VARIABLE INSURANCE PRODUCTS FUND, 485BPOS, 1997-04-23

VARIABLE INSURANCE PRODUCTS FUND
485BPOS, 1997-04-23

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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. 33 [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, 1997, pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(i)
( ) On [ ], pursuant to paragraph (a)(i) of Rule 485
( ) 75 days after filing pursuant to paragraph (a)(ii)
( ) On [date] pursuant to paragraph (a)(ii) of Rule 485
Registrant has filed a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 and has filed the Notice required by such
Rule on February 28, 1997.

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 Financial Highlights
3 b *
c Performance
d Cover Page and Performance
4 a(i) Charter
a(ii) The Funds at a Glance; Investment Principals and Risks
b,c Who May Want to Invest; Investment Principals and Risks
5 a Charter
5 b(i) FMR and Its Affiliates
b(ii)(iii),c Cover Page; The Funds at a Glance; FMR and Its
Affiliates; Breakdown of Expenses
d FMR and Its Affiliates; Breakdown of Expenses
e Breakdown of Expenses; Other Expenses
f, g Breakdown of Expenses
5A Performance
6 a(i) (ii) Charter; FMR and Its Affiliates; Transaction Details
a(iii) *
b FMR and Its Affiliates
c,d *
e Cover Page, Transaction Details
f,g Distributions and Taxes
7 a Cover Page; Charter
b(i),(ii) Financial Highlights; Transaction Details
b(iii,iv,v) *
c,d,e *
f Other Expenses
8 a Transaction Details
b,c *
d Transaction Details
9 *
_______________
* Not Applicable

Part B Statement of Additional Information Caption

10,11 Cover Page

12 Description of the Trust

13 a,b,c Investment Policies and Limitations

d Portfolio Transactions

14 a - c Trustees and Officers

15 a - c Trustees and Officers

16 a(i) FMR, Portfolio Transactions

a(ii) Trustees and Officers

a(iii),b Management Contracts, Contracts with
FMR affiliates

c *

d Contracts with FMR affiliates

e *

f Distribution and Service Plans

g *

h Description of the Trust

i Contracts with FMR affiliates; Description
of the Trust

17 a, b, c Portfolio Transactions

d, 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 Distributions and Taxes

21 a (i), (ii) Contracts with FMR affiliates

a(iii),b,c *

22 Performance

23 Financial Highlights

_________
* Not Applicable

Please read this prospectus before investing, and keep it on file for
future reference. It contains important information to help you decide if
the goal of one or more of the funds matches your own.
To learn more about each fund and its investments, you can obtain a copy of
the funds' most recent financial report and portfolio listing or a copy of
the Statement of Additional Information (SAI) dated April 30, 1997. The SAI
has been filed with the Securities and Exchange Commission (SEC) and is
available along with other related materials on the SEC's Internet Web site
(http://www.sec.gov). The SAI is incorporated herein by reference (legally
forms a part of the prospectus). For a free copy of either document call
Fidelity at 1-800-544-2442.
Shares of each fund may be purchased only 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. Please read the Prospectus in conjunction with the prospectus
of the separate account of the specific insurance product which accompanies
this Prospectus and keep them on file for future reference.
INVESTMENTS IN THE MONEY MARKET PORTFOLIO ARE 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.
LIKE ALL MUTUAL FUNDS,
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 UPON THE
ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE
CONTRARY IS A CRIMINAL
OFFENSE.
VIP/VIPII/VIPIIIL-pro-049
7
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
HIGH INCOME PORTFOLIO MAY INVEST WITHOUT LIMITATION IN LOWER-QUALITY DEBT
SECURITIES, SOMETIMES CALLED "JUNK BONDS." INVESTORS SHOULD CONSIDER THAT
THESE SECURITIES CARRY GREATER RISKS, SUCH AS THE RISK OF DEFAULT, THAN
OTHER DEBT SECURITIES. REFER TO "INVESTMENT PRINCIPLES AND RISKS" ON PAGE
FOR FURTHER INFORMATION.

VARIABLE
INSURANCE
PRODUCTS
FUNDS
Variable Insurance Products Fund, Variable Insurance Products Fund II and
Variable Insurance Products Fund III (the Trusts) are designed to provide
investment vehicles for variable annuity and variable life insurance
contracts of various insurance companies. The Trusts currently offer the
following funds:
MONEY MARKET FUND
Money Market Portfolio
INCOME FUNDS
Investment Grade Bond Portfolio
High Income Portfolio
ASSET ALLOCATION FUNDS
Asset Manager Portfolio
Asset Manager: Growth Portfolio
GROWTH & INCOME AND GROWTH FUNDS
Balanced Portfolio
Equity-Income Portfolio
Index 500 Portfolio
Growth & Income Portfolio
Growth Opportunities Portfolio
Contrafund Portfolio
Growth Portfolio
Overseas Portfolio
PROSPECTUS
APRIL 30, 1997(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA
02109
CONTENTS

<TABLE>
<CAPTION>
<S> <C> <C>
KEY FACTS THE FUNDS AT A GLANCE

WHO MAY WANT TO INVEST

FINANCIAL HIGHLIGHTS A summary of each fund's
financial data.

THE FUNDS IN DETAIL CHARTER How each fund is organized.

INVESTMENT PRINCIPLES AND RISKS Each fund's
overall approach to investing.

BREAKDOWN OF EXPENSES How operating costs
are calculated and what they include.

PERFORMANCE

ACCOUNT POLICIES DISTRIBUTIONS AND TAXES

TRANSACTION DETAILS Share price calculations and
the timing of purchases and redemptions.

APPENDIX Description of Moody's and S&P's Corporate Bond
Ratings, and additional information about the S&P
500(registered trademark).

</TABLE>

KEY FACTS

THE FUNDS AT A GLANCE
The funds contained in this prospectus are designed to provide investment
vehicles for variable annuity and variable life insurance contracts of
various insurance companies.
MANAGEMENT: Fidelity Management & Research Company (FMR) is the management
arm of Fidelity Investments, which was established in 1946 and is now
America's largest mutual fund manager. Affiliates of FMR may help choose
investments for some of the funds.
MONEY MARKET FUND
MONEY MARKET PORTFOLIO
GOAL: Income while maintaining a stable $1.00 share price.
STRATEGY: Invests in high-quality, short-term, U.S. dollar-denominated
money market securities of all types.
SIZE: As of December 31, 199 6 , the fund had over $ 1.1 b illion
in assets.
INCOME FUNDS
INVESTMENT GRADE BOND PORTFOLIO
GOAL: High current income.
STRATEGY: Invests mainly in investment-grade debt securities.
SIZE: As of December 31, 199 6 , the fund had over $ 228 million
in assets.
HIGH INCOME PORTFOLIO
GOAL: High current income.
STRATEGY: Invests mainly in high-yielding debt securities, with an emphasis
on lower-quality securities.
SIZE: As of December 31, 199 6 , the fund had over $ 1.5 billion
in assets.
ASSET ALLOCATION FUNDS
ASSET MANAGER PORTFOLIO
GOAL: High total return with reduced risk over the long-term.
STRATEGY: The fund diversifies across stocks, bonds, and short-term
instruments, both here and abroad, to pursue its goal. The fund has a
neutral mix which represents the way the fund's investments will generally
be allocated over the long-term. This mix will vary over short-term periods
as fund management gradually adjusts the fund's holdings - within defined
ranges - based on the current outlook for the different markets.
Neutral Mix
Stocks 50%
(can range
from
30-70%)
Row: 1, Col: 1, Value: 20.0
Row: 1, Col: 2, Value: 40.0
Row: 1, Col: 3, Value: 40.0
Bonds 40%
(can range
from
20-60%)
Short-term
10%
(can range
from
0- 50 %)
SIZE: As of December 31, 199 6 , the fund had over $ 3.6 billion
in assets.
ASSET MANAGER: GROWTH PORTFOLIO
GOAL: Maximum total return over the long-term.
STRATEGY: The fund diversifies across stocks, bonds, and short-term
instruments, both here and abroad, to pursue its goal. The fund has a
neutral mix which represents the way the fund's investments will generally
be allocated over the long-term. This mix will vary over short-term periods
as fund management gradually adjusts the fund's holdings - within defined
ranges - based on the current outlook for the different markets.
Neutral Mix
Stocks 70%
(can range
from
50-100%)
Row: 1, Col: 1, Value: 5.0
Row: 1, Col: 2, Value: 65.0
Row: 1, Col: 3, Value: 30.0
Bonds 25%
(can range
from
0-50%)
Short-Term
5%
(can range
from
0-50%)
SIZE: As of December 31, 199 6 , the fund had over $253 million in
assets.
GROWTH & INCOME AND GROWTH FUNDS
BALANCED PORTFOLIO
(formerly known as Fidelity Advisor Annuity Income & Growth Fund)
GOAL: Both income and growth of capital.
STRATEGY: Invests in a diversified portfolio of equity and fixed-income
securities.
SIZE: As of December 31, 1996, the fund had over $103 million in
assets.
EQUITY-INCOME PORTFOLIO
GOAL: Reasonable income. The fund also considers the potential for capital
appreciation (increase in the value of fund's shares).
STRATEGY: Invests mainly in income-producing equity securities.
SIZE: As of December 31, 199 6 , the fund had over $ 6.9 billion
in assets.
INDEX 500 PORTFOLIO
GOAL: Total return that corresponds to that of the Standard & Poor's 500
Index (S&P 500(registered trademark)).
STRATEGY: Invests in equity securities of companies that compose the S&P
500 and in other instruments that are based on the value of the index.
SIZE: As of December 31, 199 6 , the fund had over $ 823 million
in assets.
GROWTH & INCOME PORTFOLIO
GOAL: High total return through a combination of current income and capital
appreciation.
STRATEGY: Invests mainly in equity securities of companies that pay current
dividends and offer potential earnings growth.
SIZE: As of December 31, 1996, the fund had over $989 thousand in
assets.
GROWTH OPPORTUNITIES PORTFOLIO
(formerly known as Fidelity Advisor Annuity Growth Opportunities Fund)
GOAL: Capital Growth (increase in the value of the fund's shares)
STRATEGY: Invests primarily in common stocks and securities convertible
into common stock.
SIZE: As of December 31, 1996, the fund had over $383 million in
assets.
CONTRAFUND PORTFOLIO
GOAL: Capital appreciation (increase in the value of the fund's shares).
STRATEGY: Invests mainly in equity securities of companies that are
undervalued or out-of-favor.
SIZE: As of December 31, 199 6 , the fund had over $ 2.3 b illion
in assets.
GROWTH PORTFOLIO
GOAL: Capital appreciation (increase in the value of the fund's shares).
STRATEGY: Invests mainly in common stocks, although its investments are not
restricted to any one type of security.
SIZE: As of December 31, 199 6 , the fund had over $ 6.0 billion
in assets.
OVERSEAS PORTFOLIO
GOAL: Long-term growth of capital.
STRATEGY: Invests mainly in equity securities outside of the U.S.
SIZE: As of December 31, 1996, the fund had over $ 1.6 billion in
assets.
AS WITH ANY INVESTMENT OPTION, THERE IS NO ASSURANCE THAT THE FUNDS WILL
ACHIEVE THEIR GOALS.
WHO MAY WANT TO INVEST
The value of each fund's (except Money Market's) investments and, as
applicable, the income they generate will vary from day to day, and
generally reflect changes in market conditions, interest rates, and other
company, political, or economic news both here and abroad. In the
short-term, stock prices can fluctuate dramatically in response to these
factors. The securities of smaller, less well-known companies may be more
volatile than those of larger companies. Over time, however, stocks have
shown greater growth potential than other types of securities. Bond prices
generally move in the opposite direction from interest rates. Investments
in foreign securities may involve risks in addition to those of U.S.
investments, including increased political and economic risk, as well as
exposure to currency fluctuations. Except for the money market portfolio,
when fund shares are redeemed, they may be worth more or less than their
original cost. An investment in any one fund is not in itself a balanced
investment plan.
MONEY MARKET PORTFOLIO
The fund may be appropriate for investors who would like to earn income at
current money market rates while preserving the value of their investment.
The fund is managed to keep its share price stable at $1.00. The rate of
income will vary from day to day, generally reflecting short-term interest
rates.
INVESTMENT GRADE BOND PORTFOLIO
The fund may be appropriate for investors who want high current income from
a portfolio of investment-grade debt securities. A fund's level of risk and
potential reward depend on the quality and maturity of its investments.
With its focus on medium- to high-quality investments, the fund has a
moderate risk level and yield potential.
HIGH INCOME PORTFOLIO
The fund is designed for investors who want high current income with some
potential for capital growth from a portfolio of lower-quality debt
securities and income-producing equity securities. The fund may be
appropriate for long-term, aggressive investors who understand the
potential risks and rewards of investing in lower-quality debt, including
defaulted securities. Investors must be willing to accept the fund's
greater price movements and credit risks.
ASSET MANAGER AND ASSET MANAGER: GROWTH PORTFOLIOS
The funds may be appropriate for investors who want to diversify among
domestic and foreign stocks, bonds, short-term instruments and other types
of securities, in one fund. Asset Manager Portfolio spreads its assets
among all three asset classes moderating both its risk and return
potential. On the other hand, Asset Manager: Growth Portfolio, while
spreading its assets among all three asset classes, uses a more aggressive
approach by focusing on stocks for a higher potential return. Because the
funds own different types of investments, their performance is affected by
a variety of factors. The value of each fund's investments and the income
they generate will vary from day to day, and generally reflect interest
rates, market conditions, and other company, political and economic news.
Performance also depends on FMR's skills in allocating assets.
BALANCED PORTFOLIO
The fund may be appropriate for investors who are willing to ride out stock
market fluctuations in pursuit of potentially high long-term returns. The
fund is designed for investors who seek a combination of growth and income
from equity and some bond investments.
EQUITY-INCOME PORTFOLIO
The fund may be appropriate for investors who are willing to ride out stock
market fluctuations in pursuit of potentially high long-term returns. The
fund is designed for those who want some income from equity and bond
investments, but also want to be invested in the stock market for its
long-term growth potential.
INDEX 500 PORTFOLIO
The fund may be appropriate for investors who are willing to ride out stock
market fluctuations in pursuit of potentially high long-term returns. The
fund is designed for those who want to pursue growth of capital and current
income through a portfolio of securities that broadly represents the U.S.
stock market, as measured by the S&P 500. The fund seeks to keep expenses
low as it attempts to match the return of the S&P 500.
Because the fund seeks to track, rather than beat, the performance of the
S&P 500, it is not managed in the same manner as other mutual funds. In
this fund, FMR generally will not judge the merits of any particular stock
as an investment. Therefore, you should not expect to achieve the
potentially greater results that could be obtained by a fund that
aggressively seeks growth.
GROWTH & INCOME PORTFOLIO
The fund may be appropriate for investors who are willing to ride out stock
market fluctuations in pursuit of potentially high long-term returns. The
fund is designed for those who seek a combination of growth and income from
equity and some bond investments.
THE SPECTRUM OF FIDELITY FUNDS
Broad categories of Fidelity funds are
presented here in order of ascending risk.
Generally, investors seeking to maximize
return must assume greater risk. The funds in
this prospectus fall under one of the following
categories.
(solid bullet) MONEY MARKET Seeks income and stability
by investing in high-quality, short-term
investments.
(solid bullet) INCOME Seeks income by investing in
bonds.
(solid bullet) ASSET ALLOCATION Seeks high total return
with reduced risk through a mix of stocks,
bonds, and short-term instruments.
(solid bullet) GROWTH AND INCOME Seeks long-term
growth and income by investing in stocks and
bonds.
(solid bullet) GROWTH Seeks long-term growth by
investing mainly in stocks.
(checkmark)
GROWTH OPPORTUNITIES PORTFOLIO
The fund may be appropriate for investors who are willing to ride out stock
market fluctuations in pursuit of potentially high long-term returns. The
fund is designed for investors who want to be invested in the stock market
for its long-term growth potential. The fund invests for growth and does
not pursue income.
CONTRAFUND PORTFOLIO
The fund may be appropriate for investors who are willing to ride out stock
market fluctuations in pursuit of potentially high long-term returns. The
fund is designed for those who are looking for an investment approach that
follows a contrarian philosophy. This approach focuses on companies that
FMR believes are currently out of public favor but show potential for
capital appreciation.
GROWTH PORTFOLIO
The fund may be appropriate for investors who are willing to ride out stock
market fluctuations in pursuit of potentially high long-term returns. The
fund is designed for those who want to pursue growth wherever it may arise,
and who understand that this strategy often leads to investments in
smaller, less well-known companies. The fund invests for growth and does
not pursue an income strategy.
OVERSEAS PORTFOLIO
The fund may be appropriate for investors who want to pursue their
investment goals in markets outside of the United States. By including
international investments in your portfolio, you can achieve additional
diversification and participate in growth opportunities around the world.
However, it is important to note that investments in foreign securities
involve risks in addition to those of U.S. investments.
In addition to general risks, international investing involves different or
increased risks. The performance of international funds depends upon
currency values, the political and regulatory environment, and overall
economic factors in the countries in which the fund invests. See
"INVESTMENT PRINCIPLES AND RISKS."
FINANCIAL HIGHLIGHTS
The financial highlights tables that follow and each fund's financial
statements are included in each fund's Annual Report and have been audited
by either Coopers & Lybrand L.L.P. (Money Market, High Income,
Equity-Income, Growth and Overseas) or Price Waterhouse LLP (Investment
Grade Bond, Asset Manager, Asset Manager: Growth, Balanced, Index 500,
Growth & Income, Growth Opportunities and Contrafund), independent
accountants. Their reports on the financial statements and financial
highlights are included in the Annual Reports. The financial statements,
the financial highlights, and the reports are incorporated by reference
into the funds' SAI. To learn more about each fund and its investments, you
can obtain a copy of each fund's most recent financial report and portfolio
listing, or a copy of the funds' SAI dated April 30, 1997 free of charge
from your insurance company.

MONEY MARKET PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.Selected Per-Share
Data and Ratios

2.Years
ended 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
December 31

3.Net asset $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
value,
beginning 0 0 0 0 0 0 0 0 0 0
of period

4.Income
from .052 .057 .042 .032 .038 .059 .078 .087 .071 .063
Investment
Operations
Net interest
income

5.Less (.052) (.057) (.042) (.032) (.038) (.059) (.078) (.087) (.071) (.063)
Distributions
From net
interest income

6.Net asset $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
value, end
of 0 0 0 0 0 0 0 0 0 0
period

7.Total
returnA,B 5.41 5.87 4.25 3.23% 3.90 6.09 8.04 9.12 7.39 6.44
% % % % % % % % %

8.Net
assets, $ 1,12 $ 809 $ 749 $ 353 $ 301 $ 271 $ 255 $ 143 $ 106 $ 88
end of period 6
(In millions)

9.Ratio of .30% .33% .27% .22%C .24% .38% .56% .67% .60% .54%
expenses to
average net
assets

10.Ratio of
net 5.28 5.72 4.32 3.16% 3.85 5.93 7.76 8.70 7.16 6.38
interest
income % % % % % % % % %
to average net
assets

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11.Selected
Per-Share Data
and Ratios

12.Years ended 1996 1995 1994 1993E 1992 1991 1990 1989 1988D
December 31

13.Net asset $ 12.4 $ 11.02 $ 11.48 $ 10.9 $ 11.08 $ 9.92 $ 10.1 $ 10.0 $ 10.0
value, 80 0 0 70 0 0 40 00 00
beginning of
period

14.Income from .670 .320 .733 .641 .672 .455 .826 .827 .052
Investment
Operations
Net investment
income

15. Net realized (.290) 1.530 (1.163 .559 .058 1.165 (.220) .160 --
and )
unrealized gain
(loss)

16. Total from .380 1.850 (.430) 1.200 .730 1.620 .606 .987 .052
investment
operations

17.Less (.620) (.390) -- (.628) (.680) (.460) (.826) (.827) (.052)
Distributions
From net
investment
income

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

19. From net -- -- (.010) (.050) (.160) -- -- (.020) --
realized gain

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

21. Total (.620) (.390) (.030) (.690) (.840) (.460) (.826) (.847) (.052)
distributions

22.Net asset $ 12.2 $ 12.4 $ 11.02 $ 11.48 $ 10.9 $ 11.08 $ 9.92 $ 10.1 $ 10.0
value, end of 40 80 0 0 70 0 0 40 00
period

23.Total 3.19% 17.32 (3.76) 10.96 6.65% 16.38 6.21% 10.26 .52%
returnB,C % % % % %

24.Net assets, $ 229 $ 182 $ 111 $ 122 $ 74 $ 45 $ 14 $ 6 $ 3
end of period (In
millions)

25.Ratio of .58% .59% .67% .68% .76% .80%F .80%F .80%F .80%A,
expenses F
to average net
assets

26.Ratio of net 6.49% 6.53% 6.53% 6.85% 7.11% 7.73% 8.26% 8.19% 6.99%
investment A
income to
average net
assets

27.Portfolio 81% 182% 143% 70% 119% 128% 122% 67% 0%
turnover rate

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
28.Selected Per-Share Data and Ratios

29.Years
ended 1996 1995 1994 1993C 1992 1991 1990 1989 1988 1987
December 31

30.Net
asset $ 12.0 $ 10.7 $ 11.9 $ 10.8 $ 9.55 $ 7.07 $ 8.11 $ 9.66 $ 9.68 $ 10.8
value,
beginning 50 50 90 20 0 0 0 0 0 30
of period

31.Income
from .927 .856 .770 .728 .790 .890 .858 1.202 1.110 1.155
Investment
Operations
Net investment
income

32. Net
realized .643 1.224 (.910) 1.332 1.290 1.590 (1.04 (1.55 (.020) (1.00
and 0) 0) 0)
unrealized gain
(loss)

33. Total
from 1.570 2.080 (.140) 2.060 2.080 2.480 (.182) (.348) 1.090 .155
investment
operations

34.Less (.920) (.780) (.730) (.794) (.810) -- (.858) (1.20 (1.110 (1.15
Distributions 2) ) 5)
From net
investment
income

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

36. From
net (.180) -- (.370) (.060) -- -- -- -- -- (.150)
realized gain

37. Total (1.10 (.780) (1.10 (.890) (.810) -- (.858) (1.20 (1.110 (1.30
distributions 0) 0) 2) ) 5)

38.Net asset $ 12.5 $ 12.0 $ 10.7 $ 11.9 $ 10.8 $ 9.55 $ 7.07 $ 8.11 $ 9.66 $ 9.68
value, 20 50 50 90 20 0 0 0 0 0
end of period

39.Total 14.03 20.72 (1.64) 20.40 23.17 35.08 (2.23) (4.17) 11.64 1.22
returnA,B % % % % % % % % % %

40.Net assets, $ 1,58 $ 1,04 $ 569 $ 464 $ 201 $ 70 $ 30 $ 34 $ 30 $ 19
end of period 9 0
(In millions)

41.Ratio of .71% .71% .71% .64% .67% .97% 1.00 .93% .99% 1.02
expenses to D %D %D
average net
assets

42.Ratio of
net 9.09 9.32 8.75 8.69 10.98 12.94 11.36 12.94 11.41 11.19
investment % % % % % % % % % %
income to
average net
assets

43.Portfolio 123% 132% 122% 155% 160% 154% 156% 124% 139% 189%
turnover rate

44.Average $ .037
commission 0
rateE

</TABLE>

A TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE THE
TOTAL RETURNS SHOWN.
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
C EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
D FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
E FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
ASSET MANAGER PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
45.Selected
Per-Share Data
and Ratios

46.Years ended 1996 1995 1994 1993E 1992 1991 1990 1989D
December 31

47.Net asset $ 15.79 $ 13.79 $ 15.42 $ 13.32 $ 12.55 $ 10.24 $ 9.97 $ 10.00
value, beginning
of period

48.Income from
Investment
Operations

49. Net .63 .30 .45 .33 .32 .35 .41 .09
investment
income

50. Net realized 1.55 1.99 (1.33) 2.39 1.09 1.96 .26 (.01)
and
unrealized gain
(loss)

51. Total from 2.18 2.29 (.88) 2.72 1.41 2.31 .67 .08
investment
operations

52.Less
Distributions

53. From net (.57) (.29) (.29) (.33) (.31) -- (.40) (.09)
investment
income

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

55. From net (.47) -- (.46) (.25) (.33) -- -- (.02)
realized gain

56. Total (1.04) (.29) (.75) (.62) (.64) -- (.40) (.11)
distributions

57.Net asset $ 16.93 $ 15.79 $ 13.79 $ 15.42 $ 13.32 $ 12.55 $ 10.24 $ 9.97
value, end of
period

58.Total 14.60 16.96 (6.09) 21.23 11.71 22.56 6.72% .81%
returnB.C % % % % % %

59.Net assets, $ 3,641 $ 3,333 $ 3,291 $ 2,423 $ 732 $ 194 $ 36 $ 7
end of period (In
millions)

60.Ratio of .74% .81% .81% .88% .91% 1.08% 1.25% 2.50%
expenses F A,F
to average net
assets

61.Ratio of .73%G .79%G .80%G .88% .91% 1.08% 1.25% 2.50%
expenses to A
average net
assets after
expense
reductions

62.Ratio of net 3.60% 3.54% 4.07% 3.64% 4.89% 5.89% 5.92% 4.77%
investment A
income to
average net
assets

63.Portfolio 168% 256% 85% 113% 92% 110% 117% 158%A
turnover rate

64.Average $ .0163
commission
rateH

</TABLE>

A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. TOTAL
RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE COMPANY'S
SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
D FOR THE PERIOD SEPTEMBER 6, 1989 (COMMENCEMENT OF OPERATIONS) TO DECEMBER
31, 1989.
E EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
F FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES .
H FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
ASSET MANAGER: GROWTH PORTFOLIO

65.Selected Per-Share Data and Ratios

66.Years ended 1996 1995C
December 31

67.Net asset $ 11.77 $ 10.00
value, beginning
of period

68.Income from
Investment
Operations

69. Net .21 .10
investment
income

70. Net realized 2.08 2.20
and unrealized
gain (loss)

71. Total from 2.29 2.30
investment
operations

72.Less
Distributions

73. From net (.21) (.11)
investment
income

74. From net (.75) (.42)
realized gain

75. Total (.96) (.53)
distributions

76.Net asset $ 13.10 $ 11.77
value, end of
period

77.Total 20.04% 23.02%
returnA,B

78.Net assets, $ 253 $ 68
end of period (In
millions)

79.Ratio of .87% 1.00%
expenses to D
average net
assets

80.Ratio of .85%E 1.00%
expenses to
average net
assets after
expense
reductions

81.Ratio of net 2.63% 1.69%
investment
income to
average net
assets

82.Portfolio 120% 343%
turnover rate

83.Average $ .0211
commission
rateF
</TABLE>

A TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE THE
TOTAL RETURNS SHOWN.
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN .
C FOR THE PERIOD JANUARY 3, 1995 (COMMENCEMENT OF OPERATIONS) TO DECEMBER
31, 1995.
D FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
F FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
BALANCED PORTFOLIO
84.Selected
Per-Share Data
and Ratios

85.Years ended 1996 1995C
December 31

86.Net asset $ 11.17 $ 10.00
value, beginning
of period

87.Income from
Investment
Operations

88. Net .33 .14
investment
income

89. Net realized .78 1.25
and unrealized
gain (loss)

90. Total from 1.11 1.39
investment
operations

91.Less
Distributions

92. From net (.01)D (.14)
investment
income

93. From net (.04)D (.08)
realized gain

94. Total (.05) (.22)
distributions

95.Net asset $ 12.23 $ 11.17
value, end of
period

96.Total 9.98% 13.92%
returnA,B

97.Net assets, $ 103 $ 43
end of period (In
millions)

98.Ratio of .72% 1.42%
expenses to E
average net
assets

99.Ratio of .71% 1.42%
expenses to F
average net
assets after
expense
reductions

100.Ratio of net 3.63% 3.56%
investment
income to
average net
assets

101.Portfolio 163% 248%
turnover rate

102.Average $ .0165
commission
rateG

A TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE THE
TOTAL RETURNS SHOWN.
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
C FOR THE PERIOD JANUARY 3, 1995 (COMMENCEMENT OF OPERATIONS) TO DECEMBER
31, 1995.
D THE AMOUNTS SHOWN REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO
TAX DIFFERENCES.
E FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
G FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
EQUITY-INCOME PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
103.Selected Per-Share
Data and Ratios

104.Years 1996 1995 1994 1993D 1992 1991 1990 1989 1988 1987
ended
December 31

105.Net asset $ 19.2 $ 15.3 $ 15.4 $ 13.4 $ 11.8 $ 9.51 $ 12.29 $ 11.0 $ 9.42 $ 10.0
value, 7 5 4 0 5 1 2
beginning of
period

106.Income
from
Investment
Operations

107. Net .35 .41 .41 .37 .40 .50 .58 .60 .53 .45
investment
income

108. Net
realized 2.30 4.69 .64 2.06 1.57 2.43 (2.38) 1.29 1.59 (.51)
and
unrealized gain
(loss)

109. Total
from 2.65 5.10 1.05 2.43 1.97 2.93 (1.80) 1.89 2.12 (.06)
investment
operations

110.Less
Distributions

111. From net (.03) (.40) (.37) (.35) (.42) (.59) (.59) (.52) (.53) (.40)
investment
income

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

113. From net (.86) (.78) (.77) -- -- -- (.39) (.09) -- (.14)
realized gain

114. Total (.89) (1.18) (1.14) (.39) (.42) (.59) (.98) (.61) (.53) (.54)
distributions

115.Net asset $ 21.0 $ 19.2 $ 15.3 $ 15.4 $ 13.4 $ 11.8 $ 9.51 $ 12.2 $ 11.0 $ 9.42
value, end of 3 7 5 4 0 5 9 1
period

116.Total 14.28 35.09 7.07 18.29 16.89 31.44 (15.29) 17.34 22.71 (1.13)
returnA,B % % % % % % % % % %

117.Net assets, $ 6,96 $ 4,87 $ 2,28 $ 1,31 $ 593 $ 282 $ 154 $ 143 $ 52 $ 26
end of period 1 9 4 9
(In millions)

118.Ratio of .58% .61% .60% .62% .65% .74% .78% .85% 1.13 1.33
expenses to % %
average net
assets

119.Ratio of .56% .61% .58% .62% .65% .74% .78% .85% 1.13 1.33
expenses to C C % %
average net
assets after
expense
reductions

120.Ratio of
net 1.97 2.56 2.83 2.87 3.52 4.83 6.01% 5.82 5.36 4.78
investment % % % % % % % % %
income to
average net
assets

121.Portfolio 186% 87% 134% 120% 74% 107% 94% 78% 69% 133%
turnover rate

122.Average $ .042
commission 6
rateE

</TABLE>

A TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE THE
TOTAL RETURNS SHOWN.
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
C FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
D EFFECTIVE JANUARY 1 ,1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
E FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
INDEX 500 PORTFOLIO
123.Selected Per-Share Data and Ratios

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
124.Years 1996 1995 1994 1993E 1992D
ended
December 31

125.Net asset $ 75.71 $ 56.22 $ 55.74 $ 52.60 $ 50.00
value, beginning
of period

126.Income
from Investment
Operations

127. Net 1.04 .85 1.14 1.31 .44
investment
income

128. Net realized 15.55 19.72 (.56) 3.80 2.71
and unrealized
gain (loss)

129. Total from 16.59 20.57 .58 5.11 3.15
investment
operations

130.Less
Distributions

131. From net (.91) (.95) -- (1.28) (.47)
investment
income

132. From net (2.34) (.11) (.10) (.60) (.08)
realized gain

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

134. Total (3.25) (1.08) (.10) (1.97) (.55)
distributions

135.Net asset $ 89.05 $ 75.71 $ 56.22 $ 55.74 $ 52.60
value, end of
period

136.Total 22.71% 37.19% 1.04% 9.74% 6.31%
returnB,C

137.Net assets, $ 823 $ 246 $ 51 $ 25 $ 18
end of period (In
millions)

138.Ratio of .28%F .28%F .28%F .28%F .28%A,
expenses to F
average net
assets

139.Ratio of net 2.26% 2.70% 2.81% 2.65% 2.89%A
investment

income to
average net
assets

140.Portfolio 14% 16% 2% 9% 0%
turnover rate

141.Average $ .0315
commission
rateG

</TABLE>

A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. TOTAL
RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE COMPANY'S
SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
D FOR THE PERIOD AUGUST 27, 1992 (COMMENCEMENT OF OPERATIONS) TO DECEMBER
31, 1992.
E EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
F FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
G FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
GROWTH & INCOME PORTFOLIO
142.Selected
Per-Share Data
and Ratios

143.Years 1996D
ended
December 31

144.Net asset $ 10.00
value, beginning
of period

145.Income
from Investment
Operations

146. Net realized (.10)
and unrealized
gain (loss)

147. Total from (.10)
investment
operations

148.Net asset $ 9.90
value, end of
period

149.Total (1.00)%
returnB,C

150.Net assets, $ 0.99
end of period (In
millions)

151.Ratio of 1.00%A,
expenses to E
average net
assets

152.Ratio of net 3.89%A
investment
income to
average net
assets

153.Portfolio 0%
turnover rate

154.Average $ .0120
commission
rateF

156.Years 1996 1995C
ended
December 31

157.Net asset $ 13.07 $ 10.00
value, beginning
of period

158.Income
from Investment
Operations

159. Net .26 .11
investment
income

160. Net realized 2.12 3.14
and unrealized
gain (loss)

161. Total from 2.38 3.25
investment
operations

162.Less
Distributions

163. From net -- (.11)
investment
income

164. From net (.05) (.07)
realized gain

165. Total (.05) (.18)
distributions

166.Net asset $ 15.40 $ 13.07
value, end of
period

167.Total 18.27 32.52
returnA,B % %

168.Net assets, $ 383 $ 164
end of period (In
millions)

169.Ratio of .77 .85%
expenses to % D
average net
assets

170.Ratio of .76% .83%
expenses to E E
average net
assets after
expense
reductions

171.Ratio of net 2.29 2.49
investment % %
income to
average net
assets

172.Portfolio 28 38
turnover rate % %

173.Average $ .0367
commission
rateF

A TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE THE
TOTAL RETURNS SHOWN.
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
C FOR THE PERIOD JANUARY 3, 1995 (COMMENCEMENT OF OPERATIONS) TO DECEMBER
31, 1995.
D FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
F FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
CONTRAFUND PORTFOLIO
174.Selected Per-Share Data and Ratios

175.Years 1996 1995C
ended
December 31

176.Net asset $ 13.79 $ 10.00
value, beginning
of period

177.Income
from Investment
Operations

178. Net .14 .06
investment
income

179. Net realized 2.76 3.91
and unrealized
gain (loss)

180. Total from 2.90 3.97
investment
operations

181.Less
Distributions

182. From net -- (.06)
investment
income

183. From net (.13) (.12)
realized gain

184. Total (.13) (.18)
distributions

185.Net asset $ 16.56 $ 13.79
value, end of
period

186.Total 21.22 39.72
returnA,B % %

187.Net assets, $ 2,394 $ 877
end of period (In
millions)

188.Ratio of .74 .72
expenses to % %
average net
assets

189.Ratio of .71% .72
expenses to D %
average net
assets after
expense
reductions

190.Ratio of net 1.33 1.07
investment % %
income to
average net
assets

191.Portfolio 178 132
turnover rate % %

192.Average $ .0343
commission
rateE

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
193.Selected Per-Share Data and Ratios

194.Years 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
ended D
December 31

195.Net asset $ 29.2 $ 21.6 $ 23.0 $ 19.7 $ 18.5 $ 12.9 $ 15.18 $ 11.7 $ 10.1 $ 10.0
value, beginning 0 9 8 6 1 1 2 4 3
of period

196.Income
from Investment
Operations

197. Net .22 .08 .12 .12 .09 .09C .24 .24 .19 .10
investment
income

198. Net realized 3.82 7.55 (.12) 3.64 1.64 5.72 (1.98) 3.41 1.39 .27
and
unrealized gain
(loss)

199. Total from 4.04 7.63 -- 3.76 1.73 5.81 (1.74) 3.65 1.58 .37
investment
operations

200.Less
Distributions

201. From net (.08) (.12) (.12) (.11) (.05) (.21) (.21) (.19) -- (.11)
investment
income

202. From net (2.02) -- (1.27) (.21) (.43) -- (.32) -- -- (.15)
realized gain

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

204. Total (2.10) (.12) (1.39) (.44) (.48) (.21) (.53) (.19) -- (.26)
distributions

205.Net asset $ 31.1 $ 29.2 $ 21.6 $ 23.0 $ 19.7 $ 18.5 $ 12.91 $ 15.1 $ 11.7 $ 10.1
value, end of 4 0 9 8 6 1 8 2 4
period

206.Total 14.71 35.36 (.02) 19.37 9.32 45.51 (11.73) 31.51 15.58 3.66
returnA,B % % % % % % % % % %

207.Net assets, $ 6,08 $ 4,16 $ 2,14 $ 1,38 $ 750 $ 371 $ 135 $ 77 $ 29 $ 19
end of period 6 3 2 4
(In millions)

208.Ratio of .69% .70% .70% .71% .75% .84% .88% 1.02 1.24 1.50
expenses % % %E
to average net
assets

209.Ratio of .67% .70% .69% .71% .75% .84% .88% 1.02 1.24 1.50
expenses to F F % % %
average net
assets after
expense
reductions

210.Ratio of net .81% .37% .69% .72% .83% .56% 2.69% 2.83 1.91 1.78
investment % % %
income to
average net
assets

211.Portfolio 81% 108% 122% 159% 262% 261% 88% 111% 155% 37%
turnover rate

212.Average $ .041
commission 6
rateG

</TABLE>

A TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE THE
TOTAL RETURNS SHOWN.
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN .
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
E FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
G FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
OVERSEAS PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
213.Selected Per-Share Data and Ratios

214.Years
ended 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987F
December 31

215.Net asset $ 17.0 $ 15.6 $ 15.4 $ 11.5 $ 13.0 $ 12.4 $ 12.6 $ 10.1 $ 9.35 $ 10.00
value, beginning 6 7 8 3 9 2 7 1
of period

216.Income from
Investment Operations

217. Net .32D, .17 .19 .06 .16 .24 .18 .07 .09 .05
investment E
income

218. Net realized 1.88 1.34 .08 4.16 (1.54) .74 (.39) 2.57 .67 (.59)
and
unrealized gain
(loss)

219. Total from 2.20 1.51 .27 4.22 (1.38) .98 (.21) 2.64 .76 (.54)
investment
operations

220.Less
Distributions

221. From net (.20) (.06) (.08) (.18) (.18) (.17) (.04) (.08) -- (.11)
investment
income

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

223. From net (.22) (.02) -- -- -- (.14)K -- -- -- --
realized gain

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

225. Total (.42) (.12) (.08) (.27) (.18) (.31) (.04) (.08) -- (.11)
distributions

226.Net asset $ 18.8 $ 17.0 $ 15.6 $ 15.4 $ 11.53 $ 13.0 $ 12.4 $ 12.6 $ 10.1 $ 9.35
value, end of 4 6 7 8 9 2 7 1
period

227.Total 13.15 9.74 1.72 37.35 (10.72) 8.00 (1.67) 26.28 8.13% (5.38)
returnB, C % % % % % % % % %

228.Net assets, $ 1,66 $ 1,34 $ 1,29 $ 778 $ 181 $ 126 $ 81 $ 26 $ 9 $ 7
end of period 8 3 8
(In millions)

229.Ratio of .93% .91% .92% 1.03 1.14% 1.26 1.41 1.50 1.50% 1.50%
expenses % % % %H H A,H
to average net
assets

230.Ratio of .92%I .91% .92% 1.03 1.14% 1.26 1.41 1.50 1.50% 1.50%
expenses to % % % % A
average net
assets after
expense
reductions

231.Ratio of net 1.84 1.88 1.28 1.21 1.86% 2.33 1.89 .66% .84% .78%A
investment % % % % % %
income to
average net
assets

232.Portfolio 92% 50% 42% 42% 61% 168% 100% 78% 95% 181%A
turnover rate

233.Average $ .013
commission rateJ 7

</TABLE>

A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. TOTAL
RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE COMPANY'S
SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E NET INVESTMENT INCOME PER SHARE REFLECTS A SPECIAL DIVIDEND FROM VOLVO AB
WHICH AMOUNTED TO $.05 PER SHARE.
F FOR THE PERIOD JANUARY 28, 1987 (COMMENCEMENT OF OPERATIONS) TO DECEMBER
31, 1987.
G EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
H FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
I FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
J FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
K INCLUDES AMOUNTS DISTRIBUTED FROM NET REALIZED GAIN ON FOREIGN CURRENCY
RELATED TRANSACTIONS TAXABLE AS ORDINARY INCOME.
THE FUNDS IN DETAIL

CHARTER
EACH FUND IS A MUTUAL FUND: an investment that pools shareholders' money
and invests it toward a specified goal. Money Market Portfolio, High Income
Portfolio, Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio
are diversified funds of Variable Insurance Products Fund (VIP), Investment
Grade Bond Portfolio, Asset Manager Portfolio, Index 500 Portfolio, Asset
Manager: Growth Portfolio and Contrafund Portfolio are diversified funds of
Variable Insurance Products Fund II (VIP II) and Growth & Income Portfolio,
Balanced Portfolio and Growth Opportunities are diversified funds of
Variable Insurance Products Fund III (VIP III). VIP, VIP II and VIP III are
open-end management investment companies organized as Massachusetts
business trusts on November 13, 1981, March 21, 1988 and July 14, 1994,
respectively. There is a remote possibility that one fund might become
liable for a misstatement in the prospectus about another fund.
EACH FUND IS GOVERNED BY A BOARD OF TRUSTEES which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet throughout the year to oversee the funds' activities,
review contractual arrangements with companies that provide services to the
funds, and review the funds' performance. The majority of trustees are not
otherwise affiliated with Fidelity.
THE FUNDS MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. These
meetings may be called to elect or remove trustees, change fundamental
policies, approve a management contract, or for other purposes.
Shareholders not attending these meetings are encouraged to vote by proxy.
An insurance company issuing a variable contract that participates in the
funds will vote shares held in its 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. Your insurance company is entitled to one
vote for each share it owns. For a further discussion, please refer to your
insurance company's separate account prospectus.
FMR AND ITS AFFILIATES
Fidelity Investments is one of the largest investment management
organizations in the United States and has its principal business address
at 82 Devonshire Street, Boston, Massachusetts 02109. It includes a number
of different subsidiaries and divisions which provide a variety of
financial services and products. The funds employ various Fidelity
companies to perform activities required for their operation.
The funds are managed by FMR, which handles each fund's business affairs
and, with the assistance of affiliates for certain funds, chooses the
fund's investments.
(small solid bullet) FMR Texas Inc. (FMR Texas), in Irving, Texas, serves
as a sub-adviser for Money Market Portfolio.
(small solid bullet) Fidelity Management & Research (U.K.) Inc. (FMR
U.K.), in London, England, serves as a sub-adviser for High Income, Asset
Manager, Asset Manager: Growth, Contrafund and Overseas Portfolios.
(small solid bullet) Fidelity Management & Research (Far East) Inc. (FMR
Far East), in Tokyo, Japan, serves as a sub-adviser for High Income, Asset
Manager, Asset Manager: Growth, Contrafund and Overseas Portfolios.
(small solid bullet) Fidelity International Investment Advisors (FIIA), in
Pembroke, Bermuda, serves as a sub-adviser for Overseas Portfolio.
(small solid bullet) Fidelity International Investment Advisors (U.K.)
Limited (FIIAL U.K.), in Kent, England, serves as a sub-adviser for
Overseas Portfolio.

FIDELITY FACTS
Fidelity offers the broadest selection of mutual
funds in the world.
(solid bullet) Number of Fidelity mutual funds: over 225
(solid bullet) Assets in Fidelity mutual funds: over $432
billion
(solid bullet) Number of shareholder accounts: over 29
million
(solid bullet) Number of investment analysts and portfolio
managers: over 270

(checkmark)
Barry Jay Coffman is manager and vice president of VIP: 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.
William Danoff is manager and vice president of VIP II: Contrafund
Portfolio, which he has managed since January 1995. Mr. Danoff also manages
Fidelity Contrafund, which he has managed since October 1990. Previously,
he managed Select Retailing Portfolio and assisted on Magellan. Mr. Danoff
joined Fidelity in 1986 as an equity analyst.
Kevin Grant is manager of VIP: Investment Grade Bond Portfolio, which he
has managed since February 1997. He also manages several other Fidelity
funds. Prior to joining Fidelity in 1993, Mr. Grant was a vice president
and chief mortgage strategist at Morgan Stanley for three years.
Stephen Petersen is Vice President and manager of VIP: Equity Income
Portfolio, which he has managed since January 1997. He also manages
Fidelity Balanced Fund, which he has managed since March 1996 and is Vice
President and manager of Fidelity Equity-Income Fund, which he has managed
since July 1993. Since joining Fidelity in 1980, Mr. Petersen has worked as
an analyst and manager.
Jennifer Uhrig is Vice President and manager of VIP: Growth Portfolio,
which she has managed since January 1997. She also manages Advisor Equity
Growth Fund, which she has managed since January 1997. Since joining
Fidelity in 1987, Ms. Uhrig has worked as an analyst and manager.
Richard R. Mace, Jr. is manager and vice president of VIP: Overseas
Portfolio which he has managed since March 1996. He is also manager of
Fidelity Overseas Fund, Fidelity Advisor Overseas Fund, Fidelity Advisor
Annuity Overseas Fund, Fidelity Global Balanced Fund, and Fidelity
International Value Fund. Previously, he managed Fidelity International
Growth & Income Fund, Select Transportation, Select Industrial Materials
and Select Chemical Portfolios. Mr. Mace joined Fidelity in August 1987.
Richard C. Habermann and George Vanderheiden are managers and vice
presidents of VIPII: Asset Manager Portfolio and Asset Manager: Growth
Portfolio. They have managed the funds since March 1996.
Dick Habermann is lead manager of VIPII: Asset Manager Portfolio and Asset
Manager: Growth Portfolio. He also manages Fidelity Asset Manager, Fidelity
Asset Manager: Growth and Fidelity Asset Manager: Income. Mr. Habermann is
a managing director of Fidelity and senior vice president of FMR.
Previously, he was director of research and chief investment officer of
Fidelity International, Limited. Mr. Habermann joined Fidelity in 1968.
George A. Vanderheiden is manager and vice manager of VIP III: Growth
Opportunities Portfolio, which he has managed since January 1995. Mr.
Vanderheiden also manages Advisor Growth Opportunities, Destiny I, Destiny
II, Asset Manger, Asset Manager, Asset Manager: Growth, Asset Manager:
Income Fund. He is a managing director of FMR Corp., and leader of the
growth group. Mr. Vanderheiden joined Fidelity in 1971.
Charles Morrison is manager of VIP II: Asset Manager and Asset Manager:
Growth Portfolios' fixed-income investments, which he has managed since
February 1997. He also manages several other Fidelity funds. Prior to
joining Fidelity in 1987, Mr. Morrison has worked as an analyst and
manager.
Beth Terrana is manager and vice president of VIP III: Growth & Income
Portfolio, which she has managed since the fund commenced operations. She
also manages Fidelity Fund. Since joining Fidelity in 1983, Ms. Terrana has
worked as a portfolio manager.
Bettina Doulton is lead manager and vice president of VIP III: Balanced
Portfolio which she has managed since March 1996. Ms. Doulton also manages
Fidelity Advisor Balanced Fund and co-manages Fidelity Puritan Fund. She
previously managed Fidelity Value Fund, Fidelity Advisor Equity-Income
Fund, VIP: Equity-Income Fund, VIP: Equity-Income Portfolio and Fidelity
select Automotive Portfolio. Ms. Doulton joined Fidelity in 1986.
Kevin E. Grant is also vice president of the Balanced Portfolio and manager
of its fixed-income investments since March 1996. He co-manages Fidelity
Advisor Balanced Fund, Fidelity Balanced Fund, Fidelity Puritan Fund, and
Fidelity Advisor Strategic Income Fund. He also manages Fidelity Ginnie Mae
Fund, Fidelity Mortgage Securities Fund, Fidelity Advisor Limited Term Bond
Fund and Spartan Ginnie Mae Fund. Mr. Grant joined Fidelity in 1993 as
manager of Fidelity Mortgage Securities Fund. He is a former vice president
and chief strategist for mortgage-backed securities at Morgan Stanley.
Previously, Mr. Grant served as an investment director at Aetna Bond
Investors.
John Todd is vice president of each Asset Manager fund and manager of each
fund's short-term and money market investments, which he has managed since
December 1996. He also manages several other Fidelity funds. Mr. Todd
joined Fidelity in 1981.
Each fund has an investment objective similar to that of an existing
Fidelity fund. Money Market Portfolio is most similar to Fidelity Cash
Reserves, High Income Portfolio is most similar to Spartan High Income
Fund, Equity-Income Portfolio is most similar to Fidelity Equity-Income
Fund, Growth Portfolio is most similar to Fidelity Growth Company Fund,
Overseas Portfolio is most similar to Fidelity Overseas Fund, Investment
Grade Bond Portfolio is most similar to Fidelity Investment Grade Bond
Fund, Asset Manager Portfolio is most similar to Fidelity Asset Manager,
Index 500 Portfolio is most similar to Fidelity Market Index Fund,
Contrafund Portfolio is most similar to Fidelity Contrafund, Asset Manager:
Growth Portfolio is most similar to Fidelity Asset Manager: Growth, Growth
& Income Portfolio is most similar to Fidelity Growth & Income Fund,
Balanced Portfolio is most similar to Fidelity Balanced Fund and Growth
Opportunities Portfolio is most similar to Fidelity Advisor Growth
Opportunities Fund. The performance of a separate account investing in
these funds is not expected to be the same as the performance of the
corresponding fund due in part to dissimilarities in their investments.
Various insurance-related costs at the insurance company's separate account
will also affect performance.
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.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
Fidelity Distributors Corporation (FDC) distributes and markets Fidelity's
funds and services. Fidelity Investments Institutional Operations Company,
Inc. (FIIOC), 82 Devonshire Street, Boston, Massachusetts, performs
transfer agent servicing functions for the funds.
FMR Corp. is the ultimate parent company of FMR, FMR Texas, FMR U.K., and
FMR Far East. Members of the Edward C. Johnson 3d family are the
predominant owners of a class of shares of common stock representing
approximately 49% of the voting power of FMR Corp. Under the Investment
Company Act of 1940 (the 1940 Act), control of a company is presumed where
one individual or group of individuals owns more than 25% of the voting
stock of that company; therefore, the Johnson family may be deemed under
the 1940 Act to form a controlling group with respect to FMR Corp.
Fidelity International Limited (FIL) is the parent company of FIIA and
FIIAL U.K. The Johnson family group also owns, directly or indirectly, more
than 25% of the voting common stock of FIL.
A broker-dealer may use a portion of the commissions paid by High Income
and Asset Manager, respectively, to reduce expenses for those funds. FMR
may use its broker-dealer affiliates and other firms that sell fund shares
to carry out a fund's transactions, provided that the fund receives
brokerage services and commission rates comparable to those of other
broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
The value of each fund's domestic and foreign investments varies in
response to many factors. Stock values fluctuate in response to the
activities of individual companies and general market and economic
conditions. Bond values fluctuate based on changes in interest rates,
market conditions, other economic and political news, and on their quality
and maturity. In general, bond prices rise when interest rates fall, and
fall when interest rates rise. This effect is more pronounced for
longer-term securities. Lower-quality securities offer higher yields, but
also carry more risk.
Funds which invest in foreign securities have increased economic and
political risks as they are exposed to events and factors in the various
world markets. This is especially true for funds that invest in emerging
markets. Also, because many of the funds' investments are denominated in
foreign currencies, changes in the value of foreign currencies can
significantly affect a fund's share price. FMR may use a variety of
investment techniques to either increase or decrease a fund's investment
exposure to any currency.
The total return from a bond includes both income and price gains or
losses. In selecting investments for a bond fund, FMR considers a bond's
expected income together with its potential for price gains or losses.
While income is generally the most important component of bond returns over
time, a bond fund's emphasis on income does not mean the fund invests only
in the highest-yielding bonds available, or that it can avoid losses of
principal.
FMR generally focuses on assembling a portfolio of bonds that it believes
will provide the best balance between risk and return within the range of
eligible investments for the fund. FMR's evaluation of a potential
investment includes an analysis of the credit quality of the issuer, its
structural features, its current price compared to FMR's estimate of its
long-term value, and any short-term trading opportunities resulting from
market inefficiencies.
FMR may use various investment techniques to hedge a portion of the funds'
risks, but there is no guarantee that these strategies will work as FMR
intends. It is important to note that neither the funds nor their yields
are guaranteed by the U.S. Government. When you sell your shares, they may
be worth more or less than what you paid for them.
MONEY MARKET PORTFOLIO
The fund seeks to obtain as high a level of current income as is consistent
with preserving capital and providing liquidity. The fund seeks to obtain
its objective by investing in high-quality, short-term money market
securities while seeking to maintain a stable $1.00 share price.
The fund will invest only in U.S. dollar-denominated securities of domestic
and foreign issuers, including banks and other financial institutions,
governments and their agencies or instrumentalities, and corporations.
When fund shares are redeemed, they should be worth the same amount as when
they were purchased. Of course, there is no guarantee that the fund will
maintain a stable $1.00 share price. The fund follows industry-standard
guidelines on the quality, maturity and diversification of its investments,
which are designed to help maintain a stable $1.00 share price. The fund
will purchase only high-quality securities that FMR believes present
minimal credit risks and will observe maturity restrictions on securities
it buys. In general, securities with longer maturities are more vulnerable
to price changes, although they may provide higher yields. It is possible
that a major change in interest rates or a default on the fund's
investments could cause its share price (and the value of your investment)
to change.
The fund earns income at current money market rates. It stresses
preservation of capital, liquidity, and income and does not seek the higher
yields or capital appreciation that more aggressive investments may
provide. The fund's yield will vary from day to day and generally reflects
current short-term interest rates and other market conditions. The fund
will invest only in instruments that are consistent with its objective.
INVESTMENT GRADE BOND PORTFOLIO
The fund seeks as high a level of current income as is consistent with the
preservation of capital by investing primarily in a broad range of
fixed-income securities. FMR normally invests at least 65% of the fund's
total assets in investment-grade, fixed-income securities such as bonds,
notes and debentures. Although the fund can invest in securities of any
maturity, FMR seeks to manage the fund so that it generally reacts to
changes in interest rates similarly to bonds with maturities between five
and ten years. As of December 31, 1996, the fund's dollar-weighted average
maturity was approximately 8.3 years.
The fund's yield and share price change daily based on changes in interest
rates, market conditions, and other political and economic news, and on the
quality and maturity of its investments.
HIGH INCOME PORTFOLIO
The fund seeks high current income by investing primarily in all types of
income-producing debt securities, preferred stocks, and convertible
securities. FMR normally invests at least 65% of the fund's total assets in
these securities. In choosing investments, the fund also considers growth
of capital.
Although the fund has no limits on the quality and maturity of its
investments, its strategy typically leads to longer-term, lower-quality,
fixed-income securities. These domestic and foreign investments may present
the risk of default or may be in default. If consistent with its investment
objective, however, the fund can also invest in common stocks, other equity
securities, and debt securities not currently paying interest but which are
expected to do so in the future. Performance is also affected by individual
company news. The success of the fund's investment strategy depends on
FMR's analysis of a company's relative values and its potential for success
in light of its current financial situation, its industry position,
economic conditions, and interest rate trends.
ASSET MANAGER AND ASSET MANAGER: GROWTH PORTFOLIOS
Each fund seeks to achieve its investment objective by allocating its
assets among stocks, bonds, short-term and other instruments of U.S. and
foreign issuers. Each fund, however, has a different objective and pursues
its objective by investing within different asset allocation ranges.
ASSET MANAGER seeks high total return with reduced risk over the long-term.
ASSET MANAGER: GROWTH seeks to maximize total return over the long-term.
Each fund allocates its assets among the following classes, or types, of
investments. The STOCK CLASS includes equity securities of all types. The
BOND CLASS includes all varieties of fixed-income instruments with
maturities of more than one year. The SHORT-TERM CLASS/MONEY MARKET CLASS
includes all types of short-term money market instruments. FMR may use its
judgment to place a security in the most appropriate class based on its
investment characteristics. Fixed-income securities may be classified in
the bond or short-term/money market class according to interest rate
sensitivity as well as maturity. The funds may also make other investments
that do not fall within these classes.
FMR has the ability to allocate each fund's assets within specified ranges.
Each fund's NEUTRAL MIX indicates the benchmark for its combination of
investments in each asset class over time. FMR may change the neutral mix
from time to time. The range and approximate neutral mix for each asset
class are shown below.
ASSET MANAGER
Range Neutral mix
STOCK CLASS 30-70% 50%
BOND CLASS 20-60% 40%
SHORT-TERM CLASS 0-50% 10%
Asset Manager's approach spreads the fund's assets among all three classes,
moderating both the risk and return potential of stocks, bonds, and
short-term instruments.
ASSET MANAGER: GROWTH
Range Neutral mix
STOCK CLASS 50-100% 70%
BOND CLASS 0-50% 25%
SHORT-TERM CLASS 0-50% 5%
Asset Manager: Growth's more aggressive approach focuses on stocks for high
potential returns. However, because the fund can invest in bonds and
short-term instruments, its return may not be as high as a fund that
invests only in stocks.
Although the funds seek to reduce their overall risk by diversifying among
different types of investments, the funds aggressively invest in a wide
variety of security types, including stocks and bonds issued in developed
and developing countries and derivative transactions. Because the funds are
subject to the risks of each investment type, the funds and their
performance are affected by many factors.
In pursuit of each fund's objective, FMR will not try to pinpoint the
precise moment when a major reallocation should be made. Instead, FMR
regularly reviews each fund's allocation and makes changes gradually to
favor investments that it believes will provide the most favorable outlook
for achieving each fund's objective.
Each fund diversifies across investment types more than most mutual funds.
No one mutual fund, however, can provide an appropriate balanced investment
plan for all investors.
BALANCED PORTFOLIO
The fund seeks both income and growth of capital by investing in a
diversified portfolio of equity and fixed-income securities with income,
growth of income, and capital appreciation potential.
FMR manages the fund to maintain a balance between stocks and bonds. When
FMR's outlook is neutral, it will invest approximately 60% of the fund's
assets in stocks and other equity securities and the remainder in bonds and
other fixed-income securities. FMR may vary from this target if it believes
stocks or bonds offer more favorable opportunities, but will always invest
at least 25% of the fund's total assets in fixed-income senior securities
(including debt securities and preferred stock).
The fund invests in equity securities, convertible securities, common and
preferred stocks, and fixed-income securities that provide income or
opportunities for capital growth. The fund may buy securities that are not
currently paying income but offer prospects for future income. The fund may
invest in securities of foreign issuers. In selecting investments for the
fund, FMR will consider such factors as the issuer's financial strength,
its outlook for increased dividend or interest payments, and the potential
for capital gains.
EQUITY-INCOME PORTFOLIO
The fund seeks reasonable income by investing primarily in income-producing
equity securities. When choosing the fund's investments, FMR also considers
the potential for capital appreciation. The fund seeks to achieve a yield
that beats that of the S&P 500. FMR normally invests 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). The
fund has the flexibility, however, to invest the balance in all types of
domestic and foreign securities, including bonds of varying quality. The
fund does not expect to invest in debt securities of companies that do not
have proven earnings or credit.
INDEX 500 PORTFOLIO
The fund seeks to match the total return of the S&P 500 while keeping
expenses low. FMR normally invests at least 80% (65% if fund assets are
below $20 million) of the fund's assets in equity securities of companies
that compose the S&P 500.
The S&P 500 is an index of 500 common stocks, most of which trade on the
New York Stock Exchange. It is generally acknowledged that the S&P 500
broadly represents the performance of publicly traded common stocks in the
U.S.
In seeking a 98% or better long-term correlation of the fund's total return
to that of the S&P 500, the fund utilizes a "passive" or "indexing"
approach and tries to allocate its assets similarly to those of the index.
The fund's composition may not always be identical to that of the S&P 500.
FMR may choose, if extraordinary circumstances warrant, to exclude a stock
held in the S&P 500 and include a similar stock in its place if doing so
will help the fund achieve its objective. 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 fund cannot achieve a long-term correlation of
98% or better, the trustees will consider alternative arrangements.
Although the fund focuses on common stocks, it may also invest in other
equity securities and in other types of instruments. The fund purchases
short-term debt securities for cash management purposes and uses various
investment techniques, such as futures contracts, to adjust its exposure to
the S&P 500.
Standard & Poor's Corporation is neither an affiliate nor a sponsor of the
fund, and inclusion of a stock in the index does not imply that it is a
good investment. Please refer to the Appendix for more information on the
S&P 500.
GROWTH & INCOME PORTFOLIO
The fund seeks high total return through a combination of current income
and capital appreciation by investing mainly in equity securities. The fund
expects to invest the majority of its assets in domestic and foreign equity
securities, with a focus on those that pay current dividends and show
potential earnings growth. However, the fund may buy debt securities as
well as equity securities that are not currently paying dividends, but
offer prospects for capital appreciation or future income.
GROWTH OPPORTUNITIES PORTFOLIO
The fund seeks to provide capital growth by investing primarily in common
stocks and securities convertible into common stocks.
The fund, under normal conditions, will invest at least 65% of its total
assets in securities of companies that FMR believes have long-term growth
potential. Although the fund invests primarily in common stock and
securities convertible into common stock, it has the ability to purchase
other securities, such as preferred stock and bonds, that may produce
capital growth. The fund may invest in foreign securities without
limitation.
CONTRAFUND PORTFOLIO
The fund seeks capital appreciation by investing mainly in equity
securities of companies that FMR believes to be undervalued due to an
overly pessimistic appraisal by the public. The fund usually invests
primarily in common stock and securities convertible into common stock, but
it has the flexibility to invest in any type of security that may produce
capital appreciation.
The fund's strategy can lead to investments in small and medium-sized
companies, which carry more risk than larger ones. Generally, these
companies, especially small sized ones, rely on limited product lines and
markets, financial resources, or other factors. This may make them more
susceptible to setbacks or downturns.
In pursuit of the fund's goal, FMR looks for companies with the following
characteristics:
(small solid bullet) unpopular, but improvements seem possible due to
developments such as a change in management, a new product line, or an
improved balance sheet,
(small solid bullet) recently popular, but temporarily out of favor due to
short-term or one-time factors, or
(small solid bullet) undervalued compared to other companies in the same
industry.
GROWTH PORTFOLIO
The fund seeks capital appreciation by investing primarily in common
stocks. The fund however, is not restricted to any one type of security and
may pursue capital appreciation through the purchase of bonds and preferred
stocks. 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.
Growth may be measured by factors such as earnings or gross sales. In
selecting investments for the fund, FMR will tend to focus on smaller,
lesser known companies in new and emerging areas of the economy. However,
FMR may also pursue growth in larger or revitalized companies that hold a
strong position in the market. These may be found in mature or declining
industries.
Companies with strong growth potential often have new products,
technologies, distribution channels, or other opportunities. As a general
rule, these domestic and foreign companies tend to be small and mid-sized
companies that have higher than average price/earnings (P/E) ratios. A high
P/E ratio means that the stock is more expensive than average relative to
the company's earnings. The market prices of these stocks may be
particularly sensitive to economic, market, or company news.
OVERSEAS PORTFOLIO
The fund seeks long-term growth of capital by investing primarily in
securities of issuers whose principal activities are outside of the U.S.
FMR normally invests at least 65% of the fund's total assets in securities
of issuers from at least three different countries outside of North America
(the U.S., Canada, Mexico, and Central America). The fund expects to invest
a majority of its assets in equity securities, but may also invest in debt
securities of any quality. The fund invests in securities of both developed
and emerging markets.
The fund may invest in the securities of any issuer, including companies
and other business organizations as well as governments and government
agencies. The fund, however, will tend to focus on the equity securities of
both large and small companies. The fund may invest in short-term debt
securities and money market instruments for cash management purposes. FMR
may also use various investment techniques to hedge a portion of the fund's
risks, but there is no guarantee that these strategies will work as FMR
intends.
The fund's focus on international investing involves increased or
additional risks compared to funds which invest primarily in domestic
equity securities. International funds have increased economic and
political risks as they are exposed to events and factors in the various
world markets. This is especially true for emerging markets. Also, because
many of the fund's investments are denominated in foreign currencies,
changes in the value of foreign currencies can significantly affect the
fund's share price. FMR may use a variety of techniques to either increase
or decrease the fund's exposure to any currency.
FMR determines where an issuer or its principal business is located by
looking at such factors as its country of organization, the primary trading
market for its securities, and the location of its assets, personnel,
sales, and earnings. When allocating the fund's investments among countries
and regions, FMR considers such factors as the potential for economic
growth, expected levels of inflation, governmental policies, and the
outlook for currency relationships.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which a fund may invest, strategies FMR may employ in
pursuit of a fund's investment objective, and a summary of related risks.
Any restrictions listed supplement those discussed earlier in this section.
A complete listing of each fund's limitations and more detailed information
about each fund's investments are contained in the funds' SAI. Policies and
limitations are considered at the time of purchase; the sale of instruments
is not required in the event of a subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these techniques
unless it believes that they are consistent with a fund's investment
objective and policies and that doing so will help a fund achieve its goal.
Fund holdings and recent investment strategies are described in each fund's
financial reports, which are sent to shareholders twice a year. For a free
SAI or financial report, contact your insurance company.
EQUITY SECURITIES may include common stocks, preferred stocks, convertible
securities, and warrants. For Asset Manager and Asset Manager: Growth, some
preferred stocks and convertible securities may be included in the bond
class. Common stocks, the most familiar type, represent an equity
(ownership) interest in a corporation. Although equity securities have a
history of long-term growth in value, their prices fluctuate based on
changes in a company's financial condition and on overall market and
economic conditions. Smaller companies are especially sensitive to these
factors.
RESTRICTIONS: With respect to 75% of its total assets, each fund (excluding
Money Market) may not purchase more than 10% of the outstanding voting
securities of any issuer.
High Income may invest up to 20% of its total assets in common stocks and
other equity securities.
These limitations do not apply to securities of other investment companies.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer generally pays the investor a
fixed, variable, or floating rate of interest, and must repay the amount
borrowed at maturity. Other debt securities, such as zero coupon bonds, do
not pay interest, but are sold at a discount from their face values.
Debt securities, loans, and other direct debt have varying levels of
sensitivity to changes in interest rates and varying degrees of quality.
Longer-term bonds and zero coupon bonds are generally more sensitive to
interest rate changes than short-term bonds.
Lower-quality debt securities (sometimes called "junk bonds") are
considered to have speculative characteristics and involve greater risk of
default or price changes due to changes in the issuer's creditworthiness,
or they may already be in default. The market prices of these securities
may fluctuate more than higher-quality securities and may decline
significantly in periods of general economic difficulty.
The table on page provides a summary of ratings assigned to debt
holdings (not including money market instruments) in certain of the funds'
portfolios. These figures are dollar-weighted averages of month-end
portfolio holdings during fiscal 1996, and are presented as a percentage of
total security investments. These percentages are historical and do not
necessarily indicate a fund's current or future debt holdings.
FISCAL 199 6 DEBT HOLDINGS, BY RATING
MOODY'S
INVESTORS SERVICE STANDARD & POOR'S

(as a % of investments) (as a % of investments)
Rating Average Rating Average
INVESTMENT High Asset Asset Mgr: Equity- Growth High Asset Asset Mgr:
Equity- Growth

GRADE Income Manager Growth Balanced Income Opps Overseas Income
Manager Growth Balanced Income Opps Oversea
s
Highest quality Aaa 1.43% 25.46% 12.37% 23.77% 1.28% 15.47% 0.00% AAA 1.43%
25.31% 12.40% 23.33% 1.28% 15.47% 0.00%

High quality Aa 0.00% 0.57% 0.19% 0.52% 0.43% 0.00% 0.22% AA 0.00% 0.34%
0.03% 0.52% 0.43% 0.00% 0.00%

Upper-medium grade A 0.00% 1.87% 0.79% 2.77% 0.63% 0.00% 0.00% A 0.00%
1.71% 0.65% 2.41% 0.21% 0.00% 0.22%

Medium grade Baa 0.00% 2.02% 0.72% 3.28% 1.10% 0.00% 0.00% BBB 0.00% 2.69%
1.13% 4.00% 1.73% 0.00% 0.00%
LOWER QUALITY
Moderately

speculative Ba 4.60% 0.96% 1.01% 0.72% 0.47% 0.00% 0.00% BB 12.03% 1.06%
1.19% 0.59% 0.78% 0.00% 0.05%

Speculative B 49.30% 2.52% 2.97% 1.83% 2.82% 0.00% 0.07% B 47.15% 1.77%
2.57% 1.55% 1.95% 0.00% 0.00%

Highly speculative Caa 9.68% 0.10% 0.17% 0.15% 0.00% 0.00% 0.00% CCC 4.24%
0.18% 0.28% 0.10% 0.02% 0.00% 0.00%

Poor quality Ca CC

Lowest quality, no interest C 0.11% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% C
0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
0.00%

In default, in arrears -- -- -- -- -- -- -- -- D 0.04% 0.00% 0.00% 0.00%
0.00% 0.00% 0.00%

65.12% 33.50% 18.22% 33.04% 6.73% 15.47% 0.29% 64.89% 33.06% 18.25%
32.50% 6.40% 15.47% 0.27%
EACH FUND DOES NOT NECESSARILY RELY ON THE RATINGS OF MOODY'S AND S&P TO
DETERMINE COMPLIANCE WITH ITS DEBT QUALITY POLICY.
REFER TO THE APPENDIX FOR A MORE COMPLETE DISCUSSION OF THESE RATINGS.
SECURITIES NOT RATED BY MOODY'S OR S&P AMOUNTED TO 4.41% FOR HIGH INCOME,
1.23% FOR ASSET MANAGER , 0.70% FOR ASSET
MANAGER: GROWTH, 0.32% FOR BALANCED, 0.35% FOR EQUITY-INCOME, 0.00% FOR
GROWTH OPPORTUNITIES, AND 0.00% FOR
OVERSEAS. THESE PERCENTAGES MAY INCLUDE SECURITIES RATED BY OTHER
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATIONS, AS
WELL AS UNRATED SECURITIES. FMR HAS DETERMINED THAT UNRATED SECURITIES THAT
ARE LOWER QUALITY ACCOUNT FOR 4.41% FOR HIGH INCOME,
1.16% FOR ASSET MANAGER, 0.69% FOR ASSET MANAGER: GROWTH, 0.32% FOR
BALANCED, 0.35% FOR EQUITY-INCOME, 0.00% FOR GROWTH
OPPORTUNITIES, AND 0.00% FOR OVERSEAS. FOR FOREIGN GOVERNMENT OBLIGATIONS
NOT INDIVIDUALLY RATED BY A NATIONALLY RECOGNIZED
STATISTICAL RATING ORGANIZATION, FMR ASSIGNS A RATING BASED ON THE RATING
OF THE SOVEREIGN CREDIT OF THE ISSUING GOVERNMENT.
RESTRICTIONS: The Investment Grade Bond Portfolio normally invests in
investment-grade securities, but reserves the right to invest up to 5% of
its assets in below investment grade securities. A security is considered
to be investment grade if it is rated investment grade by Moody's Investors
Service, Inc. Standard & Poor's, Duff & Phelps Credit Rating Co., or Fitch
Investors Service, L.P. or is unrated but judged to be of equivalent
quality by FMR. Unless otherwise noted, purchase of a debt security is
consistent with the debt quality policies of Asset Manager, Asset Manager:
Growth, Equity-Income, Contrafund, Growth and Overseas Portfolios if it is
rated at or above the stated level by Moody's or rated in the equivalent
categories by S&P, or is unrated but judged to be of equivalent quality by
FMR. Growth Portfolio and Contrafund Portfolio each currently limits
investment in lower than Baa-quality debt securities to 5% of its assets;
Equity-Income, Asset Manager: Growth, Overseas, Growth & Income, Balanced
and Growth Opportunities Portfolios each currently limits its investment in
lower than Baa-quality debt securities to less than 35% of its assets; and
Asset Manager Portfolio limits its investment in lower than Baa-quality
debt securities to less than 35% of its assets but currently intends to
limit its investment in lower than Baa-quality debt securities, as
determined by FMR, to 20% of its total assets.
MONEY MARKET SECURITIES are high-quality, short-term obligations issued by
the U.S. government, and other entities. These securities may carry fixed,
variable, or floating interest rates.
U.S. GOVERNMENT SECURITIES are high-quality debt instruments issued or
guaranteed by the U.S. Treasury or by an agency or instrumentality of the
U.S. Government. Not all U.S. Government securities are backed by the full
faith and credit of the United States. For example, U.S. Government
securities such as those issued by the Federal National Mortgage
Association are supported by the instrumentality's right to borrow money
from the U.S. Treasury under certain circumstances. Other U.S. Government
securities such as those issued by the Federal Farm Credit Banks Funding
Corporation are supported only by the credit of the entity that issued
them.
CREDIT AND LIQUIDITY SUPPORT. Issuers may employ various forms of credit
enhancement, including letters of credit, guarantees, puts and other demand
features, and insurance provided by entities such as banks and other
financial institutions. These arrangements expose a fund to the credit risk
of the entity providing the credit or liquidity support. Changes in the
credit quality of the provider could affect the value of the security and a
fund's share price.
EXPOSURE TO FOREIGN MARKETS. Foreign securities, foreign currencies, and
securities issued by U.S. entities with substantial foreign operations may
involve additional risks and considerations. These include risks relating
to political or economic conditions in foreign countries, fluctuations in
foreign currencies, withholding or other taxes, operational risks,
increased regulatory burdens, and the potentially less stringent investor
protection and disclosure standards of foreign markets. Additionally,
governmental issuers of foreign debt securities may be unwilling to repay
principal and interest when due, and may require that the conditions for
payment be renegotiated. All of these factors can make foreign investments,
especially those in developing countries, more volatile than U.S.
investments.
RESTRICTIONS: FMR limits the amount of each of High Income, Equity-Income,
Growth, Investment Grade Bond, Asset Manager and Index 500 Portfolios'
assets that may be invested in foreign securities to 50%. However, pursuant
to certain state insurance regulations, each fund, including Money Market,
Overseas, Asset Manager: Growth and Contrafund Portfolios, 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.
EXPOSURE TO EMERGING MARKETS. Investing in emerging markets involves risks
in addition to those generally associated with foreign investing. The
extent of economic development, political instability, and market depth
varies widely in comparison to more developed markets. Emerging market
economies may be subject to greater social, economic, and political
uncertainties or may be based on only a few industries. All of these
factors can make emerging market securities more volatile and less liquid
than domestic securities.
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.
ASSET-BACKED SECURITIES include interests in pools of the following:
purchase contracts, financing leases, or sales agreements entered into by
municipalities; lower-rated debt securities; or consumer loans. The value
of these securities may be significantly affected by changes in interest
rates, the market's perception of issuers, and the creditworthiness of the
parties involved. Certain asset-backed securities rely on continued
payments by a municipality, and may also be subject to prepayment risk.
MORTGAGE SECURITIES are interests in pools of commercial or residential
mortgages, and may include complex instruments such as collateralized
mortgage obligations and stripped mortgage-backed securities. Mortgage
securities may be issued by agencies or instrumentalities of the U.S.
government or by private entities.
The price of a mortgage security may be significantly affected by changes
in interest rates. Some mortgage securities may have a structure that makes
their reaction to interest rates and other factors difficult to predict,
making their price highly volatile. Also, mortgage securities, especially
stripped mortgage-backed securities, are subject to prepayment risk.
Securities subject to prepayment risk generally offer less potential for
gains during a declining interest rate environment, and similar or greater
potential for loss in a rising interest rate environment.
VARIABLE AND FLOATING RATE SECURITIES have interest rates that are
periodically adjusted either at specific intervals or whenever a benchmark
rate changes. These interest rate adjustments are designed to help
stabilize the security's price.
STRIPPED SECURITIES are the separate income or principal components of a
debt security. Their risks are similar to those of other debt securities,
although they may be more volatile, and the value of certain types of
stripped securities may move in the same direction as interest rates.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund buys a security at
one price and simultaneously agrees to sell it back at a higher price.
Delays or losses could result if the other party to the agreement defaults
or becomes insolvent.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a fund
temporarily transfers possession of a portfolio instrument to another party
in return for cash. This could increase the risk of fluctuation in the
fund's yield or in the market value of its assets.
PUT FEATURES entitle the holder to put (sell back) a security to the issuer
or another party. In exchange for this benefit, a fund may accept a lower
interest rate. The credit quality of the investment may be affected by the
creditworthiness of the put provider. Demand features and standby
commitments are types of put features.
REAL ESTATE-RELATED INSTRUMENTS include real estate investment trusts,
commercial and residential mortgage-backed securities, and real estate
financings. Real estate-related instruments are sensitive to factors such
as changes in real estate values and property taxes, interest rates, cash
flow of underlying real estate assets, overbuilding, and the management
skill and creditworthiness of the issuer. Real estate-related instruments
may also be affected by tax and regulatory requirements, such as those
relating to the environment.
ADJUSTING INVESTMENT EXPOSURE. A fund can use various techniques to
increase or decrease its exposure to changing security prices, interest
rates, currency exchange rates, commodity prices, or other factors that
affect security values. These techniques may involve derivative
transactions such as buying and selling options and futures contracts,
entering into currency exchange contracts or swap agreements, purchasing
indexed securities, and selling securities short.
FMR can use these practices to adjust the risk and return characteristics
of a fund's portfolio of investments and for Index 500, in its effort to
achieve the fund's objective of tracking the S&P 500. If FMR judges market
conditions incorrectly or employs a strategy that does not correlate well
with a fund's investments, these techniques could result in a loss,
regardless of whether the intent was to reduce risk or increase return.
These techniques may increase the volatility of a fund and may involve a
small investment of cash relative to the magnitude of the risk assumed. In
addition, these techniques could result in a loss if the counterparty to
the transaction does not perform as promised.
DIRECT DEBT. Loans and other direct debt instruments are interests in
amounts owed to another party by a company, government, or other borrower.
They have additional risks beyond conventional debt securities because they
may entail less legal protection for a fund, or there may be a requirement
that the fund supply additional cash to a borrower on demand.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined by
FMR, under the supervision of the Board of Trustees, to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price.
The sale of some illiquid securities and some other securities may be
subject to legal restrictions. Difficulty in selling securities may result
in a loss or may be costly to a fund.
RESTRICTIONS. Money Market, Investment Grade Bond, Asset Manager, Asset
Manager: Growth, Balanced, Equity-Income, Index 500, Growth & Income,
Growth Opportunities, Contrafund, and Growth Portfolios each may not
purchase a security if, as a result, more than 10% of its assets would be
invested in illiquid securities. High Income and Overseas Portfolios each
may not purchase a security if, as a result, more than 15% of its assets
would be invested in illiquid securities.
WARRANTS are instruments which entitle the holder to buy underlying equity
securities at a specific price for a specific period of time. A warrant
tends to be more volatile than its underlying securities and ceases to have
value if it is not exercised prior to its expiration date. In addition,
changes in the value of a warrant do not necessarily correspond to changes
in the value of its underlying securities.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS are trading practices in
which payment and delivery for the securities take place at a future date.
The market value of a security could change during this period.
FINANCIAL SERVICES INDUSTRY. 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. If a fund invests substantially in this
industry, its performance may be affected by conditions affecting the
industry.
RESTRICTIONS. Money Market may invest more than 25% of its total assets in
the financial services industry.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested
in any one issuer or, on a broader scale, in any one industry.
RESTRICTIONS: Money Market may not invest more than 5% of its total assets
in any one issuer, except that the fund may invest up to 10% of its total
assets in the highest quality securities of a single issuer for up to three
business days. These limitations do not apply to U.S. government
securities.
With respect to 75% of its total assets, each of Investment Grade Bond,
High Income, Asset Manager, Asset Manager: Growth, Balanced, Equity-Income,
Index 500, Growth & Income, Growth Opportunities, Contrafund, Growth, and
Overseas, Portfolios may not purchase a security if, as a result, more than
5% would be invested in the securities of any issuer. Each fund (except
Money Market) also may not invest more than 25% of its total assets in any
one industry. These limitations do not apply to U.S. government securities.
BORROWING. Each fund may borrow from banks or from other funds advised by
FMR, or through reverse repurchase agreements. If a fund borrows money, its
share price may be subject to greater fluctuation until the borrowing is
paid off. If a fund makes additional investments while borrowings are
outstanding, this may be considered a form of leverage.
RESTRICTIONS: Each fund, other than Money Market, may borrow only for
temporary or emergency purposes, but not in an amount exceeding 25% of its
assets. Money Market may borrow only for temporary or emergency purposes,
or engage in reverse repurchase agreements, but not in an amount exceeding
25% of its assets for temporary or emergency purposes and 10% of its assets
for general purposes (reverse repurchase agreements).
LENDING securities to broker-dealers and institutions, including Fidelity
Brokerage Services, Inc. (FBSI), an affiliate of FMR, is a means of earning
income. This practice could result in a loss or a delay in recovering a
fund's securities. A fund may also lend money to other funds advised by
FMR.
RESTRICTIONS: Loans, in the aggregate, may not exceed 331/3% of a fund's
total assets.
OTHER INSTRUMENTS may include depositary receipts, rights, and securities
of closed-end investment companies.
CASH MANAGEMENT. The funds may invest in money market securities, in
repurchase agreements, and in a money market fund available only to funds
and accounts managed by FMR or its affiliates, whose goal is to seek a high
level of current income while maintaining a stable $1.00 share price. A
major change in interest rates or a default on the money market fund's
investment could cause its share price to change.
RESTRICTIONS: Money Market portfolio does not currently intend to invest in
a money market fund.
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.
FUNDAMENTAL INVESTMENT POLICIES AND
RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages are
fundamental, that is, subject to change only by shareholder approval. The
following paragraphs restate all those that are fundamental. All policies
stated throughout this prospectus, other than those identified in the
following paragraphs, can be changed without shareholder approval.
MONEY MARKET PORTFOLIO seeks as high a level of current income as is
consistent with preservation of capital and liquidity by investing in money
market instruments.
INVESTMENT GRADE BOND PORTFOLIO seeks as high a level of current income as
is consistent with the preservation of capital.
HIGH INCOME PORTFOLIO seeks a high level of current income by investing
primarily in high yielding, fixed-income securities, while also considering
growth of capital.
ASSET MANAGER PORTFOLIO seeks to obtain high total return with reduced risk
over the long-term by allocating its assets among stocks, bonds, and
short-term instruments.
ASSET MANAGER: GROWTH PORTFOLIO seeks to maximize total return by
allocating its assets among stocks, bonds, short-term instruments, and
other investments.
BALANCED PORTFOLIO seeks high total return through a combination of current
income and capital appreciation.
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 Composite Index of 500 Stocks (S&P 500).
INDEX 500 PORTFOLIO seeks investment results that correspond to the total
return of common stocks publicly traded in the United States, as
represented by the S&P 500.
GROWTH & INCOME PORTFOLIO seeks high total return through a combination of
current income and capital appreciation.
GROWTH OPPORTUNITIES PORTFOLIO seeks to provide capital growth through
investing in common stocks and securities convertible into common stocks.
CONTRAFUND PORTFOLIO seeks long-term capital appreciation.
GROWTH PORTFOLIO seeks to achieve capital appreciation.
OVERSEAS PORTFOLIO seeks long-term growth of capital primarily through
investments in foreign securities.
EACH FUND (excluding Money Market), with respect to 75% of total assets,
may not invest more than 5% of its total assets in any one issuer and may
not own more than 10% of the outstanding voting securities of a single
issuer. Each fund may not invest more than 25% of its total assets in any
one industry, except Money Market will invest more than 25% of its total
assets in the financial services industry.
Loans, in the aggregate, may not exceed 33% of a fund's total assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, the funds pay fees related to their daily
operations. Expenses paid out of a fund's assets are reflected in its share
price.
Each fund pays a MANAGEMENT FEE to FMR for managing its investments and
business affairs. FMR in turn, on behalf of Money Market, High Income,
Asset Manager, Asset Manager: Growth, Balanced, Growth Opportunities,
Contrafund and Overseas Portfolios, pays fees to affiliates who provide
assistance with these services. Each fund also pays OTHER EXPENSES, which
are explained on pag e .
FMR may, from time to time, agree to reimburse a fund for management fees
and other expenses above a specified limit. FMR retains the ability to be
repaid by a fund if expenses fall below the specified limit prior to the
end of the fiscal year. Reimbursement arrangements, which may be terminated
at any time without notice, can decrease a fund's expenses and boost its
performance.
MANAGEMENT FEE
EACH FUND'S MANAGEMENT FEE is calculated and paid to FMR every month. The
fee for each fund (excluding Money Market and Index 500 Portfolios) is
calculated by adding a GROUP FEE rate to an INDIVIDUAL FUND FEE rate, and
multiplying the result by the fund's average net assets.
MONEY MARKET'S management fee is calculated by multiplying the sum of two
components by the fund's average net assets and adding an income-based fee.
One component, the group fee rate, is discussed below. The other component,
the individual fund fee rate, is 0.03%. The income-based fee is 6% of the
fund's gross income in excess of a 5% yield and cannot rise above 0.24% of
the fund's average net assets.
INDEX 500'S management fee is calculated and paid to FMR every month. The
fund pays the fee at the annual rate of 0.28% of its average net assets.
THE GROUP FEE RATE is based on the average net assets of all the mutual
funds advised by FMR. This rate cannot rise above 0.5200% for
Equity-Income, Growth, Overseas, Asset Manager, Asset Manager: Growth,
Contrafund, Growth Opportunities, Growth & Income and Balanced Portfolios
and 0.3700% for Money Market, High Income, and Investment Grade Bond
Portfolios, and it drops as total assets under management increase.
For December 31, 1996, the group fee rate was 0.3021% for Asset Manager,
Asset Manager: Growth, Balanced, Equity-Income, Growth & Income, Growth
Opportunities, Contrafund, Growth, and Overseas Portfolio and 0.1425% for
Money Market, Investment Grade Bond, and High Income Portfolios.
The funds' individual fund fee rates and total management fees for fiscal
year 1996 are outlined in the following chart:
Fund Individ Manage
ual ment
Fund Fee
Fee
Rate

Money Market Portfolio 0.03 0.21
% %

Investment Grade Bond Portfolio 0.30 0.45
% %

High Income Portfolio 0.45 0.59
% %

Asset Manager Portfolio 0. 25 0.64
% A %

Asset Manager: Growth Portfolio 0. 3 0 0.65
% B %

Balanced Portfolio 0.15 0.48
%C %

Equity-Income Portfolio 0.20 0.51
% %

Growth & Income Portfolio 0.20 0.50
% % D

Growth Opportunities Portfolio 0.30 0.61
% %

Contrafund Portfolio 0.30 0.61
% %

Growth Portfolio 0.30 0.61
% %

Overseas Portfolio 0.45 0.76
% %

A EFFECTIVE AUGUST 1, 1996, FMR VOLUNTARILY AGREED TO REDUCE THE FUND'S
INDIVIDUAL FUND FEE RATE FROM 0.40% TO 0.25%. IF THIS REDUCTION WERE NOT IN
EFFECT, THE MANAGEMENT FEE WOULD HAVE BEEN 0.70%
B EFFECTIVE AUGUST 1, 1996, FMR VOLUNTARILY AGREED TO REDUCE THE FUND'S
INDIVIDUAL FUND FEE RATE FROM 0.40% TO 0.30%. IF THIS REDUCTION WERE NOT IN
EFFECT, THE MANAGEMENT FEE WOULD HAVE BEEN 0.69%
C EFFECTIVE AUGUST 1, 1996, FMR VOLUNTARILY AGREED TO REDUCE THE FUND'S
INDIVIDUAL FUND FEE RATE FROM 0.20% TO 0.15%. IF THIS REDUCTION WERE NOT IN
EFFECT, THE MANAGEMENT FEE WOULD HAVE BEEN 0.50%
D ESTIMATED.
SUB-ADVISORY AGREEMENTS. On behalf of High Income, Asset Manager, Asset
Manager: Growth, Contrafund, Growth & Income, Balanced and Growth
Opportunities Portfolios, FMR has sub-advisory agreements with two
affiliates, FMR U.K. and FMR Far East. On behalf of Overseas Portfolio, FMR
has sub-advisory agreements with three affiliates: FMR U.K., FMR Far East,
and FIIA. FIIA in turn has a sub-advisory agreement with FIIAL U.K. FMR
U.K. focuses on issuers based in Europe. FMR Far East focuses on issuers
based in Asia and the Pacific Basin. FIIA focuses on issuers based in Hong
Kong, Australia, New Zealand, and Southeast Asia (other than Japan). FIIAL
U.K. focuses on issuers based in the United Kingdom and Europe.
These sub-advisers are compensated for providing FMR with investment
research and advice on issuers based outside the United States. FMR pays
FMR U.K. and FMR Far East fees equal to 110% and 105%, respectively, of the
costs of providing these services. FMR pays FIIA a fee equal to 30%
of its management fee rate associated with investments for which the
sub-adviser provided investment advice. FIIA pays FIIAL U.K. a fee equal to
110% of the cost of providing these services.
On behalf of High Income, Asset Manager: Growth, Balanced, Contrafund and
Overseas Portfolios, the sub-advisers may also provide investment
management services. In return, FMR pays FMR U.K., FMR Far East, and FIIA a
fee equal to 50% of its management fee rate with respect to the
fund's investments that the sub-adviser manages on a discretionary basis.
FIIA pays FIIAL U.K. a fee equal to 110% of the cost of providing these
services.
The following chart details the fees paid by FMR to FMR U.K. and FMR Far
East, on behalf of the funds (as a percentage of a fund's average net
assets) for fiscal 1996:
Fund Fee to Fee to
FMR FMR
U.K. Far
East

Asset Manager Portfolio .009 .009
% %

Asset Manager: Growth Portfolio .007 .007
% %

Balanced Portfolio .006 .006
% %

Growth Opportunities Portfolio .006 .005
% %

Contrafund Portfolio .005 .00 5
% %

Overseas Portfolio .060 .058
% %

FMR Texas is the Money Market Portfolio's sub-adviser and has primary
responsibility for managing investments. FMR is responsible for providing
other management services. FMR pays FMR Texas 50% of its management fee
(before any expense reimbursement) for FMR Texas' service. FMR paid FMR
Texas a fee equal to .10% of Money Market's average net assets for
the fiscal year ended December 31, 1996.
OTHER EXPENSES
While the management fee is a significant component of each fund's annual
operating costs, the funds have other expenses as well.
FIIOC, 82 Devonshire Street, Boston, Massachusetts, performs transfer
agency, dividend disbursing and shareholder servicing functions for each
fund. Fidelity Service Co. (FSC), 82 Devonshire Street, Boston,
Massachusetts, calculates the net asset value (NAV) and dividends, and
maintains the general accounting records for each fund's and administers
the securities lending program for each fund (except for Money Market).
The following chart details the fees paid to FIIOC and FSC and each fund's
total expenses (as a percentage of the fund's average net assets) for
fiscal 1996:
Fund Fee Fee Total
to to Expen
FIIO FS ses
C C

Money Market Portfolio .07 .01 .30
% % %

Investment Grade Bond
.06 .04 .58
Portfolio % % %

High Income Portfolio .05 .05 .71
% % %

Asset Manager Portfolio .06 .02 .74
% % %

Asset Manager: Growth
.07 .06 .87
Portfolio % % %

Balanced Portfolio .06 .08 .72
% % %

Equity-Income Portfolio .06 .01 .58
% % %

Index 500 Portfolio .08 .06 .28
% % %

Growth Opportunities Portfolio .07 .06 .77
% % %

Contrafund Portfolio .07 .04 .74
% % %

Growth Portfolio .06 .02 .69
% % %

Overseas Portfolio .06 .05 .93
% % %

The figures are based on historical expenses, and are calculated as a
percentage of the funds' average net assets. A portion of the brokerage
commissions that certain of the funds pay is used to reduce fund expenses.
In addition, certain funds have entered into arrangements with their
custodian and transfer agent whereby interest earned on, uninvested cash
balances is used to reduce custodian and transfer agent expenses. Including
these reductions, the total operating expenses presented in the chart would
have been:
Fund Total
Expenses

Asset Manager Portfolio 0.73%

Asset Manager: Growth Portfolio 0.85%

Balanced Portfolio 0.71%

Equity-Income Portfolio 0.56%

Growth Opportunities Portfolio 0.76%

Contrafund Portfolio 0.71%

Growth Portfolio 0.67%

Overseas Portfolio 0.92%

FMR has voluntarily agreed to temporarily limit the fund's operating
expenses (as a percentage of each fund's average net assets) to 0.28% for
Index 500, 0.80% for Investment Grade Bond, 1.00% for Asset Manager:
Growth, High Income, Contrafund, and Growth & Income, 1.25% for Asset
Manager, and 1.50% for Equity-Income, Growth, Overseas, Balanced and Growth
Opportunities, respectively. If these agreements were not in effect, total
operating expenses would have been .43% for Index 500. Expenses eligible
for reimbursement do not include interest, taxes, brokerage commissions or
extraordinary expenses.
Each fund also pays other expenses, such as legal, audit, and custodian
fees; proxy solicitation costs; and the compensation of trustees who are
not affiliated with Fidelity.
Each fund's (except Money Market's) portfolio turnover rate for fiscal 1996
is outlined in the following chart. These rates vary from year to year.
High turnover rates increase transaction costs. FMR considers these effects
when evaluating the anticipated benefits of short-term investing.
Fund Portfolio
Turnover
Rate

Investment Grade Bond Portfolio 81%

High Income Portfolio 123%

Asset Manager Portfolio 168%

Asset Manager: Growth Portfolio 120%

Balanced Portfolio 163%

Equity-Income Portfolio 186%

Index 500 Portfolio 14%

Growth & Income <200
%A

Growth Opportunities Portfolio 28%

Contrafund Portfolio 178%

Growth Portfolio 81%

Overseas Portfolio 92%

A ESTIMATED 1997 TURNOVER RATE.
Each fund has adopted a Distribution and Service Plan. Each plan recognizes
that FMR may use its resources, including management fees, to pay expenses
associated with the sale of fund shares. This may include payments to third
parties, such as banks or broker-dealers, that provide shareholder support
services or engage in the sale of a fund's shares.
PERFORMANCE
Each fund's total return and yield may be quoted in advertising in
accordance with current law and interpretations thereof. Performance is
based on historical results and is not intended to indicate future
performance. For additional performance information, contact your insurance
company for a free annual report.
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment in a fund over a given
period, assuming reinvestment of any dividends and capital gains. A
CUMULATIVE TOTAL RETURN reflects actual performance over a stated period of
time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that,
if achieved annually, would have produced the same cumulative total return
if performance had been constant over the entire period. Average annual
total returns smooth out variations in performance; they are not the same
as actual year-by-year results.
YIELD refers to the income generated by an investment in a fund over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all stock and bond
funds. Because this differs from other accounting methods, the quoted yield
may not equal the income actually paid to policyholders. This difference
may be significant for funds whose investments are denominated in foreign
securities. When a yield assumes that income earned is reinvested, it is
called an EFFECTIVE YIELD.
Seven-day yield illustrates the income earned by an investment in a money
market fund over a recent seven-day period. Since money market funds
maintain a stable $1.00 share price, current seven-day yields are the most
common illustration of money market fund performance.
In calculating yield, a fund may from time to time use a security's coupon
rate instead of its yield to maturity in order to reflect the risk premium
on that security. This practice will have the effect of reducing the fund's
yield.
A fund may quote its adjusted NAV, including all distributions paid. This
value may be averaged over specified periods and may be used to calculate a
fund's moving average.
The funds' recent strategies, performance, and holdings are detailed twice
a year in financial reports, which are sent to all shareholders.
TOTAL RETURNS AND YIELDS QUOTED FOR A FUND INCLUDE THE FUND'S EXPENSES, BUT
MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO ANY PARTICULAR
INSURANCE PRODUCT. BECAUSE SHARES OF THE FUNDS MAY BE PURCHASED ONLY
THROUGH VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE CONTRACTS, 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. You should bear in mind the effect of these charges
when comparing a fund's performance to that of other mutual funds.
ACCOUNT POLICIES

DISTRIBUTIONS AND TAXES
For a discussion of the tax status of your variable insurance 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 and 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, to a 10% penalty tax on withdrawals before age 59.
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, if any, for each year. Dividends from Money Market
Portfolio are declared daily and paid monthly. High Income, Equity-Income,
Investment Grade Bond, Growth, Overseas, Asset Manager, Asset Manager:
Growth, Index 500, and Contrafund, Growth & Income, Balanced and Growth
Opportunities Portfolios will distribute any dividends at least annually.
Normally, net realized capital gains, if any, are distributed each year for
a fund. Such income and capital gain distributions from a fund are
automatically reinvested in additional shares of the fund. Each fund
(except Money Market) makes dividend and capital gain distributions on a
per-share basis. After each distribution from a fund, 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.
TRANSACTION DETAILS
THE FUNDS ARE OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE)
is open. Each fund's NAV is calculated as of the close of business of the
NYSE, normally 4 p.m. Eastern time.
EACH FUND'S NAV is the value of a single share. The NAV is computed by
adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the number of
shares outstanding.
Money Market's portfolio securities and each of the other fund's
investments with remaining maturities of 60 days or less are valued on the
basis of amortized cost. This method minimizes the effect of changes in a
security's market value and helps Money Market Portfolio maintain a stable
$1.00 share price.
Other than Money Market, each fund's assets are valued primarily on the
basis of market quotations. Foreign securities are valued on the basis of
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. Short-term securities with remaining maturities of sixty days or
less for which quotations are not readily available are valued on the basis
of amortized cost. This method minimizes the effect of changes in a
security's market value. In addition, if quotations are not readily
available or if the values have been materially affected by events
occurring after the closing of a foreign market, assets may be valued by a
method that the Board of Trustees believes accurately reflects fair value.
EACH FUND'S OFFERING PRICE (price to buy one share) and REDEMPTION PRICE
(price to sell one share) are its NAV.
EACH FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a period
of time. Each fund also reserves the right to reject any specific purchase
order. Purchase orders may be refused if, in FMR's opinion, they would
disrupt management of a fund.
INVESTMENTS AND REDEMPTIONS. Investments may be made only by separate
accounts established and maintained by insurance companies for the purpose
of funding variable annuity and variable life insurance contracts. Please
refer to the prospectus of your insurance company's separate account for
information on how to invest in and redeem from a fund.
Each participating insurance company receives orders from its variable
contract owners to purchase or redeem shares of the funds each business
day. That night, all orders received by that insurance company on that
business day are aggregated, and the insurance company places a net
purchase or redemption order for shares of one or more funds the morning of
the next business day. These orders are generally executed at the NAV that
was computed at the close of the previous business day in order to provide
a match between the variable contract owners' orders to the insurance
companies and the insurance companies' orders to a fund. In some cases, an
insurance company's order for fund shares may be executed at the NAV next
computed after the order is actually transmitted to 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
NYSE is closed (other than weekends or holidays), when trading on the NYSE
is restricted, or as permitted by the SEC.
APPENDIX

DESCRIPTION OF MOODY'S INVESTORS SERVICE COMMERCIAL PAPER RATINGS:
Issuers rated PRIME-1 (or related supporting 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 earning coverage of fixed financial charges and with high
internal cash generation.
Well established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers rated PRIME-2 (or related supporting institutions) 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. Earning 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.
Issuers rated PRIME-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes
in the level of debt protection measurements and the requirement for
relatively high financial leverage. Adequate alternate liquidity is
maintained.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS:
A - Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with
the numbers 1, 2, and 3 to indicate the relative degree of safety.
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.
A-3 - This designation indicates that the capacity for timely payment is
satisfactory. These issues are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations carrying the
higher designations.
B - Issues rated B are regarded as having only adequate capacity for timely
payment. However, such capacity may be damaged by changing or short-term
adversities.
C - This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D - Debt rated D is in payment default. The D rating category is used when
interest or principal payments are not made on the date due even if the
applicable period has not expired, unless S&P believes that such payments
will be made during such grace period.
DESCRIPTION OF MOODY'S INVESTORS SERVICE CORPORATE BOND RATINGS:
AAA Bonds which are 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 edged." 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 which are 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 the Aaa securities.
A - Bonds which are 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 which are 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 which are 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 which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
CAA - Bonds which are 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 which are 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 which are rated C are the lowest-rated class of bonds and issues
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 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 than debt in higher rated
categories.
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.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB- rating.
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 or 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. The
CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
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 B may be modified by the addition of a plus or minus
to show relative standing within the major rating categories.
(INDEX 500 PORTFOLIO) S&P does not guarantee the accuracy and/or the
completeness of the S&P 500 Index 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 licensee, owners of the product, or any other person or entity
from the use of the S&P 500 Index or any data included therein. S&P makes
no express or implied warranties, and expressly disclaims all warranties or
merchantability or fitness for a particular purpose or use with respect to
the S&P 500 Index or any data included therein. Without limiting any of the
foregoing, in no event shall S&P have any liability for any special,
punitive, indirect, or consequential damages (including lost profits), even
if notified of the possibility of such damages.
Index 500 Portfolio is not sponsored, endorsed, sold or promoted by
Standard & Poor's ("S&P"). S&P makes no representation or warranty, express
or implied, to participants of the fund or any member of the public
regarding the advisability of investing in securities generally or in the
fund particularly or the ability of the S&P 500 Index to track general
stock market performance. S&P's only relationship to the Licensee is the
licensing of certain trademarks and trade names of S&P and of the S&P 500
Index which is determined, composed and calculated by S&P without regard to
the Licensee or the fund. S&P has no obligation to take the needs of the
Licensee or the participants of the fund into consideration in determining,
composing or calculating the S&P 500 Index. S&P is not responsible for and
has not participated in the determination of the timing of, prices at, or
quantities of the fund to be issued or in the determination or calculation
of the equation by which the fund is to be converted into cash. S&P has no
obligation or liability in connection with the administration, marketing or
trading of the fund.
"Standard & Poor's(registered trademark)," "S&P(registered trademark),"
"S&P 500(registered trademark)," "Standard & Poor's 500," and "500" are
trademarks of McGraw-Hill, Inc. and have been licensed for use by Fidelity
Distributors Corporation.

This prospectus is printed on recycled paper using soy-based inks.

VARIABLE INSURANCE PRODUCTS FUND:
MONEY MARKET PORTFOLIO, HIGH INCOME PORTFOLIO,
EQUITY-INCOME PORTFOLIO, GROWTH PORTFOLIO, AND OVERSEAS PORTFOLIO
VARIABLE INSURANCE PRODUCTS FUND II:
INVESTMENT GRADE BOND PORTFOLIO, ASSET MANAGER PORTFOLIO,
INDEX 500 PORTFOLIO, CONTRAFUND PORTFOLIO, AND ASSET MANAGER: GROWTH
PORTFOLIO
VARIABLE INSURANCE PRODUCTS FUND III:
BALANCED PORTFOLIO, GROWTH & INCOME PORTFOLIO, GROWTH OPPORTUNITIES
PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1997
This Statement of Additional Information (SAI) is not a prospectus but
should be read in conjunction with the funds' current Prospectus (dated
April 30, 1997). Please retain this document for future reference. The
fund's Annual Reports are separate documents supplied with this SAI.
To obtain an additional copy of the Prospectus or an Annual Report, please
call your insurance company or Fidelity Distributors Corporation (FDC) at
1-800-544-2442.
TABLE OF CONTENTS PAGE

Investment Policies and Limitations 3

Portfolio Transactions 17

Valuation of Portfolio Securities 20

Performance 21

Additional Purchase and Redemption Information 33

Distributions and Taxes 34

FMR 34

Trustees and Officers 34

Management Contracts 39

Distribution and Service Plans 47

Contracts with FMR Affiliates 48

Description of the Trusts 19

Financial Statements 50

Appendix 50

VIP/VIPII/VIPIII-ptb-0497
INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
INVESTMENT SUB-ADVISERS
Money Market Portfolio:
FMR Texas Inc. (FMR Texas)
High Income, Asset Manager, Contrafund, Balanced, Growth
Opportunities, Growth & Income and Asset Manager: Growth Portfolios:
Fidelity Management & Research (U.K.) Inc. (FMR U.K.)
Fidelity Management & Research (Far East) Inc. (FMR Far East)
Overseas Portfolio:
FMR U.K.
FMR Far East
Fidelity International Investment Advisors (FIIA)
Fidelity International Investment Advisors (U.K.) Limited (FIIAL U.K.)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
Fidelity Investments Institutional Operations Company, Inc. (FIIOC)
CUSTODIANS
Money Market, High Income and Investment Grade Bond Portfolios:
The Bank of New York
Equity-Income, Overseas, Asset Manager: Growth, Asset Manager
Balanced and Growth & Income Portfolios:
The Chase Manhattan Bank, N.A.
Growth, Growth Opportunities, Contrafund and Index 500 Portfolios:
Brown Brothers Harriman & Co.
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 listed
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 MONEY MARKET PORTFOLIO'S FUNDAMENTAL INVESTMENT
LIMITATIONS SET FORTH IN THEIR ENTIRETY. 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% 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% 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%
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, AS REGULATORY AGENCIES PERMIT, WITHOUT
SHAREHOLDER APPROVAL.
(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 borrow for any general purpose in
excess of 10% of net assets. 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.
(ix) The fund does not currently intend to invest in oil, gas, or other
mineral exploration or development programs or leases.
QUALITY AND MATURITY. Pursuant to procedures adopted by the Board of
Trustees, the funds may purchase only high-quality securities that FMR
believes present minimal credit risks. To be considered high-quality, a
security must be 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 are those deemed to be in the highest
rating category (e.g., Standard & Poor's A-1), and second tier securities
are those deemed to be in the second highest rating category (e.g.,
Standard & Poor's A-2). Split-rated securities may be determined to be
either first tier or second tier based on applicable regulations.
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.
The fund currently intends to limit its investments to securities with
remaining maturities of 397 days or less, and to maintain a dollar-weighted
average maturity of 90 days or less. When determining the maturity of a
security, the fund may look to an interest rate reset or demand feature.
DOMESTIC AND FOREIGN ISSUERS. 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 United
States, 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, 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 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 governmental
regulation. Payment of interest and principal on 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, evidence of
ownership of portfolio securities may be held outside of the United States
and a 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 U.S. branches do not apply to foreign
branches of U.S. 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 involve certain additional risks. These
risks may include future unfavorable political and economic developments,
withholding taxes, seizures of foreign deposits, currency controls,
interest limitations, or other governmental restrictions that might affect
payment of principal or interest, or the ability to honor a credit
commitment. Additionally, there may be less public information available
about foreign entities. 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, GROWTH & INCOME, BALANCED,
GROWTH OPPORTUNITIES, INVESTMENT GRADE BOND, ASSET MANAGER, INDEX 500,
CONTRAFUND, AND ASSET MANAGER: GROWTH PORTFOLIOS
THE FOLLOWING ARE HIGH INCOME, EQUITY-INCOME, GROWTH, OVERSEAS, GROWTH &
INCOME, BALANCED, GROWTH OPPORTUNITIES, INVESTMENT GRADE BOND, ASSET
MANAGER, INDEX 500, CONTRAFUND, AND ASSET MANAGER: GROWTH PORTFOLIOS'
FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH IN THEIR ENTIRETY. 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 , Overseas, Balanced, and
Growth Opportunities Portfolio's) 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% of its total
assets (including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that come to exceed 33% 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% limitation;
(for Investment Grade Bond, Asset Manager, Index 500, Contrafund, Asset
Manager: Growth, and Growth & Income Portfolio's) 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% 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% 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%
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.
(9) (for Balanced and Growth Opportunities Portfolio's) Each fund may,
notwithstanding any other fundamental investment policy or limitation,
invest all of its assets in the securities of a single open-end management
investment company with substantially the same fundamental investment
objective, policies, and limitations as the fund.
THE FOLLOWING INVESTMENT LIMITATIONS FOR HIGH INCOME, EQUITY-INCOME,
GROWTH, OVERSEAS, GROWTH & INCOME, BALANCED, GROWTH OPPORTUNITIES,
INVESTMENT GRADE BOND, ASSET MANAGER, INDEX 500, CONTRAFUND, AND ASSET
MANAGER: GROWTH PORTFOLIOS ARE NOT FUNDAMENTAL AND MAY BE CHANGED, AS
REGULATORY AGENCIES PERMIT, WITHOUT SHAREHOLDER APPROVAL.
(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, Index 500, Contrafund, Asset Manager: Growth, Balanced,
Growth Opportunities, and Growth & Income 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, Index 500,
Contrafund and Asset Manager: Growth , Balanced, Growth Opportunities, and
Growth & Income 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.
(vii) Each fund does not currently intend to invest in oil, gas, or other
mineral exploration or development programs or leases.
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 sections entitled "Short Sales" and
"Short Sales Against The Box".
For the funds' policies on foreign investments, see the section entitled
"Exposure to Foreign Markets."
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.
EACH FUND'S INVESTMENTS MUST BE CONSISTENT WITH ITS INVESTMENT OBJECTIVE
AND POLICIES. ACCORDINGLY, NOT ALL OF THE SECURITY TYPES AND INVESTMENT
TECHNIQUES DISCUSSED BELOW ARE ELIGIBLE INVESTMENTS FOR EACH OF THE FUNDS.
ASSET ALLOCATION (ASSET MANAGER AND ASSET MANAGER: GROWTH). The
short-term/money market class includes all types of domestic and foreign
securities and short-term and money market instruments with remaining
maturities of 12 months or less or comparable interest rate sensitivity.
FMR will seek to maximize total return with respect to Asset Manager and
Asset Manager: Growth. Short-term and money market 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.
The bond class includes all varieties of domestic and foreign fixed-income
securities with maturities greater than 12 months or comparable interest
rate sensitivity. FMR will seek to maximize total return within the bond
class by adjusting a fund's investments in securities with different credit
qualities, maturities, and coupon or dividend rates, and by seeking to take
advantage of 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. As with the
short-term/money market class, these securities may be denominated in U.S.
dollars or foreign currency. Asset Manager and Asset Manager: Growth may
also invest in lower quality, high-yielding debt securities (commonly
referred to as "junk bonds"). Asset Manager and Asset Manager: Growth
currently intend to limit their investments in these securities to less
than 35% of their assets.
The stock class includes domestic and foreign equity securities of all
types (other than adjustable rate preferred stocks which are included in
the bond class). FMR seeks to maximize total return within this asset class
by actively allocating assets to industry sectors expected to benefit from
major trends, and to individual stocks that FMR believes to have superior
investment potential. When FMR selects equity securities, it considers both
growth and anticipated dividend income. Securities in the stock class may
include common stocks, fixed-rate preferred stocks (including convertible
preferred stocks), warrants, rights, depositary receipts, securities of
closed-end investment companies, and other equity securities issued by
companies of any size, located anywhere in the world.
In making asset allocation decisions, FMR will evaluate projections of
risk, market conditions, economic conditions, volatility, yields, and
returns. FMR's management will use 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 analyses provided by rating services.
INVESTMENT DETAILS FOR INDEX 500 PORTFOLIO. 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 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.
The ability of the fund to meet its objective depends in part on its cash
flow because investments and redemptions by shareholders generally will
require the fund to purchase or sell portfolio securities. A low level of
shareholder transactions will keep cash flow manageable and enhance the
fund's ability to track the S&P 500. FMR will make investment changes to
accommodate cash flow in an attempt to maintain the similarity of the
fund's portfolio to the composition of the S&P 500. In addition, the fund
will maintain a reasonable position in high-quality, short-term debt
securities and money market instruments to meet redemption requests.
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 62 largest stocks currently comprised approximately 50% of the index's
value. 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 and Poor's Corporation may
change the index's composition from time to time.
The performance of the S&P 500 is a hypothetical number which does not take
into account brokerage commissions and other costs of investing, which the
fund bears.
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.
ASSET-BACKED SECURITIES. Asset-backed securities represent interests in
pools of consumer loans (generally unrelated to mortgage loans) and most
often are structured as pass-through securities. Interest and principal
payments ultimately depend upon payment of the underlying loans by
individuals, although the securities may be supported by letters of credit
or other credit enhancements. The value of asset-backed securities may also
depend on the creditworthiness of the servicing agent for the loan pool,
the originator of the loans, or the financial institution providing the
credit enhancement.
CLOSED-END INVESTMENT COMPANIES. A fund may purchase the shares of
closed-end investment companies to facilitate investment in certain
countries. Shares of closed-end investment companies may trade at a premium
or a discount to their net asset value.
DELAYED-DELIVERY TRANSACTIONS. A fund may buy and sell securities on a
delayed-delivery or when-issued basis. These transactions involve a
commitment by a fund to purchase or sell specific securities at a
predetermined price or yield, with payment and delivery taking place after
the customary settlement period for that type of security. Typically, no
interest accrues to the purchaser until the security is delivered. The
funds (excluding Money Market) 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 a fund is not required to pay for securities until
the delivery date, these risks are in addition to the risks associated with
the fund's other investments. If a 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, the 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, the 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, the 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.
EXPOSURE TO FOREIGN MARKETS. Foreign securities, foreign currencies, and
securities issued by U.S. entities with substantial foreign operations may
involve significant risks in addition to the risks inherent in U.S.
investments. The value of securities denominated in foreign currencies and
of dividends and interest paid with respect to such securities will
fluctuate based on the relative strength of the U.S. dollar.
Foreign investments involve a risk of local political, economic, or social
instability, military action or unrest, or adverse diplomatic developments,
and may be affected by actions of foreign governments adverse to the
interests of U.S. investors. Such actions may include 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
is no assurance that FMR will be able to anticipate these potential events
or counter their effects. These risks are magnified for investments in
developing countries, which may have relatively unstable governments,
economies based on only a few industries, and securities markets that trade
a small number of securities.
Economies of particular countries or areas of the world may differ
favorably or unfavorably from the economy of the United States. Foreign
markets may offer less protection to investors than U.S. markets. It is
anticipated that in most cases the best available market for foreign
securities will be on an exchange or in over-the-counter markets located
outside of the United States. Foreign stock markets, while growing in
volume and sophistication, are generally not as developed as those in the
United States, and securities of some foreign issuers (particularly those
located in developing countries) may be less liquid and more volatile than
securities of comparable U.S. issuers. Foreign security trading practices,
including those involving securities settlement where fund assets may be
released prior to receipt of payment, may result in increased risk in the
event of a failed trade or the insolvency of a foreign broker-dealer, and
may involve substantial delays. In addition, the costs of foreign
investing, including withholding taxes, brokerage commissions and custodial
costs, are generally higher than for U.S. investors. In general, there is
less overall governmental supervision and regulation of securities
exchanges, brokers, and listed companies than in the United States. It may
also be difficult to enforce legal rights in foreign countries. Foreign
issuers are generally not bound by uniform accounting, auditing, and
financial reporting requirements and standards of practice comparable to
those applicable to U.S. issuers.
Some foreign securities impose restrictions on transfer within the United
States or to U.S. persons. Although securities subject to such 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 (ADR's) as well as other "hybrid" forms of
ADRs including European Depositary Receipts (EDRs) and Global Depositary
Receipts (GDRs), are certificates evidencing ownership of shares of a
foreign issuer. These certificates are issued by depository banks and
generally trade on an established market in the United States or elsewhere.
The underlying shares are held in trust by a custodian bank or similar
financial institution in the issuer's home country. The depository bank may
not have physical custody of the underlying securities at all times and may
charge fees for various services, including forwarding dividends and
interest and corporate actions. ADRs are an alternative to directly
purchasing the underlying foreign securities in their national markets and
currencies. However, ADRs continue to be subject to many of the risks
associated with investing directly in foreign securities. These risks
include foreign exchange risk as well as the political and economic risks
of the underlying issuer's country.
FOREIGN CURRENCY TRANSACTIONS. A fund may (excluding Money Market) conduct
foreign currency transactions on a spot (i.e., cash) or forward basis
(i.e., by entering into forward contracts to purchase or sell foreign
currencies). Although foreign exchange dealers generally do not charge a
fee for such conversions, 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 at one rate, while
offering a lesser rate of exchange should the counterparty desire to resell
that currency to the dealer. Forward contracts are customized transactions
that require a specific amount of a currency to be delivered at a specific
exchange rate on a specific date or range of dates in the future. Forward
contracts are generally traded in an interbank market 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. A fund may use currency forward contracts
for any purpose consistent with its investment objective.
The following discussion summarizes the principal currency management
strategies involving forward contracts that could be used by a fund. A fund
may also use swap agreements, indexed securities, and options and futures
contracts relating to foreign currencies for the same purposes.
A "settlement hedge" or "transaction hedge" is designed to protect a
fund against an adverse change in foreign currency values between the date
a security is purchased or sold and the date on which payment is made or
received. Entering into a forward contract for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction
for a fixed amount of U.S. dollars "locks in" the U.S. dollar price of the
security. Forward contracts to purchase or sell a foreign currency may also
be used by a fund 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.
A fund 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, it 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. This type of hedge, sometimes referred to as a "proxy
hedge," could offer advantages in terms of cost, yield, or efficiency, but
generally would not hedge currency exposure as effectively as a direct
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.
A fund may enter into forward contracts to shift its investment exposure
from one currency into another. This may include shifting exposure from
U.S. dollars to a foreign currency, or from one foreign currency to another
foreign currency. 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 a 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 a
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, a fund will
segregate assets to cover currency forward contracts, if any, whose purpose
is essentially speculative. A fund 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 management strategies will depend on FMR's skill
in analyzing currency values. Currency management strategies may
substantially change a fund's investment exposure to changes in currency
exchange rates and could result in losses to a 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, a fund would not participate in the currency's appreciation. If
FMR hedges currency exposure through proxy hedges, a fund could realize
currency losses from both the hedge and the security position 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, a fund
will realize a loss. There is no assurance that FMR's use of currency
management strategies will be advantageous to a fund or that it will hedge
at appropriate times.
FOREIGN REPURCHASE AGREEMENTS. 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. However, pursuant
to certain state insurance regulations, any foreign repurchase agreements a
fund enters into will be secured by collateral consisting of liquid assets
having a market value of not less than 102% of the cash or assets
transferred to the other party. The value of a 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 default by the counterparty, the
fund may suffer a loss if the value of the security purchased is less than
the agreed-upon repurchase price, or if the 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 markets may involve issuers or counterparties with
lower credit ratings than typical U.S. repurchase agreements.
FUNDS' RIGHTS AS A SHAREHOLDER. The funds do 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 the fund's investment in the company.
The activities that a 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 a 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 a fund and the risk of actual liability if a fund is involved in
litigation. No guarantee can be made, however, that litigation against a
fund will not be undertaken or liabilities incurred.
FUTURES AND OPTIONS. The following sections pertain to futures and options:
Asset Coverage for Futures and Options Positions, Combined Positions,
Correlation of Price Changes, Futures Contracts, Futures Margin Payments,
Limitations on Futures and Options Transactions, Liquidity of Options and
Futures Contracts, Options and Futures Relating to Foreign Currencies, OTC
Options, Purchasing Put and Call Options, and Writing Put and Call Options.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The funds will comply
with guidelines established by the Securities and Exchange Commission 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 a
fund's assets could impede portfolio management or the fund's ability to
meet redemption requests or other current obligations.
COMBINED POSITIONS. A 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, a 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 a fund's current or
anticipated investments exactly. The funds may invest in options and
futures contracts based on securities with different issuers, maturities,
or other characteristics from the securities in which they typically
invest, which involves a risk that the options or futures position will not
track the performance of a fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a 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. A 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 a 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.
FUTURES CONTRACTS. When a fund purchases a futures contract, it agrees to
purchase a specified underlying instrument at a specified future date. When
a 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 the fund enters into the contract.
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 a fund's exposure to positive and negative
price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When a 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 a fund's investment limitations. In the event of the
bankruptcy of an FCM that holds margin on behalf of a fund, the 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
the fund.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. Each fund (excluding Money
Market) 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 Rule 4.5
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 the 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, the 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 the fund would exceed 5% of the fund's 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.
For Index 500 Portfolio, FMR also intends to follow certain other
limitations on the fund's futures and option 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
inter 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 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.
The above limitations on the funds' investments in futures contracts and
options, and the funds' policies regarding futures contracts and options
discussed elsewhere in this SAI, may be changed as regulatory agencies
permit.
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 a 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 a fund to continue to hold a position until
delivery or expiration regardless of changes in its value. As a result, a
fund's access to other assets held to cover its options or futures
positions could also be impaired.
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. The
funds may purchase and sell currency futures and may purchase and write
currency options to increase or decrease their exposure to different
foreign currencies. A 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
a fund's investments. A currency hedge, for example, should protect a
Yen-denominated security from a decline in the Yen, but will not protect a
fund against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of a 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 the fund's investments exactly over time.
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 (OTC) 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
the funds 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.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, a 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, the 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. The 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,
the fund will lose the entire premium it paid. If the fund exercises the
option, it completes the sale of the underlying instrument at the strike
price. A 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 a 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, the 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, the fund will be required to make margin payments to an FCM as
described above for futures contracts. A 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 the fund has written, however, the
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 a 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.
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 a fund's investments and, through reports from FMR, the
Board monitors investments in illiquid instruments. In determining the
liquidity of a 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 the fund's rights and
obligations relating to the investment).
Investments currently considered by a fund to be illiquid include
repurchase agreements not entitling the holder to payment of principal and
interest within seven days, non-government stripped fixed-rate
mortgage-backed securities, and over-the-counter options. Also, FMR may
determine some restricted securities, government-stripped fixed-rate
mortgage-backed securities, loans and other direct debt instruments,
emerging market securities, 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
the fund may have to close out the option before expiration. With respect
to Money Market, FMR may also determine some time deposits to be illiquid.
In the absence of market quotations, illiquid investments are priced at
fair value as determined in good faith by a committee appointed by the
Board of Trustees (for Money Market Portfolio, illiquid investments are
valued for purposes of monitoring amortized cost valuation). If through a
change in values, net assets, or other circumstances, a fund were in a
position where more than 10% of Money Market, Equity-Income, Growth,
Investment Grade Bond, Asset Manager, Index 500, Contrafund and Asset
Manager: Growth Portfolios' net assets and more than 15% of High Income and
Overseas Portfolios' net assets were invested in illiquid securities, the
fund would seek to take appropriate steps to protect liquidity.
INDEXED SECURITIES. A 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
United States 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 Asset Manager and Asset Manager: Growth Portfolios' investment
allocations, depending on the individual characteristics of the securities.
Indexed securities may be more volatile than the underlying instruments.
INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive order
issued by the SEC, each fund has received permission to lend money to, and
borrow money from, other funds advised by FMR or its affiliates. Interfund
loans and borrowings normally extend overnight, but can have a maximum
duration of seven days. Loans may be called on one day's notice. A fund
will lend through the program only when the returns are higher than those
available from an investment in repurchase agreements, and will borrow
through the program only when the costs are equal to or lower than the cost
of bank loans. A 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.
ISSUER LOCATION. FMR determines where an issuer is located by looking at
such factors as its country of organization, the primary trading market for
its securities, and the location of its assets, personnel, sales, and
earnings. The issuer of a security is considered to be located in a
particular country if (1) the security is issued or guaranteed by the
government of the country or any of its agencies, political subdivisions,
or instrumentalities; (2) the security has its primary trading market in
that country; or (3) the issuer is organized under the laws of that
country, derives at least 50% of its revenues or profits from goods sold,
investments made, or services performed in the country, or has at least 50%
of its assets located in the country.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. 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 each 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, the 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, the 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, the 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, each fund relies on FMR's
research in an attempt to avoid situations where fraud or misrepresentation
could adversely affect the 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, each 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,
the 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 each fund may include letters of credit,
revolving credit facilities, or other standby financing commitments
obligating the fund to pay additional cash on demand. These commitments may
have the effect of requiring the 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.
Each fund will set aside appropriate liquid assets in a segregated
custodial account to cover its potential obligations under standby
financing commitments.
Each 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, each fund generally will treat the
borrower as the "issuer" of indebtedness held by the fund. In the case of
loan participations where a bank or other lending institution serves as
financial intermediary between each fund and the borrower, if the
participation does not shift to the fund the direct debtor-creditor
relationship with the borrower, SEC interpretations require the 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.
LOWER-QUALITY DEBT SECURITIES. While the market for high-yield corporate
debt securities has been in existence for many years and has weathered
previous economic downturns, the 1980s brought a dramatic increase in the
use of such securities to fund highly leveraged corporate acquisitions and
restructurings. Past experience may not provide an accurate indication of
the future performance of the high-yield bond market, especially during
periods of economic recession.
The market for lower-quality debt securities may be thinner and less active
than that for higher-quality debt securities, which can adversely affect
the prices at which the former are sold. If market quotations are not
available, lower-quality debt securities will be valued in accordance with
procedures established by the Board of Trustees, including the use of
outside pricing services. Judgment plays a greater role in valuing
high-yield corporate debt securities than is the case for securities for
which more external sources for quotations and last-sale information are
available. Adverse publicity and changing investor perceptions may affect
the ability of outside pricing services to value lower-quality debt
securities and a fund's ability to dispose of these securities.
Since the risk of default is higher for lower-quality debt securities,
FMR's research and credit analysis are an especially important part of
managing securities of this type held by a fund. In considering investments
for the fund, FMR will attempt to identify those issuers of high-yielding
securities whose financial condition is adequate to meet future
obligations, has improved, or is expected to improve in the future. FMR's
analysis focuses on relative values based on such factors as interest or
dividend coverage, asset coverage, earnings prospects, and the experience
and managerial strength of the issuer.
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 best interest of the fund's shareholders.
MONEY MARKET SECURITIES are high-quality, short-term obligations. Some
money market securities employ a trust or other similar structure to modify
the maturity, price characteristics, or quality of financial assets. For
example, put features can be used to modify the maturity of a security or
interest rate adjustment features can be used to enhance price stability.
If the structure does not perform as intended, adverse tax or investment
consequences may result. Neither the Internal Revenue Service (IRS) nor any
other regulatory authority has ruled definitively on certain legal issues
presented by structured securities. Future tax or other regulatory
determinations could adversely affect the value, liquidity, or tax
treatment of the income received from these securities or the nature and
timing of distributions made by the funds.
MORTGAGE-BACKED SECURITIES. The funds may purchase mortgage-backed
securities issued by government and non-government entities such as banks,
mortgage lenders, or other financial institutions. A mortgage-backed
security is 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 the
funds may invest in them if FMR determines they are consistent with the
funds' 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.
MUNICIPAL SECURITIES are issued to raise money for a variety of public or
private purposes, including general financing for state and local
governments, or financing for specific projects or public facilities. They
may be issued in anticipation of future revenues and may be backed by the
full taxing power of a municipality, the revenues from a specific project,
or the credit of a private organization. The value of some or all municipal
securities may be affected by uncertainties in the municipal market related
to legislation or litigation involving the taxation of municipal securities
or the rights of municipal securities holders. A fund may own a municipal
security directly or through a participation interest.
PUT FEATURES entitle the holder to sell a security back to the issuer or a
third party at any time or at specified intervals. They are subject to the
risk that the put provider is unable to honor the put feature (purchase the
security). Put providers often support their ability to buy securities on
demand by obtaining letters of credit or other guarantees from other
entities. Demand features, standby commitments, and tender options are
types of put features.
REAL ESTATE-RELATED INSTRUMENTS include real estate investment trusts,
commercial and residential mortgage-backed securities, and real estate
financings. Real estate-related instruments are sensitive to factors such
as real estate values and property taxes, interest rates, cash flow of
underlying real estate assets, overbuilding, and the management skill and
creditworthiness of the issuer. Real estate-related instruments may also be
affected by tax and regulatory requirements, such as those relating to the
environment.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund purchases a
security and simultaneously commits to sell that security back to the
original seller at an agreed-upon price. 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. To protect the fund
from the risk that the original seller will not fulfill its obligation, the
securities are held in an account of the fund at a bank, marked-to-market
daily, and maintained at a value at least equal to the sale price plus the
accrued incremental amount. While it does not presently appear possible to
eliminate all risks from these transactions (particularly the possibility
that the value of the underlying security will be less than the resale
price, as well as delays and costs to a fund in connection with bankruptcy
proceedings), it is each fund's current policy to engage in repurchase
agreement transactions with parties whose creditworthiness has been
reviewed and found satisfactory by FMR. Pursuant to certain state insurance
regulations, any repurchase agreements a fund enters into will be secured
by collateral consisting of liquid assets having a market value of not less
than 102% of the cash or assets transferred to the other party.
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, a 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 it may be permitted to sell a
security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, a fund might obtain a
less favorable price than prevailed when it decided to seek registration of
the security. However, in general, Money Market anticipates holding
restricted securities to maturity or selling them in an exempt transaction.
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, the 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 found satisfactory by FMR. Such transactions may
increase fluctuations in the market value of the fund's assets and may be
viewed as a form of leverage.
SECURITIES LENDING. A 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 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 a 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).
SHORT SALES "AGAINST THE BOX." Money Market 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.
If a fund enters into a short sale against the box, it will be required to
set aside securities equivalent in kind and amount to the securities sold
short (or securities convertible or exchangeable into such securities) and
will be required to hold such securities while the short sale is
outstanding. The fund will incur transaction costs, including interest
expenses, in connection with opening, maintaining, and closing short sales
against the box.
When a fund enters into a short sale, 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
hold them aside while the short sale is outstanding. A fund will incur
transaction costs, including interest expense, in connection with opening,
maintaining, and closing short sales.
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 a fund 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, 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
hold them aside while the short sale is outstanding. A fund will incur
transaction costs, including interest expense, in connection with opening,
maintaining, and closing short sales.
SOURCES OF CREDIT OR LIQUIDITY SUPPORT. FMR may rely on its evaluation of
the credit of a bank or other entity in determining whether to purchase a
security supported by a letter of credit guarantee, put or demand feature,
insurance or other source of credit or liquidity. In evaluating the credit
of a foreign bank or other foreign entities, FMR will consider whether
adequate public information about the entity is available and whether the
entity may be subject to unfavorable political or economic developments,
currency controls, or other government restrictions that might affect its
ability to honor its commitment.
SOVEREIGN DEBT OBLIGATIONS. Overseas Portfolio may purchase sovereign debt
instruments issued or guaranteed by foreign governments or their agencies,
including debt of Latin American nations or other developing countries.
Sovereign debt may be in the form of conventional securities or other types
of debt instruments such as loans or loan participations. Sovereign debt of
developing countries may involve a high degree of risk, and may be in
default or present the risk of default. Governmental entities responsible
for repayment of the debt may be unable or unwilling to repay principal and
interest when due, and may require renegotiation or rescheduling of debt
payments. In addition, prospects for repayment of principal and interest
may depend on political as well as economic factors.
STRIPPED GOVERNMENT SECURITIES. Stripped government securities are created
by separating the income and principal components of a U.S. Government
security and selling them separately. STRIPS (Separate Trading of
Registered Interest and Principal of Securities) are created when the
coupon payments and the principal payment are stripped from an outstanding
U.S. Treasury security by a Federal Reserve Bank.
Privately stripped government securities are created when a dealer deposits
a U.S. Treasury security or other U.S. Government security with a custodian
for safekeeping. The custodian issues separate receipts for the coupon
payments and the principal payment, which the dealer then sells.
Proprietary receipts, such as Certificates of Accrual on Treasury
Securities (CATS) and Treasury Investment Growth Receipts (TIGRS), and
generic receipts, such as Treasury Receipts (TRs), are privately stripped
U.S. Treasury securities.
Because the SEC does not consider privately stripped government securities
to be U.S. Government securities for purposes of Rule 2a-7, a fund must
evaluate them as it would non-government securities pursuant to regulatory
guidelines applicable to all money market funds.
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.
SWAP AGREEMENTS. 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 United States 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. A fund is
not limited to any particular form of swap agreement if FMR determines it
is consistent with the 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 the fund agreed to exchange
payments in dollars for payments in foreign currency, the swap agreement
would tend to decrease the 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.
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 the fund, the fund 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.
A 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 the fund's accrued
obligations under the swap agreement over the accrued amount the fund 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 the fund's accrued obligations under the
agreement.
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.
VARIABLE AND FLOATING RATE SECURITIES provide for periodic adjustments of
the interest rate paid on the security. Variable rate securities provide
for a specified periodic adjustment in the interest rate, while floating
rate securities have interest rates that change whenever there is a change
in a designated benchmark rate. Some variable or floating rate securities
have put features.
WARRANTS. 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
if 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 expiration date. These factors
can make warrants more speculative than other types of investments.
ZERO COUPON BONDS. 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 dividends, 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.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of each fund by FMR pursuant to authority contained in the
management contract. If FMR grants investment management authority to the
sub-advisers (see the section entitled "Management Contracts"), the
sub-advisers are authorized to place orders for the purchase and sale of
portfolio securities, and will do so in accordance with the policies
described below. 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 adviser. Securities purchased and sold by
Money Market 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 considers 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. Commissions for investments
traded on foreign exchanges will be higher than for investments traded on
U.S. exchanges and may not be subject to negotiation.
The funds may execute portfolio transactions with broker-dealers who
provide research and execution services to the funds 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; and the availability of
securities or the purchasers or sellers of securities. In addition, such
broker-dealers may furnish analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy,
and performance of accounts; effect securities transactions, and perform
functions incidental thereto (such as clearance and settlement). For Money
Market, FMR maintains a listing of broker-dealers who provide such services
on a regular basis. However, as many transactions on behalf of Money Market
are placed with broker-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
broker-dealers solely because such services were provided. The selection of
such broker-dealers generally is 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 the funds may be useful to FMR in rendering investment management
services to the funds or its other clients, and conversely, such research
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 the funds. The receipt of such research has not reduced FMR's normal
independent research activities; however, it enables FMR to avoid the
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 and execution services. In order to cause
each 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 the funds 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 the funds 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 (FBS), subsidiaries of FMR
Corp., if the commissions are fair, reasonable, and comparable to
commissions charged by non-affiliated, qualified brokerage firms for
similar services. From September 1992 through December 1994, FBS operated
under the name Fidelity Brokerage Services Limited, Inc. (FBSL). As of
January 1995, FBSL was converted to an unlimited liability company and
assumed the name FBS. Mr. Johnson 3d, Johnson family members, and various
trusts for the benefit of the Johnson family own, directly or indirectly,
more than 25% of the voting common stock of FIL.
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 each fund toward payment of the 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.
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, unless certain requirements
are satisfied. Pursuant to such requirements, the Board of Trustees has
authorized FBSI to execute portfolio transactions on national securities
exchanges in accordance with approved procedures and applicable SEC rules.
Each fund's Trustees periodically review FMR's performance of its
responsibilities in connection with the placement of portfolio transactions
on behalf of the funds and review the commissions paid by each fund over
representative periods of time to determine if they are reasonable in
relation to the benefits to the fund.
Because a high turnover rate increases transaction costs and may increase
taxable gains, FMR carefully weighs the anticipated benefits of short-term
investing against these consequences. An increased turnover rate is due to
a greater volume of shareholder purchase orders, short-term interest rate
volatility and other special market conditions. For the fiscal years ended
December 31, 1996 and 1995, the funds had the following portfolio turnover
rates:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year High Equity- Growth Growth Oversea Investment Asset Asset Balance Contrafun Index
Income Income Opportunitie s Grade Bond Manager Manager: d d 500
s Growth

199 123% 186% 81% 28% 92% 81% 168% 120% 163 178% 14%
6 %

199 132% 87% 108% 38% 50% 182% 256% 343% 248 132% 16%
5 %

</TABLE>

BROKERAGE COMMISSIONS. The following lists the total brokerage commissions
paid; the percentage of the brokerage commissions paid to brokerage firms
that provided research services and 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, 1996, 1995 and 1994 for each of the funds. No commissions were paid by
Money Market or Investment Grade Bond Portfolios. 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 FBS is a result of the low commission rates charged by
FBSI and FBS.
HIGH INCOME PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% % %
Paid to Transactio Transactio
Firms ns ns

Period Providing To To through through

Ended TOTAL Research FBSI FBS % to FBSI % to FBS FBSI FBS
1996 $501,544 69% $10,168 $ 0 2% 0% 2% 0%

1995 $185,561 95% $ 21,896 $ 0 12% 0% 16% 0%

1994 $135,013 98% $ 24,140 $ 0 18% 0% 29% 0%

</TABLE>

EQUITY-INCOME PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% % %
Paid to Transactio Transactio
Firms ns ns

Period Providing To To through through

Ended TOTAL Research FBSI FBS % to FBSI % to FBS FBSI FBS

1996 $13,450,350 66% $3,563,724 $19,906 27% 0% 40% 0%

1995 $5,473,128 94% $2,043,797 $33,242 37% 1% 51% 0%

1994 $4,893,684 95% $ 1,717,630 $116,658 35% 2% 46% 1%

</TABLE>

GROWTH OPPORTUNITIES PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% % %
Paid to Transactio Transactio
Firms ns ns

Period Providing To To through through

Ended TOTAL Research FBSI FBS % to FBSI % to FBS FBSI FBS

1996 $195,409 64% $43,699 $2,978 22% 2% 33% 1%

1995 $105,477 67% $40,358 $100 38% 0% 58% 0%

</TABLE>

GROWTH PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% % %
Paid to Transactio Transactio
Firms ns ns

Period Providing To To through through

Ended TOTAL Research FBSI FBS % to FBSI % to FBS FBSI FBS

1996 $4,689,993 68% $1,167,932 $41,903 25% 1% 37% 1%

1995 $3,835,624 97% $1,237,372 $13,081 32% 0% 43% 0%

1994 $3,120,411 97% $956,332 $0 31% 0% 44% 0%

</TABLE>

OVERSEAS PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% % %
Paid to Transactio Transactio
Firms ns ns

Period Providing To To through through

Ended TOTAL Research FBSI FBS % to FBSI % to FBS FBSI FBS

1996 $4,851,584 86% $23,341 $338,852 1% 7% 2% 9%

1995 $2,495,829 96% $10,057 $240,170 0% 10% 1% 12%

1994 $2,985,961 90% $1,605 $255,413 0% 9% 0% 11%

</TABLE>

BALANCED PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% % %
Paid to Transactio Transactio
Firms ns ns

Period Providing To To through through

Ended TOTAL Research FBSI FBS % to FBSI % to FBS FBSI FBS

1996 $138,649 70% $32,871 $1,221 24% 1% 39% 1%

1995 $65,835 89% $12,056 $195 18% 0% 37% 0%

</TABLE>

ASSET MANAGER PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% % %
Paid to Transactio Transactio
Firms ns ns

Period Providing To To through through

Ended TOTAL Research FBSI FBS % to FBSI % to FBS FBSI FBS

1996 $5,969,816 85% $600,978 $27,964 10% 0% 22% 0%

1995 $12,537,406 96% $1,793,406 $218,281 14% 2% 33% 2%

1994 $3,316,118 92% $583,097 $107,280 18% 3% 32% 3%

</TABLE>

INDEX 500 PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% % %
Paid to Transactio Transactio
Firms ns ns

Period Providing To To through through

Ended TOTAL Research FBSI FBS % to FBSI % to FBS FBSI FBS

1996 $51,591 91% $374 $0 1% 0% 0% 0%

1995 $133,659 31% $20 $ 0 0% 0% 0% 0%

1994 $10,286 1% $17 $ 0 0% 0% 0% 0%

</TABLE>

ASSET MANAGER: GROWTH PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% % %
Paid to Transactio Transactio
Firms ns ns

Period Providing To To through through

Ended TOTAL Research FBSI FBS % to FBSI % to FBS FBSI FBS

1996 $296,932 70% $52,039 $2,173 18% 1% 30% 1%

1995 $335,353 93% $4,540 $14 13% 0% 30% 0%

</TABLE>

CONTRAFUND PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% % %
Paid to Transactio Transactio
Firms ns ns

Period Providing To To through through

Ended TOTAL Research FBSI FBS % to FBSI % to FBS FBSI FBS

1996 $4,846,349 73% $1,020,036 $8,210 21% 0% 32% 0%

1995 $672,767 97% $246,389 $ 0 37% 0% 49% 0%

</TABLE>

From time to time the 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. Each fund seeks 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 each fund to seek such
recapture.
Although the Trustees and officers of each fund are substantially the same
as those of other funds managed by FMR, investment decisions for each fund
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 and accounts
are managed by the same investment adviser, particularly when the same
security is suitable for the investment objective of more than one fund or
account.
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 procedures believed to be appropriate and equitable for each fund. In
some cases this system could have a detrimental effect on the price or
value of the security as far as each fund is concerned. In other cases,
however, the ability of the funds 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 adviser to each fund outweighs any disadvantages that may be
said to exist from exposure to simultaneous transactions.
VALUATION OF PORTFOLIO SECURITIES
FSC normally determines each fund's net asset value per share (NAV) as of
the close of the New York Stock Exchange (NYSE) (normally 4:00 p.m. Eastern
time. The valuation of portfolio securities is determined as of this time
for the purpose of computing the fund's NAV.
MONEY MARKET PORTFOLIO
Portfolio securities and other assets are valued on the basis of amortized
cost. This technique involves initially valuing an instrument at its cost
as adjusted for amortization of premium or accretion of discount rather
than its current market value. The amortized cost value of an instrument
may be higher or lower than the price a fund would receive if it sold the
instrument.
During periods of declining interest rates, the fund's yield based on
amortized cost valuation may be higher than would result if the fund used
market valuations to determine its NAV. The converse would apply during
periods of rising interest rates.
Valuing the fund's investments on the basis of amortized cost and use of
the term "money market fund" are permitted pursuant to Rule 2a-7 under the
1940 Act. The fund's must adhere to certain conditions under Rule 2a-7, as
summarized in the section entitled "Quality and Maturity" on page 4 .
The Board of Trustees oversees FMR's adherence to the provisions of Rule
2a-7 and has established procedures designed to stabilize the fund's NAV at
$1.00. At such intervals as they deem appropriate, the Trustees consider
the extent to which NAV calculated by using market valuations would deviate
from $1.00 per share. If the Trustees believe that a deviation from the
fund's amortized cost per share may result in material dilution or other
unfair results to shareholders, the Trustees have agreed to take such
corrective action, if any, as they deem appropriate to eliminate or reduce,
to the extent reasonably practicable, the dilution or unfair results. Such
corrective action could 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; establishing NAV
by using available market quotations; and such other measures as the
Trustees may deem appropriate.
INVESTMENT GRADE BOND AND HIGH INCOME PORTFOLIOS
Portfolio securities are valued by various methods depending on the primary
market or exchange on which they trade. Fixed-income securities and other
assets for which market quotations are readily available may be valued at
market values determined by such securities' most recent bid prices (sales
prices if the principal market is an exchange) in the principal market in
which they normally are traded, as furnished by recognized dealers in such
securities or assets.
Fixed-income securities and convertible securities may also be valued on
the basis of information furnished by a pricing service that uses a
valuation matrix which incorporates both dealer-supplied valuations and
electronic data processing techniques. Use of pricing services has been
approved by the Board of Trustees. A number of pricing services are
available, and the Trustees, on the basis of an evaluation of these
services, may use various pricing services or discontinue the use of any
pricing service.
Short-term securities are valued either at amortized cost or at original
cost plus accrued interest, both of which approximate current value.
Most equity securities for which the primary market is the United States
are valued at last sale price or, if no sale has occurred, at the closing
bid price. Most equity securities for which the primary market is outside
the United States are valued using the official closing price or the last
sale price in the principal market in which they are traded. If the last
sale price (on the local exchange) is unavailable, the last evaluated quote
or last bid price normally is used.
Futures contracts and options are valued on the basis of market quotations,
if available.
Foreign securities are valued based on prices furnished by independent
brokers or quotation services which express the value of securities in
their local currency. 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 currencies 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
NAV. 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 that security will be valued as
determined in good faith by a committee appointed by the Board of Trustees.
EQUITY-INCOME, INDEX 500, CONTRAFUND, GROWTH, GROWTH & INCOME, OVERSEAS,
ASSET MANAGER, ASSET MANAGER: GROWTH, BALANCED, AND GROWTH OPPORTUNITIES
PORTFOLIOS
Portfolio securities are valued by various methods depending on the primary
market or exchange on which they trade. Most equity securities for which
the primary market is the United States are valued at last sale price or,
if no sale has occurred, at the closing bid price. Most equity securities
for which the primary market is outside the United States are valued using
the official closing price or the last sale price in the principal market
in which they are traded. If the last sale price (on the local exchange) is
unavailable, the last evaluated quote or last bid price normally is used.
Fixed-income securities and other assets for which market quotations are
readily available may be valued at market values determined by such
securities' most recent bid prices (sales prices if the principal market is
an exchange) in the principal market in which they normally are traded, as
furnished by recognized dealers in such securities or assets. Fixed-income
securities and convertible securities may also be valued on the basis of
information furnished by a pricing service that uses a valuation matrix
which incorporates both dealer-supplied valuations and electronic data
processing techniques. Use of pricing services has been approved by the
Board of Trustees. A number of pricing services are available, and the
Trustees, on the basis of an evaluation of these services, may use various
pricing services or discontinue the use of any pricing service.
Short-term securities are valued either at amortized cost or at original
cost plus accrued interest, both of which approximate current value.
Futures contracts and options are valued on the basis of market quotations,
if available.
Foreign securities are valued based on prices furnished by independent
brokers or quotation services which express the value of securities in
their local currency. 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 currencies 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
NAV. 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 that security will be valued as
determined in good faith by a committee appointed by the Board of Trustees.
Securities and other assets for which there is no readily available market
value 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 a fund if, in the opinion of a committee
appointed by the Board of Trustees, some other method would more accurately
reflect the fair market value of such securities.
PERFORMANCE
The fund may quote performance in various ways. All performance information
supplied by the fund in advertising is historical and is not intended to
indicate future returns. Each non-money market fund's share price, and each
fund's yield and total return fluctuate in response to market conditions
and other factors, and the value of non-money market fund shares when
redeemed may be more or less than their original cost.
YIELD CALCULATIONS (MONEY MARKET PORTFOLIO). To compute the money market
fund's yield for a period, the net change in value of a hypothetical
account containing one share 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. The money market fund also may calculate
a compound effective yield by compounding the base period return over a
one-year period. In addition to the current yield, the money market fund
may quote yields in advertising based on any historical seven-day period.
Yields for the money market fund are calculated on the same basis as other
money market funds, as required by regulation.
YIELD CALCULATIONS (EXCLUDING MONEY MARKET PORTFOLIO). Yields for a fund
are computed by dividing the 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 distributions during the period, dividing this
figure by the fund's net asset value (NAV) 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. For a fund's investments denominated in foreign currencies, income
and expenses are calculated first in their respective currencies, and are
then converted to U.S. dollars, either when they are actually converted or
at the end of the 30-day or one month period, whichever is earlier. Capital
gains and losses generally are excluded from the calculation as are gains
and losses from currency exchange rate fluctuations.
Income calculated for the purposes of calculating a fund's yield differs
from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding of income
assumed in yield calculations, a fund's yield may not equal its
distribution rate, the income paid to your account, or the income reported
in the fund's financial statements. In calculating the fund's yield, a
fund may from time to time use a portfolio security's coupon rate instead
of its yield to maturity in order to reflect the risk premium on that
security. This practice will have the effect of reducing the fund's yield.
Yield information may be useful in reviewing a fund's performance and in
providing a basis for comparison with other investment alternatives.
However, each fund's yield fluctuates, unlike investments that pay a fixed
interest rate over a stated period of time. When comparing investment
alternatives, investors should also note the quality and maturity of the
portfolio securities of respective investment companies they have chosen to
consider.
Investors should recognize that in periods of declining interest rates a
fund's yield will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates the fund's yield will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net
new money to a fund from the continuous sale of its shares will likely be
invested in instruments producing lower yields than the balance of the
fund's holdings, thereby reducing the fund's current yield. In periods of
rising interest rates, the opposite can be expected to occur.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of a fund's return, including the effect of reinvesting dividends
and capital gain distributions, and any change in the fund's net asset
value (NAV) over a stated period. Average annual total returns are
calculated by determining the growth or decline in value of a hypothetical
historical investment in a 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 total return of 100% over ten years would
produce an average annual total return of 7.18%, which is the steady annual
rate of return that would equal 100% growth on a compounded basis in ten
years. Average annual total returns covering periods of less than one year
are calculated by determining a fund's total return for the period,
extending that return for a full year (assuming that return remains
constant over the year), and quoting the result as an annual return. While
average annual total returns are a convenient means of comparing investment
alternatives, investors should realize that a fund's performance is not
constant over time, but changes from year to year, and that average annual
total returns represent averaged figures as opposed to the actual
year-to-year performance of the fund.
In addition to average annual total returns, a fund 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, 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. Total returns may be quoted on a
before-tax or after-tax basis. 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,
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 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 29, 1996, the 13-week and 39-week long-term moving
averages were $20.66 and $19.74 for Equity-Income; $31.27 and $30.04 for
Growth; $18.32 and $17.85 for Overseas; $16.71 and $15.89 for Asset
Manager; $87.40 and $81.61 for Index 500; $12.89 and $12.15 for Asset
Manager: Growth; $16.15 and $15.17 for Contrafund; $12.05 and $11.42 for
Balanced; N/A and N/A for Growth & Income; and $15.14 and $14.10 for Growth
Opportunities, respectively.

<TABLE>
<CAPTION>
<S> <C> <C>
Historical Fund Results Average Annual Total Returns Cumulative Total Returns

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
As of 12/31/96 Yields One Five Life of One Five Life of
Year Years Fund* Year Years Fund*

Money Market Portfolio 7-day-5.27% 5.41% 4.53% 5.96% 5.41% 24.78% 78.38%

Investment Grade 30-day-6.03% 3.19% 6.64% 8.19% 3.19% 37.89% 88.91%
Bond Portfolio

High Income Portfolio 30-day-7.31% 14.03% 14.96% 11.12% 14.03% 100.79% 187.13%

Asset Manager N/A 14.60% 11.26% 11.69% 14.60% 70.47% 124.77%
Portfolio

Asset Manager: N/A 20.04% N/A 21.56% 20.04% N/A 47.67%
Growth Portfolio

Equity-Income N/A 14.28% 17.98% 13.74% 14.28% 128.56% 262.28%
Portfolio

Index 500 Portfolio N/A 22.71% N/A 17.06% 22.71% N/A 98.44%

Contrafund Portfolio N/A 21.22% N/A 30.19% 21.22% N/A 69.37%

Growth Portfolio N/A 14.71% 15.16% 15.15% 14.71% 102.58% 310.00%

Overseas Portfolio N/A 13.15% 9.15% 7.88% 13.15% 54.89% 112.54%

Growth & Income N/A
Portfolio

Balanced Portfolio N/A 9.98% N/A 11.95% 9.98% N/A 25.28%

Growth Opportunities N/A 18.27% N/A 25.24% 18.27% N/A 56.73%
Portfolio

</TABLE>

If FMR had not reimbursed certain fund expenses during certain of these
periods, the total returns would have been lower.
* 10-year return for Money Market Portfolio and High Income Portfolio
Commencement of Operations; 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; Index
500 Portfolio commenced operations August 27, 1992; Asset Manager: Growth,
Contrafund; Balanced and Growth Opportunities Portfolios commenced
operations January 3, 1995; and Growth & Income Portfolio commenced
operations December 30, 1996.
The following tables show the income and capital elements of each fund's
cumulative total return. The table compares each fund's return to the
record of the Standard & Poor's 500 Index (S&P 500), the Dow Jones
Industrial Average (DJIA), and the cost of living, as measured by the
Consumer Price Index (CPI), over the same period. The CPI information is as
of the month end closest to the initial investment date for each fund's.
The S&P 500 and DJIA comparisons are provided to show how each fund's total
return compared to the record of a broad unmanaged index of common stocks
and a narrower set of stocks of major industrial companies, respectively,
over the same period. Because the Money Market, High Income, and Investment
Grade Bond Portfolio invests in fixed-income securities, common stocks
represent a different type of investment from the funds. Common stocks
generally offer greater growth potential than the funds, but generally
experience greater price volatility, which means greater potential for
loss. In addition, common stocks generally provide lower income than a
fixed-income investment such as a money market or bond fund. 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
indexes. The S&P 500 and DJIA returns are based on the prices of unmanaged
groups of stocks and, unlike each fund's returns, do not include the effect
of brokerage commissions or other costs of investing.
MONEY MARKET PORTFOLIO During the ten-year period ended December 31,
1996, a hypothetical $10,000 investment in Money Market Portfolio would
have grown t o $17,838, assuming all distributions were reinvested.
This was a period of fluctuating interest rates and the figures below
should not be considered representative of the dividend income or capital
gain or loss that could be realized from an investment in the fund today.
MONEY MARKET PORTFOLIO INDICES

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P 500 DJIA Cost of
Ended Initial Reinveste Reinveste Value Living
$10,000 d d
Investmen Dividend Capital
t Distribution Gain
s Distribution
s

1996 $10,000 $7,838 $ 0 $ 17,838 $ 41,499 $ 46,181 $ 14,353

1995 $10,000 $6,923 $ 0 $ 16,923 $ 33,750 $ 35,882 $ 13,891

1994 $10,000 $5,985 $ 0 $ 15,985 $ 24,532 $ 26,244 $ 13,548

1993 $10,000 $5,333 $ 0 $ 15,333 $ 24,213 $ 25,001 $ 13,195

1992 $10,000 $4,853 $ 0 $ 14,853 $ 21,996 $ 21,370 $ 12,842

1991 $10,000 $4,296 $ 0 $ 14,296 $ 20,434 $ 19,916 $ 12,480

1990 $10,000 $3,475 $ 0 $ 13,475 $ 15,660 $ 16,018 $ 12,109

1989 $10,000 $2,473 $ 0 $ 12,473 $ 16,164 $ 16,104 $ 11,412

1988 $10,000 $1,430 $ 0 $ 11,430 $ 12,275 $ 12,222 $ 10,905

1987 $10,000 $644 $ 0 $ 10,644 $ 10,526 $ 10,543 $ 10,443

</TABLE>

Explanatory Notes: With an initial investment of $10,000 made on December
31, 1986, the net amount invested in fund shares was $10,000. The cost of
the initial investment ($10,000), together with the aggregate cost of
reinvested dividends for the period covered (their cash value at the time
they were reinvested), amounted t o $17,838. I f distributions had not
been reinvested, the amount of distributions earned from the fund over time
would have been smaller, and cash payments (dividends) for the period would
have amounted to $5,803. The fund did not distribute any capital gains
during the period. Tax consequences of different investments have not been
factored into the above figures.
HIGH INCOME PORTFOLIO During the ten-year period ended December 31, 1996, a
hypothetical $10,000 investment in High Income Portfolio would have grown
to $28,713, assuming all distributions were reinvested. This was a
period of fluctuating interest rates and bond prices and the figures below
should not be considered representative of the dividend income or capital
gain or loss that could be realized from an investment in the fund today.
HIGH INCOME PORTFOLIO INDICES

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P 500 DJIA Cost of
Ended Initial Reinveste Reinveste Value Living
$10,000 d d
Investme Dividend Capital
nt Distribution Gain
s Distribution
s

1996 $11,560 $ 15,734 $ 1,419 $ 28,713 $ 41,499 $ 46,181 $ 14,353

1995 $11,127 $ 13,088 $ 964 $ 25,179 $ 33,750 $ 35,882 $ 13,891

1994 $9,926 $ 10,072 $ 860 $ 20,858 $ 24,532 $ 26,244 $ 13,548

1993 $11,071 $ 9,869 $ 266 $ 21,206 $ 24,213 $ 25,001 $ 13,195

1992 $9,991 $ 7,484 $ 138 $ 17,613 $ 21,996 $ 21,370 $ 12,842

1991 $8,818 $ 5,361 $ 121 $ 14,300 $ 20,434 $ 19,916 $ 12,480

1990 $6,528 $ 3,969 $ 90 $ 10,587 $ 15,660 $ 16,018 $ 12,109

1989 $7,488 $ 3,237 $ 103 $ 10,828 $ 16,164 $ 16,104 $ 11,412

1988 $8,920 $ 2,258 $ 123 $ 11,300 $ 12,275 $ 12,222 $ 10,905

1987 $8,938 $ 1,061 $ 123 $ 10,122 $ 10,526 $ 10,543 $ 10,443

</TABLE>

Explanatory Notes: With an initial investment of $10,000 made on December
31, 1986, the net amount invested in fund shares was $10,000. The cost of
the initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to
$23,613. If distributions had not been reinvested, the amount of
distributions earned from the fund over time would have been smaller, and
cash payments for the period would have amounted to $7,751 for
dividends an d $702 for capital gains distributions. Tax consequences
of different investments have not been factored into the above figures.
EQUITY-INCOME PORTFOLIO During the ten-year period ended December 31, 1996,
a hypothetical $10,000 investment in Equity-Income Portfolio would have
grown t o $36,228, as suming all distributions were reinvested. This
was a period of fluctuating interest rates, bond prices, and stock prices
and the figures below should not be considered representative of the
dividend income or capital gain or loss that could be realized from an
investment in the fund today.
EQUITY-INCOME PORTFOLIO INDICES

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P 500 DJIA Cost of
Ended Initial Reinvested Reinvested Value Living
$10,000 Dividend Capital Gain
Investment Distributions Distributions

1996 $20,988 $ 9,127 $ 6,113 $ 36,228 $ 41,499 $ 46,181 $ 14,353

1995 $19,232 $ 8,313 $ 4,156 $ 31,701 $ 33,750 $ 35,882 $ 13,891

1994 $15,319 $ 6,048 $ 2,099 $ 23,466 $ 24,532 $ 26,244 $ 13,548

1993 $15,409 $ 5,518 $ 990 $ 21,917 $ 24,213 $ 25,001 $ 13,195

1992 $13,373 $ 4,296 $ 859 $ 18,528 $ 21,996 $ 21,370 $ 12,842

1991 $11,826 $ 3,265 $ 760 $ 15,851 $ 20,434 $ 19,916 $ 12,480

1990 $9,491 $ 1,959 $ 610 $ 12,060 $ 15,660 $ 16,018 $ 12,109

1989 $12,265 $ 1,679 $ 292 $ 14,236 $ 16,164 $ 16,104 $ 11,412

1988 $10,988 $ 977 $ 167 $ 12,132 $ 12,275 $ 12,222 $ 10,905

1987 $9,401 $ 343 $ 143 $ 9,887 $ 10,526 $ 10,543 $ 10,443

</TABLE>

Explanatory Notes: With an initial investment of $10,000 made on October 9,
1986, the net amount invested in fund shares was $10,000. The cost of the
initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to
$19,805 . If distributions had not been reinvested, the amount of
distributions earned from the fund over time would have been smaller, and
cash payments for the period would have amounted to $4,232 for dividends
and $3,024 f or capital gains distributions. Tax consequences of
different investments have not been factored into the above figures.
GROWTH PORTFOLIO. During the ten-year period ended December 31, 1996, a
hypothetical $10,000 investment in Growth Portfolio would have grown to
$41,000 as suming all distributions were reinvested. This was a period
of fluctuating stock prices and the figures below should not be considered
representative of the dividend income or capital gain or loss that could be
realized from an investment in the fund today.
GROWTH PORTFOLIO INDICES

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P 500 DJIA Cost of
Ende Initial Reinvested Reinvested Value Living
d $10,000 Dividend Capital Gain
Investment Distributions Distributions

1996 $31,047 $ 2,594 $ 7,359 $ 41,000 $ 41,499 $ 46,181 $ 14,353

1995 $29,113 $ 2,330 $ 4,301 $ 35,744 $ 33,750 $ 35,882 $ 13,891

1994 $21,625 $ 1,586 $ 3,195 $ 26,406 $ 24,532 $ 26,244 $ 13,548

1993 $23,011 $ 1,542 $ 1,858 $ 26,411 $ 24,213 $ 25,001 $ 13,195

1992 $19,701 $ 1,198 $ 1,226 $ 22,125 $ 21,996 $ 21,370 $ 12,842

1991 $18,455 $ 1,071 $ 713 $ 20,239 $ 20,434 $ 19,916 $ 12,480

1990 $12,871 $ 541 $ 497 $ 13,909 $ 15,660 $ 16,018 $ 12,109

1989 $15,135 $ 399 $ 224 $ 15,758 $ 16,164 $ 16,104 $ 11,412

1988 $11,685 $ 124 $ 173 $ 11,982 $ 12,275 $ 12,222 $ 10,905

1987 $10,110 $ 106 $ 150 $ 10,366 $ 10,526 $ 10,543 $ 10,443

</TABLE>

Explanatory Notes: With an initial investment of $10,000 made on December
31, 1986, the net amount invested in fund shares was $10,000. The cost of
the initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to
$16,555. If distributions had not been reinvested, the amount of
distributions earned from the fund over time would have been smaller, and
cash payments for the period would have amounted to $1,196 for dividends
and $4,506 for capital gains distributions. Tax consequences of
different investments have not been factored into the above figures.
OVERSEAS PORTFOLIO. During the period from January 28, 1987 (commencement
of operations) to December 31, 1996, a hypothetical $10,000 investment in
Overseas Portfolio would have grown to $21,254, assuming all
distributions were reinvested. This was a period of fluctuating stock
prices and the figures below should not be considered representative of the
dividend income or capital gain or loss that could be realized from an
investment in the fund today.
OVERSEAS PORTFOLIO INDICES

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P 500 DJIA Cost of
Ended Initial Reinvested Reinvested Value Living**
$10,000 Dividend Capital Gain
Investment Distributions Distributions

1996 $ 18,840 $ 1,979 $ 435 $ 21,254 $ 36,629 $ 40,630 $ 14,263

1995 $ 17,060 $ 1,571 $ 152 $ 18,783 $ 29,789 $ 31,568 $ 13,804

1994 $ 15,670 $ 1,375 $ 71 $ 17,116 $ 21,653 $ 23,089 $ 13,462

1993 $ 15,480 $ 1,276 $ 70 $ 16,826 $ 21,371 $ 21,996 $ 13,112

1992 $ 11,530 $ 720 $ 0 $ 12,250 $ 19,414 $ 18,801 $ 12,761

1991 $ 13,090 $ 631 $ 0 $ 13,721 $ 18,036 $ 17,522 $ 12,401

1990 $ 12,420 $ 285 $ 0 $ 12,705 $ 13,822 $ 14,092 $ 12,032

1989 $ 12,670 $ 250 $ 0 $ 12,920 $ 14,267 $ 14,168 $ 11,340

1988 $ 10,110 $ 121 $ 0 $ 10,231 $ 10,834 $ 10,753 $ 10,836

1987*$ 9,350 $ 112 $ 0 $ 9,462 $ 9,291 $ 9,276 $ 10,378

</TABLE>

* 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 fund shares was $10,000. The cost of
the initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to
$11,705. I f distributions had not been reinvested, the amount of
distributions earned from the fund over time would have been smaller, and
cash payments for the period would have amounted to $1,280 for dividends
and $330 for capital gains distributions. Tax consequences of different
investments (with the exception of foreign tax withholdings) have not been
factored into the above figures.
INVESTMENT GRADE BOND PORTFOLIO. During the period from December 5, 1988
(commencement of operations) to December 31, 1996, a hypothetical $10,000
investment in Investment Grade Bond Portfolio would have grown to $18,891,
assuming all distributions were reinvested. This was a period of
fluctuating interest rates and bond prices and the figures below should not
be considered representative of the dividend income or capital gain or loss
that could be realized from an investment in the fund today.
INVESTMENT GRADE BOND PORTFOLIO INDICES

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P 500 DJIA Cost of
Ende Initial Reinvested Reinvested Value Living**
d $10,000 Dividend Capital Gain
Investment Distributions Distributions

1996 $ 12,240 $ 6,272 $ 379 $ 18,891 $ 34,627 $ 39,266 $13,184

1995 $ 12,480 $ 5,441 $ 386 $ 18,307 $ 28,161 $ 30,509 $12,760

1994 $ 11,020 $ 4,243 $ 341 $ 15,604 $ 20,469 $ 22,314 $12,444

1993 $ 11,480 $ 4,420 $ 313 $ 16,213 $ 20,203 $ 21,257 $12,120

1992 $ 10,970 $ 3,418 $ 223 $ 14,611 $ 18,353 $ 18,170 $11,796

1991 $ 11,080 $ 2,596 $ 24 $ 13,700 $ 17,050 $ 16,934 $11,463

1990 $ 9,920 $ 1,831 $ 21 $ 11,772 $ 13,067 $ 13,619 $11,122

1989 $10,140 $ 921 $ 22 $ 11,083 $ 13,487 $ 13,692 $10,482

1988*$ 10,000 $ 52 $ 0 $ 10,052 $ 10,242 $ 10,392 $10,017

</TABLE>

* 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 fund shares was $10,000. The cost of
the initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to
$15,886. If distributions had not been reinvested, the amount of
distributions earned from the fund over time would have been smaller, and
cash payments for the period would have amounted to $4,484 for dividends
and $270 for capital gains distributions. Tax consequences of different
investments have not been factored into the above figures.
ASSET MANAGER PORTFOLIO. During the period from September 6, 1989
(commencement of operations) to December 31, 1996, a hypothetical $10,000
investment in Asset Manager Portfolio would have grown to $22,477,
assuming all distributions were reinvested. This was a period of
fluctuating interest rates, bond prices, and stock prices and the figures
below should not be considered representative of the dividend income or
capital gain or loss that could be realized from an investment in the fund
today.
ASSET MANAGER PORTFOLIO INDICES

1996 $ 16,930 $ 3,418 $ 2,129 $ 22,477 $ 26,004 $ 29,109 $ 12,729

1995 $ 15,790 $ 2,448 $ 1,375 $ 19,613 $ 21,148 $ 22,617 $ 12,319

1994 $ 13,790 $ 1,779 $ 1,201 $ 16,770 $ 15,372 $ 16,542 $ 12,014

1993 $ 15,420 $ 1,642 $ 795 $ 17,857 $ 15,172 $ 15,758 $ 11,701

1992 $ 13,320 $ 1,004 $ 406 $ 14,730 $ 13,783 $ 13,470 $ 11,388

1991 $ 12,550 $ 610 $ 25 $ 13,185 $ 12,804 $ 12,554 $ 11,067

1990 $ 10,240 $ 497 $ 21 $ 10,758 $ 9,813 $ 10,096 $ 10,738

1989*$ 9,970 $ 91 $ 20 $ 10,081 $ 10,128 $ 10,151 $ 10,120

</TABLE>

* From September 6, 1989 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $116420,000 made on
September 6, 1989, the net amount invested in fund shares was $10,000. The
cost of the initial investment ($10,000), together with the aggregate cost
of reinvested dividends and capital gain distributions for the period
covered (their cash value at the time they were reinvested), amounted to
$14,386. If distributions had not been reinvested, the amount of
distributions earned from the fund over time would have been smaller, and
cash payments for the period would have amounted to $2,320 for dividends
and $1,530 or capital gains distributions. Tax consequences of different
investments have not been factored into the above figures.
INDEX 500 PORTFOLIO. During the period from August 27, 1992 (commencement
of operations) to December 31, 1996, a hypothetical $10,000 investment in
Index 500 Portfolio would have grown to $19,844, assuming all distributions
were reinvested. This was a period of fluctuating stock prices and the
figures below should not be considered representative of the dividend
income or capital gain or loss that could be realized from an investment in
the fund today.
INDEX 500 PORTFOLIO INDICES

1996 $ 17,810 $ 1,115 $ 921 $ 19,844 $ 20,090 $ 22,204 $ 11,256

1995 $ 15,142 $ 750 $ 279 $ 16,171 $ 16,339 $ 17,252 $ 10,894

1994 $ 11,244 $ 363 $ 180 $ 11,787 $ 11,876 $ 12,618 $ 10,625

1993 $ 11,148 $ 360 $ 158 $ 11,666 $ 11,722 $ 12,021 $ 10,348

1992*$ 10,520 $ 95 $ 16 $ 10,631 $ 10,648 $ 10,275 $ 10,071

</TABLE>

* 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 fund shares was $10,000. The cost of the
initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to
$11,451. If distributions had not been reinvested, the amount of
distributions earned from the fund over time would have been smaller, and
cash payments for the period would have amounted to $722 for dividends
and $668 for capital gains distributions. Tax consequences of different
investments have not been factored into the above figures.
CONTRAFUND PORTFOLIO. During the period from January 3, 1995 (commencement
of operations) to December 31, 1996, a hypothetical $10,000 investment in
Contrafund Portfolio would have grown to $16,937, assuming all
distributions were reinvested. This was a period of fluctuating stock
prices and the figures below should not be considered representative of the
dividend income or capital gain or loss that could be realized from an
investment in the fund today.
CONTRAFUND PORTFOLIO INDICES

1996 $ 16,560 $ 73 $ 304 $ 16,937 $ 16,915 $ 17,594 $ 10,595

1995* $ 13,790 $ 61 $ 121 $ 13,972 $ 13,756 $ 13,670 $ 10,254

</TABLE>

1996 $ 13,100 $ 348 $ 1,319 $ 14,767 $ 16,915 $ 17,594 $ 10,595

1995*$ 11,770 $ 110 $ 422 $ 12,302 $ 13,756 $ 13,670 $ 10,254

</TABLE>

1996 $ 12,230 $ 154 $ 144 $ 12,528 $ 16,915 $ 17,594 $ 10,595

1995* $ 11,170 $ 141 $ 81 $ 11,392 $ 13,756 $ 13,670 $ 10,254

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
GROWTH OPPORTUNITIES PORTFOLIO INDICES

Year Value of Value of Value of Total S&P 500 DJIA Cost of
Ended Initial Reinvested Reinvested Value Living**
$10,000 Dividend Capital Gain
Investment Distributions Distributions

1996 $ 15,400 $ 130 $ 143 $ 15,673 $ 16,915 $ 17,594 $ 10,595

1995* $ 13,070 $ 111 $ 71 $ 13,252 $ 13,756 $ 13,670 $ 10,254

</TABLE>

* From January 3, 1995 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on January 3,
1995, the net amount invested in fund shares was $10,000. The cost of the
initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to
$10,231 . If distributions had not been reinvested, the amount of
distributions earned from the fund over time would have been smaller, and
cash payments for the period would have amounted to $110 for dividends
and $120 for capital gains distributions. Tax consequences of different
investments have not been factored into the above figures.
PERFORMANCE COMPARISONS. 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. Generally, Lipper rankings are based on total
return, assume reinvestment of distributions, do not take sales charges or
redemption fees into consideration, and are prepared without regard to tax
consequences. In addition to the mutual fund rankings, a fund's performance
may be compared to stock, bond, and money market mutual fund performance
indices prepared by Lipper or other organizations. When comparing these
indices, it is important to remember the risk and return characteristics of
each type of investment. For example, while stock mutual funds may offer
higher potential returns, they also carry the highest degree of share price
volatility. Likewise, money market funds may offer greater stability of
principal, but generally do not offer the higher potential returns
available from stock mutual funds.
The Asset Allocation Composite (for Asset Manager and Asset Manager:
Growth) Indices are hypothetical representations of the performance of the
funds' three asset classes according to their respective weighting in each
fund's neutral mix. The weightings are rebalanced monthly. Beginning
January 1, 1997, the Asset Allocation Composite Index represents Asset
Manager's three asset classes according to their respective weighting in
the fund's neutral mix (10% - short-term/money market: 40% - bonds; and 50%
stocks), and the Aggressive Asset Allocation Composite Index represents
Asset Manager: Growth's three asset classes according to their respective
weighting in the fund's neutral mix (5% - short-term/money market: 25% -
bonds; and 70% stocks). The following indices are used to calculate the
three asset allocation composite indices: 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 (short-term and money market instruments); the Lehman Brothers
Aggregate Bond Index, a market value weighted performance benchmark for
investment-grade fixed-rate debt issues, including government, corporate,
asset-backed, and mortgaged-backed securities with maturities of at least
one year; and the S&P 500, a widely recognized, unmanaged index of common
stocks. Prior to January 1, 1997 the Asset Allocation Composite Index
represented Asset Manager's three asset classes according to their
respective weighting in the fund's neutral mix (20% - short-term
instruments: 40% - bonds; and 40% stocks) and prior to January 1, 1997, the
Aggressive Asset Allocation Composite Index represented Asset Manager:
Growth's three asset classes according to their respective weighting in the
fund's neutral mix (5% - short-term instruments: 30% - bonds; and 65%
stocks). The following indices were used to calculate the three asset
allocation composite indices: the Salomon Brothers 3-month T-Bill Total
Rate of Return Index; the Lehman Brothers Treasury Bond Index, a widely
utilized benchmark of bond market performance that includes virtually all
long-term public obligations of the U.S. Treasury (bonds): and the S&P 500.
Asset Manager and Asset Manager: Growth have the ability to invest in
securities that are not included in any of the indices, and each fund's
actual investment portfolio may not reflect the composition or the
weighting of the indices used. The S&P 500 and the asset allocation
composite indices include reinvestment of income or dividends and are based
on the prices of unmanaged groups of stocks or U.S. Treasury obligations.
Unlike each fund's returns, the indices do not include the effect of paying
brokerage commissions, spreads, or other costs of investing. Historical
results are used for illustrative purposes only and do not reflect the past
or future performance of the funds.
The following table represents the comparative indices calendar
year-to-year performance of the fund's asset classes:

<TABLE>
<CAPTION>
<S> <C> <C> <C>
SALOMON BROTHERS 3-MONTH LEHMAN BROTHERS TREASURY
S&P 500
T-BILL TOTAL RATE OF BOND INDEX
RETURN INDEX

1996 5.25% 2.70% 22.96%

1995 5.75 18.35 37.58

1994 4.24 -3.38 1.32

1993 3.09 10.68 10.08

1992 3.61 7.21 7.62

1991 5.75 15.29 30.47

1990 7.90 8.54 -3.10

1989 8.64 14.38 31.69

1988 6.76 6.99 16.61

1987 5.91 2.00 5.10

1986 6.23 15.61 18.56

</TABLE>

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, the 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.
A fund's performance may also be compared to that of a benchmark index
representing the universe of securities in which the fund may invest. The
total return of a benchmark index reflects reinvestment of all dividends
and capital gains paid by securities included in the index. Unlike a fund's
returns, however, the index returns do not reflect brokerage commissions,
transaction fees, or other costs of investing directly in the securities
included in the index.
A fund may be compared in advertising to Certificates of Deposit (CDs) or
other investments issued by banks or other depository institutions. Mutual
funds differ from bank investments in several respects. For example, a fund
may offer greater liquidity or higher potential returns than CDs, a fund
does not guarantee your principal or your return, and fund shares are not
FDIC insured.
Fidelity may provide information designed to help individuals understand
their investment goals and explore various financial strategies. Such
information may include information about current economic, market, and
political conditions; materials that describe general principles of
investing, such as asset allocation, diversification, risk tolerance, and
goal setting; questionnaires designed to help create a personal financial
profile; worksheets used to project savings needs based on assumed rates of
inflation and hypothetical rates of return; and action plans offering
investment alternatives. Materials may also include discussions of
Fidelity's 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 Consumer Price Index), 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.
A fund may compare its performance or the performance of securities in
which it may invest to averages published by IBC Financial Data, Inc. of
Ashland, Massachusetts. These averages assume reinvestment of
distributions. IBC's MONEY FUND REPORT AVERAGES(trademark)/All Taxable
(Money Market), which is reported in IBC's MONEY FUND REPORT(trademark),
covers over 812 taxable money market 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, invest in longer-term instruments and
their share prices change 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; retirement investing;
brokerage products and services; model portfolios or allocations; saving
for college or other goals; charitable giving; and the Fidelity credit
card. In addition, Fidelity may quote or reprint financial or business
publications and periodicals as they relate to current economic and
political conditions, fund management, portfolio composition, investment
philosophy, investment techniques, the desirability of owning a particular
mutual fund, and Fidelity services and products. 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.
A fund may be advertised as part of certain asset allocation programs
involving other Fidelity or non-Fidelity mutual funds. These asset
allocation programs may advertise a model portfolio and its performance
results.
A fund may be advertised as part of a no transaction fee (NTF) program in
which Fidelity and non-Fidelity mutual funds are offered. An NTF program
may advertise performance results.
A 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, the fund may compare these
measures to those of other funds. Measures of volatility seek to compare
the 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. In advertising, a fund
may also discuss or illustrate examples of interest rate sensitivity.
MOMENTUM INDICATORS indicate a fund's price movements over specific periods
of time. Each point on the momentum indicator represents the fund's
percentage change in price movements over that period.
A fund may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a fund at periodic intervals,
thereby purchasing fewer shares when prices are high and more shares when
prices are low. While such a strategy does not assure a profit or guard
against loss in a declining market, the investor's average cost per share
can be lower than if fixed numbers of shares are purchased at the same
intervals. In evaluating such a plan, investors should consider their
ability to continue purchasing shares during periods of low price levels.
A fund may be available for purchase through retirement plans or other
programs offering deferral of, or exemption from, income taxes, 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 ten years, assuming tax was deducted at
a 31% rate from the tax-deferred earnings at the end of the ten-year
period.
As of December 31, 1996, FMR advised over $28 billion in tax-free fund
assets, $96 billion in money market fund assets, $303 billion in equity
fund assets, $61 billion in international fund assets, and $25 billion in
Spartan fund assets. The funds may reference the growth and variety of
money market mutual funds and the adviser's innovation and participation in
the industry. The equity funds under management figure represents the
largest amount of equity fund assets under management by a mutual fund
investment adviser in the United States, making FMR America's leading
equity (stock) fund manager. FMR, its subsidiaries, and affiliates maintain
a worldwide information and communications network for the purpose of
researching and managing investments abroad.
Each fund is available only through the purchase of variable annuity and
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 ten
years, assuming tax was deducted at a 31% rate from the tax-deferred
earnings at the end of the ten-year period. Individuals holding shares of a
fund 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 FUND'S EXPENSES, BUT
MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO ANY PARTICULAR
INSURANCE PRODUCT. BECAUSE YOU CAN PURCHASE SHARES OF EACH FUND ONLY
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.
INTERNATIONAL INDICES, MARKET CAPITALIZATION, AND NATIONAL
STOCK MARKET RETURN
The following tables show the total market capitalization of certain
countries according to the Morgan Stanley Capital International Indices
database, the total market capitalization of Latin American countries
according to the International Finance Corporation Emerging Markets
database, and the performance of national stock markets as measured in U.S.
dollars by the Morgan Stanley Capital International stock market indices
for the twelve months ended December 31, 1996. Of course, these results are
not indicative of future stock market performance or the funds'
performance. Market conditions during the periods measured fluctuated
widely. Brokerage commissions and other fees are not factored into the
values of the indices.
MARKET CAPITALIZATION. Companies outside the U.S. now make up nearly
two-thirds of the world's stock market capitalization. According to Morgan
Stanley Capital International, the size of the markets as measured in U.S.
dollars grew from $5,080.3 ($8,621.7 including the U.S.) billion in 1995 to
$5,749.4 ($10,078.9 including the U.S.) billion in 1996.
The following table measures the total market capitalization of certain
countries according to the Morgan Stanley Capital International Indices
database. The value of the markets are measured in billions of U.S. dollars
as of December 31, 1996.
TOTAL MARKET CAPITALIZATION
Australia $ 168.3 Japan $ 1,842.4

Austria 23.8 Netherlands 269.8

Belgium 67.9 Norway 31.5

Canada 271.8 Singapore/Malaysia 76.7/148.3

Denmark 50.5 Spain 129.0

France 395.0 Sweden 143.8

Germany 465.9 Switzerland 321.0

Hong Kong 214.6 United Kingdom 1,093.6

Italy 175.6 United States 4,549.1

The following table measures the total market capitalization of Latin
American countries according to the International Finance Corporation
Emerging Markets database. The value of the markets is measured in billions
of U.S. dollars as of December 31, 1996.
TOTAL MARKET CAPITALIZATION - LATIN AMERICA
Argentina $ 30.6

Brazil 109.9

Chile 31.8

Colombia 5.8

Mexico 74.6

Venezuela 9.8

Total Latin America $ 271.0

NATIONAL STOCK MARKET PERFORMANCE. Certain national stock markets have
outperformed the U.S. stock market. The first table below represents the
performance of national stock markets as measured in U.S. dollars by the
Morgan Stanley Capital International stock market indices for the twelve
months ended December 31, 1996. The second table shows the same performance
as measured in local currency. Each table measures total return based on
the period's change in price, dividends paid on stocks in the index, and
the effect of reinvesting dividends net of any applicable foreign taxes.
These are unmanaged indices composed of a sampling of selected companies
representing an approximation of the market structure of the designated
country.
STOCK MARKET PERFORMANCE MEASURED IN U.S. DOLLARS
Australia 17.8% Japan -15.4%

Austria 4.9 Netherlands 28.5

Belgium 13.1 Norway 29.2

Canada 29.3 Singapore/Malaysia -6.9/25.9

Denmark 22.4 Spain 41.3

France 21.8 Sweden 38.0

Germany 14.1 Switzerland 2.8

Hong Kong 33.1 United Kingdom 27.4

Italy 13.4 United States 24.1

STOCK MARKET PERFORMANCE MEASURED IN LOCAL CURRENCY
Australia 10.4% Japan -4.8%

Austria 12.9 Netherlands 38.7

Belgium 22.1 Norway 30.6

Canada 29.9 Singapore/Malaysia -7.9/25.2

Denmark 30.3 Spain 51.5

France 29.5 Sweden 42.2

Germany 22.9 Switzerland 20.0

Hong Kong 33.1 United Kingdom 15.6

Italy 8.7 United States 24.1

The following table shows the average annualized stock market returns
measured in U.S. dollars as of December 31, 1996.
STOCK MARKET PERFORMANCE
Five Years Ended Ten Years Ended
December 31, 1996 December 31, 1996
Germany 10.89% 45.12%

Hong Kong 17.84 38.95

Japan -3.63 5.91

Spain 5.38 19.33

United Kingdom 11.78 46.08

United States 12.70 43.60

PERFORMANCE COMPARISONS. 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. Generally, Lipper rankings are based on total
return, assume reinvestment of distributions, do not take sales charges or
redemption fees into consideration, and are 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 stock, bond,
and money market mutual fund performance indices prepared by Lipper or
other organizations. When comparing these indices, it is important to
remember the risk and return characteristics of each type of investment.
For example, while stock mutual funds may offer higher potential returns,
they also carry the highest degree of share price volatility. Likewise,
money market funds may offer greater stability of principal, but generally
do not offer the higher potential returns available from stock mutual
funds.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each fund is open for business and its net asset value per share (NAV) is
calculated the day the New York Stock Exchange (NYSE) is open for trading.
The NYSE has designated the following holiday closings for 1997: New Year's
Day, Presidents' Day (observed), Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. Although
FMR expects the same holiday schedule to be observed in the future, the
NYSE may modify its holiday schedule at any time. In addition, the funds
will not process wire purchases and redemptions on days when the Federal
Reserve Wire System is closed.
FSC normally determines the fund's NAV as of the close of the NYSE
(normally 4:00 p.m. Eastern time). However, NAV may be calculated earlier
if trading on the NYSE is restricted or as permitted by the Securities and
Exchange Commission (SEC). To the extent that portfolio securities are
traded in other markets on days when the NYSE is closed, a fund's NAV may
be affected on days when investors do not have access to the fund to
purchase or redeem shares. In addition, trading in some of a fund's
portfolio securities may not occur on days when the fund is open for
business.
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 a fund's NAV. 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.
In the Prospectus, each fund has notified shareholders that it reserves the
right at any time, without prior notice, to refuse exchange purchases by
any person or group if, in FMR's judgment, the fund would be unable to
invest effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected.
DISTRIBUTIONS AND 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. 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. Each fund also intends 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 a fund's gross income for
each fiscal year. Gains from some forward currency contracts, futures
contracts, and options are included in this 30% calculation, which may
limit a fund's investments in such instruments. Income and capital gain
distributions are reinvested in additional shares of the fund. This is done
to preserve the tax advantaged status of the variable contracts. Each fund
is treated as a separate entity from the other funds of its respective
trust for tax purposes. Money Market Portfolio 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.
If a fund purchases shares in certain foreign investment entities, defined
as passive foreign investment companies (PFICs) in the Internal Revenue
Code, it may be subject to U.S. federal income tax on a portion of any
excess distribution or gain from the disposition of such shares. Interest
charges may also be imposed on the fund with respect to deferred taxes
arising from such distributions or gains. Generally, a fund will elect to
mark-to-market any PFIC shares. Unrealized gains will be recognized as
income for tax purposes and must be distributed to shareholders as
dividends.
MONEY MARKET PORTFOLIO - As of December 31, 1996, the fund had a capital
loss carryforward of approxima tely $29,000 which will expire on
December 31, 2002.
INVESTMENT GRADE BOND PORTFOLIO - As of December 31, 1996, the fund had a
capital loss carryforward of approximatel y $1,514,000, of which $230,000
and $1,284,000 will expire on 2002 and 2004, respectively.
BALANCED PORTFOLIO - As of December 31, 1996, the fund has a capital loss
carryforward of approximatel y $372,000 w hich will expire on December
31, 2004.
FMR
All of the stock of FMR is owned by FMR Corp., its parent organized in
1972. The voting common stock of FMR Corp. is divided into two classes.
Class B is held predominantly by members of the Edward C. Johnson 3d family
and is entitled to 49% of the vote on any matter acted upon by the voting
common stock. Class A is held predominantly by non-Johnson family member
employees of FMR Corp. and its affiliates and is entitled to 51% of the
vote on any such matter. The Johnson family group and all other Class B
shareholders have entered into a shareholders' voting agreement under which
all Class B shares will be voted in accordance with the majority vote of
Class B shares. Under the Investment Company Act of 1940 (1940 Act),
control of a company is presumed where one individual or group of
individuals owns more than 25% of the voting stock of that company.
Therefore, through their ownership of voting common stock and the execution
of the shareholders' voting agreement, members of the Johnson family may be
deemed, under the 1940 Act, to form a controlling group with respect to FMR
Corp.
At present, the principal operating activities of FMR Corp. are those
conducted by its divisions as follows: FSC, which is the transfer and
shareholder servicing agent for certain of the funds advised by FMR;
Fidelity Investments Institutional Operations Company, which performs
shareholder servicing functions for institutional customers and funds sold
through intermediaries; and Fidelity Investments Retail Marketing Company,
which provides marketing services to various companies within the Fidelity
organization.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that sets forth all employees'
fiduciary responsibilities regarding the funds, establishes procedures for
personal investing and restricts certain transactions. For example, all
personal trades in most securities require pre-clearance, and participation
in initial public offerings is prohibited. In addition, restrictions on the
timing of personal investing in relation to trades by Fidelity funds and on
short-term trading have been adopted.
TRUSTEES AND OFFICERS
The Trustees and executive officers of the trust 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
also serve in similar capacities for other funds advised by FMR. The
business address of each Trustee and officer who is an "interested person"
(as defined in the Investment Company Act of 1940) is 82 Devonshire Street,
Boston, Massachusetts 02109, which is also the address of FMR. The business
address of all the other Trustees is Fidelity Investments, P.O. Box 9235,
Boston, Massachusetts 02205-9235. Those Trustees who are "interested
persons" by virtue of their affiliation with either the trust or FMR are
indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d (66), 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., Fidelity Management & Research (U.K.) Inc., and
Fidelity Management & Research (Far East) Inc.
*J. GARY BURKHEAD (55), Trustee and Senior Vice President, is
President of FMR; and President and a Director of FMR Texas Inc., Fidelity
Management & Research (U.K.) Inc., and Fidelity Management & Research (Far
East) Inc.
RALPH F. CO X (64), Truste e (1991), is a management consultant
(1994). Prior to February 1994, he was President of Greenhill Petroleum
Corporation (petroleum exploration and production). Until March 1990, Mr.
Cox was President and Chief Operating Officer of Union Pacific Resources
Company (exploration and production). He is a Director of Sanifill
Corporation (non-hazardous waste, 1993), CH2M Hill Companies (engineering),
Rio Grande, Inc. (oil and gas production), and Daniel Industries (petroleum
measurement equipment manufacturer). In addition, he is a member of
advisory boards of Texas A&M University and the University of Texas at
Austin.
PHYLLIS BURKE DAVI S (65), Trust ee (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), and previously served as a
Director of Hallmark Cards, Inc. (1985-1991) and Nabisco Brands, Inc. In
addition, she is a member of the President's Advisory Council of The
University of Vermont School of Business Administration.
E. BRADLEY JONES (69), Truste e. Prior to his retirement in 1984, Mr.
Jones was Chairman and Chief Executive Officer of LTV Steel Company. He is
a Director of TRW Inc. (original equipment and replacement products),
Cleveland-Cliffs Inc (mining), Consolidated Rail Corporation, Birmingham
Steel Corporation, and RPM, Inc. (manufacturer of chemical products), and
he previously served as a Director of NACCO Industries, Inc. (mining and
marketing, 1985-1995) and Hyster-Yale Materials Handling, Inc. (1985-1995).
In addition, he serves as a Trustee of First Union Real Estate Investments,
a Trustee and member of the Executive Committee of the Cleveland Clinic
Foundation, a Trustee and member of the Executive Committee of University
School (Cleveland), and a Trustee of Cleveland Clinic Florida.
DONALD J. KIR K (64), Trustee, is Executive-in-Residence (1995) at
Columbia University Graduate School of Business and a financial consultant.
From 1987 to January 1995, Mr. Kirk was a Professor at Columbia University
Graduate School of Business. Prior to 1987, he was Chairman of the
Financial Accounting Standards Board. Mr. Kirk is a Director of General Re
Corporation (reinsurance), and he previously served as a Director of
Valuation Research Corp. (appraisals and valuations, 1993-1995). In
addition, he serves as Chairman of the Board of Directors of the National
Arts Stabilization Fund, Chairman of the Board of Trustees of the Greenwich
Hospital Association, a Member of the Public Oversight Board of the
American Institute of Certified Public Accountants' SEC Practice Section
(1995), and as a Public Governor of the National Association of Securities
Dealers, Inc. (1996).
*PETER S. LYNC H (53), Trustee, is Vice Chairman and Director of FMR
(1992). Prior to May 31, 1990, he was a Director of FMR 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) 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.
GERALD C. McDONOUGH (67), Trustee and Vice-Chairman of the
non-interested Trustees, 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 Brush-Wellman Inc.
(metal refining), York International Corp. (air conditioning and
refrigeration), Commercial Intertech Corp. (hydraulic systems, building
systems, and metal products, 1992), CUNO, Inc. (liquid and gas filtration
products, 1996), and Associated Estates Realty Corporation (a real estate
investment trust, 1993). Mr. McDonough served as a Director of
ACME-Cleveland Corp. (metal working, telecommunications, and electronic
products) from 1987-1996.
EDWARD H. MALONE (71), T rustee. 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). In addition, he serves as a Trustee of the
Naples Philharmonic Center for the Arts and Rensselaer Polytechnic
Institute, and he is a member of the Advisory Boards of Butler Capital
Corporation Funds and Warburg, Pincus Partnership Funds.
MARVIN L. MANN (63), Tru stee (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.
WILLIAM O. McCOY (63), T rustee (1997), is the Vice President of
Finance for the University of North Carolina (16-school system, 1995).
Prior to his retirement in December 1994, Mr. McCoy was Vice Chairman of
the Board of BellSouth Corporation (telecommunications) and President of
BellSouth Enterprises. He is currently a Director of Liberty Corporation
(holding company), Weeks Corporation of Atlanta (real estate, 1994), and
Carolina Power and Light Company (electric utility, 1996). Previously, he
was a Director of First American Corporation (bank holding company,
1979-1996). In addition, Mr. McCoy serves as a member of the Board of
Visitors for the University of North Carolina at Chapel Hill (1994) and for
the Kenan Flager Business School (University of North Carolina at Chapel
Hill).
THOMAS R. WILLIAM S (68), 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., and AppleSouth,
Inc. (restaurants, 1992).
WILLIAM J. HAYE S (62), Vi ce President (1994), is Vice President of
Fidelity's equity funds; Senior Vice President of FMR; and Managing
Director of FMR Corp.
ROBERT A. LAWRENCE (44) , Vice President (1994), is Vice President of
Fidelity's high income funds and Senior Vice President of FMR (1993). Prior
to joining FMR, Mr. Lawrence was Managing Director of the High Yield
Department for Citicorp (1984-1991).
FRED L. HENNING, JR. (57) , Vice President, is Vice President of
Fidelity's fixed-income funds (1995) and Senior Vice President of FMR
(1995).
SARAH H. ZENOBLE (46), Vice President, is Vice President of
Fidelity's money market funds (1996) and Vice President of FMR Texas Inc.
JOHN TODD (47), is Vice Pr esident of Fidelity Asset Manager: Income,
Fidelity Asset Manager, and Fidelity Asset Manager: Growth and manager of
their short-term and money market investments, which he has managed since
December 1996. He also manages several other Fidelity funds. Mr. Todd
joined Fidelity in 1981.
KEVIN GRANT (36), is Vice President and Manager of Investment Grade
Bond which he has managed since February 1997. He has also been co-manager
of Balanced Portfolio since 1996. He also manages several other Fidelity
funds. Prior to joining Fidelity, Mr. Grant was a vice president and chief
mortgage strategist at Morgan Stanley for three years.
CHARLES MORRISO N (56), is Manager of Asset Manager and Asset
Manager: Growth's fixed-income investments, which he has managed since
February 1997. He also manages several other Fidelity funds. Prior to
joining Fidelity in 1987, Mr. Morrison has worked as an analyst and
manager.
BARRY COFFM AN (37), Vice President of High Income Portfolio (1992),
is an employee of FMR.
JENNIFER G. FARRELLY (33) , Vice President of Index Portfolio (1996),
is an employee of FMR.
RICHARD C. HABERMAN N (56), Vice President of Asset Manager Portfolio
(1996) and Asset Manager: Growth Portfolio (1996), is an employee of FMR.
RICHARD R. MACE, J R. (35), V ice President of Overseas Portfolio
(1996) is an employee of FMR.
GEORGE VANDERHEI DEN (51), Vice President of Asset Manager Portfolio
(1996) and Asset Manager: Growth Portfolio (1996), is an employee of FMR.
STEPHEN PETERSEN (41), V ice President of Equity Income Portfolio
(1997), is an employee of FMR.
JENNIFER UHRI G (36), Vic e President of Growth Portfolio (1997), is
an employee of FMR.
BETH TERRANA (39), Vi ce President of Growth & Income Portfolio
(1996), is an employee of FMR.
BETTINA DOULT ON (32), Vi ce President of Balanced Portfolio (1996),
is an employee of FMR.
ARTHUR S. LO RING (49), Secr etary, is Senior Vice President (1993)
and General Counsel of FMR, Vice President-Legal of FMR Corp., and Vice
President and Clerk of FDC.
KENNETH A. RATHGEBE R (49), T reasurer (1995), is Treasurer of the
Fidelity funds and is an employee of FMR (1995). Before joining FMR, Mr.
Rathgeber was a Vice President of Goldman Sachs & Co. (1978-1995), where he
served in various positions, including Vice President of Proprietary
Accounting (1988-1992), Global Co-Controller (1992-1994), and Chief
Operations Officer of Goldman Sachs (Asia) LLC (1994-1995).
ROBERT H. MORRISON (56), M anager of Security Transactions of
Fidelity's equity funds is Vice President of FMR.
JOHN H. COSTELL O (50) , Assistant Treasurer, is an employee of FMR.
LEONARD M. RUS H (50), Assi stant Treasurer (1994), is an employee of
FMR (1994). Prior to becoming Assistant Treasurer of the Fidelity funds,
Mr. Rush was Chief Compliance Officer of FMR Corp. (1993-1994) and Chief
Financial Officer of Fidelity Brokerage Services, Inc. (1990-1993).
The following table sets forth information describing the compensation of
each Trustee and Member of the Advisory Board of each fund for his or her
services for the fiscal year ended December 31, 1996.
COMPENSATION TABLE

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aggregate J. Gary Ralph F. Phyllis Richard Edward E. Donald Peter S. William Gerald Edward Marvin Thomas
Compensation Burkhea Cox Burke J. C. Bradley J. Kirk Lynch
(double
dagger) O. C. H. L. Mann R.
from a
Fund A d(double
dagger) Davis Flynn
(double
dagger)
(double
dagger) Johnson Jones McCoy McDono Malone Williams
3d(double
dagger) (double
dagger)
(double
dagger)
(double
dagger) ugh (double
dagger)
(double
dagger)

Money
MarketB $ 0 $309 $307 $384 $0 $307 $311 $ 0 $198 $311 $306 $ 302 $ 311

High
IncomeC 0 407 397 498 0 397 402 0 260 402 403 398 402

Equity-
IncomeD,N 0 1960 1908 2,385 0 1,908 1,930 0 1,251 1,932 1,939 1,917 1,929

GrowthEN 0 1719 1682 2,107 0 1,682 1,702 0 1,115 1,705 1,700 1,680 1,702

OverseasFN 0 516 502 626 0 502 488 0 323 508 510 505 508

Investment
Grade 0 68 66 82 0 66 67 0 42 67 67 67 67
BondG

Asset 0 1162 1144 1,423 0 1,144 1,156 0 704 1,155 1,149 1,137 1,156
ManagerH,N

Index 500I 0 143 138 175 0 138 140 0 103 141 143 140 139

ContrafundJ 0 484 468 591 0 468 475 0 344 477 481 474 474

Asset
Manager: 0 42 40 50 0 40 41 0 30 41 41 41 41
GrowthK

BalancedL 0 23 22 28 0 22 23 0 16 23 23 23 23

Growth & 0 50 50 65 0 50 50 0 35 50 50 50 50
Income+

Growth 0 86 82 104 0 82 84 0 60 84 84 84 83
OpportunitiesM

TOTAL 0 137,70 134,70 168,00 134,70 136,20 0 85,333 136,20 136,20 134,70 136,20
COMPEN
SATION 0 0 0 0 0 0 0 0 0
FROM THE FUND
COMPLEX ++, A

</TABLE>

(double dagger) Interested trustees of each fund are compensated by FMR.
(double dagger)(double dagger) Richard J. Flynn and Edward H. Malone served
on the Board of Trustees through December 31, 1996.
(double dagger)(double dagger)(double dagger) During the period from May 1,
1996 through December 31, 1996, William O. McCoy served as a Member of the
Advisory Board of Variable Insurance Products Fund, Variable Insurance
Products Fund II, and Variable Insurance Products Fund III.
+ Estimated
++ Information is as of December 31, 1996 for 235 funds in the complex.
A Compensation figures include cash, a pro rata portion of benefits accrued
under the retirement program for the period ended December 30, 1996 and
required to be deferred, and may include amounts deferred at the election
of Trustees.
B The following amounts are required to be deferred by each non-interested
Trustee, most of which is subject to vesting: Ralph F. Cox, $12, Phyllis
Burke Davis, Richard J. Flynn, $0, $12, E. Bradley Jones, $12, Donald J.
Kirk, $12, Gerald C. McDonough, $12, Edward H. Malone, $12, Marvin L. Mann,
$12, and Thomas R. Williams, $12.
C The following amounts are required to be deferred by each non-interested
Trustee, most of which is subject to vesting: Ralph F. Cox, $15, Phyllis
Burke Davis, Richard J. Flynn, $0, $15, E. Bradley Jones, $15, Donald J.
Kirk, $15, Gerald C. McDonough, $15, Edward H. Malone, $15, Marvin L. Mann,
$15, and Thomas R. Williams, $15.
D The following amounts are required to be deferred by each non-interested
Trustee, most of which is subject to vesting: Ralph F. Cox, $75, Phyllis
Burke Davis, Richard J. Flynn, $0, $75, E. Bradley Jones, $75, Donald J.
Kirk, $75, Gerald C. McDonough, $75, Edward H. Malone, $75, Marvin L. Mann,
$75, and Thomas R. Williams, $75.
E The following amounts are required to be deferred by each non-interested
Trustee, most of which is subject to vesting: Ralph F. Cox, $65, Phyllis
Burke Davis, Richard J. Flynn, $0, $65, E. Bradley Jones, $65, Donald J.
Kirk, $65, Gerald C. McDonough, $65, Edward H. Malone, $65, Marvin L. Mann,
$65, and Thomas R. Williams, $65.
F The following amounts are required to be deferred by each non-interested
Trustee, most of which is subject to vesting: Ralph F. Cox, $20, Phyllis
Burke Davis, Richard J. Flynn, $0, $20, E. Bradley Jones, $20, Donald J.
Kirk, $20, Gerald C. McDonough, $20, Edward H. Malone, $20, Marvin L. Mann,
$20, and Thomas R. Williams, $20.
G The following amounts are required to be deferred by each non-interested
Trustee, most of which is subject to vesting: Ralph F. Cox, $3, Phyllis
Burke Davis, Richard J. Flynn, $0, $3, E. Bradley Jones, $3, Donald J.
Kirk, $3, William O. McCoy, $3, Gerald C. McDonough, $3, Edward H. Malone,
$3, Marvin L. Mann, $3, and Thomas R. Williams, $3.
H The following amounts are required to be deferred by each non-interested
Trustee, most of which is subject to vesting: Ralph F. Cox, $44, Phyllis
Burke Davis, Richard J. Flynn, $0, $44, E. Bradley Jones, $44, Donald J.
Kirk, $44, Gerald C. McDonough, $44, Edward H. Malone, $44, Marvin L. Mann,
$44, and Thomas R. Williams, $44.
I The following amounts are required to be deferred by each non-interested
Trustee, most of which is subject to vesting: Ralph F. Cox, $5, Phyllis
Burke Davis, Richard J. Flynn, $0, $5, E. Bradley Jones, $5, Donald J.
Kirk, $5, Gerald C. McDonough, $5, Edward H. Malone, $5, Marvin L. Mann,
$5, and Thomas R. Williams, $5.
J The following amounts are required to be deferred by each non-interested
Trustee, most of which is subject to vesting: Ralph F. Cox, $19, Phyllis
Burke Davis, Richard J. Flynn, $0, $19, E. Bradley Jones, $19, Donald J.
Kirk, $19, Gerald C. McDonough, $19, Edward H. Malone, $19, Marvin L. Mann,
$19, and Thomas R. Williams, $19.
K The following amounts are required to be deferred by each non-interested
Trustee, most of which is subject to vesting: Ralph F. Cox, $2, Phyllis
Burke Davis, Richard J. Flynn, $0, $2, E. Bradley Jones, $2, Donald J.
Kirk, $2, Gerald C. McDonough, $2, Edward H. Malone, $2, Marvin L. Mann,
$2, and Thomas R. Williams, $2.
L The following amounts are required to be deferred by each non-interested
Trustee, most of which is subject to vesting: Ralph F. Cox, $1, Phyllis
Burke Davis, Richard J. Flynn, $0, $1, E. Bradley Jones, $1, Donald J.
Kirk, $1, Gerald C. McDonough, $1, Edward H. Malone, $1, Marvin L. Mann,
$1, and Thomas R. Williams, $1.
M The following amounts are required to be deferred by each non-interested
Trustee, most of which is subject to vesting: Ralph F. Cox, $3, Phyllis
Burke Davis, Richard J. Flynn, $0, $3, E. Bradley Jones, $3, Donald J.
Kirk, $3, Gerald C. McDonough, $3, Edward H. Malone, $3, Marvin L. Mann,
$3, and Thomas R. Williams, $3.
N For the fiscal year ended in 1996, certain of the non-interested
trustees' aggregate compensation from certain funds includes accrued
voluntary deferred compensation as follows: Equity-Income (Cox, $1,885,
Malone, $1,864, Mann, $1,842); Growth (Cox, $1,654, Malone, $1,635, Mann,
$1,615); Overseas (Cox, $496, Malone, $490, Mann, $485); Asset Manager
(Cox, $1,118, Malone, $1,105, Mann, $1,093).
Under a retirement program adopted in July 1988 and modified in November
1995 and November 1996, each non-interested Trustee who retired before
December 30, 1996 may receive payments from a Fidelity fund during his or
her lifetime based on his or her basic trustee fees and length of service.
The obligation of a fund to make such payments is neither secured nor
funded. A Trustee became eligible to participate in the program at the end
of the calendar year in which he or she reached age 72, provided that, at
the time of retirement, he or she had served as a Fidelity fund Trustee for
at least five years.
The non-interested Trustees may elect to defer receipt of all or a
percentage of their annual fees in accordance with the terms of a Deferred
Compensation Plan (the Plan). Under the Plan, compensation deferred by a
Trustee is periodically adjusted as though an equivalent amount had been
invested and reinvested in shares of one or more funds in the complex
designated by such Trustee (designated securities). The amount paid to the
Trustee under the Plan will be determined based upon the performance of
such investments. Deferral of fees in accordance with the Plan will have a
negligible effect on the funds' assets, liabilities, and net income per
share, and will not obligate the funds to retain the services of any
Trustee or to pay any particular level of compensation to the Trustee. The
funds may invest in such designated securities under the Plan without
shareholder approval.
As of December 30, 1996, the non-interested Trustees terminated the
retirement program for Trustees who retire after such date. In connection
with the termination of the retirement program, each existing
non-interested Trustee received a credit to his or her Plan account equal
to the present value of the estimated benefits that would have been payable
under the retirement program. The amounts credited to the non-interested
Trustees' Plan accounts are subject to vesting. The termination of the
retirement program and related crediting of estimated benefits to the
Trustees' Plan accounts did not result in a material cost to the funds.
As of December 31, 1996, the Trustees, and officers of each fund owned, in
the aggregate, less than 1% of each fund's total outstanding shares.
A shareholder owning of record or beneficially more than 25% of a fund's
outstanding shares may be considered a controlling person. That
shareholder's vote could have a more significant effect on matters
presented at a shareholders' meeting than votes of other shareholders. As
of March 31, 1997, significant shares of the fund were held by the
following companies with the figures beneath each fund representing that
company's holdings as a percentage of that fund's total outstanding shares.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money High Equity- Growth Oversea Asset Asset Contrafun Index Balance Growth Growth Investmen
Market Incom Incom s Manager Manager d 500 d Opportunitie & t Grade
e e :Growth s Income Bond

Fidelity
Investments
Life 41% -- -- -- -- -- 72% -- 43% -- -- 87% 32%
Insurance
Company
(Boston,
MA)

Nationwide
Life
Insurance -- 46% 28% 29% 37% 26% -- 23% -- 86% 80% -- --
Company
(Columbus, OH)

</TABLE>

MANAGEMENT CONTRACTS
Each fund employs FMR to furnish investment advisory and other services.
Under its management contract with each fund, FMR acts as investment
adviser 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,
compensates all officers of each fund and all Trustees who are "interested
persons" of the trusts or of FMR, and all personnel of each 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 laws; developing management and shareholder services for each fund;
and furnishing reports, evaluations, and analyses on a variety of subjects
to the Trustees.
In addition to the management fee payable to FMR and the fees payable to
FSC and FIIOC, each fund pays all of its expenses, without limitation, that
are not assumed by those parties. Each fund pays for typesetting, printing,
and mailing proxy material to shareholders, legal expenses, and the fees of
the custodian, auditor, and non-interested Trustees. Although each fund's
current management contract provides that it will pay for typesetting,
printing, and mailing prospectuses, statements of additional information,
notices, and reports to existing shareholders, each trust on behalf of each
fund has entered into a revised transfer agent agreement with FIIOC,
pursuant to which FIIOC bears the cost of providing these services to
existing shareholders. Other expenses 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 non-recurring expenses as may arise, including costs
of any litigation to which each fund may be a party, and any obligation it
may have to indemnify its officers and Trustees with respect to litigation.
FMR is each fund's manager pursuant to management contracts dated as
follows:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money High Equity-Inc Growth Overseas Investment Asset Growth & Balanced Index 500 Contrafun Asset Growth
Market Income ome Grade Manager Income d Manager:Opportunitie
Bond Growth s

Contract January January January January January January 1, January Decembe Novembe January Novembe Novembe November
Dated 1, 1994 1, 1994 1, 1993 1, 1993 1, 1993 1993 1, 1993 r 19, r 18, 1, 1993 r 1, 1994 r 1,1994 18, 1994
1996 1994

Date Decembe Decembe Decembe Decembe Decembe December Decembe Decembe Novembe Decembe Novembe Novembe November
Approved by r 15, r 15, r 16, r 16, r 16, 16, 1992 r 16, r 19, r 21, r 16, r 9,1994 r 9,1994 21, 1994
Shareholders 1993 1993 1992 1992 1992 1992 1996 1994 1992

</TABLE>

The management fee paid to FMR by Index 500 Portfolio is reduced by an
amount equal to the fees and expenses of the non-interested Trustees.
MONEY MARKET PORTFOLIO: For the services of FMR under the contract, the
fund pays FMR a monthly management fee composed of a group fee rate and an
individual fund fee rate (.03%), and an income-based component of 6% of the
fund's gross income in excess of a 5% yield. The maximum income-based
component is .24% of 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 below on the left. The schedule below on the right shows the
effective annual group fee rate at various asset levels, which is the
result of cumulatively applying the annualized rates on the left. For
example, the effective annual fee rate at $453 billion of group net assets
- - the approximate level for December 1996 - was .1425%, which is the
weighted average of the respective fee rates for each level of group net
assets up to $453 billion.
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES

Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate

$ 0 - 3 billion .3700% $ 0.5 billion .3700%

3 - 6 .3400 25 .2664

6 - 9 .3100 50 .2188

9 - 12 .2800 75 .1986

12 - 15 .2500 100 .1869

15 - 18 .2200 125 .1793

18 - 21 .2000 150 .1736

21 - 24 .1900 175 .1695

24 - 30 .1800 200 .1658

30 - 36 .1750 225 .1629

36 - 42 .1700 250 .1604

42 - 48 .1650 275 .1583

48 - 66 .1600 300 .1565

66 - 84 .1550 325 .1548

84 - 120 .1500 350 .1533

120 - 174 .1450 400 .1507

174 - 228 .1400

228 - 282 .1375

282 - 336 .1350

Over 336 .1325

On August 1, 1994, FMR voluntarily revised the group fee rate schedule and
added new breakpoints for average group assets in excess of $156 billion
and under $372 billion as shown in the schedule below. The revised group
fee rate schedule was identical to the above schedule for average group
assets under $156 billion.
On January 1, 1996, FMR voluntarily added new breakpoints to the revised
schedule for average group assets in excess of $372 billion, pending
shareholder approval of a new management contract reflecting the revised
schedule and additional breakpoints. The revised group fee rate schedule
and its extensions provide for lower management fee rates as FMR's assets
under management increase. For average group assets in excess of $156
billion, the revised group fee rate schedule with additional breakpoints
voluntarily adopted by FMR is as follows:
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES

Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate

$ 120 - 156 .1450% $150 billion .1736%
billion

156 - 192 .1400 175 .1690

192 - 228 .1350 200 .1652

228 - 264 .1300 225 .1618

264 - 300 .1275 250 .1587

300 - 336 .1250 275 .1560

336 - 372 .1225 300 .1536

372 - 408 .1200 325 .1514

408 - 444 .1175 350 .1494

444 - 480 .1150 375 .1476

480 - 516 .1125 400 .1459

Over .1100 425 .1443
516

450 .1427

475 .1413

500 .1399

525 .1385

550 .1372

The individual fund fee rate for Money Market Portfolio is .03%.
One twelfth of the sum of the group fee rate and the individual fund fee
rate is applied to the fund's average net assets for the current month,
giving a dollar amount, which is the fee for that month.
If the fund's monthly gross yield is 5% or less, the total management fee
is the sum of the group fee and the individual fund fee. If the fund's
monthly gross yield is greater than 5%, the management fee that FMR
receives includes an income-based component. The income-based component
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.
For the fiscal years ended December 31, 1996, 1995, and 1994, FMR
received $1,949,039, $1,881,213, and $1,178,543, resp ectively, for
its services as investment adviser to Money Market Portfolio. These fees
were equivalent to .21%, .20%, and .14%, respectively, of the fund's
average net assets for those years.
Prior to January 1, 1994, for the services of FMR under the contract, the
fund paid FMR a monthly management fee computed on the basis of the fund's
gross income. To the extent that the fund's monthly gross income of the
fund was equivalent to an annualized yield of 5% or less, FMR received 4%
of that amount of the fund's gross income. In addition, to the extent that
the fund's monthly gross income exceeded an annualized yield of 5%, FMR
received 6% of that excess. For this purpose, gross income included
interest accrued or discount earned (including both original issue and
market discount), less amortization of premium. The amount of discount or
premium on portfolio instruments was fixed at the time of purchase.
Realized and unrealized gains and losses, if any, were not included in
gross income.
Pursuant to the terms of the contract, limitations were imposed on the
compensation FMR could receive under the above formula. These limitations
were based on the fund's average monthly net assets as follows:
AVERAGE MONTHLY NET ASSETS ANNUALIZED RATE
On the first $1.5 billion. .50%
On the portion in excess of $1.5 to $3.0 billion. .45%
On the portion in excess of $3.0 billion to $4.5 billion. .43%
On the portion in excess of $4.5 billion to $6.0 billion. .41%
On the portion in excess of $6.0 billion. .40%
HIGH INCOME AND INVESTMENT GRADE BOND PORTFOLIOS. 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 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 below on the left. The schedule below on the right shows the
effective annual group fee rate at various asset levels, which is the
result of cumulatively applying the annualized rates on the left. For
example, the effective annual fee rate at $453 billion of group net assets
- - the approximate level for December 1996 - was .1425%, which is the
weighted average of the respective fee rates for each level of group net
assets up to $453 billion.
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES

Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate

$ 0 - 3 billion .3700% $ 0.5 billion .3700%

3 - 6 .3400 25 .2664

6 - 9 .3100 50 .2188

9 - 12 .2800 75 .1986

12 - 15 .2500 100 .1869

15 - 18 .2200 125 .1793

18 - 21 .2000 150 .1736

21 - 24 .1900 175 .1695

24 - 30 .1800 200 .1658

30 - 36 .1750 225 .1629

36 - 42 .1700 250 .1604

42 - 48 .1650 275 .1583

48 - 66 .1600 300 .1565

66 - 84 .1550 325 .1548

84 - 120 .1500 350 .1533

120 - 174 .1450 400 .1507

174 - 228 .1400

228 - 282 .1375

282 - 336 .1350

Over 336 .1325

Under Investment Grade Bond's current management contract with FMR, the
group fee rate is based on a schedule with breakpoints ending at .1400% for
average group assets in excess of $174 billion. Prior to January 1, 1993,
the group fee rate breakpoints shown above for average group assets in
excess of $120 billion and under $228 billion were voluntarily adopted by
FMR, on January 1, 1992. The additional breakpoints shown above for average
group assets in excess of $228 billion were voluntarily adopted by FMR on
November 1, 1993.
On August 1, 1994, FMR voluntarily revised (in the case of Investment Grade
Bond the prior extensions to) the group fee rate schedule, and added new
breakpoints for average group assets in excess of $156 billion and under
$372 billion as shown in the schedule below. The revised group fee rate
schedule was identical to the above schedule for average group assets under
$156 billion.
On January 1, 1996, FMR voluntarily added new breakpoints to the revised
schedule for average group assets in excess of $372 billion, pending
shareholder approval of a new management contract reflecting the revised
schedule and additional breakpoints. The revised group fee rate schedule
and its extensions provide for lower management fee rates as FMR's assets
under management increase. For average group assets in excess of $156
billion, the revised group fee rate schedule with additional breakpoints
voluntarily adopted by FMR is as follows:
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES

Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate

$ 120 - 156 .1450% $150 billion .1736%
billion

156 - 192 .1400 175 .1690

192 - 228 .1350 200 .1652

228 - 264 .1300 225 .1618

264 - 300 .1275 250 .1587

300 - 336 .1250 275 .1560

336 - 372 .1225 300 .1536

372 - 408 .1200 325 .1514

408 - 444 .1175 350 .1494

444 - 480 .1150 375 .1476

480 - 516 .1125 400 .1459

Over .1100 425 .1443
516

450 .1427

475 .1413

500 .1399

525 .1385

550 .1372

The individual fund fee rate for Investment Grade Bond Portfolio is .30%,
and the individual fund fee rate for High Income Portfolio is .45%. Based
on the average group net assets of the funds advised by FMR for December
1996, the annual management fee rate for each fund would be calculated as
follows:
INVESTMENT GRADE BOND PORTFOLIO
Group Fee Rate Individual Fund Fee Rate Management Fee Rate

.1425% + .30% = .4425%

HIGH INCOME PORTFOLIO
Group Fee Rate Individual Fund Fee Rate Management Fee Rate

.1425% + .45% = .5925%

One-twelfth of this annual management fee rate is applied to each fund's
net assets averaged for the most recent month, giving a dollar amount,
which is the fee for that month.
During the fiscal years ended December 31, 1996, 1995, and 1994, FMR
received $903,441, $660,058, and $520,469, respectively, for its services
as investment adviser to INVESTMENT GRADE BOND PORTFOLIO. These fees were
equivalent to .45%, .45%, and .46%, respectively, of the average net assets
of the fund for those years.
During the fiscal years ended December 31, 1996, 1995, and 1994, FMR
received $7,422,311, $4,956,133, and $2,999,205, respectively, for its
services as investment adviser to HIGH INCOME PORTFOLIO. These fees were
equivalent to .59%, .60%, and .61%, respectively, of the average net assets
of the fund for those years. On December 15, 1993, shareholders voted to
increase the fund's individual fund fee rate from 0.35% to 0.45%.
EQUITY-INCOME, BALANCED, GROWTH, GROWTH & INCOME, GROWTH OPPORTUNITIES,
OVERSEAS, ASSET MANAGER, CONTRAFUND, AND ASSET MANAGER: GROWTH PORTFOLIOS.
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 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 below on the left. The schedule below on the right shows the
effective annual group fee rate at various asset levels, which is the
result of cumulatively applying the annualized rates on the left. For
example, the effective annual fee rate at $453 billion of group net assets
- - the approximate level for December 1996 - was .3021%, which is the
weighted average of the respective fee rates for each level of group net
assets up to $453 billion.
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES

Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate

$ 0 - 3 billion .5200% $ 0.5 billion .5200%

3 - 6 .4900 25 .4238

6 - 9 .4600 50 .3823

9 - 12 .4300 75 .3626

12 - 15 .4000 100 .3512

15 - 18 .3850 125 .3430

18 - 21 .3700 150 .3371

21 - 24 .3600 175 .3325

24 - 30 .3500 200 .3284

30 - 36 .3450 225 .3253

36 - 42 .3400 250 .3223

42 - 48 .3350 275 .3198

48 - 66 .3250 300 .3175

66 - 84 .3200 325 .3153

84 - 102 .3150 350 .3133

102 - 138 .3100

138 - 174 .3050

174 - 228 .3000

228 - 282 .2950

282 - 336 .2900

Over 336 .2850

Under Equity-Income, Growth, Overseas and Asset Manager Portfolios' current
management contracts with FMR, the group fee rate is based on a schedule
with breakpoints ending at .3000% for average group assets in excess of
$174 billion. Prior to January 1, 1993, the group fee rate breakpoints
shown above for average group assets in excess of $138 billion and under
$228 billion were voluntarily adopted by FMR, on January 1, 1992. The
additional breakpoints shown above for average group assets in excess of
$228 billion were voluntarily adopted by FMR on November 1, 1993.
On August 1, 1994, FMR voluntarily revised the prior extensions to the
group fee rate schedule, and added new breakpoints for average group assets
in excess of $210 billion and under $390 billion as shown in the schedule
below. The revised group fee rate schedule was identical to the above
schedule for average group assets under $210 billion. For average group
assets in excess of $210 billion, the group fee rate schedule voluntarily
adopted by FMR is as follows (Asset Manager: Growth and Contrafund
Portfolios' management contracts, dated November 1, 1994, include the
following breakpoints in their fee schedules):
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES

Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate

$ 138 - 174 .3050% $150 billion .3371%
billion

174 - 210 .3000 175 .3325

210 - 246 .2950 200 .3284

246 - 282 .2900 225 .3249

282 - 318 .2850 250 .3219

318 - 354 .2800 275 .3190

354 - 390 .2750 300 .3163

Over .2700 325 .3137
390

350 .3113

375 .3090

400 .3067

On January 1, 1996, FMR voluntarily added new breakpoints to the revised
schedule for average group assets in excess of $390 billion, pending
shareholder approval of a new management contract reflecting the revised
schedule and additional breakpoints. The revised group fee rate schedule
and its extensions provide for lower management fee rates as FMR's assets
under management increase. For average group assets in excess of $210
billion, the revised group fee rate schedule with additional breakpoints
voluntarily adopted by FMR is as follows:
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES

Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate

$ 174 - 210 .3000% $150 billion .3371%
billion

210 - 246 .2950 175 .3325

246 - 282 .2900 200 .3284

282 - 318 .2850 225 .3249

318 - 354 .2800 250 .3219

354 - 390 .2750 275 .3190

390 - 426 .2700 300 .3163

426 - 462 .2650 325 .3137

462 - 498 .2600 350 .3113

498 - 534 .2550 375 .3090

Over .2500 400 .3067
534

425 .3046

450 .3024

475 .3003

500 .2982

525 .2962

550 .2942

The individual fund fee rate for the funds are as follows: .15% for
Balanced; .20% for Equity-Income Portfolio and Growth & Income; .25% for
Asset Manager; .30% for Growth Opportunities, Growth, Asset Manager: Growth
and Contrafund Portfolios; and .45% for Overseas Portfolio. Based on the
average group net assets of the funds advised by FMR for December 1996, the
annual management fee rate for each fund would be calculated as follows:
BALANCED PORTFOLIO
Group Fee Rate Individual Fund Fee Rate Management Fee Rate

.3021% + .15% = .4521%

EQUITY-INCOME, AND GROWTH & INCOME PORTFOLIOS
Group Fee Rate Individual Fund Fee Rate Management Fee Rate

.3021% + .20% = .5021%

ASSET MANAGER
Group Fee Rate Individual Fund Fee Rate Management Fee Rate

.3021% + .25% = .5521%

GROWTH OPPORTUNITIES, GROWTH, CONTRAFUND AND ASSET MANAGER GROWTH
PORTFOLIOS
Group Fee Rate Individual Fund Fee Rate Management Fee Rate

.3021% + .30% = .6021%

OVERSEAS PORTFOLIO
Group Fee Rate Individual Fund Fee Rate Management Fee Rate

.3021% + .45% = .7521%

One-twelfth of the annual management fee rate is applied to each fund's net
assets averaged for the most recent month, giving a dollar amount, which is
the fee for that month.
During the fiscal years ended December 31, 1996, 1995, and 1994, FMR
received $30,150,885 , $17,818,979, and $9,165,293, respectively, for its
services as investment adviser to EQUITY-INCOME PORTFOLIO. These fees were
equivalent to .51% .51%, and .52%, respectively, of the average net assets
of the fund for each of those years.
During the fiscal years ended December 31, 1996, 1995, and 1994, FMR
received $31,760,621 , $19,591,048, and $10,585,482, respectively, for its
services as investment adviser to GROWTH PORTFOLIO. These fees were
equivalent to .61%, .61%, and .62%, respectively, of the average net assets
of the fund for each of those years.
During the fiscal years ended December 31, 1996, and 1995, FMR received
$356,604, and $75,801 for its services as investment adviser to BALANCED
PORTFOLIO. These fees were equivalent to .48%, and .51%, respectively, of
the average net assets of the fund for each of those years. Effective
August 1, 1996, FMR voluntarily agreed to reduce the Balanced Portfolio's
individual fund fee rate from .20% to .15%. If this agreement were not in
effect, the management fee would have been equivalent to .50%.
During the fiscal years ended December 31, 1996, and 1995, FMR received
$1,679,264, and $311,959, respectively, for its services as investment
adviser to GROWTH OPPORTUNITIES PORTFOLIO. These fees were equivalent to
.61%, and .61%, respectively, of the average net assets of the fund for
each of those years.
During the fiscal years ended December 31, 1996, 1995, and 1994, FMR
received $11,667,177, $9,837,952, and $8,646,616, respectively, for its
services as investment adviser to OVERSEAS PORTFOLIO. These fees were
equivalent to .76%, .76%, .77%, respectively, of the average net assets of
the fund for each of those years.
During the fiscal years ended December 31, 1996, 1995, and 1994, FMR
received $22,022,749, $23,174,840, and $22,080,801, respectively, for its
services as investment adviser to ASSET MANAGER PORTFOLIO. These fees were
equivalent to .64%, .71%, and .72%, respectively, of the average net
assets of the fund for each of those years. Effective August 1, 1996, FMR
voluntarily agreed to reduce the Asset Manager Portfolio's individual fund
fee rate from .40% to .25%. If this agreement were not in effect, the
management fee would have been equivalent to .70%.
During the fiscal year ended December 31, 1996, and 1995, FMR received
$906,614 and $261,324 for its services as investment adviser to ASSET
MANAGER: GROWTH PORTFOLIO. These fees were equivalent to .65% and .71%,
respectively, of the average net assets of the fund for each of those
years. Effective August 1, 1996, FMR voluntarily agreed to reduce the Asset
Manager: Growth Portfolio's individual fund fee rate from .40% to .30%. If
this agreement were not in effect, the management fee would have been
equivalent to .69%.
During the fiscal year ended December 31, 1996 and 1995, FRM received
$9,539,179 and$2,316,458 for its service as investment adviser to
CONTRAFUND PORTFOLIO. These fees were equivalent to .61% and .61%,
respectively, of the average net assets of the fund for each of those
years.
INDEX 500 PORTFOLIO. For the services of FMR under the contract,
the fund pays FMR a monthly management fee at the annual rate of .28% of
the average net assets of the fund throughout the month. During the fiscal
years ended December 31, 1996, 1995, and 1994, FMR received $1,346,765,
$351,136, and $103,136, respectively, before any reimbursement of expenses
by FMR.
FMR may, from time to time, voluntarily reimburse all or a portion of a
fund's operating expenses (exclusive of interest, taxes, brokerage
commissions, and extraordinary expenses). 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. Expense reimbursements
by FMR will increase a fund's total returns and yield and repayment of the
reimbursement by a fund will lower its total returns and yield.
FMR has voluntarily agreed, subject to revision or termination, to
reimburse a fund if, and to the extent that, its aggregate operating
expenses, including management fees, exceed of a specified annual rate for
the fund. The following provides the expense cap and the date the cap was
imposed: September 19, 1985 (1.00%) for High Income Portfolio, December 30,
1996 (1.00%) fo r Growth & Income Portfolio; October 9, 1986 (1.50%)
for Equity-Income, and Growth Portfolios, January 3, 1995 (1.50%) for
Balanced Portfolio; January 28, 1987 (1.50%) for Overseas Portfolio;
December 5, 1988 (.80%) for Investment Grade Bond Portfolio; January 1,
1990 (1.25%) for Asset Manager Portfolio; August 27, 1992 (.28%) for Index
500 Portfolio; and January 3, 1995 (1.00%) for Asset Manager: Growth and
Contrafund Portfolios; January 3, 1995 (1.50%) for Growth Opportunities
Portfolio. Under this arrangement, FMR reimbursed Index 500
$738,274 , $241,437, and $195,500, respectively for fiscal years
ended December 31, 1996, 1995 and 1994 and Asset Manager: Growth $46,008
for the fiscal year ended December 31, 1995.
SUB-ADVISERS. On behalf of HIGH INCOME, BALANCED, GROWTH & INCOME, GROWTH
OPPORTUNITIES, ASSET MANAGER, CONTRAFUND and ASSET MANAGER: GROWTH
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 FIIAL U.K. Pursuant to
the sub-advisory agreements, FMR may receive investment advice and research
services outside the United States from the sub-advisers. On behalf of High
Income, Contrafund, Asset Manager: Growth and Overseas Portfolios, FMR may
also grant the sub-advisers investment management authority, as well as the
authority to buy and sell securities if FMR believes it would be beneficial
to a fund.
Currently, FMR U.K., FMR Far East, FIIA, and FIIAL U.K. each focus on
issuers in countries other than the United States such as those in Europe,
Asia, and the Pacific Basin.
FMR U.K. and FMR Far East, which were organized in 1986, 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 throughout
the world. Edward C. Johnson 3d, Johnson family members, and various trusts
for the benefit of the Johnson family owns, directly or indirectly, more
than 25% of the voting common stock of FIL. FIIA was organized in Bermuda
in 1983. FIIAL U.K. was organized in the United Kingdom in 1984, and is a
wholly owned subsidiary of Fidelity International Management Holdings
Limited, an indirect wholly owned subsidiary of FIL.
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
non-discretionary investment advice and research services the sub-advisers
are compensated as follows:
(small solid 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.
(small solid bullet) FMR pays FIIA a fee equal to 30% of FMR's monthly
management fee with respect to the average net assets held by the fund for
which FIIA has provided FMR with investment advice and research services.
(small solid 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 discretionary investment management and executing portfolio
transactions, the sub-advisers are compensated as follows:
(small solid bullet) FMR pays FMR U.K., FMR Far East, and FIIA a fee equal
to 50% of its monthly management fee with respect to the fund's average net
assets managed by the sub-adviser on a discretionary basis.
(small solid bullet) FIIA pays FIIAL U.K. a fee equal to 110% of FIIAL
U.K.'s costs incurred in connection with providing discretionary investment
management services.
For providing investment advice and research services, the fees paid to the
sub-advisers for fiscal 1995, 1994, and 1993 were as follows:
OVERSEAS PORTFOLIO
Fiscal Year FMR U.K. FMR Far East FIIA FIIAL U.K.

1996 $ 934,318 $ 897,170 -- --

1995 $ 744,061 $ 768,046 -- --

1994 $ 387,086 $ 425,049 -- --

ASSET MANAGER: GROWTH PORTFOLIO
Fiscal Year FMR U.K. FMR Far East

1996 $ 9,362 $ 9,146

1995 $ 4,252 $ 5,046

ASSET MANAGER PORTFOLIO
Fiscal Year FMR U.K. FMR Far East

1996 $ 308,946 $ 305,205

1995. $ 425,265 $ 471,463

1994 $ 147,227 $ 190,254

1993 $ 139,893 $ 227,112

CONTRAFUND PORTFOLIO
Fiscal Year FMR U.K. FMR Far East

1996 $ 79,710 $ 78,354

1995 $ 13,324 $ 15,011

BALANCED PORTFOLIO
Fiscal Year FMR U.K. FMR Far East

1996 $ 4,632 $ 4,355

1995 $ 1,361 $ 1,598

GROWTH OPPORTUNITIES PORTFOLIO
Fiscal Year FMR U.K. FMR Far East

1996 $ 15,833 $ 15,008

1995 $ 2,167 $ 2,421

For providing discretionary investment management and executing portfolio
transactions, FMR, on behalf of Overseas Portfolio paid FMR U.K. fees
totaling $376,357 for fiscal 1992. For providing discretionary investment
management and executing portfolio transactions, no fees were paid by FMR
on behalf of Overseas Portfolio to the sub-advisers during the fiscal years
ended 1995 and 1994.
FMR entered into the sub-advisory agreements described above as follows:
April 1, 1992 for Overseas; January 1, 1994 for High Income; November 1,
1994 for Contrafund and Asset Manager: Growth Portfolios, and November 18,
1994 for Balanced and Growth Opportunities Portfolio. The agreements were
approved by shareholders as follows: March 25, 1992 for Overseas, December
15, 1993 for High Income; November 9, 1994 for Contrafund and Asset
Manager: Growth; and November 21, 1994 for Balanced and Growth
Opportunities Portfolio.
On behalf of MONEY MARKET PORTFOLIO, FMR has entered into a sub-advisory
agreement with FMR Texas pursuant to which FMR Texas has primary
responsibility for providing portfolio investment management services to
the fund.
Under the sub-advisory agreement, dated January 1, 1990, which was approved
by the fund's shareholders December 13, 1989, FMR pays FMR Texas fees 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 expense reimbursements that may be in effect from time to
time. On behalf of the fund, for the fiscal years ended December 31,
1996, 1995, and 1994, FMR paid FMR Texas fees of $974,519,
$940,607, and $589,272, respectively.
DISTRIBUTION AND SERVICE PLANS
The Trustees have approved Distribution and Service Plans on behalf of the
funds (the Plans) pursuant to 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 a fund except
pursuant to a plan approved on behalf of the fund under the Rule. The
Plans, as approved by the Trustees, allow the funds and FMR to incur
certain expenses that might be considered to constitute indirect payment by
the funds of distribution expenses.
Under each Plan, if the payment of management fees by the funds to FMR is
deemed to be indirect financing by the funds of the distribution of their
shares, such payment is authorized by the Plans. Each Plan also
specifically recognizes 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 each fund. In addition, each Plan
provides that FMR may use its resources, including its management fee
revenues, to make payments to third parties that assist in selling shares
of each fund, or to third parties, including banks, that render shareholder
support services.
Prior to approving each Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of the Plan, and have
determined that there is a reasonable likelihood that the Plan will benefit
the fund and its shareholders. In particular, the Trustees noted that the
Plans do not authorize payments by a fund other than those made to FMR
under its management contract with the fund. To the extent that each Plan
gives FMR and FDC greater flexibility in connection with the distribution
of shares of each fund, additional sales of fund shares may result.
Furthermore, certain shareholder support services may be provided more
effectively under the Plans by local entities with whom shareholders have
other relationships. Money Market, High Income, Equity-Income and Growth
Portfolios' Plans were approved by the fund's respective shareholders on
December 11, 1986. Overseas Portfolio's Plan was approved by the fund's
shareholders on November 18, 1987. The Plans for Investment Grade Bond
Portfolio and Asset Manager Portfolio's Plans were approved by the funds'
respective shareholders on December 13, 1989. Index 500 Portfolio's Plan
was approved by the fund shareholders on December 16, 1992. Contrafund and
Asset Manager: Growth Portfolios' Plans were approved by FMR as the then
sole shareholder on November 9, 1994. Balanced and Growth Opportunities
Portfolios' Plans were approved by FMR as the then sole shareholder on
November 21, 1994. Growth & Income Portfolio's Plan was approved by FMR as
the then sole shareholder on December 19, 1996.
Each fund may execute portfolio transactions with, and purchase securities
issued by, depository institutions that receive payments under the Plans.
No preference for the instruments of such depository institutions will be
shown in the selection of investments.
CONTRACTS WITH FMR AFFILIATES
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. The
fee rates in effect as of January 1, 1996, are based on each fund's average
net assets as follows: for Money Market, 0.0175% for the first $500 million
of average net assets and 0.0075% for average net assets in excess of $500
million; for High Income and Overseas, 0.075% for the first $500 million of
average net assets and 0.0375% for average net assets in excess of $500
million; for Investment Grade Bond Portfolio, 0.04% for the first $500
million of average net assets and .02% for average net assets in excess of
$500 million; and for Balanced, Growth & Income, Growth Opportunities,
Equity-Income, Growth, Asset Manager, Contrafund, Asset Manager: Growth and
Index 500 Portfolios, 0.06% for the first $500 million of average net
assets and 0.03% for average net assets in excess of $500 million. The fee
for Money Market Portfolio is limited to a minimum of $40,000 and a maximum
of $800,000 per year. The fee for High Income, Equity Income, Growth,
Overseas, Asset Manager, Investment Grade Bond, Index 500, Contrafund and
Asset Manager: Growth Portfolios is limited to a minimum of $60,000 and a
maximum of $800,000 per year.
The following are the fees paid by each fund to FSC for the last three
fiscal years:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Money High Equity- Growth Overseas Investment Asset
Market Income Income Grade Bond Manager

1996 $120,582 $662,535 $809,457 $808,115 $ 760,136 $ 82,156 $ 808,547

1995 $ 107,886 $ 266,623 $ 760,752 $ 760,478 $ 551,039 $ 58,943 $ 758,063

1994 $ 92,003 $ 197,109 $ 669,962 $ 664,914 $ 491,242 $ 46,617 $ 751,546

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Asset Manager: Contrafund Index 500 Balanced Growth
Growth Opportunities

1996 $ 87,337 $ 622,337 $ 271,956 $ 59,115 $ 167,116

1995 $ 44,863 $ 210,939 $ 76,868 $ 46,084 $ 52,050

1994 N/A N/A $ 45,097 N/A N/A

</TABLE>

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 an account fee of $125 and an asset based fee of 0.050% for each
account. The asset-based fees of the growth and growth and income funds are
subject to adjustment if the year-to-date total return of the S&P 500 is
greater than positive or negative 15%. 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:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Money High Equity- Growth Overseas Investment Asset
Market Income Income Grade Bond Manager

1996 $695,000 $642,108 $2,072,078 $2,349,217 $875,218 $131,401 $1,783,138

1995 $ 390,358 $ 417,742 $ 1,660,720 $ 1,536,285 $ 612,828 $ 81,906 $ 957,173

1994 $ 115,837 $ 163,055 N/A $ 7,612 $ 173,157 $ 90,382 $ 50,231

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Asset Manager: Contrafund Index 500 Balanced Growth
Growth Opportunities

1996 $ 83,612 $ 625,364 $ 371,324 $ 34,808 $ 164,052

1995 $ 17,123 $ 159,152 $ 65,837 $ 7,545 $ 18,071

1994 N/A N/A $ 89,940 N/A N/A

</TABLE>

If a portion of each applicable 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, and Investment Grade Bond Portfolios):

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Equity Growth Asset Asset Contrafund Growth Balanced Overseas Index 500
Income Income Portfolio Manager Manager: Opportunitie
Portfolio Portfolio Portfolio Growth s
Portfolio

1996 $670,254 $3,382,642 $3,029,150 $2,187,494 $103,447 $1,141,270 $184,791 $43,812 $892,751 $ 371,637

1995 $ 427,444 $1,660,720 $1,536,285 $1,545,902 $18,490 $185,309 $25,521 $7,710 $612,828 $ 65,837

1994 $ 163,055 $192,500 $212,064 $181,816 N/A N/A N/A N/A $173,157 $ 89,940

</TABLE>

FSC also receives fees for administering a fund's securities lending
program. Securities lending fees are based on the number and duration of
individual securities loans. For fiscal 1996, 1995, and 1994, no securities
lending fees were incurred by the funds.
Each fund has a distribution agreement with FDC, a Massachusetts
corporation organized on July 18, 1960. FDC is a broker-dealer registered
under the Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. The distribution agreements call
for FDC to use all reasonable efforts, consistent with its other business,
to secure purchasers for shares of each fund, which are continuously
offered at net asset value. Promotional and administrative expenses in
connection with the offer and sale of shares are paid by FMR.
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 organized as a Massachusetts business trust on November 13, 1981.
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.
Investment Grade Bond Portfolio, Asset Manager Portfolio, Index 500
Portfolio, Contrafund Portfolio, and Asset Manager: Growth Portfolio are
funds of Variable Insurance Products Fund II, an open-end management
investment company organized as a Massachusetts business trust on March 21,
1988. The Declaration of Trust permits the Trustees to create additional
funds.
Balanced Portfolio, Growth & Income Portfolio and Growth Opportunities
Portfolio are funds of Variable Insurance Products Fund III, an open-end
management investment company organized as a Massachusetts business trust
on July 14, 1994. The name of the trust was changed from Fidelity Advisor
Annuity Fund to Variable Insurance Products Fund III on December 30, 1996.
The Advisor Annuity Income & Growth Fund's name was changed to Balanced
Portfolio on December 30, 1996. The Advisor Annuity Growth Opportunities
Fund's name was changed to Growth Opportunities Portfolio on December 30,
1996. The 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.
The Declarations of trust permit the Trustees to create additional funds.
In the event that FMR ceases to be the investment adviser to a trust or a
fund, the right of the trust or fund to use the identifying name "Fidelity"
may be withdrawn.
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 trust or the fund. If not so terminated, each
trust or fund will continue indefinitely.
CUSTODIAN. The Bank of New York, 110 Washington Street, New York New York,
is custodian of Money Market, 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,
Balanced, Growth & Income, Overseas, Asset Manager: Growth, and Asset
Manager Portfolios' assets; and Brown Brothers Harriman & Co., 40 Water
Street, Boston, Massachusetts, is custodian of Growth, Growth
Opportunities, Contrafund, 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. The Bank of New York and
Chemical Bank, each headquartered in New York, also may serve as a special
purpose custodian of certain assets in connection with pooled repurchase
agreement transactions. 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, its affiliated companies, and the Board of
Trustees may, from time to time, conduct transactions with various banks,
including banks serving as custodians for certain 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. 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 L.L.P., One Post Office Square, Boston,
Massachusetts (1999 Bryan Street, Suite 3000 Dallas, Texas, for Money
Market Portfolio), serves as independent accountant of Variable Insurance
Products Fund and Price Waterhouse LLP, 160 Federal Street, Boston,
Massachusetts, serves as independent accountant of Variable Insurance
Products Fund II and Variable Insurance Products Fund III. Each auditor
examines financial statements for the funds and provides other audit, tax,
and related services.
FINANCIAL STATEMENTS
Each fund's financial statements and financial highlights for the fiscal
year ended December 31, 1996, and the report of the auditors thereon are
included in the fund's Annual Reports, which are separate reports supplied
with this SAI. Each fund's financial statements, including the financial
highlights, and the report of the auditors are incorporated herein by
reference. For an additional copy of the fund's Annual Reports, contact
your insurance company or FDC at 1-800-544-2442.
APPENDIX
DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value of
each investment by the time remaining to its maturity, adding these
calculations, and then dividing the total by the value of the fund's
portfolio. 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, including
collateralized mortgage obligations, and some asset-backed securities 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 estimating the timing of principal payments, including
unscheduled prepayments, during the life of the mortgage. The weighted
average life of these securities is likely to be substantially shorter than
their stated final maturity.
The descriptions that follow are examples of eligible ratings for the
funds. A fund 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.
DESCRIPTION OF MOODY'S INVESTORS SERVICE RATINGS OF COMMERCIAL PAPER
Moody's assigns short-term debt ratings to obligations which have an
original maturity not exceeding one year.
Issuers rated PRIME-1 (or related supporting institutions) have a superior
ability for repayment of principal and payment of interest.
Issuers rated PRIME-2 (or related supporting institutions) have a strong
ability for repayment of principal and payment of interest.
DESCRIPTION OF STANDARD & POOR'S RATINGS OF COMMERCIAL PAPER
Debt issues considered short-term in the relevant market may be assigned a
Standard & Poor's commercial paper rating.
A-1 - This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
DESCRIPTION OF MOODY'S INVESTORS SERVICE RATINGS OF CORPORATE BONDS
Moody's ratings for obligations with an original remaining maturity in
excess of one year fall within nine categories. They range from Aaa
(highest quality) to C (lowest quality). Moody applies numerical modifiers
of 1, 2, or 3 to each generic rating classification from Aa through B. 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 on the lower end of its
generic rating category.
AAA - Bonds that are 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 edged." 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 that are 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 the Aaa securities.
A - Bonds that are 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 that are 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 that are 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 that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
CAA - Bonds that are 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 that are 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 that are rated C are the lowest-rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
DESCRIPTION OF STANDARD & POOR'S RATINGS OF CORPORATE BONDS
Debt issues may be designated by Standard & Poor's as either investment
grade ("AAA" through "BBB") or speculative grade ("BB" through "D"). While
speculative grade debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major
exposures to adverse conditions. Ratings from AA to CCC may be modified by
the addition of a plus sign (+) or minus sign (-) to show relative standing
within the major rating categories.
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 than debt in higher rated
categories.
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.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB- rating.
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 or 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. The
CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
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 500 STOCKS IN THE S&P 500 INDEX. The following is a list of the 500
stocks comprising the S&P 500 as of February 29, 1996.
Abbott Labs
Advanced Micro Devices Inc.
Aetna Life & Casualty Co.
Ahmanson (H.F.) & Co.
Air Products & Chemicals Inc.
Airtouch Communications
Alberto Culver Co.
Albertson's Inc.
Alcan Aluminum Ltd.
Alco Standard Corp.
Alexander & Alexander
Allergan Inc.
Allied-Signal Inc.
Allstate Corp.
ALL TEL Corp.
Aluminum Co. of America
ALZA Corp.
Amdahl Corp.
Amerada Hess Corp.
American Brands Inc.
American Electric Power Inc.
American Express Co.
American Gen Corp.
American Greetings Corp.
American Home Products Corp.
American Int'l. Group Inc.
American Stores Co.
Ameritech Corp.
Amgen Inc.
Amoco Corp.
AMP Inc.
AMR Corp.
Andrew Corp.
Anheuser-Busch Cos. Inc.
Apple Computer Inc.
Applied Materials Inc.
Archer Daniels Midland Co.
Armco Inc.
Armstrong World Industries Inc.
ASARCO Inc.
Ashland Inc.
AT&T Corp.
Atlantic Richfield Co.
Autodesk Inc.
Automatic Data Processing
Avery Dennison Corp.
Avon Products Inc.
Baker Hughes Inc.
Ball Corp.
Bally Entertainment Corp.
Baltimore Gas & Electric Co.
Banc One Corp.
Bank New York Inc.
Bank of Boston Corp.
BankAmerica Corp.
Bankers Trust N.Y. Corp.
Bard (C.R.) Inc.
Barnett Banks Inc.
Barrick Gold Corp.
Bausch & Lomb Inc.
Baxter International Inc.
Bay Networks Inc.
Becton Dickinson & Co.
Bell Atlantic Corp.
BellSouth Corp.
Bemis Inc.
Beneficial Corp.
Bethlehem Steel Corp.
Beverly Enterprises Inc.
Biomet Inc.
Black & Decker Corp.
Block H&R Inc.
Boatmen's Bancshares Inc.
Boeing Co.
Boise Cascade Corp.
Boston Scientific Corp.
Briggs & Stratton Corp.
Bristol-Myers Squibb Co.
Brown Forman Corp.
Brown Group Inc.
Browning-Ferris Industries Inc.
Brunswick Corp.
Burlington Northern Santa Fe
Burlington Resources Inc.
Cabletron Sys Inc.
Caliber Sys Inc.
Campbell Soup Co.
Carolina Power & Light Co.
Cast Corp.
Caterpillar Inc.
Centex Corp.
Central & South West Corp.
Ceridian Corp.
Champion International Corp.
Charming Shoppes Inc.
Chase Manhattan Corp.
Chemical Banking Corp.
Chevron Corp.
Chrysler Corp.
Chubb Corp.
CIGNA Corp.
Cincinnati Milacron Inc.
Cinergy Corp.
Circuit City Stores Inc.
Cisco Systems Inc.
Citicorp
Clorox Co.
Coastal Corp.
Coca Cola Co.
Colgate-Palmolive Co.
Columbia
Columbia Gas System Inc.
3 Com Corp.
Comcast Corp.
Comerica Inc.
Community Psych Centers
Compaq Computer Corp.
Computer Associates Intl. Inc.
Computer Sciences Corp.
ConAgra Inc.
Conrail Inc.
Consolidated Edison Co. N.Y.
Consolidated Freightways Inc.
Consolidated Natural Gas Co.
Cooper Industries Inc.
Cooper Tire & Rubber Co.
Coors (Adolph) Co.
CoreStates Financial Corp.
Corning Inc.
CPC International Inc.
Crane Co.
Cray Research Inc.
Crown Cork & Seal Inc.
CSX Corp.
CUC Int'l. Inc.
Cummins Engine Inc.
Cyprus Amax Minerals Co.
Dana Corp.
Darden Restaurants Inc.
Data General Corp.
Dayton Hudson Corp.
Dean Witter Discover & Co.
Deere & Co.
Delta Air Lines Inc.
Deluxe Corp.
Dial Corp.
Digital Equipment Corp.
Dillard Department Stores Inc.
Dominion Resources Inc.
Donnelley (R.R.) & Sons Co.
Dover Corp.
Dow Chemical Co.
Dow Jones & Co. Inc.
Dresser Industries Inc.
DSC Communications Corp.
DTE Energy Co.
Du Pont (E.I.) de Nemours &Co
Duke Power
Dun & Bradstreet
EG&G Inc.
Eastern Enterprises
Eastman Chemical Co.
Eastman Kodak Co.
Eaton Corp.
Echlin Inc.
Echo Bay Mines Ltd.
Ecolab Inc.
Edison Int'l.
Emerson Electric Co.
Engelhard Corp.
Enron Corp.
Enserch Corp.
Entergy Corp.
Exxon Corp.
Federal Express Corp.
Federal Home Loan Mtg. Corp.
Federal Natl. Mtge. Assn.
Federal Paper Board Inc.
Federated Dept. Stores Inc.
First Bank System Inc.
First Chicago NBD Corp.
First Data Corp.
First Fidelity Bancorp
First Interstate Bancorp
First Union Corp.
Fleet Financial Group Inc.
Fleetwood Enterprises Inc.
Fleming Cos. Inc.
Fluor Corp.
FMC Corp.
Ford Motor Co.
Foster Wheeler
FPL Group Inc.
Freeport McMoran Copper/Gold
Fruit of the Loom Inc.
Gannett Inc.
Gap Inc.
General Dynamics Corp.
General Electric Co.
General Mills Inc.
General Motors Corp.
General Public Utilities Corp.
General Re Corp.
General Signal Corp.
Genuine Parts Co.
Georgia-Pacific Corp.
Giant Food Inc.
Giddings & Lewis Inc.
Gillette Co.
Golden West Financial Corp.
Goodrich (B.F.) Co.
Goodyear Tire & Rubber Co.
Grace (W.R.) & Co.
Grainger (W.W.) Inc.
Great A&P TEA Inc.
Great Lakes Chemical Corp.
Great Western Financial Corp.
GTE Corp.
Halliburton Co.
Handleman Co.
Harcourt General Inc.
Harland (J.H.) Co.
Harnischfeger Indus. Inc.
Harrahs Entertainment Inc.
Harris Corp.
Hartmarx Corp.
Hasbro Inc.
Heinz (H.J.) Co.
Helmerich & Payne Inc.
Hercules Inc.
Hershey Foods Corp.
Hewlett-Packard Co.
Hilton Hotels Corp.
Home Depot Inc.
Homestake Mining Co.
Honeywell Inc.
Household International Inc.
Houston Industries Inc.
Humana Inc.
Illinois Tool Works Inc.
Inco Ltd.
Ingersoll-Rand Co.
Inland Steel Ind. Inc.
Intel Corp.
Intergraph Corp.
International Bus. Machines
International Flav/Frag
International Paper Co.
Interpublic Group Cos. Inc.
ITT Corp.
ITT Hartford Group Inc.
ITT Industries Inc.
James River Corp.
Jefferson-Pilot Corp.
Johnson Controls Inc.
Johnson & Johnson
Jostens Inc.
K Mart
Kaufman & Broad Home Corp.
Kellogg Co.
Kerr-McGee Corp.
KeyCorp
Kimberly-Clark Corp.
King World Productions Inc.
Knight-Ridder Inc.
Kroger Co.
Laidlaw Inc.
Lilly (Eli) & Co.
Limited Inc.
Lincoln National Corp.
Liz Claiborne Inc.
Lockheed Martin Corp.
Loews Corp.
Longs Drug Stores Corp.
Loral Corp.
Louisiana Land & Exploration
Louisiana Pacific Corp.
Lowe's Cos. Inc.
LSI Logic Corp.
Luby's Cafeterias Inc.
Maillinckrodt Group Inc.
Manor Care Inc.
Marriott Int'l Inc.
Marsh & McLennan Cos. Inc.
Masco Corp.
Mattel Inc.
May Dept. Stores Co.
Maytag Corp.
MBNA Corp.
McDermott International Inc.
McDonald's Corp.
McDonnell Douglas Corp.
McGraw-Hill Companies Inc.
MCI Communications Corp.
Mead Corp.
Medtronic Inc.
Mellon Bank Corp.
Melville Corp.
Mercantile Stores Inc.
Merck & Co. Inc.
Meredith Corp.
Merrill Lynch & Co. Inc.
Micron Technology Inc.
Microsoft Corp.
Millipore Corp.
Minn. Mining & Mfg. Co.
Mobil Corp.
Monsanto Co.
Moore Ltd.
Morgan (J.P.) & Co. Inc.
Morgan Stanley Group Inc.
Morton International Inc.
Motorola Inc.
NACCO Ind. Inc.
Nalco Chemical Co.
National City Corp.
National Semiconductor Corp.
National Service Ind. Inc.
NationsBank Corp.
Navistar International Corp.
New York Times Co.
Newell Co.
Newmont Mining Corp.
Niagara Mohawk Power Corp.
NICOR Inc.
Nike Inc.
NorAm Energy Corp.
Nordstrom Inc.
Norfolk Southern Corp.
Northern States Power Co.
Northern Telecom Ltd.
Northrop Grumman Corp.
Norwest Corp.
Novell Inc.
Nucor Corp.
Nynex Corp.
Occidental Petroleum Corp.
Ogden Corp.
Ohio Edison Co.
ONEOK Inc.
Oracle Corp.
Oryx Energy Co.
Outboard Marine Corp.
Owens Corning
PACCAR Inc.
Pacific Enterprises
Pacific Gas & Electric Co.
Pacific Telesis Group
PacifiCorp
Pall Corp.
Panhandle Eastern Corp.
Parker-Hannifin Corp.
PECO Energy Co.
Penney (J.C.) Inc.
Pennzoil Co.
Peoples Energy Corp.
Pep Boys
PepsiCo Inc.
Perkin-Elmer Corp.
Pfizer Inc.
Phelps Dodge Corp.
Pharmacia & UpJohn Inc.
Philip Morris Cos. Inc.
Phillips Petroleum Co.
Pioneer Hi-Bred Int'l Inc.
Pitney-Bowes Inc.
Placer Dome Inc.
PNC Bank Corp.
Polaroid Corp.
Potlatch Corp.
PPG Industries Inc.
PP&L Resources Inc.
Praxair Inc.
Premark International Inc.
Price
Procter & Gamble Co.
Providian Corp.
Public Service Enterprises
Pulte Corp.
Quaker Oats Co.
Ralston Purina Co.
Raychem Corp.
Raytheon Co.
Reebok International Ltd.
Republic NY Corp.
Reynolds Metals Co.
Rite Aid Corp.
Rockwell International Corp.
Rohm & Haas Co.
Rowan Cos. Inc.
Royal Dutch Petroleum Co.
Rubbermaid Inc.
Russell Corp.
Ryan's Family Steak Houses
Ryder System Inc.
SAFECO Corp.
Safety-Kleen Corp.
Salomon Inc.
Santa Fe Energy Resources Inc.
Santa Fe Pacific Gold Corp.
Sara Lee Corp.
SBC Communications Inc.
Schering-Plough Corp.
Schlumberger Ltd.
Scientific-Atlanta Inc.
Seagram Ltd.
Sears Roebuck & Co.
Service Corp. International
Shared Medical Systems Corp.
Sherwin-Williams Co.
Shoney's Inc.
Sigma Aldrich Corp.
Silicon Graphics Inc.
Snap-On Inc.
Sonat Inc.
Southern Co.
Southwest Airlines Co.
Springs Industries Inc.
Sprint Corp.
Stanley Works
Stone Container Corp.
Stride Rite Corp.
St. Jude Medical Inc.
St. Paul Cos. Inc.
Sun Inc.
Sun Microsystem Inc.
SunTrust Banks Inc.
Supervalu Inc.
Sysco Corp.
Tandem Computers Inc.
Tandy Corp.
Tektronix Inc.
Tele-Communications Inc.
Teledyne Inc.
Tellabs Inc.
Temple-Inland Inc.
Tenet Healthcare Corp.
Tenneco Inc.
Texaco Inc.
Texas Instruments Inc.
Texas Utilities Co.
Textron Inc.
Thomas & Betts Corp.
Time Warner Inc.
Times Mirror Co.
Timken Co.
TJX Companies Inc.
Torchmark Corp.
Toys R Us Inc.
Transamerica Corp.
Travelers Group Inc.
Tribune Co.
Trinova Corp.
TRW Inc.
Tyco Int'l Limited
Unicom Corp.
Unilever N.V.
Union Camp Corp.
Union Carbide Corp.
Union Electric Co.
Union Pacific
Unisys Corp.
United Healthcare Corp.
United Technologies Corp.
Unocal Corp.
UNUM Corp.
U.S. Bancorp
U.S. Healthcare Inc.
U.S. Surgical Corp.
U.S. West Inc.
USAir Group Inc.
USF&G Corp.
USLIFE Corp.
UST Inc.
USX-Marathon Group
USX-U.S. Steel Group
Varity Corp.
V.F. Corp.
Viacom Inc.
Wachovia Corp.
Walgreen Co.
Wal-Mart Stores Inc.
Walt Disney Co.
Warner-Lambert Co.
Wells Fargo & Co.
Wendy's International Inc.
Western Atlas Inc.
Westinghouse Electric Corp.
Westvaco Corp.
Weyerhaeuser Corp.
Whirlpool Corp.
Whitman Corp.
Williamette Industries Inc.
Williams Cos. Inc.
Winn-Dixie Stores Inc.
WMX Technologies Inc.
Woolworth Corp.
Worthington Ind. Inc.
Wrigley (Wm.) Jr. Co.
Xerox Corp.
Yellow Corp.

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. 33 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 16th day
of April 1997.
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)

<TABLE>
<CAPTION>
<S> <C> <C>
/s/Edward C. Johnson 3d (dagger) President and Trustee April 16, 1997

Edward C. Johnson 3d (Principal Executive Officer)

/s/Kenneth A. Rathgeber * Treasurer April 16, 1997

Kenneth A. Rathgeber

/s/J. Gary Burkhead Trustee April 16, 1997

J. Gary Burkhead

/s/Ralph F. Cox ** Trustee April 16, 1997

Ralph F. Cox

/s/Phyllis Burke Davis ** Trustee April 16, 1997

Phyllis Burke Davis

/s/E. Bradley Jones ** Trustee April 16, 1997

E. Bradley Jones

/s/Donald J. Kirk ** Trustee April 16, 1997

Donald J. Kirk

/s/Peter S. Lynch ** Trustee April 16, 1997

Peter S. Lynch

/s/Marvin L. Mann ** Trustee April 16, 1997

Marvin L. Mann

/s/William O. McCoy ** Trustee April 16, 1997

William O. McCoy

/s/Gerald C. McDonough ** Trustee April 16, 1997

Gerald C. McDonough

/s/Thomas R. Williams ** Trustee April 16, 1997

Thomas R. Williams

</TABLE>

(dagger) Signatures affixed by J. Gary Burkhead pursuant to a power of
attorney dated January 3, 1997 and filed herewith.
* Signature affixed by John H. Costello pursuant to a power of attorney
dated December 19, 1996 and filed herewith.
** Signature affixed by Robert C. Hacker pursuant to a power of attorney
dated December 19, 1996 and filed herewith.
POWER OF ATTORNEY
I, the undersigned Treasurer and principal financial and accounting
officer of the following investment companies:

<TABLE>
<CAPTION>
<S> <C>
Fidelity Aberdeen Street Trust Fidelity Government Securities Fund
Fidelity Advisor Annuity Fund Fidelity Hastings Street Trust
Fidelity Advisor Series I Fidelity Hereford Street Trust
Fidelity Advisor Series II Fidelity Income Fund
Fidelity Advisor Series III Fidelity Institutional Cash Portfolios
Fidelity Advisor Series IV Fidelity Institutional Tax-Exempt Cash Portfolios
Fidelity Advisor Series V Fidelity Institutional Trust
Fidelity Advisor Series VI Fidelity Investment Trust
Fidelity Advisor Series VII Fidelity Magellan Fund
Fidelity Advisor Series VIII Fidelity Massachusetts Municipal Trust
Fidelity Beacon Street Trust Fidelity Money Market Trust
Fidelity Boston Street Trust Fidelity Mt. Vernon Street Trust
Fidelity California Municipal Trust Fidelity Municipal Trust
Fidelity California Municipal Trust II Fidelity Municipal Trust II
Fidelity Capital Trust Fidelity New York Municipal Trust
Fidelity Charles Street Trust Fidelity New York Municipal Trust II
Fidelity Commonwealth Trust Fidelity Phillips Street Trust
Fidelity Congress Street Fund Fidelity Puritan Trust
Fidelity Contrafund Fidelity Revere Street Trust
Fidelity Corporate Trust Fidelity School Street Trust
Fidelity Court Street Trust Fidelity Securities Fund
Fidelity Court Street Trust II Fidelity Select Portfolios
Fidelity Covington Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Daily Money Fund Fidelity Summer Street Trust
Fidelity Daily Tax-Exempt Fund Fidelity Trend Fund
Fidelity Destiny Portfolios Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity U.S. Investments-Government Securities
Portfolio, L.P. Fund, L.P.
Fidelity Devonshire Trust Fidelity Union Street Trust
Fidelity Exchange Fund Fidelity Union Street Trust II
Fidelity Financial Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Fixed-Income Trust Variable Insurance Products Fund
Variable Insurance Products Fund II

</TABLE>

plus any other investment company for which Fidelity Management & Research
Company or an affiliate acts as investment adviser and for which the
undersigned individual serves as President and Director, Trustee, or
General Partner (collectively, the "Funds"), hereby constitute and appoint
John H. Costello and John E. Ferris 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
Registration Statements of the Funds on Form N-1A, Form N-8A or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration Statements on
Form N-1A or any successor thereto, 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 deems necessary or appropriate, to
comply with the provisions of the Securities Act of 1933 and the 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. This power of attorney is effective for all documents filed on or
after January 1, 1997.
WITNESS my hand on the date set forth below.
/s/Kenneth A. Rathgeber__________ December 19, 1996

Kenneth A. Rathgeber

POWER OF ATTORNEY
We, the undersigned Directors, Trustees, or General Partners, as the case
may be, of the following investment companies:

</TABLE>

plus any other investment company for which Fidelity Management & Research
Company or an affiliate acts as investment adviser and for which the
undersigned individual serves as Directors, Trustees, or General Partners
(collectively, the "Funds"), hereby constitute and appoint Arthur J. Brown,
Arthur C. Delibert, Stephanie A. Djinis, Robert C. Hacker, Thomas M.
Leahey, Richard M. Phillips, and Dana L. Platt, 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 Registration Statements of the Funds on Form
N-1A, Form N-8A or any successor thereto, any and all subsequent
Amendments, Pre-Effective Amendments, or Post-Effective Amendments to said
Registration Statements on Form N-1A or any successor thereto, 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
deems necessary or appropriate, to comply with the provisions of the
Securities Act of 1933 and the 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. This power of attorney is
effective for all documents filed on or after January 1, 1997.
WITNESS our hands on this nineteenth day of December, 1996.

/s/Edward C. Johnson 3d___________ /s/Peter S. Lynch________________

Edward C. Johnson 3d Peter S. Lynch

/s/J. Gary Burkhead_______________ /s/William O. McCoy______________

J. Gary Burkhead William O. McCoy

/s/Ralph F. Cox __________________ /s/Gerald C. McDonough___________

Ralph F. Cox Gerald C. McDonough

/s/Phyllis Burke Davis_____________ /s/Marvin L. Mann________________

Phyllis Burke Davis Marvin L. Mann

/s/E. Bradley Jones________________ /s/Thomas R. Williams ____________

E. Bradley Jones Thomas R. Williams

/s/Donald J. Kirk __________________

Donald J. Kirk

CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference into the Prospectuses
and Statement of Additional Information constituting part of Post-Effective
Amendment No. 33 to the Registration Statement on Form N-1A of Variable
Insurance Products Fund of our reports dated February 10, 1997, relating to
the financial statements and financial highlights included in the December
31, 1996 Annual Reports to Shareholders of Variable Insurance Products Fund
II: Investment Grade Bond Portfolio, Asset Manager Portfolio, Asset
Manager: Growth Portfolio, Contrafund Portfolio and Index 500 Portfolio and
our reports dated February 11, 1997, relating to the financial statements
and financial highlights of Balanced Portfolio, Growth & Income Portfolio
and Growth Opportunities Portfolio included in the December 31, 1996 Annual
Reports to Shareholders of Variable Insurance Products Fund III: Balanced
Portfolio, Growth & Income Portfolio, and Growth Opportunities Portfolio,
which is incorporated be reference in such Registration Statement.
We further consent to the references to our Firm under the headings
"Financial Highlights" in the Prospectuses and "Auditor" in the Statement
of Additional Information.
/s/PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
April 15, 1997

CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference, into the Prospectuses
and Statement of Additional Information constituting part of Post-Effective
Amendment No. 33 to the Registration Statement on Form N-1A of Variable
Insurance Products Fund, of our reports dated February 10, 1997 relating to
the financial statements and financial highlights included in the December
31, 1996 Annual Reports to Shareholders of Variable Insurance Products
Fund: Money Market Portfolio, High Income Portfolio, Equity-Income
Portfolio, Growth Portfolio and Overseas Portfolio, which is incorporated
by reference in such Registration Statement.
We further consent to the references to our Firm under the headings
"Financial Highlights" in the Prospectuses and "Auditor" in the Statement
of Additional Information.
/s/COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 15, 1997

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<S> <C>

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<PERIOD-END> dec-31-1996

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<INVESTMENTS-AT-VALUE> 1,099,877

<RECEIVABLES> 6,557

<ASSETS-OTHER> 20,039

<OTHER-ITEMS-ASSETS> 0

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<SENIOR-LONG-TERM-DEBT> 0

<OTHER-ITEMS-LIABILITIES> 318

<TOTAL-LIABILITIES> 318

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<INTEREST-INCOME> 52,234

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<EXPENSES-NET> 2,813

<NET-INVESTMENT-INCOME> 49,421

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<NET-CHANGE-FROM-OPS> 49,470

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<DISTRIBUTIONS-OF-INCOME> 49,421

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<NUMBER-OF-SHARES-SOLD> 1,994,408

<NUMBER-OF-SHARES-REDEEMED> 1,726,597

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<NET-CHANGE-IN-ASSETS> 317,281

<ACCUMULATED-NII-PRIOR> 0

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<AVERAGE-NET-ASSETS> 935,274

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<PER-SHARE-NII> .052

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<AVG-DEBT-PER-SHARE> 0

<ARTICLE> 6
<CIK> 0000356494
<NAME> Variable Insurance Products Fund
<SERIES>
<NUMBER> 21
<NAME> High Income Portfolio
<MULTIPLIER> 1,000

<S> <C>

<PERIOD-TYPE> year

<FISCAL-YEAR-END> dec-31-1996

<PERIOD-END> dec-31-1996

<INVESTMENTS-AT-COST> 1,515,158

<INVESTMENTS-AT-VALUE> 1,566,122

<RECEIVABLES> 30,872

<ASSETS-OTHER> 1

<OTHER-ITEMS-ASSETS> 0

<TOTAL-ASSETS> 1,596,995

<PAYABLE-FOR-SECURITIES> 6,205

<SENIOR-LONG-TERM-DEBT> 0

<OTHER-ITEMS-LIABILITIES> 1,968

<TOTAL-LIABILITIES> 8,173

<SENIOR-EQUITY> 0

<PAID-IN-CAPITAL-COMMON> 1,409,716

<SHARES-COMMON-STOCK> 126,885

<SHARES-COMMON-PRIOR> 86,302

<ACCUMULATED-NII-CURRENT> 113,174

<OVERDISTRIBUTION-NII> 0

<ACCUMULATED-NET-GAINS> 14,968

<OVERDISTRIBUTION-GAINS> 0

<ACCUM-APPREC-OR-DEPREC> 50,964

<NET-ASSETS> 1,588,822

<DIVIDEND-INCOME> 14,137

<INTEREST-INCOME> 108,217

<OTHER-INCOME> 0

<EXPENSES-NET> 8,845

<NET-INVESTMENT-INCOME> 113,509

<REALIZED-GAINS-CURRENT> 15,836

<APPREC-INCREASE-CURRENT> 35,066

<NET-CHANGE-FROM-OPS> 164,411

<EQUALIZATION> 0

<DISTRIBUTIONS-OF-INCOME> 81,894

<DISTRIBUTIONS-OF-GAINS> 16,023

<DISTRIBUTIONS-OTHER> 0

<NUMBER-OF-SHARES-SOLD> 89,105

<NUMBER-OF-SHARES-REDEEMED> 57,202

<SHARES-REINVESTED> 8,681

<NET-CHANGE-IN-ASSETS> 548,822

<ACCUMULATED-NII-PRIOR> 76,334

<ACCUMULATED-GAINS-PRIOR> 20,294

<OVERDISTRIB-NII-PRIOR> 0

<OVERDIST-NET-GAINS-PRIOR> 0

<GROSS-ADVISORY-FEES> 7,422

<INTEREST-EXPENSE> 0

<GROSS-EXPENSE> 8,898

<AVERAGE-NET-ASSETS> 1,248,143

<PER-SHARE-NAV-BEGIN> 12.050

<PER-SHARE-NII> .927

<PER-SHARE-GAIN-APPREC> .643

<PER-SHARE-DIVIDEND> .920

<PER-SHARE-DISTRIBUTIONS> .180

<RETURNS-OF-CAPITAL> 0

<PER-SHARE-NAV-END> 12.520

<EXPENSE-RATIO> 71

<AVG-DEBT-OUTSTANDING> 0

<AVG-DEBT-PER-SHARE> 0

<ARTICLE> 6
<CIK> 0000356494
<NAME> Variable Insurance Products Fund
<SERIES>
<NUMBER> 31
<NAME> Equity-Income Portfolio
<MULTIPLIER> 1,000

<S> <C>

<PERIOD-TYPE> year

<FISCAL-YEAR-END> dec-31-1996

<PERIOD-END> dec-31-1996

<INVESTMENTS-AT-COST> 6,092,877

<INVESTMENTS-AT-VALUE> 6,954,001

<RECEIVABLES> 36,496

<ASSETS-OTHER> 1,687

<OTHER-ITEMS-ASSETS> 0

<TOTAL-ASSETS> 6,992,184

<PAYABLE-FOR-SECURITIES> 22,508

<SENIOR-LONG-TERM-DEBT> 0

<OTHER-ITEMS-LIABILITIES> 8,586

<TOTAL-LIABILITIES> 31,094

<SENIOR-EQUITY> 0

<PAID-IN-CAPITAL-COMMON> 5,393,182

<SHARES-COMMON-STOCK> 330,981

<SHARES-COMMON-PRIOR> 253,263

<ACCUMULATED-NII-CURRENT> 117,455

<OVERDISTRIBUTION-NII> 0

<ACCUMULATED-NET-GAINS> 589,335

<OVERDISTRIBUTION-GAINS> 0

<ACCUM-APPREC-OR-DEPREC> 861,118

<NET-ASSETS> 6,961,090

<DIVIDEND-INCOME> 103,954

<INTEREST-INCOME> 46,819

<OTHER-INCOME> 0

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