which means that their value (and the fund's share price) will tend to decrease when interest rates rise and increase when interest rates fall. In general, securities with shorter maturities offer lower yields, while providing greater price stability than longer-term securities. Longer-term securities generally are more affected by changes in interest rates; however, the lower-quality securities in which the fund invests may not be as interest-rate sensitive as higher-quality securities with equivalent maturities and are more subject to credit risks. EQUITY-INCOME PORTFOLIO stresses providing reasonable income, although the fund will also consider the potential for capital appreciation. Since capital appreciation is only a secondary consideration for the fund, you should not expect a total return comparable to funds that have capital appreciation as a primary objective. The fund may be appropriate for you if you can afford to ride out changes in the stock market, because it invests primarily in common and preferred stock. FMR also can make temporary investments without limit in securities such as investment-grade bonds, high-quality preferred stocks and short-term notes, for defensive purposes when it believes market conditions warrant. GROWTH PORTFOLIO seeks to achieve capital appreciation. This fund will invest in the securities of both well-known and established companies, and smaller, less well-known companies which may have a narrow product line or whose securities are thinly traded. These latter securities will often involve greater risk than may be found in the ordinary investment security. FMR's analysis and expertise plays an integral role in the selection of securities and, therefore, the performance of the fund. Many securities which FMR believes would have the greatest growth potential may be regarded as speculative, and an investment in the fund may involve greater risk than is inherent in other mutual funds. It is also important to point out that the fund may be appropriate for you if you can afford to ride out changes in the stock market, because it invests primarily in common stocks. FMR also can make temporary investments without limit in securities such as investment-grade bonds, high-quality preferred stocks and short-term notes, for defensive purposes when it believes market conditions warrant. OVERSEAS PORTFOLIO seeks long term growth of capital and any income return is incidental to that objective. By investing in foreign securities, FMR attempts to take advantage of differences between economic trends and the performance of securities markets in various countries. To date, the market values of securities of issuers located in many countries have moved relatively independently of each other and during certain periods the return on equity investments in some countries has exceeded the return on similar investments in the United States. At other times, the return has been less than that of similar U.S. securities. FMR believes that it may be possible to obtain significant appreciation from a portfolio of foreign investments and also achieve increased diversification in comparison to a mutual fund that invests solely in U.S. securities. The fund obtains increased diversification by combining securities from various countries that offer different investment opportunities and are affected by different economic trends. International diversification reduces the effect that events in any one country or geographic area will have on the fund's investments. Of course, negative movement by the fund's investments in one foreign market represented in the portfolio may offset potential gains from the fund's investments in another country's markets. Although the fund will normally invest primarily in issuers located in developed countries, the fund may also invest in developing countries. Compared to the United States and other developed countries, developing countries may have relatively unstable governments, economies based on only a few industries, and securities markets which trade a small number of securities. Prices on these exchanges tend to be volatile and, in the past, these exchanges have offered greater potential for gain (as well as loss) than exchanges in developed countries. See International Investments on page 23 for further information on foreign securities. INVESTMENT GRADE BOND PORTFOLIO stresses earning income by investing in investment grade, fixed-income securities. Fixed-income securities (except for securities with floating or variable interest rates) are generally considered to be interest rate sensitive, which means that their value (and the fund's share price) will tend to decrease when interest rates rise and increase when interest rates fall. Securities with shorter maturities, while offering lower yields, generally provide greater price stability than longer-term securities and are less affected by changes in interest rates. The fund is for investors who seek income but want a portfolio of short to intermediate term investment grade debt securities. FMR will adjust the fund's investments in particular securities or in types of debt securities in response to its appraisal of changing economic conditions and trends. FMR may sell securities in anticipation of a market decline or purchase securities in anticipation of a market rise. In addition, FMR may sell one security and purchase another security of comparable quality and maturity to take advantage of what FMR believes to be short-term differentials in market values or yield disparities. The fund may invest in foreign securities, which may be less liquid or more volatile than domestic investments. The fund's investments may be denominated in foreign currencies and the value of these investments will fluctuate with changes in the exchange rates between those currencies and the U.S. dollar. See I NTERNATIONAL INVESTMENT S on page for further information on investing in foreign securities. The fund's investments, other than those backed by the U.S. government, are subject to the ability of the issuer to make payment at maturity. The fund's share price and yield also depend on the quality of its investments. Investment grade bonds generally are of medium to high quality, but investment grade bonds rated Baa/BBB have more uncertain protection of interest and principal payments and may have speculative characteristics. Unrated bonds may be of any quality, but usually are not attractive to as many buyers. The fund relies on FMR's credit analysis when purchasing unrated bonds. ASSET MANAGER PORTFOLIO stresses high total return over the long-term. The fund's performance may be affected by many different factors, depending on its portfolio emphasis. Short-term instruments are generally the most stable of the fund's three principal asset classes. Their returns depend primarily on current short-term interest rates, though currency fluctuations can also be significant with respect to foreign securities. The bond class is affected primarily by interest rates. In general, prices of fixed-income securities tend to rise when interest rates fall, and fall when interest rates rise. Interest rate changes will have a greater impact on the fund if it is heavily invested in long-term or zero-coupon bonds. Fixed-income securities may also be affected by changes in the credit quality of their investments. The fund may invest in fixed-income securities that present the risk of default, whose prices may be as volatile as or more volatile than common stocks. Because the fund has no limitation on the quality of debt securities in which it may invest, the debt securities in its portfolio may be of poor quality, considered speculative and present the risk of default. The stock class is subject to the risks of stock market investing, including the possibility of sudden or prolonged market declines as well as the risks associated with individual companies. These risks may be intensified for investments in smaller or less well-known companies or in foreign securities. In general, stock prices can be volatile and have inherently more risk than fixed-income instruments. No assurance can be made that allocation decisions will be advantageous to the fund. INDEX 500 PORTFOLIO may be appropriate for investors seeking a relatively low-cost means to diversify their investment portfolios using an index of securities that is representative of the stock market as a whole. The fund is intended as a long term investment. Because it invests predominately in common stock, the fund may be appropriate for you only if you can afford to ride out changes in the stock market. You should be aware that the performance of the S&P 500 is a hypothetical number which assumes reinvestment of dividends but does not take into account brokerage commissions and other costs of investing, which the fund bears. Since the fund seeks to track the S&P 500, it is not managed for growth or income in the same manner as other mutual funds, and FMR generally will not attempt to judge the merits of any particular stock as an investment. Accordingly, you should not expect to achieve the potentially greater results that could be obtained by a fund that aggressively seeks growth. ABOUT THE S&P 500 . The S&P 500 is a well-known stock market index that includes common stocks of companies representing a significant portion of the market value of all common stocks publicly traded in the United States. Stocks in the S&P 500 are weighted according to their market capitalization (i.e., the number of shares outstanding multiplied by the stock's current price), with the 51 largest stocks currently composing 50% of the S&P 500's value. FMR believes that the performance of the S&P 500 is representative of the performance of publicly traded common stocks in general. The composition of the S&P 500 is determined by Standard & Poor's Corporation and is based on such factors as the market capitalization and trading activity of each stock, and its adequacy as a representation of stocks in a particular industry group. Standard & Poor's Corporation may change the Index's composition from time to time. "S&P(registered trademark)", "S&P 500(registered trademark)", and "500" are service marks of Standard & Poor's Corporation and have been licensed for use herein. However, including a stock in the S&P 500 in no way implies an opinion by Standard & Poor's Corporation as to its attractiveness as an investment, nor is Standard & Poor's Corporation a sponsor of or in any way affiliated with the fund. RISKS OF LOWER-RATED DEBT SECURITIES Lower-rated debt securities ( sometimes referred to as "junk bonds") are usually defined as securities rated Ba or lower by Moody's or BB or lower by S&P. Lower-rated debt securities are considered speculative and involve greater risk of loss than higher-rated debt securities, and are more sensitive to changes in the issuer's capacity to pay. This is an aggressive approach to income investing. The 1980s saw a dramatic increase in the use of lower-rated debt securities to finance highly leveraged corporate acquisitions and restructurings. Past experience may not provide an accurate indication of the future performance of lower-rated debt securities, especially during periods of economic recession. In fact, from 1989 to 1991, the percentage of lower-rated debt securities that defaulted rose significantly above prior levels, although the default rate decreased in 1992 and 1993. Lower-rated debt securities may be thinly traded, which can adversely affect the prices at which these securities can be sold and can result in high transaction costs. If market quotations are not available, lower-rated debt securities will be valued in accordance with standards set by the Board of Trustees, including the use of outside pricing services. Judgment plays a greater role in valuing lower-rated debt securities than securities for which more extensive quotations and last sale information are available. Adverse publicity and changing investor perceptions may affect the ability of outside pricing services to value lower-rated debt securities, and each fund's ability to dispose of these securities. The market prices of lower-rated debt securities may decline significantly in periods of general economic difficulty which may follow periods of rising interest rates. During an economic downturn or a prolonged period of rising interest rates, the ability of issuers of lower-rated debt to service their payment obligations, meet projected goals, or obtain additional financing may be impaired. Each fund may choose, at its expense or in conjunction with others, to pursue litigation or otherwise to exercise its rights as a security holder to seek to protect the interests of security holders if it determines this to be in the interest of its shareholders. The considerations discussed above for lower-rated debt securities also apply to lower-quality, unrated debt instruments of all types, including loans and other direct indebtedness of businesses with poor credit standing. Unrated debt instruments are not necessarily of lower quality than rated instruments, but they may not be attractive to as many buyers. Each fund relies more on FMR's credit analysis when investing in debt instruments that are unrated. Please refer to the Appendix for a discussion of Moody's and S&P ratings. INTERNATIONAL INVESTMENTS: SPECIAL CONSIDERATIONS The information contained in these paragraphs is of particular importance to Overseas Portfolio; however, each fund can make foreign investments. FMR limits the amount of High Income, Equity-Income, Growth, Investment Grade Bond, Asset Manager and Index 500 Portfolio's net assets that may be invested in foreign securities to 50%, respectively. However, each fund, including Overseas Portfolio, may not invest more than 20% of its assets in any one country. Each fund may have an additional 15% invested in securities of issuers located in any one (but only one) of the following countries: Australia, Canada, France, Japan, the United Kingdom or Germany. A fund must be diversified in at least three different countries if it exceeds 20% in any one country. Investing outside the U.S. involves different opportunities and different risks from U.S. investments. FMR believes that it may be possible to obtain significant returns from a portfolio of foreign investments, or a combination of foreign investments and U.S. investments, and to achieve increased diversification in comparison to a portfolio invested solely in U.S. securities. By including international investments in your investment portfolio, you may gain increased diversification by combining securities from several countries and geographic areas that offer various investment opportunities and are affected by particular economic trends. At the same time, these opportunities and trends involve risks that may not be encountered in U.S. investments. International investing in general may involve greater risks than U.S. investments. There is generally less publicly available information about foreign issuers, and there may be less government regulation and supervision of foreign stock exchanges, brokers, and listed companies. There may be difficulty in enforcing legal rights outside the United States. Foreign companies generally are not subject to uniform accounting, auditing, and financial reporting standards, practices, and requirements comparable to those that apply to U.S. companies. Security trading practices abroad may offer less protection to investors such as the funds. Settlement of transactions in some foreign markets may be delayed or may be less frequent than in the U.S., which could affect the liquidity of a fund's portfolio. Additionally, in some foreign countries, there is the possibility of expropriation or confiscatory taxation; limitations on the removal of securities, property, or other assets of a fund; political or social instability; or diplomatic developments which could affect U.S. investments in foreign countries. FMR will take these factors into consideration in managing each fund's foreign investments. Each fund may invest a portion of its assets in developing countries, or in countries with new or developing capital markets; for example, nations in Eastern Europe. The considerations noted above are generally intensified for these investments. These countries may have relatively unstable governments, economies based on only a few industries, and securities markets that trade a small number of securities. Securities of issuers located in these countries tend to have volatile prices and may offer significant potential for loss as well as gain. FOREIGN CURRENCIES. The value of each fund's foreign investments and the value of its dividends and earned interest , may be significantly affected by changes in currency exchange rates. Some foreign currency values may be volatile, and there is the possibility of governmental controls on currency exchange or governmental intervention in currency markets, which could adversely affect the funds. Although FMR may attempt to manage currency exchange rate risks, there is no assurance that FMR will do so at an appropriate time or that FMR will be able to predict exchange rates accurately. For example, if FMR increases a fund's exposure to a foreign currency, and that currency's value subsequently falls, FMR's currency management may result in increased losses to the fund. Similarly, if FMR hedges a fund's exposure to a foreign currency, and that currency's value rises, the fund will lose the opportunity to participate in the currency's appreciation. CURRENCY MANAGEMENT. The relative performance of foreign currencies is an important factor in each fund's performance. FMR may manage each fund's exposure to various currencies to take advantage of yield, risk, and return characteristics that foreign currencies can provide for U.S. investors. To manage exposure to currency fluctuations, the funds may enter into currency forward contracts (agreements to exchange one currency for another at a future date) or currency swap agreements, buy and sell options and futures contracts relating to foreign currencies, and purchase securities indexed to foreign currencies. The funds will use currency forward contracts in the normal course of business to lock in an exchange rate in connection with purchases and sales of securities denominated in foreign currencies. Other currency management strategies allow FMR to hedge portfolio securities, to shift investment exposure from one currency to another, or to attempt to profit from anticipated declines in the value of a foreign currency relative to the U.S. dollar. There is no overall limitation on the amount of the funds' assets that may be committed to currency management strategies. LIMITING INVESTMENT RISKS The following summarizes the funds' principal investment limitations. A complete listing is contained in the Statement of Additional Information. The following limitations and the policies discussed in "HOW THE TRUSTS WORK" are considered at the time of purchase; the sale of securities is not required in the event of a subsequent change in circumstances. 1. Money Market Portfolio (a) normally may not invest more than 5% of its total assets in the securities of any single issuer. Under certain conditions, however, the fund may invest up to 10% of its total assets in the first tier securities of a single issuer for up to three business days; and (b) will not purchase a security if, as a result more than 25% of its total assets would be in a particular industry, except that the fund will invest more than 25% of its total assets in the financial services industry, under normal conditions. These limitations do not apply to obligations issued or guaranteed as to principal and interest by the United States government, its agencies or instrumentalities. 2. Neither High Income, Equity-Income, Growth, Overseas, Investment Grade Bond, Asset Manager nor Index 500 Portfolio will purchase a security if, as a result; (a) (with respect to 75% its total assets) more than 5% of its total assets would be invested in the securities of any single issuer or it would hold more than 10% of the outstanding voting securities of that issuer; (b) more than 25% of its total assets would be invested in a particular industry; or (c) more than 10% (15% for High Income and Overseas Portfolios) of its net assets would be invested in illiquid securities. Limitations (a) and (b) do not apply to U.S. government securities. 3. Each fund may borrow money or engage in reverse repurchase agreements (as described in the Appendix) for temporary or emergency purposes (except for Money Market Portfolio which may do so for investment purposes as described in the Appendix), but not in an amount exceeding 25% of its net assets. 4. Each fund may temporarily lend any security or make any other loan provided that not more than 33 1/3% of a fund's total assets would be lent to other parties. Except for each fund's investment objective and limitations, 1(b), 2(a), 2(b), and 4, the policies described in this prospectus are not fundamental. Non-fundamental policies can be changed at any time without the consent of shareholders. Each fund may borrow money only from banks or other funds advised by FMR and will not purchase securities when borrowings exceed 5% of its total assets (excluding reverse repurchase agreements for Money Market Portfolio) . If a fund borrows money, its share price (except for Money Market Portfolio) may be subject to greater fluctuation until the borrowing is paid off. To this extent, (for all funds except Money Market Portfolio) purchasing securities when borrowings are outstanding may involve an element of leverage. Each fund may temporarily lend its portfolio securities to broker-dealers and institutions, but only when the loans are fully collateralized. Each fund may also make cash loans to other funds advised by FMR in an amount not exceeding 5% of net assets for Equity-Income, Growth, Overseas Asset Manager and Index 500 Portfolios, 7.5% of net assets for High Income and Investment Grade Bond Portfolios and 10% of net assets for Money Market Portfolio (see APPENDIX). INTERNAL REVENUE SERVICE (IRS) LIMITATIONS. In addition to the above, each fund also follows certain limitations imposed by the IRS on separate accounts of insurance companies relating to the tax-deferred status of variable contracts. More specific information may be contained in your insurance company's separate account prospectus. PORTFOLIO TRANSACTIONS FMR chooses broker-dealers by judging professional ability and quality of service and uses various brokerage firms to carry out a fund's equity transactions. A fund's debt obligations and money market obligations are generally traded in the over-the-counter market through broker-dealers. A broker-dealer is a securities firm or bank which makes a market for securities by offering to buy at one price and sell at a slightly higher price. The difference between the prices is known as a spread. Overseas Portfolio normally trades its securities in foreign countries since the best available market for foreign securities is often on foreign markets. In transactions on foreign stock exchanges, except in Canada, brokers' commissions are generally fixed and are often higher than in the United States, where commissions are negotiated. Since FMR places (directly or through affiliated sub-advisors) a large number of transactions, including those of Fidelity's other funds, the funds generally pay lower commissions and incur lower costs, and broker-dealers are willing to work on a more favorable spread than would be possible for most individual investors. Each fund has authorized FMR to allocate transactions to some broker-dealers who help distribute the fund's shares or shares of Fidelity's other funds, and on an agency basis, to Fidelity Brokerage Services, Inc. (FBSI) and Fidelity Brokerage Services, Ltd. (FBSL), affiliates of FMR. FMR will make such allocations if commissions are comparable to those charged by non-affiliated, qualified broker-dealers for similar services. FMR may also allocate brokerage transactions to a fund's custodian, acting as a broker-dealer, or to other broker-dealers, so long as transaction quality and commission rates are comparable to those of other broker-dealers, where the broker dealers will allocate a portion of the commissions paid toward payment of a fund's expenses. These expenses currently include transfer agent and custodian fees. The Custodian may credit a portion of the commissions paid toward payment of the funds' custodian charges. Higher commissions may be paid to those firms that provide research, valuation and other services, to the extent permitted by law. FMR also is authorized to allocate brokerage transactions to FBSI in order to secure from FBSI research services produced by third party, independent entities. FMR may use this research information in managing a fund's assets, as well as assets of other clients. A fund may engage in short-term trading when consistent with its objective. Also, a security may be sold and another of comparable quality simultaneously purchased to take advantage of what FMR believes to be a temporary disparity in the normal yield relationship of the two securities. The majority of portfolio transactions for Index 500 (other than those made in response to shareholder activity) will be made to adjust the portfolio to track the S&P 500 or to reflect occasional changes in the Index's composition. The frequency of portfolio transactions - a fund's turnover rate - for each fund will vary from year to year depending on market conditions. FMR buys and sells securities for the funds after considering a company's ability to repay, future business conditions, interest rate levels and the availability of new investments or higher relative yields. For fiscal year 1993, High Income, Equity-Income, Growth, Overseas, Investment Grade Bond, Asset Manager and Index 500 Portfolios had turnover rates of 155%, 120%, 159%, 42%, 70%, 113% and 9%, respectively. Because a higher turnover rate increases transaction costs and may have certain tax consequences, FMR carefully weighs the anticipated benefits of short-term investment against this consequence. PERFORMANCE Each fund's performance may be quoted in advertising in terms of yield and total return if accompanied by performance of your insurance company's separate account. Performance is based on historical results and is not intended to indicate future performance. Money Market Portfolio's YIELD refers to the income generated by an investment in the fund over a specified seven day period, expressed as an annual percentage rate. Its EFFECTIVE YIELD is calculated similarly, but assumes that the income earned from investments is reinvested. Money Market Portfolio's effective yield will tend to be slightly higher than its yield because of this compounding effect. For High Income Portfolio and Investment Grade Bond Portfolio , YIELD is a way of showing the rate of income a fund earns on its investments as a percentage of the fund's share price. To calculate yield, a portfolio takes the dividend and interest income, if any, it earned from its portfolio of investments for a specified 30-day period (net of expenses), divides it by the number of its shares entitled to receive dividends and expresses the result as an annualized percentage rate based on the portfolio's share price at the end of the 30-day period. Yields are calculated according to accounting methods that are standardized for all stock and bond funds. Because yield accounting methods differ from the methods used for other accounting purposes, the portfolio's yield may not equal its distribution rate, the income paid to an account or the income reported in the portfolio's financial statements. TOTAL RETURNS are based on the overall dollar or percentage change in value of a hypothetical investment in each fund, including changes in share price (except for Money Market Portfolio) and assuming each fund's dividends and capital gain distributions, if any, are reinvested. A CUMULATIVE TOTAL RETURN reflects a portfolio's performance over a stated period of time. An AVERAGE ANNUAL TOTAL RETURN reflects the hypothetical annually compounded return that would have produced the same cumulative total return if a portfolio's performance had been constant over the entire period. Because average annual returns tend to smooth out variations in a portfolio's return, you should recognize that they are not the same as actual year-by-year results. To illustrate the components of overall performance, a portfolio may separate its cumulative and average annual returns into income results and capital gain or loss. A fund may quote its ADJUSTED NET ASSET VALUES, including all distributions paid. These adjusted NAV's may be averaged over specified periods. Equity-Income, Growth, Overseas, Asset Manager, and Index 500 Portfolios may use these averages to calculate its MOMENTUM INDICATOR, which tracks changes in adjusted net asset values over specified periods. The table below shows the record of the S&P 500 for the ten years from 1984 through 1993. Numbers for the S&P 500 show the change in value of the S&P 500 and assume reinvestment of all dividends paid by the S&P 500 stocks. Tax consequences are not included in the illustration, nor are brokerage or other fees calculated in the S&P 500 figures. The results shown should not be considered representative of the income or capital gain or loss which may be generated by the S&P 500 or Index 500 Portfolio in the future. STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX Year Price Change Ended Year End in Index Dividend Total 12/31 Index Value for Year Reinvestment Return 1993 466.45 7.06% 3.02% 10.08% 1992 435.71 4.46% 3.16% 7.62% 1991 417.09 26.31% 4.16% 30.47% 1990 330.22 -6.56% 3.46% -3.10% 1989 353.40 27.25% 4.44% 31.69% 1988 277.72 12.40% 4.21% 16.61% 1987 247.08 2.03% 3.07% 5.10% 1986 242.17 14.62% 3.94% 18.56% 1985 211.28 26.33% 5.24% 31.57% 1984 167.24 1.40% 4.70% 6.10% YIELDS AND TOTAL RETURNS QUOTED FOR THE FUNDS INCLUDE THE EFFECT OF DEDUCTING EACH FUND'S EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO ANY PARTICULAR INSURANCE PRODUCT. SINCE SHARES OF THE FUNDS MAY ONLY BE PURCHASED THROUGH A VARIABLE ANNUITY OR VARIABLE LIFE CONTRACT, YOU SHOULD CAREFULLY REVIEW THE PROSPECTUS OF THE INSURANCE PRODUCT YOU HAVE CHOSEN FOR INFORMATION ON RELEVANT CHARGES AND EXPENSES. Excluding these charges from quotations of each fund's performance has the effect of increasing the performance quoted. You should bear in mind the effect of these charges when comparing a fund's performance to that of other mutual funds. For additional performance information, contact your insurance company for a free annual report. DISTRIBUTIONS AND TAXES For a discussion of the tax status of your variable contract, refer to the prospectus of your insurance company's separate account. It is suggested you keep all statements you receive to assist in your personal recordkeeping. It is expected that shares of the funds will be held under the terms of variable annuity or variable life insurance contracts. Under current tax law, dividends or capital gain distributions from any fund are not currently taxable when left to accumulate within a variable annuity or variable life insurance contract. Depending on the variable contract, withdrawals from the contracts may be subject to ordinary income tax and, in addition, a 10% penalty tax on withdrawals before age 59 1/2. Each fund is treated as a separate entity for federal income tax purposes. Each fund intends to pay out all of its net investment income and net realized capital gains for each year. Dividends from Money Market Portfolio are declared daily and paid monthly. Equity-Income distributes its dividends quarterly and High Income, Growth, Overseas, Investment Grade Bond, Asset Manager and Index 500 Portfolios distribute any dividends each year. Normally, net realized capital gains, if any, are distributed each year for the funds. Such income and capital gains are automatically reinvested in additional shares for the funds. High Income, Equity-Income, Growth, Overseas, Investment Grade Bond, Asset Manager and Index 500 Portfolios make dividend and capital gain distributions on a per-share basis. After every distribution from each of these funds, the fund's share price drops by the amount of the distribution. Because dividends and capital gain distributions are reinvested, the total value of an account will not be affected because, although the shares will have a lower price, there will be correspondingly more of them. THE TRUSTS AND THE FIDELITY ORGANIZATION Each Trust is an open-end, diversified, management investment company. Variable Insurance Products Fund and Variable Insurance Products Fund II were organized as Massachusetts business trusts on November 13, 1981 and March 21, 1988, respectively. Currently, there are five portfolios in Variable Insurance Products Fund (Money Market Portfolio, High Income Portfolio, Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio) and three portfolios in Variable Insurance Products Fund II (Investment Grade Bond Portfolio, Asset Manager Portfolio and Index 500 Portfolio). Each Trust has its own Board of Trustees, which supervises its activities and reviews contractual arrangements with companies that provide each fund with services. Each Trust is not required to hold annual shareholder meetings, although special meetings may be called for a specific fund, or each Trust as a whole, for purposes such as electing or removing Trustees, changing fundamental policies or approving a management contract. An insurance company issuing a variable contract that participates in each Trust will vote shares in the separate account as required by law and interpretations thereof, as may be amended or changed from time to time. In accordance with current law and interpretations thereof, a participating insurance company is required to request voting instructions from policyowners and must vote shares in the separate account in proportion to the voting instructions received. For a further discussion, please refer to your insurance company's separate account prospectus. Fidelity Investments is one of America's largest investment management organizations and has its principal business address at 82 Devonshire Street, Boston, Massachusetts. It includes a number of different companies, which provide a variety of financial services and products. Each fund employs various Fidelity companies to perform certain activities required for its operation. Fidelity Management & Research Company, the funds' manager, is the original Fidelity company, founded in 1946. It provides a number of mutual funds and other clients with investment research and portfolio management services. It maintains a large staff of experienced investment personnel and a full complement of related support facilities. Fidelity Management & Research (U.K.) Inc. (FMR U.K.), Fidelity Management & Research (Far East) Inc. (FMR Far East), Fidelity International Investment Advisors (FIIA) and FMR Texas Inc. (FMR Texas) are wholly owned subsidiaries of FMR that provide research, investment advice and portfolio management services for certain funds advised by FMR with respect to foreign securities (FMR U.K., FMR Far East, FIIA) and money market instruments (FMR Texas). FMR U.K., FMR Far East, FIIA, and FMR Texas maintain their principal business offices in London, Tokyo, Bermuda, and Dallas, respectively. As of December 31, 1993, FMR advised funds having more than 15 million shareholder accounts with a total value of more than $ 225 billion. Fidelity Distributors Corporation (Distributors) distributes shares for the Fidelity funds. FMR Corp. is the holding company for the Fidelity companies. Through ownership of voting common stock, Edward C. Johnson 3d, President and a Trustee of the Trust, Johnson family members, and various trusts for the benefit of the Johnson family form a controlling group with respect to FMR Corp. Each fund has an investment objective similar to that of an existing Fidelity retail fund. Money Market Portfolio is most similar to Fidelity Cash Reserves, High Income Portfolio to Spartan High Income Fund, Equity-Income Portfolio to Fidelity Equity-Income Fund, Growth Portfolio to Fidelity Retirement Growth Fund, Overseas Portfolio to Fidelity Overseas Fund, Investment Grade Bond Portfolio to Fidelity Intermediate Bond Fund, Asset Manager Portfolio to Fidelity Asset Manager, and Index 500 Portfolio to Fidelity Market Index Fund. Performance of these funds is not expected to be the same as the performance of the corresponding retail fund due in part to dissimilarities in their investments. Various insurance related costs at the insurance company's separate account level will also affect performance. Bettina Doulton is the manager of Equity-Income Portfolio, which she has managed since July 1993. Ms. Doulton is also manager of Fidelity Advisor Equity Portfolio Income. Previously, she managed Fidelity Select Automotive Portfolio and assisted on Fidelity Magellan Fund and Fidelity Equity-Income Fund. Ms. Doulton also served as an analyst following the domestic and European automotive and tire manufacturing industry as well as the gaming and lodging industry. She joined Fidelity in 1985. Barry Jay Coffman is vice president and manager of High Income Portfolio, which he has managed since August 1990. Mr. Coffman also assists on Fidelity Puritan Fund. Previously, he served as an assistant manager and analyst for the high yield bond group. Before joining Fidelity in 1986, Mr. Coffman was an analyst for Equitable Capital Management and was a senior auditor at Arthur Anderson & Company. Lawrence Greenberg is vice president and manager of Growth Portfolio, which he has managed since April 1991. He also manages Emerging Growth. Previously, Mr. Greenberg managed Select Environmental Services and Select Medical Delivery. He also assisted on Fidelity Magellan Fund. Mr. Greenberg joined Fidelity in 1986. John R. Hickling is manager and vice president of Overseas Portfolio, which he has managed since January 1993. Mr. Hickling also manages Fidelity Overseas Fund, International Growth & Income, Advisor Overseas Fund, and Japan Fund. Previously, he managed Emerging Markets, Europe, International Opportunities and Pacific Basin. Mr. Hickling joined Fidelity in 1982. Donald Taylor is manager and vice president of Investment Grade Bond Portfolio, which he has managed since September 1989. Mr. Taylor also manages Advisor Short Fixed Income, Fidelity Short-Term Bond Portfolio and Spartan Short-Term Income. In addition, Mr. Taylor manages Income Plus for Fidelity International. Previously, he managed Corporate Trust, Qualified Dividend, Zero Coupon Bond Fund, and Utilities Income. Mr. Taylor joined Fidelity in 1986. Robert Beckwitt is manager and vice president of Asset Manager Portfolio, which he has managed since October 1989. Mr. Beckwitt also manages Fidelity Asset Manager, Asset Manager: Growth, and Asset Manager: Income. In addition, he serves as chief investment strategist for Fidelity Portfolio Advisory Service. Previously, he managed Spartan Government Income, Spartan Long-Term Government Bond, and was director of quantitative research. Mr. Beckwitt joined Fidelity in 1985. Each fund sells its shares to separate accounts of insurance companies which are both affiliated and unaffiliated with FMR. Each fund currently does not foresee any disadvantages to policyowners arising out of the fact that each fund offers its shares to separate accounts of various insurance companies to serve as the investment medium for their variable products. Nevertheless, the Board of Trustees intends to monitor events in order to identify any material irreconcilable conflicts which may possibly arise, and to determine what action, if any, should be taken in response to such conflicts. If such a conflict were to occur, one or more insurance companies' separate accounts might be required to withdraw its investments in one or more funds and shares of another fund may be substituted. This might force a fund to sell securities at disadvantageous prices. In addition, the Board of Trustees may refuse to sell shares of any fund to any separate account or may suspend or terminate the offering of shares of any fund if such action is required by law or regulatory authority or is in the best interests of the shareholders of the fund. MANAGEMENT, DISTRIBUTION AND SERVICE FEES For managing each fund's investments and business affairs, each fund pays FMR a monthly fee. MONEY MARKET PORTFOLIO'S fee is made up of two components: (a) a basic fee rate and (b) an income-based component. The basic fee rate is the sum of the following two components: 1. A group fee rate based on the monthly average net assets of all the mutual funds advised by FMR. This rate cannot rise above .37%, and it drops (to as low as a marginal rate of .1325%) as total assets in all these funds rise. The effective group fee rate for December 1993 was .1621%. 2. An individual fund fee rate of .03%. One-twelfth of the combined annual fee rate is applied to the fund's net assets averaged over the most recent month, giving a dollar amount which is the fee for that month. If the fund's gross yield is 5% or less, the basic fee is the total management fee. The income-based component is added to the basic fee only when the fund's yield is greater than 5%. The income-based fee is 6% of that portion of the fund's yield that represents a gross yield of more than 5% per year. The maximum income-based component is .24%. For fiscal 1993, the fund's management fee was .14% of the average net assets of the fund - approximately $1.40 for every $1,000 of the fund's average net assets. INVESTMENT GRADE BOND AND HIGH INCOME PORTFOLIO'S annual fee rates are the sum of two components: 1. A group fee rate based on the monthly average net assets of all the mutual funds advised by FMR. This rate cannot rise above .37%, and it drops (to as low as a marginal rate of .14%* for Investment Grade Bond Portfolio and .1325% for High Income Portfolio) as total assets in all these funds rise. The effective group fee rate for December 1993 was .1621%. 2. An individual fund fee rate of .30% and .45% for Investment Grade Bond Portfolio and High Income Portfolio, respectively. *FMR voluntarily agreed to adopt a revised group fee rate schedule for Investment Grade Bond Portfolio which provides for a marginal rate as low as .1325% when average group net assets exceed $336 billion. A new management contract with a revised group fee rate schedule will be presented for approval at the next shareholder meeting. One-twelfth of the combined annual fee rate is applied to each fund's net assets averaged over the most recent month, giving a dollar amount which is the fee for that month. In fiscal year 1993, FMR's fee was .47% and .51% of Investment Grade Bond and High Income Portfolios' average net assets, respectively, or $4.70 and $5.10 for every $1,000 of each fund's respective average net assets. The fee for High Income Portfolio is based on an individual fund fee rate of .35%. Shareholders of the fund voted to increase the individual fund fee rate to .45% on December 15, 1993. EQUITY-INCOME, GROWTH, OVERSEAS AND ASSET MANAGER PORTFOLIOS' annual fee rates are the sum of two components: 1. A group fee rate based on the monthly average net assets of all the mutual funds advised by FMR. This rate cannot rise above .52%, and it drops (to as low as a marginal rate of .30%*) as total assets in all these funds rise. The effective group fee rate for December 1993 was .3243%. 2. An individual fund fee rate of .20% for Equity-Income Portfolio, .30% for Growth Portfolio, .40% for Asset Manager Portfolio and .45% for Overseas Portfolio. *FMR voluntarily agreed to adopt a revised group fee rate schedule for these funds which provides for a marginal rate as low as .285% when average group net assets exceed $336 billion. A new management contract for each fund with a revised group fee rate schedule will be presented for approval at the next shareholder meeting. One-twelfth of the combined annual fee rate is applied to each fund's net assets averaged over the most recent month, giving a dollar amount which is the fee for that month. In fiscal year 1993, FMR's fee was .53%, .63%, .72% and .77% of Equity-Income, Growth, Asset Manager and Overseas Portfolios' average net assets, or $5.30, $6.30, $7.20 and $7.70 for every $1,000 of each fund's average net assets , respectively . Due to the greater complexity, expense and commitment of resources involved in international investing, Overseas Portfolio's management fee rate is higher than those of most domestic mutual funds, but not necessarily higher than those of the typical international fund. INDEX 500 PORTFOLIO pays a monthly management fee to FMR at the annual rate of .28% of the fund's average net assets. One-twelfth of this annual fee rate is applied to the net assets averaged over the most recent month, giving a dollar amount which is the management fee for that month. Each fund has adopted a Distribution and Service Plan (the Plans) pursuant to Rule 12b-1 under the Investment Company Act of 1940. No separate payments are authorized to be made by the funds under the Plans. Rather, each Plan recognizes that FMR may use its management fee or other resources to pay expenses associated with activities primarily intended to result in the sale of each fund's shares. Each Plan also provides that FMR may make payments from these sources to third parties, although the Board has not authorized these payments to date. On behalf of High Income and Asset Manager Portfolios, FMR has entered into sub-advisory agreements with FMR U.K. and FMR Far East. On behalf of Overseas Portfolio, FMR has entered into sub-advisory agreements with FMR U.K., FMR Far East, and FIIA. FIIA, in turn, has entered into a sub-advisory agreement with its wholly owned subsidiary Fidelity International Investment Advisors (U.K.) Limited (FIIAL U.K.). Under the sub-advisory agreements, FMR may receive investment advice and research services with respect to companies based outside the U.S. and (except for Asset Manager Portfolio) may grant the sub-advisors investment management authority as well as the authority to buy and sell securities if FMR believes it would be beneficial to the fund. Currently, FMR U.K., FMR Far East, FIIA and FIIAL U.K. each focus on companies other than the U.S., including countries in Europe, Asia and the Pacific Basin. Under the sub-advisory agreements FMR pays the fees of FMR U.K., FMR Far East, and FIIA. FIIA, in turn, pays the fees of FIIAL U.K. For providing investment advice and research services the sub-advisors are compensated as follows: (bullet) FMR pays FMR U.K. and FMR Far East fees equal to 110% and 105%, respectively, of FMR U.K.'s and FMR Far East's costs incurred in connection with providing investment advice and research services. (bullet) FMR pays FIIA 30% of its monthly management fee with respect to the average market value of investments held by the fund for which FIIA has provided FMR with investment advice. (bullet) FIIA pays FIIAL U.K. a fee equal to 110% of FIIAL U.K.'s costs incurred in connection with providing investment advice and research services. For providing investment management services, the sub-advisors are compensated according to the following formulas: (bullet) FMR pays FMR U.K., FMR Far East, and FIIA 50% of its monthly management fee with respect to the fund's average net assets managed by the sub-advisor on a discretionary basis. (bullet) FIIA pays FIIAL U.K. 110% of FIIAL U.K.'s costs incurred in connection with providing investment management. On behalf of Money Market Portfolio, FMR has entered into a sub-advisory agreement with FMR Texas, a Texas corporation with principal offices at 400 East Las Colinas Boulevard in Irving, Texas. Pursuant to the agreement, FMR Texas has primary responsibility for providing investment management services. Under the sub-advisory agreement, FMR, and not the fund, pays FMR Texas a fee equal to 50% of the management fee payable to FMR under its management contract with the fund. (The fees paid to FMR Texas are not reduced by any voluntary or mandatory management fee waivers or expense reimbursements which may be in effect from time to time). In fiscal 1993, FMR paid FMR Texas a fee of $207,606 which was equivalent to .07 % of Money Market Portfolio's average net assets. Each fund utilizes Fidelity Investments Institutional Operations Company (FIIOC), an affiliate of FMR, to maintain the master accounts of the participating insurance companies. Under the transfer agent agreement with FIIOC, each fund pays fees based on the type, size, and number of accounts in each fund and the number of transactions made by shareholders of each fund. For fiscal year 1993, Money Market, High Income, Equity-Income, Growth, Overseas, Investment Grade Bond, Asset Manager and Index 500 Portfolios paid FIIOC $87,208, $108,432, $111,756, $140,122, $143,222, $71,119, $115,600 and $33,911, respectively, for these services. Each fund also has an agreement with Fidelity Service Co. (FSC), an affiliate of FMR under which each fund pays FSC to calculate its daily share price and to maintain the portfolio and general accounting records of each fund and to administer each fund's securities lending program. The fees for pricing and bookkeeping services are based on each fund's average net assets, but must fall within a range of $20,000 to $750,000 per year for Money Market Portfolio and $45,000 to $750,000 for High Income, Equity-Income, Growth, Overseas, Investment Grade Bond, Asset Manager, and Index 500 Portfolios. The fees for securities lending services are based on the number and duration of individual securities loans. For fiscal year 1993, the fees paid to FSC (including securities lending, if any, and related out-of-pocket expenses) amounted to $87,208, $108,432, $111,756, $140,122, $143,222, $46,426, $583,404, and $45,074 for Money Market, High Income, Equity-Income, Growth, Overseas, Investment Grade Bond, Asset Manager, and Index 500 Portfolios, respectively. Total expenses for fiscal year 1993 amounted to .22%, .64%, .62%, .71%, 1.03%, .68%, .88% and .28 %, respectively of Money Market, High Income, Equity-Income, Growth, Overseas, Investment Grade Bond, Asset Manager, and Index 500 Portfolios' average net assets. FMR may, from time to time, agree to reimburse a fund for management fees and other expenses above a specified percentage of average net assets. Reimbursement arrangements, which may be terminated at any time without notice, will increase a fund's yield. If FMR discontinues a reimbursement arrangement, each fund's expenses will go up and its yield will be reduced. FMR retains the ability to be repaid by a fund for expense reimbursements if expenses fall below the limit prior to the end of the fiscal year. Repayment by a fund will lower its yield. FMR has voluntarily agreed to reimburse the total operating expenses (excluding taxes, interest and extraordinary expenses) of Index 500 Portfolio in excess of .28% of its average net assets, Investment Grade Bond Portfolio in excess of .80% of its average net assets, High Income Portfolio in excess of 1.00% of its average net assets, Asset Manager in excess of 1.25% of its average net assets and of Equity-Income, Growth and Overseas Portfolios in excess of 1.50% of their average net assets. SHAREHOLDER'S MANUAL OPENING AN ACCOUNT SINCE YOU MAY NOT PURCHASE THE PORTFOLIOS' SHARES DIRECTLY, YOU SHOULD READ THE PROSPECTUS OF THE INSURANCE COMPANY'S SEPARATE ACCOUNT TO OBTAIN INSTRUCTIONS FOR PURCHASING A VARIABLE ANNUITY OR VARIABLE LIFE INSURANCE CONTRACT. SHARE PRICE The term "net asset value" or NAV refers to the worth of one share. The NAV is computed by adding the value of each fund's investments, cash and other assets, deducting liabilities and dividing the result by the number of shares outstanding. Each fund is open for business each day the New York Stock Exchange is open. The price of one share is its NAV which FSC normally calculates as of the close of business of the New York Stock Exchange (normally 4:00 p.m. Eastern time). Money Market Portfolio's securities are valued on the basis of amortized cost. This means of valuation assumes a steady rate of amortization of any premium or discount from the date of purchase until maturity instead of looking at actual changes in market value. High Income, Equity-Income, Growth, Investment Grade Bond, Asset Manager and Index 500 Portfolios' securities are valued primarily on the basis of market quotations. A fund's foreign securities are valued based on quotations from the primary market in which they are traded, and are translated from the local currency into U.S. dollars using current exchange rates. For all funds, other assets and securities for which market quotations are not readily available will be valued by a method which the Trust's Board believes accurately reflects fair value. INVESTMENTS Investments in each fund may be made only by separate accounts established and maintained by insurance companies for the purpose of funding variable contracts. Please refer to the prospectus of your insurance company's separate account for information on how to invest in each fund. Investments by separate accounts in each fund are expressed in terms of full and fractional shares of each fund. All investments in the funds are credited to an insurance company's separate account immediately upon acceptance of the investment by a fund. Investments will be processed at the next NAV calculated after an order is received and accepted by a fund. The offering of shares of any fund may be suspended for a period of time and each fund reserves the right to reject any specific purchase order. Purchase orders may be refused if, in FMR's opinion, they are of a size that would disrupt the management of a fund. REDEMPTIONS Shares of any fund may be redeemed on any business day. Redemptions are effected at the per share NAV next determined after receipt of the redemption request has been accepted by a fund. Redemption proceeds will normally be wired to the insurance company on the next business day after receipt of the redemption instructions by a fund but in no event later than 7 days following receipt of instructions. Each fund may suspend redemptions or postpone payment dates on days when the New York Stock Exchange is closed (other than weekend or holidays), when trading on the New York Stock Exchange is restricted, or as permitted by the Securities and Exchange Commission. Please refer to the prospectus of your insurance company's separate account for information on how to redeem from each fund. APPENDIX The following paragraphs provide a brief description of securities in which the funds may invest and transactions they may make. Each fund is not limited by this discussion, however, and may purchase other types of securities and enter into other types of transactions if they are consistent with the its investment objective and policies. MONEY MARKET refers to the marketplace where short-term, high grade debt securities are traded and includes U.S. government obligations, commercial paper, certificates of deposit and bankers' acceptances, time deposits and short-term corporate obligations. Money market instruments may carry fixed rates of return or have variable or floating interest rates. COMMERCIAL PAPER represents short-term obligations issued by banks, broker-dealers, corporations and other entities for purposes such as financing their current operations. CERTIFICATES OF DEPOSIT represent a commercial bank's obligations to repay funds deposited with it earning specified rates of interest over given periods. BANKERS' ACCEPTANCES are obligations of a bank to pay a draft which has been drawn on it by a customer. These obligations are backed by large banks and usually backed by goods in international trade. TIME DEPOSITS are non-negotiable deposits in a banking institution earning a specified interest rate over a given period of time. U.S. GOVERNMENT OBLIGATIONS are debt securities issued or guaranteed as to principal and interest by the U.S. Treasury or by an agency or instrumentality of the U.S. government. Not all U.S. government obligations are backed by the full faith and credit of the United States. For example, securities issued by the Federal Farm Credit Bank or by the Federal National Mortgage Association are supported by the agency's right to borrow money from the U.S. Treasury under certain circumstances. Securities issued by the Federal Home Loan Bank are supported only by the credit of the agency. There is no guarantee that the government will support these types of securities, and therefore they involve more risk than other government obligations. DELAYED DELIVERY TRANSACTIONS. Money Market , Investment Grade Bond and High Income Portfolios may buy and sell securities on a when-issued or delayed-delivery basis, with payment and delivery taking place at a future date. The market value of securities purchased in this way may change before the delivery date, which could affect the market value of Money Market Portfolio's assets, and could increase fluctuations in High Income and Investment Grade Bond Portfolio s' yield. Ordinarily, the funds will not earn interest on securities purchased until they are delivered. VARIABLE OR FLOATING RATE OBLIGATIONS, including certain participation interests in municipal obligations, have interest rate adjustment formulas that help stabilize their market values. Many variable and floating rate instruments also carry demand features that permit a fund to sell them at par value plus accrued interest on short notice. When determining the maturity of a variable or floating rate instrument, Money Market Portfolio may look to the date the demand feature can be exercised, or to the date the interest rate is readjusted, rather than to the final maturity of the instrument. CREDIT ENHANCEMENT AGREEMENTS may be purchased simultaneously with a money market instrument for guaranteeing principal and/or interest and may be considered with the instrument for purposes of determining the quality of the instruments. These include irrevocable note repurchase agreements or letters of credit issued by banks and guarantees provided by creditworthy institutions. A fund will purchase these agreements to enhance the creditworthiness of instruments when FMR (through yield and credit analysis) believes it is in the fund's best interest. CORPORATE OBLIGATIONS are bonds and notes issued by corporations and other business organizations in order to finance their long-term credit needs. OPTIONS AND FUTURES CONTRACTS are a way for a fund to manage its exposure to changing interest rates, security prices, and currency exchange rates. Some options and futures strategies, including selling futures, buying puts, and writing calls, tend to hedge a fund's investments against price fluctuations. Other strategies, including buying futures, writing puts, and buying calls, tend to increase market exposure. Options and futures may be combined with each other or with forward contracts in order to adjust the risk and return characteristics of the overall strategy. A fund may invest in options and futures based on any type of security, index, or currency, including options and futures traded on foreign exchanges and options not traded on exchanges. Options and futures can be volatile investments, and involve certain risks. If FMR applies a hedge at an inappropriate time or judges market conditions incorrectly, options and futures strategies may lower a fund's return. A fund could also experience losses if the prices of its options and futures positions were poorly correlated with its other investments, or if it could not close out its positions because of an illiquid secondary market. A fund will not hedge more than 25% (35% for Index 500) of their total assets by selling futures, buying puts, and writing calls under normal conditions. In addition, each fund will not buy futures or write puts whose underlying value exceeds 25% (15% for Index 500) of its total assets, and each fund will not buy calls with a value exceeding 5% of its total assets. SHORT SALES. A fund may enter into short sales with respect to stocks underlying its convertible security holdings. These transactions may help to hedge against the effect of stock price declines, but may result in losses if a convertible security's price does not track the price of its underlying equity. Convertible securities hedged with short sales are not currently expected to exceed 15% of a fund's total assets under normal conditions. LOANS AND OTHER DIRECT DEBT INSTRUMENTS are interests in amounts owed by a corporate, governmental, or other borrower to another party. They may represent amounts owed to lenders or lending syndicates (loans and loan participations), to suppliers of goods or services (trade claims or other receivables), or to other parties. Direct debt instruments involve risk of loss in case of default or insolvency of the borrower and may offer less legal protection to a fund in the event of fraud or misrepresentation. In addition, loan participations involve a risk of insolvency of the lending bank or other financial intermediary. Direct debt instruments may also include standby financing commitments that obligate a fund to supply additional cash to the borrower on demand. ILLIQUID INVESTMENTS. Each fund (other than Money Market Portfolio) may invest up to 10% of its assets (15% for High Income and Overseas Portfolios) in illiquid investments. Money Market Portfolio will invest less than 10% of its assets in illiquid investments. Under the supervision of the Board of Trustees, FMR determines the liquidity of each fund's investments. The absence of a trading market can make it difficult to ascertain a market value for illiquid investments. Disposing of illiquid investments may involve time-consuming negotiation and legal expenses, and it may be difficult or impossible for a fund to sell them promptly at an acceptable price. RESTRICTED SECURITIES. Each fund may purchase securities which cannot be sold to the public without registration under the Securities Act of 1933 (restricted securities). Unless registered for sale, these securities can only be sold in privately negotiated transactions or pursuant to an exemption from registration. INDEXED SECURITIES values are linked to currencies, interest rates, commodities, indices, or other financial indicators. Most indexed securities are short to intermediate term fixed-income securities whose values at maturity or interest rates rise or fall according to the change in one or more specified underlying instruments. Indexed securities may be positively or negatively indexed (i.e., their value may increase or decrease if the underlying instrument appreciates), and may have return characteristics similar to direct investments in the underlying instrument or to one or more options on the underlying instrument. Indexed securities may be more volatile than the underlying instrument itself. SWAP AGREEMENTS. As one way of managing its exposure to different types of investments, a fund may enter into interest rate swaps, currency swaps, and other types of swap agreements such as caps, collars, and floors. In a typical interest rate swap, one party agrees to make regular payments equal to a floating interest rate multiplied by a "notional principal amount," in return for payments equal to a fixed rate multiplied by the same amount, for a specified period of time. If a swap agreement provides for payments in different currencies, the parties might agree to exchange the notional principal amount as well. Swaps may also depend on other prices or rates, such as the value of an index or mortgage prepayment rates. In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed-upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed-upon level. An interest rate collar combines elements of buying a cap and selling a floor. Swap agreements will tend to shift a fund's investment exposure from one type of investment to another. For example, if a fund agreed to exchange payments in dollars for payments in foreign currency, the swap agreement would tend to decrease a fund's exposure to U.S. interest rates and increase its exposure to foreign currency and interest rates. Caps and floors have an effect similar to buying or writing options. Depending on how they are used, swap agreements may increase or decrease the overall volatility of a fund's investments and its share price and yield. Swap agreements are sophisticated hedging instruments that typically involve a small investment of cash relative to the magnitude of risks assumed. As a result, swaps can be highly volatile and may have a considerable impact on a fund's performance. Swap agreements are subject to risks related to the counterparty's ability to perform, and may decline in value if the counterparty's creditworthiness deteriorates. A fund may also suffer losses if it is unable to terminate outstanding swap agreements or reduce its exposure through offsetting transactions. WARRANTS. High Income, Equity-Income, Growth, Overseas, Asset Manager and Index 500 Portfolios may invest in warrants, which entitle the holder to buy equity securities at a specific price for a specific period of time. Warrants may be considered more speculative than certain other types of investments in that they do not entitle a holder to dividends or voting rights with respect to the securities which may be purchased nor do they represent any rights in the assets of the issuing company. The value of a warrant may be more volatile than the value of the warrant's underlying securities. Also, the value of the warrant does not necessarily change with the value of the underlying securities and a warrant ceases to have value if it is not exercised prior to the expiration date. MORTGAGE-BACKED SECURITIES are securities issued by government and non-government entities such as banks, mortgage lenders, or other financial institutions. A mortgage-backed security may be an obligation of the issuer backed by a mortgage or pool of mortgages or a direct interest in an underlying pool of mortgages. Some mortgage-backed securities, such as collateralized mortgage obligations or CMOs, make payments of both principal and interest at a variety of intervals; others make semiannual interest payments at a predetermined rate and repay principal at maturity (like a typical bond). Mortgage-backed securities are based on different types of mortgages including those on commercial real estate or residential properties. Other types of mortgage-backed securities will likely be developed in the future, and a fund may invest in them if FMR determines they are consistent with its investment objective and policies. The value of mortgage-backed securities may change due to shifts in the market's perception of issuers. In addition, regulatory or tax changes may adversely affect the mortgage securities market as a whole. Non-government mortgage-backed securities may offer higher yields than those issued by government entities, but also may be subject to greater price changes than government issues. Mortgage-backed securities are subject to prepayment risk. Prepayment, which occurs when unscheduled or early payments are made on the underlying mortgages, may shorten the effective maturities of these securities and may lower their total returns. STRIPPED MORTGAGE-BACKED SECURITIES are created when a U.S. government agency or a financial institution separates the interest and principal components of a mortgage-backed security and sells them as individual securities. The holder of the "principal-only" security (PO) receives the principal payments made by the underlying mortgage-backed security, while the holder of the "interest-only" security (IO) receives interest payments from the same underlying security. The prices of stripped mortgage-backed securities may be particularly affected by changes in interest rates. As interest rates fall, prepayment rates tend to increase, which tends to reduce prices of IOs and increase prices of POs. Rising interest rates can have the opposite effect. ASSET-BACKED SECURITIES may include pools of mortgages, loans, receivables or other assets. Payment of principal and interest may be largely dependent upon the cash flows generated by the assets backing the securities. ZERO COUPON BONDS do not make interest payments; instead, they are sold at a deep discount from their face value and are redeemed at face value when they mature. Because zero coupon bonds do not pay current income, their prices can be very volatile when interest rates change. In calculating its daily dividend, a fund takes into account as income a portion of the difference between a zero coupon bond's purchase price and its face value. A broker-dealer creates a derivative zero by separating the interest and principal components of a U.S. Treasury security and selling them as two individual securities. CATS (Certificates of Accrual on Treasury Securities), TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury Receipts) are examples of derivative zeros. The Federal Reserve Bank creates STRIPS (Separate Trading of Registered Interest and Principal of Securities) by separating the interest and principal components of an outstanding U.S. Treasury bond and selling them as individual securities. Bonds issued by the Resolution Funding Corporation (REFCORP) and the Financing Corporation (FICO) can also be separated in this fashion. Original issue zeros are zero coupon securities originally issued by the U.S. government, a government agency, or a corporation in zero coupon form. REPURCHASE AGREEMENTS AND SECURITIES LOANS. In a repurchase agreement, a fund buys a security at one price and simultaneously agrees to sell it back to the seller at a higher price. Each fund may also make securities loans to broker-dealers and institutional investors, including FBSI. In the event of the bankruptcy of the other party to a repurchase agreement or a securities loan, each fund could experience delays in recovering its cash or the securities it lent. To the extent that, in the meantime, the value of the securities purchased had decreased, or the value of the securities lent had increased, each fund could experience a loss. A fund may enter into a FOREIGN REPURCHASE AGREEMENT with respect to foreign securities and repurchase agreements denominated in foreign currencies. Foreign repurchase agreements may be less well secured than repurchase agreements in U.S. markets, and may involve greater risks of default. In all cases, FMR must find the creditworthiness of the other party to the transaction satisfactory. REVERSE REPURCHASE AGREEMENTS are transactions when a fund temporarily transfers possession of a portfolio instrument to another party, such as a bank or broker-dealer, in return for cash. At the same time, the fund agrees to repurchase the instrument at an agreed-upon price and time. Each fund expects that it will engage in reverse repurchase agreements for temporary purposes (except Money Market Portfolio, which may do so for any purpose) such as to fund redemptions or when it is able to invest the cash so acquired at a rate higher than the cost of the agreement, which would increase the income earned by the fund. Reverse repurchase agreements may increase the risk of fluctuation in the market value of each fund's assets or in its yield. INTERFUND BORROWING PROGRAM. Each fund has received permission from the Securities and Exchange Commission to lend money to and borrow money from other funds advised by FMR or its affiliates. Interfund loans and borrowings normally will extend overnight, but can have a maximum duration of seven days. Each fund will lend through the program only when the returns are higher than those available at the same time from other short-term instruments (such as repurchase agreements), and will borrow through the program only when the costs are equal to or lower than the cost of bank loans. Equity-Income, Growth and Overseas Portfolios cannot lend more than 5% of net assets, High Income Portfolio cannot lend more than 7.5% of net assets and Money Market Portfolio cannot lend more than 10% of net assets to other funds. Each fund will not borrow through the program if, after doing so, total outstanding borrowings would exceed 15% of its total assets. Loans may be called on one day's notice, and each fund may have to borrow from a bank at a higher interest rate if an interfund loan is called or not renewed. Any delay in repayment to a lending fund could result in a lost investment opportunity or additional borrowing costs. DEBT OBLIGATIONS. The following tables provide a summary of ratings assigned to debt holdings (not including money market instruments) held by High Income, Equity-Income, Investment Grade Bond and Asset Manager Portfolios. These percentages are dollar-weighted averages of month-end portfolio holdings during the thirteen months ended December 31, 1993, presented as a percentage of total investments. These percentages are historical and not necessarily indicative of the quality of current or future portfolio holdings, which may vary. HIGH EQUITY- ASSET INVESTMENT RATED BY INCOME INCOME MANAGER GRADE BOND S&P PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO AAA, AA, A 0.00% 1.28% 12.83% 71.42% BBB 0.86% 1.05% 0.93% 14.88% BB 10.13% 0.91% 2.68% 0.54% B 41.74% 1.39% 3.37% 0.06% CCC 5.03% 0.03% 0.04% 0.01% CC, C 0.25% 0.00% 0.00% 0.00% D 1.32% 0.02% 0.09% 0.00% HIGH EQUITY- ASSET INVESTMENT RATED BY INCOME INCOME MANAGER GRADE BOND MOODY'S PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO AAA, AA, A 0.00% 1.45% 12.49% 64.14% BBB 0.82% 0.73% 0.41% 20.02% BB 10.93% 1.26% 6.31% 1.84% B 37.56% 1.06% 5.67% 0.00% CCC 6.26% 0.03% 0.06% 0.01% CC, C 1.61% 0.00% 0.02% 0.00% D 0.00% 0.00% 0.00% 0.00% The dollar-weighted average of debt securities not rated by either S&P or Moody's amounted to 21.50%, 0.28%, 4.20%, and 0.91% , for High Income, Equity-Income, Asset Manager and Investment Grade Bond Portfolios, respectively.* * MAY INCLUDE SECURITIES RATED BY OTHER NATIONALLY RECOGNIZED RATING ORGANIZATIONS, AS WELL AS UNRATED SECURITIES. UNRATED SECURITIES ARE NOT NECESSARILY LOWER-QUALITY SECURITIES. DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS: The descriptions that follow are examples of eligible ratings for the funds. Money Market Portfolio may, however, consider the ratings for other types of investments and the ratings assigned by other rating organizations when determining the eligibility of a particular investment. AAA - Bonds rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA - Bonds rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A - Bonds rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. BAA - Bonds rated Baa are considered as medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. BA - Bonds rated Ba are judged to have speculative elements. Their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B - Bonds rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or maintenance of other terms of the contract over any long period of time may be small. CAA - Bonds rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. CA - Bonds rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked short-comings. C - Bonds rated C are the lowest-rated class of bonds and issued so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating classification from Aa through B in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. DESCRIPTION OF STANDARD & POOR'S CORPORATION'S CORPORATE BOND RATINGS: AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's to a debt obligation. Capacity to pay interest and repay principal is extremely strong. AA - Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the higher-rated issues only in small degree. A - Debt rated A has a strong capacity to pay interest and repay principal, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions. BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher-rated categories. BB - Debt rate BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. B - Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB- rating. CCC - Debt rated CCC has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, it is not likely to have the capacity to pay interest and repay principal. CC - Debt rated CC is typically applied to debt subordinated to senior debt which is assigned an actual or implied CCC debt rating. C - The rating C is typically applied to debt subordinated to senior debt which is assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed but debt service payments are continued. CI - The rating CI is reserved for income bonds on which no interest is being paid. D - Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating will also be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. The ratings from AA to CCC may be modified by the addition of a plus or minus to show relative standing within the major rating categories. VARIABLE INSURANCE PRODUCTS FUND: MONEY MARKET PORTFOLIO, HIGH INCOME PORTFOLIO EQUITY-INCOME PORTFOLIO, GROWTH PORTFOLIO AND OVERSEAS PORTFOLIO AND VARIABLE INSURANCE PRODUCTS FUND II: INVESTMENT GRADE BOND PORTFOLIO ASSET MANAGER PORTFOLIO AND INDEX 500 PORTFOLIO (THE TRUSTS) STATEMENT OF ADDITIONAL INFORMATION APRIL 30, 1994 This Statement is not a prospectus but should be read in conjunction with each Trust's current Prospectus (dated April 30, 1994). Shares of each Trust may only be purchased by the separate accounts of insurance companies. Please retain this Statement for future reference. The Annual Report to shareholders of each Trust for the year ended December 31, 1993 is incorporated herein by reference. To obtain additional copies of the Prospectuses or Annual Reports, please call Fidelity Distributors Corporation at 1-800-544-8888. TABLE OF CONTENTS PAGE Investment Policies and Limitations 2 Portfolio Transactions 12 Valuation of Fund Securities 14 Performance 15 General Information 21 Additional Purchase and Redemption Information 22 Taxes 22 FMR 23 Trustees and Officers 23 Management Contracts 26 Distribution and Service Plans 30 Contracts With Companies Affiliated With FMR 30 Summary of the Funds' Expenses 31 Description of the Trust 32 Financial Statements 33 Appendix 33 INVESTMENT ADVISOR Fidelity Management & Research Company SUB-ADVISORS Money Market Portfolio: FMR Texas Inc. High Income and Asset Manager Portfolios: Fidelity Management & Research (U.K.) Inc. Fidelity Management & Research (Far East) Inc. Overseas Portfolio: Fidelity Management & Research (U.K.) Inc. Fidelity Management & Research (Far East) Inc. Fidelity International Investment Advisors Fidelity International Investment Advisors (U.K.) Limited DISTRIBUTOR Fidelity Distributors Corporation (FDC) TRANSFER AGENT Fidelity Investments Institutional Operations Company (FIIOC) VIP-comb/ptB-- 4/94 INVESTMENT POLICIES AND LIMITATIONS The following policies and limitations supplement those set forth in the Prospectus. Unless otherwise noted, whenever an investment policy or limitation states a maximum percentage of a fund's assets that may be invested in any security or other asset, or sets forth a policy regarding quality standards, such standard or percentage limitation will be determined immediately after and as a result of the fund's acquisition of such security or other asset. Accordingly, any subsequent change in values, net assets, or other circumstances will not be considered when determining whether the investment complies with the fund's investment policies and limitations. Each fund's fundamental investment policies and limitations cannot be changed without approval by a "majority of the outstanding voting securities" (as defined in the Investment Company Act of 1940) of each fund. However, except for the fundamental investment limitations set forth below, the investment policies and limitations described in this Statement of Additional Information are not fundamental and may be changed without shareholder approval. MONEY MARKET PORTFOLIO THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS. THE FUND MAY NOT: (1) purchase the securities of any issuer (other than obligations issued or guaranteed as to principal and interest by the United States, its agencies or instrumentalities) if, as a result, more than 5% of its total assets would be invested in the securities of such issuer, provided, however, that with respect to 25% of its total assets, 10% of its assets may be invested in the securities of any single issuer; (2) issue senior securities, except as permitted under the Investment Company Act of 1940; (3) borrow money, except that the fund may (i) borrow money for temporary or emergency purposes (not for leveraging or investment) and (ii) engage in reverse repurchase agreements for any purpose; provided that (i) and (ii) in combination do not exceed 33 1/3% of the fund's total assets (including the amount borrowed) less liabilities (other than borrowings). Any borrowings that come to exceed this amount will be reduced within three days (not including Sundays and holidays) to the extent necessary to comply with the 33 1/3% limitation; (4) underwrite securities issued by others, except to the extent that the fund may be considered an underwriter within the meaning of the Securities Act of 1933 in the disposition of restricted securities; (5) purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities) if, as a result, more than 25% of the fund's total assets would be invested in the securities of companies whose principal business activities are in the same industry, except that the fund will invest more than 25% of its total assets in the financial services industry; (6) purchase or sell real estate unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business); (7) purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments; (8) lend any security or make any other loan if, as a result, more than 33 1/3% of its total assets would be lent to other parties, but this limitation does not apply to purchases of debt securities or to repurchase agreements; or (9) invest in companies for the purpose of exercising control or management. THE FOLLOWING INVESTMENT LIMITATIONS FOR MONEY MARKET PORTFOLIO ARE NOT FUNDAMENTAL AND MAY BE CHANGED WITHOUT SHAREHOLDER NOTIFICATION. (i) The fund does not currently intend to purchase a security (other than a security issued or guaranteed by the U.S. government or any of its agencies or instrumentalities) if, as a result, more than 5% of its total assets would be invested in the securities of a single issuer; provided that the fund may invest up to 10% of its total assets in the first tier securities of a single issuer for up to three business days. (ii) The fund does not currently intend to sell securities short, unless it owns or has the right to obtain securities equivalent in kind and amount to the securities sold short, and provided that transactions in futures contracts and options are not deemed to constitute selling securities short. (iii) The fund does not currently intend to purchase securities on margin, except that the fund may obtain such short-term credits as are necessary for the clearance of transactions, and provided that margin payments in connection with futures contracts and options on futures contracts shall not constitute purchasing securities on margin. (iv) The fund may borrow money only (a) from a bank or from a registered investment company or portfolio for which FMR or an affiliate serves as investment advisor or (b) by engaging in reverse repurchase agreements with any party. The fund will not borrow money in excess of 25% of net assets so long as this limitation is required for certification by certain state insurance departments. The fund will not purchase any security while borrowings (excluding reverse repurchase agreements) representing more than 5% of its total assets are outstanding. The fund will not borrow from other funds advised by FMR or its affiliates if total outstanding borrowings immediately after such borrowing would exceed 15% of the fund's total assets. (v) The fund does not currently intend to purchase any security if, as a result, more than 10% of its net assets would be invested in securities that are deemed to be illiquid because they are subject to legal or contractual restrictions on resale or because they cannot be sold or disposed of in the ordinary course of business at approximately the prices at which they are valued. (vi) The fund does not currently intend to purchase or sell futures contracts or call options. This limitation does not apply to options attached to, or acquired or traded together with, their underlying securities, and does not apply to securities that incorporate features similar to options or futures contracts. (vii) The fund does not currently intend to lend assets other than securities to other parties, except by lending money (up to 10% of the fund's net assets) to a registered investment company or portfolio for which FMR or an affiliate serves as investment advisor. (This limit does not apply to purchases of debt securities or to repurchase agreements.) (viii) The fund does not currently intend to (a) purchase securities of other investment companies, except in the open market where no commission except the ordinary broker's commission is paid, or (b) purchase or retain securities issued by other open-end investment companies. Limitations (a) and (b) do not apply to securities received as dividends, through offers of exchange, or as a result of a reorganization, consolidation, or merger. (Due to certain state insurance regulations, the fund does not currently intend to purchase the securities of other investment companies.) (ix) The fund does not currently intend to invest in oil, gas, or other mineral exploration or development programs or leases. Investments may be made in U.S. dollar-denominated time deposits, certificates of deposit and bankers' acceptances of U.S. banks and their branches located outside of the U.S., U.S. branches and agencies of foreign banks, and foreign branches of foreign banks. The fund may also invest in U.S. dollar-denominated securities issued or guaranteed by other U.S. or foreign issuers, including U.S. and foreign corporations or other business organizations, foreign governments and foreign government agencies or instrumentalities, and U.S. and foreign financial institutions, including savings and loan institutions, insurance companies, mortgage bankers and real estate investment trusts, as well as banks. The fund may purchase obligations of banks, savings and loan institutions and other financial institutions whose creditworthiness might not otherwise meet the fund's standards, provided that (i) the principal amount of the instrument acquired by the fund is insured in full by the Federal Deposit Insurance Corporation and (ii) the aggregate investment made in any one such bank or institution does not exceed $100,000. The obligations of foreign branches of U.S. banks may be general obligations of the parent bank in addition to the issuing branch, or may be limited by the terms of a specific obligation and by federal and state regulation. Payment of interest and principal upon these obligations may also be affected by governmental action in the country of domicile of the branch (generally referred to as sovereign risk). In addition, evidences of ownership of portfolio securities may be held outside of the U.S. and the fund may be subject to the risks associated with the holding of such property overseas. Various provisions of federal law governing the establishment and operation of domestic branches do not apply to foreign branches of domestic banks. Obligations of U.S. branches and agencies of foreign banks may be general obligations of the parent bank in addition to the issuing branch, or may be limited by the terms of a specific obligation and by federal and state regulation as well as by governmental action in the country in which the foreign bank has its head office. Obligations of foreign issuers also involve certain additional risks. Foreign issuers may be subject to less governmental regulation and supervision than U.S. issuers. Foreign issuers also generally are not bound by uniform accounting, auditing and financial reporting requirements comparable to those applicable to U.S. issuers. HIGH INCOME, EQUITY-INCOME, GROWTH, OVERSEAS, INVESTMENT GRADE BOND, ASSET MANAGER AND INDEX 500 PORTFOLIOS THE FOLLOWING ARE HIGH INCOME, EQUITY-INCOME, GROWTH, OVERSEAS, INVESTMENT GRADE BOND, ASSET MANAGER AND INDEX 500 PORTFOLIOS' FUNDAMENTAL INVESTMENT LIMITATIONS. EACH FUND MAY NOT: (1) with respect to 75% of the fund's total assets, purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities) if, as a result, (a) more than 5% of the fund's total assets would be invested in the securities of that issuer, or (b) the fund would hold more than 10% of the outstanding voting securities of that issuer; (2) issue senior securities, except as permitted under the Investment Company Act of 1940; (3) (for High Income, Equity-Income, Growth and Overseas Portfolios) borrow money, except that the fund (i) may borrow money for temporary or emergency purposes (not for leveraging or investment) or (ii) engage in reverse repurchase agreements, provided that (i) and (ii) in combination (borrowings) do not exceed 33 1/3% of its total assets (including the amount borrowed) less liabilities (other than borrowings). Any borrowings that come to exceed 33 1/3% of the value of the fund's total assets by reason of a decline in net assets will be reduced within three days (exclusive of Sundays and holidays) to the extent necessary to comply with the 33 1/3% limitation; (for Investment Grade Bond, Asset Manager and Index 500 Portfolios) borrow money, except that the fund may borrow money for temporary or emergency purposes (not for leveraging or investment) in an amount not exceeding 33 1/3% of its total assets (including the amount borrowed) less liabilities (other than borrowings). Any borrowings that come to exceed this amount will be reduced within three days (not including Sundays and holidays) to the extent necessary to comply with the 33 1/3% limitation; (4) underwrite securities issued by others, except to the extent that the fund may be considered an underwriter within the meaning of the Securities Act of 1933 in the disposition of restricted securities; (5) purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities) if, as a result, more than 25% of its total assets would be invested in the securities of companies whose principal business activities are in the same industry; (6) purchase or sell real estate unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business); (7) purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the fund from purchasing or selling options and futures contracts or from investing in securities or other instruments backed by physical commodities); or (8) lend any security or make any other loan if, as a result, more than 33 1/3% of its total assets would be lent to other parties, but this limitation does not apply to purchases of debt securities or to repurchase agreements. THE FOLLOWING INVESTMENT LIMITATIONS FOR HIGH INCOME, EQUITY-INCOME, GROWTH, OVERSEAS, INVESTMENT GRADE BOND, ASSET MANAGER AND INDEX 500 PORTFOLIOS ARE NOT FUNDAMENTAL AND MAY BE CHANGED WITHOUT SHAREHOLDER NOTIFICATION. (i) Each fund does not currently intend to sell securities short, unless it owns or has the right to obtain securities equivalent in kind and amount to the securities sold short, and provided that transactions in futures contracts and options are not deemed to constitute selling securities short. (ii) Each fund does not currently intend to purchase securities on margin, except that the fund may obtain such short-term credits as are necessary for the clearance of transactions, and provided that margin payments in connection with futures contracts and options on futures contracts shall not constitute purchasing securities on margin. (iii) Each fund may borrow money only (a) from a bank or from a registered investment company or portfolio for which FMR or an affiliate serves as investment advisor or (b) by engaging in reverse repurchase agreements with any party (reverse repurchase agreements are treated as borrowings for purposes of fundamental investment limitation (3)). Each fund will not borrow money in excess of 25% of net assets so long as this limitation is required for certification by certain state insurance departments. Any borrowings that come to exceed this amount will be reduced within seven days (not including Sundays and holidays) to the extent necessary to comply with the 25% limitation. Each fund will not purchase any security while borrowings representing more than 5% of its total assets are outstanding. Each fund will not borrow from other funds advised by FMR or its affiliates if total outstanding borrowings immediately after such borrowing would exceed 15% of the fund's total assets. (iv) Each fund does not currently intend to purchase any security if, as a result, more than 10% of Equity-Income, Growth, Investment Grade Bond, Asset Manager and Index 500 Portfolios' net assets and 15% of High Income and Overseas Portfolio's net assets would be invested in securities that are deemed to be illiquid because they are subject to legal or contractual restrictions on resale or because they cannot be sold or disposed of in the ordinary course of business at approximately the prices at which they are valued. (v) Each fund does not currently intend to lend assets other than securities to other parties, except by: (a) lending money (up to 5% of net assets for Equity-Income, Growth, Overseas, Asset Manager and Index 500 Portfolios and 7.5% of net assets for High Income and Investment Grade Bond Portfolios) to a registered investment company or portfolio for which FMR or an affiliate serves as investment advisor or (b) acquiring loans, loan participations, or other forms of direct debt instruments and, in connection therewith, assuming any associated unfunded commitments of the sellers. (This limitation does not apply to purchases of debt securities or to repurchase agreements.) (vi) Each fund does not currently intend to (a) purchase securities of other investment companies, except in the open market where no commission except the ordinary broker's commission is paid, or (b) purchase or retain securities issued by other open-end investment companies. Limitations (a) and (b) do not apply to securities received as dividends, through offers of exchange, or as a result of a reorganization, consolidation, or merger. (Due to certain state insurance regulations, each fund does not currently intend to purchase the securities of other investment companies.) (vii) Each fund does not currently intend to invest in oil, gas, or other mineral exploration or development programs or leases. (viii) Growth and Overseas Portfolios do not currently intend to purchase a security if, as a result, greater than 5% of its net assets would be invested in debt securities rated Ba or lower by Moody's Investors Service, Inc. or BB or lower by Standard & Poor's Corporation. For each fund's limitations on futures and options transactions, see the section entitled "Limitations on Futures and Options Transactions." For limitations on short sales, see the section entitled "Short Sales." Higher yielding, fixed-income securities of the type in which High Income Portfolio invests will at times be purchased at a discount from or a premium over par value. The total return on such securities includes the potential for a capital gain or loss. High Income Portfolio generally does not intend to hold securities for the purpose of achieving capital gains, however, unless current yields on these securities remain attractive. Capital gain or loss may also be realized upon the sale of portfolio securities. The U.S. government has from time to time in the past imposed restrictions, through taxation and otherwise, on foreign investments by U.S. investors such as the funds. If such restrictions should be reinstituted, it might become necessary for Overseas Portfolio to invest all or substantially all of its assets in U.S. securities. In such event, the Board of Trustees would reevaluate the fund's investment objective and policies. In accordance with the funds' fundamental investment policies, there are no limitations on the percentage of the funds' assets which may be invested in any one type of instrument. Nor are there limitations (except those imposed by certain state insurance regulations) on the percentage of the funds' assets which may be invested in any foreign country. However, in order to comply with diversification requirements under Section 817(h) of the Internal Revenue Code of 1986, as amended, in connection with FMR serving as investment advisor, each fund has agreed to certain non-fundamental limitations. Please refer to your insurance company's separate account prospectus for more information. AFFILIATED BANK TRANSACTIONS. A fund may engage in transactions with financial institutions that are, or may be considered to be, "affiliated persons" of the fund under the Investment Company Act of 1940. These transactions may include repurchase agreements with custodian banks; short-term obligations of, and repurchase agreements with, the 50 largest U.S. banks (measured by deposits); municipal securities; U.S. government securities with affiliated financial institutions that are primary dealers in these securities; short-term currency transactions; and short-term borrowings. In accordance with exemptive orders issued by the Securities and Exchange Commission (SEC), the Board of Trustees has established and periodically reviews procedures applicable to transactions involving affiliated financial institutions. FUNDS' RIGHTS AS A SHAREHOLDER. Each fund does not intend to direct or administer the day-to-day operations of any company. Each fund, however, may exercise its rights as a shareholder and may communicate its views on important matters of policy to management, the Board of Directors, and shareholders of a company when FMR determines that such matters could have a significant effect on the value of each fund's investment in the company. The activities that each fund may engage in, either individually or in conjunction with others, may include, among others, supporting or opposing proposed changes in a company's corporate structure or business activities; seeking changes in a company's directors or management; seeking changes in a company's direction or policies; seeking the sale or reorganization of the company or a portion of its assets; or supporting or opposing third party takeover efforts. This area of corporate activity is increasingly prone to litigation and it is possible that each fund could be involved in lawsuits related to such activities. FMR will monitor such activities with a view to mitigating, to the extent possible, the risk of litigation against each fund and the risk of actual liability if each fund is involved in litigation. No guarantee can be made, however, that litigation against each fund will not be undertaken or liabilities incurred. ASSET-BACKED SECURITIES may include pools of mortgages, loans, receivables or other assets. Payment of principal and interest may be largely dependent upon the cash flows generated by the assets backing the securities, and, in certain cases, supported by letters of credit, surety bonds, or other credit enhancements. The value of asset-backed securities may also be affected by the creditworthiness of the servicing agent for the pool, the originator of the loans or receivables, or the financial institution(s) providing the credit support. VARIABLE OR FLOATING RATE OBLIGATIONS bear variable or floating interest rates and carry rights that permit holders to demand payment of the unpaid principal balance plus accrued interest from the issuers or certain financial intermediaries. Floating rate instruments have interest rates that change whenever there is a change in a designated base rate while variable rate instruments provide for a specified periodic adjustment in the interest rate. These formulas are designed to result in a market value for the instrument that approximates its par value. A demand instrument with a conditional demand feature must have received both a short-term and a long-term high-quality rating or, if unrated, have been determined to be of comparable quality pursuant to procedures adopted by the Board of Trustees. A demand instrument with an unconditional demand feature may be acquired solely in reliance upon a short-term high-quality rating or, if unrated, upon a finding of comparable short-term quality pursuant to procedures adopted by the Board of Trustees. Money Market Portfolio may invest in variable or floating rate instruments that ultimately mature in more than 397 days, if the fund acquires a right to sell the instruments that meets certain requirements set forth in Rule 2a-7. Variable rate instruments (including instruments subject to a demand feature) that mature in 397 days or less and U.S. government securities with a variable rate of interest adjusted no less frequently than 762 days may be deemed to have maturities equal to the period remaining until the next readjustment of the interest rate. Other variable rate instruments with demand features may be deemed to have a maturity equal to the period remaining until the next adjustment of the interest rate or the period remaining until the principal amount can be recovered through demand. A floating rate instrument subject to a demand feature may be deemed to have a maturity equal to the period remaining until the principal amount can be recovered through demand. REPURCHASE AGREEMENTS are transactions in which a fund purchases a security and simultaneously commits to resell that security to the seller at an agreed upon price upon demand on an agreed upon date within a specified number of days from the date of purchase. The resale price reflects the purchase price plus an agreed upon incremental amount which is unrelated to the coupon rate or maturity of the purchased security. A repurchase agreement involves the obligation of the seller to pay the agreed upon price, which obligation is in effect secured by the value (at least equal to the amount of the agreed upon resale price and marked to market daily) of the underlying security. Each fund may engage in a repurchase agreement with respect to any security in which it is authorized to invest even though the underlying security's maturity may be more than one year. While it does not presently appear possible to eliminate all risks from these transactions (particularly the possibility of a decline in the market value of the underlying securities, as well as delay and costs to each fund in connection with bankruptcy proceedings), it is the policy of each fund to limit repurchase transactions to those whose creditworthiness has been reviewed and found satisfactory by FMR. Pursuant to an Exemptive Order issued by the SEC, the Money Market Portfolio, along with other registered investment companies having management contracts with FMR, may invest in a pool of one or more large overnight repurchase agreements. The repurchase agreements' underlying securities are U.S. government securities in which the fund is permitted to invest. FOREIGN REPURCHASE AGREEMENTS may include agreements to purchase and sell foreign securities in exchange for fixed U.S. dollar amounts, or in exchange for specified amounts of foreign currency. Unlike typical U.S. repurchase agreements, foreign repurchase agreements may not be fully collateralized at all times. The value of the security purchased by a fund may be more or less than the price at which the counterparty has agreed to repurchase the security. In the event of a default by the counterparty, a fund may suffer a loss if the value of the security purchased is less than the agreed-upon repurchase price, or if a fund is unable to successfully assert a claim to the collateral under foreign laws. As a result, foreign repurchase agreements may involve higher credit risks than repurchase agreements in U.S. markets, as well as risks associated with currency fluctuations. In addition, as with other emerging market investments, repurchase agreements with counterparties located in emerging markets or relating to emerging market securities may involve issuers or counterparties with lower credit ratings than typical U.S. repurchase agreements. REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a fund sells a portfolio instrument to another party, such as a bank or broker-dealer, in return for cash and agrees to repurchase the instrument at a particular price and time. While a reverse repurchase agreement is outstanding, a fund will maintain appropriate liquid assets in a segregated custodial account to cover its obligation under the agreement. A fund will enter into reverse repurchase agreements only with parties whose creditworthiness has been reviewed and found satisfactory by FMR. Such transactions may increase fluctuations in the market value of a fund's assets and may be viewed as a form of leverage. SECURITIES LENDING. Each fund may lend securities to parties such as broker-dealers or institutional investors, including Fidelity Brokerage Services, Inc. (FBSI). FBSI is a member of the New York Stock Exchange (NYSE) and a subsidiary of FMR Corp. Securities lending allows a fund to retain ownership of the securities loaned and, at the same time, to earn additional income. Since there may be delays in the recovery of loaned securities, or even a loss of rights in collateral supplied should the borrower fail financially, loans will be made only to parties deemed by FMR to be of good standing. Furthermore, they will only be made if, in FMR's judgment, the consideration to be earned from such loans would justify the risk. FMR understands that it is the current view of the SEC Staff that a fund may engage in loan transactions only under the following conditions: (1) the fund must receive 100% collateral in the form of cash or cash equivalents (e.g., U.S. Treasury bills or notes) from the borrower; (2) the borrower must increase the collateral whenever the market value of the securities loaned (determined on a daily basis) rises above the value of the collateral; (3) after giving notice, the fund must be able to terminate the loan at any time; (4) the fund must receive reasonable interest on the loan or a flat fee from the borrower, as well as amounts equivalent to any dividends, interest, or other distributions on the securities loaned and to any increase in market value; (5) the fund may pay only reasonable custodian fees in connection with the loan; and (6) the Board of Trustees must be able to vote proxies on the securities loaned, either by terminating the loan or by entering into an alternative arrangement with the borrower. Cash received through loan transactions may be invested in any security in which the fund is authorized to invest. Investing this cash subjects that investment, as well as the security loaned, to market forces (i.e., capital appreciation or depreciation). DELAYED DELIVERY TRANSACTIONS are transactions that involve a commitment by fund to purchase or sell specific securities at a predetermined price and/or yield, with payment and delivery taking place after the customary settlement period for that type of security (and more than seven days in the future). Typically, no interest accrues to the purchaser until the security is delivered. High Income Portfolio may receive fees for entering into delayed-delivery transactions. When purchasing securities on a delayed-delivery basis, each fund assumes the rights and risks of ownership, including the risk of price and yield fluctuations. Because each fund is not required to pay for securities until the delivery date, these risks are in addition to the risks associated with each fund's other investments. If each fund remains substantially fully invested at a time when delayed-delivery purchases are outstanding, the delayed-delivery purchases may result in a form of leverage. When delayed-delivery purchases are outstanding, each fund will set aside appropriate liquid assets in a segregated custodial account to cover its purchase obligations. When a fund has sold a security on a delayed-delivery basis, that fund does not participate in further gains or losses with respect to the security. If the other party to a delayed-delivery transaction fails to deliver or pay for the securities, each fund could miss a favorable price or yield opportunity, or could suffer a loss. Each fund may renegotiate delayed-delivery transactions after they are entered into, and may sell underlying securities before they are delivered, which may result in capital gains or losses. ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in the ordinary course of business at approximately the prices at which they are valued. Under the supervision of the Board of Trustees, FMR determines the liquidity of each fund's investments and, through reports from FMR, the Board monitors investments in illiquid instruments. In determining the liquidity of each fund's investments, FMR may consider various factors, including (1) the frequency of trades and quotations, (2) the number of dealers and prospective purchasers in the marketplace, (3) dealer undertakings to make a market, (4) the nature of the security (including any demand or tender features), and (5) the nature of the marketplace for trades (including the ability to assign or offset each fund's rights and obligations relating to the investment). Investments currently considered by Money Market Portfolio to be illiquid include repurchase agreements not entitling the holder to payment of principal and interest within seven days. Also, FMR may determine some restricted securities and time deposits to be illiquid. Investments currently considered by each fund other than Money Market Portfolio to be illiquid include repurchase agreements not entitling the holder to payment of principal and interest within seven days, over-the-counter options and non-government stripped fixed-rate mortgage-backed securities. Also, FMR may determine some restricted securities, government-stripped fixed-rate mortgage-backed securities, loans and other direct debt instruments, and swap agreements to be illiquid. However, with respect to over-the-counter options a fund writes, all or a portion of the value of the underlying instrument may be illiquid depending on the assets held to cover the option and the nature and terms of any agreement each fund may have to close out the option before expiration. In the absence of market quotations, illiquid investments for Money Market Portfolio are valued for purposes of monitoring amortized cost valuation at fair value as determined in good faith by a committee appointed by the Board of Trustees. For all other funds, illiquid investments are priced at fair value as determined in good faith by a committee appointed by the Board of Trustees. If through a change in values, net assets, or other circumstances, each fund were in a position where 10% or more than Money Market Portfolio's net assets and more than 10% of Equity-Income, Growth, Investment Grade Bond, Asset Manager and Index 500 Portfolios' net assets and more than 15% of High Income and Overseas Portfolio's net assets were invested in illiquid securities, each fund would seek to take appropriate steps to protect liquidity. RESTRICTED SECURITIES generally can be sold in privately negotiated transactions, pursuant to an exemption from registration under the Securities Act of 1933, or in a registered public offering. Where registration is required, each fund may be obligated to pay all or part of the registration expense and a considerable period may elapse between the time it decides to seek registration and the time each fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, each fund might obtain a less favorable price than prevailed when it decided to seek registration of the security. However, in general, Money Market Portfolio anticipates holding restricted securities to maturity or selling them in an exempt transaction. SWAP AGREEMENTS. (excludes Money Market Portfolio) Swap agreements can be individually negotiated and structured to include exposure to a variety of different types of investments or market factors. Depending on their structure, swap agreements may increase or decrease a fund's exposure to long or short-term interest rates (in the U.S. or abroad), foreign currency values, mortgage securities, corporate borrowing rates, or other factors such as security prices or inflation rates. Swap agreements can take many different forms and are known by a variety of names. The funds are not limited to any particular form of swap agreement if FMR determines it is consistent with a fund's investment objective and policies. In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed-upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed-upon level. An interest rate collar combines elements of buying a cap and selling a floor. Swap agreements will tend to shift a fund's investment exposure from one type of investment to another. For example, if a fund agreed to exchange payments in dollars for payments in foreign currency, the swap agreements would tend to decrease the portfolio's exposure to U.S. interest rates and increase exposure to foreign currency and interest rates. Caps and floors have an effect similar to buying or writing options. Depending on how they are used, swap agreements may increase or decrease the overall volatility of a fund's investments and its share price and yield. The most significant factor in the performance of swap agreements is the change in the specific interest rate, currency, or other factors that determine the amounts of payments due to and from a fund. If a swap agreement calls for payments by a fund, it must be prepared to make such payments when due. In addition, if the counterparty's creditworthiness declined, the value of a swap agreement would be likely to decline, potentially resulting in losses. A fund expects to be able to eliminate its exposure under swap agreements either by assignment or other disposition, or by entering into an offsetting swap agreement with the same party or a similarly creditworthy party. Each fund will maintain appropriate liquid assets in a segregated custodial account to cover its current obligations under swap agreements. If a fund enters into a swap agreement on a net basis, it will segregate assets with a daily value at least equal to the excess, if any, of its accrued obligations under the swap agreement over the accrued amount it is entitled to receive under the agreement. If a fund enters into a swap agreement on other than a net basis, it will segregate assets with a value equal to the full amount of its accrued obligations under the agreement. INDEXED SECURITIES. Each fund may purchase securities whose prices are indexed to the prices of other securities, securities indices, currencies, precious metals or other commodities, or other financial indicators. Indexed securities typically, but not always, are debt securities or deposits whose value at maturity or coupon rate is determined by reference to a specific instrument or statistic. Gold-indexed securities, for example, typically provide for a maturity value that depends on the price of gold, resulting in a security whose price tends to rise and fall together with gold prices. Currency-indexed securities typically are short-term to intermediate-term debt securities whose maturity values or interest rates are determined by reference to the values of one or more specified foreign currencies, and may offer higher yields than U.S. dollar-denominated securities of equivalent issuers. Currency-indexed securities may be positively or negatively indexed; that is, their maturity value may increase when the specified currency value increases, resulting in a security that performs similarly to a foreign-denominated instrument, or their maturity value may decline when foreign currencies increase, resulting in a security whose price characteristics are similar to a put on the underlying currency. Currency-indexed securities may also have prices that depend on the values of a number of different foreign currencies relative to each other. The performance of indexed securities depends to a great extent on the performance of the security, currency, or other instrument to which they are indexed, and may also be influenced by interest rate changes in the U.S. and abroad. At the same time, indexed securities are subject to the credit risks associated with the issuer of the security, and their values may decline substantially if the issuer's creditworthiness deteriorates. Recent issuers of indexed securities have included banks, corporations, and certain U.S. government agencies. FMR will use its judgment in determining whether indexed securities should be treated as short-term instruments, bonds, stocks, or as a separate asset class for purposes of a fund's investment allocations, depending on the individual characteristics of the securities. Indexed securities may be more volatile than the underlying instruments. WARRANTS. (excludes Money Market Portfolio) Warrants are securities that give a fund the right to purchase equity securities from the issuer at a specific price (the strike price) for a limited period of time. The strike price of warrants typically is much lower than the current market price of the underlying securities, yet they are subject to similar price fluctuations. As a result, warrants may be more volatile investments than the underlying securities and may offer greater potential for capital appreciation as well as capital loss. Warrants do not entitle a holder to dividends or voting rights with respect to the underlying securities and do not represent any rights in the assets of the issuing company. Also, the value of the warrant does not necessarily change with the value of the underlying securities and a warrant ceases to have value if it is not exercised prior to the expiration date. These factors can make warrants more speculative than other types of investments. LOANS AND OTHER DIRECT DEBT INSTRUMENTS. (excludes Money Market Portfolio) Direct debt instruments are interests in amounts owed by a corporate, governmental, or other borrower to lenders or lending syndicates (loans and loan participations), to suppliers of goods or services (trade claims or other receivables), or to other parties. Direct debt instruments are subject to a fund's policies regarding the quality of debt securities. Purchasers of loans and other forms of direct indebtedness depend primarily upon the creditworthiness of the borrower for payment of principal and interest. Direct debt instruments may not be rated by any nationally recognized rating service. If a fund does not receive scheduled interest or principal payments on such indebtedness, a fund's share price and yield could be adversely affected. Loans that are fully secured offer a fund more protections than an unsecured loan in the event of non-payment of scheduled interest or principal. However, there is no assurance that the liquidation of collateral from a secured loan would satisfy the borrower's obligation, or that the collateral could be liquidated. Indebtedness of borrowers whose creditworthiness is poor involves substantially greater risks, and may be highly speculative. Borrowers that are in bankruptcy or restructuring may never pay off their indebtedness, or may pay only a small fraction of the amount owed. Direct indebtedness of developing countries also involves a risk that the governmental entities responsible for the repayment of the debt may be unable, or unwilling, to pay interest and repay principal when due. Investments in loans through direct assignment of a financial institution's interests with respect to a loan may involve additional risks to a fund. For example, if a loan is foreclosed, a fund could become part owner of any collateral, and would bear the costs and liabilities associated with owning and disposing of the collateral. In addition, it is conceivable that under emerging legal theories of lender liability, a fund could be held liable as a co-lender. Direct debt instruments may also involve a risk of insolvency of the lending bank or other intermediary. Direct debt instruments that are not in the form of securities may offer less legal protection to a fund in the event of fraud or misrepresentation. In the absence of definitive regulatory guidance, a fund relies on FMR's research in an attempt to avoid situations where fraud or misrepresentation could adversely affect a fund. A loan is often administered by a bank or other financial institution that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. Unless, under the terms of the loan or other indebtedness, a fund has direct recourse against the borrower, it may have to rely on the agent to apply appropriate credit remedies against a borrower. If assets held by the agent for the benefit of a fund were determined to be subject to the claims of the agent's general creditors, a fund might incur certain costs and delays in realizing payment on the loan or loan participation and could suffer a loss of principal or interest. Direct indebtedness purchased by a fund may include letters of credit, revolving credit facilities, or other standby financing commitments obligating a fund to pay additional cash on demand. These commitments may have the effect of requiring a fund to increase its investment in a borrower at a time when it would not otherwise have done so, even if the borrower's condition makes it unlikely that the amount will ever be repaid. A fund will set aside appropriate liquid assets in a segregated custodial account to cover its potential obligations under standby financing commitments. A fund limits the amount of total assets that it will invest in any one issuer or in issuers within the same industry (see limitations 1 and 5). For purposes of these limitations, a fund generally will treat the borrower as the "issuer" of indebtedness held by a fund. In the case of loan participations where a bank or other lending institution serves as financial intermediary between a fund and the borrower, if the participation does not shift to a fund the direct debtor-creditor relationship with the borrower, SEC interpretations require a fund, in appropriate circumstances, to treat both the lending bank or other lending institution and the borrower as "issuers" for these purposes. Treating a financial intermediary as an issuer of indebtedness may restrict a fund's ability to invest in indebtedness related to a single financial intermediary, or a group of intermediaries engaged in the same industry, even if the underlying borrowers represent many different companies and industries. FOREIGN INVESTMENTS. Foreign investments can involve significant risks in addition to the risks inherent in U.S. investments. The value of securities denominated in or indexed to foreign currencies, and of dividends and interest from such securities, can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets, and prices on some foreign markets can be highly volatile. Many foreign countries lack uniform accounting and disclosure standards comparable to those applicable to U.S. companies, and it may be more difficult to obtain reliable information regarding an issuer's financial condition and operations. In addition, the costs of foreign investing, including withholding taxes, brokerage commissions, and custodial costs, are generally higher than for U.S. investments. Foreign markets may offer less protection to investors than U.S. markets. Foreign issuers, brokers, and securities markets may be subject to less government supervision. Foreign security trading practices, including those involving the release of assets in advance of payment, may involve increased risks in the event of a failed trade or the insolvency of a broker-dealer, and may involve substantial delays. It may also be difficult to enforce legal rights in foreign countries. Investing abroad also involves different political and economic risks. Foreign investments may be affected by actions of foreign governments adverse to the interests of U.S. investors, including the possibility of expropriation or nationalization of assets, confiscatory taxation, restrictions on U.S. investment or on the ability to repatriate assets or convert currency into U.S. dollars, or other government intervention. There may be a greater possibility of default by foreign governments or foreign government-sponsored enterprises. Investments in foreign countries also involve a risk of local political, economic, or social instability, military action or unrest, or adverse diplomatic developments. There is no assurance that FMR will be able to anticipate these potential events or counter their effects. The considerations noted above generally are intensified for investments in developing countries. Developing countries may have relatively unstable governments, economies based on only a few industries, and securities markets that trade a small number of securities. Each fund may invest in foreign securities that impose restrictions on transfer within the U.S. or to U.S. persons. Although securities subject to transfer restrictions may be marketable abroad, they may be less liquid than foreign securities of the same class that are not subject to such restrictions. American Depositary Receipts and European Depositary Receipts (ADRs and EDRs) are certificates evidencing ownership of shares of a foreign-based issuer held in trust by a bank or similar financial institution. Designed for use in U.S. and European securities markets, respectively, ADRs and EDRs are alternatives to the purchase of the underlying securities in their national markets and currencies. FOREIGN CURRENCY TRANSACTIONS. The following information is of particular importance to Overseas Portfolio. Each fund may conduct foreign currency transactions on a spot (i.e., cash) basis or by entering into forward contracts to purchase or sell foreign currencies at a future date and price. The funds will convert currency on a spot basis from time to time, and investors should be aware of the costs of currency conversion. Although foreign exchange dealers generally do not charge a fee for conversion, they do realize a profit based on the difference between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to a fund at one rate, while offering a lesser rate of exchange should the fund desire to resell that currency to the dealer. Forward contracts are generally traded in an interbank market conducted directly between currency traders (usually large commercial banks) and their customers. The parties to a forward contract may agree to offset or terminate the contract before its maturity, or may hold the contract to maturity and complete the contemplated currency exchange. Each fund may use currency forward contracts for any purpose consistent with its investment objective. The following discussion summarizes some, but not all, of the possible currency management strategies involving forward contracts that could be used by the funds. The funds (except for Money Market Portfolio) may also use options and futures contracts relating to foreign currencies for the same purposes. When a fund agrees to buy or sell a security denominated in a foreign currency, it may desire to "lock in" the U.S. dollar price of the security. By entering into a forward contract for the purchase or sale, for a fixed amount of U.S. dollars, of the amount of foreign currency involved in the underlying security transaction, the fund will be able to protect itself against an adverse change in foreign currency values between the date the security is purchased or sold and the date on which payment is made or received. This technique is sometimes referred to as a "settlement hedge" or "transaction hedge." The funds may also enter into forward contracts to purchase or sell a foreign currency in anticipation of future purchases or sales of securities denominated in foreign currency, even if the specific investments have not yet been selected by FMR. The funds may also use forward contracts to hedge against a decline in the value of existing investments denominated in foreign currency. For example, if a fund owned securities denominated in pounds sterling, the fund could enter into a forward contract to sell pounds sterling in return for U.S. dollars to hedge against possible declines in the pound's value. Such a hedge, sometimes referred to as a "position hedge," would tend to offset both positive and negative currency fluctuations, but would not offset changes in security values caused by other factors. A fund could also hedge the position by selling another currency expected to perform similarly to the pound sterling -- for example, by entering into a forward contract to sell Deutschemarks or European Currency Units in return for U.S. dollars. This type of hedge, sometimes referred to as a "proxy hedge," could offer advantages in terms of cost, yield or efficiency, but generally will not hedge currency exposure as effectively as a simple hedge into U.S. dollars. Proxy hedges may result in losses if the currency used to hedge does not perform similarly to the currency in which the hedged securities are denominated. Each fund may enter into forward contracts to shift its investment exposure from one currency into another currency that is expected to perform better relative to the U.S. dollar. For example, if a fund held investments denominated in Deutschemarks, the fund could enter into forward contracts to sell Deutschemarks and purchase Swiss Francs. This type of strategy, sometimes known as a "cross-hedge," will tend to reduce or eliminate exposure to the currency that is sold, and increase exposure to the currency that is purchased, much as if the fund had sold a security denominated in one currency and purchased an equivalent security denominated in another. Cross-hedges protect against losses resulting from a decline in the hedged currency, but will cause the fund to assume the risk of fluctuations in the value of the currency it purchases. Under certain conditions, SEC guidelines require mutual funds to set aside appropriate liquid assets in a segregated custodial account to cover currency forward contracts. As required by SEC guidelines, the funds will segregate assets to cover currency forward contracts, if any, whose purpose is essentially speculative. The funds will not segregate assets to cover forward contracts entered into for hedging purposes, including settlement hedges, position hedges, and proxy hedges. Successful use of currency forward contracts will depend on FMR's skill in analyzing and predicting currency values. Forward contracts may substantially change a fund's investment exposure to changes in currency exchange rates, and could result in losses to the fund if currencies do not perform as FMR anticipates. For example, if a currency's value rose at a time when FMR had hedged a fund by selling that currency in exchange for dollars, the fund would be unable to participate in the currency's appreciation. If FMR hedges currency exposure through proxy hedges, a fund could realize currency losses from the hedge and the security position at the same time if the two currencies do not move in tandem. Similarly, if FMR increases a fund's exposure to a foreign currency, and that currency's value declines, the fund will realize a loss. There is no assurance that FMR's use of currency forward contracts will be advantageous to the funds or that they will hedge at an appropriate time . SHORT SALES "AGAINST THE BOX". Money Market Portfolio may sell securities short when it owns or has the right to obtain securities equivalent in kind or amount to the securities sold short. Short sales could be used to protect the net asset value per share of the fund in anticipation of increased interest rates, without sacrificing the current yield of the securities sold short. SHORT SALES. A fund may enter into short sales with respect to stocks underlying its convertible security holdings. For example, if FMR anticipates a decline in the price of the stock underlying a convertible security it holds, it may sell the stock short. If the stock price subsequently declines, the proceeds of the short sale could be expected to offset all or a portion of the effect of the stock's decline on the value of the convertible security. Each fund currently intends to hedge no more than 15% of its total assets with short sales on equity securities underlying its convertible security holdings under normal circumstances. When a fund enters into a short sale or short sale against the box, it will be required to set aside securities equivalent in kind and amount to those sold short (or securities convertible or exchangeable into such securities) and will be required to continue to hold them while the short sale is outstanding. Each fund will incur transaction costs, including interest expense, in connection with opening, maintaining, and closing short sales and short sales against the box. LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. Each fund (other than Money Market Portfolio) has filed a notice of eligibility for exclusion from the definition of the term "commodity pool operator" with the Commodity Futures Trading Commission (CFTC) and the National Futures Association, which regulate trading in the futures markets. The funds intend to comply with Section 4.5 of the regulations under the Commodity Exchange Act, which limits the extent to which a fund can commit assets to initial margin deposits and option premiums. In addition, each fund (excluding Index 500 Portfolio) will not: (a) sell futures contracts, purchase put options, or write call options if, as a result, more than 25% of each fund's total assets would be hedged with futures and options under normal conditions; (b) purchase futures contracts or write put options if, as a result, each fund's total obligations upon settlement or exercise of purchased futures contracts and written put options would exceed 25% of its total assets; or (c) purchase call options if, as a result, the current value of option premiums for call options purchased by each fund would exceed 5% of each fund's total assets. INDEX 500 PORTFOLIO also intends to follow certain other limitations on its futures and options activities. The fund will not purchase any option if, as a result, more than 5% of its total assets would be invested in option premiums. Under normal conditions, the fund will not enter into any futures contract or option if, as a result, the sum of (i) the current value of assets hedged in the case of strategies involving the sale of securities, and (ii) the current value of the indices or other instruments underlying the fund's other futures or options positions, would exceed 35% of the fund's total assets. These limitations for each fund do not apply to options attached to or acquired or traded together with their underlying securities, and do not apply to securities that incorporate features similar to options. FUTURES CONTRACTS. When each fund purchases a futures contract, it agrees to purchase a specified underlying instrument at a specified future date. When each fund sells a futures contract, it agrees to sell the underlying instrument at a specified future date. The price at which the purchase and sale will take place is fixed when each fund enters into the contract. Some currently available futures contracts are based on specific securities, such as U.S. Treasury bonds or notes, and some are based on indices of securities prices, such as the Standard & Poor's 500 Composite Stock Price Index (S&P 500) and the Bond Buyer Index of municipal bonds. Futures can be held until their delivery dates, or can be closed out before then if a liquid secondary market is available. The value of a futures contract tends to increase and decrease in tandem with the value of its underlying instrument. Therefore, purchasing futures contracts will tend to increase each fund's exposure to positive and negative price fluctuations in the underlying instrument, much as if it had purchased the underlying instrument directly. When each fund sells a futures contract, by contrast, the value of its futures position will tend to move in a direction contrary to the market. Selling futures contracts, therefore, will tend to offset both positive and negative market price changes, much as if the underlying instrument had been sold. FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is not required to deliver or pay for the underlying instrument unless the contract is held until the delivery date. However, both the purchaser and seller are required to deposit "initial margin" with a futures broker, known as a futures commission merchant (FCM), when the contract is entered into. Initial margin deposits are typically equal to a percentage of the contract's value. If the value of either party's position declines, that party will be required to make additional "variation margin" payments to settle the change in value on a daily basis. The party that has a gain may be entitled to receive all or a portion of this amount. Initial and variation margin payments do not constitute purchasing securities on margin for purposes of each fund's investment limitations. In the event of the bankruptcy of an FCM that holds margin on behalf of each fund, each fund may be entitled to return of margin owed to it only in proportion to the amount received by the FCM's other customers, potentially resulting in losses to each fund. PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, each fund obtains the right (but not the obligation) to sell the option's underlying instrument at a fixed strike price. In return for this right, each fund pays the current market price for the option (known as the option premium). Options have various types of underlying instruments, including specific securities, indices of securities prices, and futures contracts. Each fund may terminate its position in a put option it has purchased by allowing it to expire or by exercising the option. If the option is allowed to expire, each fund will lose the entire premium it paid. If each fund exercises the option, it completes the sale of the underlying instrument at the strike price. Each fund may also terminate a put option position by closing it out in the secondary market at its current price, if a liquid secondary market exists. The buyer of a typical put option can expect to realize a gain if security prices fall substantially. However, if the underlying instrument's price does not fall enough to offset the cost of purchasing the option, a put buyer can expect to suffer a loss (limited to the amount of the premium paid, plus related transaction costs). The features of call options are essentially the same as those of put options, except that the purchaser of a call option obtains the right to purchase, rather than sell, the underlying instrument at the option's strike price. A call buyer typically attempts to participate in potential price increases of the underlying instrument with risk limited to the cost of the option if security prices fall. At the same time, the buyer can expect to suffer a loss if security prices do not rise sufficiently to offset the cost of the option. WRITING PUT AND CALL OPTIONS. When each fund writes a put option, it takes the opposite side of the transaction from the option's purchaser. In return for receipt of the premium, each fund assumes the obligation to pay the strike price for the option's underlying instrument if the other party to the option chooses to exercise it. When writing an option on a futures contract each fund will be required to make margin payments to an FCM as described above for futures contracts. Each fund may seek to terminate its position in a put option it writes before exercise by closing out the option in the secondary market at its current price. If the secondary market is not liquid for a put option each fund has written, however, each fund must continue to be prepared to pay the strike price while the option is outstanding, regardless of price changes, and must continue to set aside assets to cover its position. If security prices rise, a put writer would generally expect to profit, although its gain would be limited to the amount of the premium it received. If security prices remain the same over time, it is likely that the writer will also profit, because it should be able to close out the option at a lower price. If security prices fall, the put writer would expect to suffer a loss. This loss should be less than the loss from purchasing the underlying instrument directly, however, because the premium received for writing the option should mitigate the effects of the decline. Writing a call option obligates each fund to sell or deliver the option's underlying instrument, in return for the strike price, upon exercise of the option. The characteristics of writing call options are similar to those of writing put options, except that writing calls generally is a profitable strategy if prices remain the same or fall. Through receipt of the option premium, a call writer mitigates the effects of a price decline. At the same time, because a call writer must be prepared to deliver the underlying instrument in return for the strike price, even if its current value is greater, a call writer gives up some ability to participate in security price increases. COMBINED POSITIONS. Each fund may purchase and write options in combination with each other, or in combination with futures or forward contracts, to adjust the risk and return characteristics of the overall position. For example, each fund may purchase a put option and write a call option on the same underlying instrument, in order to construct a combined position whose risk and return characteristics are similar to selling a futures contract. Another possible combined position would involve writing a call option at one strike price and buying a call option at a lower price, in order to reduce the risk of the written call option in the event of a substantial price increase. Because combined options positions involve multiple trades, they result in higher transaction costs and may be more difficult to open and close out. CORRELATION OF PRICE CHANGES. Because there are a limited number of types of exchange-traded options and futures contracts, it is likely that the standardized contracts available will not match each fund's current or anticipated investments exactly. Each fund may invest in options and futures contracts based on securities with different issuers, maturities, or other characteristics from the securities in which it typically invests, which involves a risk that the options or futures position will not track the performance of each fund's other investments. Options and futures prices can also diverge from the prices of their underlying instruments, even if the underlying instruments match each fund's investments well. Options and futures prices are affected by such factors as current and anticipated short-term interest rates, changes in volatility of the underlying instrument, and the time remaining until expiration of the contract, which may not affect security prices the same way. Imperfect correlation may also result from differing levels of demand in the options and futures markets and the securities markets, from structural differences in how options and futures and securities are traded, or from imposition of daily price fluctuation limits or trading halts. Each fund may purchase or sell options and futures contracts with a greater or lesser value than the securities it wishes to hedge or intends to purchase in order to attempt to compensate for differences in volatility between the contract and the securities, although this may not be successful in all cases. If price changes in each fund's options or futures positions are poorly correlated with its other investments, the positions may fail to produce anticipated gains or result in losses that are not offset by gains in other investments. LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid secondary market will exist for any particular options or futures contract at any particular time. Options may have relatively low trading volume and liquidity if their strike prices are not close to the underlying instrument's current price. In addition, exchanges may establish daily price fluctuation limits for options and futures contracts, and may halt trading if a contract's price moves upward or downward more than the limit in a given day. On volatile trading days when the price fluctuation limit is reached or a trading halt is imposed, it may be impossible for each fund to enter into new positions or close out existing positions. If the secondary market for a contract is not liquid because of price fluctuation limits or otherwise, it could prevent prompt liquidation of unfavorable positions, and potentially could require each fund to continue to hold a position until delivery or expiration regardless of changes in its value. As a result, each fund's access to other assets held to cover its options or futures positions could also be impaired. OTC OPTIONS. Unlike exchange-traded options, which are standardized with respect to the underlying instrument, expiration date, contract size, and strike price, the terms of over-the-counter options (options not traded on exchanges) generally are established through negotiation with the other party to the option contract. While this type of arrangement allows each fund greater flexibility to tailor an option to its needs, OTC options generally involve greater credit risk than exchange-traded options, which are guaranteed by the clearing organization of the exchanges where they are traded. OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency futures contracts are similar to forward currency exchange contracts, except that they are traded on exchanges (and have margin requirements) and are standardized as to contract size and delivery date. Most currency futures contracts call for payment or delivery in U.S. dollars. The underlying instrument of a currency option may be a foreign currency, which generally is purchased or delivered in exchange for U.S. dollars, or may be a futures contract. The purchaser of a currency call obtains the right to purchase the underlying currency, and the purchaser of a currency put obtains the right to sell the underlying currency. The uses and risks of currency options and futures are similar to options and futures relating to securities or indices, as discussed above. Each fund may purchase and sell currency futures and may purchase and write currency options to increase or decrease its exposure to different foreign currencies. Each fund may also purchase and write currency options in conjunction with each other or with currency futures or forward contracts. Currency futures and options values can be expected to correlate with exchange rates, but may not reflect other factors that affect the value of each fund's investments. A currency hedge, for example, should protect a Yen-denominated security from a decline in the Yen, but will not protect each fund against a price decline resulting from deterioration in the issuer's creditworthiness. Because the value of each fund's foreign-denominated investments changes in response to many factors other than exchange rates, it may not be possible to match the amount of currency options and futures to the value of each fund's investments exactly over time. ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. Each fund will comply with guidelines established by the SEC with respect to coverage of options and futures strategies by mutual funds, and if the guidelines so require will set aside appropriate liquid assets in a segregated custodial account in the amount prescribed. Securities held in a segregated account cannot be sold while the futures or option strategy is outstanding, unless they are replaced with other suitable assets. As a result, there is a possibility that segregation of a large percentage of each fund's assets could impede portfolio management or each fund's ability to meet redemption requests or other current obligations. PORTFOLIO TRANSACTIONS All orders for the purchase or sale of portfolio securities are placed on behalf of a fund by FMR (either directly or through affiliated sub-advisors) pursuant to authority contained in each fund's Management Contract. FMR is also responsible for the placement of transaction orders for other investment companies and accounts for which it or its affiliates act as investment advisor. Money market securities purchased and sold by a fund generally will be traded on a net basis (i.e., without commission). In selecting broker-dealers subject to applicable limitations of the federal securities laws, FMR will consider various relevant factors, including, but not limited to, the size and type of the transaction; the nature and character of the markets for the security to be purchased or sold; the execution efficiency, settlement capability, and financial condition of the broker-dealer firm; the broker-dealer's execution services rendered on a continuing basis; and the reasonableness of any commissions; and arrangements for payment of fund expenses. FMR may allocate brokerage transactions to broker-dealers who have entered into arrangements with FMR under which the broker-dealer allocates a portion of the commissions paid by a fund toward payment of a fund's expenses, such as transfer agent fees or custodian fees. The transaction quality must, however, be comparable to those of other qualified broker-dealers. Commissions for foreign investments traded on foreign exchanges will generally be higher than for U.S. investments and may not be subject to negotiation. Each fund may execute portfolio transactions with broker-dealers who provide research and execution services to a fund or other accounts over which FMR or its affiliates exercise investment discretion. Such services may include advice concerning the value of securities; the advisability of investing in, purchasing or selling securities; the availability of securities or the purchasers or sellers of securities; furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy and performance of accounts; and effecting securities transactions and performing functions incidental thereto (such as clearance and settlement). FMR maintains a listing of broker-dealers who provide such services on a regular basis. However, as many transactions on behalf of a fund's money market securities are placed with dealers (including broker-dealers on the list) without regard to the furnishing of such services, it is not possible to estimate the proportion of such transactions directed to such dealers solely because such services were provided. The selection of such broker-dealers is generally made by FMR (to the extent possible consistent with execution considerations) in accordance with a ranking of broker-dealers determined periodically by FMR's investment staff based upon the quality of research and execution services provided. The receipt of research from broker-dealers that execute transactions on behalf of a fund may be useful to FMR in rendering investment management services to a fund or its other clients, and conversely, such information provided by broker-dealers who have executed transaction orders on behalf of other FMR clients may be useful to FMR in carrying out its obligations to a fund. The receipt of such research has not reduced FMR's normal independent research activities; however, it enables FMR to avoid additional expenses that could be incurred if FMR tried to develop comparable information through its own efforts. Subject to applicable limitations of the federal securities laws, broker-dealers may receive commissions for agency transactions that are in excess of the amount of commissions charged by other broker-dealers in recognition of their research or execution services. In order to cause a fund to pay such higher commissions, FMR must determine in good faith that such commissions are reasonable in relation to the value of the brokerage and research services provided by such executing broker-dealers viewed in terms of a particular transaction or FMR's overall responsibilities to a fund and its other clients. In reaching this determination, FMR will not attempt to place a specific dollar value on the brokerage and research services provided or to determine what portion of the compensation should be related to those services. FMR is authorized to use research services provided by and to place portfolio transactions with brokerage firms that have provided assistance in the distribution of shares of each fund or shares of other Fidelity funds to the extent permitted by law. FMR may use research services provided by and place agency transactions with Fidelity Brokerage Services, Inc. (FBSI) and Fidelity Brokerage Services, Ltd. (FBSL), subsidiaries of FMR Corp., if the commissions are fair, reasonable, and comparable to commissions charged by non-affiliated, qualified brokerage firms for similar services. Prior to September 4, 1992, FBSL operated under the name Fidelity Portfolio Services, Ltd. (FPSL) as a wholly owned subsidiary of Fidelity International Limited (FIL). Edward C. Johnson 3d is Chairman of FIL. Mr. Johnson 3d, together with various trusts for the benefit of Johnson family members, owns directly or indirectly more than 25% of the voting common stock of FIL. Section 11(a) of the Securities Exchange Act of 1934 prohibits members of national securities exchanges from executing exchange transactions for accounts which they or their affiliates manage, except if certain requirements are satisfied. Pursuant to such requirements, the Board of Trustees has authorized FBSI to execute fund portfolio transactions on national securities exchanges in accordance with approved procedures and applicable SEC rules. The Trustees periodically review FMR's performance of its responsibilities in connection with the placement of portfolio transactions on behalf of each fund and review the commissions, if any paid by the funds over representative periods of time to determine if they are reasonable in relation to the benefits to the funds. Because a high turnover rate increases brokerage costs, FMR carefully weighs the added costs of short-term investment against anticipated gain. For fiscal year ended December 31, each fund had the following turnover rates:
HIGH EQUITY- INVESTMENT ASSET INCOME INCOME GROWTH OVERSEAS GRADE BOND MANAGER INDEX 500 1993 155% 120% 159% 42% 70% 113% 9% 1992 160 74 262 61 119 92 N/A
BROKERAGE COMMISSIONS. The chart below lists the percentage of the brokerage commissions paid to brokerage firms which provided research services; the total brokerage commissions paid; the commissions paid to FBSI and FBSL in dollars and as a percentage of the dollar value of all transactions in which brokerage commissions were paid for the fiscal periods ended December 31, 1993, 1992 and 1991 for each of the funds. Of the commissions paid to brokerage firms which provided research services, the providing of such services was not necessarily a factor in the placement of all this business with such firms. The funds pay both commissions and spreads in connection with the placement of portfolio transactions. The difference in the percentage of brokerage commissions paid to, and the percentage of the dollar amount of transactions effected through FBSI and FBSL, are the results of the low commission rates charged by FBSI and FBSL. HIGH INCOME PORTFOLIO
% Paid to % % Firms Transaction Transaction s s Period Providing To To % to through through Ended TOTAL Research FBSI FBSL % to FBSI FBSL FBSI FBSL
1993 $25,198 99% $0 -- -- -- -- -- 1992 9,568 100 7 -- 0.1% -- 0.1% -- 1991 6,211 74 -- -- -- -- -- -- EQUITY-INCOME PORTFOLIO
% Paid to % % Firms Transaction Transaction s s Period Providing To To % to through through Ended TOTAL Research FBSI FBSL % to FBSI FBSL FBSI FBSL
1993 $2,658,979 68% $712,270 -- 27% -- 42% -- 1992 752,271 65 263,440 -- 35 -- 46 -- 1991 462,428 55 167,858 -- 36 -- 45 -- GROWTH PORTFOLIO
% Paid to % % Firms Transaction Transacti s ons Period Providing To To % to through through Ended TOTAL Research To FBSI FBSL % to FBSI FBSL FBSI FBSL
1993 $2,137,399 49% $750,137 -- 35% -- 48% -- 1992 2,073,624 59 599,019 -- 29 -- 37 -- 1991 1,005,493 54 344,150 -- 34 -- 44 -- OVERSEAS PORTFOLIO
% Paid to % % Firms Transaction Transaction s s Period Providing To % to through through Ended TOTAL Research To FBSI FBSL % to FBSI FBSL FBSI FBSL
1993 $1,541,385 92% $3,119 -- .20% -- 0.92% -- 1992 602,862 85 -- $4,314 -- 0.7% -- 1.4% 1991 710,018 91 -- 8,816 -- 1.0 -- 2.0 ASSET MANAGER PORTFOLIO
% Paid to % % Firms Transaction Transaction s s Period Providing To To % to through through Ended TOTAL Research FBSI FBSL % to FBSI FBSL FBSI FBSL
1993 $2,839,401 73% $398,687 -- 14% -- 29% -- 1992 544,613 68 100,724 179 19 -- 28 -- 1991 143,076 57 44,048 -- 31 -- 45 -- INDEX 500 PORTFOLIO
% Paid to % % Firms Transaction Transaction s s Period Providing To To % to through through Ended TOTAL Research FBSI FBSL % to FBSI FBSL FBSI FBSL
1993 $3,870 4% $123 -- 3% -- 3% -- 1992 5,980 -- 112 -- 2 -- 2 -- ________ From time to time each Trust's Trustees will review whether the recapture for the benefit of the funds of some portion of the brokerage commissions or similar fees paid by the funds on portfolio transactions is legally permissible and advisable. The funds seek to recapture soliciting broker-dealer fees on the tender of portfolio securities, but at present no other recapture arrangements are in effect. The Trustees intend to continue to review whether recapture opportunities are available and are legally permissible and, if so, to determine in the exercise of their business judgment whether it would be advisable for the funds to seek such recapture. Although each Trust's Trustees and officers are substantially the same as those of other funds managed by FMR, investment decisions for the funds are made independently from those of other funds managed by FMR or accounts managed by FMR affiliates. It sometimes happens that the same security is held in the portfolio of more than one of these funds or accounts. Simultaneous transactions are inevitable when several funds are managed by the same investment advisor, particularly when the same security is suitable for the investment objective of more than one fund. When two or more funds, or portfolios, are simultaneously engaged in the purchase or sale of the same security, the prices and amounts are allocated in accordance with a formula considered by the officers of the funds involved to be equitable to each fund or portfolio. In some cases this system could have a detrimental effect on the price or volume of the security as far as the funds are concerned. In other cases, however, the ability of the fund or portfolio to participate in volume transactions will produce better executions and prices for the funds. It is the current opinion of the Trustees that the desirability of retaining FMR as investment advisor to the funds outweighs any disadvantages that may be said to exist from exposure to simultaneous transactions. VALUATION OF FUND SECURITIES MONEY MARKET PORTFOLIO Like most money market funds, the fund values its investments on the basis of amortized cost. This technique involves initially valuing an instrument at its cost and thereafter assuming a constant amortization to maturity of any discount or premium, regardless of the market value of the instrument. The amortized-cost value of an instrument may be higher or lower than the price the fund would receive if it sold the instrument. During periods of declining interest rates, the fund's yield based on amortized cost may be higher than a yield based on market prices and estimates of market prices. Under these circumstances, a new investor in the fund would be able to obtain a somewhat higher yield than would result from investment in a fund solely utilizing market quotations to determine its NAV, and existing shareholders would receive less investment income. The converse would apply in a period of rising interest rates. Valuing the fund's instruments on the basis of amortized cost and use of the term "money market fund" are permitted by Rule 2a-7 under the Investment Company Act of 1940 (the 1940 Act). The fund must adhere to certain conditions under Rule 2a-7. The Board of Trustees of the fund oversees FMR's adherence to SEC rules concerning money market funds, and has established procedures designed to stabilize the fund's NAV calculated on the basis of amortized cost. At such intervals as they deem appropriate, the Trustees review reports used to determine whether NAV calculated by using available market quotations would deviate from $1.00. If such a deviation would result in material dilution or otherwise would be unfair to shareholders, the Trustees have agreed to take such corrective action, if any, as they deem necessary and appropriate. This may include selling portfolio instruments prior to maturity to realize capital gains or losses or to shorten average portfolio maturity, withholding dividends, redeeming shares in kind, or establishing NAV by using available market quotations. HIGH INCOME AND INVESTMENT GRADE BOND PORTFOLIOS Securities and other assets for which market quotations are readily available are valued at market values determined by their most recent bid prices (sales prices if the principal market is an exchange) in the principal market in which such securities normally are traded. Securities and other assets for which market quotations are not readily available (including restricted securities, if any) are appraised at their fair value as determined in good faith under consistently applied procedures under the general supervision of the Board of Trustees. Securities may also be valued on the basis of valuations furnished by a pricing service that uses both dealer-supplied valuations and evaluations based on expert analysis of market data and other factors if such valuations are believed to reflect more accurately the fair value of such securities. Use of a pricing service has been approved by the Board of Trustees. There are a number of pricing services available, and the Trustees, or officers acting on behalf of the Trustees, on the basis of ongoing evaluation of these pricing services, may use other pricing services or may discontinue the use of any pricing service in whole or in part. Securities not valued by the pricing service, and for which quotations are readily available, are valued at market values determined on the basis of their latest available bid prices as furnished by recognized dealers in such securities. EQUITY-INCOME, GROWTH, ASSET MANAGER, INDEX 500 AND OVERSEAS PORTFOLIOS Portfolio securities are valued by various methods depending on the primary market or exchange on which they trade. Some equity securities for which the primary market is the U.S. are valued at last sale price or, if no sale has occurred, at the closing bid price. Some equity securities for which the primary market is outside the U.S. are valued using the official closing price or the last sale price in the principal market where they are traded. If the last sale price (on the local exchange) is unavailable, the last evaluated quote or last bid price is normally used. Short-term securities are valued either at amortized cost or at original cost plus accrued interest, both of which approximate current value. Convertible and fixed-income securities are valued primarily by a pricing service that uses a vendor security valuation matrix which incorporates both dealer-supplied valuations and electronic data processing techniques. This twofold approach is believed to more accurately reflect fair value because it takes into account appropriate factors such as institutional trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data, without exclusive reliance upon quoted, exchange, or over-the counter prices. Use of pricing services has been approved by the Board of Trustees. Securities and other assets for which there is no readily available market are valued in good faith by a committee appointed by the Board of Trustees. The procedures set forth above need not be used to determine the value of the securities owned by the fund if, in the opinion of a committee appointed by the Board of Trustees, some other method (e.g., closing over-the-counter bid prices in the case of debt instruments traded on an exchange) would more accurately reflect the fair market value of such securities. Generally, the valuation of foreign and domestic equity securities, as well as corporate bonds, U.S. government securities, money market instruments, and repurchase agreements, is substantially completed each day at the close of the NYSE. The values of any such securities held by the fund are determined as of such time for the purpose of computing the fund's net asset value. Foreign security prices are furnished by independent brokers or quotation services which express the value of securities in their local currency. Fidelity Service Co. (FSC) gathers all exchange rates daily at the close of the NYSE using the last quoted price on the local currency and then translates the value of foreign securities from their local currency into U.S. dollars. Any changes in the value of forward contracts due to exchange rate fluctuations and days to maturity are included in the calculation of net asset value. If an extraordinary event that is expected to materially affect the value of a portfolio security occurs after the close of an exchange on which that security is traded, then the security will be valued as determined in good faith by a committee appointed by the Board of Trustees. PERFORMANCE The funds may quote their performance in various ways. All performance information supplied by the funds in advertising is historical and is not intended to indicate future returns. The funds' share prices (except for Money Market Portfolio) , yields and total returns fluctuate in response to market conditions and other factors, and the value of fund shares (except for Money Market Portfolio) when redeemed may be more or less than their original cost. YIELD CALCULATIONS. Yields (except for Money Market Portfolio) for the funds used in advertising are computed by dividing a fund's interest and dividend income for a given 30-day or one month period, net of expenses, by the average number of shares entitled to receive dividends during the period, dividing this figure by the fund's NAV per share at the end of the period and annualizing the result (assuming compounding of income) in order to arrive at an annual percentage rate. Income is calculated for purposes of yield quotations in accordance with standardized methods applicable to all stock and bond funds. Dividends from equity investments are treated as if they were accrued on a daily basis, solely for the purposes of yield calculations. In general, interest income is reduced with respect to bonds trading at a premium over their par value by subtracting a portion of the premium from income on a daily basis, and is increased with respect to bonds trading at a discount by adding a portion of the discount to daily income. Capital gains and losses, if any, generally are excluded from the calculation. Income calculated for the purpose of determining the funds' yields differs from income as determined for other accounting purposes. Because of the different accounting methods used, and because of the compounding assumed in yield calculations, the yields quoted for the funds may differ from the income the funds paid over the same period or the rate of income reported in the funds' financial statements. In computing the current yield for Money Market Portfolio for a 7-day period, the net change in value of a hypothetical account containing one share exclusive of capital gains reflects the value of additional shares purchased with dividends from the one original share and dividends declared on both the original share and any additional shares. The net change is then divided by the value of the account at the beginning of the period to obtain a base period return. This base period return is annualized to obtain a current annualized yield. Money Market Portfolio may also calculate an effective yield by annualizing the base period return through daily compounding. In addition to the current yield, the fund may quote yields in advertising based on any historical seven-day period(s). Yield information may be useful in reviewing Money Market Portfolio's performance and for providing a basis for comparison with other investment alternatives. However, yields fluctuate, unlike investments which pay a fixed interest rate for a stated period of time. Yields for the Money Market Portfolio are calculated on the same basis as other money market funds as required by applicable regulations. Investors should give consideration to the quality and maturity of the portfolio securities of the respective investment companies they have chosen to consider when comparing investment alternatives. In addition, investors should recognize that the fees associated with the separate account are not reflected in the yield quotation. Should Money Market Portfolio incur or anticipate any unusual expense, or loss or depreciation which would adversely affect its NAV per share or income for a particular period, the Trustees would at that time consider whether to adhere to the present dividend policy above or to revise it in light of the then prevailing circumstances. For example, if the fund's NAV per share was reduced or was anticipated to be reduced below $1.00, the Trustees may suspend further dividend payments until the NAV returned to $1.00. Thus, such expenses, losses or depreciation may result in a redemption price per share lower than that which was paid. TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all aspects of each fund's return, including the effect of reinvesting any dividends and capital gain distributions, and any change in each fund's NAV over the period. Average annual returns are calculated by determining the growth or decline in value of a hypothetical historical investment in each fund over a stated period, and then calculating the annually compounded percentage rate that would have produced the same result if the rate of growth or decline in value had been constant over the period. For example, a cumulative return of 100% over ten years would produce an average annual return of 7.18%, which is the steady annual rate that would equal 100% growth on a compounded basis in ten years. While average annual returns are a convenient means of comparing investment alternatives, investors should realize that each fund's performance is not constant over time, but changes from year to year, and that average annual returns represent averaged figures as opposed to the actual year-to-year performance of each fund. In addition to average annual returns, the funds may quote unaveraged or cumulative total returns reflecting the simple change in value of an investment over a stated period. Average annual and cumulative total returns may be quoted as a percentage or as a dollar amount, and may be calculated for a single investment, a series of investments, and/or a series of redemptions, over any time period. Total returns may be broken down into their components of income and capital (including capital gains and changes in share price) in order to illustrate the relationship of these factors and their contributions to total return. An example of this type of illustration is given below. Total returns, yields and other performance information may be quoted numerically or in a table, graph, or similar illustration. NET ASSET VALUE. Charts and graphs using a fund's net asset values or an insurance company's sub-account unit values, adjusted net asset values, and benchmark indices may be used to exhibit performance. An adjusted NAV includes any distributions paid by a fund and reflects all elements of its return. Unless otherwise indicated, a fund's adjusted NAVs (or an insurance company's sub-account unit values) are not adjusted for sales charges, if any. MOVING AVERAGES. A fund may illustrate performance using moving averages. A long-term moving average is the average of each week's adjusted closing NAV for a specified period. A short-term moving average is the average of each day's adjusted closing NAV for a specified period. Moving Average Activity Indicators combine adjusted closing NAVs from the last business day of each week with moving averages for a specified period to produce indicators showing when an NAV has crossed, stayed above, or stayed below its moving average. On December 31,1993, the 13-week and 39-week long-term moving averages were 15.28 and 14.82, for Equity-Income Portfolio, 22.87 and 21.91, for Growth Portfolio, 15.09 and 14.29, for Overseas Portfolio, 14.95 and 14.27, for Asset Manager Portfolio, and 55.36 and 53.84 for Index 500 Portfolio, respectively. HISTORICAL FUND RESULTS. The following chart shows each fund's total returns, High Income and Investment Grade Bond Portfolios' 30-day yield and Money Market Portfolio's 7-day yield for the period ended 12/31/93. Performance is net of each fund's expenses, but does not include charges and expenses attributable to an insurance company's separate account. If these charges were included, the returns would be lower. Average Annual Total Returns Cumulative Total Returns 7-Day 30 Day One Five Ten Life of* Life of* Yield Yield Year Year Year Fund Fund
Money Market Portfolio 3.23% N.A. 3.23% 6.05% 6.92% 7.45% 132.96% High Income Portfolio N.A. 8.82% 20.40% 13.42% N.A. 12.50% 165.46% Equity-Income Portfolio N.A. N.A. 18.29% 12.56% N.A. 11.48% 119.61% Growth Portfolio N.A. N.A. 19.37% 17.13% N.A. 14.41% 164.90% Overseas Portfolio N.A. N.A. 37.35% 10.46% N.A. 7.80% 68.26% Investment Grade Bond N.A. 5.59% 10.96% 10.03% N.A. 9.99% 62.13% Portfolio Asset Manager Portfolio N.A. N.A. 21.23% N.A. N.A. 14.35% 78.57% Index 500 Portfolio N.A. N.A. 9.74% N.A. N.A. 12.11% 16.66%
* Money Market Portfolio commenced operations April 1, 1982; High Income Portfolio commenced operations September 19, 1985; Equity-Income and Growth Portfolios commenced operations October 9, 1986; Overseas Portfolio commenced operations January 28, 1987;Investment Grade Bond Portfolio commenced operations December 5, 1988; Asset Manager Portfolio commenced operations September 6, 1989 and Index 500 Portfolio commenced operations August 27, 1992. If FMR had not reimbursed certain fund expenses during these periods, the total returns would have been lower. The following charts show the income and capital elements of each fund's total return from the date it commenced operations through the year ended December 31, 1993. The charts compare the funds' returns to the record of the Standard & Poor's 500 Composite Stock Price Index (S&P), the Dow Jones Industrial Average (DJIA), the cost of living (measured by the Consumer Price Index, or CPI) over the same period, and (for Asset Manager Portfolio) a benchmark "Fidelity Composite Index" (created by FMR), over the same period. The Fidelity Composite Index is a hypothetical historical representation which simulates Asset Manager Portfolio's neutral mix (20% money market instruments, 40% bonds, and 40% stocks) by combining the following indices based on their weighting in the neutral mix: the Salomon Brothers 3-month T-Bill Total Rate of Return Index, representing the average of T-Bill rates for each of the prior three months, adjusted to a bond equivalent yield basis (money market); the Lehman Brothers Treasury Bond Index, a widely utilized benchmark of bond market performance which includes virtually all long-term public obligations of the U.S. Treasury (bonds); and the S&P 500 (a registered trademark of Standard & Poor's Corporation), which represents common stock prices (stocks). The comparison to the S&P shows how the funds' total returns compared to the record of a broad average of common stock prices, and the comparison to the DJIA shows how the funds' total returns compared to the record of a narrower set of stocks of major industrial companies. Each fund has the ability to invest in securities not included in either index, and its investment portfolio may or may not be similar in composition to the indices. The S&P and DJIA comparisons for Investment Grade Bond and High Income Portfolios are provided to show how each fund's return compared to the return of common stocks over the same period. Of course, since Investment Grade Bond and High Income Portfolios invest in fixed-income securities, common stocks represent a different type of investment from the fund. The indices do not include fixed-income securities. In general, common stocks generally offer greater potential growth a bond fund, but generally are more volatile in value and may offer greater potential for loss. In addition, common stocks generally provide lower income than a mutual fund which focuses on fixed-income securities. The S&P, DJIA and The Fidelity Composite Index are based on the prices of unmanaged groups of stocks and, unlike the funds' returns, their returns do not include the effect of paying brokerage commissions and other costs of investing. MONEY MARKET PORTFOLIO: During the period from December 31, 1982 to December 31, 1993, a hypothetical $10,000 investment in the fund would have grown to $19,532, assuming all distributions were reinvested. This was a period of widely fluctuating interest rates and should not necessarily be considered a representation of the income or capital gain or loss that could be realized from an investment in the fund today.
Value of Value of INDEX Value of Reinvested Reinvested Period Initial $10,000 Dividend Capital Gain Cost of Ended Investment Distributions Distributions Total Value Living 12/31/93 $10,000 $9,532 $0 $19,532 $14,393 12/31/92 $10,000 8,920 0 18,920 14,008 12/31/91 $10,000 8,211 0 18,211 13,613 12/31/90 $10,000 7,165 0 17,165 13,208 12/31/89 $10,000 5,888 0 15,888 12,448 12/31/88 $10,000 4,560 0 14,560 11,895 12/31/87 $10,000 3,559 0 13,559 11,392 12/31/86 $10,000 2,738 0 12,738 10,908 12/31/85 $10,000 1,939 0 11,939 10,790 12/31/84 $10,000 1,043 0 11,043 10,395
Explanatory Notes: With an initial investment of $10,000 made on December 31, 1982, the net amount invested in shares of the fund was $10,000. The cost of the initial investment ($10,000), together with the aggregate cost of reinvested dividends for the period covered (that is, their cash value at the time they were reinvested), amounted to $19,532. If distributions had not been reinvested, the amount of distributions earned from the fund over time would have been smaller and the cash payments (dividends) for the period would have amounted to $6,715. There were no capital gain distributions during this period. The fund's annualized net yield for the seven days ending December 31, 1993 was 3.23% and the compound effective yield was 3.28%. The fund's yield will fluctuate daily. Tax consequences of different investments have not been factored into the above figures. HIGH INCOME PORTFOLIO: During the period from September 19, 1985 to December 31, 1993, a hypothetical $10,000 investment in the fund would have grown to $26,546, assuming all distributions were reinvested. This was a period of widely fluctuating interest rates and bond prices and should not necessarily be considered a representation of the income or capital gain or loss that could be realized from an investment in the fund today. INDICES
Value of Value of Value of Initial Reinvested Reinvested Period $10,000 Dividend Capital Gain Cost of Ended Investment Distributions Distributions Total Value S&P DJIA Living** 12/31/93 $11,990 $14,223 $333 $26,546 $33,797 $38,211 $13,463 12/31/92 10,820 11,057 172 22,049 30,702 32,661 13,102 12/31/91 9,550 8,200 152 17,902 28,522 30,440 12,733 12/31/90 7,070 6,070 112 13,253 21,859 24,481 12,355 12/31/89 8,110 5,317 129 13,556 22,562 24,613 11,644 12/31/88 9,660 4,332 154 14,146 17,133 18,680 11,127 12/31/87 9,680 2,837 154 12,671 14,693 16,114 10,656 12/31/86 10,830 1,689 0 12,519 13,958 15,284 10,203 12/31/85* 10,310 328 0 10,638 11,761 12,031 10,092
* From September 19, 1985 (commencement of operations). ** From month-end closest to initial investment date. Explanatory Notes: With an initial investment of $10,000 made on September 19, 1985, the net amount invested in shares of the fund was $10,000. The cost of the initial investment ($10,000), together with the aggregate cost of reinvested distributions for the period covered (that is, their cash value at the time they were reinvested), amounted to $21,489. If distributions had not been reinvested, the amount of distributions earned from the fund over time would have been smaller and the cash payments for the period would have amounted to $7,510 for income dividends and $210 for capital gain distributions. If FMR had not reimbursed certain fund expenses during the period shown above, the fund's returns would have been lower. Tax consequences of different investments have not been factored into the above figures. EQUITY-INCOME PORTFOLIO: During the period from October 9, 1986 to December 31, 1993, a hypothetical $10,000 investment in the fund would have grown to $21,961, assuming all distributions were reinvested. This was a period of widely fluctuating stock and bond prices and should not necessarily be considered a representation of the income or capital gain or loss that could be realized from an investment in the fund today. INDICES
Value of Value of Value of Initial Reinvested Reinvested Period $10,000 Dividend Capital Gain Cost of Ended Investment Distributions Distributions Total Value S&P DJIA Living** 12/31/93 $15,440 $5,529 $992 $21,961 $24,966 $26,491 $13,230 12/31/92 13,400 4,304 861 18,565 22,680 22,644 12,877 12/31/91 11,850 3,272 761 15,883 21,070 21,104 12,514 12/31/90 9,510 1,963 611 12,084 16,147 16,972 12,142 12/31/89 12,290 1,682 293 14,265 16,667 17,064 11,443 12/31/88 11,010 979 167 12,156 12,657 12,951 10,935 12/31/87 9,420 343 143 9,907 10,854 11,172 10,472 12/31/86* 10,020 0 0 10,020 10,311 10,596 10,027
* From October 9, 1986 (commencement of operations). ** From month-end closest to initial investment date. Explanatory Notes: With an initial investment of $10,000 made on October 9, 1986, the net amount invested in shares of the fund was $10,000. The cost of the initial investment ($10,000), together with the aggregate cost of reinvested distributions for the period covered (that is, their cash value at the time they were reinvested), amounted to $14,859. If distributions had not been reinvested, the amount of distributions earned from the fund over time would have been smaller and the cash payments for the period would have amounted to $3,440 for income dividends and $620 for capital gain distributions. If FMR had not reimbursed certain fund expenses during the period shown above, the fund's returns would have been lower. Tax consequences of different investments have not been factored into the above figures. GROWTH PORTFOLIO: During the period from October 9, 1986 to December 31, 1993, a hypothetical $10,000 investment in the fund would have grown to $26,490, assuming all distributions were reinvested. This was a period of widely fluctuating stock prices and should not necessarily be considered a representation of the income or capital gain or loss that could be realized from an investment in the fund today. INDICES
Value of Value of Value of Initial Reinvested Reinvested Period $10,000 Dividend Capital Gain Cost of Ended Investment Distributions Distributions Total Value S&P DJIA Living** 12/31/93 $23,080 $1,546 $1,864 $26,490 $24,966 $26,491 $13,230 12/31/92 19,760 1,202 1,230 22,192 22,680 22,644 12,877 12/31/91 18,510 1,075 715 20,300 21,070 21,104 12,514 12/31/90 12,910 542 499 13,950 16,147 16,972 12,142 12/31/89 15,180 400 225 15,805 16,667 17,064 11,443 12/31/88 11,720 124 174 12,018 12,657 12,951 10,935 12/31/87 10,140 107 150 10,398 10,854 11,172 10,472 12/31/86* 10,030 0 0 10,030 10,311 10,956 10,027
* From October 9, 1986 (commencement of operations). ** From month-end closest to initial investment date. Explanatory Notes: With an initial investment of $10,000 made on October 9, 1986, the net amount invested in shares of the fund was $10,000. The cost of the initial investment ($10,000), together with the aggregate cost of reinvested distributions for the period covered (that is, their cash value at the time they were reinvested), amounted to $12,255. If distributions had not been reinvested, the amount of distributions earned from the fund over time would have been smaller and the cash payments for the period would have amounted to $880 for income dividends and $1,230 for capital gain distributions. If FMR had not reimbursed certain fund expenses during the period shown above, the fund's returns would have been lower. Tax consequences of different investments have not been factored into the above figures. OVERSEAS PORTFOLIO: During the period from January 28, 1987 to December 31, 1993, a hypothetical $10,000 investment in the fund would have grown to $16,826, assuming all distributions were reinvested. This was a period of widely fluctuating stock prices and should not necessarily be considered a representation of the income or capital gain or loss that could be realized from an investment in the fund today. INDICES
Value of Value of Value of Initial Reinvested Reinvested Period $10,000 Dividend Capital Gain Cost of Ended Investment Distributions Distributions Total Value S&P DJIA Living** 12/31/93 $15,480 $1,276 $70 $16,826 $21,371 $21,996 $13,112 12/31/92 11,530 720 0 12,250 19,414 18,801 12,761 12/31/91 13,090 631 0 13,721 18,036 17,522 12,401 12/31/90 12,420 285 0 12,705 13,822 14,092 12,032 12/31/89 12,670 250 0 12,920 14,267 14,168 11,340 12/31/88 10,110 121 0 10,231 10,834 10,753 10,836 12/31/87* 9,350 112 0 9,462 9,291 9,276 10,378
* From January 28, 1987 (commencement of operations). ** From month-end closest to initial investment date. Explanatory Notes: With an initial investment of $10,000 made on January 28, 1987, the net amount invested in shares of the fund was $10,000. The cost of the initial investment ($10,000), together with the aggregate cost of reinvested dividends for the period covered (that is, their cash value at the time they were reinvested), amounted to $11,024. If distributions had not been reinvested, the amount of distributions earned from the fund over time would have been smaller and the cash payments for the period would have amounted to $940 for income dividends and $50 for capital gain distributions. If FMR had not reimbursed certain fund expenses during the period shown above, the fund's returns would have been lower. Tax consequences of different investments have not been factored into the above figures. INVESTMENT GRADE BOND PORTFOLIO: During the period from December 5, 1988 to December 31, 1993, a hypothetical $10,000 investment in the fund would have grown to $16,213, assuming all distributions were reinvested. This was a period of widely fluctuating interest rates and bond prices and should not necessarily be considered a representation of the income or capital gain or loss that could be realized from an investment in the fund today. INDICES
Value of Value of Value of Initial Reinvested Reinvested Period $10,000 Dividend Capital Gain Cost of Ended Investment Distributions Distributions Total Value S&P DJIA Living** 12/31/93 $11,480 $4,420 $313 $16,213 $20,203 $21,257 $12,120 12/31/92 10,970 3,419 223 14,611 18,353 18,170 11,796 12/31/91 11,080 2,596 24 13,700 17,050 16,934 11,463 12/31/90 9,920 1,831 21 11,772 13,067 13,619 11,122 12/31/89 10,140 921 22 11,083 13,487 13,692 10,482 12/31/88* 10,000 52 0 10,052 10,242 10,392 10,017
* From December 5, 1988 (commencement of operations). ** From month-end closest to initial investment date. Explanatory Notes: With an initial investment of $10,000 made on December 5, 1988, the net amount invested in shares of the fund was $10,000. The cost of the initial investment ($10,000), together with the aggregate cost of reinvested distributions for the period covered (that is, their cash value at the time they were reinvested), amounted to $14,382. If distributions had not been reinvested, the amount of distributions earned from the fund over time would have been smaller and the cash payments for the period would have amounted to $3,474 for income dividends and $240 for capital gain distributions. If FMR had not reimbursed expenses during the period shown above, the fund's returns would have been lower. Tax consequences of different investments have not been factored into the above figures. ASSET MANAGER PORTFOLIO: During the period from September 6, 1989 to December 31, 1993, a hypothetical $10,000 investment in the fund would have grown to $17,857, assuming all distributions were reinvested. This was a period of widely fluctuating stock and bond prices and should not necessarily be considered a representation of the income or capital gain or loss that could be realized from an investment in the fund today. INDICES
Value of Value of Value of Initial Reinvested Reinvested Fidelity Period $10,000 Dividend Capital Gain Total Cost of Composite Ended Investment Distributions Distributions Value S& DJIA Living** Index*** P 12/31/93 $15,420 $1,642 $795 $17,857 $15,172 $15,758 $11,701 $14,714 12/31/92 13,320 1,004 406 14,730 13,783 13,470 11,388 13,507 12/31/91 12,550 610 25 13,185 12,804 12,554 11,067 12,654 12/31/90 10,240 498 21 10,758 9,813 10,096 10,738 10,819 12/31/89* 9,970 91 20 10,081 10,128 10,151 10,120 10,302
* From September 6, 1989 (commencement of operations). ** From month-end closest to initial investment date. *** From month-end closest to initial investment date. The money market, bond, and stock indices that compose the Fidelity Composite Index returned 3.09%, 10.68%, and 10.08%, respectively, during the 1993 fiscal year. These indices are unmanaged, include reinvestment of income and/or dividends, and are not indicative of the fund's past or future performance. Explanatory Notes: With an initial investment of $10,000 made on September 6, 1989, the net amount invested in shares of the fund was $10,000. The cost of the initial investment ($10,000), together with the aggregate cost of reinvested dividends for the period covered (that is, their cash value at the time they were reinvested), amounted to $11,872. If distributions had not been reinvested, the amount of distributions earned from the fund over time would have been smaller and the cash payments for the period would have amounted to $1,170 for income dividends and $1,872 for capital gain distributions. If FMR had not reimbursed expenses during the period shown above, the fund's returns would have been lower. Tax consequences of different investments have not been factored into the above figures. INDEX 500 PORTFOLIO: During the period from August 27, 1992 to December 31, 1993, a hypothetical $10,000 investment in the fund would have grown to $11,666, assuming all distributions were reinvested. This was a period of widely fluctuating stock and bond prices and should not necessarily be considered a representation of the income or capital gain or loss that could be realized from an investment in the fund today. INDICES
Value of Value of Value of Initial Reinvested Reinvested Period $10,000 Dividend Capital Gain Cost of Ended Investment Distributions Distributions Total Value S&P DJIA Living** 12/31/93 $11,148 $360 $158 $11,666 $11,722 $12,021 $10,348 12/31/92* 10,520 95 16 10,631 10,648 10,275 10,071
* From August 27, 1992 (commencement of operations). ** From month-end closest to initial investment date. Explanatory Notes: With an initial investment of $10,000 made on August 27, 1992, the net amount invested in shares of the fund was $10,000. The cost of the initial investment ($10,000), together with the aggregate cost of reinvested distributions for the period covered (that is, their cash value at the time they were reinvested), amounted to $10,509. If distributions had not been reinvested, the amount of distributions earned from the fund over time would have been smaller and the cash payments for the period would have amounted to $350 for income dividends and $154 for capital gain distributions. If FMR had not reimbursed expenses during the period shown above, the fund's returns would have been lower. Tax consequences of different investments have not been factored into the above figures. A yield for the S&P 500 is calculated by dividing the dollar value of dividends paid by the S&P stocks during the period by the average monthly value of the S&P over the period. The S&P yield is calculated differently from the fund's yield; among other things, the fund's yield calculation treats dividends as accrued in anticipation of payment, rather than recording them when paid, and uses an ending price rather than an average price as the basis of the percentage calculation. The funds are only available for purchase through variable annuity or variable life insurance contracts offering deferral of income taxes on earnings, which may produce superior after-tax returns over time. For example, a $1,000 investment earning a taxable return of 10% annually would have an after-tax value of $1,949 after ten years, assuming tax was deducted from the return each year at a 31% rate. An equivalent tax-deferred investment would have an after-tax value of $2,100 after 10 years, assuming tax was deducted at the 31% rate from the deferred earnings at the end of the ten year period. Individuals holding shares of the funds through a variable annuity or variable life insurance contract may receive additional tax benefits from the deferral of income taxes associated with variable contracts. Individuals should consult their tax advisors to determine the effect of holding variable contracts on their individual tax situations. YIELDS AND TOTAL RETURNS QUOTED FOR A FUND INCLUDE THE EFFECT OF DEDUCTING THE FUND'S EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO ANY PARTICULAR INSURANCE PRODUCT. SINCE YOU CAN ONLY PURCHASE SHARES OF A FUND THROUGH A VARIABLE ANNUITY AND/OR A VARIABLE LIFE INSURANCE CONTRACT, YOU SHOULD CAREFULLY REVIEW THE PROSPECTUS OF THE INSURANCE PRODUCT YOU HAVE CHOSEN FOR INFORMATION ON RELEVANT CHARGES AND EXPENSES. Excluding these charges from quotations of a fund's performance has the effect of increasing the performance quoted. GENERAL INFORMATION A fund's performance may be compared to the performance of other mutual funds in general, or to the performance of particular types of mutual funds. These comparisons may be expressed as mutual fund rankings prepared by Lipper Analytical Services, Inc. (Lipper), an independent service located in Summit, New Jersey that monitors the performance of mutual funds. Lipper generally ranks funds on the basis of total return, assuming reinvestment of distributions, but does not take sales charges or redemption fees into consideration, and is prepared without regard to tax consequences. Lipper may also rank funds based on yield. In addition to the mutual fund rankings, a fund's performance may be compared to mutual fund performance indices prepared by Lipper. High Income Portfolio may compare its performance to the Salomon Brothers High Yield Composite Index, an index of high-yielding utility and corporate bonds with a minimum maturity of seven years and with total debt outstanding of at least $50 million. Issues included in the index are rated Baa or lower by Moody's Investors Service or BBB or lower by Standard & Poor's Corporation. Overseas Portfolio may quote its performance in advertising and other types of literature as compared to the performance of the Morgan Stanley Capital International EAFE Index, an unmanaged index of over 820 foreign common stocks. Investment Grade Bond Portfolio may compare its performance to the Shearson Lehman Brothers Inc. Government/Corporate Intermediate Bond index. Asset Manager may compare its performance against the Fidelity Composite Index. A fund may also compare its performance against the Consumer Price Index (CPI) and the funds in Lipper Annuity & Closed-End Survey (LACES). LACES consists of periodic reports that track the performance of closed-end mutual funds and variable annuities at the separate account level. A fund will compare itself only to annuities, not to closed-end funds in LACES.Index 500 Portfolio may quote its performance in advertising and other types of literature as compared to the performance of the S&P 500, (a registered trademark of Standard & Poor's Corporation). The S&P 500 is an unmanaged index of common stock prices.The performance of the S&P 500 Index is based on changes in the prices of stocks composing the Index and assumes the reinvestment of all dividends paid on such stocks. Taxes, brokerage commissions and other fees are disregarded in computing the level of the S&P 500 Index. From time to time, a fund's performance may also be compared to other mutual funds tracked by financial or business publications and periodicals. For example, a fund may quote Morningstar, Inc. in its advertising materials. Morningstar, Inc. is a mutual fund rating service that rates mutual funds on the basis of risk-adjusted performance. Rankings that compare the performance of Fidelity funds to one another in appropriate categories over specific periods of time may also be quoted in advertising. Fidelity may provide information designed to help individuals understand their investment goals and explore various financial strategies. For example, Fidelity's FundMatchsm Program includes a workbook describing general principles of investing, such as asset allocation, diversification, risk tolerance, and goal setting; a questionnaire designed to help create a personal financial profile; and an action plan offering investment alternatives. Materials may also include discussions of Fidelity's three asset allocation funds and other Fidelity funds, products, and services. Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical returns of the capital markets in the United States, including common stocks, small capitalization stocks, long-term corporate bonds, intermediate-term government bonds, long-term government bonds, Treasury bills, the U.S. rate of inflation (based on the CPI), and combinations of various capital markets. The performance of these capital markets is based on the returns of different indices. Fidelity funds may use the performance of these capital markets in order to demonstrate general risk-versus-reward investment scenarios. Performance comparisons may also include the value of a hypothetical investment in any of these capital markets. The risks associated with the security types in any capital market may or may not correspond directly to those of the funds. Ibbotson calculates total returns in the same method as the funds. The funds may also compare performance to that of other compilations or indices that may be developed and made available in the future. Money Market, High Income and Investment Grade Bond Portfolios each may compare its performance or the performance of securities in which it may invest to averages published by IBC USA (Publications), Inc. of Ashland, Massachusetts. These averages assume reinvestment of distributions. The IBC/Donoghue's MONEY FUND AVERAGES(trademark)/taxable money market funds, which is reported in the MONEY FUND REPORT(registered trademark), covers money market funds. The Bond Fund Report AverageS(trademark)/taxable bond funds, which is reported in the BOND FUND REPORT(registered trademark), covers bond funds. When evaluating comparisons to money market funds, investors should consider the relevant differences in investment objectives and policies. Specifically, money market funds invest in short-term, high-quality instruments and seek to maintain a stable $1.00 share price. Bond funds however, typically invest in longer-term instruments and their share price changes daily in response to a variety of factors. In advertising materials, Fidelity may reference or discuss its products and services, which may include: other Fidelity funds and insurance products; retirement investing; brokerage products and services; the effects of periodic investment plans and dollar cost averaging; saving for college; charitable giving; and the Fidelity credit card. In addition, Fidelity may quote financial or business publications and periodicals, including model portfolios or allocations, as they relate to fund management, investment philosophy, and investment techniques. Fidelity may also reprint, and use as advertising and sales literature, articles from Fidelity Focus, a quarterly magazine provided free of charge to Fidelity fund shareholders. Each fund may present its fund number, Quotron(trademark) number, and CUSIP number, and discuss or quote its current portfolio manager. VOLATILITY. A fund may quote various measures of volatility and benchmark correlation in advertising. In addition, a fund may compare these measures to those of other funds. Measures of volatility seek to compare a fund's historical share price fluctuations or total returns to those of a benchmark. Measures of benchmark correlation indicate how valid a comparative benchmark may be. All measures of volatility and correlation are calculated using averages of historical data. MOMENTUM INDICATORS indicate a fund's price movements over specific periods of time. Each point on the momentum indicator represents a fund's percentage change in price movements over that period. The funds may advertise examples of the effects of periodic investment plans, including the principle of dollar cost averaging. In such a program, a policyowner invests a fixed dollar amount in an insurance company's sub-account at periodic intervals which in turn invests in a fund, thereby purchasing fewer units when prices are high and more units when prices are low. While such a strategy does not assure a profit nor guard against loss in a declining market, the policyowner's average cost per unit can be lower than if fixed numbers of units had been purchased at those intervals. In evaluating such a plan, policyowners should consider their ability to continue purchasing units through periods of low price levels. Each fund has an investment objective similar to an existing Fidelity retail fund. Money Market Portfolio is most similar to its corresponding retail fund, Fidelity Cash Reserves. High Income Portfolio is most similar to its corresponding retail fund, Spartan High Income Fund. Equity-Income Portfolio is most similar to its corresponding retail fund, Fidelity Equity-Income Fund. Growth Portfolio is most similar to its corresponding retail fund, Fidelity Retirement Growth Fund. Overseas Portfolio is most similar to its corresponding retail fund, Fidelity Overseas Fund. Investment Grade Bond Portfolio is most similar to Fidelity Intermediate Bond Fund; Asset Manager Portfolio is most similar to Fidelity Asset Manager; and Index 500 Portfolio is most similar to Fidelity Market Index Fund. Performance will differ between the funds and their corresponding retail funds due in part to differences in investment policies and the effect of insurance charges. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION Each fund (except for Money Market Portfolio) is open for business and its NAV is calculated each day the NYSE is open for trading. The NYSE has designated the following holiday closings for 1994: President's Day, Good Friday, Memorial Day, Independence Day (observed), Labor Day, Thanksgiving Day, and Christmas Day (observed). Money Market Portfolio is open for business and its NAV is calculated each day that both the Federal Reserve Bank of New York City (the New York City Fed) and the NYSE are open for trading. In addition to the above holidays, the following holiday closings have been scheduled for Money Market Portfolio for 1994: Dr. Martin Luther, King, Jr. Day (observed), Columbus Day (observed), and Veteran's Day. Although FMR expects the same holiday schedule, with the addition of New Year's Day, to be observed in the future, the New York City Fed or the NYSE may modify its holiday schedule at any time. On any day that the New York City Fed or the NYSE close early or as permitted by the SEC , the right is reserved to advance the time on that day by which purchase and redemption orders must be received. To the extent that each fund's securities are traded in other markets on days when the New York City Fed or the NYSE is closed, each fund's NAV may be affected on days when investors do not have access to each fund to purchase or redeem shares. If the Trustees determine that existing conditions make cash payments undesirable, redemption payments may be made in whole or in part in securities or other property, valued for this purpose as they are valued in computing the NAV of each fund. Shareholders receiving securities or other property on redemption may realize a gain or loss for tax purposes, and will incur any costs of sale, as well as the associated inconveniences. TAXES For a discussion of tax consequences of variable contracts, please refer to your insurance company's separate account prospectus. Variable contracts purchased through insurance company separate accounts provide for the accumulation of all earnings from interest, dividends, and capital appreciation without current federal income tax liability to the owner. Depending on the variable contract, distributions from the contract may be subject to ordinary income tax and a 10% penalty tax on distributions before age 59 1/2. Only the portion of a distribution attributable to income is subject to federal income tax. Investors should consult with competent tax advisors for a more complete discussion of possible tax consequences in a particular situation. Section 817(h) of the Internal Revenue Code provides that the investments of a separate account underlying a variable insurance contract (or the investments of a mutual fund, the shares of which are owned by the variable separate account) must be "adequately diversified" in order for the contract to be treated as an annuity or life insurance for tax purposes. The Treasury Department has issued regulations prescribing these diversification requirements. Each fund intends to comply with these requirements. Each fund intends to qualify each year as a "regulated investment company" for tax purposes, so that it will not be liable for federal tax on income and capital gains distributed to shareholders. In order to qualify as a regulated investment company and avoid being subject to federal income or excise taxes, each fund intends to distribute substantially all its net taxable income and net realized capital gains within each calendar year as well as on a fiscal year basis. The funds also intend to comply with other tax rules applicable to regulated investment companies including a requirement that gross capital gains from selling securities held less than three months must constitute less than 30% of the funds' gross income for each fiscal year. Income and capital gain distributions are reinvested in additional shares of each fund. This is done to preserve the tax advantaged status of the variable contracts. Each fund is treated as a separate entity for tax purposes. MONEY MARKET PORTFOLIO. This fund may distribute any net realized short-term gains once each year, or more frequently if necessary, in order to maintain the fund's NAV at $1.00 per share and to comply with tax regulations. As of December 31, 1993, Money Market Portfolio had an aggregate capital loss carryover of approximately $13,800 arising from capital losses realized in the past, of which $4,100 will expire in 1995, $500 will expire in 1996, $4,900 will expire in 1997, and $4,300 will expire in 2000. This capital loss carryover may be used to offset future capital gains realized by the fund. HIGH INCOME AND INVESTMENT GRADE BOND PORTFOLIOS. Income from these funds is primarily derived from interest rather than dividends. As of December 31, 1993 High Income and Investment Grade Bond Portfolios had no unused capital loss carryover. OVERSEAS PORTFOLIO. Withholding or other taxes that the fund paid to foreign governments (if any), will reduce the fund's dividends. Foreign tax withholding from dividends and interest (if any) is typically at a rate between 10% and 35%. Shareholders will bear the cost of foreign tax withholding, but generally not be able to claim a foreign tax credit or deduction for foreign taxes paid by the fund by reason of the tax-deferred status of investments through separate accounts. As of December 31, 1993, Overseas Portfolio had an aggregate capital loss carryover of approximately $8,614,000, which may be used to offset future capital gains realized by the fund. EQUITY-INCOME, GROWTH, ASSET MANAGER AND INDEX 500 PORTFOLIOS . As of December 31, 1993, each fund had no aggregate capital loss carryover. FMR FMR is a wholly owned subsidiary of FMR Corp., a parent company organized in 1972. At present, the principal operating activities of FMR Corp. are those conducted by three of its divisions as follows: FSC, which is the transfer and shareholder servicing agent for certain of the funds advised by FMR; FIIOC, which performs shareholder servicing functions for certain institutional customers; and Fidelity Investments Retail Marketing Company, which provides marketing services to various companies within the Fidelity organization. Several affiliates of FMR are also engaged in the investment advisory business. Fidelity Management Trust Company provides trustee, investment advisory, and administrative services to retirement plans and corporate employee benefit accounts. Fidelity Management & Research (U.K.) Inc. (FMR U.K.) and Fidelity Management & Research (Far East) Inc. (FMR Far East), both wholly owned subsidiaries of FMR formed in 1986, supply investment research, and may supply portfolio management services, to FMR in connection with certain funds advised by FMR. Analysts employed by FMR, FMR U.K., and FMR Far East research and visit thousands of domestic and foreign companies each year. FMR Texas Inc., a wholly owned subsidiary of FMR formed in 1989, supplies portfolio management and research services in connection with certain money market funds advised by FMR. TRUSTEES AND OFFICERS Each Trust's Trustees and executive officers are listed below. Except as indicated, each individual has held the office shown or other offices in the same company for the last five years. All persons named as Trustees and officers also serve in similar capacities for other funds advised by FMR. Unless otherwise noted, the business address of each Trustee and officer is 82 Devonshire Street, Boston, Massachusetts, 02109, which is also the address of FMR. Those Trustees who are "interested persons" (as defined in the Investment Company Act of 1940) by virtue of their affiliation with each Trust or FMR, are indicated by an asterisk (*). *EDWARD C. JOHNSON 3d, Trustee and President, is Chairman, Chief Executive Officer and a Director of FMR Corp.; a Director and Chairman of the Board and of the Executive Committee of FMR; Chairman and a Director of FMR Texas Inc. (1989), Fidelity Management & Research (U.K.) Inc., and Fidelity Management & Research (Far East) Inc. *J. GARY BURKHEAD, Trustee and Senior Vice President, is President of FMR; and President and a Director of FMR Texas Inc. (1989), Fidelity Management & Research (U.K.) Inc., and Fidelity Management & Research (Far East) Inc. RALPH F. COX, 200 Rivercrest Drive, Fort Worth, TX, Trustee (1991), is a consultant to Western Mining Corporation (1994). Prior to February 1994, he was President of Greenhill Petroleum Corporation (petroleum exploration and production, 1990). Until March 1990, Mr. Cox was President and Chief Operating Officer of Union Pacific Resources Company (exploration and production). He is a Director of Bonneville Pacific Corporation (independent power, 1989), Sanifill Corporation (non-hazardous waste, 1993), and CH2M Hill Companies (engineering). In addition, he served on the Board of Directors of the Norton Company (manufacturer of industrial devices, 1983-1990) and continues to serve on the Board of Directors of the Texas State Chamber of Commerce, and is a member of advisory boards of Texas A&M University and the University of Texas at Austin. PHYLLIS BURKE DAVIS, P.O. Box 264, Bridgehampton, NY, Trustee (1992). Prior to her retirement in September 1991, Mrs. Davis was the Senior Vice President of Corporate Affairs of Avon Products, Inc. She is currently a Director of BellSouth Corporation (telecommunications), Eaton Corporation (manufacturing, 1991), and the TJX Companies, Inc. (retail stores, 1990), and previously served as a Director of Hallmark Cards, Inc. (1985-1991) and Nabisco Brands, Inc. In addition, she serves as a Director of the New York City Chapter of the National Multiple Sclerosis Society, and is a member of the Advisory Council of the International Executive Service Corps. and the President's Advisory Council of The University of Vermont School of Business Administration. RICHARD J. FLYNN, 77 Fiske Hill, Sturbridge, MA, Trustee, is a financial consultant. Prior to September 1986, Mr. Flynn was Vice Chairman and a Director of the Norton Company (manufacturer of industrial devices). He is currently a Director of Mechanics Bank and a Trustee of College of the Holy Cross and Old Sturbridge Village, Inc. E. BRADLEY JONES, 3881-2 Lander Road, Chagrin Falls, OH, Trustee (1990). Prior to his retirement in 1984, Mr. Jones was Chairman and Chief Executive Officer of LTV Steel Company. Prior to May 1990, he was Director of National City Corporation (a bank holding company) and National City Bank of Cleveland. He is a Director of TRW Inc. (original equipment and replacement products), Cleveland-Cliffs Inc (mining), NACCO Industries, Inc. (mining and marketing), Consolidated Rail Corporation, Birmingham Steel Corporation, Hyster-Yale Materials Handling, Inc. (1989), and RPM, Inc. (manufacturer of chemical products, 1990). In addition, he serves as a Trustee of First Union Real Estate Investments, Chairman of the Board of Trustees and a member of the Executive Committee of the Cleveland Clinic Foundation, a Trustee and a member of the Executive Committee of University School (Cleveland), and a Trustee of Cleveland Clinic Florida. DONALD J. KIRK, 680 Steamboat Road, Apartment #1-North, Greenwich, CT, Trustee, is a Professor at Columbia University Graduate School of Business and a financial consultant. Prior to 1987, he was Chairman of the Financial Accounting Standards Board. Mr. Kirk is a Director of General Re Corporation (reinsurance) and Valuation Research Corp. (appraisals and valuations, 1993). In addition, he serves as Vice Chairman of the Board of Directors of the National Arts Stabilization Fund and Vice Chairman of the Board of Trustees of the Greenwich Hospital Association. *PETER S. LYNCH, Trustee (1990) is Vice Chairman of FMR (1992). Prior to his retirement on May 31, 1990, he was a Director of FMR (1989) and Executive Vice President of FMR (a position he held until March 31, 1991); Vice President of Fidelity Magellan Fund and FMR Growth Group Leader; and Managing Director of FMR Corp. Mr. Lynch was also Vice President of Fidelity Investments Corporate Services (1991-1992). He is a Director of W.R. Grace & Co. (chemicals, 1989) and Morrison Knudsen Corporation (engineering and construction). In addition, he serves as a Trustee of Boston College, Massachusetts Eye & Ear Infirmary, Historic Deerfield (1989) and Society for the Preservation of New England Antiquities, and as an Overseer of the Museum of Fine Arts of Boston (1990). GERALD C. McDONOUGH, 135 Aspenwood Drive, Cleveland, OH, Trustee (1989), is Chairman of G.M. Management Group (strategic advisory services). Prior to his retirement in July 1988, he was Chairman and Chief Executive Officer of Leaseway Transportation Corp. (physical distribution services). Mr. McDonough is a Director of ACME-Cleveland Corp. (metal working, telecommunications and electronic products), Brush-Wellman Inc. (metal refining), York International Corp. (air conditioning and refrigeration, 1989), Commercial Intertech Corp. (water treatment equipment, 1992), and Associated Estates Realty Corporation (a real estate investment trust, 1993). EDWARD H. MALONE, 5601 Turtle Bay Drive #2104, Naples, FL, Trustee. Prior to his retirement in 1985, Mr. Malone was Chairman, General Electric Investment Corporation and a Vice President of General Electric Company. He is a Director of Allegheny Power Systems, Inc. (electric utility), General Re Corporation (reinsurance) and Mattel Inc. (toy manufacturer). He is also a Trustee of Rensselaer Polytechnic Institute and of Corporate Property Investors and a member of the Advisory Boards of Butler Capital Corporation Funds and Warburg, Pincus Partnership Funds. MARVIN L. MANN, 55 Railroad Avenue, Greenwich, CT, Trustee (1993) is Chairman of the Board, President, and Chief Executive Officer of Lexmark International, Inc. (office machines, 1991). Prior to 1991, he held the positions of Vice President of International Business Machines Corporation ("IBM") and President and General Manager of various IBM divisions and subsidiaries. Mr. Mann is a Director of M.A. Hanna Company (chemicals, 1993) and Infomart (marketing services, 1991), a Trammell Crow Co. In addition, he serves as the Campaign Vice Chairman of the Tri-State United Way (1993) and is a member of the University of Alabama President's Cabinet (1990). THOMAS R. WILLIAMS, 21st Floor, 191 Peachtree Street, N.E., Atlanta, GA, Trustee, is President of The Wales Group, Inc. (management and financial advisory services). Prior to retiring in 1987, Mr. Williams served as Chairman of the Board of First Wachovia Corporation (bank holding company), and Chairman and Chief Executive Officer of The First National Bank of Atlanta and First Atlanta Corporation (bank holding company). He is currently a Director of BellSouth Corporation (telecommunications), ConAgra, Inc. (agricultural products), Fisher Business Systems, Inc. (computer software), Georgia Power Company (electric utility), Gerber Alley & Associates, Inc. (computer software), National Life Insurance Company of Vermont, American Software, Inc. (1989), and AppleSouth, Inc. (restaurants, 1992). GARY L. FRENCH, Treasurer (1991). Prior to becoming Treasurer of the Fidelity funds, Mr. French was Senior Vice President, Fund Accounting - Fidelity Accounting & Custody Services Co. (1991); Vice President, Fund Accounting - Fidelity Accounting & Custody Services Co. (1990); and Senior Vice President, Chief Financial and Operations Officer - Huntington Advisers, Inc. (1985-1990). ARTHUR S. LORING, Secretary, is Senior Vice President and General Counsel of FMR, Vice President-Legal of FMR Corp., and Vice President and Clerk of FDC. THOMAS D. MAHER, Assistant Vice President (1990), is Associate General Counsel of FMR Texas Inc. (1990). ROBERT LITTERST, Vice President of Money Market Portfolio (1992), is an employee of FMR. BARRY COFFMAN, Vice President of High Income Portfolio (1992), is an employee of FMR. ROBERT BECKWITT, Vice President of Asset Manager Portfolio (1990), is an employee of FMR. DONALD TAYLOR, Vice President of Investment Grade Bond Portfolio (1992), is an employee of FMR. ROBERT H. MORRISON, Manager, Security Transactions, is an employee of FMR. Under a retirement program that became effective on November 1, 1989, Trustees, upon reaching age 72, become eligible to participate in a defined benefit retirement program under which they receive payments during their lifetime from the fund based on their basic trustee fees and length of service. Currently, Messrs. Robert L. Johnson, William R. Spaulding, Bertram H. Witham, and David L. Yunich participate in the program. As of March 31, 1994, the Trustees and officers of each Trust owned 0% of the outstanding shares of the funds. As of February 28, 1994, significant shares of the funds were held by the following companies with the figures beneath each fund representing that company's holdings as a percentage of each fund's total outstanding shares.
Investment Money High Equity- Grade Asset Market Income Income Growth Overseas Bond Manager Index 500 Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio American United -- -- -- -- -- -- -- 12.96% Life Insurance Company (Indianapolis, IN) Ameritas Variable 9.08% -- -- -- -- 14.77% -- -- Life Insurance Company (Lincoln, NE) Fidelity 47.43% 21.43% 27.98% 19.47% 21.48% 45.63% 33.06% 63.08% Investments Life Insurance Company (Boston, MA) Integrity Life -- -- -- -- -- 5.06% -- -- Insurance Company (New York, NY) The Life Insurance 6.30% -- -- -- 5.31% -- 12.50% -- Company of Virginia (Richmond, VA) Northwestern -- -- -- -- -- 8.90% -- 6.11% National Life Insurance Company (Minneapolis, MN) PFL Life Insurance 21.59% 12.92% 10.27% 6.14% 7.43% 13.56% 5.93% -- Company (Cedar Rapids, IA) Nationwide Life -- 36.82% 30.11% 31.47% 43.21% -- 23.71% -- Insurance Company (Columbus, OH) State Mutual Life -- 6.70% 9.30% 7.78% 6.20% -- -- -- Assurance Company (Worcester, MA) The Travelers -- 5.51% -- 9.12% -- -- 9.15% -- Insurance Company (Hartford, CT)
* Less than 5%. - - - Company does not offer shares of the portfolio. A shareholder owning more than 25% of a particular fund's shares may be considered to be a "controlling person" of that fund. Accordingly, its vote could have a more significant effect on matters presented to shareholders for approval than the votes of the fund's other shareholders. Messrs. Edward C. Johnson 3d and J. Gary Burkhead, Trustees of the fund and directors of FMR, together with Messrs. Francis D. Cabour, Richard B. Fentin, Barry A. Greenfield, Richard C. Habermann, William J. Hayes, Michael M. Kassen, Alan Leifer, Peter S. Lynch, and George A. Vanderheiden, officers or employees of FMR, are members of the Equity-Income, Growth and Overseas Portfolios' Investment Committee, which reviews recommendations of the research staff of FMR. MANAGEMENT CONTRACTS Each fund employs FMR to furnish it with investment advisory and other services. Under FMR's Management Contract with each fund, FMR acts as investment advisor and, subject to the supervision of the Board of Trustees, directs the investments of each fund in accordance with its investment objective, policies and limitations. FMR also provides each fund with all necessary office facilities and personnel for servicing each fund's investments, and compensates all officers of each Trust, all Trustees who are "interested persons" of each Trust or of FMR and all personnel of each Trust or FMR performing services relating to research, statistical and investment activities. In addition, FMR or its affiliates, subject to the supervision of the Board of Trustees, provide the management and administrative services necessary for the operation of each fund. These services include providing facilities for maintaining each fund's organization, supervising relations with custodians, transfer and pricing agents, accountants, underwriters and other persons dealing with each fund, preparing all general shareholder communications and conducting shareholder relations, maintaining each fund's records and the registration of each fund's shares under federal and state law, developing management and shareholder services for each fund and furnishing reports, evaluations and analyses on a variety of subjects to each Trust's Board of Trustees. In addition to the management fee payable to FMR and the fees payable to FSC and FIIOC, each fund pays all its expenses, without limitation, that are not assumed by those parties. Each fund pays for typesetting, printing and mailing its Prospectuses, Statements of Additional Information, reports and proxy material to existing shareholders, legal expenses and the fees of the custodian, auditor and non-interested Trustees. Other charges paid by each fund include interest, taxes, brokerage commissions, each fund's proportionate share of insurance premiums and Investment Company Institute dues, and the costs of registering shares under federal and state securities laws. Each fund is also liable for such nonrecurring expenses as may arise, including costs of litigation to which each fund may be a party and any obligation they may have to indemnify the officers and Trustees of each Trust with respect to litigation. MONEY MARKET PORTFOLIO. FMR is the fund's manager pursuant to a management contract dated January 1, 1994, which was approved by shareholders on December 15, 1993. For the services of FMR under the contract, the fund pays FMR a monthly management fee calculated by adding a basic fee, which consists of a group fee rate and an individual fund fee rate (.03% of the fund's average net assets), to an income-based component of 6% of the fund's gross income in excess of a 5% yield, and multiplying the result by the fund's average net assets. A discussion of the group fee rate is below. INVESTMENT GRADE BOND PORTFOLIO AND HIGH INCOME PORTFOLIO. FMR is Investment Grade Bond Portfolio's manager pursuant to a Management Contract dated January 1, 1993, which was approved by shareholders on December 16, 1992. FMR is High Income Portfolio's manager pursuant to a Management Contract dated January 1, 1994 which was approved by shareholders on December 15, 1993. For the services of FMR under each Contract, each fund pays FMR a monthly management fee composed of the sum of two elements: a group fee rate and an individual fund fee rate. THE GROUP FEE RATE. The group fee rate for Money Market, Investment Grade Bond* and High Income Portfolios is based on the monthly average net assets of all of the registered investment companies with which FMR has management contracts and is calculated on a cumulative basis pursuant to the graduated fee rate schedule shown on the left of the chart below. On the right, the effective fee rate schedule shows the results of cumulatively applying the annualized rates at varying asset levels. For example, the effective annual fee rate at $232 billion of group net assets--their approximate level for the month of December 1993 was .1621%, which is the weighted average of the respective fee rates for each level of group net assets up to that level. GROUP FEE RATE EFFECTIVE ANNUAL SCHEDULE* FEE RATES Rate Group Effective Asset Levels Net Annual Assets Fee Rate 0 - $ 3 billion .3700% $ 25 billion .2664% 3 - 6 .3400 50 .2188 6 - 9 .3100 75 .1986 9 - 12 .2800 100 .1869 12 - 15 .2500 125 .1793 15 - 18 .2200 150 .1736 18 - 21 .2000 175 .1695 21 - 24 .1900 200 .1658 24 - 30 .1800 225 .1629 30 - 36 .1750 250 .1604 36 - 42 .1700 275 .1583 42 - 48 .1650 300 .1565 48 - 66 .1600 325 .1548 66 - 84 .1550 350 .1533 84 - 120 .1500 375 .1519 120 - 174 .1450 400 .1507 174 - 228 .1400 228 - 282 .1375 282 - 336 .1350 Over - 336 .1325 *The rates shown for average group assets in excess of $174 billion were adopted for Investment Grade Bond Portfolio by FMR on a voluntary basis on November 1, 1993. The schedule was adopted for the fund pending shareholder approval of a new management contract reflecting the extended schedule. The extended schedule provides for lower management fees as total assets under management increase. The individual fund fee rate for Money Market Portfolio is .03%. Based on the average net assets of funds advised by FMR for December 1993, the basic fee rate would be calculated as follows: Group Fee Rate Individual Fund Fee Rate Basic Fee Rate .1621% + .03% = .1921% If the fund's gross yield is 5% or less, the basic fee is the total management fee. The income-based component of the fee is added to the basic fee when the fund's yield is greater than 5%. The income-based fee equals 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 .24% (annualized) of average net assets, at a fund gross yield of 9%. Gross income for this purpose, includes interest accrued and/or discount earned (including both original issue discount and market discount) on portfolio obligations, less amortization of premium. Realized and unrealized gains and losses, if any, are not included in gross income. One twelfth (1/12) of the basic fee plus the income-based component is applied to the fund's average net assets for the current month, giving a dollar amount which is the fee for that month. The individual fund fee rate for Investment Grade Bond Portfolio is .30%. Based on the average net assets of funds advised by FMR for December 1993, the basic fee rate would be calculated as follows: Group Fee Rate Individual Fund Fee Rate Management Fee Rate .1621% + .30% = .4621% The individual fund fee rate for High Income Portfolio is .45%. Based on the average net assets of funds advised by FMR for December 1993, the basic fee rate would be calculated as follows: Group Fee Rate Individual Fund Fee Rate Management Fee Rate .1621% + .45% = .6121% One twelfth (1/12) of this annual management fee rate is then applied to each fund's average net assets for the current month, giving a dollar amount which is the fee for that month. MONEY MARKET PORTFOLIO. For the 1993, 1992 and 1991 fiscal years, FMR's fee as investment advisor was $415,213, $487,024 and $710,490, respectively, which was equivalent to an annualized rate of .14%, .17% and .28%, respectively of the fund's average net assets. INVESTMENT GRADE BOND PORTFOLIO. For fiscal years ended 1993, 1992 and 1991, FMR received $460,983, $272,562, and $108,191, respectively, for its services as investment advisor before reimbursement. These fees were equivalent to .47%, .47%, and .48% of the fund's average net assets for those respective periods. HIGH INCOME PORTFOLIO. During the fiscal years ended 1993, 1992 and 1991, FMR received $1,764,257, $784,904 and $266,207, respectively, for its services as investment advisor. These fees, were equivalent to .51%, .52% and .53% of the fund's average net assets for those respective periods. Prior to January 1, 1994, Money Market Portfolio's management fee was calculated as a percentage of the fund's gross income, calculated and paid monthly, and varied together with the fund's yield. The fee equaled 4% of that portion of the fund's gross income (before expenses) that was equivalent to a gross yield of 5% or less, plus 6% of the fund's gross income that was equivalent to a gross yield of more than 5%. The fee was subject to a maximum fee rate, which varied between 0.50% and 0.40% (annualized) of average net assets depending on the fund's size. On behalf of Investment Grade Bond Portfolio, the schedule shown above (minus the breakpoints added November 1, 1993) was voluntarily adopted by FMR on January 1, 1992 and approved by shareholders of the fund on December 16, 1992. Prior to January 1, 1992, the funds' group fee rate was based on a schedule with breakpoints ending at .310% for average group assets in excess of $102 billion. This shorter schedule was included in the fund's prior management contract with FMR dated January 1, 1990. On behalf of High Income Portfolio, on November 1, 1993, FMR voluntarily adopted a revised schedule providing for extended breakpoints for group assets in excess of $174 billion. The extended schedule was approved by shareholders of the fund December 15, 1993. The schedule shown above (minus the breakpoints approved by shareholders on December 15, 1993) was voluntarily adopted by FMR on January 1, 1992. On December 16, 1992, shareholders approved the extended schedule and revised management contract dated January 1, 1993. Prior to January 1, 1992, the fund's group fee rate was based on a schedule with breakpoints ending at .150% for average group assets in excess of $120 billion. This shorter schedule was included a prior management contract with FMR dated January 1, 1990. Prior to January 1, 1994, High Income Portfolio's individual fund fee rate was .35% of the fund's average net assets. EQUITY-INCOME, GROWTH, OVERSEAS AND ASSET MANAGER PORTFOLIOS. FMR is each fund's manager pursuant to Management Contracts dated January 1, 1993, which were approved by shareholders on December 16, 1992. For the services of FMR under the Contracts, each fund pays FMR a monthly management fee composed of the sum of two elements: a group fee rate and an individual fund fee rate. THE GROUP FEE RATE. Each fund's group fee rate is based on the monthly average net assets of all of the registered investment companies with which FMR has management contracts and is calculated on a cumulative basis pursuant to the graduated fee rate schedule shown on the left of the chart below. On the right, the effective fee rate schedule shows the results of cumulatively applying the annualized rates at varying asset levels. For example, the effective annual fee rate at $232 billion of group net assets--their approximate level for the month of December 1993 was .3243%, which is the weighted average of the respective fee rates for each level of group net assets up to that level. GROUP FEE RATE EFFECTIVE ANNUAL SCHEDULE* FEE RATES Rate Group Effective Asset Levels Net Annual Assets Fee Rate 0 - $ 3 billion .520% $ 0.5 billion .5200% 3 - 6 .490 10 .4840 6 - 9 .460 20 .4398 9 - 12 .430 30 .4115 12 - 15 .400 40 .3944 15 - 18 .385 50 .3823 18 - 21 .370 60 .3728 21 - 24 .360 70 .3656 24 - 30 .350 80 .3599 30 - 36 .345 90 .3552 36 - 42 .340 100 .3512 42 - 48 .335 110 .3475 48 - 66 .325 120 .3444 66 - 84 .320 130 .3417 84 - 102 .315 140 .3394 102 - 138 .310 150 .3371 138 - 174 .305 160 .3351 174 - 228 .300 170 .3333 228 - 282 .295 180 .3316 282 - 336 .290 190 .3299 Over 336 .285 200 .3284 *The rates shown for average group assets in excess of $174 billion were adopted by FMR on a voluntary basis on November 1, 1993. The schedule was adopted for each fund pending shareholder approval of new management contracts reflecting the extended schedule. The extended schedule provides for lower management fees as total assets under management increase. Based on the average net assets of the funds advised by FMR for December 1993, the annual management fee rate was calculated as follows: The individual fund fee rate for Equity-Income Portfolio is .20%. Group Fee Rate Individual Fund Fee Rate Management Fee Rate .3243% + .20% = .5243% The individual fund fee rate for Growth Portfolio is .30%. Group Fee Rate Individual Fund Fee Rate Management Fee Rate .3243% + .30% = .6243% The individual fund fee rate for Overseas Portfolio is .45%. Group Fee Rate Individual Fund Fee Rate Management Fee Rate .3243% + .45% = .7743% The individual fund fee rate for Asset Manager Portfolio is .40%. Group Fee Rate Individual Fund Fee Rate Management Fee Rate .3243% + .40% = .7243% One twelfth (1/12) of this annual management fee rate is then applied to each fund's average net assets for the current month, giving a dollar amount which is the fee for that month. The schedule shown above (minus the breakpoints added November 1, 1993) was voluntarily adopted by FMR on January 1, 1992 and approved by shareholders of each fund on December 16, 1992. Prior to January 1, 1992, the funds' group fee rate was based on a schedule with breakpoints ending at .310% for average group assets in excess of $102 billion. This shorter schedule was included in each fund's prior management contract with FMR dated January 1, 1990. EQUITY-INCOME. During the fiscal years ended 1993, 1992 and 1991, FMR received $2,179,187, $1,132,875 and $840,430, respectively, for its services as investment advisor. These fees were equivalent to .53%, .54% and .55% of the fund's average net assets for those respective periods. GROWTH. During the fiscal years ended 1993, 1992 and 1991, FMR received $3,305,050, $1,468,574 and $695,364, respectively, for its services as investment advisor. These fees were equivalent to .63%, .64% and .65% of the fund's average net assets for those respective periods. OVERSEAS. During the fiscal years ended 1993, 1992 and 1991, FMR received $1,231,227, $799,438 and $465,118, respectively, for its services as investment advisor. These fees were equivalent to .78%, .79% and .80% of the fund's average net assets for those respective periods. ASSET MANAGER. During the fiscal years ended 1993, 1992 and 1991, FMR received $10,365,454, $3,065,065, and $693,187, respectively, for its services as investment advisor prior to any reimbursement. These fees were equivalent to .72%, .73%, and .74% of the fund's average net assets for the respective periods. INDEX 500 PORTFOLIO FMR is the fund's manager pursuant to a Management Contract dated January 1, 1993, which was approved by shareholders on December 16, 1992. For the services of FMR under the Contract, the fund pays a monthly management fee to FMR at the annual rate of .28% of the average net assets of the fund as determined as of the close of business on each day throughout the month. FMR may, from time to time, agree to voluntarily reimburse the fund for expenses above a specified percentage of average net assets. FMR retains the ability to be repaid for these expense reimbursements in the amount that expenses fall below the limit prior to the end of the fiscal year. For the fiscal year ended 1993 and the period August 27, 1992 (commencement of operations) to December 31, 1992, the fee before reimbursement of expenses, amounted to $58,243 and $11,715, respectively. FMR has voluntarily agreed to reimburse the fund if, and to the extent that, the fund's aggregate operating expenses (including the management fee, but generally excluding interest, taxes, brokerage commissions, and extraordinary expenses) exceed an annual rate of .28% of the average net assets of the fund for any fiscal year, or for a portion of such year if FMR's agreement is terminated or revised. SUB-ADVISORS. On behalf of HIGH INCOME AND ASSET MANAGER PORTFOLIOS, FMR has entered into sub-advisory agreements with Fidelity Management & Research (U.K.) Inc. (FMR U.K.) and Fidelity Management & Research (Far East) Inc. (FMR Far East). On behalf of OVERSEAS PORTFOLIO, FMR has entered into sub-advisory agreements with Fidelity Management & Research (U.K.) Inc. (FMR U.K.), Fidelity Management & Research (Far East) Inc. (FMR Far East), and Fidelity International Investment Advisors (FIIA). FIIA, in turn, has entered into a sub-advisory agreement with its wholly owned subsidiary Fidelity International Investment Advisors (U.K.) Limited (FIIAL U.K.). Pursuant to the sub-advisory agreements, FMR may receive investment advice and research services with respect to companies based outside the U.S. from the sub-advisors and may grant the sub-advisors investment management authority as well as the authority to buy and sell securities if FMR believes it would be beneficial to the fund. Currently, FMR U.K., FMR Far East, FIIA and FIIAL U.K. each focus on companies in countries other than the United states including countries in Europe, Asia, and the Pacific Basin. FMR U.K. and FMR Far East are wholly owned subsidiaries of FMR. FIIA is a wholly owned subsidiary of Fidelity International Limited (FIL), a Bermuda company formed in 1968 which primarily provides investment advisory services to non-U.S. investment companies and institutional investors investing in securities of issuers throughout the world. FIIA was organized in Bermuda in 1983 and FIIAL U.K. was organized in the United Kingdom in 1984. Under the sub-advisory agreements FMR pays the fees of FMR U.K., FMR Far East, and FIIA. FIIA, in turn, pays the fees of FIIAL U.K. For providing investment advice and research services the sub-advisors are compensated as follows: FMR pays FMR U.K. and FMR Far East fees equal to 110% and 105%, respectively, of FMR U.K.'s and FMR Far East's costs incurred in connection with providing investment advice and research services. FMR pays FIIA 30% of FMR's monthly management fee with respect to the average market value of investments held by a fund for which FIIA has provided FMR with investment advice. FIIA pays FIIAL U.K. a fee equal to 110% of FIIAL U.K.'s costs incurred in connection with providing investment advice and research services. For providing investment management and executing portfolio transactions, the sub-advisors are compensated as follows: FMR pays FMR U.K., FMR Far East, and FIIA 50% of its monthly management fee (including any performance adjustment) with respect to a fund's average net assets managed by the sub-advisor on a discretionary basis. FIIA pays FIIAL U.K. 110% of FIIAL U.K.'s costs incurred with providing investment management services. FMR entered into the sub-advisory agreements described above with respect to HIGH INCOME PORTFOLIO AND OVERSEAS PORTFOLIO on January 1, 1994 and April 1, 1992, respectively, following shareholder approval of the agreements on December 15, 1993 and March 25, 1992, respectively. Prior to April 1, 1992, FMR had sub-advisory agreements with FMR Far East and FMR U.K. on behalf of OVERSEAS PORTFOLIO pursuant to which FMR Far East and FMR U.K. provided FMR with investment advice and research services. Under those agreements, FMR Far East and FMR U.K. were compensated for their services according to the same formulas as they are compensated currently for providing investment advice and research services. For fiscal years ended December 31, 1993, 1992 and 1991, FMR paid $63,133, $41,512 and $66,930, respectively to FMR (U.K.) and $125,264, $34,267 and $65,440, respectively to FMR Far East on behalf of Overseas Portfolio. For fiscal years ended December 31, 1993, 1992 and 1991, FMR paid FMR (U.K.) and FMR Far East fees of $89,285 and $191,520; $17,823 and $14,942; and $4,050 and $4,000, respectively, on behalf of Asset Manager Portfolio. F MR entered into a sub-advisory agreement with FMR Texas Inc. (FMR Texas), pursuant to which FMR Texas has primary responsibility for providing investment management services to the MONEY MARKET PORTFOLIO. FMR Texas, a wholly owned subsidiary of FMR was formed in 1989 and registered under the Investment Advisers Act of 1940 on June 9, 1989 to provide investment management services to money market mutual funds; to advise FMR generally with respect to money market instruments; and to manage or provide advice with respect to cash flow management. The sub-advisory agreement provides that FMR and not the fund, will pay fees to FMR Texas equal to 50% of the management fee payable to FMR under its current Management Contract with the fund. The fees paid to FMR Texas are not reduced by any voluntary or mandatory fee waivers or expense reimbursements that may be in effect from time to time. For fiscal years ended December 31, 1993, 1992 and 1991, FMR paid $207,606, $243,512 and $355,245, respectively, to FMR Texas on behalf of Money Market Portfolio. DISTRIBUTION AND SERVICE PLANS Each fund has adopted a distribution and service plan (the Plans) under Rule 12b-1 under the Investment Company Act of 1940 (the Rule). The Rule provides, in substance, that a mutual fund may not engage directly or indirectly in financing any activity that is primarily intended to result in the sale of shares of the fund except pursuant to a plan adopted by the fund under the Rule. Each Trust's Board of Trustees has adopted the Plans to allow each of these funds and FMR to incur certain expenses that might be considered to constitute indirect payment by the funds of distribution expenses. Under the Plans, if the payment by a fund to FMR of management fees should be deemed to be indirect financing by a fund of the distribution of its shares, such payment is authorized by the Plans. The Plans specifically recognize that FMR, either directly or through FDC, may use its management fee revenue, past profits or other resources, without limitation, to pay promotional and administrative expenses in connection with the offer and sale of shares of the funds. In addition, the Plans provide that FMR may use its resources, including its management fee revenues, to make payments to third parties that provide assistance in selling shares of the funds or to third parties including banks, that render shareholder support services. However, no such payments to third parties are currently contemplated. Each fund's Plan has been approved by the Trustees. As required by the Rule, the Trustees carefully considered all pertinent factors relating to the implementation of each Plan prior to its approval, and have determined that there is a reasonable likelihood that the Plan will benefit the respective fund and its shareholders. In particular, the Trustees noted that the Plan does not authorize payments by the fund other than those made to FMR under the Management Contract with each fund. To the extent that a Plan gives FMR and FDC greater flexibility in connection with the distribution of shares of a fund, additional sales of the fund's shares may result. Additionally, certain shareholder support services may be provided more effectively under a Plan by local entities with whom shareholders have other relationships. Money Market, High Income, Equity-Income and Growth Portfolios' Plans were approved by shareholders of their respective fund on December 11, 1986. Overseas Portfolio's Plan was approved by shareholders on November 18, 1987. The Plans for Investment Grade Bond Portfolio and Asset Manager Portfolio were approved by the funds' shareholders on December 13, 1989. Index 500 Portfolio's Plan was approved by the Portfolio's shareholders on December 16, 1992. CONTRACTS WITH COMPANIES AFFILIATED WITH FMR Each fund has an agreement with FSC, an affiliate of FMR Corp., under which FSC determines the NAV per share and dividends of each fund and maintains the portfolio and general accounting records of each fund. Prior to July 1, 1991, the annual fee for these pricing and bookkeeping services was based on two schedules, one pertaining to each fund's average net assets, and one pertaining to the type and number of transactions each fund made. The fee rates in effect as of July 1, 1991, are based on each fund's average net assets as follows: for Money Market Portfolio, .0175% for the first $500 million of average net assets and .0075% for average net assets in excess of $500 million. The fee is limited to a minimum of $20,000 and a maximum of $750,000 per year; for High Income and Investment Grade Bond Portfolios, .04% for the first $500 million of average net assets and .02% for average net assets in excess of $500 million. For Equity-Income, Growth, Overseas, Asset Manager, and Index 500 Portfolios, .06% for the first $500 million of average net assets and .03% for average net assets in excess of $500 million. The fee for High Income, Equity Income, Growth and Overseas Portfolios is limited to a minimum of $45,000 and a maximum of $750,000 per year. The following are the fees paid by each fund to FSC for the last three fiscal years:
Money High Equity- Oversea Investment Asset Market Income Income Growth s Grade Bond Manager Index 500 Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio 12/31/93 $53,769 $138,642 $439,891 $456,795 $230,456 $46,426 $583,404 $45,074 12/31/92 $52,389 $62,305 $242,745 $303,007 $109,649 $46,187 $243,598 $15,547 12/31/91 $74,243 $54,512 $143,655 $162,678 $105,226 $46,430 $95,718 N/A
Each fund utilizes FIIOC, an affiliate of FMR Corp., to maintain the master accounts of the participating insurance companies. Under the contract, each fund pays a fee of $95 per shareholder account per year and a fee of $20 for each monetary transaction. In addition to providing transfer agent and shareholder servicing functions, FIIOC pays all transfer agent out-of-pocket expenses and also pays for typesetting, printing and mailing Prospectuses, Statements of Additional Information, reports, notices and statements to shareholders allocable to the master account of participating insurance companies. The following are the fees paid by each fund to FIIOC (including reimbursement for out-of-pocket expenses) for the last three fiscal years:
Money High Equity- Oversea Investment Asset Market Income Income Growth s Grade Bond Manager Index 500 Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio 12/31/93 $87,208 $108,432 $111,756 $140,122 $143,222 $71,119 $115,600 $33,911 12/31/92 $59,118 $61,198 $68,260 $79,504 $65,240 $39,809 $63,976 $1,205 12/31/91 $42,462 $45,665 $49,893 $53,613 $49,268 $17,023 $36,988 N/A
If a portion of each fund's brokerage commissions had not been allocated toward payment of these fees, the transfer agent fees for the last three fiscal years would have been as follows (not applicable for Money Market, High Income and Investment Grade Bond Portfolios): Equity- Oversea Asset Income Growth s Manager Index 500 Portfolio Portfolio Portfolio Portfolio Portfolio 12/31/93 $171,916 $228,419 -- $168,919 -- 12/31/92 -- -- -- -- -- 12/31/91 -- -- -- -- N/A Each fund has a Distribution Agreement with FDC, a Massachusetts corporation organized July 18, 1960. FDC is a broker-dealer registered under the Securities Exchange Act of 1934 and a member of the National Association of Securities Dealers, Inc. The Distribution Agreement calls for FDC to use all reasonable efforts, consistent with its other business, to secure purchasers for shares of the funds which are continuously offered at net asset value. Promotional and administrative expenses, in connection with the offer and sale of shares, are paid for by FMR. SUMMARY OF THE FUNDS' EXPENSES The expense summary format below was developed for use by all mutual funds to help you make your investment decisions. Of course you should consider this expense information along with other important information in the Prospectus and Statement of Additional Information and the funds' investment objectives. This table does not include any charges or expenses which are attributable to any particular insurance product. You should carefully review the Prospectus of the insurance product you have chosen for information or relevant charges and expenses. A. SHAREHOLDER TRANSACTION EXPENSES Money High Equity- Market Income Income Growth Overseas Portfolio Portfolio Portfolio Portfolio Portfolio
Sales Load on Purchases................................... None None None None None Sales Load on Reinvested Dividends............... None None None None None Deferred Sales Load Imposed on Redemptions. None None None None None Exchange Fees None None None None None
(as a percentage of average net assets after expense reimbursement) B. ANNUAL FUND OPERATING EXPENSES
Management Fees .20% .61% .53% .63% .77% 12b-1 Fees None None None None None Other Expenses .08% .13% .09% .08% .26% Total Fund Operating Expenses .28% .74% .62% .71% 1.03%
C. EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period:
1 $3 $8 $6 $7 $11 Year........................................................... 3 9 24 20 23 33 Years......................................................... 5 16 41 35 40 57 Years......................................................... 10 36 92 77 88 126 Years........................................................
A. SHAREHOLDER TRANSACTION EXPENSES Investment Asset Grade Bond Manager Index 500 Portfolio Portfolio Portfolio
Sales Load on Purchases................................... None None None Sales Load on Reinvested Dividends............... None None None Deferred Sales Load Imposed on Redemptions. None None None Exchange Fees None None None
(as a percentage of average net assets after expense reimbursement) B. ANNUAL FUND OPERATING EXPENSES Management Fees .47% .72% .00%* 12b-1 Fees None None None Other Expenses .21% .16% .28% Total Fund Operating Expenses .68% .88% .28% * net of reimbursement C. EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period:
1 $7 $9 $3 Year........................................................... 3 22 28 9 Years......................................................... 5 38 49 16 Years......................................................... 10 85 108 36 Years........................................................
EXPLANATION OF TABLE: The purpose of this table is to assist you in understanding the various costs and expenses that an investor in the funds would bear directly or indirectly. A. SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell shares of a fund. There are none for these funds, other than charges which may be imposed by a particular insurance product. B. ANNUAL FUND OPERATING EXPENSES are based on each fund's historical expenses adjusted to reflect the current management contract for Money Market and High Income Portfolios. Management Fees are paid by each fund to Fidelity Management & Research Company (FMR) for managing its investments and business affairs. The funds incur Other Expenses for maintaining shareholder records, furnishing shareholder statements and reports and other services. FMR has voluntarily agreed to limit the Annual Fund Operating Expenses of Index 500, Investment Grade Bond, High Income, Asset Manager, Equity-Income, Growth and Overseas Portfolios (excluding interest, taxes, brokerage commissions and extraordinary expenses) to an annual rate of .28%, .80%, 1.00%, 1.25%, 1.50%, 1.50% and 1.50%, respectively. If the funds' expenses exceed these rates, FMR reimburses the fund to the extent necessary to reduce expenses to the above levels. A Special Meeting of Shareholders of Money Market and High Income Portfolios was held December 15, 1993. All expenses in connection with the meeting, including preparation of the proxy statement, its enclosures and all solicitations were reimbursed by FMR. If FMR had not reimbursed these expenses, management fee, expenses and total expenses under the former contracts would have been .14%, .09% and .23% for Money Market Portfolio and .51%, .15% and .66% for High Income Portfolio. C. EXAMPLE OF EXPENSES. The hypothetical examples illustrate the expenses associated with a $1,000 investment over periods of 1, 3, 5 and 10 years for each of the funds. These examples are based on the annual fund operating expenses detailed above and an assumed annual rate of return of 5%. The return of 5% and expenses should not be considered indications of actual or expected fund performance or expenses, both of which may vary. DESCRIPTION OF THE TRUSTS TRUST ORGANIZATION. Money Market Portfolio, High Income Portfolio, Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio are funds of Variable Insurance Products Fund, an open-end management investment company. In July 1985, pursuant to shareholder approval, the Declaration of Trust was amended to change the name of the Trust from Fidelity Cash Reserves II to Variable Insurance Products Fund. Investment Grade Bond Portfolio, Asset Manager Portfolio and Index 500 Portfolio are funds of Variable Insurance Products Fund II, an open-end management investment company, organized March 21, 1988. Each Declaration of Trust permits the Trustees to create additional funds. Investments in each Trust may be made only by the separate accounts of insurance companies for the purpose of funding variable annuity and variable life insurance contracts issued by insurance companies. In the event that FMR ceases to be the investment advisor to a Trust or a fund, the right of the Trust or fund to use the identifying name "Fidelity" may be withdrawn. There is a remote possibility that one fund might become liable for any misstatement in its prospectus or statement of additional information about another fund. The assets of each Trust received for the issue or sale of shares of each of its funds and all income, earnings, profits, and proceeds thereof, subject only to the rights of creditors, are especially allocated to such fund, and constitute the underlying assets of such fund. The underlying assets of each fund are segregated on the books of account, and are to be charged with the liabilities with respect to such fund and with a share of the general liabilities of their respective Trusts. Expenses with respect to each Trust are to be allocated in proportion to the asset value of their respective funds, except where allocations of direct expense can otherwise be fairly made. The officers of each Trust, subject to the general supervision of the Boards of Trustees, have the power to determine which expenses are allocable to a given fund, or which are general or allocable to all of the funds of a certain Trust. In the event of the dissolution or liquidation of a Trust, shareholders of each fund of that Trust are entitled to receive as a class the underlying assets of such fund available for distribution. SHAREHOLDER AND TRUSTEE LIABILITY. Each Trust is an entity of the type commonly known as "Massachusetts business trust." Under Massachusetts law, shareholders of such a Trust may, under certain circumstances, be held personally liable for the obligations of the Trust. Each Declaration of Trust provides that the Trust shall not have any claim against shareholders except for the payment of the purchase price of shares and requires that each agreement, obligation, or instrument entered into or executed by the Trust or its Trustees shall include a provision limiting the obligations created thereby to the Trust and its assets. Each Declaration of Trust provides for indemnification out of each fund's property of any shareholder held personally liable for the obligations of the fund. Each Declaration of Trust also provides that its funds shall, upon request, assume the defense of any claim made against any shareholder for any act or obligation of the fund and satisfy any judgment thereon. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the fund itself would be unable to meet its obligations. FMR believes that, in view of the above, the risk of personal liability to shareholders is remote. Each Declaration of Trust further provides that the Trustees, if they have exercised reasonable care, will not be liable for any neglect or wrongdoing, but nothing in the Declarations of Trust protect Trustees against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. VOTING RIGHTS. Each fund's capital consists of shares of beneficial interest. The shares have no preemptive or conversion rights; the voting and dividend rights, the right of redemption, and the privilege of exchange are described in the Prospectus. Shares are fully paid and nonassessable, except as set forth under the heading "Shareholder and Trustee Liability" above. Shareholders representing 10% or more of a Trust or fund may, as set forth in the Declarations of Trust, call meetings of a Trust or fund for any purpose related to the Trust or fund, as the case may be, including, in the case of a meeting of an entire Trust, the purpose of voting on removal of one or more Trustees. Each Trust or fund may be terminated upon the sale of its assets to another open-end management investment company, or upon liquidation and distribution of its assets, if approved by vote of the holders of a majority of the outstanding shares of the Trust or the fund. If not so terminated, each Trust or fund will continue indefinitely. CUSTODIAN. Morgan Guaranty Trust Company, 60 Wall Street, New York, New York is custodian of Money Market Portfolio's assets; The Bank of New York, 110 Washington Street, New York New York, is custodian of High Income and Investment Grade Bond Portfolios' assets; The Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New York, New York 10036, is custodian of Equity-Income and Asset Manager Portfolios' assets; and Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts, is custodian of Growth, Overseas and Index 500 Portfolios' assets. The custodians take no part in determining the investment policies of the funds or in deciding which securities are purchased or sold by the funds. The funds, however, may invest in obligations of the custodians and may purchase or sell securities from or to the custodians. Investors should understand that the expense ratio for the Overseas Portfolio may be higher than that of investment companies which invest exclusively in domestic securities since the cost of maintaining the custody of foreign securities is higher. FMR, its officers and directors and its affiliated companies from time to time have transactions with various banks, including the custodian banks for certain of the funds advised by FMR. The Boston branch of Brown Brothers Harriman & Co. leases its office space from an affiliate of FMR at a lease payment which, when entered into, was consistent with prevailing market rates. Other transactions that have occurred to date include mortgages and personal and general business loans. In the judgment of FMR, the terms and conditions of those transactions were not influenced by existing or potential custodial or other fund relationships. AUDITOR. Coopers & Lybrand, One Post Office Square, Boston, Massachusetts, serves as the independent accountant for Variable Insurance Products Fund and Price Waterhouse, 160 Federal Street, Boston, Massachusetts serves as the independent accountant of Variable Insurance Products Fund II, each providing audit services including (1) audit of annual financial statements, (2) assistance and consultation in connection with SEC filings and (3) review of the annual federal income tax returns filed on behalf of each fund. FINANCIAL STATEMENTS The Annual Report to shareholders for each Trust's 1993 fiscal year is a separate report and is incorporated herein by reference and is supplied with this Statement of Additional Information. APPENDIX The DOLLAR-WEIGHTED AVERAGE MATURITY of a fund's fixed-income holdings is derived by multiplying the value of each fixed-income investment held by a fund by the number of days remaining to its maturity, adding these calculations, and then dividing the total by the value the fund's fixed-income holdings. An obligation's maturity is typically determined on a stated final maturity basis, although there are some exceptions to this rule. For example, if it is probable that the issuer of an instrument will take advantage of a maturity-shortening device, such as a call, refunding, or redemption provision, the date on which the instrument will probably be called, refunded, or redeemed may be considered to be its maturity date. Also, the maturities of mortgage-backed securities and some asset-backed securities. such as collateralized mortgage obligations, are determined on a weighted average life basis, which is the average time for principal to be repaid. For a mortgage security, this average time is calculated by assuming a constant prepayment rate for the life of the mortgage. The weighted average life of these securities is likely to be substantially shorter than their stated final maturity. DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S COMMERCIAL PAPER RATINGS: PRIME-1 (or related institutions) have a superior capacity for repayment of short-term promissory obligations. Prime-1 repayment capacity will normally be evidenced by the following characteristics: - - Leading market positions in well established industries. - - High rates of return on funds employed. - - Conservative capitalization structures with moderate reliance on debt and ample asset protection. - - Broad margins in earnings coverage of fixed financial charges with high internal cash generation. - - Well established access to a range of financial markets and assured sources of alternate liquidity. PRIME-2 (or related supporting institution) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. DESCRIPTION OF STANDARD & POOR'S CORPORATION'S COMMERCIAL PAPER RATINGS: A-1--This designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics will be denoted with a plus (+) sign designation. A-2--Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as high as for issues designated A-1. DESCRIPTION OF FITCH INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS: FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as having the strongest degree of assurance for timely payment. FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than the strongest issues. DESCRIPTION OF FITCH INVESTORS SERVICE, INC. CORPORATE BOND RATINGS: AAA--rated bonds are considered to be investment grade and of the highest quality. The obligor has an extraordinary ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. AA--rated bonds are considered to be investment grade and of high quality. The obligor's ability to pay interest and repay principal, while very strong, is somewhat less than for AAA rated securities or more subject to possible change over the term of the issue. DESCRIPTION OF DUFF & PHELPS INC. COMMERCIAL PAPER RATINGS: DUFF 1--Very high certainty of timely payment. Liquidity factors are excellent and supported by strong fundamental protection factors. Risk factors are minor. DUFF 2--Good certainty of timely payment. Liquidity factors and company fundamentals are sound. Although ongoing internal funds needs may enlarge total financing requirements, access to capital markets is good. Risk factors are small. DESCRIPTION OF DUFF & PHELPS INC. CORPORATE BOND RATINGS: DUFF 1--Highest credit quality. The risk factors are negligible, being only slightly more than for risk-free U.S. Treasury debt. DUFF 2,3,4--High credit quality. Protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. ABOUT THE S&P 500 INDEX (Index 500 Portfolio) The S&P 500 is a well-known stock market index that includes common stocks of companies representing a significant portion of the market value of all common stocks publicly traded in the United States. FMR believes that the performance of the S&P 500 is representative of the performance of publicly traded common stocks in general. The composition of the S&P 500 is determined by Standard & Poor's Corporation, and is based on such factors as the market capitalization and trading activity of each stock and its adequacy as representative of stocks in a particular industry group, and may be changed from time to time. Stocks in the S&P 500 are weighted according to their market capitalization (i.e., the number of shares outstanding multiplied by the stock's current price), with the 51 largest stocks currently composing 50% of the Index's value. The following refers to an agreement between Standard & Poor's Corporation and FDC whereby FDC has the right to the use of certain marks that are the property of S&P. Although S&P obtains information for inclusion in or for use in the calculation of the S&P 500 from sources which S&P considers reliable, S&P does not guarantee the accuracy and/or the completeness of the S&P 500 or any data included therein and S&P shall have no liability for any errors, omissions, or interruptions therein. S&P makes no warranty, express or implied, as to results to be obtained by the licensee, owners of the fund, or any other person or entity from the use of the S&P 500 or any data included therein in connection with the rights licensed hereunder or for any other use. S&P makes no express or implied warranties, and hereby expressly disclaims all warranties of merchantability or fitness for a particular purpose with respect to the S&P 500 or any data included therein. THE 500 STOCKS IN THE S&P 500 INDEX. The following is a list of the 500 Stocks in the S&P 500 Index as of February 28, 1994. Abbott Labs Advanced Micro Devices Aetna Life & Casualty Ahmanson (H.F.) & Co. Air Products & Chemicals Alberto-Culver Albertson's Alcan Aluminum Alco Standard Alexander & Alexander Allergan, Inc. Allied-Signal Aluminum Co. of America ALZA Corp. CI.A Amdahl Corp. Amerada Hess American Barrick Res. American Brands Inc. American Cyanamid American Electric Power American Express American General American Greetings CI A American Home Products American Int'l. Group American Stores American Tel. & Tel. Ameritech Amgen Amoco AMP Inc. AMR Corp. Andrew Corp. Anheuser-Busch Apple Computer Archer-Daniels Midland Arkla Inc. Armco Inc. Armstrong World ASARCO Inc. Ashland Oil Atlantic Richfield Autodesk, Inc. Automatic Data Processing Inc. Avery Dennison Corp. Avon Products Baker Hughes Ball Corp. Bally Manufacturing Corp. Baltimore Gas & Electric Banc One Corp. Bank of Boston BankAmerica Corp. Bankers Trust N.Y. Bard (C.R.) Inc. Barnett Banks Inc. Bassett Furniture Bausch & Lomb Baxter International Inc. Becton, Dickinson Bell Atlantic BellSouth Bemis Company Beneficial Corp. Bethlehem Steel Beverly Enterprises Biomet, Inc. Black & Decker Corp. Block H&R Blockbuster Entertainment Boatmen's Bancshares Boeing Company Boise Cascade Borden, Inc. Briggs & Stratton Bristol-Myers Squibb Brown Group Browning-Ferris Ind. Brown-Forman Inc. Bruno's Inc. Brunswick Corp. Burlington Northern Burlington Resources Campbell Soup Capital Cities/ABC Capital Holding Carolina Power & Light Caterpillar Inc. CBS Inc. Centex Corp. Central & SouthWest Ceridian Corp. Champion International Charming Shoppes Chase Manhattan Chemical Banking Corp. Chevron Corp. Chrysler Corp. Chubb Corp. CIGNA Corp. Cincinnati Milacron Circuity City Stores cicso Systems Citicorp Clark Equipment Clorox Co. Coastal Corp. Coca Cola Co. Colgate-Palmolive Columbia Gas System Columbia/HCA Healthcare Corp. Comcast Class A Special Commonwealth Edison Community Psych Centers Compaq Computer Computer Associates Intl. Computer Sciences Corp. ConAgra Inc. Consolidated Edison Consolidated Freightways Consolidated Natural Gas Consolidated Rail Continental Corp. Cooper Industries Cooper Tire & Rubber Coors (Adolph) CoreStates Financial Corning Inc. CPC International Crane Company Cray Research Crown Cork & Seal CSX Corp. Cummins Engine Co., Inc. Cyprus Minerals Co. Dana Corp. Data General Dayton Hudson Dean Witter, Discover & Co. Deere & Co. Delta Air Lines Deluxe Corp. Detroit Edison Dial Corp. Digital Equipment Dillard Department Stores Dominion Resources Donnelley (R.R.) & Sons Dover Corp. Dow Chemical Dow Jones & Co. Dresser Industries DSC Communications Du Pont (E.I.) Duke Power Dun & Bradstreet E G & G Inc. Eastern Enterprises Eastman Chemical Eastman Kodak Eaton Corp. Echlin Inc. Echo Bay Mines Ltd. Ecolab Inc. Emerson Electric Engelhard Corp. Enron Corp. Enserch Entergy Corp. Exxon Corp. E-Systems Fedders Corp. Federal Express Federal Home Loan Mtg. Federal Natl. Mtge. Federal Paper Board First Chicago Corp. First Fidelity Bancorp First Interstate Bancorp First Mississippi Corp. First Union Corp. Fleet Financial Group Fleetwood Enterprises Fleming Cos. Inc. Fluor Corp. FMC Corp. Ford Motor Foster Wheeler FPL Group Gannett Co. Gap (The) Gemeral Dynamics General Electric General Mills Gemeral Motors General Re Corp. General Signal Genesco Inc. Genuine Parts Georgia-Pacific Gerber Products Giant Food CI. A Giddings & Lewis Gillette Co. Golden West Financial Goodrich (B.F.) Goodyear Tire & Rubber Grace (W.R.) & Co. Grainger (W.W.) Inc. Great A & P Great Lakes Chemical Great Western Financial Grumman Corp. GTE Corp. Halliburton Co. Handleman Co. Harcourt General Inc. Harland (J.H.) Harnischfeger Indus. Harris Corp. Hartmarx Corp. Hasbro Inc. Heinz (H.J.) Helmerich & Payne Hercules, Inc. Hershey Foods Hewlett-Packard Hilton Hotels Home Depot Homestake Mining Honeywell Household International Houston Industries Illinois Tool Works Inco, Ltd. Ingersoll-Rand Inland Steel Ind. Inc. Intel Corp. Interpublic Group Intergraph Corp. International Bus. Machines International Flav/Frag International Paper ITT Corp. James River Jefferson-Pilot Johnson Controls Johnson & Johnson Jostens Inc. K Mart Kaufman & Broad Home Corp. Kellogg Co. Kerr-McGee KeyCorp Kimberly-Clark King World Productions Knight-Ridder Inc. Kroger Co. Lilly (Eli) & Co. Limited, The Lincoln National Liz Claiborne, Inc. Lockheed Corp. Longs Drug Stores Loral Corp. Lotus Development Louisiana Land & Exploration Louisiana Pacific Lowe's Cos. Luby's Cafeterias Maillinckrodt Group Inc. Manor Care Marriott Int'l Marsh & McLennan Martin Marietta Masco Corp. Mattel, Inc. Maxus Energy May Dept. Stores Maytag Co. MBNA Corp. McCaw Cellular Commun. McDermott International McDonald's Corp. McDonnell Douglas McGraw-Hill MCI Communications McKesson Corp. Mead Corp. Medtronic Inc. Mellon Bank Corp. Melville Corp. Mercantile Stores Merck & Co. Meredith Corp. Merrill Lynch Millipore Corp. Minn. Mining & Mfg. Mobil Corp. Monsanto Company Moore Corp. Ltd. Morgan (J.P.) & Co. Morrison Knudsen Morton International Motorola Inc. M/A Com. Inc. Nacco Ind. CI. A Nalco Chemical National Education National Intergroup National Medical Enterprise National Semiconductor National Service Ind. NationsBank Navistar International Corp. NBD Bancorp Inc. New York Times CI. A Newell Co. Newmont Mining Niagara Mohawk Power NICOR Inc. Nike Inc. Nordstrom Norfolk Southern Corp. Northern States Power Northern Telecom Northrop Corp. Norwest Corp. Novell Inc. Nucor Corp. Nynex Occidental Petroleum Ogden Corp. Ohio Edison ONEOK Inc. Oracle Systems Oryx Energy Oshkosh B'Gosh Outboard Marine Owens-Corning Fiberglas PACCAR Inc. Pacific Enterprises Pacific Gas & Electric Pacific Telesis PacifiCorp Pall Corp. Panhandle Eastern Parker-Hannifin Penney (J.C.) Pennzoil Co. Peoples Energy Pep Boys PepsiCo Inc. Perkin-Elmer Pet Inc. Pfizer, Inc. Phelps Dodge PECO Energy Co. Philip Morris Phillips Petroleum Pioneer Hi-Bred Int'l Pitney-Bowes Pittston Services Group Placer Dome Inc. PNC Bank Corp. Polaroid Corp. Potlatch Corp. PPG Inc. Praxair, Inc. Premark International Price/Costco Procter & Gamble Promus Inc. PSI Resources Inc. Public Serv. Enterprise Inc. Pulte Corp Quaker Oats Ralston Purina Raychem Corp. Raytheon Co. Reebok International Reynolds Metals Rite Aid Roadway Service Rockwell International Rohm & Haas Rollins Environmental Rowan Cos. Royal Dutch Petroleum Rubbermaid inc. Russell Corp. Ryan's Family Steak Hse Ryder System SAFECO Corp. Safety-Kleen Salomon Inc. Santa Fe Energy Resources Santa Fe Pacific Corp. Sara Lee Corp. SCE Corp. Schering-Plough Schlumberger Ltd. Scientific-Atlanta Scott Paper Seagram Ltd. Sears, Roebuck & Co. Service Corp. International Shared Medical Systems Shawmut National Sherwin-Williams Shoney's Inc. Skyline Corp. Snap-On Tools Sonat Inc. Southern Co. Southwest Bell Corp. Springs Industries Inc. Sprint Corp. SPX Corp. Stanley Works Stone Container Stride Rite St. Jude Medical St. Paul Cos. Sun Co., Inc. Sun Microsystems SunTrust Banks Supervalu Inc. Syntex Corp. Sysco Corp. Tandem Computers Inc. Tandy Corp. Tektronix Inc. Teledyne Inc. Tele-Communications Temple-Inland Tenneco Inc. Texaco Inc. Texas Instruments Texas Utilities Textron Inc. Thomas & Betts Time Warner nc. Times Mirror Timken Co. TJX Companies Inc. Torchmark Corp. Toys R Us Transamerica Corp. Transco Energy Travelers Inc. Tribune Co. Trinova Corp. TRW Inc. Tyco Int'l Limited UAL Corp. Unilever N.V. Union Camp Union Carbide Union Electric Co. Union Pacific Unisys Corp. United Technologies Unocal Corp. UNUM Corp. Upjohn Co. US West Inc. USAir Group USF&G Corp. USLIFE Corp. UST Inc. USX-Marathon Group USX-U.S. Steel Group U.S. Bancorp U.S. Surgical Varity Corp. V.F. Corp. Wachovia Corp. Walgreen Co. Walt Disney Co. Wal-Mart Stores Warner-Lambert WMX Technologies Wells Fargo & Co. Wendy's International Western Atlas Westinghouse Electric Westvaco Corp. Weyerhaeuser Corp. Whirlpool Corp. Whitman Corp. Williams Cos. Winn-Dixie Woolworth Corp. Worthington Ind. Wrigley (Wm) Jr. Xerox Corp. Yellow Freight Systems Zenith Electronics Zurn Industries PART C. OTHER INFORMATION Item 24. Financial Statements and Exhibits (a)(1) Financial Statements - Financial Statements for Variable Insurance Products Fund for the fiscal year ended December 31, 1993, are incorporated herein by reference to the Statements of Additional Information and are filed herein as Exhibit 24(a)(1). (a)(2) Financial Statements - Financial Statements for Variable Insurance Products Fund II (File No. 33-20773) for the fiscal year ended December 31, 1993, are incorporated herein by reference to the Statement of Additional Information and are filed herein as Exhibit 24(a)(1). (b) Exhibits: (1) (a) Declaration of Trust dated November 13, 1981 is incorporated herein by reference to Exhibit 1 to the initial Registration Statement. (b) Amended and Restated Declaration of Trust dated July 31, 1985 is incorporated herein by reference to Exhibit 1 to Post-Effective Amendment No. 8. (c) Supplement to the Declaration of Trust dated January 2, 1987 is incorporated herein by reference to Exhibit 1(c) to Post-Effective Amendment No. 12. (d) Supplement to the Declaration of Trust dated January 1, 1990 is incorporated herein by reference to Exhibit 1(d) to Post-Effective Amendment No. 20. (2) (a) Amendment to Bylaws of the Trust dated December 20, 1985 is incorporated herein by reference to Exhibit 2(a) to Post-Effective Amendment No. 12. (b) Bylaws of the Trust are incorporated herein by reference to Exhibit 2(b) to Post-Effective Amendment No. 12. (3) Not applicable. (4) Not applicable. (5) (a) Management Contract between Money Market Portfolio and Fidelity Management & Research Company dated January 1, 1987 is incorporated herein by reference to Exhibit 5(a) to Post-Effective Amendment No. 12. (b) Management Contract between High Income Portfolio and Fidelity Management & Research Company dated January 1, 1990 is incorporated herein by reference to Exhibit 5(b) to Post-Effective Amendment No. 21. (c) Management Contract between Equity-Income Portfolio and Fidelity Management & Research Company dated January 1, 1990 is incorporated herein by reference to Exhibit 5(c) to Post-Effective Amendment No. 21. (d) Management Contract between Growth Portfolio and Fidelity Management & Research Company dated January 1, 1990 is incorporated herein by reference to Exhibit 5(d) to Post-Effective Amendment No. 21. (e) Management Contract between Overseas Portfolio and Fidelity Management & Research Company dated January 1, 1990 is incorporated herein by reference to Exhibit 5(e) to Post-Effective Amendment No. 21. (f) Sub-Advisory Agreement between Fidelity Management & Research Company and Fidelity Management & Research (U.K.) Inc. on behalf of Overseas Portfolio dated January 1, 1990 is incorporated herein by reference to Exhibit 5(f) to Post-Effective Amendment No. 21. (g) Sub-Advisory Agreement between Fidelity Management & Research Company and Fidelity Management & Research (Far East) Inc. on behalf of Overseas Portfolio dated January 1, 1990 is incorporated herein by reference to Exhibit 5(g) to Post-Effective Amendment No. 21. (h) Sub-Advisory Agreement between Fidelity Management & Research Company and FMR Texas Inc. on behalf of Money Market Portfolio dated January 1, 1990 is incorporated herein by reference to Exhibit 5(h) to Post-Effective Amendment No. 21. (i) Form of Sub-Advisory Agreement among Fidelity Management & Research Company, Fidelity Management & Research (U.K.) Inc. and Variable Insurance Products Fund on behalf of Overseas Portfolio was filed as Exhibit 5(i) to Post-Effective Amendment No. 24. (j) Form of Sub-Advisory Agreement among Fidelity Management & Research Company, Fidelity Management & Research (Far East) Inc. and Variable Insurance Products Fund on behalf of Overseas Portfolio was filed as Exhibit 5(j) to Post-Effective Amendment No. 24 (k) Form of Sub-Advisory Agreement among Fidelity Management & Research Company, Fidelity International Investment Advisors and Variable Insurance Products Fund on behalf of Overseas Portfolio was filed as Exhibit 5(k) to Post-Effective Amendment No. 24. (l) Form of Sub-Advisory Agreement between Fidelity International Investment Advisors and Fidelity International Investment Advisors (U.K.) Limited on behalf of Overseas Portfolio was filed as Exhibit 5(l) to Post-Effective Amendment No. 24. (m) Form of Management Contract between High Income Portfolio and Fidelity Management & Research Company was filed as Exhibit 5(m) to Post-Effective Amendment No. 26. (n) Form of Management Contract between Equity-Income Portfolio and Fidelity Management & Research Company was filed as Exhibit 5(n) to Post-Effective Amendment No. 26. (o) Form of Management Contract between Growth Portfolio and Fidelity Management & Research Company was filed as Exhibit 5(o) to Post-Effective Amendment No. 26. (p) Form of Management Contract between Overseas Portfolio and Fidelity Management & Research Company was filed as Exhibit 5(p) to Post-Effective Amendment No. 26. (q) Management Contract between Money Market Portfolio and Fidelity Management & Research Company dated January 1, 1994, is incorporated herein by reference to Exhibit 5(q) to Post-Effective Amendment No. 28. (r) Management Contract between High Income Portfolio and Fidelity Management & Research Company dated January 1, 1994, is incorporated herein by reference to Exhibit 5(r) to Post-Effective Amendment No. 28. (s) Sub-Advisory Agreement between Fidelity Management & Research Company and Fidelity Management & Research (U.K.) Inc. on behalf of High Income Portfolio dated January 1, 1994, is incorporated herein by reference to Exhibit 5(s) to Post-Effective No. 28. (t) Sub-Advisory Agreement between Fidelity Management & Research Company and Fidelity Management & Research (Far East) Inc. on behalf of High Income Portfolio dated January 1, 1994, is incorporated herein by reference to Exhibit 5(t) to Post-Effective No. 28. (6) (a) Amended General Distribution Agreement between Money Market Portfolio and Fidelity Distributors Corporation, dated April 1, 1987, is incorporated herein by reference to Exhibit 6(a) to Post-Effective Amendment No. 22. (b) Amended General Distribution Agreement between High Income Portfolio and Fidelity Distributors Corporation, dated April 1, 1987, is incorporated herein by reference to Exhibit 6(b) to Post-Effective Amendment No. 22. (c) Amended General Distribution Agreement between Equity-Income Portfolio and Fidelity Distributors Corporation, dated April 1, 1987, is incorporated herein by reference to Exhibit 6(c) to Post-Effective Amendment No. 22. (d) Amended General Distribution Agreement between Growth Portfolio and Fidelity Distributors Corporation, dated April 1, 1987, is incorporated herein by reference to Exhibit 6(d) to Post-Effective Amendment No. 22. (e) Amended General Distribution Agreement between Overseas Portfolio and Fidelity Distributors Corporation dated April 1, 1987, is incorporated herein by reference to Exhibit 6(e) to Post-Effective Amendment No. 22. (f) Amendment to General Distribution Agreement between Money Market, High Income, Equity-Income, Growth and Overseas Portfolios and Fidelity Distributors Corporation, dated January 1, 1988, is incorporated herein by reference to Exhibit 6(f) to Post-Effective Amendment No. 18. (7) Retirement Plan for Non-Interested Person Trustees, Directors or General Partners, effective November 1, 1989, is incorporated herein by reference to Exhibit 7 to Post-Effective Amendment No. 24. (8) (a) Custodian Agreement between Registrant, for Money Market Portfolio, High Income Portfolio, Equity-Income Portfolio and Growth Portfolio, and Shawmut Bank of Boston, N.A., dated August 19, 1982, is incorporated herein by reference to Exhibit 8 to Post-Effective Amendment No. 2. (b) Custodian Agreement between Registrant, for the Overseas Portfolio and Brown Brothers Harriman & Co. of Boston, MA, dated November 21, 1987, is incorporated herein by reference to Exhibit 8(b) to Post-Effective Amendment No. 20. (c) Subcustodian Agreement between Shawmut Bank of Boston, N.A. and Brown Brothers Harriman & Co. of Boston, MA, dated January 29, 1988 is incorporated herein by reference to Exhibit 8(c) to Post-Effective Amendment No. 22. (d) Custodian Agreement between Registrant, for Money Market Portfolio and Morgan Guaranty Trust Company of New York, dated July 18, 1991, is incorporated herein by reference to Exhibit 8(d) to Post-Effective Amendment No. 24. (e) Custodian Agreement between Registrant, for High Income Portfolio and The Bank of New York, dated July 18, 1991, is incorporated herein by reference to Exhibit 8(e) to Post-Effective Amendment No. 24. (f) Custodian Agreement between Registrant, for Equity-Income and Overseas Portfolios and The Chase Manhattan Bank, N.A., dated July 18, 1991, is incorporated herein by reference to Exhibit 8(f) to Post-Effective Amendment No. 24. (g) Custodian Agreement between Registrant, for Growth Portfolio and Brown Brothers & Harriman of Boston, MA, dated July 18, 1991, is incorporated herein by reference to Exhibit 8(g) to Post-Effective Amendment No. 24. (9) (a) Amended Service Agreement between the Registrant and Fidelity Service Company including Schedules B (pricing and bookkeeping) and C (securities lending) to that Agreement for the Money Market Portfolio, High Income Portfolio, Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio dated June 1, 1989, are incorporated herein by reference to Exhibit 9(a) to Post-Effective Amendment No. 20. (b) Amended Transfer Agent Agreement between the Registrant and Fidelity Investments Institutional Operations Company including Schedule A to that Agreement for the Money Market Portfolio, High Income Portfolio, Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio dated June 1, 1989, are incorporated herein by reference to Exhibit 9(b) to Post-Effective Amendment No. 20. (c) Form of Amended Schedule B to the Service Agreement between the Registrant and Fidelity Service Co. for the Money Market Portfolio, High Income Portfolio, Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio was filed as Exhibit 9(c) to Post-Effective Amendment No. 26. (10) Not applicable. (11)(a) Consent of Coopers & Lybrand is filed herein as Exhibit 11(a). (11)(b) Consent of Price Waterhouse on behalf of Variable Insurance Products Fund II is filed herein as Exhibit 11(b). (12) Not applicable. (13) Not applicable. (14) Not applicable. (15) (a) Distribution and Service Plan pursuant to Rule 12b-1 for Equity-Income Portfolio is incorporated herein by reference to Exhibit 15(a) to Post-Effective Amendment No. 8. (b) Distribution and Service Plan pursuant to Rule 12b-1 for Growth Portfolio is incorporated by reference to Exhibit 15(b) to Post-Effective Amendment No. 8. (c) Distribution and Service Plan pursuant to Rule 12b-1 for Money Market Portfolio is incorporated herein by reference to Exhibit 15(c) to Post-Effective Amendment No. 12. (d) Distribution and Service Plan pursuant to Rule 12b-1 for High Income Portfolio is incorporated herein by reference to Exhibit 15(d) to Post-Effective Amendment No. 12. (e) Distribution and Service Plan pursuant to Rule 12b-1 for Overseas Portfolio is incorporated herein by reference to Exhibit 15(e) to Post-Effective Amendment No. 12. (16) Schedule for Computation of performance quotations is incorporated herein by reference to Exhibit 16 to Post-Effective Amendment No. 26. (a) Backup for the computation of a moving average (using Equity-Income as an example) is filed herein as Exhibit 16(a). Item 25. Persons Controlled by or Under Common Control with Registrant The Board of Trustees of Registrant is the same as the Board of Trustees of other funds advised by Fidelity Management & Research Company ("FMR"). In addition, the officers of these portfolios are substantially identical. Registrant takes the position that it is not under common control with any of the above portfolios since the power residing in the respective companies, boards and officers arises in each instance as the result of an official position with the respective funds. Item 26. Number of Holders of Securities March 31, 1994 Title of Securities Number of Record Holders Shares of Beneficial Interest Money Market Portfolio: 38 High Income Portfolio: 40 Equity-Income Portfolio: 46 Growth Portfolio: 52 Overseas Portfolio: 44 Item 27. Indemnification Article XI, Section 2 of the Declaration of Trust sets forth the reasonable and fair means for determining whether indemnification shall be provided to any past or present Trustee or officer. It states that the Registrant shall indemnify any present or past Trustee or officer to the fullest extent permitted by law against liability and all expenses reasonably incurred by him in connection with any claim action, suit or proceeding in which he is involved by virtue of his service as a trustee, an officer or both. Additionally, amounts paid or incurred in settlement of such matters are covered by this indemnification. Indemnification will not be provided in certain circumstances, however. These include instances of willful misfeasance, bad faith, gross negligence and reckless disregard of the duties involved in the conduct of the particular office involved. Item 28. Business and Other Connections of Investment Adviser (1) FIDELITY MANAGEMENT & RESEARCH COMPANY FMR serves as investment adviser to a number of other investment companies. The directors and officers of the Adviser have held, during the past two fiscal years, the following positions of a substantial nature.
Edward C. Johnson 3d Chairman of the Executive Committee of FMR; President and Chief Executive Officer of FMR Corp.; Chairman of the Board and a Director of FMR, FMR Corp., FMR Texas Inc., Fidelity Management & Research (U.K.) Inc. and Fidelity Management & Research (Far East) Inc.; President and Trustee of funds advised by FMR; J. Gary Burkhead President of FMR; Managing Director of FMR Corp.; President and a Director of FMR Texas Inc., Fidelity Management & Research (U.K.) Inc. and Fidelity Management & Research (Far East) Inc.; Senior Vice President and Trustee of funds advised by FMR. Peter S. Lynch Vice Chairman of FMR (1992). David Breazzano Vice President of FMR (1993) and of a fund advised by FMR. Stephan Campbell Vice President of FMR (1993). Rufus C. Cushman, Jr. Vice President of FMR and of funds advised by FMR; Corporate Preferred Group Leader. Will Danof Vice President of FMR (1993) and of a fund advised by FMR. Scott DeSano Vice President of FMR (1993). Penelope Dobkin Vice President of FMR and of a fund advised by FMR. Larry Domash Vice President of FMR (1993). George Domolky Vice President of FMR (1993) and of a fund advised by FMR. Charles F. Dornbush Senior Vice President of FMR; Chief Financial Officer of the Fidelity funds; Treasurer of FMR Texas Inc., Fidelity Management & Research (U.K.) Inc., and Fidelity Management & Research (Far East) Inc. Robert K. Duby Vice President of FMR. Margaret L. Eagle Vice President of FMR and of a fund advised by FMR. Kathryn L. Eklund Vice President of FMR. Richard B. Fentin Senior Vice President of FMR (1993) and of a fund advised by FMR. Daniel R. Frank Vice President of FMR and of funds advised by FMR. Gary L. French Vice President of FMR and Treasurer of the funds advised by FMR. Prior to assuming the position as Treasurer he was Senior Vice President, Fund Accounting - Fidelity Accounting & Custody Services Co. Michael S. Gray Vice President of FMR and of funds advised by FMR. Barry A. Greenfield Vice President of FMR and of a fund advised by FMR. William J. Hayes Senior Vice President of FMR; Income/Growth Group Leader and International Group Leader. Robert Haber Vice President of FMR and of funds advised by FMR. Daniel Harmetz Vice President of FMR and of a fund advised by FMR. Ellen S. Heller Vice President of FMR.
John Hickling Vice President of FMR (1993) and of funds advised by FMR.
Robert F. Hill Vice President of FMR; and Director of Technical Research. Stephan Jonas Vice President of FMR (1993). David B. Jones Vice President of FMR (1993). Steven Kaye Vice President of FMR (1993) and of a fund advised by FMR. Frank Knox Vice President of FMR (1993). Robert A. Lawrence Senior Vice President of FMR (1993); and High Income Group Leader. Alan Leifer Vice President of FMR and of a fund advised by FMR. Harris Leviton Vice President of FMR (1993) and of a fund advised by FMR. Bradford E. Lewis Vice President of FMR and of funds advised by FMR. Robert H. Morrison Vice President of FMR and Director of Equity Trading. David Murphy Vice President of FMR and of funds advised by FMR. Jacques Perold Vice President of FMR. Brian Posner Vice President of FMR (1993) and of a fund advised by FMR. Anne Punzak Vice President of FMR and of funds advised by FMR. Richard A. Spillane Vice President of FMR and of funds advised by FMR; and Director of Equity Research. Robert E. Stansky Senior Vice President of FMR (1993) and of funds advised by FMR. Thomas Steffanci Senior Vice President of FMR (1993); and Fixed-Income Division Head. Gary L. Swayze Vice President of FMR and of funds advised by FMR; and Tax-Free Fixed-Income Group Leader. Donald Taylor Vice President of FMR (1993) and of funds advised by FMR. Beth F. Terrana Senior Vice President of FMR (1993) and of funds advised by FMR. Joel Tillinghast Vice President of FMR (1993) and of a fund advised by FMR. Robert Tucket Vice President of FMR (1993). George A. Vanderheiden Senior Vice President of FMR; Vice President of funds advised by FMR; and Growth Group Leader. Jeffrey Vinik Senior Vice President of FMR (1993) and of a fund advised by FMR. Guy E. Wickwire Vice President of FMR and of a fund advised by FMR. Arthur S. Loring Senior Vice President (1993), Clerk and General Counsel of FMR; Vice President, Legal of FMR Corp.; and Secretary of funds advised by FMR.
(2) FIDELITY MANAGEMENT & RESEARCH (U.K.) INC. (FMR U.K.) FMR U.K. provides investment advisory services to Fidelity Management & Research Company and Fidelity Management Trust Company. The directors and officers of the Sub-Adviser have held the following positions of a substantial nature during the past two fiscal years.
Edward C. Johnson 3d Chairman and Director of FMR U.K.; Chairman of the Executive Committee of FMR; Chief Executive Officer of FMR Corp.; Chairman of the Board and a Director of FMR, FMR Corp., FMR Texas Inc., and Fidelity Management & Research (Far East) Inc.; President and Trustee of funds advised by FMR. J. Gary Burkhead President and Director of FMR U.K.; President of FMR; Managing Director of FMR Corp.; President and a Director of FMR Texas Inc. and Fidelity Management & Research (Far East) Inc.; Senior Vice President and Trustee of funds advised by FMR. Richard C. Habermann Senior Vice President of FMR U.K.; Senior Vice President of Fidelity Management & Research (Far East) Inc.; Director of Worldwide Research of FMR. Charles F. Dornbush Treasurer of FMR U.K.; Treasurer of Fidelity Management & Research (Far East) Inc.; Treasurer of FMR Texas Inc., Senior Vice President and Chief Financial Officer of the Fidelity funds. David Weinstein Clerk of FMR U.K.; Clerk of Fidelity Management & Research (Far East) Inc.; Secretary of FMR Texas Inc.
(3) FIDELITY MANAGEMENT & RESEARCH (FAR EAST) INC. (FMR Far East) FMR Far East provides investment advisory services to Fidelity Management & Research Company and Fidelity Management Trust Company. The directors and officers of the Sub-Adviser have held the following positions of a substantial nature during the past two fiscal years.
Edward C. Johnson 3d Chairman and Director of FMR Far East; Chairman of the Executive Committee of FMR; Chief Executive Officer of FMR Corp.; Chairman of the Board and a Director of FMR, FMR Corp., FMR Texas Inc. and Fidelity Management & Research (U.K.) Inc.; President and Trustee of funds advised by FMR. J. Gary Burkhead President and Director of FMR Far East; President of FMR; Managing Director of FMR Corp.; President and a Director of FMR Texas Inc. and Fidelity Management & Research (U.K.) Inc.; Senior Vice President and Trustee of funds advised by FMR. Richard C. Habermann Senior Vice President of FMR Far East; Senior Vice President of Fidelity Management & Research (U.K.) Inc.; Director of Worldwide Research of FMR. William R. Ebsworth Vice President of FMR Far East. Bill Wilder Vice President of FMR Far East (1993). Charles F. Dornbush Treasurer of FMR Far East; Treasurer of Fidelity Management & Research (U.K.) Inc.; Treasurer of FMR Texas Inc.; Senior Vice President and Chief Financial Officer of the Fidelity funds. David C. Weinstein Clerk of FMR Far East; Clerk of Fidelity Management & Research (U.K.) Inc.; Secretary of FMR Texas Inc.
(4) FMR TEXAS INC. (FMR Texas) FMR Texas provides investment advisory services to Fidelity Management & Research Company. The directors and officers of the Sub-Adviser have held the following positions of a substantial nature during the past two fiscal years.
Edward C. Johnson 3d Chairman and Director of FMR Texas; Chairman of the Executive Committee of FMR; President and Chief Executive Officer of FMR Corp.; Chairman of the Board and a Director of FMR, FMR Corp., Fidelity Management & Research (Far East) Inc. and Fidelity Management & Research (U.K.) Inc.; President and Trustee of funds advised by FMR. J. Gary Burkhead President and Director of FMR Texas; President of FMR; Managing Director of FMR Corp.; President and a Director of Fidelity Management & Research (Far East) Inc. and Fidelity Management & Research (U.K.) Inc.; Senior Vice President and Trustee of funds advised by FMR. Frederic L. Henning Jr. Senior Vice President of FMR Texas; Money Market Group Leader. Leland Baron Vice President of FMR Texas and of funds advised by FMR. Thomas D. Maher Vice President of FMR Texas. Burnell Stehman Vice President of FMR Texas and of funds advised by FMR. John Todd Vice President of FMR Texas and of funds advised by FMR. Sarah H. Zenoble Vice President of FMR Texas and of funds advised by FMR. Charles F. Dornbush Treasurer of FMR Texas; Treasurer of Fidelity Management & Research (U.K.) Inc.; Treasurer of Fidelity Management & Research (Far East) Inc.; Senior Vice President and Chief Financial Officer of the Fidelity funds. David C. Weinstein Secretary of FMR Texas; Clerk of Fidelity Management & Research (U.K.) Inc.; Clerk of Fidelity Management & Research (Far East) Inc.
(5) FIDELITY INTERNATIONAL INVESTMENT ADVISORS Pembroke Hall, 42 Crow Lane, Pembroke, Bermuda The directors and officers of Fidelity International Investment Advisors (FIIA) have held, during the past two fiscal years, the following positions of a substantial nature.
Anthony Bolton Director of FIIA and FIIAL (U.K.); Director of Fidelity International Management Holdings Limited. Martin P. Cambridge Director of FIIAand FIIAL (U.K.); Chief Financial Officer of Fidelity International Ltd. and Fidelity Investment Services Ltd.. Kirk Caza Vice President of FIIA. Charles T. M. Collis Director and Secretary of FIIA; Partner in Conyers, Dill & Pearman, Hamilton, Bermuda; Secretary to many companies in the Fidelity international group of companies. Stephen A. DeSilva Treasurer of FIIA and Fidelity International Limited. Geoffrey J. Mansfield Director of FIIA. Frank Mutch Assistant Secretary of FIIA. David J. Saul President, Director, and Controller of FIIA; Director of Fidelity International Limited. Michael Sommerville Vice President of FIIA; Vice President of Fidelity International Limited. Toshiaki Wakabayashi Director of FIIA.
(6) FIDELITY INTERNATIONAL INVESTMENT ADVISORS (U.K.) LIMITED 27-28 Lovat Lane, London, England The directors and officers of Fidelity International Investment Advisors (U.K.) Limited (FIIAL (U.K.)) have held, during the past two fiscal years, the following positions of a substantial nature.
Anthony Bolton Director of FIIAL (U.K.) and FIIA; Director of Fidelity International Management Holdings Limited. Martin P. Cambridge Director and Secretary of FIIAL (U.K.) and FIIA; Chief Financial Officer of Fidelity International Ltd. and Fidelity Investment Services Ltd.. C. Bruce Johnstone Director of FIIAL (U.K.).
Item 29. Principal Underwriters (a) Fidelity Distributors Corporation (FDC) acts as distributor for most funds advised by FMR and the following other funds: CrestFunds, Inc. The Victory Funds ARK Funds (b) Name and Principal Positions and Offices Positions and Offices Business Address* With Underwriter With Registrant Edward C. Johnson 3d Director Trustee and President Nita B. Kincaid Director None W. Humphrey Bogart Director None Kurt A. Lange President and Treasurer None William L. Adair Senior Vice President None Thomas W. Littauer Senior Vice President None Arthur S. Loring Vice President and Clerk Secretary * 82 Devonshire Street, Boston, MA (c) Not applicable. Item 30. Location of Accounts and Records All accounts, books, and other documents required to be maintained by Section 31a of the 1940 Act and the Rules promulgated thereunder are maintained by Fidelity Management & Research Company or Fidelity Service Co., 82 Devonshire Street, Boston, MA 02109, or the funds' respective custodian: The Bank of New York, 110 Washington Street, New York, N.Y., The Chase Manhattan Bank, 1211 Avenue of the Americas, New York, N.Y., Brown Brothers Harriman & Co., 40 Water Street, Boston, MA., and Morgan Guaranty Trust Company of New York, 61 Wall Street, 37th Floor, New York, N.Y. Item 31. Management Services Not applicable. Item 32. Undertakings The Registrant on behalf of High Income Portfolio, Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio undertakes, provided the information required by Item 5A is contained in the annual report, to furnish each person to whom a prospectus has been delivered, upon their request and without charge, a copy of the Registrant's latest annual report to shareholders. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for the effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-Effective Amendment No. 29 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston, and Commonwealth of Massachusetts, on the 28 day of April 1994. VARIABLE INSURANCE PRODUCTS FUND By /s/Edward C. Johnson 3d (dagger) Edward C. Johnson 3d, President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. (Signature) (Title) (Date)
/s/Edward C. Johnson 3d(dagger) President and Trustee April 28, 1994 Edward C. Johnson 3d (Principal Executive Officer)
/s/Gary L. French Treasurer April 28, 1994 Gary L. French /s/J. Gary Burkhead Trustee April 28, 1994 J. Gary Burkhead /s/Ralph F. Cox * Trustee April 28, 1994 Ralph F. Cox /s/Phyllis Burke Davis * Trustee April 28, 1994 Phyllis Burke Davis /s/Richard J. Flynn * Trustee April 28, 1994 Richard J. Flynn /s/E. Bradley Jones * Trustee April 28, 1994 E. Bradley Jones /s/Donald J. Kirk * Trustee April 28, 1994 Donald J. Kirk /s/Peter S. Lynch * Trustee April 28, 1994 Peter S. Lynch /s/Edward H. Malone * Trustee April 28, 1994 Edward H. Malone /s/Marvin L. Mann_____* Trustee April 28, 1994 Marvin L. Mann /s/Gerald C. McDonough* Trustee April 28, 1994 Gerald C. McDonough /s/Thomas R. Williams * Trustee April 28, 1994 Thomas R. Williams (dagger) Signatures affixed by J. Gary Burkhead pursuant to a power of attorney dated October 20, 1993 and filed herewith. * Signature affixed by Robert C. Hacker pursuant to a power of attorney dated October 20, 1993 and filed herewith. POWER OF ATTORNEY We, the undersigned Directors, Trustees or General Partners, as the case may be, of the following investment companies:
Fidelity Advisor Series I Fidelity Institutional Trust Fidelity Advisor Series II Fidelity Investment Trust Fidelity Advisor Series III Fidelity Magellan Fund Fidelity Advisor Series IV Fidelity Massachusetts Municipal Trust Fidelity Advisor Series V Fidelity Money Market Trust Fidelity Advisor Series VI Fidelity Mt. Vernon Street Trust Fidelity Advisor Series VII Fidelity Municipal Trust Fidelity Advisor Series VIII Fidelity New York Municipal Trust Fidelity California Municipal Trust Fidelity Puritan Trust Fidelity Capital Trust Fidelity School Street Trust Fidelity Charles Street Trust Fidelity Securities Fund Fidelity Commonwealth Trust Fidelity Select Portfolios Fidelity Congress Street Fund Fidelity Sterling Performance Portfolio, L.P. Fidelity Contrafund Fidelity Summer Street Trust Fidelity Corporate Trust Fidelity Trend Fund Fidelity Court Street Trust Fidelity U.S. Investments-Bond Fund, L.P. Fidelity Destiny Portfolios Fidelity U.S. Investments-Government Securities Fidelity Deutsche Mark Performance Fund, L.P. Portfolio, L.P. Fidelity Union Street Trust Fidelity Devonshire Trust Fidelity Yen Performance Portfolio, L.P. Fidelity Exchange Fund Spartan U.S. Treasury Money Market Fidelity Financial Trust Fund Fidelity Fixed-Income Trust Variable Insurance Products Fund Fidelity Government Securities Fund Variable Insurance Products Fund II Fidelity Hastings Street Trust Fidelity Income Fund
plus any other investment company for which Fidelity Management & Research Company acts as investment adviser and for which the undersigned individuals serve as Board Members (collectively, the "Funds"), hereby severally constitute and appoint Arthur J. Brown, Arthur C. Delibert, Robert C. Hacker, Richard M. Phillips, Dana L. Platt and Stephanie A. Xupolos, each of them singly, our true and lawful attorneys-in-fact, with full power of substitution, and with full power to each of them, to sign for us and in our names in the appropriate capacities, all Pre-Effective Amendments to any Registration Statements of the Funds, any and all subsequent Post-Effective Amendments to said Registration Statements, any Registration Statements on Form N-14, and any supplements or other instruments in connection therewith, and generally to do all such things in our names and behalf in connection therewith as said attorneys-in-fact deem necessary or appropriate, to comply with the provisions of the Securities Act of 1933 and Investment Company Act of 1940, and all related requirements of the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact or their substitutes may do or cause to be done by virtue hereof. WITNESS our hands on this twentieth day of October, 1993. /s/Edward C. Johnson 3d /s/Peter S. Lynch Edward C. Johnson 3d Peter S. Lynch /s/J. Gary Burkhead /s/Edward H. Malone J. Gary Burkhead Edward H. Malone /s/Richard J. Flynn /s/Gerald C. McDonough Richard J. Flynn Gerald C. McDonough /s/E. Bradley Jones /s/Thomas R. Williams E. Bradley Jones Thomas R. Williams /s/Donald J. Kirk Donald J. Kirk POWER OF ATTORNEY I, the undersigned President and Director, Trustee or General Partner, as the case may be, of the following investment companies:
Fidelity Advisor Series I Fidelity Institutional Trust Fidelity Advisor Series II Fidelity Investment Trust Fidelity Advisor Series III Fidelity Magellan Fund Fidelity Advisor Series IV Fidelity Massachusetts Municipal Trust Fidelity Advisor Series V Fidelity Money Market Trust Fidelity Advisor Series VI Fidelity Mt. Vernon Street Trust Fidelity Advisor Series VII Fidelity Municipal Trust Fidelity Advisor Series VIII Fidelity New York Municipal Trust Fidelity California Municipal Trust Fidelity Puritan Trust Fidelity Capital Trust Fidelity School Street Trust Fidelity Charles Street Trust Fidelity Securities Fund Fidelity Commonwealth Trust Fidelity Select Portfolios Fidelity Congress Street Fund Fidelity Sterling Performance Portfolio, L.P. Fidelity Contrafund Fidelity Summer Street Trust Fidelity Corporate Trust Fidelity Trend Fund Fidelity Court Street Trust Fidelity U.S. Investments-Bond Fund, L.P. Fidelity Destiny Portfolios Fidelity U.S. Investments-Government Securities Fidelity Deutsche Mark Performance Fund, L.P. Portfolio, L.P. Fidelity Union Street Trust Fidelity Devonshire Trust Fidelity Yen Performance Portfolio, L.P. Fidelity Exchange Fund Spartan U.S. Treasury Money Market Fidelity Financial Trust Fund Fidelity Fixed-Income Trust Variable Insurance Products Fund Fidelity Government Securities Fund Variable Insurance Products Fund II Fidelity Hastings Street Trust Fidelity Income Fund
plus any other investment company for which Fidelity Management & Research Company acts as investment adviser and for which the undersigned individual serves as President and Board Member (collectively, the "Funds"), hereby severally constitute and appoint J. Gary Burkhead, my true and lawful attorney-in-fact, with full power of substitution, and with full power to sign for me and in my name in the appropriate capacity, all Pre-Effective Amendments to any Registration Statements of the Funds, any and all subsequent Post-Effective Amendments to said Registration Statements, any Registration Statements on Form N-14, and any supplements or other instruments in connection therewith, and generally to do all such things in my name and behalf in connection therewith as said attorney-in-fact deem necessary or appropriate, to comply with the provisions of the Securities Act of 1933 and Investment Company Act of 1940, and all related requirements of the Securities and Exchange Commission. I hereby ratify and confirm all that said attorneys-in-fact or their substitutes may do or cause to be done by virtue hereof. WITNESS my hand on the date set forth below. /s/Edward C. Johnson 3d October 20, 1993 Edward C. Johnson 3d POWER OF ATTORNEY I, the undersigned Director, Trustee or General Partner, as the case may be, of the following investment companies:
Fidelity Advisor Series I Fidelity Magellan Fund Fidelity Advisor Series III Fidelity Massachusetts Municipal Trust Fidelity Advisor Series IV Fidelity Money Market Trust Fidelity Advisor Series VI Fidelity Mt. Vernon Street Trust Fidelity Advisor Series VIII Fidelity New York Municipal Trust Fidelity California Municipal Trust Fidelity Puritan Trust Fidelity Capital Trust Fidelity School Street Trust Fidelity Charles Street Trust Fidelity Select Portfolios Fidelity Commonwealth Trust Fidelity Sterling Performance Portfolio, L.P. Fidelity Congress Street Fund Fidelity Summer Street Trust Fidelity Contrafund Fidelity Trend Fund Fidelity Deutsche Mark Performance Fidelity Union Street Trust Portfolio, L.P. Fidelity U.S. Investments-Bond Fund, L.P. Fidelity Devonshire Trust Fidelity U.S. Investments-Government Securities Fidelity Financial Trust Fund, L.P. Fidelity Fixed-Income Trust Fidelity Yen Performance Portfolio, L.P. Fidelity Government Securities Fund Spartan U.S. Treasury Money Market Fidelity Hastings Street Trust Fund Fidelity Income Fund Variable Insurance Products Fund Fidelity Institutional Trust Variable Insurance Products Fund II Fidelity Investment Trust
plus any other investment company for which Fidelity Management & Research Company acts as investment adviser and for which the undersigned individual serves as a Board Member (collectively, the "Funds"), hereby severally constitute and appoint Arthur J. Brown, Arthur C. Delibert, Robert C. Hacker, Richard M. Phillips, Dana L. Platt and Stephanie A. Xupolos, each of them singly, my true and lawful attorneys-in-fact, with full power of substitution, and with full power to each of them, to sign for me and in my name in the appropriate capacity, all Pre-Effective Amendments to any Registration Statements of the Funds, any and all subsequent Post-Effective Amendments to said Registration Statements, any Registration Statements on Form N-14, and any supplements or other instruments in connection therewith, and generally to do all such things in my name and behalf in connection therewith as said attorneys-in-fact deem necessary or appropriate, to comply with the provisions of the Securities Act of 1933 and Investment Company Act of 1940, and all related requirements of the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact or their substitutes may do or cause to be done by virtue hereof. WITNESS my hand on the date set forth below. /s/Ralph F. Cox October 20, 1993 Ralph F. Cox POWER OF ATTORNEY I, the undersigned Director, Trustee or General Partner, as the case may be, of the following investment companies:
Fidelity Advisor Series I Fidelity Investment Trust Fidelity Advisor Series III Fidelity Mt. Vernon Street Trust Fidelity Advisor Series IV Fidelity School Street Trust Fidelity Advisor Series VI Fidelity Select Portfolios Fidelity Advisor Series VIII Fidelity Sterling Performance Portfolio, L.P. Fidelity Beacon Street Trust Fidelity Trend Fund Fidelity Capital Trust Fidelity Union Street Trust Fidelity Commonwealth Trust Fidelity U.S. Investments-Bond Fund, L.P. Fidelity Contrafund Fidelity U.S. Investments-Government Securities Fidelity Deutsche Mark Performance Fund, L.P. Portfolio, L.P. Fidelity Yen Performance Portfolio, L.P. Fidelity Devonshire Trust Spartan U.S. Treasury Money Market Fidelity Financial Trust Fund Fidelity Fixed-Income Trust Variable Insurance Products Fund Fidelity Government Securities Fund Variable Insurance Products Fund II Fidelity Hastings Street Trust Fidelity Institutional Trust
plus any other investment company for which Fidelity Management & Research Company acts as investment adviser and for which the undersigned individual serves as a Board Member (collectively, the "Funds"), hereby severally constitute and appoint Arthur J. Brown, Arthur C. Delibert, Robert C. Hacker, Richard M. Phillips, Dana L. Platt and Stephanie A. Xupolos, each of them singly, my true and lawful attorneys-in-fact, with full power of substitution, and with full power to each of them, to sign for me and in my name in the appropriate capacity, all Pre-Effective Amendments to any Registration Statements of the Funds, any and all subsequent Post-Effective Amendments to said Registration Statements, any Registration Statements on Form N-14, and any supplements or other instruments in connection therewith, and generally to do all such things in my name and behalf in connection therewith as said attorneys-in-fact deem necessary or appropriate, to comply with the provisions of the Securities Act of 1933 and Investment Company Act of 1940, and all related requirements of the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact or their substitutes may do or cause to be done by virtue hereof. WITNESS my hand on the date set forth below. /s/Phyllis Burke Davis October 20, 1993 Phyllis Burke Davis POWER OF ATTORNEY I, the undersigned Director, Trustee or General Partner, as the case may be, of the following investment companies:
Fidelity Advisor Series I Fidelity Investment Trust Fidelity Advisor Series III Fidelity Special Situations Fund Fidelity Advisor Series IV Fidelity Sterling Performance Portfolio, L.P. Fidelity Advisor Series VI Fidelity Trend Fund Fidelity Advisor Series VII Fidelity U.S. Investments-Bond Fund, L.P. Fidelity Advisor Series VIII Fidelity U.S. Investments-Government Securities Fidelity Contrafund Fund, L.P. Fidelity Deutsche Mark Performance Fidelity Yen Performance Portfolio, L.P. Portfolio, L.P. Spartan U.S. Treasury Money Market Fidelity Fixed-Income Trust Fund Fidelity Government Securities Fund Variable Insurance Products Fund Fidelity Hastings Street Trust Variable Insurance Products Fund II Fidelity Institutional Trust
plus any other investment company for which Fidelity Management & Research Company acts as investment adviser and for which the undersigned individual serves as a Board Member (collectively, the "Funds"), hereby severally constitute and appoint Arthur J. Brown, Arthur C. Delibert, Robert C. Hacker, Richard M. Phillips, Dana L. Platt and Stephanie A. Xupolos, each of them singly, my true and lawful attorneys-in-fact, with full power of substitution, and with full power to each of them, to sign for me and in my name in the appropriate capacity, all Pre-Effective Amendments to any Registration Statements of the Funds, any and all subsequent Post-Effective Amendments to said Registration Statements, any Registration Statements on Form N-14, and any supplements or other instruments in connection therewith, and generally to do all such things in my name and behalf in connection therewith as said attorneys-in-fact deem necessary or appropriate, to comply with the provisions of the Securities Act of 1933 and Investment Company Act of 1940, and all related requirements of the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact or their substitutes may do or cause to be done by virtue hereof. WITNESS my hand on the date set forth below. /s/Marvin L. Mann October 20, 1993 Marvin L. Mann EX-99.B12 2 Exhibit 24(a)(1) ANNUAL REPORT FOR THE PERIOD ENDED DECEMBER 31, 1993 VARIABLE INSURANCE PRODUCTS FUND TABLE OF CONTENTS VARIABLE INSURANCE PRODUCTS FUND PAGE Performance Update VIPF-1 Market Environment VIPF-6 Schedule of Investments and Financial Statements: Money Market Portfolio VIPF-13 High Income Portfolio VIPF-18 Equity-Income Portfolio VIPF-28 Growth Portfolio VIPF-37 Overseas Portfolio VIPF-47 Notes to Financial Statements VIPF-58 Report of Independent Accountants VIPF-63 VARIABLE INSURANCE PRODUCTS FUND: MONEY MARKET PORTFOLIO PERFORMANCE UPDATE AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED DECEMBER 31, 1993 One Year Five Years Ten Years MONEY MARKET PORTFOLIO 3.23% 6.05% 6.92% PERFORMANCE DATA IS HISTORICAL AND INCLUDES CHANGES IN SHARE PRICE AND REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS. WHILE MONEY MARKET PORTFOLIO SEEKS TO MAINTAIN A STABLE $1.00 SHARE PRICE, THERE IS NO ASSURANCE THAT IT WILL BE ABLE TO DO SO. AN INVESTMENT IN A SUB-ACCOUNT INVESTING IN MONEY MARKET PORTFOLIO IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT. PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL CHARGES, IT WOULD HAVE BEEN LOWER. IF THE ADVISOR HAD NOT REIMBURSED CERTAIN FUND EXPENSES DURING THE PERIODS SHOWN, THE TOTAL RETURNS WOULD HAVE BEEN LOWER. VARIABLE INSURANCE PRODUCTS FUND: HIGH INCOME PORTFOLIO PERFORMANCE UPDATE $10,000 OVER LIFE OF FUND VIP High Income (045) Merrill Lynch High Yield Master 09/30/85 10000.00 10000.00 10/31/85 10124.78 10113.10 11/30/85 10270.82 10303.28 12/31/85 10614.12 10604.89 01/31/86 10745.59 10676.11 02/28/86 11109.08 11130.19 03/31/86 11383.11 11373.99 04/30/86 11576.25 11551.61 05/31/86 11753.02 11685.66 06/30/86 11900.73 11804.62 07/31/86 11864.54 11648.79 08/31/86 11912.44 11864.11 09/30/86 12013.61 11962.13 10/31/86 12372.55 12172.42 11/30/86 12412.21 12272.12 12/31/86 12490.70 12338.30 01/31/87 12946.07 12686.83 02/28/87 13170.09 12896.28 03/31/87 13290.06 13038.71 04/30/87 12874.73 12754.69 05/31/87 12755.04 12696.88 06/30/87 13030.51 12872.82 07/31/87 13044.44 12942.36 08/31/87 13152.50 13072.22 09/30/87 12694.50 12771.45 10/31/87 12087.45 12430.46 11/30/87 12443.46 12744.64 12/31/87 12642.62 12913.87 01/31/88 13058.27 13267.43 02/29/88 13449.23 13627.68 03/31/88 13352.60 13605.06 04/30/88 13456.68 13644.44 05/31/88 13436.67 13715.65 06/30/88 13718.28 13977.88 07/31/88 13861.09 14125.34 08/31/88 13794.88 14171.41 09/30/88 13905.47 14314.68 10/31/88 14056.83 14537.53 11/30/88 14003.17 14591.99 12/31/88 14114.44 14653.99 01/31/89 14453.61 14873.49 02/28/89 14524.71 14973.19 03/31/89 14338.07 14959.79 04/30/89 14179.28 15004.19 05/31/89 14441.27 15280.66 06/30/89 14854.89 15496.82 07/31/89 14757.09 15570.54 08/31/89 14671.50 15647.62 09/30/89 14158.15 15498.32 10/31/89 13551.17 15253.18 11/30/89 13562.59 15287.37 12/31/89 13525.41 15273.54 01/31/90 13226.43 14975.03 02/28/90 13022.77 14756.95 03/31/90 12885.37 14956.43 04/30/90 12923.55 15032.42 05/31/90 13189.09 15303.95 06/30/90 13396.84 15600.45 07/31/90 13603.77 15930.13 08/31/90 13376.20 15320.29 09/30/90 13059.03 14653.99 10/31/90 12742.14 14281.08 11/30/90 13041.02 14402.06 12/31/90 13223.37 14609.58 01/31/91 13503.93 14816.10 02/28/91 14252.07 15915.80 03/31/91 14757.06 16600.03 04/30/91 15280.76 17191.27 05/31/91 15505.20 17275.22 06/30/91 15841.86 17622.74 07/31/91 16440.38 18044.99 08/31/91 16664.82 18424.26 09/30/91 17038.89 18658.93 10/31/91 17618.70 19213.39 11/30/91 17768.32 19435.32 12/31/91 17861.84 19661.11 01/31/92 18815.72 20348.53 02/29/92 19498.88 20853.89 03/31/92 20129.18 21144.86 04/30/92 20271.51 21298.76 05/31/92 20515.50 21638.49 06/30/92 20739.16 21907.34 07/31/92 21145.81 22351.21 08/31/92 21593.13 22647.12 09/30/92 21816.78 22905.16 10/31/92 21491.46 22615.87 11/30/92 21755.79 22936.16 12/31/92 21999.78 23231.48 01/31/93 22589.42 23803.54 02/28/93 22974.74 24254.11 03/31/93 23504.93 24674.60 04/30/93 23659.57 24851.63 05/31/93 24013.03 25186.24 06/30/93 24631.58 25659.43 07/31/93 24874.58 25935.24 08/31/93 25139.67 26182.47 09/30/93 25228.04 26311.66 10/31/93 25824.50 26807.31 11/30/93 26067.50 26953.92 12/31/93 26487.23 27223.44 $10,000 OVER LIFE OF FUND: LET'S SAY $10,000 WAS INVESTED IN HIGH INCOME PORTFOLIO ON SEPTEMBER 30, 1985, SHORTLY AFTER THE FUND STARTED. BY DECEMBER 31, 1993, THE VALUE OF THE INVESTMENT WITH DIVIDENDS REINVESTED WOULD HAVE GROWN TO $26,487 - A 164.87% INCREASE ON THE INITIAL INVESTMENT. FOR COMPARISON, LOOK AT HOW A $10,000 INVESTMENT IN THE MERRILL LYNCH HIGH YIELD MASTER, (WITH DIVIDENDS REINVESTED) DID OVER THE SAME PERIOD. IT WOULD HAVE GROWN TO $27,223 - A 172.23% INCREASE. AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED DECEMBER 31, 1993 One Year Five Years Life of Fund HIGH INCOME PORTFOLIO 20.40% 13.42% 12.50% MERRILL LYNCH HIGH YIELD MASTER INDEX 17.18% 13.19% n/a THE CHARTS ABOVE SHOW HIGH INCOME PORTFOLIO'S TOTAL RETURNS, WHICH INCLUDE CHANGES IN SHARE PRICE, AND REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS. THE MERRILL LYNCH HIGH YIELD MASTER INDEX, AN UNMANAGED INDEX, IS A BROAD MEASURE OF THE HIGH YIELD BOND MARKET. IT 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, SEPTEMBER 19, 1985. IF THE ADVISER HAD NOT REIMBURSED CERTAIN FUND EXPENSES DURING THE PERIODS SHOWN, THE 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, IT WOULD HAVE BEEN LOWER. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. PRINCIPAL AND INVESTMENT RETURN WILL VARY AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU WITHDRAW YOUR MONEY. 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. VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO PERFORMANCE UPDATE $10,000 OVER LIFE OF FUND VIP Equity Income (211) S&P 500 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 11498.85 12510.26 06/30/87 11738.55 13142.03 07/31/87 12185.74 13808.33 08/31/87 12521.12 14323.38 09/30/87 12258.33 14009.70 10/31/87 9866.21 10992.01 11/30/87 9424.75 10086.27 12/31/87 9906.53 10853.84 01/31/88 10611.14 11310.78 02/29/88 11136.96 11837.86 03/31/88 10943.09 11472.07 04/30/88 11124.23 11599.41 05/31/88 11273.40 11700.33 06/30/88 11914.78 12237.37 07/31/88 11893.19 12190.87 08/31/88 11688.14 11776.38 09/30/88 12035.44 12278.06 10/31/88 12243.13 12619.39 11/30/88 12046.37 12438.93 12/31/88 12156.34 12656.61 01/31/89 12907.14 13583.07 02/28/89 12840.89 13244.86 03/31/89 13119.03 13553.46 04/30/89 13625.34 14256.89 05/31/89 14030.38 14834.29 06/30/89 14040.00 14749.73 07/31/89 14858.52 16081.64 08/31/89 15097.26 16396.84 09/30/89 14927.54 16329.61 10/31/89 14066.33 15950.76 11/30/89 14146.71 16276.16 12/31/89 14264.77 16666.78 01/31/90 13301.40 15548.44 02/28/90 13380.23 15749.02 03/31/90 13402.29 16166.37 04/30/90 12937.62 15762.21 05/31/90 13793.60 17299.02 06/30/90 13656.26 17181.39 07/31/90 13322.27 17126.41 08/31/90 12258.47 15578.18 09/30/90 11307.56 14819.52 10/31/90 11019.23 14755.80 11/30/90 11809.01 15709.03 12/31/90 12083.78 16147.31 01/31/91 12731.80 16851.33 02/28/91 13608.54 18056.20 03/31/91 13890.84 18493.16 04/30/91 13955.75 18537.54 05/31/91 14721.69 19338.37 06/30/91 14119.75 18452.67 07/31/91 14920.21 19312.56 08/31/91 15235.15 19770.27 09/30/91 15130.58 19440.11 10/31/91 15382.54 19700.60 11/30/91 14719.50 18906.67 12/31/91 15882.72 21069.59 01/31/92 16097.17 20677.70 02/29/92 16619.89 20946.51 03/31/92 16416.23 20538.05 04/30/92 16930.51 21141.87 05/31/92 17065.84 21245.47 06/30/92 16916.43 20928.91 07/31/92 17434.83 21784.90 08/31/92 17052.85 21338.31 09/30/92 17229.88 21590.10 10/31/92 17436.14 21665.67 11/30/92 18068.68 22404.47 12/31/92 18564.86 22680.04 01/31/93 19119.03 22870.55 02/28/93 19548.52 23181.59 03/31/93 20131.08 23670.73 04/30/93 20047.37 23097.89 05/31/93 20410.09 23716.92 06/30/93 20650.16 23785.70 07/31/93 20931.12 23690.55 08/31/93 21731.84 24588.43 09/30/93 21648.75 24399.09 10/31/93 21846.72 24904.16 11/30/93 21464.93 24667.57 12/31/93 21961.08 24966.04 $10,000 OVER LIFE OF FUND: LET'S SAY $10,000 WAS INVESTED IN EQUITY-INCOME PORTFOLIO ON OCTOBER 9, 1986, WHEN THE FUND STARTED. BY DECEMBER 31, 1993, THE VALUE OF THE INVESTMENT WITH DIVIDENDS REINVESTED WOULD HAVE GROWN TO $21,961 - A 119.61% INCREASE ON THE INITIAL INVESTMENT. FOR COMPARISON, LOOK AT HOW A $10,000 INVESTMENT IN THE S&P 500 (WITH DIVIDENDS REINVESTED) DID OVER THE SAME PERIOD. IT WOULD HAVE GROWN TO $24,966 - A 149.66% INCREASE. AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED DECEMBER 31, 1993 One Year Five Years Life of Fund EQUITY-INCOME 18.29% 12.56% 11.48% PORTFOLIO S&P 500(Registered trademark) 10.08% 14.55% 13.48% THE CHARTS ABOVE SHOW EQUITY-INCOME PORTFOLIO'S TOTAL RETURNS, WHICH INCLUDE CHANGES IN SHARE PRICE, AND REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS. FIGURES FOR THE S&P 500, AN UNMANAGED INDEX OF COMMON STOCKS, INCLUDE REINVESTMENT OF DIVIDENDS. S&P 500 IS A REGISTERED TRADEMARK OF STANDARD & POOR'S CORPORATION. FIGURES FOR MORE THAN ONE YEAR ASSUME A STEADY COMPOUNDED RATE OF RETURN AND ARE NOT THE FUND'S YEAR-BY-YEAR RESULTS, WHICH FLUCTUATED OVER THE PERIODS SHOWN. THE LIFE OF FUND FIGURES ARE FROM COMMENCEMENT OF OPERATIONS, OCTOBER 9, 1986. PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL CHARGES, IT WOULD HAVE BEEN LOWER. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. PRINCIPAL AND INVESTMENT RETURN WILL VARY AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU WITHDRAW YOUR MONEY. 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. VARIABLE INSURANCE PRODUCTS FUND: GROWTH PORTFOLIO PERFORMANCE UPDATE $10,000 OVER LIFE OF FUND VIP Growth (212) S&P 500 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 11839.96 12513.74 04/30/87 11839.96 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 9425.89 10086.27 12/31/87 10397.54 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 11997.16 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 11894.62 12438.93 12/31/88 12017.66 12656.61 01/31/89 12879.00 13583.07 02/28/89 12612.40 13244.86 03/31/89 12993.69 13553.46 04/30/89 13680.86 14256.89 05/31/89 14170.20 14834.29 06/30/89 13982.79 14749.73 07/31/89 15232.19 16081.64 08/31/89 15492.48 16396.84 09/30/89 15627.83 16329.61 10/31/89 15190.54 15950.76 11/30/89 15440.42 16276.16 12/31/89 15804.82 16666.78 01/31/90 14888.60 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 13950.24 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 16000.58 18452.67 07/31/91 17524.96 19312.56 08/31/91 18303.61 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 20299.57 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 19664.68 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 21528.95 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 24756.95 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 26662.21 24904.16 11/30/93 25583.33 24667.57 12/31/93 26490.05 24966.04 $10,000 OVER LIFE OF FUND: LET'S SAY $10,000 WAS INVESTED IN GROWTH PORTFOLIO ON OCTOBER 9, 1986, WHEN THE FUND STARTED. BY DECEMBER 31, 1993, THE VALUE OF THE INVESTMENT WITH DIVIDENDS REINVESTED WOULD HAVE GROWN TO $26,490 - A 164.90% INCREASE ON THE INITIAL INVESTMENT. FOR COMPARISON, LOOK AT HOW A $10,000 INVESTMENT IN THE S&P 500 (WITH DIVIDENDS REINVESTED) DID OVER THE SAME PERIOD. IT WOULD HAVE GROWN TO $24,966 - A 149.66% INCREASE. AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED DECEMBER 31, 1993 One Year Five Years Life of Fund GROWTH PORTFOLIO 19.37% 17.13% 14.41% S&P 500(Registered trademark) 10.08% 14.55% 13.48% THE CHARTS ABOVE SHOW GROWTH PORTFOLIO'S TOTAL RETURNS, WHICH INCLUDE CHANGES IN SHARE PRICE, AND REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS. FIGURES FOR THE S&P 500, AN UNMANAGED INDEX OF COMMON STOCKS, INCLUDE REINVESTMENT OF DIVIDENDS. S&P 500 IS A REGISTERED TRADEMARK OF STANDARD & POOR'S CORPORATION. FIGURES FOR MORE THAN ONE YEAR ASSUME A STEADY COMPOUNDED RATE OF RETURN AND ARE NOT THE FUND'S YEAR-BY-YEAR RESULTS, WHICH FLUCTUATED OVER THE PERIODS SHOWN. THE LIFE OF FUND FIGURES ARE FROM COMMENCEMENT OF OPERATIONS, OCTOBER 9, 1986. PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL CHARGES, IT WOULD HAVE BEEN LOWER. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. PRINCIPAL AND INVESTMENT RETURN WILL VARY AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU WITHDRAW YOUR MONEY. VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO PERFORMANCE UPDATE $10,000 OVER LIFE OF FUND VIP Overseas (221) Morgan Stanley EAFE 01/28/87 10000.00 10000.00 01/31/87 10000.00 9997.46 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 10777.00 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 10534.88 14701.99 02/28/89 10717.04 14777.56 03/31/89 10707.39 14487.53 04/30/89 11023.51 14621.89 05/31/89 10615.61 13826.42 06/30/89 10574.82 13593.67 07/31/89 11563.98 15300.67 08/31/89 11482.40 14612.54 09/30/89 12196.22 15278.16 10/31/89 11533.38 14664.33 11/30/89 12155.43 15401.50 12/31/89 12920.25 15969.77 01/31/90 12746.89 15375.56 02/28/90 12449.36 14302.43 03/31/90 12919.92 12812.46 04/30/90 12991.53 12710.78 05/31/90 13840.58 14161.09 06/30/90 14147.47 14036.37 07/31/90 14863.54 14234.08 08/31/90 13349.56 12851.83 09/30/90 12081.10 11060.74 10/31/90 13206.35 12784.21 11/30/90 12797.17 12030.10 12/31/90 12705.10 12224.98 01/31/91 12827.86 12620.40 02/28/91 13260.02 13973.29 03/31/91 12872.18 13134.44 04/30/91 13155.20 13263.42 05/31/91 13186.65 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 13658.35 13481.84 10/31/91 13752.69 13672.96 11/30/91 13260.02 13034.64 12/31/91 13721.24 13707.79 01/31/92 13888.95 13415.00 02/29/92 13599.53 12934.85 03/31/92 13323.29 12080.93 04/30/92 14152.01 12138.36 05/31/92 14768.24 12950.85 06/30/92 14492.00 12336.56 07/31/92 13567.65 12020.83 08/31/92 13450.78 12774.79 09/30/92 12908.93 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 12847.63 12401.41 03/31/93 13738.92 13482.39 04/30/93 14651.95 14761.90 05/31/93 14967.16 15073.67 06/30/93 14597.60 14838.49 07/31/93 15173.68 15357.91 08/31/93 15988.89 16186.97 09/30/93 15901.93 15822.62 10/31/93 16478.01 16310.23 11/30/93 15782.37 14884.55 12/31/93 16825.83 15959.32 $10,000 OVER LIFE OF FUND: LET'S SAY $10,000 WAS INVESTED IN OVERSEAS PORTFOLIO ON JANUARY 28, 1987, WHEN THE FUND STARTED. BY DECEMBER 31, 1993, THE VALUE OF THE INVESTMENT WITH DIVIDENDS REINVESTED WOULD HAVE GROWN TO $16,826 - A 68.26% INCREASE ON THE INITIAL INVESTMENT. FOR COMPARISON, LOOK AT HOW A $10,000 INVESTMENT IN THE MORGAN STANLEY EAFE INDEX (WITH DIVIDENDS REINVESTED) DID OVER THE SAME PERIOD. IT WOULD HAVE GROWN TO $15,959 - A 59.59% INCREASE. AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED DECEMBER 31, 1993 One Year Five Years Life of Fund OVERSEAS PORTFOLIO 37.35% 10.46% 7.80% EAFE 32.56% 2.01% 6.98% THE CHARTS ABOVE SHOW OVERSEAS PORTFOLIO'S TOTAL RETURNS, WHICH INCLUDE CHANGES IN SHARE PRICE, AND REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS. THE MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALIA, FAR EAST INDEX (EAFE INDEX) IS AN UNMANAGED INDEX OF FOREIGN COMMON STOCK PRICES TRANSLATED INTO U.S. DOLLARS AND COMPOSED OF MORE THAN 900 COMPANIES FROM EUROPE, AUSTRALIA AND THE FAR EAST. 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. PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL CHARGES, IT WOULD HAVE BEEN LOWER. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. PRINCIPAL AND INVESTMENT RETURN WILL VARY AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU WITHDRAW YOUR MONEY. MARKET ENVIRONMENT In 1993, investors could have put their money into just about any type of stock or bond investment portfolio and not lost money. For the first time since 1986, all 31 investment categories tracked by Lipper Analytical Services produced positive total returns. Despite posting strong numbers, U.S. stock and bond markets generally lagged many of their overseas counterparts, which turned in unusually high returns. U.S. STOCK MARKETS The Standard & Poor's 500 Composite Stock Price Index - a broad measure of U.S. stock performance - rose 10.08% in the 12 months ended December 31, 1993, in line with the market's long-term average annual return. The NASDAQ Composite Index - a measure of small stock performance - rose 14.75%. It was outpaced by the Dow Jones Industrial Average - an index of 30 blue-chip stocks - which was up 17.04%. In mid-November, the Dow closed above 3700 for the first time and finished the year at 3754. Low inflation, falling interest rates and a gradually improving economy boosted U.S. stocks. Technology was one of the best performing sectors, although semiconductors gave back part of their gains in the fall. Communications stocks soared as traditional telephone utilities, cellular companies and entertainment firms scrambled to form alliances. Investors speculated about what role technology companies would play in the building of the so-called information superhighway, which will link the technologies of computers, telephones and televisions. Financial stocks, notably securities dealers, were among the market leaders before falling off somewhat late in the year. Also, economically-sensitive sectors like autos and steel took off as the economy showed steady growth. The entertainment sector, especially casinos, posted impressive gains. Heavy machinery and precious metals stocks also performed well. Market laggards included the health-care and consumer non-durable sectors, although both showed signs of life near year-end. In 1993, consumers shunned familiar brand-name products for cheaper generic or off- brand items, which hurt many traditional big-name growth stocks. Uncertainty over President Clinton's health-care reform plan scared many investors away from that sector. Drug company stocks suffered as investors feared these companies would lose the ability to raise prices. FOREIGN STOCK MARKETS 1993's rally in international stocks was a dramatic turnaround for many foreign markets that had previously fallen out of favor. The Morgan Stanley EAFE (Europe, Australia, Far East) index was up 33%. Slowly falling interest rates and investors' hopes of economic recovery combined to lift stock prices in Europe. The Morgan Stanley Europe index rose 29% in 1993. Falling interest rates, a strengthening yen, and government spending aimed at stimulating economic growth fueled a furious market rally in Japan through late spring, before political instability dragged the market back down. Still, the TOPIX, an index that includes stocks from Japan's larger, better known companies, was up 24% for the year. Emerging markets reaped the biggest international returns. The Morgan Stanley Emerging Markets Index shot up 73% in 1993. Returns in markets like Hong Kong (up 117%), Malaysia (up 110%), and Brazil (up 78%) reflected a favorable outlook for increases in corporate profits as economic reforms began to take hold in these areas. U.S. BOND MARKETS Most all bond markets around the world richly rewarded investors in 1993. The U.S. bond market posted relatively strong numbers on a historical basis. Falling interest rates through most of the year fueled gains. The yield on the benchmark 30-year Treasury bond hit a three decade low in mid-October, yielding 5.79%. By year-end, mild inflation fears, fueled by a strengthening economy, had pushed up the yield on the 30-year bond to 6.35%, which slightly dampened overall 1993 results for investors. The Lehman Brothers Aggregate Bond Index - a broad measure of taxable bonds in the U.S. market - returned 9.75% for the year. Falling interest rates and a strengthening economy helped high-yield issues post impressive results. The Merrill Lynch High Yield Master Index rose 17.18%. Mortgage-backed securities continued to be hurt by refinancings; the Lehman Brothers mortgage index was up 6.84% in '93. FOREIGN BOND MARKETS In general, bond investors landed more impressive returns overseas than here at home. Falling interest rates and low inflation fueled strong returns in both developed nations and, more notably, in emerging markets. The Salomon Brothers World Government Bond Index - which measures bond market performance in developed nations including the United States - rose 13.27% for the year. That figure was dwarfed by the J.P. Morgan Emerging Markets Bond Index, which was up 44.17%. A MESSAGE FROM BOB LITTERST, PORTFOLIO MANAGER OF MONEY MARKET PORTFOLIO After a fairly volatile first six months, short-term interest rates were stable and trendless during the second half of the year. For example, yields on six-month Treasury bills ranged between just 3.0% and 3.3%. Also, the Federal Reserve kept the federal funds rate - the interest rate banks charge each other for overnight loans - at 3%, where it's been since September 1992. The economy grew at a moderate pace in '93. That, combined with low inflation, is exactly what the Fed likes. That said, the fund's yield closely traced short-term rates. A very stable rate environment meant there weren't too many opportunities to take advantage of moving rates. Within those confines, I made a few changes in the way in which I positioned the fund. Over the summer, it became clear that yield spreads were tightening. That meant there was less difference between the yields of corporate and Treasury issues with similar maturities. When yields on corporates fell relative to Treasuries, they were no longer as attractive when weighed against their higher risk. So I increased the percentage of the fund in Treasury and government agency debt - from about 10% at the end of May, to about 20% by the beginning of November. The fund's emphasis on government securities might have caused a slight reduction in yield. However, I felt the small yield loss was offset by far greater quality and liquidity. Lately, I've begun buying corporate issues again, as supply has increased and spreads have widened. As for the fund's average maturity, I kept it within a range of 60 to 80 days through most of the last six months. That way I was ready to go shorter if interest rates started to rise, but still benefited from higher rates on securities with longer maturities. Looking ahead, I believe the economy is showing stable upward momentum that is sustainable. Labor market gains and low long-term interest rates are the oil that's keeping the engine running. However, there are still many factors keeping economic growth in check: corporate downsizing, higher taxes and uncertainty over health care among them. I think the next significant move in short-term interest rates will be up. The Fed could trigger a rise in short-term rates by raising the federal funds rate if it perceives inflation is no longer falling. But inflationary pressures appear quite tame. If the Fed acts at all, I think it'll be a gentle nudge. One way I'm preparing the fund for a possible rise in rates is by purchasing variable and floating rate instruments, now 22% of the fund. These issues are higher yielding because they have longer final maturities. However, what makes them unique is a feature that resets their coupons (stated interest rates) at fixed intervals - for example, weekly, monthly or quarterly. When rates are rising, the fund can get a higher coupon on these issues at their reset intervals. To minimize the risk of exposure to longer maturities, our research staff carefully reviews each issue. Also, I expect to keep the fund's average maturity in a neutral range of 60 to 75 days. That will allow for flexibility if rates do start creeping up. The fund's longer-maturity issues are almost exclusively Treasuries and government agency issues, which are extremely liquid. They'll be easy to sell quickly if rates rise and I need to shorten the average maturity. A MESSAGE FROM BARRY COFFMAN, PORTFOLIO MANAGER OF HIGH INCOME PORTFOLIO For the 12 months ended December 31, the fund finished ahead of the Merrill Lynch High Yield Master Index, which rose 17.18%. Interest rates fell, inflation remained low and the economy strengthened, which helped companies improve their balance sheets and the credit quality of their high-yield debt. I decreased the fund's investment in supermarkets and food wholesalers in the second half of the year, from 10% on June 30 to 7% on December 31. Supermarkets had a tough year. Low inflation prevented them from raising prices, and they faced ever-increasing competition. Instead, I shifted into cyclicals - companies that rise and fall in tandem with the economy. For example, 1993's home-building boom led me to invest in the bonds of national home builders like U.S. Homes and regional builders like UDC Homes (out of Phoenix). Also companies that supply building materials and home furnishings did well. These included Color Tile and Wickes Lumber. Steel producers, like Inland Steel and WCI Steel, are further examples of cyclicals whose fortunes improved last year. At year-end, media and leisure was the fund's largest sector investment at 25%. In the last six months of '93, I lessened the fund's stake in cable TV companies whose bonds had already had solid price gains due to merger and acquisition activity, and emphasized entertain- ment companies. For example, Live Entertainment was one of the fund's largest investments on December 31. The company contracts with independent movie studios such as Carolco Pictures ("Basic Instinct" and "Terminator") and Miramax Films ("The Crying Game" and "The Piano") to distribute videos of feature films. SCI Television - which owns several TV stations nationwide - was another recent investment. SCI received $100 million in new equity upon emerging from bankruptcy in '93 and I feel is poised to become a significant entertainment company. Other top investments on December 31 included Mesa Capital, Insilco and IMC Fertilizer. Mesa is a large natural gas exploration and production company that recently restructured its debt. The company is rich in assets and well positioned, based on the increasing demand for natural gas. Insilco is a conglomerate that manufactures electrical products and automotive parts, but the company is best known for its office products. Its Rolodex business is up for sale and I expect the proceeds to substantially lower the company's debt. IMC Fertilizer is another company with valuable assets. IMC is benefiting from rising prices for its fertilizer products which, in turn, boosted its stock price. That gave IMC the flexibility to improve its balance sheet. As for disappointments, Revlon was the biggest. I decreased the fund's investment in the company after it reported disappointing sales and earnings. Although, Revlon seems to be doing better than many other cosmetics companies, the whole industry is in a slump. I also cut back on bonds issued by Computervision. The company had disappointing sales, primarily because of economic weakness in Europe. Going forward, I have a cautiously optimistic outlook. Falling interest rates helped the high-yield market substantially in '93, but rates appear to have leveled out, and may be on the way up. A stronger than expected economy in '94 could fuel a rise in rates, but that would not necessarily be negative for the market. The business prospects of companies that issue high yield bonds would likely improve in a better economy, which could boost their credit ratings. That would help offset price losses on bonds due to rising interest rates. A MESSAGE FROM BETTINA DOULTON, PORTFOLIO MANAGER OF EQUITY-INCOME PORTFOLIO Over the last six months, the fund continued to build upon its strong performance in the first half of 1993. It ended the year comfortably ahead of the total return of the Standard & Poor's 500 index. The fund did well by avoiding consumer non-durable stocks - including tobacco, food and drugs - which performed poorly through most of the year. Low inflation kept companies from raising prices and consumers rebelled against paying full price for brand-name items, flocking to generic or off-brand products. The most dramatic example was Philip Morris, which was forced to lower prices on its premium-brand cigarettes to compete with cheaper brands. I avoided the stock until its price had dropped substantially, and the company's premium-brand market share had stabilized. Philip Morris was the fund's third largest holding at year-end. As the stock prices of many consumer non-durables dropped, I increased the fund's stake to 4.0% on December 31, from 1.5% on June 30. Financial stocks performed well, mostly during the first half of the year. Falling interest rates helped banks like Citicorp, NationsBank and Wells Fargo boost their profit margins, while the improving economy brought down credit costs. In October, interest rates rose and many of these stocks quickly became less attractive. Investors sold in a hurry and my biggest disappointment in the last six months was not reacting quickly enough. Some financial stocks, which I held onto for too long, hurt the fund. The finance sector still was 11.8% of the fund's total investments at year-end, but that's down from 19.6% at the end of June. Cyclical stocks - those that rise and fall in tandem with the economy - did particularly well in the past six months as economic numbers picked up. The auto stocks - Chrysler (up 12.7% from June 30 to December 31) and Ford (up 23.4%) - helped the fund. I shied away from General Motors, mainly because of the company's huge pension liability. That was a mistake, as G.M.'s stock came along for the ride (up 23.3%). Many industrial companies cut costs, sold off unprofitable businesses and improved their balance sheets in the second half of the year. General Electric performed well, up 9.5% in the last six months. The company has improved its balance sheet, run a profitable financial services business and grown its presence in the developing world. Manufacturers of farm equipment - Deere, Tenneco and Caterpillar - also provided strong returns. As for other sectors, energy remained 8.7% of the fund at year-end. I bought more energy stocks after prices fell in November. I think they'll benefit from increasing worldwide demand and a supply that's proven shaky at times. I kept the fund's stake in utilities relatively low, 9.2% on December 31. I'm concerned about high stock prices, compared to other measures like earnings, and I'm not convinced there'll be any strong dividend growth in utilities. Retail stocks - 3.8% of the fund at year- end - - suffered through most of the year, but there were exceptions. Both J.C. Penney and Sears made internal changes that helped improve their competitive positions. Both stocks helped the fund. I'm not about to make guesses on how the stock market will perform in '94. But it wouldn't take much to upset what has been a strong market. Many stocks are expensive, so I'll likely stay very focused on value. If a stock is cheap, then it's not likely to fall as far as more expensive securities if the market does stumble. A MESSAGE FROM LAWRENCE GREENBERG, PORTFOLIO MANAGER OF GROWTH PORTFOLIO Despite predictions of a stock market correction in '93, both the market and the fund continued to provide strong returns. For the 12 months ended December 31, the fund beat the Standard & Poor's 500 index, which rose 10.08%. The biggest factor behind the fund's success was its emphasis on technology stocks, which were up over 14% in 1993. Despite a sell-off in the fall, the sector's solid performance this year had a lot to do with the economy. In the slow growth environment we had in '93, the only way many businesses could increase their earnings was through greater productivity. Because interest rates were so low and the cost of technology products was coming down, technology investments offered a more cost-effective means of improving productivity than hiring more workers. This boosted demand for technology and telecommunications products and drove up the stock prices of many companies that produce them. At the end of December, the fund had a 18.6% stake in technology. Included were companies that specialize in computer networking - like Cisco Systems and Wellfleet Communications. These companies help businesses to downsize their computer networks by making the move from mainframe systems to personal computers. Both stocks did well. Companies that develop and market the software used in these new downsized networks also helped the fund. Examples included Oracle Systems and Sybase. In the wireless communications field, Motorola was a big contributor to the fund's return. It was the fund's eighth largest investment at the end of December. The fund had a 5.7% stake in the retail sector at year-end. Many of these stocks had a tough year; people still didn't feel safe enough in their jobs to do a lot of shopping. Lately, the numbers show consumer confidence is picking up as the economy has strengthened. Lowe's is an example of a retail stock that has done well recently. It's the second largest chain of home improvement stores in the United States, behind Home Depot. Lowe's has increased the size of its stores and its earnings are growing rapidly. I think this shows there is finally some business to be had in retail. I increased the fund's investment in the media and leisure sector during the year. One of the biggest opportunities here resulted from the merger of Tele-Communications, Inc. and Bell Atlantic. As the nation's largest cable television company, TCI now appears able to become a prime service provider on the so-called information superhighway, which will merge televisions, telephones and computers. My biggest disappointment this year was failing to take better advantage of the run-up in international stocks. The fund had a 5.2% stake in foreign investments at the end of the year. However, I could have participated more in emerging markets, which had very strong returns. Many foreign stocks have become expensive, but there are still opportunities overseas which I'll be looking for in '94. As for the next six months, I'm a bit cautious. We've gone through three years now without a 10% correction in the U.S. stock market, the longest such period this century. I think it's very reasonable to assume that a correction of this size could come sometime soon. This may not be all bad; it would bring price-to-earnings ratios for some stocks down to a level that would make them more attractive. A MESSAGE FROM JOHN HICKLING, PORTFOLIO MANAGER OF OVERSEAS PORTFOLIO It was a banner year for international funds. The fund's total return easily topped the EAFE index, which rose 32.56% for the 12 months ended December 31. The fund's performance was due as much to avoiding certain sectors as focusing on others. For example, in Europe, many countries rejected the European Rate Mechanism (ERM) and allowed their currencies to find a level relative to the deutsche mark that more accurately reflected local economic activity. As a result, interest rates started to come down. European stock markets did extremely well in local currencies - and well enough in dollars too - despite continued economic weakness. However, as the year progressed, I became less optimistic about the prospects for an imminent global recovery. That's why I shifted away from European companies whose fortunes are tied to the local economies. Instead, I looked for companies with earnings stability and managements that have adjusted to the reality of a deep and prolonged recessionary environment in Europe. More specifically, I moved out of stocks in the technology and basic industry sectors. Instead, I focused on those that would respond to declining interest rates. Throughout the second half of the year, my largest investment was in Stet, an Italian telephone utility. In addition to meeting my earnings and interest rate criteria, it stood to benefit from the government's move toward privatizing the industry. The stock had a tremendous year. In the United Kingdom, I focused on banks and financial stocks such as National Westminster and Barclays. I also emphasized bank and insurance stocks in France, Germany, the Netherlands, and Scandinavia. But my biggest allocation to financials was in Switzerland. Zurich Versicherung, an insurance company, and C.S. Holdings, a bank, were among the fund's largest investments and best performers. Japanese stocks made a strong contribution to the fund's performance in the first few months of the year. I emphasized brokerage firms and trust banks, which did well. Stocks such as Nomura Securities and Murata Manufacturing remain among the fund's largest investments, because I believe they still have room to improve. However, the government's stop-gap measures that rescued the Japanese financial system were not enough to bail out the economy. I expect the economy to remain weak for some time. That's why I cut back on my Japanese investments, from 22.8% six months ago to 14.7% at the end of the year. Over the last six months, a stake in Japanese government bonds also helped the fund. As for disappointments, I turned somewhat bearish on Hong Kong too early. A combination of factors in the Hong Kong market - including increasing participation by retail investors, growing political risk and a general sense of euphoria - led me to look for other opportunities in the Pacific Basin. I turned to markets such as Malaysia, Singapore and Thailand, all good performers. However, I missed out on a 20% upturn in the Hong Kong market last fall by cutting back on my investments prematurely. Looking ahead, I think any economic recovery in Europe or Japan will be muted. That makes stock selection more important than ever. I expect to remain focused on companies whose managements have correctly assessed the current slow growth environment. After such an impressive year for foreign stocks, anything resembling a repeat would be very unlikely. VARIABLE INSURANCE PRODUCTS FUND: MONEY MARKET PORTFOLIO INVESTMENTS/DECEMBER 31, 1993 (Showing Percentage of Total Value of Investments) ANNUALIZED ANNUALIZED YIELD AT YIELD AT DUE TIME OF PRINCIPAL VALUE DUE TIME OF PRINCIPAL VALUE DATE PURCHASE AMOUNT (NOTE 1) DATE PURCHASE AMOUNT (NOTE 1) Bank Notes - 1.3% Bank of New York 3/6/94 3.49%(a) $ 5,000,000 $ 5,000,000 06499AAJ Certificates of Deposit - 23.3% DOMESTIC CERTIFICATES OF DEPOSIT - 1.3% Old Kent Bank & Trust Company 3/31/94 3.40 5,000,000 5,000,000 679999CL NEW YORK BRANCH, YANKEE DOLLAR, FOREIGN BANKS - 18.8% Canadian Imperial Bank of Commerce 1/6/94 3.60 1,000,000 999,952 136990EA Dai-Ichi Kangyo Bank, Ltd. 2/9/94 3.28 3,000,000 3,000,480 2379983K Fuji Bank, Ltd. 1/28/94 3.46 5,000,000 5,000,000 35999DGU 1/31/94 3.45 5,000,000 5,000,000 35999DGT Kingdom of Sweden 3/23/94 3.28(a) 13,000,000 13,000,000 998999AV Industrial Bank of Japan, Ltd. 1/20/94 3.44 5,000,000 5,000,000 4559905P Mitsubishi Bank, Ltd. 2/28/94 3.33 10,000,000 10,000,079 610998TW Sakura Bank, Ltd. 1/5/94 3.52 5,000,000 5,000,000 793999JK 2/7/94 3.40 5,000,000 5,000,000 793999JN Skandinaviska Enskilda Banken 2/17/94 3.39 5,000,000 5,000,000 880992FY Societe Generale 4/25/94 3.43 5,000,000 5,000,000 833991SK Sumitomo Bank, Ltd. 2/24/94 3.45 5,000,000 5,000,000 86699EBL Swedish National Housing Finance Corp. 11/23/94 3.52(a) 3,000,000 3,000,000 956995AM 70,000,511 LONDON BRANCH, EURODOLLAR, FOREIGN BANKS - 3.2% Mitsubishi Bank, Ltd. 4/29/94 3.49 5,000,000 4,999,973 610998UD Sumitomo Bank, Ltd. 1/10/94 3.43 7,000,000 6,999,943 86699EAM 11,999,916 Total Certificates of Deposit 87,000,427 Commercial Paper - 47.3% American Brands, Inc. 2/28/94 3.34% $ 5,000,000 $ 4,973,256 024990ES B.B.V. Finance (Delaware), Inc. 1/6/94 3.51 2,900,000 2,898,591 063999AJ Bankers Trust Corporation 2/16/94 3.37 6,000,000 5,974,624 06699FAQ Bear Stearns Companies Inc. 3/18/94 3.31 5,000,000 4,965,378 073999WS Bell Atlantic Financial Services 2/25/94 3.43 5,000,000 4,974,028 077994AM Bradford & Bingley Building Society 3/23/94 3.32 5,200,000 5,161,390 107993BQ CIT Group Holdings, Inc. 3/30/94 3.59 4,000,000 3,965,778 172990PJ CoreStates Capital Corp. 4/8/94 3.36(a) 5,000,000 5,000,000 2186939C Corporate Asset Funding Company, Inc. 1/25/94 3.51 800,000 798,133 176992YY 1/26/94 3.51 600,000 598,541 1769922A Dean Witter, Discover & Co. 1/31/94 3.44 5,000,000 4,985,750 24299AAC Electronic Data Systems Corporation 2/10/94 3.43 8,200,000 8,169,022 285998DQ 2/17/94 3.45 1,500,000 1,493,303 285998DS GTE Corporation 1/11/94 3.45 1,500,000 1,498,562 362991CG 1/21/94 3.51 5,000,000 4,990,278 362991CF General Electric Capital Corporation 9/6/94 3.37(a) 5,000,000 5,000,000 369998LE General Motors Acceptance Corporation 1/10/94 3.51 2,000,000 1,998,263 638998NP 1/12/94 3.51 5,000,000 4,994,691 638998NR 2/14/94 3.55 5,000,000 4,978,459 638998NV 3/9/94 3.45 2,000,000 1,987,344 638998MY Goldman Sachs Group, L.P. (The) 3/11/94 3.40 5,000,000 4,967,752 696992KA Grand Metropolitan Finance 4/28/94 3.55 680,000 672,265 386993AC 5/23/94 3.45 5,000,000 4,933,141 386993AD ANNUALIZED ANNUALIZED YIELD AT YIELD AT DUE TIME OF PRINCIPAL VALUE DUE TIME OF PRINCIPAL VALUE DATE PURCHASE AMOUNT (NOTE 1) DATE PURCHASE AMOUNT (NOTE 1) Commercial Paper - CONTINUED IBM Corporation 1/31/94 3.45% $ 5,000,000 $ 4,985,708 4592009X Kingdom of Denmark 2/10/94 3.38 10,000,000 9,963,000 249998BA Merrill Lynch & Co., Inc. 2/14/94 3.27 1,000,000 996,027 59099A8U Morgan Stanley Group, Inc. 2/22/94 3.42 5,000,000 4,975,516 61799EHP 2/28/94 3.38 5,000,000 4,973,013 61799EHT NYNEX Corporation 3/7/94 3.36 5,000,000 4,969,938 67099CAA Nationwide Building Society 3/3/94 3.45 9,000,000 8,947,845 638993HB New Center Asset Trust 3/7/94 3.41 5,000,000 4,969,486 643995AS 3/8/94 3.41 5,000,000 4,969,017 643995AV New South Wales Treasury Corp. 3/8/94 3.39 3,000,000 2,981,520 648992AM Nordbanken North America, Inc. 1/18/94 3.44 10,000,000 9,983,850 684999BX Prudential Funding Corporation 2/14/94 3.36 5,000,000 4,979,833 743994KA Sears Credit Corp. B 1/26/94 3.47 5,000,000 4,988,021 81299GAD Sears Roebuck Acceptance Corp. 1/27/94 3.54 3,000,000 2,992,373 81299EBX Whirlpool Financial Corporation 1/4/94 3.44 677,000 676,808 9633289T 1/13/94 3.49 10,000,000 9,988,433 9633289N Total Commercial Paper 176,318,937 Federal Agencies - 1.9% FEDERAL HOME LOAN BANK - DISCOUNT NOTES 6/16/94 3.37 7,000,000 6,997,446 567995GP U.S. Treasury Obligations - 1.3% U. S. TREASURY BILLS 5/26/94 3.35 5,000,000 4,933,541 99399H5F Medium-Term Notes (a) - 7.3% Abbey National PLC, UK 6/24/94 3.31 1,000,000 1,000,000 007994GK Abbey National Treasury Service 9/30/94 3.37 13,000,000 13,000,000 010998AJ Goldman Sachs Group, L.P. (The) 6/16/94 3.49% $ 4,000,000 $ 4,000,000 696992KE 9/1/94 3.49 3,000,000 3,000,000 696992KB Norwest Corporation 3/15/94 3.39 6,000,000 6,000,000 66899CBK Total Medium-Term Notes 27,000,000 Short-Term Notes (a) - 6.2% J.P. Morgan Securities 4/19/94 3.27 3,000,000 3,000,000 616998AW 5/23/94 3.25 6,000,000 6,000,000 616998EC SMM Trust Company (1993 A) (b) 3/18/94 3.36 5,000,000 5,000,000 7845689Y SMM Trust Company (1993 D) (b) 1/28/94 3.49 3,000,000 3,000,000 7845689S SMM Trust Company (1993 F) (b) 2/15/94 3.53 6,000,000 6,000,000 7845689T Total Short-Term Notes 23,000,000 Foreign Government Obligations (United states dollars) - 1.3% Canadian Treasury Bills 5/26/94 3.42 5,000,000 4,932,334 136992SS Municipal Bonds - 7.7% Massachusetts General Obligation 1/3/94 4.25 9,000,000 9,000,000 575825WM New Orleans Aviation Board (MBIA Insured) 1/7/94 3.51 1,800,000 1,800,000 64763H9B New York Public Housing Authority 1/3/94 4.75 18,000,000 18,000,000 649660JR Total Municipal Bonds 28,800,000 MATURITY AMOUNT Repurchase Agreements - 2.4% In a joint trading account (U.S. Treasury Obligations) dated 12/31/93, due 1/3/94 (Note 2) At 3.23% $ 61,016 61,000 99799MMX At 3.29% 8,782,406 8,780,000 99799MMU Total Repurchase Agreements 8,841,000 Total Investments - 100% $ 372,823,685 Total cost for income tax purposes - $372,823,685 LEGEND: (a) The coupon rate shown on floating or adjustable rate securities represents the rate at period end. (b) 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 SMM Trust Company: (1993 A) 3/18/93 $5,000,000 7845689Y (1993 D) 10/28/93 $3,000,000 7845689S (1993 F) 11/15/93 $6,000,000 INCOME TAX INFORMATION: At December 31, 1993, the fund had a capital loss carryforward of approximately $13,800 of which $4,100, $500, $4,900, and $4,300 will expire on December 31, 1995, 1996, 1997, and 2000, respectively. MONEY MARKET PORTFOLIO FINANCIAL STATEMENTS Statement of Assets and Liabilities DRAFT
December 31, 1993 ASSETS Investment in securities, at value (including repurchase agreements of $8,841,000) (Notes 1 and 2) - $ 372,823,685 See accompanying schedule Interest receivable 678,856 TOTAL ASSETS 373,502,541 LIABILITIES Payable to custodian bank $ 20,327,146 Accrued management fee 40,677 Other payables and accrued expenses 31,090 TOTAL LIABILITIES 20,398,913 NET ASSETS $ 353,103,628 Net Assets consist of: Paid in capital $ 353,102,377 Accumulated net realized gain (loss) on investments 1,251 NET ASSETS, for 353,102,377 shares outstanding $ 353,103,628 NET ASSET VALUE, offering price and redemption price per share ($353,103,628 (divided by) 353,102,377 shares) $1.00
Statement of Operations DRAFT
Year Ended December 31, 1993 INTEREST INCOME $ 10,372,557 EXPENSES Management fee (Note 3) $ 415,213 Transfer agent fees (Note 3) 87,208 Accounting fees and expenses (Note 3) 53,769 Non-interested trustees' compensation 2,884 Custodian fees and expenses 45,947 Registration fees 13,458 Reports to shareholders (Note 4) 47,668 Audit 18,530 Legal 3,509 Miscellaneous 4,264 Total expenses before 692,450 reductions Expense reductions (Note 4) (24,100) 668,350 NET INTEREST INCOME 9,704,207 NET REALIZED GAIN (LOSS) ON 4,544 INVESTMENTS (NOTE 1) NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 9,708,751
Statement of Changes in Net Assets DRAFT
YEARS ENDED DECEMBER 31, 1993 1992 INCREASE (DECREASE) IN NET ASSETS Operations $ 9,704,207 $ 11,360,247 Net interest income Net realized gain (loss) on investments 4,544 (4,346) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 9,708,751 11,355,901 Dividends to shareholders from net interest income (9,704,207) (11,360,247) Share transactions at net asset value of $1.00 per share 531,400,504 297,977,891 Proceeds from sales of shares Reinvestment of dividends from net interest income 9,797,785 11,287,338 Cost of shares redeemed (489,101,476) (279,381,460) Net increase (decrease) in net assets and shares resulting from share transactions 52,096,813 29,883,769 TOTAL INCREASE (DECREASE) IN NET ASSETS 52,101,357 29,879,423 NET ASSETS Beginning of period 301,002,271 271,122,848 End of period $ 353,103,628 $ 301,002,271 The accompanying notes are an integral part of the financial statements.
Financial Highlights DRAFT
YEARS ENDED DECEMBER 31, 1993 1992 1991 1990 1989 SELECTED PER-SHARE DATA Net asset value, beginning of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 Income from Investment Operations .032 .038 .059 .078 .087 Net interest income Dividends from net interest income (.032) (.038) (.059) (.078) (.087) Net asset value, end of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 TOTAL RETURN 3.23% 3.90% 6.09% 8.04% 9.12% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 353,104 $ 301,002 $ 271,123 $ 254,585 $ 142,970 Ratio of expenses to average net assets .22% .24% .38% .56% .67% (dagger) Ratio of expenses to average net assets before expense reduct .23% .24% .38% .56% .67% ions (dagger) Ratio of net interest income to average net assets 3.16% 3.85% 5.93% 7.76% 8.70%
(dagger) SEE NOTE 4 OF NOTES TO FINANCIAL STATEMENTS. VARIABLE INSURANCE PRODUCTS FUND: HIGH INCOME PORTFOLIO INVESTMENTS/DECEMBER 31, 1993 (Showing Percentage of Total Value of Investments) MOODY'S MOODY'S RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE (UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1) CORPORATE BONDS - 88.2% CONVERTIBLE BONDS - 2.2% BASIC INDUSTRIES - 0.4% IRON & STEEL - 0.4% Stelco, Inc. 7 3/4%, 8/31/98 - CAD 3,000,000 $ 1,883,866 858525AB HEALTH - 0.7% MEDICAL FACILITIES MANAGEMENT - 0.7% Abbey Healthcare Group, Inc. 6 1/2%, 12/1/02 (g) B2 2,140,000 3,017,400 002786AA MEDIA & LEISURE - 0.3% LODGING & GAMING - 0.3% Bally Manufacturing Corp. 10%, 12/15/06 Caa 1,210,000 1,149,500 058732AJ RESTAURANTS - 0.0% Chi-Chi's, Inc. 9%, 10/15/09 B2 105,000 94,500 167060AB TOTAL MEDIA & LEISURE 1,244,000 RETAIL & WHOLESALE - 0.0% GROCERY STORES - 0.0% Farm Fresh, Inc. 7 1/2%, 3/1/10 B3 186,000 124,620 307669AA UTILITIES - 0.8% TELEPHONE SERVICES - 0.8% ALC Communications Corp. 9%, 5/15/03 B2 3,400,000 3,468,000 0015759A TOTAL CONVERTIBLE BONDS 9,737,886 NONCONVERTIBLE BONDS - 86.0% AEROSPACE & DEFENSE - 1.1% AEROSPACE & DEFENSE - 0.1% Fairchild Corp. 12 1/4%, 3/15/06 B3 485,000 480,150 303698AC DEFENSE ELECTRONICS - 1.0% Tracor, Inc. 10 7/8%, 8/15/01 B2 4,300,000 4,504,250 892349AC TOTAL AEROSPACE & DEFENSE 4,984,400 BASIC INDUSTRIES - 8.7% CHEMICALS & PLASTICS - 3.7% American Pacific Corp. 11%, 12/15/02 (g) - 850,000 850,000 0287409C IMC Fertilizer Group, Inc.: 9 1/4%, 10/1/00 B3 5,000,000 5,025,000 449669AH 10 1/8%, 6/15/01 B3 1,500,000 1,560,000 449669AF 10 3/4%, 6/15/03 B3 1,950,000 2,057,250 449669AG 9.45%, 12/15/11 B3 1,710,000 1,710,000 449669AB Methanex Corp. 8 7/8%, 11/15/01 Ba3 $ 2,690,000 $ 2,770,700 59151KAA OSI Specialties, Inc. 9 1/4%, 10/1/02 B1 930,000 953,250 671042AA Trans Resources, Inc.: 11 7/8%, 7/1/02 B2 910,000 914,550 893320AD 14 1/2%, 9/1/96 B2 580,000 643,800 893320AB 16,484,550 IRON & STEEL - 3.4% Inland Steel Industries, Inc. 12 3/4%, 12/15/02 Ba3 4,950,000 5,692,500 457472AB Republic Engineered Steels, Inc. 9 7/8%, 12/15/01 B2 5,700,000 5,799,750 760391AA WCI Steel, Inc. 10 1/2%, 3/1/02 B1 3,500,000 3,648,750 92923JAB 15,141,000 METALS & MINING - 0.1% Renco Metals, Inc. 12%, 7/15/00 B3 600,000 597,000 759677AA PACKAGING & CONTAINERS - 0.7% All-American Bottling Corp. secured 13%, 8/15/01 (g) Caa 3,000,000 3,090,000 016431AA PAPER & FOREST PRODUCTS - 0.8% Crown Packaging 10 3/4%, 11/1/00 B3 3,500,000 3,587,500 228444AA TOTAL BASIC INDUSTRIES 38,900,050 CONGLOMERATES - 3.6% Insilco Corp.: 10 3/8%, 7/1/97 - 4,000,000 4,010,000 4576599A 9 1/2%, 7/1/97 Ca 2,710,000 2,689,675 457659AC 9 1/2%, 7/1/97 (f) Ca 3,960,000 3,945,150 4576599C Jordan Industries, Inc. 11 3/4%, 12/15/03 Caa 7,135,000 4,245,325 480695AD Sequa Corp. 9 3/8%, 12/15/03 B3 1,470,000 1,475,512 817320AG 16,365,662 CONSTRUCTION & REAL ESTATE - 6.4% BUILDING MATERIALS - 3.8% Adience, Inc. 11%, 6/15/02 - 745,921 604,196 006905AA DAL Tile International, Inc. secured coupon, 0%, 7/15/98 Caa 11,605,000 6,919,481 23426RAA Pace Industries, Inc. 10 5/8%, 12/1/02 B1 2,330,000 2,388,250 693724AA USG Corp. 10 1/4%, 12/15/02 B2 7,000,000 7,175,000 903293AK 17,086,927 MOODY'S MOODY'S RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE (UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1) CORPORATE BONDS - CONTINUED NONCONVERTIBLE BONDS - CONTINUED CONSTRUCTION & REAL ESTATE - CONTINUED CONSTRUCTION - 2.0% MDC Holdings, Inc. 8 3/4%, 12/15/05 - $ 1,100,000 $ 1,100,000 552676AJ Robertson CECO Corp. 10%, 11/30/99 (h) - 870,640 626,861 770539AA Ryland Group, inc. 9 5/8%, 6/1/04 Ba3 1,330,000 1,341,637 783764AC UDC Homes 11 3/4%, 4/30/03 B2 2,000,000 2,115,000 93599DAA US Home Corp. 9 3/4%, 6/15/03 Ba3 3,760,000 3,863,400 911920AB 9,046,898 REAL ESTATE - 0.6% Baldwin Co., 10 3/8% 8/1/03 (g) B2 2,660,000 2,553,600 057826AA TOTAL CONSTRUCTION & REAL ESTATE 28,687,425 DURABLES - 2.4% TEXTILES & APPAREL - 2.4% Acme Boot Co. 11 1/2%, 12/15/00 B2 3,000,000 3,015,000 004622AC Dan River, Inc. 10 1/8%, 12/15/03 B1 1,150,000 1,162,937 235773AA Fortsmann & Co., Inc. 14 3/4%, 4/15/99 (h) Caa 500,000 590,000 346592AD Hat Brands, Inc. 12 5/8%, 9/15/02 - 1,520,000 1,634,000 418730AA Leslie Fay Companies, Inc.(f): 9.53%, 1/15/00 - 676,319 515,693 5270109H 10.54%, 1/15/02 - 611,353 403,522 5270109J Westpoint Stevens 9 3/8%, 12/15/05 B3 3,300,000 3,333,000 961238AB 10,654,152 ENERGY - 5.3% ENERGY SERVICES - 2.4% TransTexas Gas Corp. 10 1/2%, 9/1/00 B1 10,270,000 10,886,200 893895AA OIL & GAS - 2.9% Mesa Capital Corp.: 0%, 6/30/96 - 2,009,000 1,599,666 590910AD 0%, 6/30/98 - 10,599,000 8,956,155 590910AF Nuevo Energy Co. 12 1/2%, 6/15/02 B3 1,320,000 1,458,600 670509AA Triton Energy Corp. 0%, 11/1/97 B1 1,600,000 1,112,000 896750AG 13,126,421 TOTAL ENERGY 24,012,621 FINANCE - 5.3% CREDIT & OTHER FINANCE - 0.3% Tiphook Finance Corp. 8%, 3/15/00 B3 $ 1,810,000 $ 1,470,625 887795AB INSURANCE - 3.9% American Annuity Group, Inc.: 11 1/8%, 2/1/03 B2 2,630,000 2,820,675 023840AA 9 1/2%, 8/15/01 Ba3 3,000,000 3,067,500 023840AB American Financial Corp. s.f. 13 1/2%, 9/14/04 B 2,000,000 2,060,000 026087BB Americo Life, Inc. 9 1/4%, 6/1/05 BB+ 4,900,000 4,863,250 03060NAB Life Partners Group, Inc. 12 3/4%, 7/15/02 Ba3 2,250,000 2,621,250 532157AA Nacolah, Inc. 9 1/2%, 12/1/03 B1 2,100,000 2,126,250 629667AA 17,558,925 SAVINGS & LOANS - 0.2% Chevy Chase Savings Bank 9 1/4%, 12/1/05 B2 900,000 909,000 166784AE MORTGAGE-BACKED SECURITIES - 0.6% Mutual Benefit Overseas (c): 9 3/8%, 2/1/96 - 2,475,900 1,043,790 651995AD 9.37%, 2/1/96 - 6,301,870 1,729,907 651995AC 2,773,697 SECURITIES INDUSTRY - 0.3% ECM Corp. extendible 14%, 6/1/02 (g) - 994,772 1,115,638 273996AA TOTAL FINANCE 23,827,885 HEALTH - 2.6% MEDICAL FACILITIES MANAGEMENT - 2.6% American Medical International, Inc. 9 1/2%, 4/15/06 B 4,000,000 4,180,000 027429AZ Hallmark Healthcare Corp. 10 5/8%, 11/15/03 B3 790,000 795,925 40624GAA Hospital Corp. America 11 1/4%, 12/1/15 Ba2 1,150,000 1,230,500 441065AQ Quorum Health Group, Inc. 11 7/8%, 12/15/02 B- 4,850,000 5,444,125 749084AA 11,650,550 MOODY'S MOODY'S RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE (UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1) CORPORATE BONDS - CONTINUED NONCONVERTIBLE BONDS - CONTINUED INDUSTRIAL MACHINERY & EQUIPMENT - 5.1% ELECTRICAL EQUIPMENT - 1.9% Ampex, Inc.: unit bond 14%, 1/15/98 (6 warrants each Series A & B and .09 warrant N.H. Holdings, Inc.) (e)(f) - $ 2,340,000 $ 1,450,800 0320929F 20%, 3/15/94 - 343,000 343,000 0320929K Specialty Equipment Cos., Inc. 11 3/8%, 12/1/03 B3 6,000,000 6,090,000 847497AB Telex Communications Group 14 1/2%, 6/1/99 - 850,000 901,000 87999AAA 8,784,800 INDUSTRIAL MACHINERY & EQUIPMENT - 3.2% Joy Technologies, Inc. 10 1/4%, 9/1/03 B1 3,800,000 3,961,500 481206AD Rexnord Corp. 10 3/4%, 7/1/02 Ba3 2,000,000 2,440,000 76168RAB Rexnord Holdings, Inc.: 11 7/8%, 3/1/09 B2 2,160,000 2,224,800 76168TAA 11 7/8%, 3/1/99. (f) - 550,000 566,500 76168T9A Thermadyne Industries, Inc. (h): 15%, 5/1/99 Ca 4,118,947 4,324,895 883436AD 10 1/2%, 11/1/99 Ca 1,172,623 874,097 883436AE 14,391,792 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 23,176,592 MEDIA & LEISURE - 23.5% BROADCASTING - 6.2% Century Communications Corp. 0%, 3/15/03 Ba3 15,130,000 6,808,500 156503AF Cooke Media Group, Inc. 11 5/8%, 4/1/99 - 350,000 353,500 216276AB Helicon Group LP/Helicon Capital Corp. 9 1/2%, 10/15/03 Caa 5,750,000 5,591,875 423265AB Robin Media Group, Inc. 11 1/8%, 4/1/97 - 2,790,000 2,866,725 770685AA SCI Television, Inc. secured 11%, 6/30/05 - 8,100,000 8,403,750 783895AJ SPI Holding, Inc. reset notes pay-in-kind 11 1/2%, 12/1/02 B+ 3,899,503 3,967,744 78462GAF 27,992,094 ENTERTAINMENT - 3.9% Bally's Health & Tennis Corp. 13%, 1/15/03 B3 $ 585,000 $ 604,012 05873KAB Carolco Pictures, Inc. 11 1/2%, 10/15/00 - 5,176,079 4,813,753 143763AF Kloster Cruise, Ltd. 13%, 5/1/03 B2 2,300,000 2,547,250 498760AC Live Entertainment, Inc.: 10%, 9/1/98 - 2,197,200 1,999,452 538032AC 12%, 9/15/94 (f) - 7,250,000 7,250,000 5380329B Westwood Group, Inc. 14 1/4%, 8/15/97 (c) Caa 1,000,000 400,000 961754AA 17,614,467 LEISURE DURABLES & TOYS - 0.4% Coleman Holdings 0%, 5/27/98 B 2,560,000 1,664,000 193551AC LODGING & GAMING - 8.3% Bally Gaming International, Inc. 10 3/8%, 7/29/98 - 3,000,000 3,000,000 0587319C Bally's Casino Holdings, 10 1/2%, 6/15/98 (g) B3 10,450,000 6,688,000 05873EAA Bally's Grand, Inc. 10 3/8%, 12/15/03 (g) B2 8,000,000 8,050,000 05873JAD Boyd Gaming Corp. 10 3/4%, 9/1/03 (g) - 5,000,000 5,250,000 1033049A Embassy Suites, Inc. 10 7/8%, 4/15/02 B1 2,000,000 2,240,000 290807AF GNS Finance Corporation 9 1/4%, 3/15/03 B2 2,000,000 2,080,000 361916AK Host Marriott Corp.: 10 1/2%, 5/1/06 B1 1,000,000 1,027,500 441080AH 11%, 5/1/06 B1 3,040,000 3,123,600 441080AJ 9 1/8%, 12/1/00 B1 1,500,000 1,526,250 441080AD Resorts International, Inc. secured pay-in-kind: 6%, 4/15/94 Ca 2,409,044 1,525,720 761185AG 15%, 4/15/94 Ca 1,292,030 809,676 761185AH Trump Plaza Funding, Inc. gtd. mtg. 10 7/8%,6/15/01 B3 2,300,000 2,288,500 898171AC 37,609,246 PUBLISHING - 2.2% GACC Holding Co. 9 1/2%, 12/31/00 (c) - 4,080,000 3,855,600 3613549A General Media, Inc. 10 5/8%, 12/31/00 - 1,310,000 1,332,925 370295AA Marvel Holdings 0%,4/15/98 B3 7,000,000 4,550,000 573845AA 9,738,525 MOODY'S MOODY'S RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE (UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1) CORPORATE BONDS - CONTINUED NONCONVERTIBLE BONDS - CONTINUED MEDIA & LEISURE - CONTINUED RESTAURANTS - 2.5% American Restaurant Group 12%, 9/15/98 B2 $ 3,170,000 $ 3,154,150 029309AC Cafeteria Operated LP 11%, 6/30/98 (e)(f) - 7,000,000 5,600,000 127998AC Restaurant Enterprises Group, Inc. 12 1/4%, 12/15/96 (c) - 2,520,000 2,469,600 761255AA 11,223,750 TOTAL MEDIA & LEISURE 105,842,082 NONDURABLES - 2.4% BEVERAGES - 0.7% Canandaigua Wine, Inc. 8 3/4%, 12/15/03 B1 3,300,000 3,316,500 137219AB FOODS - 0.4% Doskocil Companies, Inc. 9 3/4%, 7/15/00 B2 1,800,000 $ 1,782,000 258486AD HOUSEHOLD PRODUCTS - 1.3% Revlon Consumer Products Corp. 9 3/8%, 4/1/01 B2 2,080,000 2,012,400 761519AF Revlon World Wide secured 0%, 3/15/98 B3 7,950,000 4,034,625 76154KAB 6,047,025 TOTAL NONDURABLES 11,145,525 RETAIL & WHOLESALE - 9.9% APPAREL STORES - 0.6% Apparel Retailers, Inc. 12 3/4%, 8/15/05 Caa 1,590,000 906,300 037795AB Lamonts Apparel, Inc. 11 1/2%, 11/1/99 - 2,067,000 1,999,822 5136289A 2,906,122 GENERAL MERCHANDISE STORES - 1.1% Hills Stores Co. 10 1/4%, 9/30/03 - 5,038,000 5,226,925 431692AA GROCERY STORES - 6.8% Farm Fresh Holdings Corp. 14 1/4%, 10/1/02 (g) - 3,953,768 4,190,995 301923AB Farm Fresh, Inc. 12 1/4%, 10/1/00 (g) B2 2,300,000 2,432,250 307669AD Food 4 Less Holdings, Inc. 0%, 12/15/94 Caa 4,810,000 3,090,425 344753AC Food 4 Less Supemarkets, Inc. 13 3/4%, 6/15/01 B2 $ 2,500,000 $ 2,787,500 344754AD Megafoods Stores, Inc. 10 1/4%, 10/15/00 B2 5,800,000 5,771,000 584951AA Penn Traffic Co.: 1 10 3/8%, 10/1/04 Ba3 1,500,000 1,623,750 707832AC 9 5/8%, 4/15/05 B2 6,000,000 6,180,000 707832AD Super Rite Foods, Inc. 10 5/8%, 4/1/02 B3 4,160,000 4,430,400 868011AB 30,506,320 RETAIL & WHOLESALE, MISC - 1.4% Color Tile, Inc. 10 3/4%, 12/15/01 B2 3,500,000 3,517,500 196267AD Wickes Lumber Co. 11 5/8%, 12/15/03 B3 2,660,000 2,713,200 967446AA 6,230,700 TOTAL RETAIL & WHOLESALE 44,870,067 SERVICES - 3.5% ADVERTISING - 0.9% Lamar Advertising Co. 11%, 5/15/03 B2 1,000,000 1,050,000 512815AA Outdoor Systems, Inc. 10 3/4%, 8/15/03 B2 2,900,000 3,023,250 690057AA 4,073,250 LEASING & RENTAL - 0.3% Acme Holdings, Inc. 11 3/4%, 6/1/00 B3 1,420,000 1,263,800 004684AA SERVICES - 2.3% Comdata Network, Inc. 13 1/4%, 12/15/02 B3 4,300,000 4,826,750 200324AF La Petite Holdings Corp. secured 9 5/8%, 8/1/01 B3 5,610,000 5,624,025 503754AA 10,450,775 TOTAL SERVICES 15,787,825 TECHNOLOGY - 1.9% COMPUTER SERVICES & SOFTWARE - 0.3% Computervision Corp. 11 3/8%, 8/15/99 B3 1,500,000 1,260,000 20557TAB COMPUTERS & OFFICE EQUIPMENT - 0.9% Bell & Howell Holdings Co., 11 1/2%, 3/1/05 - 7,610,000 4,223,550 077905AB ELECTRONICS - 0.7% Berg Electronics, 11 3/8%, 5/1/03 (h) B3 3,130,000 3,270,850 083727AB TOTAL TECHNOLOGY 8,754,400 MOODY'S RATINGS PRINCIPAL VALUE VALUE (UNAUDITED) (D) AMOUNT (A) (NOTE 1) SHARES (NOTE 1) CORPORATE BONDS - CONTINUED NONCONVERTIBLE BONDS - CONTINUED TRANSPORTATION - 1.2% RAILROADS - 1.0% Transtar Holding Corp. 0%, 12/15/03 (e)(g) - $ 8,732,000 $ 4,322,340 89388QAA TRUCKING & FREIGHT - 0.2% Trism, Inc. 10 3/4%, 12/15/00 B2 1,060,000 1,094,450 896925AA TOTAL TRANSPORTATION 5,416,790 UTILITIES - 3.1% CELLULAR - 1.9% Dial Call Communications, Inc. 0%, 12/15/05 (e)(g) - 2,800,000 1,736,000 25246PAB Horizon Cellular Telephone Corp. 0%, 10/1/00 Caa 3,100,000 2,216,500 440415AA Mobilmedia Communications, Inc. 0%, 12/1/03 (e) B3 2,750,000 1,684,375 607414AA Pagemart, Inc. 0%, 11/1/00 (unit bond) (10, 12 1/4% sr. discount notes due 11/1/03 and 46 warrants to purchase common stock ) (g) 46,500 2,743,500 695534AA 8,380,375 ELECTRIC UTILITY - 1.2% CMS Energy Corp. 9 7/8%, 10/1/99 Ba3 5,830,000 5,290,725 125896AC TOTAL UTILITIES 13,671,100 TOTAL NONCONVERTIBLE BONDS 387,747,126 TOTAL CORPORATE BONDS (Cost $384,874,600) 397,485,012 SHARES COMMON STOCKS - 2.4% BASIC INDUSTRIES - 0.1% IRON & STEEL - 0.1% Geneva Steel Co. (warrants) (b) 70,750 636,750 CONSTRUCTION & REAL ESTATE - 0.4% BUILDING MATERIALS - 0.0% Adience, Inc. 84,365 105,456 00690510 Southdown, Inc. (warrants) (b) 7,500 60,000 84129793 165,456 CONSTRUCTION - 0.4% Robertson Ceco Corp. (b) 32,974 152,340 77053920 U.S. Home Corp. (b) 59,600 1,571,950 91192010 1,724,290 TOTAL CONSTRUCTION & REAL ESTATE 1,889,746 DURABLES - 0.3% AUTOS, TIRES, & ACCESSORIES - 0.0% Lear Holdings Corp. (warrants) (b) 485 $ 218,250 52187111 TEXTILES & APPAREL - 0.3% Acme Boot Co. Unit Stock 1,000 1,000,500 00462220 Hat Brands, Inc. (warrants) (b)(f) 9,153 315,779 1,316,279 TOTAL DURABLES 1,534,529 ENERGY - 0.4% ENERGY SERVICES - 0.2% Petrolane, Inc. Class B (b) 82,516 835,475 71654J10 OIL & GAS - 0.2% Mesa, Inc. (b) 133,210 749,306 59091110 TOTAL ENERGY 1,584,781 FINANCE - 0.1% CREDIT & OTHER FINANCE - 0.0% Vestar/ LPA Investment Corp. 5,177 129,425 92545210 SECURITIES INDUSTRY - 0.1% ECM Corp. LP (b)(g) 3,000 300,000 27399692 TOTAL FINANCE 429,425 INDUSTRIAL MACHINERY & EQUIPMENT - 0.0% Terex Corp. (rights) (b) 3,150 6,300 88077993 Thermadyne Industries, Inc. (warrants) (b) 540 27,011 88343612 33,311 MEDIA & LEISURE - 0.6% ENTERTAINMENT - 0.1% Live Entertainment, Inc. (warrants) (b): $2.00 232,000 232,000 53803292 $2.72 221,765 139,712 53803293 371,712 LODGING & GAMING - 0.5% Bally Gaming International, Inc. (warrants) (b)(f) 90,000 720,000 05873194 Bally Manufacturing Corp. 127,017 1,079,645 05873210 Boyd Gaming Corp. 12,000 160,500 10330410 Trump Plaza Holding Associates (warrants) (b) 270 213,300 89817E11 2,173,445 PUBLISHING - 0.0% General Media, Inc. (warrants) (b) 1,310 19,650 37029511 TOTAL MEDIA & LEISURE 2,564,807 RETAIL & WHOLESALE - 0.5% GENERAL MERCHANDISE STORES - 0.2% Hills Stores Co. (b) 31,483 641,466 43169210 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED RETAIL & WHOLESALE - CONTINUED GROCERY STORES - 0.3% FF Holdings Corp. (b) 1,695 $ 68,224 30192310 Food 4 Less Holdings, Inc. (warrants) (b) 9,349 283,742 34475311 Grand Union Co. (warrants) (b) 342 232,560 38653295 Penn Traffic Co. (b) 20,000 725,000 70783210 1,309,526 RETAIL & WHOLESALE, MISC - 0.0% Finlay Enterprises, Inc. 3,750 56,250 31788410 TOTAL RETAIL & WHOLESALE 2,007,242 UTILITIES - 0.0% ELECTRIC UTILITY - 0.0% Eastern Utilities Associates 3 84 27717310 Northeast Utilities Associates (warrants) (b) 21,789 54,473 66439711 54,557 GAS - 0.0% UGI Corp. (warrants) (b) 14,033 22,804 90268612 TOTAL UTILITIES 77,361 TOTAL COMMON STOCKS (Cost $8,241,697) 10,757,952 PREFERRED STOCKS - 5.2% CONVERTIBLE PREFERRED STOCKS - 1.0% BASIC INDUSTRIES - 0.4% IRON & STEEL - 0.4% Ico, Inc. $1.6875 76,000 1,843,000 44929440 MEDIA & LEISURE - 0.1% LODGING & GAMING - 0.1% Bally Manufacturing Corp. exchangeable $4.00 16,005 680,213 05873220 RETAIL & WHOLESALE - 0.0% APPAREL STORES - 0.0% Lamont's Apparel, Inc. (b) 17,935 35,870 51362830 SERVICES - 0.5% La Petite Holdings Corp. (b) 78,800 2,044,860 50375420 TOTAL CONVERTIBLE PREFERRED STOCKS 4,603,943 NONCONVERTIBLE PREFERRED STOCKS - 4.2% BASIC INDUSTRIES - 0.9% IRON & STEEL - 0.8% Geneva Steel Co. 14%, exchangeable (b) 25,000 3,087,500 37225240 Stelco, Inc. 7.76% 26,501 478,692 3,566,192 PAPER & FOREST PRODUCTS - 0.1% Stone Savannah River Pulp & Paper Corp. exchangeable $15.375 8,973 $ 493,515 86173520 TOTAL BASIC INDUSTRIES 4,059,707 CONSTRUCTION & REAL ESTATE - 0.7% CONSTRUCTION - 0.7% UDC Homes, Inc. prime exchangeable 287,152 3,230,460 90264640 ENERGY - 1.1% OIL & GAS - 1.1% Gulf Canada Resources Ltd. (f): COR 76,940 77,523 40218L40AR 1,844,811 4,726,855 4,804,378 FINANCE - 0.1% BANKS - 0.1% Riggs National Corp. (Washington, D.C.) (b)(f) 25,423 667,354 76657092 MEDIA & LEISURE - 0.8% ENTERTAINMENT - 0.8% Live Entertainment, Inc. pay-in-kind (b) 494,583 3,585,727 53803230 SERVICES - 0.0% Town & Country Corp. exchangeable (b) 4,000 36,000 89202730 TECHNOLOGY - 0.6% ELECTRONICS - 0.6% Berg Electronics Holding Corp. $3.4687 105,475 2,668,517 08372640 TOTAL NONCONVERTIBLE STOCKS 19,052,143 TOTAL PREFERRED STOCKS (Cost $22,610,220) 23,656,086 OTHER SECURITIES - 0.6% PURCHASED BANK DEBT - 0.6% Barry's Jewelers, Inc.: funded revolver 7 3/8%, 6/15/96 1,354,946 1,219,452 0688919A term loan 8%, 6/14/96 590,523 531,471 0688919C Leslie Fay Cos., Inc.: funded revolver 0%, 1/15/96 79,941 64,802 5270109K funded revolver 0%, 1/15/96 605,914 472,614 5270109E term loan 1/15/96 777,600 606,528 5270109A TOTAL OTHER SECURITIES (Cost $2,692,388) 2,894,867 MATURITY VALUE AMOUNT (NOTE 1) Repurchase Agreements - 3.6% Investments in repurchase agreements, (U.S. Treasury obligations), in a joint trading account at 3.23% dated 12/31/93 due 1/3/94 $ 16,026,314 $ 16,022,000 TOTAL INVESTMENTS - 100% (Cost $434,440,905) $ 450,815,917 CURRENCY TYPE ABBREVIATIONS: CAD - Canadian dollar LEGEND: (a) Principal amount is stated in United States dollars unless otherwise noted. (b) Non-income producing (c) Non-income producing - issuer filed for protection under the Federal Bankruptcy Code or is in default of interest payment. (d) Standard & Poor's Corporation credit ratings are used in the absence of a rating by Moody's Investors Service, Inc. (e) Debt obligation initially issued in zero coupon form which converts to coupon form at a specified rate and date. (f) 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, Inc. unit bond 14%, 1/15/98 (6 warrants each Series A & B and .09 warrant N.H. Holdings, Inc.) 7/22/92 $1,630,797 Bally's Gaming International, Inc. (warrants) 11/1/93 - Cafeteria Operated LP 11%, 6/30/98 6/24/93 5,600,000 Gulf Canada Resources Ltd 10/15/93 76,940 Hat Brands, Inc. (warrants) 9/2/92 - Insilco Corp. 9 1/2%,7/1/97 7/14/93 3,964,950 Leslie Fay Companies, Inc.: 9.53%, 1/15/00 7/19/93 512,312 10.54%, 1/15/02 7/19/93 404,156 Live Entertainment, Inc.: (warrants) $2.00 3/23/93 220,717 (warrants) $2.72 3/23/93 131,863 12%, 9/15/94 3/23/93 6,897,420 Rexnord Holdings, Inc. 11 7/8%, 3/1/99 10/15/92 495,000 Riggs National Corp. (Washington, D.C.) 10/14/93 635,575 (g) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At the period end, the value of these securities amounted to $46,339,723 or 10.0% of net assets. (h) 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 $702,467,854 and $484,642,721, respectively. The composition of long-term debt holdings as a percentage of total value of investment in securities, is as follows (ratings are unaudited): MOODY'S S&P RATINGS RATINGS Aaa, Aa, A 0.0% AAA, AA, A 0.0% Baa 0.0% BBB 0.0% Ba 8.2% BB 9.0% B 43.3% B 46.7% Caa 6.2% CCC 3.9% Ca, C 3.1% CC, C 0.3% D 1.5% The percentage not rated by either S&P or Moody's amounted to 24.1% including long-term debt categorized as other securities. INCOME TAX INFORMATION: At December 31, 1993, the aggregate cost of investment securities for income tax purposes was $434,481,747. Net unrealized appreciation aggregated $16,334,170, of which $20,201,848 related to appreciated investment securities and $3,867,678 related to depreciated investment securities. The fund hereby designates $2,089,000 as a capital gain dividend for the purpose of the dividend paid deduction. HIGH INCOME PORTFOLIO FINANCIAL STATEMENTS Statement of Assets and Liabilities DRAFT
December 31, 1993 ASSETS Investment in securities, at value (including repurchase agreements of $16,022,000) (cost $434,440,905) $ 450,815,917 (Notes 1 and 2) - See accompanying schedule Cash 73,059 Receivable for investments sold 3,569,968 Receivable for fund shares sold 3,097,197 Dividends receivable 103,682 Interest receivable 6,885,074 Other receivables 918,519 Total assets 465,463,416 LIABILITIES Payable for investments purchased $ 709,760 Payable for fund shares redeemed 485,558 Accrued management fee 195,556 Other payables and accrued expenses 141,237 Total liabilities 1,532,111 NET ASSETS $ 463,931,305 Net Assets consist of (Note 1): Paid in capital $ 401,849,970 Undistributed net investment income 29,661,902 Accumulated undistributed net realized gain (loss) on investments 16,044,421 Net unrealized appreciation (depreciation) on investment securities 16,375,012 NET ASSETS, for 38,709,162 shares outstanding $ 463,931,305 NET ASSET VALUE, offering price and redemption price per share ($463,931,305 (divided by) 38,709,162 shares) $11.99
Statement of Operations DRAFT
Year Ended December 31, 1993 INVESTMENT INCOME $ 1,433,559 Dividends Interest 30,590,018 Total income 32,023,577 EXPENSES Management fee (Note 3) $ 1,764,257 Transfer agent fees (Note 3) 108,432 Accounting fees and expenses (Note 3) 138,642 Non-interested trustees' compensation 2,456 Custodian fees and expenses 63,009 Registration fees 69,922 Audit 30,106 Legal 7,522 Miscellaneous 66,797 Total expenses before reductions 2,251,143 Expense reductions (Note 4) (55,600) 2,195,543 Net investment income 29,828,034 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 1) 16,098,896 Net realized gain (loss) on investment securities Change in net unrealized appreciation (depreciation) on investment securities 14,925,422 Net gain (loss) 31,024,318 Net increase (decrease) in net assets resulting from operations $ 60,852,352
Statement of Changes in Net Assets DRAFT
YEARS ENDED DECEMBER 31, 1993 1992 INCREASE (DECREASE) IN NET ASSETS Operations $ 29,828,034 $ 16,542,178 Net investment income Net realized gain (loss) on investments 16,098,896 8,889,174 Change in net unrealized appreciation (depreciation) on investments 14,925,422 103,627 Net increase (decrease) in net assets resulting from operations 60,852,352 25,534,979 Distributions to shareholders from: (16,615,684) (6,948,312) Net investment income In excess of net investment income (748,060) - Net realized gain (1,255,210) - Total distributions (18,618,954) (6,948,312) Share transactions 445,327,008 222,574,390 Net proceeds from sales of shares Reinvestment of distributions from: 17,363,744 6,948,312 Net investment income Net realized gain 1,255,210 - Cost of shares redeemed (242,839,207) (117,577,934) Net increase (decrease) in net assets resulting from share transactions 221,106,755 111,944,768 Total increase (decrease) in net assets 263,340,153 130,531,435 NET ASSETS Beginning of period 200,591,152 70,059,717 End of period (including undistributed net investment income of $29,661,902 and $16,119,103, $ 463,931,305 $ 200,591,152 respectively) OTHER INFORMATION Shares Sold 40,016,073 21,754,334 Issued in reinvestment of distributions from: 1,687,438 747,130 Net investment income Net realized gain 121,983 - Redeemed (21,658,432) (11,294,558) Net increase (decrease) 20,167,062 11,206,906
FINANCIAL HIGHLIGHTS DRAFT
YEARS ENDED DECEMBER 31, 1993 1992 1991 1990 1989 SELECTED PER-SHARE DATA Net asset value, beginning of period $ 10.820 $ 9.550 $ 7.070 $ 8.110 $ 9.660 Income from Investment Operations .728 .790 .890 .858 1.202 Net investment income Net realized and unrealized gain (loss) on investments 1.332 1.290 1.590 (1.040) (1.550) Total from investment operations 2.060 2.080 2.480 (.182) (.348) Less Distributions (.794) (.810) - (.858) (1.202) From net investment income In excess of net investment income (.036) - - - - From net realized gain on investments (.060) - - - - Total distributions (.890) (.810) - (.858) (1.202) Net asset value, end of period $ 11.990 $ 10.820 $ 9.550 $ 7.070 $ 8.110 TOTAL RETURN 20.40%(dagger) 23.17% 35.08% (2.23)%(dagger) (4.17)% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 463,931 $ 200,591 $ 70,060 $ 29,990 $ 33,747 Ratio of expenses to average net assets .64%(double dagger) .67% .97% 1.00%(double dagger) .93% Ratio of expenses to average net assets before expense .66%(double dagger) .67% .97% 1.12%(double dagger) .93% reductions Ratio of net investment income to average net assets 8.69% 10.98% 12.94% 11.36% 12.94% Portfolio turnover rate 155% 160% 154% 156% 124%
(dagger) THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 4 OF NOTES TO FINANCIAL STATEMENTS). (double dagger) SEE NOTE 4 OF NOTES TO FINANCIAL STATEMENTS. VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO INVESTMENTS/DECEMBER 31, 1993 (Showing Percentage of Total Value of Investments) VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - 70.6% AEROSPACE & DEFENSE - 1.0% AEROSPACE & DEFENSE - 0.0% Aviall, Inc. (b) 27,050 $ 412,513 05366B10 DEFENSE ELECTRONICS - 1.0% Loral Corp. 281,000 10,607,750 54385910 Raytheon Co. 38,400 2,534,400 75511110 13,142,150 TOTAL AEROSPACE & DEFENSE 13,554,663 BASIC INDUSTRIES - 7.6% CHEMICALS & PLASTICS - 4.4% Akzo NV Ord. 73,800 7,129,702 01019910 Betz Laboratories, Inc. 135,800 5,958,225 08777910 GEON 189,800 4,484,025 37246W10 Hercules, Inc. 88,700 10,023,100 42705610 Imperial Chemical Industries PLC: ADR 61,000 2,882,250 45270450 Ord 360,700 4,256,704 45270440 Lyondell Petrochemical Co. 118,700 2,522,375 55207810 OM Group, Inc. (b) 167,800 3,460,875 67087210 Union Carbide Corp. 556,200 12,444,975 90558110 Vigoro Corp. 165,200 4,997,300 92675410 58,159,531 IRON & STEEL - 0.9% Lukens, Inc. 88,800 3,241,200 54986610 Mannesmann AG (Rfd. 7/1/93) 3,275 780,031 56311595 Mannesmann AG Ord. 26,200 6,368,370 56377510 USX-U.S. Steel Group 44,400 1,925,850 90337T10 12,315,451 METALS & MINING - 1.3% Alcan Aluminium Ltd. 167,700 3,520,843 01371610 Aluminum Co. of America 35,874 2,488,759 02224910 Outokumpu Oy Class A (b) 84,000 991,261 69099992 Reynolds Metals Co. 222,500 10,095,938 76176310 17,096,801 PAPER & FOREST PRODUCTS - 1.0% Georgia-Pacific Corp. 77,000 5,293,750 37329810 International Paper Co. 115,700 7,838,675 46014610 13,132,425 TOTAL BASIC INDUSTRIES 100,704,208 CONGLOMERATES - 4.5% Allied-Signal, Inc. 115,800 9,148,200 01951210 Canadian Pacific Ltd. Ord. 437,800 7,162,798 13644030 Dial Corp. (The) 252,500 10,194,688 25247010 ITT Corp. 107,800 9,836,750 45067910 Textron, Inc. 170,600 $ 9,937,450 88320310 Tomkins PLC Ord. 836,600 2,903,797 89003010 United Technologies Corp. 162,600 10,081,200 91301710 59,264,883 CONSTRUCTION & REAL ESTATE - 1.5% BUILDING MATERIALS - 0.8% Armstrong World Industries, Inc. 191,600 10,202,700 04247610 REAL ESTATE INVESTMENT TRUSTS - 0.7% Federal Realty Investment Trust 83,400 2,085,000 31374720 Nationwide Health Properties, Inc. 60,600 2,151,300 63862010 Property Trust of America (SBI) 3 60 74344510 Simon Properties Group, Inc. (b) 118,200 2,674,275 82880510 Vornado Realty Trust 58,100 1,946,350 92904210 8,856,985 TOTAL CONSTRUCTION & REAL ESTATE 19,059,685 DURABLES - 1.9% AUTOS, TIRES, & ACCESSORIES - 1.5% Peugeot SA Ord. (b) 18,900 2,516,168 71682510 TRW, Inc. 81,000 5,609,250 87264910 Valeo SA 30,000 6,543,335 91899010 Volkswagen AG (b) 17,400 4,404,556 92866210 19,073,309 TEXTILES & APPAREL - 0.4% Unifi, Inc. 220,400 5,923,250 90467710 TOTAL DURABLES 24,996,559 ENERGY - 8.5% ENERGY SERVICES - 1.3% Baker Hughes, Inc. 190,900 3,818,000 05722410 Halliburton Co. 186,100 5,931,947 40621610 McDermott International, Inc. 121,400 3,217,100 58003710 Schlumberger Ltd. 72,000 4,257,000 80685710 17,224,047 OIL & GAS - 7.2% Amerada Hess Corp. 246,300 11,114,288 02355110 British Petroleum PLC ADR 525,000 33,600,000 11088940 Chevron Corp. 106,300 9,261,388 16675110 Kerr-McGee Corp. 88,900 4,011,613 49238610 Louisiana Land & Exploration Co. 198,200 7,952,775 54626810 Murphy Oil Corp. 98,700 3,948,000 62671710 Repsol SA: sponsored ADR 188,400 5,816,850 76026T20 Ord. (b) 126,300 3,926,196 76026T10 Royal Dutch Petroleum Co. 47,000 4,905,625 78025770 Total Compagnie Francaise des Petroles Class B (b) 70,000 3,816,354 20434510 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED ENERGY - CONTINUED OIL & GAS - CONTINUED YPF Sociedad Anonima sponsored ADR representing Class D shares 247,500 $ 6,435,000 98424510 94,788,089 TOTAL ENERGY 112,012,136 FINANCE - 8.4% BANKS - 4.2% Bank of New York Co., Inc. 268,000 15,276,000 06405710 BanPonce Corp. 110,700 3,487,050 06670410 Chase Manhattan Corp. 61,693 2,089,850 16161010 Chemical Banking Corp. 125,300 5,027,663 16372210 First Chicago Corp. 122,200 5,285,150 31945510 First Fidelity Bancorporation 21 956 32019510 First Union Corp. 169,981 7,011,716 33735810 Mellon Bank Corp. 78,715 4,171,895 58550910 Midlantic Corp. (b) 40,500 1,032,750 59780E10 Paribas SA (Cie Financiere) Class A (b) 72,500 6,074,125 73999192 Signet Banking Corp. 98,864 3,435,524 82668110 Westpac Banking Corp. 943,500 2,966,364 96121410 55,859,043 CREDIT & OTHER FINANCE - 2.8% American Express Co. 199,200 6,150,300 02581610 Argentaria Corporacion Bancaria de Espana SA (b): Ord. 158,200 6,675,012 21991392 sponsored ADR (b) 59,600 1,259,050 21991310 Beneficial Corp. 129,600 4,957,200 08172110 GFC Financial Corp. 241,750 7,010,750 36160910 Household International, Inc. 271,278 8,850,445 44181510 Primerica Corp. 62,633 2,434,871 74158910 37,337,628 INSURANCE - 1.1% American Bankers Insurance Group, Inc. 70,537 1,851,596 02445610 Capital Holding Corp. 62,600 2,324,025 14018610 NWNL Companies, Inc. 62,400 1,996,800 62945T10 St. Paul Companies, Inc. (The) 87,600 7,873,050 79286010 14,045,471 SAVINGS & LOANS - 0.3% Ahmanson (H.F.) & Co. 198,900 3,903,413 00867710 TOTAL FINANCE 111,145,555 HEALTH - 5.8% DRUGS & PHARMACEUTICALS - 3.5% Allergan, Inc. 388,900 8,798,863 01849010 American Cyanamid Co. 159,600 8,019,900 02532110 IMCERA Group, Inc. 230,900 $ 7,764,013 45245410 Pfizer, Inc. 93,500 6,451,500 71708110 Schering-Plough Corp. 136,000 9,316,000 80660510 Warner-Lambert Co. 85,300 5,757,750 93448810 46,108,026 MEDICAL EQUIPMENT & SUPPLIES - 1.5% Bergen Brunswig Corp. Class A 254,700 4,489,088 08373910 Johnson & Johnson 220,200 9,853,950 47816010 McKesson Corp. 110,800 5,983,200 58155610 20,326,238 MEDICAL FACILITIES MANAGEMENT - 0.8% HCA - Hospital Corporation of America Class A (b) 309,600 10,565,100 40412010 TOTAL HEALTH 76,999,364 INDUSTRIAL MACHINERY & EQUIPMENT - 6.2% ELECTRICAL EQUIPMENT - 3.8% Alcatel Alsthom CGE 42,600 6,060,010 01390492 General Electric Co. 341,300 35,793,838 36960410 General Signal Corp. 124,400 4,276,250 37083810 Philips NV (b) 206,600 4,261,125 71833750 50,391,223 INDUSTRIAL MACHINERY & EQUIPMENT - 2.4% Caterpillar, Inc. 110,200 9,807,800 14912310 Deere & Co. 123,000 9,102,000 24419910 Parker-Hannifin Corp. 143,000 5,398,250 70109410 Tenneco, Inc. 146,000 7,683,250 88037010 31,991,300 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 82,382,523 MEDIA & LEISURE - 3.9% ENTERTAINMENT - 0.3% Cedar Fair LP 131,100 4,604,888 15018510 LEISURE DURABLES & TOYS - 1.0% Brunswick Corp. 499,900 8,998,200 11704310 Outboard Marine Corp. 169,300 3,788,088 69002010 12,786,288 PUBLISHING - 2.6% Gannett Co., Inc. 154,400 8,839,400 36473010 Harcourt General, Inc. 52,200 1,892,250 41163G10 Maclean Hunter Ltd. 392,800 3,751,920 55474980 McGraw-Hill, Inc. 101,400 6,857,175 58064510 Reader's Digest Association, Inc. (The) Class A (non-vtg.) 99,000 4,455,000 75526710 Times Mirror Co., Series A 249,900 8,340,413 88736010 34,136,158 TOTAL MEDIA & LEISURE 51,527,334 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED NONDURABLES - 4.0% BEVERAGES - 0.2% Seagram Co. Ltd. 90,600 $ 2,381,956 81185010 FOODS - 0.2% ConAgra, Inc. 97,400 2,568,925 20588710 HOUSEHOLD PRODUCTS - 1.1% Colgate-Palmolive Co. 66,800 4,166,650 19416210 Gillette Company 132,500 7,900,313 37576610 Premark International, Inc. 38,400 3,081,600 74045910 15,148,563 TOBACCO - 2.5% Phillip Morris Companies, Inc. 588,500 32,808,875 71815410 TOTAL NONDURABLES 52,908,319 RETAIL & WHOLESALE - 3.1% APPAREL STORES - 0.2% Charming Shoppes, Inc. 205,200 2,436,750 16113310 GENERAL MERCHANDISE STORES - 2.0% Bradlees, Inc. 33,600 449,400 10449910 Carter Hawley Hale Stores, Inc. (b) 260,300 2,472,850 14622730 Dayton Hudson Corp. 66,000 4,405,500 23975310 May Department Stores Co. (The) 67,900 2,673,563 57777810 Penney (J.C.) Co., Inc. 165,200 8,652,350 70816010 Sears, Roebuck & Co. 139,100 7,337,525 81238710 25,991,188 GROCERY STORES - 0.2% Fleming Companies, Inc. 41,700 1,032,075 33913010 Promodes SA Ord. (b) 11,200 2,106,031 74699692 3,138,106 RETAIL & WHOLESALE, MISC - 0.7% Duty Free International, Inc. 136,000 2,703,000 26708410 Pinault Printemps SA 18,400 3,121,068 72199393 Sotheby's Holdings, Inc. Class A 199,500 3,067,313 83589810 8,891,381 TOTAL RETAIL & WHOLESALE 40,457,425 SERVICES - 1.9% ADVERTISING - 0.2% Foote Cone & Belding Communications, Inc. 44,000 2,112,000 34487210 LEASING & RENTAL - 1.0% GATX Corp. 253,500 10,330,125 36144810 Ryder Systems, Inc. 108,200 2,867,300 78354910 13,197,425 PRINTING - 0.4% Alco Standard Corp. 105,300 5,765,175 01378810 SERVICES - 0.3% Pittston Company Services Group 140,900 4,068,488 72570110 TOTAL SERVICES 25,143,088 TECHNOLOGY - 1.7% COMPUTERS & OFFICE EQUIPMENT - 1.1% Xerox Corp. 159,000 $ 14,210,625 98412110 PHOTOGRAPHIC EQUIPMENT - 0.6% Eastman Kodak Co. 142,500 7,980,000 27746110 TOTAL TECHNOLOGY 22,190,625 TRANSPORTATION - 1.4% AIR TRANSPORTATION - 0.4% UAL Corp. (b) 40,025 5,843,650 90254910 RAILROADS - 1.0% CSX Corp. 123,000 9,963,000 12640810 Union Pacific Corp. 41,700 2,611,463 90781810 12,574,463 TOTAL TRANSPORTATION 18,418,113 UTILITIES - 9.2% ELECTRIC UTILITY - 4.0% American Electric Power Co., Inc. 75,800 2,814,075 02553710 DPL, Inc. 192,125 3,962,578 23329310 Entergy Corp. 369,100 13,287,600 29364F10 FPL Group, Inc. 50,500 1,975,813 30257110 Houston Industries, Inc. 137,600 6,553,200 44216110 Illinois Power Co. 374,700 8,290,238 45209210 PacifiCorp. 105,700 2,034,725 69511410 Philadelphia Electric Co. 186,300 5,635,575 71753710 Texas Utilities Co. 532 23,009 88284810 Veba Vereinigte Elektrizetaets & Bergwerks AG Ord. 27,400 8,228,512 92239110 52,805,325 GAS - 1.6% Coastal Corp. (The) 237,000 6,665,625 19044110 Consolidated Natural Gas Co. 73,700 3,463,900 20961510 Pacific Enterprises 108,700 2,581,625 69423210 Panhandle Eastern Corp. 313,500 7,406,438 69846210 20,117,588 TELEPHONE SERVICES - 3.6% Ameritech Corp. 102,900 7,897,575 03095410 Bell Atlantic Corp. 145,100 8,560,900 07785310 BellSouth Corp. 126,300 7,309,613 07986010 Pacific Telesis Group 132,800 7,171,200 69489010 Southwestern Bell Corp. 206,700 8,578,050 84533310 U.S. West, Inc. 181,300 8,317,138 91288910 47,834,476 TOTAL UTILITIES 120,757,389 TOTAL COMMON STOCKS (Cost $832,483,654) 931,521,869 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) PREFERRED STOCKS - 9.0% CONVERTIBLE PREFERRED STOCKS - 8.8% BASIC INDUSTRIES - 0.4% METALS & MINING - 0.4% Alumax, Inc., Series A, $4.00 20,566 $ 2,025,751 02219720 Cyprus Amax Minerals Co., Series A, $4.00 41,133 2,673,645 23280920 4,699,396 CONSTRUCTION & REAL ESTATE - 0.1% REAL ESTATE - 0.1% Rouse Co. Series A 17,800 956,750 77927320 DURABLES - 1.4% AUTOS, TIRES, & ACCESSORIES - 1.4% Chrysler Corp., Series A, $4.625 (e) 65,300 9,795,000 17119670 Ford Motor Co. (Del.), Series A, $4.20 83,600 9,070,600 34537020 18,865,600 ENERGY - 0.2% ENERGY SERVICES - 0.2% Chiles Offshore Corp. $1.50 119,100 2,709,525 16888720 FINANCE - 2.3% BANKS - 2.3% Citicorp $5.375 (e) 278,200 30,602,000 17303451 MEDIA & LEISURE - 0.3% BROADCASTING - 0.3% CBS, Inc. $10.00 Series B 20,000 4,250,000 12484593 NONDURABLES - 0.5% TOBACCO - 0.5% RJR Nabisco Holdings Corp., Series A, depositary shares representing 1/4 share 1,024,000 7,168,000 74960K40 RETAIL & WHOLESALE - 0.7% APPAREL STORES - 0.7% TJX Companies, Inc., Series C, $3.125 141,800 9,589,225 87254020 SERVICES - 0.3% LEASING & RENTAL - 0.1% Gatx Corp. exchangeable $3.875 26,000 1,443,000 36144840 PRINTING - 0.2% Alco Standard Corp., Series AA $2.30 42,200 2,927,625 01378850 TOTAL SERVICES 4,370,625 TECHNOLOGY - 0.3% COMPUTER SERVICES & SOFTWARE - 0.3% Ceridian Corp. (b) 66,800 3,373,400 15677T40 TRANSPORTATION - 2.3% AIR TRANSPORTATION - 1.5% AMR Corp. $3.00 (b) (e) 236,600 $ 12,658,100 00176588 UAL, Inc. 6 1/4% . (e) 67,600 7,444,450 90254930 20,102,550 RAILROADS - 0.8% Burlington Northern Railroad Co. 6.2% 148,600 10,141,950 12189760 TOTAL TRANSPORTATION 30,244,500 TOTAL CONVERTIBLE PREFERRED STOCKS 116,829,021 Nonconvertible PREFERRED STOCKS - 0.2% FINANCE - 0.2% BANKS - 0.2% Mellon Bank Corp. 80,000 2,190,000 58550986 MEDIA & LEISURE - 0.0% ENTERTAINMENT - 0.0% Live Entertainment, Inc. Series B PIk (b) 8,555 62,024 53803230 UTILITIES - 0.0% ELECTRIC UTILITY - 0.0% Gulf States Utilities Co., Series B, adj. rate 677 34,527 40255075 TOTAL NONCONVERTIBLE PREFERRED STOCKS 2,286,551 TOTAL PREFERRED STOCKS (Cost $105,277,924) 119,115,572 MOODY'S RATINGS (D) PRINCIPAL (UNAUDITED) AMOUNT (A) CORPORATE BONDS - 4.1% NONCONVERTIBLE BONDS - 2.7% AEROSPACE & DEFENSE - 0.1% DEFENSE ELECTRONICS - 0.1% Tracor, Inc. 10 7/8%, 8/15/01 B2 $ 1,220,000 1,277,950 892349AC BASIC INDUSTRIES - 0.8% CHEMICALS & PLASTICS - 0.8% IMC Fertilizer Group, Inc. 9 1 /4, 10/1/00 B3 10,540,000 10,592,700 449669AH PACKAGING & CONTAINERS - 0.0% Owens Illinois, Inc. 10 1/4%, 4/1/99 B2 350,000 370,996 690768AG TOTAL BASIC INDUSTRIES 10,963,696 CONGLOMERATES - 0.1% Coltec Industries, Inc. 10 1/4 %, 4/1/02 Ba2 910,000 969,150 196879AB MOODY'S MOODY'S RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE (UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1) CORPORATE BONDS - CONTINUED NONCONVERTIBLE BONDS - CONTINUED DURABLES - 0.5% TEXTILES & APPAREL - 0.5% Westpoint Stevens: 9 3/8%, 12/15/05 B3 $ 4,250,000 $ 4,292,500 961238AB 8 3/4%, 12/15/01 B3 2,660,000 2,679,950 961238AA 6,972,450 FINANCE - 0.3% BANKS - 0.0% Signet Banking Corp. (f): 5 1/4%, 5/15/97 Baa2 340,000 340,850 065446AP 5 1/4%, 4/15/98 Baa2 190,000 190,475 065446AN 531,325 CREDIT & OTHER FINANCE - 0.3% Chrysler Financial Corp. 9 1/2%, 12/15/99 Baa2 2,990,000 3,452,075 171205CY TOTAL FINANCE 3,983,400 INDUSTRIAL MACHINERY & EQUIPMENT - 0.2% Joy Technologies, Inc. 10 1/4%, 9/1/03 B1 3,020,000 3,148,350 481206AD MEDIA & LEISURE - 0.2% BROADCASTING - 0.0% Turner Broadcasting System, Inc. 12%, 10/15/01 B1 60,000 65,245 900262AN ENTERTAINMENT - 0.0% Live Entertainment, Inc. 10%, 9/1/98 - 56,900 51,779 538032AC LODGING & GAMING - 0.1% Bally's Grand, Inc. 1st mtg 12%, 8/20/01 D 163,000 168,297 05873JAC Host Marriott Corp. (f): 10 1/2%, 5/1 /06 B1 630,000 647,325 441080AH 9 1/8%, 12 /1/00 B1 840,000 854,700 441080AD 9 7/8%, 5/ 1/01 B1 290,000 295,437 441080AE 1,965,759 TOTAL MEDIA & LEISURE 2,082,783 NONDURABLES - 0.4% BEVERAGES - 0.4% Canandaigua Wine, Inc. 8 3/4%, 12/15/03 B1 5,700,000 5,728,500 137219AB UTILITIES - 0.1% GAS - 0.1% Columbia Gas Systems Inc. 9.91%, 5/28/20 (c) - $ 170,000 $ 195,010 19765ABN Ferrellgas, Inc. 12%, 8/1/96 - 110,000 121,000 315290AD SFP Pipeline Holdings, Inc. exchangeable variable rate 0%, 8/15/10 (f) Baa3 470,000 611,000 784163AA 927,010 TOTAL NONCONVERTIBLE BONDS 36,053,289 CONVERTIBLE BONDS - 1.4% CONSTRUCTION & REAL ESTATE - 0.2% REAL ESTATE INVESTMENT TRUSTS - 0.2% Centerpoint Properties 8.220%, 1/15/04 - 1,510,000 1,510,000 151895AA Sizeler Property Investors, Inc. 8%, 7/15/03 - 1,500,000 1,492,500 830137AA 3,002,500 DURABLES - 0.2% TEXTILES & APPAREL - 0.2% Interface, Inc. 8%, 9/15/13 Ba 1,179,000 1,243,845 458665AA Unifi, Inc. 6%, 3/15/02 Baa 1,040,000 1,154,400 904677AC 2,398,245 ENERGY - 0.0% ENERGY SERVICES - 0.0% Lone Star Technologies, Inc. euro 8%, 8/27/02 - 290,000 252,300 5423129A FINANCE - 0.6% BANKS - 0.5% Bank of Boston Corp. 7 3/4%, 6/15/11 Baa 1,242,000 1,415,880 060716AF Bank of New York Co., Inc. 7 1/2%, 8/15/01 Baa 1,150,000 1,874,500 064057AK CS Holdings Euro 4 7/8%, 11/19/02 A 1,865,000 2,844,125 175997AC 6,134,505 INSURANCE - 0.2% SCOR US Corp. conv. 5 1/4%, 4/1/00 (e) A 2,500,000 2,337,500 784027AB TOTAL FINANCE 8,472,005 INDUSTRIAL MACHINERY & EQUIPMENT - 0.1% ELECTRICAL EQUIPMENT - 0.1% Liebert Corp. 8%, 11/15/10 Aa 449,000 1,014,740 531735AA MOODY'S RATINGS (D) PRINCIPAL VALUE (UNAUDITED) AMOUNT (A) (NOTE 1) CORPORATE BONDS - CONTINUED CONVERTIBLE BONDS - CONTINUED RETAIL & WHOLESALE - 0.2% APPAREL STORES - 0.2% Petrie Stores Corp. sinking fund 8%, 12/15/10 Ba $ 1,540,000 $ 2,048,200 716434AC RETAIL & WHOLESALE, MISC - 0.0% Fabri-Centers of America, Inc. 6 1/4%, 3/1/02 B 250,000 222,500 302846AB TOTAL RETAIL & WHOLESALE 2,270,700 TECHNOLOGY - 0.1% COMPUTER SERVICES & SOFTWARE - 0.1% Sterling Software, Inc. 5 3/4%, 2/01/03 B 850,000 1,009,375 859547AD TOTAL CONVERTIBLE BONDS 18,419,865 TOTAL CORPORATE BONDS (Cost $52,589,437) 54,473,154 FOREIGN GOVERNMENT OBLIGATIONS - 1.7% French Government OAT 8 1/2%, 4/25/03 Aaa FRF 91,000,000 18,564,361 351996AQ Spanish Government 10.9%, 8/30/03 Aa ESP 450,000,000 3,707,820 84699AAL TOTAL FOREIGN GOVERNMENT OBLIGATIONS (Cost $20,827,996) 22,272,181 U.S. TREASURY OBLIGATIONS - 7.5% Bills, yield at date of purchase 3.13% to 3.15%, 2/24/94 to 3/13/94 (Cost $99,519,286) 100,000,000 99,544,000 99399H5H Repurchase Agreements - 7.1% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account at 3.23% dated 12/31/93 due 1/3/94 $ 93,469,152 93,444,000 TOTAL INVESTMENTS - 100% (Cost $1,204,142,297) $ 1,320,370,776 CURRENCY TYPE ABBREVIATIONS: FRF - French franc ESP - Spanish peseta LEGEND: (a) Principal amount is stated in United States dollars unless otherwise noted. (b) Non-income producing (c) Non-income producing - issuer filed for protection under the Federal Bankruptcy Code or is in default of interest payment. (d) Standard & Poor's Corporation credit ratings are used in the absence of a rating by Moody's Investors Service, Inc. (e) 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 $62,837,050 or 4.8% of net assets. (f) 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 $1,475,273,032 and $977,359,163, respectively,. INCOME TAX INFORMATION: At December 31, 1993, the aggregate cost of investment securities for income tax purposes was $1,205,152,060. Net unrealized appreciation aggregated $115,218,716, of which $129,043,982 related to appreciated investment securities and $13,825,266 related to depreciated investment securities. The fund hereby designates $55,774,000 as a capital gain dividend for the purpose of the dividend paid deduction. EQUITY-INCOME PORTFOLIO FINANCIAL STATEMENTS Statement of Assets and Liabilities DRAFT
December 31, 1993 ASSETS Investment in securities, at value (including repurchase agreements of $93,444,000) (cost $ 1,320,370,776 $1,204,142,297) (Notes 1 and 2) - See accompanying schedule Cash 158 Receivable for investments sold 34,834,242 Receivable for fund shares sold 4,479,596 Dividends receivable 2,841,179 Interest receivable 1,712,092 Other receivables 149,984 Total assets 1,364,388,027 LIABILITIES Payable for investments purchased $ 44,283,588 Payable for fund shares redeemed 697,739 Accrued management fee 557,464 Other payables and accrued expenses 348,787 Total liabilities 45,887,578 NET ASSETS $ 1,318,500,449 Net Assets consist of (Note 1): Paid in capital $ 1,138,682,953 Distributions in excess of net investment income (Note 1) (823,095) Accumulated undistributed net realized gain (loss) on investments 64,412,112 Net unrealized appreciation (depreciation) on investment securities 116,228,479 NET ASSETS, for 85,409,862 shares outstanding $ 1,318,500,449 NET ASSET VALUE, offering price and redemption price per share ($1,318,500,449 (divided by) 85,409,862 shares) $15.44
Statement of Operations DRAFT
Year Ended December 31, 1993 INVESTMENT INCOME $ 26,016,832 Dividends Interest 7,150,467 Total income 33,167,299 EXPENSES Management fee (Note 3) $ 5,004,191 Transfer agent fees (Note 3) 111,756 Accounting fees and expenses (Note 3) 439,891 Non-interested trustees' compensation 6,107 Custodian fees and expenses 104,732 Registration fees 210,396 Audit 37,082 Legal 9,551 Miscellaneous 17,784 Total expenses before reductions 5,941,490 Expense reductions (Note 4) (60,160) 5,881,330 Net investment income 27,285,969 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 1) Net realized gain (loss) on: Investment securities 76,059,688 Foreign currency contracts (5,317,598) 70,742,090 Change in net unrealized appreciation (depreciation) on investment securities 46,208,348 Net gain (loss) 116,950,438 Net increase (decrease) in net assets resulting from operations $ 144,236,407
Statement of Changes in Net Assets DRAFT
YEARS ENDED DECEMBER 31, 1993 1992 INCREASE (DECREASE) IN NET ASSETS Operations $ 27,285,969 $ 14,340,690 Net investment income Net realized gain (loss) on investments 70,742,090 14,435,781 Change in net unrealized appreciation (depreciation) on investments 46,208,348 38,750,692 Net increase (decrease) in net assets resulting from operations 144,236,407 67,527,163 Distributions to shareholders (23,402,249) (14,263,249) From net investment income In excess of net investment income (2,791,192) - Total Distributions (26,193,441) (14,263,249) Share transactions 665,403,591 272,723,382 Net proceeds from sales of shares Reinvestment of distributions from net investment income 26,157,025 14,263,248 Cost of shares redeemed (83,982,840) (29,541,879) Net increase (decrease) in net assets resulting from share transactions 607,577,776 257,444,751 Total increase (decrease) in net assets 725,620,742 310,708,665 NET ASSETS Beginning of period 592,879,707 282,171,042 End of period (including undistributed net investment income (loss) of ($823,095) and $955,059, $ 1,318,500,449 $ 592,879,707 respectively) OTHER INFORMATION Shares Sold 45,052,691 21,693,895 Issued in reinvestment of distributions from net investment income 1,761,238 1,123,843 Redeemed (5,646,913) (2,382,927) Net increase (decrease) 41,167,016 20,434,811
Financial Highlights DRAFT
YEARS ENDED DECEMBER 31, 1993 1992 1991 1990 1989 SELECTED PER-SHARE DATA Net asset value, beginning of period $ 13.40 $ 11.85 $ 9.51 $ 12.29 $ 11.01 Income from Investment Operations Net investment income .37 .40 .50 .58 .60 Net realized and unrealized gain (loss) on investments 2.06 1.57 2.43 (2.38) 1.29 Total from investment operations 2.43 1.97 2.93 (1.80) 1.89 Less Distributions From net investment income (.35) (.42) (.59) (.59) (.52) In excess of net investment income (.04) - - - - From net realized gain - - - (.39) (.09) Total distributions (.39) (.42) (.59) (.98) (.61) Net asset value, end of period $ 15.44 $ 13.40 $ 11.85 $ 9.51 $ 12.29 TOTAL RETURN 18.29% 16.89% 31.44% (15.29)% 17.34% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 1,318,500 $ 592,880 $ 282,171 $ 154,080 $ 142,572 Ratio of expenses to average net assets .62% .65% .74% .78% .85% Ratio of net investment income to average net assets 2.87% 3.52% 4.83% 6.01% 5.82% Portfolio turnover rate 120% 74% 107% 94% 78%
VARIABLE INSURANCE PRODUCTS FUND: GROWTH PORTFOLIO INVESTMENTS/DECEMBER 31, 1993 (Showing Percentage of Total Value of Investments) VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - 79.7% AEROSPACE & DEFENSE - 0.6% AEROSPACE & DEFENSE - 0.2% Orbital Sciences Corporation (a) 58,000 $ 1,189,000 68556410 Rockwell International Corp. 50,000 1,856,250 77434710 3,045,250 DEFENSE ELECTRONICS - 0.4% Loral Corp. 100,000 3,775,000 54385910 Raytheon Co. 35,000 2,310,000 75511110 6,085,000 TOTAL AEROSPACE & DEFENSE 9,130,250 BASIC INDUSTRIES - 2.1% CHEMICALS & PLASTICS - 1.0% Airgas, Inc. (a) 165,000 3,588,750 00936310 Akzo N V sponsored ADR 30,000 1,451,250 01019930 du Pont (E.I.) de Nemours & Co. 55,000 2,653,750 26353410 GEON 64,900 1,533,263 37246W10 Hanna (M.A.) Co. 40,000 1,305,000 41052210 Imperial Chemical Industries PLC ADR 30,000 1,417,500 45270450 Morton International, Inc. 15,000 1,402,500 61933110 Union Carbide Corp. 55,000 1,230,625 90558110 14,582,638 IRON & STEEL - 0.6% Geneva Steel Class A (a) 91,600 1,557,200 37225210 Inland Steel Industries, Inc. (a) 140,000 4,637,500 45747210 LTV Corp. (a) 100,000 1,612,500 50192110 Nucor Corp. 18,000 954,000 67034610 8,761,200 METALS & MINING - 0.1% Reynolds Metals Co. 25,000 1,134,375 76176310 PAPER & FOREST PRODUCTS - 0.4% Bowater, Inc. 60,000 1,380,000 10218310 International Paper Co. 50,000 3,387,500 46014610 Weyerhaeuser Co. 25,000 1,115,625 96216610 5,883,125 TOTAL BASIC INDUSTRIES 30,361,338 CONGLOMERATES - 0.9% Allied-Signal, Inc. 60,000 4,740,000 01951210 ITT Corp. 60,000 5,475,000 45067910 Textron, Inc. 35,000 2,038,750 88320310 12,253,750 CONSTRUCTION & REAL ESTATE - 3.2% BUILDING MATERIALS - 0.4% Armstrong World Industries, Inc. 50,000 2,662,500 04247610 Lafarge Corp. 100,100 2,289,788 50586210 Puerto Rican Cement, Inc. 40,000 980,000 74507510 5,932,288 CONSTRUCTION - 2.4% Centex Corp. 100,000 $ 4,200,000 15231210 Clayton Homes, Inc. (a) 187,500 4,546,875 18419010 Continental Homes Holding Corp. 80,700 1,856,100 21148C10 Kaufman & Broad Home Corp. 100,000 2,375,000 48616810 Lennar Corp. 50,000 1,706,250 52605710 Oakwood Homes Corp. 229,700 6,201,900 67409810 Pulte Corp. 98,800 3,581,500 74586710 Redman Industries (a) 81,000 1,640,250 75764210 Schuler Homes, Inc. (a) 180,000 5,040,000 80818810 Southern Energy Homes, Inc. (a) 100,000 1,887,500 84281410 Standard Pacific Corp. 25,000 278,125 85375C10 Toll Brothers, Inc. (a) 15,000 256,875 88947810 33,570,375 ENGINEERING - 0.3% Foster Wheeler Corp. 30,000 1,005,000 35024410 Glenayre Technologies, Inc. 65,000 2,827,500 37789910 3,832,500 REAL ESTATE INVESTMENT TRUSTS - 0.1% G&L Realty Corp. 50,000 843,750 36127110 Simon Properties Group, Inc. (a) 50,000 1,131,250 82880510 1,975,000 TOTAL CONSTRUCTION & REAL ESTATE 45,310,163 DURABLES - 6.4% AUTOS, TIRES, & ACCESSORIES - 4.1% Chrysler Corp. 200,000 10,650,000 17119610 Dana Corp. 45,000 2,694,375 23581110 Echlin, Inc. 40,000 1,330,000 27874910 Federal-Mogul Corp. 75,000 2,175,000 31354910 Ford Motor Co. 200,000 12,900,000 34537010 General Motors Corp. 290,000 15,913,741 37044210 Goodyear Tire & Rubber Co. 74,100 3,390,075 38255010 Mascotech, Inc. 150,000 4,181,250 57467010 Smith (A.O.) Corp. Class B 139,400 4,983,550 83186520 58,217,991 CONSUMER DURABLES - 0.2% Forschner Group, Inc. (a) 115,000 1,753,750 34659010 Oneida Ltd. 25,000 343,750 68250510 2,097,500 CONSUMER ELECTRONICS - 0.9% Duracraft Corp. (a) 21,000 519,750 26633210 Harman International Industries, Inc. (a) 125,000 3,593,750 41308610 Newell Co. 30,000 1,211,250 65119210 Universal Electronics, Inc. (a) 150,000 2,962,500 91348310 Whirlpool Corp. 55,000 3,657,500 96332010 11,944,750 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED DURABLES - CONTINUED HOME FURNISHINGS - 0.4% Heilig-Meyers Co. 50,000 $ 1,950,000 42289310 LADD Furniture, Inc. 100,000 1,000,000 50573910 Leggett & Platt, Inc. 40,000 2,000,000 52466010 4,950,000 TEXTILES & APPAREL - 0.8% Interface, Inc. Class A 27,500 419,375 45866510 Jones Apparel Group, Inc. (a) 65,000 1,941,875 48007410 Kellwood Co. 115,000 4,614,375 48804410 Nine West Group, Inc. (a) 75,000 2,212,500 65440D10 Tommy Hilfiger (a) 40,000 1,250,000 89299B92 Westpoint Stevens, Inc. Class A (a) 75,000 1,406,250 96123810 11,844,375 TOTAL DURABLES 89,054,616 ENERGY - 2.2% ENERGY SERVICES - 0.2% Halliburton Co. 40,000 1,275,000 40621610 Schlumberger Ltd. 20,000 1,182,500 80685710 2,457,500 INDEPENDENT POWER - 0.1% Thermo Electron Corp. 30,000 1,260,000 88355610 OIL & GAS - 1.9% Basin Exploration, Inc. (a) 70,000 796,250 07010710 Beau Canada Exp. 501,300 891,286 07428010 Burlington Resources, Inc. 65,000 2,754,375 12201410 Canadian Natural Resources Ltd. (a) 163,300 2,223,870 13638510 Encal Energy Ltd. (a) 758,000 2,609,347 29250D10 Grad & Walker Energy Corp. 107,000 1,011,916 38391010 Inverness Petroleum Ltd. (a) 250,000 1,844,145 46190810 Murphy Oil Corp. 110,000 4,400,000 62671710 Noble Affiliates, Inc. 60,000 1,590,000 65489410 Northstar Energy Corp. 49,300 969,775 66703R10 Petromet Resources Ltd. Ord. 205,000 969,359 71673110 Renaissance Energy Ltd. 52,900 1,130,641 75966610 Rio Alto Exploration Ltd. 184,400 1,150,975 76689210 Summit Resources Ltd. 175,000 1,141,952 86624610 Tarragon Oil & Gas Ltd. 66,700 870,494 87629E20 Tide West Oil Co. (a) 37,500 393,750 88635540 YPF Sociedad Anonima sponsored ADR representing Class D shares 74,600 1,939,600 98424510 26,687,735 TOTAL ENERGY 30,405,235 FINANCE - 3.8% BANKS - 1.7% Bank of Boston Corp. 135,519 $ 3,116,937 06071610 Bank of New York Co., Inc. 65,000 3,705,000 06405710 BanPonce Corp. 41,800 1,316,700 06670410 Citicorp (a) 150,000 5,512,500 17303410 First Interstate Bancorp 40,000 2,565,000 32054810 Norwest Corp. 135,000 3,290,625 66938010 Shawmut National Corp. 125,000 2,718,750 82048410 Signet Banking Corp. 60,996 2,119,611 82668110 24,345,123 CREDIT & OTHER FINANCE - 0.5% Arbor National Holdings, Inc. (a) 123,600 2,224,800 03876110 Foothill Group, Inc., Class A 100,000 1,662,500 34510920 Green Tree Acceptance, Inc. 60,000 2,880,000 39350510 6,767,300 FEDERAL SPONSORED CREDIT - 1.1% Federal Home Loan Mortgage Corporation 85,000 4,239,375 31340030 Federal National Mortgage Association 140,000 10,990,000 31358610 15,229,375 SAVINGS & LOANS - 0.5% Collective Bancorp, Inc. 75,000 1,631,250 19390110 Great Western Financial Corp. 111,472 2,229,440 39144210 Standard Federal Bank 90,300 2,709,000 85338910 6,569,690 TOTAL FINANCE 52,911,488 HEALTH - 5.2% DRUGS & PHARMACEUTICALS - 2.9% Amgen, Inc. (a) 65,000 3,217,500 03116210 Biogen, Inc. (a) 55,000 2,193,125 09059710 COR Therapeutics, Inc. (a) 5,000 75,313 21775310 Cephalon, Inc. (a) 49,400 808,925 15670810 Chiron Corp. (a) 60,000 5,040,000 17004010 Collagen Corp. (a) 35,000 971,250 19419410 Elan PLC ADR. (a) 70,000 2,966,250 28413120 Genetics Institute, Inc. depositary share. (a) 25,000 1,206,250 37185530 Immune Response Corp.. (a) 125,000 1,281,250 45252T10 IMCERA Group, Inc. 50,000 1,681,250 45245410 IVAX Corp. 35,000 1,006,250 46582310 Merck & Co., Inc. 120,000 4,125,000 58933110 Nature's Bounty, Inc. 100,000 2,075,000 63901730 Perspective Biosystems, Inc. 8,300 238,625 71527110 Pfizer, Inc. 105,600 7,286,400 71708110 Schering-Plough Corp. 90,000 6,165,000 80660510 40,337,388 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED HEALTH - CONTINUED MEDICAL EQUIPMENT & SUPPLIES - 0.8% Cardinal Distribution, Inc. 17,200 $ 817,000 14148710 Cordis Corp. (a) 20,000 987,500 21852510 Johnson & Johnson 65,000 2,908,750 47816010 Medtronic, Inc. 60,000 4,927,500 58505510 Owens & Minor, Inc. 53,500 1,230,500 69073010 Sunrise Medical, Inc. (a) 35,000 1,050,000 86791010 11,921,250 MEDICAL FACILITIES MANAGEMENT - 1.5% Columbia Healthcare Corp. 190,625 6,338,281 19767910 Healthsouth Rehabilitation Corp. (a) 300,000 7,575,000 42192410 Relife, Inc. 65,000 1,023,750 75952N10 U.S. Healthcare, Inc. 110,000 6,338,750 91191010 21,275,781 TOTAL HEALTH 73,534,419 INDUSTRIAL MACHINERY & EQUIPMENT - 4.2% ELECTRICAL EQUIPMENT - 2.6% Amphenol Corp. Class A (a) 85,000 1,402,500 03209420 Antec Corp. (a) 75,000 1,875,000 03664P10 Duracell International, Inc. 40,000 1,435,000 26633L10 General Electric Co. 225,000 23,596,875 36960410 Itel Corp. (a) 44,900 1,257,200 46564210 Roper Industries, Inc. 89,100 2,895,750 77669610 Scientific-Atlanta, Inc. 110,000 3,630,000 80865510 36,092,325 INDUSTRIAL MACHINERY & EQUIPMENT - 1.6% AGCO Corp. 158,700 5,415,638 00108410 Briggs & Stratton Corp. 30,000 2,475,000 10904310 Caterpillar, Inc. 125,000 11,125,000 14912310 Deere & Co. 35,000 2,590,000 24419910 Perspective Technologies Corp. (a) 27,500 625,625 71527520 22,231,263 POLLUTION CONTROL - 0.0% Envirotest Systems Corp. (a) 10,000 215,000 29409W10 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 58,538,588 MEDIA & LEISURE - 11.2% BROADCASTING - 4.4% CBS, Inc. 10,000 2,885,000 12484510 Capital Cities/ABC, Inc. 6,000 3,717,000 13985910 Century Communications Corp. Class A 107,300 1,233,950 15650310 Chris-Craft Industries, Inc. 20,000 732,500 17052010 Clear Channel Communications, Inc. (a) 55,000 $ 2,530,000 18450210 Comcast Corp. Class A 145,000 5,220,000 20030020 EZ Communications, Inc. (a) 75,900 1,195,425 26928810 Home Shopping Network, Inc. 185,000 2,751,875 43735110 Infinity Broadcasting Corp. (a) 50,072 1,514,678 45662610 International Cabletel, Inc. 65,000 1,527,500 45921610 Jacor Communications, Inc. Class A 42,300 608,063 46985840 Liberty Media Corp. Class A (a) 25,000 728,125 53071530 Multimedia, Inc. (a) 30,000 1,027,500 62545K10 NTN Communications, Inc. (a) 75,100 751,000 62941030 Peoples Choice TV Corp. (a) 48,500 1,497,438 71084710 Saga Communications, Inc. Class A (a) 33,500 573,688 78659810 Tele-Communications, Inc. Class A (a) 675,000 20,418,750 87924010 Time Warner, Inc. 175,872 7,782,336 88731510 Turner Broadcasting System, Inc. Class B 100,000 2,700,000 90026250 Viacom, Inc. (non-vtg.) (a) 65,000 2,916,875 92552430 62,311,703 ENTERTAINMENT - 1.1% Carnival Cruise Lines, Inc. Class A 45,000 2,131,875 14365810 Disney (Walt) Co. 110,000 4,688,750 25468710 MGM Grand, Inc. (a) 25,000 978,125 55295310 Paramount Communications, Inc. 25,000 1,934,375 69921610 Players International, Inc. (a) 86,000 2,128,500 72790310 Royal Carribean Cruises Ltd. 115,000 3,076,250 78015392 Savoy Pictures Entertainment, Inc. (a) 25,000 525,000 80537510 15,462,875 LEISURE DURABLES & TOYS - 1.1% Callaway Golf Co. 40,000 2,135,000 13119310 Champion Enterprises, Inc. (a) 176,200 3,083,500 15849610 Coachmen Industries, Inc. 200,000 3,250,000 18987310 Cobra Industries, Inc. (a) 100,000 800,000 19104E10 Fleetwood Enterprises, Inc. 223,900 5,317,625 33909910 Thor Industries, Inc. 46,400 1,194,800 88516010 15,780,925 LODGING & GAMING - 2.5% Boyd Gaming Corp. (a) 85,000 1,136,875 10330410 Caesars World, Inc. (a) 50,077 2,672,860 12769510 Hilton Hotels Corp. 35,000 2,126,250 43284810 Hospitality Franchise Systems, Inc. (a) 108,600 5,769,375 44091210 International Game Technology 115,000 3,392,500 45990210 La Quinta Motor Inns, Inc. 30,000 1,057,500 50419510 Marriott International, Inc. 60,000 1,740,000 57190010 Mirage Resorts, Inc. (a) 210,000 5,013,750 60462E10 President Riverboat Casinos, Inc. (a) 150,750 3,316,500 74084810 Promus Companies, Inc. (a) 135,000 6,176,250 74342A10 Sholodge, Inc. 141,000 3,243,000 82503410 35,644,860 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED MEDIA & LEISURE - CONTINUED PUBLISHING - 1.1% American Greetings Corp. Class A 85,000 $ 2,890,000 02637510 Dow Jones & Co Inc. 20,000 715,000 26056110 Dun & Bradstreet Corp. 25,000 1,540,625 26483010 Gannett Co., Inc. 45,000 2,576,250 36473010 Houghton Mifflin Co. 34,400 1,672,700 44156010 Lee Enterprises, Inc. 40,000 1,400,000 52376810 MaClean Hunter Ltd. 292,700 2,795,791 55474980 Times Mirror Co., Series A 60,000 2,002,500 88736010 15,592,866 RESTAURANTS - 1.0% Back Bay Restaurant Group, Inc. 120,800 2,038,500 05635V10 Bertucci's, Inc. (a) 83,400 2,043,300 08606310 McDonald's Corp. 110,000 6,270,000 58013510 Quantum Restaurant Group, Inc. (a) 304,600 3,731,350 74763T10 14,083,150 TOTAL MEDIA & LEISURE 158,876,379 NONDURABLES - 2.6% BEVERAGES - 1.6% Coca-Cola Company (The) 250,000 11,218,750 19121610 COTT Corp. 50,000 1,229,430 22163N10 PepsiCo, Inc. 200,000 8,175,000 71344810 Snapple Beverage Corp. (a) 75,000 1,968,750 83303710 22,591,930 FOODS - 0.2% IBP, Inc. 100,000 2,587,500 44922310 HOUSEHOLD PRODUCTS - 0.2% Safeskin Corp. (a) 72,400 1,158,400 78645410 Unilever NV ADR 20,000 2,310,000 90478450 3,468,400 TOBACCO - 0.6% Philip Morris Companies, Inc. 150,000 8,362,500 71815410 TOTAL NONDURABLES 37,010,330 PRECIOUS METALS - 0.3% American Barrick Resources Corp. 115,000 3,273,596 02451E10 Homestake Mining Co. 50,000 1,100,000 43761410 4,373,596 RETAIL & WHOLESALE - 5.7% APPAREL STORES - 0.8% Catherines Stores Corp. (a) 90,000 1,575,000 14916F10 Cato Corp. Class A 140,000 2,800,000 14920510 Charter Golf, Inc. (a) 60,000 645,000 16122P10 Designs, Inc. (a) 51,000 $ 854,250 25057L10 Gap, Inc. 75,000 2,953,125 36476010 One Price Clothing Stores, Inc. (a) 115,000 2,702,500 68241110 11,529,875 APPLIANCE STORES - 0.2% Cellstar Corp. (a) 200,000 3,350,000 15092510 DRUG STORES - 0.0% General Nutrition Companies, Inc. (a) 20,000 570,000 37047F10 GENERAL MERCHANDISE STORES - 1.2% May Department Stores Co. (The) 50,000 1,968,750 57777810 Penney (J.C.) Co., Inc. 85,000 4,451,875 70816010 Price/Costco, Inc. 100,000 1,925,000 74143W10 Proffitts, Inc. (a) 50,000 1,093,750 74292510 Sears, Roebuck & Co. 80,000 4,220,000 81238710 Wal-Mart Stores, Inc. 100,000 2,500,000 93114210 16,159,375 GROCERY STORES - 0.1% Safeway, Inc. (a) 75,000 1,593,750 78651420 RETAIL & WHOLESALE, MISC - 3.4% Best Buy Co., Inc. (a) 30,000 1,395,000 08651610 CML Group, Inc. 250,000 5,906,250 12582010 Futures Shops Ltd. 30,900 724,721 36091310 Home Depot, Inc. (The) 135,166 5,339,057 43707610 Little Switzerland, Inc. (a) 5,200 48,100 53752810 Lowe's Companies, Inc. 180,600 10,700,550 54866110 Micro Warehouse, Inc. (a) 55,000 2,289,375 59501B10 Musicland Stores Corp. (a) 80,000 1,660,000 62758B10 Office Depot, Inc. (a) 75,000 2,521,875 67622010 Rex Stores Corp. (a) 150,000 3,393,750 76162410 Spiegel, Inc. Class A 50,000 1,125,000 84845710 Sport Supply Group, Inc (warrants) (a) 31,350 148,913 84891512 Sport Supply Group, Inc. 125,400 2,413,950 84891510 Staples, Inc. 25,000 637,500 85503010 Sun Television & Appliances, Inc. 105,000 2,231,250 86688110 Sunglass Hut International, Inc. (a) 73,600 2,318,400 86736F10 Toys "R" Us, Inc. (a) 100,000 4,087,500 89233510 Ultimate Electronics, Inc. (a) 44,700 603,450 90384910 47,544,641 TOTAL RETAIL & WHOLESALE 80,747,641 SERVICES - 1.1% LEASING & RENTAL - 0.2% Blockbuster Entertainment Corp. 100,000 3,062,500 09367610 PRINTING - 0.5% Cryk, Inc. (a) 25,000 575,000 23281710 Reynolds & Reynolds Co. Class A 110,000 5,018,750 76169510 Wallace Computer Services, Inc. 33,400 1,131,425 93227010 6,725,175 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED SERVICES - CONTINUED SERVICES - 0.4% Franklin Quest Co. (a) 33,900 $ 1,194,975 35459610 Medaphis Corp. (a) 110,000 3,630,000 58402810 Zebra Technologies Corp. Class A (a) 25,000 1,415,625 98920710 6,240,600 TOTAL SERVICES 16,028,275 TECHNOLOGY - 18.6% COMMUNICATIONS EQUIPMENT - 6.5% ADC Telecommunications, Inc. (a) 25,000 890,625 00088610 Cabletron Systems, Inc. (a) 80,000 9,000,000 12692010 Centigram Communications Corp. (a) 185,000 6,567,500 15231710 Cisco Systems, Inc. (a) 140,000 9,047,500 17275R10 DSC Communications Corp. (a) 425,000 26,137,500 23331110 General Instrument Corp. (a) 90,000 5,051,250 37012110 Inter-Tel, Inc. (a) 89,000 778,750 45837210 MB Communications, Inc. (a) 300,000 6,375,000 55262M10 Newbridge Networks Corp. (a) 170,000 9,307,500 65090110 Wellfleet Communications, Inc. (a) 165,000 10,642,500 94949710 Xircom, Inc. (a) 50,000 850,000 98392210 3Com Corp. (a) 154,400 7,256,800 88553510 91,904,925 COMPUTER SERVICES & SOFTWARE - 5.3% Adobe Systems, Inc. 80,000 1,780,000 00724F10 America Online, Inc. (a) 10,000 585,000 02364J10 BancTec, Inc .(a) 103,000 2,497,750 05978410 CUC International, Inc. (a) 185,000 6,660,000 12654510 Ceridian Corp. (a) 50,000 950,000 15677T10 Chipcom Corp. (a) 120,000 6,060,000 16961710 Electronic Arts (a) 40,000 1,200,000 28551210 Electronics For Imaging Incorporated (a) 127,600 2,105,400 28608210 Equifax Inc. 100,000 2,737,500 29442910 Fiserv, Inc. (a) 50,000 962,500 33773810 IMRS, Inc. (a) 115,000 2,932,500 44969610 Informix Corp. (a) 200,000 4,250,000 45677910 Intelligent Electronics, Inc. 110,000 3,011,250 45815710 Lotus Development Corp. (a) 70,000 3,850,000 54570010 Microsoft Corp. (a) 80,000 6,450,000 59491810 Oracle Systems Corp. (a) 360,000 10,350,000 68389X10 Parametric Technology Corp. (a) 120,000 4,650,000 69917310 Recognition Equipment, Inc. (a) 50,900 763,500 75623110 Sierra On-Line, Inc. (a) 60,000 1,102,500 82640910 SunGard Data Systems, Inc. (a) 35,000 1,443,750 86736310 Sybase, Inc. (a) 150,000 6,300,000 87113010 Synopsys, Inc. (a) 50,000 $ 2,262,500 87160710 Viewlogic Systems, Inc. (a) 95,000 2,161,250 92672110 75,065,400 COMPUTERS & OFFICE EQUIPMENT - 5.0% ADAPTEC, Inc. (a) 100,000 3,975,000 00651F10 AST Research, Inc. (a) 40,000 910,000 00190710 Compaq Computer Corp. (a) 150,000 11,100,000 20449310 Creative Technologies, Corp. (a) 285,000 9,048,750 22599992 Danka Business Systems PLC sponsored ADR 26,500 1,060,000 23627710 Dell Computer Corporation (a) 43,000 972,875 24702510 EMC Corp. (a) 210,000 3,465,000 26864810 Hewlett-Packard Co. 45,000 3,555,000 42823610 Hutchinson Technology, Inc. (a) 25,000 731,250 44840710 International Business Machines Corp. 225,000 12,712,500 45920010 International Imaging Materials, Inc. (a) 70,000 1,391,250 45968C10 Media Vision Technology, Inc. (a) 75,000 3,281,250 58445H10 Quantum Corp. (a) 40,800 576,300 74790610 Seagate Technology (a) 25,000 593,750 81180410 Silicon Graphics, Inc. (a) 375,000 9,281,250 82705610 Sun Microsystems, Inc. (a) 55,000 1,601,875 86681010 SynOptics Communications, Inc. (a) 25,000 696,875 87160910 Tech Data Corp. (a) 157,200 5,659,200 87823710 70,612,125 ELECTRONIC INSTRUMENTS - 0.3% ASECO Corp. (a) 59,200 384,800 04365910 Applied Materials, Inc. (a) 20,000 775,000 03822210 Megatest Corp. (a) 150,000 1,931,250 58495810 Novellus System, Inc. (a) 20,000 685,000 67000810 3,776,050 ELECTRONICS - 1.5% Intel Corp. 80,000 4,960,000 45814010 Motorola, Inc. 125,000 11,546,875 62007610 Sanmina Corp. (a) 62,300 1,666,525 80090710 Texas Instruments, Inc. 55,000 3,492,500 88250810 Zero Corp. 30,000 483,750 98948410 22,149,650 TOTAL TECHNOLOGY 263,508,150 TRANSPORTATION - 2.7% AIR TRANSPORTATION - 1.1% AMR Corp. (a) 30,000 2,010,000 00176510 Atlantic Southeast Airlines, Inc. 65,000 2,226,250 04886910 Comair Holdings, Inc. 150,050 3,432,394 19978910 Mesa Airlines, Inc. (a) 188,700 3,349,425 59048110 SkyWest, Inc. 70,000 2,415,000 83087910 UAL Corp. (a) 12,000 1,752,000 90254910 15,185,069 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED TRANSPORTATION - CONTINUED RAILROADS - 1.3% Burlington Northern, Inc. 35,000 $ 2,025,625 12189710 Conrail, Inc. 55,000 3,678,125 20836810 CSX Corp. 60,000 4,860,000 12640810 Illinois Central Corp., Series A 41,900 1,503,163 45184110 Norfolk Southern Corp. 35,000 2,467,500 65584410 Santa Fe Pacific Corp. 137,600 3,061,600 80218310 Southern Pacific Rail Corp. (a) 75,000 1,481,250 84358410 19,077,263 TRUCKING & FREIGHT - 0.3% Federal Express Corp. (a) 40,000 2,835,000 31330910 Landstar System, Inc. (a) 44,000 973,500 51509810 3,808,500 TOTAL TRANSPORTATION 38,070,832 UTILITIES - 8.9% CELLULAR - 2.1% Cencall Communications Corp. (a) 85,000 2,380,000 15129710 IDB Communications Group, Inc. (a) 115,000 6,325,000 44935510 LIN Broadcasting Corp. (a) 20,000 2,210,000 53276310 McCaw Cellular Communications, Inc. Class A (a) 125,000 6,312,500 57946810 Pactel Corp. (a) 125,000 3,109,375 69525210 Qualcomm, Inc. (a) 15,000 795,000 74752510 Rogers Communications, Inc. Class B (a) 325,000 5,378,760 77510920 Vodafone Group PLC sponsored ADR 40,000 3,570,000 92857T10 30,080,635 ELECTRIC UTILITY - 0.1% Consolidated Electric Power Asia Ltd. sponsored ADR (b) 30,500 518,500 20855210 Meralco Class B (a) 50,000 913,200 58799A92 1,431,700 TELEPHONE SERVICES - 6.7% ACC Corp. 60,000 1,132,500 03095410 ALC Communications Corp. (a) 50,000 1,437,500 03095410 Ameritech Corp. 105,000 8,058,750 03095410 Bell Atlantic Corp. 100,000 5,900,000 07785310 BellSouth Corp. 160,000 9,260,000 07986010 British Telecommunications PLC ADR. 50,000 3,556,250 11102140 Cable & Wireless PLC ADR 100,000 2,400,000 12683020 Davel Communications GRP, Inc. (a) 8,600 132,225 23833810 GTE Corp. 225,000 7,875,000 36232010 LCI International, Inc. (a) 90,000 3,330,000 50181310 LDDS Communications, Inc. (a) 75,045 3,620,921 50182L10 MCI Communications Corp. 210,000 5,932,500 55267310 NYNEX Corp. 110,000 4,413,750 67076810 Pacific Telesis Group 100,000 $ 5,400,000 69489010 Philippine Long Distance Telephone Co. 7,400 600,325 71825210 Southwestern Bell Corp. 240,000 9,960,000 84533310 Sprint Corporation 165,000 5,733,750 85206110 Telefonos de Mexico SA sponsored ADR representing shares Ord. Class L 30,000 2,025,000 87940378 Telephone & Data Systems, Inc. 118,772 6,190,990 87943310 U.S. West, Inc. 180,000 8,257,500 91288910 95,216,961 TOTAL UTILITIES 126,729,296 TOTAL COMMON STOCKS (Cost $928,541,017) 1,126,844,346 PRINCIPAL AMOUNT US TREASURY OBLIGATIONS - 7.1% U.S. Treasury Bills, yields at date of purchase 3.13% to 3.15%, 2/24/94 to 3/3/94 (Cost $99,519,285) $ 100,000,000 99,544,000 99399H5Q MATURITY AMOUNT REPURCHASE AGREEMENTS - 13.2% Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account at 3.23% dated 12/31/93 due 1/3/94, $187,046,340 186,996,000 TOTAL INVESTMENTS - 100.0% (Cost $1,215,056,302) $1,413,384,346 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 $518,500 or .04% of net assets. OTHER INFORMATION: Purchases and sales of securities, other than short-term securities, aggregated $1,782,855,465 and $1,475,462,863, respectively. INCOME TAX INFORMATION: At December 31, 1993, the aggregate cost of investment securities for income tax purposes was $1,222,085,677. Net unrealized appreciation aggregated $191,298,669, of which $209,380,263 related to appreciated investment securities and $18,081,594 related to depreciated investment securities. The fund hereby designates $34,580,000 as a capital gain dividend for the purpose of the dividend paid deduction. GROWTH PORTFOLIO FINANCIAL STATEMENTS Statement of Assets and Liabilities DRAFT
December 31, 1993 ASSETS Investment in securities, at value (including repurchase agreements of $186,996,000) (cost $ 1,413,384,346 $1,215,056,302) (Notes 1 and 2) - See accompanying schedule Cash 131 Receivable for investments sold 14,293,378 Receivable for fund shares sold 3,637,072 Dividends receivable 1,128,873 Other receivables 115,162 Total assets 1,432,558,962 LIABILITIES Payable for investments purchased $ 42,295,216 Payable for fund shares redeemed 5,490,705 Accrued management fee 691,954 Other payables and accrued expenses 231,739 Total liabilities 48,709,614 NET ASSETS $ 1,383,849,348 Net Assets consist of (Note 1): Paid in capital $ 1,105,822,344 Undistributed net investment income 7,251,541 Accumulated undistributed net realized gain (loss) on investments 72,447,419 Net unrealized appreciation (depreciation) on investment securities 198,328,044 NET ASSETS, for 59,947,383 shares outstanding $ 1,383,849,348 NET ASSET VALUE, offering price and redemption price per share ($1,383,849,348 (divided by) 59,947,383 shares) $23.08
Statement of Operations DRAFT
Year Ended December 31, 1993 INVESTMENT INCOME $ 9,210,149 Dividends Interest 5,323,222 Total income 14,533,371 EXPENSES Management fee (Note 3) $ 6,358,701 Transfer agent fees (Note 3) 140,122 Accounting fees and expenses (Note 3) 456,795 Non-interested trustees' compensation 6,589 Custodian fees and expenses 74,222 Registration fees 159,722 Audit 30,080 Legal 10,334 Miscellaneous 20,207 Total expenses before reductions 7,256,772 Expense reductions (Note 4) (88,297) 7,168,475 Net investment income 7,364,896 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 1) 77,232,971 Net realized gain (loss) on investment securities Change in net unrealized appreciation (depreciation) on investment securities 86,481,802 Net gain (loss) 163,714,773 Net increase (decrease) in net assets resulting from operations $ 171,079,669
Statement of Changes in Net Assets DRAFT
YEARS ENDED DECEMBER 31, 1993 1992 INCREASE (DECREASE) IN NET ASSETS Operations $ 7,364,896 $ 4,307,187 Net investment income Net realized gain (loss) on investments 77,232,971 8,662,755 Change in net unrealized appreciation (depreciation) on investments 86,481,802 47,619,060 Net increase (decrease) in net assets resulting from operations 171,079,669 60,589,002 Distributions to shareholders from: (4,411,941) (1,078,184) Net investment income Net realized gain (8,449,098) (9,272,379) In excess of net realized gain (4,786,725) - Total distributions (17,647,764) (10,350,563) Share transactions 798,421,513 492,499,404 Net proceeds from sales of shares Reinvestment of distributions from: 4,411,941 1,078,184 Net investment income Net realized gain 13,235,823 9,272,379 Cost of shares redeemed (335,488,823) (174,713,000) Net increase (decrease) in net assets resulting from share transactions 480,580,454 328,136,967 Total increase (decrease) in net assets 634,012,359 378,375,406 NET ASSETS Beginning of period 749,836,989 371,461,583 End of period (including undistributed net investment income of $7,251,541 and $5,248,552, $ 1,383,849,348 $ 749,836,989 respectively) OTHER INFORMATION Shares Sold 37,006,075 27,004,989 Issued in reinvestment of distributions from: 220,487 54,017 Net investment income Net realized gain 661,460 464,548 Redeemed (15,878,913) (9,652,468) Net increase (decrease) 22,009,109 17,871,086
Financial Highlights DRAFT
YEARS ENDED DECEMBER 31, 1993 1992 1991 1990 1989 SELECTED PER-SHARE DATA Net asset value, beginning of period $ 19.76 $ 18.51 $ 12.91 $ 15.18 $ 11.72 Income from Investment Operations Net investment income .12 .09 .09(dagger) .24 .24 Net realized and unrealized gain (loss) on investments 3.64 1.64 5.72 (1.98) 3.41 Total from investment operations 3.76 1.73 5.81 (1.74) 3.65 Less Distributions From net investment income (.11) (.05) (.21) (.21) (.19) From net realized gain (.21) (.43) - (.32) - In excess of net realized gain (.12) - - - - Total distributions (.44) (.48) (.21) (.53) (.19) Net asset value, end of period $ 23.08 $ 19.76 $ 18.51 $ 12.91 $ 15.18 TOTAL RETURN 19.37% 9.32% 45.51% (11.73)% 31.51% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 1,383,849 $ 749,837 $ 371,462 $ 135,487 $ 77,261 Ratio of expenses to average net assets .71% .75% .84% .88% 1.02% Ratio of net investment income to average net assets .72% .83% .56% 2.69% 2.83% Portfolio turnover rate 159% 262% 261% 88% 111%
(dagger) NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. VARIABLE INSURANCE PRODUCTS FUND: OVERSEAS PORTFOLIO INVESTMENTS/DECEMBER 31, 1993 (Showing Percentage of Total Value of Investments) VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - 72.5% AUSTRALIA - 2.7% Ampolex Ltd. Ord. 1,088,100 $ 4,100,829 03212792 FAI Insurance Ltd. Ord. 1,531,900 1,102,646 30239330 Lend Lease Corp. Ltd. 81,000 973,554 52599292 TNT Ltd. (b) 1,658,800 2,140,184 93599292 Westpac Banking Corp. 2,866,300 9,011,647 96121410 Westpac Banking Corp. sponsored ADR 8,000 127,000 96121430 Woolworths, Ltd. 1,800,000 3,935,772 98088892 21,391,632 AUSTRIA - 0.4% Verbund Gesellschaft 47,100 2,866,368 92299999 BERMUDA - 0.4% Consolidated Electric Power Asia Ltd. sponsored ADR (c) 30,000 510,000 20855210 Jardine Strategic Holdings Ord. 748,000 3,508,898 47199020 4,018,898 BRAZIL - 0.5% Telebras PN (Pfd. Reg.) 118,632,600 4,044,185 95499792 CANADA - 0.6% Abitibi-Price Inc. 126,900 1,500,142 00368010 Noranda, Inc. 150,600 2,948,194 65542210 4,448,336 CHILE - 0.1% Maderas Y Sinteticos Sociedad Anonima Masisa, sponsored ADR 24,700 691,600 55646510 DENMARK - 0.3% Den Danske Bank Group AS 36,900 2,085,329 24820692 FINLAND - 0.8% America Group Ltd. Class A 119,300 2,181,721 02351210 Huhtamaki Ord. 41,200 1,286,556 44499392 Kansallis-Osake-Pankki 127,400 290,132 48199210 Outokumpu Oy Class A (b) 125,700 1,483,352 69099992 Repola OY 35,000 544,059 75999A92 Unitas Bank Ltd. B Free shares 31,900 77,050 90499123 5,862,870 FRANCE - 4.4% Assurances Generales (Reg.) 26,400 3,180,132 04557510 BNP CI Ord. 102,140 4,961,184 05599996 Bail Investissement (b) 3,400 660,585 05699092 Credit Lyonnais CI 16,500 2,132,539 22799392 Elf Aquitaine 18,100 1,274,247 28627199 Financiere Bank de Suez Cie 45,900 $ 2,767,648 31799110 GAN (Groupe Des Assur Natl.) 40,400 3,678,932 36599792 Klepierre SA (b) 5,700 733,806 49899822 Lafarge Coppee 24,900 1,962,889 50586310 Paribas SA (Cie Financiere) Class A (b) 37,400 3,133,411 73999192 Pechiney SA CIP 15,550 1,016,701 70599310 Societe Generale Class A 37,600 4,865,957 83357799 Sophia SA 5,700 512,316 84199C22 Total Compagnie Francaise des Petroles Class B (b) 12,800 697,848 20434510 UFB Locabail SA (b) 10,700 780,943 90599B92 Unibail 20,300 2,071,498 90499592 34,430,636 GERMANY - 6.2% Allianz Versich Holdings Ord. (Reg.) (b) 3,150 5,342,423 01882495 Bayer AG 35,100 7,471,522 07273010 Bayerische Vereinsbank AG Ord. 4,200 1,408,699 07276110 BHF Bank: (warrants) (b) 2,200 253,135 05549995 (Bank Berlin Hand) 10,400 3,141,181 05549991 Commerzbank AG 8,100 1,826,717 20259710 Computer 2000 AG (b) 1,600 777,816 20599492 Continental Gummi-Werke AG (b) 7,400 1,179,266 21199010 Deutsche Bank AG 15,300 7,803,159 25152592 Deutsche Bank AG (warrants) (b) 21,300 751,174 25299992 Hoechst AG Ord. 16,200 2,963,756 43439010 Munich Reinsurance (Reg.) (b) 2,300 5,021,574 62699492 Sixt AG ord (b) 1,200 386,607 83002199 Thyssen AG Ord. 15,300 2,425,009 88629110 Veba Vereinigte Elektrizetaets & Bergwerks AG Ord. 27,400 8,228,512 92239110 48,980,550 HONG KONG - 1.2% Cathay Pacific Airways Ltd. 874,000 1,696,539 14890610 Dickson Concept 1,933,000 2,026,171 25399210 Hong Kong Land Holdings Ltd. 1,210,000 4,290,394 43858292 Semi-Tech Microelectronics 100,000 208,347 81699192 Swire Pacific Class A 97,000 872,403 87079410 9,093,854 INDIA - 0.1% ITC Ltd.: (warrants) (b) (c) 8,000 108,000 45031811 GDR (b) (c) 24,000 684,000 45031810 792,000 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED INDONESIA - 0.9% Astra International (rights) 8,000 $ 6,403 04699895 (For. Reg.) 40,000 422,448 04699894 Bank International Indonesia Ord 643,500 3,154,263 06199B92 Jakarta International Hotels & Development Ord. (b) 1,047,000 3,185,874 47399693 6,768,988 IRELAND - 0.6% Anglo Irish Bank 196,600 177,131 03599592 Bank of Ireland U.S. Holdings, Inc. 440,300 1,885,937 06278793 Irish Life PLC 728,200 2,312,436 46299B92 4,375,504 ITALY - 1.1% Assicurazioni Generali Spa 226,100 5,170,070 04542910 SAI (Soc Assicur Industriale) 95,000 1,095,282 78399110 SIP Spa 1,268,400 2,657,247 78401792 8,922,599 JAPAN - 14.7% ADO Electronic Industrial Co. 23,000 396,960 00699992 Amadasonoike Co. Ltd. 38,000 210,686 02499492 Aoyama Trading Co. Ord. 15,000 858,484 03799092 Asahi Glass (warrants) (b) 50 33,125 04339392 Canon, Inc. 375,000 5,164,320 13780199 Chudenko Corporation 12,000 375,587 17123410 Cosmo Oil Company Ltd. 96,000 685,929 22199092 Daiwa House Industry Co. Ltd. (b) 28,000 375,587 23406299 East Japan Railway Ord. (b) 700 2,629,108 27399722 Fujitsu Ltd. 511,000 3,856,778 35959010 Hitachi Maxell Ltd. (b) 165,000 2,375,587 43358990 Hitachi, Ltd. (b) 923,000 6,784,761 43357810 Honda Motor Co. Ltd. 233,000 3,167,092 43812810 IO Data Device, Inc. 6,000 464,118 45099A92 Izumi Co. Ord. 42,000 837,559 46399292 Joshin Denki Co. Ltd. Ord. (b) 20,000 207,467 48199999 Konica Corp. 382,000 2,148,697 50046M10 Kyocera Corporation (b) 17,000 896,937 50155610 Marubeni Corp. 216,000 855,695 57381010 Marukyo Corp. 16,000 393,472 57899792 Matsushita Electric Industrial Co. Ltd. 278,000 3,704,180 57687910 Minebea Co. 349,000 1,513,658 60299392 Mitsubishi Bank of Japan 78,000 1,855,399 60674210 Mitsubishi Heavy Industry (b) 221,000 1,215,425 60699310 Mitsubishi Trust & Banking 305,000 $ 3,272,970 60699410 Murata Manufacturing Co. (b) 211,000 7,226,737 62699110 Nichido Fire & Marine Insurance Co. 404,000 2,312,185 65399920 Nikko Securities 68,000 662,821 65399010 Nippon Sheet Glass (warrants) (b) 100 13,750 65461393 Nippon Shinpan Ltd. 74,000 610,794 65461710 Nippon Telegraph & Telephone Ord. (b) 400 2,661,301 65462492 Nomura Securities Co. Ltd. 201,000 3,217,437 65536130 Oji Paper Ltd. (b) 88,000 696,445 67811810 Orix Corp. 178,000 4,854,907 68616710 Pioneer Electronic Corp. 107,000 2,688,755 72365710 Sankyo Co. Ltd. 2,000 114,465 82299792 Sanwa Bank (b) 170,000 3,146,882 80399410 Sony Corp. 169,400 8,346,917 83569999 Sumitomo Realty & Development Co. Ltd. 123,000 681,959 86562310 Sumitomo Trust & Banking Co. 186,000 1,846,277 86599310 Suzuki Motor Corp. 391,000 3,671,361 86958592 TDK Corp. 143,000 4,833,803 87235110 Tobu Railway (b) 80,000 450,704 88739110 Tohoku Electric Power Inc. (b) 92,000 2,427,006 88906099 Tokio Marine & Fire Insurance Co. Ltd. (The) 300,000 3,272,970 88909099 Tokyo Electric Power Co., Inc. 74,000 2,038,185 88910710 Tokyo Style Co. Ltd. 213,000 3,066,667 88999410 Toshiba Corp. (b) 1,028,000 6,251,196 89149310 Toyota Motor Corporation 376,000 5,985,066 89399999 115,358,171 KOREA (SOUTH) - 1.2% Cho Hing Bank Co. Ltd. 157,000 2,022,920 17099E22 Korea Electric Power Corp. 147,470 4,001,230 50099B92 Korea First Securities Co. (b) 5,000 119,556 50099K22 Kyungki Bank Ltd. (b) 135,000 1,973,611 61999922 Seoul Securities Co. (b) 71,000 1,574,552 83599P22 9,691,869 LUXEMBOURG - 0.0% Arbed SA 1,200 133,721 03899030 MALAYSIA - 1.4% Ekran Berhad Ord. (b) 133,000 839,303 28299792 Magnum Corp. BHD 262,500 779,538 55999392 Renong BHD 191,000 303,455 75999H22 Resorts World BHD 148,000 950,444 76199592 Tanjong PLC (Reg) 114,500 722,558 87599993 Telekom Malaysia BHD 417,000 3,420,951 94099892 Tenega Nasional BHD 527,000 3,775,602 92099992 10,791,851 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED MEXICO - 1.4% Grupo Dina (Consorcio G) ADR 34,800 $ 970,050 21030610 Grupo Financiero Bancomer SA de CV sponsored ADR, Series C (c) 70,200 2,930,850 40048610 Telefonos de Mexico SA sponsored ADR representing share Ord. Class L 100,600 6,790,500 87940378 10,691,400 NETHERLANDS - 5.1% ABN-AMRO Holdings NV 129,182 4,746,410 00399192 Aegon NV Ord. 75,650 4,101,272 00792493 Akzo NV Ord. 53,700 5,187,873 01019910 Amev NV CVA 2,900 128,160 03199092 Hoogovens en Staalfabrieken (b) 57,900 1,431,136 43888410 International Nederlanden Groep CVA (warrants) (b) 100,000 215,313 46099893 International Nederlanden Groep CVA 98,000 4,678,417 46099892 KBB NV Ord. 18,400 993,751 48130092 Oce Van Der Grinten NV 86,700 3,051,876 67462710 Philips Electronics 269,800 5,545,734 71833799 Pirelli Tyre Holdings NV Ord. (b) 852,600 6,352,876 72499092 Stad Rotterdam 50,100 1,225,468 85299822 Wereldhave NV 36,300 2,210,457 95199E22 39,868,743 NEW ZEALAND - 0.0% Brierley Investments Ltd. 330,800 255,073 10901410 NORWAY - 1.4% Bergesen Group Class B 83,200 1,617,882 08399011 Christiania Bank Free shares Ord (b) 860,000 1,558,174 17100792 Den Norske Bank Class A Free shares (b) 477,800 1,220,851 25299792 Mosvold Shipping AS 'B' 26,400 161,194 62099294 Norske Skogindustrier A Free shares (b) 39,300 918,102 66499594 Olav Thon Eiendomsselskp Ord. 36,100 551,050 67941099 Orkla AS Class A Free shares 6,450 252,562 39299193 Class B (non-vtg.) 39,500 1,457,565 39299192 Smedvig AS 24,400 453,423 79799892 Unitor AS 149,600 2,521,861 91699392 10,712,664 SINGAPORE - 1.0% Kim Eng Holdings Ltd (rights) (b) 90,800 90,321 49499D93 Kim Eng Holdings Ltd. 454,000 1,072,552 49499D92 Neptune Orient Lines Ltd. (b) 2,902,000 5,358,369 64099610 Singapore Aerospace (For. Reg.) (b) 22,000 44,588 83999793 United Overseas Bank (warrants) (b) 237,375 1,180,604 91199E92 7,746,434 SOUTH AFRICA - 0.2% De Beers Consolidated Mines Ltd. ADR 24,000 $ 582,000 24025330 Driefontein Consolidated Ltd. ADR 47,300 608,988 26202640 1,190,988 SPAIN - 4.0% Acerinox SA (Reg.) 13,750 1,064,268 00499192 Argentaria Corp. Bancaria de Esp (b) 47,350 1,997,862 21991392 Banco Bilbao Vizcaya SA Ord. (Reg.) 182,500 4,035,015 05945891 Banco Central SA (Reg.) 13,700 330,178 05947010 Banco Intercontinental Espanol 49,350 4,036,944 24699592 Banesto (Reg.) 86,800 909,536 05981699 Corporacion Mapfre International Reas (Reg.) (b) 93,100 4,877,750 16899192 Iberdrola SA 220,500 1,578,851 45499892 Repsol SA Ord. (b) 105,400 3,276,493 76026T10 Telefonica de Espana SA Ord. 463,850 6,043,172 87938210 Union Electrica Fenosa (b) 679,500 2,852,805 90659510 Vallehermoso SA (b) 54,250 1,051,650 91899210 32,054,524 SWEDEN - 2.2% Aktiebolaget Electrolux (b) 114,400 3,894,048 01019810 Foreningsbanken AB, Class A, ord (b) 157,000 352,825 34599E22 Frontline (b) 152,000 400,795 35999F22 ICB Shipping (b) 25,000 281,660 44999B92 Marieberg Tidnings 'A' (b) 36,600 679,939 56799392 OM Gruppen AB Ord. (b) 17,200 439,102 68199E22 SKF AB Ord. (b) 217,400 3,517,630 78437530 Scribona AB B Free shares (b) 8,700 31,282 81199B92 Securitas B Free Shares 6,000 169,715 81399792 Skandia International Holding Co. AB ADR 35,400 717,046 83055510 Skandinaviska Enskilda Banken Class A Free shares 429,100 2,905,788 88099222 Skanska Class B (b) 196,800 4,198,576 93899392 17,588,406 SWITZERLAND - 8.2% Alusuisse Lonza (Reg.) 8,105 3,518,703 02239994 Baloise Holding (Reg.) (b) 4,800 8,870,968 05899195 C.S. Holdings: (Bearer) (b) 1,000 495,296 17599792 (Reg.) 101,000 9,977,822 17599795 Ciba-Geigy AG (Reg.) 12,980 7,850,806 17199492 Globus Magazine Part. Cert 4,669 3,686,878 37957792 Holderbank Financiere AG PC (Bearer) 8,800 5,500,000 43479593 Sulzer Gebrueder A G, Class B (warrants) (b) 6,240 31,032 86557692 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED SWITZERLAND- CONTINUED Surveillance, Societe Generale (Bearer) (b) 410 $ 515,255 86901193 Swiss Bank Corp. (Bearer) (b) 21,600 6,909,677 87083610 Swiss Reinsurance Corp.: (Bearer)(b) 3,200 1,677,419 87099392 (Reg.) (b) 1,250 617,440 87099393 Class A (warrants) (b) 4,450 34,392 87099D22 Class B (warrants) (b) 4,450 30,654 87099399 Winterthur Schweiz (Reg.) 11,750 6,483,031 97629994 Zurich Versicherung (Reg.) 8,450 8,603,327 99499597 64,802,700 TAIWAN (FREE CHINA) - 0.1% Taiwan Fund, Inc. 25,800 1,009,425 87403610 THAILAND - 0.3% Ruam Pattana Fund II (For.) 1,117,000 766,117 76999523 Ruang Khao Unit Trust (For. Reg.) (b) 836,800 614,931 77399393 Telecomasia Corp. Public Ltd. 185,000 1,109,347 87928D92 2,490,395 UNITED KINGDOM - 11.0% BET Public Ltd. Co. Ord. 1,529,800 3,027,750 05538H10 Barclays PLC Ord. 617,000 5,786,812 06738E10 Bass PLC Ord. 304,800 2,415,269 06990492 British Petroleum PLC Ord. 407,600 2,170,303 11088910 British Steel PLC Ord. 2,040,100 3,811,743 11101510 British Vita Ord. 534,300 1,968,960 11199192 Burton Group PLC Ord. 2,014,700 2,068,130 12304910 Dixons Group PLC 536,400 2,242,104 25587592 English China Clay PLC (b) 157,100 1,072,010 29321792 First National Finance Corporation PLC 549,500 482,912 33599392 Great Universal Stores PLC Ord Class A 381,600 3,657,915 39133420 Ladbroke Group PLC Ord. 1,765,500 4,224,382 50572799 Midlands Electricity PLC 361,400 3,837,934 59780293 Mirror Group Newspaper PLC (b) 1,002,700 2,488,060 60499792 National Westminster Bank PLC Ord. 707,000 6,474,282 63853930 North West Water Ord. 337,700 2,917,880 67299195 Rolls Royce Ltd. Ord. 874,433 2,092,291 77577910 Royale Insurance Co. Ltd. 773,900 3,880,660 78074910 Saatchi & Saatchi PLC Ord. (b) 733,200 1,440,305 78514310 Sainsbury J PLC Ord. 664,300 4,356,400 78710310 Sedgwick Group 223,000 597,513 81482610 Storehouse PLC 373,900 1,303,311 86211210 TSB Group PLC 296,600 1,055,768 87199010 Taylor Woodrow PLC 322,500 688,302 87667410 Tesco PLC Ord. (b) 1,490,500 4,689,128 88157510 Tomkins PLC Ord. 429,200 1,489,732 89003010 Trafalgar House PLC Ord. 260,600 $ 361,812 89270710 Vickers PLC Ord. Unit 1,933,650 4,998,002 92549310 Vodafone Group PLC 150,000 1,314,900 92857T92 Warburg (SG) Group PLC Ord. 231,000 3,176,451 81799099 Whitbread Class A 565,000 4,844,304 96341499 Willis Coroon PLC Ord. (b) 419,100 1,392,774 97062410 86,328,099 TOTAL COMMON STOCKS (Cost $486,102,933) 569,487,812 PREFERRED STOCKS - 3.4% CONVERTIBLE PREFERRED STOCKS - 0.0% NETHERLANDS - 0.0% ABN-AMRO Holdings NV 6% (b) 6,552 240,734 00399194 NONCONVERTIBLE PREFERRED STOCKS - 3.4% AUSTRIA - 0.9% Creditanstaldt Bank 92,500 6,069,305 22539210 MaCulan Holding Ord. 6,700 673,709 55699594 6,743,014 GERMANY - 0.4% Boss (Hugo) AG 1,700 860,660 44451094 RWE AG (b) 10,200 2,447,014 76204599 3,307,674 ITALY - 1.9% Banco Ambro Veneto N/C Risp 734,200 1,304,578 06399592 SAI (Sta Assicur Industriale) N/C Risp 500,500 2,672,345 78399192 SIP (Societa Ital Per L'Eser) Spa Di Risp N/C Ord. 150,000 273,085 78401796 Stet Societa Finanziaria Telefonica Spa 5,126,900 10,349,365 85982592 Unicem Di Risp 143,900 465,275 91199792 15,064,648 KOREA (SOUTH) - 0.2% Korea First Securities Co. (b) 66,140 1,499,550 50099K23 TOTAL NONCONVERTIBLE PREFERRED STOCKS 26,614,886 TOTAL PREFERRED STOCKS (Cost $22,239,956) 26,855,620 MOODY'S MOODY'S RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE (UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1) Corporate BONDS - 0.9% CONVERTIBLE BONDS - 0.3% GRAND CAYMAN - 0.0% CTII Overseas Finance 4 1/4%, 11/18/98 (c) - XEU 265,000 $ 280,900 126995AA HONG KONG - 0.1% Hon Kwok Land Treasury Ltd. 4 7/8%, 12/15/00 - XEU 540,000 561,600 43899JAA INDIA - 0.1% Jindal Strip euro 4 1/4% 3/31/99 (c) - XEU 355,000 457,950 642994AA THAILAND - 0.1% Asia Credit 3 3/4%, 11/17/03 (c) - 635,000 933,450 044909AA TOTAL CONVERTIBLE BONDS 2,233,900 NONCONVERTIBLE BONDS - 0.6% BRAZIL - 0.6% Brazil Federative Republic IDU euro 8 3/4%, 1/1/01 B2 5,250,000 4,364,062 1057569E TOTAL CORPORATE BONDS (Cost $5,860,514) 6,597,962 GOVERNMENT OBLIGATIONS - 4.8% ARGENTINA - 0.5% Argentina Republic BOCON 3 1/4%, 4/1/01 B1 5,570,980 4,827,811 039995AF DENMARK - 0.5% Danish Government Bullet 7%, 12/15/04 Aa1 DKK 25,000,000 3,935,672 249998AV FRANCE - 0.6% French Government Strips 4/25/23 Aaa FRF 168,000,000 4,473,185 351996BL UNITED STATES OF AMERICA - 3.2% U.S. Treasury Bills, yield at date of purchase 3.153%, 2/24/94 25,000,000 24,872,250 99399H5H TOTAL GOVERNMENT OBLIGATIONS (Cost $36,593,799) 38,108,918 PRINCIPAL VALUE AMOUNT (A) (NOTE 1) Indexed SECURITIES - 1.4% UNITED STATES OF AMERICA - 1.4% Bankers Trust Company note 8.1425%, 10/28/94 (coupon inversely indexed to JPY LIBOR and principal indexed to value of 9-year Japanese securities, both multiplied by 3) $ 4,900,000 $ 5,440,470 0669918T Bankers Trust Company note 11.595%, 8/19/97 (coupon inversely indexed to JPY LIBOR, multiplied by 7) 3,600,000 4,766,760 0669918C Citibank Nassau 4.625%, 7/30/96 (inversely indexed to 1-year SEK swap rate, multiplied by 10) 900,000 942,570 223991AH TOTAL indexed securities (Cost $9,400,000) 11,149,800 MATURITY AMOUNT REPURCHASE AGREEMENTS - 17.0% Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account at 3.23% dated 12/31/93 due 1/3/94, $ 133,640,967 133,605,000 TOTAL INVESTMENTS - 100% (Cost $693,802,202) $ 785,805,112 Forward Foreign Currency Contracts SETTLEMENT UNREALIZED CONTRACTS TO BUY DATE(S) VALUE GAIN/(LOSS) 16,900 DKK 2/9/94 $ 2,477,196 $ 13,082 (Payable amount $2,464,114) THE VALUE OF CONTRACTS TO BUY AS A PERCENTAGE OF TOTAL INVESTMENT IN SECURITIES - 0.3%. CONTRACTS TO SELL 271,221,570 BEF 2/1/94 $ 7,455,095 $ 9,019 33,888,672 DKK 2/9/94 4,967,389 104,474 24,045,200 FIM 2/15/94 4,135,220 (41,444) 228,920,092 FRF 2/10/94 38,525,419 412,835 1,467,000,000 ESP 2/1/94 10,188,962 815,463 49,776,600 CHF 2/8/94 to 2/10/94 33,411,760 (411,760) TOTAL CONTRACTS TO SELL (Receivable amount $99,572,432) $98,683,845 $ 888,587 THE VALUE OF CONTRACTS TO SELL AS A PERCENTAGE OF TOTAL INVESTMENT IN SECURITIES - 12.6% CURRENCY TYPE ABBREVIATIONS: XEU - European currency unit BEF - Belgian franc DKK - Danish krone FIM - Finnish markka FRF - French franc ESP - Spanish peseta CHF - Swiss franc LEGEND: (a) Principal amount is stated in United States dollars unless otherwise noted. (b) Non-income producing (c) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At the period end, the value of these securities amounted to $5,905,150 or 0.8% of net assets. (d) Standard & Poor's Corporation credit ratings are used in the absence of a rating by Moody's Investors Service, Inc. OTHER INFORMATION: Purchases and sales of securities, other than short-term securities, aggregated $504,578,066 and $144,313,315, respectively. INCOME TAX INFORMATION: At December 31,1993, the aggregate cost of investment securities for income tax purposes was $694,278,825. Net unrealized appreciation aggregated $91,526,287, of which $107,169,263 related to appreciated investment securities and $15,642,976 related to depreciated investment securities. At December 31, 1993, the fund had a capital loss carryforward of approximately $8,614,000, all of which will expire on December 31, 2001. INDUSTRY DIVERSIFICATION AS A PERCENTAGE OF TOTAL VALUE OF INVESTMENTS Aerospace and Defense - 0.3% Basic Industries - 5.3% Chemicals and Plastics 2.2% Iron and Steel 1.2 Nonferrous Metals and Mining 1.3 Paper and Forest Products 0.6 Conglomerates - 0.7% Construction and Real Estate - 3.7% Building Materials 1.0 Construction 0.9 Engineering 0.1 Real Estate 1.6 Real Estate Investment Trusts 0.1 Durables - 6.3% Autos, Tires, and Accessories 3.4 Textiles and Apparel 0.5 Consumer Electronics 2.4 Consumer Durables 0.0 Energy - 1.6% Energy Services 0.1 Oil and Gas 1.5 Finance - 31.0% Banks 17.5 Closed End Investment Company 0.5 Credit and Other Finance 0.7 Insurance 10.7 Securities industry 1.6 Government Obligations - 5.4% Health - 1.0% Drugs and Pharmaceuticals 1.0 Industrial Machinery and Equipment - 2.3% Electrical Equipment 1.7 Industrial Machinery and Equipment 0.6 Media and Leisure - 1.7% Lodging and Gaming 1.3 Publishing 0.4 Nondurables - 1.4% Beverages 0.9 Foods 0.2 Tobacco 0.1 Household Products 0.2 Precious Metals - 0.0% Repurchase Agreements - 17.0% Retail and Wholesale - 4.0% Apparel Stores 0.6% General Merchandise Stores 1.1 Grocery Stores 1.3 Retail, Miscellaneous 1.0 Services - 1.7% Advertising 0.2 Leasing & Rental 0.6 Services 0.9 Technology - 5.0% Computer Services and Software 0.1 Computers and Office Equipment 1.6 Photographic Equipment 0.3 Electronics 3.0 Transportation - 2.0% Air Transportation 0.3 Shipping 1.0 Trucking and Freight 0.3 Railroads 0.4 Utilities - 9.6% Cellular 0.1 Electric Utility 4.4 Telephone Services 4.8 Water 0.3 100.0% OVERSEAS PORTFOLIO FINANCIAL STATEMENTS Statement of Assets and Liabilities DRAFT
December 31, 1993 ASSETS Investment in securities, at value (including repurchase agreements of $133,605,000) (cost $ 785,805,112 $693,802,202) (Notes 1 and 2) - See accompanying schedule Net long foreign currency contracts held, at value (cost $2,464,114) (Note 2) 2,477,196 Short foreign currency contracts (Note 2) $ (98,683,845) Contracts held, at value Receivable for contracts held 99,572,432 888,587 Receivable for investments sold 2,772,102 Receivable for fund shares sold 11,107,198 Dividends receivable 996,396 Interest receivable 522,510 Total assets 804,569,101 LIABILITIES Payable to custodian bank 75,751 Payable for foreign currency contracts held (Note 2) 2,464,114 Payable for investments purchased 18,933,216 Payable for fund shares redeemed 4,282,949 Accrued management fee 453,537 Other payables and accrued expenses 398,963 Total liabilities 26,608,530 NET ASSETS $ 777,960,571 Net Assets consist of (Note 1): Paid in capital $ 692,949,364 Undistributed net investment income 4,331,859 Accumulated undistributed net realized gain (loss) on investments (12,225,231) Net unrealized appreciation (depreciation) on: Investment securities 92,002,910 Foreign currency contracts 901,669 NET ASSETS, for 50,263,845 shares outstanding $ 777,960,571 NET ASSET VALUE, offering price and redemption price per share ($777,960,571 (divided by) 50,263,845 shares) $15.48
Statement of Operations DRAFT
Year Ended December 31, 1993 INVESTMENT INCOME $ 7,674,983 Dividends Interest 2,511,532 Foreign exchange gain (loss) (80,985) 10,105,530 Less foreign taxes withheld (1,161,704) Total income 8,943,826 EXPENSES Management fee (Note 3) $ 3,078,432 Transfer agent fees (Note 3) 143,222 Accounting fees and expenses (Note 3) 230,456 Non-interested trustees' compensation 2,581 Custodian fees and expenses 427,774 Registration fees 192,304 Audit 29,570 Legal 3,524 Miscellaneous 17,785 Total expenses 4,125,648 Net investment income 4,818,178 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 1) Net realized gain (loss) on: Investment securities (4,067,835) Foreign currency contracts (3,247,227) (7,315,062) Change in net unrealized appreciation (depreciation) on: Investment securities 109,010,629 Foreign currency contracts 901,669 109,912,298 Net gain (loss) 102,597,236 Net increase (decrease) in net assets resulting from operations $ 107,415,414
Statement of Changes in Net Assets DRAFT
YEARS ENDED DECEMBER 31, 1993 1992 INCREASE (DECREASE) IN NET ASSETS Operations $ 4,818,178 $ 2,915,760 Net investment income Net realized gain (loss) on investments (7,315,062) (1,610,618) Change in net unrealized appreciation (depreciation) on investments 109,912,298 (21,875,864) Net increase (decrease) in net assets resulting from operations 107,415,414 (20,570,722) Distributions to shareholders from: (2,858,933) (1,776,419) Net investment income In excess of net investment income (696,125) - Net realized gain (807,968) - Total distributions (4,363,026) (1,776,419) Share transactions 601,451,901 117,253,224 Net proceeds from sales of shares Reinvestment of distributions from: 3,555,058 1,776,419 Net investment income Net realized gain 807,968 - Cost of shares redeemed (111,743,493) (42,336,032) Net increase (decrease) in net assets resulting from share transactions 494,071,434 76,693,611 Total increase (decrease) in net assets 597,123,822 54,346,470 NET ASSETS Beginning of period 180,836,749 126,490,279 End of period (including undistributed net investment income of $4,331,859 and $3,403,350, $ 777,960,571 $ 180,836,749 respectively) OTHER INFORMATION Shares Sold 42,197,124 9,287,695 Issued in reinvestment of distributions from: 303,332 134,069 Net investment income Net realized gain 68,939 - Redeemed (7,983,962) (3,402,818) Net increase (decrease) 34,585,433 6,018,946
Financial Highlights DRAFT
YEARS ENDED DECEMBER 31, 1993 1992 1991 1990 1989 SELECTED PER-SHARE DATA Net asset value, beginning of period $ 11.53 $ 13.09 $ 12.42 $ 12.67 $ 10.11 Income from Investment Operations Net investment income .06 .16 .24 .18 .07 Net realized and unrealized gain (loss) on investments 4.16 (1.54) .74 (.39) 2.57 Total from investment operations 4.22 (1.38) .98 (.21) 2.64 Less Distributions From net investment income (.18) (.18) (.17) (.04) (.08) In excess of net investment income (.04) - - - - From net realized gain - - - (.14)# - - In excess of net realized gain (.05) - - - - Total distributions (.27) (.18) (.31) (.04) (.08) Net asset value, end of period $ 15.48 $ 11.53 $ 13.09 $ 12.42 $ 12.67 TOTAL RETURN 37.35% (10.72)% 8.00% (1.67)% 26.28% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 777,961 $ 180,837 $ 126,490 $ 80,554 $ 25,865 Ratio of expenses to average net assets 1.03% 1.14% 1.26% 1.41% 1.50%(double dagger) Ratio of expenses to average net assets before expense reductions 1.03% 1.14% 1.26% 1.41% 1.98%(double dagger) Ratio of net investment income to average net assets 1.21% 1.86% 2.33% 1.89% .66% Portfolio turnover rate 42% 61% 168% 100% 78%
(double dagger) SEE NOTE 4 OF NOTES TO FINANCIAL STATEMENTS. # INCLUDES AMOUNTS DISTRIBUTED FROM NET REALIZED GAINS ON FOREIGN CURRENCY RELATED TRANSACTIONS TAXABLE AS ORDINARY INCOME. NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 1993 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. 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. 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. 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 are valued at amortized cost or original cost plus accrued interest, both of which approximate current value. EQUITY-INCOME AND GROWTH PORTFOLIOS. Securities for which exchange quotations are readily available are valued at the last sale price, or if no sale price, at the closing bid price. Securities (including restricted securities) for which exchange quotations are not readily available (and in certain cases debt securities which trade on an exchange), are valued primarily using dealer-supplied valuations or at their fair value as determined in good faith under consistently applied procedures under the general supervision of the Board of Trustees. Short-term securities maturing within sixty days 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 are valued at amortized cost or original cost plus accrued interest, both of which approximate current value. FOREIGN CURRENCY TRANSLATION. The accounting records of the funds are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the current exchange rate. Purchases and sales of securities, income receipts and expense payments are translated into U.S. dollars at the exchange rate on the dates of the transactions. It is not practical to identify the portion of each amount shown in the funds' Statement of Operations under the caption "Realized and Unrealized Gain (Loss) on Investments" that arises from changes in foreign currency exchange rates. Investment income includes net realized and unrealized currency gains and losses recognized between accrual and payment dates. 1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED INCOME TAXES. As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, each fund is not subject to income taxes to the extent that it distributes all of its taxable income for the fiscal year. The schedules of investments include information regarding income taxes under the caption "Income Tax Information." INVESTMENT INCOME. MONEY MARKET PORTFOLIO. Interest income, which includes amortization of premium and accretion of original issue 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 is accrued as earned. Dividend and interest income is recorded net of foreign taxes where recovery of such taxes is not assured. 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. 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 are primarily due to differing treatments for foreign currency transactions, market discount, partnerships, non-taxable dividends, and losses deferred due to wash sales and certain foreign investments. 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. CHANGE IN ACCOUNTING FOR DISTRIBUTIONS TO SHAREHOLDERS. Effective January 1, 1993, the funds 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, the funds changed the classification of distributions to shareholders to better disclose the differences between financial statement amounts and distributions determined in accordance with income tax regulations. Accordingly, amounts as of December 31, 1992 have been restated as follows: INCREASE (DECREASE) INCREASE (DECREASE) INCREASE (DECREASE) (INCREASE) DECREASE FUND IN PAID IN CAPITAL IN UNDISTRIBUTED NET INVESTMENT INCOME IN ACCUMULATED NET REALIZED GAIN IN ACCUMULATED NET REALIZED LOSS High Income $162,034 $330,448 $(492,482) $ -- Equity-Income 7,969 (607,841) -- 599,872 Growth 695,219 (999,375) 304,156 -- Overseas (66,781) (510,272) -- 577,053 No adjustments were necessary for the Money Market Portfolio. 2. OPERATING POLICIES. FORWARD FOREIGN CURRENCY CONTRACTS. The funds may enter into forward foreign currency contracts. These contracts involve market risk in excess of the amount reflected in the fund's Statement of Assets and Liabilities. The face or contract amount in U.S. dollars reflects the total exposure each fund has in that particular currency contract. The U.S. dollar value of forward foreign currency contracts is determined using forward currency exchange rates supplied by a quotation service. Losses may arise due to changes in the value of the foreign currency or if the counterparty does not perform under the contract. Purchases and sales of forward foreign currency contracts having the same settlement date and broker are offset and presented net on the Statement of Assets and Liabilities. Gain (loss) on the purchase or sale of forward foreign currency contracts having the same settlement date and broker is recognized on the date of offset, otherwise gain (loss) is recognized on settlement date. REPURCHASE AGREEMENTS. The funds, through their custodian, receive delivery of the underlying securities, whose market value is required to be at least 102% of the resale price at the time of purchase. The funds' investment adviser, Fidelity Management & Research Company (FMR), is responsible for determining that the value of these underlying securities remains at least equal to the resale price. JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the funds, along with other registered investment companies having management contracts with FMR, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Federal Agency obligations. RESTRICTED SECURITIES. Each fund is permitted to invest in privately placed restricted securities. These securities may be resold in transactions exempt from registration or to the public if the securities are registered. Disposal of these securities may involve time-consuming negotiations and expense, and prompt sale at an acceptable price may be difficult. At the end of the period, restricted securities (excluding 144A issues) for the Money Market and High Income Portfolios amounted to $14,000,000 and $21,884,000 or 4.0% and 4.7% of net assets, respectively. 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, the monthly fee is computed daily and paid monthly, based on the fund's gross income at the rate of 4% of the gross income equivalent to an annualized yield of 5% or less, and at the rate of 6% of the gross income in excess of an annualized yield of 5%. For this purpose, gross income includes interest accrued or discount earned (including both original issue and market discount), less amortization of premium. The amount of management fee paid is limited to a weighted average of a graduated series of annual limitation rates ranging from .50% of the fund's average net assets up to $1.5 billion to .40% of the fund's average net assets in excess of $6 billion. For the period, the management fee was equivalent to an annual rate of .14% 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 each fund. The group fee rate is the weighted average of a series of rates which range from .14% to .37% for the High Income Portfolio and .30% to .52% for the Equity-Income, Growth, and Overseas Portfolios and is based on the monthly average net assets of all the mutual funds advised by FMR. The annual individual fund fee rates are .35%, .20%, .30% and .45% for the High Income Portfolio, Equity-Income, Growth, and Overseas Portfolios, respectively. For the period, the management fee was equivalent to an annual rate of .51%, .53%, .63 %, and .77% of average net assets for the High Income Portfolio, Equity-Income, Growth, and Overseas Portfolios, respectively. 3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED MANAGEMENT FEE - CONTINUED The Board of Trustees approved a new group fee rate schedule with rates ranging from .1325% to .3700% for the High Income Portfolio and .2850% to .5200% for the Equity-Income, Growth, and Overseas Portfolios. Effective November 1, 1993, FMR has voluntarily agreed to implement this new group fee rate schedule as it results in the same or a lower management fee. SUB-ADVISER FEES. As 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, and after reducing the fee for any payments by FMR pursuant to the fund's Distribution and Service Plan. FMR, on behalf of the Overseas Portfolio, entered into sub-advisory agreements with affiliates of FMR. In addition, one of the sub-advisers, Fidelity International Investment Advisors (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. and FIIAL Japan a fee based on costs incurred for either service. TRANSFER AGENT FEE. Fidelity Investments Institutional Operations Company (FIIOC), an affiliate of FMR, is the funds' transfer, dividend disbursing and shareholder servicing agent. FIIOC receives fees based on the type, size, number of accounts and the number of transactions made by shareholders. FIIOC pays for typesetting, printing and mailing of all shareholder reports, except proxy statements. ACCOUNTING FEE. 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. Some of the funds placed a portion of their portfolio transactions with brokerage firms which are affiliates of FMR. The commissions paid to these affiliated firms were $712,270, $750,137, and $3,119 for the Equity-Income, Growth and Overseas Portfolios, respectively for the period. 4. 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% for the High Income Portfolio and 1.50% for the Equity-Income, Growth and Overseas Portfolios of average net assets. During the period, there was no reimbursement under this agreement. For the period January 1, 1993 to December 31, 1993, FMR directed certain portfolio trades of the Equity income and Growth Portfolios to brokers who paid a portion of the funds' expenses. For the period, the funds' expenses were reduced by $60,160 and $88,297, respectively. A special meeting of shareholders of the Money Market Portfolio and the High Income Portfolio was held December 15, 1993. All expenses in connection with this meeting, including the preparation of the proxy statement, its enclosures and all solicitations were reimbursed by FMR. 5. BENEFICIAL INTEREST. At the end of the period, Fidelity Investments Life Insurance Company (FILI) , an affiliate of FMR, was record owner of more than 5% of the outstanding shares of the funds and certain unaffiliated insurance companies were record owners of more than 10% of the outstanding shares: FILI UNAFFILIATED INSURANCE COMPANIES FUND % OF OWNERSHIP # OF % OF OWNERSHIP Money Market 42 1 23 High Income 21 2 53 Equity-Income 29 2 41 Growth 20 1 32 Overseas 20 1 47 THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK AND FUND SHARES ARE NOT BACKED OR GUARANTEED BY ANY BANK OR INSURED BY THE FDIC. REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees of Variable Insurance Products Trust 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 Trust: Money Market Portfolio, High Income Portfolio, Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio, including the schedules of portfolio investments, as of December 31,1993, 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 funds' 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, 1993 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 Variable Insurance Products Trust: Money Market Portfolio, High Income Portfolio, Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio as of December 31,1993, 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 Boston, Massachusetts February 8, 1994 DISTRIBUTIONS The Board of Trustees of Variable Insurance Products Fund voted to pay on February 4, 1994 to shareholders of record at the opening of business on February 4, 1994, the following distributions derived from capital gains realized from sales of portfolio securities, and dividends derived from net investment income: Fund Dividends Capital Gains High Income $ .73 $ .37 Equity-Income $ - $ .77 Growth $ .12 $ 1.27 Overseas $ .08 $ - INVESTMENT ADVISER Fidelity Management & Research Company Boston, MA OFFICERS Edward C. Johnson 3d, PRESIDENT J. Gary Burkhead, SENIOR VICE PRESIDENT Gary L. French, TREASURER John H. Costello, ASSISTANT TREASURER Arthur S. Loring, SECRETARY Robert H. Morrison, MANAGER, SECURITY TRANSACTIONS BOARD OF TRUSTEES J. Gary Burkhead Ralph F. Cox Phyllis Burke Davis Richard J. Flynn Edward C. Johnson 3d E. Bradley Jones Donald J. Kirk Peter S. Lynch Edward H. Malone Marvin L. Mann Gerald C. McDonough Thomas R. Williams GENERAL DISTRIBUTOR Fidelity Distributors Corporation Boston, MA TRANSFER AND SHAREHOLDER SERVICING AGENT Fidelity Investments Institutional Operations Co. Boston, MA CUSTODIAN Money Market Portfolio: Morgan Guaranty Trust Company of New York, New York, NY High Income Portfolio: The Bank of New York, New York, NY Equity-Income Portfolio: The Chase Manhattan Bank, N.A., New York, NY Growth & Overseas Portfolios: Brown Brothers Harriman & Co., Boston, MA VIPI-2-94A EX-99.B12 3 EXHIBIT 24(a)(2) ANNUAL REPORT FOR THE PERIOD ENDED DECEMBER 31, 1993 VARIABLE INSURANCE PRODUCTS FUND II (Registered trademark) TABLE OF CONTENTS VARIABLE INSURANCE PRODUCTS FUND II PAGE Performance Updates VIPFII-1 Portfolio Managers' Messages VIPFII-4 Schedule of Investments and Financial Statements: Investment Grade Bond Portfolio VIPFII-7 Asset Manager Portfolio VIPFII-16 Index 500 Portfolio VIPFII-44 Notes to Financial Statements VIPFII-55 Report of Independent Accountants VIPFII-59 DISTRIBUTIONS The Board of Trustees of Variable Insurance Products Fund II voted to pay on February 4, 1994, to shareholders of record at the opening of business on February 4, 1994, the following distributions derived from capital gains realized from sales of portfolio securities, and dividends derived from net investment income: Portfolio Dividends Capital Gains Investment Grade Bond $ 0.00 $ 0.03 Asset Manager $ 0.28 $ 0.46 Index 500 $ 0.00 $ 0.10 MARKET ENVIRONMENT In 1993, investors could have put their money into just about any type of stock or bond investment portfolio and not lost money. For the first time since 1986, all 31 investment categories tracked by Lipper Analytical Services produced positive total returns. Despite posting strong numbers, U.S. stock and bond markets generally lagged many of their overseas counterparts, which turned in unusually high returns. U.S. STOCK MARKETS The Standard & Poor's 500 Composite Stock Price Index - a broad measure of U.S. stock performance - rose 10.08% in the 12 months ended December 31, 1993, in line with the market's long-term average annual return. The NASDAQ Composite Index - a measure of small stock performance - rose 14.75%. It was outpaced by the Dow Jones Industrial Average - an index of 30 blue-chip stocks - which was up 17.04%. In mid-November, the Dow closed above 3700 for the first time and finished the year at 3754. Low inflation, falling interest rates and a gradually improving economy boosted U.S. stocks. Technology was one of the best performing sectors, although semiconductors gave back part of their gains in the fall. Communications stocks soared as traditional telephone utilities, cellular companies and entertainment firms scrambled to form alliances. Investors speculated about what role technology companies would play in the building of the so-called information superhighway, which will link the technologies of computers, telephones and televisions. Financial stocks, notably securities dealers, were among the market leaders before falling off somewhat late in the year. Also, economically-sensitive sectors like autos and steel took off as the economy showed steady growth. The entertainment sector, especially casinos, posted impressive gains. Heavy machinery and precious metals stocks also performed well. Market laggards included the health-care and consumer non-durable sectors, although both showed signs of life near year-end. In 1993, consumers shunned familiar brand-name products for cheaper generic or off- brand items, which hurt many traditional big-name growth stocks. Uncertainty over President Clinton's health-care reform plan scared many investors away from that sector. Drug company stocks suffered as investors feared these companies would lose the ability to raise prices. FOREIGN STOCK MARKETS 1993's rally in international stocks was a dramatic turnaround for many foreign markets that had previously fallen out of favor. The Morgan Stanley EAFE (Europe, Australia, Far East) index was up 33%. Slowly falling interest rates and investors' hopes of economic recovery combined to lift stock prices in Europe. The Morgan Stanley Europe index rose 29% in 1993. Falling interest rates, a strengthening yen, and government spending aimed at stimulating economic growth fueled a furious market rally in Japan through late spring, before political instability dragged the market back down. Still, the TOPIX, an index that includes stocks from Japan's larger, better known companies, was up 24% for the year. Emerging markets reaped the biggest international returns. The Morgan Stanley Emerging Markets Index shot up 73% in 1993. Returns in markets like Hong Kong up 117%, Malaysia up 110%, and Brazil up 78% reflected a favorable outlook for increases in corporate profits as economic reforms began to take hold in these areas. U.S. BOND MARKETS Most all bond markets around the world richly rewarded investors in 1993. The U.S. bond market posted relatively strong numbers on a historical basis. Falling interest rates through most of the year fueled gains. The yield on the benchmark 30-year Treasury bond hit a three decade low in mid-October, yielding 5.79%. By year-end, mild inflation fears, fueled by a strengthening economy, had pushed up the yield on the 30-year bond to 6.35%, which slightly dampened overall 1993 results for investors. The Lehman Brothers Aggregate Bond Index - a broad measure of taxable bonds in the U.S. market - returned 9.75% for the year. Falling interest rates and a strengthening economy helped high-yield issues post impressive results. The Merrill Lynch High Yield Master Index rose 17.18%. Mortgage-backed securities continued to be hurt by refinancings; the Lehman Brothers mortgage index was up 6.84% in '93. FOREIGN BOND MARKETS In general, bond investors landed more impressive returns overseas than here at home. Falling interest rates and low inflation fueled strong returns in both developed nations and, more notably, in emerging markets. The Salomon Brothers World Government Bond Index - which measures bond market performance in developed nations including the United States - rose 13.27% for the year. That figure was dwarfed by the J.P. Morgan Emerging Markets Bond Index, which was up 44.17%. VARIABLE INSURANCE PRODUCTS FUND II: INVESTMENT GRADE BOND PORTFOLIO PERFORMANCE UPDATE $10,000 OVER LIFE OF FUND VIP II: Invest. Grade Bond (227) LB Gov't/Corp Int. Bond Index 12/31/88 10000.00 10000.00 01/31/89 10086.91 10105.00 02/28/89 10109.24 10063.57 03/31/89 10172.01 10106.84 04/30/89 10285.31 10308.98 05/31/89 10399.90 10513.10 06/30/89 10600.00 10778.03 07/31/89 10765.35 10998.98 08/31/89 10679.56 10857.09 09/30/89 10721.68 10908.12 10/31/89 10887.68 11139.37 11/30/89 10981.36 11245.19 12/31/89 11026.20 11276.68 01/31/90 11001.10 11204.51 02/28/90 11063.51 11245.97 03/31/90 11097.10 11260.59 04/30/90 11101.81 11221.17 05/31/90 11276.10 11468.04 06/30/90 11364.06 11621.71 07/31/90 11476.87 11783.25 08/31/90 11475.77 11734.94 09/30/90 11520.64 11825.30 10/31/90 11521.36 11962.48 11/30/90 11590.75 12144.31 12/31/90 11711.41 12310.68 01/31/91 11735.02 12436.25 02/28/91 11853.08 12535.74 03/31/91 12053.78 12620.98 04/30/91 12230.87 12758.55 05/31/91 12325.32 12836.38 06/30/91 12348.93 12845.37 07/31/91 12455.18 12989.23 08/31/91 12714.91 13237.33 09/30/91 12951.03 13465.01 10/31/91 13092.70 13618.51 11/30/91 13234.37 13775.12 12/31/91 13629.41 14111.24 01/31/92 13494.10 13982.82 02/29/92 13567.95 14037.36 03/31/92 13543.25 13982.61 04/30/92 13642.02 14105.66 05/31/92 13851.90 14324.30 06/30/92 14012.39 14536.30 07/31/92 14296.34 14825.57 08/31/92 14382.76 14973.82 09/30/92 14555.60 15177.47 10/31/92 14370.42 14980.16 11/30/92 14333.38 14923.24 12/31/92 14536.35 15123.21 01/31/93 14841.12 15416.60 02/28/93 15093.06 15660.18 03/31/93 15159.37 15722.82 04/30/93 15252.21 15848.60 05/31/93 15278.73 15813.74 06/30/93 15570.52 16062.01 07/31/93 15676.62 16100.56 08/31/93 15955.14 16356.56 09/30/93 16034.71 16423.62 10/31/93 16114.29 16467.97 11/30/93 16034.71 16375.75 12/31/93 16129.92 16451.07 $10,000 OVER LIFE OF FUND: LET'S SAY $10,000 WAS INVESTED IN INVESTMENT GRADE BOND PORTFOLIO ON DECEMBER 31, 1988, SHORTLY AFTER THE FUND STARTED. BY DECEMBER 31, 1993, THE VALUE OF THE INVESTMENT WITH DIVIDENDS REINVESTED WOULD HAVE GROWN TO $16,130 - A 61.30% INCREASE ON THE INITIAL INVESTMENT. FOR COMPARISON, LOOK AT HOW A $10,000 INVESTMENT IN THE LEHMAN BROTHERS INTERMEDIATE GOVERNMENT - CORPORATE BOND INDEX (WITH DIVIDENDS REINVESTED) DID OVER THE SAME PERIOD. IT WOULD HAVE GROWN TO $16,451 - A 64.51% INCREASE. AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED DECEMBER 31, 1993 One Year Five Years Life of Fund INVESTMENT GRADE BOND PORTFOLIO 10.96% 10.03% 9.99% LEHMAN BROTHERS INTERMED. GOV'T/CORP 8.79% 10.47% n/a BOND INDEX THE CHARTS ABOVE SHOW INVESTMENT GRADE BOND PORTFOLIO'S TOTAL RETURNS, WHICH INCLUDE CHANGES IN SHARE PRICE, AND REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS. FIGURES FOR THE LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX, A BROAD MEASURE OF THE PERFORMANCE OF THE U.S. BOND MARKET, INCLUDE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS. FIGURES FOR MORE THAN ONE YEAR ASSUME A STEADY COMPOUNDED RATE OF RETURN AND ARE NOT THE FUND'S YEAR-BY-YEAR RESULTS, WHICH FLUCTUATED OVER THE PERIODS SHOWN. THE LIFE OF FUND FIGURES ARE FROM COMMENCEMENT OF OPERATIONS, DECEMBER 5, 1988. PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL CHARGES, IT WOULD BE LOWER. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. PRINCIPAL AND INVESTMENT RETURN WILL VARY AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU WITHDRAW YOUR MONEY. VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO PERFORMANCE UPDATE $10,000 OVER LIFE OF FUND VIP II: Asset Mgr (228) S&P 500 Fidelity Composite (Asset Alloc.) 09/30/89 10000.00 10000.00 10000.00 10/31/89 10020.02 9768.00 10057.20 11/30/89 10060.06 9967.27 10176.98 12/31/89 10091.10 10206.48 10276.92 01/31/90 9868.42 9521.63 10029.14 02/28/90 9969.64 9644.46 10093.23 03/31/90 10050.61 9900.03 10192.55 04/30/90 9919.03 9652.53 10098.47 05/31/90 10425.10 10593.65 10527.96 06/30/90 10506.08 10521.62 10593.55 07/31/90 10485.83 10487.95 10658.17 08/31/90 10141.70 9539.84 10328.51 09/30/90 9929.15 9075.25 10236.17 10/31/90 9979.76 9036.22 10309.57 11/30/90 10465.59 9619.96 10618.75 12/31/90 10769.23 9888.36 10792.69 01/31/91 11284.56 10319.49 10998.50 02/28/91 11726.27 11057.34 11273.90 03/31/91 11915.57 11324.93 11396.34 04/30/91 12094.35 11352.11 11471.10 05/31/91 12367.79 11842.52 11653.26 06/30/91 12146.94 11300.13 11502.23 07/31/91 12451.93 11826.72 11733.43 08/31/91 12704.33 12107.01 11942.28 09/30/91 12777.95 11904.82 11999.01 10/31/91 12862.08 12064.35 12105.80 11/30/91 12651.75 11578.15 12022.39 12/31/91 13198.62 12902.69 12614.73 01/31/92 13366.89 12662.70 12476.86 02/29/92 13626.48 12827.32 12556.58 03/31/92 13593.27 12577.19 12465.80 04/30/92 13792.52 12946.96 12619.13 05/31/92 13936.42 13010.40 12743.05 06/30/92 13925.36 12816.54 12748.65 07/31/92 14157.81 13340.74 13094.91 08/31/92 14113.54 13067.25 13044.62 09/30/92 14202.09 13221.45 13188.90 10/31/92 14224.23 13267.72 13136.41 11/30/92 14534.17 13720.15 13311.65 12/31/92 14744.49 13888.91 13474.85 01/31/93 15010.16 14005.57 13643.28 02/28/93 15150.93 14196.05 13833.47 03/31/93 15579.84 14495.59 13975.40 04/30/93 15672.57 14144.79 13890.43 05/31/93 15939.19 14523.87 14039.61 06/30/93 16066.71 14565.99 14188.71 07/31/93 16263.77 14507.73 14206.88 08/31/93 16739.05 15057.57 14556.36 09/30/93 16750.64 14941.63 14541.52 10/31/93 17202.74 15250.92 14691.00 11/30/93 17179.55 15106.04 14577.88 12/31/93 17875.08 15288.82 14678.76 $10,000 OVER LIFE OF FUND: LET'S SAY $10,000 WAS INVESTED IN ASSET MANAGER PORTFOLIO ON SEPTEMBER 30, 1989, SHORTLY AFTER THE FUND STARTED. BY DECEMBER 31, 1993, THE VALUE OF THE INVESTMENT WITH DIVIDENDS REINVESTED WOULD HAVE GROWN TO $17,875 - A 78.75% INCREASE ON THE INITIAL INVESTMENT. FOR COMPARISON, LOOK AT HOW A $10,000 INVESTMENT IN THE S&P 500 (WITH DIVIDENDS REINVESTED) DID OVER THE SAME PERIOD. IT WOULD HAVE GROWN TO $15,289 - A 52.89% INCREASE. YOU CAN ALSO LOOK AT HOW THE ASSET ALLOCATION COMPOSITE INDEX, A HYPOTHETICAL COMBINATION OF UNMANAGED INDICES, DID OVER THE SAME PERIOD. REFLECTING THE FUND'S NEUTRAL MIX OF 40% STOCKS, 40% BONDS, AND 20% SHORT-TERM INSTRUMENTS, THIS INDEX COMBINES RETURNS FROM THE S&P 500 52.89%, LEHMAN BROTHERS TREASURY BOND INDEX 54.22%, AND THE SALOMON BROTHERS 3-MONTH T-BILL TOTAL RATE OF RETURN INDEX 24.29%. WITH DIVIDENDS AND INTEREST, IF ANY, REINVESTED, A $10,000 INVESTMENT IN THE INDEX WOULD HAVE GROWN TO $14, 679 - A 46.79% INCREASE. AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED DECEMBER 31, 1993 One Year Life of Fund ASSET MANAGER PORTFOLIO 21.23% 14.35% S&P 500(Registered trademark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ndex 500 (157) S&P 500 08/27/92 10000.00 10000.00 08/31/92 10014.00 10018.36 09/30/92 10130.00 10136.58 10/31/92 10152.00 10172.06 11/30/92 10498.00 10518.92 12/31/92 10630.67 10648.31 01/31/93 10707.47 10737.75 02/28/93 10856.71 10883.79 03/31/93 11095.85 11113.43 04/30/93 10822.26 10844.49 05/31/93 11103.96 11135.12 06/30/93 11132.33 11167.41 07/31/93 11081.67 11122.74 08/31/93 11501.18 11544.30 09/30/93 11407.96 11455.40 10/31/93 11641.02 11692.53 11/30/93 11527.53 11581.45 12/31/93 11666.05 11721.59 $10,000 OVER LIFE OF FUND: LET'S SAY $10,000 WAS INVESTED IN INDEX 500 PORTFOLIO ON AUGUST 27, 1992, WHEN THE FUND STARTED. BY DECEMBER 31, 1993, THE VALUE OF THE INVESTMENT WITH DIVIDENDS REINVESTED WOULD HAVE GROWN TO $11,666 - A 16.66% INCREASE ON THE INITIAL INVESTMENT. FOR COMPARISON, LOOK AT HOW A $10,000 INVESTMENT IN THE S&P 500 (WITH DIVIDENDS REINVESTED) DID OVER THE SAME PERIOD. IT WOULD HAVE GROWN TO $11,722 - A 17.22% INCREASE. AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED DECEMBER 31, 1993 One Year Life of Fund INDEX 500 PORTFOLIO 9.74% 12.11% S&P 500(Registered trademark) 10.08% 12.51% THE CHARTS ABOVE SHOW INDEX 500 PORTFOLIO'S TOTAL RETURNS, WHICH INCLUDE CHANGES IN SHARE PRICE, AND REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS. FIGURES FOR THE S&P 500 INDEX, A BROAD MEASURE OF THE PERFORMANCE OF THE U.S. BOND MARKET, INCLUDE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS. FIGURES FOR MORE THAN ONE YEAR ASSUME A STEADY COMPOUNDED RATE OF RETURN AND ARE NOT THE FUND'S YEAR-BY-YEAR RESULTS, WHICH FLUCTUATED OVER THE PERIODS SHOWN. THE LIFE OF FUND FIGURES ARE FROM COMMENCEMENT OF OPERATIONS, AUGUST 27, 1992. THE ADVISER HAS VOLUNTARILY AGREED TO LIMIT THE EXPENSES OF THE FUND TO .28% OF THE FUND'S AVERAGE NET ASSETS. IF EXPENSES HAD NOT BEEN LIMITED, RETURNS WOULD HAVE BEEN LOWER. PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL CHARGES, IT WOULD BE LOWER. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. PRINCIPAL AND INVESTMENT RETURN WILL VARY AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU WITHDRAW YOUR MONEY. A MESSAGE FROM DONALD TAYLOR, PORTFOLIO MANAGER OF INVESTMENT GRADE BOND PORTFOLIO The fund finished well ahead of the average intermediate-term investment-grade bond fund, which returned 9.52%, according to Lipper Analytical Services. Several factors helped. First, when interest rates fell in '93, the yields of intermediate- and longer-maturity bonds dropped more than their shorter-term counterparts, which meant the longer bonds had stronger price gains. This helped the fund, which had increased its investment in bonds with maturities of 20 years or longer from 4.2% at the end of June to 7.7% at the end of December. Second, as rates fell, the fund benefited from a barbell structure. That meant balancing the longer bonds with a heavy investment in short-term issues. The fund's stake in bonds with maturities of three years or less was 40.5% on December 31. Third, during the period, I increased the fund's stake in longer-term Treasuries and reduced its investment in corporate bonds, from 53.7% at the end of June to 47.2% by year's end. Banks and financial issues remained the bulk of the corporates. Low interest rates and an improving economy helped the balance sheets of banks. Corporate bonds were cheap relative to Treasuries of comparable maturities through most of the year, but by year-end, the disparity had lessened, and corporates were no longer as attractive. Mortgage-backed securities had disappointing results as homeowners took advantage of low interest rates to refinance mortgages. That led to prepayment of many mortgage bonds, which hurt investors. Now I think the worst is over. As rates level out, possibly on the way back up, refinancings have slowed. Plus, mortgage bonds are usually higher-yielding than Treasury issues. Both of those reasons led me to increase the fund's stake in mortgages from 13.7% on June 30 to 17.7% on December 31. Overseas investments often offered better opportunities than those here at home in '93. By year end, the fund's stake in foreign bonds was 26.6%: 9.7% in dollar-denominated securities and 16.9% in non-dollar denominated securities. The fund concentrated on government issues in Mexico, Europe and Japan. Mexican Cetes - short-term issues that are the Mexican equivalent of U.S. Treasury bills - provided double-digit returns for much of the year. In Europe, bonds issued by the governments of France, Denmark and Sweden, among others, had price gains when interest rates fell. Also, 10-year government issues from Japan helped the fund before I sold them in late fall. Among the dollar-denominated investments, I bought a mix of corporate and government issues. Because these bonds are issued by foreign countries and companies in the U.S. bond market, they don't carry the same currency risk as the non-dollar denominated issues. I think the double-digit returns we've seen in the bond market this year will be hard to repeat in '94. The bulk of the drop in interest rates appears to be over. In the near term, short-term interest rates look like they may be heading back up. But I don't see signs of a serious inflation threat. Plus, long-term rates should move within a narrow range - 6 to 6.5% - - and may again fall below 6%. Though it should be more difficult to achieve the price gains we saw in '93 due to the falling rates, there are reasons to remain optimistic about '94. A MESSAGE FROM BOB BECKWITT, PORTFOLIO MANAGER OF ASSET MANAGER PORTFOLIO The fund enjoyed a strong year for three reasons. First was its large stake in foreign stocks, 17% of investments at the end of December. The EAFE index - which tracks stocks in Europe, Australia and the Far East - rose 32.56% during the year ended December 31, 1993, three times the growth in the S&P 500. I emphasized Japan, where stocks were undervalued in the wake of the 1991 and 1992 broad market decline; France, where the government has been lowering taxes and the inflation outlook is good; and the United Kingdom, which has led the rest of Europe in emerging from recession. In August, I began taking profits in Japan and investing more heavily in Korean companies like Korea Electric, a fast-growing utility. I also invested heavily in Mexican stocks in anticipation of NAFTA's passage. Second were emerging market bonds, about 14% of the fund at the end of December. These are bonds issued by governments or corporations in developing countries. In the fund's case, that means mainly Mexico and Argentina, but sometimes also Brazil, Morocco and others. Lately these bonds have outperformed comparable domestic bonds by a factor of three. Third was the fund's low cash position, about 15% at the end of the period, compared to 46% stocks and 38% bonds. Stocks and bonds easily outperformed cash during the period. Junk bonds - those rated BB or lower by one of the bond rating agencies - also contributed to the fund's performance. Lately, 10-year Treasuries have been yielding about 5.25%. If I can get 9.75% on a junk bond of comparable maturity, and diversify among issuers, I can offset a good chunk of the added credit risk. Finally, the fund's 6% stake in structured notes, which are like customized bonds, helped. As for U.S. stocks, I emphasized finance and technology. When interest rates are low, banks profit because of the wide gap between the cost of funds and the interest earned on loans. Among the fund's largest investments was Citicorp - up more than 65% in 1993 - which stands to profit from an improving economy. Technology, on the other hand, has profited from the trend in industry to replace labor with capital. More and more companies are laying off employees and seeking ways to produce more goods or services at lower cost, often by investing in computers. The fund has large stakes in Compaq, whose strong computer sales in the U.S. and the Far East have offset weakness in Europe; Oracle Systems, a database software company; and Cabletron and Cisco Systems, both computer networkers. All made money for the fund in 1993. Most of the fund's health stocks underperformed the broader market, although at about 3% of the fund's investments during the period, the damage was slight. I also missed a chance to profit from the gold rally since the fund's stake in precious metals stocks was never more than 1%. Looking ahead, I see moderate movement in the U.S. stock market over the next few months. Stock prices probably can't fall far as long as interest rates remain low, and will rise as corporate earnings improve. Returns are likely to be more in line with the stock market's historical average of 10%. What happens with U.S. bonds depends on interest rates. I think rates may have bottomed out, which limits the upside potential of bonds and increases their risk. What's left, then, are foreign investments, which could continue to grow. A MESSAGE FROM JONATHAN WEED AND JENNIFER FARRELLY, PORTFOLIO MANAGERS OF INDEX 500 PORTFOLIO JENNIFER FARRELLY BEGAN MANAGING THE INDEX 500 PORTFOLIO ON JANUARY 1, 1994. SINCE JOINING FIDELITY IN 1988, SHE HAS MANAGED STOCK AND INDEXED STOCK FUNDS FOR INSTITUTIONAL CLIENTS. JONATHAN WEED: The fund closely tracked the performance of the S&P 500 Index, a broad measure of the performance of U.S. stocks, which was up 10.08% for 1993. Management expenses accounted for the slight difference between the fund's and the index's performance. Automobile companies were one of the biggest contributors to the index's performance, posting gains of 54.8% during the year. The auto sector, which made up 2.7% of the index at year end, benefited from improving consumer confidence. Reassured that the U.S. economy had finally started showing signs of recovery, consumers bumped auto sales up 8.5% over 1992. The rising Japanese yen and improving U.S. quality also encouraged many drivers to "buy American." Semiconductor companies were up 45.5% during 1993, the group's best performance in nearly five years. Semiconductor chip manufacturers - like National Semiconductor - enjoyed a 29% jump in sales, driven mainly by increased demand for personal computers. At year end, semiconductor stocks made up 1.8% of the S&P 500. The year's biggest S&P 500 gainers were gold and precious metal stocks which were up 78.8% for 1993. The group - which includes companies such as American Barrick, Newmont Mining and Placer Dome - made up 0.7% of index at year end. Buoyed by rising gold prices, cost cutting by mining companies and more political stability in South Africa, gold stocks turned in their best performance in nearly a decade. Other precious metals benefited from a sense that the economy was improving and that prices would rise. The potential effects of health-care reform translated into big losses for some groups. Investors abandoned tobacco stocks - down 32.8% for 1993 - when talk surfaced that a tax on cigarettes might be used to fund health-care reform. Tobacco stocks represented 1.9% of the Index on December 31. Hospital supply companies - which make up about 0.5% of the index and include companies such as Baxter International and Medtronic Inc. - - were also down 35% for the year. Separately, Americans increased recycling awareness hurt pollution control stocks, which made up about 0.5% of the S&P 500. These stocks - like WMX Technologies - were the worst performing group in the index, down 35.8% for 1993. JENNIFER FARRELLY: There has been a lot of discussion lately about how high the U.S. stock market is. As long as earnings remain strong, and interest rates are stable, I believe stocks could continue to do well in the near-term. It's difficult to predict what will happen. On average, there's been a 10% market correction every two years. We haven't seen a 10% drop in the market since October 1990. I think it's important to remember that over any period as short as a year, there are a wide range of possibilities. Diversifying investments over a broad range of industries and stocks can help smooth out some market volatility. History shows that over the long-term, stocks have been one of the best performing asset classes. VARIABLE INSURANCE PRODUCTS FUND II: INVESTMENT GRADE BOND PORTFOLIO INVESTMENTS/DECEMBER 31, 1993 (Showing Percentage of Total Value of Investment in Securities) MOODY'S MOODY'S RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE (UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1) CORPORATE BONDS - 47.2% CONVERTIBLE BONDS - 0.7% ENERGY - 0.4% ENERGY SERVICES - 0.4% Halliburton Co. liquid yield option 0%, 3/31/06 A3 $ 1,000,000 $ 485,000 406216AJ RETAIL AND WHOLESALE - 0.3% DRUG STORES - 0.3% Rite Aid Corp. liquid yield option 0%, 7/24/06 A3 1,000,000 427,500 767754AE TOTAL CONVERTIBLE BONDS 912,500 NONCONVERTIBLE BONDS - 46.5% BASIC INDUSTRIES - 1.2% CHEMICALS AND PLASTICS - 0.8% du Pont (E.I.) de Nemours & Co. 7 1/2%, 6/11/99 Aa2 950,000 1,017,260 263991AR IRON AND STEEL - 0.4% Pohang Iron & Steel Ltd. 6 5/8%, 7/1/03 (e) A2 500,000 488,635 730450AB TOTAL BASIC INDUSTRIES 1,505,895 CONSTRUCTION AND REAL ESTATE - 0.4% BUILDING MATERIALS - 0.4% Westinghouse Credit Corp.: 8 3/4%, 10/20/94 Baa3 100,000 103,500 9603969D 9.15%, 7/12/95 Baa3 75,000 78,937 960396ER 8 3/4%, 11/15/96 Baa3 258,000 276,795 960396NF 459,232 ENERGY - 1.7% ENERGY SERVICES - 1.1% McDermott International, Inc.: 10 1/4%, 6/1/95 Baa3 305,000 324,371 580033AK 9 3/8%, 3/15/02 Baa3 450,000 506,884 580033AL Petroliam Nasional Berhad 6 7/8%, 7/1/03 (e) A2 500,000 509,705 716708AA 1,340,960 OIL AND GAS - 0.6% PDV America, Inc. 7 1/4%, 8/1/98 Baa3 260,000 262,275 69329RAA Societe Nationale Elf Aquitaine 7 3/4%, 5/1/99 Aa3 500,000 542,920 833658AC 805,195 TOTAL ENERGY 2,146,155 FINANCE - 32.6% ASSET-BACKED SECURITIES - 4.5% Capital Auto Receivables Asset Trust: 4.70%, 5/15/97 A2 $ 500,000 $ 496,094 139732AR 5.85%, 1/15/98 Aaa 289,836 293,278 139732AE Concord Leasing, Inc. 5.04%, 7/15/98 AAA 569,011 565,499 206993AC Discover Card Trust: 8 3/8%, 6/16/96 Aaa 374,999 378,750 25466LAE 7 1/5%, 4/16/98 Aaa 500,000 521,250 25466LAJ 6 1/8%, 5/15/98 A2 200,000 203,720 25466LAT Ford Credit Auto Loan Master Trust 7 3/8%, 4/15/99 Aaa 500,000 534,850 34527LAB Ford Credit 1991-B Grantor Trust 6 1/2%, 11/15/96 Aaa 16,674 16,924 34527JAA General Motors Acceptance Corp. Grantor Trust 5.70%, 12/15/96 Aaa 17,051 17,232 36187LAA Railcar Trust 7 3/4%, 6/1/04 Aaa 955,620 1,045,209 750755AA Standard Credit Card Master Trust: 9%, 3/10/95 Aaa 1,000,000 1,054,060 853333AB 5 7/8%, 7/7/96 Aaa 500,000 511,562 85333JAS 5,638,428 BANKS - 16.9% Bank of Boston Corp.: 9 1/2%, 8/15/97 Baa2 75,000 84,475 060716AM 3.55%, 8/26/98 (c) Baa2 450,000 439,591 060716AK 6 5/8%, 12/1/05 Baa2 1,000,000 990,000 060716BQ Bank of New York, Inc. 7 5/8%, 7/15/02 Baa1 400,000 427,840 064057AG BankAmerica Corp. 7 3/4%, 7/15/02 A3 500,000 538,830 066050BS Chemical New York NV euro: 0%, 2/16/00 Baa1 1,800,000 1,219,500 1637229C 0%, 2/16/02 Baa1 1,100,000 639,375 1637229E 0%, 2/16/03 A3 946,000 508,475 165993AA Citicorp: 9.47%, 5/22/96 Baa2 750,000 823,492 17303LFD euro 5%, 1/30/98 (c) Baa2 500,000 500,000 71699DAB Citizens & Southern Corp. 5 1/4%, 12/19/97 (c) A3 700,000 707,700 173124AC Continental Bank Corp. 4 1/2%, 5/18/00 (c) Baa3 500,000 499,375 211113AC Czech National Bank Prague euro 7%, 4/6/96 Baa3 175,000 178,937 232840AA Export-Import Bank Korea 7.85%, 11/1/96 A1 275,000 293,645 30215MAA First Bank System, Inc. euro 5 1/4%, 11/30/10 (c) Baa1 900,000 900,000 319279AK MOODY'S MOODY'S RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE (UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1) CORPORATE BONDS - CONTINUED NONCONVERTIBLE BONDS - CONTINUED FINANCE - CONTINUED BANKS - CONTINUED First Fidelity Bancorporation: 9 3/4%, 5/25/95 Baa1 $ 50,000 $ 53,463 320195AA 9 5/8%, 8/15/99 Baa1 500,000 581,165 320195AB First Hawaiian Bank secured 6.93%, 12/1/03 (e) A1 800,000 801,040 320500AA First Maryland Bancorp: 10 3/8%, 8/1/99 Baa1 500,000 602,075 320806AE 8 3/8%, 5/15/02 Baa1 300,000 336,000 320806AF Kansallis-Osake-Pankki euro 10%, 3/7/96 A3 500,000 544,250 481992AB KeyCorp 8.40%, 4/1/99 A3 310,000 341,787 493263AC Korea Development Bank: 8.67%, 3/15/95 A1 225,000 236,333 50063HAC 8.68%, 3/15/95 A1 100,000 105,048 50063HAH 8.90%, 3/12/96 A1 200,000 215,646 50063HAG 7%, 7/15/99 A1 300,000 310,854 500630AE MBNA American Bank, NA 7 1/4%, 9/15/02 A3 700,000 736,897 55262FLN Marine Midland Banks, Inc. 8 5/8%, 3/1/97 Baa2 250,000 272,300 568287AE Mellon Financial Co.: 6 1/8%, 11/15/95 A3 225,000 231,320 585510BY 6 1/2%, 12/1/97 A3 200,000 208,010 585510BZ Mercantile Bancorporation, Inc. 7 5/8%, 10/15/02 Baa1 700,000 751,625 587342AC Meridian Bancorp, Inc. 5 1/4%, 12/1/96 (c) Baa1 900,000 901,125 589580AA Midland American Capital Corp. gtd.12 3/4%, 11/15/03 A2 815,000 1,045,645 597418AA Moore Financial Group, Inc. 5 1/4%, 11/30/97 (c) Baa1 250,000 250,000 615756AC NCNB Corp. 9 1/8%, 10/15/01 A3 500,000 582,035 628855AP National City Corp. 5 1/4%, 1/31/97 (c) A2 850,000 848,937 635405AE Security Pacific Corp. 10.05%, 5/1/95 A2 300,000 322,632 81482E9A Siam Commerce Bank Co. Ltd. 6 3/4%, 11/29/94 - THB 20,000,000 784,794 7885109M Signet Banking Corp. 5 1/4%, 5/15/97 (c) Baa2 100,000 100,250 065446AP Sovran Financial Corp. 9 3/4%, 6/15/99 A3 $ 550,000 $ 642,284 846104AE Summit Bancorporation 11 7/8%, 2/1/95 Baa2 210,000 226,235 866008AA Union Commerce Corp. 7 7/8%, 4/15/98 A3 98,000 98,000 906042AB Wells Fargo & Co. euro 5 1/4%, 2/28/97 (c) Baa2 400,000 400,000 949740BA 21,280,985 CREDIT AND OTHER FINANCE - 7.6% Aristar, Inc. 8.55%, 6/1/95 Baa1 125,000 131,750 040420AK Associates Corp. North America 12 1/2%, 9/15/94 A1 800,000 845,264 046003BH Beneficial Corp.: 9 3/8%, 6/2/95 A2 300,000 320,460 081990VN 9.40%, 2/7/96 A2 150,000 163,290 08172LHA Caterpillar Financial Services Corp. 7.14%, 4/10/95 (e) A3 150,000 154,935 14912LHP Chrysler Financial Corp.: 6%, 4/15/96 Baa2 500,000 505,440 171205CX 6.40%, 6/17/97 Baa3 1,000,000 1,030,770 17120QBA Fleet Mortgage Group 6 1/2%, 9/15/99 A3 1,000,000 1,024,000 339012AB Ford Motor Credit Co.: 6 1/2%, 1/17/95 A2 350,000 358,869 345401GN euro 9 5/8%, 2/27/96 A2 250,000 273,125 3453979H General Electric Capital Corp. Peso 13.31%, 10/29/96 (c)(e) Aaa 900,000 900,000 369995YN General Motors Acceptance Corp.: 8.40%, 2/22/94 Baa1 350,000 352,005 37042LSU 6 1/4%, 2/25/94 Baa1 100,000 100,328 37042MGU 7.40%, 4/3/95 Baa1 200,000 207,006 37042MKU 8.60%, 4/5/95 Baa1 300,000 314,850 37042LWE 9.40%, 5/18/95 Baa1 200,000 212,732 37042KZN Greyhound Financial Corp. 8 1/4%, 3/11/97 Baa2 460,000 492,384 398037AK Household Finance Corp.: 9 1/4%, 2/15/95 A2 350,000 368,756 441812DQ 7.80%, 11/1/96 A2 350,000 374,955 441812EB Industrial Finance Corp. 7 1/4%, 12/2/96 - THB 10,000,000 392,397 457998AB Margaretten Financial Corp. 6 3/4%, 6/15/00 Baa3 975,000 998,107 566576AA Maryland National Corp. 5 1/4%, 9/5/97 (c) A3 100,000 100,000 574162AE 9,621,423 MOODY'S MOODY'S RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE (UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1) CORPORATE BONDS - CONTINUED NONCONVERTIBLE BONDS - CONTINUED FINANCE - CONTINUED INSURANCE - 1.7% ITT Hartford Group, Inc. 8 1/5%, 10/15/98 A1 $ 650,000 $ 716,241 45068HAA Metropolitan Life Insurance Co. 6 3/10%, 11/1/03 (e) Aa3 1,000,000 989,500 592173AA New York Life Insurance Co. 6 2/5%, 12/15/03 (e) Aa2 500,000 500,200 64952GAA 2,205,941 SAVINGS AND LOANS - 1.9% Golden West Financial Corp.: 10 1/4%, 5/15/97 A3 350,000 397,838 381317AB 7 7/8%, 1/15/02 A3 500,000 545,050 381317AE Great Western Bank F.S.B. 9 1/2%, 8/22/94 A3 100,000 103,492 391417XC Household Bank 8.45%, 12/10/02 A3 1,000,000 1,119,900 441800GF World Savings & Loan Association (Oakland CA) 9.90%, 7/1/00 A2 200,000 234,930 981507AB 2,401,210 TOTAL FINANCE 41,147,987 MEDIA AND LEISURE - 2.3% BROADCASTING - 1.4% Telecommunications, Inc. 6.58%, 2/15/05 Baa3 700,000 735,000 87924FAU Time Warner, Inc. 6.05%, 7/1/95 (e) Ba1 1,000,000 1,015,200 887315AR 1,750,200 PUBLISHING - 0.9% News America Holdings, Inc.: gtd. 9 1/8%, 10/15/99 Ba1 500,000 556,075 652478AD 8 5/8%, 2/1/03 Ba1 600,000 655,908 652478AG 1,211,983 TOTAL MEDIA AND LEISURE 2,962,183 NONDURABLES - 1.9% BEVERAGES - 0.9% Coca-Cola Enterprises, Inc.: 7 7/8%, 2/1/02 A3 500,000 552,840 191219AM 8 1/2%, 2/1/22 A3 500,000 571,250 191219AP 1,124,090 TOBACCO - 1.0% Philip Morris Companies, Inc.: 8 7/8%, 7/1/96 A2 $ 100,000 $ 108,847 718154AY 8 5/8%, 3/1/99 A2 1,000,000 1,114,900 718154BL 1,223,747 TOTAL NONDURABLES 2,347,837 RETAIL AND WHOLESALE - 1.2% GENERAL MERCHANDISE STORES - 0.5% Dayton Hudson Corp. 8.94%, 6/30/94 A3 100,000 102,517 239992BV Sears Roebuck & Company 9%, 9/15/96 Baa1 475,000 522,310 812387AU 624,827 GROCERY STORES - 0.7% Great Atlantic & Pacific Tea, Inc. 9 1/8%, 1/15/98 Baa3 475,000 521,821 390064AA Supervalu, Inc. 7.80%, 11/15/02 A3 400,000 430,472 868536AB 952,293 TOTAL RETAIL AND WHOLESALE 1,577,120 SERVICES - 0.2% LEASING AND RENTAL - 0.2% Ryder System, Inc. 9 1/4%, 5/15/01 Baa1 200,000 231,188 783549AY TECHNOLOGY - 1.1% COMPUTERS AND OFFICE EQUIPMENT - 0.8% Comdisco, Inc.: 9 3/4%, 1/15/97 Baa2 200,000 222,640 7 3/4%, 1/29/97 Baa2 700,000 20033RBV 736,624 200336AF 959,264 ELECTRONICS - 0.3% Toshiba Corp. euro 10 3/4%, 12/5/95 A1 400,000 438,500 8914939B TOTAL TECHNOLOGY 1,397,764 TRANSPORTATION - 1.3% AIR TRANSPORTATION - 1.3% AMR Corp. (Del.) 9.76%, 1/11/96 Baa2 100,000 107,128 00176LAV Delta Air Lines, Inc. 8.54%, 1/2/07 Baa3 480,000 472,464 247361XK Qantas Airways Ltd. 6 5/8%, 6/30/98 (e) Baa2 500,000 505,180 74726MAA Southwest Airlines Co. 8 3/4%, 10/15/03 Baa1 500,000 572,700 844741AE 1,657,472 MOODY'S MOODY'S RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE (UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1) CORPORATE BONDS - CONTINUED NONCONVERTIBLE BONDS - CONTINUED UTILITIES - 2.6% ELECTRIC UTILITY - 2.2% Castle Peak Power Ltd. 6.87%, 8/1/03 (h) A3 $ 1,000,000 $ 995,000 537994AA Iberdrola International BV gtd. 7 1/8%, 6/1/03 (e) A1 1,300,000 1,347,125 450733AB Long Island Lighting Co. 10 1/4%, 6/15/94 Baa3 450,000 461,484 542671CB 2,803,609 GAS - 0.4% Houston Natural Gas Corp. 12 1/8%, 4/15/95 Baa2 150,000 163,435 442272AL Panhandle Eastern Pipe Line Co. 9 7/8%, 10/15/96 Baa2 250,000 264,000 698465AW 427,435 TOTAL UTILITIES 3,231,044 TOTAL NONCONVERTIBLE BONDS 58,663,877 TOTAL CORPORATE BONDS (Cost $57,399,488) 59,576,377 U.S. TREASURY OBLIGATIONS - 9.2% 8%, 11/15/21 Aaa 7,500,000 8,878,125 912810EL Stripped Coupon (d): 0%, 8/15/06 Aaa 3,300,000 1,478,664 912833CQ 0%, 5/15/11 Aaa 4,100,000 1,274,116 912833JW TOTAL U.S. TREASURY OBLIGATIONS (Cost $11,121,715) 11,630,905 U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 17.7% FEDERAL HOME LOAN MORTGAGE CORPORATION - 1.6% 7.95%, 1/15/17 Aaa 2,000,000 2,049,360 312905GJ FEDERAL NATIONAL MORTGAGE ASSOCIATION - 2.9% 7.00%, 6/1/19 Aaa 500,000 506,875 31358HQV 7.50%, 2/1/05 to 2/1/21 Aaa 3,000,000 3,068,440 12%, 3/1/17 Aaa 87,645 99,204 31362TU2 3,674,519 GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 13.2% 7.50%, 2/15/23 to 12/15/23 Aaa 2,928,997 3,036,083 36203N3L 8.00%, 2/15/17 to 5/15/23 Aaa 3,111,103 3,275,406 36203AMK 9.50%, 12/15/20 (g) Aaa $ 2,700,000 $ 2,921,076 36216T9X 10.00%, 1/15/19 (g) Aaa 2,000,000 2,205,620 36216T9X 10.00%, 7/15/13 to 6/15/20 Aaa 4,656,193 5,131,969 3621033Y 16,570,154 TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Cost $22,368,848) 22,294,033 FOREIGN GOVERNMENT OBLIGATIONS - 18.0% Alberta Province 9 1/4%, 4/1/00 Aa 1,400,000 1,647,394 013051BA Bank Negara Malaysia: 0%, 3/9/94 - MYR 750,000 274,853 06399DAE 0%, 5/11/94 - MYR 1,600,000 579,378 06399DAF 0%, 6/22/94 - MYR 1,800,000 651,471 06399DAQ 0%, 6/24/94 - MYR 340,000 123,523 06399DAM 0%, 9/7/94 - MYR 880,000 313,645 06399DAP Bank of Indonesia (SBI) 0%, 5/19/94 (f) - IDR 1,650,000 751,080 06099MAC British Columbia Province 7%, 1/1/03 Aa1 500,000 528,160 110709BA Canadian Government 8 1/4%, 3/1/97 Aaa CAD 590,000 485,213 136992JW Danish Government Bullet: 8%, 5/15/03 Aa1 DKK 3,765,000 626,401 249998AG 7%, 12/15/04 Aa1 DKK 11,395,000 1,793,880 249998AV French Government OAT: 8 1/2%, 11/25/02 Aaa FRF 1,800,000 365,048 3517779U 8 1/2%, 4/25/03 Aaa FRF 10,380,000 2,117,563 351996AQ Government of New Zealand 8%, 4/15/04 Aa3 NZD 1,930,000 1,254,596 6501629K Kingdom of Sweden 10 3/4%, 1/23/97 Aa2 SEK 4,500,000 602,236 8702009Q Malaysian Government: 0%, 4/29/94 - MYR 700,000 256,105 5609049J 0%, 6/24/94 - MYR 600,000 217,981 5609049R 9 7/8%, 9/27/00 - 1,000,000 1,200,240 560904AC Manitoba Province Canada 6 3/4%, 3/1/03 A1 500,000 514,500 563469DG Mexican Government: Adjustabanos 5.30%, 7/14/94 AA- MXN 2,533,300 1,074,450 597998SV Bondes 8.627%, 9/29/94 (c) AA- MXN 330,000 106,632 597998SX Cetes 0%, 1/6/94 to 10/13/95 - MXN 16,565,070 4,885,856 597998TC Providence Quebec: 8.24%, 2/28/96 Aa3 500,000 534,565 74815HAH 7 1/2%, 7/15/02 Aa3 500,000 534,375 748148NS MOODY'S RATINGS PRINCIPAL VALUE (UNAUDITED)(B) AMOUNT (A) (NOTE 1) FOREIGN GOVERNMENT OBLIGATIONS - CONTINUED United Kingdom Great Britain & Northern Ireland 12%, 11/20/98 Aaa GBP 386,000 $ 717,997 9107689R Victorian Public Authorities Finance Agency 8.45%, 10/1/01 A1 500,000 565,715 926391AC TOTAL FOREIGN GOVERNMENT OBLIGATIONS (Cost $22,247,217) 22,722,857 COLLATERALIZED MORTGAGE OBLIGATIONS - 1.1% MBNA Trust 9 1/2%, 10/25/20 Aaa 63,476 64,826 574112AA Prudential Home Mortgage Securities 6 3/4%, 8/25/08 AAA 1,000,000 1,009,380 74434TQW Ryland Mortgage Securities Corp. 7 1/2%, 8/1/23 Aaa 374,106 374,808 783766NT TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $1,480,713) 1,449,014 OTHER SECURITIES - 2.0% COMMERCIAL PAPER - 2.0% Bancomer 0%, 12/21/95 MXN 3,850,772 999,762 05999KBJ Nacional Financiera SNC: 0%, 5/19/94 MXN 1,506,744 464,054 66299CAE 0%, 8/3/95 MXN 3,730,500 1,007,333 66299CAK TOTAL OTHER SECURITIES (Cost $2,472,835) 2,471,149 MATURITY AMOUNT REPURCHASE AGREEMENTS - 4.8% Investments in repurchase agreements, (U.S. Treasury obligations), in a joint trading account at 3.23% dated 12/31/93 due 1/3/94 $ 6,087,638 $ 6,086,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $123,176,816) $ 126,230,335 Forward Foreign Currency Contracts SETTLEMENT UNREALIZED CONTRACTS TO BUY DATE(S) VALUE GAIN/(LOSS) 1,210,132 FIM 2/17/94 $ 207,143 - 118,942,488 JPY 1/10/94 to 1/20/94 1,063,943 $ (41,757) TOTAL CONTRACTS TO Buy (Payable amount $1,312,843) $ 1,271,086 $ (41,757) THE VALUE OF CONTRACTS TO BUY AS A PERCENTAGE OF TOTAL INVESTMENT IN SECURITIES - 1.0% SETTLEMENT UNREALIZED CONTRACTS TO SELL DATE(S) VALUE GAIN/(LOSS) 616,653 CAD 2/8/94 $ 466,255 $ 3,935 206,988 DEM 2/28/94 118,537 1,463 16,455,675 DKK 2/2/94 to 2/7/94 2,412,605 14,256 1,210,132 FIM 2/17/94 207,143 (1,339) 14,545,033 FRF 1/27/94 to 2/28/94 2,450,311 (2,560) 444,795 GBP 3/14/94 654,355 7,054 131,960,088 JPY 1/10/94 to 2/28/94 1,180,579 65,510 5,105,101 NOK 2/25/94 608,107 15,060 20,058,100 THB 2/17/94 784,684 5,316 TOTAL CONTRACTS TO SELL (Receivable amount $8,991,271) $ 8,882,576 $ 108,695 THE VALUE OF CONTRACTS TO SELL AS A PERCENTAGE OF TOTAL INVESTMENT IN SECURITIES - 7.0% CURRENCY TYPE ABBREVIATIONS: GBP - British pound CAD - Canadian dollar DKK - Danish krone FIM - Finnish markka FRF - French franc DEM - German Deutsche mark IDR - Indonesian rupiah JPY - Japanese yen MYR - Malaysian ringgit MXN - Mexican peso NZD - New Zealand dollar NOK - Norwegian krone SEK - Swedish krona THB - Thai baht LEGEND: (e) Principal amount is stated in United States dollars unless otherwise noted. (f) Standard & Poor's Corporation credit ratings are used in the absence of a rating by Moody's Investors Service, Inc. (g) The coupon rate shown on floating or adjustable rate securities represents the rate at period end. (h) Interest Only Strips represent the right to receive the monthly interest payments on an underlying pool of mortgage loans. These securities are subject to the risk of accelerated principal paydowns. The principal amount represents the notional amount on which current interest is calculated. (i) 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 $7,211,520 or 5.9% of net assets. (j) Principal amount in thousands. (k) Security purchased on a delayed delivery basis (see Note 2 of Notes to Financial Statements). (l) 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 Castle Peak Power Ltd. 6.87%, 8/1/03 6/29/93 $1,000,000 OTHER INFORMATION: Purchases and sales of securities, other than short-term securities, aggregated $104,301,896 and $62,153,336, respectively, of which U.S. government and government agency obligations aggregated $57,465,563 and $38,480,206, respectively. The composition of long-term debt holdings as a percentage of total value of investment in securities, is as follows (ratings are unaudited): MOODY'S S&P RATINGS RATINGS Aaa, Aa, A 62.7% AAA, AA, A 67.0% Baa 18.2% BBB 16.0% Ba 3.2% BB 1.3% B 0.0% B 0.0% 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 0.9%. Distribution of investments by country, as a percentage of total value of investment in securities, is as follows: United States 71.8% Mexico 9.3 Canada 3.5 Malaysia 3.1 France 2.5 Denmark 2.0 Korea 1.3 New Zealand 1.0 Australia 1.0 Others (individually less than 1%) 4.5 TOTAL 100.0% INCOME TAX INFORMATION: At December 31, 1993, the aggregate cost of investment securities for income tax purposes was $123,212,675. Net unrealized appreciation aggregated $3,017,660, of which $3,728,849 related to appreciated investment securities and $711,189 related to depreciated investment securities. The fund hereby designates $201,000 as a capital gain dividend for the purpose of the dividend paid deduction. INVESTMENT GRADE BOND PORTFOLIO FINANCIAL STATEMENTS Statement of Assets and Liabilities DRAFT
December 31, 1993 ASSETS Investment in securities, at value (including repurchase agreements of $6,086,000) (cost $123,176,816) (Notes 1 $ 126,230,335 and 2) - See accompanying schedule Long foreign currency contracts held, at value (cost $1,312,843) (Notes 2 and 7) 1,271,086 Short foreign currency contracts (Notes 2 and 7) $ (8,882,576) Contracts held, at value Receivable for contracts held 8,991,271 108,695 Cash 2,077 Receivable for investments sold 853,533 Receivable for fund shares sold 221,919 Interest receivable 1,693,645 Total assets 130,381,290 LIABILITIES Payable for foreign currency contracts held (Notes 1 and 7) 1,312,843 Payable for investments purchased 996,717 Regular delivery Delayed delivery (Note 2) 5,139,509 Net payable for closed foreign currency contracts 2,805 Payable for fund shares redeemed 470,765 Accrued management fee 46,379 Other payables and accrued expenses 35,867 Total liabilities 8,004,885 NET ASSETS $ 122,376,405 Net Assets consist of: Paid in capital $ 119,095,668 Distribution in excess of net investment income (Note 1) (90,327) Accumulated undistributed net realized gain (loss) on investments 250,607 Net unrealized appreciation (depreciation) on: Investment securities 3,053,519 Foreign currency contracts 66,938 NET ASSETS, for 10,659,715 shares outstanding $ 122,376,405 NET ASSET VALUE, offering price and redemption price per share ($122,376,405 (divided by) 10,659,715 shares) $11.48
Statement of Operations DRAFT
Year Ended December 31, 1993 INVESTMENT INCOME $ 7,455,839 Interest EXPENSES Management fee (Note 3) $ 460,983 Transfer agent fees (Note 3) 71,119 Accounting fees and expenses (Note 3) 46,426 Non-interested trustees' compensation 683 Custodian fees and expenses 40,454 Registration fees 12,251 Audit 32,536 Legal 1,018 Miscellaneous 11,622 Total expenses 677,092 Net investment income 6,778,747 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 3) Net realized gain (loss) on: Investment securities 365,358 Foreign currency contracts 100,775 466,133 Change in net unrealized appreciation (depreciation) on: Investment securities 2,362,561 Foreign currency contracts (36,225) 2,326,336 Net gain (loss) 2,792,469 Net increase (decrease) in net assets resulting from operations $ 9,571,216
Statement of Changes in Net Assets DRAFT
YEARS ENDED DECEMBER 31, 1993 1992 INCREASE (DECREASE) IN NET ASSETS Operations $ 6,778,747 $ 4,110,300 Net investment income Net realized gain (loss) on investments 466,133 638,655 Change in net unrealized appreciation (depreciation) on investments 2,326,336 (1,077,703) Net increase (decrease) in net assets resulting from operations 9,571,216 3,671,252 Distributions to shareholders: (6,271,862) (4,178,712) From net investment income In excess of net investment income (20,655) - From net realized gain (466,133) (893,630) In excess of net realized gain (136,034) - Total distributions (6,894,684) (5,072,342) Share transactions 79,979,898 55,197,425 Net proceeds from sales of shares Reinvestment of distributions from: 6,292,517 4,178,712 Net investment income Net realized gain 602,167 893,630 Cost of shares redeemed (40,773,056) (30,105,535) Net increase (decrease) in net assets resulting from share transactions 46,101,526 30,164,232 Total increase (decrease) in net assets 48,778,058 28,763,142 NET ASSETS Beginning of period 73,598,347 44,835,205 End of period (including distributions in excess of net investment income of $(90,327) and $(89,383), $ 122,376,405 $ 73,598,347 respectively) OTHER INFORMATION Shares Sold 6,824,727 4,856,508 Issued in reinvestment of distributions from: 549,679 383,017 Net investment income Net realized gain 52,591 81,818 Redeemed (3,478,667) (2,655,787) Net increase (decrease) 3,948,330 2,665,556
Financial Highlights DRAFT
YEARS ENDED DECEMBER 31, 1993 1992 1991 1990 1989 SELECTED PER-SHARE DATA Net asset value, beginning of period $ 10.970 $ 11.080 $ 9.920 $ 10.140 $ 10.000 Income from Investment Operations .641 .672 .455 .826 .827 Net investment income Net realized and unrealized gain (loss) on investments .559 .058(dagger)(dagger) 1.165 (.220) .160 Total from investment operations 1.200 .730 1.620 .606 .987 Less Distributions (.628) (.680) (.460) (.826) (.827) From net interest income In excess of net investment income (.002) - - - - From net realized gain on investments (.050) (.160) - - (.020) In excess of net realized gain on investments (.010) - - - - Total distributions (.690) (.840) (.460) (.826) (.847) Net asset value, end of period $ 11.480 $ 10.970 $ 11.080 $ 9.920 $ 10.140 TOTAL RETURN 10.96% 6.65% 16.38%# 6.21%# 10.26%# RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 122,376 $ 73,598 $ 44,835 $ 14,348 $ 6,053 Ratio of expenses to average net assets * .68% .76% .80% .80% .80% Ratio of expenses to average net assets before expense .68% .76% 1.16% 2.20% 3.53% reductions * Ratio of net interest income to average net assets 6.85% 7.11% 7.73% 8.26% 8.19% Portfolio turnover rate 70% 119% 128% 122% 67%
# THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. * SEE NOTE 4 OF NOTES TO FINANCIAL STATEMENTS. (dagger)(dagger) THE AMOUNT SHOWN FOR THE FISCAL YEAR ENDED DECEMBER 31, 1992 FOR A SHARE OUTSTANDING THROUGHOUT THAT YEAR DOES NOT ACCORD WITH THE AGGREGATE NET LOSSES ON INVESTMENTS FOR THAT YEAR BECAUSE OF THE TIMING OF SALES AND PUCHASES OF THE FUND SHARES IN RELATION TO FLUCTUATING MARKET VALUES OF THE INVESTMENTS OF THE FUND. VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO INVESTMENTS/DECEMBER 31, 1993 (Showing Percentage of Total Value of Investment in Securities) VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - 42.4% AEROSPACE & DEFENSE - 0.5% AEROSPACE & DEFENSE - 0.2% Aviall, Inc. (b) 825 $ 12,581 05366B10 Boeing Co. 4,800 207,600 09702310 British Aerospace PLC 28,453 173,984 11042010 Flightsafety International, Inc. 41,300 1,414,525 33942310 Martin Marietta Corp. 43,000 1,913,500 57290010 McDonnell Douglas Corp. 1,500 160,500 58016910 Oerlikon-Buhrle Holding Ltd. (Reg.) (b) 1,100 103,495 67199092 Rolls Royce Ltd. Ord. 406,027 971,517 77577910 Samsung Aerospace Industries (b) 4,500 192,343 80399C22 Sundstrand Corp. 8,300 348,600 86732310 Wyman-Gordon Co. (b) 7,600 35,150 98308510 5,533,795 DEFENSE ELECTRONICS - 0.3% E-Systems, Inc. 27,300 1,184,138 26915730 Loral Corp. 107,000 4,039,250 54385910 Raytheon Co. 38,400 2,534,400 75511110 Watkins-Johnson Co. 4,100 81,488 94248610 7,839,276 TOTAL AEROSPACE & DEFENSE 13,373,071 BASIC INDUSTRIES - 2.9% CHEMICALS & PLASTICS - 1.0% Airgas, Inc. (b) 88,300 1,920,525 00936310 Akzo NV Ord. 20,500 1,980,473 01019910 BOC Group 35,825 347,642 09676210 Bayer AG 5,400 1,149,465 07273010 Cabot Corp. 14,800 797,350 12705510 Dongsung Chemical Industry Co. (b) 6,165 161,925 25799V22 Ferro Corp. 15,000 480,000 31540510 GEON 16,400 387,450 37246W10 Georgia Gulf Corp. (b) 40,700 910,663 37320020 Grace (W.R.) & Co. 65,400 2,656,875 38388310 Han Wha 3,000 40,513 40999B22 Hanyang Chemical Corp. (b) 4,500 53,243 41199E22 Hercules, Inc. 8,800 994,400 42705610 Hoechst AG Ord. 2,500 457,370 43439010 IMC Fertilizer Group, Inc. 83,700 3,797,888 44966910 Imperial Chemical Industries Ord. 54,353 641,432 45270440 Lucky Co. Ltd. (b) 64,320 1,243,129 54999E22 Lyondell Petrochemical Co. 21,200 450,500 55207810 Monsanto Co. 21,100 1,548,213 61166210 Oriental Chemical Industry Co. (b) 22,386 668,404 68999C22 Perez Companc Class B (b) 95,600 598,667 71399723 Union Carbide Corp. 63,900 1,429,763 90558110 Vigoro Corp. 37,000 1,119,250 92675410 23,835,140 IRON & STEEL - 0.6% Allegheny Ludlum Industries, Inc. 57,600 $ 1,375,200 01690010 Bethlehem Steel Corp. (b) 38,400 782,400 08750910 British Steel PLC: ADR 33,100 612,350 11101530 Ord. 1,800,765 3,364,558 11101510 Dongkuk Steel Mill Co. (b) 1,500 51,477 25799S22 Geneva Steel Co.: Class A (b) 30,500 518,500 37225210 (warrants) (b) 22,640 203,760 37225212 Hyundai Pipe Co. Ltd. (b) 20,850 410,723 42399D22 Inland Steel Industries, Inc. (b) 46,100 1,527,063 45747210 LTV Corp. (b) 101,200 1,631,850 50192110 Oregon Steel Mills, Inc. 1,000 25,125 68607910 Steel of West Virginia, Inc. (b) 25,100 320,025 85815410 Thyssen AG Ord. 2,000 316,995 88629110 USX-U.S. Steel Group 50,400 2,186,100 90337T10 Wheeling Pittsburgh Corp. (b) 52,100 892,213 96314210 14,218,339 METALS & MINING - 0.7% Alcan Aluminium Ltd. 132,600 2,783,922 01371610 Alumax, Inc. 40,650 873,975 02219710 Aluminum Co. of America 25,900 1,796,813 02224910 Cyprus Amax Minerals Co. 28,500 737,438 23280910 Dae Chang Industrial Co. (b) 6,300 167,032 23399M22 De Beers Consolidated Mines Ltd. ADR 45,900 1,113,075 24025330 Iljin Corp. (b) 7,190 222,697 45199E22 Korea Tungsten Mining Co. (b) 9,682 331,070 50599S22 Noranda, Inc. 204,000 3,993,569 65542210 Poong San Corp. 14,250 259,524 73299522 RTZ Corp. PLC Ord. (b) 80,093 960,575 74974K50 Reynolds Metals Co. 103,200 4,682,700 76176310 Sam Sun Industry (b) 3,360 34,967 81799G22 17,957,357 PACKAGING & CONTAINERS - 0.1% Caradon PLC 44,643 272,982 14091092 Carnaudmetalbox SA (b) 30,500 1,019,758 20999092 Owens-Illinois, Inc. (b) 133,100 1,647,113 69076840 2,939,853 PAPER & FOREST PRODUCTS - 0.5% Arjo Wiggins Appleton PLC 61,208 214,258 04199592 Bowater, Inc. 6,900 158,700 10218310 Bowater PLC Ord. 37,556 251,558 10220010 Champion International Corp. 21,000 700,875 15852510 Chesapeake Corp. 2,900 73,950 16515910 Eagon Industrial Co. Ltd. (b) 4,050 101,357 27099922 Georgia-Pacific Corp. 13,600 935,000 37329810 International Paper Co. 39,000 2,642,250 46014610 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED BASIC INDUSTRIES - CONTINUED PAPER & FOREST PRODUCTS - CONTINUED Kimberly Clark de Mexico Class A 229,800 $ 4,305,976 49499392 Repola OY 49,900 775,672 75999A92 Stone Consolidated Corp. (b) 40,000 453,944 86158K10 Sung Chang Enterprise Co. (b) 4,070 206,740 82699B22 Temple-Inland, Inc. 10,100 508,788 87986810 11,329,068 TOTAL BASIC INDUSTRIES 70,279,757 CONGLOMERATES - 1.4% Alexander & Baldwin, Inc. 19,100 510,925 01448210 Allied-Signal, Inc. 15,100 1,192,900 01951210 America Group Ltd. Class A 25,000 457,192 02351210 Brierley Investments Ltd. 3,581,200 2,761,451 10901410 Canadian Pacific Ltd. Ord. 521,800 8,537,112 13644030 Cydsa SA Class A 26,100 113,357 23299892 Dial Corp. (The) 14,400 581,400 25247010 Grupo Carso SA de CV Class A-1 (b) 880,100 9,605,728 40099594 Hanson Trust PLC: Ord. 381,439 1,512,692 41135210 sponsored ADR 108,300 2,166,000 41135230 Litton Industries, Inc. (b) 52,900 3,405,438 53802110 Mark IV Industries, Inc. 15,148 272,680 57038710 Suncor, Inc. 69,400 1,621,127 86722910 Textron, Inc. 23,600 1,374,700 88320310 Tomkins PLC Ord. 96,088 333,517 89003010 United Technologies Corp. 12,500 775,000 91301710 35,221,219 CONSTRUCTION & REAL ESTATE - 1.9% BUILDING MATERIALS - 1.3% Armstrong World Industries, Inc. 46,600 2,481,450 04247610 Blue Circle Industries plc 52,086 257,719 09534210 Carlisle Companies, Inc. 16,000 534,000 14233910 Cementos Apasco SA de CV Class A (b) 635,700 6,610,791 15299392 Cemex SA (b): A (Reg.) 20,200 569,060 15299292 Series B 226,400 6,749,722 15299293 Chosun Refractories Co. (b) 2,200 80,679 28099322 Elcor Corp. (b) 12,100 223,850 28444310 Florida Rock Industries, Inc. 19,200 568,800 34114010 Holderbank Financiere AG PC (Bearer) 730 456,250 43479593 Interceramic SA de CV Class A-2 (b) 13,800 82,196 46399593 Lafarge Corp. 133,600 3,056,100 50586210 Medusa Corp. 56,150 1,817,856 58507230 RMC Industries, Inc. (b) 14,816 203,842 74960910 Redland PLC Ord. (b) 38,842 335,612 75799095 Southdown, Inc. (b) 2,300 $ 56,350 84129710 Tecumseh Products Co. Class A 15,800 730,750 87889520 Texas Industries, Inc. 9,300 299,925 88249110 Tolmex B2 SA (b) 506,200 7,048,663 94399492 Williams Holdings Ord. (b) 36,878 203,713 96991091 Wolseley Ord. 20,010 249,738 97799092 32,617,066 CONSTRUCTION - 0.3% Bufete Industrial SA sponsored ADR representing 3 Ord. Certificate Banco 12,500 512,500 11942H10 Centex Corp. 24,500 1,029,000 15231210 DR Horton, Inc. (b) 29,190 510,825 23331A10 Daelim Industrial Co. 33,900 688,794 23699F22 Dongbu Construction Co. 2,300 53,001 25799M22 Grupo Mexicano de Desarrollo (b): Class B ADR 17,800 427,200 40048G10 Class L ADR 17,800 438,325 40048G20 Lennar Corp. 14,300 487,988 52605710 Lucky Development Co. Ltd. (b) 3,470 74,374 54999822 Pulte Corp. 33,900 1,228,875 74586710 Redman Industries (b) 10,300 208,575 75764210 Samsung Construction Co. Ltd. 1,575 51,739 90499J22 Schuler Homes, Inc. (b) 19,900 557,200 80818810 Standard Pacific Corp. 40,900 455,013 85375C10 Taylor Woodrow PLC 440,926 941,055 87667410 Webb (Del E.) Corp. 5,000 80,000 94742310 7,744,464 ENGINEERING - 0.1% EG&G, Inc. 28,000 514,500 26845710 Hanil Development Co. 27,871 576,670 41099822 Kyonghyang Construction Co. (b) 4,500 97,565 74799J22 Rust International, Inc. (b) 9,900 225,225 78307510 Stone & Webster, Inc. 9,700 267,963 86157210 1,681,923 REAL ESTATE - 0.1% Fondo Opcion SA de CV Class 2, Series B (b) 130,800 366,375 34499892 Hwa Sung Industrial Co. (b) 1,100 43,883 44899G22 Hwa Sung Industrial Co. (New) (b) 2,850 112,990 44899G24 Immeubles de France, Ste Des (b) 2,500 470,941 44999C22 Land Securities 38,092 443,344 51499010 MEPC PLC 30,863 248,436 62949999 Mundicenter Soc Imobil SA 1,300 26,073 62699592 1,712,042 REAL ESTATE INVESTMENT TRUSTS - 0.1% Banyan Strategic Land Trust (SBI) 3,900 16,088 06683M10 Crown American Realty Trust (SBI) 32,700 490,500 22818610 Developers Diversified Realty 40,000 1,170,000 25159110 Federal Realty Investment Trust 12,500 312,500 31374720 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED CONSTRUCTION & REAL ESTATE - CONTINUED REAL ESTATE INVESTMENT TRUSTS - CONTINUED General Growth Properties, Inc. 2,500 $ 53,750 37002110 Health Care Property Investors, Inc. 1,700 46,113 42191510 Kimco Realty Corporation 5,900 207,238 49446R10 Lend Lease Corp. Ltd. 31,400 377,403 52599292 Vornado Realty Trust 11,400 381,900 92904210 3,055,492 TOTAL CONSTRUCTION & REAL ESTATE 46,810,987 DURABLES - 2.9% AUTOS, TIRES, & ACCESSORIES - 1.9% Asia Motors Co., Inc. (b) 16,830 333,618 04499B22 Automotive Industries Holding, Inc. (b) 6,800 198,050 05329E10 Brilliance China Auto Holding Ltd. (b) 1,800 35,325 10999592 Chrysler Corp. 154,500 8,227,125 17119610 Cooper Tire & Rubber Co. 7,200 180,662 21683110 Discount Auto Parts, Inc. (b) 36,900 1,014,750 25464210 Donnelly Corp. Class A 5,300 102,025 25787010 Federal-Mogul Corp. 16,700 484,300 31354910 Ford Motor Co. 43,300 2,792,850 34537010 General Motors Corp. 193,100 10,596,363 37044210 Goodyear Tire & Rubber Co. 61,300 2,804,475 38255010 Grupo Dina (Consorcio G) ADR (b) 183,700 5,120,638 21030610 Heung-ah Tire & Rubber Co. (b) 3,000 75,822 42899D22 Hyundai Motor Service Co. (b) 1,200 66,456 42199422 Johnson Controls, Inc. 13,600 722,500 47836610 Kia Precision Works Co. (b) 17,544 378,202 48599K22 Lonrho Ltd. Ord. 784,712 1,495,135 54337410 Magna International, Inc. Class A 36,900 1,821,619 55922240 Monro Muffler Brake, Inc. (b) 7,500 123,750 61023610 NACCO Industries, Inc. Class A 9,200 473,800 62957910 Pirelli Tyre Holdings NV Ord. (b) 24,600 183,299 72499092 Raymond Corp. (The) (b) 17,000 284,750 75468810 Smith (A.O.) Corp.: Class A 900 32,288 83186510 Class B 26,600 950,950 83186520 Snap-on Tools Corp. 13,100 496,163 83303410 Spartan Motors, Inc. 16,400 278,800 84681910 Standard Products Co. 10,125 354,375 85383610 Suzuki Motor Corp. 147,000 1,380,281 86958592 TRW, Inc. 7,700 533,225 87264910 Toyota Motor Corporation 130,000 2,069,305 89399999 Vickers PLC Ord. 604,300 1,561,964 92549310 Volkswagen AG (b) 1,700 430,330 92866210 45,603,195 CONSUMER DURABLES - 0.0% Sankyo Co. Ltd. 1,000 $ 57,232 82299792 Syratech Corp. (b) 2,700 50,625 87182410 107,857 CONSUMER ELECTRONICS - 0.4% Aktiebolaget Electrolux (b) 12,900 439,102 01019810 BIC 1,724 384,470 08899292 Fedders USA, Inc. (b) 59,200 377,400 31313510 Fossil, Inc. 200 3,800 34988210 Harman International Industries, Inc. (b) 41,700 1,198,875 41308610 Jeewon Industrial Co. (b) 3,000 81,397 47299G22 Matsushita Electric Industrial Co. Ltd. 225,000 2,997,988 57687910 Newell Co. 2,500 100,938 65119210 Pioneer Electronic Corp. 17,000 427,185 72365710 Sony Corp. 49,300 2,429,180 83569999 Universal Electronics, Inc. (b) 5,900 116,525 91348310 Whirlpool Corp. 29,400 1,955,100 96332010 10,511,960 HOME FURNISHINGS - 0.2% Chromcraft Revington, Inc. (b) 11,300 248,600 17111710 LADD Furniture, Inc. 105,500 1,055,000 50573910 Leggett & Platt, Inc. 22,300 1,115,000 52466010 Miller (Herman), Inc. 88,700 2,716,438 60054410 5,135,038 TEXTILES & APPAREL - 0.4% Burlington Industries Equity, Inc. (b) 42,500 658,750 12169010 Coats Viyella PLC (b) 50,516 192,126 19099110 Courtaulds PLC Ord. (b) 30,256 217,631 22268710 Fruit of the Loom, Inc. Class A (b) 28,400 685,150 35941610 Interface, Inc. Class A 2,600 39,650 45866510 Justin Industries, Inc. 50,700 747,825 48217110 Korea Moolsan Co. (b) 15,140 371,396 50599P22 Mohawk Industries, Inc. (b) 23,800 815,150 60819010 Nam Yeung Corp. (b) 700 113,176 62999D22 Reebok International Ltd. 8,100 243,000 75811010 Shaw Industries, Inc. 20,200 512,575 82028610 Shu Kwang Corp. (b) 2,351 42,239 82599J22 Stride Rite Corp. 41,600 681,200 86331410 Timberland Co. Class A (b) 8,000 427,000 88710010 Tokyo Style Co. Ltd. 72,000 1,036,620 88999410 Unifi, Inc. 121,900 3,276,063 90467710 VF Corp. 5,100 235,238 91820410 Westpoint Stevens, Inc. Class A (b) 8,100 151,875 96123810 Youngone Corp. (b) 416 7,782 99599C22 10,454,446 TOTAL DURABLES 71,812,496 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED ENERGY - 2.7% COAL - 0.0% Pittston Co. Minerals Group 2,600 $ 62,075 72570120 ENERGY SERVICES - 0.4% BJ Services Co. (b) 24,300 467,775 05548210 Baker Hughes, Inc. 20,500 410,000 05722410 Commercial Del Plata (b) 101,700 713,291 20199392 Enterra Corp. (b) 17,600 360,800 29380510 Global Marine, Inc. (b) 45,000 185,625 37935240 Halliburton Co. 56,100 1,788,188 40621610 Helmerich & Payne, Inc. 8,800 245,300 42345210 Marine Drilling Cos., Inc. (b) 12,500 71,875 56824020 Schlumberger Ltd. 100,600 5,947,975 80685710 Smith International, Inc. (b) 8,300 72,625 83211010 Tidewater, Inc. 9,300 186,000 88642310 Tuboscope Vetco Corp. (b) 15,000 91,875 89860010 Weatherford International, Inc. (b) 19,500 207,188 94707610 Wheatley TXT Corp. 8,000 91,000 96271810 10,839,517 INDEPENDENT POWER - 0.0% Thermo Electron Corp. 9,650 405,300 88355610 OIL & GAS - 2.3% Amerada Hess Corp. 61,500 2,775,188 02355110 American Exploration Co. (b) 5,000 6,563 02576210 Ampolex Ltd. Ord. 125,600 473,352 03212792 Anadarko Petroleum Corp. 14,300 648,863 03251110 Apache Corp. 12,300 287,513 03741110 British Petroleum PLC: ADR 254,700 16,300,800 11088940 Ord. 1,248,660 6,648,603 11088910 Burlington Resources, Inc. 53,000 2,245,875 12201410 Burmah Oil 14,673 180,528 12216910 Cabot Oil & Gas Corp. Class A 7,013 148,150 12709710 Chauvco Resources Ltd. Class A (b) 17,800 232,306 16260010 Chevron Corp. 32,600 2,840,275 16675110 Cosmo Oil Company Ltd. 89,000 635,913 22199092 Enron Oil & Gas Co. 5,200 202,800 29356210 Enterprise Oil PLC 37,039 245,086 29399110 Exxon Corp. 2,700 170,100 30229010 Isu Chemical Co. (b) 32,331 524,742 46599E22 Kerr-McGee Corp. 29,400 1,326,675 49238610 Louisiana Land & Exploration Co. 40,300 1,617,038 54626810 Mesa, Inc. (b) 18,000 101,250 59091110 Mobil Corp. 21,100 1,666,900 60705910 Morrison Petroleums Ltd. 65,300 487,867 61847310 Murphy Oil Corp. 31,000 1,240,000 62671710 Newfield Exploration Co. (b) 8,400 148,050 65129010 Noble Affiliates, Inc. 20,200 $ 535,300 65489410 Occidental Petroleum Corp. 13,500 231,188 67459910 Petroleum Heat & Power, Inc. Class A 13,000 113,750 71660030 Renaissance Energy Ltd. (b) 109,000 2,329,677 75966610 Repsol SA sponsored ADR 27,100 836,713 76026T20 Royal Dutch Petroleum Co. 17,400 1,816,125 78025770 Shell Transport & Trading PLC 249,579 2,676,241 82270310 Snyder Oil Corp. 2,600 46,150 83348210 Tide West Oil Co. 3,900 40,950 88635540 Tosco Corp. 67,300 1,960,113 89149030 Total Compagnie Francaise des Petroles Class B (b) 27,688 1,509,531 20434510 Total SA sponsored ADR (b) 23,800 645,575 89151E10 Unocal Corp. 55,500 1,547,063 91528910 Western Gas Resources, Inc. 6,200 203,050 95825910 YPF Sociedad Anonima sponsored ADR representing Class D shares 17,000 442,000 98424510 Yukong Ltd. 3,500 128,353 98899K22 56,216,216 TOTAL ENERGY 67,523,108 FINANCE - 7.5% BANKS - 3.9% ABN-AMRO Holdings NV 36,874 1,354,826 00399192 Akita Bank 165,000 1,049,095 00999692 BHF Bank (Bank Berlin Hand) 2,600 785,295 05549991 BNP CI Ord. 21,200 1,029,735 05599996 Banacci SA de CV: Class C 490,000 4,259,496 06399893 Class L Ord. (b) 14,100 108,496 06399895 Banc One Corp. 13,300 520,363 05943810 Banco Bilbao Vizcaya SA Ord. (Reg.) 28,600 632,337 05945891 Banco de Galicia Y Buenos Aires SA sponsored ADR representing Class B shares 78,695 3,167,474 05953820 Banco Frances Del Rio PL (Reg.) 149,706 1,904,980 21199692 Banco Intercontinental Espanol 5,500 449,913 24699592 Bank of Boston Corp. 231,940 5,334,620 06071610 Bank of Ireland U.S. Holdings, Inc. 9,800 41,976 06278793 Bank of New York Co., Inc. 50,504 2,878,728 06405710 Bank of Scotland 87,411 289,198 06405810 Bank International Indonesia Ord. (For. Reg.) (b) 151,500 742,612 06199B92 BankAmerica Corp. 43,500 2,017,313 06605010 BanPonce Corp. 11,960 376,740 06670410 Barclays PLC Ord. 320,691 3,007,745 06738E10 Bayerische Vereinsbank AG Ord. 1,400 469,566 07276110 Boram Bank (b) 28,520 501,746 09999322 C.S. Holdings (Bearer) (b) 4,500 2,228,831 17599792 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED FINANCE - CONTINUED BANKS - CONTINUED Centura Banks, Inc. 2,700 $ 54,338 15640T10 Chemical Banking Corp. 79,900 3,206,653 16372210 Cho Hing Bank Co. Ltd. 55,750 718,330 17099E22 Citicorp (b) 352,000 12,936,000 17303410 Comerica, Inc. 40,800 1,086,300 20034010 Deutsche Bank AG 2,100 1,071,022 25152592 Fidelity NY F.S.B. Garden City (b) 19,000 306,375 31633610 Financiere Bank de Suez Cie 11,014 664,115 31799110 First Chicago Corp. 26,600 1,150,450 31945510 First Fidelity Bancorporation 10,000 455,000 32019510 First Interstate Bancorp 38,200 2,449,575 32054810 First Union Corp. 81,167 3,348,173 33735810 Grupo Financiero Bancomer SA de CV sponsored ADR, Series C (b)(f) 229,600 9,585,800 40048610 HSBC Holdings PLC: Ord. 61,797 888,554 42199194 (Reg.) 128,520 1,879,258 42199195 KeyCorp. 11,900 420,963 49326310 Kyung Nam Bank 13,500 190,671 61499222 Kyungki Bank Ltd. (b) 20,000 292,387 61999922 Lloyds Bank PLC 96,658 939,386 53999192 Mellon Bank Corp. 8,672 459,616 58550910 Mercantile Bancorporation, Inc. 3,700 166,963 58734210 Midlantic Corp. (b) 9,600 244,800 59780E10 National Westminster Bank PLC Ord. 314,257 2,877,777 63853930 NationsBank Corp. 27,100 1,327,900 63858510 North Fork Bancorporation, Inc. (b) 2,700 34,763 65942410 Panin Bank (For. Reg.) 298,000 628,038 69899823 Paribas SA (Cie Financiere) Class A (b) 1,912 160,189 73999192 Peoples Heritage Financial Group, Inc. (b) 37,900 454,800 71114710 Royal Bank of Scotland Ord. 59,780 401,743 78009792 Safra Republic Holdings SA Ord. 2,600 239,200 78510099 Shawmut National Corp. 223,700 4,865,475 82048410 Signet Banking Corp. 25,263 877,889 82668110 Societe Generale Class A 10,139 1,312,126 83357799 Standard Chartered Bank 17,904 327,379 85256810 Swiss Bank Corp. (Bearer) (b) 4,800 1,535,484 87083610 TR Financial Corp. (b) 15,900 204,713 87263010 TSB Group PLC 114,276 406,773 87199010 West One Bancorp 2,500 71,250 95482810 Westpac Banking Corp. 1,449,068 4,555,870 96121410 95,947,183 CLOSED END INVESTMENT COMPANY - 0.1% ASA Ltd. 20,700 $ 1,019,475 00205010 Free State Consolidated Gold Mines Ltd. ADR 66,000 1,122,000 35614220 Jardine Strategic Holdings Ord. 165,500 776,367 47199020 2,917,842 CREDIT & OTHER FINANCE - 0.5% Abbey National PLC Ord. 98,693 744,882 00281099 American Express Co. 95,600 2,951,650 02581610 Argentaria Corp. Bancaria de Espana SA 17,400 734,167 21991392 Argentaria Corp. Bancaria de Espana SA sponsored ADR 26,900 568,263 21991310 Beneficial Corp. 31,700 1,212,525 08172110 Central Invest & Finance 6,000 124,884 15499422 Credit Foncier de France 1,184 234,440 22532792 Dean Witter Discover & Co. 14,150 489,944 24240V10 GFC Financial Corp. 12,000 348,000 36160910 Granite Industries BHD 59,000 339,471 38799522 Green Tree Acceptance, Inc. 26,700 1,281,600 39350510 Grupo Financiero Serfin sponsored ADR CV 15,000 442,500 40049A10 Guangdong Investments Co. Ltd. Ord. 552,000 414,315 40199492 Household International, Inc. 77 2,512 44181510 Korea Investment & Finance 4,500 114,291 50599092 Primerica Corp. 20,600 800,825 74158910 Pusan Invest & Finance 1,440 86,527 74699B22 Schroders PLC: (non-vtg.) 2,106 39,038 80799193 Ord. 7,604 153,529 80799192 Shin Han Securities Co. 4,500 100,911 82499G92 11,184,274 FEDERAL SPONSORED CREDIT - 1.0% Federal Home Loan Mortgage Corporation 102,200 5,097,225 31340030 Federal National Mortgage Association 262,100 20,574,850 31358610 25,672,075 INSURANCE - 0.9% ACE Ltd. 11,700 364,163 00499G92 Aegon NV Ord. 19,300 1,046,326 00792493 Allstate Corp. (b) 105,900 3,124,050 02000210 American Bankers Insurance Group, Inc. 53,500 1,404,375 02445610 American Reinsurance Corp. (b) 1,800 51,075 02916310 Assicurazioni Generali Spa 52,600 1,202,767 04542910 Assurances Generales (Reg.) 16,300 1,963,491 04557510 Axa SA 3,543 957,729 05299792 Capital Holding Corp. 8,400 311,850 14018610 Commercial Union PLC (b) 41,858 400,003 20299993 Corporacion Mapfre International Reas (Reg.) (b) 19,500 1,021,656 16899192 Exel Ltd. 6,100 270,688 30161610 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED FINANCE - CONTINUED INSURANCE - CONTINUED GAN (Groupe Des Assur Natl.) 11,300 $ 1,029,008 36599792 General Accident Fire & Life 33,951 358,541 36871110 Guardian Royal Exchange Assurance 65,349 222,480 36809992 International Nederlanden Groep CVA 17,387 830,037 46099892 Kemper Corp. 67 2,429 48839610 Legal & General Group Ltd. Ord. (b) 36,807 273,451 52439810 Loews Corp. 6,200 576,600 54042410 MBIA, Inc. 7,500 471,563 55262C10 Mutual Assurance, Inc. 689 15,004 62823T10 Penncorp. Financial Group, Inc. 2,300 45,138 70809410 Progressive Corp. (Ohio) 6,300 255,150 74331510 Prudential Corp. 142,372 759,123 74399992 Royale Insurance Co. Ltd. 323,255 1,620,936 78074910 St. Paul Companies, Inc. (The) 17,200 1,545,850 79286010 Sun Alliance 60,744 346,315 86599020 Swiss Reinsurance Corp. (b): A (warrants) 2,350 18,162 87099D22 B (warrants) 2,350 16,188 87099399 (Bearer) 2,350 1,231,855 87099392 Tokio Marine & Fire Insurance Co. Ltd. (The) 36,000 392,756 88909099 Torchmark Corp. 11,900 535,500 89102710 22,664,259 SAVINGS & LOANS - 0.5% Ahmanson (H.F.) & Co. 136,674 2,682,227 00867710 Anchor Bancorp Inc. 37,500 464,063 03283710 Bay View Capital, Inc. 22,200 468,975 07262L10 Charter One Financial Corp. 33,850 668,538 16090310 Coast Savings Financial, Inc. (b) 24,800 353,400 19039M10 Crossland Federal Savings Bank, Brooklyn (b) 25,000 700,000 22764B10 D&N Financial Corp. (b) 2,500 19,375 23286410 Dime Savings Bank of New York, FSB (b) 25,000 203,125 25432R10 Eastern Bancorp 4,500 79,875 27626910 FirstFed Financial Corp. (b) 1,400 22,400 33790710 FirstFed Michigan Corp. 5,100 130,050 33761R10 Golden West Financial Corp. 95,700 3,732,300 38131710 Great Western Financial Corp. 10,502 210,040 39144210 Metropolitan Financial Corp. 15,700 259,050 59190810 North Side Savings Bank (Bronx, NY) 2,500 46,250 66248810 Standard Federal Bank 40,000 1,200,000 85338910 11,239,668 SECURITIES INDUSTRY - 0.6% Boram Securities Co. Ltd. (b) 15,060 343,312 18599622 Coryo Securities 11,200 244,217 22199822 Daehan Korean Blue-Chip Investment Trust (b) 475,000 7,552,500 23699E22 Daiwa Securities 94,000 $ 1,050,749 23499010 Hyundai Securities Co. Ltd. (b) 4,800 141,535 42699A22 Korea First Securities Co. (b) 24,400 583,435 50099K22 Merrill Lynch & Co., Inc. 32,900 1,381,800 59018810 Midland Walwyn, Inc. (b) 4,100 43,427 59780110 Morgan Stanley Group, Inc. 22,100 1,563,575 61744610 Nomura Securities Co. Ltd. 82,000 1,312,586 65536130 Paine Webber Group, Inc. 11,800 318,600 69562910 Seoul Securities Co. (b) 15,060 333,982 83599P22 Sunkyong Securities Co. (b) 25,800 594,536 96199D22 Warburg (SG) Group PLC Ord. 46,333 637,119 81799099 16,101,373 TOTAL FINANCE 185,726,674 HEALTH - 3.0% DRUGS & PHARMACEUTICALS - 1.4% Allergan, Inc. 115,200 2,606,400 01849010 American Cyanamid Co. 10,200 512,550 02532110 Amgen, Inc. (b) 52,300 2,588,850 03116210 Biogen, Inc. (b) 30,600 1,220,175 09059710 Bristol-Myers Squibb Co. 19,800 1,150,875 11012210 Cellpro, Inc. (b) 4,100 142,475 15115610 Celtrix Laboratories, Inc. (b) 12,200 134,200 15118610 Cephalon, Inc. (b) 6,400 104,800 15670810 Chiron Corp. (b) 6,000 504,000 17004010 Creative Biomolecules, Inc. (b) 2,300 23,863 22527010 Elan PLC (b): ADR 35,300 1,495,838 28413120 (1 Advanced Therapeutic System Common & 1 ADR warrant) 3,762 121,325 28413140 Genentech, Inc. (b) 7,300 368,650 36871020 Glaxo Holdings PLC Ord. 228,944 2,448,208 37732710 IMCERA Group, Inc. 73,100 2,457,988 45245410 Korea Green Cross Corp. (b) 3,005 232,729 50099J22 Mylan Laboratories, Inc. 36,300 921,113 62853010 Nature's Bounty, Inc. (b) 2,300 47,725 63901730 Pfizer, Inc. 66,300 4,574,700 71708110 Rhone Poulenc Rorer, Inc. 21,200 777,226 76242T92 Rhone Poulenc Rorer, Inc. Free shares 17,600 642,400 76242T10 Schering 2,100 1,388,160 80658510 Schering-Plough Corp. 45,900 3,144,150 80660510 Smithkline Beecham PLC: Ord. A 103,137 608,139 83237810 (5 Ord. B & 1 participating pfd. $2.25) 98,621 528,108 83237850 Upjohn Co. 12,500 364,063 91530210 Warner-Lambert Co. 65,100 4,394,250 93448810 Wellcome PLC 65,277 635,369 94947810 Zeneca Group PLC Ord. (b) 71,150 882,744 98934D92 35,021,073 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED HEALTH - CONTINUED MEDICAL EQUIPMENT & SUPPLIES - 0.6% Ballard Medical Products 18,400 $ 239,200 05856610 Bergen Brunswig Corp. Class A 53,300 939,413 08373910 Boston Scientific Corp. (b) 77,000 962,500 10113710 Cardinal Distribution, Inc. 29,300 1,391,750 14148710 Cordis Corp. (b) 22,500 1,110,938 21852510 Johnson & Johnson 38,100 1,704,975 47816010 Kendall International, Inc. (b) 15,600 717,600 48875110 McKesson Corp. 8,800 475,200 58155610 Medtronic, Inc. 38,280 3,143,745 58505510 Mentor Corp. 9,600 127,200 58718810 Owens & Minor, Inc. 37,050 852,150 69073010 Smith & Nephew PLC 77,683 170,386 83113610 Sofamor/Danek Group, Inc. (b) 37,700 1,253,525 83400510 Spacelabs Medical, Inc. (b) 11,900 288,575 84624710 Steris Corporation (b) 3,900 73,125 85915210 Thermedics, Inc. (b) 9,650 145,956 88390110 Utah Medical Products, Inc. 29,100 229,163 91748810 Zoll Medical Corp. (b) 300 9,000 98992210 13,834,401 MEDICAL FACILITIES MANAGEMENT - 1.0% Columbia Healthcare Corp. 165,850 5,514,513 19767910 HCA - Hospital Corporation of America Class A (b) 385,700 13,162,013 40412010 HEALTHSOUTH Rehabilitation Corp. (b) 49,000 1,237,250 42192410 Health Management Associates, Inc. Class A (b) 29,700 868,725 42193310 Homedco Group, Inc. (b) 15,300 470,475 43739A10 Lincare Holdings, Inc. (b) 57,600 1,432,800 53279110 National Medical Enterprises, Inc. 18,900 264,600 63688610 U.S. Healthcare, Inc. 12,500 720,313 91191010 United HealthCare Corp. 12,500 948,438 91058110 24,619,127 TOTAL HEALTH 73,474,601 INDUSTRIAL MACHINERY & EQUIPMENT - 1.8% ELECTRICAL EQUIPMENT - 1.1% AMETEK, Inc. 23,000 293,250 03110510 Alcatel Alsthom CGE 47,609 6,772,559 01390492 Avid Technology, Inc. (b) 300 6,413 05367P10 General Electric Co. 57,300 6,009,338 36960410 General Electric PLC Ord. 205,918 1,038,642 36963940 ICOM, Inc. 15,000 162,307 44999A92 Il Jin Electric & Machinery (b) 3,000 78,424 45099G22 Itel Corp. 18,900 529,200 46564210 Murata Manufacturing Co. (b) 143,000 4,897,741 62699110 Philips Electronics (b) 71,900 $ 1,477,903 71833799 Philips NV 167,200 3,448,500 71833750 Roper Industries, Inc. 20,300 659,750 77669610 Siebe PLC (b) 32,219 270,297 82619999 Star Paging International Holdings Ltd. 690,000 294,664 85599692 Westinghouse Electric Corp. 42,100 594,663 96040210 Yurtec Corp. (b) 900 20,604 97299492 26,554,255 INDUSTRIAL MACHINERY & EQUIPMENT - 0.6% Briggs & Stratton Corp. 4,500 371,250 10904310 Caterpillar, Inc. 56,900 5,064,100 14912310 CMI Corp. Oklahoma Class A 3,900 26,813 12576130 Cincinnati Milacron, Inc. 18,800 413,600 17217210 Deere & Co. 30,900 2,286,600 24419910 Duerr Beteiligungs AG 1,150 390,346 26499292 Finning Ltd. 94,000 1,351,239 31807140 Flow International Corp. (b) 2,600 20,963 34346810 Indresco, Inc. (b) 30,000 465,000 45590510 Joy Technologies, Inc. Class A (b) 40,400 484,800 48120610 Korea Machinery Co. Ltd. (b) 15,000 183,981 50599H22 Manitowoc Co., Inc. 26,800 864,300 56357110 Parker-Hannifin Corp. 12,500 471,875 70109410 Regal-Beloit Corp. 27,400 722,675 75875010 SKF AB Ord. (b) 58,800 951,410 78437530 TI Group PLC Ord. (b) 35,004 207,321 87247250 TRINOVA Corp. 39,600 1,242,450 89667810 Tenneco, Inc. 8,900 468,363 88037010 15,987,086 POLLUTION CONTROL - 0.1% American Ecology Corp. (b) 3,700 31,450 02553310 Attwoods PLC: ADR 50,000 500,000 04987020 Ord. 100,000 202,349 04987010 Envirotest Systems Corp. (b) 3,900 83,850 29409W10 Harding Associates, Inc. (b) 2,500 22,500 41226410 OHM Corp. 3,700 43,013 67083910 Thermo Instrument Systems, Inc. (b) 3,900 136,013 88355910 United Waste Systems, Inc. (b) 4,100 63,550 91317410 Wheelabrator Technologies, Inc. 76,700 1,361,425 96290130 Zurn Industries, Inc. 10,500 287,438 98982410 2,731,588 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 45,272,929 MEDIA & LEISURE - 1.7% BROADCASTING - 0.3% BET Holdings, Inc. Class A (b) 3,700 73,075 08658510 CBS, Inc. 3,400 980,900 12484510 Capital Cities/ABC, Inc. 1,900 1,177,050 13985910 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED MEDIA & LEISURE - CONTINUED BROADCASTING - CONTINUED Carlton Communications 14,976 $ 209,583 14399999 Grupo Televisa GDS (b)(f) 9,500 665,000 40049J20 Home Shopping Network, Inc. 73,010 1,086,024 43735110 Multimedia, Inc. (b) 300 10,275 62545K10 Scandinavian Broadcasting Corp. (b) 16,300 342,300 80699E92 SFX Broadcasting, Inc. 4,800 62,400 78417410 Tele-Communications, Inc. Class A (b) 82,200 2,486,550 87924010 TF-1 5,700 472,833 90399999 7,565,990 ENTERTAINMENT - 0.1% Carnival Cruise Lines, Inc. Class A 28,600 1,354,925 14365810 Cedar Fair LP 1,200 42,150 15018510 Granada Group 35,236 270,627 38480310 Rank Organization PLC 24,615 357,019 75304110 Royal Carribean Cruises Ltd. 27,600 738,300 78015392 Sega Enterprises 7,600 589,242 81599792 3,352,263 LEISURE DURABLES & TOYS - 0.2% Brunswick Corp. 6,000 108,000 11704310 Callaway Golf Co. 21,100 1,126,213 13119310 Fleetwood Enterprises, Inc. 9,100 216,125 33909910 Mattel, Inc. 12,500 345,313 57708110 Outboard Marine Corp. 49,600 1,109,800 69002010 Salomon SA 1,500 499,240 93099292 Samick Musical Instruments (b) 3,065 74,048 79599L22 Thor Industries, Inc. 12,900 332,175 88516010 3,810,914 LODGING & GAMING - 0.5% Bally Manufacturing Corp. (b) 14,435 122,698 05873210 Caesars World, Inc. (b) 1,300 69,550 12769510 Forte PLC (b) 64,885 250,609 34999592 Four Seasons Hotels, Inc. 60,400 594,061 35100E10 Grupo Posadas SA de CV Class L (b) 129,200 124,790 40048992 Grupo Situr SA de CV Class B (b) 1,498,333 4,563,503 40049292 Host Marriott Corp. 44,841 409,174 44107810 La Quinta Motor Inns, Inc. 31,200 1,099,800 50419510 Ladbroke Group PLC Ord. 494,994 1,184,392 50572799 Marriott International, Inc. 44,841 1,300,389 57190010 Mirage Resorts, Inc. (b) 20,000 477,500 60462E10 President Riverboat Casinos, Inc. (b) 26,550 584,100 74084810 Promus Companies, Inc. (b) 20,100 919,575 74342A10 Trump Plaza Holding Associates (warrants) (b) 60 47,400 89817E11 Video Lottery Technologies, Inc. (b) 53,800 914,600 92656M10 12,662,141 PUBLISHING - 0.5% American Greetings Corp. Class A 25,200 $ 856,800 02637510 Central Newspapers, Inc. Class A 13,400 371,850 15464710 Dow Jones & Co., Inc. 6,000 214,500 26056110 Enquirer/Star Group, Inc. Class A 25,900 492,100 29355410 Gannett Co., Inc. 35,500 2,032,375 36473010 MaClean Hunter Ltd. 154,400 1,474,787 55474980 Meredith Corp. 18,800 752,000 58943310 Mirror Group Newspaper PLC (b) 97,900 242,925 60499792 Pearson PLC 41,394 369,891 70509991 Reed International (b) 42,233 558,908 75821210 Scripps (E.W.) Co. Class A 13,600 374,000 81103910 Thomson Corp. 44,600 548,326 88490310 Times Mirror Co., Series A 37,700 1,258,238 88736010 Torstar Corp. Class B 69,400 1,260,148 89147420 VNU Ord. (b) 9,400 839,044 92399010 11,645,892 RESTAURANTS - 0.1% Bertucci's, Inc. (b) 13,400 328,300 08606310 McDonald's Corp. 41,300 2,354,100 58013510 Morrison Restaurants, Inc. 12,500 328,125 61847710 Ryan's Family Steak Houses, Inc. (b) 23,200 208,800 78351910 Uno Restaurant Corp. (b) 2,700 26,325 91490010 3,245,650 TOTAL MEDIA & LEISURE 42,282,850 NONDURABLES - 2.3% AGRICULTURE - 0.1% Delta & Pine Land Co. (b) 12,800 224,000 24735710 Molinos Rio de La Plata (Reg.) 68,369 876,833 60899C22 Pioneer Hi-Bred International, Inc. 10,300 401,700 72368610 1,502,533 BEVERAGES - 0.5% Allied Lyons PLC 66,616 666,113 01925510 Bass PLC Ord. 104,849 830,835 06990492 Cadbury-Schweppes PLC Ord. 62,404 468,227 12720910 Coca-Cola Femsa SA de CV sponsored ADR (b) 12,000 393,000 19124110 Comp Cervecerias Unidas SA ADR 14,000 404,250 20442910 Dr. Pepper/Seven-Up Companies, Inc. (b) 29,400 705,600 25613130 Fomento Economico Mexicano SA (FEMSA) B 511,900 3,370,365 34441892 Grupo Embotellador de Mexico Class B ADS (f) 52,300 1,895,875 40048J10 Guinness PLC Ord. 151,172 1,065,051 40203310 Panamerican Beverages, Inc. Class A 19,300 738,225 69829W10 Scottish & Newcastle Brewers PLC 39,895 314,070 80987810 South African Breweries, Inc. ADR 17,500 380,625 83621620 Whitbread Class A 173,645 1,488,830 96341499 12,721,066 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED NONDURABLES - CONTINUED FOODS - 0.5% ConAgra, Inc. 84,600 $ 2,231,325 20588710 Dole Food, Inc. 32,100 858,675 25660510 Grand Metropolitan PLC 155,991 1,095,547 38559099 Grupo Ind Maseca SA de CV Class B 751,000 1,165,432 57899894 Herdez SA de CV Class A (b) 1,166,800 1,296,023 42799F22 IBP, Inc. 146,993 3,803,444 44922310 Miwon Co. Ltd. (b) 13,287 246,924 61299693 Miwon Co. Ltd. (New) 3,501 56,387 61299695 Samyang Foods Co. 3,000 102,211 84699F22 United Biscuits 39,520 210,428 90960210 Viscofan Envolturas Celulo SA 29,100 460,436 92899999 Weston George Ltd. 33,500 988,462 96114850 12,515,294 HOUSEHOLD PRODUCTS - 0.3% Avon Products, Inc. 27,100 1,317,738 05430310 BTR PLC Ord 261,931 1,441,100 05586510 Hartstone Group PLC Ord. (b) 747,500 607,232 41722610 Premark International, Inc. 11,200 898,800 74045910 Procter & Gamble Co. 40,900 2,331,300 74271810 Reckitt & Colman Ltd. Ord. 28,221 300,113 75621410 Stanhome, Inc. 8,000 271,000 85442510 Unilever PLC Ord. 61,047 1,083,800 90476710 8,251,083 TOBACCO - 0.9% B.A.T. Industries PLC Ord. 231,729 1,894,431 05527010 Philip Morris Companies, Inc. 275,900 15,381,425 71815410 RJR Nabisco Holdings Corp. (b) 452,900 2,887,238 74960K10 UST, Inc. 46,600 1,293,150 90291110 21,456,244 TOTAL NONDURABLES 56,446,220 PRECIOUS METALS - 0.1% Hecla Mining Co. (b) 6,700 77,888 42270410 Homestake Mining Co. 85,800 1,887,600 43761410 Placer Dome, Inc. 32,500 808,351 72590610 2,773,839 RETAIL & WHOLESALE - 3.2% APPAREL STORES - 0.3% Burton Group PLC Ord. 1,267,800 1,301,422 12304910 Charming Shoppes, Inc. 28,500 338,438 16113310 Claire's Stores, Inc. 28,400 514,750 17958410 Gap, Inc. 39,500 1,555,313 36476010 Limited, Inc. (The) 55,000 941,875 53271610 Ross Stores, Inc. (b) 35,500 $ 461,500 77829610 Sportmart, Inc. (b) 2,700 47,925 84892210 TJX Companies, Inc. 35,400 1,031,025 87254010 6,192,248 DRUG STORES - 0.1% General Nutrition Companies, Inc. (b) 44,600 1,271,100 37047F10 GENERAL MERCHANDISE STORES - 1.9% Aoyama Trading Co. Ord. 37,000 2,117,594 03799092 Cifra SA Class C (b) 1,961,100 5,884,555 17178594 Controladora Commercial Mexicana SA B-1 (b) 1,892,400 3,972,450 21299692 Dayton Hudson Corp. 83,600 5,580,300 23975310 Dillard Department Stores, Inc. Class A 36,300 1,379,400 25406310 Federared Department Stores, Inc. (b) 277,700 5,762,275 31410J10 Hudsons Bay Co. Ord. 50,800 1,518,139 44420410 Keum Kang Dev. Industries Co. (b) 2,250 37,075 49299F22 Marks & Spencer Ltd. Ord. (b) 208,399 1,394,358 57069710 May Department Stores Co. (The) 12,500 492,188 57777810 Midopa Co. (b) 17,267 348,699 59899E22 Penney (J.C.) Co., Inc. 55,700 2,917,288 70816010 Proffitts, Inc. (b) 18,100 395,938 74292510 Sears PLC 113,687 214,093 81213310 Sears Roebuck de Mexico SA (b) 229,200 4,412,801 81240K92 Sears Roebuck de Mexico SA de CV ADR representing Series B-1 (b)(f) 30,600 1,170,450 81240K10 Sears, Roebuck & Co. 95,800 5,053,450 81238710 Service Merchandise Co., Inc. (b) 6,400 64,000 81758710 Value City Department Stores, Inc. (b) 30,800 450,450 92038710 Wal-Mart Stores, Inc. 109,100 2,727,500 93114210 Woolworth Holdings PLC Ord. 50,051 572,182 98088610 46,465,185 GROCERY STORES - 0.5% American Stores Co. 12,600 541,800 03009610 Argyll 84,466 343,080 04099210 Asda Group PLC (b) 218,252 180,521 04399110 Associated British Foods Ltd. Ord. (b) 33,790 280,981 04551910 Bruno's, Inc. 107,400 953,175 11688110 Comptoirs Modernes 839 251,798 20470099 Food Lion, Inc. Class A 258,200 1,678,300 34477520 Giant Food, Inc. Class A 14,000 360,500 37447810 Great Atlantic & Pacific Tea Co., Inc. 18,800 507,600 39006410 Kroger Co. (The) (b) 16,000 322,000 50104410 Loblaw Companies, Ltd. 32,000 553,811 53948110 Penn Traffic Co. (b) 2,500 90,625 70783210 Rykoff-Sexton, Inc. 3,900 85,313 78375910 Safeway, Inc. (b) 85,000 1,806,250 78651420 Sainsbury J PLC Ord. 134,393 881,333 78710310 Stop & Shop Companies, Inc. (b) 103,600 2,097,900 86209910 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED RETAIL & WHOLESALE - CONTINUED GROCERY STORES - CONTINUED Tae Gu Department Store Co. (b) 1,480 $ 44,557 90599G22 Tesco PLC Ord. (b) 283,280 891,202 88157510 Whole Foods Market, Inc. (b) 17,400 391,500 96683710 12,262,246 RETAIL & WHOLESALE, MISC - 0.4% Amway Asia Pacific Ltd. (b) 4,000 142,500 03299H22 Barnes & Noble, Inc. 17,500 435,313 06777410 Best Buy Co., Inc. (b) 11,200 520,800 08651610 Boots Co. plc. (The) 78,219 689,711 09999410 CML Group, Inc. 12,500 295,313 12582010 Duty Free International, Inc. 2,700 53,663 26708410 Futures Shops Ltd. 4,100 96,160 36091310 Good Guys, Inc. (b) 44,100 573,300 38209110 Great Universal Stores PLC Ord. Class A 75,738 726,004 39133420 Grupo Casa Autrey SA sponsored ADR (b) 26,000 633,750 40048P10 Hancock Fabrics, Inc. 8,900 84,550 40990010 Little Switzerland, Inc. (b) 32,400 299,700 53752810 Lowe's Companies, Inc. 56,200 3,329,850 54866110 Micro Wharehouse, Inc. (b) 4,100 170,663 59501B10 North West Company, Inc. 26,800 364,971 66329F10 Pinault Printemps SA 1,700 288,360 72199393 Redoute 10,710 1,845,616 75799492 Sotheby's Holdings, Inc. Class A 41,100 631,913 83589810 Spiegel, Inc. Class A 3,700 83,250 84845710 Toys "R" Us, Inc. (b) 20,200 825,675 89233510 Williams-Sonoma, Inc. (b) 300 12,375 96990410 12,103,437 TRADING COMPANIES - 0.0% Hyundai Corp. (b) 12,000 334,510 40999922 Inchcape Berhad Ord. 39,449 322,212 45325010 Nam Sung Corp. (b) 4,711 102,145 63299D22 Sunkyong Ltd. (b) 7,030 243,870 96199C22 1,002,737 TOTAL RETAIL & WHOLESALE 79,296,953 SERVICES - 0.4% LEASING & RENTAL - 0.1% Blockbuster Entertainment Corp. 44,600 1,365,875 09367610 GATX Corp. 7,200 293,400 36144810 Orix Corp. 36,000 981,891 68616710 Thorn EMI PLC Ord. 31,987 468,196 88519991 3,109,362 PRINTING - 0.1% Cadmus Communications Corp. 5,300 74,200 12758710 Moore Corporation Ltd. 15,800 304,823 61578510 Reynolds & Reynolds Co. Class A 34,900 $ 1,592,313 76169510 Wallace Computer Services, Inc. 2,700 91,463 93227010 2,062,799 SERVICES - 0.2% Borg Warner Securities Corp. (b) 26,100 535,050 09973310 CPI Corp. 23,200 400,200 12590210 Chemed Corp. 6,100 186,050 16359610 Craig (Jenny), Inc. 15,300 174,038 22420610 Ecolab, Inc. 10,700 481,500 27886510 Pinkertons, Inc. (b) 17,100 333,450 72342910 Rentokil Group PLC (b) 73,399 262,353 76099692 Robert Half International, Inc. (b) 3,400 89,250 77032310 Service Corp. International 44,700 1,173,375 81756510 Supercuts, Inc. (b) 15,100 224,613 86805710 Zebra Technologies Corp. Class A (b) 9,300 526,613 98920710 4,386,492 TOTAL SERVICES 9,558,653 TECHNOLOGY - 4.4% COMMUNICATIONS EQUIPMENT - 1.0% Cabletron Systems, Inc. (b) 55,100 6,198,750 12692010 Cisco Systems, Inc. (b) 119,200 7,703,300 17275R10 DSC Communications Corp. (b) 23,800 1,463,700 23331110 Daewoo Telecommunication 6,592 145,373 27999192 Ericsson (L.M.) Telephone Co. Class B ADR 24,300 981,113 29482140 Network General Corp. (b) 47,300 845,488 64121010 Newbridge Networks Corp. (b) 15,400 843,150 65090110 Wellfleet Communications, Inc. (b) 74,700 4,818,150 94949710 3Com Corp. (b) 23,800 1,118,600 88553510 24,117,624 COMPUTER SERVICES & SOFTWARE - 0.9% ACT Group PLC 189,907 398,300 00499592 Adobe Systems, Inc. 23,900 531,775 00724F10 Ceridian Corp. (b) 60,000 1,140,000 15677T10 Cerner Corp. 6,300 274,050 15678210 Cheyenne Software, Inc. (b) 12,500 345,313 16688810 CompUSA, Inc. (b) 66,800 1,336,000 20493210 ECI Telecom Ltd. 8,100 207,563 26825810 Electronic Information Systems, Inc. (b) 4,700 62,275 28573810 Fourth Dimension Software (b) 21,100 503,763 35199792 Informix Corp. (b) 139,400 2,962,250 45677910 Intelligent Electronics, Inc. 24,400 667,950 45815710 MDL Information Systems, Inc. (b) 2,500 22,188 55267R10 Micrografx, Inc. (b) 32,400 293,625 59507710 Microsoft Corp. (b) 79,900 6,441,938 59491810 Oracle Systems Corp. (b) 100,100 2,877,875 68389X10 Recognition Equipment, Inc. (b) 1,700 25,500 75623110 Reuters Holdings PLC Ord. (b) 31,309 826,138 76132410 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED TECHNOLOGY - CONTINUED COMPUTER SERVICES & SOFTWARE - CONTINUED Systems Software Associates, Inc. 65,300 $ 995,825 87183910 Viewlogic Systems, Inc. (b) 73,000 1,660,750 92672110 Wall Data, Inc. (b) 6,300 252,788 93204510 21,825,866 COMPUTERS & OFFICE EQUIPMENT - 1.5% Amdahl Corp. 64,500 387,000 02390510 Canon, Inc. 79,000 1,087,950 13780199 Cherry Corp. (b) 33,600 705,600 16454110 Compaq Computer Corp. (b) 180,600 13,364,400 20449310 Diebold, Inc. 22,800 1,373,700 25365110 Guilbert 2,625 784,972 40199792 Hewlett-Packard Co. 14,800 1,169,200 42823610 International Business Machines Corp. (b) 129,900 7,339,350 45920010 International Imaging Materials, Inc. 5,600 111,300 45968C10 Media Vision Technology, Inc. 12,700 555,625 58445H10 Merisel, Inc. (b) 63,800 1,172,325 58984910 Netframe Systems, Inc. (b) 56,400 972,900 64110610 SCI Systems, Inc. (b) 68,200 1,202,025 78389010 Stratus Computer, Inc. (b) 34,600 1,085,575 86315510 Sun Microsystems, Inc. (b) 9,100 267,313 86681010 Supermac Technology, Inc. (b) 2,500 26,875 86843310 SynOptics Communications, Inc. (b) 20,700 577,013 87160910 Tandem Computers, Inc. (b) 49,600 539,400 87537010 Tech Data Corp. (b) 2,700 97,200 87823710 Tricord Systems, Inc. (b) 32,400 858,600 89612110 Xerox Corp. 38,600 3,449,875 98412110 37,128,198 ELECTRONIC INSTRUMENTS - 0.1% Kulicke & Soffa Industries, Inc. (b) 16,600 232,400 50124210 Lam Research Corp. (b) 18,900 614,250 51280710 Megatest Corp. (b) 15,900 204,713 58495810 Teradyne, Inc. (b) 13,730 381,008 88077010 Varian Associates, Inc. 7,000 420,000 92220410 1,852,371 ELECTRONICS - 0.8% AMP, Inc. 13,300 839,563 03189710 Advanced Micro Devices, Inc. (b) 6,100 109,800 00790310 Anthem Electronics, Inc. (b) 46,800 1,351,350 03673210 Daewoo Electronics Components Co. (b) 4,665 101,721 23799E22 GTI Corp. (b) 6,300 174,038 36236010 Hitachi Ltd. (b) 283,000 2,080,268 43357810 Integrated Device Technology, Inc. (b) 22,300 381,888 45811810 Intel Corp. 21,200 1,314,400 45814010 LSI Logic Corp. (b) 48,100 769,600 50216110 Maxim Integrated Products, Inc. (b) 33,500 $ 1,603,813 57772K10 Methode Electronics, Inc. Class A 15,900 228,563 59152020 Molex, Inc. 40,000 1,350,000 60855420 Motorola, Inc. 15,500 1,431,813 62007610 Samsung Electronics Co. Ltd.: GDR (New) (b)(f) 950 32,072 79605030 GDR reprsenting shares (non-vtg.) (b)(f) 18,800 949,400 79605040 sponsored NV GDR (f) 1,500 76,500 79605050 Solectron Corp. (b) 80,700 2,289,863 83418210 Texas Instruments, Inc. 60,100 3,816,350 88250810 Toshiba Corp. (b) 243,000 1,477,666 89149310 20,378,668 PHOTOGRAPHIC EQUIPMENT - 0.1% Eastman Kodak Co. 13,000 728,000 27746110 Fuji Photo Film Co. Ltd. 21,000 463,850 35958610 Polaroid Corp. 38,200 1,289,250 73109510 2,481,100 TOTAL TECHNOLOGY 107,783,827 TRANSPORTATION - 1.7% AIR TRANSPORTATION - 0.6% AMR Corp. (b) 66,300 4,442,100 00176510 BAA PLC Ord. 38,395 599,986 10999999 British Airways PLC Ord. (b) 71,668 475,812 11041910 Comair Holdings, Inc. 40,800 933,300 19978910 Korean Air (b) 24,468 539,590 52299522 UAL Corp. (b) 52,300 7,635,800 90254910 14,626,588 RAILROADS - 0.9% Burlington Northern, Inc. 30,300 1,753,613 12189710 CSX Corp. 49,100 3,977,100 12640810 Chicago & North Western Holdings Corp. (b) 115,900 2,897,500 16715510 Conrail, Inc. 16,100 1,076,688 20836810 Illinois Central Corp., Series A 68,000 2,439,500 45184110 Santa Fe Pacific Corp. 304,000 6,764,000 80218310 Southern Pacific Rail Corp. (b) 89,100 1,759,725 84358410 Trinity Industries, Inc. 5,600 241,500 89652210 Union Pacific Corp. 7,000 438,375 90781810 Wisconsin Central Transportation Corp. (b) 7,600 454,100 97659210 21,802,101 SHIPPING - 0.1% Han Jin Transportation Co. (b) 10,500 262,776 40999722 Ned Lloyd (b) 29,100 882,271 63983210 Overseas Shipholding Group, Inc. 11,000 259,875 69036810 Peninsular & Oriental Steam Navigation Co. 44,946 428,185 70719030 Transportacion Maritima Mexicana SA de CV ADR representing L shares (b) 64,000 712,000 89386820 2,545,107 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED TRANSPORTATION - CONTINUED TRUCKING & FREIGHT - 0.1% Airborne Freight Corp. 2,700 $ 94,838 00926610 Arkansas Best Corp. 1,400 21,875 04079010 Federal Express Corp. (b) 21,900 1,552,163 31330910 MS Carriers, Inc. (b) 2,700 57,375 55353310 Werner Enterprises, Inc. 2,700 82,350 95075510 Yellow Corp. 10,300 256,213 98550910 2,064,814 TOTAL TRANSPORTATION 41,038,610 UTILITIES - 4.0% CELLULAR - 0.4% IDB Communications Group, Inc. (b) 5,300 291,500 44935510 Nextel Communications, Inc. Class A (b) 22,600 841,850 65332V10 Pactel Corp. (b) 2,600 64,675 69525210 Rogers Cantel Mobile Communications, Inc. Class B (non-vtg.) (b) 28,000 752,033 77510210 Vodafone Group PLC 258,518 2,266,169 92857T92 Vodafone Group PLC sponsored ADR 65,800 5,872,650 92857T10 10,088,877 ELECTRIC UTILITY - 1.8% American Electric Power Co., Inc. 38,100 1,414,463 02553710 Baltimore Gas & Electric Co. 42,700 1,083,513 05916510 Carolina Power & Light Co. 24,200 729,025 14414110 Central & South West Corp. 31,500 952,875 15235710 Central Costanera SA ADR (f) 4,300 131,150 15324M10 Central Puerto SA ADR (f) 1,500 51,375 15503810 Commonwealth Edison Co. 38,000 1,073,500 20279510 Consolidated Edison Co. of New York, Inc. 25,600 822,400 20911110 Detroit Edison Company 23,200 696,000 25084710 Dominion Resources, Inc. 13,100 594,413 25747010 Duke Power Co. 16,500 699,188 26439910 Eastern Electric PLC Ord. 20,313 202,516 27637D95 Entergy Corp. 153,200 5,515,200 29364F10 FPL Group, Inc. 14,900 582,963 30257110 General Public Utilities Corp. 36,700 1,133,113 37055010 Hong Kong Electric Holdings Ord. 758,500 3,165,531 43858010 Houston Industries, Inc. 23,100 1,100,138 44216110 Iberdrola SA 124,000 887,880 45499892 Illinois Power Co. 34,400 761,100 45209210 Korea Electric Power Corp. 89,200 2,420,219 50099B92 Long Island Lighting Co. 21,700 528,938 54267110 NIPSCO Industries, Inc. 41,900 1,377,463 62914010 National Power PLC 96,212 689,210 63719496 Niagara Mohawk Power Corp. 34,800 704,700 65352210 Northern States Power Co. (Minn.) 15,000 646,875 66577210 Ohio Edison Co. 33,500 $ 762,125 67734710 PSI Resources, Inc. 57,300 1,518,450 69363210 Pacific Gas & Electric Co. 28,700 1,008,088 69430810 PacifiCorp. 61,100 1,176,175 69511410 Philadelphia Electric Co. 68,800 2,081,200 71753710 Powergen PLC Ord. 59,012 474,590 73890594 Public Service Enterprise Group, Inc. 30,300 969,600 74457310 Rhein West Electric 1,200 369,348 78349910 SCEcorp 50,100 1,002,000 78388210 Scottish Hydro-Electric PLC Ord. 28,899 190,797 81013395 Scottish Power PLC 61,350 412,293 81013T96 Southern Co. 24,500 1,081,063 84258710 Southern Electric PLC 20,403 213,357 84280994 Texas Utilities Co. 34,100 1,474,825 88284810 Union Electric Co. 10,200 400,350 90654810 Veba Vereinigte Elektrizetaets & Bergwerks AG Ord. 8,200 2,462,547 92239110 Verbund Gesellschaft 5,100 310,371 92299999 43,870,927 GAS - 0.4% Arkla, Inc. 44,600 351,225 04123710 British Gas PLC Ord. 325,780 1,645,626 11090199 Coastal Corp. (The) 18,700 525,938 19044110 Columbia Gas System, Inc. (The) (b) 68,000 1,521,500 19764810 Consolidated Natural Gas Co. 17,100 803,700 20961510 ENSERCH Corp. 13,000 211,250 29356710 Enron Corp. 10,000 290,000 29356110 Pacific Enterprises 9,000 213,750 69423210 Panhandle Eastern Corp. 56,800 1,341,900 69846210 Sonat, Inc. 49,100 1,417,763 83541510 Westcoat Energy, Inc. 43,100 717,382 95751D10 Williams Companies, Inc. 46,800 1,140,750 96945710 10,180,784 TELEPHONE SERVICES - 1.3% Ameritech Corp. 19,900 1,527,325 03095410 British Telecommunications PLC Ord. 467,331 3,257,970 11102110 Cable & Wireless PLC Ord. 164,274 1,264,116 12699910 LDDS Communications, Inc. (b) 23,603 1,138,845 50182L10 Premier Page Co. 25,000 250,000 74058E10 SIP Spa 568,600 1,191,194 78401792 Southwestern Bell Corp. 58,700 2,436,050 84533310 Sprint Corporation 86,600 3,009,350 85206110 Telebras PN (Pfd. Reg.) 89,999,000 3,068,066 95499792 Telecom Argentina Stet France (b) 501,900 3,158,090 90899992 Telefonica Argentina Class B 216,300 1,588,576 87999D92 Telefonos de Mexico SA sponsored ADR representing shares Ord. Class L 137,500 9,281,250 87940378 31,170,832 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED UTILITIES - CONTINUED WATER - 0.1% Anglian Water Ord. 22,277 $ 194,787 03499595 Generale des Eaux 3,914 1,932,864 37099210 North West Water Ord. 28,078 242,607 67299195 Severn Trent PLC Ord. (b) 27,025 243,088 82999895 Thames Water PLC Ord. 29,506 251,459 88399595 2,864,805 TOTAL UTILITIES 98,176,225 TOTAL COMMON STOCKS (Cost $926,513,879) 1,046,852,019 PREFERRED STOCKS - 0.9% CONVERTIBLE PREFERRED STOCKS - 0.5% BASIC INDUSTRIES - 0.0% METALS & MINING - 0.0% Alumax, Inc., Series A, $4.00 100 9,850 02219720 Cyprus Amax Minerals Co., Series A, $4.00 1,600 104,000 23280920 113,850 DURABLES - 0.1% AUTOS, TIRES, & ACCESSORIES - 0.1% Chrysler Corp., Series A, $4.625 (f) 10,000 1,500,000 17119670 Ford Motor Co. (Del.), Series A, $4.20 12,800 1,388,800 34537020 2,888,800 ENERGY - 0.1% ENERGY SERVICES - 0.0% Chiles Offshore Corp. $1.50 (b) 27,400 623,350 16888720 OIL & GAS - 0.1% Unocal Corp. $3.50 (b)(f) 25,000 1,412,500 91528920 TOTAL ENERGY 2,035,850 FINANCE - 0.0% BANKS - 0.0% ABN-AMRO Holdings NV 6% 3,151 115,774 00399194 MEDIA & LEISURE - 0.0% LODGING & GAMING - 0.0% Bally Manufacturing Corp., Series D, $4.00 exchangeable 895 38,038 05873220 NONDURABLES - 0.1% TOBACCO - 0.1% RJR Nabisco Holdings Corp., Series A, depositary shares representing 1/4 shares 304,400 2,130,800 74960K40 RETAIL & WHOLESALE - 0.0% APPAREL STORES - 0.0% Lamonts Apparel, Inc., Series A (b) 22,958 45,916 51362830 TECHNOLOGY - 0.0% COMPUTER SERVICES & SOFTWARE - 0.0% Ceridian Corp. depositary shares representing 1/100 (b) 7,500 $ 378,750 15677T40 TRANSPORTATION - 0.2% AIR TRANSPORTATION - 0.2% AMR Corp. $3.00 (f) 44,000 2,354,000 00176588 UAL, Inc. cumulative 6 1/4% (b)(f) 15,200 1,673,900 90254930 4,027,900 TOTAL CONVERTIBLE PREFERRED STOCKS 11,775,678 NONCONVERTIBLE PREFERRED STOCKS - 0.4% BASIC INDUSTRIES - 0.1% CHEMICALS & PLASTICS - 0.0% Henkel KGAA 2,500 913,301 42509392 IRON & STEEL - 0.1% Danieli & C Spa N/C Risp (b) 40,200 135,577 23599610 Dongbu Steel Co. Ltd. (b) 10,500 318,714 25799L23 Geneva Steel Co., Series B, 14% exchangeable (b) 8,000 988,000 37225240 1,442,291 TOTAL BASIC INDUSTRIES 2,355,592 CONSTRUCTION & REAL ESTATE - 0.0% CONSTRUCTION - 0.0% Dongbu Construction (b) 800 14,867 25799M23 DURABLES - 0.0% AUTOS, TIRES, & ACCESSORIES - 0.0% Hyundai Motor Service Co. (b) 1,900 94,629 42199424 FINANCE - 0.0% CREDIT & OTHER FINANCE - 0.0% Tong Yang Securities (b) 24,400 526,000 93999B23 UTILITIES - 0.3% ELECTRIC UTILITY - 0.1% Long Island Lighting Co. $7.95 43,000 1,139,500 54267177 Public Service Co. of New Hampshire Co., Series A 6,000 168,750 74448283 1,308,250 TELEPHONE SERVICES - 0.2% Stet Societa Finanziaria Telefonica Spa 2,802,100 5,656,431 85982592 TOTAL UTILITIES 6,964,681 TOTAL NONCONVERTIBLE PREFERRED STOCKS 9,955,769 TOTAL PREFERRED STOCKS (Cost $19,821,641) 21,731,447 MOODY'S MOODY'S RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE (UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1) CORPORATE BONDS - 12.2% CONVERTIBLE BONDS - 0.1% BASIC INDUSTRIES - 0.0% PAPER & FOREST PRODUCTS - 0.0% Stone Consolidated Corp. 8%, 12/31/03 - $ 560,000 $ 493,588 86158KAA DURABLES - 0.1% TEXTILES & APPAREL - 0.1% Alpargatas SAIC 9%, 3/15/98 (f) - 1,350,000 1,289,250 020545AA Shinwon Corp. euro 0.50%, 12/31/08 - 120,000 138,000 98499DAA 1,427,250 NONDURABLES - 0.0% BEVERAGES - 0.0% Jinro Ltd. euro 0.25%, 9/30/09 - 120,000 137,400 732994AA RETAIL & WHOLESALE - 0.0% TRADING COMPANIES - 0.0% Daewoo Corp. euro 0.25%, 12/31/08 - 90,000 112,950 23799BAB TECHNOLOGY - 0.0% COMMUNICATIONS EQUIPMENT - 0.0% Ericsson (L.M.) Telephone Co. 4 1/4%, 6/30/00 - 27,800 43,090 294821AA COMPUTERS & OFFICE EQUIPMENT - 0.0% Tae Il Media Co. Ltd. 0.50%, 12/31/98 - 50,000 38,138 90799KAA Unisys Corp. 8 1/4%, 8/1/00 B2 350,000 479,500 909214AX 517,638 TOTAL TECHNOLOGY 560,728 TOTAL CONVERTIBLE BONDS 2,731,916 NONCONVERTIBLE BONDS - 12.1% AEROSPACE & DEFENSE - 0.0% DEFENSE ELECTRONICS - 0.0% Trancor, Inc. 10 7/8%, 8/15/01 B2 470,000 492,325 892349AC BASIC INDUSTRIES - 1.1% CHEMICALS & PLASTICS - 0.8% Agricultural Mineral & Chemicals Corp. 10 3/4%, 9/30/03 B2 480,000 504,000 008522AA Desc (Soc. De Fomento Indust.): euro 11%, 12/15/97 - $ 1,450,000 $ 1,645,750 252996AB 11%, 12/15/97 (f) - 1,400,000 1,589,000 252996AA G-I Holdings, Inc. 0%, 10/1/98 Ba3 7,480,000 4,787,200 36172FAB Harris Chemical Corp. 10 3/4%, 10/15/03 B3 320,000 335,200 413868AB IMC Fertilizer Group, Inc.: 9 1/4, 10/1/00 B3 1,600,000 1,608,000 449669AH 10 1/8, 6/15/01 B3 1,920,000 1,996,800 449669AF Methanex Corp. 8 7/8%, 11/15/01 Ba3 700,000 721,000 59151KAA NL Industires, Inc. 11 3/4%, 10/15/03 B1 580,000 603,200 629156AE OSI Specialties, Inc. 9 1/4%, 10/1/02 B1 370,000 379,250 671042AA UCC Corp. 9%, 9/1/00 B1 3,300,000 3,366,000 90915TAA UCC Investors Holding, Inc. 10 1/2%, 5/1/02 B2 950,000 1,035,500 90263EAB 18,570,900 IRON & STEEL - 0.1% Acindar euro 9 1/2%, 10/23/95 - 1,400,000 1,372,000 0045149G Acindar Industria Argentina de Aceros 10 1/2%, 12/10/94 (f) - 500,000 490,000 004514AA WCI Steel, Inc. 10 1/2%, 3/1/02 B1 640,000 667,200 92923JAB 2,529,200 PAPER & FOREST PRODUCTS - 0.2% Container Corp. America: 14%, 12/1/01 B3 3,000,000 3,341,250 210741AG 9 3/4%, 4/1/03 B2 1,125,000 1,161,562 210741AJ Valcor, Inc. 9 5/8%, 11/1/03 B1 310,000 311,550 918884AA 4,814,362 TOTAL BASIC INDUSTRIES 25,914,462 CONGLOMERATES - 0.1% American Standard, Inc.: 9 7/8%, 6/1/01 B1 358,000 373,215 029717AH 12 3/4%, 12/31/03 B3 1,600,000 1,636,000 029717AK Sequa Corp. 9 3/8%, 12/15/03 B3 440,000 441,650 817320AG 2,450,865 CONSTRUCTION & REAL ESTATE - 2.1% BUILDING MATERIALS - 1.8% Adience, Inc. 11%, 6/15/02 - 1,000,000 810,000 006905AA Cemex SA and Tolmex SA de CV: euro 8 7/8%, 6/10/98 Ba2 4,760,000 5,122,950 1512909F 10%, 11/5/99 Ba2 1,030,000 1,165,187 1512909D Cemex SA 8 7/8%, 6/10/98 (f) Ba2 12,800,000 13,776,000 151290AG Tolmex SA de CV 8 3/8%, 11/1/03 Ba2 7,480,000 7,854,000 889557AA MOODY'S MOODY'S RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE (UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1) CORPORATE BONDS - CONTINUED NONCONVERTIBLE BONDS - CONTINUED CONSTRUCTION & REAL ESTATE - CONTINUED BUILDING MATERIALS - CONTINUED Triangle Pacific Corp. 10 1/2%, 8/1/03 B2 $ 1,580,000 $ 1,659,000 895912AC USG Corp.: 8%, 12/15/95 B3 2,240,000 2,240,000 903293AH 8%, 12/15/96 B3 2,590,000 2,590,000 903293AA 8%, 3/15/97 B3 2,590,000 2,590,000 903293AD 9%, 12/15/98 B3 1,920,000 1,920,000 903293AJ 10 1/4%, 12/15/02 B2 3,988,000 4,087,700 903293AL 43,814,837 CONSTRUCTION - 0.3% Blount, Inc. 9%, 6/15/03 B2 925,000 953,906 095173AB Empresas ICA Sociedad Controladora SA de CV: euro 9 3/4%, 2/11/98 - 2,253,000 2,489,565 2924489A 9 3/4%, 2/11/98 (f) - 990,000 1,093,950 292448AA Kaufman & Broad Home Corp. 9 3/8%, 5/1/03 Ba3 306,000 313,650 486168AC MDC Holdings, Inc. 11 1/8%, 12/15/03 - 510,000 512,550 552676AH Ryland Group, Inc. 9 5/8%, 6/1/04 Ba3 900,000 907,875 783764AC US Home Corp. 9 3/4%, 6/15/03 Ba3 1,615,000 1,659,412 911920AB 7,930,908 REAL ESTATE - 0.0% Baldwin Co. 10 3/8%, 8/1/03 (f) B2 90,000 86,400 057826AA TOTAL CONSTRUCTION & REAL ESTATE 51,832,145 DURABLES - 0.3% AUTOS, TIRES, & ACCESSORIES - 0.2% Grupo Dina (Consorcio G): euro 10 1/2%, 11/18/97 - 500,000 550,000 210996AB 10 1/2%, 11/18/97 (f) - 2,120,000 2,332,000 210996AA Grupo Imsa SA de CV euro 8 3/4%, 7/7/98 (f) - 750,000 770,625 40048TAA Navistar Financial Corp. 8 7/8%, 11/15/98 B2 1,410,000 1,424,100 638902AH 5,076,725 TEXTILES & APPAREL - 0.1% Westpoint Stevens, Inc.: 8 3/4%, 12/15/01 B3 1,120,000 1,128,400 961238AA 9 3/8%, 12/15/05 B3 770,000 777,700 961238AB 1,906,100 TOTAL DURABLES 6,982,825 ENERGY - 0.3% ENERGY SERVICES - 0.2% Baroid Corp. 8%, 4/15/03 Ba1 $ 1,200,000 $ 1,281,000 068277AA TransTexas Gas Corp. 10 1/2%, 9/1/00 B1 2,860,000 3,031,600 893895AA 4,312,600 INDEPENDENT POWER - 0.0% Consolidated Hydro, Inc. 0%, 7/15/03 (e)(f) - 1,585,000 935,150 209349AB OIL & GAS - 0.1% HS Resources, Inc. 9 7/8%, 12/1/03 B1 710,000 710,000 404297AA Mesa Capital Corp. secured 0%, 6/30/98 (e) - 240,000 202,800 590910AF Oryx Energy Co. deb. 9 3/4%, 9/15/1998 Ba2 540,000 561,600 68763FAA 1,474,400 TOTAL ENERGY 6,722,150 FINANCE - 2.3% BANKS - 1.0% Bancomer SA: euro 8%, 7/7/98 (f) Ba2 8,000,000 8,400,000 059682AB 9%, 6/1/00 (f) - 5,000,000 5,375,000 059682AA Bancomer SNC euro 8%, 7/7/98 - 3,850,000 4,042,500 05999KAT Banco Nacional de Comercio Exterior SNC: euro 7 1/2%, 7/1/00 Ba2 1,675,000 1,695,938 8%, 4/14/00 Ba2 1,300,000 1,335,750 0596129A 8%, 8/5/03 Ba2 2,915,000 2,995,162 0596129C Midlantic Corp. 9 1/4%, 9/1/99 Baa3 340,000 384,183 59780EAC Signet Banking Corp. 9 5/8%, 6/01/99 Baa2 790,000 915,705 826681AA 25,144,238 CREDIT & OTHER FINANCE - 0.2% Lomas Mortgage USA, Inc. 10 1/4%, 10/1/02 Ba1 4,930,000 5,127,200 54154LAB INSURANCE - 1.0% American Annuity Group, Inc.: 9 1/2%, 8/15/01 Ba3 2,680,000 2,740,300 023840AB 11 1/8%, 2/01/03 B2 3,850,000 4,129,125 023840AA American Financial Corp. s.f. 12%, 9/3/99 - 3,170,000 3,233,400 026087AR Americo Life, Inc. 9 1/4%, 6/1/05 BB+ 1,600,000 1,588,000 03060NAB Conseco, Inc. 8 1/8%, 2/15/03 Ba1 1,875,000 1,945,331 208464AD Nacolah, Inc. 9 1/2%, 12/1/03 B1 760,000 769,500 629667AA Penncorp Financial Group, Inc. 9 1/4%, 12/15/03 B1 930,000 939,300 708094AA MOODY'S MOODY'S RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE (UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1) CORPORATE BONDS - CONTINUED NONCONVERTIBLE BONDS - CONTINUED FINANCE - CONTINUED INSURANCE - CONTINUED Reliance Financial Services: 9.273%, 11/1/00 BBB $ 1,930,000 $ 1,775,600 759462AD 10.36%, 12/1/00 BBB 4,030,000 4,100,525 759462AF Reliance Group 9%, 11/15/00 Ba3 2,230,000 2,246,725 759464AG 23,467,806 SAVINGS & LOANS - 0.1% Gentra, Inc. euro 9 1/8%, 12/29/95 B3 32,000 32,080 37245E9A Webster Financial Corp. 8 3/4%, 6/30/00 B1 800,000 828,400 947890AA Western Financial Savings Bank (Orange, CA) 8 1/2%, 7/1/03 Ba3 1,600,000 1,600,256 958202FK 2,460,736 TOTAL FINANCE 56,199,980 HEALTH - 0.2% MEDICAL FACILITIES MANAGEMENT - 0.2% American Medical International, Inc. 9 1/2%, 4/15/06 B 1,280,000 1,337,600 027429AZ HealthTrust, Inc. - The Hospital Co. 8 3/4%, 3/15/05 B1 2,245,000 2,312,350 42221HAG Hospital Corp. America 8%, 4/15/96 Ba2 1,000,000 1,050,000 441065AS 4,699,950 INDUSTRIAL MACHINERY & EQUIPMENT MENT - 0.1% ELECTRICAL EQUIPMENT - 0.1% Panamasat LP/Panamasat Capital Corp. secured 9 3/4%, 8/1/00 Ba3 495,000 524,700 69830CAA Specialty Equipment Cos., Inc. 11 3/8%, 12/1/03 B3 1,780,000 1,806,700 847497AB 2,331,400 INDUSTRIAL MACHINERY & EQUIPMENT - 0.0% Rexnord Corp. 10 3/4%, 7/1/02 Ba3 480,000 585,600 76168RAB TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 2,917,000 MEDIA & LEISURE - 2.7% BROADCASTING - 0.7% Act III Broadcasting, Inc. 9 5/8%, 12/15/03 B3 400,000 405,000 00503KAA Continental Cablevision, Inc.: 8 5/8%, 8/15/03 Ba2 400,000 431,000 211177AF 9%, 9/1/08 Ba2 576,000 633,600 211177AG Cook Inlet Communications Corp. 10 3/4%, 9/10/98 (f) - $ 3,110,000 $ 3,110,000 2161719C Great America TV 9 1/2%, 12/31/99 - 2,980,000 2,831,000 389990AA Helicon Group LP/Helicon Capital Corp. secured 9 1/2%, 11/1/03 Caa 1,120,000 1,089,200 423265AB SCI Television, Inc. secured: 7 1/2%, 6/30/98 (g) - 1,088,174 1,063,690 783895AK 11%, 6/30/05 - 5,048,000 5,237,300 783895AJ SPI Holding, Inc. pay-in-kind 11 1/2%, 12/1/02 B- 1,820,000 1,851,850 78462GAF 16,652,640 LEISURE DURABLES & TOYS - 0.1% Coleman Holdings 0%, 5/27/98 B 2,299,000 1,494,350 193551AC LODGING & GAMING - 1.5% Bally's Grand, Inc. 1st mtg. 12%, 8/20/01 D 2,610,000 2,694,825 05873JAC Ballys Casino Holdings, Inc. 0%, 6/15/98 (f) B3 4,450,000 2,848,000 05873EAA California Hotel Finance Corp. gtd. 11%, 12/1/02 B2 9,265,000 9,844,063 13032RAG Embassy Suites, Inc.: gtd. 8 3/4%, 3/15/00 (f) B1 4,900,000 5,022,500 290807AH 10 7/8%, 4/15/02 B1 4,750,000 5,320,000 290807AF First Mexican Acceptance Corp. euro 10 3/4%, 9/15/96 - 600,000 625,968 321998AA GNS Finance Corporation 9 1/4%, 3/15/03 B2 480,000 499,200 361916AK Grand Casino Resorts, Inc. gtd. 1st mtg. 12 1/2%, 2/1/00 - 1,920,000 2,073,600 385268AA Host Marriott Hospitality, Inc.: 10 5/8%, 2/1/00 B1 430,000 441,825 441080AC 9 1/8%, 12/1/00 B1 180,000 183,150 441080AD 11 1/4%, 7/18/05 B1 694,000 714,820 441080AG 10 1/2%, 5/1/06 B1 3,061,000 3,145,177 441080AH 11%, 5/1/07 B1 530,000 544,575 441080AJ Ocean Showboat Financial 9 1/4%, 5/1/08 - 1,120,000 1,136,800 6750219A Red Roof Inns 9 5/8%, 12/15/03 (f) B3 720,000 732,600 757005AA Resorts International, Inc. secured pay-in-kind 15%, 4/15/94 Ca 577,275 361,761 761185AH Showboat, Inc. 9 1/4%, 5/1/08 Ba3 200,000 206,000 825390AB Trump Plaza Holding Association pay-in-kind 12 1/2%, 6/15/03 Caa 300,000 283,332 89817EAB 36,678,196 MOODY'S MOODY'S RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE (UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1) CORPORATE BONDS - CONTINUED NONCONVERTIBLE BONDS - CONTINUED PUBLISHING - 0.3% Marvel Parent Holdings, Inc. 0%, 4/15/98 B3 $ 870,000 $ 565,500 573845AA News America Holdings, Inc. 8 1/2%, 2/15/05 Ba1 6,000,000 6,571,800 652478AJ 7,137,300 RESTAURANTS - 0.1% American Restaurant Group, Inc. 12%, 9/15/98 B2 125,000 124,375 029309AB Restaurant Enterprises Group, Inc. 12 1/4%, 12/15/96 (c) - 3,590,000 3,518,200 761255AA 3,642,575 TOTAL MEDIA & LEISURE 65,605,061 NONDURABLES - 1.1% BEVERAGES - 0.2% Canandaigua Wine, Inc. 8 3/4%, 12/15/03 B1 1,140,000 1,145,700 137219AB Dr. Pepper/Seven-Up Companies, Inc. 0%, 11/1/02 (e) B3 800,000 616,000 256131AD Fomento Economico Mexicano SA de CV euro 9 1/2%, 7/22/97 - 1,780,000 1,935,750 3444189A Grupo Embotellador de Mexico SA de CV: euro 10 3/4%, 11/19/97 Ba2 1,620,000 1,814,400 40048J9A 10 3/4%, 11/19/97 (f) Ba2 200,000 224,000 40048JAA 5,735,850 FOODS - 0.0% Doskocil Cos., Inc. 9 3/4%, 7/15/00 B2 1,069,000 1,058,310 258486AD Specialty Foods Corp. 10 1/4%, 8/15/01 (f) B2 800,000 814,000 847499AC 1,872,310 HOUSEHOLD PRODUCTS - 0.7% Revlon Consumer Products Corp.: 9 1/2%, 6/1/99 B2 2,235,000 2,207,062 761519AG 9 3/8%, 4/1/01 B2 4,295,000 4,155,412 761519AF 10 1/2%, 2/15/03 B3 3,460,000 3,356,200 761519AE Revlon World Wide secured 0%, 3/15/98 B3 13,390,000 6,795,425 76154KAB 16,514,099 TOBACCO - 0.2% Empresas La Moderna SA 10 1/4%, 11/12/97 (f) - 3,430,000 3,738,700 292449AA TOTAL NONDURABLES 27,860,959 RETAIL & WHOLESALE - 1.3% APPAREL STORES - 0.2% AnnTaylor, Inc. 8 3/4%, 6/15/00 B1 $ 760,000 $ 760,000 036117AC Apparel Retailers, Inc. 12 3/4%, 8/15/05 (f) Baa 1,920,000 1,094,400 037795AB Lamonts Apparel, Inc. 11 1/2%, 11/1/99 - 2,645,000 2,559,037 5136289A 4,413,437 DRUG STORES - 0.0% Eckerd Jack Corp. 9 1/4%, 2/15/04 B2 350,000 357,000 278763AE GENERAL MERCHANDISE STORES - 0.3% Controladora Comercial Mexicana SA de CV: euro 8 3/4%, 4/21/98 - 1,000,000 1,051,250 212996AA 8 3/4%, 4/21/98 (f) - 1,900,000 1,997,375 21238AAA Hills Stores Co. 10 1/4%, 9/30/03 - 900,000 933,750 431692AA Parisian, Inc. 9 7/8%, 7/15/03 B3 1,820,000 1,820,000 700147AB Service Merchandise, Inc. 9%, 12/15/04 Ba3 1,875,000 1,884,375 817587AC 7,686,750 GROCERY STORES - 0.6% General Nutrition, Inc. 11 3/8%, 3/1/00 B3 2,220,000 2,453,100 370471AC Grand Union Company 11 1/4%, 7/15/00 B2 1,210,000 1,264,450 386532AC Penn Traffic Co. 9 5/8%, 4/15/05 B2 1,975,000 2,034,250 707832AD Ralph's Grocery Co. 9%, 4/1/03 B2 625,000 625,000 751253AD Rykoff Sexton, Inc. 8 7/8%, 11/1/03 Ba2 160,000 164,000 783759AC Secured Finance, Inc. 11.18%, 12/15/04 - 8,000,000 8,680,000 81371F9A 15,220,800 RETAIL & WHOLESALE, MISCELLANEOUS - 0.2% Color Tile, Inc. 10 3/4%, 12/15/01 B2 630,000 633,150 196267AD Finlay Fine Jewelry Corp. 10 5/8%, 5/1/03 B1 1,025,000 1,058,312 317887AA Musicland Group, Inc. 9%, 6/15/03 B1 390,000 395,850 627578AA Sifto Canada, Inc. 8 1/2%, 7/15/00 B1 1,600,000 1,610,000 826549AA Trinidad & Tobago 9 3/4%, 11/3/00 (f) Ba2 750,000 774,375 896292AB 4,471,687 TOTAL RETAIL & WHOLESALE 32,149,674 MOODY'S MOODY'S RATINGS PRINCIPAL VALUE RATINGS PRINCIPAL VALUE (UNAUDITED) (D) AMOUNT (A) (NOTE 1) (UNAUDITED) (D) AMOUNT (A) (NOTE 1) CORPORATE BONDS - CONTINUED NONCONVERTIBLE BONDS - CONTINUED SERVICES - 0.0% ADVERTISING - 0.0% Outdoor Systems, Inc. 10 3/4%, 8/15/03 B2 $ 910,000 $ 948,675 690057AA TECHNOLOGY - 0.2% COMPUTER SERVICES & SOFTWARE - 0.0% Computervision Corp. 11 3/8%, 8/15/99 B3 1,000,000 840,000 20557TAB COMPUTERS & OFFICE EQUIPMENT - 0.1% Unisys Corp. 9 3/4%, 9/15/96 Ba3 2,725,000 2,847,625 909214AY ELECTRONICS - 0.1% Berg Electronics 11 3/8%, 5/1/03 B3 430,000 449,350 083727AB Grupo Condumex SA de CV 7 3/8%, 7/27/98 (f) - 1,000,000 1,010,000 399904AC 1,459,350 TOTAL TECHNOLOGY 5,146,975 TRANSPORTATION - 0.1% RAILROADS - 0.1% Southern Pacific Rail Corp. 9 3/8%, 8/15/05 Ba3 2,350,000 2,496,875 843584AA SHIPPING - 0.0% Eletson Holdings, Inc. 9 1/4%, 11/15/03 Ba2 300,000 306,000 286204AA International Shipholding Corp. 9%, 7/1/03 B1 300,000 303,750 460321AA 609,750 TOTAL TRANSPORTATION 3,106,625 UTILITIES - 0.2% CELLULAR - 0.0% Centennial Cell Corp. 8 7/8%, 11/1/01 B 810,000 810,000 15133VAA ELECTRIC UTILITY - 0.2% AES Corp. 9 3/4%, 6/15/00 Ba2 2,025,000 2,100,937 00130HAB Midland Funding Corp. 10.33%, 7/23/02 (f) Ba3 1,280,000 1,324,800 597519AB Texas New Mexico Power Company 1st mtg. 9 1/4%, 9/15/00 Ba3 320,000 337,600 882587AT Toledo Edison Co. 8.70%, 9/1/08 Ba3 1,130,000 1,100,688 889175BB 4,864,025 TOTAL UTILITIES 5,674,025 TOTAL NONCONVERTIBLE BONDS 298,703,696 TOTAL CORPORATE BONDS (Cost $292,098,617) 301,435,612 U.S. TREASURY OBLIGATIONS - 5.2% 3.13%, 2/24/94 Aaa $ 75,000,000 $ 74,616,750 99399H5H 3.13%, 3/3/94 Aaa 50,000,000 49,799,500 3.00% - 3.08%, 3/17/94 Aaa 2,250,000 2,236,305 99399H5Q TOTAL U.S. TREASURY OBLIGATIONS (Cost $126,642,634) 126,652,555 U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 0.0% Federal National Mortgage Association (h) 8 1/2%, 4/1/17 Aaa 663,271 104,047 31364HBX 8 1/2%, 8/1/22 Aaa 3,478,404 620,652 31364HRJ 724,699 Government National Mortgage Association 8 1/2%, 12/15/16 Aaa 212,279 225,414 36217F3L TOTAL U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES (Cost $2,034,101) 950,113 FOREIGN GOVERNMENT OBLIGATIONS - 22.5% Argentina Republic: BOCON 3 1/4%, 4/1/01 (g) B1 45,688,310 39,593,490 039995AF Brady: euro 4%, 3/31/23 (g) B1 27,750,000 19,043,437 039995AD 4%, 3/31/23 (g) - 1,655,000 1,135,744 0401149Y 4%, 3/31/23 (e)(f) - 3,500,000 2,410,625 0401149G 4.1875%, 3/31/05 (f)(g) - 837,114 734,568 039995AT 4.1875%, 3/31/05 (g) B1 4,500,000 3,948,750 039995AS Bank Negara Malaysia: 0%, 5/11/94 - MYR 5,000,000 1,810,557 06399DAF 0%, 6/8/94 - MYR 5,000,000 1,802,571 06399DAA Brazil Federative Republic IDU euro 8 3/4%, 1/1/01 B2 30,500,000 25,353,125 1057569E Danish Government Bullet: 9%, 11/15/96 Aa1 DKK 7,000,000 1,118,471 249998AK 9%, 11/15/98 Aa1 DKK 26,000,000 4,341,051 249998AQ 9%, 11/15/00 Aa1 DKK 45,300,000 7,780,116 2485059A 8%, 5/15/03 Aa1 DKK 364,000,000 60,560,427 249998AG 7%, 12/15/04 Aa1 DKK 388,450,000 61,152,479 249998AV Ecuador Republic amortizing loan participating 0%, 8/15/06 - 2,000,000 1,310,000 88399HAA French Government OAT: 8 1/2%, 4/25/03 Aaa FRF 332,200,000 67,770,162 351996AQ 6 3/4%, 10/25/03 Aaa FRF 104,650,000 19,138,978 351996BC MOODY'S RATINGS PRINCIPAL VALUE PRINCIPAL VALUE (UNAUDITED)(D) AMOUNT (A) (NOTE 1) AMOUNT (A) (NOTE 1) FOREIGN GOVERNMENT OBLIGATIONS - CONTINUED Government of New Zealand 8%, 4/15/04 Aa3 NZD 21,000,000 $ 13,651,046 6501629K Mexican Government: Adjustabanos: 4.80%, 9/1/94 - MXN 3,000,000 1,251,858 597998SD 7 1/4%, 2/17/94 - MXN 87,500 39,320 597998SA 6.70%, 5/4/94 - MXN 3,512,500 1,527,870 597998RV Brady: 4.1875%, 12/31/19 (g) Ba3 15,300,000 14,668,875 597998QD 4.3125%, 12/31/19 (g) Ba3 77,050,000 73,871,687 597998RJ 6 1/4%, 12/31/19 Ba3 89,000,000 74,315,000 597998MM Cetes 0%, 1/20/94 to 3/30/94 - MXN 148,170,430 46,762,727 597998TG Mexico Value Recovery (rights 6/30/03) - 206,198,000 2,062 59304893 Morocco Trust 4.3125%, 1/3/09 (f)(g) - 3,500,000 2,830,625 617727AA Siderurgica Brasileiras SA inflation indexed 6%, 8/15/99 - BRC 22,372,700 3,484,427 82599PAA United Kingdom Treasury 9 3/4%, 8/27/02 Aaa GBP 2,800,000 5,098,419 467991AR TOTAL FOREIGN GOVERNMENT OBLIGATIONS (Cost $531,021,579) 556,508,467 OTHER SECURITIES - 8.7% INDEXED SECURITIES - 5.9% AIG Matched Funding Corp. (g)(i): note 3.586%, 9/14/94 (coupon inversely indexed to HELIBOR and principal indexed to value of 2-year Finnish securities, both multiplied by 6) 2,875,000 3,174,575 012994AK note 4.4655%, 9/16/94 (coupon inversely indexed to HELIBOR and principal indexed to value of 3-year Finnish securities, both multiplied by 4) 950,000 1,022,485 012994AJ Bankers Trust Company notes (g): 4.2075%, 8/31/94 (coupon inversely indexed to 6-month HELIBOR rate, multiplied by 6) 850,000 933,300 0669918F 22.8887%, 8/31/94 (coupon inversely indexed to 6-month HELIBOR rate, multiplied by 6) $ 7,100,000 $ 8,448,290 0669918E 4.2715%, 9/2/94 (coupon inversely indexed to HELIBOR and principal indexed to value of 3-year Finnish securities, both multiplied by 4) (i) 1,000,000 1,077,200 0669918H 2.0186%, 11/3/94 (coupon inversely indexed to HELIBOR and principal indexed to value of 2-year Finnish securities, both multiplied by 8) (i) 1,700,000 1,832,600 0669918V 0%, 11/3/94 (coupon inversely indexed to ITL LIBOR and principal indexed to value of 2-year Italian securities, both multiplied by 8) (i) 1,700,000 1,712,920 0669918X 2.482%, 11/4/94 (coupon inversely indexed to HELIBOR and principal indexed to value of 2-year Finnish securities, both multiplied by 8) (i) 800,000 861,840 0669918Y 2.322%, 11/9/94 (coupon inversely indexed to HELIBOR and principal indexed to value of 2-year Finnish securities, both multiplied by 8) (i) 1,250,000 1,323,250 0669919B 1.1386%, 11/14/94 (coupon inversely indexed to HELIBOR and principal indexed to value of 2-year Finnish securities, both multiplied by 8) (i) 700,000 722,540 0669919C 0%, 11/16/94 (coupon inversely indexed to HELIBOR and principal indexed to value of 2-year Finnish securities, both multiplied by 8) (i) 2,400,000 2,477,280 0669919F 0%, 11/16/94 (coupon inversely indexed to ITL LIBOR and principal indexed to value of 2-year Italian securities, both multiplied by 8.50) (i) 5,000,000 5,367,500 0669919D PRINCIPAL VALUE PRINCIPAL VALUE AMOUNT (A) (NOTE 1) AMOUNT (A) (NOTE 1) OTHER SECURITIES - CONTINUED INDEXED SECURITIES - CONTINUED Bankers Trust Company notes (g) - CONTINUED 0%, 12/5/94 (coupon inversely indexed to ITL LIBOR and principal indexed to value of 2-year Italian securities, both multiplied by 8) (i) $ 1,700,000 $ 1,926,270 0669919G 3.282%, 12/5/94 (coupon inversely indexed to HELIBOR and principal indexed to value of 2-year Finnish securities, both multiplied by 8) (i) 1,500,000 1,534,500 0669919H 2.77%, 12/6/94 (coupon inversely indexed to HELIBOR and principal indexed to value of 2-year Finnish securities, both multiplied by 8) (i) 700,000 716,660 0669919J 0%, 12/7/94 (coupon inversely indexed to CAD Banker's Acceptance rate and principal indexed to value of 1-year Canadian securities, both multiplied by 13) (i) 1,100,000 1,193,830 0669919L 3.09%, 12/7/94 (coupon inversely indexed to HELIBOR and principal indexed to value of 2-year Finnish securities, both multiplied by 8) (i) 2,800,000 2,873,640 0669919K 0%, 12/8/94 (coupon inversely indexed to CAD Banker's Acceptance rate and principal indexed to value of 1-year Canadian securities, both multiplied by 13) (i) 900,000 960,750 0669919P 3.3125%, 12/8/94 (coupon inversely indexed to HELIBOR and principal indexed to value of 2-year Finnish securities, both multiplied by 8) (i) 3,800,000 3,898,040 0669919M 5.781%, 12/8/94 (coupon inversely indexed to GBP LIBOR and principal indexed to value of 3-year United Kingdom securities, both multiplied by 10) (i) 4,100,000 4,235,710 0669919Q 0%, 12/8/94 (coupon inversely indexed to ITL LIBOR and principal indexed to value of 2-year Italian securities, both multiplied by 8.50) (i) $ 1,900,000 $ 2,234,590 0669919N Citibank Nassau: 0%, 8/30/94 ( coupon inversely indexed to CAD Banker's Acceptance rate and principal indexed to value of 1-year Canadian securities, both multiplied by 11) (g)(i) 2,500,000 2,995,000 223991AL 22.01337%, 8/31/94 (coupon inversely indexed to CAD Banker's Acceptance rate and principal indexed to value of 1-year Canadian securities, both multiplied by 11) (g)(i) 7,250,000 8,613,000 223991AM 0%, 11/3/94 (coupon inversely indexed to ITL LIBOR and principal indexed to value of 2-year Italian securities, both multiplied by 8) (g)(i) 4,250,000 4,299,300 223991AV 0%, 11/4/94 (coupon inversely indexed to ITL LIBOR and principal indexed to value of 2-year Italian securities, both multiplied by 8) (g)(i) 2,400,000 2,490,480 223991AW 0%, 11/15/94 (coupon inversely indexed to ITL LIBOR and principal indexed to value of 2-year Italian securities, both multiplied by 8.50) (g)(i) 5,000,000 5,391,500 223991BA 0%, 12/8/94 (coupon inversely indexed to ITL LIBOR and principal indexed to value of 2-year Italian securities, both multiplied by 8.50) (g)(i) 2,800,000 3,248,280 223991BJ 7.315%, 12/8/94 (coupon inversely indexed to GBP LIBOR and principal indexed to value of 3-year United Kingdom securities, both multiplied by 10) (g)(i) 3,600,000 3,711,600 223991BL 17.647%, 12/8/94 (coupon inversely indexed to CAD Banker's Acceptance rate and principal indexed to value of 1-year Canadian securities, both multiplied by 11) (g)(i) 700,000 756,210 223991BK PRINCIPAL VALUE PRINCIPAL VALUE AMOUNT (A) (NOTE 1) AMOUNT (A) (NOTE 1) OTHER SECURITIES - CONTINUED INDEXED SECURITIES - CONTINUED Citibank Nassau - CONTINUED 4 5/8%, 7/30/96 (inversely indexed to 1-year SEK swap rate, multiplied by 10) $ 7,350,000 $ 7,697,655 223991AH Disney Corp. note 6.9386%, 12/9/94 (inversely indexed to 6 month GBP swap rate, multiplied by 10) (g) 4,400,000 4,583,920 25469HBF Emerson Electric Company (g)(i): 22.353%, 8/30/94 (coupon inversely indexed to CAD Banker's Acceptance rate and principal indexed to 1-year Canadian securities, both multiplied by 11) 4,250,000 4,897,700 29101LAQ 6.115%, 10/24/94 (coupon inversely indexed to LIBOR and principal indexed to 2-year United Kingdom securities, both multiplied by 10) 4,700,000 5,315,230 29101LAR Goldman Sachs Group, L.P. notes: 3.50%, 8/27/94 (inversely indexed to 1-month and 12-month CAD Banker's Acceptance rates, multiplied by 11) (g)(i) 4,900,000 5,897,640 38142T9F 25.657%, 9/27/94 (inversely indexed to CAD Banker's Acceptance rate and principal indexed to value of 1-year Canadian securities, both multiplied by 13) (g)(i) 3,400,000 4,064,700 38142T9H 3.0747%, 3/28/94 (indexed to silver price) 225,000 224,887 540992AD 3.1273%, 3/28/94 (indexed to silver price) 90,000 90,873 540992AA 3.0812%, 4/20/94 (indexed to cocoa price) 225,000 221,130 540992AB 3.1859%, 4/20/94 (indexed to cocoa price) 90,000 82,017 38142T9U 3.18%, 4/20/94 (indexed to coffee price) 260,000 242,632 540992AN 3.1859%, 4/20/94 (indexed to coffee price) $ 350,000 $ 326,620 38142T9T 3.21%, 7/5/94 (indexed to soybean price) 2,800,000 2,863,000 38142T9K 3.2576%, 7/5/94 (indexed to soybean price) 2,175,000 2,186,527 540992AH 3.29%, 7/5/94 (indexed to soybean price) 900,000 898,020 540992AM 3.2235%, 8/19/94 (indexed to alminum price) 850,000 836,910 38142T9L 3.327%, 8/19/94 (indexed to aluminum price) 425,000 410,847 38142T9V 3.37%, 8/19/94 (indexed to aluminum price) 425,000 419,645 540992AQ 3.2235%, 8/19/94 (indexed to cattle price) 1,750,000 1,721,125 38142T9J 3.269%, 8/19/94 (indexed to cattle price) 1,400,000 1,400,000 540992AR 3.327%, 8/19/94 (indexed to cattle price) 2,450,000 2,403,450 38142T9S 3.2198%, 8/19/94 (indexed to gold price) 1,500,000 1,503,900 540992AE 3.2235%, 8/19/94 (indexed to gold price) 600,000 607,260 38142T9R 3.2235%, 8/19/94 (indexed to lead price) 250,000 250,925 38142T9M 3.27%, 8/19/94 (indexed to lead price) 245,000 249,900 540992AL 3.327%, 8/19/94 (indexed to lead price) 125,000 124,337 38142T9W 3.2198%, 8/19/94 (indexed to nickel price) 250,000 253,825 540992AG 3.37%, 8/19/94 (indexed to nickel price) 250,000 248,725 540992AP 3.219%, 8/19/94 (indexed to platinum price) 225,000 227,812 540992AC 3.223%, 8/19/94 (indexed to platinum price) 90,000 92,286 38142T9P 3.2235%, 8/19/94 (indexed to zinc price) 350,000 339,535 38142T9N 3.2717%, 8/19/94 (indexed to zinc price) 875,000 873,162 540992AJ 3.327%, 8/19/94 (indexed to zinc price) 175,000 168,945 38142T9X PRINCIPAL VALUE PRINCIPAL VALUE AMOUNT (A) (NOTE 1) AMOUNT (A) (NOTE 1) OTHER SECURITIES - CONTINUED INDEXED SECURITIES - CONTINUED Goldman Sachs Group, L.P. notes - CONTINUED 3.27%, 8/24/94 (indexed to oil price) $ 3,500,000 $ 3,427,550 540992AK 3.26%, 8/24/94 (indexed to oil price) 2,200,000 2,200,000 540992AS 3.26%, 8/24/94 (indexed to oil price) 4,700,000 4,664,750 540992AF Morgan Guaranty Trust Co. cert . of dep. 0%, 6/6/94 (indexed to $482 par of Westport Investments Ltd. sr. notes, collateralized by Mexican gov't. securities, per $100 par) 930,528 892,376 61799FAE Sara Lee Corp. 0%, 11/4/94 (inversely indexed to ITL LIBOR and principal indexed to 2-year Italian securities, both multiplied by 8) (g)(i) 1,350,000 1,406,700 8031119V 144,349,656 COMMERCIAL PAPER - 2.8% Banca Serfin SA 0%, 3/24/94 MXN 9,362,685 2,935,862 065997BM Banco Nacional de Mexico SA 0%, 12/8/94 MXN 66,600,000 19,274,972 0596179M Bancomer: 0%, 3/17/94 MXN 4,490,070 1,411,452 05999KBH 0%, 2/24/94 MXN 74,475,809 23,572,577 05999KBG 0%, 9/7/94 MXN 22,500,000 8,019,342 06399DAP Citibank Mexico: 0%, 3/24/94 MXN 3,875,697 1,215,304 17699AAJ 0%, 4/27/94 MXN 10,454,315 3,242,016 17699AAH Nacional Financiera: 0%, 2/17/94 MXN 11,791,160 3,739,460 66299CAJ 0%, 3/17/94 MXN 21,137,237 6,644,424 66299CAF 70,055,409 TOTAL OTHER SECURITIES (Cost $195,369,344) 214,405,065 MUNICIPAL SECURITIES - 0.0% Louisiana Housing financial Agency mortgage Revenue 8.61%, 8/1/96 (c) $ 320,000 $ 255,600 546265PL Louisiana State Agricultural Financial Auth. Agricultural Revenue, 8 1/4%, 10/1/96 (c) 1,183,000 934,570 546418AB TOTAL MUNICIPAL SECURITIES (Cost $1,166,303) 1,190,170 MATURITY AMOUNT Repurchase Agreements - 8.1% Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account at 3.23% dated 12/31/93 due 1/3/94 $ 200,150,859 200,097,000 Put Option - 0.0% 1,910 S&P 500 Futures Index (Cost $2,165,673) 924,440 85399987 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $2,296,930,771) $ 2,470,746,888 Futures Contracts EXPIRATION UNDERLYING FACE UNREALIZED PURCHASED DATE AMOUNT AT VALUE GAIN/(LOSS) 240 Midcap 400 Stock Index Futures Contracts March 1994 $ 21,516,000 $ 332,600 210 S&P 500 Futures Contracts March 1994 49,029,750 (301,250) $ 70,545,750 $ 31,350 THE VALUE OF FUTURES CONTRACTS PURCHASED AS A PERCENTAGE OF TOTAL INVESTMENT IN SECURITIES - 2.9% Forward Foreign Currency Contracts SETTLEMENT UNREALIZED CONTRACTS TO BUY DATE(S) VALUE GAIN/(LOSS) 891,090,410 ESP 2/23/94 $ 6,166,345 $ (459,354) 6,958,459 FRF 1/21/94 1,173,057 118 1,451,692,696 JPY 1/21/94 12,978,133 (731,050) 6,748,750 MYR 1/18/94 2,500,000 - TOTAL CONTRACTS TO BUY (Payable amount $24,007,821) $ 22,817,535 $ (1,190,286) THE VALUE OF CONTRACTS TO BUY AS A PERCENTAGE OF TOTAL INVESTMENT IN SECURITIES - 0.9% SETTLEMENT UNREALIZED CONTRACTS TO SELL DATE(S) VALUE GAIN/(LOSS) 919,344,960 DKK 1/12/94 to 3/1/94 $ 134,944,634 $ 2,513,404 1,894,428,562 ESP 2/23/94 13,114,104 905,511 718,481,939 FRF 1/21/94 to 2/22/94 121,049,349 2,141,067 30,916,179 GBP 2/15/94 45,539,017 468,476 4,570,022,894 JPY 1/21/94 to 2/10/94 40,896,408 2,634,302 3,896,000 NOK 1/19/94 465,839 12,738 TOTAL CONTRACTS TO SELL (Receivable amount $364,684,849) $ 356,009,351 $ 8,675,498 THE VALUE OF CONTRACTS TO SELL AS A PERCENTAGE OF TOTAL INVESTMENT IN SECURITIES - 14.4% CURRENCY TYPE ABBREVIATIONS: BRC - Brazilian cruzeiro GBP - British pound CAD - Canadian dollar DKK - Danish krone FRF - French franc ITL - Italian lira JPY - Japanese yen MYR - Malaysian ringgit MXN - Mexican peso NZD - New Zealand dollar NOK - Norwegian krone ESP - Spanish peseta SEK - Swedish krona LEGEND: (a) Principal amount is stated in United States dollars unless otherwise noted. (b) Non-income producing (c) Non-income producing - issuer filed for protection under the Federal Bankruptcy Code or is in default of interest payment. (d) Standard & Poor's Corporation credit ratings are used in the absence of a rating by Moody's Investors Service, Inc. (e) Debt obligation initially issued in zero coupon form which converts to coupon form at a specified rate and date. (f) 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 $86,301,965 or 3.7% of net assets. (g) The coupon rate shown on floating or adjustable rate securities represents the rate at period end. (h) Interest Only Strips represent the right to receive the monthly interest payments on an underlying pool of mortgage loans. These securities are subject to the risk of accelerated principal paydowns. The principal amount represents the notional amount on which current interest is calculated. (i) Inverse floating rate security is a security where the coupon is inversely indexed to a floating interest rate multiplied by a specified factor. If the floating rate is high enough, the coupon rate may be zero or be a negative amount that is carried forward to reduce future interest and/or principal payments. The price may be considerably more volatile than the price of a comparable fixed rate security. OTHER INFORMATION: Purchases and sales of securities, other than short-term securities, aggregated $2,524,936,415 and $1,280,769,573, respectively, of which U.S. government and government agency obligations aggregated $461,221,851 and $261,377,446, respectively. The face value of futures contracts opened and closed amounted to $253,118,554 and $182,604,154, respectively. The composition of long-term debt holdings as a percentage of total value of investment in securities, is as follows (ratings are unaudited): MOODY'S S&P RATINGS RATINGS Aaa, Aa, A 9.6% AAA, AA, A 9.5% Baa 0.1% BBB 0.6% Ba 9.6% BB 5.1% B 7.8% B 4.1% Caa 0.1% CCC 0.1% Ca, C 0.0% CC, C 0.0% D 0.2% The percentage not rated by either S&P or Moody's amounted to 3.4%. Distribution of investments by country, as a percentage of total value of investment in securities, is as follows: United States 53.5% Mexico 18.5 Denmark 5.6 United Kingdom 4.7 France 4.7 Argentina 3.4 Canada 1.5 Brazil 1.3 Japan 1.2 Korea 1.2 Others (individually less than 1%) 4.4 TOTAL 100.0% INCOME TAX INFORMATION: At December 31, 1993, the aggregate cost of investment securities for income tax purposes was $2,297,359,117. Net unrealized appreciation aggregated $173,387,771 of which $201,346,085 related to appreciated investment securities and $27,958,314 related to depreciated investment securities. The fund hereby designates $23,290,000 as a capital gain dividend for the purpose of the dividend paid deduction. ASSET MANAGER PORTFOLIO FINANCIAL STATEMENTS Statement of Assets and Liabilities DRAFT
December 31, 1993 ASSETS Investment in securities, at value (including repurchase agreements of $200,097,000) (cost $ 2,470,746,888 $2,296,930,771) (Notes 1 and 2) - See accompanying schedule Long foreign currency contracts held, at value (cost $24,007,821) (Note 2) 22,817,535 Short foreign currency contracts (Note 2) $ (356,009,351) Contracts held, at value Receivable for contracts held 364,684,849 8,675,498 Cash 1,985,418 Receivable for investments sold 10,606,776 Net receivable for closed foreign currency contracts 333,139 Receivable for fund shares sold 18,472,164 Dividends receivable 1,381,072 Interest receivable 18,484,803 Other receivables 41,966 Total assets 2,553,545,259 LIABILITIES Payable for foreign currency contracts held (Notes 1 and 2) 24,007,821 Payable for investments purchased 100,269,636 Payable for fund shares redeemed 4,183,532 Accrued management fee 1,375,813 Payable for daily variation on futures contracts 262,389 Other payables and accrued expenses 753,685 Total liabilities 130,852,876 NET ASSETS $ 2,422,692,383 Net Assets consist of: Paid in capital $ 2,119,072,914 Undistributed net investment income 51,341,945 Accumulated undistributed net realized gain (loss) on investments 70,944,845 Net unrealized appreciation (depreciation) on: Investment securities 173,816,117 Foreign currency contracts 7,485,212 Futures contracts 31,350 NET ASSETS, for 157,096,490 shares outstanding $ 2,422,692,383 NET ASSET VALUE, offering price and redemption price per share ($2,422,692,383 (divided by) 157,096,490 shares) $15.42
Statement of Operations DRAFT
Year Ended December 31, 1993 INVESTMENT INCOME $ 11,039,965 Dividends Interest 53,681,337 Total income 64,721,302 EXPENSES Management fee (Note 3) $ 10,365,454 Transfer agent fees (Note 3) 115,600 Accounting fees and expenses (Note 3) 583,404 Non-interested trustees' compensation 10,778 Custodian fees and expenses 829,525 Registration fees 572,294 Audit 89,341 Legal 14,418 Miscellaneous 27,259 Total expenses before reductions 12,608,073 Expense reductions (Note 4) (53,319) 12,554,754 Net investment income 52,166,548 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 2) Net realized gain (loss) on: Investment securities 79,338,494 Foreign currency contracts (8,556,499) Futures contracts 845,172 71,627,167 Change in net unrealized appreciation (depreciation) on: Investment securities 157,984,897 Foreign currency contracts 6,860,349 Futures contracts 31,350 164,876,596 Net gain (loss) 236,503,763 Net increase (decrease) in net assets resulting from operations $ 288,670,311
Statement of Changes in Net Assets DRAFT
YEARS ENDED DECEMBER 31, 1993 1992 INCREASE (DECREASE) IN NET ASSETS Operations $ 52,166,548 $ 20,447,414 Net investment income Net realized gain (loss) on investments 71,627,167 17,133,983 Change in net unrealized appreciation (depreciation) on investments 164,876,596 10,321,532 Net increase (decrease) in net assets resulting from operations 288,670,311 47,902,929 Distributions to shareholders: (20,492,703) (5,424,840) From net investment income In excess of net investment income (2,321,789) - From net realized gain (15,415,197) (5,774,830) Total distributions (38,229,689) (11,199,670) Share transactions 1,430,436,639 504,822,611 Net proceeds from sales of shares Reinvestment of distributions from: 22,814,492 5,424,840 Net investment income Net realized gain 15,415,197 5,774,830 Cost of shares redeemed (28,138,506) (14,519,348) Net increase (decrease) in net assets resulting from share transactions 1,440,527,822 501,502,933 Total increase (decrease) in net assets 1,690,968,444 538,206,192 NET ASSETS Beginning of period 731,723,939 193,517,747 End of period (including undistributed net investment income of $51,341,945 and $20,572,046, $ 2,422,692,383 $ 731,723,939 respectively) OTHER INFORMATION Shares Sold 101,223,825 39,717,498 Issued in reinvestment of distributions from: 1,737,585 445,389 Net investment income Net realized gain 1,174,044 474,124 Redeemed (1,958,476) (1,140,784) Net increase (decrease) 102,176,978 39,496,227
FINANCIAL HIGHLIGHTS DRAFT
SEPTEMBER 6, 1989 (COMMENCEMENT OF OPERATIONS) TO YEARS ENDED DECEMBER 31, DECEMBER 31, 1993 1992 1991 1990 1989 SELECTED PER-SHARE DATA Net asset value, beginning of period $ 13.32 $ 12.55 $ 10.24 $ 9.97 $ 10.00 Income from Investment Operations Net investment income .33 .32 .35 .41 .09 Net realized and unrealized gain (loss) on investments 2.39 1.09 1.96 .26 (.01) Total from investment operations 2.72 1.41 2.31 .67 .08 Less Distributions From net investment income (.33) (.31) - (.40) (.09) In excess of net investment income (.04) - - - - From net realized gain (.25) (.33) - - (.02) Total distributions (.62) (.64) - (.40) (.11) Net asset value, end of period $ 15.42 $ 13.32 $ 12.55 $ 10.24 $ 9.97 TOTAL RETURN (double dagger) 21.23% 11.71% 22.56% 6.72%# .81%# RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 2,422,692 $ 731,724 $ 193,518 $ 35,858 $ 7,271 Ratio of expenses to average net assets (dagger) .88% .91% 1.08% 1.25% 2.50%* Ratio of expenses to average net assets before expense reductions (dagger) .88% .91% 1.08% 1.54% 4.39%* Ratio of net investment income to average net assets 3.64% 4.89% 5.89% 5.92% 4.77%* Portfolio turnover rate 113% 92% 110% 117% 158%*
* ANNUALIZED (double dagger) TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. # THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. (dagger) SEE NOTE 4 OF NOTES TO FINANCIAL STATEMENTS. VARIABLE INSURANCE PRODUCTS FUND II: INDEX 500 PORTFOLIO INVESTMENTS/DECEMBER 31, 1993 (Showing Percentage of Total Value of Investment in Securities) VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - 95.1% AEROSPACE AND DEFENSE - 1.5% AEROSPACE AND DEFENSE - 1.1% Aviall, Inc. (a) 100 $ 1,525 05366B10 Boeing Co. 2,500 108,125 09702310 Grumman Corp. 200 7,900 40018110 Lockheed Corp. 500 34,125 53982110 Martin Marietta Corp. 600 26,700 57290010 McDonnell Douglas Corp. 200 21,400 58016910 Northrop Corp. 300 11,213 66680710 Rockwell International Corp. 1,500 55,688 77434710 266,676 DEFENSE ELECTRONICS - 0.3% E-Systems, Inc. 200 8,675 26915730 Loral Corp. 500 18,875 54385910 Raytheon Co. 900 59,400 75511110 86,950 SHIP BUILDING AND REPAIR - 0.1% General Dynamics Corp. 300 27,675 36955010 TOTAL AEROSPACE AND DEFENSE 381,301 BASIC INDUSTRIES - 6.7% CHEMICALS AND PLASTICS - 3.8% Air Products & Chemicals, Inc. 900 39,825 00915810 Avery Dennison Corp. 500 14,688 05361110 Dow Chemical Co. 1,900 107,825 26054310 du Pont (E.I.) de Nemours & Co. 4,800 231,600 26353410 Engelhard Corp. 600 14,625 29284510 Ethyl Corp. 800 14,000 29765910 FMC Corp. (a) 200 9,425 30249130 First Mississippi Corp. 100 1,313 32089110 Goodrich (B.F.) Company 100 4,025 38238810 Grace (W.R.) & Co. 600 24,375 38388310 Great Lakes Chemical Corp. 600 44,775 39056810 Hercules, Inc. 400 45,200 42705610 Minnesota Mining & Manufacturing Co. 1,500 163,125 60405910 Monsanto Co. 800 58,700 61166210 Morton International, Inc. 300 28,050 61933110 NL Industries, Inc. (a) 300 1,350 62915640 Nalco Chemical Co. 400 15,000 62985310 PPG Industries, Inc. 700 53,113 69350610 Praxair, Inc. 900 14,963 74005P10 Raychem Corp. 300 11,250 75460310 Rohm & Haas Co. 400 23,800 77537110 Union Carbide Corp. 1,000 22,375 90558110 943,402 IRON AND STEEL - 0.3% Armco, Inc. (a) 700 $ 4,200 04217010 Bethlehem Steel Corp. (a) 600 12,225 08750910 Inland Steel Industries, Inc. (a) 200 6,625 45747210 Nucor Corp. 700 37,100 67034610 USX-U.S. Steel Group 400 17,350 90337T10 Worthington Industries, Inc. 550 11,275 98181110 88,775 METALS AND MINING - 0.7% ASARCO, Inc. 200 4,575 04341310 Alcan Aluminium Ltd. 1,513 31,765 01371610 Alumax, Inc. 250 5,375 02219710 Aluminum Co. of America 700 48,563 02224910 Cyprus Amax Minerals Co. 750 19,406 23280910 Inco Ltd. 707 18,989 45325840 Phelps Dodge Corp. 600 29,250 71726510 Reynolds Metals Co. 500 22,688 76176310 180,611 PACKAGING AND CONTAINERS - 0.2% Ball Corp. 300 9,075 05849810 Bemis Co., Inc. 300 7,088 08143710 Crown Cork & Seal Co., Inc. (a) 700 29,313 22825510 45,476 PAPER AND FOREST PRODUCTS - 1.7% Boise Cascade Corp. 200 4,700 09738310 Champion International Corp. 600 20,025 15852510 Federal Paper Board Co., Inc. 400 8,500 31369310 Georgia-Pacific Corp. 700 48,125 37329810 International Paper Co. 800 54,200 46014610 James River Corp. of Virginia 500 9,625 47034910 Kimberly-Clark Corp. 1,100 57,063 49436810 Louisiana-Pacific Corp. 700 28,875 54634710 Mead Corp. 500 22,500 58283410 Potlatch Corp. 300 14,138 73762810 Scott Paper Co. 600 24,675 80987710 Stone Container Corp. (a) 600 5,775 86158910 Temple-Inland, Inc. 300 15,113 87986810 Union Camp Corp. 600 28,575 90553010 Westvaco Corp. 400 14,250 96154810 Weyerhaeuser Co. 1,400 62,475 96216610 418,614 TOTAL BASIC INDUSTRIES 1,676,878 CONGLOMERATES - 1.4% Allied-Signal, Inc. 1,100 86,900 01951210 Crane Co. 300 7,425 22439910 Dial Corp. (The) 400 16,150 25247010 Hanson Trust PLC sponsored ADR 117 2,340 41135230 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED CONGLOMERATES - CONTINUED Harris Corp. 200 $ 9,100 41387510 ITT Corp. 800 73,000 45067910 Litton Industries, Inc. (a) 400 25,750 53802110 Teledyne, Inc. 300 7,800 87933510 Textron, Inc. 700 40,775 88320310 Tyco Laboratories, Inc. 400 20,650 90212010 United Technologies Corp. 800 49,600 91301710 Whitman Corp. 700 11,375 96647K10 350,865 CONSTRUCTION AND REAL ESTATE - 0.6% BUILDING MATERIALS - 0.4% Armstrong World Industries, Inc. 200 10,650 04247610 Masco Corp. 1,000 37,000 57459910 Owens-Corning Fiberglas Corp. (a) 400 17,750 69073420 Sherwin-Williams Co. 700 25,025 82434810 90,425 CONSTRUCTION - 0.1% Centex Corp. 300 12,600 15231210 Kaufman & Broad Home Corp. (a) 300 7,125 48616810 Morrison-Knudsen Corp. 300 7,538 61844710 Pulte Corp. 200 7,250 74586710 34,513 ENGINEERING - 0.1% EG & G, Inc. 500 9,188 26845710 Fluor Corp. 500 20,250 34386110 Foster Wheeler Corp. 200 6,700 35024410 36,138 TOTAL CONSTRUCTION AND REAL ESTATE 161,076 DURABLES - 4.5% AUTOS, TIRES, AND ACCESSORIES - 3.7% Chrysler Corp. 2,600 138,450 17119610 Cooper Tire & Rubber Co. 600 15,000 21683110 Cummins Engine Co., Inc. 200 10,750 23102110 Dana Corp. 400 23,950 23581110 Eaton Corp. 600 30,300 27805810 Echlin, Inc. 500 16,625 27874910 Ford Motor Co. 3,500 225,750 34537010 General Motors Corp. 5,200 285,350 37044210 Genuine Parts Company 800 30,100 37246010 Goodyear Tire & Rubber Co. 1,000 45,750 38255010 Johnson Controls, Inc. 200 10,625 47836610 Navistar International Corp. (a) 470 11,104 63934E10 PACCAR, Inc. 300 18,375 69371810 Pep Boys - Manny, Moe & Jack 400 10,500 71327810 SPX Corp. 100 $ 1,775 78463510 Snap-on Tools Corp. 400 15,150 83303410 TRW, Inc. 400 27,700 87264910 917,254 CONSUMER ELECTRONICS - 0.4% Black & Decker Corp. 700 13,825 09179710 Fedders USA, Inc. (a) 100 638 31313510 Maytag Co. 700 12,600 57859210 Newell Co. 500 20,188 65119210 Stanley Works 400 17,800 85461610 Whirlpool Corp. 600 39,900 96332010 104,951 HOME FURNISHINGS - 0.0% Bassett Furniture Industries, Inc. 125 4,375 07020310 TEXTILES AND APPAREL - 0.4% Hartmarx Corp. (a) 200 1,400 41711910 Liz Claiborne, Inc. 500 11,375 53932010 NIKE, Inc. Class B 500 23,188 65410610 Oshkosh B'Gosh, Inc. Class A 200 3,900 68822220 Reebok International Ltd. 700 21,000 75811010 Russell Corp. 200 5,650 78235210 Springs Industries, Inc. Class A 200 7,550 85178310 Stride Rite Corp. 300 4,913 86331410 VF Corp. 400 18,450 91820410 97,426 TOTAL DURABLES 1,124,006 ENERGY - 9.5% COAL - 0.0% Eastern Enterprises Co. 100 2,550 Pittston Co. Minerals Group 40 955 27637F10 3,505 ENERGY SERVICES - 0.8% Baker Hughes, Inc. 1,100 22,000 05722410 Dresser Industries, Inc. 900 18,675 26159710 Halliburton Co. 900 28,688 40621610 Helmerich & Payne, Inc. 200 5,575 42345210 McDermott International, Inc. 300 7,950 58003710 Rowan Companies, Inc. (a) 700 6,300 77938210 Schlumberger Ltd. 1,800 106,425 80685710 195,613 OIL AND GAS - 8.7% Amerada Hess Corp. 600 27,075 02355110 Amoco Corp. 3,500 185,063 03190510 Ashland Oil, Inc. 500 17,063 04454010 Atlantic Richfield Co. 1,200 126,300 04882510 Burlington Resources, Inc. 1,000 42,375 12201410 Chevron Corp. 2,400 209,100 16675110 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED ENERGY - CONTINUED OIL AND GAS - CONTINUED Exxon Corp. 9,000 $ 567,000 30229010 Kerr-McGee Corp. 300 13,538 49238610 Louisiana Land & Exploration Co. 300 12,038 54626810 Maxus Energy Corp. (a) 900 4,950 57773010 Mobil Corp. 2,800 221,200 60705910 Occidental Petroleum Corp. 2,100 35,963 67459910 Oryx Energy Co. 600 10,350 68763F10 Pennzoil Co. 400 21,300 70990310 Phillips Petroleum Co. 1,800 52,200 71850710 Royal Dutch Petroleum Co. 3,800 396,625 78025770 Santa Fe Energy Resources, Inc. 600 5,400 80201210 Sun Company, Inc. 700 20,563 86676210 Texaco, Inc. 1,800 116,325 88169410 USX-Marathon Group 2,000 33,000 90290582 Unocal Corp. 1,800 50,175 91528910 2,167,603 TOTAL ENERGY 2,366,721 FINANCE - 10.6% BANKS - 4.9% Banc One Corp. 2,400 93,900 05943810 Bank of Boston Corp. 700 16,100 06071610 Bankers Trust New York Corp. 500 39,563 06636510 BankAmerica Corp. 2,500 115,938 06605010 Barnett Banks, Inc. 600 24,900 06805510 Boatmen's Bancshares, Inc. 800 23,900 09665010 Chase Manhattan Corp. 1,400 47,425 16161010 Chemical Banking Corp. 1,900 76,238 16372210 Citicorp (a) 2,700 99,225 17303410 CoreStates Financial Corp. 800 20,900 21869510 First Chicago Corp. 500 21,625 31945510 First Fidelity Bancorporation 500 22,750 32019510 First Interstate Bancorp 500 32,063 32054810 First Union Corp. 1,300 53,625 33735810 Fleet Financial Group, Inc. 900 30,038 33891510 Mellon Bank Corp. 400 21,200 58550910 Morgan (J.P.) & Co., Inc. 1,300 90,188 61688010 NBD Bancorp, Inc. 1,100 32,450 62890010 NationsBank Corp. 2,000 98,000 63858510 Norwest Corp. 2,000 48,750 66938010 PNC Financial Corp. 1,600 46,400 69347510 Shawmut National Corp. 600 13,050 82048410 SunTrust Banks, Inc. 800 36,000 86791410 U.S. Bancorp 800 20,000 91159610 Wachovia Corp. 1,300 $ 43,550 92977110 Wells Fargo & Co. 400 51,750 94974010 1,219,528 CREDIT AND OTHER FINANCE - 1.2% American Express Co. 3,400 104,975 02581610 Beneficial Corp. 400 15,300 08172110 Dean Witter Discover & Co. 1,158 40,096 24240V10 Household International, Inc. 600 19,575 44181510 MBNA Corp. 800 26,700 55262L10 Primerica Corp. 1,633 63,483 74158910 Transamerica Corporation 500 28,375 89348510 298,504 FEDERAL SPONSORED CREDIT - 0.8% Federal Home Loan Mortgage Corporation 1,200 59,850 31340030 Federal National Mortgage Association 1,900 149,150 31358610 209,000 INSURANCE - 3.1% Aetna Life & Casualty Co. 900 54,338 00814010 Alexander & Alexander Services, Inc. 200 3,900 01447610 American General Corp. 1,500 42,938 02635110 American International Group, Inc. 2,350 206,213 02687410 CIGNA Corp. 600 37,650 12550910 CNA Financial Corp. (a) 500 38,750 12611710 Capital Holding Corp. 800 29,700 14018610 Chubb Corp. (The) 700 54,513 17123210 Continental Corp. 300 8,288 21132710 General Re Corp. 700 74,900 37056310 Jefferson Pilot Corp. 300 14,063 47507010 Lincoln National Corp. 600 26,100 53418710 Marsh & McLennan Companies, Inc. 600 48,750 57174810 SAFECO Corp. 400 22,000 78642910 St. Paul Companies, Inc. (The) 400 35,950 79286010 Torchmark Corp. 600 27,000 89102710 Travelers Corp. (The) 1,100 34,238 89418010 USF&G Corp. 700 10,325 90329010 USLIFE Corp. 250 9,594 91731810 779,210 SAVINGS AND LOANS - 0.2% Ahmanson (H.F.) & Co. 700 13,738 00867710 Golden West Financial Corp. 400 15,600 38131710 Great Western Financial Corp. 900 18,000 39144210 47,338 SECURITIES INDUSTRY - 0.4% Merrill Lynch & Co., Inc. 1,600 67,200 59018810 Salomon, Inc. 700 33,338 79549B10 100,538 TOTAL FINANCE 2,654,118 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED HEALTH - 7.8% DRUGS AND PHARMACEUTICALS - 5.2% ALZA Corp. Class A (a) 500 $ 14,000 02261510 Allergan, Inc. 400 9,050 01849010 American Cyanamid Co. 600 30,150 02532110 American Home Products Corp. 2,300 148,925 02660910 Amgen, Inc. (a) 900 44,550 03116210 Bristol-Myers Squibb Co. 3,800 220,875 11012210 IMCERA Group, Inc. 500 16,813 45245410 Lilly (Eli) & Co. 2,200 130,625 53245710 Merck & Co., Inc. 9,300 319,688 58933110 Pfizer, Inc. 2,200 151,800 71708110 Schering-Plough Corp. 1,300 89,050 80660510 Syntex Corporation 1,500 23,813 87161610 Upjohn Co. 1,200 34,950 91530210 Warner-Lambert Co. 900 60,750 93448810 1,295,039 MEDICAL EQUIPMENT AND SUPPLIES - 2.3% Abbott Laboratories 5,900 174,050 00282410 Bard (C.R.), Inc. 300 7,575 06738310 Bausch & Lomb, Inc. 500 25,625 07170710 Baxter International, Inc. 1,900 46,313 07181310 Becton Dickinson & Co. 500 17,938 07588710 Biomet, Inc. (a) 900 9,225 09061310 Johnson & Johnson 4,600 205,850 47816010 McKesson Corp. 200 10,800 58155610 Medtronic, Inc. 500 41,063 58505510 Millipore Corp. 200 8,000 60107310 Pall Corp. 800 14,700 69642930 St. Jude Medical, Inc. 400 10,600 79084910 U.S. Surgical Corp. 500 11,250 91270710 582,989 MEDICAL FACILITIES MANAGEMENT - 0.3% Beverly Enterprises, Inc. (a) 500 6,625 08785110 Columbia Healthcare Corp. 975 32,419 19767910 Community Psychiatric Centers 400 5,600 20401510 Manor Care, Inc. 500 12,188 56405410 National Medical Enterprises, Inc. 1,100 15,400 63688610 72,232 TOTAL HEALTH 1,950,260 INDUSTRIAL MACHINERY AND EQUIPMENT - 5.8% ELECTRICAL EQUIPMENT - 3.6% Corning, Inc. 1,400 39,200 21935010 Emerson Electric Co. 1,700 102,425 29101110 General Electric Co. 6,200 650,225 36960410 General Signal Corp. 400 13,750 37083810 Grainger (W.W.), Inc. 300 $ 17,250 38480210 Honeywell, Inc. 900 30,825 43850610 Scientific-Atlanta, Inc. 200 6,600 80865510 Westinghouse Electric Corp. 2,600 36,725 96040210 Zenith Electronics Corp. (a) 200 1,400 98934910 898,400 INDUSTRIAL MACHINERY AND EQUIPMENT -1.6% Briggs & Stratton Corp. 200 16,500 10904310 Caterpillar, Inc. 800 71,200 14912310 Cincinnati Milacron, Inc. 300 6,600 17217210 Clark Equipment Co. (a) 200 10,475 18139610 Cooper Industries, Inc. 900 44,325 21666910 Deere & Co. 700 51,800 24419910 Dover Corp. 500 30,375 26000310 Giddings & Lewis, Inc. 200 5,150 37504810 Harnischfeger Industries, Inc. 200 4,500 41334510 Illinois Tool Works, Inc. 900 35,100 45230810 Ingersoll-Rand Co. 700 26,775 45686610 Parker-Hannifin Corp. 300 11,325 70109410 TRINOVA Corp. 300 9,413 89667810 Tenneco, Inc. 1,300 68,413 88037010 Timken Co. 300 10,088 88738910 Varity Corp. (a) 200 8,950 92224R60 410,989 POLLUTION CONTROL - 0.6% Browning-Ferris Industries, Inc. 1,200 30,900 11588510 Ogden Corp. 400 9,100 67634610 Rollins Environmental Services, Inc. 400 2,300 77570910 Safety Kleen Corp. 500 8,125 78648410 WMX Technologies, Inc. 3,400 89,675 92929Q10 Zurn Industries, Inc. 100 2,738 98982410 142,838 TOTAL INDUSTRIAL MACHINERY AND EQUIPMENT 1,452,227 MEDIA AND LEISURE - 5.2% BROADCASTING - 1.7% CBS, Inc. 200 57,700 12484510 Capital Cities/ABC, Inc. 200 123,900 13985910 Comcast Corp.: Class A 800 29,100 20030010 Class A (Special) 300 10,800 20030020 Tele-Communications, Inc. Class A (a) 3,300 99,825 87924010 Time Warner, Inc. 2,600 115,050 88731510 436,375 ENTERTAINMENT - 0.8% Disney (Walt) Co. 3,900 166,238 25468710 GC Cos., Inc. (a) 40 1,385 36155Q10 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED MEDIA AND LEISURE - CONTINUED BROADCASTING - CONTINUED King World Productions, Inc. 200 $ 7,675 49566710 Paramount Communications, Inc. 200 15,475 69921610 190,773 LEISURE DURABLES AND TOYS - 0.3% Brunswick Corp. 600 10,800 11704310 Fleetwood Enterprises, Inc. 400 9,500 33909910 Hasbro, Inc. 700 25,375 41805610 Mattel, Inc. 900 24,863 57708110 Outboard Marine Corp. 200 4,475 69002010 75,013 LODGING AND GAMING - 0.4% Bally Manufacturing Corp. (a) 300 2,550 05873210 Hilton Hotels Corp. 400 24,300 43284810 Host Marriott Corp. 600 5,475 44107810 Marriott INTL, Inc. 900 26,100 57190010 Promus Companies, Inc. (a) 800 36,600 74342A10 95,025 PUBLISHING - 1.3% American Greetings Corp. Class A 600 20,400 02637510 Dow Jones & Co Inc. 800 28,600 26056110 Dun & Bradstreet Corp. 1,200 73,950 26483010 Gannett Co., Inc. 1,000 57,250 36473010 Harcourt Genenal, Inc. 500 18,125 41163G10 Knight-Ridder, Inc. 300 17,925 49904010 McGraw-Hill, Inc. 300 20,288 58064510 Meredith Corp. 200 8,000 58943310 New York Times Co. (The) Class A 700 18,375 65011110 Times Mirror Co., Series A 1,000 33,375 88736010 Tribune Co. 400 24,050 89604710 320,338 RESTAURANTS - 0.7% Luby's Cafeterias, Inc. 100 2,250 54928210 McDonald's Corp. 2,600 148,200 58013510 Ryan's Family Steak Houses, Inc. (a) 300 2,700 78351910 Shoney's, Inc. (a) 200 4,625 82503910 Wendy's International, Inc. 800 13,900 95059010 171,675 TOTAL MEDIA AND LEISURE 1,289,199 NONDURABLES - 11.1% AGRICULTURE - 0.1% Pioneer Hi-Bred International, Inc. 600 23,400 72368610 BEVERAGES - 3.4% Anheuser-Busch Companies, Inc. 2,000 $ 98,250 03522910 Brown-Forman Corp. Class B 200 17,450 11563720 Coca-Cola Company (The) 9,400 421,825 19121610 Coors (Adolph) Co. Class B 200 3,250 21701610 PepsiCo, Inc. 5,600 228,900 71344810 Seagram Co. Ltd. 2,600 68,356 81185010 838,031 FOODS - 3.0% Archer-Daniels-Midland Co. 2,300 52,325 03948310 Borden, Inc. 1,100 18,700 09959910 CPC International, Inc. 1,000 47,625 12614910 Campbell Soup Co. 1,900 77,900 13442910 ConAgra, Inc. 1,900 50,113 20588710 General Mills, Inc. 1,200 72,900 37033410 Gerber Products Co. 400 11,350 37371210 Heinz (H.J.) Co. 1,900 68,163 42307410 Hershey Foods Corp. 600 29,400 42786610 Kellogg Co. 1,700 96,475 48783610 Pet, Inc. 700 12,250 71582510 Quaker Oats Co. 400 28,400 74740210 Ralston Continental Baking Group 120 1,005 75126210 Ralston Purina Co. 700 27,825 75127730 SYSCO Corp. 1,400 40,950 87182910 Sara Lee Corp. 3,400 85,000 80311110 Wrigley (Wm.) Jr. Company 900 39,713 98252610 760,094 HOUSEHOLD PRODUCTS - 2.9% Alberto Culver Co. Class B cv 300 6,938 01306810 Avon Products, Inc. 600 29,175 05430310 Clorox Co. 300 16,275 18905410 Colgate-Palmolive Co. 1,200 74,850 19416210 Gillette Company 1,500 89,438 37576610 International Flavors & Fragrances, Inc. 200 22,750 45950610 Premark International, Inc. 300 24,075 74045910 Procter & Gamble Co. 5,000 285,000 74271810 Rubbermaid, Inc. 1,100 38,225 78108810 Unilever NV ADR 1,100 127,050 90478450 713,776 TOBACCO - 1.7% American Brands, Inc. 1,400 46,550 02470310 Philip Morris Companies, Inc. 6,200 345,650 71815410 UST, Inc. 1,400 38,850 90291110 431,050 TOTAL NONDURABLES 2,766,351 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED PRECIOUS METALS - 0.6% Amax Gold, Inc. 122 $ 839 02312010 American Barrick Resources Corp. 2,000 56,932 02451E10 Echo Bay Mines Ltd. 900 11,661 27875110 Homestake Mining Co. 900 19,800 43761410 Newmont Mining Corp. 400 23,050 65163910 Placer Dome, Inc. 1,800 44,770 72590610 157,052 RETAIL AND WHOLESALE - 6.3% APPAREL STORES - 0.6% Brown Group, Inc. 200 6,925 11565710 Charming Shoppes, Inc. 700 8,313 16113310 Gap, Inc. 1,100 43,313 36476010 Genesco, Inc. (a) 100 525 37153210 Limited, Inc. (The) 2,700 46,238 53271610 Melville Corp. 700 28,438 58574510 TJX Companies, Inc. 600 17,475 87254010 151,227 DRUG STORES - 0.2% Long Drug Stores, Inc. 100 3,288 54316210 Rite Aid Corporation 600 9,525 76775410 Walgreen Co. 800 32,700 93142210 45,513 GENERAL MERCHANDISE STORES - 3.7% Dayton Hudson Corp. 600 40,050 23975310 Dillard Department Stores, Inc Class A 900 34,200 25406310 K mart Corp. 3,000 63,750 48258410 May Department Stores Co. (The) 1,700 66,938 57777810 Mercantile Stores Co., Inc. 200 7,250 58753310 Nordstrom, Inc. 500 16,500 65566410 Penney (J.C.) Co., Inc. 1,600 83,800 70816010 Price/Costco, Inc. 1,639 31,551 74143W10 Sears, Roebuck & Co. 2,600 137,150 81238710 Wal-Mart Stores, Inc. 16,600 415,000 93114210 Woolworth Corp. 900 22,838 98088310 919,027 GROCERY STORES - 0.7% Albertson's, Inc. 1,900 50,825 01310410 American Stores Co. 600 25,800 03009610 Bruno's, Inc. 500 4,438 11688110 Fleming Companies, Inc. 200 4,950 33913010 Giant Food, Inc. Class A 500 12,875 37447810 Great Atlantic & Pacific Tea Co., Inc. 200 5,400 39006410 Kroger Co. (The) (a) 700 14,088 50104410 Supervalue, Inc. 600 21,750 86853610 Winn-Dixie Stores, Inc. 600 32,175 97428010 172,301 RETAIL AND WHOLESALE, MISCELLANEOUS - 1.1% Circuit City Stores, Inc. 600 $ 13,050 17273710 Handleman Co. (Del.) 200 2,650 41025210 Home Depot, Inc. (The) 3,300 130,350 43707610 Lowe's Companies, Inc. 600 35,550 54866110 Tandy Corp. 400 19,800 87538210 Toys "R" Us, Inc. (a) 2,000 81,750 89233510 283,150 TOTAL RETAIL AND WHOLESALE 1,571,218 SERVICES - 1.1% ADVERTISING - 0.1% Interpublic Group of Companies, Inc. 500 16,000 46069010 LEASING AND RENTAL - 0.3% Blockbuster Entertainment Corp. 1,700 52,063 09367610 Ryder Systems, Inc. 500 13,250 78354910 65,313 PRINTING - 0.4% Alco Standard Corp. 300 16,425 01378810 Deluxe Corp. 500 18,125 24801910 Donnelley (R.R.) & Sons Co. 1,200 37,350 25786710 Harland (John H.) Co. 300 6,488 41269310 Moore Corporation Ltd. 800 15,434 61578510 93,822 SERVICES - 0.3% Block (H&R), Inc. 700 28,525 09367110 Ecolab, Inc. 300 13,500 27886510 Jostens, Inc. 400 7,900 48108810 National Education Corp. (a) 200 1,250 63577110 National Service Industries, Inc. 300 7,688 63765710 Pittston Company Services Group 200 5,775 72570110 Service Corp. International 700 18,375 81756510 83,013 TOTAL SERVICES 258,148 TECHNOLOGY - 6.6% COMMUNICATIONS EQUIPMENT - 0.5% Andrew Corp. (a) 200 7,700 03442510 Cisco Systems, Inc. (a) 500 32,313 17275R10 DSC Communications Corp. (a) 300 18,450 23331110 M/A-Com, Inc. (a) 100 863 55261810 Northern Telecom Ltd. 1,900 58,757 66581510 118,083 COMPUTER SERVICES AND SOFTWARE - 1.0% Autodesk, Inc. 100 4,500 05276910 Automatic Data Processing, Inc. 1,100 60,775 05301510 Ceridian Corp. (a) 400 7,600 15677T10 Computer Associates International, Inc. 1,100 44,000 20491210 Computer Sciences Corp. (a) 200 19,900 20536310 VALUE VALUE SHARES (NOTE 1) SHARES (NOTE 1) COMMON STOCKS - CONTINUED TECHNOLOGY - CONTINUED COMPUTER SERVICES AND SOFTWARE - CONTINUED Lotus Development Corp. (a) 200 $ 11,000 54570010 Novell, Inc. (a) 2,200 45,650 67000610 Oracle Systems Corp. (a) 2,000 57,500 68389X10 Shared Medical Systems Corp. 100 2,488 81948610 253,413 COMPUTERS AND OFFICE EQUIPMENT - 2.6% Amdahl Corp. 900 5,400 02390510 Apple Computer, Inc. 900 26,550 03783310 Compaq Computer Corp. (a) 500 37,000 20449310 Cray Research, Inc. (a) 100 2,563 22522410 Data General Corp. (a) 200 1,875 23768810 Digital Equipment Corp. (a) 900 30,825 25384910 Hewlett-Packard Co. 1,900 150,100 42823610 Intergraph Corp. (a) 300 3,188 45868310 International Business Machines Corp. 4,100 231,650 45920010 Pitney Bowes, Inc. 1,200 49,650 72447910 Sun Microsystems, Inc. (a) 800 23,300 86681010 Tandem Computers, Inc. (a) 900 9,788 87537010 Unisys Corp. (a) 1,100 13,888 90921410 Xerox Corp. 700 62,563 98412110 648,340 ELECTRONIC INSTRUMENTS - 0.1% Perkin-Elmer Corp. 400 15,400 71404110 Tektronix, Inc. 300 7,050 87913110 22,450 ELECTRONICS - 1.9% AMP, Inc. 700 44,188 03189710 Advanced Micro Devices, Inc. (a) 600 10,650 00790310 Intel Corp. 2,900 179,800 45814010 Motorola, Inc. 1,900 175,513 62007610 National Semiconductor Corp. (a) 700 11,288 63764010 Texas Instruments, Inc. 600 38,100 88250810 Thomas & Betts Corp. 200 11,700 88431510 471,239 PHOTOGRAPHIC EQUIPMENT - 0.5% Eastman Kodak Co. 2,300 128,800 27746110 Polaroid Corp. 400 13,500 73109510 142,300 TOTAL TECHNOLOGY 1,655,825 TRANSPORTATION - 1.8% AIR TRANSPORTATION - 0.4% AMR Corp. (a) 600 40,200 00176510 Delta Air Lines, Inc. 300 16,388 24736110 UAL Corp. (a) 200 $ 29,200 90254910 USAir Group, Inc. (a) 400 5,150 91190510 90,938 RAILROADS - 1.2% Burlington Northern, Inc. 700 40,513 12189710 CSX Corp. 700 56,700 12640810 Conrail, Inc. 500 33,438 20836810 Norfolk Southern Corp. 900 63,450 65584410 Santa Fe Pacific Corp. 1,400 31,150 80218310 Union Pacific Corp. 1,400 87,675 90781810 312,926 TRUCKING AND FREIGHT - 0.2% Consolidated Freightways, Inc. (a) 200 4,725 20923710 Federal Express Corp. (a) 300 21,263 31330910 Roadway Services, Inc. 200 12,000 76974810 Yellow Corp. 300 7,463 98550910 45,451 TOTAL TRANSPORTATION 449,315 UTILITIES - 14.0% CELLULAR - 0.3% McCaw Cellular Communications, Inc. Class A (a) 1,400 70,700 57946810 ELECTRIC UTILITY - 4.6% American Electric Power Co., Inc. 1,400 51,975 02553710 Baltimore Gas & Electric Co. 1,100 27,913 05916510 Carolina Power & Light Co. 1,100 33,138 14414110 Central & South West Corp. 1,300 39,325 15235710 Commonwealth Edison Co. 1,600 45,200 20279510 Consolidated Edison Co. of New York, Inc. 1,600 51,400 20911110 Detroit Edison Company 1,000 30,000 25084710 Dominion Resources, Inc. (Va.) 1,300 58,988 25747010 Duke Power Co. 1,400 59,325 26439910 Entergy Corp. 1,200 43,200 29364F10 FPL Group, Inc. 1,300 50,863 30257110 Houston Industries, Inc. 1,000 47,625 44216110 Niagara Mohawk Power Corp. 1,100 22,275 65352210 Northern States Power Co. (Minn.) 400 17,250 66577210 Ohio Edison Co. 1,000 22,750 67734710 PSI Resources, Inc. 500 13,250 69363210 Pacific Gas & Electric Co. 3,200 112,400 69430810 PacifiCorp. 2,100 40,425 69511410 Philadelphia Electric Co. 1,500 45,375 71753710 Public Service Enterprise Group, Inc. 1,800 57,600 74457310 SCE Corp. 3,300 66,000 78388210 Southern Co. 2,200 97,075 84258710 Texas Utilities Co. 1,700 73,525 88284810 Union Electric Co. 800 31,400 90654810 1,138,277 VALUE SHARES (NOTE 1) COMMON STOCKS - CONTINUED UTILITIES - CONTINUED GAS - 0.8% Arkla, Inc. 800 $ 6,300 04123710 Coastal Corp. (The) 700 19,688 19044110 Columbia Gas System, Inc. (The) (a) 300 6,713 19764810 Consolidated Natural Gas Co. 600 28,200 20961510 ENSERCH Corp. 400 6,500 29356710 Enron Corp. 1,800 52,200 29356110 NICOR, Inc. 300 8,400 65408610 ONEOK, Inc. 100 1,888 68267810 Pacific Enterprises 700 16,625 69423210 Panhandle Eastern Corp. 800 18,900 69846210 Peoples Energy Corp. 200 6,100 71103010 Sonat, Inc. 700 20,213 83541510 Transco Energy Co. 200 2,825 89353210 Williams Companies, Inc. 700 17,063 96945710 211,615 TELEPHONE SERVICES - 8.3% American Telephone & Telegraph Co. 9,800 514,500 03017710 Ameritech Corp. 1,900 145,825 03095410 Bell Atlantic Corp. 3,200 188,800 07785310 BellSouth Corp. 3,500 202,563 07986010 GTE Corp. 6,700 234,500 36232010 MCI Communications Corp. 3,800 107,350 55267310 NYNEX Corp. 2,900 116,363 67076810 Pacific Telesis Group 2,900 156,600 69489010 Southwestern Bell Corp. 4,400 182,600 84533310 Sprint Corporation 2,400 83,400 85206110 U.S. West, Inc. 3,100 142,213 91288910 2,074,714 TOTAL UTILITIES 3,495,306 TOTAL COMMON STOCKS (Cost $22,094,415) 23,759,866 PREFERRED STOCKS - 0.0% FINANCE - 0.0% CREDIT AND OTHER FINANCE - 0.0% National Intergroup, Inc., Series A, $4.20 exchangeable (Cost $1,377) 50 1,550 63654030 PRINCIPAL AMOUNT U.S. treasury OBLIGATIONS - 1.1% 8 1/2%, 5/15/95 (b) $ 50,000 53,000 912827YQ 8 5/8%, 10/15/95 (b) 100,000 107,594 912827WT 8 1/2%, 11/15/95 (b) 100,000 107,558 912827ZG TOTAL U.S. TREASURY OBLIGATIONS (Cost $274,719) 268,152 MATURITY VALUE AMOUNT (NOTE 1) REPURCHASE AGREEMENTS - 3.8% Investments in repurchase agreements, (U.S. Treasury obligations), in a joint trading account at 3.23% dated 12/31/93 due 1/3/94 $ 942,254 $ 942,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $23,312,511) $ 24,971,568 Futures Contracts EXPIRATION UNDERLYING FACE UNREALIZED PURCHASED DATE AMOUNT AT VALUE GAIN/(LOSS) 5 S&P 500 Stock Index Futures March 1994 $ 1,167,375 $ 3,625 THE VALUE OF FUTURES CONTRACTS PURCHASED AS A PERCENTAGE OF TOTAL INVESTMENT IN SECURITIES - 4.7% LEGEND: (a) Non-income producing (b) Securities were pledged to cover margin requirements for futures contracts. At the period end, the value of securities pledged amounted to $268,152. OTHER INFORMATION: Purchases and sales of securities, other than short-term securities, aggregated $10,177,619 and $1,828,704, respectively. The market value of futures contracts opened and closed amounted to $7,082,085 and $9,598,680, respectively. INCOME TAX INFORMATION: At December 31, 1993, the aggregate cost of investment securities for income tax purposes was $23,312,511. Net unrealized appreciation aggregated $1,659,057, of which $2,696,500 related to appreciated investment securities and $1,037,443 related to depreciated investment securities. The fund hereby designates $28,000 as a capital gain dividend for the purpose of the dividend paid deduction. INDEX 500 PORTFOLIO FINANCIAL STATEMENTS Statement of Assets and Liabilities DRAFT
December 31, 1993 ASSETS Investment in securities, at value (including repurchase agreements of $942,000) (cost $23,312,511) $ 24,971,568 (Notes 1 and 2) - See accompanying schedule Cash 22,724 Receivable for fund shares sold 206,100 Dividends receivable 51,659 Interest receivable 3,445 Receivable from investment adviser for expense reductions (Note 4) 12,422 Total assets 25,267,918 LIABILITIES Payable for investments purchased $ 32,813 Payable for fund shares redeemed 51,928 Accrued management fee 5,702 Payable for daily variation on futures contracts 7,000 Other payables and accrued expenses 17,797 Total liabilities 115,240 NET ASSETS $ 25,152,678 Net Assets consist of: Paid in capital $ 23,448,999 Undistributed net investment income 1,165 Accumulated undistributed net realized gain (loss) on investments 39,832 Net unrealized appreciation (depreciation) on: Investment securities 1,659,057 Futures contracts 3,625 NET ASSETS, for 451,252 shares outstanding $ 25,152,678 NET ASSET VALUE, offering price and redemption price per share ($25,152,678 (divided by) 451,252 shares) $55.74
Statement of Operations DRAFT
Year Ended December 31, 1993 INVESTMENT INCOME $ 535,722 Dividends Interest 75,187 Total income 610,909 EXPENSES Management fee (Note 3) $ 58,243 Transfer agent fees (Note 3) 33,911 Accounting fees and expenses (Note 3) 45,074 Non-interested trustees' compensation 137 Custodian fees and expenses 15,022 Registration fees 1,611 Audit 41,994 Legal 243 Miscellaneous 656 Total expenses before reductions 196,891 Expense reductions (Note 4) (138,597) 58,294 Net investment income 552,615 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 2) Net realized gain (loss) on: Investment securities 86,278 Futures contracts 228,480 314,758 Change in net unrealized appreciation (depreciation) on: Investment securities 1,080,816 Futures contracts (36,055) 1,044,761 Net gain (loss) 1,359,519 Net increase (decrease) in net assets resulting from operations $ 1,912,134
Statement of Changes in Net Assets DRAFT
YEAR ENDED AUGUST 27, 1992 DECEMBER 31, (COMMENCEMENT 1993 OF OPERATIONS) TO DECEMBER 31, 1992 INCREASE (DECREASE) IN NET ASSETS Operations $ 552,615 $ 123,025 Net investment income Net realized gain (loss) on investments 314,758 47,155 Change in net unrealized appreciation (depreciation) on investments 1,044,761 617,921 Net increase (decrease) in net assets resulting from operations 1,912,134 788,101 Distributions to shareholders (551,427) (132,173) From net investment income From net realized gain (250,780) (22,498) In excess of net realized gain (39,680) - Total distributions (841,887) (154,671) Share transactions 21,442,174 17,818,136 Net proceeds from sales of shares Reinvestment of distributions from: 551,427 132,173 Net investment income Net realized gain 290,460 22,498 Cost of shares redeemed (16,162,443) (645,424) Net increase (decrease) in net assets resulting from share transactions 6,121,618 17,327,383 Total increase (decrease) in net assets 7,191,865 17,960,813 NET ASSETS Beginning of period 17,960,813 - End of period (including under (over) distributions of net investment income of $1,165 and $(9,148), $ 25,152,678 $ 17,960,813 respectively) OTHER INFORMATION Shares Sold 392,103 350,950 Issued in reinvestment of distributions from: 9,912 2,528 Net investment income Net realized gain 5,250 430 Redeemed (297,446) (12,475) Net increase (decrease) 109,819 341,433
Financial Highlights DRAFT
YEAR ENDED AUGUST 27, 1992 DECEMBER 31, (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1993 1992 SELECTED PER-SHARE DATA Net asset value, beginning of period $ 52.60 $ 50.00 Income from Investment Operations Net investment income 1.31 .44 Net realized and unrealized gain (loss) on investments 3.80 2.71 Total from investment operations 5.11 3.15 Less Distributions From net investment income (1.28) (.47) From net realized gain (.60) (.08) In excess of net realized gain (.09) - Total distributions (1.97) (.55) Net asset value, end of period $ 55.74 $ 52.60 TOTAL RETURN (double dagger)(dagger) 9.74% 6.31% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 25,153 $ 17,961 Ratio of expenses to average net assets (s diamond) .28% .28%* Ratio of expenses to average net assets before expense reductions (s diamond) .95% 1.77%* Ratio of net investment income to average net assets 2.65% 2.89%* Portfolio turnover rate 9% -%
* ANNUALIZED (double dagger) TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. (dagger) THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. (s diamond) SEE NOTE 4 OF NOTES TO FINANCIAL STATEMENTS. NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 1993 6. SIGNIFICANT ACCOUNTING POLICIES. Investment Grade Bond Portfolio, Asset Manager Portfolio, and Index 500 Portfolio (the funds) are Portfolios of Variable Insurance Products Fund II (the trust). The trust is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company organized as a Massachusetts business trust. Each fund is authorized to issue an unlimited number of shares. Shares of each fund may only be purchased by insurance companies for the purpose of funding variable annuity or variable life insurance contracts. The following summarizes the significant accounting policies of the funds: SECURITY VALUATION. INVESTMENT GRADE BOND PORTFOLIO. Securities are valued based upon a computerized matrix system and/or appraisals by a pricing service, both of which consider market transactions and dealer-supplied valuations. Short-term securities maturing within sixty days are valued either at amortized cost or original cost plus accrued interest, both of which approximate current value. Securities (including restricted securities) for which market quotations are not readily available are valued at their fair value as determined in good faith under consistently applied procedures under the general supervision of the Board of Trustees. ASSET MANAGER PORTFOLIO AND INDEX 500 PORTFOLIO. Securities for which exchange quotations are readily available are valued at the last sale price, or if no sale price, at the closing bid price. Securities for which exchange quotations are not readily available (and in certain cases debt securities which trade on an exchange), are valued primarily using dealer-supplied valuations or at their fair value as determined in good faith under consistently applied procedures under the general supervision of the Board of Trustees. Short-term securities maturing within sixty days are valued at amortized cost or original cost plus accrued interest, both of which approximate current value. FOREIGN CURRENCY TRANSLATION. The accounting records of the funds are maintained in U.S. dollars. Investment securities, other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the current exchange rate. Purchases and sales of securities, income receipts and expense payments are translated into U.S. dollars at the exchange rate on the dates of the transactions. It is not practical to identify the portion of each amount shown in the fund's Statement of Operations under the caption "Realized and Unrealized Gain (Loss) on Investments" that arises from changes in foreign currency exchange rates. Investment income includes net realized and unrealized currency gains and losses recognized between accrual and payment dates. INCOME TAXES. As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, each fund is not subject to income taxes to the extent that it distributes all of its taxable income for the fiscal year. The schedules of investments include information regarding income taxes under the caption "Income Tax Information." INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date, except certain dividends from foreign securities where the ex-dividend date may have passed, are recorded as soon as the funds are informed of the ex-dividend date. Interest income, which includes accretion of original issue discount, is accrued as earned. Investment income is recorded net of foreign taxes where recovery of such taxes is not assured. EXPENSES. Most expenses of the trust can be directly attributed to a fund. Expenses which cannot be directly attributed are apportioned between the funds in the trust. 1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments for mortgage-backed securities, futures and options transactions, foreign currency transactions, market discount, non-taxable dividends, expiring capital loss carryforwards and losses deferred due to wash sales and excise tax regulations. The funds also utilized earnings and profits distributed to shareholders on redemption of shares as a part of the dividends paid deduction for income tax purposes. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid in capital. 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. CHANGE IN ACCOUNTING FOR DISTRIBUTIONS TO SHAREHOLDERS. Effective January 1, 1993, the funds 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, the funds changed the classification of distributions to shareholders to better disclose the differences between financial statement amounts and distributions determined in accordance with income tax regulations. Accordingly, amounts as of December 31, 1992 have been restated to reflect a decrease in paid in capital of $6,410, an increase in distributions in excess of net investment income of $38,372 and a decrease in accumulated net realized loss on investments of $44,782 for Investment Grade Bond; an increase in paid in capital of $97,837, a decrease in undistributed net investment income of $645,325 and an increase in accumulated net realized gain of $547,488 for Asset Manager; a decrease in paid in capital and a decrease in distributions in excess of net investment income of $17 for Index 500. 7. OPERATING POLICIES. FORWARD FOREIGN CURRENCY CONTRACTS. The funds may enter into forward foreign currency contracts. These contracts involve market risk in excess of the amount reflected in the fund's Statement of Assets and Liabilities. The face or contract amount in U.S. dollars reflects the total exposure the funds have in that particular currency contract. The U.S. dollar value of forward foreign currency contracts is determined using forward currency exchange rates supplied by a quotation service. Losses may arise due to changes in the value of the foreign currency or if the counterparty does not perform under the contract. Purchases and sales of forward foreign currency contracts having the same settlement date and broker are offset and presented net on the Statement of Assets and Liabilities. Gain (loss) on the purchase or sale of forward foreign currency contracts having the same settlement date and broker is recognized on the date of offset, otherwise gain (loss) is recognized on settlement date. REPURCHASE AGREEMENTS. The funds, through their custodian, receive delivery of the underlying securities, whose market value is required to be at least 102% of the resale price at the time of purchase. The funds' investment adviser, Fidelity Management & Research Company (FMR), is responsible for determining that the value of these underlying securities remains at least equal to the resale price. JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (the SEC), the funds, along with other registered investment companies having management contracts with FMR, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Federal Agency obligations. DELAYED DELIVERY TRANSACTIONS. Each fund may purchase or sell securities on a when-issued or forward commitment basis. Payment and delivery may take place a month or more after the date of the transaction. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. Each fund identifies securities as segregated in its custodial records with a value at least equal to the amount of the purchase commitment. 2. OPERATING POLICIES - CONTINUED FUTURES CONTRACTS AND OPTIONS. Each fund may invest in futures contracts and write options. These investments involve, to varying degrees, elements of market risk and risks in excess of the amount recognized in the Statement of Assets and Liabilities. The face or contract amounts reflect the extent of the involvement the funds have in the particular classes of instruments. Risks may be caused by an imperfect correlation between movements in the price of the instruments and the price of the underlying securities and interest rates. Risks also may arise if there is an illiquid secondary market for the instruments, or due to the inability of counterparties to perform. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. Options traded on an exchange are valued using the last sale price or, in the absence of a sale, the last offering price. Options traded over-the-counter are valued using dealer-supplied valuations. RESTRICTED SECURITIES. The funds are permitted to invest in privately placed restricted securities. These securities may be resold in transactions exempt from registration or to the public if the securities are registered. Disposal of these securities may involve time-consuming negotiations and expense, and prompt sale at an acceptable price may be difficult. At the end of the period, restricted securities (excluding 144A issues) amounted to $995,000 or 0.8% of net assets of Investment Grade Bond Portfolio. INDEXED SECURITIES. The funds may invest in indexed securities whose value is linked either directly or inversely to changes in foreign currencies, interest rates, commodities, indices, or other reference instruments. Indexed securities may be more volatile than the reference instrument itself, but any loss is limited to the amount of the original investment. 8. FEES AND OTHER TRANSACTIONS WITH AFFILIATES. MANAGEMENT FEE. INVESTMENT GRADE BOND PORTFOLIO AND ASSET MANAGER PORTFOLIO. As each fund's investment adviser, FMR receives a monthly fee that is calculated on the basis of a group fee rate plus a fixed individual fund fee rate applied to the average net assets of each fund. The group fee rate is the weighted average of a series of rates based on the monthly average net assets of all the mutual funds advised by FMR. The group fee rates range from .14% to .37% for the Investment Grade Bond Portfolio and .30% to .52% for the Asset Manager Portfolio. The annual individual fund fee rate is .30% and .40% for the Investment Grade Bond Portfolio and the Asset Manager Portfolio, respectively. For the period, the management fees were equivalent to annual rates of .47% and .72% of average net assets, respectively. INDEX 500 PORTFOLIO. As the fund's investment adviser, FMR receives a fee that is computed daily at an annual rate of .28% of the fund's average net assets. The Board of Trustees approved a new group fee rate schedule with rates ranging from .1325% to .3700% for Investment Grade Bond Portfolio and .2850% to .5200% for Asset Manager Portfolio. Effective November 1, 1993, FMR has voluntarily agreed to implement this new group fee rate schedule as it results in the same or a lower management fee. TRANSFER AGENT FEE. Fidelity Investments Institutional Operations Company (FIIOC), an affiliate of FMR, is the funds' transfer, dividend disbursing and shareholder servicing agent. FIIOC receives fees based on the type, size, number of accounts and the number of transactions made by shareholders. FIIOC pays for typesetting, printing and mailing of all shareholder reports, except proxy statements. ACCOUNTING FEE. 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. 3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED BROKERAGE COMMISSIONS. The Asset Manager Portfolio and Index 500 Portfolio each placed a portion of its portfolio transactions with brokerage firms which are affiliates of FMR. The commissions paid to these affiliated firms were $398,687 and $123 for the Asset Manager Portfolio and the Index 500 Portfolio, respectively. 9. EXPENSE REDUCTIONS. FMR voluntarily agreed to reimburse the funds' for total operating expenses (excluding interest, taxes, brokerage commissions and extraordinary expenses) above an annual rate of .80%, 1.25% and .28% of average net assets for Investment Grade Bond Portfolio, the Asset Manager Portfolio and the Index 500 Portfolio, respectively. For the period, the reimbursement reduced expenses by $138,597 for the Index 500 Portfolio. For the period ended December 31, 1993, FMR directed certain portfolio trades to brokers who paid a portion of Asset Manager Portfolio's expenses. For the period, the expenses of Asset Manager Portfolio were reduced by $53,319 under this arrangement. 10. BENEFICIAL INTEREST. At the end of the period, FMR and Fidelity Investments Life Insurance Company (FILI), an affiliate of FMR, were 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 outstanding shares of the following funds: FMR FILI UNAFFILIATED INSURANCE COMPANIES PORTFOLIO % OF OWNERSHIP % OF OWNERSHIP # OF % OF OWNERSHIP Investment Grade Bond 0% 47% 2 28% Asset Manager 0% 34% 2 36% Index 500 0% 70% 0 0% 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. NEITHER THE FUNDS NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK AND FUND SHARES ARE NOT BACKED OR GUARANTEED BY ANY BANK OR INSURED BY THE FDIC. 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 three portfolios constituting Variable Insurance Products Fund II (the "Trust") at December 31, 1993, 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 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 owned at December 31, 1993 by correspondence with the custodian 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 Boston, Massachusetts February 10, 1994 DISTRIBUTIONS The Board of Trustees of Variable Insurance Products Fund II voted to pay on February 4, 1994, to shareholders of record at the opening of business on February 4, 1994, the following distributions derived from capital gains realized from sales of portfolio securities, and dividends derived from net investment income: Portfolio Dividends Capital Gains Investment Grade Bond $ 0.00 $ 0.03 Asset Manager $ 0.28 $ 0.46 Index 500 $ 0.00 $ 0.10 INVESTMENT ADVISER Fidelity Management & Research Company Boston, MA OFFICERS Edward C. Johnson 3d, PRESIDENT J. Gary Burkhead, SENIOR VICE PRESIDENT Gary L. French, TREASURER John H. Costello, ASSISTANT TREASURER Arthur S. Loring, SECRETARY Robert H. Morrison, MANAGER, SECURITY TRANSACTIONS BOARD OF TRUSTEES J. Gary Burkhead Ralph F. Cox Phyllis Burke Davis Richard J. Flynn Edward C. Johnson 3d E. Bradley Jones Donald J. Kirk Peter S. Lynch Edward H. Malone Marvin L. Mann Gerald C. McDonough Thomas R. Williams GENERAL DISTRIBUTOR Fidelity Distributors Corporation Boston, MA TRANSFER AND SHAREHOLDER SERVICING AGENT Fidelity Investments Institutional Operations Co. Boston, MA CUSTODIAN INVESTMENT GRADE BOND PORTFOLIO: The Bank of New York New York, NY ASSET MANAGER PORTFOLIO: The Chase Manhattan Bank, N.A. New York, NY INDEX 500 PORTFOLIO: Brown Brothers Harriman & Co. Boston, MA VIP II-2-94A EX-99.B11 4 Exhibit 11(a) CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference into the Statements of Additional Information constituting part of this Post-Effective Amendment No. 29 to the Registration Statement on Form N-1A (the "Registration Statement") of Variable Insurance Products Fund: Money Market Portfolio, High Income Portfolio, Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio, of our report dated February 8, 1994, relating to the financial statements and financial highlights which is incorporated by reference in such Registration Statement. We further consent to the references to our Firm in the Prospectuses and Statements of Additional Information under the headings "Financial Highlights" and "Auditor". /s/COOPERS & LYBRAND COOPERS & LYBRAND Boston, Massachusetts April 25, 1994 Exhibit 11(b) CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus and Statement of Additional Information constituting parts of this Post Effective Amendment No. 29 to the registration statement on Form N-1A (the "Registration Statement") of our report dated February 10, 1994, relating to the financial statements and financial highlights appearing in the December 31, 1993 Annual Report to Shareholders of Variable Insurance Products Fund II, which is incorporated by reference in such Registration Statement. We further consent to the references to us under the headings "Auditor" in the Statement of Additional Information and "Financial Highlights" in the Prospectus. /s/ PRICE WATERHOUSE PRICE WATERHOUSE Boston, Massachusetts April 22, 1994 EX-99.B16 5 VIP EQUITY INCOME (N/A) Exhibit 16(a) Factor Adj. NAV 08-Oct-93 1.005886 15.33 11-Oct-93 1.005886 15.33 12-Oct-93 1.005886 15.36 13-Oct-93 1.005886 15.35 14-Oct-93 1.005886 15.38 15-Oct-93 1.005886 15.43 18-Oct-93 1.005886 15.36 19-Oct-93 1.005886 15.29 20-Oct-93 1.005886 15.31 21-Oct-93 1.005886 15.30 22-Oct-93 1.005886 15.31 25-Oct-93 1.005886 15.32 26-Oct-93 1.005886 15.29 27-Oct-93 1.005886 15.29 28-Oct-93 1.005886 15.37 29-Oct-93 1.005886 15.36 01-Nov-93 1.005886 15.42 02-Nov-93 1.005886 15.42 03-Nov-93 1.005886 15.28 04-Nov-93 1.005886 15.15 05-Nov-93 1.005886 15.14 08-Nov-93 1.005886 15.17 09-Nov-93 1.005886 15.18 10-Nov-93 1.005886 15.23 11-Nov-93 1.005886 15.19 12-Nov-93 1.005886 15.28 15-Nov-93 1.005886 15.24 16-Nov-93 1.005886 15.28 17-Nov-93 1.005886 15.25 18-Nov-93 1.005886 15.19 19-Nov-93 1.005886 15.14 22-Nov-93 1.005886 15.02 23-Nov-93 1.005886 15.04 24-Nov-93 1.005886 15.09 25-Nov-93 1.005886 15.09 26-Nov-93 1.005886 15.12 29-Nov-93 1.005886 15.10 30-Nov-93 1.005886 15.09 01-Dec-93 1.005886 15.13 02-Dec-93 1.005886 15.14 03-Dec-93 1.005886 15.17 06-Dec-93 1.005886 15.21 07-Dec-93 1.005886 15.22 08-Dec-93 1.005886 15.24 09-Dec-93 1.005886 15.23 10-Dec-93 1.005886 15.24 13-Dec-93 1.005886 15.28 14-Dec-93 1.005886 15.22 15-Dec-93 1.005886 15.16 16-Dec-93 1.005886 15.20 17-Dec-93 1.000000 15.29 20-Dec-93 1.000000 15.31 21-Dec-93 1.000000 15.31 22-Dec-93 1.000000 15.37 23-Dec-93 1.000000 15.41 24-Dec-93 1.000000 15.41 27-Dec-93 1.000000 15.49 28-Dec-93 1.000000 15.51 29-Dec-93 1.000000 15.49 30-Dec-93 1.000000 15.46 31-Dec-93 1.000000 15.44 -----END PRIVACY-ENHANCED MESSAGE-----