SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT (No. 2-75010)
UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 37 [X]
and
REGISTRATION STATEMENT (No. 811-3329)
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 37 [X]
Variable Insurance Products Fund
(Exact Name of Registrant as Specified in Charter)
82 Devonshire St., Boston, Massachusetts 02109
(Address Of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: 617-563-7000
Eric D. Roiter, Secretary
82 Devonshire Street
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
( ) immediately upon filing pursuant to paragraph (b).
( ) on ( ) pursuant to paragraph (b).
( ) 60 days after filing pursuant to paragraph (a)(1).
(X) on (April 30, 1998) pursuant to paragraph (a)(1) of Rule 485
( ) 75 days after filing pursuant to paragraph (a)(2).
( ) on ( ) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
( ) this post-effective amendment designates a new effective date
for a previously filed
post-effective amendment.
VARIABLE INSURANCE PRODUCTS FUND
Initial Class
CROSS REFERENCE SHEET
Form N-1A Item Number
Part A Prospectus Caption
1 a,b Cover Page
2 a,b,c *
3 a *
b *
c *
d Performance
4 a(i) Charter
a(ii), b.c Who May Want to Invest; Investment Principles and
Risks, Securities and Investment Practices
5 a Charter
b(i) The Funds at a Glance; FMR and Its Affiliates
b(ii)(iii),c The Funds at a Glance; FMR and Its
Affiliates; Breakdown of Expenses
d FMR and Its Affiliates; Breakdown of Expenses
e Breakdown of Expenses
f g BT and Its Affiliates; Breakdown of Expenses
5A *
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
h Who May Want to Invest
7 a FMR and Its Affiliates
b (i) (ii) Transaction Details
b (iii) (iv) (v) *
c,d,e *
f Other Expenses
8 a Transaction Details
b,c *
d Transaction Details
9 *
_______________
* 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 each fund ' s most recent financial report and
portfolio listing , or a copy of the Statement of
Additiona l Information (SAI) dated April 30, 1998. 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 or your
insurance company .
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 in
this Prospectus of a fund which is not available in your state is
not to be considered a solicitation. Please read th is
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 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 BE EN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE
COMMISSION PASS ED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
VIP/VIPII/VIPIIIL-PRO-0498
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 SIGNIFICANTLY IN LOWER-QUALITY
DEBT SECURITIES, SOMETIMES CALLED "JUNK BONDS." T HESE
SECURITIES CARRY GREATER RISKS, SUCH AS THE RISK OF DEFAULT, THAN
OTHER DEBT SECURITIES.
VARIABLE
INSURANCE
PRODUCTS
FUNDS
INITIAL CLASS
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 Initial Class shares of 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, 199 8 (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 DESCRIPTIONS 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. Fidelity
Investments Money Management, Inc. (FIMM) , a subsidiary of FMR,
chooses investments for Money Market Portfolio. Beginning January
1, 1999, FIMM will choose investments for Investment Grade Bond
Portfolio. Beginning January 1, 1999, FIMM will choose certain types
of investment s for Asset Manager, Asset Manager: Growth, and
Balanced Portfolios. Foreign affiliates of FMR may help choose
investments for some of the funds.
Bankers Trust Company (BT) is a wholly-owned subsidiary of Bankers
Trust New York Corporation, the seventh largest bank holding company
in the United States. BT currently serves as sub-adviser to Index 500
Portfolio and manages the fund's portfolio.
MONEY MARKET FUND
MONEY MARKET PORTFOLIO
GOAL: Income while maintaining a stable $1.00 share price.
STRATEGY: Invests in high-quality, short-term money market securities
of all types.
SIZE: As of December 31, 199 7 , the fund had over $ ___
billion in assets.
INCOME FUNDS
INVESTMENT GRADE BOND PORTFOLIO
GOAL: High current income.
STRATEGY: Invests normally in investment-grade debt
securities. FMR uses the Lehman Brothers Aggregate Bond Index as a
guide in structuring the fund and selecting its investments.
SIZE: As of December 31, 199 7 , the fund had over $ ___
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 7 , the fund had over $ ___
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
and money market 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- T erm /Money
Market 10%
(can range from
0-50%)
SIZE: As of December 31, 199 7 , the fund had over $ ___
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
and money market 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 /Money
Market 5%
(can range from
0-50%)
SIZE: As of December 31, 199 7 , the fund had over $ ___
million in assets.
GROWTH & INCOME AND GROWTH FUNDS
BALANCED PORTFOLIO
GOAL: Both income and growth of capital.
STRATEGY: Invests in a diversified portfolio of equity and
fixed-income securities.
SIZE: As of December 31, 199 7 , the fund had over $ ___
million in assets.
EQUITY-INCOME PORTFOLIO
GOAL: Reasonable income. The fund also considers the potential for
capital appreciation.
STRATEGY: Invests mainly in income-producing equity securities.
SIZE: As of December 31, 199 7 , the fund had over $ ___
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 7 , the fund had over $ ___
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 growth of earnings.
SIZE: As of December 31, 199 7 , the fund had over $ ___
thousand in assets.
GROWTH OPPORTUNITIES PORTFOLIO
GOAL: Capital g rowth .
STRATEGY: Invests primarily in common stocks and securities
convertible into common stock s .
SIZE: As of December 31, 199 7 , the fund had over $ ___
million in assets.
CONTRAFUND PORTFOLIO
GOAL: Capital appreciation.
STRATEGY: Invests mainly in equity securities of companies that are
undervalued or out-of-favor.
SIZE: As of December 31, 199 7 , the fund had over $ ___
billion in assets.
GROWTH PORTFOLIO
GOAL: Capital appreciation.
STRATEGY: Invests mainly in common stocks, although its investments
are not restricted to any one type of security.
SIZE: As of December 31, 199 7 , the fund had over $ ___
billion in assets.
OVERSEAS PORTFOLIO
GOAL: Long-term growth of capital.
STRATEGY: Invests mainly in equity securities outside the U nited
S tates .
SIZE: As of December 31, 199 7 , the fund had over $ ___
billion in assets.
AS WITH ANY INVESTMENT OPTION, THERE IS NO ASSURANCE THAT A
FUND WILL ACHIEVE ITS GOAL.
WHO MAY WANT TO INVEST
The value of each fund's (except Money Market Portfolio '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. The prices of
bonds 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 M oney M arket P ortfolio, 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.
Each fund (except Money Market Portfolio, Investment Grade Bond
Portfolio, and Index 500 Portfolio) is composed of multiple classes of
shares. All classes of a fund have a common investment objective and
investment portfolio. Initial Class shares, the original class of
shares, of each fund are offered at net asset value and are not
subject to a 12b-1 fee. Service Class shares of each fund (except
Money Market Portfolio, Investment Grade Bond Portfolio, and Index 500
Portfolio) are offered at net asset value and are subject to a 12b-1
fee. Because Initial Class shares are not subject to a 12b-1 fee,
Initial Class shares are expected to have a higher total return than
Service Class shares (excluding charges and expenses attributable to
any particular insurance product). Insurance companies may obtain more
information about Service Class shares, which are not offered through
this prospectus, by calling Fidelity Distributors Corporation at
1-800-544-2442.
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 seek high current
income with a focus on investment-grade debt securities.
The 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 and money market
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. 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 each fund owns different types of investments, its
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 skill in allocating assets.
BALANCED PORTFOLIO
The fund is designed 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 keep expenses
low while pursu ing growth of capital and income through a
portfolio of securities that includes common stocks of companies
representing a significant portion of the market value of all common
stocks publicly traded in the United States, as measured by the
S&P 500.
Because the fund seeks to track, rather than beat, the performan ce
of the S&P 500, the fund is not managed in the same manner as
other mutual funds. BT generally does 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.
GROWTH OPPORTUNITIES PORTFOLIO
The fund is designed 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 whose values FMR believes are
not fully recognized by the public .
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 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 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" on page
.
Broadly diversified funds could be appropriate for investors first
entering the international markets or those who are interested in
broad participation in multiple markets around the world.
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
SH ORT-TERM AND MONE Y MARKET 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)
FINANCIAL HIGHLIGHTS
The financial highlights tables th at follow have been audited by
__________ (Money Market, High Income, Equity-Income, Growth, and
Overseas Portfolios) or __________ (Investment Grade Bond, Asset
Manager, Asset Manager: Growth , Balanced, Index 500, Growth &
Income, Growth Opportunities, and Contrafund Portfolios), independent
accountants. The funds' financial highlights, financial statements,
and reports of the auditors are included in the funds' Annual Reports
and are incorporated by reference into (are legally a part of) the
funds' SAI.
[Financial Highlights to be filed by subsequent amendment.]
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 Portfolio
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 periodically 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 trustees serve as trustees for other Fidelity funds. The
majority of trustees are not otherwise affiliated with Fidelity or
BT .
THE FUNDS MAY HOLD SPECIAL SHAREHOLDER 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 policy owners
and must vote shares in the separate account in proportion to the
voting instructions received. With respect to funds of VIP and VIP
II, your insurance company is entitled to one vote for each share it
owns. With respect to funds of VIP III, the number of votes your
insurance company is en titled to is based upon the dollar value
of its investment. For a further discussion, please refer to your
insurance company's separate account prospectus.
Separat e votes are taken by each class of shares, fund, or trust,
if a matter affects just that class of shares, fund, or trust,
respectively.
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 their business
affairs and, with the assistance of affiliates for certain funds,
chooses their investments. Beginning January 1, 1999, FIMM, located
in Merrimack, New Hampshire, will select certain types of investments
for Asset Manager, Asset Manager: Growth, and Balanced Portfolios.
Beginning January 1, 1999, FIMM will have primary responsibility for
providing investment management servic es for Investment Grade Bond
Portfolio.
(small solid bullet) FIMM has primary responsibility for providing
investment management services 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, Balanced, Growth & Income,
Growth Opportunities, 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, Balanced, Growth &
Income, Growth Opportunities, Contrafund and Overseas Portfolios.
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(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 (FIIA (U.K.)L), in London, England, serves as a
sub-adviser for Overseas Por tfolio.
Barry Coffman is Vice President and manager of VIP: High Income
Portfolio, which he has managed since August 1990. He also co-manages
other Fidelity funds. Mr. Coffman joined Fidelity as an analyst in
1986.
Dick Habermann is Vice President and lead manager of VIP II: Asset
Manager Portfolio and VIP II: Asset Manager: Growth Portfolio, both of
which he has managed since March 1996. He also manages several other
Fidelity funds. Previously, he was division head for international
equities and director of international research from 1991 to 1996. Mr.
Habermann joined Fidelity in 1968.
Charles Morrison is Vice President of VIP II: Asset Manager
Portfolio and VIP II: Asset Manager: Growth Portfolio and manager of
the funds' fixed-income investments since February 1997. He also
manages other Fidelity funds. Since joining Fidelity in 1987, Mr.
Morrison has worked as an analyst and manager.
Steve Snider is manager of the equity investments of VIP II: Asset
Manager Portfolio and VIP II: Asset Manager: Growth Portfolio, which
he has managed since October 1997. He also manages trust accounts for
Fidelity Management Trust Company (FMTC). Since joining Fidelity as a
quantitative analyst in 1992, Mr. Snider has worked as a manager and a
Vice President for FMTC.
John Todd is Vice President of VIP II: Asset Manager Portfolio and
VIP II: Asset Manager: Growth Portfolio and manager of the funds'
money market investments since December 1996. He also manages other
Fidelity funds. Mr. Todd joined Fidelity as a portfolio manager in
1981.
John Avery is manager of VIP III: Balanced Portfolio, which he has
managed since September 1997. He also manages another Fidelity fund.
Mr. Avery joined Fidelity as an analyst in 1995. Previously, he was an
analyst for Putnam Investments from 1993 to 1994. Mr. Avery received
his MBA from The Wharton School at the University of Pennsylvania in
1993.
Kevin Grant is Vice President and manager of VIP II: Investment
Grade Bond Portfolio, which he has managed since February 1997. He
also is Vice President of VIP III: Balanced Portfolio and manager of
its fixed-income investments since March 1996. He also manages several
other Fidelity funds. Prior to joining Fidelity as a manager 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 another Fidelity fund. Since joining Fidelity in 1980,
Mr. Petersen has worked as an analyst and manager.
Beth Terrana is Vice President and manager of VIP III: Growth &
Income Portfolio, which she has managed since inception. She also
manages other Fidelity funds. Since joining Fidelity in 1983, Ms.
Terrana has worked as an analyst, portfolio assistant, and
manager.
George Vanderheiden is Vice President and manager of VIP III:
Growth Opportunities Portfolio, which he has managed since January
1995. He also manages several other Fidelity funds. Mr. Vanderheiden
joined Fidelity in 1971; he has worked as a portfolio manager since
1980.
Will Danoff is Vice President and manager of VIP II: Contrafund
Portfolio, which he has managed since January 1995. He also manages
another Fidelity fund. Since joining Fidelity in 1986, Mr. Danoff 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
another Fidelity fund. Since joining Fidelity in 1987, Ms. Uhrig has
worked as an analyst and manager.
Richard Mace is Vice President and manager of VIP: Overseas
Portfolio, which he has managed since March 1996. He also manages
several other Fidelity funds. Since joining Fidelity in 1987 , Mr.
Mace has worked as an analyst and manager.
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 Spartan 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 Portfolio;
Balanced Portfolio is most similar to Fidelity Advisor 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
that 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 arise , 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 s 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 Initial Class of each fund.
FMR Corp. is the ultimate parent company of FMR, F IMM , 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 FIIA(U.K.)L. The Johnson family group also owns, directly or
indirectly, more than 25% of the voting common stock of FIL.
BT AND ITS AFFILIATES
Index 500 Portfolio is managed by FMR, which handles its business
affairs. BT, Index 500 Portfolio's sub-adviser, chooses the fund's
investments. FMR supervises the sub-adviser and, in conjunction with
the Board of Trustees, reviews the sub-adviser's performance of its
duties. BT also acts as Index 500 Portfolio's custodian.
BT, a New York banking corporation with principal offices at 130
Liberty Street, New York, New York 10006, is a wholly-owned subsidiary
of Bankers Trust New York Corporation.
BT, subject to the supervision and direction of the Board of
Trustees and FMR, makes investment decisions for Index 500, places
orders to buy, sell and lend the fund's investments, and manages the
fund in accordance with its investment objective and policies. BT may
utilize the expertise of any of its worldwide subsidiaries and
affiliates to assist in its role as sub-adviser. BT places orders for
portfolio transactions with broker-dealers and other firms of its
choosing, which may include affiliates of BT or FMR.
BT investment personnel may invest in securities for their own
accounts pursuant to a code of ethics that establishes procedures
for personal investing and restricts certain transactions.
FMR and BT may use their 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 the funds' investments varies in response to many
factors. Stock values fluctuate in response to the activities of
individual companies and general market and economic conditions.
The yield and share price of a bond fund change daily based on
changes in interest rates and market conditions, and in response to
other economic, political or financial events. The types and
maturities of the securities a bond fund purchases and the credit
quality of their issuers will impact a bond fund's reaction to these
events.
The total return from a bond includes both income and price gains
or losses. While income is 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.
In general, bond prices rise when interest rates fall and fall when
interest rates rise. Longer-term bonds are usually more sensitive to
interest rate changes. In other words, the longer the maturity of a
bond, the greater the impact a change in interest rates is likely to
have on the bond's price. In addition, short-term interest rates and
long-term interest rates do not necessarily move in the same amount or
in the same direction. A short-term bond tends to react to changes in
short-term interest rates and a long-term bond tends to react to
changes in long-term interest rates.
The price of a bond is affected by the credit quality of its
issuer. Changes in the financial condition of an issuer, changes in
general economic conditions, and changes in specific economic
conditions that affect a particular type of issuer can impact the
credit quality of an issuer. Lower quality bonds generally tend to be
more sensitive to these changes than higher quality bonds.
Many types of debt securities, including mortgage securities, are
subject to prepayment risk. Prepayment risk occurs when the issuer of
a security can prepay principal prior to the security's maturity.
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. In
addition, the potential impact of prepayment features on the price of
a debt security may be difficult to predict and result in greater
volatility.
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 certain 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 (BT for Index 500) may use a variety of investment
techniques to either increase or decrease a fund's investment exposure
to any currency.
FMR (BT for Index 500) 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 (BT for Index 500) intends.
It is important to note that neither the funds nor their yields are
guaranteed by the U.S. Government. When fund shares are redeemed,
they may be worth more or less than their original cost .
FMR (BT for Index 500) normally invests each fund's assets
according to its investment strategy. High Income, Asset Manager,
Asset Manager: Growth, Balanced, Equity-Income, Index 500, Growth &
Income, Growth Opportunities, Contrafund, Growth, and Overseas
Portfolios also reserve the right to invest without limitation in
preferred stocks and investment-grade debt instruments for temporary,
defensive purposes. Overseas Portfolio may invest in short-term debt
securities and money market instruments for cash management purposes.
Investment Grade Bond Portfolio reserves the right to invest without
limitation in investment-grade money market or short-term debt
instruments for temporary, defensive purposes.
MONEY MARKET PORTFOLIO
The fund seeks to earn a high level of current income while
maintaining a stable $1.00 share price by investing in high-quality,
short-term securities. The fund invests only in high-quality U.S.
dollar-denominated money market securities of domestic and foreign
issuers, including U.S. Government securities and repurchase
agreements. The fund also may enter into reverse repurchase
agreements.
The fund complies with industry-standard requirements on the
quality, maturity, and diversification of its investments, which are
designed to help maintain a stable $1.00 share price. Of course, there
is no guarantee that the fund will 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 an 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.
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.
In managing the fund, FMR selects a benchmark index which is
representative of the universe of securities in which the fund
invests. FMR uses this benchmark as a guide in structuring the fund
and selecting its investments. The benchmark index for the fund is the
Lehman Brothers Aggregate Bond Index, a market value weighted
benchmark of investment-grade fixed-rate debt issues, including
government, corporate, asset-backed, and mortgage-backed securities,
with maturities of one year or more. FMR manages the fund to have
similar overall interest rate risk to the Index. As of December 31,
1997, the dollar-weighted average maturities of the fund and the Index
were approximately __ and __ years, respectively.
FMR allocates assets among different market sectors (for example,
corporate or government securities) and different maturities based on
its view of the relative value of each sector or maturity.
FMR focuses on assembling a portfolio of income-producing bonds
that it believes will provide the best balance between risk and return
within the universe of securities in which the fund invests. 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.
In determining a security's maturity for purposes of calculating
the fund's average maturity, an estimate of the average time for its
principal to be paid may be used. This can be substantially shorter
than its stated final maturity.
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. The fund may also invest in futures
contracts and other derivatives to adjust its investment exposure.
Although the fund has no limits on the quality and maturity of its
investments, its strategy typically leads to lower-quality,
fixed-income securities. These 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
especially 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 money market
instruments, 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
securities maturing in more than one year. The SHORT-TERM/MONEY
MARKET CLASS includes all types of short-term and 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 represents 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- T ERM /MONEY MARKET 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 and money market instruments.
ASSET MANAGER: GROWTH
Range Neutral mix
STOCK CLASS 50-100% 70%
BOND CLASS 0-50% 25%
SHORT- T ERM /MONEY MARKET 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 and money market instruments, its return may not
be as high as a fund that invests only in stocks.
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 s and makes changes
gradually to favor investments that it believes will provide the most
favorable outlook for achieving the fund's objective. Under
normal circumstances, a single reallocation will not involve more than
10% of Asset Manager's total assets or more than 20% of Asset Manager:
Growth's total assets. Although FMR uses its expertise and resources
in allocating assets, FMR's decisions may not be advantageous to a
fund.
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 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. FMR normally invests at least 65%
of the fund's total assets in these securities. The fund has the
flexibility, however, to invest the balance in all types of domestic
and foreign securities, including bonds. The fund seeks a yield that
exceeds the yield on the securities comprising the S&P 500. The fund
does not expect to invest in debt securities of companies that do not
have proven earnings or credit. When choosing the fund's investments,
FMR also considers the potential for capital appreciation.
INDEX 500 PORTFOLIO
The fund seeks to provide investment results that correspond to the
total return of a broad range of common stocks publicly traded in the
United States.
To achieve this objective, the fund attempts to duplicate the
composition and total return of the S&P 500. The S&P 500 is made up of
500 common stocks, most of which trade on the New York Stock Exchange
(NYSE). Standard & Poor's (S&P) 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. The S&P 500 is a widely recognized, unmanaged
index of common stock prices. It is generally acknowledged that the
S&P 500 broadly represents the performance of publicly traded common
stocks in the United States. Total returns for the S&P 500 assume
reinvestment of dividends but do not include the effect of brokerage
commissions, or other fees. At some time in the future FMR may,
subject to shareholders' approval and 30 days' notice, select another
index if such a standard of comparison is deemed to be more
representative of the performance of U.S. common stocks.
Under normal conditions the fund seeks to invest at least 80% of
its assets (65% if fund assets are below $20 million) in equity
securities of companies that compose the S&P 500.
The fund may not always hold all of the same securities as the S&P
500. BT may choose, if extraordinary circumstances warrant, to exclude
an index stock from the fund and substitute a similar stock if doing
so will help the fund achieve its objective.
The fund may not track the S&P 500 perfectly. Differences between
the S&P 500 and the fund's portfolio may cause differences in
performance. Even if the fund's investments match the S&P 500 exactly,
its returns could differ on a day-to-day basis because of differences
in how the fund and the S&P 500 are valued. The fund normally values
all of its investments at 4:00 p.m. Eastern time. The S&P 500 is
valued by its sponsor, who may use different closing prices than the
fund does. In addition, the fund's ability to replicate the S&P 500's
returns will depend to some extent on transaction costs and the size
and frequency of cash flows into and out of the fund.
The fund seeks to achieve a 98% or better correlation between its
total return and the total return of the S&P 500. BT uses an indexing
technique to structure the fund's portfolio similarly to that of the
S&P 500. FMR monitors correlation between the performance of the fund
and that of the S&P 500 on a monthly basis. Correlation is measured by
comparing the fund's monthly total returns to those of the S&P 500
over the most recent 36-month period. In the unlikely event that the
fund cannot achieve a correlation of 98% or better, the trustees will
consider alternative arrangements.
The fund may purchase short-term debt securities for cash
management purposes and may use various techniques, such as stock
index futures, to adjust its exposure to 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 capital growth by investing primarily in common stocks
and securities convertible into common stocks.
FMR normal ly invest s at least 65% of the
fund's 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 in securities of
companies whose value FMR believes is not fully recognized by the
public. The fund normally invests primarily in common stock and
securities convertible into common stock, but it has the flexibility
to invest in other types of securities.
The types of companies the fund may invest in include:
(small solid bullet)companies experiencing positive fundamental
change such as a new management team or product launch, a significant
cost-cutting initiative, a merger or acquisition, or a reduction in
industry capacity that should lead to improved pricing;
(small solid bullet)companies whose earnings potential has
increased or is expected to increase more than generally
perceived;
(small solid bullet)companies that have enjoyed recent market
popularity but which appear to have temporarily fallen out of favor
for reasons that are considered non-recurring or short-term; or
(small solid bullet)companies that are undervalued in relation to
securities of other companies in the same industry.
The fund's strategy can lead to investments in small and medium-sized
companies, which carry more risk than larger ones. T hese
companies, especially small - sized ones, may rely on
limited product lines and markets, financial resources, or other
factors. This may make them more susceptible to setbacks or downturns.
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.
Companies with strong growth potential often have new products,
technologies, distribution channels, or other opportunities.
Often, these domestic and foreign companies are 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. However, companies
with strong growth potential may also be larger companies that hold a
strong industry or market position.
OVERSEAS PORTFOLIO
The fund seeks long-term growth of capital by investing primarily
in foreign securities. The fund defines foreign securities as
securities of issuers whose principal activities are located outside
the United States. Normally, at least 65% of the fund's total assets
will be invested in foreign securities. The fund may also invest in
U.S. issuers.
The fund normally diversifies its investments across different
countries and regions. In allocating the fund's assets across
countries and regions, FMR will consider the size of the market in
each country and region relative to the size of the international
market as a whole.
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, expects to invest primarily in
equity securities, but may also invest in debt securities of any
quality.
Th is broadly diversified fund increase s diversification
by spreading investments among securities of both developed and
eme rging markets, different c ountries and geographic regions.
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.
International funds have increased economic and political risks as
they are exposed to events and factors in the various world markets.
These risks may be greater for funds that invest in 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 investment techniques to either increase or
decrease the fund's exposure to any currency.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which a fund may invest, strategies FMR (BT for
Index 500) 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 (BT for Index 500) 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 de tailed 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. 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 a single issuer. For Index
500, this limitation does not apply to securities of other investment
companies.
High Income may invest up to 20% of its total assets in common stocks
and other equity securities.
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. Some debt securities, such as zero
coupon bonds, do not pay current interest, but are sold at a
discount from their face values.
Debt securities have varying levels of sensitivity to changes in
interest rates and varying degrees of credit quality. In
general, bond prices rise when interest rates fall, and fall when
interest rates rise. Longer-term bonds and zero coupon bonds are
generally more sensitive to interest rate changes .
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 or regional
economic difficulty. Lower-quality securities may be thinly
traded, making them difficult to sell promptly at an acceptable price.
Adverse publicity and changing investor perceptions may affect the
ability to obtain prices for or to sell these securities.
The default rate of lower-quality debt securities is likely to be
higher when issuers have difficulty meeting projected goals or
obtaining additional financing. This could occur during economic
recessions or periods of high interest rates. If an issuer defaults,
the fund may try to protect the interests of security holders if it
determines such action to be in the best interest of its
shareholders.
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 the fiscal year ended December
31, 1997 , 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.
RESTRICTIONS: For each of Balanced, Equity-Income, Growth & Income,
Growth Opportunities, Contrafund, Growth, and Overseas, purchase of a
debt security is consistent with the fund's debt quality policy if it
is rated at or above the stated level by Moody's Investors Service
(Moody's) or rated in the equivalent categories by Standard & Poor's
(S&P), or is unrated but judged by FMR to be of equivalent
quality.
For each of Asset Manager and Asset Manager: Growth, purchase of a
debt security is consistent with the fund's debt quality policy if it
is rated at or above the stated level by Moody's, S&P, Duff & Phelps
Credit Rating Co. (Duff & Phelps), or Fitch IBCA, Inc. (Fitch), or is
unrated but judged by FMR to be of equivalent quality.
Each of Growth and Contrafund currently intends to limit its
investments in lower than Baa-quality debt securities to 5% of its
assets.
Each of Equity-Income, Asset Manager: Growth, Asset Manager,
Overseas, Growth & Income, Balanced, and Growth Opportunities
currently intends to limit its investments in lower than Baa-quality
debt securities to les s than 35% of its assets.
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, S&P, Duff
& P helps, or Fitch, or is unrated but judged by FMR to be of
equivalent quality.
MONEY MARKET SECURITIES are high-quality, short-term instruments
issued by the U.S. G overnment, corporations, financial
institutions, and other entities. These securities may carry
fixed, variable, or floating interest rates. M oney market
securities may be structured or may employ a trust or similar
structur e so that they are e ligible investments for money
market funds. If the structure does not perform as intended, adverse
tax or investment consequences may result.
FISCAL YEAR ENDED 19 97 DEBT HOLDINGS, BY RATING
MOODY'S
INVESTORS SERVICE STANDARD & POOR'S
(AS A % OF INVESTMENTS) (AS A % OF INVESTMENTS)
RATING AVERAGE OF TOTAL INVESTMENTS RATING AVERAGE OF TOTAL
INVESTMENTS
INVESTMENT HIGH ASSET ASSET MGR: EQUITY- GROWTH & GROWTH HIGH ASSET
ASSET MGR: EQUITY- GROWTH & GROWTH
GRADE INCOME MANAGER GROWTH BALANCED INCOME INCOME OPPS OVERSEAS
INCOME MANAGER GROWTH BALANCED INCOME INCOME OPPS OVERSEAS
HIGHEST QUALITY AAA AAA
HIGH QUALITY AA AA
UPPER-MEDIUM
GRADE A A
MEDIUM GRADE BAA BBB
LOWER QUALITY
MODERATELY
SPECULATIVE BA BB
SPECULATIVE B B
HIGHLY SPECULATIVE CAA CCC
POOR QUALITY CA CC
LOWEST QUALITY,
NO INTEREST C C
IN DEFAULT, IN ARREARS - D
REFER TO THE APPENDIX FOR A MORE COMPLETE DISCUSSION OF THESE
RATINGS.
THE FUNDS DO NOT NECESSARILY RELY ON THE RATINGS OF MOODY'S AND S&P
TO DETERMINE COMPLIANCE WITH THEIR DEBT QUALITY POLICIES.
SECURITIES NOT RATED BY MOODY'S OR S&P AMOUNTED TO __% OF HIGH
INCOME'S, __% OF ASSET MANAGER'S, __% OF ASSET MANAGER: GROWTH'S, __%
OF BALANCED'S, __% OF EQUITY-INCOME'S, __%
OF GROWTH & INCOME'S, __% OF GROWTH OPPORTUNITIES', AND __% OF
OVERSEAS' INVESTMENTS. THESE PERCENTAGES MAY INCLUDE SECURITIES RATED
BY OTHER NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATIONS,
AS WELL AS UNRATED SECURITIES. UNRATED LOWER-QUALITY SECURITIES
AMOUNTED TO __% OF HIGH INCOME'S, __% OF ASSET MANAGER'S, __% OF ASSET
MANAGER: GROWTH'S, __% OF BALANCED'S, __% OF
EQUITY-INCOME'S, __% OF GROWTH & INCOME'S, __% OF GROWTH
OPPORTUNITIES', AND __% OF OVERSEAS' INVESTMENTS. FOR FOREIGN
GOVERNMENT SECURITIES NOT INDIVIDUALLY RATED BY A NATIONALLY
RECOGNIZED
STATISTICAL RATING ORGANIZATION, FMR ASSIGNS THE RATING OF THE
SOVEREIGN CREDIT OF THE ISSUING GOVERNMENT.
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 Fannie Mae 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 and liquidity enhancement, including letters of credit,
guarantees, puts and demand features, and insurance , provided
by foreign or domestic 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 , economic , or
regulatory conditions in foreign countrie s; fluctuations in
foreign currencies ; withholding or other taxes ; trading,
settlement, custodial and other operational risks ; and the
potentially less stringent investor protection and disclosure
standards of foreign markets. Additionally, governmental issuers of
foreign debt securities may be unwilling to pay interest and
repay principal when due and may require that the conditions for
payment be renegotiated. All of these factors can make foreign
investments, especially those in emerging markets, more
volatile and potentially less liquid 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%.
EXPOSURE TO EMERGING MARKETS. Investing in emerging mar kets
involves risks in addition to and greater than those generally
associated with investing in more developed foreign markets. The
extent of economic development; political stability; market depth,
infrastructure, and capitalization; and regulatory oversight is
generally less than in more developed markets. Emerging market
economies may be subject to greater social, economic, regulatory, and
political uncertainties. All of these factors generally make emerging
market securities more volatile and potentially less liquid than
securities issued in more developed markets.
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 debt
securities , commercial or consumer loans , or other
receivables . The value of these securities depends on many
factors, including changes in interest rates, the availability of
information concerning the pool and its structure, the credit
quality of the underlying assets, the market's perception of the
servicer of the pool, and any credit enhancement provided. In
addition, these securities may be subject to prepayment risk.
MORTGAGE SECURITIES include 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. G overnment 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. The risks associated with stripped securities
are similar to those of other debt securities, although
stripped securities may be more volatile and the value of
certain types of stripped securities may move in the same direction as
interest rates. U.S. Treasury securities that have been
stripped by a Federal Reserve Bank are obligations of the U.S.
Treasury.
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.
FOREIGN REPURCHASE AGREEMENTS may be less well secured than U.S.
repurchase agreements, and may be denominated in foreign currencies.
They also may involve greater risk of loss if the counterparty
defaults. Some counterparties in these transactions may be less
creditworthy than those in the U.S. markets.
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, 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 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
cha racteristics of a fund's portfolio of investments. F or
Index 500, BT can use these practices in its effort s to
track the return of the S&P 500. If FMR (BT for Index 500)
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 (BT for Index 500) , under the supervision of the Board
of Trustees (and FMR) , 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: Each of M oney Market, Investment Grade Bond,
Asset Manager, Asset Manager: Growth, Balanced, Equity-Income, Index
500, Growth & Income, Growth Opportunities, Contrafund, and Growth
Portfolios may not purchase a security if, as a result, more than 10%
of its assets would be invested in illiquid securities. Each of
High Income and Overseas Portfolios may not purchase a security
if, as a result, more than 15% of its assets would be invested in
illiquid securities.
WHEN-ISSUED AND FORWARD PURCHASE OR SALE TRANSACTIONS are
trading practices in which payment and delivery for the
securit y take place at a later date than is customary for
that type of security . The market value of the security
could change during this period.
WARRANTS are instruments which entitle the holder to buy an
equity security at a specific price for a specific period of time.
The price of a warrant tends to be more volatile than the price of its
underlying security, and a warrant 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 security.
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 will invest more than 25% of its
total assets in the financial services industry.
OTHER INSTRUMENTS may include securities of closed-end
investment companies, real estate-related instruments, convertible
securities, and preferred stocks.
CASH MANAGEMENT. A fund 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. Index 500 Portfolio may also invest in similar money
market funds managed by BT or other investment managers. A major
change in interest rates or a default on a money market fund's
investments could cause its share price to change.
RESTRICTIONS: Money Market Portfolio does not currently intend to
invest in a money market fund.
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 Portfolio 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 certain other money
market funds and in the highest quality securities of a single
issuer for up to three business days. These limitations do not apply
to U.S. G overnment 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 one issuer. Th is limitation
do es not apply to U.S. G overnment securities or, for
Index 500 Portfolio, to securities of other investment companies.
Each fund (other than Money Market Portfolio) may not invest more
than 25% of its total assets in any one industry. This limitation does
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 33 1/3% of its total assets. Money
Market may borrow only for temporary or emergency purposes, or engage
in reverse repurchase agreements, but not in an amount exceeding
33 1/3% of its total assets .
LENDING securities to broker-dealers and institutions, including
Fidelity Brokerage Services, Inc. (FBSI), an affiliate of FMR, is a
means of earning income. For Index 500 Portfolio, BT receives a
portion of securities lending income as a sub-advisory fee. Securities
lending 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.
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 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.
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 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 by
investing primarily 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.
W ith respect to 75% of its total assets, each fund
(other than Money Market) may not purchase a security if, as a
result, more than 5% would be invested in the securities of
any one issuer and may not purchase more than 10% of the
outstanding voting securities of a single issuer. This limitation
does not apply to U.S. Government securities or, for Index 500
Portfolio, to securities of other investment companies.
Each fund (other than Money Market) may not invest more than
25% of its total assets in any one industry . This limitation does
not apply to U.S. Government securities. Money Market will invest
more than 25% of its total assets in the financial services industry.
Each fund (other than Money Market) may borrow only for temporary
or emergency purposes, but not in an amount exceeding 33 % of its
total assets. Money Market may borrow only for temporary or emergency
purposes, or engage in reverse repurchase agreements, but not in an
amount exceeding 33 % of its total assets.
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 each class 's assets are
reflected in that class's share price.
Each fund pays a MANAGEMENT FEE to FMR for managing its investments
and business affairs. FMR in turn pays fees to affiliates who provide
assistance with these services for Money Market, High Income, Asset
Manager, Asset Manager: Growth, Balanced, Growth & Income, Growth
Opportunities, Contrafund, and Overseas Portfolios. FMR and Index 500
Portfolio pay sub-advisory fees to BT for managing the fund's
investments, administering its securities lending program, and for
custodial services. Each fund also pays OTHER EXPENSES, which are
explained on page .
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
The management fee is calculated and paid to FMR every month. The fee
for each fund (except Money Market and Index 500) 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.
The fee for Money Market 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.
The management and sub-advisory fees for Index 500 are calculated
and paid every month to FMR and BT, respectively. Index 500 pays the
fees at the annual rate of 0.24% of its average net assets. This fee
includes a management fee of 0.24% payable to FMR and an estimated
sub-advisory fee of less than 0.01% payable to BT (representing 40% of
net income from securities lending).
The group fee rate is based on the average net assets of all the
mutual funds advised by FMR. This rate cannot rise above 0.52% for
Asset Manager, Asset Manager: Growth, Balanced, Equity-Income, Growth
& Income, Growth Opportunities, Contrafund, Growth, and Overseas
Portfolios, or 0.37% for Money Market, High Income, and Investment
Grade Bond Portfolios, and it drops as total assets under management
increase.
The following table states the management fee rate for each fund
for the fiscal year ended December 31, 1997:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FUND GROUP INDIVIDUAL TOTAL
FEE RATE FUND MANAGEMENT
FEE RATE FEE RATE
MONEY MARKET PORTFOLIO 0.__% 0.03% 0. __ %
INVESTMENT GRADE BOND PORTFOLIO 0.__% 0.30% 0. __ %
HIGH INCOME PORTFOLIO 0.__% 0.45% 0. __ %
ASSET MANAGER PORTFOLIO 0.__% 0.25%A 0. __ %
ASSET MANAGER: GROWTH PORTFOLIO 0.__% 0.30%B 0. __ %
BALANCED PORTFOLIO 0.__% 0.15%C 0. __ %
EQUITY-INCOME PORTFOLIO 0.__% 0.20% 0. __ %
INDEX 500 PORTFOLIO N/A N/A 0.__%D
GROWTH & INCOME PORTFOLIO 0.__% 0.20% 0. __ %
GROWTH OPPORTUNITIES PORTFOLIO 0.__% 0.30% 0. __ %
CONTRAFUND PORTFOLIO 0.__% 0.30% 0. __ %
GROWTH PORTFOLIO 0.__% 0.30% 0. __ %
OVERSEAS PORTFOLIO 0.__% 0.45% 0. __ %
</TABLE>
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 TOTAL MANAGEMENT FEE WOULD HAVE BEEN
0. __ %
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 TOTAL MANAGEMENT FEE WOULD HAVE BEEN
0. __ %
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 TOTAL MANAGEMENT FEE WOULD HAVE BEEN 0.__%
D EFFECTIVE DECEMBER 1, 1997, THE FUND'S MANAGEMENT FEE RATE WAS
REDUCED FROM 0.28% TO 0.24%. WITHOUT THIS REDUCTION, THE TOTAL
MANAGEMENT FEE WOULD HAVE BEEN 0.__%
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 FIIA ( U.K. )L. 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).
FIIA ( U.K. )L 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 FIIA ( U.K .)L a fee equal to 110% of the cost of
providing these services.
T he 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 a
fund's investments that the sub-adviser manages on a discretionary
basis. FIIA pays FIIA ( U.K. )L a fee equal to 110% of the
cost of providing these services.
FUND FEE TO FEE TO
FMR U.K. FMR FAR
EAST
ASSET MANAGER PORTFOLIO 0 . __ % 0 . __ %
ASSET MANAGER: GROWTH PORTFOLIO 0 . __ % 0 . __ %
BALANCED PORTFOLIO 0 . __ % 0 . __ %
GROWTH OPPORTUNITIES PORTFOLIO 0 . __ % 0 . __ %
CONTRAFUND PORTFOLIO 0 . __ % 0 . __ %
OVERSEAS PORTFOLIO 0 . __ % 0 . __ %
The following table states the fees paid by FMR to FMR U.K. and
FMR Far East on behalf of the funds (as a percentage of average net
assets) for the fiscal year ended December 31,
199 7 :
FIMM is Money Market Portfolio's sub-adviser and has primary
responsibility for managing its investments. FMR is responsible for
providing other management services. FMR pays FIMM 50% of its
management fee (before expense reimbursements) for FIMM's services.
FMR paid FMR Texas Inc., the predecessor company to FIMM, a fee equal
to __% of Money Market Portfolio's average net assets for the fiscal
year ended December 31, 1997.
Beginning January 1, 1999, FIMM will select certain investments for
Asset Manager, Asset Manager: Growth, and Balanced Portfolios. FMR
will pay FIMM a fee equal to 50% of its management fee (before expense
reimbursements) with respect to each fund's investments that FIMM
manages.
Beginning January 1, 1999, FIMM will have primary responsibility
for managing Investment Grade Bond Portfolio's investments. FMR will
pay FIMM 50% of its management fee (before expense reimbursements) for
FIMM's services.
BT is Index 500 Portfolio's sub-adviser under an agreement with FMR
and the fund. For providing investment management, securities lending,
and custodial services to the fund, FMR pays BT fees at an annual rate
of 0.006% of the fund's average net assets. In addition, the fund pays
BT fees equal to 40% of net income from the fund's securities lending
program. The remaining 60% of net income from the fund's securities
lending program goes to the fund.
OTHER EXPENSES
While management fee s and sub-advisory fees, as applicable, are
a significant component of the funds ' annual operating
costs, the funds have other expenses as well.
FIIOC performs transfer agency, dividend disbursing, and
shareholder servicing functions for Initial Class of each fund.
Fidelity Service Company, Inc. (FSC) calculates the net asset value
per share (NAV) and dividends for Initial Class of each fund,
maintains the general accounting records for each fund, and (except
for Money Market and Index 500 Portfolios) administers the securities
lending program for each fund.
For the fiscal year ended December 31, 1997, transfer agency and
pricing and bookkeeping fees paid (as a percentage of average net
assets) amounted to the following. [Fund Reporting to add as
appropriate: These amounts are before expense reductions, if any.]
<TABLE>
<CAPTION>
<S> <C> <C>
FUND TRANSFER AGENCY PRICING AND
FEES PAID BY BOOKKEEPING FEES
INITIAL CLASS
PAID BY FUND
MONEY MARKET PORTFOLIO 0 . __ % 0 . __ %
INVESTMENT GRADE BOND PORTFOLIO 0 . __ % 0 . __ %
HIGH INCOME PORTFOLIO 0 . __ % 0 . __ %
ASSET MANAGER PORTFOLIO 0 . __ % 0 . __ %
ASSET MANAGER: GROWTH PORTFOLIO 0.__ % 0 . __ %
BALANCED PORTFOLIO 0 . __ % 0 . __ %
EQUITY-INCOME PORTFOLIO 0 . __ % 0 . __ %
INDEX 500 PORTFOLIO 0 . __ % 0 . __ %
GROWTH & INCOME PORTFOLIO 0.__% 0.__%
GROWTH OPPORTUNITIES PORTFOLIO 0 . __ % 0 . __ %
CONTRAFUND PORTFOLIO 0 . __ % 0 . __ %
GROWTH PORTFOLIO 0 . __ % 0 . __ %
OVERSEAS PORTFOLIO 0 . __ % 0 . __ %
</TABLE>
The following figures are based on [estimated or] historical
expenses [, adjusted to reflect current fees,] of Initial Class of
each fund and are calculated as a percentage of average net assets of
Initial Class of each fund.
FUND TOTAL OPERATING
EXPENSES
MONEY MARKET PORTFOLIO 0.__%
INVESTMENT GRADE BOND PORTFOLIO 0.__%
HIGH INCOME PORTFOLIO 0.__%
ASSET MANAGER PORTFOLIO 0.__%
ASSET MANAGER: GROWTH PORTFOLIO 0.__%
BALANCED PORTFOLIO 0.__%
EQUITY-INCOME PORTFOLIO 0.__%
INDEX 500 PORTFOLIO 0.__%
GROWTH & INCOME PORTFOLIO 0.__%
GROWTH OPPORTUNITIES PORTFOLIO 0.__%
CONTRAFUND PORTFOLIO 0.__%
GROWTH PORTFOLIO 0.__%
OVERSEAS PORTFOLIO 0.__%
A portion of the brokerage commissions that certain funds pay is used
to reduce fund expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby
credits realized as a result of uninvested cash bala nces are used
to reduce custodian and transfer agent expenses. Including these
reductions, the total In itial Class op erating expenses
presented in the table would have been:
FUND INITIAL CLASS
ASSET MANAGER PORTFOLIO 0.__%
ASSET MANAGER: GROWTH PORTFOLIO 0.__%
BALANCED PORTFOLIO 0.__%
EQUITY-INCOME PORTFOLIO 0.__%
GROWTH & INCOME PORTFOLIO 0.__%
GROWTH OPPORTUNITIES PORTFOLIO 0.__%
CONTRAFUND PORTFOLIO 0.__%
GROWTH PORTFOLIO 0.__%
OVERSEAS PORTFOLIO 0.__%
FMR has voluntarily agreed to reimburse Initial Class of certain
funds to the extent that total operating expenses (as a percentage of
average net assets) exceed the following rates:
<TABLE>
<CAPTION>
<S> <C> <C>
FUND INITIAL CLASS EFFECTIVE DATE
INVESTMENT GRADE BOND PORTFOLIO 0.80% 12/5/88
HIGH INCOME PORTFOLIO 1.00% 9/19/85
ASSET MANAGER PORTFOLIO 1.25% 1/1/90
ASSET MANAGER: GROWTH PORTFOLIO 1.00% 1/3/95
BALANCED PORTFOLIO 1.50% 1/3/95
EQUITY-INCOME PORTFOLIO 1.50% 10/9/86
INDEX 500 PORTFOLIO 0.28% _/_/9_
GROWTH & INCOME PORTFOLIO 1.00% 12/[30]/96
GROWTH OPPORTUNITIES PORTFOLIO 1.50% 1/3/95
CONTRAFUND PORTFOLIO 1.00% 1/3/95
GROWTH PORTFOLIO 1.50% 10/9/86
OVERSEAS PORTFOLIO 1.50% 1/28/87
</TABLE>
If these agreements were not in effect, the total operating
expenses (as a percentage of average net assets) of Initial Class of
________ [, ________, and ________] Portfolio[s] would have been __%
[, __%, and __%, respectively].
Expenses eligible for reimbursement do not include interest, taxes,
brokerage commissions (and, for Index 500, other transaction costs) or
extraordinary expenses. In addition, for Index 500, sub-advisory fees
paid by the fund associated with securities lending are not eligible
for reimbursement.
Each fund also pays other expenses, such as legal, audit, and
(except Index 500) custodian fees; in some instances, proxy
solicitation costs; and the compensation of trustees who are not
affiliated with Fidelity. A broker-dealer may use a portion of the
commissions paid by a fund to reduce that fund's custodian or transfer
agent fees.
The following table states e ach fund's (except Money Market's)
portfolio turnover rate for the fiscal year ended December 31,
1997. 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 __%
HIGH INCOME PORTFOLIO __%
ASSET MANAGER PORTFOLIO __%
ASSET MANAGER: GROWTH PORTFOLIO __%
BALANCED PORTFOLIO __%
EQUITY-INCOME PORTFOLIO __%
INDEX 500 PORTFOLIO __%
GROWTH & INCOME PORTFOLIO __%
GROWTH OPPORTUNITIES PORTFOLIO __%
CONTRAFUND PORTFOLIO __%
GROWTH PORTFOLIO __%
OVERSEAS PORTFOLIO __%
Initial Class shares of each fund have adopted a DISTRIBUTION AND
SERVICE PLAN. Each Plan recognizes that FMR may use its management fee
revenues, as well as its past profits or its resources from any other
source, to pay FDC for expenses incurred in connection with the
distribution of Initial Class shares. FMR, directly or through FDC,
may make payments to third parties, such as banks or broker-dealers,
that engage in the sale of, or provide shareholder support services
for, Initial Class shares. Currently, the Board of Trustees of each
fund has authorized such payments.
PERFORMANCE
A fund's total return and /or yield may be quoted in
advertising in accordance with current law and interpretations
thereof.
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment 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 currencies. 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 a fund's yield.
Other illustrations of equity fund performance may show moving
averages over specified periods.
The funds' recent strategies, performance, and holdings are detailed
twice a year in financial reports, which are sent to all
shareholders. For additional performance information, contact your
insurance company for a free annual report.
TOTAL RETURNS AND YIELDS QUOTED FOR A CLASS INCLUDE THE
CLASS'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
class'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.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN
INDICATION OF FUTURE PERFORMANCE.
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. Investment Grade Bond, High Income, Asset Manager, Asset
Manager: Growth, Balanced, Equity-Income, Index 500, Growth & Income,
Growth Opportunities, Contrafund, Growth, and Overseas 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 same class of
the fund. Each fund (except Money Market) makes dividend and
capital gain distributions on a per-share basis for each class .
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. FSC normally calculate s each class's NAV
as of the close of business of the NYSE, normally 4 :00 p.m.
Eastern time.
A CLASS'S NAV is the value of a single share. The NAV of
each class is computed by adding that class's pro rata share of the
value of the applicable fund's investments, cash, and other assets,
subtracting that class's pro rata share of the value of the applicable
fund's liabilities, subtracting the liabilities allocated to that
class, and dividing the result by the number of shares of that class
that are outstanding.
For Money Market, assets 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 maintain a stable $1.00 share price.
For funds other than Money Market, assets are valued primarily on
the basis of market quotations or on the basis of information
furnished by a pricing service. Short-term securities with remaining
maturities of sixty days or less for which quotations and information
furnished by a pricing service are not readily available are valued on
the basis of amortized cost. This method minimizes the affect of
changes in a security's market value. 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. In addition, if quotations and
information furnished by a pricing service 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 another
method that the Board of Trustees believes accurately reflects fair
value.
A CLASS'S OFFERING PRICE (price to buy one share) is its
NAV. A class's REDEMPTION PRICE (price to sell one share) is
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 RATINGS OF CORPORATE
BOND S
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's 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 - B onds 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
BOND S
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 - The rating 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.
INDEX 500 PORTFOLIO is not sponsored , endorsed, sold, or
promoted by S&P. S&P makes no representation or warranty, express or
implied, to participants in 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 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, 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 in the fund into
consideration in determining, composing, or calculating the S&P 500.
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.
S&P does not guarantee the accuracy and/or the completeness of the S&P
500 or any data included therein and S&P shall have no liability for
any errors, omissions, or interruptions therein. S&P makes no
warranty, express or implied, as to results to be obtained by the
L icensee, participants in the fund , or any other
person or entity from the use of the S&P 500 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 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.
"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 FDC .
VARIABLE INSURANCE PRODUCTS FUND
Service Class
CROSS REFERENCE SHEET
Form N-1A Item Number
Part A Prospectus Caption
1 a,b Cover Page
2 a,b,c *
3 a *
b *
c *
d Performance
4 a(i) Charter
a(ii), b.c Who May Want to Invest; Investment Principles and
Risks, Securities and Investment Practices
5 a Charter
b(i) The Funds at a Glance; FMR and Its Affiliates
b(ii)(iii),c The Funds at a Glance; FMR and Its
Affiliates; Breakdown of Expenses
d FMR and Its Affiliates; Breakdown of Expenses
e Breakdown of Expenses
f g FMR and Its Affiliates; Breakdown of Expenses
5A *
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
h Who May Want to Invest
7 a FMR and Its Affiliates
b (i) (ii) Transaction Details
b (iii) (iv) (v) *
c,d,e *
f Other Expenses
8 a Transaction Details
b,c *
d Transaction Details
9 *
_______________
* 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 each fund's most recent financial report and portfolio
listing , or a copy of the Statement of Additional Information
(SAI) dated April 30, 1998 . 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 or your insurance
company .
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 in
this Prospectus of a fund which is not available in your state is not
to be considered a solicitation. Please read this 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.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
VIP/VIPII/VIPIIISC-PRO- 0498
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 SIGNIFICANTLY IN LOWER-QUALITY
DEBT SECURITIES, SOMETIMES CALLED "JUNK BONDS." T HESE
SECURITIES CARRY GREATER RISKS, SUCH AS THE RISK OF DEFAULT, THAN
OTHER DEBT SECURITIES.
VARIABLE
INSURANCE
PRODUCTS
FUNDS
SERVICE CLASS
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 Service Class shares of the following funds:
INCOME FUND
High Income Portfolio
ASSET ALLOCATION FUNDS
Asset Manager Portfolio
Asset Manager: Growth Portfolio
GROWTH & INCOME AND GROWTH FUNDS
Balanced Portfolio
Equity-Income Portfolio
Growth & Income Portfolio
Growth Opportunities Portfolio
Contrafund Portfolio
Growth Portfolio
Overseas Portfolio
PROSPECTUS
APRIL 30, 1998(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 S OF MOODY'S AND S&P'S CORPORATE BOND RATINGS.
</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. Beginning January
1, 1999, Fidelity Investments Money Management, Inc. (FIMM), a
subsidiary of FMR, will choose certain types of investments for Asset
Manager, Asset Manager: Growth, and Balanced Portfolios.
Foreign affiliates of FMR may help choose investments for some of
the funds.
INCOME FUND
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 7 , the fund had over $ __
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
and money market 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/Money Market 10%
(can range from 0-50%)
SIZE: As of December 31, 199 7 , the fund had over $ __
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
and money market 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/Money Market 5%
(can range from 0-50%)
SIZE: As of December 31, 199 7 , the fund had over $ __
million in assets.
GROWTH & INCOME AND GROWTH FUNDS
BALANCED PORTFOLIO
GOAL: Both income and growth of capital.
STRATEGY: Invests in a diversified portfolio of equity and
fixed-income securities.
SIZE: As of December 31, 199 7 , the fund had over $ __
million in assets.
EQUITY-INCOME PORTFOLIO
GOAL: Reasonable income. The fund also considers the potential for
capital appreciation.
STRATEGY: Invests mainly in income-producing equity securities.
SIZE: As of December 31, 199 7 , the fund had over $ __
billion 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 growth of earnings.
SIZE: As of December 31, 199 7 , the fund had over $ __
thousand in assets.
GROWTH OPPORTUNITIES PORTFOLIO
GOAL: Capital growth.
STRATEGY: Invests primarily in common stocks and securities
convertible into common stock s .
SIZE: As of December 31, 199 7 , the fund had over $ __
million in assets.
CONTRAFUND PORTFOLIO
GOAL: Capital appreciation .
STRATEGY: Invests mainly in equity securities of companies that are
undervalued or out-of-favor.
SIZE: As of December 31, 199 7 , the fund had over $ __
billion in assets.
GROWTH PORTFOLIO
GOAL: Capital appreciation .
STRATEGY: Invests mainly in common stocks, although its investments
are not restricted to any one type of security.
SIZE: As of December 31, 199 7 , the fund had over $ __
billion in assets.
OVERSEAS PORTFOLIO
GOAL: Long-term growth of capital.
STRATEGY: Invests mainly in equity securities outside the U nited
States.
SIZE: As of December 31, 199 7 , the fund had over $__ billion in
assets.
AS WITH ANY INVESTMENT OPTION, THERE IS NO ASSURANCE THAT A FUND WILL
ACHIEVE ITS GOAL.
WHO MAY WANT TO INVEST
The value of each fund'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. The prices
of bonds 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. 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.
Each fund is composed of multiple classes of shares. All classes of a
fund have a common investment objective and investment portfolio.
Service Class shares of each fund are offered at net asset
value and are subject to a 12b-1 fee. Initial Class shares, the
original class of shares , of each fund are offered at net asset
value and are not subject to a 12b-1 fee. Because Initial Class shares
are not subject to a 12b-1 fee, Initial Class shares are expected to
have a higher total return than Service Class shares (excluding
charges and expenses attributable to any particular insurance
product). Insurance companies may obtain more information about
Initial Class shares, which are not offered through this prospectus,
by calling Fidelity Distributors Corporation at 1-800-544-2442.
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 and money market
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. 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 each fund owns different types of investments, its 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 skill in allocating assets.
BALANCED PORTFOLIO
The fund is designed 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.
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.
GROWTH OPPORTUNITIES PORTFOLIO
The fund is designed 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 whose values FMR believes are not
ful ly recognized by the public.
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 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 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" on page
.
Broadly diversified funds could be appropriate for investors first
entering the international markets or those who are interested in
broad participation in multiple markets around the world.
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
(EXCEPT THE MONEY MARKET CATEGORY).
(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 AND MONEY MARKET 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)
FINANCIAL HIGHLIGHTS
The financial highlights tables that follow have been audited by
_________ (High Income, Equity-Income, Growth, and Overseas
Portfolios) or ___________ (Asset Manager, Asset Manager: Growth,
Balanced, Growth & Income, Growth Opportunities, and Contrafund
Portfolios), independent accountants. The funds' financial highlights,
financial statements, and reports of the auditors are included in the
funds' Annual Reports and are incorporated by reference into (are
legally a part of) the funds' SAI.
[Financial Highlights to be filed by subsequent amendment.]
THE FUNDS IN DETAIL
CHARTER
EACH FUND IS A MUTUAL FUND: an investment that pools shareholders'
money and invests it toward a specified goal. High Income Portfolio,
Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio are
diversified funds of Variable Insurance Products Fund (VIP); Asset
Manager 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 Portfolio 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 periodically 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
trustees serve as trustees for other Fidelity funds. The majority of
trustees are not otherwise affiliated with Fidelity.
THE FUNDS MAY HOLD SPECIAL SHAREHOLDER 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. With respect to funds of VIP and VIP II,
your insurance company is entitled to one vote for each share it owns.
With respect to funds of VIP III, the number of votes your insurance
company is entitled to is based upon the dollar value of its
investment. For a further discussion, please refer to your insurance
company's separate account prospectus.
Separate votes are taken by each class of shares, fund, or trust, if a
matter affects just that class of shares, fund, or trust,
respectively.
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 a re managed by FMR, which handles their business
affairs and, with the assistance of foreign affiliates for certain
funds, chooses their investments. Beginning January 1, 1999, FIMM,
located in Merrimack, New Hampshire, will select certain types of
investments for Asset Manager, Asset Manager: Growth, and Balanced
Portfolios.
(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, Balanced, Growth & Income,
Growth Opportunities, 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, Balanced, Growth &
Income, Growth Opportunities, 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 (FIIA(U.K.)L), in London, 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 ___
(solid bullet) Assets in Fidelity mutual funds: over $___ billion
(solid bullet) Number of shareholder accounts: over __
million
(solid bullet) Number of investment analysts and portfolio
managers: over ___
(checkmark)
Barry Coffman is Vice President and manager of VIP: High Income
Portfolio, which he has managed since August 1990. He also co-manages
other Fidelity funds. Mr. Coffman joined Fidelity as an analyst in
1986.
Dick Habermann is Vice President and lead manager of VIP II: Asset
Manager Portfolio and VIP II: Asset Manager: Growth Portfolio, both of
which he has managed since March 1996. He also manages several other
Fidelity funds. Previously, he was division head for international
equities and director of international research from 1991 to 1996. Mr.
Habermann joined Fidelity in 1968.
Charles Morrison is Vice President of VIP II: Asset Manager Portfolio
and VIP II: Asset Manager: Growth Portfolio and manager of the
funds' fixed-income investments since February 1997. He also
manages other Fidelity funds. Since joining Fidelity in 1987, Mr.
Morrison has worked as an analyst and manager.
Steve Snider is manager of the equity investments of VIP II: Asset
Manager Portfolio and VIP II: Asset Manager: Growth Portfolio,
which he has managed since October 1997. He also manages trust
accounts for Fidelity Management Trust Company (FMTC). Since joining
Fidelity as a quantitative analyst in 1992, Mr. Snider has worked as a
manager and a Vice President for FMTC.
John Todd is Vice President of VIP II: Asset Manager Portfolio and VIP
II: Asset Manager: Growth Portfolio and manager of the funds ' money
market investments since December 1996. He also manages other
Fidelity funds. Mr. Todd joined Fidelity as a portfolio manager in
1981.
John Avery is manager of VIP III: Balanced Portfolio, which he has
managed since September 1997. He also manages another Fidelity fund.
Mr. Avery joined Fidelity as an analyst in 1995. Previously, he was an
analyst for Putnam Investments from 1993 to 1994. Mr. Avery received
his MBA from The Wharton School at the University of Pennsylvania in
1993.
Kevin Grant is Vice President of VIP III: Balanced Portfolio and
manager of its fixed-income investments since March 1996. He also
manages several other Fidelity funds. Prior to joining Fidelity as a
manager 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
another Fidelity fund. Since joining Fidelity in 1980, Mr.
Petersen has worked as an analyst and manager.
Beth Terrana is Vice President and manager of VIP III: Growth & Income
Portfolio, which she has managed since inception. She also manages
other Fidelity funds. Since joining Fidelity in 1983, Ms. Terrana has
worked as an analyst, portfolio assistant, and manager.
George Vanderheiden is Vice President and manager of VIP III: Growth
Opportunities Portfolio, which he has managed since January 1995. He
also manages several other Fidelity funds. Mr. Vanderheiden joined
Fidelity in 1971; he has worked as a portfolio manager since 1980.
Will Danoff is Vice President and manager of VIP II: Contrafund
Portfolio, which he has managed since January 1995. He also manages
another Fidelity fund. Since joining Fidelity in 1986, Mr. Danoff 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 another
Fidelity fund. Since joining Fidelity in 1987, Ms. Uhrig has worked as
an analyst and manager.
Richard Mace is Vice President and manager of VIP: Overseas Portfolio,
which he has managed since March 1996. He also manages several other
Fidelity funds. Since joining Fidelity in 1987, Mr. Mace has worked as
an analyst and manager.
Each fund has an investment objective similar to that of an existing
Fidelity fund. 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; Asset Manager Portfolio is most similar to Fidelity
Asset Manager; 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 & Incom e Portfolio; Balanced Portfolio
is most similar to Fidelity Advisor B alanced 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 that 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 arise, 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
accounts 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 Service Class of each fund.
FMR Corp. is the ultimate parent company of FMR, FIMM, 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
FIIA(U.K.)L. The Johnson family group also owns, directly or
indirectly, more than 25% of the voting common stock of FIL.
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 the funds ' investments varies in response
to many factors. Stock values fluctuate in response to the activities
of individual companies and general market and economic conditions.
The yield and share price of a bond fund change daily based on
changes in interest rates and market conditions, and in response to
other economic, political or financial events. The types and
maturities of the securities a bond fund purchases and the credit
quality of their issuers will impact a bond fund's reaction to these
events.
The total return from a bond includes both income and price gains
or losses. While income is 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.
In general, bond prices rise when interest rates fall and fall when
interest rates rise. Longer-term bonds are usually more sensitive to
interest rate changes. In other words, the longer the maturity of a
bond, the greater the impact a change in interest rates is likely to
have on the bond's price. In addition, short-term interest rates and
long-term interest rates do not necessarily move in the same amount or
in the same direction. A short-term bond tends to react to changes in
short-term interest rates and a long-term bond tends to react to
changes in long-term interest rates.
The price of a bond is affected by the credit quality of its
issuer. Changes in the financial condition of an issuer, changes in
general economic conditions, and changes in specific economic
conditions that affect a particular type of issuer can impact the
credit quality of an issuer. Lower quality bonds generally tend to be
more sensitive to these changes than higher quality bonds.
Many types of debt securities, including mortgage securities, are
subject to prepayment risk. Prepayment risk occurs when the issuer of
a security can prepay principal prior to the security's maturity.
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. In
addition, the potential impact of prepayment features on the price of
a debt security may be difficult to predict and result in greater
volatility.
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 certain 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.
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. When fund shares are redeemed , they
may be worth more or less than their original cost.
FMR normally invests each fund's assets according to its investment
strategy. Each fund also reserves the right to invest without
limitation in preferred stocks and investment-grade debt instruments
for temporary, defensive purposes. Overseas Portfolio way invest in
short-term debt securities and money market instruments for cash
management purposes.
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. The fund may also invest in futures
contracts and other derivatives to adjust its investment exposure.
Although the fund has no limits on the quality and maturity of its
investments, its strategy typically leads to lower-quality,
fixed-income securities. These 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
especially 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 money market
instrument s, 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
securities maturing in more than one year. The SHORT-TERM/MONEY MARKET
CLASS includes all types of short-term and 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 represents 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/MONEY MARKET 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 and money market instruments.
ASSET MANAGER: GROWTH
Range Neutral mix
STOCK CLASS 50-100% 70%
BOND CLASS 0-50% 25%
SHORT-TERM/MONEY MARKET 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 and money market instruments, its return may not
be as high as a fund that invests only in stocks.
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 s and makes changes
gradually to favor investments that it believes will provide the most
favorable outlook for achieving the fund's objective. Under
normal circumstances, a single reallocation will not involve more than
10% of Asset Manager's total assets or more than 20% of Asset Manager:
Growth's total assets. Although FMR uses its expertise and resources
in allocating assets, FMR's decisions may not be advantageous to a
fund.
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 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. FMR normally invests at least 65%
of the fund's total assets in these securities. The fund has the
flexibility, however, to invest the balance in all types of domestic
and foreign securities, including bonds. The fund seeks a yield that
exceeds the yield on the securities comprising the Standard & Poor's
500 Index (S&P 500). The fund does not expect to invest in debt
securities of companies that do not have proven earnings or credit.
When choosing the fund's investments, FMR also considers the potential
for capital appreciation.
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 capital growth by investing primarily in common stocks
and securities convertible into common stocks.
FMR normal ly invest s at least 65% of the
fund's 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 in securities of
companies whose value FMR believes is not fully recognized by the
public. The fund normally invests primarily in common stock and
securities convertible into common stock, but it has the flexibility
to invest in other types of securities.
The types of companies the fund may invest in include:
(small solid bullet) companies experiencing positive fundamental
change such as a new management team or product launch, a significant
cost-cutting initiative, a merger or acquisition, or a reduction in
industry capacity that should lead to improved pricing;
(small solid bullet) companies whose earnings potential has
increased or is expected to increase more than generally
perceived;
(small solid bullet) companies that have enjoyed recent market
popularity but which appear to have temporarily fallen out of favor
for reasons that are considered non-recurring or short term; or
(small solid bullet) companies that are undervalued in relation to
securities of other companies in the same industry.
The fund's strategy can lead to investments in small and medium-sized
companies, which carry more risk than larger ones. T hese
companies, especially small - sized ones, may rely on
limited product lines and markets, financial resources, or other
factors. This may make them more susceptible to setbacks or downturns.
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.
Companies with strong growth potential often have new products,
technologies, distribution channels, or other opportunities.
Often, these domestic and foreign companies are 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. However, companies
with strong growth potential may also be larger companies that hold a
strong industry or market position.
OVERSEAS PORTFOLIO
The fund seeks long-term growth of capital by investing primarily
in foreign securities. The fund defines foreign securities as
securities of issuers whose principal activities are located outside
the United States. Normally, at least 65% of the fund's total assets
will be invested in foreign securities. The fund may also invest in
U.S. issuers.
The fund normally diversifies its investments across different
countries and regions. In allocating the fund's assets across
countries and regions, FMR will consider the size of the market in
each country and region relative to the size of the international
market as a whole.
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, expects to invest primarily in
equity securities, but may also invest in debt securities of any
quality.
This broadly diversified fund increases diversification by
spreading investments among securities of both developed and emerging
markets, different countries and geographic regions.
FISCAL YEAR ENDED 1997 DEBT HOLDINGS, BY RATING
MOODY'S
INVESTORS SERVICE STANDARD & POOR'S
(as a % of investments) (as a % of investments)
Rating Average of total investments Rating Average of total
investments
INVESTMENT High Asset Asset Mgr: Equity- Growth & Growth High
Asset Asset Mgr: Equity- Growth & Growth
GRADE Income Manager Growth Balanced Income Income Opps Overseas
Income Manager Growth Balanced Income Income Opps Overseas
Highest quality Aaa AAA
High quality Aa AA
Upper-medium
grade A A
Medium grade Baa BBB
LOWER QUALITY
Moderately
speculative Ba BB
Speculative B B
Highly speculative Caa CCC
Poor quality Ca CC
Lowest quality,
no interest C C
In default, in arrears - D
REFER TO THE APPENDIX FOR A MORE COMPLETE DISCUSSION OF THESE
RATINGS.
THE FUNDS DO NOT NECESSARILY RELY ON THE RATINGS OF MOODY'S AND S&P
TO DETERMINE COMPLIANCE WITH THEIR DEBT QUALITY POLICIES.
SECURITIES NOT RATED BY MOODY'S OR S&P AMOUNTED TO __% OF HIGH
INCOME'S, __% OF ASSET MANAGER'S, __% OF ASSET MANAGER: GROWTH'S, __%
OF BALANCED'S, __% OF EQUITY-INCOME'S, __%
OF GROWTH & INCOME'S, __% OF GROWTH OPPORTUNITIES', AND __% OF
OVERSEAS' INVESTMENTS. THESE PERCENTAGES MAY INCLUDE SECURITIES RATED
BY OTHER NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATIONS,
AS WELL AS UNRATED SECURITIES. UNRATED LOWER-QUALITY SECURITIES
AMOUNTED TO __% OF HIGH INCOME'S, __% OF ASSET MANAGER'S, __% OF ASSET
MANAGER: GROWTH'S, __% OF BALANCED'S, __% OF
EQUITY-INCOME'S, __% OF GROWTH & INCOME'S, __% OF GROWTH
OPPORTUNITIES', AND __% OF OVERSEAS' INVESTMENTS. FOR FOREIGN
GOVERNMENT SECURITIES NOT INDIVIDUALLY RATED BY A NATIONALLY
RECOGNIZED
STATISTICAL RATING ORGANIZATION, FMR ASSIGNS THE RATING OF THE
SOVEREIGN CREDIT OF THE ISSUING GOVERNMENT.
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.
International funds have increased economic and political risks as
they are exposed to events and factors in the various world markets.
These risks may be greater for funds that invest in 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
investment techniques to either increase or decrease the fund's
exposure to any currency.
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
detailed 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. 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 may
not purchase more than 10% of the outstanding voting securities of
a single issuer.
High Income may invest up to 20% of its total assets in common stocks
and other equity securities.
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. Some debt securities, such as zero
coupon bonds, do not pay current interest, but are sold at a
discount from their face values.
Debt securities have varying levels of sensitivity to changes in
interest rates and varying degrees of credit quality. In
general, bond prices rise when interest rates fall, and fall when
interest rates rise. Longer-term bonds and zero coupon bonds are
generally more sensitive to interest rate changes.
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 or regional
economic difficulty. Lower - quality securities may be
thinly traded, making them difficult to sell promptly at an acceptable
price. Adverse publicity and changing investor perceptions may affect
the ability to obtain prices for or to sell these securities.
The default rate of lower - quality debt securities is likely to
be higher when issuers have difficulty meeting projected goals or
obtaining additional financing. This could occur during economic
recessions or periods of high interest rates. If an issuer defaults,
the fund may try to protect the interests of security holders if it
determines such action to be in the best interest of its shareholders.
The following table 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 the fiscal year ended December 31,
199 7 , 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.
RESTRICTIONS: For each of Balanced, Equity-Income, Growth &
Income, Growth Opportunities, Contrafund, Growth, and Overseas,
purchase of a debt security is consistent with the fund's debt
quality polic y if it is rated at or above the stated level by
Moody's Investors Service (Moody's) or rated in the equivalent
categories by Standard & Poor's (S&P), or is unrated but judged by
FMR to be of equivalent quality .
For each of Asset Manager and Asset Manager: Growth, purchase of a
debt security is consistent with the fund's debt quality policy if it
is rated at or above the stated level by Moody's, S&P, Duff & Phelps
Credit Rating Co., or Fitch IBCA, Inc., or is unrated but judged by
FMR to be of equivalent quality.
Each of Growth and Contrafund currently intends to limit
its investments in lower than Baa-quality debt securities to 5% of its
assets .
Each of Equity-Income, Asset Manager: Growth, Asset
Manager , Overseas, Growth & Income, Balanced, and Growth
Opportunities currently intends to limit its investments in
lower than Baa-quality debt securities to less than 35% of its
assets .
MONEY MARKET SECURITIES are high-quality, short-term
instruments issued by the U.S. Government , corporations,
financial institutions, 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 Fannie Mae 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.
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 , economic, or regulatory
conditions in foreign countries ; fluctuations in foreign
currencies ; withholding or other taxes ; trading,
settlement, custodial, and other operational risks ; and the
potentially less stringent investor protection and disclosure
standards of foreign markets. Additionally, governmental issuers of
foreign debt securities may be unwilling to pay interest and
repay principal when due and may require that the conditions for
payment be renegotiated. All of these factors can make foreign
investments, especially those in emerging markets, more
volatile and potentially less liquid than U.S. investments.
RESTRICTIONS: FMR limits the amount of each of High Income,
Equity-Income, Growth, and Asset Manager Portfolios' assets that may
be invested in foreign securities to 50%.
EXPOSURE TO EMERGING MARKETS. Investing in emerging markets
in volves risks in addition to and greater than those generally
associated with investing in more developed foreign markets. The
extent of economic development; political stability; market depth,
infrastructure, and capitalization; and regulatory oversight is
generally less than in more developed markets. Emerging market
economies may be subject to greater social, economic, regulatory, and
political uncertainties. All of these factors generally make emerging
market securities more volatile and potentially less liquid than
securitie s issued in more developed markets.
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 debt
securities , commercial or consumer loans , or other
receivables . The value of these securities depends on many
factors, including changes in interest rates, the availability
of information concerning the pool and its structure, the credit
quality of the underlying assets, the market's perception of the
servicer of the pool, and any credit enhancement provided. In
addition, these securities may be subject to prepayment risk.
MORTGAGE SECURITIES include 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.
STRIPPED SECURITIES are the separate income or principal components of
a debt security. The risks associated with stripped securities
are similar to those of other debt securities, although stripped
securities may be more volatile and the value of certain types of
stripped securities may move in the same direction as interest
rates. U.S. Treasury securities that have been stripped by a
Federal Reserve Bank are obligations of the U.S. Treasury.
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.
FOREIGN REPURCHASE AGREEMENTS may be less well secured than U.S.
repurchase agreements, and may be denominated in foreign currencies.
They also may involve greater risk of loss if the counterparty
defaults. Some counterparties in these transactions may be less
creditworthy than those in the U.S. markets.
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.
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. 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: Each of Asset Manager, Asset Manager: Growth,
Balanced, Equity-Income, Growth & Income, Growth Opportunities,
Contrafund, and Growth Portfolios may not purchase a security if, as a
result, more than 10% of its assets would be invested in illiquid
securities. Each of High Income and Overseas Portfolios may not
purchase a security if, as a result, more than 15% of its assets would
be invested in illiquid securities.
WHEN-ISSUED AND FORWARD PURCHASE OR SALE TRANSACTIONS are
trading practices in which payment and delivery for the
securit y take place at a later date than is customary for that
type of security. The market value of the security could change
during this period.
WARRANTS are instruments which entitle the holder to buy an equity
security at a specific price for a specific period of time. The price
of a warrant tends to be more volatile than the price of its
underlying security, and a warrant 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 security.
OTHER INSTRUMENTS may include securities of closed-end investment
companies, real estate-related instruments, convertible securities,
and preferred stocks.
CASH MANAGEMENT. A fund 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 investments could cause its share price to
change.
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: With respect to 75% of its total assets, each fund may
not purchase a security if, as a result, more than 5% would be
invested in the securities of any one issuer. This limitation
does not apply to U.S. Government securities.
Each fund may not invest more than 25% of its total assets in any one
industry. This limitation does 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 may borrow only for temporary or emergency
purposes, but not in an amount exceeding 33 1/3 % of
its total assets.
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.
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.
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 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.
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 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
by investing primarily 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.
With respect to 75% of its total assets, each fund may not
purchase a security if, as a result, more than 5% would be
invested in the securities of any one issuer and may not
purchase more than 10% of the outstanding voting securities of
a single issuer. This limitation does not apply to U.S. Government
securities.
Each fund may not invest more than 25% of its total assets in any one
industry. This limitation does not apply to U.S. Government
securities.
Each fund may borrow only for temporary or emergency purposes, but
not in an amount exceeding 33% of its total assets.
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 each class's assets are
reflected in that class's share price.
Each fund pays a MANAGEMENT FEE to FMR for managing its investments
and business affairs. FMR in turn pays fees to affiliates who provide
assistance with these services for High Income, Asset Manager, Asset
Manager: Growth, Balanced, Growth & Income, Growth Opportunities,
Contrafund, and Overseas Portfolios. Each fund also pays OTHER
EXPENSES, which are explained on page .
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
The management fee is calculated and paid to FMR every month. The fee
for each fund 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.
The group fee rate is based on the average net assets of all the
mutual funds advised by FMR. This rate cannot rise above 0.52%
for Asset Manager, Asset Manager: Growth, Balanced, Equity-Income,
Growth & Income, Growth Opportunities, Contrafund, Growth, and
Overseas Portfolios , or 0.37% for High Income Portfolio,
and it drops as total assets under management increase.
The following table states the management fee rate for
each fund for the fiscal year ended December 31, 199 7:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FUND GROUP INDIVIDUAL FUND TOTAL MANAGEMENT
FEE RATE FEE RATE FEE RATE
HIGH INCOME PORTFOLIO 0.__% 0.45% 0.__%
ASSET MANAGER PORTFOLIO 0.__% 0.25%A 0.__%
ASSET MANAGER: GROWTH PORTFOLIO 0.__% 0.30%B 0.__%
BALANCED PORTFOLIO 0.__% 0.15%C 0.__%
EQUITY-INCOME PORTFOLIO 0.__% 0.20% 0.__%
GROWTH & INCOME PORTFOLIO 0.__% 0.20% 0.__%
GROWTH OPPORTUNITIES PORTFOLIO 0.__% 0.30% 0.__%
CONTRAFUND PORTFOLIO 0.__% 0.30% 0.__%
GROWTH PORTFOLIO 0.__% 0.30% 0.__%
OVERSEAS PORTFOLIO 0.__% 0.45% 0.__%
</TABLE>
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 TOTAL MANAGEMENT FEE WOULD HAVE BEEN
0. __ %.
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 TOTAL MANAGEMENT FEE WOULD HAVE BEEN
0. __ %.
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 TOTAL MANAGEMENT FEE WOULD HAVE BEEN
0. __% .
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 FIIA(U.K.)L. 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). FIIA(U.K.)L 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 FIIA(U.K.)L a fee equal to 110% of the cost of providing these
services.
T he 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 a fund's
investments that the sub-adviser manages on a discretionary basis.
FIIA pays FIIA(U.K.)L a fee equal to 110% of the cost of providing
these services.
The following table states the fees paid by FMR to FMR U.K. and
FMR Far East on behalf of the funds (as a percentage of average
net assets) for the fiscal year ended December 31, 199 7 :
<TABLE>
<CAPTION>
<S> <C> <C>
FUND FEE TO FMR U.K. FEE TO FMR
FAR EAST
ASSET MANAGER PORTFOLIO 0.__% 0.__%
ASSET MANAGER: GROWTH PORTFOLIO 0.__% 0.__%
BALANCED PORTFOLIO 0.__% 0.__%
GROWTH OPPORTUNITIES PORTFOLIO 0.__% 0.__%
CONTRAFUND PORTFOLIO 0.__% 0.__%
OVERSEAS PORTFOLIO 0.__% 0.__%
</TABLE>
Beginning January 1, 1999, FIMM will select certain investments for
Asset Manager, Asset Manager: Growth, and Balanced Portfolios. FMR
will pay FIMM a fee equal to 50% of its management fee (before expense
reimbursements) with respect to each fund's investments that FIMM
manages.
OTHER EXPENSES
While the management fee is a significant component of each fund's
annual operating costs, each fund has other expenses as well.
FIIOC performs transfer agency, dividend disbursing, and shareholder
servicing functions for Service Class of each fund. Fidelity Service
Company, Inc. (FSC) calculates the net asset value per share (NAV) and
dividends for Service Class of each fund, maintains the general
accounting records for each fund, and administers the securities
lending program for each fund.
For the fiscal year ended December 31, 1997, transfer agency and
pricing and bookkeeping fees paid (as a percentage of average net
assets) amounted to the following. [Fund Reporting to add as
appropriate: These amounts are before expense reductions, if any.]
<TABLE>
<CAPTION>
<S> <C> <C>
FUND TRANSFER AGENCY PRICING AND
FEES PAID BY BOOKKEEPING
SERVICE CLASS FEES PAID BY
FUND
HIGH INCOME PORTFOLIO 0.__% 0.__%
ASSET MANAGER PORTFOLIO 0.__% 0.__%
ASSET MANAGER: GROWTH PORTFOLIO 0.__% 0.__%
BALANCED PORTFOLIO 0.__% 0.__%
EQUITY-INCOME PORTFOLIO 0.__% 0.__%
GROWTH & INCOME PORTFOLIO 0.__% 0.__%
GROWTH OPPORTUNITIES PORTFOLIO 0.__% 0.__%
CONTRAFUND PORTFOLIO 0.__% 0.__%
GROWTH PORTFOLIO 0.__% 0.__%
OVERSEAS PORTFOLIO 0.__% 0.__%
</TABLE>
The following figures are based on [estimated [or] historical]
expenses [, adjusted to reflect current fees,] of Service Class of
each fund and are calculated as a percentage of average net assets of
Service Class of each fund.
<TABLE>
<CAPTION>
<S> <C> <C>
FUND 12B-1 FEE TOTAL OPERATING
EXPENSES
HIGH INCOME PORTFOLIO 0.10% 0.__%
ASSET MANAGER PORTFOLIO 0.10% 0.__%
ASSET MANAGER: GROWTH PORTFOLIO 0.10% 0.__%
BALANCED PORTFOLIO 0.10% 0.__%
EQUITY-INCOME PORTFOLIO 0.10% 0.__%
GROWTH & INCOME PORTFOLIO 0.10% 0.__%
GROWTH OPPORTUNITIES PORTFOLIO 0.10% 0.__%
CONTRAFUND PORTFOLIO 0.10% 0.__%
GROWTH PORTFOLIO 0.10% 0.__%
OVERSEAS PORTFOLIO 0.10% 0.__%
</TABLE>
A portion of the brokerage commissions that certain funds pay is
used to reduce fund expenses. In addition, certain funds have entered
into arrangements with their custodian and transfer agent whereby
credits realized as a result of uninvested cash balances are used to
reduce custodian and transfer agent expenses. Including these
reductions, the total Service Class operating expenses presented in
the table would have been:
FUND SERVICE CLASS
HIGH INCOME PORTFOLIO 0.__%
ASSET MANAGER PORTFOLIO 0.__%
ASSET MANAGER: GROWTH PORTFOLIO 0.__%
BALANCED PORTFOLIO 0.__%
EQUITY-INCOME PORTFOLIO 0.__%
GROWTH & INCOME PORTFOLIO 0.__%
GROWTH OPPORTUNITIES PORTFOLIO 0.__%
CONTRAFUND PORTFOLIO 0.__%
GROWTH PORTFOLIO 0.__%
OVERSEAS PORTFOLIO 0.__%
Effective November 3, 1997, FMR has voluntarily agreed to reimburse
Service Class of the funds to the extent that total operating expenses
(as a percentage of average net assets) exceed the following rates:
FUND SERVICE CLASS
HIGH INCOME PORTFOLIO 1.10%
ASSET MANAGER PORTFOLIO 1.35%
ASSET MANAGER: GROWTH PORTFOLIO 1.10%
BALANCED PORTFOLIO 1.60%
EQUITY-INCOME PORTFOLIO 1.60%
GROWTH & INCOME PORTFOLIO 1.10%
GROWTH OPPORTUNITIES PORTFOLIO 1.60%
CONTRAFUND PORTFOLIO 1.10%
GROWTH PORTFOLIO 1.60%
OVERSEAS PORTFOLIO 1.60%
If these agreements were not in effect, the total operating
expenses (as a percentage of average net assets) of Service Class of
________ [, ________, and ________] Portfolio[s] would have been __%
[, __%, and __%, respectively].
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; in some instances, proxy solicitation costs; and
the compensation of trustees who are not affiliated with Fidelity. A
broker-dealer may use a portion of the commissions paid by a fund to
reduce that fund's custodian or transfer agent fees.
The following table states each fund's portfolio turnover rate for
the fiscal year ended December 31, 1997. 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
HIGH INCOME PORTFOLIO __%
ASSET MANAGER PORTFOLIO __%
ASSET MANAGER: GROWTH PORTFOLIO __%
BALANCED PORTFOLIO __%
EQUITY-INCOME PORTFOLIO __%
GROWTH & INCOME PORTFOLIO __%
GROWTH OPPORTUNITIES PORTFOLIO __%
CONTRAFUND PORTFOLIO __%
GROWTH PORTFOLIO __%
OVERSEAS PORTFOLIO __%
Service Class shares of each fund have adopted a DISTRIBUTION AND
SERVICE PLAN. Under the plans, Service Class of each fund is
authorized to pay FDC (for remittance quarterly to an insurance
company) a 12b-1 fee as compensation for its services and expenses in
connection with the distribution of Service Class shares. Depending on
an insurance company's corporate structure and applicable state law,
FDC may remit payments to the insurance company's affiliated
broker-dealer or other affiliated company, rather than to the
insurance company itself.
Under the plans, Service Class of each fund may pay FDC a 12b-1 fee at
an annual rate of 0.25% of its average net assets, or such lesser
amount as the Trustees may determine from time to time. Service Class
of each fund currently pays FDC a 12b-1 fee at an annual rate of 0.10%
of its average net assets throughout the month. Service Class 12b-1
fee rates may be increased only when the Trustees believe that it is
in the best interests of Variable Product owners to do so. (For
purposes of this discussion, "Variable Product" refers to a variable
annuity contract or variable life insurance policy for which shares of
the funds are available as underlying investment options.)
Up to the full amount of the Service Class 12b-1 fee may be reallowed
to insurance companies as compensation for their services in
connection with the distribution of Service Class shares and for
providing support services to Variable Product owners, based upon the
level of such services provided. These services may include, without
limitation: answering questions about the funds from Variable Product
owners; receiving and answering correspondence from Variable Product
owners (including requests for prospectuses and statements of
additional information for the funds); performing sub-accounting with
respect to Variable Product values allocated to the funds; preparing,
printing and distributing reports of values to Variable Product owners
who have contract values allocated to the funds; printing and
distributing prospectuses, statements of additional information, any
supplements thereto, and shareholder reports; preparing, printing and
distributing marketing materials for Variable Products; assisting
customers in completing applications for Variable Products and
selecting underlying mutual fund investment options; preparing,
printing and distributing sub-account performance figures for
sub-accounts investing in fund shares; and providing other reasonable
assistance in connection with the distribution of fund shares to
insurers.
The Service Class plans specifically recognize that FMR may make
payments from its management fee revenue, past profits, or other
resources to FDC for expenses incurred in connection with the
distribution of Service Class shares, including payments made to
insurance companies and others that provide shareholder support
services or engage in the sale of Service Class shares. The Board of
Trustees of each fund has authorized such payments.
PERFORMANCE
A fund's total return and/or yield may be quoted in advertising in
accordance with current law and interpretations thereof.
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment 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 currencies.
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 a fund's yield.
Other illustrations of equity fund performance may show moving
averages over specified periods.
The funds' recent strategies, performance, and holdings are
detailed twice a year in financial reports, which are sent to all
shareholders. For additional performance information, contact your
insurance company for a free annual report.
TOTAL RETURNS AND YIELDS QUOTED FOR A CLASS INCLUDE THE
CLA SS'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 INSURAN CE PRODUCT YOU HAVE CHOSEN FOR INFORMATION ON
RELEVANT CHARGES AND EXPENSES. Excluding these charges from
quotations of a class'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.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT
AN INDICATION OF FUTURE PERFORMANCE.
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. Each
fund 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 same class of the
fund. Each fund makes dividend and capital gain distributions on a
per-share basis for each class. 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. FSC normally calculates each class's NAV as of the
close of business of the NYSE, normally 4:00 p.m. Eastern time.
A CLASS'S NAV is the value of a single share. The NAV of each class is
computed by adding that class's pro rata share of the value of the
applicable fund's investments, cash, and other assets, subtracting
that class's pro rata share of the value of the applicable fund's
liabilities, subtracting the liabilities allocated to that class, and
dividing the result by the number of shares of that class that are
outstanding.
Each fund's assets are valued primarily on the basis of market
quotations or on the basis of information furnished by a pricing
service. Short-term securities with remaining maturities of sixty days
or less for which quotations and information furnished by a pricing
service are not readily available are valued on the basis of amortized
cost. This method minimizes the affect of changes in a security's
market value. 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. In addition, if quotations and information furnished by a
pricing service 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 another method that the Board of
Trustees believes accurately reflects fair value.
A CLASS'S OFFERING PRICE (price to buy one share) is its NAV. A
class's REDEMPTION PRICE (price to sell one share) is 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 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's 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 - B onds 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 - The rating 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.
VARIABLE INSURANCE PRODUCTS FUND
CROSS REFERENCE SHEET
Part B Statement of Additional Information Caption
10,11 Cover Page; Table of Contents
12 Description of the Trust
13 a,b,c Investment Policies and Limitations
d *
14 a, b, c Trustees and Officers
15 a, b *
c Trustees and Officers
16 a(i) FMR
a(ii) Trustees and Officers
a(iii),b Management Contracts
c *
d *
e *
f Distribution and Service Plans
g *
h Description of the Trust
i Contracts with FMR Affiliates
17 a, b, c Portfolio Transactions
d, e *
18 a Description of the Trust
b *
19 a Additional Purchase and Redemption
Information
b Valuation
c *
20 Distributions and Taxes
21 a (i), (ii) Contracts with FMR Affiliates
a(iii),b,c *
22 Performance
23 Financial Statements
_________
* Not Applicable
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,
ASSET MANAGER: GROWTH PORTFOLIO, INDEX 500 PORTFOLIO, AND
CONTRAFUND PORTFOLIO
VARIABLE INSURANCE PRODUCTS FUND III:
BALANCED PORTFOLIO, GROWTH & INCOME PORTFOLIO,
AND GROWTH OPPORTUNITIES PORTFOLIO
INITIAL CLASS AND SERVICE CLASS
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1998
This Statement of Additional Information (SAI) is not a prospectus but
should be read in conjunction with the funds' current Prospectuses
(dated April 30, 1998) for Initial Class and Service Class shares.
Please retain this document for future reference. The funds' Annual
Reports are separate documents supplied with this SAI. To obtain a
free additional copy of a Prospectus or an Annual Report, please call
Fidelity Distributors Corporation at 1-800-544-2442 or your insurance
company.
TABLE OF CONTENTS PAGE
INVESTMENT POLICIES AND LIMITATIONS
PORTFOLIO TRANSACTIONS
VALUATION
PERFORMANCE
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
DISTRIBUTIONS AND TAXES
FMR
BT
TRUSTEES AND OFFICERS
MANAGEMENT CONTRACTS
DISTRIBUTION AND SERVICE PLANS
CONTRACTS WITH FMR AFFILIATES
CONTRACTS WITH BT AFFILIATES
DESCRIPTION OF THE TRUSTS
FINANCIAL STATEMENTS
APPENDIX
VIP/VIPII/VIPIII-ptb-049 8
INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
INVESTMENT SUB-ADVISERS
Money Market Portfolio:
Fidelity Investments Money Management, Inc. (FIMM)
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)
Index 500 Portfolio:
Bankers Trust Company (BT)
Overseas Portfolio:
FMR U.K.
FMR Far East
Fidelity International Investment Advisors (FIIA)
Fidelity International Investment Advisors (U.K.) Limited
(FIIA(U.K.)L)
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
Growth, Growth Opportunities, and Contrafund Portfolios:
Brown Brothers Harriman & Co.
Index 500 Portfolio:
BT
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.
A 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 (the
1940 Act)) of the fund. However, except for the fundamental investment
limitations listed below, the investment policies and limitations
described in this SAI 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 1/3% of the fund's
total assets (including the amount borrowed) less liabilities (other
than borrowings). Any borrowings that come to exceed this amount will
be reduced within three days (not including Sundays and holidays) to
the extent necessary to comply with the 33 1/3% limitation;
(4) underwrite securities issued by others, except to the extent that
the fund may be considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities;
(5) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the fund's total
assets would be invested in the securities of companies whose
principal business activities are in the same industry, except that
the fund will invest more than 25% of its total assets in the
financial services industry;
(6) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent the fund from investing in securities or other instruments
backed by real estate or securities of companies engaged in the real
estate business);
(7) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments;
(8) lend any security or make any other loan if, as a result, more
than 33 1/3% of its total assets would be lent to other parties, but
this limitation does not apply to purchases of debt securities or to
repurchase agreements; or
(9) invest in companies for the purpose of exercising control or
management.
THE FOLLOWING INVESTMENT LIMITATIONS FOR MONEY MARKET PORTFOLIO ARE
NOT FUNDAMENTAL AND MAY BE CHANGED, AS REGULATORY AGENCIES PERMIT,
WITHOUT SHAREHOLDER APPROVAL.
(i) The fund does not currently intend to purchase a security
(other than securities 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 . (This limit does not apply to investments
of up to 10% of total assets in securities of other open-end
investment companies managed by FMR or a successor or affiliate
purchased pursuant to an exemptive order granted by the SEC.)
(ii) The fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short, and provided that
transactions in futures contracts and options are not deemed to
constitute selling securities short.
(iii) The fund does not currently intend to purchase securities on
margin, except that the fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a
registered investment company or portfolio for which FMR or an
affiliate serves as investment adviser or (b) by engaging in
reverse repurchase agreements with any party. The fund will not borrow
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 adviser. (This
limitation does not apply to purchases of debt securities or to
repurchase agreements.)
(viii) The fund does not currently intend to invest in oil, gas, or
other mineral exploration or development programs or leases.
With respect to limitation (v), if through a change in values, net
assets, or other circumstances, the fund were in a position where more
than 10% of its net assets was invested in illiquid securities, it
would consider appropriate steps to protect liquidity.
For the fund's policies on quality and maturity, see the section
entitled "Quality and Maturity" on page .
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) (for High Income, Equity-Income, Growth, Overseas, Investment
Grade Bond, Asset Manager, Asset Manager: Growth, Contrafund,
Balanced, Growth & Income, and Growth Opportunities Portfolios) 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;
(for Index 500 Portfolio) 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, or securities of other investment companies) 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 Portfolios) borrow money, except that the
fund (i) may borrow money for temporary or emergency purposes (not for
leveraging or investment) or (ii) engage in reverse repurchase
agreements, provided that (i) and (ii) in combination (borrowings) do
not exceed 33 1/3% of its total assets (including the amount borrowed)
less liabilities (other than borrowings). Any borrowings that come to
exceed 33 1/3% of the value of the fund's total assets by reason of a
decline in net assets will be reduced within three days (exclusive of
Sundays and holidays) to the extent necessary to comply with the 33
1/3% limitation;
(for Investment Grade Bond, Asset Manager, Asset Manager: Growth,
Index 500, Contrafund, and Growth & Income Portfolios) borrow money,
except that the fund may borrow money for temporary or emergency
purposes (not for leveraging or investment) in an amount not exceeding
33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to
exceed this amount will be reduced within three days (not including
Sundays and holidays) to the extent necessary to comply with the
33 1/3% limitation;
(4) underwrite securities issued by others, except to the extent that
the fund may be considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities;
(5) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of its total assets
would be invested in the securities of companies whose principal
business activities are in the same industry;
(6) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent the fund from investing in securities or other instruments
backed by real estate or securities of companies engaged in the real
estate business);
(7) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments (but this shall not
prevent the fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments backed
by physical commodities); or
(8) lend any security or make any other loan if, as a result, more
than 33 1/3% of its total assets would be lent to other parties, but
this limitation does not apply to purchases of debt securities or to
repurchase agreements.
(9) (for Balanced and Growth Opportunities Portfolios) 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 adviser 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 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% (Equity-Income, Growth, Investment
Grade Bond, Asset Manager, Asset Manager: Growth, Index 500,
Contrafund, Balanced, Growth & Income, and Growth Opportunities
Portfolios) or more than 15% (High Income and Overseas Portfolios) 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.
(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,
Asset Manager: Growth, Index 500, Contrafund, Balanced, Growth &
Income, and Growth Opportunities 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 adviser or (b) acquiring loans, loan participations, or
other forms of direct debt instruments and, in connection therewith,
assuming any associated unfunded commitments of the sellers. (This
limitation does not apply to purchases of debt securities or to
repurchase agreements.)
(vi) Each fund does not currently intend to invest in oil, gas, or
other mineral exploration or development programs or leases.
(vii) (for Balanced and Growth Opportunities Portfolios) Each fund
does not currently intend to 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.
With respect to limitation (iv), if through a change in values, net
assets, or other circumstances, a fund were in a position where more
than 10% (Equity-Income, Growth, Investment Grade Bond, Asset Manager,
Asset Manager: Growth, Index 500, Contrafund, Balanced, Growth &
Income, and Growth Opportunities) or more than 15% (High Income and
Overseas) of its net assets was invested in illiquid securities, it
would consider appropriate steps to protect liquidity.
For the funds' limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options
Transac tions" on page . For limitations on short sales, see
the sections entitled "Short Sales" and "Short Sales Against The Box."
For purposes of Index 500 Portfolio's limitation on concentration in a
single industry, the fund may use the industry categorizations as
defined by BARRA, Inc.
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 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
adviser, each fund has agreed to certain non-fundamental limitations.
Please refer to your insurance company's separate account prospectus
for more information.
THE FOLLOWING PAGES CONTAIN MORE DETAILED INFORMATION ABOUT
TYPES OF INSTRUMENTS IN WHICH A FUND MAY INVEST, STRATEGIES FMR (BT
FOR INDEX 500) MAY EMPLOY IN PURSUIT OF A FUND'S INVESTMENT OBJECTIVE,
AND A SUMMARY OF RELATED RISKS. FMR (BT FOR INDEX 500) MAY NOT BUY
ALL OF THESE INSTRUMENTS OR USE ALL OF THESE TECHNIQUES UNLESS IT
BELIEVES THAT DOING SO WILL HELP A FUND ACHIEVE ITS GOAL.
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 1940 Act.
These transactions may involve 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 ALLOCATION (ASSET MANAGER AND ASSET MANAGER: GROWTH).
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.
The bond class includes all varieties of domestic and foreign
fixed-income securities maturing in more than one year. 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.
T hese securities may be denominated in U.S. dollars or foreign
currency.
The short-term/money market class includes all types of domestic
and foreign short-term and money market instruments. FMR will seek to
maximize total return within this asset class by taking advantage of
yield differentials between different instruments, issuers, and
currencies. 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.
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. 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.
ASSET-BACKED SECURITIES represent interests in pools of
mortgages, loans, receivables or other assets. Payment of interest and
repayment of principal may be largely dependent upon the cash flows
generated by the assets backing the securities and, in certain cases,
supported by letters of credit, surety bonds, or other credit
enhancements. Asset-backed security values may also be affected by the
creditworthiness of the servicing agent for the pool, the originator
of the loans or receivables, or the entities providing the credit
enhancement. In addition, these securities may be subject to
prepayment risk.
CLOSED-END INVESTMENT COMPANIES are investment companies
that issue a fixed number of shares which trade on a stock exchange or
over-the-counter. Closed-end investment companies are professionally
managed and may invest in any type of security. Shares of closed-end
investment companies may trade at a premium or a discount to their net
asset value. A fund may purchase shares of closed-end investment
companies to facilitate investment in certain foreign countries.
CONVERTIBLE SECURITIES are bonds, debentures, notes,
preferred stocks or other securities that may be converted or
exchanged (by the holder or by the issuer) into shares of the
underlying common stock (or cash or securities of equivalent value) at
a stated exchange ratio. A convertible security may also be called for
redemption or conversion by the issuer after a particular date and
under certain circumstances (including a specified price) established
upon issue. If a convertible security held by a fund is called for
redemption or conversion, the fund could be required to tender it for
redemption, convert it into the underlying common stock, or sell it to
a third party.
Convertible securities generally have less potential for gain or
loss than common stocks. Convertible securities generally provide
yields higher than the underlying common stocks (but generally lower
than comparable non-convertible) securities. Because of this higher
yield, convertible securities generally sell at prices above their
"conversion value," which is the current market value of the stock to
be received upon conversion. The difference between this conversion
value and the price of convertible securities will vary over time
depending on changes in the value of the underlying common stocks and
interest rates. When the underlying common stocks decline in value,
convertible securities will tend not to decline to the same extent
because of the interest or dividend payments and the repayment of
principal at maturity for certain types of convertible securities.
However, securities that are convertible other than at the option of
the holder generally do not limit the potential for loss to the same
extent as securities convertible at the option of the holder. When the
underlying common stocks rise in value, the value of convertible
securities may also be expected to increase. At the same time,
however, the difference between the market value of convertible
securities and their conversion value will narrow, which means that
the value of convertible securities will generally not increase to the
same extent as the value of the underlying common stocks. Because
convertible securities may also be interest-rate sensitive, their
value may increase as interest rates fall and decrease as interest
rates rise. Convertible securities are also subject to credit risk and
are often lower-quality securities.
DELAYED-DELIVERY TRANSACTIONS. Securities may be bought and sold
on a delayed-delivery or when-issued basis. These transactions
involve a commitment 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. A non-money market fund may receive fees o r price
concessions f or entering into delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, the
purchaser assumes the rights and risks of ownership, including the
risk s of price and yield fluctuations and the risk that the
security will not be issued as anticipated. Because payment for the
securities is not required until the delivery date, these
risks are in addition to the risks associated with a fund's
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, a fund will set aside appropriate
liquid assets in a segregated custodial account to cover the
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, a fund could miss a favorable price or yield
opportunity or could suffer a loss.
A fund may renegotiate a delayed-delivery transaction and may
sell the underlying securities before deliver y , which
may result in capital gains or losses for the fund.
DOMESTIC AND FOREIGN INVESTMENTS (M ONEY M ARKET FUND
ONLY ) include 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.
Domestic and foreign investments may also include 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 regulations. Payment of interest and repayment of
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 the fund may be subject to the risks associated with the
holding of such property overseas. Various provisions of federal law
governing the establishment and operation of 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 re payment of principal or
payment of 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.
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.
Foreign investments involve risk s relating to local political,
economic, regulatory, 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 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 (BT for Index 500) will be able to anticipate
these potential events or counter their effects. In addition, 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.
It is anticipated that in most cases the best available market for
foreign securities will be on an exchange or in over-the-counter (OTC)
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 may be less liquid and more volatile than securities
of comparable U.S. issuers. Foreign security trading, settlement and
custodial practices (including those involving securities settlement
where fund assets may be released prior to receipt of payment) are
often less developed than those in U.S. markets, and may result in
increased risk or substantial delays in the event of a failed trade or
the insolvency of, or breach of duty by, a foreign broker-dealer,
securities depository or foreign subcustodian. In addition, the costs
associated with foreign investments, including withholding taxes,
brokerage commissions and custodial costs, are generally higher than
with U.S. investments.
Foreign markets may offer less protection to investors than U.S.
markets. 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.
Adequate public information on foreign issuers may not be available,
and it may be difficult to secure dividends and information regarding
corporate actions on a timely basis. In general, there is less overall
governmental supervision and regulation of securities exchanges,
brokers, and listed companies than in the United States. OTC markets
tend to be less regulated than stock exchange markets and, in certain
countries, may be totally unregulated. Regulatory enforcement may be
influenced by economic or political concerns, and investors may have
difficulty enforcing their legal rights in foreign countries.
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 (ADRs) 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 alternatives 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.
The risks of foreign investing may be magnified for investments in
emerging markets. Security prices in emerging markets can be
significantly more volatile than those in more developed markets,
reflecting the greater uncertainties of investing in less established
markets and economies. In particular, countries with emerging markets
may have relatively unstable governments, may present the risks of
nationalization of businesses, restrictions on foreign ownership and
prohibitions on the repatriation of assets, and may have less
protection of property rights than more developed countries. The
economies of countries with emerging markets may be based on only a
few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt
burdens or inflation rates. Local securities markets may trade a small
number of securities and may be unable to respond effectively to
increases in trading volume, potentially making prompt liquidation of
holdings difficult or impossible at times.
FOREIGN CURRENCY TRANSACTIONS. A bond or equity fund may
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 (BT for Index 500).
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 (BT's for Index 500) 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 (BT for
Index 500) anticipates. For example, if a currency's value rose at a
time when FMR (BT for Index 500) had hedged a fund by selling that
currency in exchange for dollars, a fund would not participate in the
currency's appreciation. If FMR (BT for Index 500) 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 (BT for Index 500) 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
(BT's for Index 500) 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 ma rket securities may
involve issuers or counterparties with lower credit ratings than
typical U.S. repurchase agreements.
FUNDS' RIGHTS AS SHAREHOLDERS. The funds do not intend to direct or
administer the day-to-day operations of any company. A 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 (BT for Index
500) determines that such matters could have a significant effect
on the value of the fund's investment in the company. The activities
in which a fund may engag e, 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 (BT for Index 500) 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 paragraphs 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 SEC with respect to coverage
of options and futures strategies by mutual funds and , if the
guidelines so require , will set aside appropriate liquid assets
in a segregated custodial account in the amount prescribed. Securities
held in a segregated account cannot be sold while the futures or
option strategy is outstanding, unless they are replaced with other
suitable assets. As a result, there is a possibility that segregation
of a large percentage of a fund's assets could impede portfolio
management or the fund's ability to meet redemption requests or other
current obligations.
COMBINED POSITIONS involve purchasing and writing 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, purchas ing a put option and
writ ing a call option on the same underlying instrument
would 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 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. A fund may invest in
options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in
which the fund typically invests, which involves a risk that
the options or futures position will not track the performance of the
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. In purchas ing a futures contract,
the buyer agrees to purchase a specified underlying instrument
at a specified future date. In sell ing a futures
contract, the seller agrees to sell a specified
underlying instrument at a specified future date. The price at which
the purchase and sale will take place is fixed when the buyer and
seller enter into the contract. Some currently available futures
contracts are based on specific securities, such as U.S. Treasury
bonds or notes, and some are based on indices of securities prices,
such as the Standard & Poor's 500 Index ( S&P 500 ) .
Futures can be held until their delivery dates, or can be closed out
before then if a liquid secondary market is available.
Overseas Portfolio may invest in futures based on such indexes as
the CAC 40 (France), DAX 30 (Germany), EuroTop 100 (Europe), IBEX
(Spain), FTS E 100 (United Kingdom), All Ordinary (Australia), Hang
Seng (Hong Kong), and Nikkei 225, Nikkei 300 and TOPIX (Japan).
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.
Although futures exchanges generally operate similarly in the U.S.
and abroad, foreign futures exchanges may follow different trading,
settlement and margin procedures than U.S. exchanges do. Futures
contracts traded outside the United States may involve greater risk of
loss than U.S.-traded contracts, including potentially greater risks
of losses due to insolvency of a futures broker, exchange member or
othe r party that may owe initial or variation margin to a fund.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. Each bond
and equity fund 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
fund s intend to comply with Rule 4.5 under the Commodity
Exchange Act, which limits the extent to which the fund s
can commit assets to initial margin deposits and option premiums.
In addition, each fund (excluding Index 500) 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.
BT also intends to follow certain other limitations on Index
500's futures and options activities. The fund will not purchase
any option if, as a result, more than 5% of its total assets would be
invested in option premiums. Under normal conditions, the fund will
not enter into any futures contract or option if, as a result, the sum
of (i) the current value of the 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 bond and equity 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 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. A fund may purchase and sell currency futures and may
purchase and write currency options to increase or decrease its
exposure to different foreign currencies. Currency options
may also be purchase d and written 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 purchaser or writer 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, the
purchaser 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 purchaser 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 purchaser may
terminate its position in a put option by allowing it to expire or by
exercising the option. If the option is allowed to expire, the
purchaser will lose the entire premium. If the option is
exercise d, the purchaser completes the sale of the underlying
instrument at the strike price. A purchaser 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 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. The writer of a put or call
option takes the opposite side of the transaction from the
option's purchaser. In return for receipt of the premium, the
writer 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. The writer may seek to terminate
a position in a put option 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 , however, the writer
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. When writing an option
on a futures contract, a fund will be required to make margin payments
to an FCM as described above for futures contracts.
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 the writer 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 each fund's (except Index
500's) investments and, through reports from FMR, the Board monitors
investments in illiquid instruments. Under the supervision of the
Board of Trustees and FMR, BT determines the liquidity of Index 500's
investments and, through reports from FMR and/or BT , the Board
monitors investments in illiquid instruments. In determining the
liquidity of a fund's investments, FMR (BT for Index 500) 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 FMR to be illiquid include
repurchase agreements not entitling the holder to repayment of
princi pal and payment of interest within seven days,
over-the-counter options, and non-government stripped fixed-rate
mortgage-backed securities. Also, FMR (BT for Index 500) may determine
some restricted securities, time deposits, 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.
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 , illiquid
investments are valued by this method for purposes of
monitoring amortized cost valuation.
INDEXED SECURITIES are instruments 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. Mortgage-indexed
securities, for example, could be structured to replicate the
performance of mortgage securities and the characteristics of direct
ownership. Gold-indexed securities 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. 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. Indexed securities may be more
volatile than the underlying instruments. I ndexed securities are
also 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.
In addition, for Index 500, indexed securities include commercial
paper, certificates of deposit, and other fixed-income securities
whose values at maturity or coupon interest rates are determined by
reference to the returns of the S&P 500 or comparable stock indices.
Indexed securities can be affected by stock prices as well as changes
in interest rates and the creditworthiness of their issuers and may
not track the indices as accurately as direct investments in the
indices.
INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an
exemptive order issued by the SEC, a fund may lend money to, and
borrow money from, other funds advised by FMR or its affiliates. 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. 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 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 the issuer's country of organization, the
primary trading market for the issuer's securities, and the
location of the issuer's 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 that 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 that country, or has
at least 50% of its assets located in that 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 a fund's policies regarding the quality of debt
securities.
Purchasers of loans and other forms of direct indebtedness depend
primarily upon the creditworthiness of the borrower for payment of
interest and repayment of principal . Direct debt
instruments may not be rated by any nationally recognized
statistical rating service. If scheduled interest or principal
payments are not made, the value of the instrument may be
adversely affected. Loans that are fully secured provide more
protections than an unsecured loan in the event of failure to make
scheduled interest or principal payments . 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 . For example, if a loan is foreclosed, the
purchaser could become part owner of any collateral, and would
bear the costs and liabilities associated with owning and disposing of
the collateral. In addition, it is conceivable that under emerging
legal theories of lender liability, a purchaser 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 the purchaser in the event of fraud or
misrepresentation. In the absence of definitive regulatory guidance,
FMR uses its research to attempt to avoid situations
where fraud or misrepresentation could adversely affect a fund.
A loan is often administered by a bank or other financial institution
that acts as agent for all holders. The agent administers the terms of
the loan, as specified in the loan agreement. Unless, under the terms
of the loan or other indebtedness, the purchaser has direct
recourse against the borrower, the purchaser 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 purchaser were
determined to be subject to the claims of the agent's general
creditors, the purchaser 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 may include letters of credit, revolving
credit facilities, or other standby financing commitments that
obligate purchasers to make additional cash payments on
demand. These commitments may have the effect of requiring a
purchaser to increase its investment in a borrower at a time when
it would not otherwise have done so, even if the borrower's condition
makes it unlikely that the amount will ever be repaid. A fund will set
aside appropriate liquid assets in a segregated custodial account to
cover its potential obligations under standby financing commitments.
Each fund limits the amount of total assets that it will invest in any
one issuer or in issuers within the same industry (see each fund's
investment limitations). For purposes of these limitations, a 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 a 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. L ower-quality debt securities
have poor protection with respect to the payment of interest and
repayment of principal, or may be in default. These securities are
often considered to be speculative and involve greater risk of loss or
price changes due to changes in the issuer's capacity to pay. The
market prices of lower-quality debt securities may fluctuate more than
those of higher-quality debt securities and may decline significantly
in periods of general economic difficulty, which may follow periods of
rising interest rates.
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 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 liquidity of lower-quality debt
securities and the ability of outside pricing services to value
lower-quality debt 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 . 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.
A 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 a re high-quality, short-term obligations.
Money market securities may be structured or may employ a trust or
other similar structure so that they are eligible investments for
money market funds. For example, put features can be used to
modif y 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 a fund.
MORTGAGE-BACKED SECURITIES are issued by government and
non-government entities such as banks, mortgage lenders, or other
instit utions. 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 range of specific 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. Stripped
mortgage-backed securities are created when the interest and principal
components of a mortgage-backed security are separated and sold as
individual securities. In the case of a stripped mortgage-backed
security, the holder of the "principal-only" security (PO) receives
the principal payments made by the underlying mortgage, while the
holder of the "interest-only" security (IO) receives interest payments
from the same underlying mortgage.
The value of mortgage-backed securities may change due to shifts in
the market's perception of issuers and changes in interest
rates . In addition, regulatory or tax changes may adversely affect
the mortgage -backed 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 occurs when
unscheduled or early payments are made on the underlying mortgages,
usually in response to a reduction in interest rates. Mortgage-backed
security values may also be adversely affected when prepayments on
underlying mortgages do not occur. The prices of stripped
mortgage-backed securities tend to be more volatile in response to
changes in interest rates than those of non-stripped mortgage-backed
securities.
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 municipal security may be owned directly
or through a participation interest.
OTHER INVESTMENT COMPANIES . A fund ma y purchase the
share s of other investment companies.
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.
QUALITY AND MATURITY (M ONEY M ARKET FUND
ONLY) . Pursuant to procedures adopted by the Board of Trustees,
the fund 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.
REAL ESTATE INVESTMENT TRUSTS. Equity real estate investment trusts
own real estate properties, while mortgage real estate investment
trusts make construction, development, and long-term mortgage loans.
Their value may be affected by changes in the value of the underlying
property of the trusts, the creditworthiness of the issuer, property
taxes, interest rates, and tax and regulatory requirements, such as
those relating to the environment. Both types of trusts are dependent
upon management skill, are not diversified, and are subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free status of income under
the Internal Revenue Code and failing to maintain exemption from the
1940 Act.
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.
As protection against the risk that the original seller will not
fulfill its obligation, the securities are held in a separate
account 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), a fund will engage in repurchase agreement transactions
with parties whose creditworthiness has been reviewed and found
satisfactory by FMR (for Index 500, by BT or, under certain
circumstances, by FMR or an FMR affiliate) . 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 security to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase that
security at an agreed-upon price and time. While a reverse
repurchase agreement is outstanding, a fund will maintain appropriate
liquid assets in a segregated custodial account to cover its
obligation under the agreement. A fund will enter into reverse
repurchase agreements only with parties whose creditworthiness has
been reviewed and found satisfactory by FMR (for Index 500, by
BT or, under certain circumstances, by FMR or an FMR affiliate). Such
transactions may increase fluctuations in the market value of fund
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
Broker age Services, Inc. (FBSI). FBSI is a member of the New York
Stock Exchange and a subsidiary of FMR Corp. Index 500 will not lend
securities to BT or its affiliates. BT receives a portion of the
securities lending income earned by Index 500.
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 financial ly,
loans will be made only to parties deemed by FMR (for Index 500, by BT
or, under certain circumstances, by FMR or an FMR affiliate) to be of
good standing. Furthermore, they will be made only if, in FMR's (BT's
for Index 500) judgment, the consideration to be earned from such
loans would justify the risk.
FMR and BT understand 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 other
eligible securit ies . Investing this cash subjects that
investment, as well as the security loaned, to market forces (i.e.,
capital appreciation or depreciation). If Index 500 cannot recover the
loaned securities on termination, the fund may sell the collateral and
purchase a replacement investment in the market.
SHORT SALES "AGAINST THE BOX." A money market or growth fund may
sell securities short when it owns or has the right to obtain
securities equivalent in kind or amount to the securities sold short.
Such short sales are known as short sales "against the box." 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.
Short sales against the box could be used to protect the net asset
value per share of a money market fund in anticipation of increased
interest rates, without sacrificing the current yield of the
securities sold short. A money market fund will incur transaction
costs in connection with opening and closing short sales against the
box. A growth fund will incur transaction costs, including interest
expenses, in connection with opening, maintaining, and closing short
sales against the box.
SHORT SALES. A growth and income, asset allocation, or high
income 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. A 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 expenses, 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 are 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 pay interest when due, and may require renegotiation or
rescheduling of debt payments. In addition, prospects for repayment of
principal and payment of interest may depend on political as
well as economic factors. Although some sovereign debt, such as
Brady Bonds, is collateralized by U.S. Government securities,
repayment of principal and payment of interest is not
guaranteed by the U.S. Government.
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.
Because the SEC does not consider privately stripped government
securities to be U.S. Government securities for purposes of Rule 2a-7,
a money market fund must evaluate them as it would
non-government securities pursuant to regulatory guidelines applicable
to money market funds.
SWAP AGREEMENTS. Swap agreements can be individually negotiated and
structured to include exposure to a variety 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.
In a typical cap or floor agreement, one party agrees to make payments
only under specified circumstances, usually in return for payment of a
fee by the other party. For example, the buyer of an interest rate cap
obtains the right to receive payments to the extent that a specified
interest rate exceeds an agreed-upon level, while the seller of an
interest rate floor is obligated to make payments to the extent that a
specified interest rate falls below an agreed-upon level. An interest
rate collar combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a fund's investment exposure
from one type of investment to another. For example, if a fund
agreed to exchange payments in dollars for payments in foreign
currency, the swap agreement would tend to decrease 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.
Under a typical equity swap agreement, a counterparty such as a
bank or broker-dealer agrees to pay the fund a return equal to the
dividend payments and increase in value, if any, of an index or group
of stocks, and the fund agrees in return to pay a fixed or floating
rate of interest, plus any declines in value of the index. Swap
agreements can also have features providing for maximum or minimum
exposure to a designated index. In order to track the return of its
designated index effectively, Index 500 would generally have to own
other assets returning approximately the same amount as the interest
rate payable by the fund under the swap agreement.
The most significant factor in the performance of swap agreements
is the change in value of the specific index, the change in the
specific interest rate or currency, or other factors that determine
the amounts of payments due to and from a fund. If a swap agreement
calls for payments by a fund, 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 and, for Index 500, impairing the
fund's correlation with the S&P 500. A fund may be able to
eliminate its exposure under a swap agreement 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 AND FLOATING RATE SECURITIES provide for periodic
adjustments in the interest rate paid on the security. Variable rate
securi ties 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 are structured with put features
that permit holders to demand payment of the unpaid principal balance
plus accrued interest from the issuers or certain financial
intermediaries.
WARRANTS. Warrants are instruments which entitle the holder to buy
an equity security at a specific price for a specific period of time.
Changes in the value of a warrant do not necessarily correspond to
changes in the value of its underlying security. The price of a
warrant may be more volatile than the price of its underlying
security, and a warrant 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 security and do not represent any rights in
the assets of the issuing company. A warrant ceases to have value
if it is not exercised prior to its expiration date. These factors
can make warrants more speculative than other types of
investments.
ZERO COUPON BONDS do not make interest payments; instead, they are
sold at a 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 more volatile than other types
of fixed-income securities when interest rates change. In
calculating a fund's dividend, a portion of the difference
between a zero coupon bond's purchase price and its face value is
considered income .
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are
placed on behalf of each fund by FMR (BT for Index 500) pursuant to
authority contained in the management contract (and, for Index 500, in
the sub-advisory agreement). Except for Index 500, 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 (BT
for Index 500) 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 (BT for
Index 500) 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; the reasonableness of any
commissions; and (except for Index 500) arrangements for payment of
fund expenses. Generally, 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 BT or their 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 (BT for Index 500) (to the extent possible consistent
with execution considerations) in accordance with a ranking of
broker-dealers determined periodically by FMR's (BT's for Index 500)
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 (BT for Index
500) 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 (BT for Index 500) clients may be useful to FMR (BT for Index 500)
in carrying out its obligations to the funds. The receipt of such
research has not reduced FMR's (BT's for Index 500) normal independent
research activities; however, it enables FMR (BT for Index 500) to
avoid the additional expenses that could be incurred if FMR (BT for
Index 500) 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 a fund to pay such higher commissions,
FMR (BT for Index 500) 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 (BT's for Index 500) overall responsibilities to the funds and
its other clients. In reaching this determination, FMR (BT for Index
500) 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 (BT for Index 500) 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 (BT for Index 500) may use research services provided
by and place agency transactions with National Financial Services
Corporation (NFSC) and Fidelity Brokerage Services (FBS), indirect
subsidiaries of FMR Corp. (and, for Index 500, BT Brokerage
Corporation, BT Alex Brown Incorporated or BT Futures Corporation,
indirect subsidiaries of Bankers Trust New York Corporation), 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 (FBSL). As of
January 1995, FBSL was converted to an unlimited liability company and
assumed the name FBS.
FMR may allocate brokerage transactions to broker-dealers who have
entered into arrangements with FMR under which the broker- dealer
allocates a portion of the commissions paid by a fund toward payment
of 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 require ments, the
Board of Trustees has authorized NFSC 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 or BT's performance
of its responsibilities in connection with the placement of
portf olio 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, 1997 and
1996, the funds (except Money Market) had the following portfolio
turnover rates:
YEAR HIGH EQUITY- GROWTH GROWTH OVERSEAS ASSET
INCOME INCOME OPPORTUNITIES MANAGER
1997 % % % % % %
1996 123% 186% 81% 28% 92% 168%
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
YEAR ASSET MANAGER: BALANCED CONTRAFUND GROWTH & INCOME INVESTMENT INDEX 500
GROWTH GRADE BOND
1997 % % % % % %
1996 120% 163% 178% N/A 81% 14%
</TABLE>
BROKERAGE COMMISSIONS. The following tables list the total
brokerage commissions paid, the percentage of the brokerage
commissions paid to brokerage firms that provided research services,
and the commissions paid to NFSC and FBS (formerly FBSL) [CONFIRM:
(and, for Index 500, BT Brokerage Corporation, BT Alex Brown
Incorporated or BT Futures Corporation)] 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, 1997,
1996, and 1995 for the funds (no commissions were paid by Money Market
or Investment Grade Bond). The funds pay both commissions and spreads
in connection with the placement of portfolio transactions. The
difference between the percentage of brokerage commissions paid to,
and the percentage of the dollar amount of transactions effected
through, NFSC is a result of the low commission rates charged by NFSC.
HIGH INCOME PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD TOTAL % TO TO % TO NFS C % TO FBS % %
ENDED PAID TO FIRMS NFSC FBS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS
1997 $ __% $ $ __% __% __% %
1996 $ 501,544 69% $ 10,168 $ 0 2% 0% 2% 0%
1995 $ 185,561 95% $ 21,896 $ 0 12% 0% 16% 0%
</TABLE>
EQUITY-INCOME PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD TOTAL % TO TO % TO NFSC % TO FBS % %
ENDED PAID TO FIRMS NFSC FBS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS
1997 $ __% $ $ __% __% % %
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%
</TABLE>
GROWTH OPPORTUNITIES PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD TOTAL % TO TO % TO NFSC % TO FBS % %
ENDED PAID TO FIRMS NFSC FBS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS
1997 $ __% $ $ __% __% __% %
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>
PERIOD TOTAL % TO TO % TO NFSC % TO FBS % %
ENDED PAID TO FIRMS NFSC FBS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS
1997 $ __% $ $ __% __% __% %
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%
</TABLE>
OVERSEAS PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD TOTAL % PAID TO TO % TO NFS C % TO FBS % %
ENDED TO FIRMS NFSC FBS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS
1997 $ __% $ $ __% __% _% %
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%
</TABLE>
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD TOTAL % PAID TO TO % TO NFSC % TO FBS % %
ENDED TO FIRMS NFSC FBS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS
1997 $ __% $ $ __% __% __% %
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>
PERIOD TOTAL % PAID TO TO % TO NFSC % TO FBS % %
ENDED TO FIRMS NFSC FBS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS
1997 $ __% $ $ __% __% _% %
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%
</TABLE>
ASSET MANAGER: GROWTH PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD TOTAL % PAID TO TO % TO NFSC % TO FBS % %
ENDED TO FIRMS NFSC FBS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS
1997 $ __% $ $ __% __% __% %
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>
PERIOD TOTAL % PAID TO TO % TO NFSC % TO FBS % %
ENDED TO FIRMS NFSC FBS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS
1997 $ __% $ $ __% __% __% %
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>
GROWTH & INCOME PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD TOTAL % PAID TO TO % TO NFSC % TO FBS % %
ENDED TO FIRMS NFSC FBS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS
1997 $ __% $ $ __% __% _% %
</TABLE>
INDEX 500 PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD TOTAL % PAID TO TO % TO NFSC % TO FBS % %
ENDED TO FIRMS NFSC FBS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS
1997 $ __% $ $ __% __% __% %
1996 $ 51,591 91% $ 374 $ 0 1% 0% 0% 0%
1995 $ 133,659 31% $ 20 $ 0 0% 0% 0% 0%
</TABLE>
[WITH RESPECT TO INDEX 500, ADD COMMISSIONS, IF ANY, PAID TO BT
BROKERAGE CORPORATION, BT ALEX BROWN INCORPORATED OR BT FUTURES
CORPORATION FOR THE FISCAL PERIODS ENDED DECEMBER 31, 1997, 1996, AND
1995.]
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 (and by BT for Index 500) from
those of other funds managed by FMR or BT or accounts managed by FMR
or BT affiliates. It sometimes happens that the same security is held
in the portfolio of more than one of these FMR or BT managed 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 and BT as sub-adviser to Index 500 outweighs any
disadvantages that may be said to exist from exposure to
simultaneous transactions.
VALUATION
FSC normally determines each class'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 each class'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 the fund would receive if it sold the instrument.
Securities of other investment companies are valued at their
respective NAVs.
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 must adhere to certain conditions under
Rule 2a-7, as summarized in the section entitled "Quality and Maturity
on pag e .
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.
HIGH INCOME AND INVESTMENT GRADE BOND 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.
Or, fixed-income securities and convertible securities may be
valued on the basis of information furnished by a pricing servic e
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
p ricing services are available, and the funds may use various
pricing services or discontinue the use of any pricing service.
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. Securities of other open-end investment
companies are valued at their respective NAVs.
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.
Short-term securities with remaining maturities of sixty days or
less for which market quotations and information furnished by a
pricing service are not readily available are valued either at
amortized cost or at original cost plus accrued interest, both of
which approximate current value. In addition, securities and other
assets for which there is no readily available market value may be
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.
EQUITY-INCOME, GROWTH, OVERSEAS, ASSET MANAGER, ASSET MANAGER: GROWTH,
INDEX 500, CONTRAFUND, BALANCED, GROWTH & INCOME 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
eva luated quote or last bid price normally is used. Securities of
other open-end investment companies are valued at their respective
NAVs .
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. Or, fixed-income securities and convertible securities may 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 funds may use various
pricing services or discontinue the use of any pricing service.
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.
Short-term securities with remaining maturities of sixty days or
less for which market quotations and information furnished by a
pricing service are not readily available are valued either at
amortized cost or at original cost plus accrued interest, both of
which approximate current value. In addition, securities and other
assets for which there is no readily available market value may be
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 funds may quote performance in various ways. All performance
information supplied by the funds 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 a
non-money market fund's shares when redeemed may be more or less
than their original cost.
YIELD CALCULATIONS (MONEY MARKET PORTFOLIO). T o 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
class are computed by dividing the class's pro rata share of the
applicable interest and dividend income, if any, for a given 30-day or
one-month period, net of expenses, by the average number of shares of
that class entitled to receive distributions during the period,
dividing this figure by the class'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 class'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 class'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 a class'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 class's yield.
Yield information may be useful in reviewing a class's performance
and in providing a basis for comparison with other investment
alternatives. However, each class's yield fluctuates, unlike
investments that pay a fixed interest rate over a stated period of
time. Whe n 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 class's yield will tend to be somewhat higher than prevailing
market rates, and in periods of rising interest rates a class'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 class'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 class's return, including the effect of
reinvesting dividends and capital gain distributions, and any change
in the class's 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 class 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. While
average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that a class's
pe rformance 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 class.
In addition to average annual total returns, a class 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 class's NAVs,
adjusted NAVs, and benchmark indices may be used to exhibit
performance. An adjusted NAV includes any distributions paid and
reflects all elements of return. Unless otherwise indicated, a class'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 a
NAV has crossed, stayed above, or stayed below its moving average. On
December 26, 1997, the 13-week and 39-week long-term moving averages
were $___ and $___ for Equity-Income - Initial Class; $___ and $___
for Growth - Initial Class; $___ and $___ for Overseas - Initial
Class; $___ and $___ for Asset Manager - Initial Class; $___ and $___
for Asset Manager: Growth - Initial Class; $___ and $___ for Index 500
- - Initial Class; $___ and $___ for Contrafund - Initial Class; $___
and $___ for Balanced - Initial Class; $___ and $___ for Growth
Opportunities - Initial Class; and $___ and $___ for Growth & Income -
Initial Class, respectively. The initial offering of Service Class
shares of each fund (except Money Market, Investment Grade Bond, and
Index 500) began on November 3, 1997.
HISTORICAL FUND RESULTS. The following table shows 7-day
yields (money market fund), 30-day yields (bond funds), and total
returns for each class of each fund for the fiscal periods ended
December 31, 1997. The initial offering of Service Class shares of
each fund (except Money Market, Investment Grade Bond, and Index 500)
began on November 3, 1997. A fund's Service Class returns prior to the
initial offering date are those of Initial Class, the original class
of the fund, which does not have a 12b-1 fee. Service Class returns
would have been lower if the applicable Service Class 12b-1 fee had
been reflected in returns prior to the initial offering date.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
AS OF 12/31/97 7-DAY OR 30-DAY ONE FIVE 10 ONE FIVE 10 YEARS/
YIELDS YEAR YEARS YEARS/LIFE YEAR YEARS LIFE OF
OF FUND*
FUND*
MONEY MARKET PORTFOLIO: % % % % % % %
INITIAL CLASS
INVESTMENT GRADE % % % % % % %
BOND PORTFOLIO:
INITIAL CLASS
INDEX 500 PORTFOLIO: N/A % % % % % %
INITIAL CLASS
HIGH INCOME PORTFOLIO: % % % % % % %
INITIAL CLASS
SERVICE CLASS % % % % % % %
ASSET MANAGER PORTFOLIO: N/A % % % % % %
INITIAL CLASS
SERVICE CLASS N/A % % % % % %
ASSET MANAGER: N/A % N/A % % N/A %
GROWTH PORTFOLIO:
INITIAL CLASS
SERVICE CLASS N/A % N/A % % N/A %
EQUITY-INCOME PORTFOLIO: N/A % % % % % %
INITIAL CLASS
SERVICE CLASS N/A % % % % % %
CONTRAFUND PORTFOLIO: N/A % N/A % % N/A %
INITIAL CLASS
SERVICE CLASS N/A % N/A % % N/A %
GROWTH PORTFOLIO: N/A % % % % % %
INITIAL CLASS
SERVICE CLASS N/A % % % % % %
OVERSEAS PORTFOLIO: N/A % % % % % %
INITIAL CLASS
SERVICE CLASS N/A % % % % % %
GROWTH & INCOME N/A % N/A N/A % N/A %
PORTFOLIO:
INITIAL CLASS
SERVICE CLASS N/A % N/A N/A % N/A %
BALANCED PORTFOLIO: N/A % N/A % % N/A %
INITIAL CLASS
SERVICE CLASS N/A % N/A % % N/A %
GROWTH OPPORTUNITIES N/A % N/A % % N/A %
PORTFOLIO:
INITIAL CLASS
SERVICE CLASS N/A % N/A % % N/A %
</TABLE>
Note: If FMR had not reimbursed certain fund/class expenses during
certain of these periods, [IF CURRENTLY IN REIMBURSEMENT: yields and]
total returns would have been lower.
* 10-year return for Money Market, High Income, Equity-Income,
Growth and Overseas Portfolios; 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; Contrafund, Asset Manager: Growth,
Balanced and Growth Opportunities Portfolios commenced operations
January 3, 1995; and Growth & Income Portfolio commenced operations
December 31, 1996.
The following tables show the income and capital elements of each
class's cumulative total return. The tables compare each class's
return to the record of the 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 class. The
S&P 500 and DJIA comparisons are provided to show how each class'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 Money Market,
High Income and Investment Grade Bond Portfolios invest in
fixed-income securities, common stocks represent a different type of
investment from the fund. 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 class's returns, do not
include the effect of brokerage commissions or other costs of
investing.
The initial offering of Service Class shares of each fund (except
Money Market, Investment Grade Bond, and Index 500) began on November
3, 1997. A fund's Service Class figures prior to the initial offering
date are those of Initial Class, the original class of the fund, which
does not have a 12b-1 fee. Service Class figures would have been lower
if the applicable Service Class 12b-1 fee had been reflected in
figures prior to the initial offering date.
The following tables show the growth in value of a hypothetical
$10,000 investment in each class of each fund during the 10-year
period ended December 31, 1997, or life of each fund, as applicable,
assuming all distributions were reinvested. The figures below reflect
the fluctuating interest rates, bond prices, and stock prices of the
specified periods and should not be considered representative of the
dividend income or capital gain or loss that could be realized from an
investment in a class today. Tax consequences of different investments
have not been factored into the figures below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET PORTFOLIO - INITIAL CLASS 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
1997 $ $ $ $ $ $ $
1996 $ $ $ $ $ $ $
1995 $ $ $ $ $ $ $
1994 $ $ $ $ $ $ $
1993 $ $ $ $ $ $ $
1992 $ $ $ $ $ $ $
1991 $ $ $ $ $ $ $
1990 $ $ $ $ $ $ $
1989 $ $ $ $ $ $ $
1988 $ $ $ $ $ $ $
</TABLE>
MONEY MARKET PORTFOLIO. During the ten-year period ended
December 31, 1997, a hypothetical $10,000 investment in Initial Class
of Money Market Portfolio would have grown to $______, assuming all
distributions were reinvested.
Explanatory Notes: With an initial investment of $10,000 in Initial
Class of Money Market Portfolio on January 1, 1988, the net amount
invested in Initial Class 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 to $_____. If distributions had not been
reinvested, the amount of distributions earned from the class over
time would have been smaller, and cash payments (dividends) for the
period would have amounted to $_______. The fund did not distribute
any capital gains during the period.
HIGH INCOME PORTFOLIO. During the ten-year period ended
December 31, 1997, a hypothetical $10,000 investment in Initial Class
of High Income Portfolio would have grown to $_____, assuming all
distributions were reinvested.
<ERROR: WIDE TABLE></r>
ERROR: THE FOLLOWING TABLE: "8X12TABLE" IS TOO WIDE!
TABLE WIDTH IS 143 CHARACTERS.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
HIGH INCOME PORTFOLIO - INITIAL CLASS 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
1997 $ $ $ $ $ $ $
1996 $ $ $ $ $ $ $
1995 $ $ $ $ $ $ $
1994 $ $ $ $ $ $ $
1993 $ $ $ $ $ $ $
1992 $ $ $ $ $ $ $
1991 $ $ $ $ $ $ $
1990 $ $ $ $ $ $ $
1989 $ $ $ $ $ $ $
1988 $ $ $ $ $ $ $
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Initial
Class of High Income Portfolio on January 1, 1988, the net amount
invested in Initial Class 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 $_____. If
distributions had not been reinvested, the amount of distributions
earned from the class over time would have been smaller, and cash
payments for the period would have amounted to $_____ for dividends
and $_____ for capital gain distributions.
During the ten-year period ended December 31, 1997, a hypothetical
$10,000 investment in Service Class of High Income Portfolio would
have grown to $_____, assuming all distributions were reinvested.
<ERROR: WIDE TABLE></r>
ERROR: THE FOLLOWING TABLE: "8X12TABLE" IS TOO WIDE!
TABLE WIDTH IS 143 CHARACTERS.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
HIGH INCOME PORTFOLIO - SERVICE CLASS 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
1997 $ $ $ $ $ $ $
1996 $ $ $ $ $ $ $
1995 $ $ $ $ $ $ $
1994 $ $ $ $ $ $ $
1993 $ $ $ $ $ $ $
1992 $ $ $ $ $ $ $
1991 $ $ $ $ $ $ $
1990 $ $ $ $ $ $ $
1989 $ $ $ $ $ $ $
1988 $ $ $ $ $ $ $
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Service
Class of High Income Portfolio on January 1, 1988, the net amount
invested in Service Class 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 $_____. If
distributions had not been reinvested, the amount of distributions
earned from the class over time would have been smaller, and cash
payments for the period would have amounted to $______ for dividends
and $______ for capital gain distributions.
EQUITY-INCOME PORTFOLIO. During the ten-year period ended December
31, 1997, a hypothetical $10,000 investment in Initial Class of
Equity-Income Portfolio would have grown to $_____, assuming all
distributions were reinvested.
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CHARACTERS.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
EQUITY-INCOME PORTFOLIO - INITIAL CLASS 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
1997 $ $ $ $ $ $ $
1996 $ $ $ $ $ $ $
1995 $ $ $ $ $ $ $
1994 $ $ $ $ $ $ $
1993 $ $ $ $ $ $ $
1992 $ $ $ $ $ $ $
1991 $ $ $ $ $ $ $
1990 $ $ $ $ $ $ $
1989 $ $ $ $ $ $ $
1988 $ $ $ $ $ $ $
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Initial
Class of Equity-Income Portfolio on January 1, 1988, the net amount
invested in Initial Class 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 $______. If
distributions had not been reinvested, the amount of distributions
earned from the class over time would have been smaller, and cash
payments for the period would have amounted to $______ for dividends
and $______ for capital gain distributions.
During the ten-year period ended December 31, 1997, a hypothetical
$10,000 investment in Service Class of Equity-Income Portfolio would
have grown to $______, assuming all distributions were reinvested.
<ERROR: WIDE TABLE></r>
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TABLE WIDTH IS 143 CHARACTERS.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
EQUITY-INCOME PORTFOLIO - SERVICE CLASS 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
1997 $ $ $ $ $ $ $
1996 $ $ $ $ $ $ $
1995 $ $ $ $ $ $ $
1994 $ $ $ $ $ $ $
1993 $ $ $ $ $ $ $
1992 $ $ $ $ $ $ $
1991 $ $ $ $ $ $ $
1990 $ $ $ $ $ $ $
1989 $ $ $ $ $ $ $
1988 $ $ $ $ $ $ $
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Service
Class of Equity-Income Portfolio on January 1, 1988, the net amount
invested in Service Class 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 $______. If
distributions had not been reinvested, the amount of distributions
earned from the class over time would have been smaller, and cash
payments for the period would have amounted to $______ for dividends
and $______ for capital gain distributions.
GROWTH PORTFOLIO. During the ten-year period ended December 31,
1997, a hypothetical $10,000 investment in Initial Class of Growth
Portfolio would have grown to $______, assuming all distributions were
reinvested.
<ERROR: WIDE TABLE></r>
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
GROWTH PORTFOLIO - INITIAL CLASS 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
1997 $ $ $ $ $ $ $
1996 $ $ $ $ $ $ $
1995 $ $ $ $ $ $ $
1994 $ $ $ $ $ $ $
1993 $ $ $ $ $ $ $
1992 $ $ $ $ $ $ $
1991 $ $ $ $ $ $ $
1990 $ $ $ $ $ $ $
1989 $ $ $ $ $ $ $
1988 $ $ $ $ $ $ $
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Initial
Class of Growth Portfolio on January 1, 1988, the net amount invested
in Initial Class 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 $______. If
distributions had not been reinvested, the amount of distributions
earned from the class over time would have been smaller, and cash
payments for the period would have amounted to $______ for dividends
and $______ for capital gain distributions.
GROWTH PORTFOLIO - SERVICE CLASS INDICES
<ERROR: WIDE TABLE>
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CHARACTERS.
<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
1997 $ $ $ $ $ $ $
1996 $ $ $ $ $ $ $
1995 $ $ $ $ $ $ $
1994 $ $ $ $ $ $ $
1993 $ $ $ $ $ $ $
1992 $ $ $ $ $ $ $
1991 $ $ $ $ $ $ $
1990 $ $ $ $ $ $ $
1989 $ $ $ $ $ $ $
1988 $ $ $ $ $ $ $
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Service
Class of Growth Portfolio on January 1, 1988, the net amount invested
in Service Class 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 $_____. If
distributions had not been reinvested, the amount of distributions
earned from the class over time would have been smaller, and cash
payments for the period would have amounted to $_____ for dividends
and $_____ for capital gain distributions.
OVERSEAS PORTFOLIO. During the ten-year period ended December 31,
1997, a hypothetical $10,000 investment in Initial Class of Overseas
Portfolio would have grown to $_____, assuming all distributions were
reinvested.
OVERSEAS PORTFOLIO - INITIAL CLASS INDICES
<ERROR: WIDE TABLE>
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CHARACTERS.
<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
1997 $ $ $ $ $ $ $
1996 $ $ $ $ $ $ $
1995 $ $ $ $ $ $ $
1994 $ $ $ $ $ $ $
1993 $ $ $ $ $ $ $
1992 $ $ $ $ $ $ $
1991 $ $ $ $ $ $ $
1990 $ $ $ $ $ $ $
1989 $ $ $ $ $ $ $
1988 $ $ $ $ $ $ $
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Initial
Class of Overseas Portfolio on January 1, 1988, the net amount
invested in Initial Class 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 $______. If
distributions had not been reinvested, the amount of distributions
earned from the class over time would have been smaller, and cash
payments for the period would have amounted to $______ for dividends
and $______ for capital gain distributions.
During the ten-year period ended December 31, 1997, a hypothetical
$10,000 investment in Service Class of Overseas Portfolio would have
grown to $______, assuming all distributions were reinvested.
OVERSEAS PORTFOLIO - SERVICE CLASS INDICES
<ERROR: WIDE TABLE>
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CHARACTERS.
<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
1997 $ $ $ $ $ $ $
1996 $ $ $ $ $ $ $
1995 $ $ $ $ $ $ $
1994 $ $ $ $ $ $ $
1993 $ $ $ $ $ $ $
1992 $ $ $ $ $ $ $
1991 $ $ $ $ $ $ $
1990 $ $ $ $ $ $ $
1989 $ $ $ $ $ $ $
1988 $ $ $ $ $ $ $
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Service
Class of Overseas Portfolio on January 1, 1988, the net amount
invested in Service Class 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 $_____. If
distributions had not been reinvested, the amount of distributions
earned from the class over time would have been smaller, and cash
payments for the period would have amounted to $______ for dividends
and $______ for capital gain distributions.
INVESTMENT GRADE BOND PORTFOLIO. During the period from December 5,
1988 (commencement of operations) to December 31, 1997, a hypothetical
$10,000 investment in Initial Class of Investment Grade Bond Portfolio
would have grown to $______, assuming all distributions were
reinvested.
INVESTMENT GRADE PORTFOLIO - INITIAL CLASS INDICES
<ERROR: WIDE TABLE>
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<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
1997 $ $ $ $ $ $ $
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 in Initial
Class of Investment Grade Bond Portfolio on December 5, 1988, the net
amount invested in Initial Class 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 $_____. If distributions had not been reinvested, the amount of
distributions earned from the class over time would have been smaller,
and cash payments for the period would have amounted to $______ for
dividends and $______ for capital gain distributions.
ASSET MANAGER PORTFOLIO. During the period from September 6, 1989
(commencement of operations) to December 31, 1997, a hypothetical
$10,000 investment in Initial Class of Asset Manager Portfolio would
have grown to $______, assuming all distributions were reinvested.
ASSET MANAGER PORTFOLIO - INITIAL CLASS INDICES
<ERROR: WIDE TABLE>
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CHARACTERS.
<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
1997 $ $ $ $ $ $ $
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 $10,000 in Initial
Class of Asset Manager Portfolio on September 6, 1989, the net amount
invested in Initial Class 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 $______. If
distributions had not been reinvested, the amount of distributions
earned from the class over time would have been smaller, and cash
payments for the period would have amounted to $______ for dividends
and $______ for capital gain distributions.
During the period from September 6, 1989 (commencement of operations)
to December 31, 1997, a hypothetical $10,000 investment in Service
Class of Asset Manager Portfolio would have grown to $______, assuming
all distributions were reinvested.
ASSET MANAGER PORTFOLIO - SERVICE CLASS INDICES
<ERROR: WIDE TABLE>
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CHARACTERS.
<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
1997 $ $ $ $ $ $ $
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 $10,000 in Service
Class of Asset Manager Portfolio on September 6, 1989, the net amount
invested in Service Class 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 $______. If
distributions had not been reinvested, the amount of distributions
earned from the class over time would have been smaller, and cash
payments for the period would have amounted to $______ for dividends
and $______ for capital gain distributions.
ASSET MANAGER: GROWTH PORTFOLIO. During the period from January 3,
1995 (commencement of operations) to December 31, 1997, a hypothetical
$10,000 investment in Initial Class of Asset Manager: Growth Portfolio
would have grown to $______, assuming all distributions were
reinvested.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ASSET MANAGER: GROWTH PORTFOLIO - INITIAL CLASS INDICES
</TABLE>
<ERROR: WIDE TABLE>
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CHARACTERS.
<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
1997 $ $ $ $ $ $ $
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>
* From January 3, 1995 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in Initial
Class of Asset Manager: Growth Portfolio on January 3, 1995, the net
amount invested in Initial Class 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 $______. If distributions had not been reinvested, the amount of
distributions earned from the class over time would have been smaller,
and cash payments for the period would have amounted to $______ for
dividends and $______ for capital gain distributions.
During the period from January 3, 1995 (commencement of operations) to
December 31, 1997, a hypothetical $10,000 investment in Service Class
of Asset Manager: Growth Portfolio would have grown to $______,
assuming all distributions were reinvested.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ASSET MANAGER: GROWTH PORTFOLIO - SERVICE CLASS INDICES
</TABLE>
<ERROR: WIDE TABLE>
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CHARACTERS.
<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
1997 $ $ $ $ $ $ $
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>
* From January 3, 1995 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in Service
Class of Asset Manager: Growth Portfolio on January 3, 1995, the net
amount invested in Service Class 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 $______. If distributions had not been reinvested, the amount of
distributions earned from the class over time would have been smaller,
and cash payments for the period would have amounted to $______ for
dividends and $______ for capital gain distributions.
INDEX 500 PORTFOLIO. During the period from August 27, 1992
(commencement of operations) to December 31, 1997, a hypothetical
$10,000 investment in Initial Class of Index 500 Portfolio would have
grown to $______, assuming all distributions were reinvested.
INDEX 500 PORTFOLIO - INITIAL CLASS INDICES
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<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
1997 $ $ $ $ $ $ $
1996 $ 17,810 $ 1,115 $ 921 $ 19,844 $ 20,909 $ 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 in Initial
Class of Index 500 Portfolio on August 27, 1992, the net amount
invested in Initial Class 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 $______. If
distributions had not been reinvested, the amount of distributions
earned from the class over time would have been smaller, and cash
payments for the period would have amounted to $______ for dividends
and $_______ for capital gain distributions.
CONTRAFUND PORTFOLIO. During the period from January 3, 1995
(commencement of operations) to December 31, 1997, a hypothetical
$10,000 investment in Initial Class of Contrafund Portfolio would have
grown to $______, assuming all distributions were reinvested.
CONTRAFUND PORTFOLIO - INITIAL CLASS INDICES
<ERROR: WIDE TABLE>
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CHARACTERS.
<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
1997 $ $ $ $ $ $ $
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>
* From January 3, 1995 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in Initial
Class of Contrafund Portfolio on January 3, 1995, the net amount
invested in Initial Class 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 $______. If
distributions had not been reinvested, the amount of distributions
earned from the class over time would have been smaller, and cash
payments for the period would have amounted to $______ for dividends
and $_______ for capital gain distributions.
During the period from January 3, 1995 (commencement of operations) to
December 31, 1997, a hypothetical $10,000 investment in Service Class
of Contrafund Portfolio would have grown to $______, assuming all
distributions were reinvested.
CONTRAFUND PORTFOLIO - SERVICE CLASS INDICES
<ERROR: WIDE TABLE>
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CHARACTERS.
<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
1997 $ $ $ $ $ $ $
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>
* From January 3, 1995 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in Service
Class of Contrafund Portfolio on January 3, 1995, the net amount
invested in Service Class 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 $______. If
distributions had not been reinvested, the amount of distributions
earned from the class over time would have been smaller, and cash
payments for the period would have amounted to $______ for dividends
and $______ for capital gain distributions.
BALANCED PORTFOLIO. During the period from January 3, 1995
(commencement of operations) to December 31, 1997, a hypothetical
$10,000 investment in Initial Class of Balanced Portfolio would have
grown to $______, assuming all distributions were reinvested.
BALANCED PORTFOLIO - INITIAL CLASS INDICES
<ERROR: WIDE TABLE>
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CHARACTERS.
<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
1997 $ $ $ $ $ $ $
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>
* From January 3, 1995 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in Initial
Class of Balanced Portfolio on January 3, 1995, the net amount
invested in Initial Class 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 $______. If
distributions had not been reinvested, the amount of distributions
earned from the class over time would have been smaller, and cash
payments for the period would have amounted to $______ for dividends
and $______ for capital gain distributions.
During the period from January 3, 1995 (commencement of operations) to
December 31, 1997, a hypothetical $10,000 investment in Service Class
of Balanced Portfolio would have grown to $_______, assuming all
distributions were reinvested.
BALANCED PORTFOLIO - SERVICE CLASS INDICES
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<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
1997 $ $ $ $ $ $ $
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>
* From January 3, 1995 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in Service
Class of Balanced Portfolio on January 3, 1995, the net amount
invested in Service Class 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 $______. If
distributions had not been reinvested, the amount of distributions
earned from the class over time would have been smaller, and cash
payments for the period would have amounted to $______ for dividends
and $______ for capital gain distributions.
GROWTH & INCOME PORTFOLIO. During the period from December 31, 1996
(commencement of operations) to December 31, 1997, a hypothetical
$10,000 investment in Initial Class of Growth & Income Portfolio would
have grown to $______, assuming all distributions were reinvested.
GROWTH & INCOME PORTFOLIO - INITIAL CLASS INDICES
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<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
1997 $ $ $ $ $ $ $
</TABLE>
* From December 31, 1996 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in Initial
Class of Growth & Income Portfolio on December 31, 1996, the net
amount invested in Initial Class 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 $______. If distributions had not been reinvested, the amount of
distributions earned from the class over time would have been smaller,
and cash payments for the period would have amounted to $______ for
dividends and $______ for capital gain distributions.
During the period from December 31, 1996 (commencement of operations)
to December 31, 1997, a hypothetical $10,000 investment in Service
Class of Growth & Income Portfolio would have grown to $______,
assuming all distributions were reinvested.
GROWTH & INCOME PORTFOLIO - SERVICE CLASS INDICES
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CHARACTERS.
<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
1997 $ $ $ $ $ $ $
</TABLE>
* From December 31, 1996 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in Service
Class of Growth & Income Portfolio on December 31, 1996, the net
amount invested in Service Class 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 $______. If distributions had not been reinvested, the amount of
distributions earned from the class over time would have been smaller,
and cash payments for the period would have amounted to $______ for
dividends and $______ for capital gain distributions.
GROWTH OPPORTUNITIES PORTFOLIO. During the period from January 3, 1995
(commencement of operations) to December 31, 1997, a hypothetical
$10,000 investment in Initial Class of Growth Opportunities Portfolio
would have grown to $______, assuming all distributions were
reinvested.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GROWTH OPPORTUNITIES PORTFOLIO - INITIAL CLASS INDICES
</TABLE>
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CHARACTERS.
<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
1997 $ $ $ $ $ $ $
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 in Initial
Class of Growth Opportunities Portfolio on January 3, 1995, the net
amount invested in Initial Class 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 $______. If distributions had not been reinvested, the amount of
distributions earned from the class over time would have been smaller,
and cash payments for the period would have amounted to $______ for
dividends and $______ for capital gain distributions.
During the period from January 3, 1995 (commencement of operations) to
December 31, 1997, a hypothetical $10,000 investment in Service Class
of Growth Opportunities Portfolio would have grown to $______,
assuming all distributions were reinvested.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GROWTH OPPORTUNITIES PORTFOLIO - SERVICE CLASS INDICES
</TABLE>
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CHARACTERS.
<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
1997 $ $ $ $ $ $ $
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>
During the ten-year period ended December 31, 1997, a hypothetical
$10,000 investment in Service Class of Growth Portfolio would have
grown to $______, assuming all distributions were reinvested.
* From January 3, 1995 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in Service
Class of Growth Opportunities Portfolio on January 3, 1995, the net
amount invested in Service Class 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 $______. If distributions had not been reinvested, the amount of
distributions earned from the class over time would have been smaller,
and cash payments for the period would have amounted to $______ for
dividends and $______ for capital gain distributions.
PERFORMANCE COMPARISONS. A class'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 trading fees into
consideration, and are prepared without regard to tax consequences.
Lipper may also rank bond funds based on yield. In addition to the
mutual fund rankings, a class'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 Indices (for Asset Manager and Asset
Manager: Growth) 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
two 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. Between June
1, 1992 and 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) during that period of
time; 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) during that period of time . The following indices were
used to calculate the t wo 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. Prior to
June 1, 1992, the Asset Allocation Composite Index represented Asset
Manager's three asset classes according to their respective weighting
in the fund's neutral mix (30% -- money market instruments; 40% --
bonds; and 30% -- stocks) during that period of time. The following
indices were used to calculate the asset allocation composite index:
the Salomon Brothers 3-month T-Bill Total Rate of Return Index; the
Lehman Brothers Treasury Bond Index; 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 funds' asset classes:
SALOMON BROTHERS 3-MONTH LEHMAN BROTHERS TREASURY S&P 500
T-BILL TOTAL RATE OF BOND INDEX
RETURN INDEX
1997 % % %
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
From time to time, a class's performance may also be compared to
other mutual funds tracked by financial or business publications
and periodicals. For example, a fund may quote Morningstar, Inc. in
its advertising materials. Morningstar, Inc. is a mutual fund rating
service that rates mutual funds on the basis of risk-adjusted
performance. Rankings that compare the performance of Fidelity funds
to one another in appropriate categories over specific periods of time
may also be quoted in advertising.
A class'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 class'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
govern ment bonds, Treasury bills, the U.S. rate of inflation (based
on the CPI), and combinations of various capital markets. The
performance of these capital markets is based on the returns of
different indices.
Fidelity funds may use the performance of these capital markets in
order to demonstrate general risk-versus-reward investment scenarios.
Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with
the security types in any capital market may or may not correspond
directly to those of the funds. Ibbotson calculates total returns in
the same method as the funds. The funds may also compare performance
to that of other compilations or indices that may be developed and
made available in the future.
Money Market Portfolio 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
AVERAGESTM/All Taxable (Money Market), which is reported in IBC's
MONEY FUND REPORTTM, covers over ___ taxable money market funds.
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; and
charitable giving. 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 (registered
trademark) , 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 present its fund number, Quotron(trademark) number, and
CUSIP number, and discuss or quote its current portfolio manager.
VOLATILITY. A fund may quote various measures of volatility and
benchmark correlation in advertising. In addition, a fund may compare
these measures to those of other funds. Measures of volatility seek
to compare a class'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 class's price movements over
specific periods of time. Each point on the momentum indicator
represents the class'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 class 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.
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.
As of December 31, 1997, FMR advised over $___ billion in tax-free
fund assets, $___ billion in money market fund assets, $___ billion in
equity fund assets, $___ billion in international fund assets, and
$___ 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.
YIELDS AND TOTAL RETURNS QUOTED FOR A CLASS INCLUDE THE CLASS'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 EXPENSE S. Excluding these charges from quotations of a
class'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
In ternational stock market indices for the twelve months ended
December 31, 1997. 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 $5,749.4 ($10,078.9
including the U.S.) billion in 1996 to $______ ($______ including the
U.S.) billion in 1997.
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 is
measured in billions of U.S. dollars as of December 31, 1997.
TOTAL MARKET CAPITALIZATION
AUSTRALIA $ JAPAN $
AUSTRIA NETHERLANDS
BELGIUM NORWAY
CANADA SINGAPORE/MALAYSIA
DENMARK SPAIN
FRANCE SWEDEN
GERMANY SWITZERLAND
HONG KONG UNITED KINGDOM
ITALY UNITED STATES
The following table measures the total market capitalization of Latin
American countries according to the International Finance
Cor poration Emerging Markets database. The value of the markets is
measured in billions of U.S. dollars as of December 31, 1997.
TOTAL MARKET CAPITALIZATION - LATIN AMERICA
ARGENTINA $
BRAZIL
CHILE
COLOMBIA
MEXICO
VENEZUELA
TOTAL LATIN AMERICA $
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, 1997. 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 (CUMULATIVE TOTAL RETURNS)
MEASURED IN U.S. DOLLARS
AUSTRALIA % JAPAN %
AUSTRIA NETHERLANDS
BELGIUM NORWAY
CANADA SINGAPORE/MALAYSIA
DENMARK SPAIN
FRANCE SWEDEN
GERMANY SWITZERLAND
HONG KONG UNITED KINGDOM
ITALY UNITED STATES
STOCK MARKET PERFORMANCE (CUMULATIVE TOTAL RETURNS)
MEASURED IN LOCAL CURRENCY
AUSTRALIA % JAPAN %
AUSTRIA NETHERLANDS
BELGIUM NORWAY
CANADA SINGAPORE/MALAYSIA
DENMARK SPAIN
FRANCE SWEDEN
GERMANY SWITZERLAND
HONG KONG UNITED KINGDOM
ITALY UNITED STATES
The following table shows the average annualized stock market
returns measured in U.S. dollars as of December 31, 1997.
STOCK MARKET PERFORMANCE
Five Years Ended Ten Years Ended
December 31, 1997 December 31, 1997
Germany % %
Hong Kong
Japan
Spain
United Kingdom
United States
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each fund is open for business and each class's net asset value
per share (NAV) is calculated each day the New York Stock Exchange
(NYSE) is open for trading. The NYSE has designated the following
holiday closings for 1998: New Year's Day, Martin Luther King's
Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day
(observed), 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 each class'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
SEC. To the extent that portfolio securities are traded in other
markets on days when the NYSE is closed, a class's NAV may be affected
on days when investors do not have access to the fund to purchas e
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 i n part in
securities or other property, valued for this purpose as they are
valued in computing a class'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.
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
advisers 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.
TAX STATUS OF THE FUNDS. 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 com pany
and avoid being subject to federal income or excise taxes at the fund
level, each fund intends to distribute substantially all of its net
investment income and net realized capital gains within each calendar
year as well as on a fiscal year basis, and intends to comply with
other tax rules applicable to regulated investment companies. Income
and capital gain distributions are reinvested in additional shares of
the same class of the fund. This is done to preserve the tax
advantaged status of the variable contracts. Money Market Portfolio
may distribute any net realized short-term capital gains once a year
or more often as necessary, to maintain its NAV at $1.00. Money Market
Portfolio does not anticipate distributing long-term capital
gains.
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 a 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.
Each fund is treated as a separate entity from the other funds of
its trust for tax purposes.
MONEY MARKET PORTFOLIO - As of December 31, 1997, the fund had a
capital loss carryforward of approximately $__________, which will
expire on December 31, ____.
INVESTMENT GRADE BOND PORTFOLIO - As of December 31, 1997, the fund
had a capital loss carryforward of approximately $__________, which
will expire on December 31, ____.
BALANCED PORTFOLIO - As of December 31, 1997, the fund had a
capital loss carryforward of approximately $__________, which will
expire on December 31, ____.
[Insert disclosure for any other fund with a capital loss
carryforward.]
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 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 division, 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 accounts 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.
BT
[TO BE UPDATED BY SUBSEQUENT AMENDMENT]
BT, a New York banking corporation with principal offices at 130
Liberty Street, New York, New York 10006, is a wholly owned subsidiary
of Bankers Trust New York Corporation, whose principal offices are
also at 130 Liberty Street, New York, New York 10006. BT was founded
in 1903. As of December 31, 1996, Bankers Trust New York Corporation
was the seventh largest bank holding company in the United States with
total assets of approximately $120 billion. BT is a worldwide merchant
bank that conducts a variety of general banking and trust activities
and is a major wholesale supplier of financial services to the
international and domestic institutional markets. Investment
management is a core business of BT with approximately $227 billion in
assets under management globally. Of that total, approximately $82
billion are in U.S. equity index assets. When bond and international
funds are included, BT manages over $94 billion in total index assets.
This makes BT one of the nation's leading managers of index funds.
BT has been advised by counsel that BT currently may perform the
services for Index 500 Portfolio described herein without violation of
the Glass-Steagall Act or other applicable banking laws or
regulations. State laws on this issue may differ from the
interpretation of relevant federal law and banks and financial
institutions may be required to register as dealers pursuant to state
securities law.
BT investment personnel may invest in securities for their own
accounts pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
TRUSTEES AND OFFICERS
The Trustees, Members of the Advisory Board, 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 and Members of the
Advisory Board also serve in similar capacities for other funds
advised by FMR. The business address of each Trustee, Member of the
Advisory Board, and officer who is an "interested person" (as defined
in the 1940 Act) 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 (67), 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 Fidelity Investments Money Management, Inc.,
Fidelity Management & Research (U.K.) Inc., and Fidelity Management &
Research (Far East) Inc.
J. GARY BURKHEAD (56), Member of the Advisory Board (1997), is Vice
Chairman and a Member of the Board of Directors of FMR Corp. (1997),
and President of Fidelity Personal Investments and Brokerage Group
(1997). Previously, Mr. Burkhead served as President of Fidelity
Management & Research Company.
RALPH F. COX (65), Trustee, is President of RABAR Enterprises
(management consulting - engineering industry, 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 USA Waste
Services, Inc. (non-hazardous waste, 1993), CH2M Hill Companies
(engineering), Rio Grande, Inc. (oil and gas produ ction), 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 DAVIS (66), Trustee (1992). Prior to her retirement
in September 1991, Mrs. Davis was the Senior Vice President of
Corporate Affairs of Avon Products, Inc. She is currently a Director
of BellSouth Corporation (telecommunications), Eaton Corporation
(manufacturing, 1991), and the TJX Companies, Inc. (retail stores),
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.
ROBERT M. GATES (54), Trustee (1997), is a consultant, author, and
lecturer (1993). Mr. Gates was Director of the Central Intelligence
Agency (CIA) from 1991-1993. From 1989 to 1991, Mr. Gates served as
Assistant to the President of the United States and Deputy National
Security Advisor. Mr. Gates is currently a Trustee for the Forum for
International Policy, a Board Member for the Virginia Neurological
Institute, and a Senior Advisor of the Harvard Journal of World
Affairs. In addition, Mr. Gates serves as a member of the corporate
board for Lucas Varity PLC (automotive components and diesel engines),
Charles Stark Draper Laboratory (non-profit), NACCO Industries, Inc.
(mining and manufacturing), and TRW Inc. (original equipment and
replacement products).
E. BRADLEY JONES (70), Trustee. 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), 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
manufacturing, 1985-1995), Hyster-Yale Materials Handling, Inc.
(1985-1995), and Cleveland-Cliffs Inc. (mining), and as a Trustee of
First Union Real Estate Investments. In addition, he serves as a
Trustee of the Cleveland Clinic Foundation, where he has also been a
member of the Executive Committee as well as Chairman of the Board and
President, a Trustee and member of the Executive Committee of
University School (Cleveland), and a Trustee of Cleveland Clinic
Florida.
DONALD J. KIRK (65), 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. LYNCH (54), 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). 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.
WILLIAM O. McCOY (64), Trustee (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, 1984) and
President of BellSouth Enterprises (1986). He is currently a Director
of Liberty Corporation (holding company, 1984), Weeks Corporation of
Atlanta (real estate, 1994), Carolina Power and Light Company
(electric utility, 1996) and the Kenan Transport Co. (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, 1988).
GERALD C. McDONOUGH (68), Trustee and Chairman of the
non-interested Trustees, is Chairman of G.M. Management Group
(strategic advisory services). Mr. McDonough is a Director of 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 and Brush-Wellman Inc. (metal
refining) from 1983-1997.
MARVIN L. MANN (64), Trustee (1993), is Chairman of the Board,
President, and Chief Executive Officer of Lexmark International,
Inc. (office machines, 1991). Prior to 1991, he held the positions of
Vice President of International Business Machines Corporation ("IBM")
and President and General Manager of various IBM divisions and
subsidiaries. Mr. Mann is a Director of M.A. Hanna Company
(chemicals, 1993), Imation Corp. (imaging and information storage,
1997), 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.
*ROBERT C. POZEN (51), Trustee (1997) and Senior Vice President, is
also President and a Director of FMR (1997), and President and a
Director of Fidelity Investments Money Management, Inc. (1997),
Fidelity Management & Research (U.K.) Inc. (1997), and Fidelity
Management & Research (Far East) Inc. (1997). Previously, Mr. Pozen
served as General Counsel, Managing Director, and Senior Vice
President of FMR Corp. Mr. Pozen currently serves as a Trustee for
only Variable Insurance Products Fund III.
THOMAS R. WILLIAMS (69), 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 ConAgra, Inc. (agricultural products), Georgia Power
Company (electric utility), National Life Insurance Company of
Vermont, American Software, Inc., and AppleSouth, Inc. (restaurants,
1992).
DWIGHT D. CHURCHILL (44), is Vice President of Bond Funds, Group
Leader of the Bond Group, and Senior Vice President of FMR (1997). Mr.
Churchill joined Fidelity in 1993 as Vice President and Group Leader
of Taxable Fixed-Income Investments. Prior to joining Fidelity, he
spent three years as president and CEO of CSI Asset Management, Inc.
in Chicago, an investment management subsidiary of The Prudential.
BOYCE I. GREER (41), is Vice President of Money Market Funds
(1997), Group Leader of the Money Market Group (1997), and Senior Vice
President of FMR (1997). Mr. Greer served as the Leader of the
Fixed-Income Group for Fidelity Management Trust Company (1993-1995)
and was Vice President and Group Leader of Municipal Fixed-Income
Investments (1996-1997). Prior to 1993, Mr. Greer was an associate
portfolio manager.
ABIGAIL P. JOHNSON (36), is Vice President of certain Equity Funds
(1997), and is a Director of FMR Corp. (1994). Before assuming her
current responsibilities, Ms. Johnson managed a number of Fidelity
funds.
FRED L. HENNING, JR. (58), is Vice President of Fidelity's
Fixed-Income Group (1995) and Senior Vice President of FMR (1995).
Before assuming his current responsibilities, Mr. Henning was head of
Fidelity's Money Market Division.
BART A. GRENIER (38), is Vice President of certain High-Income Bond
Funds (1997). Mr. Grenier rejoined Fidelity in August 1997 from DDJ
Capital Management, LLC, where he had served as Managing Director
since April 1997. Mr. Grenier originally joined Fidelity in 1991 as a
senior analyst. Mr. Grenier served as a Director of High-Income Group
Research and as Director of U.S. Equity Research from 1994 to March
1996. He later became Group Leader of the Income-Growth and Asset
Allocation-Income Groups in 1996 and Assistant Equity Division Head in
1997.
ROBERT A. LAWRENCE (45), is Vice President of certain Equity Funds
(1997), Vice President of Fidelity Real Estate High Income Fund (1995)
and Fidelity Real Estate High Income Fund II (1996), and Senior Vice
President of FMR (1993).
RICHARD A. SPILLANE, JR. (46), is Vice President of certain Equity
Funds and Senior Vice President of FMR (1997). Since joining Fidelity,
Mr. Spillane was Chief Investment Officer for Fidelity International,
Limited. Prior to that position, Mr. Spillane served as Director of
Research.
WILLIAM DANOFF (37), is Vice President of VIP II: Contrafund
Portfolio (1995), and other funds advised by FMR, and an employee of
FMR.
KEVIN E. GRANT (37), is Vice President of VIP II: Investment Grade
Bond Portfolio (1997), VIP III: Balanced Portfolio (1996), and other
funds advised by FMR, and an employee of FMR.
BARRY J. COFFMAN (38), is Vice President of VIP: High Income
Portfolio (1992) and an employee of FMR.
STEPHEN R. PETERSEN (41), is Vice President of VIP: Equity-Income
Portfolio (1997), and other funds advised by FMR, and an employee of
FMR.
JENNIFER S. UHRIG (36), is Vice President of VIP: Growth Portfolio
(1997), and other funds advised by FMR, and an employee of FMR.
BETH F. TERRANA (40), is Vice President of VIP III: Growth & Income
Portfolio (1996), and other funds advised by FMR, and an employee of
FMR.
BETTINA E. DOULTON (33), is Vice President of VIP III: Balanced
Portfolio (1996), and other funds advised by FMR, and an employee of
FMR.
RICHARD C. HABERMANN (57), is Vice President of VIP II: Asset
Manager Portfolio (1996), VIP II: Asset Manager: Growth Portfolio
(1996), and other funds advised by FMR, and an employee of FMR.
CHARLES S. MORRISON II (56), is Vice President of VIP II: Asset
Manager Portfolio (1996), VIP II: Asset Manager: Growth Portfolio
(1997), and other funds advised by FMR, and an employee of FMR.
JOHN J. TODD (48), is Vice President of VIP II: Asset Manager
Portfolio and VIP II: Asset Manager: Growth Portfolio (1996), and
other funds advised by FMR, and an employee of FMR.
RICHARD R. MACE, JR. (36), is Vice President of VIP: Overseas
Portfolio (1996), and other funds advised by FMR, and an employee of
FMR.
GEORGE A. VANDERHEIDEN (52), is Vice President of VIP III: Growth
Opportunities Portfolio (1995), and other funds advised by FMR, and an
employee of FMR.
JENNIFER G. FARRELLY (34), is Vice President of VIP II: Index 500
Portfolio (1996), and other funds advised by FMR, and an employee of
FMR.
ROBERT K. DUBY (51), is Vice President of VIP: Money Market
Portfolio (199_), and other funds advised by FMR, and an employee of
FMR.
ERIC D. ROITER (49), Secretary (1998), is Vice President (1998) and
General Counsel of FMR (1998). Mr. Roiter was an Adjunct Member,
Faculty of Law, at Columbia University Law School (1996-1997). Prior
to joining Fidelity, Mr. Roiter was a partner at Debevoise & Plimpton
(1981-1997) and served as an Assistant General Counsel of the U.S.
Securities and Exchange Commission (1979-1981).
RICHARD A. SILVER (50), Treasurer (1997), is Treasurer of the
Fidelity funds and is an employee of FMR (1997). Before joining FMR,
Mr. Silver served as Executive Vice President, Fund Accounting &
Administration at First Data Investor Services Group, Inc.
(1996-1997). Prior to 1996, Mr. Silver was Senior Vice President and
Chief Financial Officer at The Colonial Group, Inc. Mr. Silver also
served as Chairman of the Accounting/Treasurer's Committee of the
Investment Company Institute (1987-1993).
THOMAS D. MAHER (52), Assistant Vice President, is Assistant Vice
President of Fidelity's municipal bond funds (1996) and of Fidelity's
money market funds and Vice President and Associate General Counsel of
Fidelity Investments Money Management, Inc.
THOMAS J. SIMPSON (39), Assistant Treasurer, is Assistant Treasurer
of Fidelity's municipal bond funds (1996) and of Fidelity's money
market funds (1996) and an employee of FMR (1996). Prior to joining
FMR, Mr. Simpson was Vice President and Fund Controller of Liberty
Investment Services (1987-1995).
JOHN H. COSTELLO (51), Assistant Treasurer, is an employee of
FMR.
LEONARD M. RUSH (51), Assistant 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, 1997.
COMPENSATION TABLE
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<S>
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aggregate
Compensation
from a Fund
J. Gary Ralph F. Phyllis Robert M. Edward E. Donald J. Peter S. William Gerald C. Marvin L. Robert C. Thomas
Burkhead Cox Burke Gates*** C. Bradley Kirk Lynch** O. McDonou Mann R.
** Davis Johnson Jones McCoy*** gh Pozen** Williams
3d**
Money Market C,P
0 0 0 0
High Income D,P
0 0 0 0
Equity-Income E, P
0 0 0 0
Growth F, P
0 0 0 0
Overseas G, P
0 0 0 0
Investment Grade
0 0 0 0
Bond H, P
Asset Manager I,P
0 0 0 0
Index 500 J, P
0 0 0 0
Contrafund K, P
0 0 0 0
Asset Manager:
0 0 0 0
Growth L, P
Balanced M, P
0 0 0 0
Growth &
0 0 0 0
Income N, P
Growth
0 0 0 0
Opportunities O, P
TOTAL
0 214,500 210,000 176,000 0 211,500 211,500 0 214,500 264,500 214,500 0 214,500
COMPENSATION
FROM THE FUND
COMPLEX *, A
</TABLE>
* Information is for the calendar year ended December 31, 1997 for
230 funds in the complex.
** Interested Trustees of the funds and Mr. Burkhead are compensated
by FMR.
*** Mr. Gates was appointed to the Board of Trustees of each trust
effective March 1, 1997.
**** Mr. McCoy was appointed to the Board of Trustees of each trust
effective January 1, 1997.
A Compensation figures include cash and amounts required to be
deferred, and may include amounts deferred at the election of
Trustees. For the [fiscal/calendar] year ended December 31, 1997, the
Trustees accrued required deferred compensation from the funds as
follows: Ralph F. Cox, $75,000, Phyllis Burke Davis, $75,000, Robert
M. Gates, $62,500, E. Bradley Jones, $75,000, Donald J. Kirk, $75,000,
William O. McCoy, $75,000, Gerald C. McDonough, $87,500, Marvin L.
Mann, $75,000, and Thomas R. Williams, $75,000. Certain of the
non-interested Trustees elected voluntarily to defer a portion of
their compensation: Ralph F. Cox, $53,699, Marvin L. Mann, $53,699,
and Thomas R. Williams, $62,462.
[TREASURER'S OFFICE WILL ANCHOR AND EDIT THIS FOOTNOTE AS
APPROPRIATE FOR YOUR FUNDS(S): BCompensation figures include cash, and
may include amounts required to be deferred, and amounts deferred at
the election of Trustees.]
C The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $__, Phyllis Burke Davis, $__, Robert M. Gates, $__, E. Bradley
Jones, $__, Donald J. Kirk, $__, William O. McCoy, $__, Gerald C.
McDonough, $__, Marvin L. Mann, $__, and Thomas R. Williams, $__.
D The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $__, Phyllis Burke Davis, $__, Robert M. Gates, $__, E. Bradley
Jones, $__, Donald J. Kirk, $__, William O. McCoy, $__, Gerald C.
McDonough, $__, Marvin L. Mann, $__, and Thomas R. Williams, $__.
E The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $__, Phyllis Burke Davis, $__, Robert M. Gates, $__, E. Bradley
Jones, $__, Donald J. Kirk, $__, William O. McCoy, $__, Gerald C.
McDonough, $__, Marvin L. Mann, $__, and Thomas R. Williams, $__.
F The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $__, Phyllis Burke Davis, $__, Robert M. Gates, $__, E. Bradley
Jones, $__, Donald J. Kirk, $__, William O. McCoy, $__, Gerald C.
McDonough, $__, Marvin L. Mann, $__, and Thomas R. Williams, $__.
G The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $__, Phyllis Burke Davis, $__, Robert M. Gates, $__, E. Bradley
Jones, $__, Donald J. Kirk, $__, William O. McCoy, $__, Gerald C.
McDonough, $__, Marvin L. Mann, $__, and Thomas R. Williams, $__.
H The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $__, Phyllis Burke Davis, $__, Robert M. Gates, $__, E. Bradley
Jones, $__, Donald J. Kirk, $__, William O. McCoy, $__, Gerald C.
McDonough, $__, Marvin L. Mann, $__, and Thomas R. Williams, $__.
I The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $__, Phyllis Burke Davis, $__, Robert M. Gates, $__, E. Bradley
Jones, $__, Donald J. Kirk, $__, William O. McCoy, $__, Gerald C.
McDonough, $__, Marvin L. Mann, $__, and Thomas R. Williams, $__.
J The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $__, Phyllis Burke Davis, $__, Robert M. Gates, $__, E. Bradley
Jones, $__, Donald J. Kirk, $__, William O. McCoy, $__, Gerald C.
McDonough, $__, Marvin L. Mann, $__, and Thomas R. Williams, $__.
K The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $__, Phyllis Burke Davis, $__, Robert M. Gates, $__, E. Bradley
Jones, $__, Donald J. Kirk, $__, William O. McCoy, $__, Gerald C.
McDonough, $__, Marvin L. Mann, $__, and Thomas R. Williams, $__.
L The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $__, Phyllis Burke Davis, $__, Robert M. Gates, $__, E. Bradley
Jones, $__, Donald J. Kirk, $__, William O. McCoy, $__, Gerald C.
McDonough, $__, Marvin L. Mann, $__, and Thomas R. Williams, $__.
M The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $__, Phyllis Burke Davis, $__, Robert M. Gates, $__, E. Bradley
Jones, $__, Donald J. Kirk, $__, William O. McCoy, $__, Gerald C.
McDonough, $__, Marvin L. Mann, $__, and Thomas R. Williams, $__.
N The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $__, Phyllis Burke Davis, $__, Robert M. Gates, $__, E. Bradley
Jones, $__, Donald J. Kirk, $__, William O. McCoy, $__, Gerald C.
McDonough, $__, Marvin L. Mann, $__, and Thomas R. Williams, $__.
O The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $__, Phyllis Burke Davis, $__, Robert M. Gates, $__, E. Bradley
Jones, $__, Donald J. Kirk, $__, William O. McCoy, $__, Gerald C.
McDonough, $__, Marvin L. Mann, $__, and Thomas R. Williams, $__.
[TREASURER'S OFFICE WILL ANCHOR THIS FOOTNOTE AS APPROPRIATE FOR
YOUR FUND(S): P For the fiscal year ended December 31, 1997, certain
of the non-interested Trustees' aggregate compensation from a fund
includes accrued voluntary deferred compensation as follows: [trustee
name, dollar amount of deferred compensation, fund name]; [trustee
name, dollar amount of deferred compensation, fund name]; and [trustee
name, dollar amount of deferred compensation, fund name].]
Under a deferred compensation plan adopted in September 1995 and
amended in November 1996 (the Plan), non-interested Trustees must
defer receipt of a portion of, and may elect to defer receipt of an
additional portion of, their annual fees. Amounts deferred under
the Plan are treated as though equivalent dollar amounts had been
invested in shares of a cross-section of Fidelity funds including
funds in each major investment discipline and representing a majority
of Fidelity's assets under management (the Reference Funds). The
amounts ultimately received by the Trustees under the Plan will be
directly linked to the investment performance of the Reference Funds.
Deferral of fees in accordance with the Plan will have a negligible
effect on a fund's assets, liabilities, and net income per share, and
will not obligate a fund to retain the services of any Trustee or to
pay any particular level of compensation to the Trustee. A fund may
invest in the Reference Funds under the Plan without shareholder
approval.
The amounts required to be deferred by the non-interested Trustees'
Plan accounts are subject to vesting and are treated as though
equivalent dollar amounts had been invested in shares of the Reference
Funds. The amounts ultimately received by the Trustees will be
directly linked to the investment performance of the Reference Funds.
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, 1997, the Trustees, Members of the Advisory
Board, and officers of each fund owned, in the aggregate, less than
[1]% of each class'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
share holders. As of December 31, 1997, significant shares of the
funds were held by the following companies with the figures beneath
each fund representing that company's holdings as a percentage of
that fund's /class's total outstanding shares.
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Money High Equity-I Growth Overseas Investment Asset Asset Index Contrafund Balanced Growth Opp Growth &
Market Income ncome Grade Manager Manager: 500 ortunities Income
Bond Growth
Empire Fidelity Investments
Life Insurance Company
(New York, NY)
Fidelity Investments Life
Insurance Company
(Boston, MA)
The Life Insurance
Company of VIrginia
(Richmon, VA)
Nationwide Life and
Annuity Company
(Columbus, OH)
The New England Life
Insurance Company
(Boston, MA)
The Travelers Insurance
Company
(Hartford, CT)
Aetna Insurance Company
of America
(Hartford, CT)
United of Omaha Life
Insurance Company
(Omaha, NE)
Allmerica Financial Life
Insurance & Annuity
Company
(Worcester, MA)
</TABLE>
MANAGEMENT CONTRACTS
FMR is each fund's manager pursuant to management contracts dated as
follows:
<ERROR: WIDE TABLE>
ERROR: The Following Table: "3x11" is Too Wide!
Table Width is 197 characters.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
High Equity-Inc Growth Overseas Asset Growth &
Income ome Manager Income
Contract Dated January January January January January January
1, 1994 1, 1993 1, 1993 1, 1993 1, 1993 1, 1997
Date Approved December December December December December December
by Shareholders 15, 1993 16, 1992 16, 1992 16, 1992 16, 1992 19, 1996
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Balanced Contrafun Asset Growth Money Investment Index 500
d Manager: Opportunities Market Grade Bond
Growth
Contract Dated November November November November January January December
18, 1994 1, 1994 1, 1994 18, 1994 1, 1994 1, 1993 1, 1997
Date Approved November November November November December December November
by Shareholders 21, 1994 9, 1994 9, 1994 21, 1994 15, 1993 16, 1992 1 9 , 199 7
</TABLE>
MANAGEMENT SERVICES (EXCEPT INDEX 500). 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 the fund in accordance with its investment objective,
policies, and limitations. FMR also provides each fund with all
necessary office facilities and personnel for servicing the 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 securities laws and
making necessary filings under state securities laws; developing
management and shareholder services for each fund; and furnishing
reports, evaluations, and analyses on a variety of subjects to the
Trustees.
MANAGEMENT AND SUB-ADVISORY SERVICES (INDEX 500). Index 500
employs FMR to furnish investment advisory and other services. FMR
provides the fund with all necessary office facilities and personnel
for servicing the fund's investments, compensates all officers of the
fund and all Trustees who are "interested persons" of the trust or of
FMR, and all personnel of the fund or FMR performing services relating
to research, statistical, and investment activities.
In addition, FMR or its affiliates, subject to the supervision of
the Board of Trustees, provide the management and administrative
services necessary for the operation of the fund. These services
include providing facilities for maintaining the fund's organization;
supervising relations with custodians, transfer and pricing agents,
accountants, underwriters, and other persons dealing with the fund;
preparing all general shareholder communications and conducting
shareholder relations; maintaining the fund's records and the
registration of the fund's shares under federal securities laws and
making necessary filings under state securities laws; developing
management and shareholder services for the fund; and furnishing
reports, evaluations, and analyses on a variety of subjects to the
Trustees.
BT is the sub-adviser of the fund and acts as the fund's custodian.
Under its management contract with the fund, FMR acts as investment
adviser. Under the sub-advisory agreement, and subject to the
supervision of the Board of Trustees, BT directs the investments of
the fund in accordance with its investment objective, policies, and
limitations, administers the securities lending program of the fund,
and provides custodial services to the fund.
MANAGEMENT-RELATED EXPENSES. In addition to the management
fee payable to FMR; for Index 500, the sub-advisory fee payable to BT;
and the fees payable to FSC and FIIOC, each fund or each class
thereof, as applicable, pays all of its expenses 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 (except Index 500), auditor, and non-interested
Trustees. Each fund's management contract further provides that the
fund will pay for typesetting, printing, and mailing prospectuses,
statements of additional information, notices, and reports to
shareholders; however, under the terms of each fund's transfer agent
agreement, FIIOC bears the costs of providing these services to
existing shareholders of the applicable classes. Other expenses paid
by each fund or each class thereof, as applicable, include interest,
taxes, brokerage commissions, the fund's proportionate share of
insurance premiums and Investment Company Institute dues, and the
costs of registering shares under federal securities laws and making
necessary filings under state securities laws. Each fund is also
liable for such non-recurring expenses as may arise, including costs
of any litigation to which the fund may be a party, and any obligation
it may have to indemnify its officers and Trustees with respect to
litigation.
MANAGEMENT FEES (EXCEPT INDEX 500). For the services of FMR under
the management contract, High Income, Investment Grade Bond,
Equity-Income, Balanced, Growth, Growth & Income, Growth
Opportunities, Overseas, Asset Manager, Contrafund, and Asset Manager:
Growth each pays FMR a monthly management fee which has two
components: 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.
For the services of FMR under the management contract, Money Market
pays FMR a monthly management fee which has three components: a group
fee rate, an individual fund fee rate (0.03%), 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 0.24% of the fund's
average net assets.
MANAGEMENT AND SUB-ADVISORY FEES (INDEX 500). For the services of
FMR under the management contract, Index 500 pays FMR and BT monthly
management and sub-advisory fees at the annual rate of 0.24% of its
average net assets throughout the month. These fees include management
fees of 0.24% payable to FMR, and estimated sub-advisory fees of less
than 0.01% payable to BT (representing 40% of net income from
securities lending). FMR has voluntarily agreed, subject to revision
or termination, to reimburse the fund if and to the extent that its
aggregate operating expenses, including management fees (but excluding
sub-advisory fees associated with securities lending, interest, taxes,
brokerage commissions, and extraordinary expenses), are in excess of
an annual rate of 0.28% of the average net assets of the fund.
Prior to December 1, 1997, FMR was the fund's manager pursuant to a
management contract dated January 1, 1993, which was approved by
shareholders on December 16, 1992. For the services of FMR under the
prior management contract, Index 500 paid FMR a monthly management fee
at the annual rate of 0.28% of its average net assets throughout the
month. The management fee paid to FMR was reduced by an amount equal
to the fees and expenses of the non-interested Trustees. Prior to
December 1, 1997, FMR had voluntarily agreed, subject to revision or
termination, to reimburse the fund if and to the extent that its
aggregate operating expenses, including management fees (but excluding
interest, taxes, brokerage commissions, and extraordinary expenses),
exceeded an annual rate of 0.28% of the average net assets of the
fund.
For the fiscal years ended December 31, 1997, 1996, and 1995,
management fees incurred under the fund's contract prior to
reimbursement amounted to $_______, $_______, and $_______,
respectively [(after reduction of fees and expenses paid by the fund
to the non-interested Trustees)], and management fees reimbursed by
FMR amounted to $_______, $_______, and $_______, respectively. For
the fiscal year ended December 31, 1997, the fund paid BT sub-advisory
fees of $_______.
The following is the fee schedule for MONEY MARKET PORTFOLIO.
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 prior extensions to
the group fee rate schedule, and added new breakpoints for ave rage
group assets in excess of $156 billion and under $372 billion as shown
in the schedule below. The revised group fee rate schedule is
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 billion .1450% $150 billion .1736%
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 516 .1100 425 .1443
450 .1427
475 .1413
500 .1399
525 .1385
550 .1372
The group fee rate is calculated on a cumulative basis pursuant to
the graduated fee rate schedule shown above on the left. The schedule
above 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 $___ billion of group net assets - the approximate level for
December 1997 - was 0.____%, which is the weighted average of the
respective fee rates for each level of group net assets up to $___
billion.
The fund's individual fund fee rate is 0.03%.
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 0.24% (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, 1997, 1996, and 1995,
MONEY MARKET PORTFOLIO paid FMR management fees of $_______,
$1,947,039, and $1,881,213, respectively. [MODIFY DISCLOSURE FOR ANY
YEAR[S] WHEN FUND WAS IN REIMBURSEMENT: For the fiscal years ended
December 31, 1997, 1996, and 1995, management fees incurred under the
fund's contract prior to reimbursement amounted to $_______, $_______,
and $_______, respectively, and management fees reimbursed by FMR
amounted to $_______, $_______, and $_______, respectively.]
The following is the fee schedule fo r INVESTMENT GRADE BOND and
HIGH INCOME PORTFOLIOS.
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 Portfolio's current management contract
with FMR, the group fee rate is (and, for High Income Portfolio, prior
to January 1, 1994, the group fee rate was) based on a schedule with
breakpoints ending at .1400% for average group assets in excess of
$174 billion. 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. High
Income Portfolio's current management contract reflects these
extensions of the group fee rate schedule.
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 $156 billion and under $372 billion as shown in
the schedule below. The revised group fee rate schedule is 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 billion .1450% $150 billion .1736%
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 516 .1100 425 .1443
450 .1427
475 .1413
500 .1399
525 .1385
550 .1372
The group fee rate is calculated on a cumulative basis pursuant to
the graduated fee rate schedule shown above on the left. The schedule
above 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 $___ billion of group net assets - the approximate level for
December 1997 - was 0.____%, which is the weighted average of the
respective fee rates for each level of group net assets up to $___
billion.
The individual fund fee rates for the funds are as follows: 0.30% for
Investment Grade Bond Portfolio; and 0.45% for High Income
Portfolio. Based on the average group net assets of the funds
advised by FMR for December 1997, 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
0._% + 0.30% = 0._%
HIGH INCOME PORTFOLIO
Group Fee Rate Individual Fund Fee Rate Management Fee Rate
0._% + 0.45% = 0._%
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.
For the fiscal years ended December 31, 1997, 1996, and 1995,
INVESTMENT GRADE BOND PORTFOLIO paid FMR management fees of
$_______, $903,411, and $660,058, respectively.
For the fiscal years ended December 31, 1997, 1996, and 1995,
HIGH INCOME PORTFOLIO paid FMR management fees of $_______,
$7,422,311, and $4,956,133, respectively.
[MODIFY ABOVE DISCLOSURE, AS APPROPRIATE, FOR ANY FUND THAT WAS IN
REIMBURSEMENT: For the fiscal years ended December 31, 1997, 1996, and
1995, management fees incurred under the fund's contract prior to
reimbursement amounted to $_______, $_______, and $_______,
respectively, and management fees reimbursed by FMR amounted to
$_______, $_______, and $_______, respectively.]
The following is the fee schedule for EQUITY-INCOME, BALANCED,
GROWTH, GROWTH & INCOME, GROWTH OPPORTUNITIES, OVERSEAS, ASSET
MANAGER, CONTRAFUND, and ASSET MANAGER: GROWTH PORTFOLIO S.
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 is 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 (Balanced, Growth
Opportunities, Contrafund, and Asset Manager: Growth Portfolios'
current management contracts reflect the group fee rate schedule above
for average group assets under $210 billion and the group fee rate
schedule below for average group assets in excess of $210
billion):
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate
138 - $174 billion .3050% $150 billion .3371%
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 390 .2700 325 .3137
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 (Growth & Income Portfolio's current management contract
reflects the group fee rate schedule above for average group assets
under $210 billion and the group fee rate schedule below for average
group assets in excess of $210 billion):
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate
138 - $174 billion .3050% $150 billion .3371%
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
390 - 426 .2700 325 .3137
426 - 462 .2650 350 .3113
462 - 498 .2600 375 .3090
498 - 534 .2550 400 .3067
Over 534 .2500 425 .3046
450 .3024
475 .3003
500 .2982
525 .2962
550 .2942
The group fee rate is calculated on a cumulative basis pursuant to
the graduated fee rate schedule shown above on the left. The schedule
above 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 $___ billion of group net assets - the approximate level for
December 1997 - was 0.____%, which is the weighted average of the
respective fee rates for each level of group net assets up to $___
billion.
The individual fund fee rates for the funds are as follows: 0.15% for
Balanced Portfolio; 0.20% for Equity-Income and Growth & Income
Portfolios; 0.25% for Asset Manager Portfolio; 0.30% for Growth
Opportunities, Growth, Asset Manager: Growth and Contrafund
Portfolios; and 0.45% for Overseas Portfolio. Based on the average
group net assets of the funds advised by FMR for December 1997, 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
0._% + 0.15% = 0._%
EQUITY-INCOME AND GROWTH & INCOME PORTFOLIOS
Group Fee Rate Individual Fund Fee Rate Management Fee Rate
0._% + 0.20% = 0._%
ASSET MANAGER PORTFOLIO
Group Fee Rate Individual Fund Fee Rate Management Fee Rate
0._% + 0.25% = 0._%
GROWTH OPPORTUNITIES, GROWTH, CONTRAFUND AND ASSET MANAGER GROWTH
PORTFOLIOS
Group Fee Rate Individual Fund Fee Rate Management Fee Rate
0._% + 0.30% = 0._%
OVERSEAS PORTFOLIO
Group Fee Rate Individual Fund Fee Rate Management Fee Rate
0._% + 0.45% = 0._%
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.
For the fiscal years ended December 31, 1997, 1996, and 1995,
BALANCED PORTFOLIO paid FMR management fees of $_______,
$356,604, and $75,801, respectively. Effective August 1, 1996, FMR
voluntarily reduced the individual fund fee rate for Balanced
Portfolio from 0.20% to 0.15%. If this reduction had not been in
effect, the total management fee rates would have been __%, __%, and
__%, respectively.
F or the fiscal years ended December 31, 1997, 1996, and 1995,
EQUITY-INCOME PORTFOLIO paid FMR management fees of
$________, $30,150,885, and $17,818,979, respectively.
For the fiscal year ended December 31, 1997, GROWTH & INCOME
PORTFOLIO paid FMR management fees of $_______.
For the fiscal years ended December 31, 1997, 1996, and 1995,
ASSET MANAGER PORTFOLIO paid FMR management fees of
$_______, $22,022,749, and $23,174,840, respectively. Effective
August 1, 1996, FMR voluntarily reduced the individual fund fee rate
for Asset Manager Portfolio from 0.40% to 0.25%. If this reduction
had not been in effect, the total management fee rates would have been
__%, __%, and __%, respectively.
For the fiscal years ended December 31, 1997, 1996, and 1995,
GROWTH OPPORTUNITIES PORTFOLIO paid FMR management fees of
$_______, $1,679,264, and $311,959, respectively.
For the fiscal years ended December 31, 1997, 1996, and 1995,
GROWTH PORTFOLIO paid FMR management fees of $_______,
$31,760,621, and $19,591,048, respectively.
For the fiscal years ended December 31, 1997, 1996, and 1995,
ASSET MANAGER: GROWTH PORTFOLIO paid FMR management fees of
$_______, $906,614, and $261,324, respectively. Effective August 1,
1996, FMR voluntarily reduced the individual fund fee rate for
Asset Manager: Growth Portfolio from 0.40% to 0.30%. If this reduction
had not been in effect, the total management fee rates would have
been __%, __%, and __%, respectively.
For the fiscal years ended December 31, 1997, 1996, and 1995,
CONTRAFUND PORTFOLIO paid FMR management fees of $_______,
$9,539,179, and $2,316,458, respectively.
For the fiscal years ended December 31, 1997, 1996, and 1995,
OVERSEAS PORTFOLIO paid FMR management fees of $_______,
$11,667,177, and $9,837,952, respectively.
[MODIFY ABOVE DISCLOSURE, AS APPROPRIATE, FOR ANY FUND (E.G., ASSET
MANAGER: GROWTH) THAT WAS IN REIMBURSEMENT: For the fiscal years ended
December 31, 1997, 1996, and 1995, management fees incurred under the
fund's contract prior to reimbursement amounted to $_______, $_______,
and $_______, respectively, and management fees reimbursed by FMR
amounted to $_______, $_______, and $_______, respectively.]
FMR may, from time to time, voluntarily reimburse all or a portion of
a class'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 class's total returns
and yield, and repayment of the reimbursement by a class will
lower its total returns and yield.
[Effective November 3, 1997, FMR has voluntarily agreed, subject to
revision or termination, to reimburse Service Class of the funds to
the extent that total operating expenses (as a percentage of their
respective average net assets) exceed the following rates: High Income
Portfolio - Service Class (1.10%); Asset Manager Portfolio - Service
Class (1.35%); Asset Manager: Growth Portfolio - Service Class
(1.10%); Balanced Portfolio - Service Class (1.60%); Equity-Income
Portfolio - Service Class (1.60%); Growth & Income Portfolio - Service
Class (1.10%); Growth Opportunities Portfolio - Service Class (1.60%);
Contrafund Portfolio - Service Class (1.10%); Growth Portfolio -
Service Class (1.60%); and Overseas Portfolio - Service Class (1.60%).
FMR reimbursed Asset Manager: Growth Portfolio $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
FIIA(U.K.)L. 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, Balanced, Growth &
Income, Growth Opportunities, 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 FIIA(U.K.)L each
focuses 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 own,
directly or indirectly, more than 25% of the voting common stock of
FIL. FIIA was organized in Bermuda in 1983. FIIA(U.K.)L was organized
in the United Kingdom in 1984, and is a direct subsidiary of Fidelity
Investments Management Limited and an indirect 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
FIIA(U.K.)L. 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 FIIA(U.K.)L a fee equal to 110% of
FIIA(U.K.)L's costs incurred in connection with providing investment
advice and research services.
On behalf of High Income, Balanced, Growth & Income, Growth
Opportunities, Contrafund, Asset Manager: Growth and Overseas
Portfolios, 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 FIIA(U.K.)L a fee equal to 110% of
FIIA(U.K.)L's costs incurred in connection with providing
discretionary investment management services.
For investment advice and research services, the fees paid to the
sub-advisers by FMR for the past three fiscal years ended December 31,
1997, 1996, and 1995 are shown in the tables below.
HIGH INCOME PORTFOLIO
Fiscal Year FMR U.K. FMR Far East
1997 $ $
BALANCED PORTFOLIO
Fiscal Year FMR U.K. FMR Far East
1997 $ $
1996 $ 4,632 $ 4,355
1995 $ 1,361 $ 1,598
GROWTH & INCOME PORTFOLIO
Fiscal Year FMR U.K. FMR Far East
1997 $ $
GROWTH OPPORTUNITIES PORTFOLIO
Fiscal Year FMR U.K. FMR Far East
1997 $ $
1996 $ 15,833 $ 15,008
1995 $ 2,167 $ 2,421
ASSET MANAGER PORTFOLIO
Fiscal Year FMR U.K. FMR Far East
1997 $ $
1996 $ 308,946 $ 305,205
1995. $ 425,265 $ 471,463
CONTRAFUND PORTFOLIO
Fiscal Year FMR U.K. FMR Far East
1997 $ $
1996 $ 79,710 $ 78,354
1995 $ 13,324 $ 15,011
ASSET MANAGER: GROWTH PORTFOLIO
Fiscal Year FMR U.K. FMR Far East
1997 $ $
1996 $ 9,362 $ 9,146
1995 $ 4,252 $ 5,046
OVERSEAS PORTFOLIO
Fiscal Year FMR U.K. FMR Far East FIIA FIIA(U.K.)L
1997 $ $ $ $
1996 $ 934,318 $ 897,170 -- --
1995 $ 744,061 $ 768,046 -- --
[AS APPROPRIATE: For investment advice and research services, no
fees were paid to [the sub-advisers] by FMR on behalf of ________
Portfolio[s] for the past three fiscal years.]
For discretionary investment management and execution of portfolio
transactions, the fees paid to the sub-advisers [on behalf of _______
Portfolio[s]] for the past three fiscal years ended December 31, 1997,
1996, and 1995 are shown in the table below.
OVERSEAS PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Fiscal Year FMR U.K. FMR Far East FIIA FIIAL U.K.
1997 $ $ $ $
1996 $ 376,357 -- -- --
1995 -- -- -- --
</TABLE>
[AS APPROPRIATE, ADD TABLES FOR OTHER FUNDS.]
[AS APPROPRIATE: For discretionary investment management and
execution of portfolio transactions, no fees were paid to [the
sub-advisers] by FMR on behalf of _______ Portfolio[s] for the past
three fiscal years.]
[AS APPROPRIATE: No fees were paid to [the sub-advisers] by FMR on
behalf of _______ Portfolio[s] for the past three fiscal years.]
On behalf of MONEY MARKET PORTFOLIO , FMR has entered into a
sub-advisory agreement with FIMM pursuant to which FIMM has
pr imary responsibility for providing portfolio investment
management services to the fund.
Under the terms of the sub-advisory agreement, FMR pays FIMM fees
equal to 50% of the management fee payable to FMR under its management
contract with the fund. The fees paid to FIMM are not reduced by any
voluntary or mandatory expense reimbursements that may be in effect
from time to time. On behalf of Money Market Portfolio, for the fiscal
years ended December 31, 1997, 1996, and 1995, FMR paid FMR Texas
Inc., the predecessor company to FIMM, $_______, $974,519, and
$940,607, respectively.
INDEX 500 PORTFOLIO and FMR have entered into a sub-advisory
agreement with BT. Pursuant to the sub-advisory agreement, FMR has
granted BT investment management authority as well as the authority to
buy and sell securities.
Under the sub-advisory agreement, for providing investment
management, securities lending, and custodial services to the fund,
FMR pays BT fees at an annual rate of 0.006% of the average net assets
of the fund. In addition, as described above, under the sub-advisory
agreement, for such services the fund pays BT fees equal to 40% of net
income from the fund's securities lending program. The remaining 60%
of net income from the fund's securities lending program goes to the
fund.
DISTRIBUTION AND SERVICE PLANS
The Trustees have approved Distribution and Service Plans on behalf
of Service Class of each fund (except Money Market, Investment Grade
Bond, and Index 500) and Initial Class of each fund (the Plans)
pursuant to Rule 12b-1 under the 1940 Act (the Rule). The Rule
provides in substance that a mutual fund may not engage directly or
indirectly in financing any activity that is primarily intended to
result in the sale of shares of the fund except pursuant to a plan
approved on behalf of the fund under the Rule. The Plans, as approved
by the Trustees, allow Service Class and Initial Class of the funds
and FMR to incur certain expenses that might be considered to
constitute direct or indirect payment by the funds of distribution
expenses.
Pursuant to the Service Class Plans for each fund (except Money
Market, Investment Grade Bond, and Index 500), FDC is paid a 12b-1 fee
at an annual rate of up to 0.25% of Service Class's average net assets
for the fund. For the purpose of calculating the 12b-1 fee, average
net assets are determined at the close of business on each day
throughout the month. Currently, the Trustees have approved a 12b-1
fee for Service Class of each such fund at an annual rate of 0.10% of
its average net assets. This fee rate may be increased only when, in
the opinion of the Trustees, it is in the best interests of Variable
Product owners to do so. (For purposes of this discussion, "Variable
Product" refers to a variable annuity contract or variable life
insurance policy for which shares of the funds are available as
underlying investment options.)
For the fiscal year ended December 31, 1997, Service Class of each
fund (except Money Market, Investment Grade Bond, and Index 500) paid
FDC 12b-1 fees of $_____ [, all of which was] [paid to investment
professionals/retained by FDC] [, of which $_____ was retained by
FDC]. OR:
For the fiscal year ended December 31, 1997, Service Class of each
fund (except Money Market, Investment Grade Bond, and Index 500) paid
FDC the following 12b-1 fees:
<TABLE>
<CAPTION>
<S> <C> <C>
Fund Paid to Investment Professionals Retained by FDC
High Income $ $
Equity-Income $ $
Growth $ $
Overseas $ $
Asset Manager $ $
Asset Manager: Growth $ $
Contrafund $ $
Balanced $ $
Growth Opportunities $ $
Growth & Income $ $
</TABLE>
Under each Plan, if the payment of management fees by the fund to
FMR is deemed to be indirect financing by the fund of the distribution
of its shares, such payment is authorized by the Plan. Each Service
Class Plan specifically recognizes that FMR may use its management fee
revenue, as well as its past profits or its other resources, to pay
FDC for expenses incurred in connection with the distribution of
Service Class shares, including payments made to third parties that
engage in the sale of Service Class shares or to third parties,
including banks, that render shareholder support services. Each
Initial Class Plan specifically recognizes that FMR may use its
management fee revenue, as well as its past profits or its other
resources, to pay FDC for expenses incurred in connection with the
distribution of Initial Class shares. In addition, each Initial Class
Plan provides that FMR, directly or through FDC, may make payments to
third parties, such as banks or broker-dealers, that engage in the
sale of Initial Class shares, or provide shareholder support services.
Currently, the Board of Trustees has authorized such payments for
Service Class and Initial Class shares.
[IF FMR MADE ANY DEFENSIVE THIRD PARTY PAYMENTS IN FISCAL YEAR:
Payments made by FMR either directly or through FDC to third parties
for the fiscal year ended December 31, 1997 amounted to the
following:]
Fund Initial Class Service Class
Money Market $ $
High Income $ $
Equity-Income $ $
Growth $ $
Overseas $ $
Investment Grade Bond $ $
Asset Manager $ $
Asset Manager: Growth $ $
Index 500 $ $
Contrafund $ $
Balanced $ $
Growth Opportunities $ $
Growth & Income $ $
[IF FMR DID NOT MAKE ANY DEFENSIVE THIRD PARTY PAYMENTS IN FISCAL
YEAR: FMR made no payments either directly or through FDC to third
parties for the fiscal year ended December 31, 1997.]
Prior to approving each Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of the Plan and
determined that there is a reasonable likelihood that the Plan will
benefit the applicable class of the fund and Variable Product owners.
In particular, the Trustees noted that each Initial Class Plan does
not authorize payments by Initial Class of 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 the applicable class, additional
sales of fund shares may result. Furthermore, certain shareholder
support services may be provided more efficiently under the Plans by
insurance companies and their affiliates with whom Variable Product
owners have other relationships.
Each Service Class Plan does not provide for specific payments by
Service Class of any of the expenses of FDC, or obligate FDC or FMR to
perform any specific type or level of distribution activities or incur
any specific level of expense in connection with distribution
activities. After payments by FDC for advertising, marketing and
distribution, and payments to third parties, the amounts remaining, if
any, may be used as FDC may elect.
The Glass-Steagall Act generally prohibits federally and state
chartered or supervised banks from engaging in the business of
underwriting, selling, or distributing securities. Although the scope
of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, FDC believes
that the Glass-Steagall Act should not preclude a bank from performing
shareholder support services, or servicing and recordkeeping
functions. FDC intends to engage banks only to perform such functions.
However, changes in federal or state statutes and regulations
pertaining to the permissible activities of banks and their affiliates
or subsidiaries, as well as further judicial or administrative
decisions or interpretations, could prevent a bank from continuing to
perform all or a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what actions,
if any, would be necessary to continue to provide efficient and
effective shareholder services. In such event, changes in the
operation of the funds might occur, including possible termination of
any automatic investment or redemption or other services then provided
by the bank. It is not expected that shareholders would suffer any
adverse financial consequences as a result of any of these
occurrences. In addition, state securities laws on this issue may
differ from the interpretations of federal law expressed herein, and
banks and other financial institutions may be required to register as
dealers pursuant to state law.
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 class of each fund has entered into a transfer agent agreement
with FIIOC, an affiliate of FMR. Under the terms of the agreements,
FIIOC maintains the master accounts of the participating insurance
companies. For providing transfer agency services, FIIOC receives an
asset-based fee of 0.067% for each account. For each fund (except
Money Market, Investment Grade Bond, and High Income), the asset-based
fees are subject to adjustment if the year-to-date total return of the
S&P 500 exceeds a positive or negative 15%. FIIOC pays out-of-pocket
expenses associated with providing transfer agent services. In
addition, FIIOC bears the expense of typesetting, printing and mailing
prospectuses, statements of additional information, and all other
reports, notices, and statements to shareholders allocable to the
master account of participating insurance companies.
Each fund has entered into a service agent agreement with FSC, an
affiliate of FMR. Under the terms of the agreements, FSC calculates
the NAV and dividends for each class of each fund, maintains the
portfolio and general accounting records of each fund, and administers
the securities lending program for each fund (except Money Market and
Index 500). Effective December 1, 1997, FSC no longer administers
Index 500's securities lending program.
For providing pricing and bookkeeping services, FSC receives a
monthly fee based on each fund's average daily net assets throughout
the month. The annual fee rates for pricing and bookkeeping services
are 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, 0.04%
for the first $500 million of average net assets and 0.02% for average
net assets in excess of $500 million; and for Balanced, Growth &
Income, Growth Opportunities, Equity-Income, Growth, Asset Manager,
Contrafund, and Asset Manager: Growth 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, not including reimbursement for
out-of-pocket expenses, for Money Market is limited to a minimum of
$40,000 and a maximum of $800,000 per year . The fee, not including
reimbursement for out-of-pocket expenses, for each fund (except Money
Market) is limited to a minimum of $60,000 and a maximum of $800,000
per year.
Pricing and bookkeeping fees, including reimbursement for
out-of-pocket expenses, paid by the funds to FSC for the past three
fiscal years are shown in the table below.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FUND 1997 1996 1995
Money Market $ $ 120,582 $ 107,886
High Income $ $ 662,535 $ 266,623
Equity-Income $ $ 809,457 $ 760,752
Growth $ $ 808,115 $ 760,478
Overseas $ $ 760,136 $ 551,039
Investment Grade Bond $ $ 82,156 $ 58,943
Asset Manager $ $ 808,547 $ 758,063
Asset Manager: Growth $ $ 87,337 $ 44,863
Index 500 $ $ 271,956 $ 76,868
Contrafund $ $ 622,337 $ 210,939
Balanced $ $ 59,115 $ 46,084
Growth Opportunities $ $ 167,116 $ 52,050
Growth & Income $ N/A N/A
</TABLE>
For administering the securities lending program of each fund
(except Money Market and Index 500), FSC receives fees based on the
number and duration of individual securities loans. EDIT AS
APPROPRIATE: [For the fiscal years ended December 31, 1997, 1996, and
1995, the funds paid no securities lending fees.]/[For the fiscal
years ended December 31, 1997, 1996, and 1995, _______ Portfolio paid
securities lending fees of $_____, $_____, and $_____,
respectively.]/[Securities lending fees paid by the funds to FSC for
the past three fiscal years ended December 31, 1997, 1996, and 1995
are shown in the table below. [INSERT TABLE]]
Each fund has entered into a distribution agreement with FDC, an
affiliate of FMR organized as a Massachusetts corporation 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 NAV. Promotional and administrative expenses in connection
with the offer and sale of shares are paid by FMR.
CONTRACTS WITH BT AFFILIATES
BT is custodian of the assets of Index 500 Portfolio. Effective
December 1, 1997, BT replaced Brown Brothers Harriman & Co. as
custodian of the assets of the fund. The custodian is responsible for
the safekeeping of the fund's assets and the appointment of any
subcustodian banks and clearing agencies. The fund may invest in
obligations of its custodian. Bankers Trust New York Corporation is
included in the S&P 500. The Bank of New York and The Chase Manhattan
Bank, each headquartered in New York, also may serve as special
purpose custodians of certain assets in connection with repurchase
agreement transactions.
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. 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.
BT's fees for custodial services to Index 500 Portfolio are
included in the fees payable under the sub-advisory agreement.
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.
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.
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. Advisor Annuity Income & Growth Fund's name
was changed to Balanced Portfolio on December 30, 1996. Advisor
Annuity Growth Opportunities Fund's name was changed to Growth
Opportunities Portfolio on December 30, 1996.
The Declarations of Trust permit the Trustees to create additional
funds.
Investments in each trust may be made only by the separate accounts of
insurance companies for the purpose of funding variable annuity and
variable life insurance contracts issued by insurance companies.
In the event that FMR ceases to be the investment adviser to a trust
or a fund, the right of the trust or fund to use the identifying name
"Fidelity" may be withdrawn. There is a remote possibility that one
fund might become liable for any misstatement in its prospectus or
statement of additional information about another fund.
The assets of each trust received for the issue or sale of shares of
each of its funds and all income, earnings, profits, and proceeds
thereof, subject only to the rights of creditors, are especially
allocated to such fund, and constitute the underlying assets of such
fund. The underlying assets of each fund are segregated on the books
of account, and are to be charged with the liabilities with respect to
such fund and with a share of the general liabilities of their
respective trusts. Expenses with respect to each trust are to be
allocated in proportion to the asset value of their respective funds,
except where allocations of direct expense can otherwise be fairly
made. The officers of each trust, subject to the general supervision
of the Boards of Trustees, have the power to determine which expenses
are allocable to a given fund, or which are general or allocable to
all of the funds of a certain trust. In the event of the dissolution
or liquidation of a trust, shareholders of each fund of that trust are
entitled to receive as a class the underlying assets of such fund
available for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY. Each trust is an entity of the type
commonly known as a "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 protects Trustees
against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their
office. Claims asserted against one class of shares of a fund may
subject holders of another class of shares of that fund to certain
liabilities.
VOTING RIGHTS. Each fund's capital consists of shares of
beneficial interest. Shareholders of Balanced Portfolio, Growth &
Income Portfolio, and Growth Opportunities Portfolio receive one vote
for each dollar value of net asset value they own. The shares have
no preemptive or conversion rights; the voting and dividend rights
and the right of redemption 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
compa ny, or upon liquidation and distribution of its assets, if
approved by vote of the holders of a majority of the outstanding
shares of the funds of Variable Insurance Products Fund and Variable
Insurance Products Fund II, or if approved by vote of the holders of a
majority of Variable Insurance Products Fund III or its funds, as
determined by the current value of each such shareholder's investment
in such trust or fund. If not so terminated, each trust or fund will
continue indefinitely.
CUSTODIANS. The Bank of New York, 110 Washington Street, New
York, New York, is custodian of the assets of Money Market, High
Income and Investment Grade Bond Portfolios; The Chase Manhattan Bank,
1 Chase Manhattan Plaza, New York, New York, is custodian of the
assets of Equity-Income, Balanced, Growth & Income, Overseas, Asset
Manager: Growth, and Asset Manager Portfolios; and Brown Brothers
Harriman & Co., 40 Water Street, Boston, Massachusetts, is custodian
of the assets of Growth, Growth Opportunities, and Contrafund
Portfolios. Each custodian is responsible for the safekeeping of a
fund's assets and the appointment of any subcustodian banks and
clearing agencies. 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. However, the funds may invest in
obligations of the custodians and may purchase securities from or sell
securities to the custodians. The Bank of New York and The Chase
Manhattan Bank, each headquartered in New York, also may serve as
special purpose custodians of certain assets in connection with
repurchase agreement transactions. [Investors should understand
that the expense ratio for 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.
AUDITORS. ________________________________________ serves as
independent accountant of Variable Insurance Products Fund, and
___________________________________________ 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
The funds' financial statements for the fiscal year ended December
31, 1997, and reports of the auditors, are included in the funds'
Annual Reports, which are separate reports supplied with this SAI. The
funds' financial statements, including the financial highlights, and
reports of the auditors are incorporated herein by reference. For a
free additional copy of the funds' Annual Reports, contact FDC at
1-800-544-2442 or your insurance company.
APPENDIX
ABOUT THE S&P 500. The S&P 500 is a well-known stock market
index that includes common stocks of companies representing a
significant portion of the market value of all common stocks publicly
traded in the United States. Stocks in the S&P 500 are weighted
according to their market capitalization (i.e., the number of shares
outstanding multiplied by the stock's current price) with the __
largest stocks currently comprising approximately __% of the index's
value. The composition of the S&P 500 is determined by Standard &
Poor's and is based on such factors as the market capitalization and
trading activity of each stock and its adequacy as a representation of
stocks in a particular industry group. Standard & Poor's may change
the index's composition from time to time.
The performance of the S&P 500 is a hypothetical number that does
not take into account brokerage commissions and other costs of
investing, which the fund bears.
Although Standard & Poor's obtains information for inclusion in or
for use in the calculation of the S&P 500 from sources which it
considers reliable, Standard & Poor's does not guarantee the accuracy
or the completeness of the S&P 500 or any data included therein.
Standard & Poor's makes no warranty, express or implied, as to results
to be obtained by the licensee, owners of the fund, or any other
person or entity from the use of the S&P 500 or any data included
therein in connection with the rights licensed hereunder or for any
other use. Standard & Poor's makes no express or implied warranties,
and hereby expressly disclaims all warranties of merchantability or
fitness for a particular purpose with respect to the S&P 500 and any
data included therein.
The following is a list of the 500 stocks comprising the S&P 500 as
of December 31, 1997.
[UPDATED LIST TO BE FILED BY SUBSEQUENT AMENDMENT.]
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) (1) Financial Statements and Financial Highlights for Money
Market, High Income Portfolio, Equity-Income Portfolio, Growth
Portfolio, and Overseas Portfolio will be filed by subsequent
amendment.
(b) Exhibits:
(1) (a) Amended and Restated Declaration of Trust, dated July 31,
1985, is incorporated herein by reference to Exhibit 1 (a) to
Post-Effective Amendment No. 32.
(b) Supplement to the Declaration of Trust, dated January 2, 1987, is
incorporated herein by reference to Exhibit 1 (b) to Post-Effective
Amendment No. 32.
(c) Supplement to the Declaration of Trust, dated January 1, 1990, is
incorporated herein by reference to Exhibit 1 (c) to Post-Effective
Amendment No. 32.
(2) By-Laws of Variable Insurance Products Fund, as amended, are
incorporated herein by reference to Exhibit 2(a) to Fidelity Union
Street Trust's (File No. 2-50318) Post-Effective Amendment No. 87.
(3) Not applicable.
(4) Not applicable.
(5) (a) Management Contract between Equity-Income Portfolio and
Fidelity Management & Research Company, dated January 1, 1993, is
incorporated herein by reference to Exhibit 5 (a) to Post-Effective
Amendment No. 32.
(b) Management Contract between Growth Portfolio and Fidelity
Management & Research Company, dated January 1, 1993, is incorporated
herein by reference to Exhibit 5 (b) to Post-Effective Amendment No.
32.
(c) Management Contract between Overseas Portfolio and Fidelity
Management & Research Company, dated January 1, 1993, is incorporated
herein by reference to Exhibit 5 (c) to Post-Effective Amendment No.
32.
(d) Sub-Advisory Agreement between Fidelity Management & Research
Company and Fidelity Investments Money Management, Inc. (formerly FMR
Texas Inc.) on behalf of Money Market Portfolio, dated January 1,
1990, is incorporated herein by reference to Exhibit 5 (d) to
Post-Effective Amendment No. 32.
(e) Sub-Advisory Agreement among Fidelity Management & Research
Company, Fidelity Management & Research (U.K.) Inc. and Variable
Insurance Products Fund on behalf of Overseas Portfolio, dated April
1, 1992, is incorporated herein by reference to Exhibit 5(e) to
Post-Effective Amendment No. 32.
(f) Sub-Advisory Agreement among Fidelity Management & Research
Company, Fidelity Management & Research (Far East) Inc. and Variable
Insurance Products Fund on behalf of Overseas Portfolio, dated April
1, 1992, is incorporated herein by reference to Exhibit 5(f) to
Post-Effective Amendment No. 32.
(g) Sub-Advisory Agreement among Fidelity Management & Research
Company, Fidelity International Investment Advisors and Variable
Insurance Products Fund on behalf of Overseas Portfolio, dated April
1, 1992, is incorporated herein by reference to Exhibit 5(g) to
Post-Effective Amendment No. 32.
(h) Sub-Advisory Agreement between Fidelity International
Investment Advisors and Fidelity International Investment Advisors
(U.K.) Limited on behalf of Overseas Portfolio, dated April 1, 1992,
is incorporated herein by reference to Exhibit 5(h) to Post-Effective
Amendment No. 32.
(i) Management Contract between Money Market Portfolio and Fidelity
Management & Research Company, dated January 1, 1994, is incorporated
herein by reference to Exhibit 5(q) to Post-Effective Amendment No.
28.
(j) Management Contract between High Income Portfolio and Fidelity
Management & Research Company, dated January 1, 1994, is incorporated
herein by reference to Exhibit 5(r) to Post-Effective Amendment No.
28.
(k) Sub-Advisory Agreement among Fidelity Management & Research
Company, Fidelity Management & Research (U.K.) Inc. and Variable
Insurance Products Fund on behalf of High Income Portfolio, dated
January 1, 1994, is incorporated herein by reference to Exhibit 5(s)
to Post-Effective No. 28.
(t) Sub-Advisory Agreement among Fidelity Management & Research
Company, Fidelity Management & Research (Far East) Inc. and Variable
Insurance Products Fund on behalf of High Income Portfolio, dated
January 1, 1994, is incorporated herein by reference to Exhibit 5(t)
to Post-Effective No. 28.
(6) (a) Amended General Distribution Agreement between Money Market
Portfolio and Fidelity Distributors Corporation, dated April 1, 1987,
is incorporated herein by reference to Exhibit 6 (a) to Post-Effective
Amendment No. 32.
(b) Amended General Distribution Agreement between High Income
Portfolio and Fidelity Distributors Corporation, dated April 1, 1987,
is incorporated herein by reference to Exhibit 6(b) to Post-Effective
Amendment No. 32.
(c) Amended General Distribution Agreement between Equity-Income
Portfolio and Fidelity Distributors Corporation, dated April 1, 1987,
is incorporated herein by reference to Exhibit 6(c) to Post-Effective
Amendment No. 32.
(d) Amended General Distribution Agreement between Growth Portfolio
and Fidelity Distributors Corporation, dated April 1, 1987, is
incorporated herein by reference to Exhibit 6 (d) to Post-Effective
Amendment No. 32.
(e) Amended General Distribution Agreement between Overseas Portfolio
and Fidelity Distributors Corporation, dated April 1, 1987, is
incorporated herein by reference to Exhibit 6 (e) to Post-Effective
Amendment No. 32.
(f) Amendment, dated January 1, 1988, to General Distribution
Agreement between Money Market, High Income, Equity-Income, Growth,
and Overseas Portfolios and Fidelity Distributors Corporation, is
incorporated herein by reference to Exhibit 6(f) to Post-Effective
Amendment No. 32.
(g) Amendments, dated March 14, 1996 and July 15, 1996, to General
Distribution Agreement between Money Market, High Income,
Equity-Income, Growth, and Overseas Portfolios and Fidelity
Distributors Corporation, are incorporated herein by reference to
Exhibit 6(b) of Fidelity Court Street Trust's Post-Effective Amendment
No. 61 (File No. 2-58774).
(h) Form of Service Contract between Fidelity Distributors Corporation
and "Qualified Recipients" with respect to Initial Class shares of
High Income, Equity-Income, Growth, and Overseas Portfolios is
incorporated herein by reference to Exhibit 6(h) to Post Effective
Amendment 36.
(i) Form of Service Contract between Fidelity Distributors Corporation
and "Qualified Recipients" with respect to Service Class shares of
High Income, Equity-Income, Growth, and Overseas Portfolios is
incorporated herein by reference to Exhibit 6(i) to Post Effective
Amendment 36.
(7) (a) Retirement Plan for Non-Interested Person Trustees, Directors
or General Partners, as amended on November 16, 1995, is incorporated
herein by reference to Exhibit 7(a) of Fidelity Select Portfolio's
Post-Effective Amendment No. 54 (File No. 2-69972).
(b) The Fee Deferral Plan for Non-Interested Person Directors and
Trustees of the Fidelity Funds, effective as of September 14, 1995 and
amended through November 14, 1996, is incorporated herein by reference
to Exhibit 7(b) of Fidelity Aberdeen Street Trust's Post-Effective
Amendment No. 19 (File No. 33-43529).
(8) (a) Custodian Agreement and Appendix C, dated December 1, 1994,
between The Bank of New York and Variable Insurance Products Fund on
behalf of Money Market Portfolio and High Income Portfolio is
incorporated herein by reference to Exhibit 8(a) of Fidelity Hereford
Street Trust's Post-Effective Amendment No. 4 (File No. 33-52577).
(b) Appendix A, dated September 14, 1995, to the Custodian Agreement,
dated December 1, 1994, between The Bank of New York and Variable
Insurance Products Fund on behalf of Money Market Portfolio and High
Income Portfolio is incorporated herein by reference to Exhibit 8(d)
of Fidelity Charles Street Trust's Post-Effective Amendment No. 54
(File No. 2-73133).
(c) Appendix B, dated September 14, 1995, to the Custodian Agreement,
dated December 1, 1994, between The Bank of New York and Variable
Insurance Products Fund on behalf of Money Market Portfolio and High
Income Portfolio is incorporated herein by reference to Exhibit 8(e)
of Fidelity Charles Street Trust's Post-Effective Amendment No. 54
(File No. 2-73133).
(d) Custodian Agreement, Appendix A, and Appendix C, dated August 1,
1994, between The Chase Manhattan Bank, N.A. and Variable Insurance
Products Fund on behalf of Equity-Income Portfolio and Overseas
Portfolio is incorporated herein by reference to Exhibit 8(a) of
Fidelity Investment Trust's Post-Effective Amendment No. 59 (File No.
2-90649).
(e) Appendix B, dated September 14, 1995, to the Custodian Agreement,
dated August 1, 1994, between The Chase Manhattan Bank, N.A. and
Variable Insurance Products Fund on behalf of Equity-Income Portfolio
and Overseas Portfolio is incorporated herein by reference to Exhibit
8(b) of Fidelity Charles Street Trust's Post-Effective Amendment No.
54 (File No. 2-73133).
(f) Custodian Agreement and Appendix C, dated September 1, 1994,
between Brown Brothers Harriman & Company and Variable Insurance
Products Fund on behalf of Growth Portfolio is incorporated herein by
reference to Exhibit 8(a) of Fidelity Commonwealth Trust's
Post-Effective Amendment No. 56 (File No. 2-52322).
(g) Appendix A, dated September 14, 1995, to the Custodian Agreement,
dated September 1, 1994, between Brown Brothers Harriman & Company and
Variable Insurance Products Fund on behalf of Growth Portfolio is
incorporated herein by reference to Exhibit 8(b) of Fidelity Mt.
Vernon Street Trust's Post-Effective Amendment No. 33 (File No.
2-79755).
(h) Appendix B, dated September 14, 1995, to the Custodian Agreement,
dated September 1, 1994, between Brown Brothers Harriman & Company and
Variable Insurance Products Fund on behalf of Growth Portfolio is
incorporated herein by reference to Exhibit 8(b) of Fidelity Capital
Trust's Post-Effective Amendment No. 63 (File No. 2-61760).
(9) None.
(10) Not applicable.
(11) (a) Not applicable.
(b) Not applicable.
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15) (a) Distribution and Service Plan pursuant to Rule 12b-1 for
Money Market Portfolio: Initial Class is incorporated herein by
reference to Exhibit 15(a) to Post-Effective Amendment No. 36.
(b) Distribution and Service Plan pursuant to Rule 12b-1 for High
Income Portfolio: Initial Class is incorporated herein by reference to
Exhibit 15(b) to Post-Effective Amendment No. 36.
(c) Distribution and Service Plan pursuant to Rule 12b-1 for
Equity-Income Portfolio: Initial Class is incorporated herein by
reference to Exhibit 15(c) to Post-Effective Amendment No. 36.
(d) Distribution and Service Plan pursuant to Rule 12b-1 for Growth
Portfolio: Initial Class is incorporated herein by reference to
Exhibit 15(d) to Post-Effective Amendment No. 36.
(e) Distribution and Service Plan pursuant to Rule 12b-1 for Overseas
Portfolio: Initial Class is incorporated herein by reference to
Exhibit 15(e) to Post-Effective Amendment No. 36.
(f) Distribution and Service Plan pursuant to Rule 12b-1 for High
Income Portfolio: Service Class is incorporated herein by reference to
Exhibit 15(f) to Post-Effective Amendment No. 36.
(g) Distribution and Service Plan pursuant to Rule 12b-1 for
Equity-Income Portfolio: Service Class is incorporated herein by
reference to Exhibit 15(g) to Post-Effective Amendment No. 36.
(h) Distribution and Service Plan pursuant to Rule 12b-1 for Growth
Portfolio: Service Class is incorporated herein by reference to
Exhibit 15(h) to Post-Effective Amendment No. 36.
(i) Distribution and Service Plan pursuant to Rule 12b-1 for Overseas
Portfolio: Service Class is incorporated herein by reference to
Exhibit 15(i) to Post-Effective Amendment No. 36.
(16) (a) A schedule for the computation of performance quotations
(using Money Market Portfolio as an example for a 7-day yield and
total return, and High Income Portfolio as an example for a 30-day
yield) is incorporated herein by reference to Exhibit 16 to
Post-Effective Amendment No. 32.
(b) A schedule for the computation of a moving average (using
Equity-Income Portfolio as an example) is incorporated herein by
reference to Exhibit 16(a) to Post-Effective Amendment No. 29.
(17) Financial Data schedules will be filed by subsequent
amendment.
(18) Rule 18f-3 Plan dated October 16, 1997 is incorporated herein
by reference to Exhibit 18 to Post-Effective Amendment No. 36.
Item 25. Persons Controlled by or Under Common Control with
Registrant
The Board of Trustees of Registrant is the same as the Board of
Trustees of other funds advised by FMR, each of which has Fidelity
Management and Research Company as its investment adviser. In
addition, the officers of these funds are substantially identical.
Nonetheless, Registrant takes the position that it is not under common
control with these other funds since the power residing in the
respective boards and officers arises as the result of an official
position with the respective funds.
Item 26. Number of Holders of Securities
December 31, 1997
Title of Securities Number of Record Holders
Shares of Beneficial Interest
Money Market Portfolio: 76
High Income Portfolio: 109
Equity-Income Portfolio: 142
Growth Portfolio: 141
Overseas Portfolio: 108
Item 27. Indemnification
Article XI, Section 2 of the Declaration of Trust sets forth the
reasonable and fair means for determining whether indemnification
shall be provided to any past or present Trustee or officer. It states
that the Registrant shall indemnify any present or past Trustee or
officer to the fullest extent permitted by law against liability and
all expenses reasonably incurred by him in connection with any claim,
action, suit, or proceeding in which he is involved by virtue of his
service as a Trustee, an officer, or both. Additionally, amounts paid
or incurred in settlement of such matters are covered by this
indemnification. Indemnification will not be provided in certain
circumstances, however. These include instances of willful
misfeasance, bad faith, gross negligence, and reckless disregard of
the duties involved in the conduct of the particular office involved.
Pursuant to Section 11 of the Distribution Agreement, the Registrant
agrees to indemnify and hold harmless the Distributor and each of its
directors and officers and each person, if any, who controls the
Distributor within the meaning of Section 15 of the 1933 Act against
any loss, liability, claim, damages or expense arising by reason of
any person acquiring any shares, based upon the ground that the
registration statement, Prospectus, Statement of Additional
Information, shareholder reports or other information filed or made
public by the Registrant included a materially misleading statement or
omission. However, the Registrant does not agree to indemnify the
Distributor or hold it harmless to the extent that the statement or
omission was made in reliance upon, and in conformity with,
information furnished to the Registrant by or on behalf of the
Distributor. The Registrant does not agree to indemnify the parties
against any liability to which they would be subject by reason of
willful misfeasance, bad faith, gross negligence, and reckless
disregard of the obligations and duties under the Distribution
Agreement.
Pursuant to the agreement by which Fidelity Investments Institutional
Operations Company, Inc. ("FIIOC") is appointed transfer agent, the
Registrant agrees to indemnify and hold FIIOC harmless against any
losses, claims, damages, liabilities or expenses (including reasonable
counsel fees and expenses) resulting from:
(1) any claim, demand, action or suit brought by any person other
than the Registrant, including by a shareholder, which names FIIOC
and/or the Registrant as a party and is not based on and does not
result from FIIOC's willful misfeasance, bad faith or negligence or
reckless disregard of duties, and arises out of or in connection with
FIIOC's performance under the Transfer Agency Agreement; or
(2) any claim, demand, action or suit (except to the extent
contributed to by FIIOC's willful misfeasance, bad faith or negligence
or reckless disregard of duties) which results from the negligence of
the Registrant, or from FIIOC's acting upon any instruction(s)
reasonably believed by it to have been executed or communicated by any
person duly authorized by the Registrant, or as a result of FIIOC's
acting in reliance upon advice reasonably believed by FIIOC to have
been given by counsel for the Registrant, or as a result of FIIOC's
acting in reliance upon any instrument or stock certificate reasonably
believed by it to have been genuine and signed, countersigned or
executed by the proper person.
Item 28. Business and Other Connections of Investment Adviser
(1) FIDELITY MANAGEMENT & RESEARCH COMPANY (FMR)
FMR serves as investment adviser to a number of other investment
companies. The directors and officers of the Adviser have held,
during the past two fiscal years, the following positions of a
substantial nature.
<TABLE>
<CAPTION>
<S> <C>
Edward C. Johnson 3d Chairman of the Board of FMR; President and Chief
Executive Officer of FMR Corp.; Chairman of the
Board and Director of FMR, FMR Corp., FIMM, FMR
(U.K.) Inc., and FMR (Far East) Inc.; Chairman of the
Board and Representative Director of Fidelity
Investments Japan Limited; President and Trustee of
funds advised by FMR.
Robert C. Pozen President and Director of FMR; Senior Vice President
and Trustee of funds advised by FMR; President and
Director of FIMM, FMR (U.K.) Inc., and FMR (Far
East) Inc.; General Counsel, Managing Director, and
Senior Vice President of FMR Corp.
Peter S. Lynch Vice Chairman of the Board and Director of FMR.
Marta Amieva Vice President of FMR.
John Carlson Vice President of FMR.
Dwight D. Churchill Senior Vice President of FMR.
Barry Coffman Vice President of FMR.
Arieh Coll Vice President of FMR.
Stephen G. Manning Assistant Treasurer of FMR
William Danoff Senior Vice President of FMR and of a fund advised by
FMR.
Scott E. DeSano Vice President of FMR.
Craig P. Dinsell Vice President of FMR.
Penelope Dobkin Vice President of FMR and of a fund advised by FMR.
George C. Domolky Vice President of FMR.
Bettina Doulton Vice President of FMR and of funds advised by FMR.
Margaret L. Eagle Vice President of FMR and a fund advised by FMR.
Richard B. Fentin Senior Vice President of FMR and Vice President of a
fund advised by FMR.
Gregory Fraser Vice President of FMR and of a fund advised by FMR.
Jay Freedman Assistant Clerk of FMR; Clerk of FMR Corp., FMR
(U.K.) Inc., and FMR (Far East) Inc.; Secretary of
Fidelity Investments Money Management, Inc.
Robert Gervis Vice President of FMR.
David L. Glancy Vice President of FMR and of a fund advised by FMR.
Kevin E. Grant Vice President of FMR and of funds advised by FMR.
Barry A. Greenfield Vice President of FMR and of a fund advised by FMR.
Boyce I. Greer Senior Vice President of FMR.
Bart A. Grenier Vice President of High-Income Funds advised by
FMR;Vice President of FMR.
Robert Haber Vice President of FMR.
Richard C. Habermann Senior Vice President of FMR; Vice President of funds
advised by FMR.
William J. Hayes Senior Vice President of FMR; Vice President of Equity
funds advised by FMR.
Richard Hazlewood Vice President of FMR and of a fund advised by FMR.
Fred L. Henning Jr. Senior Vice President of FMR; Vice President of
Fixed-Income funds advised by FMR.
Bruce Herring Vice President of FMR.
John R. Hickling Vice President of FMR and of a fund advised by FMR.
Robert F. Hill Vice President of FMR; Director of Technical Research.
Curt Hollingsworth Vice President of FMR and of funds advised by FMR.
Abigail P. Johnson Senior Vice President of FMR and of a fund advised by
FMR; Associate Director and Senior Vice President of
Equity funds advised by FMR.
David B. Jones Vice President of FMR.
Steven Kaye Vice President of FMR and of a fund advised by FMR.
Francis V. Knox Vice President of FMR; Compliance Officer of FMR
(U.K.) Inc.
David P. Kurrasch Vice President of FMR.
Robert A. Lawrence Senior Vice President of FMR and Vice President of
Fidelity Real Estate High Income and Fidelity Real
Estate High Income II funds advised by FMR;
Associate Director and Senior Vice President of Equity
funds advised by FMR; Vice President of High Income
funds advised by FMR.
Harris Leviton Vice President of FMR and of a fund advised by FMR.
Bradford E. Lewis Vice President of FMR and of funds advised by FMR.
Mark G. Lohr Vice President of FMR; Treasurer of FMR, FMR (U.K.)
Inc., FMR (Far East) Inc.
Richard R. Mace Jr. Vice President of FMR and of funds advised by FMR.
Charles Mangum Vice President of FMR.
Kevin McCarey Vice President of FMR.
Diane McLaughlin Vice President of FMR.
Neal P. Miller Vice President of FMR.
Robert H. Morrison Vice President of FMR; Director of Equity Trading.
David L. Murphy Vice President of FMR and of funds advised by FMR.
Scott Orr Vice President of FMR.
Jacques Perold Vice President of FMR.
Anne Punzak Vice President of FMR.
Kenneth A. Rathgeber Vice President of FMR; Treasurer of funds advised by
FMR.
Kennedy P. Richardson Vice President of FMR.
Eric D. Roiter Vice President and General Counsel of FMR and
Secretary of funds advised by FMR.
Mark Rzepczynski Vice President of FMR.
Lee H. Sandwen Vice President of FMR.
Patricia A. Satterthwaite Vice President of FMR and of a fund advised by FMR.
Fergus Shiel Vice President of FMR.
Carol Smith-Fachetti Vice President of FMR.
Steven J. Snider Vice President of FMR.
Thomas T. Soviero Vice President of FMR and of a fund advised by FMR.
Richard Spillane Senior Vice President of FMR; Associate Director and
Senior Vice President of Equity funds advised by FMR;
Senior Vice President and Director of Operations and
Compliance of FMR (U.K.) Inc.
Thomas Sprague Vice President of FMR.
Robert E. Stansky Senior Vice President of FMR; Vice President of a fund
advised by FMR.
Scott Stewart Vice President of FMR.
Cynthia Strauss Vice President of FMR.
Thomas Sweeney Vice President of FMR and of a fund advised by FMR.
Beth F. Terrana Senior Vice President of FMR; Vice President of a fund
advised by FMR.
Yoko Tilley Vice President of FMR.
Joel C. Tillinghast Vice President of FMR and of a fund advised by FMR.
Robert Tuckett Vice President of FMR.
Jennifer Uhrig Vice President of FMR and of funds advised by FMR.
George A. Vanderheiden Senior Vice President of FMR; Vice President of funds
advised by FMR.
</TABLE>
(2) FIDELITY MANAGEMENT & RESEARCH (U.K.) INC. (FMR U.K.)
25 Lovat Lane, London, EC3R 8LL, England
FMR U.K. provides investment advisory services to Fidelity Management
& Research Company and Fidelity Management Trust Company. The
directors and officers of the Sub-Adviser have held the following
positions of a substantial nature during the past two fiscal years.
<TABLE>
<CAPTION>
<S> <C>
Edward C. Johnson 3d Chairman of the Board and Director of FMR U.K.,
FMR, FMR Corp., FIMM, and FMR (Far East) Inc.;
Chairman of the Executive Committee of FMR;
President and Chief Executive Officer of FMR Corp.;
Chairman of the Board and Representative Director of
Fidelity Investments Japan Limited; President and
Trustee of funds advised by FMR.
J. Gary Burkhead President of FIIS; President and Director of FMR U.K.,
FMR, FMR (Far East) Inc., Managing Director of FMR
Corp.; Senior Vice President and Trustee of funds
advised by FMR.
Robert C. Pozen President and Director of FMR; Senior Vice President
and Trustee of funds advised by FMR; President and
Director of FIMM, FMR (U.K.) Inc., and FMR (Far
East) Inc.; General Counsel, Managing Director, and
Senior Vice President of FMR Corp.
Mark G. Lohr Treasurer of FMR U.K., FMR, FMR (Far East) Inc., and
FIMM; Vice President of FMR.
Stephen G. Manning Assistant Treasurer of FMR U.K., FMR, FMR (Far
East) Inc., and FIMM; Treasurer of FMR Corp.
Francis V. Knox Compliance Officer of FMR U.K.; Vice President of
FMR.
Jay Freedman Clerk of FMR U.K., FMR (Far East) Inc., and FMR
Corp.; Assistant Clerk of FMR; Secretary of FIMM.
(3) FIDELITY MANAGEMENT & RESEARCH COMPANY (FAR EAST) INC. (FMR FAR
EAST)
Shiroyama JT Mori Bldg., 4-3-1 Toranomon Minato-ku, Tokyo 105,
Japan
FMR Far East provides investment advisory services to Fidelity
Management & Research Company and Fidelity Management Trust Company.
The directors and officers of the Sub-Adviser have held the following
positions of a substantial nature during the past two fiscal years.
Edward C. Johnson 3d Chairman of the Board and Director of FMR Far
East, FMR, FMR Corp., FIMM, and FMR (U.K.)
Inc.; Chairman of the Executive Committee of
FMR; President and Chief Executive Officer of
FMR Corp.; Chairman of the Board and
Representative Director of Fidelity Investments
Japan Limited; President and Trustee of funds
advised by FMR.
J. Gary Burkhead President of FIIS; President and Director of FMR
Far East, FIMM, FMR, and FMR (U.K.) Inc.;
Managing Director of FMR Corp.; Senior Vice
President and Trustee of funds advised by FMR.
Robert C. Pozen President and Director of FMR; Senior Vice
President and Trustee of funds advised by FMR;
President and Director of FIMM, FMR (U.K.)
Inc., and FMR (Far East) Inc.; General Counsel,
Managing Director, and Senior Vice President of
FMR Corp.
Bill Wilder Vice President of FMR Far East; President and
Representative Director of Fidelity Investments
Japan Limited.
Mark G. Lohr Treasurer of FMR Far East, FMR, FMR (U.K.)
Inc., and FIMM; Vice President of FMR.
Stephen G. Manning Assistant Treasurer of FMR Far East, FMR,
FMR (U.K.) Inc., and FIMM; Vice President and
Treasurer of FMR Corp.
Jay Freedman Clerk of FMR Far East, FMR (U.K.) Inc., and
FMR Corp.; Assistant Clerk of FMR; Secretary
of FIMM.
Robert Auld Vice President of FMR Far East.
(4) FIDELITY INVESTMENTS MONEY MANAGEMENT, Inc. (FIMM Inc.)
FIMM Inc. (formerly FMR Texas) provides investment advisory services
to Fidelity Management & Research Company. The directors and officers
of the Sub-Adviser have held the following positions of a substantial
nature during the past two fiscal years.
Edward C. Johnson 3d Chairman of the Board and Director of FIMM,
FMR, FMR Corp., FMR (Far East) Inc., and
FMR (U.K.) Inc.; Chairman of the Board of
FMR; President and Chief Executive Officer of
FMR Corp.; Chairman of the Board and
Representative Director of Fidelity Investments
Japan Limited; President and Trustee of funds
advised by FMR.
Robert C. Pozen President and Director of FMR; Senior Vice
President and Trustee of funds advised by FMR;
President and Director of FIMM, FMR (U.K.)
Inc., and FMR (Far East) Inc.; General Counsel,
Managing Director, and Senior Vice President of
FMR Corp.
Fred L. Henning Jr. Senior Vice President of FMR; Vice President of
Fixed-Income funds advised by FMR, and Senior
Vice President of FIMM.
Dwight D. Churchill Vice President of FIMM, and Senior Vice
President of FMR.
Boyce I. Greer Vice President of FIMM, and Senior Vice
President of FMR.
Stephen G. Manning Assistant Treasurer of FIMM, FMR (U.K.) Inc.,
FMR (Far East) Inc., and FMR; Vice President
and Treasurer of FMR Corp.
Jay Freedman Secretary of FIMM; Clerk of FMR (U.K.) Inc.,
FMR (Far East) Inc., and FMR Corp.; Assistant
Clerk of FMR.
(5) FIDELITY INTERNATIONAL INVESTMENT ADVISORS
Pembroke Hall, 42 Crow Lane, Pembroke HM19, Bermuda
The directors and officers of Fidelity International Investment
Advisors (FIIA) have held, during the past two fiscal years, the
following positions of a substantial nature.
Anthony J. Bolton Director of FIIA, FIIA (U.K.) L, FIML (U.K.),
FISL (U.K.), and Fidelity Investments
International.
Charles T. Collis Director of FIIA and numerous other companies
in the Fidelity International Group of Companies
(FIL); Partner in Conyers, Dill & Pearman,
Hamilton, Bermuda.
William R. Ebsworth Director of FIIA and numerous Fidelity
Investment Far East Companies; Vice President
of FMR (Far East) Inc.
Brett P. Goodin Director, Vice President, Secretary and Chief
Legal Officer of many FIL companies.
Simon Haslam Director of FIIA, FISL (U.K.), and FII; Chief
Financial Officer of FIL; Company Secretary of
Fidelity Investments Group of Companies
(U.K.).
K.C. Lee Director of FIIA and Fidelity Investments
Management (Hong Kong) Limited.
Peter Phillips Director of FIIA and Fidelity Investments
Management (Hong Kong) Limited.
Terrence V. Richards Assistant Secretary of FIIA.
David J. Saul President and Director of FIIA; Director of
Fidelity International Limited; and numerous
companies and funds in the FIL group.
(6) FIDELITY INTERNATIONAL INVESTMENT ADVISORS (U.K.) LIMITED
26 Lovat Lane, London, EC3R 8LL, England
The directors and officers of Fidelity International Investment
Advisors (U.K.) Limited (FIIA (U.K.) L) have held, during the past two
fiscal years, the following positions of a substantial nature.
Anthony J. Bolton Director of FIIA (U.K.) L, FIIA, FIML (U.K.),
FISL (U.K.), and Fidelity Investments
International.
Pamela Edwards Director of FIIA (U.K.) L, FISL (U.K.), and FII;
Director of Legal Services for Europe.
Simon Haslam Director of FIIA, FISL (U.K.), and FII; Chief
Financial Officer of FIL (U.K.); Company
Secretary of Fidelity Investments Group of
Companies (U.K.).
Sally Walden Director of FIIA (U.K.) L and FISL (U.K.).
Sally Williams Assistant Company Secretary of Fidelity
International Group of Companies (U.K.).
Emma Barratt Assistant Company Secretary of Fidelity
International Group of Companies (U.K.).
</TABLE>
Item 29. Principal Underwriters
(a) Fidelity Distributors Corporation (FDC) acts as distributor for
most funds advised by FMR.
(b)
Name and Principal Positions and Offices Positions and Offices
Business Address* With Underwriter With Registrant
Edward C. Johnson 3d Director Trustee and President
Michael Mlinac Director None
James Curvey Director None
Martha B. Willis President None
Eric D. Roiter Vice President Secretary
Caron Ketchum Treasurer and Controller None
Gary Greenstein Assistant Treasurer None
Jay Freedman Assistant Clerk None
Linda Holland Compliance Officer None
* 82 Devonshire Street, Boston, MA
(c) Not applicable.
Item 30. Location of Accounts and Records
All accounts, books, and other documents required to be maintained by
Section 31a of the 1940 Act and the Rules promulgated thereunder are
maintained by Fidelity Management & Research Company or Fidelity
Service Company, Inc., 82 Devonshire Street, Boston, MA 02109, or the
funds' respective custodian: The Bank of New York, 110 Washington
Street, New York, N.Y.; The Chase Manhattan Bank, 1 Chase Manhattan
Plaza, New York, N.Y.; and Brown Brothers Harriman & Co., 40 Water
Street, Boston, MA.
Item 31. Management Services - Not applicable.
Item 32. Undertakings
The Registrant on behalf of Money Market Portfolio, High Income
Portfolio, Equity-Income Portfolio, Growth Portfolio and Overseas
Portfolio, undertakes (1) to call a meeting of shareholders for the
purpose of voting upon the questions of removal of a trustee or
trustees, when requested to do so by record holders of not less than
10% of its outstanding shares; and (2) to assist in communications
with other shareholders pursuant to Section 16(c)(1) and (2), whenever
shareholders meeting the qualifications set forth in Section 16(c)
seek the opportunity to communicate with other shareholders with a
view toward requesting a meeting.
The Registrant, on behalf of High Income Portfolio, Equity-Income
Portfolio, Growth Portfolio and Overseas Portfolio, provided the
information required by Item 5A is contained in the annual report,
undertakes to furnish to each person to whom a prospectus has been
delivered, upon their request and without charge, a copy of the
Registrant's latest annual report to shareholders.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 37 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 10th day
of February 1998.
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 February 10, 1998
Edward C. Johnson 3d (Principal Executive Officer)
/s/Richard A. Silver Treasurer February 10, 1998
Richard A. Silver
/s/Ralph F. Cox * Trustee February 10, 1998
Ralph F. Cox
/s/Phyllis Burke Davis * Trustee February 10, 1998
Phyllis Burke Davis
/s/Robert October. Gates ** Trustee February 10, 1998
Robert October. Gates
/s/E. Bradley Jones * Trustee February 10, 1998
E. Bradley Jones
/s/Donald J. Kirk * Trustee February 10, 1998
Donald J. Kirk
/s/Peter S. Lynch * Trustee February 10, 1998
Peter S. Lynch
/s/Marvin L. Mann * Trustee February 10, 1998
Marvin L. Mann
/s/William O. McCoy * Trustee February 10, 1998
William O. McCoy
/s/Gerald C. McDonough * Trustee February 10, 1998
Gerald C. McDonough
/s/Thomas R. Williams * Trustee February 10, 1998
Thomas R. Williams
</TABLE>
(dagger) Signatures affixed by Robert C. Pozen pursuant to a power of
attorney dated July 17, 1997 and filed herewith.
* Signature affixed by Robert C. Hacker 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 March 6, 1997 and filed herewith.
POWER OF ATTORNEY
I, the undersigned President and Director, Trustee, or General
Partner, as the case may be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Aberdeen Street Trust Fidelity Hereford Street Trust
Fidelity Advisor Series I Fidelity Income Fund
Fidelity Advisor Series II Fidelity Institutional Cash Portfolios
Fidelity Advisor Series III Fidelity Institutional Tax-Exempt Cash Portfolios
Fidelity Advisor Series IV Fidelity Investment Trust
Fidelity Advisor Series V Fidelity Magellan Fund
Fidelity Advisor Series VI Fidelity Massachusetts Municipal Trust
Fidelity Advisor Series VII Fidelity Money Market Trust
Fidelity Advisor Series VIII Fidelity Mt. Vernon Street Trust
Fidelity Beacon Street Trust Fidelity Municipal Trust
Fidelity Boston Street Trust Fidelity Municipal Trust II
Fidelity California Municipal Trust Fidelity New York Municipal Trust
Fidelity California Municipal Trust II Fidelity New York Municipal Trust II
Fidelity Capital Trust Fidelity Phillips Street Trust
Fidelity Charles Street Trust Fidelity Puritan Trust
Fidelity Commonwealth Trust Fidelity Revere Street Trust
Fidelity Concord Street Trust Fidelity School Street Trust
Fidelity Congress Street Fund Fidelity Securities Fund
Fidelity Contrafund Fidelity Select Portfolios
Fidelity Corporate Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Court Street Trust Fidelity Summer Street Trust
Fidelity Court Street Trust II Fidelity Trend Fund
Fidelity Covington Trust Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Daily Money Fund Fidelity U.S. Investments-Government Securities
Fidelity Destiny Portfolios Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity Union Street Trust
Portfolio, L.P. Fidelity Union Street Trust II
Fidelity Devonshire Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Exchange Fund Newbury Street Trust
Fidelity Financial Trust Variable Insurance Products Fund
Fidelity Fixed-Income Trust Variable Insurance Products Fund II
Fidelity Government Securities Fund Variable Insurance Products Fund III
Fidelity Hastings Street Trust
</TABLE>
in addition to 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 Robert C. Pozen my true and lawful
attorney-in-fact, with full power of substitution, and with full power
to him 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, Form N-8A, 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 on my behalf in connection therewith as said
attorney-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
attorney-in-fact or his substitutes may do or cause to be done by
virtue hereof. This power of attorney is effective for all documents
filed on or after August 1, 1997.
WITNESS my hand on the date set forth below.
/s/Edward C. Johnson 3d_ July 17, 1997
Edward C. Johnson 3d
POWER OF ATTORNEY
I, the undersigned Director, Trustee, or General Partner, as the case
may be, of the following investment companies:
<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 Director, Trustee, or
General Partner (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, 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 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 my name
and behalf in connection therewith as said attorneys-in-fact deem
necessary or appropriate, to comply with the provisions of the
Securities Act of 1933 and 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 March 1,
1997.
WITNESS my hand on the date set forth below.
/s/Robert M. Gates March 6, 1997
Robert M. Gates
POWER OF ATTORNEY
We, the undersigned Directors, Trustees, or General Partners, as the
case may be, 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 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
