VARIABLE INSURANCE PRODUCTS FUND II, 485APOS, 1994-02-14

VARIABLE INSURANCE PRODUCTS FUND II
485APOS, 1994-02-14

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File No. 33-20773
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT (NO 33-20773)
UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 12 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT [x]
COMPANY ACT OF 1940
Amendment No. [ ]
Variable Insurance Products Fund II
(Exact Name of Registrant as Specified in Declaration of Trust)
82 Devonshire St., Boston, MA 02109
(Address of Principal Executive Office)
Registrant's Telephone Number (617) 570-7000
Arthur S. Loring, Esq.
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)
(x) On April 30, 1994 pursuant to paragraph (a) of Rule 485
Registrant will file a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 and file the notice required by such rule on
or near February 21, 1994.
VARIABLE INSURANCE PRODUCTS FUND II
CROSS REFERENCE SHEET
Form N-1A Item Number
Part A Prospectus Caption

1 a,b Cover Page
2 a,b,c *
3 a,b A Look At The Trust's Financial History
c Performance
4 a(i) The Trust and the Fidelity Organization
a(ii) Investment Objective and Policies; Matching the Portfolios to
Your Investment Needs; Limiting Investment Risks; Appendix
b,c Limiting Investment Risks; Matching the Portfolios to
Your Investment Needs, Foreign Investments and Currency Management
5 a,b(i) The Trust and the Fidelity Organization
b(ii)(iii),c Management, Distribution and Service Fees
d Management, Distribution and Service Fees
e A Look At The Trust's Financial History; Management,
Distribution and Service Fees
f Portfolio Transactions
6 a(i) The Trust and the Fidelity Organization
a(ii) Redemptions
a(iii) *
b The Trust and the Fidelity Organization
c,d *
e Cover Page, Shareholder's Manual
f,g Distributions and Taxes
7 a The Trust and the Fidelity Organization
b(i),(ii) Per-Share Data; Share Price; Investments
b(iii,iv,v) *
c,d,e *
f Management, Distribution and Service Fees
8 a Redemptions
b,c *
d Redemptions
9 *
_______________
* Not Applicable

Part B Statement of Information Caption

10,11 Cover Page

12 Description of The Trust

13 a,b,c Investment Policies and Limitations

d Portfolio Transactions

14 a,b Trustees and Officers

c *

15 a *

b,c Trustees and Officers

16 a(i) FMR

a(ii) Trustees and Officers

a(iii),b Management Contracts, Contracts with
Companies Affiliated

with FMR

c *

d Contracts with Companies Affiliated with
FMR

e *

f Distribution and Service Plans

g *

h Description of the Trust

i Contracts with Companies Affiliated with
FMR; Description

of the Trust

17 a,b,c,d Portfolio Transactions

e *

18 a Description of the Trust

b *

19 a Additional Purchase and Redemption
Information

b Valuation of Portfolio Securities;
Additional Purchase and

Redemption Information

c *

20 Taxes

21 a(i),(ii) Contracts with Companies Affiliated with
FMR

a(iii),b,c *

22 Performance

23 Financial Statements for the Annual period
are incorporated

_________
* Not Applicable

82 Devonshire Street, Boston, MA 02109
VARIABLE INSURANCE 82 Devonshire Street
PRODUCTS FUND II: Boston, Massachusetts

PROSPECTUS HOW THE TRUST WORKS page
APRIL 30, 1994 Shareholder's Manual page

Variable Insurance Products Fund II (the Trust) is designed to provide
investment vehicles for variable annuity and variable life insurance
contracts of various insurance companies. The Trust currently offers these
funds:
INVESTMENT GRADE BOND PORTFOLIO seeks as high a level of current income as
is consistent with the preservation of capital by investing in a broad
range of investment-grade fixed-income securities. The fund will maintain a
dollar-weighted average portfolio maturity of ten years or less.
ASSET MANAGER PORTFOLIO seeks high total return with reduced risk over the
long-term by allocating its assets among domestic and foreign
stocks, bonds and short-term fixed-income instruments.
INDEX 500 PORTFOLIO seeks to provide investment results that correspond to
the total return (i.e., the combination of capital changes and income) of
common stocks publicly traded in the United States. In seeking this
objective, the fund attempts to duplicate the composition and total return
of the Standard & Poor's 500 Composite Stock Price Index while keeping
transaction costs and other expenses low. The fund is designed as a
long-term investment option.
Please read this Prospectus before investing. It is designed to provide
you with information and to help you decide if the goal of one or more of
the funds matches your own. Retain this document for future reference.
Shares of each fund may only be purchased by the separate accounts of
insurance companies, for the purpose of funding variable annuity and
variable life insurance contracts. Particular funds may not be available in
your state due to various insurance regulations. Please check with your
insurance company for available funds. Inclusion of a fund in this
Prospectus which is not available in your state is not to be considered a
solicitation. This Prospectus should be read in conjunction with the
prospectus of the separate account of the specific insurance product which
accompanies this Prospectus.
A Statement of Additional Information (dated April 30, 1994) for the Trust
has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. This free Statement is available upon
request from your insurance company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
<S> <C>
Summary 3 Management, Distribution and Service
Fees 24

A Look at the Fund's Financial History 4 Opening an Account 28

Investment Objectives and Policies 9 Investments 28

Performance 21 Redemptions 29

Distributions and Taxes 22 Appendix 29

The Trust and the Fidelity
Organization 23

</TABLE>

N.VIPII-pro-494
A LOOK AT THE FUND'S FINANCIAL HISTORY
FINANCIAL HIGHLIGHTS. The following tables give you information about each
fund's financial history and use the Trust's fiscal year (which ends
December 31).
INVESTMENT GRADE BOND PORTFOLIO
ASSET MANAGER PORTFOLIO
INDEX 500 PORTFOLIO
* ANNUALIZED.
(dagger) EFFECTIVE AUGUST 27, 1992 (COMMENCEMENT OF OPERATIONS), THE FUND'S
INVESTMENT ADVISER VOLUNTARILY AGREED TO LIMIT EXPENSES TO .28% OF AVERAGE
NET ASSETS.
The Financial Highlights have been audited by Price Waterhouse,
independent accountants. Their unqualified report is included in the
Trust's Annual Report. The Annual Report is incorporated by reference into
the Statement of Additional Information.
At least twice a year, financial statements with a summary of each fund's
composition and performance will be distributed to the Trust's
participating insurance companies, who in turn will send the financial
statements to you.
HOW THE TRUST WORKS
INVESTMENT OBJECTIVES AND POLICIES
Variable Insurance Products Fund II is designed to provide investment
vehicles for variable annuity and variable life insurance contracts of
insurance companies. The Trust offers funds with the different investment
objectives described below. Fidelity Management & Research Company
(FMR), the funds' manager, manages the investments of each fund. Each
fund's investment objective is fundamental and can be changed only by vote
of a majority of the outstanding shares of the respective fund. There is no
assurance that each fund will achieve its investment objective. Please read
your insurance company's separate account prospectus and contract for
discussions relating to insurance regulations and instructions on how to
invest in and redeem from each fund.

INVESTMENT GRADE BOND PORTFOLIO'S investment objective is to seek as high a
level of current income as is consistent with the preservation of capital.
Under normal conditions, FMR invests at least 65% of the fund's total
assets in investment-grade fixed-income securities such as bonds, notes and
debentures. The fund's dollar-weighted average portfolio maturity may not
exceed ten years. The fund may purchase individual securities with
maturities of more than ten years, as long as its average maturity remains
within this limit.
Fixed-income securities held by the fund may include bonds, notes, mortgage
securities, domestic and foreign government and government agency
obligations, zero coupon securities and convertible securities, and very
short-term obligations such as bankers' acceptances, certificates of
deposit, repurchase agreements and securities lending, prime commercial
paper and other short-term corporate obligations. Refer to the APPENDIX on
page for more information on these and other types of investments the fund
may make including stripped mortgage-backed and asset-backed securities,
foreign securities, options and futures contracts, delayed-delivery
transactions, swap agreements, indexed securities, loans and other direct
debt instruments, interfund borrowing transactions, illiquid investments,
and restricted securities.
To achieve the fund's goal of preserving capital, the fund will not
purchase fixed-income securities unless they are investment-grade or
better. Investment-grade securities are those rated Baa or better by
Moody's Investors Service, Inc. (Moody's) or BBB or better by Standard
& Poor's Corporation (S&P), or if unrated, judged by FMR to be of
equivalent quality. Investment grade securities have adequate to strong
protection of principal and interest payments according to the rating
agencies. Bonds rated in the lower end of the investment grade category
(bonds rated Baa/BBB) may possess speculative characteristics in credit
quality and may be more sensitive to economic changes and changes in the
financial condition of issuers.

ASSET MANAGER PORTFOLIO'S investment objective is to seek to obtain high
total return with reduced risk over the long-term by allocating its assets
among domestic and foreign stocks, bonds and short-term fixed-income
instruments. FMR will normally allocate the fund's assets among the three
asset classes within the following investment parameters: 0-70% in
short-term instruments; 20-60% in bonds (intermediate to long-term debt
securities); and 10-60% in stocks (equities). The expected "neutral" mix
will consist of 20% in short-term instruments, 40% in bonds and 40% in
stocks. The "neutral" mix represents the expected allocation when FMR's
projections of relative returns for the three asset classes are equivalent
to what FMR would expect over the long-term. FMR does not anticipate
altering the neutral mix although it may be revised from time to time. As
of February 28, 1994, the fund's asset mix consisted of approximately __%
short-term instruments, __% bonds and __% stocks. The example above
illustrates the fund's asset mix at one point in time and does not
necessarily indicate its current or future allocation.
FMR regularly reviews the fund's investment allocations, and will gradually
vary them over time to favor asset classes that, in FMR's current judgment,
provide the most favorable total return outlook. In making allocation
decisions, FMR will evaluate projections of risk, market and economic
conditions, volatility, yields and expected return. In addition, FMR seeks
to reduce risk relative to an investment in common stocks by emphasizing
the bond and short-term classes when stocks appear overvalued. FMR's
management will include use of database systems to help analyze past
situations and trends, research specialists in each of the asset classes to
help in securities selection, portfolio management professionals to
determine asset allocation and to select individual securities, and its own
credit analysis as well as credit analysis provided by rating services.
Because the fund seeks high total return over the long-term, it will not
try to pinpoint the precise moment when major reallocations should be made.
Rather, asset shifts among classes will be made gradually over time and,
under normal conditions, a single reallocation decision will not involve
more than 10% of the fund's total assets. The fund may make substantial
temporary investments in cash and money market instruments for defensive
purposes when, in FMR's judgment, market conditions warrant.
To provide the fund with maximum flexibility within the three asset
classes, FMR will purchase portfolio securities from among a wide range of
investment instruments as described in the following paragraphs. FMR
believes that diversification of the fund's investments among the asset
classes listed below, as opposed to investment in any one class, will,
under most market conditions, better enable the fund to reduce risk while
seeking high total return over the long-term.
SHORT-TERM CLASS. This class includes all types of domestic and foreign
securities and money market instruments with remaining maturities of three
years or less. FMR will seek to maximize total return within the short-term
asset class by taking advantage of yield differentials between different
instruments, issuers and currencies. Short-term instruments may include
corporate debt securities such as commercial paper and notes; government
securities issued by U.S. or foreign governments or their agencies or
instrumentalities; bank deposits and other financial institution
obligations; repurchase agreements involving any type of security; and
other similar short-term instruments. These instruments may be denominated
in U.S. dollars or foreign currency.
BOND CLASS. The bond class includes all varieties of domestic and foreign
fixed-income securities with maturities greater than three years. FMR seeks
to maximize total returns within the bond class by adjusting the fund's
investments in securities with different credit qualities, maturities, and
coupon or dividend rates, as well as by exploiting yield differentials
between securities. Securities in this class may include bonds, notes,
adjustable rate preferred stocks, convertible bonds, mortgage-related and
asset-backed securities, domestic and foreign government and government
agency securities, zero coupon bonds, and other intermediate and long-term
securities (see the Appendix for a further discussion of these
instruments). As with the short-term class, these securities may be
denominated in U.S. dollars or foreign currency.
The fund may invest in securities of any quality, including lower-rated,
high-yielding debt securities (commonly referred to as "junk bonds") as
well as higher quality securities; however, no more than 35% of the fund's
assets may be invested in lower-rated debt securities (those rated Ba or
lower by Moody's or BB or lower by S&P, and unrated securities judged
by FMR to be of equivalent quality). However, the fund does not currently
intend to invest more than 20% of its total assets in securities judged by
FMR to be below investment-grade quality. Please see the Appendix for more
information.
STOCK CLASS. The stock class includes domestic and foreign equity
securities of all types (other than adjustable rate preferred stocks
included in the bond class). FMR seeks to maximize total return within this
asset class by actively allocating assets to industries and economic
sectors expected to benefit from major trends, and to individual stocks
that it believes to have superior investment potential. Securities in the
stock class may include common stocks, fixed-rate preferred stocks
(including convertible preferred stocks), warrants, rights, depositary
receipts, and other equity securities issued by companies of any size,
located anywhere in the world.
OTHER INVESTMENT PRACTICES. The fund may invest in options and futures
contracts, foreign investments, currency management strategies, indexed
securities, short sales, swap agreements, delayed-delivery transactions,
illiquid investments, restricted securities, loans and other direct debt
instruments and interfund borrowings. Refer to the Appendix for more
information on these investments.

INDEX 500 PORTFOLIO seeks investment results that correspond to the total
return (i.e., the combination of capital changes and income) of common
stocks publicly traded in the United States, as represented by the Standard
& Poor's 500 Composite Stock Price Index (the S&P 500 or Index),
while keeping transaction costs and other expenses low.
Index 500 Portfolio is not managed according to traditional methods of
"active" investment management, which involve the buying and selling of
securities based upon economic, financial, and market analyses and
investment judgment. Instead, the fund, utilizing a "passive" or "indexing"
investment approach, attempts to duplicate the performance of the S&P
500.
The S&P 500 includes 500 selected common stocks, most of which are
listed on the New York Stock Exchange. Different stocks have different
weightings in the Index, depending on the amount of stock outstanding and
its current price.
Under normal conditions, the fund will invest at least 80% of its assets
(65% if fund assets are below $20 million) in equity securities of
companies which compose the S&P 500. In seeking to duplicate the
performance of the S&P 500, FMR will attempt over time to allocate the
fund's investments among common stocks in approximately the same weightings
as the S&P 500, beginning with the heaviest-weighted stocks that make
up a larger portion of the Index's value. Over the long term, FMR seeks a
correlation between the performance of the fund and that of the S&P 500
of .98 or better (.95 or better so long as fund asset levels are below $20
million). A figure of 1.00 would indicate perfect correlation. FMR monitors
the correlation between the performance of the fund and the S&P 500 on
a regular basis. In the unlikely event that the correlation is not
achieved, the Board of Trustees will consider alternative arrangements.
While the fund seeks to duplicate the performance of the S&P 500, its
stock portfolio may not match the Index exactly. FMR generally will seek to
match the composition of the S&P 500 as much as possible, but may not
always invest the fund's stock portfolio to mirror the Index exactly.
Because of the difficulty and expense of executing relatively small stock
transactions, the fund may not always be invested in the less heavily
weighted S&P 500 stocks and may at times have its portfolio weighted
differently from the S&P 500, particularly if the fund has a low level
of assets. When the fund's size is greater, FMR expects to purchase more of
the stocks in the S&P 500 and to match the relative weighting of the
S&P 500 more closely, and anticipates that the fund will be able to
mirror the performance of the S&P with little variance at asset levels
of $20 million or more. In addition, the fund may omit or remove an S&P
500 stock from its portfolio if, following objective criteria, FMR judges
the stock to be insufficiently liquid or believes the merit of the
investment has been substantially impaired by extraordinary events or
financial conditions. FMR may purchase stocks that are not included in the
S&P 500 to compensate for these differences if it believes that their
prices will move together with the prices of S&P 500 stocks omitted
from the portfolio.
Under normal conditions, FMR will attempt to invest as much of the fund's
assets as is practical in common stocks, including S&P 500 stocks and
other stocks held to compensate for differences between the S&P 500 and
the fund's investments. However, the fund will maintain a reasonable
position in high-quality short-term debt securities and money market
instruments to meet redemption requests or to invest in common stocks. If
FMR believes that market conditions warrant a temporary defensive posture,
the fund may invest without limit in high-quality short-term debt
securities and money market instruments. These securities and money market
instruments may include domestic and foreign commercial paper, certificates
of deposit, bankers' acceptances and time deposits, U.S. government
securities, and repurchase agreements.
The fund may also invest a portion of its portfolio in instruments whose
return depends on stock market prices. These may include debt securities
whose prices or interest rates are indexed to the return of the S&P
500, interest rate swap or similar agreements linked to the S&P 500,
and stock index futures contracts. The fund would invest in these types of
instruments in order to seek to match the total return of the Index in
accordance with its investment objective. However, instruments linked to
stock market returns may not track the return of the Index in all cases,
and may involve additional credit risks.
OTHER INVESTMENT PRACTICES. Refer to the Appendix for information on stock
index futures contracts, illiquid investments, indexed securities, swap
agreements, repurchase agreements and securities loans, and interfund
loans. The fund may also invest in warrants and foreign securities.

ASSET MANAGER PORTFOLIO stresses high total return over the long-term. The
fund's performance may be affected by many different factors, depending on
its portfolio emphasis. Short-term instruments are generally the most
stable of the fund's three principal asset classes. Their returns depend
primarily on current short-term interest rates, though currency
fluctuations can also be significant with respect to foreign securities.
The bond class is affected primarily by interest rates. In general, prices
of fixed-income securities tend to rise when interest rates fall, and fall
when interest rates rise. Interest rate changes will have a greater impact
on the fund if it is heavily invested in long-term or zero-coupon bonds.
Fixed-income securities may also be affected by changes in the credit
quality of their investments. The fund may invest in fixed-income
securities that present the risk of default, whose prices may be as
volatile as or more volatile than common stocks. Because the fund has no
limitation on the quality of debt securities in which it may invest, the
debt securities in its portfolio may be of poor quality, considered
speculative and present the risk of default.
The stock class is subject to the risks of stock market investing,
including the possibility of sudden or prolonged market declines as well as
the risks associated with individual companies. These risks may be
intensified for investments in smaller or less well-known companies or in
foreign securities. In general, stock prices can be volatile and have
inherently more risk than fixed-income instruments. No assurance can be
made that allocation decisions will be advantageous to the fund.

INDEX 500 PORTFOLIO may be appropriate for investors seeking a relatively
low-cost means to diversify their investment portfolios using an index of
securities that is representative of the stock market as a whole. The fund
is intended as a long term investment. Because it invests predominately in
common stock, the fund may be appropriate for you only if you can afford to
ride out changes in the stock market.
You should be aware that the performance of the S&P 500 is a
hypothetical number which assumes reinvestment of dividends but does not
take into account brokerage commissions and other costs of investing, which
the fund bears. Since the fund seeks to track the S&P 500, it is not
managed for growth or income in the same manner as other mutual funds, and
FMR generally will not attempt to judge the merits of any particular stock
as an investment. Accordingly, you should not expect to achieve the
potentially greater results that could be obtained by a fund that
aggressively seeks growth.
ABOUT THE S&P 500 INDEX. The S&P 500 is a well-known stock market
index that includes common stocks of companies representing a significant
portion of the market value of all common stocks publicly traded in the
United States. Stocks in the S&P 500 are weighted according to their
market capitalization (i.e., the number of shares outstanding multiplied by
the stock's current price), with the 51 largest stocks currently composing
50% of the Index's value. FMR believes that the performance of the S&P
500 is representative of the performance of publicly traded common stocks
in general. The composition of the S&P 500 Index is determined by
Standard & Poor's Corporation and is based on such factors as the
market capitalization and trading activity of each stock, and its adequacy
as a representation of stocks in a particular industry group. Standard
& Poor's Corporation may change the Index's composition from time to
time. "S&P(REGISTERED TRADEMARK)", S&P 500(REGISTERED TRADEMARK)",
and "500" are service marks of Standard & Poor's Corporation and have
been licensed for use herein.
However, including a stock in the S&P 500 in no way implies an opinion
by Standard & Poor's Corporation as to its attractiveness as an
investment, nor is Standard & Poor's Corporation a sponsor of or in any
way affiliated with the fund.

LIMITING INVESTMENT RISKS
The following summarizes the funds' principal investment limitations. A
complete listing is contained in the Statement of Additional Information.
The following limitations and the policies discussed in "HOW THE TRUST
WORKS" are considered at the time of purchase; the sale of securities is
not required in the event of a subsequent change in circumstances.
1. Each fund will not purchase a security if, as a result, (a) (with
respect to 75% of its total assets) more than 5% of its total assets would
be invested in the securities of any single issuer or it would hold more
than 10% of the outstanding voting securities of that issuer; (b) more than
25% of total assets would be invested in a particular industry; or (c) more
than 10% of its net assets would be invested in illiquid securities.
Limitations (a) and (b) do not apply to U.S. government securities.
2. Each fund may borrow money or engage in reverse repurchase agreements
(as described in the Appendix) for temporary or emergency purposes, but not
in an amount exceeding 25% of its net assets.
3. Each fund may temporarily lend any security or make any other loan
provided that not more than 33 1/3% of a fund's total assets would be lent
to other parties.
Except for each fund's investment objective and limitations 1(a), 1(b), and
3 as noted above, the policies described in this prospectus are not
fundamental policies. Non-fundamental policies can be changed at any time
without the consent of shareholders.
Each fund may borrow money only from banks or other funds advised by FMR
and will not purchase securities when borrowings exceed 5% of its total
assets. If a fund borrows money, its share price may be subject to greater
fluctuation until the borrowing is paid off. To this extent, purchasing
securities when borrowings are outstanding may involve an element of
leverage. Each fund may engage in repurchase agreements. Each fund may also
temporarily lend its portfolio securities to broker-dealers and
institutions, but only when the loans are fully collateralized. Each fund
may also make cash loans to other funds advised by FMR in an amount not
exceeding 5% of net assets for Asset Manager Portfolio and Index 500
Portfolio, respectively, and 7.5% of net assets for Investment Grade Bond
Portfolio (see Appendix).
INTERNAL REVENUE SERVICE (IRS) LIMITATIONS. In addition to the above, each
fund also follows certain non-fundamental limitations imposed by the IRS on
separate accounts of insurance companies relating to the tax-deferred
status of variable contracts. More specific information may be contained in
your insurance company's separate account prospectus.
PORTFOLIO TRANSACTIONS
FMR chooses broker-dealers by judging professional ability and quality of
service and uses various brokerage firms to carry out a fund's equity
transactions. A fund's money market obligations and debt securities are
generally traded in the over-the-counter market through broker-dealers. A
broker-dealer is a securities firm or bank which makes a market for
securities by offering to buy at one price and sell at a slightly higher
price. The difference between the prices is known as a spread. Since FMR
places a large number of transactions, including those of Fidelity's other
funds, the funds generally pay lower commissions and incur lower costs, and
broker-dealers are willing to work on a more favorable spread than would be
possible for most individual investors.
Each fund has authorized FMR to allocate transactions to some
broker-dealers who help distribute the fund's shares or shares of
Fidelity's other funds, and on an agency basis, to Fidelity Brokerage
Services, Inc. (FBSI) and Fidelity Brokerage Services, Ltd. (FBSL),
affiliates of FMR. FMR will make such allocations if commissions are
comparable to those charged by non-affiliated, qualified broker-dealers for
similar services. FMR may also allocate brokerage transactions to a fund's
custodian, acting as a broker-dealer, or to other broker-dealers, so long
as transaction quality and commission rates are comparable to those of
other broker-dealers, where the broker dealers will allocate a portion of
the commissions paid toward payment of a fund's expenses. These expenses
currently include transfer agent and custodian fees.
Higher commissions may be paid to those firms that provide research
services, to the extent permitted by law. FMR also is authorized to
allocate brokerage transactions to FBSI in order to secure from FBSI
research services produced by third party, independent entities. FMR may
use this research information in managing a fund's assets, as well as
assets of other clients.
A fund may engage in short-term trading when consistent with its objective.
Also, a security may be sold and another of comparable quality
simultaneously purchased to take advantage of what FMR believes to be a
temporary disparity in the normal yield relationship of the two securities.
The majority of portfolio transactions for Index 500 (other than those made
in response to shareholder activity) will be made to adjust the portfolio
to track the S&P 500 or to reflect occasional changes in the Index's
composition. The frequency of portfolio transactions - a fund's turnover
rate - will vary from year to year depending on market conditions. For
fiscal year 1993, Investment Grade Bond Portfolio, Asset Manager Portfolio
and Index 500 Portfolio had turnover rates of ___%, ___% and ___%,
respectively. Because a higher turnover rate increases transactions costs
and may have certain tax consequences, FMR carefully weighs the anticipated
benefits of short-term investment against this consequence.
PERFORMANCE
Each fund's performance may be quoted in advertising in terms of yield and
total return if accompanied by performance at your insurance company's
separate account. Performance is based on historical results and not
intended to indicate future performance. Each fund's yield is a way of
showing the rate of income the fund earns on its investments as a
percentage of the fund's share price. To calculate yield, a fund takes the
interest income and dividend income, if any, it earned from its portfolio
of investments for a specified 30-day period (net of expenses), divides it
by the number of its shares entitled to receive dividends, and expresses
the result as an annualized percentage rate based on the fund's share price
at the end of the 30-day period. Yields are calculated according to
accounting methods that are standardized for all stock and bond funds.
Because yield accounting methods differ from the methods used for other
accounting purposes, the funds' yield may not equal its distribution rate,
the income paid to your account or the income reported in the funds'
financial statements.
TOTAL RETURNS are based on the overall dollar or percentage change in value
of a hypothetical investment in each fund, including changes in share price
and assume each fund's dividends and capital gain distributions are
reinvested. A CUMULATIVE TOTAL RETURN reflects a fund's performance over a
stated period of time. An AVERAGE ANNUAL TOTAL RETURN reflects the
hypothetical annually compounded return that would have produced the same
cumulative total return if a fund's performance had been constant over the
entire period. Because average annual returns tend to smooth out variations
in a fund's return, you should recognize that they are not the same as
actual year-by-year results. To illustrate the components of overall
performance, a fund may separate its cumulative and average annual returns
into income results and capital gain or loss.
Each fund may quote its ADJUSTED NET ASSET VALUE including all
distributions paid. These adjusted NAV's may be averaged over specified
periods. Asset Manager and Index 500 Portfolios each may use this average
to calculate its MOMENTUM INDICATOR, which tracks changes in adjusted net
asset value over specified periods.
The table below shows the record of the S&P 500 for the ten years from
1984 through 1993. Numbers for the S&P 500 show the change in value of
the S&P 500 and assume reinvestment of all dividends paid by the
S&P 500 stocks. Tax consequences are not included in the illustration,
nor are brokerage or other fees calculated in the S&P 500 figures. The
results shown should not be considered representative of the income or
capital gain or loss which may be generated by the S&P 500 or Index 500
Portfolio in the future.
STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX
Year Price Change

Ended Year End in Index Dividend Total

12/31 Index Value for Year Reinvestment Return

1993 % % %

1992 435.71 4.46% 3.16% 7.62%

1991 417.09 26.31% 4.16% 30.47%

1990 330.22 -6.56% 3.46% -3.10%

1989 353.40 27.25% 4.44% 31.69%

1988 277.72 12.40% 4.21% 16.61%

1987 247.08 2.03% 3.07% 5.10%

1986 242.17 14.62% 3.94% 18.56%

1985 211.28 26.33% 5.24% 31.57%

1984 167.24 1.40% 4.70% 6.10%

YIELDS AND TOTAL RETURNS QUOTED FOR THE FUNDS INCLUDE THE EFFECT OF
DEDUCTING EACH FUND'S EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES
ATTRIBUTABLE TO ANY PARTICULAR INSURANCE PRODUCT. SINCE SHARES OF THE FUNDS
MAY ONLY BE PURCHASED THROUGH A VARIABLE ANNUITY OR VARIABLE LIFE INSURANCE
CONTRACT, YOU SHOULD CAREFULLY REVIEW THE PROSPECTUS OF THE INSURANCE
PRODUCT YOU HAVE CHOSEN FOR INFORMATION ON RELEVANT CHARGES AND EXPENSES.
Excluding these charges from quotations of each fund's performance has the
effect of increasing the performance quoted. You should bear in mind the
effect of these charges when comparing a fund's performance to that of
other mutual funds. For additional performance information, contact your
insurance company for a free annual report.
DISTRIBUTIONS AND TAXES
For a discussion of the tax status of your variable 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 or variable life insurance contracts. Under current tax
law, dividends or capital gain distributions from any fund are not
currently taxable when left to accumulate within a variable annuity or
variable life insurance contract. Depending on the variable contract,
withdrawals from the contracts may be subject to ordinary income tax and,
in addition to a 10% penalty tax on withdrawals before age 59 1/2.
Each fund is treated as a separate entity for federal income tax purposes.
Each fund intends to pay out all of its net investment income and net
realized capital gains for each year. Dividends from the funds will be
distributed at least annually. Each fund makes dividend and capital gain
distributions on a per-share basis. After distribution from the 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. Normally, net
realized capital gains, if any, are distributed each year for each fund.
Such income and capital gain distributions are automatically reinvested in
additional shares of the funds.
THE TRUST AND THE FIDELITY ORGANIZATION
Variable Insurance Products Fund II is an open-end, diversified, management
investment company organized as a Massachusetts business trust on March 21,
1988. Currently, there are three portfolios in the Trust (Investment Grade
Bond Portfolio, Asset Manager Portfolio and Index 500 Portfolio ). It has
its own Board of Trustees, which supervises its activities and reviews
contractual arrangements with companies that provide each fund with
services. The Trust is not required to hold annual shareholder meetings,
although special meetings may be called for a specific fund, or the Trust
as a whole, for purposes such as electing or removing Trustees, changing
fundamental policies or approving a management contract. An insurance
company issuing a variable contract that participates in the Trust will
vote shares in the separate account as required by law and interpretations
thereof, as may be amended or changed from time to time. In accordance with
current law and interpretations thereof, a participating insurance company
is required to request voting instructions from policyowners and must vote
shares in the separate account in proportion to the voting instructions
received. For a further discussion, please refer to your insurance
company's separate account prospectus.
Fidelity Investments is one of America's largest investment management
organizations and has its principal business address at 82 Devonshire
Street, Boston, Massachusetts. It includes a number of different companies,
which provide a variety of financial services and products. Each fund
employs various Fidelity companies to perform certain activities required
for its operation.
Fidelity Management & Research Company, the funds' manager, is the
original Fidelity company, founded in 1946. It provides a number of mutual
funds and other clients with investment research and portfolio management
services. It maintains a large staff of experienced investment personnel
and a full complement of related support facilities. Fidelity Management
& Research (U.K.) Inc. (FMR U.K.) and Fidelity Management &
Research (Far East) Inc. (FMR Far East) are wholly owned subsidiaries of
FMR that provide investment advice and research with respect to
foreign securities. FMR U.K. and FMR Far East maintain their principal
business offices in London and Tokyo, respectively. As of December 31,
1993, FMR advised funds having more than __ million shareholder accounts
with a total value of more than $___ billion. Fidelity Distributors
Corporation distributes shares for the Fidelity funds. FMR Corp. is the
holding company for the Fidelity companies. Through ownership of voting
common stock, Edward C. Johnson 3d, President and a Trustee of the Trust,
Johnson family members, and various trusts for the benefit of the Johnson
family form a controlling group with respect to FMR Corp.
Each fund has an investment objective similar to an existing Fidelity
retail fund. Investment Grade Bond Portfolio is most similar to Fidelity
Intermediate Bond Fund, Asset Manager Portfolio to Fidelity Asset Manager
and Index 500 Portfolio to Fidelity Market Index Fund. Performance of these
funds is not expected to be the same due in part to dissimilarities of
their investments. Various insurance related costs at the insurance
company's separate account will also affect performance.
Donald Taylor is manager and vice president of Investment Grade Bond
Portfolio, which he has managed since September 1989. Mr. Taylor also
manages Advisor Short Fixed Income, Fidelity Short-Term Bond Portfolio and
Spartan Short-Term Income. In addition, Mr. Taylor manages Income Plus for
Fidelity International. Previously, he managed Corporate Trust, Qualified
Dividend, Zero Coupon Bond Fund, and Utilities Income. Mr. Taylor joined
Fidelity in 1986.
Robert Beckwitt is manager and vice president of Asset Manager Portfolio,
which he has managed since October 1989. Mr. Beckwitt also manages Fidelity
Asset Manager, Asset Manager: Growth, and Asset Manager: Income. In
addition, he serves as chief investment strategist for Fidelity Portfolio
Advisory Service. Previously, he managed Spartan Government Income, Spartan
Long-Term Government Bond, and was director of quantitative research. Mr.
Beckwitt joined Fidelity in 1985.
Each fund sells its shares to separate accounts of insurance companies
which are both affiliated and unaffiliated with FMR. Each fund currently
does not foresee any disadvantages to policyowners arising out of the fact
that each fund offers its shares to separate accounts of various insurance
companies to serve as the investment medium for their variable products.
Nevertheless, the Board of Trustees intends to monitor events in order to
identify any material conflicts which may possibly arise, and to determine
what action, if any, should be taken in response to such conflicts. If such
a conflict were to occur, one or more insurance companies' separate
accounts might be required to withdraw its investments in one or more funds
or 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 in the best interests of the
shareholders of the fund.
MANAGEMENT, DISTRIBUTION AND SERVICE FEES
For managing each fund's investments and business affairs, each fund pays
FMR a monthly fee.
INVESTMENT GRADE BOND PORTFOLIO'S annual fee rate is the sum of two
components:
1. A group fee rate based on the monthly average net assets of all the
mutual funds advised by FMR. This rate cannot rise above .37%, and it drops
(to as low as a marginal rate of .14%*) as total assets in all these funds
rise. The effective group fee rate for December 1993 was .____%.
2. An individual fund fee rate of .30%.
One-twelfth of the combined annual fee rate is applied to the fund's net
assets averaged over the most recent month, giving a dollar amount which is
the fee for that month.
In fiscal year 1993, FMR's fee was .__% of the fund's average net assets or
$___ for every $1,000 of the fund's average net assets.
ASSET MANAGER PORTFOLIO'S annual fee rate is the sum of two components:
1. A group fee rate based on the monthly average net assets of all the
mutual funds advised by FMR. This rate cannot rise above .52%, and it drops
(to as low as a marginal rate of .30%*) as total assets in all these funds
rise. The effective group fee rate for December 1993 was .____%.
2. An individual fund fee rate of .40%.
One-twelfth of the combined annual fee rate is applied to the fund's net
assets averaged over the most recent month, giving a dollar amount which is
the fee for that month.
*FMR voluntarily agreed to adopt a revised group fee rate schedule for
each fund which provides for a marginal rate as low as .1325% for
Investment Grade Bond Portfolio and .285% for Asset Manager Portfolio when
average group net assets exceed $336 billion. A new management contract for
each fund with a revised group fee rate schedule will be presented for
approval at the next shareholder meeting.
In fiscal year 1993, FMR's fee was .__% of the fund's average net assets or
$___ for every $1,000 of the fund's average net assets.
INDEX 500 PORTFOLIO pays a monthly management fee to FMR at the annual rate
of .28% of the fund's average net assets. One-twelfth of this annual fee
rate is applied to the net assets averaged over the most recent month,
giving a dollar amount which is the management fee for that month.
Each fund has adopted a Distribution and Service Plan (the Plans) pursuant
to Rule 12b-1 under the Investment Company Act of 1940. No separate
payments are authorized to be made by the funds under the Plans. Rather,
each Plan recognizes that FMR may use its management fee or other resources
to pay expenses associated with activities primarily intended to result in
the sale of each fund's shares. Each Plan also provides that FMR may make
payments from these sources to third parties, although the Board has not
authorized these payments to date.
On behalf of Asset Manager Portfolio, FMR has entered into sub-advisory
agreements with FMR U.K. and FMR Far East, pursuant to which these entities
provide research and investment recommendations with respect to companies
based outside the United States. FMR U.K. focuses primarily on companies
based in Europe while FMR Far East focuses primarily on companies based in
Asia and the Pacific Basin.
Under the sub-advisory agreements, FMR and not the fund, pays FMR U.K. and
FMR Far East fees equal to 110% and 105%, respectively, of each
sub-advisor's costs incurred in connection with its sub-advisory agreement.
Each fund utilizes Fidelity Investments Institutional Operations Company
(FIIOC), an affiliate of FMR, to maintain the master accounts of the
participating insurance companies. Under the transfer agent agreement with
FIIOC, each fund pays fees based on the type, size, and number of accounts
in each fund and the number of transactions made by shareholders of each
fund. For fiscal year 1993, Investment Grade Bond Portfolio, Asset Manager
Portfolio and Index 500 Portfolio paid $____, $____ and $____,
respectively, for these services.
Each fund also has an agreement with Fidelity Service Co. (FSC), an
affiliate of FMR, under which each fund pays FSC to calculate its daily
share price and to maintain the portfolio and general accounting records of
each fund and to administer each fund's securities lending program. The
fees for pricing and bookkeeping services are based on each fund's average
net assets, but must fall within a range of $45,000 to $750,000 for each
fund. The fees for securities lending services are based on the number and
duration of individual securities loans. For fiscal 1993, the fees paid to
FSC (including securities lending, if any, and related out-of-pocket
expenses) amounted to $____, $____ and $____ for Investment Grade Bond
Portfolio, Asset Manager Portfolio and Index 500 Portfolio, respectively.
After reimbursement by FMR of certain expenses for Index 500 Portfolio,
total expenses for fiscal 1993 amounted to .__%, .__% and .__%,
respectively, of Investment Grade Bond Portfolio, Asset Manager Portfolio
and Index 500 Portfolio's average net assets.
FMR may, from time to time, agree to reimburse a fund for management fees
and other expenses above a specified percentage of average net assets.
Reimbursement arrangements, which may be terminated at any time without
notice, will increase a fund's yield. If FMR discontinues a reimbursement
arrangement, each fund's expenses will go up and its yield will be reduced.
FMR retains the ability to be repaid by a fund for expense reimbursements
if expenses fall below the limit prior to the end of the fiscal year.
Repayment by a fund will lower its yield. FMR has voluntarily agreed to
temporarily limit the total expenses (including the management fee, but
generally excluding taxes, interest and extraordinary expenses) of
Investment Grade Bond Portfolio, Asset Manager Portfolio and Index 500
Portfolio to .80%, 1.25% and .28%, respectively, of each fund's average net
assets.
SHAREHOLDER'S MANUAL
OPENING AN ACCOUNT
SINCE YOU MAY NOT PURCHASE THE PORTFOLIOS' SHARES DIRECTLY, YOU SHOULD READ
THE PROSPECTUS OF THE INSURANCE COMPANY'S SEPARATE ACCOUNT TO OBTAIN
INSTRUCTIONS FOR PURCHASING A VARIABLE ANNUITY OR VARIABLE LIFE INSURANCE
CONTRACT.
SHARE PRICE
The term "net asset value" or NAV refers to the worth of one share. The NAV
is computed by adding the value of all of a fund's investments, cash and
other assets, deducting liabilities and dividing the result by the number
of shares outstanding. Each fund is open for business each day the New York
Stock Exchange is open. FSC normally calculates the NAV as of the close of
business of the New York Stock Exchange (normally 4:00 p.m. Eastern time).
A fund's money market investments maturing within 60 days are valued on the
basis of amortized cost. This method of valuation assumes a steady rate of
amortization of any premium or discount from the date of purchase until
maturity, instead of looking at actual changes in market value. Some bonds
held by a fund are valued at fair value based on quotations supplied by a
pricing service approved by the Trust's Board. For all funds, portfolio
securities and other assets are valued on the basis of market quotations
or, if market quotations are not readily available, by a method which the
Trust's Board believes accurately reflects fair value. Foreign securities
are valued based on quotations from the primary market in which they are
traded and are translated from the local currency into U.S. dollars using
current exchange rates.
INVESTMENTS
Investments in the Trust may be made only by separate accounts established
and maintained by insurance companies for the purpose of funding variable
insurance contracts. Please refer to the prospectus of your insurance
company's separate account for information on how to invest in each fund.
Investments by separate accounts in the Trust are expressed in terms of
full and fractional shares of each fund. All investments in the funds are
credited to an insurance company's separate account immediately upon
acceptance of the investment by a fund. Investments will be processed at
the next NAV calculated after an order is received and accepted by a fund.
The offering of shares of any fund may be suspended for a period of time
and each fund reserves the right to reject any specific purchase order.
Purchase orders may be refused if, in FMR's opinion, they are of a size
that would disrupt the management of a fund.
REDEMPTIONS
Shares of any fund may be redeemed on any business day. Redemptions are
effected at the per share NAV next determined after the redemption request
has been accepted by a fund. Redemption proceeds will normally be wired to
the insurance company on the next business day after receipt of the
redemption instructions by a fund but in no event later than 7 days
following receipt of instructions. Each fund may suspend redemptions or
postpone payment dates on days when the New York Stock Exchange is closed
(other than weekend or holidays), when trading on the New York Stock
Exchange is restricted, or as permitted by the Securities and Exchange
Commission.
Please refer to the prospectus of your insurance company's separate account
for information on how to redeem from each fund.
APPENDIX
The following paragraphs provide a brief description of securities in which
the funds may invest and transactions they may make. Each fund is not
limited by this discussion, however, and may purchase other types of
securities and enter into other types of transactions if they are
consistent with the its investment objective and policies.
CERTIFICATES OF DEPOSIT represent a commercial bank's obligations to repay
funds deposited with it earning specified rates of interest over given
periods.
BANKERS' ACCEPTANCES are obligations of a bank to pay a draft which has
been drawn on it by a customer. These obligations are backed by large banks
and usually backed by goods in international trade.
COMMERCIAL PAPER are short-term obligations issued by banks,
broker-dealers, corporations and other entities for purposes such as
financing their current operations.
FOREIGN INVESTMENTS AND CURRENCY MANAGEMENT. Each fund may invest
in foreign securities, which involve additional risks. Foreign securities
and securities denominated in or indexed to foreign currencies may be
affected by the strength of foreign currencies relative to the U.S. dollar,
or by political or economic developments in foreign countries. Foreign
companies may not be subject to accounting standards or governmental
supervision comparable to U.S. companies, and there may be less public
information about their operations. In addition, foreign markets may be
less liquid or more volatile than U.S. markets, and may offer less
protection to investors such as the funds. These risks are typically
greater for investments in less developed countries whose governments and
financial markets may be more susceptible to adverse political and economic
developments. FMR considers these factors in making investments for each
fund. FMR limits the amount of each fund's net assets that may be invested
in foreign securities to 50%, however, each fund may not invest more than
20% of its assets in any one foreign country except, each fund may have an
additional 15% invested in securities of issuers located in any one (but
only one) of the following countries: Australia, Canada, France, Japan, the
United Kingdom or Germany. A fund must be diversified in at least three
different countries if it exceeds 20% in any one foreign country.
Each fund may enter into currency forward contracts (agreements to exchange
one currency for another at a future date) to manage currency risks and to
facilitate transactions in foreign securities. Although currency forward
contracts can be used to protect each fund from adverse exchange rate
changes, they involve a risk of loss if FMR fails to predict foreign
currency values correctly.
OPTIONS AND FUTURES CONTRACTS are a way for a fund to manage its exposure
to changing interest rates, security prices, and currency exchange rates.
Some options and futures strategies, including selling futures, buying
puts, and writing calls, tend to hedge a fund's investments against price
fluctuations. Other strategies, including buying futures, writing puts, and
buying calls, tend to increase market exposure. Options and futures may be
combined with each other or with forward contracts in order to adjust the
risk and return characteristics of the overall strategy. A fund may invest
in options and futures based on any type of security, index, or currency,
including options and futures traded on foreign exchanges and options not
traded on exchanges.
Options and futures can be volatile investments, and involve certain risks.
If FMR applies a hedge at an inappropriate time or judges market conditions
incorrectly, options and futures strategies may lower a fund's return. A
fund could also experience losses if the prices of its options and futures
positions were poorly correlated with its other investments, or if it could
not close out its positions because of an illiquid secondary market.
Investment Grade Bond, Asset Manager and Index 500 funds will not hedge
more than 25%, 25% and 35%, respectively, of its total assets by selling
futures, buying puts, and writing calls under normal conditions. In
addition, Investment Grade Bond and Asset Manager Portfolios will not buy
futures or write puts whose underlying value exceeds 25% of their total
assets and Index 500 Portfolio will not buy futures or write puts whose
underlying value exceeds 15% of its total assets, and each fund will not
buy calls with a value exceeding 5% of its total assets.
SHORT SALES. A fund may enter into short sales with respect to stocks
underlying its convertible security holdings. These transactions may help
to hedge against the effect of stock price declines, but may result in
losses if a convertible security's price does not track the price of its
underlying equity. Convertible securities hedged with short sales are not
currently expected to exceed 15% of a fund's total assets under normal
conditions.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS are interests in amounts owed by a
corporate, governmental, or other borrower to another party. They may
represent amounts owed to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or other
receivables), or to other parties. Direct debt instruments involve risk of
loss in case of default or insolvency of the borrower and may offer less
legal protection to a fund in the event of fraud or misrepresentation. In
addition, loan participations involve a risk of insolvency of the lending
bank or other financial intermediary. Direct debt instruments may also
include standby financing commitments that obligate a fund to supply
additional cash to the borrower on demand.
ILLIQUID INVESTMENTS. Each fund may invest up to 10% of its assets in
illiquid investments. Under the supervision of the Board of Trustees, FMR
determines the liquidity of each fund's investments. The absence of a
trading market can make it difficult to ascertain a market value for
illiquid investments. Disposing of illiquid investments may involve
time-consuming negotiation and legal expenses, and it may be difficult or
impossible for a fund to sell them promptly at an acceptable price.
RESTRICTED SECURITIES. Investment Grade Bond and Asset Manager Portfolios
may purchase securities which cannot be sold to the public without
registration under the Securities Act of 1933 (restricted securities).
Unless registered for sale, these securities can only be sold in privately
negotiated transactions or pursuant to an exemption from registration.
DELAYED DELIVERY TRANSACTIONS. Investment Grade Bond and Asset Manager
Portfolios may buy and sell securities on a when-issued or delayed-delivery
basis, with payment and delivery taking place at a future date. The market
value of securities purchased in this way may change before the delivery
date, which could increase fluctuations in a fund's share price and yield.
Ordinarily, each fund will not earn interest on securities purchased until
they are delivered.
VARIABLE OR FLOATING RATE OBLIGATIONS, including certain
participation interests in municipal obligations, have interest rate
adjustment formulas that help stabilize their market values. Many variable
and floating rate instruments also carry demand features that permit a fund
to sell them at par value plus accrued interest on short notice.
WARRANTS. Asset Manager and Index 500 Portfolios may invest in warrants,
which entitle the holder to buy equity securities at a specific price for a
specific period of time. Warrants may be considered more speculative than
certain other types of investments in that they do not entitle a holder to
dividends or voting rights with respect to the securities which may be
purchased nor do they represent any rights in the assets of the issuing
company. The value of a warrant may be more volatile than the value of the
warrant's underlying securities. Also, the value of the warrant does not
necessarily change with the value of the underlying securities and a
warrant ceases to have value if it is not exercised prior to the expiration
date.
MORTGAGE-BACKED SECURITIES are securities issued by government and
non-government entities such as banks, mortgage lenders, or other financial
institutions. A mortgage-backed security may be an obligation of the issuer
backed by a mortgage or pool of mortgages or a direct interest in an
underlying pool of mortgages. Some mortgage-backed securities, such as
collateralized mortgage obligations or CMOs, make payments of both
principal and interest at a variety of intervals; others make semiannual
interest payments at a predetermined rate and repay principal at maturity
(like a typical bond). Mortgage-backed securities are based on different
types of mortgages including those on commercial real estate or residential
properties. Other types of mortgage-backed securities will likely be
developed in the future, and a fund may invest in them if FMR determines
they are consistent with its investment objective and policies.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment
risk. Prepayment, which occurs when unscheduled or early payments are made
on the underlying mortgages, may shorten the effective maturities of these
securities and may lower their total returns.
STRIPPED MORTGAGE-BACKED SECURITIES are created when a U.S. government
agency or a financial institution separates the interest and principal
components of a mortgage-backed security and sells them as individual
securities. The holder of the "principal-only" security (PO) receives the
principal payments made by the underlying mortgage-backed security, while
the holder of the "interest-only" security (IO) receives interest payments
from the same underlying security.
The prices of stripped mortgage-backed securities may be particularly
affected by changes in interest rates. As interest rates fall, prepayment
rates tend to increase, which tends to reduce prices of IOs and increase
prices of POs. Rising interest rates can have the opposite effect.
ASSET-BACKED SECURITIES may include pools of mortgages, loans,
receivables or other assets. Payment of principal and interest may be
largely dependent upon the cash flows generated by the assets backing the
securities.
GOVERNMENT SECURITIES are securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities. They may be backed by the
credit of the government as a whole or only by the issuing agency. For
example, securities issued by the Federal Home Loan Banks and the Federal
Home Loan Mortgage Corporation are supported only by the credit of the
agency that issued them, and not by the U.S. government. Securities issued
by the Federal Farm Credit System, the Federal Land Banks, and the Federal
National Mortgage Association are supported by the agency's right to borrow
money from the U.S. Treasury under certain circumstances. U.S. Treasury
securities and some agency securities, such as those issued by the Federal
Housing Administration and the Government National Mortgage Association,
are backed by the full faith and credit of the U.S. government and are the
highest quality government securities.
INDEXED SECURITIES values are linked to currencies, interest rates,
commodities, indices, or other financial indicators. Most indexed
securities are short to intermediate term fixed-income securities whose
values at maturity or interest rates rise or fall according to the change
in one or more specified underlying instruments. Indexed securities may be
positively or negatively indexed (i.e., their value may increase or
decrease if the underlying instrument appreciates), and may have return
characteristics similar to direct investments in the underlying instrument
or to one or more options on the underlying instrument. Indexed securities
may be more volatile than the underlying instrument itself.
SWAP AGREEMENTS. As one way of managing its exposure to different types of
investments, a fund may enter into interest rate swaps, currency swaps, and
other types of swap agreements such as caps, collars, and floors. In a
typical interest rate swap, one party agrees to make regular payments equal
to a floating interest rate multiplied by a "notional principal amount," in
return for payments equal to a fixed rate multiplied by the same amount,
for a specified period of time. If a swap agreement provides for payments
in different currencies, the parties might agree to exchange the notional
principal amount as well. Swaps may also depend on other prices or rates,
such as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate
exceeds an agreed-upon level, while the seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate
falls below an agreed-upon level. An interest rate collar combines elements
of buying a cap and selling a floor.
Swap agreements will tend to shift a fund's investment exposure from one
type of investment to another. For example, if a fund agreed to exchange
payments in dollars for payments in foreign currency, the swap agreement
would tend to decrease a fund's exposure to U.S. interest rates and
increase its exposure to foreign currency and interest rates. Caps and
floors have an effect similar to buying or writing options. Depending on
how they are used, swap agreements may increase or decrease the overall
volatility of a fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks
assumed. As a result, swaps can be highly volatile and may have a
considerable impact on a fund's performance. Swap agreements are subject to
risks related to the counterparty's ability to perform, and may decline in
value if the counterparty's creditworthiness deteriorates. A fund may also
suffer losses if it is unable to terminate outstanding swap agreements or
reduce its exposure through offsetting transactions.
REPURCHASE AGREEMENTS AND SECURITIES LOANS. In a repurchase agreement, a
fund buys a security at one price and simultaneously agrees to sell it back
to the seller at a higher price. Each fund may also make securities loans
to broker-dealers and institutional investors, including Fidelity Brokerage
Services, Inc. In the event of the bankruptcy of the other party to a
repurchase agreement or a securities loan, each fund could experience
delays in recovering its cash or the securities it lent. To the extent
that, in the meantime, the value of the securities purchased had decreased,
or the value of the securities lent had increased, each fund could
experience a loss. A fund may enter into a FOREIGN REPURCHASE AGREEMENT
with respect to foreign securities and repurchase agreements denominated in
foreign currencies. Foreign repurchase agreements may be less well secured
than repurchase agreements in U.S. markets, and may involve greater risks
of default. In all cases, FMR must find the creditworthiness of the other
party to the transaction satisfactory.
REVERSE REPURCHASE AGREEMENTS are transactions when a fund temporarily
transfers possession of a portfolio instrument to another party, such as a
bank or broker-dealer, in return for cash. At the same time, the fund
agrees to repurchase the instrument at an agreed-upon price and time. Each
fund expects that it will engage in reverse repurchase agreements for
temporary purposes such as to fund redemptions. Reverse repurchase
agreements may increase the risk of fluctuation in the market value of a
fund's assets or in its yield.
ZERO COUPON BONDS do not make interest payments; instead, they are sold at
a deep discount from their face value and are redeemed at face value when
they mature. Because zero coupon bonds do not pay current income, their
prices can be very volatile when interest rates change. In calculating its
daily dividend, a fund takes into account as income a portion of the
difference between a zero coupon bond's purchase price and its face value.
A broker-dealer creates a derivative zero by separating the interest and
principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury
Securities), TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury
Receipts) are examples of derivative zeros.
The Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and
principal components of an outstanding U.S. Treasury bond and selling them
as individual securities. Bonds issued by the Resolution Funding
Corporation (REFCORP) and the Financing Corporation (FICO) can also be
separated in this fashion. Original issue zeros are zero coupon securities
originally issued by the U.S. government, a government agency, or a
corporation in zero coupon form.
LOWER-RATED DEBT SECURITIES. Asset Manager Portfolio may purchase
lower-rated debt securities (those rated Ba or lower by Moody's or BB or
lower by S&P, and unrated securities judged by FMR to be of equivalent
quality) that have poor protection against default in the payment of
principal and interest, 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-rated debt securities may fluctuate more than those of
higher-rated debt securities, and may decline significantly in periods of
general economic difficulty which may follow periods of rising interest
rates.
DEBT OBLIGATIONS. The following tables provide a summary of ratings
assigned to long-term debt holdings (not including money market
instruments) in Investment Grade Bond and Asset Manager Portfolios'
portfolio. These percentages are dollar-weighted averages of month-end
portfolio holdings during the thirteen months ended December 31, 1993,
presented as a percentage of total investments. These percentages are
historical and not necessarily indicative of the quality of current or
future portfolio holdings, which may vary. For Investment Grade Bond and
Asset Manager Portfolios' policies regarding the quality of portfolio
investments, refer to pages __ and __, respectively.
INVESTMENT GRADE BOND PORTFOLIO
DOLLAR- DOLLAR-
RATED BY WEIGHTED RATED BY WEIGHTED
S&P AVERAGE MOODY'S AVERAGE DESCRIPTION

INVESTMENT GRADE

AAA, AA, A % Aaa, Aa, A % Highest
quality/high
quality/upper
medium grade

BBB % Baa % Medium grade

LOWER QUALITY

BB % Ba % Moderately
speculative

B % B % Speculative

CCC % Caa % Highly speculative

CC, C % Ca, C % Poor quality/lowest
quality, no interest

D % In default, in
arrears

The dollar-weighted average of debt securities not rated by either S&P
or Moody's amounted to _____%.*
ASSET MANAGER PORTFOLIO
DOLLAR- DOLLAR-
RATED BY WEIGHTED RATED BY WEIGHTED
S&P AVERAGE MOODY'S AVERAGE DESCRIPTION

INVESTMENT GRADE

AAA, AA, A % Aaa, Aa, A % Highest
quality/high
quality/upper
medium grade

BBB % Baa % Medium grade

LOWER QUALITY

BB % Ba % Moderately
speculative

B % B % Speculative

CCC % Caa % Highly speculative

CC, C % Ca, C % Poor quality/lowest
quality, no interest

D % In default, in
arrears

The dollar-weighted average of debt securities not rated by either S&P
or Moody's amounted to ____%.*
* MAY INCLUDE SECURITIES RATED BY OTHER NATIONALLY RECOGNIZED RATING
ORGANIZATIONS, AS WELL AS UNRATED SECURITIES. UNRATED SECURITIES ARE NOT
NECESSARILY LOW QUALITY SECURITIES. PLEASE REFER TO THE TRUST'S STATEMENT
OF ADDITIONAL INFORMATION FOR A MORE COMPLETE DISCUSSION OF THESE RATINGS.
INTERFUND BORROWING PROGRAM. Each fund has received permission from the SEC
to lend money to and borrow money from other funds advised by FMR or its
affiliates. Interfund loans and borrowings normally will extend overnight,
but can have a maximum duration of seven days. Each fund will lend through
the program only when the returns are higher than those available at the
same time from other short-term instruments (such as repurchase
agreements), and will borrow through the program only when the costs are
equal to or lower than the cost of bank loans. Investment Grade Bond
Portfolio cannot lend more than 7.5% of its net assets to other funds and
Asset Manager Portfolio and Index 500 Portfolio each cannot lend more than
5% of its net assets to other funds. Each fund will not borrow through the
program if, after doing so, total outstanding borrowings would exceed 15%
of its total assets. Loans may be called on one day's notice, and each fund
may have to borrow from a bank at a higher interest rate if an interfund
loan is called or not renewed. Any delay in repayment to a lending fund
could result in a lost investment opportunity or additional borrowing
costs.

VARIABLE INSURANCE PRODUCTS FUND II
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1994
This Statement is not a prospectus but should be read in conjunction with
the Trust's current prospectus (dated April 30, 1994). Shares of the Trust
may only be purchased by the separate accounts of insurance companies.
Please retain this Statement for future reference. The Annual Report to
shareholders of the Trust for the fiscal year ended December 31, 1993 is
incorporated herein by reference. To obtain additional copies of the
Prospectus or Annual Report please call Fidelity Distributors Corporation
at 800-544-8888.
TABLE OF CONTENTS PAGE
Investment Policies and Limitations
Portfolio Transactions
Valuation of Portfolio Securities
Performance
General Information
Additional Purchase and Redemption Information
Taxes
FMR
Trustees and Officers
Management Contracts
Distribution and Service Plans
Contracts With Companies Affiliated With FMR
Summary of the Portfolios' Expenses
Description of the Trust
Financial Statements
Appendix
INVESTMENT ADVISOR
Fidelity Management & Research Company
SUB-ADVISORS
Asset Manager Portfolio:
Fidelity Management & Research (U.K.) Inc.
Fidelity Management & Research (Far East) Inc.
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
Fidelity Investments Institutional Operations Company (FIIOC)

VIP2/ptB-- 4/94
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of a Portfolio'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 Portfolio'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 Portfolio's investment
policies and limitations.
Each Portfolio's fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940) of each
Portfolio. However, except for the fundamental investment limitations set
forth below, the investment policies and limitations described in this
Statement of Additional Information are not fundamental and may be changed
without shareholder approval.
THE FOLLOWING ARE INVESTMENT GRADE BOND, ASSET MANAGER AND INDEX 500
PORTFOLIO'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH IN THEIR ENTIRETY.
EACH PORTFOLIO MAY NOT:
(1) With respect to 75% of the Portfolio'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 Portfolio's total assets would be invested
in the securities of that issuer, or (b) the Portfolio would hold more than
10% of the outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(3) borrow money, except that the Portfolio 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
Portfolio 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 Portfolio's 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
Portfolio 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 Portfolio from purchasing or selling options and futures contracts or
from investing in securities or other instruments backed by physical
commodities); or
(8) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.
THE FOLLOWING INVESTMENT LIMITATIONS FOR INVESTMENT GRADE BOND, ASSET
MANAGER AND INDEX 500 PORTFOLIOS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER NOTIFICATION.
(i) Each Portfolio 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 Portfolio does not currently intend to purchase securities on
margin, except that the Portfolio 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 Portfolio may borrow money only (a) from a bank or from a
registered investment company or portfolio for which FMR or an affiliate
serves as investment advisor or (b) by engaging in reverse repurchase
agreements with any party (reverse repurchase agreements are treated as
borrowings for purposes of fundamental investment limitation (3)). Each
Portfolio will not borrow money in excess of 25% of net assets so long as
this limitation is required for certification by certain state insurance
departments. Any borrowings that come to exceed this amount will be
reduced within seven days (not including Sundays and holidays) to the
extent necessary to comply with the 25% limitation. Each Portfolio will
not purchase any security while borrowings representing more than 5% of its
total assets are outstanding. Each Portfolio 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 Portfolio's total
assets.
(iv) Each Portfolio does not currently intend to purchase any security if,
as a result, more than 10% of each Portfolio's net assets would be invested
in securities that are deemed to be illiquid because they are subject to
legal or contractual restrictions on resale or because they cannot be sold
or disposed of in the ordinary course of business at approximately the
prices at which they are valued.
(v) Each Portfolio 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 Asset Manager and Index 500 Portfolios and 7.5% of Investment
Grade Bond Portfolio's net assets) to a registered investment company or
portfolio for which FMR or an affiliate serves as investment adviser or (b)
acquiring loans, loan participations, or other forms of direct debt
instruments and, in connection therewith, assuming any associated unfunded
commitments of the sellers. (This limitation does not apply to purchases
of debt securities or to repurchase agreements.)
(vi) Each Portfolio does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission
except the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.
(Due to certain state insurance regulations, each Portfolio does not
currently intend to purchase the securities of other investment companies.)
(vii) Each Portfolio does not currently intend to invest in oil, gas, or
other mineral exploration or development programs or leases.
For each Portfolio's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions"
beginning on page __. For limitations on short sales, see the section
entitled "Short Sales" on page __.
In accordance with the Portfolios' fundamental investment policies,
there are no limitations on the percentage of the Portfolios' assets which
may be invested in any one type of instrument. Nor are there limitations
(except those imposed by certain state insurance regulations) on the
percentage of the Portfolios' assets which may be invested in any foreign
country. However, in order to comply with diversification requirements
under Section 817(h) of the Internal Revenue Code of 1986, as amended, in
connection with FMR serving as investment advisor, each Portfolio has
agreed to certain non-fundamental limitations. Please refer to your
insurance company's separate account prospectus for more information.
AFFILIATED BANK TRANSACTIONS. A Portfolio may engage in transactions with
financial institutions that are, or may be considered to be, "affiliated
persons" of the Portfolio under the Investment Company Act of 1940. These
transactions may include repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50 largest
U.S. banks (measured by deposits); municipal securities; U.S. government
securities with affiliated financial institutions that are primary dealers
in these securities; short-term currency transactions; and short-term
borrowings. In accordance with exemptive orders issued by the Securities
and Exchange Commission (SEC), the Board of Trustees has established and
periodically reviews procedures applicable to transactions involving
affiliated financial institutions.
PORTFOLIOS' RIGHTS AS A SHAREHOLDER. Each Portfolio does not intend to
direct or administer the day-to-day operations of any company. Each
Portfolio, however, may exercise its rights as a shareholder and may
communicate its views on important matters of policy to management, the
Board of Directors, and shareholders of a company when FMR determines that
such matters could have a significant effect on the value of each
Portfolio's investment in the company. The activities that each Portfolio
may engage in, either individually or in conjunction with others, may
include, among others, supporting or opposing proposed changes in a
company's corporate structure or business activities; seeking changes in a
company's directors or management; seeking changes in a company's direction
or policies; seeking the sale or reorganization of the company or a portion
of its assets; or supporting or opposing third party takeover efforts.
This area of corporate activity is increasingly prone to litigation and it
is possible that each Portfolio could be involved in lawsuits related to
such activities. FMR will monitor such activities with a view to
mitigating, to the extent possible, the risk of litigation against each
Portfolio and the risk of actual liability if each Portfolio is involved in
litigation. No guarantee can be made, however, that litigation against
each Portfolio will not be undertaken or liabilities incurred.
ASSET-BACKED SECURITIES may include pools of mortgages, loans,
receivables or other assets. Payment of principal and interest may be
largely dependent upon the cash flows generated by the assets backing the
securities, and, in certain cases, supported by letters of credit, surety
bonds, or other credit enhancements. The value of asset-backed securities
may also be affected by the creditworthiness of the servicing agent for the
pool, the originator of the loans or receivables, or the financial
institution(s) providing the credit support.
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 Portfolio's investments and, through reports from
FMR, the Board monitors investments in illiquid instruments. In
determining the liquidity of each Portfolio's investments, FMR may consider
various factors, including (1) the frequency of trades and quotations, (2)
the number of dealers and prospective purchasers in the marketplace, (3)
dealer undertakings to make a market, (4) the nature of the security
(including any demand or tender features), and (5) the nature of the
marketplace for trades (including the ability to assign or offset each
Portfolio's rights and obligations relating to the investment).
Investments currently considered to be illiquid include repurchase
agreements not entitling the holder to payment of principal and interest
within seven days, over-the-counter options and non-government stripped
fixed-rate mortgage-backed securities. Also, FMR may determine some
restricted securities, government-stripped fixed-rate mortgage-backed
securities, loans and other direct debt instruments, and swap agreements to
be illiquid. However, with respect to over-the-counter options each
Portfolio writes, all or a portion of the value of the underlying
instrument may be illiquid depending on the assets held to cover the option
and the nature and terms of any agreement each Portfolio 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. If through a change in values, net assets, or other
circumstances, each Portfolio were in a position where more than 10% of
each Portfolio's net assets were invested in illiquid securities, it would
seek to take appropriate steps to protect liquidity.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, each Portfolio may be obligated to pay all or
part of the registration expense and a considerable period may elapse
between the time it decides to seek registration and the time each
Portfolio may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market
conditions were to develop, each Portfolio might obtain a less favorable
price than prevailed when it decided to seek registration of the security.
VARIABLE OR FLOATING RATE OBLIGATIONS bear variable or floating interest
rates and carry rights that permit holders to demand payment of the unpaid
principal balance plus accrued interest from the issuers or certain
financial intermediaries. Floating rate instruments have interest rates
that change whenever there is a change in a designated base rate while
variable rate instruments provide for a specified periodic adjustment in
the interest rate. These formulas are designed to result in a market value
for the instrument that approximates its par value.
In a REPURCHASE AGREEMENT, a Portfolio purchases a security and
simultaneously commits to resell that security to the seller at an agreed
upon price on an agreed upon date within a specified number of days from
the date of purchase. The resale price reflects the purchase price plus an
agreed upon market rate of interest which is unrelated to the coupon rate
or maturity of the purchased security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is
in effect secured by the value (at least equal to the amount of the agreed
upon resale price and marked to market daily) of the underlying security.
Each Portfolio may engage in a repurchase agreement with respect to any
security in which it is authorized to invest. While it does not presently
appear possible to eliminate all risks from these transactions
(particularly the possibility of a decline in the market value of the
underlying securities, as well as delay and costs to each Portfolio in
connection with bankruptcy proceedings), it is the policy of each Portfolio
to limit repurchase agreements to those whose creditworthiness has been
reviewed and found satisfactory by FMR.
FOREIGN REPURCHASE AGREEMENTS may include agreements to purchase and sell
foreign securities in exchange for fixed U.S. dollar amounts, or in
exchange for specified amounts of foreign currency. Unlike typical U.S.
repurchase agreements, foreign repurchase agreements may not be fully
collateralized at all times. The value of the security purchased by a
Portfolio may be more or less than the price at which the counterparty has
agreed to repurchase the security. In the event of a default by the
counterparty, a Portfolio may suffer a loss if the value of the security
purchased is less than the agreed-upon repurchase price, or if a Portfolio
is unable to successfully assert a claim to the collateral under foreign
laws. As a result, foreign repurchase agreements may involve higher credit
risks than repurchase agreements in U.S. markets, as well as risks
associated with currency fluctuations. In addition, as with other emerging
market investments, repurchase agreements with counterparties located in
emerging markets or relating to emerging market securities may involve
issuers or counterparties with lower credit ratings than typical U.S.
repurchase agreements.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a
Portfolio sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the instrument
at a particular price and time. While a reverse repurchase agreement is
outstanding, a Portfolio will maintain appropriate liquid assets in a
segregated custodial account to cover its obligation under the agreement.
A Portfolio will enter into reverse repurchase agreements only with parties
whose creditworthiness has been reviewed and found satisfactory by FMR.
Such transactions may increase fluctuations in the market value of a
Portfolio's assets and may be viewed as a form of leverage.
LOWER-RATED DEBT SECURITIES. (Asset Manager Portfolio) While the market for
high yield corporate debt securities has been in existence for many years
and has weathered previous economic downturns, the 1980's 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. In fact, from 1989
to 1991, the percentage of lower-rated debt securities that defaulted rose
significantly above prior levels, although the default rate decreased in
1992.
The market for lower-rated securities may be thinner and less active than
that for higher quality securities, which can adversely affect the prices
at which the former are sold. If market quotations are not available,
lower-rated debt securities will be valued in accordance with procedures
established by the Board of Trustees, including the use of outside pricing
services. Judgement plays a greater role in valuing high yield corporate
debt securities than is the case for securities for which more external
sources for quotations and last-sale information are available. Adverse
publicity and changing investor perceptions may affect the ability of
outside pricing services to value lower-rated debt securities, and the
Portfolio's ability to dispose of these bonds.
Since the risk of default is higher for lower-rated debt securities, FMR's
research and credit analysis are an especially important part of managing
securities of this type held by the Portfolio. In considering investments
for the Portfolio, FMR will attempt to identify those high-yielding debt
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.
The Portfolio 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 fund shareholders.
SWAP AGREEMENTS. Swap agreements can be individually negotiated and
structured to include exposure to a variety of different types of
investments or market factors. Depending on their structure, swap
agreements may increase or decrease a Portfolio's exposure to long or
short-term interest rates (in the U.S. or abroad), foreign currency values,
mortgage securities, corporate borrowing rates, or other factors such as
security prices or inflation rates. Swap agreements can take many
different forms and are known by a variety of names. A Portfolio is not
limited to any particular form of swap agreement if FMR determines it is
consistent with a Portfolio's investment objective and policies.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains
the right to receive payments to the extent that a specified interest rate
exceeds an agreed-upon level, while the seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate
falls below an agreed-upon level. An interest rate collar combines
elements of buying a cap and selling a floor.
Swap agreements will tend to shift a Portfolio's investment exposure from
one type of investment to another. For example, if a Portfolio agreed to
exchange payments in dollars for payments in foreign currency, the swap
agreements would tend to decrease the portfolio's exposure to U.S. interest
rates and increase exposure to foreign currency and interest rates. Caps
and floors have an effect similar to buying or writing options. Depending
on how they are used, swap agreements may increase or decrease the overall
volatility of a Portfolio's investments and its share price and yield.
The most significant factor in the performance of swap agreements is the
change in the specific interest rate, currency, or other factors that
determine the amounts of payments due to and from a Portfolio. If a swap
agreement calls for payments by a Portfolio, it must be prepared to make
such payments when due. In addition, if the counterparty's
creditworthiness declined, the value of a swap agreement would be likely to
decline, potentially resulting in losses. A Portfolio expects to be able
to eliminate its exposure under swap agreements either by assignment or
other disposition, or by entering into an offsetting swap agreement with
the same party or a similarly creditworthy party.
Each Portfolio will maintain appropriate liquid assets in a segregated
custodial account to cover its current obligations under swap agreements.
If a Portfolio enters into a swap agreement on a net basis, it will
segregate assets with a daily value at least equal to the excess, if any,
of its accrued obligations under the swap agreement over the accrued amount
it is entitled to receive under the agreement. If a Portfolio enters into
a swap agreement on other than a net basis, it will segregate assets with a
value equal to the full amount of its accrued obligations under the
agreement.
INDEXED SECURITIES. Each Portfolio may purchase securities whose prices
are indexed to the prices of other securities, securities indices,
currencies, precious metals or other commodities, or other financial
indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined
by reference to a specific instrument or statistic. Gold-indexed
securities, for example, typically provide for a maturity value that
depends on the price of gold, resulting in a security whose price tends to
rise and fall together with gold prices. Currency-indexed securities
typically are short-term to intermediate-term debt securities whose
maturity values or interest rates are determined by reference to the values
of one or more specified foreign currencies, and may offer higher yields
than U.S. dollar-denominated securities of equivalent issuers.
Currency-indexed securities may be positively or negatively indexed; that
is, their maturity value may increase when the specified currency value
increases, resulting in a security that performs similarly to a
foreign-denominated instrument, or their maturity value may decline when
foreign currencies increase, resulting in a security whose price
characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values
of a number of different foreign currencies relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they
are indexed, and may also be influenced by interest rate changes in the
U.S. and abroad. At the same time, indexed securities are subject to the
credit risks associated with the issuer of the security, and their values
may decline substantially if the issuer's creditworthiness deteriorates.
Recent issuers of indexed securities have included banks, corporations, and
certain U.S. government agencies. FMR will use its judgment in determining
whether indexed securities should be treated as short-term instruments,
bonds, stocks, or as a separate asset class for purposes of a Portfolio's
investment allocations, depending on the individual characteristics of the
securities. Indexed securities may be more volatile than the underlying
instruments.
WARRANTS. Warrants are securities that give a Portfolio the
right to purchase equity securities from the issuer at a specific price
(the strike price) for a limited period of time. The strike price of
warrants typically is much lower than the current market price of the
underlying securities, yet they are subject to similar price fluctuations.
As a result, warrants may be more volatile investments than the underlying
securities and may offer greater potential for capital appreciation as well
as capital loss.
Warrants do not entitle a holder to dividends or voting rights with
respect to the underlying securities and do not represent any rights in the
assets of the issuing company. Also, the value of the warrant does not
necessarily change with the value of the underlying securities and a
warrant ceases to have value if it is not exercised prior to the expiration
date. These factors can make warrants more speculative than other types of
investments.
DELAYED DELIVERY TRANSACTIONS. Each Portfolio may buy and sell securities
on a delayed-delivery or when-issued basis. These transactions involve a
commitment by each Portfolio to purchase or sell specific securities at a
predetermined price and yield, with payment and delivery taking place after
the customary settlement period for that type of security (and more than
seven days in the future). Typically, no interest accrues to the purchaser
until the security is delivered. Each Portfolio may receive fees for
entering into delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, each Portfolio
assumes the rights and risks of ownership, including the risk of price and
yield fluctuations. Because each Portfolio is not required to pay for
securities until the delivery date, these risks are in addition to the
risks associated with each Portfolio's other investments. If each
Portfolio remains substantially fully invested at a time when
delayed-delivery purchases are outstanding, the delayed-delivery purchases
may result in a form of leverage. When delayed-delivery purchases are
outstanding, each Portfolio will set aside appropriate liquid assets in a
segregated custodial account to cover its purchase obligations. When each
Portfolio has sold a security on a delayed-delivery basis, each Portfolio
does not participate in further gains or losses with respect to the
security. If the other party to a delayed-delivery transaction fails to
deliver or pay for the securities, each Portfolio could miss a favorable
price or yield opportunity, or could suffer a loss.
Each Portfolio may renegotiate delayed-delivery transactions after they are
entered into, and may sell underlying securities before they are delivered,
which may result in capital gains or losses.
SECURITIES LENDING. Each Portfolio may lend securities to parties such as
broker-dealers or institutional investors, including Fidelity Brokerage
Services, Inc. (FBSI). FBSI is a member of the New York Stock Exchange
(NYSE) and a subsidiary of FMR Corp.
Securities lending allows a Portfolio to retain ownership of the securities
loaned and, at the same time, to earn additional income. Since there may
be delays in the recovery of loaned securities, or even a loss of rights in
collateral supplied should the borrower fail financially, loans will be
made only to parties deemed by FMR to be of good standing. Furthermore,
they will only be made if, in FMR's judgment, the consideration to be
earned from such loans would justify the risk.
FMR understands that it is the current view of the SEC Staff that a
Portfolio may engage in loan transactions only under the following
conditions: (1) the Portfolio 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 Portfolio must be
able to terminate the loan at any time; (4) the Portfolio 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
Portfolio may pay only reasonable custodian fees in connection with the
loan; and (6) the Board of Trustees must be able to vote proxies on the
securities loaned, either by terminating the loan or by entering into an
alternative arrangement with the borrower.
Cash received through loan transactions may be invested in any security in
which the Portfolio is authorized to invest. Investing this cash subjects
that investment, as well as the security loaned, to market forces (i.e.,
capital appreciation or depreciation).
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 Portfolio's
policies regarding the quality of debt securities.
Purchasers of loans and other forms of direct indebtedness depend primarily
upon the creditworthiness of the borrower for payment of principal and
interest. Direct debt instruments may not be rated by any nationally
recognized rating service. If a Portfolio does not receive scheduled
interest or principal payments on such indebtedness, a Portfolio's share
price and yield could be adversely affected. Loans that are fully secured
offer a Portfolio more protections than an unsecured loan in the event of
non-payment of scheduled interest or principal. However, there is no
assurance that the liquidation of collateral from a secured loan would
satisfy the borrower's obligation, or that the collateral could be
liquidated. Indebtedness of borrowers whose creditworthiness is poor
involves substantially greater risks, and may be highly speculative.
Borrowers that are in bankruptcy or restructuring may never pay off their
indebtedness, or may pay only a small fraction of the amount owed. Direct
indebtedness of developing countries also involves a risk that the
governmental entities responsible for the repayment of the debt may be
unable, or unwilling, to pay interest and repay principal when due.
Investments in loans through direct assignment of a financial institution's
interests with respect to a loan may involve additional risks to a
Portfolio. For example, if a loan is foreclosed, a Portfolio 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
Portfolio could be held liable as a co-lender. Direct debt instruments may
also involve a risk of insolvency of the lending bank or other
intermediary. Direct debt instruments that are not in the form of
securities may offer less legal protection to a Portfolio in the event of
fraud or misrepresentation. In the absence of definitive regulatory
guidance, a Portfolio relies on FMR's research in an attempt to avoid
situations where fraud or misrepresentation could adversely affect a
Portfolio.
A loan is often administered by a bank or other financial institution that
acts as agent for all holders. The agent administers the terms of the
loan, as specified in the loan agreement. Unless, under the terms of the
loan or other indebtedness, a Portfolio has direct recourse against the
borrower, it may have to rely on the agent to apply appropriate credit
remedies against a borrower. If assets held by the agent for the benefit of
a Portfolio were determined to be subject to the claims of the agent's
general creditors, a Portfolio might incur certain costs and delays in
realizing payment on the loan or loan participation and could suffer a loss
of principal or interest.
Direct indebtedness purchased by a Portfolio may include letters of credit,
revolving credit facilities, or other standby financing commitments
obligating a Portfolio to pay additional cash on demand. These commitments
may have the effect of requiring a Portfolio 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 Portfolio will set aside appropriate liquid assets in a segregated
custodial account to cover its potential obligations under standby
financing commitments.
A Portfolio limits the amount of total assets that it will invest in any
one issuer or in issuers within the same industry (see limitations 1 and
5). For purposes of these limitations, a Portfolio generally will treat the
borrower as the "issuer" of indebtedness held by a Portfolio. In the case
of loan participations where a bank or other lending institution serves as
financial intermediary between a Portfolio and the borrower, if the
participation does not shift to a Portfolio the direct debtor-creditor
relationship with the borrower, SEC interpretations require a Portfolio, 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
Portfolio's ability to invest in indebtedness related to a single financial
intermediary, or a group of intermediaries engaged in the same industry,
even if the underlying borrowers represent many different companies and
industries.
FOREIGN INVESTMENTS. Foreign investments can involve significant
risks in addition to the risks inherent in U.S. investments. The value of
securities denominated in or indexed to foreign currencies, and of
dividends and interest from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar.
Foreign securities markets generally have less trading volume and less
liquidity than U.S. markets, and prices on some foreign markets can be
highly volatile. Many foreign countries lack uniform accounting and
disclosure standards comparable to those applicable to U.S. companies, and
it may be more difficult to obtain reliable information regarding an
issuer's financial condition and operations. In addition, the costs of
foreign investing, including withholding taxes, brokerage commissions, and
custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including
those involving the release of assets in advance of payment, may involve
increased risks in the event of a failed trade or the insolvency of a
broker-dealer, and may involve substantial delays. It may also be
difficult to enforce legal rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments
adverse to the interests of U.S. investors, including the possibility of
expropriation or nationalization of assets, confiscatory taxation,
restrictions on U.S. investment or on the ability to repatriate assets or
convert currency into U.S. dollars, or other government intervention.
There may be a greater possibility of default by foreign governments or
foreign government-sponsored enterprises. Investments in foreign countries
also involve a risk of local political, economic, or social instability,
military action or unrest, or adverse diplomatic developments. There is no
assurance that FMR will be able to anticipate these potential events or
counter their effects.
The considerations noted above generally are intensified for investments in
developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities
markets that trade a small number of securities.
Each Portfolio may invest in foreign securities that impose restrictions on
transfer within the U.S. or to U.S. persons. Although securities subject
to transfer restrictions may be marketable abroad, they may be less liquid
than foreign securities of the same class that are not subject to such
restrictions.
American Depositary Receipts and European Depositary Receipts (ADRs and
EDRs) are certificates evidencing ownership of shares of a foreign-based
issuer held in trust by a bank or similar financial institution. Designed
for use in U.S. and European securities markets, respectively, ADRs and
EDRs are alternatives to the purchase of the underlying securities in their
national markets and currencies.
FOREIGN CURRENCY TRANSACTIONS. Each Portfolio may hold foreign currency
deposits from time to time, and may convert dollars and foreign currencies
in the foreign exchange markets. Currency conversion involves dealer
spreads and other costs, although commissions usually are not charged.
Currencies may be exchanged on a spot (i.e., cash) basis, or by entering
into forward contracts to purchase or sell foreign currencies at a future
date and price. Forward contracts generally are traded in an inter bank
market conducted directly between currency traders (usually large
commercial banks) and their customers. The parties to a forward contract
may agree to offset or terminate the contract before its maturity, or may
hold the contract to maturity and complete the contemplated currency
exchange.
Each Portfolio may use currency forward contracts to manage currency risks
and to facilitate transactions in foreign securities. The following
discussion summarizes the principal currency management strategies
involving forward contracts that could be used by each Portfolio.
In connection with purchases and sales of securities denominated in foreign
currencies, each Portfolio may enter into currency forward contracts to fix
a definite price for the purchase or sale in advance of the trade's
settlement date. This technique is sometimes referred to as a "settlement
hedge" or "transaction hedge." FMR expects to enter into settlement hedges
in the normal course of managing each Portfolio's foreign investments.
Each Portfolio could also enter into forward contracts to purchase or sell
a foreign currency in anticipation of future purchases or sales of
securities denominated in foreign currency, even if the specific
investments have not yet been selected by FMR.
Each may also use forward contracts to hedge against a decline in the value
of existing investments denominated in foreign currency. For example, if
each Portfolio 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. Each Portfolio could
also hedge the position by selling another currency expected to perform
similarly to the pound sterling - for example, by entering into a forward
contract to sell Deutschemarks or European Currency Units in return for
U.S. dollars. This type of hedge, sometimes referred to as a "proxy
hedge," could offer advantages in terms of cost, yield, or efficiency, but
generally would not hedge currency exposure as effectively as a simple
hedge into U.S. dollars. Proxy hedges may result in losses if the currency
used to hedge does not perform similarly to the currency in which the
hedged securities are denominated.
A Portfolio may enter into forward contracts to shift its investment
exposure from one currency into another currency that is expected to
perform better relative to the U.S. dollar. For example, if a Portfolio
held investments denominated in Deutschemarks, the Portfolio could enter
into forward contracts to sell Deutschemarks and purchase Swiss Francs.
This type of strategy, sometimes known as a "cross-hedge," will tend to
reduce or eliminate exposure to the currency that is sold, and increase
exposure to the currency that is purchased, much as if the Portfolio had
sold a security denominated in one currency and purchased an equivalent
security denominated in another. Cross-hedges protect against losses
resulting from a decline in the hedged currency, but will cause the
Portfolio 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, each Portfolio
will segregate assets to cover currency forward contracts, if any, whose
purpose is essentially speculative. Each Portfolio will not segregate
assets to cover forward contracts entered into for hedging purposes,
including settlement hedges, position hedges, and proxy hedges.
Successful use of forward currency contracts will depend on FMR's skill in
analyzing and predicting currency values. Forward contracts may
substantially change each Portfolio's investment exposure to changes in
currency exchange rates, and could result in losses to each Portfolio if
currencies do not perform as FMR anticipates. For example, if a currency's
value rose at a time when FMR had hedged each Portfolio by selling that
currency in exchange for dollars, each Portfolio would be unable to
participate in the currency's appreciation. If FMR hedges currency
exposure through proxy hedges, each Portfolio could realize currency losses
from the hedge and the security position at the same time if the two
currencies do not move in tandem. Similarly, if FMR increases each
Portfolio's exposure to a foreign currency, and that currency's value
declines, each Portfolio will realize a loss. There is no assurance that
FMR's use of forward currency contracts will be advantageous to each
Portfolio or that it will hedge at an appropriate time.
SHORT SALES. A Portfolio may enter into short sales with respect to
stocks underlying its convertible security holdings. For example, if FMR
anticipates a decline in the price of the stock underlying a convertible
security it holds, it may sell the stock short. If the stock price
subsequently declines, the proceeds of the short sale could be expected to
offset all or a portion of the effect of the stock's decline on the value
of the convertible security. Each Portfolio 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 Portfolio 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
continue to hold them while the short sale is outstanding. Each Portfolio
will incur transaction costs, including interest expense, in connection
with opening, maintaining, and closing short sales.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. Each Portfolio has filed
a notice of eligibility for exclusion from the definition of the term
"commodity pool operator" with the Commodity Futures Trading Commission
(CFTC) and the National Futures Association, which regulate trading in the
futures markets. The Portfolios intend to comply with Section 4.5 of the
regulations under the Commodity Exchange Act, which limits the extent to
which a Portfolio can commit assets to initial margin deposits and option
premiums.
In addition, Investment Grade Bond and Asset Manager Portfolios will
not: (a) sell futures contracts, purchase put options, or write call
options if, as a result, more than 25% of each Portfolio's total assets
would be hedged with futures and options under normal conditions; (b)
purchase futures contracts or write put options if, as a result, each
Portfolio's total obligations upon settlement or exercise of purchased
futures contracts and written put options would exceed 25% of its total
assets; or (c) purchase call options if, as a result, the current value of
option premiums for call options purchased by each Portfolio would exceed
5% of each Portfolio's total assets. Index 500 Portfolio also intends to
follow certain other limitations on its futures and options activities.
The Portfolio 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 Portfolio will not enter into any futures contract or
option if, as a result, the sum of (i) the current value of assets hedged
in the case of strategies involving the sale of securities, and (ii) the
current value of the indices or other instruments underlying the
Portfolio's other futures or options positions, would exceed 35% of the
Portfolio's total assets. These limitations for each Portfolio do not
apply to options attached to or acquired or traded together with their
underlying securities, and do not apply to securities that incorporate
features similar to options.
FUTURES CONTRACTS. When each Portfolio purchases a futures contract, it
agrees to purchase a specified underlying instrument at a specified future
date. When each Portfolio sells a futures contract, it agrees to sell the
underlying instrument at a specified future date. The price at which the
purchase and sale will take place is fixed when each Portfolio enters into
the contract. Some currently available futures contracts are based on
specific securities, such as U.S. Treasury bonds or notes, and some are
based on indices of securities prices, such as the Standard & Poor's
500 Composite Stock Price Index (S&P 500) and the Bond Buyer Index of
municipal bonds. Futures can be held until their delivery dates, or can be
closed out before then if a liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase each Portfolio's exposure to positive and
negative price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When each Portfolio sells a
futures contract, by contrast, the value of its futures position will tend
to move in a direction contrary to the market. Selling futures contracts,
therefore, will tend to offset both positive and negative market price
changes, much as if the underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and
seller are required to deposit "initial margin" with a futures broker,
known as a futures commission merchant (FCM), when the contract is entered
into. Initial margin deposits are typically equal to a percentage of the
contract's value. If the value of either party's position declines, that
party will be required to make additional "variation margin" payments to
settle the change in value on a daily basis. The party that has a gain may
be entitled to receive all or a portion of this amount. Initial and
variation margin payments do not constitute purchasing securities on margin
for purposes of each Portfolio's investment limitations. In the event of
the bankruptcy of an FCM that holds margin on behalf of each Portfolio,
each Portfolio may be entitled to return of margin owed to it only in
proportion to the amount received by the FCM's other customers, potentially
resulting in losses to each Portfolio.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, each
Portfolio obtains the right (but not the obligation) to sell the option's
underlying instrument at a fixed strike price. In return for this right,
each Portfolio pays the current market price for the option (known as the
option premium). Options have various types of underlying instruments,
including specific securities, indices of securities prices, and futures
contracts. Each Portfolio may terminate its position in a put option it
has purchased by allowing it to expire or by exercising the option. If the
option is allowed to expire, each Portfolio will lose the entire premium it
paid. If each Portfolio exercises the option, it completes the sale of the
underlying instrument at the strike price. Each Portfolio may also
terminate a put option position by closing it out in the secondary market
at its current price, if a liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price
does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium
paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's
strike price. A call buyer typically attempts to participate in potential
price increases of the underlying instrument with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can
expect to suffer a loss if security prices do not rise sufficiently to
offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When each Portfolio writes a put option, it
takes the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, each Portfolio assumes the obligation to
pay the strike price for the option's underlying instrument if the other
party to the option chooses to exercise it. When writing an option on a
futures contract each Portfolio will be required to make margin payments to
an FCM as described above for futures contracts. Each Portfolio may seek
to terminate its position in a put option it writes before exercise by
closing out the option in the secondary market at its current price. If
the secondary market is not liquid for a put option each Portfolio has
written, however, each Portfolio must continue to be prepared to pay the
strike price while the option is outstanding, regardless of price changes,
and must continue to set aside assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that
the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from
purchasing the underlying instrument directly, however, because the premium
received for writing the option should mitigate the effects of the decline.
Writing a call option obligates each Portfolio to sell or deliver the
option's underlying instrument, in return for the strike price, upon
exercise of the option. The characteristics of writing call options are
similar to those of writing put options, except that writing calls
generally is a profitable strategy if prices remain the same or fall.
Through receipt of the option premium, a call writer mitigates the effects
of a price decline. At the same time, because a call writer must be
prepared to deliver the underlying instrument in return for the strike
price, even if its current value is greater, a call writer gives up some
ability to participate in security price increases.
COMBINED POSITIONS. Each Portfolio may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, each Portfolio may purchase a put option and write
a call option on the same underlying instrument, in order to construct a
combined position whose risk and return characteristics are similar to
selling a futures contract. Another possible combined position would
involve writing a call option at one strike price and buying a call option
at a lower price, in order to reduce the risk of the written call option in
the event of a substantial price increase. Because combined options
positions involve multiple trades, they result in higher transaction costs
and may be more difficult to open and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match each Portfolio's current or
anticipated investments exactly. Each Portfolio may invest in options and
futures contracts based on securities with different issuers, maturities,
or other characteristics from the securities in which it typically invests,
which involves a risk that the options or futures position will not track
the performance of each Portfolio's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match each
Portfolio's investments well. Options and futures prices are affected by
such factors as current and anticipated short-term interest rates, changes
in volatility of the underlying instrument, and the time remaining until
expiration of the contract, which may not affect security prices the same
way. Imperfect correlation may also result from differing levels of demand
in the options and futures markets and the securities markets, from
structural differences in how options and futures and securities are
traded, or from imposition of daily price fluctuation limits or trading
halts. Each Portfolio may purchase or sell options and futures contracts
with a greater or lesser value than the securities it wishes to hedge or
intends to purchase in order to attempt to compensate for differences in
volatility between the contract and the securities, although this may not
be successful in all cases. If price changes in each Portfolio's options
or futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that
are not offset by gains in other investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
secondary market will exist for any particular options or futures contract
at any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily
price fluctuation limits for options and futures contracts, and may halt
trading if a contract's price moves upward or downward more than the limit
in a given day. On volatile trading days when the price fluctuation limit
is reached or a trading halt is imposed, it may be impossible for each
Portfolio to enter into new positions or close out existing positions. If
the secondary market for a contract is not liquid because of price
fluctuation limits or otherwise, it could prevent prompt liquidation of
unfavorable positions, and potentially could require each Portfolio to
continue to hold a position until delivery or expiration regardless of
changes in its value. As a result, each Portfolio's access to other assets
held to cover its options or futures positions could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter options (options not traded on
exchanges) generally are established through negotiation with the other
party to the option contract. While this type of arrangement allows each
Portfolio greater flexibility to tailor an option to its needs, OTC options
generally involve greater credit risk than exchange-traded options, which
are guaranteed by the clearing organization of the exchanges where they are
traded.
OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency futures
contracts are similar to forward currency exchange contracts, except that
they are traded on exchanges (and have margin requirements) and are
standardized as to contract size and delivery date. Most currency futures
contracts call for payment or delivery in U.S. dollars. The underlying
instrument of a currency option may be a foreign currency, which generally
is purchased or delivered in exchange for U.S. dollars, or may be a futures
contract. The purchaser of a currency call obtains the right to purchase
the underlying currency, and the purchaser of a currency put obtains the
right to sell the underlying currency.
The uses and risks of currency options and futures are similar to options
and futures relating to securities or indices, as discussed above. Each
Portfolio may purchase and sell currency futures and may purchase and write
currency options to increase or decrease its exposure to different foreign
currencies. Each Portfolio may also purchase and write currency options in
conjunction with each other or with currency futures or forward contracts.
Currency futures and options values can be expected to correlate with
exchange rates, but may not reflect other factors that affect the value of
each Portfolio's investments. A currency hedge, for example, should
protect a Yen-denominated security from a decline in the Yen, but will not
protect each Portfolio against a price decline resulting from deterioration
in the issuer's creditworthiness. Because the value of each Portfolio's
foreign-denominated investments changes in response to many factors other
than exchange rates, it may not be possible to match the amount of currency
options and futures to the value of each Portfolio's investments exactly
over time.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. Each Portfolio will
comply with guidelines established by the SEC with respect to coverage of
options and futures strategies by mutual funds, and if the guidelines so
require will set aside appropriate liquid assets in a segregated custodial
account in the amount prescribed. Securities held in a segregated account
cannot be sold while the futures or option strategy is outstanding, unless
they are replaced with other suitable assets. As a result, there is a
possibility that segregation of a large percentage of each Portfolio's
assets could impede portfolio management or each Portfolio's ability to
meet redemption requests or other current obligations.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of a Portfolio by FMR pursuant to authority contained in each
Portfolio's Management Contract. FMR is also responsible for the placement
of transaction orders for other investment companies and accounts for which
it or its affiliates act as investment advisor. In selecting
broker-dealers, subject to applicable limitations of the federal securities
laws, FMR will consider various relevant factors, including, but not
limited to, the size and type of the transaction; the nature and character
of the markets for the security to be purchased or sold; the execution
efficiency, settlement capability and financial condition of the
broker-dealer firm; the broker-dealer's execution services rendered on a
continuing basis; the reasonableness of any commissions; and the existence
of any directed-brokerage arrangements. Commissions for foreign
investments traded on foreign exchanges will generally be higher than for
U.S. investments and may not be subject to negotiation.
Each Portfolio may execute portfolio transactions with broker-dealers who
provide research and execution services to a Portfolio and other accounts
over which FMR or its affiliates exercise investment discretion. Such
services may include advice concerning the value of securities; the
advisability of investing in, purchasing or selling securities; the
availability of securities or the purchasers or sellers of securities;
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and performance of
accounts; and effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement). The selection of
such broker-dealers is generally made by FMR (to the extent possible
consistent with execution considerations) in accordance with a ranking of
broker-dealers determined periodically by FMR's investment staff based upon
the quality of research and execution services provided.
The receipt of research from broker-dealers that execute transactions on
behalf of a Portfolio may be useful to FMR in rendering investment
management services to a Portfolio or its other clients, and
conversely, such information provided by broker-dealers who have executed
transaction orders on behalf of other FMR clients may be useful to FMR in
carrying out its obligations to a Portfolio. The receipt of such research
has not reduced FMR's normal independent research activities; however, it
enables FMR to avoid additional expenses that could be incurred if FMR
tried to develop comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause a
Portfolio to pay such higher commissions, FMR must determine in good faith
that such commissions are reasonable in relation to the value of the
brokerage and research services provided by such executing broker-dealers
viewed in terms of a particular transaction or FMR's overall
responsibilities to a Portfolio and its other clients. In reaching this
determination, FMR will not attempt to place a specific dollar value on the
brokerage and research services provided or to determine what portion of
the compensation should be related to those services.
FMR is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided assistance
in the distribution of shares of each Portfolio or shares of other Fidelity
funds to the extent permitted by law. FMR may use research services
provided by and place agency transactions with Fidelity Brokerage Services,
Inc. (FBSI) and Fidelity Brokerage Services, Ltd. (FBSL), subsidiaries of
FMR Corp., if the commissions are fair, reasonable, and comparable to
commissions charged by non-affiliated, qualified brokerage firms for
similar services. Prior to September 4, 1992, FBSL operated under the name
Fidelity Portfolio Services, Ltd. (FPSL) as a wholly owned subsidiary of
Fidelity International Limited (FIL). Edward C. Johnson 3d is Chairman of
FIL. Mr. Johnson 3d, together with various trusts for the benefit of
Johnson family members, owns directly or indirectly more than 25% of the
voting common stock of FIL.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members of
national securities exchanges from executing exchange transactions for
accounts which they or their affiliates manage, except in accordance with
regulations of the SEC. Pursuant to such regulations, the Board of
Trustees has approved a written agreement which permits FBSI to effect
portfolio transactions on national securities exchanges and to retain
compensation in connection with such transactions.
The Trustees of the Trust periodically review FMR's performance of its
responsibilities in connection with the placement of portfolio transactions
on behalf of the Portfolios and review the commissions paid by the
Portfolios over representative periods of time to determine whether they
are reasonable in relation to the benefits to each Portfolio. The
frequency of portfolio transactions, or turnover rate, will vary from year
to year depending on market conditions. For the fiscal years ended 1993
and 1992, Investment Grade Bond Portfolio's turnover rate was ___% and
119%, respectively. For fiscal years ended 1993 and 1992, Asset Manager
Portfolio's turnover rate was ___% and 92%, respectively. Because a high
turnover rate increases brokerage costs, FMR carefully weighs the added
costs of short-term investment against anticipated gain.
BROKERAGE COMMISSIONS. (Asset Manager and Index 500 Portfolios) The charts
below list the total brokerage commissions paid; the percentage of the
brokerage commissions paid to brokerage firms which provided research
services; the commissions paid to FBSI and FPSL in dollars and as a
percentage of the dollar value of all transactions in which brokerage
commissions were paid for the fiscal periods ended December 31, 1993, 1992
and 1991 for Asset Manager and for the year ended December 31, 1993 and the
period August 27, 1992 (commencement of operations) to December 31, 1992
for Index 500 Portfolio. Of the commissions paid to brokerage firms which
provided research services, the providing of such services was not
necessarily a factor in the placement of all this business with such firms.
Each Portfolio pays both commissions and spreads in connection with the
placement of portfolio transactions. The difference in the percentage of
brokerage commissions paid to, and the percentage of the dollar amount of
transactions effected through FBSI and FPSL, is a result of the low
commission rates charged by FBSI and FPSL.
ASSET MANAGER PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% Paid to Transaction Transaction
Firms s s

Period Providing To To % to through through

Ended TOTAL Research FBSI FPSL % to FBSI FPSL FBSI FPSL

</TABLE>

1993 $ % $ -- % -- % --

1992 544,613 68 100,724 179 19 -- 28 --

1991 143,076 57 44,048 -- 31 -- 45 --

INDEX 500 PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% Paid to Transaction Transaction
Firms s s

Period Providing To To % to through through

Ended TOTAL Research FBSI FPSL % to FBSI FPSL FBSI FPSL

</TABLE>

1993 $ % $ -- % -- % --

1992 5,980 -- 112 -- 2 -- 2 --

From time to time the Trustees will review whether the recapture for the
benefit of the Portfolios of some portion of the brokerage commissions or
similar fees paid by the Portfolios on portfolio transactions is legally
permissible and advisable. The Portfolios seek to recapture soliciting
dealer fees on the tender of portfolio securities, but at present no other
recapture arrangements are in effect. The Trustees intend to continue to
review whether recapture opportunities are available and are legally
permissible and, if so, to determine in the exercise of their business
judgment whether it would be advisable for the Portfolios to seek such
recapture.
Although the Trustees and officers of the Trust are substantially the same
as those of other funds managed by FMR, investment decisions for the
Portfolios are made independently from those of other funds managed by FMR
or accounts managed by FMR affiliates. It sometimes happens that the same
security is held in the portfolio of more than one of these Portfolios or
accounts. Simultaneous transactions are inevitable when several funds are
managed by the same investment advisor, particularly when the same security
is suitable for the investment objective of more than one fund.
When two or more portfolios or funds are simultaneously engaged in the
purchase or sale of the same security, the prices and amounts are allocated
in accordance with a formula considered by the officers of the portfolio
involved to be equitable to each fund or portfolio. In some cases this
system could have a detrimental effect on the price or volume of the
security as far as the Portfolios are concerned. In other cases, however,
the ability of the Portfolios to participate in volume transactions will
produce better executions and prices for the Portfolios. It is the current
opinion of the Trustees that the desirability of retaining FMR as
investment advisor to the Portfolios outweigh any disadvantages that may be
said to exist from exposure to simultaneous transactions.
VALUATION OF PORTFOLIO SECURITIES
INVESTMENT GRADE BOND PORTFOLIO
The net asset value (NAV) per share of the Portfolio is determined by
Fidelity Service Co. (FSC), an affiliate of FMR. Securities and other
assets for which market quotations are readily available are valued at
market values determined by their most recent bid prices (sales prices if
the principal market is an exchange) in the principal market in which such
securities normally are traded. Securities and other assets for which
market quotations are not readily available (including restricted
securities, if any) are appraised at their fair value as determined in good
faith under consistently applied procedures under the general supervision
of the Board of Trustees.
Securities may also be valued on the basis of valuations furnished by a
pricing service that uses both dealer-supplied valuations and evaluations
based on expert analysis of market data and other factors if such
valuations are believed to reflect more accurately the fair value of such
securities. Use of a pricing service has been approved by the Board of
Trustees. There are a number of pricing services available, and the
Trustees, or officers acting on behalf of the Trustees, on the basis of
ongoing evaluation of these pricing services, may use other pricing
services or may discontinue the use of any pricing service in whole or in
part.
Securities not valued by the pricing service, and for which quotations are
readily available, are valued at market values determined on the basis of
their latest available bid prices as furnished by recognized dealers in
such securities.
ASSET MANAGER AND INDEX 500 PORTFOLIOS
Portfolio securities are valued by various methods depending on the
primary market or exchange on which they trade. Equity securities for
which the primary market is the U.S. are valued at last sale price or, if
no sale has occurred, at the closing bid price. Equity securities for
which the primary market is outside the U.S. are valued using the official
closing price or the last sale price in the principal market where they are
traded. If the last sale price (on the local exchange) is unavailable, the
last evaluated quote or last bid price is normally used. Short-term
securities are valued either at amortized cost or at original cost plus
accrued interest, both of which approximate current value. fixed-income
securities are valued primarily by a pricing service that uses a vendor
security valuation matrix which incorporates both dealer-supplied
valuations and electronic data processing techniques. This twofold
approach is believed to more accurately reflect fair value because it takes
into account appropriate factors such as institutional trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics, and other market data, without exclusive reliance
upon quoted, exchange, or over-the counter prices. Use of pricing services
has been approved by the Board of Trustees.
Securities and other assets for which there is no readily available market
are valued in good faith by a committee appointed by the Board of Trustees.
The procedures set forth above need not be used to determine the value of
the securities owned by the fund if, in the opinion of a committee
appointed by the Board of Trustees, some other method (e.g., closing
over-the-counter bid prices in the case of debt instruments traded on an
exchange) would more accurately reflect the fair market value of such
securities.
Generally, the valuation of foreign and domestic equity securities, as well
as corporate bonds, U.S. government securities, money market instruments,
and repurchase agreements, is substantially completed each day at the close
of the NYSE. The values of any such securities held by the fund are
determined as of such time for the purpose of computing the fund's net
asset value. Foreign security prices are furnished by independent brokers
or quotation services which express the value of securities in their local
currency. FSC gathers all exchange rates daily at the close of the NYSE
using the last quoted price on the local currency and then translates the
value of foreign securities from their local currency into U.S. dollars.
Any changes in the value of forward contracts due to exchange rate
fluctuations and days to maturity are included in the calculation of net
asset value. If an extraordinary event that is expected to materially
affect the value of a portfolio security occurs after the close of an
exchange on which that security is traded, then the security will be valued
as determined in good faith by a committee appointed by the Board of
Trustees.
PERFORMANCE
The Portfolios may quote their performance in various ways. All
performance information supplied by each Portfolio in advertising is
historical and is not intended to indicate future returns. Each
Portfolio's share price, yield and total return fluctuate in response to
market conditions and other factors, and the value of each Portfolio's
shares when redeemed may be more or less than their original cost.
YIELD CALCULATIONS. Yields for the Portfolios used in advertising are
computed by dividing the Portfolios' interest income for a given 30-day or
one month period, net of expenses, by the average number of shares entitled
to receive dividends during the period, dividing this figure by the
Portfolios' NAV per share at the end of the period and annualizing the
result (assuming compounding of income) in order to arrive at an annual
percentage rate. Income is calculated for purposes of yield quotations in
accordance with standardized methods applicable to all stock and bond
funds. In general, interest income is reduced with respect to bonds
trading at a premium over their par value by subtracting a portion of the
premium from income on a daily basis, and is increased with respect to
bonds trading at a discount by adding a portion of the discount to daily
income. Capital gains and losses generally are excluded from the
calculation.
Income calculated for the purposes of calculating the Portfolios' yields
differs from income as determined for other accounting purposes. Because
of the different accounting methods used, and because of the compounding
assumed in yield calculations, the yields quoted for the Portfolios may
differ from the rate of distributions the Portfolios paid over the same
period or the rate of income reported in the Portfolios' financial
statements.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of the Portfolios' return, including the effect of reinvesting
dividends and capital gain distributions, and any change in a Portfolio's
NAV per share over the period. Average annual total returns are calculated
by determining the growth or decline in value of a hypothetical investment
in a Portfolio over a stated period, and then calculating the annually
compounded percentage rate that would have produced the same result if the
rate of growth or decline in value had been constant over the period. For
example, a cumulative return of 100% over ten years would produce an
average annual total return of 7.18%, which is the steady annual rate that
would equal 100% growth on a compounded basis in ten years. While average
annual total returns are a convenient means of comparing investment
alternatives, investors should realize that the Portfolios' performance is
not constant over time, but changes from year to year, and that average
annual total returns represent averaged figures as opposed to the actual
year-to-year performance of a Portfolio.
In addition to average annual total returns, each Portfolio may quote
unaveraged or cumulative total returns reflecting the simple change in
value of an investment over a stated period. Average annual and cumulative
total returns may be quoted as a percentage or as a dollar amount, and may
be calculated for a single investment, a series of investments, and/or a
series of redemptions, over any time period. Total returns may be broken
down into their components of income and capital (including capital gains
and changes in share price) in order to illustrate the relationship of
these factors and their contributions to total return. An example of this
type of illustration is given below. Total returns, yields, and other
performance information may be quoted numerically or in a table, graph, or
similar illustration.
NET ASSET VALUE. Charts and graphs using a Portfolio's net asset values or
an insurance company's sub-account unit values, adjusted net asset values,
and benchmark indices may be used to exhibit performance. An adjusted NAV
includes any distributions paid by a Portfolio and reflects all elements of
its return. Unless otherwise indicated, a Portfolio's adjusted NAVs (or an
insurance company's sub-account unit values) are not adjusted for sales
charges, if any.
MOVING AVERAGES. A Portfolio may illustrate performance using moving
averages. A long-term moving average is the average of each week's
adjusted closing NAV for a specified period. A short-term moving average
is the average of each day's adjusted closing NAV for a specified period.
Moving Average Activity Indicators combine adjusted closing NAVs from the
last business day of each week with moving averages for a specified period
to produce indicators showing when an NAV has crossed, stayed above, or
stayed below its moving average. On ________,1994, the 13-week and 39-week
long-term moving averages were ___ and ___, for Asset Manager, and ___ and
___ for Index 500 Portfolio, respectively.
HISTORICAL PORTFOLIO RESULTS. The following chart shows total returns for
Investment Grade Bond Portfolio, Asset Manager Portfolio and Index 500
Portfolio, as well as Investment Grade Bond Portfolio's 30-day yield for
the year ended December 31, 1993. Performance is net of each Portfolio's
expenses, but does not include charges and expenses attributable to an
insurance company's separate account. If these charges were included, the
returns would be lower.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Cumulative

Total Returns 30-Day One Five Life of

For Life of Fund Yield Year Year Fund*

Investment Grade Bond Portfolio % % % % %

Asset Manager Portfolio N.A. % % % %

Index 500 Portfolio N.A. % % % %

</TABLE>

*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. If FMR had not reimbursed
certain Portfolio expenses during these periods, the total returns would
have been lower.
The following charts show the income and capital elements of each
Portfolio's total return from the date it commenced operations through the
period ending December 31, 1992. The charts compare the Portfolios'
returns to the record of the Standard & Poor's 500 Composite Stock
Price Index (S&P), the Dow Jones Industrial Average (DJIA), the cost of
living (measured by the Consumer Price Index, or CPI), and (for Asset
Manager Portfolio) a benchmark "Fidelity Composite Index" (created by FMR),
over the same period. The Fidelity Composite Index is a hypothetical
historical representation which simulates Asset Manager Portfolio's neutral
mix (20% money market instruments, 40% bonds, and 40% stocks) by combining
the following indices based on their weighting in the neutral mix: the
Salomon Brothers 3-month T-Bill Total Rate of Return Index, representing
the average of T-Bill rates for each of the prior three months, adjusted to
a bond equivalent yield basis (money market); the Lehman Brothers Treasury
Bond Index, a widely utilized benchmark of bond market performance which
includes virtually all long-term public obligations of the U.S. Treasury
(bonds); and the S&P 500 (a registered trademark of Standard &
Poor's Corporation), which represents common stock prices (stocks).
The comparison to the S&P shows how the Portfolios' total returns
compared to the record of a broad average of common stock prices, and the
comparison to the DJIA shows how the Portfolios' total returns compared to
the record of a narrower set of stocks of major industrial companies. Each
Portfolio has the ability to invest in securities not included in either
index, and its investment portfolio may or may not be similar in
composition to the indices. The S&P and DJIA comparisons for
Investment Grade Bond Portfolio are provided to show how Investment Grade
Bond Portfolio's return compared to the return of common stocks over the
same period. Of course, since Investment Grade Bond Portfolio invests in
fixed-income securities, common stocks represent a different type of
investment from the Portfolio. As the information below shows, common
stocks generally offer greater potential growth than the Portfolio, but
generally are more volatile in value and may offer greater potential for
loss. In addition, common stocks generally provide lower income than a
mutual fund, like Investment Grade Bond Portfolio, which focuses on
fixed-income securities. The S&P, DJIA and Fidelity Composite Index
are based on the prices of unmanaged groups of stocks and, unlike the
Portfolios' returns, their returns do not include the effect of paying
brokerage commissions and other costs of investing.
INVESTMENT GRADE BOND PORTFOLIO: During the period from December 5, 1988
to December 31, 1993, a hypothetical $10,000 investment in the Portfolio
would have grown to $_____, assuming all distributions were reinvested.
This was a period of widely fluctuating interest rates and bond prices and
should not necessarily be considered a representation of the income or
capital gain or loss that could be realized from an investment in the
Portfolio today.
INDICES

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

12/31/93

12/31/92 $10,970 $3,419 $223 $14,611 $18,353 $18,170 $11,796

12/31/91 11,080 2,596 24 13,700 17,050 16,934 11,463

12/31/90 9,920 1,831 21 11,772 13,067 13,619 11,122

12/31/89 10,140 922 22 11,083 13,487 13,692 10,482

12/31/88* 10,000 52 0 10,052 10,242 10,392 10,017

</TABLE>

* From December 5, 1988 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on December
5, 1988, the net amount invested in shares of the Portfolio was $10,000.
The cost of the initial investment ($10,000), together with the aggregate
cost of reinvested distributions for the period covered (that is, their
cash value at the time they were reinvested), amounted to $_____. If
distributions had not been reinvested, the amount of distributions earned
from the Portfolio over time would have been smaller and the cash payments
for the period would have amounted to $____ for income dividends and $___
for capital gain distributions. If FMR had not reimbursed expenses during
the period shown above, the Portfolio's returns would have been lower. Tax
consequences of different investments have not been factored into the above
figures.
ASSET MANAGER PORTFOLIO: During the period from September 6, 1989 to
December 31, 1993, a hypothetical $10,000 investment in the Portfolio would
have grown to $_____, assuming all distributions were reinvested. This was
a period of widely fluctuating stock and bond prices and should not
necessarily be considered a representation of the income or capital gain or
loss that could be realized from an investment in the Portfolio today.
INDICES

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

12/31/93

12/31/92 $13,320 $1,004 $406 $14,730 $13,783 $13,470 $11,388 $13,507

12/31/91 12,550 610 25 13,185 12,804 12,554 11,067 12,654

12/31/90 10,240 498 21 10,758 9,813 10,096 10,738 10,819

12/31/89* 9,970 91 20 10,081 10,128 10,151 10,120 10,302

</TABLE>

* From September 6, 1989 (commencement of operations).
** From month-end closest to initial investment date.
*** From month-end closest to initial investment date. The money market,
bond, and stock indices that compose the Fidelity Composite Index returned
___%, ___%, and ___%, respectively, during the 1992 fiscal year. These
indices are unmanaged, include reinvestment of income and/or dividends, and
are not indicative of the Portfolio's past or future performance.
Explanatory Notes: With an initial investment of $10,000 made on September
6, 1989, the net amount invested in shares of the Portfolio was $10,000.
The cost of the initial investment ($10,000), together with the aggregate
cost of reinvested dividends for the period covered (that is, their cash
value at the time they were reinvested), amounted to $_____. If
distributions had not been reinvested, the amount of distributions earned
from the Portfolio over time would have been smaller and the cash payments
for the period would have amounted to $____ for income dividends and $____
for capital gain distributions. If FMR had not reimbursed expenses during
the period shown above, the Portfolio's returns would have been lower. Tax
consequences of different investments have not been factored into the above
figures.
INDEX 500 PORTFOLIO: During the period from August 27, 1992 to December
31, 1993, a hypothetical $10,000 investment in the Portfolio would have
grown to $_____, assuming all distributions were reinvested. This was a
period of widely fluctuating stock and bond prices and should not
necessarily be considered a representation of the income or capital gain or
loss that could be realized from an investment in the Portfolio today.
INDICES

12/31/93

12/31/92* $10,520 $95 $16 $10,631 $10,648 $10,275 $10,071

</TABLE>

* From August 27, 1992 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on August
27, 1992, the net amount invested in shares of the Portfolio was $10,000.
The cost of the initial investment ($10,000), together with the aggregate
cost of reinvested distributions for the period covered (that is, their
cash value at the time they were reinvested), amounted to $_____. If
distributions had not been reinvested, the amount of distributions earned
from the Portfolio over time would have been smaller and the cash payments
for the period would have amounted to $___ for income dividends and $___
for capital gain distributions. If FMR had not reimbursed expenses during
the period shown above, the Portfolio's returns would have been lower. Tax
consequences of different investments have not been factored into the above
figures.
A yield for the S&P 500 is calculated by dividing the dollar value of
dividends paid by the S&P stocks during the period by the average
monthly value of the S&P over the period. The S&P yield is
calculated differently from the Portfolio's yield; among other things, the
Portfolio's yield calculation treats dividends as accrued in anticipation
of payment, rather than recording them when paid, and uses an ending price
rather than an average price as the basis of the percentage calculation.
The Portfolios are available for purchase only through variable annuity or
variable life insurance contracts or other programs 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 10 years, assuming
tax was deducted from the return each year at a 31% rate. An equivalent
tax-deferred investment would have an after-tax value of $2,100 after 10
years, assuming tax was deducted at the 31% rate from the deferred earnings
at the end of the 10 year period. Individuals holding shares of the
Portfolios through a variable annuity or variable life insurance contract
may receive additional tax benefits from the deferral of income taxes
associated with variable contracts. Individuals should consult their tax
advisors to determine the effect of holding variable contracts on their
individual tax situations.
YIELDS AND TOTAL RETURNS QUOTED FOR A PORTFOLIO INCLUDE THE EFFECT OF
DEDUCTING EACH PORTFOLIO'S EXPENSES, BUT MAY NOT INCLUDE CHARGES AND
EXPENSES ATTRIBUTABLE TO ANY PARTICULAR INSURANCE PRODUCT. SINCE YOU CAN
ONLY PURCHASE SHARES OF THE PORTFOLIOS THROUGH A VARIABLE ANNUITY OR
VARIABLE LIFE INSURANCE CONTRACT, YOU SHOULD CAREFULLY REVIEW THE
PROSPECTUS OF THE INSURANCE PRODUCT YOU HAVE CHOSEN FOR INFORMATION ON
RELEVANT CHARGES AND EXPENSES. Excluding these charges from quotations of
the Portfolios' performance has the effect of increasing the performance
quoted.
GENERAL INFORMATION
A Portfolio's performance may be compared to the performance of other
mutual funds in general, or to the performance of particular types of
mutual funds. These comparisons may be expressed as mutual fund rankings
prepared by Lipper Analytical Services, Inc. (Lipper), an independent
service located in Summit, New Jersey that monitors the performance of
mutual funds. Lipper generally ranks funds on the basis of total return,
assuming reinvestment of distributions, but does not take sales charges or
redemption fees into consideration, and is prepared without regard to tax
consequences. Lipper may also rank funds based on yield. Investment Grade
Bond Portfolio may compare its performance to the Shearson Lehman Brothers
Inc. Government/Corporate Intermediate Bond index. Asset Manager Portfolio
may compare its performance to the Fidelity Composite Index. Each
Portfolio may also compare its performance against the Consumer Price Index
(CPI) and the funds in Lipper Annuity & Closed-End Survey (LACES).
LACES consists of periodic reports that track the performance of closed-end
mutual funds and variable annuities at the separate account level. A
Portfolio will compare itself only to annuities, not to closed-end funds in
LACES.Index 500 Portfolio may quote its performance in advertising and
other types of literature as compared to the performance of the S&P
500, (a registered trademark of Standard & Poor's Corporation). The
S&P 500 is an unmanaged index of common stock prices.The performance of
the S&P 500 Index is based on changes in the prices of stocks composing
the Index and assumes the reinvestment of all dividends paid on such
stocks. Taxes, brokerage commissions and other fees are disregarded in
computing the level of the S&P 500 Index. In addition to the mutual
fund rankings, a Portfolio's performance may be compared to mutual fund
performance indices prepared by Lipper.
From time to time, a Portfolio's performance may also be compared to
other mutual funds tracked by financial or business publications and
periodicals. For example, a Portfolio may quote Morningstar, Inc. in its
advertising materials. Morningstar, Inc. is a mutual fund rating service
that rates mutual funds on the basis of risk-adjusted performance.
Rankings that compare the performance of Fidelity funds to one another in
appropriate categories over specific periods of time may also be quoted in
advertising.
Fidelity may provide information designed to help individuals understand
their investment goals and explore various financial strategies. For
example, Fidelity's FundMatchsm Program includes a workbook describing
general principles of investing, such as asset allocation, diversification,
risk tolerance, and goal setting; a questionnaire designed to help create a
personal financial profile; and an action plan offering investment
alternatives. Materials may also include discussions of Fidelity's three
asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical
returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury
bills, the U.S. rate of inflation (based on the CPI), and combinations of
various capital markets. The performance of these capital markets is based
on the returns of different indices.
Fidelity funds may use the performance of these capital markets in order
to demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any
of these capital markets. The risks associated with the security types in
any capital market may or may not correspond directly to those of the
funds. Ibbotson calculates total returns in the same method as the funds.
The funds may also compare performance to that of other compilations or
indices that may be developed and made available in the future.
Money Market and High Income Portfolios each may compare its performance
or the performance of securities in which it may invest to averages
published by IBC USA (Publications), Inc. of Ashland, Massachusetts. These
averages assume reinvestment of distributions. The IBC/Donoghue's MONEY
FUND AVERAGES(REGISTERED TRADEMARK)/taxable money market funds, which is
reported in the MONEY FUND REPORT(REGISTERED TRADEMARK), covers money
market funds. The Bond Fund Report AverageS(REGISTERED TRADEMARK)/taxable
bond funds, which is reported in the BOND FUND REPORT(REGISTERED
TRADEMARK), covers bond funds. When evaluating comparisons to money market
funds, investors should consider the relevant differences in investment
objectives and policies. Specifically, money market funds invest in
short-term, high-quality instruments and seek to maintain a stable $1.00
share price. Bond funds however, typically invest in longer-term
instruments and their share price changes daily in response to a variety of
factors.
In advertising materials, Fidelity may reference or discuss its products
and services, which may include: other Fidelity funds and insurance
products; retirement investing; brokerage products and services; the
effects of periodic investment plans and dollar cost averaging; saving for
college; charitable giving; and the Fidelity credit card. In addition,
Fidelity may quote financial or business publications and periodicals,
including model portfolios or allocations, as they relate to fund
management, investment philosophy, and investment techniques. Fidelity may
also reprint, and use as advertising and sales literature, articles from
Fidelity Focus, a quarterly magazine provided free of charge to Fidelity
fund shareholders.
Each Portfolio may present its fund number, Quotron(REGISTERED TRADEMARK)
number, and CUSIP number, and discuss or quote its current portfolio
manager.
VOLATILITY. A Portfolio may quote various measures of volatility and
benchmark correlation in advertising. In addition, a Portfolio may compare
these measures to those of other funds. Measures of volatility seek to
compare a Portfolio's historical share price fluctuations or total returns
to those of a benchmark. Measures of benchmark correlation indicate how
valid a comparative benchmark may be. All measures of volatility and
correlation are calculated using averages of historical data.
MOMENTUM INDICATORS indicate a Portfolio's price movements over specific
periods of time. Each point on the momentum indicator represents a
Portfolio's percentage change in price movements over that period.
The Portfolios may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a
program, a policyowner invests a fixed dollar amount in an insurance
company's sub-account which in turn invests in a Portfolio at periodic
intervals, thereby purchasing fewer units when prices are high and more
units when prices are low. While such a strategy does not assure a profit
nor guard against loss in a declining market, the policyowner's average
cost per unit can be lower than if fixed numbers of units had been
purchased at those intervals. In evaluating such a plan, policyowners
should consider their ability to continue purchasing units through periods
of low price levels.
Each Portfolio has an investment objective similar to an existing Fidelity
retail fund. Investment Grade Bond Portfolio is most similar to Fidelity
Intermediate Bond Fund; Asset Manager Portfolio is most similar to Fidelity
Asset Manager; and Index 500 Portfolio is most similar to Fidelity Market
Index Fund. Performance will differ between the Portfolios and their
corresponding retail funds due in part to differences in investment
policies. The effect of insurance charges levied at the separate account
level of insurance companies will also affect performance.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each Portfolio is open for business and its NAV is calculated each day
the New York Stock Exchange (NYSE) is open for trading. The NYSE has
designated the following holiday closings for 1994: President's Day, Good
Friday, Memorial Day, Independence Day (observed), Labor Day, Thanksgiving
Day, and Christmas Day (observed). Although FMR expects the same holiday
schedule, with the addition of New Year's Day, to be observed in the
future, the NYSE may modify its holiday schedule at any time. On any day
that the NYSE closes early, or as permitted by the SEC, the right is
reserved to advance the time on that day by which purchase and redemption
orders must be received. To the extent that each Portfolio's securities
are traded in other markets on days the NYSE is closed, each Portfolio's
NAV may be affected on days when investors do not have access to each
Portfolio to purchase or redeem shares.
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are valued in
computing the NAV of each Portfolio. Shareholders receiving securities or
other property on redemption may realize a gain or loss for tax purposes,
and will incur any costs of sale, as well as the associated
inconveniences.
TAXES
For a discussion of tax consequences of a variable contract, 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 in addition, a 10% penalty tax on
distributions before age 59 1/2. Only the portion of a distribution
attributable to income is subject to federal income tax. Investors should
consult with competent tax advisors for a more complete discussion of
possible tax consequences in a particular situation.
Section 817(h) of the Internal Revenue Code provides that the investments
of a separate account underlying a variable insurance contract (or the
investments of a mutual fund, the shares of which are owned by the variable
separate account) must be "adequately diversified" in order for the
contract to be treated as an annuity or life insurance for tax purposes.
The Treasury Department has issued regulations prescribing these
diversification requirements. Each Portfolio intends to comply with these
requirements.
Each Portfolio intends to qualify each year as a "regulated investment
company" for tax purposes, so that it will not be liable for federal tax on
income and capital gains distributed to shareholders. In order to qualify
as a regulated investment company and avoid being subject to federal income
or excise taxes, each Portfolio intends to distribute substantially all its
net taxable income and net realized capital gains within each calendar year
as well as on a fiscal year basis. Each Portfolio also intends to comply
with other tax rules applicable to regulated investment companies including
a requirement that gross capital gains from selling securities held less
than three months must constitute less than 30% of each Portfolio's gross
income for each fiscal year. Income and capital gain distributions are
reinvested in additional shares of each Portfolio. This is done to
preserve the tax advantaged status of the variable contracts. Each
Portfolio is treated as a separate entity for tax purposes.
As of December 31, 1993, Investment Grade Bond Portfolio, Asset Manager
Portfolio and Index 500 Portfolio had _____ aggregate capital loss
carryover.
FMR
FMR is a wholly owned subsidiary of FMR Corp., a parent company organized
in 1972. At present, the principal operating activities of FMR Corp. are
those conducted by three of its divisions as follows: FSC, which is the
transfer and shareholder servicing agent for certain of the funds advised
by FMR; FIIOC, which performs shareholder servicing functions for certain
institutional customers; and Fidelity Investments Retail Marketing Company,
which provides marketing services to various companies within the Fidelity
organization.
Several affiliates of FMR are also engaged in the investment advisory
business. Fidelity Management Trust Company provides trustee, investment
advisory, and administrative services to retirement plans and corporate
employee benefit accounts. Fidelity Management & Research (U.K.) Inc.
(FMR U.K.) and Fidelity Management & Research (Far East) Inc. (FMR Far
East), both wholly owned subsidiaries of FMR formed in 1986, supply
investment research, and may supply portfolio management services, to FMR
in connection with certain funds advised by FMR. Analysts employed by FMR,
FMR U.K., and FMR Far East research and visit thousands of domestic and
foreign companies each year. FMR Texas Inc., a wholly owned subsidiary of
FMR formed in 1989, supplies portfolio management and research services in
connection with certain money market funds advised by FMR.
TRUSTEES AND OFFICERS
The Trust's Trustees and executive officers are listed below. Except as
indicated, each individual has held the office shown or other offices in
the same company for the last five years. All persons named as Trustees
and officers also serve in similar capacities for other funds advised by
FMR. Unless otherwise noted, the business address of each Trustee and
officer is 82 Devonshire Street, Boston, Massachusetts, 02109, which is
also the address of FMR. Those Trustees who are "interested persons" (as
defined in the Investment Company Act of 1940) by virtue of their
affiliation with the Trust or FMR, are indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d, Trustee and President, is Chairman, Chief
Executive Officer and a Director of FMR Corp.; a Director and Chairman of
the Board and of the Executive Committee of FMR; Chairman and a Director of
FMR Texas Inc. (1989), Fidelity Management & Research (U.K.) Inc., and
Fidelity Management & Research (Far East) Inc.
*J. GARY BURKHEAD, Trustee and Senior Vice President, is President of
FMR; and President and a Director of FMR Texas Inc. (1989), Fidelity
Management & Research (U.K.) Inc., and Fidelity Management &
Research (Far East) Inc.
RALPH F. COX, 200 Rivercrest Drive, Fort Worth, TX, Trustee (1991), is
President of Greenhill Petroleum Corporation (petroleum exploration and
production, 1990). Prior to his retirement in March 1990, Mr. Cox was
President and Chief Operating Officer of Union Pacific Resources Company
(exploration and production). He is a Director of Bonneville Pacific
Corporation (independent power, 1989) and CH2M Hill Companies
(engineering). In addition, he served on the Board of Directors of the
Norton Company (manufacturer of industrial devices, 1983-1990) and
continues to serve on the Board of Directors of the Texas State Chamber of
Commerce, and is a member of advisory boards of Texas A&M University
and the University of Texas at Austin.
PHYLLIS BURKE DAVIS, Box 264, Bridgehampton, NY, Trustee (1992). Prior
to her retirement in September 1991, Mrs. Davis was the Senior Vice
President of Corporate Affairs of Avon Products, Inc. She is currently a
Director of BellSouth Corporation (telecommunications), Eaton Corporation
(manufacturing, 1991), and the TJX Companies, Inc. (retail stores, 1990),
and previously served as a Director of Hallmark Cards, Inc. (1985-1991) and
Nabisco Brands, Inc. In addition, she serves as a Director of the New York
City Chapter of the National Multiple Sclerosis Society, and is a member of
the Advisory Council of the International Executive Service Corps. and the
President's Advisory Council of The University of Vermont School of
Business Administration.
RICHARD J. FLYNN, 77 Fiske Hill, Sturbridge, MA, Trustee, is a financial
consultant. Prior to September 1986, Mr. Flynn was Vice Chairman and a
Director of the Norton Company (manufacturer of industrial devices). He is
currently a Director of Mechanics Bank and a Trustee of College of the Holy
Cross and Old Sturbridge Village, Inc.
E. BRADLEY JONES, 3881-2 Lander Road, Chagrin Falls, OH, Trustee (1990).
Prior to his retirement in 1984, Mr. Jones was Chairman and Chief Executive
Officer of LTV Steel Company. Prior to May 1990, he was Director of
National City Corporation (a bank holding company) and National City Bank
of Cleveland. He is a Director of TRW Inc. (original equipment and
replacement products), Cleveland-Cliffs Inc (mining), NACCO Industries,
Inc. (mining and marketing), Consolidated Rail Corporation, Birmingham
Steel Corporation (1988), Hyster-Yale Materials Handling, Inc. (1989), and
RPM, Inc. (manufacturer of chemical products, 1990). In addition, he
serves as a Trustee of First Union Real Estate Investments, Chairman of the
Board of Trustees and a member of the Executive Committee of the Cleveland
Clinic Foundation, a Trustee and a member of the Executive Committee of
University School (Cleveland), and a Trustee of Cleveland Clinic
Florida.
DONALD J. KIRK, 680 Steamboat Road, Apartment #1-North, Greenwich, CT,
Trustee, is a Professor at Columbia University Graduate School of Business
and a financial consultant. Prior to 1987, he was Chairman of the
Financial Accounting Standards Board. Mr. Kirk is a Director of General Re
Corporation (reinsurance) and Valuation Research Corp. (appraisals and
valuations, 1993). In addition, he serves as Vice Chairman of the Board of
Directors of the National Arts Stabilization Fund and Vice Chairman of the
Board of Trustees of the Greenwhich Hospital Association.
*PETER S. LYNCH, Trustee (1990) is Vice Chairman of FMR (1992). Prior
to his retirement on May 31, 1990, he was a Director of FMR (1989) and
Executive Vice President of FMR (a position he held until March 31, 1991);
Vice President of Fidelity Magellan Fund and FMR Growth Group Leader; and
Managing Director of FMR Corp. Mr. Lynch was also Vice President of
Fidelity Investments Corporate Services (1991-1992). He is a Director of
W.R. Grace & Co. (chemicals, 1989) and Morrison Knudsen Corporation
(engineering and construction). In addition, he serves as a Trustee of
Boston College, Massachusetts Eye & Ear Infirmary, Historic Deerfield
(1989) and Society for the Preservation of New England Antiquities, and as
an Overseer of the Museum of Fine Arts of Boston (1990).
GERALD C. McDONOUGH, 135 Aspenwood Drive, Cleveland, OH, Trustee (1989),
is Chairman of G.M. Management Group (strategic advisory services). Prior
to his retirement in July 1988, he was Chairman and Chief Executive Officer
of Leaseway Transportation Corp. (physical distribution services). Mr.
McDonough is a Director of ACME-Cleveland Corp. (metal working,
telecommunications and electronic products), Brush-Wellman Inc. (metal
refining), York International Corp. (air conditioning and refrigeration,
1989), Commercial Intertech Corp. (water treatment equipment, 1992), and
Associated Estates Realty Corporation (a real estate investment trust,
1993).
EDWARD H. MALONE, 5601 Turtle Bay Drive #2104, Naples, FL, Trustee.
Prior to his retirement in 1985, Mr. Malone was Chairman, General Electric
Investment Corporation and a Vice President of General Electric Company.
He is a Director of Allegheny Power Systems, Inc. (electric utility),
General Re Corporation (reinsurance) and Mattel Inc. (toy manufacturer).
He is also a Trustee of Rensselaer Polytechnic Institute and of Corporate
Property Investors and a member of the Advisory Boards of Butler Capital
Corporation Funds and Warburg, Pincus Partnership Funds.
MARVIN L. MANN, 55 Railroad Avenue, Greenwich, CT, Trustee (1993) is
Chairman of the Board, President, and Chief Executive Officer of Lexmark
International, Inc. (office machines, 1991). Prior to 1991, he held the
positions of Vice President of International Business Machines Corporation
( "IBM") and President and General Manager of various IBM divisions and
subsidiaries. Mr. Mann is a Director of M.A. Hanna Company (chemicals,
1993) and Infomart (marketing services, 1991), a Trammell Crow Co. In
addition, he serves as the Campaign Vice Chairman of the Tri-State United
Way (1993) and is a member of the University of Alabama President's Cabinet
(1990).
THOMAS R. WILLIAMS, 21st Floor, 191 Peachtree Street, N.E., Atlanta, GA,
Trustee, is President of The Wales Group, Inc. (management and financial
advisory services). Prior to retiring in 1987, Mr. Williams served as
Chairman of the Board of First Wachovia Corporation (bank holding company),
and Chairman and Chief Executive Officer of The First National Bank of
Atlanta and First Atlanta Corporation (bank holding company). He is
currently a Director of BellSouth Corporation (telecommunications),
ConAgra, Inc. (agricultural products), Fisher Business Systems, Inc.
(computer software), Georgia Power Company (electric utility), Gerber Alley
& Associates, Inc. (computer software), National Life Insurance Company
of Vermont, American Software, Inc. (1989), and AppleSouth, Inc.
(restaurants, 1992).
GARY L. FRENCH, Treasurer (1991). Prior to becoming Treasurer of the
Fidelity funds, Mr. French was Senior Vice President, Fund Accounting -
Fidelity Accounting & Custody Services Co. (1991); Vice President, Fund
Accounting - Fidelity Accounting & Custody Services Co. (1990); and
Senior Vice President, Chief Financial and Operations Officer - Huntington
Advisers, Inc. (1985-1990).
ARTHUR S. LORING, Secretary, is Senior Vice President and General Counsel
of FMR, Vice President-Legal of FMR Corp., and Vice President and Clerk of
FDC.
ROBERT BECKWITT, Vice President of Asset Manager Portfolio (1990), is an
employee of FMR.
DONALD TAYLOR, Vice President of Investment Grade Bond Portfolio (1992), is
an employee of FMR.
ROBERT H. MORRISON, Manager, Security Transactions, is an employee of FMR.
Under a retirement program that became effective on November 1, 1989,
Trustees, upon reaching age 72, become eligible to participate in a defined
benefit retirement program under which they receive payments during their
lifetime from the Trust based on their basic trustee fees and length of
service. Currently, Messrs. Robert L. Johnson, William R. Spaulding,
Bertram H. Witham, and David L. Yunich participate in the program.
As of March 31, 1994, the Trustees and officers of the Trust owned in the
aggregate less than __% of the outstanding shares of the Portfolios.
As of February 28, 1994, significant shares of the Portfolios were held by
the following companies with the figures beneath each Portfolio
representing that company's holdings as a percentage of each Portfolio's
total outstanding shares.

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Investment Grade Asset Manager Index 500
Bond Portfolio Portfolio Portfolio

Ameritas Variable Life Insurance Company

(Lincoln, NE)

Fidelity Investments Life Insurance Company

(Boston, MA)

Empire Fidelity Investments Life Insurance

Company (New York, NY)

Northwestern National Life Insurance

Company (Minneapolis, MN)

PFL Life Insurance Company

(Cedar Rapids, IA)

Nationwide Life Insurance Company

(Columbus, OH)

The Life Insurance Company of Virginia

(Richmond, VA)

The Travelers Insurance Company

(Hartford, CT)

* Less than 5%.

</TABLE>

- - - Company does not offer shares of the portfolio.
As of February 28, 1994, FMR held ___% and ___% of Investment Grade Bond
and Index 500 Portfolios' outstanding voting securities.
A shareholder owning more than 25% of a particular Portfolio's shares may
be considered to be a "controlling person" of that Portfolio. Accordingly,
its vote could have a more significant effect on matters presented to
shareholders for approval than the votes of the Portfolio's other
shareholders.
MANAGEMENT CONTRACTS
Each Portfolio employs FMR to furnish investment advisory and other
services to the Portfolios. Under FMR's Management Contract with each
Portfolio, FMR acts as investment advisor and, subject to the supervision
of the Board of Trustees, directs the investments of each Portfolio in
accordance with its investment objective, policies and limitations. FMR
also provides each Portfolio with all necessary office facilities and
personnel for servicing each Portfolio's investments, and compensates all
officers of the Trust, all Trustees who are "interested persons" of the
Trust or of FMR and all personnel of the Trust or FMR performing services
relating to research, statistical and investment activities. In addition,
FMR or its affiliates, subject to the supervision of the Board of Trustees,
provide the management and administrative services necessary for the
operation of each Portfolio. These services include providing facilities
for maintaining each Portfolio's organization, supervising relations with
custodians, transfer and pricing agents, accountants, underwriters and
other persons dealing with each Portfolio, preparing all general
shareholder communications and conducting shareholder relations,
maintaining each Portfolio's records and the registration of each
Portfolio's shares under federal and state law, developing management and
shareholder services for each Portfolio and furnishing reports, evaluations
and analyses on a variety of subjects to the Trust's Board of Trustees.
In addition to the management fee payable to FMR and the fees payable to
FSC and FIIOC, each Portfolio pays all its expenses, without limitation,
that are not assumed by those parties. Each Portfolio pays for the
typesetting, printing and mailing of its Prospectuses, Statements of
Additional Information, reports and proxy material to existing
shareholders, legal expenses and the fees of the custodian, auditor and
non-interested Trustees. Other charges paid by each Portfolio include
interest, taxes, brokerage commissions, each Portfolio's proportionate
share of insurance premiums and Investment Company Institute dues, and the
costs of registering shares under federal and state securities laws. Each
Portfolio is also liable for such nonrecurring expenses as may arise,
including costs of litigation to which each Portfolio may be a party and
any obligation they may have to indemnify the officers and Trustees of the
Trust with respect to litigation.
INVESTMENT GRADE BOND PORTFOLIO. FMR is the Portfolio's manager pursuant
to a Management Contract dated January 1, 1993, which was approved by
shareholders on December 16, 1992. For the services of FMR under the
Contract, the Portfolio pays a monthly management fee composed of two
elements: a group fee rate and an individual fund fee rate. The group fee
rate is based on the monthly average net assets of all of the registered
investment companies with which FMR has management contracts and is
calculated on a cumulative basis pursuant to the graduated fee rate
schedule shown on the left of the chart below. On the right, the effective
fee rate schedule shows the results of cumulatively applying the annualized
rates at varying asset levels. For example, the effective annual fee rate
at $___ billion of group net assets--their approximate level for the month
of December 1993 was ____%, which is the weighted average of the respective
fee rates for each level of group net assets up to that level.
GROUP FEE RATE EFFECTIVE ANNUAL
SCHEDULE* FEE RATES

Rate Group Effective
Asset Levels Net Annual
Assets Fee Rate

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
0 - $ 3 billion .3700% $ 25 billion .2664%

3 - 6 .3400 50 .2188

6 - 9 .3100 75 .1986

9 - 12 .2800 100 .1869

12 - 15 .2500 125 .1793

15 - 18 .2200 150 .1736

18 - 21 .2000 175 .1695

21 - 24 .1900 200 .1658

24 - 30 .1800 225 .1629

30 - 36 .1750 250 .1604

36 - 42 .1700 275 .1583

42 - 48 .1650 300 .1565

48 - 66 .1600 325 .1548

66 - 84 .1550 350 .1533

84 - 120 .1500 375 .1519

120 - 174 .1450 400 .1507

174 - 228 .1400

228 - 282 .1375

282 - 336 .1350

Over - 336 .1325

</TABLE>

*The rates shown for average group assets in excess of $174 billion were
adopted by FMR on a voluntary basis on November 1, 1993. The schedule was
adopted pending shareholder approval of a new management contract
reflecting the extended schedule. The extended schedule provides for lower
management fees as total assets under management increase.
The individual fund fee rate is .30%. Based on the average net assets of
the funds advised by FMR for the month of December 1992, the annual
Management Fee rate would be calculated as follows:
Group Fee Rate Individual Fund Fee Rate Management Fee Rate

.% + .30% = .%

One-twelfth (1/12) of this annual Management Fee rate is then applied to
the Portfolio's average net assets for the current month, giving a dollar
amount which is the monthly fee.
Prior to January 1, 1993, the Portfolio's group fee rate (minus the
breakpoints added November 1, 1993) was based on a schedule with
breakpoints ending at .150% for average group assets in excess of $120
billion. This shorter schedule was included in the Portfolio's prior
management contract with FMR dated January 1, 1990.
For fiscal years ended 1993, 1992 and 1991, FMR received $______, $272,562,
and $108,191, respectively, for its services as investment advisor before
reimbursement. These fees were equivalent to ___%, .47%, and .48% of the
Portfolio's average net assets for those respective periods.
FMR has voluntarily agreed to reimburse the Portfolio to the extent that
the aggregate operating expenses (exclusive of taxes, brokerage
commissions, interest and extraordinary expenses) were in excess of an
annual rate of .80% of the Portfolio's average net assets. Reimbursement
for the years ended 1991, 1990 and 1989 amounted to $81,526, $128,199 and
$107,054, respectively, of average net assets. The Portfolio was not
reimbursed during 1992.
ASSET MANAGER PORTFOLIO. FMR is the Portfolio's manager pursuant to a
Management Contract dated January 1, 1993, which was approved by
shareholders on December 16, 1992. For the services of FMR under the
Contract, the Portfolio pays FMR a monthly management fee composed of the
sum of two elements: a group fee rate and an individual fund fee rate.
The group fee rate is based on the monthly average net assets of all of the
registered investment companies with which FMR has management contracts and
is calculated on a cumulative basis pursuant to the graduated fee rate
schedule shown on the left of the chart below. On the right, the effective
fee rate schedule shows the results of cumulatively applying the annualized
rates at varying asset levels. For example, the effective annual fee rate
at $___ billion of group net assets--their approximate level for the month
of December 1993 was ____%, which is the weighted average of the respective
fee rates for each level of group net assets up to that level.
GROUP FEE RATE EFFECTIVE ANNUAL
SCHEDULE* FEE RATES

Rate Group Effective
Asset Levels Net Annual
Assets Fee Rate

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
0 - $ 3 billion .520% $ 0.5 billion .5200%

3 - 6 .490 10 .4840

6 - 9 .460 20 .4398

9 - 12 .430 30 .4115

12 - 15 .400 40 .3944

15 - 18 .385 50 .3823

18 - 21 .370 60 .3728

21 - 24 .360 70 .3656

24 - 30 .350 80 .3599

30 - 36 .345 90 .3552

36 - 42 .340 100 .3512

42 - 48 .335 110 .3475

48 - 66 .325 120 .3444

66 - 84 .320 130 .3417

84 - 102 .315 140 .3394

102 - 138 .310 150 .3371

138 - 174 .305 160 .3351

174 - 228 .300 170 .3333

228 - 282 .295 180 .3316

282 - 336 .290 190 .3299

Over 336 .285 200 .3284

</TABLE>

*The rates shown for average group assets in excess of $174 billion were
adopted by FMR on a voluntary basis on November 1, 1993. The schedule was
adopted for each Portfolio pending shareholder approval of new management
contracts reflecting the extended schedule. The extended schedule provides
for lower management fees as total assets under management increase.
The individual fund fee rate is .40%. Based on the average net assets of
the funds advised by FMR for December 1992, the annual Management Fee rate
would be calculated as follows:
Group Fee Rate Individual Fund Fee Rate Management Fee Rate

.% + .40% = .%

One twelfth (1/12) of this annual Management Fee rate is then applied to
the Portfolio's average net assets for the current month, giving a dollar
amount which is the monthly fee.
Prior to January 1, 1993, the Portfolio's group fee rate (minus the
breakpoints added November 1, 1993) was based on a schedule with
breakpoints ending at .310% for average group assets in excess of $102
billion. This shorter schedule was included in the Portfolio's prior
management contract with FMR dated January 1, 1990.
During the fiscal years ended 1993, 1992 and 1991, FMR received $_____,
$3,065,065, and $693,187, respectively, for its services as investment
advisor prior to any reimbursement. These fees were equivalent to .__%,
.73%, and .74% of the Portfolio's average net assets for the respective
periods.
INDEX 500 PORTFOLIO
FMR is the Portfolio's manager pursuant to a Management Contract dated
January 1, 1993, which was approved by shareholders on December 16, 1992.
For the services of FMR under the Contract, the Portfolio pays a monthly
management fee to FMR at the annual rate of .28% of the average net assets
of the Portfolio as determined as of the close of business on each day
throughout the month.
FMR may, from time to time, agree to voluntarily reimburse the Portfolio
for expenses above a specified percentage of average net assets. FMR
retains the ability to be repaid for these expense reimbursements in the
amount that expenses fall below the limit prior to the end of the fiscal
year. For the fiscal year ended 1993 and the period August 27, 1992
(commencement of operations) to December 31, 1992, the fee before
reimbursement of expenses, amounted to $____ and $11,715, respectively.
FMR has voluntarily agreed to reimburse the Portfolio if, and to the extent
that, the Portfolio's aggregate operating expenses (including the
management fee, but generally excluding interest, taxes, brokerage
commissions, and extraordinary expenses) exceed an annual rate of .28% of
the average net assets of the Portfolio for any fiscal year, or for a
portion of such year if FMR's agreement is terminated or revised.
SUB-ADVISORS. On January 1, 1990, FMR entered into sub-advisory agreements
with Fidelity Management & Research (U.K.) Inc. (FMR (U.K.)) and
Fidelity Management & Research (Far East) Inc. (FMR Far East), pursuant
to which FMR (U.K.) and FMR Far East supply FMR with investment research
and recommendations concerning foreign securities for the benefit of Asset
Manager Portfolio.
FMR (U.K.) and FMR Far East, both wholly owned subsidiaries of FMR, were
formed in 1986 and registered under the Investment Advisers Act of 1940 on
May 11, 1987 to research and to make recommendations with respect to
companies located outside of North America.
The sub-advisory agreements provide that FMR, and not the Portfolio, will
pay fees to FMR (U.K.) and FMR Far East equal to 110% and 105%,
respectively, of FMR (U.K.)'s and FMR Far East's costs incurred in
connection with each agreement, said costs to be determined in relation to
the assets of the Portfolio that benefit from the services of the
sub-advisors. For fiscal years ended December 31, 1993, 1992 and 1991, FMR
paid FMR (U.K.) and FMR Far East fees of $______ and $_____; $17,823 and
$14,942; and $4,050 and $4,000, respectively, on behalf of the Portfolio.
DISTRIBUTION AND SERVICE PLAN
Each Portfolio has adopted a Distribution and Service Plan (the Plans)
under Rule 12b-1 of the Investment Company Act of 1940 (the Rule). The
Rule provides, in substance, that a mutual fund may not engage directly or
indirectly in financing any activity that is primarily intended to result
in the sale of shares of the Trust except pursuant to a plan adopted by the
Trust under the Rule. The Trust's Board of Trustees has adopted the Plans
to allow each Portfolio and FMR to incur certain expenses that might be
considered to constitute indirect payment by the Portfolios of distribution
expenses. Under the Plans, if the payment by a Portfolio to FMR of
management fees should be deemed to be indirect financing by a Portfolio of
the distribution of its shares, such payment is authorized by the Plans.
The Plans specifically recognize that FMR, either directly or through FDC,
may use its management fee revenue, past profits or other resources,
without limitation, to pay promotional and administrative expenses in
connection with the offer and sale of shares of the Portfolios. In
addition, the Plans provide that FMR may use its resources, including its
management fee revenues to make payments to third parties that provide
assistance in selling shares of the Portfolios or to third parties
including banks, that render shareholder support services. However, no
such payments to third parties are currently contemplated.
Each Portfolio's Plan has been approved by the Trustees. As required by
the Rule, the Trustees carefully considered all pertinent factors relating
to the implementation of each Plan prior to its approval, and have
determined that there is a reasonable likelihood that each Plan will
benefit the respective Portfolio and its shareholders. In particular, the
Trustees noted that the respective Plans do not authorize payments by the
Portfolio other than those made to FMR under the Management Contract with
each Portfolio. To the extent that the Plans give FMR and FDC greater
flexibility in connection with the distribution of shares of each
Portfolio, additional sales of the Portfolios' shares may result.
Additionally, certain shareholder support services may be provided more
effectively under each Plan by local entities with whom shareholders have
other relationships. The Plans for Investment Grade Bond Portfolio and
Asset Manager Portfolio were approved by the Portfolios' shareholders on
December 13, 1989. Index 500 Portfolio's Plan was approved by the
Portfolio's shareholders on December 16, 1992.
CONTRACTS WITH COMPANIES AFFILIATED WITH FMR
Each Portfolio has an agreement with FSC, an affiliate of FMR Corp., under
which FSC determines the NAV per share and dividends of each Portfolio and
maintains the portfolio and general accounting records of each Portfolio.
Prior to July 1, 1991, Investment Grade Bond and Asset Manager Portfolios'
annual fee for these pricing and bookkeeping services was based on two
schedules, one pertaining to each Portfolio's average net assets, and one
pertaining to the type and number of transactions each Portfolio made. The
fee rates in effect as of July 1, 1991, are based on each Portfolio's
average net assets as follows: For Investment Grade Bond Portfolio .04%
for the first $500 million of average net assets and .02% for average net
assets in excess of $500 million. For Asset Manager Portfolio and Index
500 Portfolio, .06% for the first $500 million of average net assets and
.03% for average net assets in excess of $500 million. For each Portfolio,
the fee is limited to a minimum of $45,000 and a maximum of $750,000 per
year.
In addition, FSC is paid a fee which ranges from $5 to $40 for each
portfolio transaction, depending on the type of transaction, and is
reimbursed for out-of-pocket expenses. The transaction fees will be
adjusted to reflect increases in a Bureau of Labor Statistics labor cost
index. For fiscal years 1993, 1992 and 1991, FSC received $_____, $46,187,
and $46,430 from Investment Grade Bond Portfolio; $_____, $243,598, and
$95,718 from Asset Manager Portfolio, respectively, for these services.
For fiscal year ended 1993 and the period August 27, 1992 (commencement of
operations) to December 31, 1992, FSC received $_____ and $15,547 from
Index 500 Portfolio, respectively for these services.
Each Portfolio utilizes FIIOC, an affiliate of FMR, to maintain the master
accounts of the participating insurance companies. On June 1, 1989, each
Portfolio entered into an agreement with FIIOC which changed the structure
of fees payable to FIIOC for transfer agent services. Under the transfer
agent agreement with FIIOC, each Portfolio pays a fee of $95 per
shareholder account per year and a fee of $20 for each monetary
transaction. In addition to providing transfer agent and shareholder
servicing functions, FIIOC pays all transfer agent out-of-pocket expenses
and also pays for the typesetting, printing and mailing of Prospectuses,
Statements of Additional Information, reports, notices and statements to
shareholders allocable to the master accounts of participating insurance
companies. For the fiscal years ended 1993, 1992 and 1991, these fees
(including reimbursement for out-of-pocket expenses) amounted to $_____,
$39,809, and $17,023 for Investment Grade Bond Portfolio and $______,
$63,976, and $36,988 for Asset Manager Portfolio, respectively. For fiscal
year ended 1993 and for the period August 27, 1992 (commencement of
operations) to December 31, 1992, FIIOC received $_____ and $1,205 from
Index 500 Portfolio, respectively. If a portion of Asset Manager
Portfolio's brokerage commissions had not been allocated toward payment of
these fees, the transfer agent fees would have been$____, $____, and $____.
Each Portfolio has a Distribution Agreement with FDC, a Massachusetts
corporation organized July 18, 1960. FDC is a broker-dealer registered
under the Securities Exchange Act of 1934 and a member of the National
Association of Securities Dealers, Inc. The Distribution Agreements call
for FDC to use all reasonable efforts, consistent with its other business,
to secure purchasers for shares of the Portfolios which are continuously
offered at net asset value. Promotional and administrative expenses, in
connection with the offer and sale of shares, are paid for by FMR.
SUMMARY OF THE PORTFOLIOS' EXPENSES
The expense summary format below was developed for use by all mutual funds
to help you make your investment decisions. Of course you should consider
this expense information along with other important information in the
Prospectus and Statement of Additional Information and the Portfolios'
investment objectives. This table does not include any charges or expenses
which are attributable to any particular insurance product. You should
carefully review the Prospectus of the insurance product you have chosen
for information on relevant charges and expenses.
A. SHAREHOLDER TRANSACTION EXPENSES
Investment Asset Index

Grade Bond Manager 500

Portfolio Portfolio Portfolio

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Sales Load on Purchases................................... None None None

Sales Load on Reinvested Dividends............... None None None

Deferred Sales Load Imposed on Redemptions. None None None

Exchange Fees None None None

</TABLE>

(as a percentage of average net assets after expense
reimbursement)
B. ANNUAL PORTFOLIO OPERATING EXPENSES
Management Fees .% .% .%

12b-1 Fees None None None

Other Expenses .% .% .%

Total Fund Operating Expenses .% .% .%

C. EXAMPLE: You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time
period:

<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 Year............................................................ $ $ $

3 Years...........................................................

5 Years...........................................................

10 Years.........................................................

</TABLE>

EXPLANATION OF TABLE: The purpose of this table is to assist you in
understanding the various costs and expenses that an investor in the
Portfolios would bear directly or indirectly.
A. ANNUAL TRANSACTION EXPENSES are charges you pay when you buy or sell
shares of a fund. There are none for these Portfolios, other than charges
which may be imposed by a particular insurance product.
B. ANNUAL PORTFOLIO OPERATING EXPENSES are based on each Portfolio's
historical expenses after reimbursement. Management fees are paid by each
Portfolio to FMR for managing its investments and business affairs. Each
Portfolio incurs other expenses for maintaining shareholder records,
furnishing shareholder statements and reports, and for other services.
Expenses eligible for reimbursement by FMR do not include interest, taxes,
brokerage commissions (if any), or extraordinary expenses. FMR has
voluntarily agreed to temporarily limit the total operating expenses of
Index 500 Portfolio to .28% of its average net assets. If this agreement
were not in effect, the Portfolio's management fee, other expenses, and
total operating expenses would have been .28%, ___%, and ___%,
respectively. Management fees and other expenses are reflected in each
Portfolio's share price or dividends and are not charged directly to
individual shareholder accounts.
C. EXAMPLE OF EXPENSES. The above hypothetical examples illustrate the
expenses associated with a $1,000 investment over periods of 1, 3, 5 and 10
years for each of the Portfolios. These examples are based on the annual
Portfolio operating expenses detailed above and an assumed annual rate of
return of 5%. The return of 5% and expenses should not be considered
indications of actual or expected Portfolio performance or expenses, both
of which may vary.
DESCRIPTION OF THE TRUST
TRUST ORGANIZATION. Investment Grade Bond Portfolio, Asset Manager
Portfolio and Index 500 Portfolio are funds of Variable Insurance Products
Fund II, an open-end management investment company, organized March 21,
1988. The Declaration of Trust permits the Trustees to create additional
funds.
Investments in the Trust may be made only by the separate accounts of
insurance companies for the purpose of funding variable annuity and
variable life insurance contracts issued by insurance companies.
In the event that FMR ceases to be the investment adviser to the Trust
or a fund, the right of the Trust or fund to use the identifying name
"Fidelity" may be withdrawn. There is a remote possibility that one fund
might become liable for any misstatement in its prospectus or statement of
additional information about another fund.
The assets of the Trust received for the issue or sale of shares of each
fund and all income, earnings, profits, and proceeds thereof, subject only
to the rights of creditors, are especially allocated to such fund, and
constitute the underlying assets of such fund. The underlying assets of
each fund are segregated on the books of account, and are to be charged
with the liabilities with respect to such fund and with a share of the
general expenses of the Trust. Expenses with respect to the Trust are to be
allocated in proportion to the asset value of the respective funds, except
where allocations of direct expense can otherwise be fairly made. The
officers of the Trust, subject to the general supervision of the Board of
Trustees, have the power to determine which expenses are allocable to a
given fund, or which are general or allocable to all of the funds. In the
event of the dissolution or liquidation of the Trust, shareholders of each
fund are entitled to receive as a class the underlying assets of such fund
available for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY. The Trust is an entity of the type
commonly known as "Massachusetts business trust." Under Massachusetts law,
shareholders of such a Trust may, under certain circumstances, be held
personally liable for the obligations of the Trust. The Declaration of
Trust provides that the Trust shall not have any claim against shareholders
except for the payment of the purchase price of shares and requires that
each agreement, obligation, or instrument entered into or executed by the
Trust or the Trustees shall include a provision limiting the obligations
created thereby to the Trust and its assets. The Declaration of Trust
provides for indemnification out of each fund's property of any
shareholders held personally liable for the obligations of the fund. The
Declaration of Trust also provides that each fund shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the fund and satisfy any judgment thereon. Thus, the risk of
a shareholder incurring financial loss on account of shareholder liability
is limited to circumstances in which the fund itself would be unable to
meet its obligations. FMR believes that, in view of the above, the risk of
personal liability to shareholders is remote.
The Declaration of Trust further provides that the Trustees, if they have
exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declaration of Trust protects Trustees
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of their office.
VOTING RIGHTS. Each fund's capital consists of shares of beneficial
interest. The shares have no preemptive or conversion rights; the voting
and dividend rights, the right of redemption, and the privilege of exchange
are described in the Prospectus. Shares are fully paid and nonassessable,
except as set forth under the heading "Shareholder and Trustee Liability"
above. Shareholders representing 10% or more of the Trust or a fund may, as
set forth in the Declaration of Trust, call meetings of the Trust or a fund
for any purpose related to the Trust or fund, as the case may be,
including, in the case of a meeting of the entire Trust, the purpose of
voting on removal of one or more Trustees. The Trust or any fund may be
terminated upon the sale of its assets to another open-end management
investment company, or upon liquidation and distribution of its assets, if
approved by vote of the holders of a majority of the Trust or the fund. If
not so terminated, the Trust and the funds will continue indefinitely.
CUSTODIAN. The Bank of New York, 110 Washington Street, New York, NY is
custodian of the assets of Investment Grade Bond Portfolio. The Chase
Manhattan Bank, N.A., 1211 Avenue of the Americas, New York, NY is
custodian of the assets of Asset Manager Portfolio. Brown Brothers
Harriman & Co., 40 Water Street, Boston, MA, is custodian of the assets
of Index 500 Portfolio. The custodians take no part in determining the
investment policies of each Portfolio or in deciding which securities are
purchased or sold by each Portfolio. Each Portfolio, however, may invest
in obligations of the custodians and may purchase securities from or sell
securities to the custodians.
FMR, its affiliated companies and its officers and directors, and the
Trust's Trustees, may from time to time have transactions with various
banks, including custodian and subcustodian banks for certain of the funds
advised by FMR. The Boston branch of Brown Brothers Harriman & Co.
leases its office space from an affiliate of FMR at a lease payment which,
when entered into, was consistent with prevailing market rates. Other
transactions that have occurred to date have included 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 custodian or other fund relationships.
AUDITOR. Price Waterhouse, 160 Federal Street, Boston, MA serves as the
Portfolios' independent accountant, providing audit services including (1)
audit of annual financial statements, (2) assistance and consultation in
connection with SEC filings and (3) review of the annual federal income tax
returns filed on behalf of each Portfolio.
FINANCIAL STATEMENTS. Financial information for the fiscal period ended
December 31, 1993 is a separate Annual Report incorporated herein by
reference and supplied with this Statement of Additional Information.
Additional copies are available from FDC.
APPENDIX
The DOLLAR-WEIGHTED AVERAGE MATURITY of a Portfolio's
fixed-income holdings is derived by multiplying the value of each
fixed-income investment held by a Portfolio by the number of days remaining
to its maturity, adding these calculations, and then dividing the total by
the value the Portfolio's fixed-income holdings. An obligation's maturity
is typically determined on a stated final maturity basis, although there
are some exceptions to this rule.
For example, if it is probable that the issuer of an instrument will
take advantage of a maturity-shortening device, such as a call, refunding,
or redemption provision, the date on which the instrument will probably be
called, refunded, or redeemed may be considered to be its maturity date.
Also, the maturities of mortgage-backed securities and some asset-backed
securities. such as collateralized mortgage obligations, are determined on
a weighted average life basis, which is the average time for principal to
be repaid. For a mortgage security, this average time is calculated by
assuming a constant prepayment rate for the life of the mortgage. The
weighted average life of these securities is likely to be substantially
shorter than their stated final maturity.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:
AAA - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA - Bonds which are rated Aa are judged to be of high quality by all
standards. together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protections 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 Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest may be present which suggest a
susceptibility to impairment sometime in the future.
BAA - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA - Bonds which are rates Ba are judged to have speculative elements.
Their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of
other terms of the contract over any long period of time may be small.
CAA - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
CA - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
short-comings.
C - Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers, 1,2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S CORPORATE BOND RATINGS:
AAA - Debt rated AAA has the highest rating assigned by Standard &
Poor's. 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 highest rated debt issues only in small
degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
categories.
BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
B - Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
The B rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BB 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 adverse business, financial, or
economic conditions, it is not likely to have the capacity to pay interest
and repay principal.
CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed but
debt service payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The D rating
will also be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
The ratings from AA to CCC may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.
DESCRIPTION OF FITCH INVESTOR'S SERVICE, INC.'S COMMERCIAL PAPER RATINGS:
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded
as having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than the strongest issues.
DESCRIPTION OF FITCH INVESTOR'S SERVICE, INC.'S CORPORATE BOND RATINGS:
AAA--Bonds of this rating are regarded as strictly high grade, broadly
marketable, suitable for investment by trustees and fiduciary institutions,
and liable to but slight market fluctuation other than through changes in
the money rate. The factor last named is of importance, varying with the
length of maturity. Such bonds are mainly senior issues of strong
companies, and are most numerous in the railway and public utility fields,
though some industrial obligations have this rating. The prime feature of
an AAA bond is of showing of earnings several times or many times interest
requirements with such stability of applicable earnings that safety is
beyond reasonable question whatever changes occur in conditions. Other
features may enter, such as a wide margin of protection through collateral
security or direct lien on specific property as in the case of high-class
equipment certificates or bonds that are first mortgages on valuable real
estate. Sinking funds or voluntary reduction of the debt, by call or
purchase are often factors, while guarantee or assumption by parties other
than the original debtor may influence the rating.
AA--Bonds in this group are of safety virtually beyond question, and as a
class are readily saleable while many are highly active. Their merits are
not greatly unlike those of the "AAA" class, but a bond so rated may be of
junior though strong lien--in many cases directly following an AAA bond--or
the margin of safety is strikingly broad. The issue may be the obligation
of a small company, strongly secured but influenced as to rating by the
lesser financial power of the enterprise and more local type of market.
DESCRIPTION OF DUFF & PHELPS INC.'S COMMERCIAL PAPER RATINGS:
DUFF 1--High certainty of timely payment. Liquidity factors are excellent
and supported by strong fundamental protection factors. Risk factors are
minor.
DUFF 2--Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing internal funds needs may enlarge
total financing requirements, access to capital markets is good. Risk
factors are small.
DESCRIPTION OF DUFF & PHELPS INC.'S CORPORATE BOND RATINGS:
DUFF 1--Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
DUFF 2,3,4--High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic
conditions.
A rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor. When a security has received more than one rating,
each should be evaluated independently.
The ratings are based on current information furnished by the issuer or
obtained by the rating services from other sources which they consider
reliable. The ratings may be changed, suspended or withdrawn as a result
of changes in, or unavailability of, such information, or for other
reasons. Ratings may be qualified with a plus (+) or minus (-); however,
these qualifications are not taken into account for the purposes of the
Portfolio's investment policies and limitations.
ABOUT THE S&P 500 INDEX (Index 500 Portfolio)
The S&P 500 is a well-known stock market index that includes common
stocks of companies representing a significant portion of the market value
of all common stocks publicly traded in the United States. FMR believes
that the performance of the S&P 500 is representative of the
performance of publicly traded common stocks in general. The composition
of the S&P 500 is determined by Standard & Poor's Corporation, and
is based on such factors as the market capitalization and trading activity
of each stock and its adequacy as representative of stocks in a particular
industry group, and may be changed from time to time. Stocks in the
S&P 500 are weighted according to their market capitalization (i.e.,
the number of shares outstanding multiplied by the stock's current price),
with the 51 largest stocks currently composing 50% of the Index's value.
The following refers to an agreement between Standard & Poor's
Corporation and FDC whereby FDC has the right to the use of certain marks
that are the property of S&P. Although S&P obtains information for
inclusion in or for use in the calculation of the S&P 500 from sources
which S&P considers reliable, S&P does not guarantee the accuracy
and/or the completeness of the S&P 500 or any data included therein and
S&P shall have no liability for any errors, omissions, or interruptions
therein. S&P makes no warranty, express or implied, as to results to
be obtained by the licensee, owners of the Portfolio, or any other person
or entity from the use of the S&P 500 or any data included therein in
connection with the rights licensed hereunder or for any other use.
S&P makes no express or implied warranties, and hereby expressly
disclaims all warranties of merchantability or fitness for a particular
purpose with respect to the S&P 500 or any data included therein.
THE 500 STOCKS IN THE S&P 500 INDEX. The following is a list of the
500 Stocks in the S&P 500 Index as of March 31, 1993.

1 a,b Cover Page

2 a,b,c *

3 a,b A Look At The Trusts' Financial History

c Performance

4 a(i) The Trusts and the Fidelity Organization

a(ii) How The Trusts Work; Matching the
Portfolios to Your

Investment Needs; Limiting Investment
Risks

b,c Limiting Investment Risks; Matching the
Portfolios to

Your Investment Needs

5 a,b(i) The Trusts and the Fidelity Organization

b(ii)(iii),c Management, Distribution and Service Fees

d Management, Distribution and Service Fees

e A Look At The Trusts' Financial History;
Management,

Distribution and Service Fees

f Portfolio Transactions

6 a(i) The Trusts and the Fidelity Organization

a(ii) Redemptions

a(iii) *

b The Trusts and the Fidelity Organization

c,d *

e Cover Page, Shareholder's Manual

f,g Distributions and Taxes

7 a The Trusts and the Fidelity Organization

b(i),(ii) Financial Highlights; Share Price;
Investments

b(iii,iv,v) *

c,d,e *

f Management, Distribution and Service Fees

8 a Redemptions

b,c *

d Redemptions

9 *

_______________
* Not Applicable

Part B Statement of Information Caption

10,11 Cover Page

12 Description of The Trusts

13 a,b,c Investment Policies and Limitations

d Portfolio Transactions

14 a,b Trustees and Officers

c *

15 a *

b,c Trustees and Officers

16 a(i) FMR

a(ii) Trustees and Officers

a(iii),b Management Contracts

c *

d Contracts with Companies Affiliated with FMR

e *

f Distribution and Service Plans

g *

h Description of the Trusts

i Contracts with Companies Affiliated with FMR;
Description

of the Trusts

17 a,b,c,d Portfolio Transactions

e *

18 a Description of the Trusts

b *

19 a Additional Purchase and Redemption Information

b Valuation of Portfolio Securities; Additional
Purchase and

Redemption Information

c *

20 Taxes

21 a(i),(ii) Contracts with Companies Affiliated with FMR

a(iii),b,c *

22 Performance

23 Financial Statements for the Annual period are
incorporated

_________
* Not Applicable
crossreference

82 Devonshire Street, Boston, MA 02109

PROSPECTUS HOW THE TRUSTS WORK page
APRIL 30, 1994 SHAREHOLDER'S MANUAL page

Variable Insurance Products Fund and Variable Insurance Products Fund II
(the Trusts) are designed to provide investment vehicles for variable
annuity and variable life insurance contracts of various insurance
companies. The Trusts currently offer these funds:
MONEY MARKET PORTFOLIO seeks to obtain as high a level of current income
as is consistent with preserving capital and providing liquidity. The fund
will invest only in high quality U.S. dollar denominated money market
securities of domestic and foreign issuers. AN INVESTMENT IN MONEY MARKET
PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT, AND
THERE CAN BE NO ASSURANCE THAT THE FUND WILL MAINTAIN A STABLE $1.00 SHARE
PRICE.
HIGH INCOME PORTFOLIO seeks to obtain a high level of current income by
investing primarily in high-yielding, lower-rated, fixed-income securities,
while also considering growth of capital. High yielding, lower-rated debt
securities present higher risks of untimely interest and principal
payments, default, and price volatility than higher-rated securities, and
may present problems of liquidity and valuation.
EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities, the fund
will also consider the potential for capital appreciation. The fund's goal
is to achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's 500 Composite Stock Price Index.
GROWTH PORTFOLIO seeks to achieve capital appreciation. The fund normally
purchases common stocks, although its investments are not restricted to any
one type of security. Capital appreciation may also be found in other types
of securities, including bonds and preferred stocks.
OVERSEAS PORTFOLIO seeks long term growth of capital primarily through
investments in foreign securities. Overseas Portfolio provides a means for
investors to diversify their own portfolios by participating in companies
and economies outside of the United States.
INVESTMENT GRADE BOND PORTFOLIO seeks as high a level of current income as
is consistent with the preservation of capital by investing in a broad
range of investment-grade fixed-income securities. The fund will maintain a
dollar-weighted average portfolio maturity of ten years or less.
ASSET MANAGER PORTFOLIO seeks high total return with reduced risk over the
long-term by allocating its assets among domestic and foreign stocks, bonds
and short-term fixed-income instruments.
INDEX 500 PORTFOLIO seeks to provide investment results that correspond to
the total return (i.e., the combination of capital changes and income) of
common stocks publicly traded in the United States. In seeking this
objective, the fund attempts to duplicate the composition and total return
of the Standard & Poor's 500 Composite Stock Price Index while keeping
transaction costs and other expenses low. The fund is designed as a
long-term investment option.
Please read this Prospectus before investing. It is designed to provide
you with information and to help you decide if the goal of one or more of
the funds matches your own. Retain this document for future reference.
Shares of each fund may only be purchased by the separate accounts of
insurance companies, for the purpose of funding variable annuity and
variable life insurance contracts. Particular funds may not be available in
your state due to various insurance regulations. Please check with your
insurance company for available funds. Inclusion of a fund in this
Prospectus which is not available in your state is not to be considered a
solicitation. This Prospectus should be read in conjunction with the
prospectus of the separate account of the specific insurance product which
accompanies this Prospectus.
A Statement of Additional Information (dated April 30, 1994) for each
Trust has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. These free Statements are available upon
request from your insurance company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
<S> <C>
Summary 3 Management, Distribution and Service
Fees 24

A Look at the Funds' Financial History 4 Opening an Account 28

Investment Objectives and Policies 9 Investments 28

Performance 21 Redemptions 29

Distributions and Taxes 22 Appendix 29

The Trusts and the Fidelity
Organization 23

</TABLE>

A LOOK AT THE FUND'S FINANCIAL HISTORY
FINANCIAL HIGHLIGHTS. The following tables give you information about each
fund's financial history and use the Trusts' fiscal year (which ends
December 31).
Financial information for funds of Variable Insurance Products Fund has
been audited by Coopers & Lybrand and financial information for funds
of Variable Insurance Products Fund II has been audited by Price
Waterhouse, each independent accountants. Their unqualified reports are
included in each Trust's Annual Report. Each Trust's Annual Report is
incorporated by reference into the Statement of Additional Information.
At least twice a year, financial statements with a summary of each fund's
composition and performance will be distributed to each Trust's
participating insurance companies, who in turn will send the financial
statements to you.
HOW THE TRUSTS WORK
INVESTMENT OBJECTIVES AND POLICIES
Each Trust is an open-end, diversified management investment company
offering insurance companies a selection of investment vehicles for
variable annuity and variable life insurance contracts. Each Trust offers a
variety of funds with different investment objectives which are described
below. Fidelity Management & Research Company (FMR) manages the
investments of each fund. For a discussion of the management fees paid to
FMR by each fund, please see MANAGEMENT, DISTRIBUTION AND SERVICE FEES
beginning on page __.
Various levels of risk are involved with each fund. Investments in money
market instruments are subject to the ability of the issuer to make payment
at maturity. Investments in high-yielding bonds normally involve
lower-rated securities which have a greater risk of default and have prices
which fluctuate more than those of higher-rated securities. With any equity
investment, in addition to the usual uncertainties involved, an investor
should be aware that each of the equity funds has risks particular to it.
Please refer to MATCHING THE FUNDS TO YOUR INVESTMENT NEEDS beginning on
page for a discussion of these risks. Each of the funds abides by various
insurance regulations. Please read your INSURANCE COMPANY'S SEPARATE
ACCOUNT PROSPECTUS AND CONTRACT for discussions relating to insurance
regulations and instructions on how to invest in and redeem from each fund.
A general discussion may be found on page .
Each fund's investment objective is fundamental and can be changed only by
vote of a majority of the outstanding shares of the respective fund. There
is no assurance that each fund will achieve its investment objective.
MONEY MARKET PORTFOLIO seeks to obtain as high a level of current income as
is consistent with preserving capital and providing liquidity. FMR will
invest the fund's assets in the following types of high-quality, U.S.
dollar-denominated money market securities of domestic and foreign issuers:
(bullet) obligations of financial institutions, such as banks, savings and
loan institutions, insurance companies and mortgage bankers. These
obligations include certificates of deposit, bankers' acceptances and time
deposits.
(bullet) obligations of governments and their agencies or
instrumentalities.
(bullet) short-term obligations, including high-quality debt obligations
such as commercial paper, notes and bonds with remaining maturities of 397
days or less.
(bullet) other short-term debt obligations with remaining maturities of 397
days or less.
Many of the fund's obligations are described in the APPENDIX.
The fund may invest in obligations of U.S. banks, foreign branches of U.S.
banks (Eurodollars), U.S. branches and agencies of foreign banks (Yankee
dollars), and foreign branches of foreign banks. Euro and Yankee dollar
investments involve risks that are different from investments in securities
of U.S. banks. These risks may include future unfavorable political and
economic developments, possible withholding of taxes, seizure of foreign
deposits, currency controls, interest limitations or other governmental
restrictions which might affect payment of principal or interest.
Additionally, there may be less public information available about foreign
banks and their branches. Foreign branches of foreign banks are not
regulated by U.S. banking authorities, and generally are not bound by
accounting, auditing and financial reporting standards comparable to U.S.
banks. Although FMR carefully considers these factors when making
investments, the fund does not limit the amount of its assets which can be
invested in any one type of instrument or in any foreign country.
QUALITY. Pursuant to procedures adopted by the Board of Trustees, Money
Market Portfolio may purchase only high quality securities that FMR
believes present minimal credit risks. To be considered high quality, a
security must be a U.S. government security; rated in accordance with
applicable rules in one of the two highest categories for short-term
securities by at least two nationally recognized rating services (or by
one, if only one rating service has rated the security); or, if unrated,
judged to be of equivalent quality by FMR.
High quality securities are divided into "first tier" and "second tier"
securities. FIRST TIER SECURITIES have received the highest rating (e.g.,
Standard & Poor's A-1 rating) from at least two rating services (or
one, if only one has rated the security). SECOND TIER SECURITIES have
received ratings within the two highest categories (e.g., Standard &
Poor's A-1 or A-2) from at least two rating services (or one, if only one
has rated the security), but do not qualify as first tier securities. If a
security has been assigned different ratings by different rating services,
at least two rating services must have assigned the higher rating in order
for FMR to determine eligibility on the basis of that higher rating. Based
on procedures adopted by the Board of Trustees, FMR may determine that an
unrated security is of equivalent quality to a rated first or second tier
security.
DIVERSIFICATION. The fund may not invest more than 5% of its total assets
in second tier securities. In addition, the fund may not invest more than
1% of its total assets or $1 million (whichever is greater) in the second
tier securities of a single issuer.
MATURITY POLICIES. The fund must limit its investments to securities with
remaining maturities of 397 days or less and must maintain a
dollar-weighted average maturity of 90 days or less.

HIGH INCOME PORTFOLIO seeks to obtain a high level of current income by
investing primarily in high-yielding, lower-rated, fixed-income securities,
while also considering growth of capital. FMR will seek high current income
normally by investing the fund's total assets as follows:
(bullet) at least 65% in income-producing debt securities and preferred
stocks of all types, including convertible securities, zero coupon
securities, and mortgage-backed and asset-backed securities;
(bullet) up to 20% in common stocks and other equity securities when
consistent with the fund's primary objective or when acquired as part of a
unit combining fixed-income and equity securities.
The fund may invest up to 15% of its assets in securities for which there
is no readily available market. These illiquid securities may include
privately placed restricted securities for which no institutional market
exists. The absence of a trading market can make it difficult to ascertain
a market value for illiquid securities. Disposing of illiquid securities
may involve time-consuming negotiation and legal expenses, and it may be
difficult or impossible for the fund to sell them promptly at an acceptable
price. SEE THE APPENDIX FOR MORE INFORMATION.
The fund may also invest a portion of its assets in debt securities that
are not paying current income in anticipation of possible future income
from the securities. The purchase of defaulted bonds and their future
benefit to the fund depend upon FMR's ability to predict future prospects
of an issuer.
Higher yields are usually available on securities that have a longer-term
maturity and are lower-rated or are unrated. Lower-rated securities are
usually defined as those rated Ba or lower by Moody's Investors Service,
Inc. (Moody's) or BB or lower by Standard & Poor's Corporation
(S&P) and may be deemed to be of a speculative nature. Lower-rated
securities involve greater risk of default or price changes than securities
assigned a higher quality rating. Unrated securities are not necessarily of
lower quality than rated securities but they may not be attractive to as
many buyers. FOR A FURTHER DISCUSSION OF LOWER-RATED SECURITIES, PLEASE SEE
THE "RISKS OF LOWER-RATED DEBT SECURITIES" SECTION ON PAGE .
In considering investments for the fund, FMR will look for high-yielding
securities of companies whose financial condition is adequate to meet
future obligations or has improved or is expected to improve in the future.
Among other things, yield is a function of the relative financial strength
of the issuing company and of debt maturity schedules. In evaluating these
factors, FMR will not rely solely on ratings assigned by Moody's and
S&P but will do its own credit analysis. This is because (1) Moody's
and S&P assign ratings based largely on historical financial
information and the ratings may not accurately reflect the current
financial outlook of companies and (2) there can be large differences
between the current financial conditions of issuers within the same rating
category.
The prices of high-yielding, lower-rated, fixed-income securities may
decline significantly in periods of general economic difficulty or rising
interest rates. The fund will try to recognize these periods and then may
adopt a defensive approach (i.e., temporarily invest up to 100% of its
assets in high quality debt securities and preferred stocks).
OTHER INVESTMENT PRACTICES. The fund may invest in foreign securities. For
information on the fund's foreign investments, see the section entitled
"International Investments: Special Considerations" on page __. Refer to
the Appendix for information on other investments the fund may make,
including options and futures contracts, put options and short sales,
repurchase agreements and securities loans, interfund borrowing
transactions, government securities, zero-coupon bonds and pay-in-kind
securities, delayed-delivery transactions, and indexed securities. The fund
may also invest in warrants.

EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities FMR will
also consider the potential for capital appreciation. The fund's goal is to
achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's 500 Composite Stock Price Index.
FMR normally will invest at least 65% of the fund's total assets in
income-producing common or preferred stock. The remainder of the fund's
assets will tend to be invested in debt obligations, many of which are
expected to be convertible into common stock (if convertible securities
present favorable investment opportunities). FMR expects to invest, as is
consistent with the fund's objective, in securities of varying quality but
does not intend to invest in securities of companies without proven
earnings or credit.
In addition, the fund may invest in high-yielding, lower-rated debt
securities which are subject to greater risk than investments in higher
quality securities and the fund may invest in foreign securities. FOR A
FURTHER DISCUSSION OF LOWER-RATED SECURITIES AND FOREIGN INVESTING, PLEASE
SEE THE "RISKS OF LOWER-RATED DEBT SECURITIES" SECTION AND "INTERNATIONAL
INVESTMENTS: SPECIAL CONSIDERATIONS" ON PAGES AND , RESPECTIVELY.
OTHER INVESTMENT PRACTICES. See the Appendix for more information on other
investment practices including repurchase agreements and securities loans,
illiquid investments, restricted securities, loans and other direct debt
instruments, options and futures contracts, short sales, swap agreements,
indexed securities, and interfund borrowing transactions. The fund may also
invest in warrants and mortgage-backed securities.

GROWTH PORTFOLIO seeks to achieve capital appreciation. FMR normally will
purchase common stocks for the fund, although its investments are not
restricted to any one type of security. Capital appreciation may also be
found in other types of securities, including bonds and preferred stocks.
The emphasis on a particular security will depend on FMR's interpretation
of underlying economic, financial, and security trends. The fund does not
place any emphasis on dividend income from its investments except when FMR
believes this income will have a favorable influence on the market value of
the security.
In addition, the fund may invest in high-yielding, lower-rated debt
securities which are subject to greater risk than investments in higher
quality securities and the fund may invest in foreign securities. FOR A
FURTHER DISCUSSION OF LOWER-RATED SECURITIES AND FOREIGN INVESTING, PLEASE
SEE THE "RISKS OF LOWER-RATED DEBT SECURITIES" SECTION AND "INTERNATIONAL
INVESTMENTS: SPECIAL CONSIDERATIONS" ON PAGES AND , RESPECTIVELY.
OTHER INVESTMENT PRACTICES. Refer to the Appendix for more information on
investments the fund may make, including options and futures contracts,
short sales, swap agreements, indexed securities, interfund borrowing
transactions, repurchase agreements and securities loans, warrants,
restricted securities, and illiquid investments.

OVERSEAS PORTFOLIO seeks long term growth of capital primarily through
investments in foreign securities. The fund provides a means for investors
to diversify their own portfolios by participating in companies and
economies outside of the United States.
Foreign securities are defined as securities of issuers whose principal
activities are outside of the United States. In determining whether an
issuer's principal activities and interests are outside the United States,
FMR will look at such factors as the location of its assets, personnel,
sales and earnings.
Normally, at least 65% of the fund's total assets will be invested in
securities of issuers from at least three different countries outside of
North America. Although the fund may invest up to 35% in securities of
issuers from Canada, Mexico and the United States, FMR currently does not
expect to invest a significant part of this amount in securities of U.S.
issuers.
When allocating the fund's investments among geographic regions and
individual countries, FMR considers various criteria, such as prospects for
relative economic growth among countries, expected levels of inflation,
government policies influencing business conditions, and the outlook for
currency relationships. FMR expects to invest most of the fund's assets in
securities of issuers located in developed countries in these general
geographic areas: the Americas (other than the United States), the Far East
and Pacific Basin, Scandinavia and Western Europe.
FMR may invest the fund's assets in all types of securities, most of which
are denominated in foreign currencies. FMR expects that opportunities for
long term growth of capital will come primarily from common stock,
securities such as warrants or rights that are convertible into common
stock, preferred stock, and depository receipts for those securities. The
fund may also invest in high-yielding, lower-rated debt securities of any
type if FMR believes that doing so may result in long term growth. FOR A
FURTHER DISCUSSION OF LOWER-RATED SECURITIES, PLEASE SEE THE "RISKS OF
LOWER-RATED DEBT SECURITIES" SECTION ON PAGE . The fund does not place any
emphasis on dividends or interest income except when FMR believes this
income will have a favorable influence on the market value of the security.
The fund may invest in indexed securities whose value depends on the price
of foreign currencies, commodities, securities indices, or other financial
indicators. In the normal course of managing the fund, FMR may invest a
portion of the fund's assets in U.S. and foreign government obligations and
money market securities (including repurchase agreements) when the fund has
monies not yet invested, it has sold one security and is waiting to buy
another one, so that it will be prepared to meet redemption requests, or to
earn a return on available cash balances. When market conditions warrant,
FMR can make substantial temporary defensive investments in U.S. government
obligations or investment-grade obligations of companies incorporated in
and having principal business activities in the United States.
OTHER INVESTMENT PRACTICES. Refer to the Appendix for further information
on the fund's investments, including options and futures contracts,
warrants, illiquid investments, restricted securities, swap agreements,
indexed securities, loans and other direct debt instruments, repurchase
agreements and securities loans, and interfund borrowing transactions.

INVESTMENT GRADE BOND PORTFOLIO'S investment objective is to seek as high a
level of current income as is consistent with the preservation of capital.
Under normal conditions, FMR invests at least 65% of the fund's total
assets in investment-grade fixed-income securities such as bonds, notes and
debentures. The fund's dollar-weighted average portfolio maturity may not
exceed ten years. The fund may purchase individual securities with
maturities of more than ten years, as long as its average maturity remains
within this limit.
Fixed-income securities held by the fund may include bonds, notes, mortgage
securities, domestic and foreign government and government agency
obligations, zero coupon securities and convertible securities, and very
short-term obligations such as bankers' acceptances, certificates of
deposit, repurchase agreements and securities lending, prime commercial
paper and other short-term corporate obligations. Refer to the APPENDIX on
page __ for more information on these and other types of investments the
fund may make including stripped mortgage-backed and asset-backed
securities, foreign securities, options and futures contracts,
delayed-delivery transactions, swap agreements, indexed securities, loans
and other direct debt instruments, interfund borrowing transactions,
illiquid investments, and restricted securities.
To achieve the fund's goal of preserving capital, the fund will not
purchase fixed-income securities unless they are investment-grade or
better. Investment-grade securities are those rated Baa or better by
Moody's Investors Service, Inc. (Moody's) or BBB or better by Standard
& Poor's Corporation (S&P), or if unrated, judged by FMR to be of
equivalent quality. Investment grade securities have adequate to strong
protection of principal and interest payments according to the rating
agencies. Bonds rated in the lower end of the investment grade category
(bonds rated Baa/BBB) may possess speculative characteristics in credit
quality and may be more sensitive to economic changes and changes in the
financial condition of issuers.

ASSET MANAGER PORTFOLIO'S investment objective is to seek to obtain high
total return with reduced risk over the long-term by allocating its assets
among domestic and foreign stocks, bonds and short-term fixed-income
instruments. FMR will normally allocate the fund's assets among the three
asset classes within the following investment parameters: 0-70% in
short-term instruments; 20-60% in bonds (intermediate to long-term debt
securities); and 10-60% in stocks (equities). The expected "neutral" mix
will consist of 20% in short-term instruments, 40% in bonds and 40% in
stocks. The "neutral" mix represents the expected allocation when FMR's
projections of relative returns for the three asset classes are equivalent
to what FMR would expect over the long-term. FMR does not anticipate
altering the neutral mix although it may be revised from time to time. As
of February 28, 1994, the fund's asset mix consisted of approximately __%
short-term instruments, __% bonds and __% stocks. The example above
illustrates the fund's asset mix at one point in time and does not
necessarily indicate its current or future allocation.
FMR regularly reviews the fund's investment allocations, and will gradually
vary them over time to favor asset classes that, in FMR's current judgment,
provide the most favorable total return outlook. In making allocation
decisions, FMR will evaluate projections of risk, market and economic
conditions, volatility, yields and expected return. In addition, FMR seeks
to reduce risk relative to an investment in common stocks by emphasizing
the bond and short-term classes when stocks appear overvalued. FMR's
management will include use of database systems to help analyze past
situations and trends, research specialists in each of the asset classes to
help in securities selection, portfolio management professionals to
determine asset allocation and to select individual securities, and its own
credit analysis as well as credit analysis provided by rating services.
Because the fund seeks high total return over the long-term, it will not
try to pinpoint the precise moment when major reallocations should be made.
Rather, asset shifts among classes will be made gradually over time and,
under normal conditions, a single reallocation decision will not involve
more than 10% of the fund's total assets. The fund may make substantial
temporary investments in cash and money market instruments for defensive
purposes when, in FMR's judgment, market conditions warrant.
To provide the fund with maximum flexibility within the three asset
classes, FMR will purchase portfolio securities from among a wide range of
investment instruments as described in the following paragraphs. FMR
believes that diversification of the fund's investments among the asset
classes listed below, as opposed to investment in any one class, will,
under most market conditions, better enable the fund to reduce risk while
seeking high total return over the long-term.
SHORT-TERM CLASS. This class includes all types of domestic and foreign
securities and money market instruments with remaining maturities of three
years or less. FMR will seek to maximize total return within the short-term
asset class by taking advantage of yield differentials between different
instruments, issuers and currencies. Short-term instruments may include
corporate debt securities such as commercial paper and notes; government
securities issued by U.S. or foreign governments or their agencies or
instrumentalities; bank deposits and other financial institution
obligations; repurchase agreements involving any type of security; and
other similar short-term instruments. These instruments may be denominated
in U.S. dollars or foreign currency.
BOND CLASS. The bond class includes all varieties of domestic and foreign
fixed-income securities with maturities greater than three years. FMR seeks
to maximize total returns within the bond class by adjusting the fund's
investments in securities with different credit qualities, maturities, and
coupon or dividend rates, as well as by exploiting yield differentials
between securities. Securities in this class may include bonds, notes,
adjustable rate preferred stocks, convertible bonds, mortgage-related and
asset-backed securities, domestic and foreign government and government
agency securities, zero coupon bonds, and other intermediate and long-term
securities (see the Appendix for a further discussion of these
instruments). As with the short-term class, these securities may be
denominated in U.S. dollars or foreign currency.
The fund may invest in securities of any quality, including lower-rated,
high-yielding debt securities (commonly referred to as "junk bonds") as
well as higher quality securities; however, no more than 35% of the fund's
assets may be invested in lower-rated debt securities (those rated Ba or
lower by Moody's or BB or lower by S&P, and unrated securities judged
by FMR to be of equivalent quality). However, the fund does not currently
intend to invest more than 20% of its total assets in securities judged by
FMR to be below investment-grade quality. Please see the section
entitled "RISKS OF LOWER-RATED DEBT SECURITIES" and the APPENDIX for
more information.
STOCK CLASS. The stock class includes domestic and foreign equity
securities of all types (other than adjustable rate preferred stocks
included in the bond class). FMR seeks to maximize total return within this
asset class by actively allocating assets to industries and economic
sectors expected to benefit from major trends, and to individual stocks
that it believes to have superior investment potential. Securities in the
stock class may include common stocks, fixed-rate preferred stocks
(including convertible preferred stocks), warrants, rights, depositary
receipts, and other equity securities issued by companies of any size,
located anywhere in the world.
OTHER INVESTMENT PRACTICES. The fund may invest in options and futures
contracts, foreign investments, currency management strategies, indexed
securities, short sales, swap agreements, delayed-delivery transactions,
illiquid investments, restricted securities, loans and other direct debt
instruments and interfund borrowings. Refer to the Appendix for more
information on these investments.

MATCHING THE FUNDS TO YOUR INVESTMENT NEEDS
Each fund's shares may be used only as the investment vehicle for insurance
companies' variable contracts. You may enjoy certain tax benefits by
purchasing a variable annuity and variable life insurance contract. (Refer
to the prospectus of your insurance company's separate account for a
discussion of the tax benefits.)
No single fund constitutes a balanced investment plan. As described in the
following paragraphs, each fund stresses a different objective. Each fund's
share price (with the exception of Money Market Portfolio), yield and total
return will fluctuate and an investment in a fund may be worth more or less
than your original cost when shares are redeemed.
Investments in MONEY MARKET PORTFOLIO earn income at current money market
rates. The fund's ability to achieve its investment objective depends on
the quality and maturity of its investments. Although its policies are
designed to help maintain a stable $1.00 share price, all money market
instruments can change in value when interest rates or issuers'
creditworthiness change, or if an issuer or guarantor of a security fails
to pay interest or principal when due. If these changes in value were large
enough, the fund's share price could deviate from $1.00. In general,
securities with longer maturities are more vulnerable to price changes,
although they may provide higher yields.
Money Market Portfolio will invest at least 25% of its total assets in the
securities of the financial services industry, under normal conditions.
Companies in the financial services industry are subject to various risks
related to that industry, such as government regulation, changes in
interest rates, and exposure on loans, including loans to foreign
borrowers. The fund's performance may be affected by conditions affecting
the financial services industry.
HIGH INCOME PORTFOLIO stresses earning high income by investing in
lower-rated, fixed-income securities and in equity securities. High Income
Portfolio offers the potential to earn a high yield; however, since the
fund has an aggressive approach to income investing, only investors who can
accept the greater price movements and credit risk associated with lower
quality bonds should consider this fund. Fixed-income securities are
generally considered to be interest-rate sensitive, which means that their
value (and the fund's share price) will tend to decrease when interest
rates rise and increase when interest rates fall. In general, securities
with shorter maturities offer lower yields, while providing greater price
stability than longer-term securities. Longer-term securities generally are
more affected by changes in interest rates; however, the lower-quality
securities in which the fund invests may not be as interest-rate sensitive
as higher-quality securities with equivalent maturities and are more
subject to credit risks.
EQUITY-INCOME PORTFOLIO stresses providing reasonable income, although the
fund will also consider the potential for capital appreciation. Since
capital appreciation is only a secondary consideration for the fund, you
should not expect a total return comparable to funds that have capital
appreciation as a primary objective. The fund may be appropriate for you if
you can afford to ride out changes in the stock market, because it invests
primarily in common and preferred stock. FMR also can make temporary
investments in securities such as investment-grade bonds, high-quality
preferred stocks and short-term notes, for defensive purposes when it
believes market conditions warrant.
GROWTH PORTFOLIO seeks to achieve capital appreciation. This fund will
invest in the securities of both well-known and established companies, and
smaller, less well-known companies which may have a narrow product line or
whose securities are thinly traded. These latter securities will often
involve greater risk than may be found in the ordinary investment security.
FMR's analysis and expertise plays an integral role in the selection of
securities and, therefore, the performance of the fund. Many securities
which FMR believes would have the greatest potential may be regarded as
speculative, and an investment in the fund may involve greater risk than is
inherent in other mutual funds. It is also important to point out that the
fund may be appropriate for you if you can afford to ride out changes in
the stock market, because it invests primarily in common stocks. FMR also
can make temporary investments in securities such as investment-grade
bonds, high-quality preferred stocks and short-term notes, for defensive
purposes when it believes market conditions warrant.
OVERSEAS PORTFOLIO seeks long term growth of capital and any income return
is incidental to that objective. By investing in foreign securities, FMR
attempts to take advantage of differences between economic trends and the
performance of securities markets in various countries. To date, the market
values of securities of issuers located in many countries have moved
relatively independently of each other and during certain periods the
return on equity investments in some countries has exceeded the return on
similar investments in the United States. At other times, the return has
been less than that of similar U.S. securities. FMR believes that it may be
possible to obtain significant appreciation from a portfolio of foreign
investments and also achieve increased diversification in comparison to a
mutual fund that invests solely in U.S. securities. The fund obtains
increased diversification by combining securities from various countries
that offer different investment opportunities and are affected by different
economic trends. International diversification reduces the effect that
events in any one country or geographic area will have on the fund's
investments. Of course, negative movement by the fund's investments in one
foreign market represented in the portfolio may offset potential gains from
the fund's investments in another country's markets.
Although the fund will normally invest primarily in issuers located in
developed countries, the fund may also invest in developing countries.
Compared to the United States and other developed countries, developing
countries may have relatively unstable governments, economies based on only
a few industries, and securities markets which trade a small number of
securities. Prices on these exchanges tend to be volatile and, in the past,
these exchanges have offered greater potential for gain (as well as loss)
than exchanges in developed countries.
INVESTMENT GRADE BOND PORTFOLIO stresses earning income by investing in
investment grade, fixed-income securities. Fixed-income securities (except
for securities with floating or variable interest rates) are generally
considered to be interest rate sensitive, which means that their value (and
the fund's share price) will tend to decrease when interest rates rise and
increase when interest rates fall. Securities with shorter maturities,
while offering lower yields, generally provide greater price stability than
longer-term securities and are less affected by changes in interest rates.
The fund is for investors who seek income but want a portfolio of short to
intermediate term investment grade debt securities. FMR will adjust the
fund's investments in particular securities or in types of debt securities
in response to its appraisal of changing economic conditions and trends.
FMR may sell securities in anticipation of a market decline or purchase
securities in anticipation of a market rise. In addition, FMR may sell one
security and purchase another security of comparable quality and maturity
to take advantage of what FMR believes to be short-term differentials in
market values or yield disparities. The fund may invest in foreign
securities, which may be less liquid or more volatile than domestic
investments. The fund's investments may be denominated in foreign
currencies and the value of these investments will fluctuate with changes
in the exchange rates between those currencies and the U.S. dollar. See
FOREIGN INVESTMENTS AND CURRENCY MANAGEMENT on page __ for further
information on investing in foreign securities. The fund's investments,
other than those backed by the U.S. government, are subject to the ability
of the issuer to make payment at maturity.
The fund's share price and yield also depend on the quality of its
investments. Investment grade bonds generally are of medium to high
quality, but investment grade bonds of Baa/BBB quality have more uncertain
protection of interest and principal payments and may have speculative
characteristics. Unrated bonds may be of any quality, but usually are not
attractive to as many buyers. The fund relies on FMR's credit analysis when
purchasing unrated bonds.

INDEX 500 PORTFOLIO may be appropriate for investors seeking a relatively
low-cost means to diversify their investment portfolios using an index of
securities that is representative of the stock market as a whole. The fund
is intended as a long term investment. Because it invests predominately in
common stock, the fund may be appropriate for you only if you can afford to
ride out changes in the stock market.
You should be aware that the performance of the S&P 500 is a
hypothetical number which assumes reinvestment of dividends but does not
take into account brokerage commissions and other costs of investing, which
the fund bears. Since the fund seeks to track the S&P 500, it is not
managed for growth or income in the same manner as other mutual funds, and
FMR generally will not attempt to judge the merits of any particular stock
as an investment. Accordingly, you should not expect to achieve the
potentially greater results that could be obtained by a fund that
aggressively seeks growth.
ABOUT THE S&P 500 INDEX. The S&P 500 is a well-known stock market
index that includes common stocks of companies representing a significant
portion of the market value of all common stocks publicly traded in the
United States. Stocks in the S&P 500 are weighted according to their
market capitalization (i.e., the number of shares outstanding multiplied by
the stock's current price), with the 51 largest stocks currently composing
50% of the Index's value. FMR believes that the performance of the S&P
500 is representative of the performance of publicly traded common stocks
in general. The composition of the S&P 500 Index is determined by
Standard & Poor's Corporation and is based on such factors as the
market capitalization and trading activity of each stock, and its adequacy
as a representation of stocks in a particular industry group. Standard
& Poor's Corporation may change the Index's composition from time to
time. "S&P(REGISTERED TRADEMARK)", "S&P 500(REGISTERED TRADEMARK)",
and "500" are service marks of Standard & Poor's Corporation and have
been licensed for use herein.
However, including a stock in the S&P 500 in no way implies an opinion
by Standard & Poor's Corporation as to its attractiveness as an
investment, nor is Standard & Poor's Corporation a sponsor of or in any
way affiliated with the fund.

RISKS OF LOWER-RATED DEBT SECURITIES
Lower-rated debt securities (commonly referred to as "junk bonds") are
usually defined as securities rated Ba or lower by Moody's or BB or lower
by S&P. Lower-rated debt securities are considered speculative and
involve greater risk of loss than higher-rated debt securities, and are
more sensitive to changes in the issuer's capacity to pay. This is an
aggressive approach to income investing.
The 1980s saw a dramatic increase in the use of lower-rated debt securities
to finance highly leveraged corporate acquisitions and restructurings. Past
experience may not provide an accurate indication of the future performance
of lower-rated debt securities, especially during periods of economic
recession. In fact, from 1989 to 1991, the percentage of lower-rated debt
securities that defaulted rose significantly above prior levels, although
the default rate decreased in 1992.
Lower-rated debt securities may be thinly traded, which can adversely
affect the prices at which these securities can be sold and can result in
high transaction costs. If market quotations are not available, lower-rated
debt securities will be valued in accordance with standards set by the
Board of Trustees, including the use of outside pricing services. Judgment
plays a greater role in valuing lower-rated debt securities than securities
for which more extensive quotations and last sale information are
available. Adverse publicity and changing investor perceptions may affect
the ability of outside pricing services to value lower-rated debt
securities, and each fund's ability to dispose of these securities.
The market prices of lower-rated debt securities may decline significantly
in periods of general economic difficulty which may follow periods of
rising interest rates. During an economic downturn or a prolonged period of
rising interest rates, the ability of issuers of lower-rated debt to
service their payment obligations, meet projected goals, or obtain
additional financing may be impaired.
Each fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder
to seek to protect the interests of security holders if it determines this
to be in the interest of its shareholders.
The considerations discussed above for lower-rated debt securities also
apply to lower-quality, unrated debt instruments of all types, including
loans and other direct indebtedness of businesses with poor credit
standing. Unrated debt instruments are not necessarily of lower quality
than rated instruments, but they may not be attractive to as many buyers.
Each fund relies more on FMR's credit analysis when investing in debt
instruments that are unrated.
Please refer to the Appendix for a discussion of Moody's and S&P
ratings.

INTERNATIONAL INVESTMENTS: SPECIAL CONSIDERATIONS
The information contained in these paragraphs is of particular importance
to Overseas Portfolio; however, each fund can make foreign investments.
FMR limits the amount of High Income, Equity-Income, Growth, Investment
Grade Bond, Asset Manager and Index 500 Portfolio's net assets that may be
invested in foreign securities to 50%, respectively. However, each fund may
not invest more than 20% of its assets in any one country. FMR limits
Overseas Portfolio's net assets that may be invested in the securities of
any one foreign country to 20%. Each fund may have an additional 15%
invested in securities of issuers located in any one (but only one) of the
following countries: Australia, Canada, France, Japan, the United Kingdom
or Germany. A fund must be diversified in at least three different
countries if it exceeds 20% in any one country.
Investing outside the U.S. involves different opportunities and different
risks from U.S. investments. FMR believes that it may be possible to obtain
significant returns from a portfolio of foreign investments, or a
combination of foreign investments and U.S. investments, and to achieve
increased diversification in comparison to a portfolio invested solely in
U.S. securities. By including international investments in your investment
portfolio, you may gain increased diversification by combining securities
from various countries and geographic areas that offer different investment
opportunities and are affected by different economic trends. At the same
time, these opportunities and trends involve risks that may not be
encountered in U.S. investments.
International investing in general may involve greater risks than U.S.
investments. There is generally less publicly available information about
foreign issuers, and there may be less government regulation and
supervision of foreign stock exchanges, brokers, and listed companies.
There may be difficulty in enforcing legal rights outside the United
States. Foreign companies generally are not subject to uniform accounting,
auditing, and financial reporting standards, practices, and requirements
comparable to those that apply to U.S. companies. Security trading
practices abroad may offer less protection to investors such as the funds.
Settlement of transactions in some foreign markets may be delayed or may be
less frequent than in the U.S., which could affect the liquidity of a
fund's portfolio. Additionally, in some foreign countries, there is the
possibility of expropriation or confiscatory taxation; limitations on the
removal of securities, property, or other assets of a fund; political or
social instability; or diplomatic developments which could affect U.S.
investments in foreign countries. FMR will take these factors into
consideration in managing each fund's foreign investments.
Each fund may invest a portion of its assets in developing countries, or in
countries with new or developing capital markets; for example, nations in
Eastern Europe. The considerations noted above are generally intensified
for these investments. These countries may have relatively unstable
governments, economies based on only a few industries, and securities
markets that trade a small number of securities. Securities of issuers
located in these countries tend to have volatile prices and may offer
significant potential for loss as well as gain.
FOREIGN CURRENCIES. The value of each fund's foreign investments, and the
value of dividends and interest earned by the funds, may be significantly
affected by changes in currency exchange rates. Some foreign currency
values may be volatile, and there is the possibility of governmental
controls on currency exchange or governmental intervention in currency
markets, which could adversely affect the funds. Although FMR may attempt
to manage currency exchange rate risks, there is no assurance that FMR will
do so at an appropriate time or that FMR will be able to predict exchange
rates accurately. For example, if FMR increases a fund's exposure to a
foreign currency, and that currency's value subsequently falls, FMR's
currency management may result in increased losses to the fund. Similarly,
if FMR hedges a fund's exposure to a foreign currency, and that currency's
value rises, the fund will lose the opportunity to participate in the
currency's appreciation.
CURRENCY MANAGEMENT. The relative performance of foreign currencies is an
important factor in each fund's performance. FMR may manage each fund's
exposure to various currencies to take advantage of different yield, risk,
and return characteristics that different currencies can provide for U.S.
investors.
To manage exposure to currency fluctuations, the funds may enter into
currency forward contracts (agreements to exchange one currency for another
at a future date) or currency swap agreements, buy and sell options and
futures contracts relating to foreign currencies, and purchase securities
indexed to foreign currencies. The funds will use currency forward
contracts in the normal course of business to lock in an exchange rate in
connection with purchases and sales of securities denominated in foreign
currencies. Other currency management strategies allow FMR to hedge
portfolio securities, to shift investment exposure from one currency to
another, or to attempt to profit from anticipated declines in the value of
a foreign currency relative to the U.S. dollar. There is no overall
limitation on the amount of the funds' assets that may be committed to
currency management strategies.

LIMITING INVESTMENT RISKS
The following summarizes the funds' principal investment limitations. A
complete listing is contained in the Statement of Additional Information.
The following limitations and the policies discussed in "HOW THE TRUSTS
WORK" are considered at the time of purchase; the sale of securities is not
required in the event of a subsequent change in circumstances.
1. Money Market Portfolio (a) normally may not invest more than 5% of its
total assets in the securities of any single issuer. Under certain
conditions, however, the fund may invest up to 10% of its total assets in
the first tier securities of a single issuer for up to three business days;
and (b) will not purchase a security if, as a result more than 25% of its
total assets would be in a particular industry, except that the fund will
invest more than 25% of its total assets in the financial services
industry, under normal conditions. These limitations do not apply to
obligations issued or guaranteed as to principal and interest by the United
States government, its agencies or instrumentalities.
2. Neither High Income, Equity-Income, Growth, Overseas, Investment Grade
Bond, Asset Manager nor Index 500 Portfolio will purchase a security if, as
a result; (a) (with respect to 75% its total assets) more than 5% of its
total assets would be invested in the securities of any single issuer or it
would hold more than 10% of the outstanding voting securities of that
issuer; (b) more than 25% of its total assets would be invested in a
particular industry; or (c) more than 10% (15% for High Income and Overseas
Portfolios) of its net assets would be invested in illiquid securities.
Limitations (a) and (b) do not apply to U.S. government securities.
3. Each fund may borrow money or engage in reverse repurchase agreements
(as described in the Appendix) for temporary or emergency purposes (except
for Money Market Portfolio which may do so for investment purposes as
described in the Appendix), but not in an amount exceeding 25% of its net
assets.
4. Each fund may temporarily lend any security or make any other loan
provided that not more than 33 1/3% of a fund's total assets would be lent
to other parties.
Except for each fund's investment objective and limitations, 1(b), 2(a),
2(b), and 4, the policies described in this prospectus are not fundamental.
Non-fundamental policies can be changed at any time without the consent of
shareholders.
Each fund may borrow money only from banks or other funds advised by FMR
and will not purchase securities when borrowings exceed 5% (excluding
reverse repurchase agreements for Money Market Portfolio) of its total
assets. If a fund borrows money, its share price (except for Money Market
Portfolio) may be subject to greater fluctuation until the borrowing is
paid off. To this extent, (for all funds except Money Market Portfolio)
purchasing securities when borrowings are outstanding may involve an
element of leverage. Each fund may temporarily lend its portfolio
securities to broker-dealers and institutions, but only when the loans are
fully collateralized. Each fund may also make cash loans to other funds
advised by FMR in an amount not exceeding 5% of net assets for
Equity-Income, Growth, Overseas Asset Manager and Index 500 Portfolios,
7.5% of net assets for High Income and Investment Grade Bond Portfolios and
10% of net assets for Money Market Portfolio (see APPENDIX).
INTERNAL REVENUE SERVICE (IRS) LIMITATIONS. In addition to the above, each
fund also follows certain limitations imposed by the IRS on separate
accounts of insurance companies relating to the tax-deferred status of
variable contracts. More specific information may be contained in your
insurance company's separate account prospectus.
PORTFOLIO TRANSACTIONS
FMR chooses broker-dealers by judging professional ability and quality of
service and uses various brokerage firms to carry out a fund's equity
transactions. A fund's debt obligations and money market obligations are
generally traded in the over-the-counter market through broker-dealers. A
broker-dealer is a securities firm or bank which makes a market for
securities by offering to buy at one price and sell at a slightly higher
price. The difference between the prices is known as a spread. Overseas
Portfolio normally trades its securities in foreign countries since the
best available market for foreign securities is often on foreign markets.
In transactions on foreign stock exchanges, except in Canada, brokers'
commissions are generally fixed and are often higher than in the United
States, where commissions are negotiated. Since FMR places (directly or
through affiliated sub-advisors) a large number of transactions, including
those of Fidelity's other funds, the funds generally pay lower commissions
and incur lower costs, and broker-dealers are willing to work on a more
favorable spread than would be possible for most individual investors.
Each fund has authorized FMR to allocate transactions to some
broker-dealers who help distribute the fund's shares or shares of
Fidelity's other funds, and on an agency basis, to Fidelity Brokerage
Services, Inc. (FBSI) and Fidelity Brokerage Services, Ltd. (FBSL),
affiliates of FMR. FMR will make such allocations if commissions are
comparable to those charged by non-affiliated, qualified broker-dealers for
similar services. FMR may also allocate brokerage transactions to a fund's
custodian, acting as a broker-dealer, or to other broker-dealers, so long
as transaction quality and commission rates are comparable to those of
other broker-dealers, where the broker dealers will allocate a portion of
the commissions paid toward payment of a fund's expenses. These expenses
currently include transfer agent and custodian fees. The Custodian may
credit a portion of the commissions paid toward payment of the funds'
custodian charges.
Higher commissions may be paid to those firms that provide research,
valuation and other services, to the extent permitted by law. FMR also is
authorized to allocate brokerage transactions to FBSI in order to secure
from FBSI research services produced by third party, independent entities.
FMR may use this research information in managing a fund's assets, as well
as assets of other clients.
A fund may engage in short-term trading when consistent with its objective.
Also, a security may be sold and another of comparable quality
simultaneously purchased to take advantage of what FMR believes to be a
temporary disparity in the normal yield relationship of the two securities.
The majority of portfolio transactions for Index 500 (other than those made
in response to shareholder activity) will be made to adjust the portfolio
to track the S&P 500 or to reflect occasional changes in the Index's
composition. The frequency of portfolio transactions - a fund's turnover
rate - for each fund will vary from year to year depending on market
conditions. FMR buys and sells securities for the funds after considering a
company's ability to repay, future business conditions, interest rate
levels and the availability of new investments or higher relative yields.
For fiscal year 1993, High Income, Equity-Income, Growth, Overseas,
Investment Grade Bond, Asset Manager and Index 500 Portfolios had turnover
rates of ___%, ___%, ___%, ___%, ___%, ___% and ___%, respectively. Because
a higher turnover rate increases transaction costs and may have certain tax
consequences, FMR carefully weighs the anticipated benefits of short-term
investment against this consequence.
PERFORMANCE
Each fund's performance may be quoted in advertising in terms of yield and
total return if accompanied by performance at your insurance company's
separate account. Performance is based on historical results and not
intended to indicate future performance.
Money Market Portfolio's YIELD refers to the income generated by an
investment in the fund over a specified seven day period, expressed as an
annual percentage rate. Its EFFECTIVE YIELD is calculated similarly, but
assumes that the income earned from investments is reinvested. Money Market
Portfolio's effective yield will tend to be slightly higher than its yield
because of this compounding effect.
For High Income Portfolio, YIELD is a way of showing the rate of income the
fund earns on its investments as a percentage of the fund's share price. To
calculate yield, a portfolio takes the dividend and interest income, if
any, it earned from its portfolio of investments for a specified 30-day
period (net of expenses), divides it by the number of its shares entitled
to receive dividends and expresses the result as an annualized percentage
rate based on the portfolio's share price at the end of the 30-day period.
Yields are calculated according to accounting methods that are standardized
for all stock and bond funds. Because yield accounting methods differ from
the methods used for other accounting purposes, the portfolio's yield may
not equal its distribution rate, the income paid to an account or the
income reported in the portfolio's financial statements.
TOTAL RETURNS are based on the overall dollar or percentage change in value
of a hypothetical investment in each fund, including changes in share price
(except for Money Market Portfolio) and assuming each fund's dividends and
capital gain distributions are reinvested. A CUMULATIVE TOTAL RETURN
reflects a portfolio's performance over a stated period of time. An AVERAGE
ANNUAL TOTAL RETURN reflects the hypothetical annually compounded return
that would have produced the same cumulative total return if a portfolio's
performance had been constant over the entire period. Because average
annual returns tend to smooth out variations in a portfolio's return, you
should recognize that they are not the same as actual year-by-year results.
To illustrate the components of overall performance, a portfolio may
separate its cumulative and average annual returns into income results and
capital gain or loss.
A fund may quote its ADJUSTED NET ASSET VALUES, including all distributions
paid. These adjusted NAV's may be averaged over specified periods.
Equity-Income, Growth, Overseas, Asset Manager, and Index 500 Portfolios
may use these averages to calculate its MOMENTUM INDICATOR, which tracks
changes in adjusted net asset values over specified periods.
The table below shows the record of the S&P 500 for the ten years from
1984 through 1993. Numbers for the S&P 500 show the change in value of
the S&P 500 and assume reinvestment of all dividends paid by the
S&P 500 stocks. Tax consequences are not included in the illustration,
nor are brokerage or other fees calculated in the S&P 500 figures. The
results shown should not be considered representative of the income or
capital gain or loss which may be generated by the S&P 500 or Index 500
Portfolio in the future.
STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX
Year Price Change

Ended Year End in Index Dividend Total

12/31 Index Value for Year Reinvestment Return

1993 % % %

1992 435.71 4.46% 3.16% 7.62%

1991 417.09 26.31% 4.16% 30.47%

1990 330.22 -6.56% 3.46% -3.10%

1989 353.40 27.25% 4.44% 31.69%

1988 277.72 12.40% 4.21% 16.61%

1987 247.08 2.03% 3.07% 5.10%

1986 242.17 14.62% 3.94% 18.56%

1985 211.28 26.33% 5.24% 31.57%

1984 167.24 1.40% 4.70% 6.10%

YIELDS AND TOTAL RETURNS QUOTED FOR THE FUNDS INCLUDE THE EFFECT OF
DEDUCTING EACH FUND'S EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES
ATTRIBUTABLE TO ANY PARTICULAR INSURANCE PRODUCT. SINCE SHARES OF THE FUNDS
MAY ONLY BE PURCHASED THROUGH A VARIABLE ANNUITY OR VARIABLE LIFE CONTRACT,
YOU SHOULD CAREFULLY REVIEW THE PROSPECTUS OF THE INSURANCE PRODUCT YOU
HAVE CHOSEN FOR INFORMATION ON RELEVANT CHARGES AND EXPENSES. Excluding
these charges from quotations of each fund's performance has the effect of
increasing the performance quoted. You should bear in mind the effect of
these charges when comparing a fund's performance to that of other mutual
funds. For additional performance information, contact your insurance
company for a free annual report.
DISTRIBUTIONS AND TAXES
For a discussion of the tax status of your variable contract, refer to the
prospectus of your insurance company's separate account. It is suggested
you keep all statements you receive to assist in your personal
recordkeeping.
It is expected that shares of the funds will be held under the terms of
variable annuity or variable life insurance contracts. Under current tax
law, dividends or capital gain distributions from any fund are not
currently taxable when left to accumulate within a variable annuity or
variable life insurance contract. Depending on the variable contract,
withdrawals from the contracts may be subject to ordinary income tax and,
in addition, a 10% penalty tax on withdrawals before age 59 1/2.
Each fund is treated as a separate entity for federal income tax purposes.
Each fund intends to pay out all of its net investment income and net
realized capital gains for each year. Dividends from Money Market Portfolio
are declared daily and paid monthly. Equity-Income distributes its
dividends quarterly and High Income, Growth, Overseas, Investment Grade
Bond, Asset Manager and Index 500 Portfolios distribute any dividends each
year. Normally, net realized capital gains, if any, are distributed each
year for the funds. Such income and capital gains are automatically
reinvested in additional shares for the funds.
High Income, Equity-Income, Growth, Overseas, Investment Grade Bond, Asset
Manager and Index 500 Portfolios make dividend and capital gain
distributions on a per-share basis. After every distribution from each of
these funds, the fund's share price drops by the amount of the
distribution. Because dividends and capital gain distributions are
reinvested, the total value of an account will not be affected because,
although the shares will have a lower price, there will be correspondingly
more of them.
THE TRUSTS AND THE FIDELITY ORGANIZATION
Each Trust is an open-end, diversified, management investment company.
Variable Insurance Products Fund and Variable Insurance Products Fund II
were organized as Massachusetts business trusts on November 13, 1981 and
March 21, 1988, respectively. Currently, there are five portfolios in
Variable Insurance Products Fund (Money Market Portfolio, High Income
Portfolio, Equity-Income Portfolio, Growth Portfolio and Overseas
Portfolio) and three portfolios in Variable Insurance Products Fund II
(Investment Grade Bond Portfolio, Asset Manager Portfolio and Index 500
Portfolio). Each has its own Board of Trustees, which supervises its
activities and reviews contractual arrangements with companies that provide
each fund with services. Each Trust is not required to hold annual
shareholder meetings, although special meetings may be called for a
specific fund, or each Trust as a whole, for purposes such as electing or
removing Trustees, changing fundamental policies or approving a management
contract. An insurance company issuing a variable contract that
participates in each Trust will vote shares in the separate account as
required by law and interpretations thereof, as may be amended or changed
from time to time. In accordance with current law and interpretations
thereof, a participating insurance company is required to request voting
instructions from policyowners and must vote shares in the separate account
in proportion to the voting instructions received. For a further
discussion, please refer to your insurance company's separate account
prospectus.
Fidelity Investments is one of America's largest investment management
organizations and has its principal business address at 82 Devonshire
Street, Boston, Massachusetts. It includes a number of different companies,
which provide a variety of financial services and products. Each fund
employs various Fidelity companies to perform certain activities required
for its operation.
Fidelity Management & Research Company, the funds' manager, is the
original Fidelity company, founded in 1946. It provides a number of mutual
funds and other clients with investment research and portfolio management
services. It maintains a large staff of experienced investment personnel
and a full complement of related support facilities. Fidelity Management
& Research (U.K.) Inc. (FMR U.K.), Fidelity Management & Research
(Far East) Inc. (FMR Far East), Fidelity International Investment Advisors
(FIIA) and FMR Texas Inc. (FMR Texas) are wholly owned subsidiaries of FMR
that provide research, investment advice and portfolio management services
for certain funds advised by FMR with respect to foreign securities (FMR
U.K., FMR Far East, FIIA) and money market instruments (FMR Texas). FMR
U.K., FMR Far East, FIIA, and FMR Texas maintain their principal business
offices in London, Tokyo, Bermuda, and Dallas, respectively. As of December
31, 1993, FMR advised funds having more than __ million shareholder
accounts with a total value of more than $___ billion. Fidelity
Distributors Corporation (Distributors) distributes shares for the Fidelity
funds. FMR Corp. is the holding company for the Fidelity companies. Through
ownership of voting common stock, Edward C. Johnson 3d, President and a
Trustee of the Trust, Johnson family members, and various trusts for the
benefit of the Johnson family form a controlling group with respect to FMR
Corp.
Each fund has an investment objective similar to that of an existing
Fidelity retail fund. Money Market Portfolio is most similar to Fidelity
Cash Reserves, High Income Portfolio to Spartan High Income Fund,
Equity-Income Portfolio to Fidelity Equity-Income Fund, Growth Portfolio to
Fidelity Retirement Growth Fund, Overseas Portfolio to Fidelity Overseas
Fund, Investment Grade Bond Portfolio to Fidelity Intermediate Bond Fund,
Asset Manager Portfolio to Fidelity Asset Manager, and Index 500 Portfolio
to Fidelity Market Index Fund. Performance of these funds is not expected
to be the same as the performance of the corresponding retail fund due in
part to dissimilarities in their investments. Various insurance related
costs at the insurance company's separate account level will also affect
performance.
Bettina Doulton is the manager of Equity-Income Portfolio, which she has
managed since July 1993. Ms. Doulton is also manager of Fidelity Advisor
Equity Portfolio Income. Previously, she managed Fidelity Select Automotive
Portfolio and assisted on Fidelity Magellan Fund and Fidelity Equity-Income
Fund. Ms. Doulton also served as an analyst following the domestic and
European automotive and tire manufacturing industry as well as the gaming
and lodging industry. She joined Fidelity in 1985.
Barry Jay Coffman is vice president and manager of High Income Portfolio,
which he has managed since August 1990. Mr. Coffman also assists on
Fidelity Puritan Fund. Previously, he served as an assistant manager and
analyst for the high yield bond group. Before joining Fidelity in 1986, Mr.
Coffman was an analyst for Equitable Capital Management and was a senior
auditor at Arthur Anderson & Company.
Lawrence Greenberg is vice president and manager of Growth Portfolio, which
he has managed since April 1991. He also manages Emerging Growth.
Previously, Mr. Greenberg managed Select Environmental Services and Select
Medical Delivery. He also assisted on Fidelity Magellan Fund. Mr. Greenberg
joined Fidelity in 1986.
John R. Hickling is manager and vice president of Overseas Portfolio, which
he has managed since January 1993. Mr. Hickling also manages Fidelity
Overseas Fund, International Growth & Income, Advisor Overseas Fund,
and Japan Fund. Previously, he managed Emerging Markets, Europe,
International Opportunities and Pacific Basin. Mr. Hickling joined Fidelity
in 1982.
Donald Taylor is manager and vice president of Investment Grade Bond
Portfolio, which he has managed since September 1989. Mr. Taylor also
manages Advisor Short Fixed Income, Fidelity Short-Term Bond Portfolio and
Spartan Short-Term Income. In addition, Mr. Taylor manages Income Plus for
Fidelity International. Previously, he managed Corporate Trust, Qualified
Dividend, Zero Coupon Bond Fund, and Utilities Income. Mr. Taylor joined
Fidelity in 1986.
Robert Beckwitt is manager and vice president of Asset Manager Portfolio,
which he has managed since October 1989. Mr. Beckwitt also manages Fidelity
Asset Manager, Asset Manager: Growth, and Asset Manager: Income. In
addition, he serves as chief investment strategist for Fidelity Portfolio
Advisory Service. Previously, he managed Spartan Government Income, Spartan
Long-Term Government Bond, and was director of quantitative research. Mr.
Beckwitt joined Fidelity in 1985.
Each fund sells its shares to separate accounts of insurance companies
which are both affiliated and unaffiliated with FMR. Each fund currently
does not foresee any disadvantages to policyowners arising out of the fact
that each fund offers its shares to separate accounts of various insurance
companies to serve as the investment medium for their variable products.
Nevertheless, the Board of Trustees intends to monitor events in order to
identify any material irreconcilable conflicts which may possibly arise,
and to determine what action, if any, should be taken in response to such
conflicts. If such a conflict were to occur, one or more insurance
companies' separate accounts might be required to withdraw its investments
in one or more funds and shares of another fund may be substituted. This
might force a fund to sell securities at disadvantageous prices. In
addition, the Board of Trustees may refuse to sell shares of any fund to
any separate account or may suspend or terminate the offering of shares of
any fund if such action is required by law or regulatory authority or is in
the best interests of the shareholders of the fund.
MANAGEMENT, DISTRIBUTION AND SERVICE FEES
For managing each fund's investments and business affairs, each fund pays
FMR a monthly fee.
MONEY MARKET PORTFOLIO'S fee is made up of two components: (a) a basic fee
rate and; (b) an income-based component. The basic fee rate is the sum of
the following two components:
1. A group fee rate based on the monthly average net assets of all the
mutual funds advised by FMR. This rate cannot rise above .37%, and it drops
(to as low as a marginal rate of .1325%) as total assets in all these funds
rise. The effective group fee rate for December 1993 was .____%.
2. An individual fund fee rate of .03%.
One-twelfth of the combined annual fee rate is applied to the fund's net
assets averaged over the most recent month, giving a dollar amount which is
the fee for that month. If the fund's gross yield is 5% or less, the basic
fee is the total management fee. The income-based component is added to the
basic fee when the fund's yield is greater than 5%. The income-based fee is
6% of that portion of the fund's yield that represents a gross yield of
more than 5% per year. The maximum income-based component is .24%.
For fiscal 1993, the fund's management fee was .__% of the average net
assets of the fund - approximately $___ for every $1,000 of the fund's
average net assets.
INVESTMENT GRADE BOND AND HIGH INCOME PORTFOLIO'S annual fee rates are the
sum of two components:
1. A group fee rate based on the monthly average net assets of all the
mutual funds advised by FMR. This rate cannot rise above .37%, and it drops
(to as low as a marginal rate of .14%* for Investment Grade Bond Portfolio
and .1325% for High Income Portfolio) as total assets in all these funds
rise. The effective group fee rate for December 1993 was ____%.
2. An individual fund fee rate of .30% and .45% for Investment Grade Bond
Portfolio and High Income Portfolio, respectively.
*FMR voluntarily agreed to adopt a revised group fee rate schedule for
Investment Grade Bond Portfolio which provides for a marginal rate as low
as .1325% when average group net assets exceed $336 billion. A new
management contract with a revised group fee rate schedule will be
presented for approval at the next shareholder meeting.
One-twelfth of the combined annual fee rate is applied to each fund's net
assets averaged over the most recent month, giving a dollar amount which is
the fee for that month.
In fiscal year 1993, FMR's fee was __% and __% of Investment Grade Bond and
High Income Portfolios' average net assets, respectively, or $___ and $___
for every $1,000 of each fund's respective average net assets.
EQUITY-INCOME, GROWTH, OVERSEAS AND ASSET MANAGER PORTFOLIOS' annual fee
rates are the sum of two components:
1. A group fee rate based on the monthly average net assets of all the
mutual funds advised by FMR. This rate cannot rise above .52%, and it drops
(to as low as a marginal rate of .30%*) as total assets in all these funds
rise. The effective group fee rate for December 1993 was ____%.
2. An individual fund fee rate of .20% for Equity-Income Portfolio, .30%
for Growth Portfolio, .40% for Asset Manager Portfolio and .45% for
Overseas Portfolio.
*FMR voluntarily agreed to adopt a revised group fee rate schedule for each
fund which provides for a marginal rate as low as .285% when average group
net assets exceed $336 billion. A new management contract for each fund
with a revised group fee rate schedule will be presented for approval at
the next shareholder meeting.
One-twelfth of the combined annual fee rate is applied to each fund's net
assets averaged over the most recent month, giving a dollar amount which is
the fee for that month.
In fiscal year 1993, FMR's fee was __%, __%, __% and __% of Equity-Income,
Growth, Asset Manager and Overseas Portfolios' average net assets, or $___,
$___, $___ and $___ for every $1,000 of each respective fund's average net
assets. Due to the greater complexity, expense and commitment of resources
involved in international investing, Overseas Portfolio's management fee
rate is higher than those of most domestic mutual funds, but not
necessarily higher than those of the typical international fund.
INDEX 500 PORTFOLIO pays a monthly management fee to FMR at the annual rate
of .28% of the fund's average net assets. One-twelfth of this annual fee
rate is applied to the net assets averaged over the most recent month,
giving a dollar amount which is the management fee for that month.
Each fund has adopted a Distribution and Service Plan (the Plans) pursuant
to Rule 12b-1 under the Investment Company Act of 1940. No separate
payments are authorized to be made by the funds under the Plans. Rather,
each Plan recognizes that FMR may use its management fee or other resources
to pay expenses associated with activities primarily intended to result in
the sale of each fund's shares. Each Plan also provides that FMR may make
payments from these sources to third parties, although the Board has not
authorized these payments to date.
On behalf of High Income and Asset Manager Portfolios, FMR has entered into
sub-advisory agreements with FMR U.K. and FMR Far East. On behalf of
Overseas Portfolio, FMR has entered into sub-advisory agreements with FMR
U.K., FMR Far East, and FIIA. FIIA, in turn, has entered into a
sub-advisory agreement with its wholly owned subsidiary Fidelity
International Investment Advisors (U.K.) Limited (FIIAL U.K.). Under the
sub-advisory agreements, FMR may receive investment advice and research
services with respect to companies based outside the U.S. and (except for
Asset Manager Portfolio) may grant them investment management authority as
well as the authority to buy and sell securities if FMR believes it would
be beneficial to the fund.
Currently, FMR U.K., FMR Far East, FIIA and FIIAL U.K. each focus on
companies other than the U.S., including countries in Europe, Asia and the
Pacific Basin.
Under the sub-advisory agreements FMR pays the fees of FMR U.K., FMR Far
East, and FIIA. FIIA, in turn, pays the fees of FIIAL U.K.
For providing investment advice and research services the sub-advisors are
compensated as follows:
(bullet) FMR pays FMR U.K. and FMR Far East fees equal to 110% and 105%,
respectively, of FMR U.K.'s and FMR Far East's costs incurred in connection
with providing investment advice and research services.
(bullet) FMR pays FIIA 30% of its monthly management fee with respect to
the average market value of investments held by the fund for which FIIA has
provided FMR with investment advice.
(bullet) FIIA pays FIIAL U.K. a fee equal to 110% of FIIAL U.K.'s costs
incurred in connection with providing investment advice and research
services.
For providing investment management services, the sub-advisors are
compensated according to the following formulas:
(bullet) FMR pays FMR U.K., FMR Far East, and FIIA 50% of its monthly
management fee with respect to the fund's average net assets managed by the
sub-advisor on a discretionary basis.
(bullet) FIIA pays FIIAL U.K. 110% of FIIAL U.K.'s costs incurred in
connection with providing investment management.
On behalf of Money Market Portfolio, FMR has entered into a sub-advisory
agreement with FMR Texas, a Texas corporation with principal offices at 400
East Las Colinas Boulevard in Irving, Texas. Pursuant to the agreement, FMR
Texas has primary responsibility for providing investment management
services.
Under the sub-advisory agreement, FMR, and not the fund, pays FMR Texas a
fee equal to 50% of the management fee payable to FMR under its management
contract with the fund. (The fees paid to FMR Texas are not reduced by any
voluntary or mandatory management fee waivers or expense reimbursements
which may be in effect from time to time). In fiscal 1993, FMR paid FMR
Texas a fee of $______ which was equivalent to .__% of Money Market
Portfolio's average net assets.
Each fund utilizes Fidelity Investments Institutional Operations Company
(FIIOC), an affiliate of FMR, to maintain the master accounts of the
participating insurance companies. Under the transfer agent agreement with
FIIOC, each fund pays fees based on the type, size, and number of accounts
in each fund and the number of transactions made by shareholders of each
fund. For fiscal year 1993, Money Market, High Income, Equity-Income,
Growth, Overseas, Investment Grade Bond, Asset Manager and Index 500
Portfolios paid FIIOC $____, $____, $____, $____,$____, $____, $____ and
$____, respectively, for these services.
Each fund also has an agreement with Fidelity Service Co. (FSC), an
affiliate of FMR under which each fund pays FSC to calculate its daily
share price and to maintain the portfolio and general accounting records of
each fund and to administer each fund's securities lending program. The
fees for pricing and bookkeeping services are based on each fund's average
net assets, but must fall within a range of $20,000 to $750,000 per year
for Money Market Portfolio and $45,000 to $750,000 for High Income,
Equity-Income, Growth, Overseas, Investment Grade Bond, Asset Manager, and
Index 500 Portfolios. The fees for securities lending services are based on
the number and duration of individual securities loans. For fiscal year
1993, the fees paid to FSC (including securities lending, if any, and
related out-of-pocket expenses) amounted to $____, $____, $____, $____,
$____, $____, $____, and $____ for Money Market, High Income,
Equity-Income, Growth, Overseas, Investment Grade Bond, Asset Manager, and
Index 500 Portfolios, respectively.
Total expenses for fiscal year 1993 amounted to __%, __%, __%, __%, __%,
__%, __% and __%, respectively of Money Market, High Income, Equity-Income,
Growth, Overseas, Investment Grade Bond, Asset Manager, and Index 500
Portfolios' average net assets.
FMR may, from time to time, agree to reimburse a fund for management fees
and other expenses above a specified percentage of average net assets.
Reimbursement arrangements, which may be terminated at any time without
notice, will increase a fund's yield. If FMR discontinues a reimbursement
arrangement, each fund's expenses will go up and its yield will be reduced.
FMR retains the ability to be repaid by a fund for expense reimbursements
if expenses fall below the limit prior to the end of the fiscal year.
Repayment by a fund will lower its yield. FMR has voluntarily agreed to
reimburse the management fees and all other expenses (excluding taxes,
interest and extraordinary expenses) of Index 500 Portfolio in excess of
.28% of its average net assets, Investment Grade Bond Portfolio in excess
of .80% of its average net assets, High Income Portfolio in excess of 1.00%
of its average net assets, Asset Manager in excess of 1.25% of its average
net assets and of Equity-Income, Growth and Overseas Portfolios in excess
of 1.50% of their average net assets.
SHAREHOLDER'S MANUAL
OPENING AN ACCOUNT
SINCE YOU MAY NOT PURCHASE THE PORTFOLIOS' SHARES DIRECTLY, YOU SHOULD READ
THE PROSPECTUS OF THE INSURANCE COMPANY'S SEPARATE ACCOUNT TO OBTAIN
INSTRUCTIONS FOR PURCHASING A VARIABLE ANNUITY OR VARIABLE LIFE INSURANCE
CONTRACT.
SHARE PRICE
The term "net asset value" or NAV refers to the worth of one share. The NAV
is computed by adding the value of each fund's investments, cash and other
assets, deducting liabilities and dividing the result by the number of
shares outstanding. Each fund is open for business each day the New York
Stock Exchange is open. The price of one share is its NAV which FSC
normally calculates as of the close of business of the New York Stock
Exchange (normally 4:00 p.m. Eastern time).
Money Market Portfolio's securities are valued on the basis of amortized
cost. This means of valuation assumes a steady rate of amortization of any
premium or discount from the date of purchase until maturity instead of
looking at actual changes in market value.
High Income, Equity-Income, Growth, Investment Grade Bond, Asset Manager
and Index 500 Portfolios' securities are valued primarily on the basis of
market quotations. Each fund's foreign securities are valued based on
quotations from the primary market in which they are traded, and are
translated from the local currency into U.S. dollars using current exchange
rates.
For all funds, other assets and securities for which market quotations are
not readily available will be valued by a method which the Trust's Board
believes accurately reflects fair value.
INVESTMENTS
Investments in each fund may be made only by separate accounts established
and maintained by insurance companies for the purpose of funding variable
contracts. Please refer to the prospectus of your insurance company's
separate account for information on how to invest in each fund.
Investments by separate accounts in each fund are expressed in terms of
full and fractional shares of each fund. All investments in the funds are
credited to an insurance company's separate account immediately upon
acceptance of the investment by a fund. Investments will be processed at
the next NAV calculated after an order is received and accepted by a fund.
The offering of shares of any fund may be suspended for a period of time
and each fund reserves the right to reject any specific purchase order.
Purchase orders may be refused if, in FMR's opinion, they are of a size
that would disrupt the management of a fund.
REDEMPTIONS
Shares of any fund may be redeemed on any business day. Redemptions are
effected at the per share NAV next determined after receipt of the
redemption request has been accepted by a fund. Redemption proceeds will
normally be wired to the insurance company on the next business day after
receipt of the redemption instructions by a fund but in no event later than
7 days following receipt of instructions. Each fund may suspend redemptions
or postpone payment dates on days when the New York Stock Exchange is
closed (other than weekend or holidays), when trading on the New York Stock
Exchange is restricted, or as permitted by the Securities and Exchange
Commission.
Please refer to the prospectus of your insurance company's separate account
for information on how to redeem from each fund.
APPENDIX
The following paragraphs provide a brief description of securities in which
the funds may invest and transactions they may make. Each fund is not
limited by this discussion, however, and may purchase other types of
securities and enter into other types of transactions if they are
consistent with the its investment objective and policies.
MONEY MARKET refers to the marketplace where short-term, high grade debt
securities are traded and include U.S. government obligations, commercial
paper, certificates of deposit and bankers' acceptances, time deposits and
short-term corporate obligations. Money market instruments may carry fixed
rates of return or have variable or floating interest rates.
COMMERCIAL PAPER represent short-term obligations issued by banks,
broker-dealers, corporations and other entities for purposes such as
financing their current operations.
CERTIFICATES OF DEPOSIT represent a commercial bank's obligations to repay
funds deposited with it earning specified rates of interest over given
periods.
BANKERS' ACCEPTANCES are obligations of a bank to pay a draft which has
been drawn on it by a customer. These obligations are backed by large banks
and usually backed by goods in international trade.
TIME DEPOSITS are non-negotiable deposits in a banking institution earning
a specified interest rate over a given period of time.
U.S. GOVERNMENT OBLIGATIONS are debt securities issued or guaranteed as to
principal and interest by the U.S. Treasury or by an agency or
instrumentality of the U.S. government. Not all U.S. government obligations
are backed by the full faith and credit of the United States. For example,
securities issued by the Federal Farm Credit Bank or by the Federal
National Mortgage Association are supported by the agency's right to borrow
money from the U.S. Treasury under certain circumstances. Securities issued
by the Federal Home Loan Bank are supported only by the credit of the
agency. There is no guarantee that the government will support these types
of securities, and therefore they involve more risk than other government
obligations.
DELAYED DELIVERY TRANSACTIONS. Money Market and High Income Portfolios may
buy and sell securities on a when-issued or delayed-delivery basis, with
payment and delivery taking place at a future date. The market value of
securities purchased in this way may change before the delivery date, which
could affect the market value of the Money Market Portfolio's assets, and
could increase fluctuations in the High Income Portfolio's yield.
Ordinarily, the funds will not earn interest on securities purchased until
they are delivered.
VARIABLE OR FLOATING RATE OBLIGATIONS, including certain participation
interests in municipal obligations, have interest rate adjustment formulas
that help stabilize their market values. Many variable and floating rate
instruments also carry demand features that permit a fund to sell them at
par value plus accrued interest on short notice. When determining the
maturity of a variable or floating rate instrument, Money Market Portfolio
may look to the date the demand feature can be exercised, or to the date
the interest rate is readjusted, rather than to the final maturity of the
instrument.
CREDIT ENHANCEMENT AGREEMENTS may be purchased simultaneously with a money
market instrument for guaranteeing principal and/or interest and may be
considered with the instrument for purposes of determining the quality of
the instruments. These include irrevocable note repurchase agreements or
letters of credit issued by banks and guarantees provided by creditworthy
institutions. A fund will purchase these agreements to enhance the
creditworthiness of instruments when FMR (through yield and credit
analysis) feels it is in the fund's best interest.
CORPORATE OBLIGATIONS are bonds and notes issued by corporations and other
business organizations in order to finance their long-term credit needs.
OPTIONS AND FUTURES CONTRACTS are a way for a fund to manage its exposure
to changing interest rates, security prices, and currency exchange rates.
Some options and futures strategies, including selling futures, buying
puts, and writing calls, tend to hedge a fund's investments against price
fluctuations. Other strategies, including buying futures, writing puts, and
buying calls, tend to increase market exposure. Options and futures may be
combined with each other or with forward contracts in order to adjust the
risk and return characteristics of the overall strategy. A fund may invest
in options and futures based on any type of security, index, or currency,
including options and futures traded on foreign exchanges and options not
traded on exchanges.
Options and futures can be volatile investments, and involve certain risks.
If FMR applies a hedge at an inappropriate time or judges market conditions
incorrectly, options and futures strategies may lower a fund's return. A
fund could also experience losses if the prices of its options and futures
positions were poorly correlated with its other investments, or if it could
not close out its positions because of an illiquid secondary market.
A fund will not hedge more than 25% (35% for Index 500) of their total
assets by selling futures, buying puts, and writing calls under normal
conditions. In addition, each fund will not buy futures or write puts whose
underlying value exceeds 25% (15% for Index 500) of its total assets, and
each fund will not buy calls with a value exceeding 5% of its total assets.
SHORT SALES. A fund may enter into short sales with respect to stocks
underlying its convertible security holdings. These transactions may help
to hedge against the effect of stock price declines, but may result in
losses if a convertible security's price does not track the price of its
underlying equity. Convertible securities hedged with short sales are not
currently expected to exceed 15% of a fund's total assets under normal
conditions.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS are interests in amounts owed by a
corporate, governmental, or other borrower to another party. They may
represent amounts owed to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or other
receivables), or to other parties. Direct debt instruments involve risk of
loss in case of default or insolvency of the borrower and may offer less
legal protection to a fund in the event of fraud or misrepresentation. In
addition, loan participations involve a risk of insolvency of the lending
bank or other financial intermediary. Direct debt instruments may also
include standby financing commitments that obligate a fund to supply
additional cash to the borrower on demand.
ILLIQUID INVESTMENTS. Each fund (other than Money Market Portfolio) may
invest up to 10% of its assets (15% for High Income and Overseas
Portfolios) in illiquid investments. Money Market Portfolio will invest
less than 10% of its assets in illiquid investments. Under the supervision
of the Board of Trustees, FMR determines the liquidity of each fund's
investments. The absence of a trading market can make it difficult to
ascertain a market value for illiquid investments. Disposing of illiquid
investments may involve time-consuming negotiation and legal expenses, and
it may be difficult or impossible for a fund to sell them promptly at an
acceptable price.
RESTRICTED SECURITIES. Each fund may purchase securities which cannot be
sold to the public without registration under the Securities Act of 1933
(restricted securities). Unless registered for sale, these securities can
only be sold in privately negotiated transactions or pursuant to an
exemption from registration.
INDEXED SECURITIES values are linked to currencies, interest rates,
commodities, indices, or other financial indicators. Most indexed
securities are short to intermediate term fixed-income securities whose
values at maturity or interest rates rise or fall according to the change
in one or more specified underlying instruments. Indexed securities may be
positively or negatively indexed (i.e., their value may increase or
decrease if the underlying instrument appreciates), and may have return
characteristics similar to direct investments in the underlying instrument
or to one or more options on the underlying instrument. Indexed securities
may be more volatile than the underlying instrument itself.
SWAP AGREEMENTS. As one way of managing its exposure to different types of
investments, a fund may enter into interest rate swaps, currency swaps, and
other types of swap agreements such as caps, collars, and floors. In a
typical interest rate swap, one party agrees to make regular payments equal
to a floating interest rate multiplied by a "notional principal amount," in
return for payments equal to a fixed rate multiplied by the same amount,
for a specified period of time. If a swap agreement provides for payments
in different currencies, the parties might agree to exchange the notional
principal amount as well. Swaps may also depend on other prices or rates,
such as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate
exceeds an agreed-upon level, while the seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate
falls below an agreed-upon level. An interest rate collar combines elements
of buying a cap and selling a floor.
Swap agreements will tend to shift a fund's investment exposure from one
type of investment to another. For example, if a fund agreed to exchange
payments in dollars for payments in foreign currency, the swap agreement
would tend to decrease a fund's exposure to U.S. interest rates and
increase its exposure to foreign currency and interest rates. Caps and
floors have an effect similar to buying or writing options. Depending on
how they are used, swap agreements may increase or decrease the overall
volatility of a fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks
assumed. As a result, swaps can be highly volatile and may have a
considerable impact on a fund's performance. Swap agreements are subject to
risks related to the counterparty's ability to perform, and may decline in
value if the counterparty's creditworthiness deteriorates. A fund may also
suffer losses if it is unable to terminate outstanding swap agreements or
reduce its exposure through offsetting transactions.
WARRANTS. High Income, Equity-Income, Growth, Overseas, Asset Manager and
Index 500 Portfolios may invest in warrants, which entitle the holder to
buy equity securities at a specific price for a specific period of time.
Warrants may be considered more speculative than certain other types of
investments in that they do not entitle a holder to dividends or voting
rights with respect to the securities which may be purchased nor do they
represent any rights in the assets of the issuing company. The value of a
warrant may be more volatile than the value of the warrant's underlying
securities. Also, the value of the warrant does not necessarily change with
the value of the underlying securities and a warrant ceases to have value
if it is not exercised prior to the expiration date.
MORTGAGE-BACKED SECURITIES are securities issued by government and
non-government entities such as banks, mortgage lenders, or other financial
institutions. A mortgage-backed security may be an obligation of the issuer
backed by a mortgage or pool of mortgages or a direct interest in an
underlying pool of mortgages. Some mortgage-backed securities, such as
collateralized mortgage obligations or CMOs, make payments of both
principal and interest at a variety of intervals; others make semiannual
interest payments at a predetermined rate and repay principal at maturity
(like a typical bond). Mortgage-backed securities are based on different
types of mortgages including those on commercial real estate or residential
properties. Other types of mortgage-backed securities will likely be
developed in the future, and a fund may invest in them if FMR determines
they are consistent with its investment objective and policies.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment
risk. Prepayment, which occurs when unscheduled or early payments are made
on the underlying mortgages, may shorten the effective maturities of these
securities and may lower their total returns.
STRIPPED MORTGAGE-BACKED SECURITIES are created when a U.S. government
agency or a financial institution separates the interest and principal
components of a mortgage-backed security and sells them as individual
securities. The holder of the "principal-only" security (PO) receives the
principal payments made by the underlying mortgage-backed security, while
the holder of the "interest-only" security (IO) receives interest payments
from the same underlying security.
The prices of stripped mortgage-backed securities may be particularly
affected by changes in interest rates. As interest rates fall, prepayment
rates tend to increase, which tends to reduce prices of IOs and increase
prices of POs. Rising interest rates can have the opposite effect.
ASSET-BACKED SECURITIES may include pools of mortgages, loans,
receivables or other assets. Payment of principal and interest may be
largely dependent upon the cash flows generated by the assets backing the
securities.
ZERO COUPON BONDS do not make interest payments; instead, they are sold at
a deep discount from their face value and are redeemed at face value when
they mature. Because zero coupon bonds do not pay current income, their
prices can be very volatile when interest rates change. In calculating its
daily dividend, a fund takes into account as income a portion of the
difference between a zero coupon bond's purchase price and its face value.
A broker-dealer creates a derivative zero by separating the interest and
principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury
Securities), TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury
Receipts) are examples of derivative zeros.
The Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and
principal components of an outstanding U.S. Treasury bond and selling them
as individual securities. Bonds issued by the Resolution Funding
Corporation (REFCORP) and the Financing Corporation (FICO) can also be
separated in this fashion. Original issue zeros are zero coupon securities
originally issued by the U.S. government, a government agency, or a
corporation in zero coupon form.
REPURCHASE AGREEMENTS AND SECURITIES LOANS. In a repurchase agreement, a
fund buys a security at one price and simultaneously agrees to sell it back
to the seller at a higher price. Each fund may also make securities loans
to broker-dealers and institutional investors, including FBSI. In the event
of the bankruptcy of the other party to a repurchase agreement or a
securities loan, each fund could experience delays in recovering its cash
or the securities it lent. To the extent that, in the meantime, the value
of the securities purchased had decreased, or the value of the securities
lent had increased, each fund could experience a loss. A fund may enter
into a FOREIGN REPURCHASE AGREEMENT with respect to foreign securities and
repurchase agreements denominated in foreign currencies. Foreign repurchase
agreements may be less well secured than repurchase agreements in U.S.
markets, and may involve greater risks of default. In all cases, FMR must
find the creditworthiness of the other party to the transaction
satisfactory.
REVERSE REPURCHASE AGREEMENTS are transactions when a fund temporarily
transfers possession of a portfolio instrument to another party, such as a
bank or broker-dealer, in return for cash. At the same time, the fund
agrees to repurchase the instrument at an agreed-upon price and time. Each
fund expects that it will engage in reverse repurchase agreements for
temporary purposes such as to fund redemptions or when it is able to invest
the cash so acquired at a rate higher than the cost of the agreement, which
would increase the income earned by the fund. Reverse repurchase agreements
may increase the risk of fluctuation in the market value of each fund's
assets or in its yield.
INTERFUND BORROWING PROGRAM. Each fund has received permission from the
Securities and Exchange Commission to lend money to and borrow money from
other funds advised by FMR or its affiliates. Interfund loans and
borrowings normally will extend overnight, but can have a maximum duration
of seven days. Each fund will lend through the program only when the
returns are higher than those available at the same time from other
short-term instruments (such as repurchase agreements), and will borrow
through the program only when the costs are equal to or lower than the cost
of bank loans. Equity-Income, Growth and Overseas Portfolios cannot lend
more than 5% of net assets, High Income Portfolio cannot lend more than
7.5% of net assets and Money Market Portfolio cannot lend more than 10% of
net assets to other funds. Each fund will not borrow through the program
if, after doing so, total outstanding borrowings would exceed 15% of its
total assets. Loans may be called on one day's notice, and each fund may
have to borrow from a bank at a higher interest rate if an interfund loan
is called or not renewed. Any delay in repayment to a lending fund could
result in a lost investment opportunity or additional borrowing costs.
DEBT OBLIGATIONS. The following tables provide a summary of ratings
assigned to debt holdings (not including money market instruments) held by
High Income, Equity-Income, Investment Grade Bond and Asset Manager
Portfolios. These percentages are dollar-weighted averages of month-end
portfolio holdings during the thirteen months ended December 31, 1993,
presented as a percentage of total investments. These percentages are
historical and not necessarily indicative of the quality of current or
future portfolio holdings, which may vary. Refer to page ___ for policies
regarding the quality of portfolio investments.
HIGH EQUITY- ASSET INVESTMENT
RATED BY INCOME INCOME MANAGER GRADE BOND
S&P PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO

AAA, AA, A % % % %

BBB % % % %

BB % % % %

B % % % %

CCC % % % %

CC, C % % % %

D %

HIGH EQUITY- ASSET INVESTMENT
RATED BY INCOME INCOME MANAGER GRADE BOND
MOODY'S PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO

AAA, AA, A % % % %

BBB % % % %

BB % % % %

B % % % %

CCC % % % %

CC, C % % % %

D %

The dollar-weighted average of debt securities not rated by either S&P
or Moody's amounted to ___%, ___%, ___%, and ___, for High Income,
Equity-Income, Asset Manager and Investment Grade Bond Portfolios,
respectively.*
* MAY INCLUDE SECURITIES RATED BY OTHER NATIONALLY RECOGNIZED RATING
ORGANIZATIONS, AS WELL AS UNRATED SECURITIES. UNRATED SECURITIES ARE NOT
NECESSARILY LOWER-QUALITY SECURITIES.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:
The descriptions that follow are examples of eligible ratings for the
funds. Money Market Portfolio may, however, consider the ratings for other
types of investments and the ratings assigned by other rating organizations
when determining the eligibility of a particular investment.
AAA - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such issues.
AA - Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A - Bonds rated A possess many favorable investment attributes and are to
be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA - Bonds rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA - Bonds rated Ba are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of
other terms of the contract over any long period of time may be small.
CAA - Bonds rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
CA - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked
short-comings.
C - Bonds rated C are the lowest-rated class of bonds and issued so rated
can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S CORPORATE BOND RATINGS:
AAA - Debt rated AAA has the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal
is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher-rated
categories.
BB - Debt rate BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
B - Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it is
not likely to have the capacity to pay interest and repay principal.
CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed but
debt service payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The D rating will
also be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
The ratings from AA to CCC may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.

VARIABLE INSURANCE PRODUCTS FUND AND
VARIABLE INSURANCE PRODUCTS FUND II
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1994
This Statement is not a prospectus but should be read in conjunction with
each Trust's current Prospectus (dated April 30, 1994). Shares of each
Trust may only be purchased by the separate accounts of insurance
companies. Please retain this Statement for future reference. The Annual
Report to shareholders of each Trust for the year ended December 31, 1993
is incorporated herein by reference. To obtain additional copies of the
Prospectuses or Annual Reports, please call Fidelity Distributors
Corporation at 1-800-544-8888.
TABLE OF CONTENTS PAGE
Investment Policies and Limitations
Portfolio Transactions
Valuation of Portfolio Securities
Performance
General Information
Additional Purchase and Redemption Information
Taxes
FMR
Trustees and Officers
Management Contracts
Distribution and Service Plans
Contracts With Companies Affiliated With FMR
Summary of the Portfolios' Expenses
Description of the Trust
Financial Statements
Appendix
INVESTMENT ADVISOR
Fidelity Management & Research Company
SUB-ADVISORS
Money Market Portfolio:
FMR Texas Inc.
High Income and Asset Manager Portfolios:
Fidelity Management & Research (U.K.) Inc.
Fidelity Management & Research (Far East) Inc.
Overseas Portfolio:
Fidelity Management & Research (U.K.) Inc.
Fidelity Management & Research (Far East) Inc.
Fidelity International Investment Advisors
Fidelity International Investment Advisors (U.K.) Limited
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
Fidelity Investments Institutional Operations Company (FIIOC)

VIP-comb/ptB-- 4/94
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of a Portfolio'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 Portfolio'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 Portfolio's investment
policies and limitations.
Each Portfolio's fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940) of each
Portfolio. However, except for the fundamental investment limitations set
forth below, the investment policies and limitations described in this
Statement of Additional Information are not fundamental and may be changed
without shareholder approval.
MONEY MARKET PORTFOLIO
THE FOLLOWING ARE THE PORTFOLIO'S FUNDAMENTAL INVESTMENT LIMITATIONS. THE
PORTFOLIO 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 Portfolio 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 Portfolio'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
Portfolio 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 Portfolio's total
assets would be invested in the securities of companies whose principal
business activities are in the same industry, except that the Portfolio
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
Portfolio from investing in securities or other instruments backed by real
estate or securities of companies engaged in the real estate business);
(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments;
(8) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements; or
(9) invest in companies for the purpose of exercising control or
management.
THE FOLLOWING INVESTMENT LIMITATIONS FOR MONEY MARKET PORTFOLIO ARE NOT
FUNDAMENTAL AND MAY BE CHANGED WITHOUT SHAREHOLDER NOTIFICATION.
(i) The Portfolio does not currently intend to purchase a security (other
than a security issued or guaranteed by the U.S. government or any of its
agencies or instrumentalities) if, as a result, more than 5% of its total
assets would be invested in the securities of a single issuer; provided
that the Portfolio may invest up to 10% of its total assets in the first
tier securities of a single issuer for up to three business days.
(ii) The Portfolio 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 Portfolio does not currently intend to purchase securities on
margin, except that the Portfolio 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 Portfolio 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 Portfolio will not borrow money in excess
of 25% of net assets so long as this limitation is required for
certification by certain state insurance departments. The Portfolio will
not purchase any security while borrowings (excluding reverse repurchase
agreements) representing more than 5% of its total assets are outstanding.
The Portfolio 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 Portfolio's total assets.
(v) The Portfolio 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 Portfolio 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 Portfolio does not currently intend to lend assets other than
securities to other parties, except by lending money (up to 10% of the
Portfolio's net assets) to a registered investment company or portfolio for
which FMR or an affiliate serves as investment advisor. (This limit does
not apply to purchases of debt securities or to repurchase agreements.)
(viii) The Portfolio does not currently intend to (a) purchase securities
of other investment companies, except in the open market where no
commission except the ordinary broker's commission is paid, or (b) purchase
or retain securities issued by other open-end investment companies.
Limitations (a) and (b) do not apply to securities received as dividends,
through offers of exchange, or as a result of a reorganization,
consolidation, or merger. (Due to certain state insurance regulations, the
Portfolio does not currently intend to purchase the securities of other
investment companies.)
(ix) The Portfolio does not currently intend to invest in oil, gas, or
other mineral exploration or development programs or leases.
Investments may be made in U.S. dollar-denominated time deposits,
certificates of deposit and bankers' acceptances of U.S. banks and their
branches located outside of the U.S., U.S. branches and agencies of foreign
banks, and foreign branches of foreign banks. The Portfolio may also
invest in U.S. dollar-denominated securities issued or guaranteed by other
U.S. or foreign issuers, including U.S. and foreign corporations or other
business organizations, foreign governments and foreign government agencies
or instrumentalities, and U.S. and foreign financial institutions,
including savings and loan institutions, insurance companies, mortgage
bankers and real estate investment trusts, as well as banks. The Portfolio
may purchase obligations of banks, savings and loan institutions and other
financial institutions whose creditworthiness might not otherwise meet the
Portfolio's standards, provided that (i) the principal amount of the
instrument acquired by the Portfolio is insured in full by the Federal
Deposit Insurance Corporation and (ii) the aggregate investment made in any
one such bank or institution does not exceed $100,000.
The obligations of foreign branches of U.S. banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by federal and state
regulation. Payment of interest and principal upon these obligations may
also be affected by governmental action in the country of domicile of the
branch (generally referred to as sovereign risk). In addition, evidences
of ownership of portfolio securities may be held outside of the U.S. and
the Portfolio may be subject to the risks associated with the holding of
such property overseas. Various provisions of federal law governing the
establishment and operation of domestic branches do not apply to foreign
branches of domestic banks.
Obligations of U.S. branches and agencies of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by federal and state
regulation as well as by governmental action in the country in which the
foreign bank has its head office.
Obligations of foreign issuers also involve certain additional risks.
Foreign issuers may be subject to less governmental regulation and
supervision than U.S. issuers. Foreign issuers also generally are not
bound by uniform accounting, auditing and financial reporting requirements
comparable to those applicable to U.S. issuers.
HIGH INCOME, EQUITY-INCOME, GROWTH, OVERSEAS. INVESTMENT
GRADE BOND, ASSET MANAGER AND INDEX 500 PORTFOLIOS
THE FOLLOWING ARE HIGH INCOME, EQUITY-INCOME, GROWTH, OVERSEAS, INVESTMENT
GRADE BOND, ASSET MANAGER AND INDEX 500 PORTFOLIOS' FUNDAMENTAL INVESTMENT
LIMITATIONS. EACH PORTFOLIO MAY NOT:
(1) with respect to 75% of the Portfolio'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 Portfolio's total assets would be invested
in the securities of that issuer, or (b) the Portfolio would hold more than
10% of the outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(3) (for High Income, Equity-Income, Growth and Overseas Portfolios) borrow
money, except that the Portfolio (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 Portfolio's total assets by
reason of a decline in net assets will be reduced within three days
(exclusive of Sundays and holidays) to the extent necessary to comply with
the 33 1/3% limitation;
(for Investment Grade Bond, Asset Manager and Index 500 Portfolios) borrow
money, except that the Portfolio 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
Portfolio 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
Portfolio 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 Portfolio from purchasing or selling options and futures contracts or
from investing in securities or other instruments backed by physical
commodities); or
(8) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.
THE FOLLOWING INVESTMENT LIMITATIONS FOR HIGH INCOME, EQUITY-INCOME,
GROWTH, OVERSEAS, INVESTMENT GRADE BOND, ASSET MANAGER AND INDEX 500
PORTFOLIOS ARE NOT FUNDAMENTAL AND MAY BE CHANGED WITHOUT SHAREHOLDER
NOTIFICATION.
(i) Each Portfolio 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 Portfolio does not currently intend to purchase securities on
margin, except that the Portfolio 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 Portfolio may borrow money only (a) from a bank or from a
registered investment company or portfolio for which FMR or an affiliate
serves as investment advisor or (b) by engaging in reverse repurchase
agreements with any party (reverse repurchase agreements are treated as
borrowings for purposes of fundamental investment limitation (3)). Each
Portfolio will not borrow money in excess of 25% of net assets so long as
this limitation is required for certification by certain state insurance
departments. Any borrowings that come to exceed this amount will be
reduced within seven days (not including Sundays and holidays) to the
extent necessary to comply with the 25% limitation. Each Portfolio will
not purchase any security while borrowings representing more than 5% of its
total assets are outstanding. Each Portfolio 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 Portfolio's total
assets.
(iv) Each Portfolio does not currently intend to purchase any security if,
as a result, more than 10% of Equity-Income, Growth, Investment Grade Bond,
Asset Manager and Index 500 Portfolios' net assets and 15% of High Income
and Overseas Portfolio's net assets would be invested in securities that
are deemed to be illiquid because they are subject to legal or contractual
restrictions on resale or because they cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they are
valued.
(v) Each Portfolio does not currently intend to lend assets other than
securities to other parties, except by: (a) lending money (up to 5% of net
assets for Equity-Income, Growth, Overseas, Asset Manager and Index 500
Portfolios and 7.5% of net assets for High Income and Investment Grade Bond
Portfolios) to a registered investment company or portfolio for which FMR
or an affiliate serves as investment 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 Portfolio does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission
except the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.
(Due to certain state insurance regulations, each Portfolio does not
currently intend to purchase the securities of other investment companies.)
(vii) Each Portfolio does not currently intend to invest in oil, gas, or
other mineral exploration or development programs or leases.
(viii) Growth and Overseas Portfolios do not currently intend to purchase a
security if, as a result, greater than 5% of its net assets would be
invested in debt securities rated Ba or lower by Moody's Investors Service,
Inc. or BB or lower by Standard & Poor's Corporation.
For each Portfolio's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions"
beginning on page __. For limitations on short sales, see the section
entitled "Short Sales" on page __.
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 Portfolios. 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 Portfolio's investment objective and
policies.
In accordance with the Portfolios' fundamental investment policies, there
are no limitations on the percentage of the Portfolios' assets which may be
invested in any one type of instrument. Nor are there limitations (except
those imposed by certain state insurance regulations) on the percentage of
the Portfolios' assets which may be invested in any foreign country.
However, in order to comply with diversification requirements under Section
817(h) of the Internal Revenue Code of 1986, as amended, in connection with
FMR serving as investment advisor, each Portfolio has agreed to certain
non-fundamental limitations. Please refer to your insurance company's
separate account prospectus for more information.
AFFILIATED BANK TRANSACTIONS. A Portfolio may engage in transactions with
financial institutions that are, or may be considered to be, "affiliated
persons" of the Portfolio under the Investment Company Act of 1940. These
transactions may include repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50 largest
U.S. banks (measured by deposits); municipal securities; U.S. government
securities with affiliated financial institutions that are primary dealers
in these securities; short-term currency transactions; and short-term
borrowings. In accordance with exemptive orders issued by the Securities
and Exchange Commission (SEC), the Board of Trustees has established and
periodically reviews procedures applicable to transactions involving
affiliated financial institutions.
PORTFOLIOS' RIGHTS AS A SHAREHOLDER. Each Portfolio does not intend to
direct or administer the day-to-day operations of any company. Each
Portfolio, however, may exercise its rights as a shareholder and may
communicate its views on important matters of policy to management, the
Board of Directors, and shareholders of a company when FMR determines that
such matters could have a significant effect on the value of each
Portfolio's investment in the company. The activities that each Portfolio
may engage in, either individually or in conjunction with others, may
include, among others, supporting or opposing proposed changes in a
company's corporate structure or business activities; seeking changes in a
company's directors or management; seeking changes in a company's direction
or policies; seeking the sale or reorganization of the company or a portion
of its assets; or supporting or opposing third party takeover efforts.
This area of corporate activity is increasingly prone to litigation and it
is possible that each Portfolio could be involved in lawsuits related to
such activities. FMR will monitor such activities with a view to
mitigating, to the extent possible, the risk of litigation against each
Portfolio and the risk of actual liability if each Portfolio is involved in
litigation. No guarantee can be made, however, that litigation against
each Portfolio will not be undertaken or liabilities incurred.
ASSET-BACKED SECURITIES may include pools of mortgages, loans, receivables
or other assets. Payment of principal and interest may be largely
dependent upon the cash flows generated by the assets backing the
securities, and, in certain cases, supported by letters of credit, surety
bonds, or other credit enhancements. The value of asset-backed securities
may also be affected by the creditworthiness of the servicing agent for the
pool, the originator of the loans or receivables, or the financial
institution(s) providing the credit support.
VARIABLE OR FLOATING RATE OBLIGATIONS bear variable or floating interest
rates and carry rights that permit holders to demand payment of the unpaid
principal balance plus accrued interest from the issuers or certain
financial intermediaries. Floating rate instruments have interest rates
that change whenever there is a change in a designated base rate while
variable rate instruments provide for a specified periodic adjustment in
the interest rate. These formulas are designed to result in a market value
for the instrument that approximates its par value.
A demand instrument with a conditional demand feature must have received
both a short-term and a long-term high-quality rating or, if unrated, have
been determined to be of comparable quality pursuant to procedures adopted
by the Board of Trustees. A demand instrument with an unconditional demand
feature may be acquired solely in reliance upon a short-term high-quality
rating or, if unrated, upon a finding of comparable short-term quality
pursuant to procedures adopted by the Board of Trustees.
Money Market Portfolio may invest in variable or floating rate instruments
that ultimately mature in more than 397 days, if the Portfolio acquires a
right to sell the instruments that meets certain requirements set forth in
Rule 2a-7. Variable rate instruments (including instruments subject to a
demand feature) that mature in 397 days or less and U.S. government
securities with a variable rate of interest adjusted no less frequently
than 762 days may be deemed to have maturities equal to the period
remaining until the next readjustment of the interest rate. Other variable
rate instruments with demand features may be deemed to have a maturity
equal to the period remaining until the next adjustment of the interest
rate or the period remaining until the principal amount can be recovered
through demand. A floating rate instrument subject to a demand feature may
be deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand.
REPURCHASE AGREEMENTS are transactions by which a Portfolio purchases a
security and simultaneously commits to resell that security to the seller
at an agreed upon price upon demand on an agreed upon date within a
specified number of days from the date of purchase. The resale price
reflects the purchase price plus an agreed upon incremental amount which is
unrelated to the coupon rate or maturity of the purchased security. A
repurchase agreement involves the obligation of the seller to pay the
agreed upon price, which obligation is in effect secured by the value (at
least equal to the amount of the agreed upon resale price and marked to
market daily) of the underlying security. Each Portfolio may engage in a
repurchase agreement with respect to any security in which it is authorized
to invest even though the underlying security's maturity may be more than
one year. While it does not presently appear possible to eliminate all
risks from these transactions (particularly the possibility of a decline in
the market value of the underlying securities, as well as delay and costs
to each Portfolio in connection with bankruptcy proceedings), it is the
policy of each Portfolio to limit repurchase transactions to those whose
creditworthiness has been reviewed and found satisfactory by FMR.
Pursuant to an Exemptive Order issued by the SEC, the Money Market
Portfolio, along with other registered investment companies having
management contracts with FMR, may invest in a pool of one or more large
overnight repurchase agreements. The repurchase agreements' underlying
securities are U.S. government securities in which the Portfolio is
permitted to invest.
FOREIGN REPURCHASE AGREEMENTS may include agreements to purchase and sell
foreign securities in exchange for fixed U.S. dollar amounts, or in
exchange for specified amounts of foreign currency. Unlike typical U.S.
repurchase agreements, foreign repurchase agreements may not be fully
collateralized at all times. The value of the security purchased by a
Portfolio may be more or less than the price at which the counterparty has
agreed to repurchase the security. In the event of a default by the
counterparty, a Portfolio may suffer a loss if the value of the security
purchased is less than the agreed-upon repurchase price, or if a Portfolio
is unable to successfully assert a claim to the collateral under foreign
laws. As a result, foreign repurchase agreements may involve higher credit
risks than repurchase agreements in U.S. markets, as well as risks
associated with currency fluctuations. In addition, as with other emerging
market investments, repurchase agreements with counterparties located in
emerging markets or relating to emerging market securities may involve
issuers or counterparties with lower credit ratings than typical U.S.
repurchase agreements.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a
Portfolio sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the instrument
at a particular price and time. While a reverse repurchase agreement is
outstanding, a Portfolio will maintain appropriate liquid assets in a
segregated custodial account to cover its obligation under the agreement.
A Portfolio will enter into reverse repurchase agreements only with parties
whose creditworthiness has been reviewed and found satisfactory by FMR.
Such transactions may increase fluctuations in the market value of a
Portfolio's assets and may be viewed as a form of leverage.
SECURITIES LENDING. Each Portfolio may lend securities to parties such as
broker-dealers or institutional investors, including Fidelity Brokerage
Services, Inc. (FBSI). FBSI is a member of the New York Stock Exchange
(NYSE) and a subsidiary of FMR Corp.
Securities lending allows a Portfolio to retain ownership of the securities
loaned and, at the same time, to earn additional income. Since there may
be delays in the recovery of loaned securities, or even a loss of rights in
collateral supplied should the borrower fail financially, loans will be
made only to parties deemed by FMR to be of good standing. Furthermore,
they will only be made if, in FMR's judgment, the consideration to be
earned from such loans would justify the risk.
FMR understands that it is the current view of the SEC Staff that a
Portfolio may engage in loan transactions only under the following
conditions: (1) the Portfolio 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 Portfolio must be
able to terminate the loan at any time; (4) the Portfolio 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
Portfolio may pay only reasonable custodian fees in connection with the
loan; and (6) the Board of Trustees must be able to vote proxies on the
securities loaned, either by terminating the loan or by entering into an
alternative arrangement with the borrower.
Cash received through loan transactions may be invested in any security in
which the Portfolio is authorized to invest. Investing this cash subjects
that investment, as well as the security loaned, to market forces (i.e.,
capital appreciation or depreciation).
DELAYED DELIVERY TRANSACTIONS are transactions that involve a commitment by
Portfolio to purchase or sell specific securities at a predetermined price
and/or yield, with payment and delivery taking place after the customary
settlement period for that type of security (and more than seven days in
the future). Typically, no interest accrues to the purchaser until the
security is delivered. High Income Portfolio may receive fees for entering
into delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, each Portfolio
assumes the rights and risks of ownership, including the risk of price and
yield fluctuations. Because each Portfolio is not required to pay for
securities until the delivery date, these risks are in addition to the
risks associated with each Portfolio's other investments. If each
Portfolio remains substantially fully invested at a time when
delayed-delivery purchases are outstanding, the delayed-delivery purchases
may result in a form of leverage. When delayed-delivery purchases are
outstanding, each Portfolio will set aside appropriate liquid assets in a
segregated custodial account to cover its purchase obligations. When a
Portfolio has sold a security on a delayed-delivery basis, that Portfolio
does not participate in further gains or losses with respect to the
security. If the other party to a delayed-delivery transaction fails to
deliver or pay for the securities, each Portfolio could miss a favorable
price or yield opportunity, or could suffer a loss. Each Portfolio may
renegotiate delayed-delivery transactions after they are entered into, and
may sell underlying securities before they are delivered, which may result
in capital gains or losses.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they
are valued. Under the supervision of the Board of Trustees, FMR determines
the liquidity of each Portfolio's investments and, through reports from
FMR, the Board monitors investments in illiquid instruments. In
determining the liquidity of each Portfolio's investments, FMR may consider
various factors, including (1) the frequency of trades and quotations, (2)
the number of dealers and prospective purchasers in the marketplace, (3)
dealer undertakings to make a market, (4) the nature of the security
(including any demand or tender features), and (5) the nature of the
marketplace for trades (including the ability to assign or offset each
Portfolio's rights and obligations relating to the investment).
Investments currently considered by Money Market Portfolio to be illiquid
include repurchase agreements not entitling the holder to payment of
principal and interest within seven days. Also, FMR may determine some
restricted securities and time deposits to be illiquid. Investments
currently considered by each Portfolio other than Money Market Portfolio to
be illiquid include repurchase agreements not entitling the holder to
payment of principal and interest within seven days, over-the-counter
options and non-government stripped fixed-rate mortgage-backed securities.
Also, FMR may determine some restricted securities, government-stripped
fixed-rate mortgage-backed securities, loans and other direct debt
instruments, and swap agreements to be illiquid. However, with respect to
over-the-counter options each Portfolio writes, all or a portion of the
value of the underlying instrument may be illiquid depending on the assets
held to cover the option and the nature and terms of any agreement each
Portfolio 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. If through a change in values, net assets, or other
circumstances, each Portfolio were in a position where more than 10% of
each Portfolios' net assets (15% of High Income and Overseas Portfolio's
net assets) and where more than 10% of Money Market Portfolio's net assets
were invested in illiquid securities, it would seek to take appropriate
steps to protect liquidity.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, each Portfolio may be obligated to pay all or
part of the registration expense and a considerable period may elapse
between the time it decides to seek registration and the time each
Portfolio may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market
conditions were to develop, each Portfolio might obtain a less favorable
price than prevailed when it decided to seek registration of the security.
SWAP AGREEMENTS. Swap agreements can be individually negotiated and
structured to include exposure to a variety of different types of
investments or market factors. Depending on their structure, swap
agreements may increase or decrease a Portfolio's exposure to long or
short-term interest rates (in the U.S. or abroad), foreign currency values,
mortgage securities, corporate borrowing rates, or other factors such as
security prices or inflation rates. Swap agreements can take many
different forms and are known by a variety of names. A Portfolio is not
limited to any particular form of swap agreement if FMR determines it is
consistent with a Portfolio's investment objective and policies.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains
the right to receive payments to the extent that a specified interest rate
exceeds an agreed-upon level, while the seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate
falls below an agreed-upon level. An interest rate collar combines
elements of buying a cap and selling a floor.
Swap agreements will tend to shift a Portfolio's investment exposure from
one type of investment to another. For example, if a Portfolio agreed to
exchange payments in dollars for payments in foreign currency, the swap
agreements would tend to decrease the portfolio's exposure to U.S. interest
rates and increase exposure to foreign currency and interest rates. Caps
and floors have an effect similar to buying or writing options. Depending
on how they are used, swap agreements may increase or decrease the overall
volatility of a Portfolio's investments and its share price and yield.
The most significant factor in the performance of swap agreements is the
change in the specific interest rate, currency, or other factors that
determine the amounts of payments due to and from a Portfolio. If a swap
agreement calls for payments by a Portfolio, it must be prepared to make
such payments when due. In addition, if the counterparty's
creditworthiness declined, the value of a swap agreement would be likely to
decline, potentially resulting in losses. A Portfolio expects to be able
to eliminate its exposure under swap agreements either by assignment or
other disposition, or by entering into an offsetting swap agreement with
the same party or a similarly creditworthy party.
Each Portfolio will maintain appropriate liquid assets in a segregated
custodial account to cover its current obligations under swap agreements.
If a Portfolio enters into a swap agreement on a net basis, it will
segregate assets with a daily value at least equal to the excess, if any,
of its accrued obligations under the swap agreement over the accrued amount
it is entitled to receive under the agreement. If a Portfolio enters into
a swap agreement on other than a net basis, it will segregate assets with a
value equal to the full amount of its accrued obligations under the
agreement.
INDEXED SECURITIES. Each Portfolio may purchase securities whose prices
are indexed to the prices of other securities, securities indices,
currencies, precious metals or other commodities, or other financial
indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined
by reference to a specific instrument or statistic. Gold-indexed
securities, for example, typically provide for a maturity value that
depends on the price of gold, resulting in a security whose price tends to
rise and fall together with gold prices. Currency-indexed securities
typically are short-term to intermediate-term debt securities whose
maturity values or interest rates are determined by reference to the values
of one or more specified foreign currencies, and may offer higher yields
than U.S. dollar-denominated securities of equivalent issuers.
Currency-indexed securities may be positively or negatively indexed; that
is, their maturity value may increase when the specified currency value
increases, resulting in a security that performs similarly to a
foreign-denominated instrument, or their maturity value may decline when
foreign currencies increase, resulting in a security whose price
characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values
of a number of different foreign currencies relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they
are indexed, and may also be influenced by interest rate changes in the
U.S. and abroad. At the same time, indexed securities are subject to the
credit risks associated with the issuer of the security, and their values
may decline substantially if the issuer's creditworthiness deteriorates.
Recent issuers of indexed securities have included banks, corporations, and
certain U.S. government agencies.
WARRANTS. Warrants are securities that give a Portfolio the right to
purchase equity securities from the issuer at a specific price (the strike
price) for a limited period of time. The strike price of warrants
typically is much lower than the current market price of the underlying
securities, yet they are subject to similar price fluctuations. As a
result, warrants may be more volatile investments than the underlying
securities and may offer greater potential for capital appreciation as well
as capital loss.
Warrants do not entitle a holder to dividends or voting rights with respect
to the underlying securities and do not represent any rights in the assets
of the issuing company. Also, the value of the warrant does not
necessarily change with the value of the underlying securities and a
warrant ceases to have value if it is not exercised prior to the expiration
date. These factors can make warrants more speculative than other types of
investments.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. (excludes Money Market) 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 Portfolio's policies regarding the quality of debt securities.
Purchasers of loans and other forms of direct indebtedness depend primarily
upon the creditworthiness of the borrower for payment of principal and
interest. Direct debt instruments may not be rated by any nationally
recognized rating service. If a Portfolio does not receive scheduled
interest or principal payments on such indebtedness, a Portfolio's share
price and yield could be adversely affected. Loans that are fully secured
offer a Portfolio more protections than an unsecured loan in the event of
non-payment of scheduled interest or principal. However, there is no
assurance that the liquidation of collateral from a secured loan would
satisfy the borrower's obligation, or that the collateral could be
liquidated. Indebtedness of borrowers whose creditworthiness is poor
involves substantially greater risks, and may be highly speculative.
Borrowers that are in bankruptcy or restructuring may never pay off their
indebtedness, or may pay only a small fraction of the amount owed. Direct
indebtedness of developing countries also involves a risk that the
governmental entities responsible for the repayment of the debt may be
unable, or unwilling, to pay interest and repay principal when due.
Investments in loans through direct assignment of a financial institution's
interests with respect to a loan may involve additional risks to a
Portfolio. For example, if a loan is foreclosed, a Portfolio 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
Portfolio could be held liable as a co-lender. Direct debt instruments may
also involve a risk of insolvency of the lending bank or other
intermediary. Direct debt instruments that are not in the form of
securities may offer less legal protection to a Portfolio in the event of
fraud or misrepresentation. In the absence of definitive regulatory
guidance, a Portfolio relies on FMR's research in an attempt to avoid
situations where fraud or misrepresentation could adversely affect a
Portfolio.
A loan is often administered by a bank or other financial institution that
acts as agent for all holders. The agent administers the terms of the
loan, as specified in the loan agreement. Unless, under the terms of the
loan or other indebtedness, a Portfolio has direct recourse against the
borrower, it may have to rely on the agent to apply appropriate credit
remedies against a borrower. If assets held by the agent for the benefit of
a Portfolio were determined to be subject to the claims of the agent's
general creditors, a Portfolio might incur certain costs and delays in
realizing payment on the loan or loan participation and could suffer a loss
of principal or interest.
Direct indebtedness purchased by a Portfolio may include letters of credit,
revolving credit facilities, or other standby financing commitments
obligating a Portfolio to pay additional cash on demand. These commitments
may have the effect of requiring a Portfolio 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 Portfolio will set aside appropriate liquid assets in a segregated
custodial account to cover its potential obligations under standby
financing commitments.
A Portfolio limits the amount of total assets that it will invest in any
one issuer or in issuers within the same industry (see limitations 1 and
5). For purposes of these limitations, a Portfolio generally will treat the
borrower as the "issuer" of indebtedness held by a Portfolio. In the case
of loan participations where a bank or other lending institution serves as
financial intermediary between a Portfolio and the borrower, if the
participation does not shift to a Portfolio the direct debtor-creditor
relationship with the borrower, SEC interpretations require a Portfolio, 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
Portfolio's ability to invest in indebtedness related to a single financial
intermediary, or a group of intermediaries engaged in the same industry,
even if the underlying borrowers represent many different companies and
industries.
FOREIGN INVESTMENTS. Foreign investments can involve significant risks in
addition to the risks inherent in U.S. investments. The value of
securities denominated in or indexed to foreign currencies, and of
dividends and interest from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar.
Foreign securities markets generally have less trading volume and less
liquidity than U.S. markets, and prices on some foreign markets can be
highly volatile. Many foreign countries lack uniform accounting and
disclosure standards comparable to those applicable to U.S. companies, and
it may be more difficult to obtain reliable information regarding an
issuer's financial condition and operations. In addition, the costs of
foreign investing, including withholding taxes, brokerage commissions, and
custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including
those involving the release of assets in advance of payment, may involve
increased risks in the event of a failed trade or the insolvency of a
broker-dealer, and may involve substantial delays. It may also be
difficult to enforce legal rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments
adverse to the interests of U.S. investors, including the possibility of
expropriation or nationalization of assets, confiscatory taxation,
restrictions on U.S. investment or on the ability to repatriate assets or
convert currency into U.S. dollars, or other government intervention.
There may be a greater possibility of default by foreign governments or
foreign government-sponsored enterprises. Investments in foreign countries
also involve a risk of local political, economic, or social instability,
military action or unrest, or adverse diplomatic developments. There is no
assurance that FMR will be able to anticipate these potential events or
counter their effects.
The considerations noted above generally are intensified for investments
in developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities
markets that trade a small number of securities.
Each Portfolio may invest in foreign securities that impose restrictions
on transfer within the U.S. or to U.S. persons. Although securities
subject to transfer restrictions may be marketable abroad, they may be less
liquid than foreign securities of the same class that are not subject to
such restrictions.
American Depositary Receipts and European Depositary Receipts (ADRs and
EDRs) are certificates evidencing ownership of shares of a foreign-based
issuer held in trust by a bank or similar financial institution. Designed
for use in U.S. and European securities markets, respectively, ADRs and
EDRs are alternatives to the purchase of the underlying securities in their
national markets and currencies.
FOREIGN CURRENCY TRANSACTIONS. The following information is of particular
importance to Overseas Portfolio. Each Portfolio may conduct foreign
currency transactions on a spot (i.e., cash) basis or by entering into
forward contracts to purchase or sell foreign currencies at a future date
and price. The Portfolios will convert currency on a spot basis from time
to time, and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers generally do not charge a fee for
conversion, they do realize a profit based on the difference between the
prices at which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to a Portfolio at one rate,
while offering a lesser rate of exchange should the Portfolio desire to
resell that currency to the dealer. Forward contracts are generally traded
in an interbank market conducted directly between currency traders (usually
large commercial banks) and their customers. The parties to a forward
contract may agree to offset or terminate the contract before its maturity,
or may hold the contract to maturity and complete the contemplated currency
exchange.
Each Portfolio may use currency forward contracts for any purpose
consistent with its investment objective. The following discussion
summarizes some, but not all, of the possible currency management
strategies involving forward contracts that could be used by the
Portfolios. The Portfolios may also use options and futures contracts
relating to foreign currencies for the same purposes.
When a Portfolio agrees to buy or sell a security denominated in a foreign
currency, it may desire to "lock in" the U.S. dollar price of the security.
By entering into a forward contract for the purchase or sale, for a fixed
amount of U.S. dollars, of the amount of foreign currency involved in the
underlying security transaction, the Portfolio will be able to protect
itself against an adverse change in foreign currency values between the
date the security is purchased or sold and the date on which payment is
made or received. This technique is sometimes referred to as a "settlement
hedge" or "transaction hedge." The Portfolios may also enter into forward
contracts to purchase or sell a foreign currency in anticipation of future
purchases or sales of securities denominated in foreign currency, even if
the specific investments have not yet been selected by FMR.
The Portfolios may also use forward contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. For
example, if a Portfolio owned securities denominated in pounds sterling,
the Portfolio 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
Portfolio could also hedge the position by selling another currency
expected to perform similarly to the pound sterling -- for example, by
entering into a forward contract to sell Deutschemarks or European Currency
Units in return for U.S. dollars. This type of hedge, sometimes referred
to as a "proxy hedge," could offer advantages in terms of cost, yield or
efficiency, but generally will not hedge currency exposure as effectively
as a simple hedge into U.S. dollars. Proxy hedges may result in losses if
the currency used to hedge does not perform similarly to the currency in
which the hedged securities are denominated.
Each Portfolio may enter into forward contracts to shift its investment
exposure from one currency into another currency that is expected to
perform better relative to the U.S. dollar. For example, if a Portfolio
held investments denominated in Deutschemarks, the Portfolio could enter
into forward contracts to sell Deutschemarks and purchase Swiss Francs.
This type of strategy, sometimes known as a "cross-hedge," will tend to
reduce or eliminate exposure to the currency that is sold, and increase
exposure to the currency that is purchased, much as if the Portfolio had
sold a security denominated in one currency and purchased an equivalent
security denominated in another. Cross-hedges protect against losses
resulting from a decline in the hedged currency, but will cause the
Portfolio to assume the risk of fluctuations in the value of the currency
it purchases.
Under certain conditions, SEC guidelines require mutual funds to set aside
appropriate liquid assets in a segregated custodial account to cover
currency forward contracts. As required by SEC guidelines, the Portfolios
will segregate assets to cover currency forward contracts, if any, whose
purpose is essentially speculative. The Portfolios will not segregate
assets to cover forward contracts entered into for hedging purposes,
including settlement hedges, position hedges, and proxy hedges.
Successful use of currency forward contracts will depend on FMR's skill in
analyzing and predicting currency values. Forward contracts may
substantially change a Portfolio's investment exposure to changes in
currency exchange rates, and could result in losses to the Portfolio if
currencies do not perform as FMR anticipates. For example, if a currency's
value rose at a time when FMR had hedged a Portfolio by selling that
currency in exchange for dollars, the Portfolio would be unable to
participate in the currency's appreciation. If FMR hedges currency
exposure through proxy hedges, a Portfolio could realize currency losses
from the hedge and the security position at the same time if the two
currencies do not move in tandem. Similarly, if FMR increases a
Portfolio's exposure to a foreign currency, and that currency's value
declines, the Portfolio will realize a loss. There is no assurance that
FMR's use of currency forward contracts will be advantageous to the
Portfolios or that they will hedge at an appropriate time.
SHORT SALES "AGAINST THE BOX". Money Market Portfolio may sell securities
short when it owns or has the right to obtain securities equivalent in kind
or amount to the securities sold short. Short sales could be used to
protect the net asset value per share of the Portfolio in anticipation of
increased interest rates, without sacrificing the current yield of the
securities sold short. SHORT SALES. A Portfolio may enter into short sales
with respect to stocks underlying its convertible security holdings. For
example, if FMR anticipates a decline in the price of the stock underlying
a convertible security it holds, it may sell the stock short. If the stock
price subsequently declines, the proceeds of the short sale could be
expected to offset all or a portion of the effect of the stock's decline on
the value of the convertible security. Each Portfolio 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 Portfolio enters into a short sale or short sale against the box, it
will be required to set aside securities equivalent in kind and amount to
those sold short (or securities convertible or exchangeable into such
securities) and will be required to continue to hold them while the short
sale is outstanding. Each Portfolio will incur transaction costs,
including interest expense, in connection with opening, maintaining, and
closing short sales and short sales against the box.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. Each Portfolio (other
than Money Market Portfolio) has filed a notice of eligibility for
exclusion from the definition of the term "commodity pool operator" with
the Commodity Futures Trading Commission (CFTC) and the National Futures
Association, which regulate trading in the futures markets. The Portfolios
intend to comply with Section 4.5 of the regulations under the Commodity
Exchange Act, which limits the extent to which a Portfolio can commit
assets to initial margin deposits and option premiums.
In addition, each Portfolio (excluding Index 500 Portfolio) will not: (a)
sell futures contracts, purchase put options, or write call options if, as
a result, more than 25% of each Portfolio's total assets would be hedged
with futures and options under normal conditions; (b) purchase futures
contracts or write put options if, as a result, each Portfolio's total
obligations upon settlement or exercise of purchased futures contracts and
written put options would exceed 25% of its total assets; or (c) purchase
call options if, as a result, the current value of option premiums for call
options purchased by each Portfolio would exceed 5% of each Portfolio's
total assets. INDEX 500 PORTFOLIO also intends to follow certain other
limitations on its futures and options activities. The Portfolio 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 Portfolio
will not enter into any futures contract or option if, as a result, the sum
of (i) the current value of assets hedged in the case of strategies
involving the sale of securities, and (ii) the current value of the indices
or other instruments underlying the Portfolio's other futures or options
positions, would exceed 35% of the Portfolio's total assets. These
limitations for each Portfolio do not apply to options attached to or
acquired or traded together with their underlying securities, and do not
apply to securities that incorporate features similar to options.
FUTURES CONTRACTS. When each Portfolio purchases a futures contract, it
agrees to purchase a specified underlying instrument at a specified future
date. When each Portfolio sells a futures contract, it agrees to sell the
underlying instrument at a specified future date. The price at which the
purchase and sale will take place is fixed when each Portfolio enters into
the contract. Some currently available futures contracts are based on
specific securities, such as U.S. Treasury bonds or notes, and some are
based on indices of securities prices, such as the Standard & Poor's
500 Composite Stock Price Index (S&P 500) and the Bond Buyer Index of
municipal bonds. Futures can be held until their delivery dates, or can be
closed out before then if a liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase each Portfolio's exposure to positive and
negative price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When each Portfolio sells a
futures contract, by contrast, the value of its futures position will tend
to move in a direction contrary to the market. Selling futures contracts,
therefore, will tend to offset both positive and negative market price
changes, much as if the underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and
seller are required to deposit "initial margin" with a futures broker,
known as a futures commission merchant (FCM), when the contract is entered
into. Initial margin deposits are typically equal to a percentage of the
contract's value. If the value of either party's position declines, that
party will be required to make additional "variation margin" payments to
settle the change in value on a daily basis. The party that has a gain may
be entitled to receive all or a portion of this amount. Initial and
variation margin payments do not constitute purchasing securities on margin
for purposes of each Portfolio's investment limitations. In the event of
the bankruptcy of an FCM that holds margin on behalf of each Portfolio,
each Portfolio may be entitled to return of margin owed to it only in
proportion to the amount received by the FCM's other customers, potentially
resulting in losses to each Portfolio.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, each
Portfolio obtains the right (but not the obligation) to sell the option's
underlying instrument at a fixed strike price. In return for this right,
each Portfolio pays the current market price for the option (known as the
option premium). Options have various types of underlying instruments,
including specific securities, indices of securities prices, and futures
contracts. Each Portfolio may terminate its position in a put option it
has purchased by allowing it to expire or by exercising the option. If the
option is allowed to expire, each Portfolio will lose the entire premium it
paid. If each Portfolio exercises the option, it completes the sale of the
underlying instrument at the strike price. Each Portfolio may also
terminate a put option position by closing it out in the secondary market
at its current price, if a liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price
does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium
paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's
strike price. A call buyer typically attempts to participate in potential
price increases of the underlying instrument with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can
expect to suffer a loss if security prices do not rise sufficiently to
offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When each Portfolio writes a put option, it
takes the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, each Portfolio assumes the obligation to
pay the strike price for the option's underlying instrument if the other
party to the option chooses to exercise it. When writing an option on a
futures contract each Portfolio will be required to make margin payments to
an FCM as described above for futures contracts. Each Portfolio may seek
to terminate its position in a put option it writes before exercise by
closing out the option in the secondary market at its current price. If
the secondary market is not liquid for a put option each Portfolio has
written, however, each Portfolio must continue to be prepared to pay the
strike price while the option is outstanding, regardless of price changes,
and must continue to set aside assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that
the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from
purchasing the underlying instrument directly, however, because the premium
received for writing the option should mitigate the effects of the decline.
Writing a call option obligates each Portfolio to sell or deliver the
option's underlying instrument, in return for the strike price, upon
exercise of the option. The characteristics of writing call options are
similar to those of writing put options, except that writing calls
generally is a profitable strategy if prices remain the same or fall.
Through receipt of the option premium, a call writer mitigates the effects
of a price decline. At the same time, because a call writer must be
prepared to deliver the underlying instrument in return for the strike
price, even if its current value is greater, a call writer gives up some
ability to participate in security price increases.
COMBINED POSITIONS. Each Portfolio may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, each Portfolio may purchase a put option and write
a call option on the same underlying instrument, in order to construct a
combined position whose risk and return characteristics are similar to
selling a futures contract. Another possible combined position would
involve writing a call option at one strike price and buying a call option
at a lower price, in order to reduce the risk of the written call option in
the event of a substantial price increase. Because combined options
positions involve multiple trades, they result in higher transaction costs
and may be more difficult to open and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match each Portfolio's current or
anticipated investments exactly. Each Portfolio may invest in options and
futures contracts based on securities with different issuers, maturities,
or other characteristics from the securities in which it typically invests,
which involves a risk that the options or futures position will not track
the performance of each Portfolio's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match each
Portfolio's investments well. Options and futures prices are affected by
such factors as current and anticipated short-term interest rates, changes
in volatility of the underlying instrument, and the time remaining until
expiration of the contract, which may not affect security prices the same
way. Imperfect correlation may also result from differing levels of demand
in the options and futures markets and the securities markets, from
structural differences in how options and futures and securities are
traded, or from imposition of daily price fluctuation limits or trading
halts. Each Portfolio may purchase or sell options and futures contracts
with a greater or lesser value than the securities it wishes to hedge or
intends to purchase in order to attempt to compensate for differences in
volatility between the contract and the securities, although this may not
be successful in all cases. If price changes in each Portfolio's options
or futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that
are not offset by gains in other investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
secondary market will exist for any particular options or futures contract
at any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily
price fluctuation limits for options and futures contracts, and may halt
trading if a contract's price moves upward or downward more than the limit
in a given day. On volatile trading days when the price fluctuation limit
is reached or a trading halt is imposed, it may be impossible for each
Portfolio to enter into new positions or close out existing positions. If
the secondary market for a contract is not liquid because of price
fluctuation limits or otherwise, it could prevent prompt liquidation of
unfavorable positions, and potentially could require each Portfolio to
continue to hold a position until delivery or expiration regardless of
changes in its value. As a result, each Portfolio's access to other assets
held to cover its options or futures positions could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter options (options not traded on
exchanges) generally are established through negotiation with the other
party to the option contract. While this type of arrangement allows each
Portfolio greater flexibility to tailor an option to its needs, OTC options
generally involve greater credit risk than exchange-traded options, which
are guaranteed by the clearing organization of the exchanges where they are
traded.
OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency futures
contracts are similar to forward currency exchange contracts, except that
they are traded on exchanges (and have margin requirements) and are
standardized as to contract size and delivery date. Most currency futures
contracts call for payment or delivery in U.S. dollars. The underlying
instrument of a currency option may be a foreign currency, which generally
is purchased or delivered in exchange for U.S. dollars, or may be a futures
contract. The purchaser of a currency call obtains the right to purchase
the underlying currency, and the purchaser of a currency put obtains the
right to sell the underlying currency.
The uses and risks of currency options and futures are similar to options
and futures relating to securities or indices, as discussed above. Each
Portfolio may purchase and sell currency futures and may purchase and write
currency options to increase or decrease its exposure to different foreign
currencies. Each Portfolio may also purchase and write currency options in
conjunction with each other or with currency futures or forward contracts.
Currency futures and options values can be expected to correlate with
exchange rates, but may not reflect other factors that affect the value of
each Portfolio's investments. A currency hedge, for example, should
protect a Yen-denominated security from a decline in the Yen, but will not
protect each Portfolio against a price decline resulting from deterioration
in the issuer's creditworthiness. Because the value of each Portfolio's
foreign-denominated investments changes in response to many factors other
than exchange rates, it may not be possible to match the amount of currency
options and futures to the value of each Portfolio's investments exactly
over time.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. Each Portfolio will
comply with guidelines established by the SEC with respect to coverage of
options and futures strategies by mutual funds, and if the guidelines so
require will set aside appropriate liquid assets in a segregated custodial
account in the amount prescribed. Securities held in a segregated account
cannot be sold while the futures or option strategy is outstanding, unless
they are replaced with other suitable assets. As a result, there is a
possibility that segregation of a large percentage of each Portfolio's
assets could impede portfolio management or each Portfolio's ability to
meet redemption requests or other current obligations.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of a Portfolio by FMR (either directly or through affiliated
sub-advisors) pursuant to authority contained in each Portfolio's
Management Contract. FMR is also responsible for the placement of
transaction orders for other investment companies and accounts for which it
or its affiliates act as investment advisor. Money market securities
purchased and sold by a Portfolio generally will be traded on a net basis
(i.e., without commission). In selecting broker-dealers subject to
applicable limitations of the federal securities laws, FMR will consider
various relevant factors, including, but not limited to, the size and type
of the transaction; the nature and character of the markets for the
security to be purchased or sold; the execution efficiency, settlement
capability, and financial condition of the broker-dealer firm; the
broker-dealer's execution services rendered on a continuing basis; and the
reasonableness of any commissions; and the existence of any
directed-brokerage arrangements. Commissions for foreign investments
traded on foreign exchanges will generally be higher than for U.S.
investments and may not be subject to negotiation.
Each Portfolio may execute portfolio transactions with broker-dealers who
provide research and execution services to a Portfolio and/or other
accounts over which FMR or its affiliates exercise investment discretion.
Such services may include advice concerning the value of securities; the
advisability of investing in, purchasing or selling securities; the
availability of securities or the purchasers or sellers of securities;
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and performance of
accounts; and effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement). FMR maintains a
listing of broker-dealers who provide such services on a regular basis.
However, as many transactions on behalf of a Portfolio's money market
securities are placed with dealers (including broker-dealers on the list)
without regard to the furnishing of such services, it is not possible to
estimate the proportion of such transactions directed to such dealers
solely because such services were provided. The selection of such
broker-dealers is generally made by FMR (to the extent possible consistent
with execution considerations) in accordance with a ranking of
broker-dealers determined periodically by FMR's investment staff based upon
the quality of research and execution services provided.
The receipt of research from broker-dealers that execute transactions on
behalf of a Portfolio may be useful to FMR in rendering investment
management services to a Portfolio and/or its other clients, and
conversely, such information provided by broker-dealers who have executed
transaction orders on behalf of other FMR clients may be useful to FMR in
carrying out its obligations to a Portfolio. The receipt of such research
has not reduced FMR's normal independent research activities; however, it
enables FMR to avoid additional expenses that could be incurred if FMR
tried to develop comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and/or execution services. In order to cause
a Portfolio to pay such higher commissions, FMR must determine in good
faith that such commissions are reasonable in relation to the value of the
brokerage and research services provided by such executing broker-dealers
viewed in terms of a particular transaction or FMR's overall
responsibilities to a Portfolio and its other clients. In reaching this
determination, FMR will not attempt to place a specific dollar value on the
brokerage and research services provided or to determine what portion of
the compensation should be related to those services.
FMR is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided assistance
in the distribution of shares of each Portfolio or shares of other Fidelity
funds to the extent permitted by law. FMR may use research services
provided by and place agency transactions with Fidelity Brokerage Services,
Inc. (FBSI) and Fidelity Brokerage Services, Ltd. (FBSL), subsidiaries of
FMR Corp., if the commissions are fair, reasonable, and comparable to
commissions charged by non-affiliated, qualified brokerage firms for
similar services. Prior to September 4, 1992, FBSL operated under the name
Fidelity Portfolio Services, Ltd. (FPSL) as a wholly owned subsidiary of
Fidelity International Limited (FIL). Edward C. Johnson 3d is Chairman of
FIL. Mr. Johnson 3d, together with various trusts for the benefit of
Johnson family members, owns directly or indirectly more than 25% of the
voting common stock of FIL.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members of
national securities exchanges from executing exchange transactions for
accounts which they or their affiliates manage, except in accordance with
regulations of the SEC. Pursuant to such regulations, the Board of
Trustees has approved a written agreement which permits FBSI to effect
portfolio transactions on national securities exchanges and to retain
compensation in connection with such transactions.
The Trustees periodically review FMR's performance of its responsibilities
in connection with the placement of portfolio transactions on behalf of
each Portfolio and review the commissions, if any paid by the Portfolios
over representative periods of time to determine if they are reasonable in
relation to the benefits to the Portfolios.
Because a high turnover rate increases brokerage costs, FMR carefully
weighs the added costs of short-term investment against anticipated gain.
For fiscal year ended December 31, each Portfolio had the following
turnover rates:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT
HIGH INCOME EQUITY-INCOME GROWTH OVERSEAS GRADE BOND ASSET MANAGER INDEX 500

1993 % % % % % % %

1992 160 74 262 61 119 92 N/A

</TABLE>

BROKERAGE COMMISSIONS. The chart below lists the percentage of the
brokerage commissions paid to brokerage firms which provided research
services; the total brokerage commissions paid; the commissions paid to
FBSI and FPSL 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, 1992, 1991 and 1990 for each of the Portfolios.
Of the commissions paid to brokerage firms which provided research
services, the providing of such services was not necessarily a factor in
the placement of all this business with such firms. The Portfolios pay
both commissions and spreads in connection with the placement of portfolio
transactions. The difference in the percentage of brokerage commissions
paid to, and the percentage of the dollar amount of transactions effected
through FBSI and FPSL, is a result of the low commission rates charged by
FBSI and FPSL.
HIGH INCOME PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% Paid to Transaction Transaction
Firms s s

Period Providing To To % to through through

Ended TOTAL Research FBSI FPSL % to FBSI FPSL FBSI FPSL

</TABLE>

1993 $ % $ -- % -- % --

1992 9,568 100 7 -- 0.1 -- 0.1 --

1991 6,211 74 -- -- -- -- -- --

EQUITY-INCOME PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% Paid to Transaction Transaction
Firms s s

Period Providing To To % to through through

Ended TOTAL Research FBSI FPSL % to FBSI FPSL FBSI FPSL

</TABLE>

1993 $ % $ -- % -- % --

1992 752,271 65 263,440 -- 35 -- 46 --

1991 462,428 55 167,858 -- 36 -- 45 --

GROWTH PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% Paid to Transaction Transaction
Firms s s

Period Providing To To % to through through

Ended TOTAL Research FBSI FPSL % to FBSI FPSL FBSI FPSL

</TABLE>

1993 $ % $ -- % -- % --

1992 2,073,624 59 599,019 -- 29 -- 37 --

1991 1,005,493 54 344,150 -- 34 -- 44 --

OVERSEAS PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% Paid to Transaction Transaction
Firms s s

Period Providing To To % to through through

Ended TOTAL Research FBSI FPSL % to FBSI FPSL FBSI FPSL

</TABLE>

1993 $ % $ -- % -- % --

1992 602,862 85 -- 4,314 -- 0.7 -- 1.4

1991 710,018 91 -- 8,816 -- 1.0 -- 2.0

ASSET MANAGER PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% Paid to Transaction Transaction
Firms s s

Period Providing To To % to through through

Ended TOTAL Research FBSI FPSL % to FBSI FPSL FBSI FPSL

</TABLE>

1993 $ % $ -- % -- % --

1992 544,613 68 100,724 179 19 -- 28 --

1991 143,076 57 44,048 -- 31 -- 45 --

INDEX 500 PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% Paid to Transaction Transaction
Firms s s

Period Providing To To % to through through

Ended TOTAL Research FBSI FPSL % to FBSI FPSL FBSI FPSL

</TABLE>

1993 $ % $ -- % -- % --

1992 5,980 -- 112 -- 2 -- 2 --

________
From time to time each Trust's Trustees will review whether the recapture
for the benefit of the Portfolios of some portion of the brokerage
commissions or similar fees paid by the Portfolios on portfolio
transactions is legally permissible and advisable. The Portfolios seek to
recapture soliciting broker-dealer fees on the tender of portfolio
securities, but at present no other recapture arrangements are in effect.
The Trustees intend to continue to review whether recapture opportunities
are available and are legally permissible and, if so, to determine in the
exercise of their business judgment whether it would be advisable for the
Portfolios to seek such recapture.
Although each Trust's Trustees and officers are substantially the same as
those of other funds managed by FMR, investment decisions for the
Portfolios are made independently from those of other funds managed by FMR
or accounts managed by FMR affiliates. It sometimes happens that the same
security is held in the portfolio of more than one of these funds or
accounts. Simultaneous transactions are inevitable when several funds are
managed by the same investment advisor, particularly when the same security
is suitable for the investment objective of more than one fund.
When two or more funds, or portfolios, are simultaneously engaged in the
purchase or sale of the same security, the prices and amounts are allocated
in accordance with a formula considered by the officers of the funds
involved to be equitable to each fund or portfolio. In some cases this
system could have a detrimental effect on the price or volume of the
security as far as the Portfolios are concerned. In other cases, however,
the ability of the fund or portfolio to participate in volume transactions
will produce better executions and prices for the Portfolios. It is the
current opinion of the Trustees that the desirability of retaining FMR as
investment advisor to the Portfolios outweighs any disadvantages that may
be said to exist from exposure to simultaneous transactions.
VALUATION OF PORTFOLIO SECURITIES
MONEY MARKET PORTFOLIO
Like most money market funds, the Portfolio values its investments on the
basis of amortized cost. This technique involves initially valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the market value of the
instrument. The amortized-cost value of an instrument may be higher or
lower than the price the Portfolio would receive if it sold the instrument.
During periods of declining interest rates, the Portfolio's yield based on
amortized cost may be higher than a yield based on market prices and
estimates of market prices. Under these circumstances, a new investor in
the Portfolio would be able to obtain a somewhat higher yield than would
result from investment in a fund solely utilizing market quotations to
determine its NAV, and existing shareholders would receive less investment
income. The converse would apply in a period of rising interest rates.
Valuating the Portfolio's instruments on the basis of amortized cost and
maintaining its NAV at $1.00 is permitted in accordance with Rule 2a-7
under the 1940 Act.
The Board of Trustees of the Portfolio oversees FMR's adherence to SEC
rules concerning money market funds, and has established procedures
designed to stabilize the Portfolio's NAV calculated on the basis of
amortized cost. At such intervals as they deem appropriate, the Trustees
review reports used to determine whether NAV calculated by using available
market quotations would deviate from $1.00. If such a deviation would
result in material dilution or otherwise would be unfair to shareholders,
the Trustees have agreed to take such corrective action, if any, as they
deem necessary and appropriate. This may include selling portfolio
instruments prior to maturity to realize capital gains or losses or to
shorten average portfolio maturity, withholding dividends, redeeming shares
in kind, or establishing NAV by using available market quotations.
HIGH INCOME AND INVESTMENT GRADE BOND PORTFOLIOS
Securities and other assets for which market quotations are readily
available are valued at market values determined by their most recent bid
prices (sales prices if the principal market is an exchange) in the
principal market in which such securities normally are traded. Securities
and other assets for which market quotations are not readily available
(including restricted securities, if any) are appraised at their fair value
as determined in good faith under consistently applied procedures under the
general supervision of the Board of Trustees.
Securities may also be valued on the basis of valuations furnished by a
pricing service that uses both dealer-supplied valuations and evaluations
based on expert analysis of market data and other factors if such
valuations are believed to reflect more accurately the fair value of such
securities. Use of a pricing service has been approved by the Board of
Trustees. There are a number of pricing services available, and the
Trustees, or officers acting on behalf of the Trustees, on the basis of
ongoing evaluation of these pricing services, may use other pricing
services or may discontinue the use of any pricing service in whole or in
part.
Securities not valued by the pricing service, and for which quotations are
readily available, are valued at market values determined on the basis of
their latest available bid prices as furnished by recognized dealers in
such securities.
EQUITY-INCOME, GROWTH, ASSET MANAGER, INDEX 500 AND OVERSEAS PORTFOLIOS
Portfolio securities are valued by various methods depending on the primary
market or exchange on which they trade. Equity securities for which the
primary market is the U.S. are valued at last sale price or, if no sale has
occurred, at the closing bid price. Equity securities for which the
primary market is outside the U.S. are valued using the official closing
price or the last sale price in the principal market where they are traded.
If the last sale price (on the local exchange) is unavailable, the last
evaluated quote or last bid price is normally used. Short-term securities
are valued either at amortized cost or at original cost plus accrued
interest, both of which approximate current value. fixed-income securities
are valued primarily by a pricing service that uses a vendor security
valuation matrix which incorporates both dealer-supplied valuations and
electronic data processing techniques. This twofold approach is believed
to more accurately reflect fair value because it takes into account
appropriate factors such as institutional trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics, and other market data, without exclusive reliance upon
quoted, exchange, or over-the counter prices. Use of pricing services has
been approved by the Board of Trustees.
Securities and other assets for which there is no readily available market
are valued in good faith by a committee appointed by the Board of Trustees.
The procedures set forth above need not be used to determine the value of
the securities owned by the fund if, in the opinion of a committee
appointed by the Board of Trustees, some other method (e.g., closing
over-the-counter bid prices in the case of debt instruments traded on an
exchange) would more accurately reflect the fair market value of such
securities.
Generally, the valuation of foreign and domestic equity securities, as well
as corporate bonds, U.S. government securities, money market instruments,
and repurchase agreements, is substantially completed each day at the close
of the NYSE. The values of any such securities held by the fund are
determined as of such time for the purpose of computing the fund's net
asset value. Foreign security prices are furnished by independent brokers
or quotation services which express the value of securities in their local
currency. FSC gathers all exchange rates daily at the close of the NYSE
using the last quoted price on the local currency and then translates the
value of foreign securities from their local currency into U.S. dollars.
Any changes in the value of forward contracts due to exchange rate
fluctuations and days to maturity are included in the calculation of net
asset value. If an extraordinary event that is expected to materially
affect the value of a portfolio security occurs after the close of an
exchange on which that security is traded, then the security will be valued
as determined in good faith by a committee appointed by the Board of
Trustees.
PERFORMANCE
The Portfolios may quote their performance in various ways. All
performance information supplied by the Portfolios in advertising is
historical and is not intended to indicate future returns. The Portfolios'
share prices, yields and total returns fluctuate in response to market
conditions and other factors, and the value of Portfolio shares when
redeemed may be more or less than their original cost.
YIELD CALCULATIONS. Yields (except for Money Market Portfolio) for the
Portfolios used in advertising are computed by dividing a Portfolio's
interest and dividend income for a given 30-day or one month period, net of
expenses, by the average number of shares entitled to receive dividends
during the period, dividing this figure by the Portfolio's NAV per share at
the end of the period and annualizing the result (assuming compounding of
income) in order to arrive at an annual percentage rate. Income is
calculated for purposes of yield quotations in accordance with standardized
methods applicable to all stock and bond funds. Dividends from equity
investments are treated as if they were accrued on a daily basis, solely
for the purposes of yield calculations. In general, interest income is
reduced with respect to bonds trading at a premium over their par value by
subtracting a portion of the premium from income on a daily basis, and is
increased with respect to bonds trading at a discount by adding a portion
of the discount to daily income. Capital gains and losses generally are
excluded from the calculation.
Income calculated for the purpose of determining the Portfolios' yields
differs from income as determined for other accounting purposes. Because
of the different accounting methods used, and because of the compounding
assumed in yield calculations, the yields quoted for the Portfolios may
differ from the income the Portfolios paid over the same period or the rate
of income reported in the Portfolios' financial statements.
In computing the current yield for the Money Market Portfolio for a 7-day
period, the net change in value of a hypothetical account containing one
share exclusive of capital gains reflects the value of additional shares
purchased with dividends from the one original share and dividends declared
on both the original share and any additional shares. The net change is
then divided by the value of the account at the beginning of the period to
obtain a base period return. This base period return is annualized to
obtain a current annualized yield. The Money Market Portfolio may also
calculate an effective yield by annualizing the base period return through
daily compounding. In addition to the current yield, the Portfolio may
quote yields in advertising based on any historical seven-day period(s).
Yield information may be useful in reviewing Money Market Portfolio's
performance and for providing a basis for comparison with other investment
alternatives. However, yields fluctuate, unlike investments which pay a
fixed interest rate for a stated period of time. Yields for the Money
Market Portfolio are calculated on the same basis as other money market
Portfolios as required by applicable regulations. Investors should give
consideration to the quality and maturity of the portfolio securities of
the respective investment companies they have chosen to consider when
comparing investment alternatives. In addition, investors should recognize
that the fees associated with the separate account are not reflected in the
yield quotation.
Should Money Market Portfolio incur or anticipate any unusual expense, or
loss or depreciation which would adversely affect its NAV per share or
income for a particular period, the Trustees would at that time consider
whether to adhere to the present dividend policy above or to revise it in
light of the then prevailing circumstances. For example, if the
Portfolio's NAV per share was reduced or was anticipated to be reduced
below $1.00, the Trustees may suspend further dividend payments until the
NAV returned to $1.00. Thus, such expenses, losses or depreciation may
result in a redemption price per share lower than that which was paid.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of each Portfolio's return, including the effect of reinvesting
dividends and capital gain distributions, and any change in each
Portfolio's NAV over the period. Average annual returns are calculated by
determining the growth or decline in value of a hypothetical historical
investment in each Portfolio over a stated period, and then calculating the
annually compounded percentage rate that would have produced the same
result if the rate of growth or decline in value had been constant over the
period. For example, a cumulative return of 100% over ten years would
produce an average annual return of 7.18%, which is the steady annual rate
that would equal 100% growth on a compounded basis in ten years. While
average annual returns are a convenient means of comparing investment
alternatives, investors should realize that each Portfolio's performance is
not constant over time, but changes from year to year, and that average
annual returns represent averaged figures as opposed to the actual
year-to-year performance of each Portfolio.
In addition to average annual returns, the Portfolios may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, and/or a
series of redemptions, over any time period. Total returns may be broken
down into their components of income and capital (including capital gains
and changes in share price) in order to illustrate the relationship of
these factors and their contributions to total return. An example of this
type of illustration is given below. Total returns, yields and other
performance information may be quoted numerically or in a table, graph, or
similar illustration.
NET ASSET VALUE. Charts and graphs using a Portfolio's net asset values or
an insurance company's sub-account unit values, adjusted net asset values,
and benchmark indices may be used to exhibit performance. An adjusted NAV
includes any distributions paid by a Portfolio and reflects all elements of
its return. Unless otherwise indicated, a Portfolio's adjusted NAVs (or an
insurance company's sub-account unit values) are not adjusted for sales
charges, if any.
MOVING AVERAGES. A Portfolio may illustrate performance using moving
averages. A long-term moving average is the average of each week's
adjusted closing NAV for a specified period. A short-term moving average
is the average of each day's adjusted closing NAV for a specified period.
Moving Average Activity Indicators combine adjusted closing NAVs from the
last business day of each week with moving averages for a specified period
to produce indicators showing when an NAV has crossed, stayed above, or
stayed below its moving average. On ________,1994, the 13-week and 39-week
long-term moving averages were ___ and ___, for Equity-Income Portfolio,
___ and ___, for Growth Portfolio, ___ and ___, for Overseas Portfolio, ___
and ___, for Asset Manager Portfolio, and __ and __ for Index 500
Portfolio, respectively.
HISTORICAL PORTFOLIO RESULTS. The following chart shows each Portfolio's
total returns and High Income Portfolio's 30-day yield for the period(s)
ended 12/31/93. Performance is net of each Portfolio's expenses, but does
not include charges and expenses attributable to an insurance company's
separate account. If these charges were included, the returns would be
lower.
Average Annual Total Returns Cumulative Total Returns

30 Day One Five Ten Life of* Life of*

Yield Year Year Year Fund Fund

Money Market Portfolio N.A. % % % % %

High Income Portfolio % % % N.A. % %

Equity-Income Portfolio N.A. % % N.A. % %

Growth Portfolio N.A. % % N.A. % %

Overseas Portfolio N.A. % % N.A. % %

Investment Grade Bond N.A. % % N.A. % %
Portfolio

Asset Manager Portfolio N.A. % % N.A. % %

Index 500 Portfolio N.A. % % N.A. % %

* Money Market Portfolio commenced operations April 1, 1982; High Income
Portfolio commenced operations September 19, 1985; Equity-Income and Growth
Portfolios commenced operations October 9, 1986; Overseas Portfolio
commenced operations January 28, 1987;Investment Grade Bond Portfolio
commenced operations December 5, 1988; Asset Manager Portfolio commenced
operations September 6, 1989 and Index 500 Portfolio commenced operations
August 27, 1992. If FMR had not reimbursed certain Portfolio expenses
during these periods, the total returns would have been lower.
The following charts show the income and capital elements of each
Portfolio's total return from the date it commenced operations through the
period ending December 31, 1992. The charts compare the Portfolios'
returns to the record of the Standard & Poor's 500 Composite Stock
Price Index (S&P), the Dow Jones Industrial Average (DJIA), the cost of
living (measured by the Consumer Price Index, or CPI) over the same period,
and (for Asset Manager Portfolio) a benchmark "Fidelity Composite Index"
(created by FMR), over the same period. The Fidelity Composite Index is a
hypothetical historical representation which simulates Asset Manager
Portfolio's neutral mix (20% money market instruments, 40% bonds, and 40%
stocks) by combining the following indices based on their weighting in the
neutral mix: the Salomon Brothers 3-month T-Bill Total Rate of Return
Index, representing the average of T-Bill rates for each of the prior three
months, adjusted to a bond equivalent yield basis (money market); the
Lehman Brothers Treasury Bond Index, a widely utilized benchmark of bond
market performance which includes virtually all long-term public
obligations of the U.S. Treasury (bonds); and the S&P 500 (a registered
trademark of Standard & Poor's Corporation), which represents common
stock prices (stocks).
The comparison to the S&P shows how the Portfolios' total returns
compared to the record of a broad average of common stock prices, and the
comparison to the DJIA shows how the Portfolios' total returns compared to
the record of a narrower set of stocks of major industrial companies. Each
Portfolio has the ability to invest in securities not included in either
index, and its investment portfolio may or may not be similar in
composition to the indices. The S&P and DJIA comparisons for
Investment Grade Bond and High Income Portfolios are provided to show how
each Portfolio's return compared to the return of common stocks over the
same period. Of course, since Investment Grade Bond and High Income
Portfolios invest in fixed-income securities, common stocks represent a
different type of investment from the Portfolio. The indices do not
include fixed-income securities. In general, common stocks generally offer
greater potential growth a bond fund, but generally are more volatile in
value and may offer greater potential for loss. In addition, common stocks
generally provide lower income than a mutual fund, like which focuses on
fixed-income securities. The S&P, DJIA and The Fidelity Composite
Index are based on the prices of unmanaged groups of stocks and, unlike the
Portfolios' returns, their returns do not include the effect of paying
brokerage commissions and other costs of investing.
MONEY MARKET PORTFOLIO: During the period from December 31, 1982 to
December 31, 1993, a hypothetical $10,000 investment in the Portfolio would
have grown to $______, assuming all distributions were reinvested. This
was a period of widely fluctuating interest rates and should not
necessarily be considered a representation of the income or capital gain or
loss that could be realized from an investment in the Portfolio today.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Value of Value of INDEX
Value of Reinvested Reinvested
Period Initial $10,000 Dividend Capital Gain Cost of
Ended Investment Distributions Distributions Total Value Living**

12/31/93 $0

12/31/92 $10,000 $10,654 0 $20,654 $14,539

12/31/91 $10,000 9,879 0 19,879 14,129

12/31/90 $10,000 8,738 0 18,738 13,709

12/31/89 $10,000 7,344 0 17,344 12,920

12/31/88 $10,000 5,895 0 15,895 12,346

12/31/87 $10,000 4,801 0 14,801 11,824

12/31/86 $10,000 3,906 0 13,906 11,322

12/31/85 $10,000 3,033 0 13,033 11,199

12/31/84 $10,000 2,055 0 12,055 10,789

12/31/83 $10,000 916 0 10,916 10,379

12/31/82 $10,000 0 0 10,000 10,000

</TABLE>

Explanatory Notes: With an initial investment of $10,000 made on December
31, 1982, the net amount invested in shares of the Portfolio was $10,000.
The cost of the initial investment ($10,000), together with the aggregate
cost of reinvested dividends for the period covered (that is, their cash
value at the time they were reinvested), amounted to $_____. If
distributions had not been reinvested, the amount of distributions earned
from the Portfolio over time would have been smaller and the cash payments
(dividends) for the period would have amounted to $_____. There were no
capital gain distributions during this period. The Portfolio's annualized
net yield for the seven days ending December 31, 1993 was ____% and the
compound effective yield was ____%. The Portfolio's yield will fluctuate
daily. Tax consequences of different investments have not been factored
into the above figures.
HIGH INCOME PORTFOLIO: During the period from September 19, 1985 to
December 31, 1993, a hypothetical $10,000 investment in the Portfolio would
have grown to $_____, assuming all distributions were reinvested. This was
a period of widely fluctuating interest rates and bond prices and should
not necessarily be considered a representation of the income or capital
gain or loss that could be realized from an investment in the Portfolio
today.
INDICES

12/31/93

12/31/92 $10,820 $11,057 $172 $22,049 $30,702 $32,661 $13,102

12/31/91 9,550 8,200 152 17,902 28,522 30,440 12,733

12/31/90 7,070 6,070 112 13,253 21,859 24,481 12,355

12/31/89 8,110 5,317 129 13,556 22,562 24,613 11,644

12/31/88 9,660 4,332 154 14,146 17,133 18,680 11,127

12/31/87 9,680 2,837 154 12,671 14,693 16,114 10,656

12/31/86 10,830 1,689 0 12,519 13,958 15,284 10,203

12/31/85* 10,310 328 0 10,638 11,761 12,031 10,092

</TABLE>

* From September 19, 1985 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on September
19, 1985, the net amount invested in shares of the Portfolio was $10,000.
The cost of the initial investment ($10,000), together with the aggregate
cost of reinvested distributions for the period covered (that is, their
cash value at the time they were reinvested), amounted to $_____. If
distributions had not been reinvested, the amount of distributions earned
from the Portfolio over time would have been smaller and the cash payments
for the period would have amounted to $_____ for income dividends and $____
for capital gain distributions. Tax consequences of different investments
have not been factored into the above figures.
EQUITY-INCOME PORTFOLIO: During the period from October 9, 1986 to
December 31, 1993, a hypothetical $10,000 investment in the Portfolio would
have grown to $_____, assuming all distributions were reinvested. This was
a period of widely fluctuating stock and bond prices and should not
necessarily be considered a representation of the income or capital gain or
loss that could be realized from an investment in the Portfolio today.
INDICES

12/31/93

12/31/92 $13,400 $4,304 $861 $18,565 $22,680 $22,644 $12,877

12/31/91 11,850 3,272 761 15,883 21,070 21,104 12,514

12/31/90 9,510 1,963 611 12,084 16,147 16,972 12,142

12/31/89 12,290 1,682 293 14,265 16,667 17,064 11,443

12/31/88 11,010 979 167 12,156 12,657 12,951 10,935

12/31/87 9,420 343 143 9,907 10,854 11,172 10,472

12/31/86* 10,020 0 0 10,020 10,311 10,596 10,027

</TABLE>

* From October 9, 1986 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on October
9, 1986, the net amount invested in shares of the Portfolio was $10,000.
The cost of the initial investment ($10,000), together with the aggregate
cost of reinvested distributions for the period covered (that is, their
cash value at the time they were reinvested), amounted to $_____. If
distributions had not been reinvested, the amount of distributions earned
from the Portfolio over time would have been smaller and the cash payments
for the period would have amounted to $_____ for income dividends and $___
for capital gain distributions. If FMR had not reimbursed certain fund
expenses during the period shown above, the Portfolio's returns would have
been lower. Tax consequences of different investments have not been
factored into the above figures.
GROWTH PORTFOLIO: During the period from October 9, 1986 to December 31,
1993, a hypothetical $10,000 investment in the Portfolio would have grown
to $_____, assuming all distributions were reinvested. This was a period
of widely fluctuating stock prices and should not necessarily be considered
a representation of the income or capital gain or loss that could be
realized from an investment in the Portfolio today.
INDICES

12/31/93 $

12/31/92 $19,760 $1,202 $1,230 $22,192 $22,680 $22,644 $12,877

12/31/91 18,510 1,075 715 20,300 21,070 21,104 12,514

12/31/90 12,910 542 499 13,950 16,147 16,972 12,142

12/31/89 15,180 400 225 15,805 16,667 17,064 11,443

12/31/88 11,720 124 174 12,018 12,657 12,951 10,935

12/31/87 10,140 107 150 10,398 10,854 11,172 10,472

12/31/86* 10,030 0 0 10,030 10,311 10,956 10,027

</TABLE>

* From October 9, 1986 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on October
9, 1986, the net amount invested in shares of the Portfolio was $10,000.
The cost of the initial investment ($10,000), together with the aggregate
cost of reinvested distributions for the period covered (that is, their
cash value at the time they were reinvested), amounted to $_____. If
distributions had not been reinvested, the amount of distributions earned
from the Portfolio over time would have been smaller and the cash payments
for the period would have amounted to $____ for income dividends and $____
for capital gain distributions. If FMR had not reimbursed certain fund
expenses during the period shown above, the Portfolio's returns would have
been lower. Tax consequences of different investments have not been
factored into the above figures.
OVERSEAS PORTFOLIO: During the period from January 28, 1987 to December
31, 1993, a hypothetical $10,000 investment in the Portfolio would have
grown to $_____, assuming all distributions were reinvested. This was a
period of widely fluctuating stock prices and should not necessarily be
considered a representation of the income or capital gain or loss that
could be realized from an investment in the Portfolio today.
INDICES

12/31/93

12/31/92 $11,530 $720 $0 $12,250 $19,414 $18,801 $12,761

12/31/91 13,090 631 0 13,721 18,036 17,522 12,401

12/31/90 12,420 285 0 12,705 13,822 14,092 12,032

12/31/89 12,670 250 0 12,920 14,267 14,168 11,340

12/31/88 10,110 121 0 10,231 10,834 10,753 10,836

12/31/87* 9,350 112 0 9,462 9,291 9,276 10,378

</TABLE>

* From January 28, 1987 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on January
28, 1987, the net amount invested in shares of the Portfolio was $10,000.
The cost of the initial investment ($10,000), together with the aggregate
cost of reinvested dividends for the period covered (that is, their cash
value at the time they were reinvested), amounted to $_____. If
distributions had not been reinvested, the amount of distributions earned
from the Portfolio over time would have been smaller and the cash payments
for the period would have amounted to $____ for income dividends. There
were no capital gain distributions during this period. If FMR had not
reimbursed certain fund expenses during the period shown above, the
Portfolio's returns would have been lower. Tax consequences of different
investments have not been factored into the above figures.
INVESTMENT GRADE BOND PORTFOLIO: During the period from December 5, 1988
to December 31, 1993, a hypothetical $10,000 investment in the Portfolio
would have grown to $_____, assuming all distributions were reinvested.
This was a period of widely fluctuating interest rates and bond prices and
should not necessarily be considered a representation of the income or
capital gain or loss that could be realized from an investment in the
Portfolio today.
INDICES

12/31/93

12/31/92 $10,970 $3,419 $223 $14,611 $18,353 $18,170 $11,796

12/31/91 11,080 2,596 24 13,700 17,050 16,934 11,463

12/31/90 9,920 1,831 21 11,772 13,067 13,619 11,122

12/31/89 10,140 922 22 11,083 13,487 13,692 10,482

12/31/88* 10,000 52 0 10,052 10,242 10,392 10,017

</TABLE>

12/31/93

12/31/92 $13,320 $1,004 $406 $14,730 $13,783 $13,470 $11,388 $13,507

12/31/91 12,550 610 25 13,185 12,804 12,554 11,067 12,654

12/31/90 10,240 498 21 10,758 9,813 10,096 10,738 10,819

12/31/89* 9,970 91 20 10,081 10,128 10,151 10,120 10,302

</TABLE>

12/31/93

12/31/92* $10,520 $95 $16 $10,631 $10,648 $10,275 $10,071

</TABLE>

* From August 27, 1992 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on August
27, 1992, the net amount invested in shares of the Portfolio was $10,000.
The cost of the initial investment ($10,000), together with the aggregate
cost of reinvested distributions for the period covered (that is, their
cash value at the time they were reinvested), amounted to $_____. If
distributions had not been reinvested, the amount of distributions earned
from the Portfolio over time would have been smaller and the cash payments
for the period would have amounted to $___ for income dividends and $___
for capital gain distributions. If FMR had not reimbursed expenses during
the period shown above, the Portfolio's returns would have been lower. Tax
consequences of different investments have not been factored into the above
figures.
A yield for the S&P 500 is calculated by dividing the dollar value of
dividends paid by the S&P stocks during the period by the average
monthly value of the S&P over the period. The S&P yield is
calculated differently from the Portfolio's yield; among other things, the
Portfolio's yield calculation treats dividends as accrued in anticipation
of payment, rather than recording them when paid, and uses an ending price
rather than an average price as the basis of the percentage calculation.
The Portfolios are only available for purchase through variable annuity or
variable life insurance contracts offering deferral of income taxes on
earnings, which may produce superior after-tax returns over time. For
example, a $1,000 investment earning a taxable return of 10% annually would
have an after-tax value of $1,949 after ten years, assuming tax was
deducted from the return each year at a 31% rate. An equivalent
tax-deferred investment would have an after-tax value of $2,100 after 10
years, assuming tax was deducted at the 31% rate from the deferred earnings
at the end of the ten year period. Individuals holding shares of the
Portfolios through a variable annuity or variable life insurance contract
may receive additional tax benefits from the deferral of income taxes
associated with variable contracts. Individuals should consult their tax
advisors to determine the effect of holding variable contracts on their
individual tax situations.
YIELDS AND TOTAL RETURNS QUOTED FOR A PORTFOLIO INCLUDE THE EFFECT OF
DEDUCTING THE PORTFOLIO'S EXPENSES, BUT MAY NOT INCLUDE CHARGES AND
EXPENSES ATTRIBUTABLE TO ANY PARTICULAR INSURANCE PRODUCT. SINCE YOU CAN
ONLY PURCHASE SHARES OF A PORTFOLIO THROUGH A VARIABLE ANNUITY AND/OR A
VARIABLE LIFE INSURANCE CONTRACT, YOU SHOULD CAREFULLY REVIEW THE
PROSPECTUS OF THE INSURANCE PRODUCT YOU HAVE CHOSEN FOR INFORMATION ON
RELEVANT CHARGES AND EXPENSES. Excluding these charges from quotations of
a Portfolio's performance has the effect of increasing the performance
quoted.
GENERAL INFORMATION
A Portfolio's performance may be compared to the performance of other
mutual funds in general, or to the performance of particular types of
mutual funds. These comparisons may be expressed as mutual fund rankings
prepared by Lipper Analytical Services, Inc. (Lipper), an independent
service located in Summit, New Jersey that monitors the performance of
mutual funds. Lipper generally ranks funds on the basis of total return,
assuming reinvestment of distributions, but does not take sales charges or
redemption fees into consideration, and is prepared without regard to tax
consequences. Lipper may also rank funds based on yield. In addition to
the mutual fund rankings, a Portfolio's performance may be compared to
mutual fund performance indices prepared by Lipper. High Income Portfolio
may compare its performance to the Salomon Brothers High Yield Composite
Index, an index of high-yielding utility and corporate bonds with a minimum
maturity of seven years and with total debt outstanding of at least $50
million. Issues included in the index are rated Baa or lower by Moody's
Investors Service or BBB or lower by Standard & Poor's Corporation.
Overseas Portfolio may quote its performance in advertising and other types
of literature as compared to the performance of the Morgan Stanley Capital
International EAFE Index, an unmanaged index of over 820 foreign common
stocks. Investment Grade Bond Portfolio may compare its performance to the
Shearson Lehman Brothers Inc. Government/Corporate Intermediate Bond index.
Asset Manager may compare its performance against the Fidelity Composite
Index. Each Portfolio may also compare its performance against the
Consumer Price Index (CPI) and the funds in Lipper Annuity & Closed-End
Survey (LACES). LACES consists of periodic reports that track the
performance of closed-end mutual funds and variable annuities at the
separate account level. A Portfolio will compare itself only to annuities,
not to closed-end funds in LACES.Index 500 Portfolio may quote its
performance in advertising and other types of literature as compared to the
performance of the S&P 500, (a registered trademark of Standard &
Poor's Corporation). The S&P 500 is an unmanaged index of common stock
prices.The performance of the S&P 500 Index is based on changes in the
prices of stocks composing the Index and assumes the reinvestment of all
dividends paid on such stocks. Taxes, brokerage commissions and other fees
are disregarded in computing the level of the S&P 500 Index. Each
Portfolio may also compare its performance against the Consumer Price Index
(CPI) and the funds in Lipper Annuity & Closed-End Survey (LACES).
LACES consists of periodic reports that track the performance of closed-end
mutual funds and variable annuities at the separate account level. A
Portfolio will compare itself only to annuities, not to closed-end funds in
LACES.
From time to time, a Portfolio's performance may also be compared to other
mutual funds tracked by financial or business publications and periodicals.
For example, a Portfolio may quote Morningstar, Inc. in its advertising
materials. Morningstar, Inc. is a mutual fund rating service that rates
mutual funds on the basis of risk-adjusted performance. Rankings that
compare the performance of Fidelity funds to one another in appropriate
categories over specific periods of time may also be quoted in advertising.
Fidelity may provide information designed to help individuals understand
their investment goals and explore various financial strategies. For
example, Fidelity's FundMatchsm Program includes a workbook describing
general principles of investing, such as asset allocation, diversification,
risk tolerance, and goal setting; a questionnaire designed to help create a
personal financial profile; and an action plan offering investment
alternatives. Materials may also include discussions of Fidelity's three
asset allocation funds and other Fidelity funds, products, and services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical
returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury
bills, the U.S. rate of inflation (based on the CPI), and combinations of
various capital markets. The performance of these capital markets is based
on the returns of different indices.
Fidelity funds may use the performance of these capital markets in order to
demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any
of these capital markets. The risks associated with the security types in
any capital market may or may not correspond directly to those of the
funds. Ibbotson calculates total returns in the same method as the funds.
The funds may also compare performance to that of other compilations or
indices that may be developed and made available in the future.
Money Market, High Income and Investment Grade Bond Portfolios each may
compare its performance or the performance of securities in which it may
invest to averages published by IBC USA (Publications), Inc. of Ashland,
Massachusetts. These averages assume reinvestment of distributions. The
IBC/Donoghue's MONEY FUND AVERAGES(REGISTERED TRADEMARK)/taxable money
market funds, which is reported in the MONEY FUND REPORT(REGISTERED
TRADEMARK), covers money market funds. The Bond Fund Report
AverageS(REGISTERED TRADEMARK)/taxable bond funds, which is reported in the
BOND FUND REPORT(REGISTERED TRADEMARK), covers bond funds. When evaluating
comparisons to money market funds, investors should consider the relevant
differences in investment objectives and policies. Specifically, money
market funds invest in short-term, high-quality instruments and seek to
maintain a stable $1.00 share price. Bond funds however, typically invest
in longer-term instruments and their share price changes daily in response
to a variety of factors.
In advertising materials, Fidelity may reference or discuss its products
and services, which may include: other Fidelity funds and insurance
products; retirement investing; brokerage products and services; the
effects of periodic investment plans and dollar cost averaging; saving for
college; charitable giving; and the Fidelity credit card. In addition,
Fidelity may quote financial or business publications and periodicals,
including model portfolios or allocations, as they relate to fund
management, investment philosophy, and investment techniques. Fidelity may
also reprint, and use as advertising and sales literature, articles from
Fidelity Focus, a quarterly magazine provided free of charge to Fidelity
fund shareholders.
Each Portfolio may present its fund number, Quotron(REGISTERED TRADEMARK)
number, and CUSIP number, and discuss or quote its current portfolio
manager.
VOLATILITY. A Portfolio may quote various measures of volatility and
benchmark correlation in advertising. In addition, a Portfolio may compare
these measures to those of other funds. Measures of volatility seek to
compare a Portfolio's historical share price fluctuations or total returns
to those of a benchmark. Measures of benchmark correlation indicate how
valid a comparative benchmark may be. All measures of volatility and
correlation are calculated using averages of historical data.
MOMENTUM INDICATORS indicate a Portfolio's price movements over specific
periods of time. Each point on the momentum indicator represents a
Portfolio's percentage change in price movements over that period.
The Portfolios may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a
program, a policyowner invests a fixed dollar amount in an insurance
company's sub-account at periodic intervals which in turn invests in a
Portfolio, thereby purchasing fewer units when prices are high and more
units when prices are low. While such a strategy does not assure a profit
nor guard against loss in a declining market, the policyowner's average
cost per unit can be lower than if fixed numbers of units had been
purchased at those intervals. In evaluating such a plan, policyowners
should consider their ability to continue purchasing units through periods
of low price levels.
Each Portfolio has an investment objective similar to an existing Fidelity
retail fund. Money Market Portfolio is most similar to its corresponding
retail fund, Fidelity Cash Reserves. High Income Portfolio is most similar
to its corresponding retail fund, Spartan High Income Fund. Equity-Income
Portfolio is most similar to its corresponding retail fund, Fidelity
Equity-Income Fund. Growth Portfolio is most similar to its corresponding
retail fund, Fidelity Retirement Growth Fund. Overseas Portfolio is most
similar to its corresponding retail fund, Fidelity Overseas Fund.
Investment Grade Bond Portfolio is most similar to Fidelity Intermediate
Bond Fund; Asset Manager Portfolio is most similar to Fidelity Asset
Manager; and Index 500 Portfolio is most similar to Fidelity Market Index
Fund. Performance will differ between the Portfolios and their
corresponding retail funds due in part to differences in investment
policies and the effect of insurance charges.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each Portfolio (except for Money Market Portfolio) is open for business and
its NAV is calculated each day the New York Stock Exchange (NYSE) is open
for trading. The NYSE has designated the following holiday closings for
1994: President's Day, Good Friday, Memorial Day, Independence Day
(observed), Labor Day, Thanksgiving Day, and Christmas Day (observed).
Money Market Portfolio is open for business and its NAV is calculated each
day that both the Federal Reserve Bank of New York City (the New York City
Fed) and the New York Stock Exchange (NYSE) are open for trading. In
addition to the above holidays, the following holiday closings have been
scheduled for Money Market Portfolio for 1994: Dr. Martin Luther, King, Jr.
Day (observed), Columbus Day, and Veteran's Day. Although FMR expects the
same holiday schedule, with the addition of New Year's Day, to be observed
in the future, the New York City Fed or the NYSE may modify its holiday
schedule at any time. On any day that the New York City Fed or the NYSE
close early, as permitted by the SEC, or if in FMR's judgement, early
closing is deemed to be in the best interests of a Portfolio's
shareholders, the right is reserved to advance the time on that day by
which purchase and redemption orders must be received. To the extent that
each Portfolio's securities are traded in other markets on days when the
New York City Fed or the NYSE is closed, each Portfolio's NAV may be
affected on days when investors do not have access to each Portfolio to
purchase or redeem shares.
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are valued in
computing the NAV of each Portfolio. Shareholders receiving securities or
other property on redemption may realize a gain or loss for tax purposes,
and will incur any costs of sale, as well as the associated inconveniences.
TAXES
For a discussion of tax consequences of variable contracts, please refer to
your insurance company's separate account prospectus.
Variable contracts purchased through insurance company separate accounts
provide for the accumulation of all earnings from interest, dividends, and
capital appreciation without current federal income tax liability to the
owner. Depending on the variable contract, distributions from the contract
may be subject to ordinary income tax and a 10% penalty tax on
distributions before age 59 1/2. Only the portion of a distribution
attributable to income is subject to federal income tax. Investors should
consult with competent tax advisors for a more complete discussion of
possible tax consequences in a particular situation.
Section 817(h) of the Internal Revenue Code provides that the investments
of a separate account underlying a variable insurance contract (or the
investments of a mutual fund, the shares of which are owned by the variable
separate account) must be "adequately diversified" in order for the
contract to be treated as an annuity or life insurance for tax purposes.
The Treasury Department has issued regulations prescribing these
diversification requirements. Each Portfolio intends to comply with these
requirements.
Each Portfolio intends to qualify each year as a "regulated investment
company" for tax purposes, so that it will not be liable for federal tax on
income and capital gains distributed to shareholders. In order to qualify
as a regulated investment company and avoid being subject to federal income
or excise taxes, each Portfolio intends to distribute substantially all its
net taxable income and net realized capital gains within each calendar year
as well as on a fiscal year basis. The Portfolios also intend to comply
with other tax rules applicable to regulated investment companies including
a requirement that gross capital gains from selling securities held less
than three months must constitute less than 30% of the Portfolios' gross
income for each fiscal year. Income and capital gain distributions are
reinvested in additional shares of each Portfolio. This is done to
preserve the tax advantaged status of the variable contracts. Each
Portfolio is treated as a separate entity for tax purposes.
MONEY MARKET PORTFOLIO. This Portfolio may distribute any net realized
short-term gains once each year, or more frequently if necessary, in order
to maintain the Portfolio's NAV at $1.00 per share and to comply with tax
regulations.
As of December 31, 1993, Money Market Portfolio had an aggregate capital
loss carryover of approximately $______ arising from capital losses
realized in the past. This capital loss carryover may be used to offset
future capital gains realized by the Portfolio.
HIGH INCOME PORTFOLIO. Income from this Portfolio is primarily derived
from interest rather than dividends. As of December 31, 1993 High Income
Portfolio had ________.
EQUITY-INCOME. As of December 31, 1993, Equity-Income Portfolio had an
aggregate capital loss carryover of approximately $____________, which may
be used to offset future capital gains realized by the Portfolio.
OVERSEAS PORTFOLIO. If the Portfolio has paid withholding or other taxes
to foreign governments, the taxes will reduce the Portfolio's dividends.
Foreign tax withholding from dividends and interest (if any) is typically
at a rate between 10% and 35%. Shareholders will bear the cost of foreign
tax withholding, but generally not be able to claim a foreign tax credit or
deduction for foreign taxes paid by the Portfolio by reason of the
tax-deferred status of investments through separate accounts. As of
December 31, 1993, Overseas Portfolio had _______ capital loss carryover.
FMR
FMR is a wholly owned subsidiary of FMR Corp., a parent company organized
in 1972. At present, the principal operating activities of FMR Corp. are
those conducted by three of its divisions as follows: FSC, which is the
transfer and shareholder servicing agent for certain of the funds advised
by FMR; FIIOC, which performs shareholder servicing functions for certain
institutional customers; and Fidelity Investments Retail Marketing Company,
which provides marketing services to various companies within the Fidelity
organization.
Several affiliates of FMR are also engaged in the investment advisory
business. Fidelity Management Trust Company provides trustee, investment
advisory, and administrative services to retirement plans and corporate
employee benefit accounts. Fidelity Management & Research (U.K.) Inc.
(FMR U.K.) and Fidelity Management & Research (Far East) Inc. (FMR Far
East), both wholly owned subsidiaries of FMR formed in 1986, supply
investment research, and may supply portfolio management services, to FMR
in connection with certain funds advised by FMR. Analysts employed by FMR,
FMR U.K., and FMR Far East research and visit thousands of domestic and
foreign companies each year. FMR Texas Inc., a wholly owned subsidiary of
FMR formed in 1989, supplies portfolio management and research services in
connection with certain money market funds advised by FMR.
TRUSTEES AND OFFICERS
Each Trust's Trustees and executive officers are listed below. Except as
indicated, each individual has held the office shown or other offices in
the same company for the last five years. All persons named as Trustees
and officers also serve in similar capacities for other funds advised by
FMR. Unless otherwise noted, the business address of each Trustee and
officer is 82 Devonshire Street, Boston, Massachusetts, 02109, which is
also the address of FMR. Those Trustees who are "interested persons" (as
defined in the Investment Company Act of 1940) by virtue of their
affiliation with each Trust or FMR, are indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d, Trustee and President, is Chairman, Chief Executive
Officer and a Director of FMR Corp.; a Director and Chairman of the Board
and of the Executive Committee of FMR; Chairman and a Director of FMR Texas
Inc. (1989), Fidelity Management & Research (U.K.) Inc., and Fidelity
Management & Research (Far East) Inc.
*J. GARY BURKHEAD, Trustee and Senior Vice President, is President of FMR;
and President and a Director of FMR Texas Inc. (1989), Fidelity Management
& Research (U.K.) Inc., and Fidelity Management & Research (Far
East) Inc.
RALPH F. COX, 200 Rivercrest Drive, Fort Worth, TX, Trustee (1991), is
President of Greenhill Petroleum Corporation (petroleum exploration and
production, 1990). Prior to his retirement in March 1990, Mr. Cox was
President and Chief Operating Officer of Union Pacific Resources Company
(exploration and production). He is a Director of Bonneville Pacific
Corporation (independent power, 1989) and CH2M Hill Companies
(engineering). In addition, he served on the Board of Directors of the
Norton Company (manufacturer of industrial devices, 1983-1990) and
continues to serve on the Board of Directors of the Texas State Chamber of
Commerce, and is a member of advisory boards of Texas A&M University
and the University of Texas at Austin.
PHYLLIS BURKE DAVIS, Box 264, Bridgehampton, NY, Trustee (1992). Prior to
her retirement in September 1991, Mrs. Davis was the Senior Vice President
of Corporate Affairs of Avon Products, Inc. She is currently a Director of
BellSouth Corporation (telecommunications), Eaton Corporation
(manufacturing, 1991), and the TJX Companies, Inc. (retail stores, 1990),
and previously served as a Director of Hallmark Cards, Inc. (1985-1991) and
Nabisco Brands, Inc. In addition, she serves as a Director of the New York
City Chapter of the National Multiple Sclerosis Society, and is a member of
the Advisory Council of the International Executive Service Corps. and the
President's Advisory Council of The University of Vermont School of
Business Administration.
RICHARD J. FLYNN, 77 Fiske Hill, Sturbridge, MA, Trustee, is a financial
consultant. Prior to September 1986, Mr. Flynn was Vice Chairman and a
Director of the Norton Company (manufacturer of industrial devices). He is
currently a Director of Mechanics Bank and a Trustee of College of the Holy
Cross and Old Sturbridge Village, Inc.
E. BRADLEY JONES, 3881-2 Lander Road, Chagrin Falls, OH, Trustee (1990).
Prior to his retirement in 1984, Mr. Jones was Chairman and Chief Executive
Officer of LTV Steel Company. Prior to May 1990, he was Director of
National City Corporation (a bank holding company) and National City Bank
of Cleveland. He is a Director of TRW Inc. (original equipment and
replacement products), Cleveland-Cliffs Inc (mining), NACCO Industries,
Inc. (mining and marketing), Consolidated Rail Corporation, Birmingham
Steel Corporation (1988), Hyster-Yale Materials Handling, Inc. (1989), and
RPM, Inc. (manufacturer of chemical products, 1990). In addition, he
serves as a Trustee of First Union Real Estate Investments, Chairman of the
Board of Trustees and a member of the Executive Committee of the Cleveland
Clinic Foundation, a Trustee and a member of the Executive Committee of
University School (Cleveland), and a Trustee of Cleveland Clinic Florida.
DONALD J. KIRK, 680 Steamboat Road, Apartment #1-North, Greenwich, CT,
Trustee, is a Professor at Columbia University Graduate School of Business
and a financial consultant. Prior to 1987, he was Chairman of the
Financial Accounting Standards Board. Mr. Kirk is a Director of General Re
Corporation (reinsurance) and Valuation Research Corp. (appraisals and
valuations, 1993). In addition, he serves as Vice Chairman of the Board of
Directors of the National Arts Stabilization Fund and Vice Chairman of the
Board of Trustees of the Greenwhich Hospital Association.
*PETER S. LYNCH, Trustee (1990) is Vice Chairman of FMR (1992). Prior to
his retirement on May 31, 1990, he was a Director of FMR (1989) and
Executive Vice President of FMR (a position he held until March 31, 1991);
Vice President of Fidelity Magellan Fund and FMR Growth Group Leader; and
Managing Director of FMR Corp. Mr. Lynch was also Vice President of
Fidelity Investments Corporate Services (1991-1992). He is a Director of
W.R. Grace & Co. (chemicals, 1989) and Morrison Knudsen Corporation
(engineering and construction). In addition, he serves as a Trustee of
Boston College, Massachusetts Eye & Ear Infirmary, Historic Deerfield
(1989) and Society for the Preservation of New England Antiquities, and as
an Overseer of the Museum of Fine Arts of Boston (1990).
GERALD C. McDONOUGH, 135 Aspenwood Drive, Cleveland, OH, Trustee (1989), is
Chairman of G.M. Management Group (strategic advisory services). Prior to
his retirement in July 1988, he was Chairman and Chief Executive Officer of
Leaseway Transportation Corp. (physical distribution services). Mr.
McDonough is a Director of ACME-Cleveland Corp. (metal working,
telecommunications and electronic products), Brush-Wellman Inc. (metal
refining), York International Corp. (air conditioning and refrigeration,
1989), Commercial Intertech Corp. (water treatment equipment, 1992), and
Associated Estates Realty Corporation (a real estate investment trust,
1993).
EDWARD H. MALONE, 5601 Turtle Bay Drive #2104, Naples, FL, Trustee. Prior
to his retirement in 1985, Mr. Malone was Chairman, General Electric
Investment Corporation and a Vice President of General Electric Company.
He is a Director of Allegheny Power Systems, Inc. (electric utility),
General Re Corporation (reinsurance) and Mattel Inc. (toy manufacturer).
He is also a Trustee of Rensselaer Polytechnic Institute and of Corporate
Property Investors and a member of the Advisory Boards of Butler Capital
Corporation Funds and Warburg, Pincus Partnership Funds.
MARVIN L. MANN, 55 Railroad Avenue, Greenwich, CT, Trustee (1993) is
Chairman of the Board, President, and Chief Executive Officer of Lexmark
International, Inc. (office machines, 1991). Prior to 1991, he held the
positions of Vice President of International Business Machines Corporation
("IBM") and President and General Manager of various IBM divisions and
subsidiaries. Mr. Mann is a Director of M.A. Hanna Company (chemicals,
1993) and Infomart (marketing services, 1991), a Trammell Crow Co. In
addition, he serves as the Campaign Vice Chairman of the Tri-State United
Way (1993) and is a member of the University of Alabama President's Cabinet
(1990).
THOMAS R. WILLIAMS, 21st Floor, 191 Peachtree Street, N.E., Atlanta, GA,
Trustee, is President of The Wales Group, Inc. (management and financial
advisory services). Prior to retiring in 1987, Mr. Williams served as
Chairman of the Board of First Wachovia Corporation (bank holding company),
and Chairman and Chief Executive Officer of The First National Bank of
Atlanta and First Atlanta Corporation (bank holding company). He is
currently a Director of BellSouth Corporation (telecommunications),
ConAgra, Inc. (agricultural products), Fisher Business Systems, Inc.
(computer software), Georgia Power Company (electric utility), Gerber Alley
& Associates, Inc. (computer software), National Life Insurance Company
of Vermont, American Software, Inc. (1989), and AppleSouth, Inc.
(restaurants, 1992).
GARY L. FRENCH, Treasurer (1991). Prior to becoming Treasurer of the
Fidelity funds, Mr. French was Senior Vice President, Fund Accounting -
Fidelity Accounting & Custody Services Co. (1991); Vice President, Fund
Accounting - Fidelity Accounting & Custody Services Co. (1990); and
Senior Vice President, Chief Financial and Operations Officer - Huntington
Advisers, Inc. (1985-1990).
ARTHUR S. LORING, Secretary, is Senior Vice President and General Counsel
of FMR, Vice President-Legal of FMR Corp., and Vice President and Clerk of
FDC.
THOMAS D. MAHER, Assistant Vice President (1990), is Associate General
Counsel of FMR Texas Inc. (1990).
ROBERT LITTERST, Vice President of Money Market Portfolio (1992), is an
employee of FMR.
BARRY COFFMAN, Vice President of High Income Portfolio (1992), is an
employee of FMR.
ROBERT BECKWITT, Vice President of Asset Manager Portfolio (1990), is an
employee of FMR.
DONALD TAYLOR, Vice President of Investment Grade Bond Portfolio (1992), is
an employee of FMR.
ROBERT H. MORRISON, Manager, Security Transactions, is an employee of FMR.
Under a retirement program that became effective on November 1, 1989,
Trustees, upon reaching age 72, become eligible to participate in a defined
benefit retirement program under which they receive payments during their
lifetime from the Fund based on their basic trustee fees and length of
service. Currently, Messrs. Robert L. Johnson, William R. Spaulding,
Bertram H. Witham, and David L. Yunich participate in the program.
As of March 31, 1994, the Trustees and officers of each Trust owned in the
aggregate less than __% of the outstanding shares of the Portfolios.
As of February 28, 1994, significant shares of the Portfolios were held by
the following companies with the figures beneath each Portfolio
representing that company's holdings as a percentage of each Portfolio's
total outstanding shares.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Money High Income Equity-Income Growth Overseas
Market Portfolio Portfolio Portfolio Portfolio Portfolio

Ameritas Variable Life
Insurance Company
(Lincoln, NE)

Fidelity Investments Life
Insurance Company
(Boston, MA)

The Life Insurance
Company of Virginia
(Richmond, VA)

Northwestern National Life
Insurance Company
(Minneapolis, MN)

PFL Life Insurance Company
(Cedar Rapids, IA)

Nationwide Life Insurance
Company
(Columbus, OH)

State Mutual Life
Assurance Company
(Worcester, MA)

The Travelers Insurance Company __ __
(Hartford, CT)

</TABLE>

* Less than 5%.
- - - Company does not offer shares of the portfolio.
A shareholder owning more than 25% of a particular Portfolio's shares may
be considered to be a "controlling person" of that Portfolio. Accordingly,
its vote could have a more significant effect on matters presented to
shareholders for approval than the votes of the Portfolio's other
shareholders.
Messrs. Edward C. Johnson 3d and J. Gary Burkhead, Trustees of the fund and
directors of FMR, together with Messrs. Francis D. Cabour, Richard B.
Fentin, Barry A. Greenfield, Richard C. Habermann, William J. Hayes,
Michael M. Kassen, Alan Leifer, Peter S. Lynch, and George A. Vanderheiden,
officers or employees of FMR, are members of the Equity-Income, Growth and
Overseas Portfolios' Investment Committee, which reviews recommendations of
the research staff of FMR.
MANAGEMENT CONTRACTS
Each Portfolio employs FMR to furnish investment advisory and other
services to the Portfolios. Under FMR's Management Contract with each
Portfolio, FMR acts as investment advisor and, subject to the supervision
of the Board of Trustees, directs the investments of each Portfolio in
accordance with its investment objective, policies and limitations. FMR
also provides each Portfolio with all necessary office facilities and
personnel for servicing each Portfolio's investments, and compensates all
officers of each Trust, all Trustees who are "interested persons" of each
Trust or of FMR and all personnel of each Trust or FMR performing services
relating to research, statistical and investment activities. In addition,
FMR or its affiliates, subject to the supervision of the Board of Trustees,
provide the management and administrative services necessary for the
operation of each Portfolio. These services include providing facilities
for maintaining each Portfolio's organization, supervising relations with
custodians, transfer and pricing agents, accountants, underwriters and
other persons dealing with each Portfolio, preparing all general
shareholder communications and conducting shareholder relations,
maintaining each Portfolio's records and the registration of each
Portfolio's shares under federal and state law, developing management and
shareholder services for each Portfolio and furnishing reports, evaluations
and analyses on a variety of subjects to each Trust's Board of Trustees.
In addition to the management fee payable to FMR and the fees payable to
FSC and FIIOC, each Portfolio pays all its expenses, without limitation,
that are not assumed by those parties. Each Portfolio pays for the
typesetting, printing and mailing of its Prospectuses, Statements of
Additional Information, reports and proxy material to existing
shareholders, legal expenses and the fees of the custodian, auditor and
non-interested Trustees. Other charges paid by each Portfolio include
interest, taxes, brokerage commissions, each Portfolio's proportionate
share of insurance premiums and Investment Company Institute dues, and the
costs of registering shares under federal and state securities laws. Each
Portfolio is also liable for such nonrecurring expenses as may arise,
including costs of litigation to which each Portfolio may be a party and
any obligation they may have to indemnify the officers and Trustees of each
Trust with respect to litigation.
MONEY MARKET PORTFOLIO. FMR is the fund's manager pursuant to a management
contract dated January 1, 1994, which was approved by shareholders on
December 15, 1993. For the services of FMR under the contract, the fund
pays FMR a monthly management fee calculated by adding a basic fee, which
consists of a group fee rate and an individual fund fee rate (.03%), to an
income-based component of 6% of the fund's gross income in excess of a 5%
yield, and multuplying the result by the fund's average net assets. A
discussion of the group fee rate is below.
INVESTMENT GRADE BOND PORTFOLIO AND HIGH INCOME PORTFOLIO. FMR is
Investment Grade Bond Portfolio's manager pursuant to a Management Contract
dated January 1, 1993, which was approved by shareholders on December 16,
1992. FMR is High Income Portfolio's manager pursuant to a Management
Contract dated January 1, 1994 which was approved by shareholders on
December 15, 1993. For the services of FMR under each Contract, each
Portfolio pays FMR a monthly management fee composed of the sum of two
elements: a group fee rate and an individual fund fee rate.
THE GROUP FEE RATE. The group fee rate for Money Market, Investment Grade
Bond* and High Income Portfolios is based on the monthly average net assets
of all of the registered investment companies with which FMR has management
contracts and is calculated on a cumulative basis pursuant to the graduated
fee rate schedule shown on the left of the chart below. On the right, the
effective fee rate schedule shows the results of cumulatively applying the
annualized rates at varying asset levels. For example, the effective
annual fee rate at $___ billion of group net assets--their approximate
level for the month of December 1993 was ____%, which is the weighted
average of the respective fee rates for each level of group net assets up
to that level.
GROUP FEE RATE EFFECTIVE ANNUAL
SCHEDULE* FEE RATES

Rate Group Effective
Asset Levels Net Annual
Assets Fee Rate

0 - $ 3 billion .3700% $ 25 billion .2664%

3 - 6 .3400 50 .2188

6 - 9 .3100 75 .1986

9 - 12 .2800 100 .1869

12 - 15 .2500 125 .1793

15 - 18 .2200 150 .1736

18 - 21 .2000 175 .1695

21 - 24 .1900 200 .1658

24 - 30 .1800 225 .1629

30 - 36 .1750 250 .1604

36 - 42 .1700 275 .1583

42 - 48 .1650 300 .1565

48 - 66 .1600 325 .1548

66 - 84 .1550 350 .1533

84 - 120 .1500 375 .1519

120 - 174 .1450 400 .1507

174 - 228 .1400

228 - 282 .1375

282 - 336 .1350

Over - 336 .1325

*The rates shown for average group assets in excess of $174 billion were
adopted for Investment Grade Bond Portfolio by FMR on a voluntary basis on
November 1, 1993. The schedule was adopted for the Portfolio pending
shareholder approval of a new management contract reflecting the extended
schedule. The extended schedule provides for lower management fees as
total assets under management increase.
The individual fund fee rate for Money Market Portfolio is .03%. Based on
the average net assets of funds advised by FMR for December 1993, the basic
fee rate would be calculated as follows:
Group Fee Rate Individual Fund Fee Rate Basic Fee Rate

.% + .03% = .%

If the fund's gross yield is 5% or less, the basic fee is the total
management fee. The income-based component of the porposed fee is added to
the basic fee when the fund's yield is greater than 5%. The income-based
fee equals 6% of that portion of the fund's gross income that represents a
gross yield of more than 5% per year. The maximum income-based component
is .24% (annualized) of average net assets, at a fund gross yield of 9%.
Gross income for this purpose, includes interest accrued and/or discount
earned (including both original issue discount and market discount) on
portfolio obligations, less amortization of premium. Realized and
unrealized gains and losses, if any, are not included in gross income. One
twelfth (1/12) of the basic fee plus the income-based component is applied
to the fund's average net assets for the current month, giving a dollar
amount which is the fee for that month.
The individual fund fee rate for Investment Grade Bond Portfolio is .30%.
Group Fee Rate Individual Fund Fee Rate Management Fee Rate

.% + .30% = .%

The individual fund fee rate for High Income Portfolio is .45%.
Group Fee Rate Individual Fund Fee Rate Management Fee Rate

.% + .45% = .%

One twelfth (1/12) of this annual management fee rate is then applied to
each Portfolio's average net assets for the current month, giving a dollar
amount which is the fee for that month.
MONEY MARKET PORTFOLIO. For the 1993, 1992 and 1991 fiscal years, FMR's
fee as investment advisor was $_____, $487,024 and $710,490, respectively,
which was equivalent to an annualized rate of ___%, .17% and .28%,
respectively of the Portfolio's average net assets.
INVESTMENT GRADE BOND PORTFOLIO. For fiscal years ended 1993, 1992 and
1991, FMR received $____, $272,562, and $108,191, respectively, for its
services as investment advisor before reimbursement. These fees were
equivalent to .__%, .47%, and .48% of the Portfolio's average net assets
for those respective periods.
HIGH INCOME PORTFOLIO. During the fiscal years ended 1993, 1992 and 1991,
FMR received $_____, $784,904 and $266,207, respectively, for its services
as investment advisor. These fees, were equivalent to ___%, .52% and .53%
of the Portfolio's average net assets for those respective periods.
Prior to January 1, 1994, Money Market Portfolio's management fee was
calculated as a percentage of the fund's gross income, calculated and paid
monthly, and varies together with the fund's yield. The fee equaled 4% of
that portion of the fund's gross income (before expenses) that was
equivalent to a gross yield of 5% or less, plus 6% of the fund's gross
income that was equivalent to a gross yield of more than 5%. The current
fee was subject to a maximum fee rate, which varied between 0.50% and 0.40%
(annualized) of average net assets depending on the fund's size.
On behalf of Investment Grade Bond Portfolio, the schedule shown above
(minus the breakpoints added November 1, 1993) was voluntarily adopted by
FMR on January 1, 1992 and approved by shareholders of the fund on December
16, 1992. Prior to January 1, 1992, the Portfolios' group fee rate was
based on a schedule with breakpoints ending at .310% for average group
assets in excess of $102 billion. This shorter schedule was included in
the fund's prior management contract with FMR dated January 1, 1990.
On behalf of High Income Portfolio, on November 1, 1993, FMR voluntarily
adopted a revised schedule providing for extended breakpoints for group
assets in excess of $170 billion. The extended schedule was approved by
shareholders of the fund December 15, 1993. In addition, the schedule
shown above (minus the breakpoints approved by shareholders on December 15,
1993) was voluntarily adopted by FMR on January 1, 1992. Shareholders
approved the extended schedule and management contract on December 16,
1992. Prior to January 1, 1992, the Portfolio's group fee rate was based
on a schedule with breakpoints ending at .150% for average group assets in
excess of $120 billion. This shorter schedule was included in the
Portfolio's prior management contract with FMR dated January 1, 1990.
Prior to January 1, 1994, High Income Portfolio's individual fund fee rate
was .35% of the fund's average net assets.
EQUITY-INCOME, GROWTH, OVERSEAS AND ASSET MANAGER PORTFOLIOS. FMR is each
Portfolio's manager pursuant to Management Contracts dated January 1, 1993,
which were approved by shareholders on December 16, 1992. For the services
of FMR under the Contracts, each Portfolio pays FMR a monthly management
fee composed of the sum of two elements: a group fee rate and an individual
fund fee rate.
THE GROUP FEE RATE. Each Portfolio's group fee rate is based on the
monthly average net assets of all of the registered investment companies
with which FMR has management contracts and is calculated on a cumulative
basis pursuant to the graduated fee rate schedule shown on the left of the
chart below. On the right, the effective fee rate schedule shows the
results of cumulatively applying the annualized rates at varying asset
levels. For example, the effective annual fee rate at $___ billion of
group net assets--their approximate level for the month of December 1993
was ____%, which is the weighted average of the respective fee rates for
each level of group net assets up to that level.
GROUP FEE RATE EFFECTIVE ANNUAL
SCHEDULE* FEE RATES

Rate Group Effective
Asset Levels Net Annual
Assets Fee Rate

0 - $ 3 billion .520% $ 0.5 billion .5200%

3 - 6 .490 10 .4840

6 - 9 .460 20 .4398

9 - 12 .430 30 .4115

12 - 15 .400 40 .3944

15 - 18 .385 50 .3823

18 - 21 .370 60 .3728

21 - 24 .360 70 .3656

24 - 30 .350 80 .3599

30 - 36 .345 90 .3552

36 - 42 .340 100 .3512

42 - 48 .335 110 .3475

48 - 66 .325 120 .3444

66 - 84 .320 130 .3417

84 - 102 .315 140 .3394

102 - 138 .310 150 .3371

138 - 174 .305 160 .3351

174 - 228 .300 170 .3333

228 - 282 .295 180 .3316

282 - 336 .290 190 .3299

Over 336 .285 200 .3284

*The rates shown for average group assets in excess of $174 billion were
adopted by FMR on a voluntary basis on November 1, 1993. The schedule was
adopted for each Portfolio pending shareholder approval of new management
contracts reflecting the extended schedule. The extended schedule provides
for lower management fees as total assets under management increase.
Based on the average net assets of the funds advised by FMR for December
1992, the annual management fee rate was calculated as follows:
The individual fund fee rate for Equity-Income Portfolio is .20%.
Group Fee Rate Individual Fund Fee Rate Management Fee Rate

.% + .20% = .%

The individual fund fee rate for Growth Portfolio is .30%.
Group Fee Rate Individual Fund Fee Rate Management Fee Rate

.% + .30% = .%

The individual fund fee rate for Overseas Portfolio is .45%.
Group Fee Rate Individual Fund Fee Rate Management Fee Rate

.% + .45% = .%

The individual fund fee rate for Asset Manager Portfolio is .40%.
Group Fee Rate Individual Fund Fee Rate Management Fee Rate

.% + .40% = .%

One twelfth (1/12) of this annual management fee rate is then applied to
each Portfolio's average net assets for the current month, giving a dollar
amount which is the fee for that month.
The schedule shown above (minus the breakpoints added November 1, 1993) was
voluntarily adopted by FMR on January 1, 1992 and approved by shareholders
of each Portfolio on December 16, 1992. Prior to January 1, 1992, the
Portfolios' group fee rate was based on a schedule with breakpoints ending
at .310% for average group assets in excess of $102 billion. This shorter
schedule was included in each Portfolio's prior management contract with
FMR dated January 1, 1990.
EQUITY-INCOME. During the fiscal years ended 1992, 1991 and 1990, FMR
received $2,179,187, $1,132,875 and $840,430, respectively, for its
services as investment advisor. These fees were equivalent to .53%, .54%
and .55% of the Portfolio's average net assets for those respective
periods.
GROWTH. During the fiscal years ended 1992, 1991 and 1990, FMR received
$3,305,050, $1,468,574 and $695,364, respectively, for its services as
investment advisor. These fees were equivalent to .63%, .64% and .65% of
the Portfolio's average net assets for those respective periods.
OVERSEAS. During the fiscal years ended 1992, 1991 and 1990, FMR received
$1,231,227, $799,438 and $465,118, respectively, for its services as
investment advisor. These fees were equivalent to .78%, .79% and .80% of
the Portfolio's average net assets for those respective periods.
ASSET MANAGER. During the fiscal years ended 1993, 1992 and 1991, FMR
received $_____, $3,065,065, and $693,187, respectively, for its services
as investment advisor prior to any reimbursement. These fees were
equivalent to .__%, .73%, and .74% of the Portfolio's average net assets
for the respective periods.
INDEX 500 PORTFOLIO
For the services of FMR under the Contract, the Portfolio pays a monthly
management fee to FMR at the annual rate of .28% of the average net assets
of the Portfolio as determined as of the close of business on each day
throughout the month.
FMR may, from time to time, agree to voluntarily reimburse the Portfolio
for expenses above a specified percentage of average net assets. FMR
retains the ability to be repaid for these expense reimbursements in the
amount that expenses fall below the limit prior to the end of the fiscal
year. For the fiscal year ended 1993 and the period August 27, 1992
(commencement of operations) to December 31, 1992, the fee before
reimbursement of expenses, amounted to $____ and $11,715, respectively.
FMR has voluntarily agreed to reimburse the Portfolio if, and to the extent
that, the Portfolio's aggregate operating expenses (including the
management fee, but generally excluding interest, taxes, brokerage
commissions, and extraordinary expenses) exceed an annual rate of .28% of
the average net assets of the Portfolio for any fiscal year, or for a
portion of such year if FMR's agreement is terminated or revised.
SUB-ADVISERS. On behalf of HIGH INCOME AND ASSET MANAGER PORTFOLIOS, FMR
has entered into sub-advisory agreements with Fidelity Management &
Research (U.K.) Inc. (FMR U.K.) and Fidelity Management & Research (Far
East) Inc. (FMR Far East). On behalf of OVERSEAS PORTFOLIO, FMR has
entered into sub-advisory agreements with Fidelity Management &
Research (U.K.) Inc. (FMR U.K.), Fidelity Management & Research (Far
East) Inc. (FMR Far East), and Fidelity International Investment Advisors
(FIIA). FIIA, in turn, has entered into a sub-advisory agreement with its
wholly owned subsidiary Fidelity International Investment Advisors (U.K.)
Limited (FIIAL U.K.). Pursuant to the sub-advisory agreements, FMR may
receive investment advice and research services with respect to companies
based outside the U.S. from the sub-advisors and may grant the sub-advisors
investment management authority as well as the authority to buy and sell
securities if FMR believes it would be beneficial to the fund.
Currently, FMR U.K., FMR Far East, FIIA and FIIAL U.K. each focus on
companies in countries other than the United states including countries in
Europe, Asia, and the Pacific Basin.
FMR U.K. and FMR Far East are wholly owned subsidiaries of FMR. FIIA is a
wholly owned subsidiary of Fidelity International Limited (FIL), a Bermuda
company formed in 1968 which primarily provides investment advisory
services to non-U.S. investment companies and institutional investors
investing in securities of issuers throughout the world. FIIA was
organized in Bermuda in 1983 and FIIAL U.K. was organized in the United
Kingdom in 1984.
Under the sub-advisory agreements FMR pays the fees of FMR U.K., FMR Far
East, and FIIA. FIIA, in turn, pays the fees of FIIAL U.K.
For providing investment advice and research services the sub-advisors are
compensated as follows:
FMR pays FMR U.K. and FMR Far East fees equal to 110% and 105%,
respectively, of FMR U.K.'s and FMR Far East's costs incurred in connection
with providing investment advice and research services.
FMR pays FIIA 30% of FMR's monthly management fee with respect to the
average market value of investments held by a fund for which FIIA has
provided FMR with investment advice.
FIIA pays FIIAL U.K. a fee equal to 110% of FIIAL U.K.'s costs incurred in
connection with providing investment advice and research services.
For providing investment management and executing portfolio transactions,
the sub-advisors are compensated as follows:
FMR pays FMR U.K., FMR Far East, and FIIA 50% of its monthly management
fee (including any performance adjustment) with respect to a fund's average
net assets managed by the sub-advisor on a discretionary basis.
FIIA pays FIIAL U.K. 110% of FIIAL U.K.'s costs incurred with providing
investment management services.
FMR entered into the sub-advisory agreements described above with respect
to High Income Portfolio and Overseas Portfolio on January 1, 1994 and
April 1, 1992, respectively, following shareholder approval of the
agreements on December 15, 1993 and March 25, 1992, respectively.
Prior to April 1, 1992, FMR had sub-advisory agreements with FMR Far East
and FMR U.K. on behalf of OVERSEAS PORTFOLIO pursuant to which FMR Far East
and FMR U.K. provided FMR with investment advice and research services.
Under those agreements, FMR Far East and FMR U.K. were compensated for
their services according to the same formulas as they are compensated
currently for providing investment advice and research services.
For fiscal years ended December 31, 1993, 1992 and 1991, FMR paid $______,
$41,512 and $66,930, respectively to FMR (U.K.) and $34,267, $65,440 and
$25,000, respectively to FMR Far East on behalf of Overseas Portfolio.
On January 1, 1990, FMR entered into a sub-advisory agreement with FMR
Texas Inc. (FMR Texas), pursuant to which FMR Texas has primary
responsibility for providing investment management services to the MONEY
MARKET PORTFOLIO.
FMR Texas, a wholly owned subsidiary of FMR was formed in 1989 and
registered under the Investment Advisers Act of 1940 on June 9, 1989 to
provide investment management services to money market mutual funds; to
advise FMR generally with respect to money market instruments; and to
manage or provide advice with respect to cash flow management.
The sub-advisory agreement provides that FMR and not the Portfolio, will
pay fees to FMR Texas equal to 50% of the management fee payable to FMR
under its current Management Contract with the Portfolio. The fees paid to
FMR Texas are not reduced by any voluntary or mandatory fee waivers or
expense reimbursements that may be in effect from time to time. For fiscal
years ended December 31, 1993, 1992 and 1991, FMR paid $______, $243,512
and $355,245, respectively, to FMR Texas on behalf of Money Market
Portfolio.
DISTRIBUTION AND SERVICE PLANS
Each Portfolio has adopted a distribution and service plan (the Plans)
under Rule 12b-1 under the Investment Company Act of 1940 (the Rule). The
Rule provides, in substance, that a mutual fund may not engage directly or
indirectly in financing any activity that is primarily intended to result
in the sale of shares of the fund except pursuant to a plan adopted by the
fund under the Rule. Each Trust's Board of Trustees has adopted the Plans
to allow each of these Portfolios and FMR to incur certain expenses that
might be considered to constitute indirect payment by the Portfolios of
distribution expenses. Under the Plans, if the payment by a Portfolio to
FMR of management fees should be deemed to be indirect financing by a
Portfolio of the distribution of its shares, such payment is authorized by
the Plans.
The Plans specifically recognize that FMR, either directly or through FDC,
may use its management fee revenue, past profits or other resources,
without limitation, to pay promotional and administrative expenses in
connection with the offer and sale of shares of the Portfolios. In
addition, the Plans provide that FMR may use its resources, including its
management fee revenues, to make payments to third parties that provide
assistance in selling shares of the Portfolios or to third parties
including banks, that render shareholder support services. However, no
such payments to third parties are currently contemplated.
Each Portfolio's Plan has been approved by the Trustees. As required by
the Rule, the Trustees carefully considered all pertinent factors relating
to the implementation of each Plan prior to its approval, and have
determined that there is a reasonable likelihood that the Plan will benefit
the respective Portfolio and its shareholders. In particular, the Trustees
noted that the Plan does not authorize payments by the Portfolio other than
those made to FMR under the Management Contract with each Portfolio. To
the extent that the Plan gives FMR and FDC greater flexibility in
connection with the distribution of shares of the Portfolio, additional
sales of the Portfolio's shares may result. Additionally, certain
shareholder support services may be provided more effectively under the
Plan by local entities with whom shareholders have other relationships.
Money Market, High Income, Equity-Income and Growth Portfolios' Plans were
approved by shareholders of their respective Portfolio on December 11,
1986. Overseas Portfolio's Plan was approved by shareholders on November
18, 1987. The Plans for Investment Grade Bond Portfolio and Asset Manager
Portfolio were approved by the Portfolios' shareholders on December 13,
1989. Index 500 Portfolio's Plan was approved by the Portfolio's
shareholders on December 16, 1992.
CONTRACTS WITH COMPANIES AFFILIATED WITH FMR
Each Portfolio has an agreement with FSC, an affiliate of FMR Corp., under
which FSC determines the NAV per share and dividends of each Portfolio and
maintains the portfolio and general accounting records of each Portfolio.
Prior to July 1, 1991, the annual fee for these pricing and bookkeeping
services was based on two schedules, one pertaining to each Portfolio's
average net assets, and one pertaining to the type and number of
transactions each Portfolio made. The fee rates in effect as of July 1,
1991, are based on each Portfolio's average net assets as follows: for
Money Market Portfolio, .0175% for the first $500 million of average net
assets and .0075% for average net assets in excess of $500 million. The
fee is limited to a minimum of $20,000 and a maximum of $750,000 per year;
for High Income and Investment Grade Bond Portfolios, .04% for the first
$500 million of average net assets and .02% for average net assets in
excess of $500 million. For Equity-Income, Growth, Overseas, Asset
Manager, and Index 500 Portfolios, .06% for the first $500 million of
average net assets and .03% for average net assets in excess of $500
million. The fee for High Income, Equity Income, Growth and Overseas
Portfolios is limited to a minimum of $45,000 and a maximum of $750,000 per
year.
The following are the fees paid by each Portfolio to FSC for the last three
fiscal years:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money High Equity- Oversea Investment Asset
Market Income Income Growth s Grade Bond Manager Index 500
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio

12/31/93 $ $ $ $ $ $ $ $

12/31/92 $52,389 $62,305 $242,745 $303,007 $109,649 $46,187 $243,598 $15,547

12/31/91 $74,243 $54,512 $143,655 $162,678 $105,226 $46,430 $95,718 N/A

</TABLE>

Each Portfolio utilizes FIIOC, an affiliate of FMR Corp., to maintain the
master accounts of the participating insurance companies. Under the
contract, each Portfolio pays a fee of $95 per shareholder account per year
and a fee of $20 for each monetary transaction. In addition to providing
transfer agent and shareholder servicing functions, FIIOC pays all transfer
agent out-of-pocket expenses and also pays for the typesetting, printing
and mailing of Prospectuses, Statements of Additional Information, reports,
notices and statements to shareholders allocable to the master account of
participating insurance companies.
The following are the fees paid by each Portfolio to FIIOC (including
reimbursement for out-of-pocket expenses) for the last three fiscal years:

12/31/93 $ $ $ $ $ $ $ $

12/31/92 $ $ $ $ $ $ $ $

12/31/91 $ $ $ $ $ $ $ N/A

</TABLE>

If a portion of each Portfolio's brokerage commissions had not been
allocated toward payment of these fees, the transfer agent fees for the
last three fiscal years would have been as follows (not applicable for
Money Market, High Income and Investment Grade Bond Portfolios):
Equity- Oversea Asset
Income Growth s Manager Index 500
Portfolio Portfolio Portfolio Portfolio Portfolio

12/31/93 $ $ $ $ $

12/31/92 $ $ $ $ $

12/31/91 $ $ $ $ N/A

Each Portfolio has a Distribution Agreement with FDC, a Massachusetts
corporation organized July 18, 1960. FDC is a broker-dealer registered
under the Securities Exchange Act of 1934 and a member of the National
Association of Securities Dealers, Inc. The Distribution Agreement calls
for FDC to use all reasonable efforts, consistent with its other business,
to secure purchasers for shares of the Portfolios which are continuously
offered at net asset value. Promotional and administrative expenses, in
connection with the offer and sale of shares, are paid for by FMR.
SUMMARY OF THE PORTFOLIOS' EXPENSES
The expense summary format below was developed for use by all mutual funds
to help you make your investment decisions. Of course you should consider
this expense information along with other important information in the
Prospectus and Statement of Additional Information and the Portfolios'
investment objectives. This table does not include any charges or expenses
which are attributable to any particular insurance product. You should
carefully review the Prospectus of the insurance product you have chosen
for information or relevant charges and expenses.
A. SHAREHOLDER TRANSACTION EXPENSES
Money High Equity-

Market Income Income Growth Overseas

Portfolio Portfolio Portfolio Portfolio Portfolio

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Sales Load on Purchases................................... None None None None None

Sales Load on Reinvested Dividends............... None None None None None

Deferred Sales Load Imposed on Redemptions. None None None None None

Exchange Fees None None None None None

</TABLE>

(as a percentage of average net assets after expense
reimbursement)
B. ANNUAL PORTFOLIO OPERATING EXPENSES

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Management Fees .% .% .% .% .%

12b-1 Fees None None None None None

Other Expenses .% .% .% .% .%

Total Fund Operating Expenses .% .% .% .% .%

</TABLE>

C. EXAMPLE: You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time
period:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1 $ $ $ $ $
Year...........................................................

3
Years.........................................................

5
Years.........................................................

10
Years........................................................

</TABLE>

A. SHAREHOLDER TRANSACTION EXPENSES
Investment Asset
Grade Bond Manager Index 500

Portfolio Portfolio Portfolio

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Sales Load on Purchases................................... None None None

Sales Load on Reinvested Dividends............... None None None

Deferred Sales Load Imposed on Redemptions. None None None

Exchange Fees None None None

</TABLE>

(as a percentage of average net assets after expense
reimbursement)
B. ANNUAL PORTFOLIO OPERATING EXPENSES
Management Fees .% .% .%

12b-1 Fees None None None

Other Expenses .% .% .%

Total Fund Operating Expenses .% .% .%

C. EXAMPLE: You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time
period:

<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 $ $ $
Year...........................................................

3
Years.........................................................

5
Years.........................................................

10
Years........................................................

</TABLE>

Allergan
Alcan Aluminum
Alco Standard
Alexander & Alexander
Allied-Signal
Aluminum Co of America
Amax Inc
Amdahl Corp
Amerada Hess
American Brands Inc.
American Cyanamid
American Electric Power
American Express
American General
American Greetings CIA
American Home Products
American Int'l. Group
American Stores
American, Tel. & Tel.
Ameritech
Amgen
Amoco
Andrew Corp
Anheuser-Busch
Apple Computer
Archer-Daniels Midland
Arkla Inc.
Armco Inc
Armstrong World
Ashland Oil
Atlantic Richfield
Autodesk, Inc.
Automatic Data Processing Inc
Avery-Dennison Corp.
Avon Products
Baker Hughes
Ball Corp
Bally Manufacturing Corp
Baltimore Gas & Electric
Banc One Corp
Bank of Boston
BankAmerica Corp
Bankers Trust N.Y.
Bard (C.R.) Inc
Barnett Banks Inc
Basset Furniture
Bausch & Lomb
Baxter International Inc.
Becton, Dickinson
Bell Atlantic
BellSouth
Bemis Company
Beneficial Corp
Bethlehem Steel
Beverly Enterprises
Biomet, Inc
Black & Decker Corp
Block H & R
Blockbuster Entertainment
Boatsmen's Bancshares
Boeing Company
Boise Cascade
Borden, Inc.
Briggs & Stratton
Bristol-Myers Squibb
Brown & Sharpe Co
Brown Group
Brown-Forman Inc
Browning Ferris Ind
Brunswick Corp
Burlington Northern
CBS Inc
CIGNA Corp
CNA Financial
CPC International
CSX Corp
Campbell Soup
Capital Cities/ABC
Capital Holding
Carolina Power & Light
Caterpillar Inc
Centex Corp
Central & SouthWest
Champion International
Charming Shoppes
Chase Manhattan
Chemical Banking Corp
Chevron Corp
Chrysler Corp
Chubb Corp
Cincinnati Milacron
Circuit City Stores
Citicorp
Clark Equipment
Clorox Co
Coastal Corp
Coca-Cola Co
Colgate-Palmolive
Columbia Gas System
Comcast CI. A
Commonwealth Edison
Community Psych Centers
Compaq Computer
Computer Associates Intl
Computer Sciences Corp
ConAgra Inc
Consolidated Edison
Consolidated Freightways
Consolidated Natural Gas
Consolidated Rail
Continental Corp
Control Data
Cooper Industries
Cooper Tire & Rubber
Coors (Adolph)
CoreStates Financial
Corning Inc
Crane Company
Cray Research
Crown Cork & Seal
Cummins Engine Co., Inc
Cyprus Minerals Co
DSC Communications
Dana Corp
Data General
Dayton Hudson
Deere & Co
Delta Air Lines
Deluxe Corp
Detroit Edison
Dial Corp
Ditigal Equipment
Dillard Department Stores
Dominion Resources
Donnelley (R.R) & Sons
Dover Corp
Dow Chemical
Dow Jones & Co
Dresser Industries
Du Pont (E.I.)
Duke Power Co
Dun & Bradstreet
EG & G Inc
E-Systems
Eastern Enterprises
Eastman Kodak
Eaton Corp
Echlin Inc
Echo Bay Mines Ltd.
Ecolab Inc
Emerson Electric
Engelhard Corp
Enron Corp
Enserch
Entergy Corp
Ethyl Corp
Exxon Corp
FMC Corp
FPL Group
Fedders Corp
Federal Express
Federal Home Loan Mortgage
Federal Natl. Mtge.
Federal Paper Board
First Chicago Corp
First Fidelity Bancorp
First Interstate Bancorp
First Mississippi Corp
First Union Corp
Fleet /Norstar Financial
Fleetwood Enterprises
Fleming Co. Inc.
Fluor Corp
Ford Motor
Foster Wheeler
GTE Corp
Gannett Co
Gap (The)
General Cinema
General Dynamics
General Electric
General Mills
General Motors
General RE Corp
General Signal
Genesco Inc
Genuine Parts
Georgia-Pacific
Gerber Products
Giant Food CI A
Gillette Corp
Golden West Financial
Goodrich (B.F.)
Goodyear Tire & Rubber
Grace (W.R.) & Co
Great Lakes Chemical
Grainger (W.W.) Inc
Great A&P
Great Western Financial
Grumman Corp
Halliburton Co
Handleman Co
Harland (J.H.)
Harnischfeger Indus
Harris Corp
Hartmax Corp
Hasbro Inc
Heinz (H.J.)
Helmerich & Payne
Hercules Inc
Hershey Foods
Hewlett Packard
Hilton Hotels
Home Depot
Homestake Mining
Honeywell
Household International
Houston Industries
Humana Inc
IMCERA Group, Inc
ITT Corp
Illinois Tool Works
Inco Ltd
Ingersoll-Rand
Inland Steel Ind Inc
Intel Corp
Intergraph Corp
Interlake Corp
International Bus. Machines
International Flav/Frag
International Paper
JWP Inc.
James River
Jefferson-Pilot
Johnson & Johnson
Johnson Controls
Jostens Inc.
K Mart
Kaufman & Broad Home Corp
Kellogg Co
Kerr-McGee
Kimberly Clark
King World Productions
Knight Ridder News
Kroger Co
Lilly (Eli) & Co
Limited, The
Lincoln National
Litton Inds
Liz Claiborne, Inc
Lockheed Corp
Longs Drug Stores
Loral Corp
Lotus Development
Louisiana Land & Exploration
Louisiana Pacific
Lowe's Cos
Luby's Cafeterias
M/A Com. Inc
MCI Communications
Manor Care
Marriott Corp
Marsh & McClennan
Martin Marietta
Masco Corp
Mattel Inc
Maxus Energy
May Dept Stores
Maytag Co
MBNA Corp
McDermott International
McDonald's Corp
McDonnell Douglas
McGraw-Hill
McKesson Corp
Mead Corp
Medtronic Inc
Mellon Bank Corp
Melville Corp
Mercantile Stores
Merck & Co
Meredith Corp
Merrill Lynch
Millipore Corp.
Minn. Mining & Mfg
Mobil Corp
Monarch Machine Tool
Monsanto Company
Moore Corp Ltd.
Morgan (J.P.) & Co.
Morris Knudsen
Morton International
Motorola Inc
NBD Bancorp Inc
NICOR Inc
NL Industries
Nacco Ind CI A
Nalco Chemical
National Education
National Intergroup
National Medical Enterprise
NationsBANK1
National Semiconductor
National Service Ind
Navistar International Corp
New York Times CI A
Newell Co
Newmont Mining
Niagara Mohawk Power
Nike Inc
Nordstrom
Norfolk Southern Corp
Northern States Power
Northern Telecom
Northrop Corp
Norwest Corp
Novell Inc
Nucor Corp
Nynex
ONEOK Inc
Occidental Petroleum
Ogden Corp
Ohio Edison
Oracle Systems
Oryx Energy Inc
Oshkosh B'Gosh
Outboard Marine
Owens-Corning Fiberglass
PACCAR Inc
PHM Corp
PNC Financial Corp
PPG Inc
PSI Holding Inc
PacificCorp
Pacific Gas & Electric
Pacific Telesis
Panhandle Eastern
Paramount Comm. Inc
Parker-Hannifin
Penney (J.C.)
Pennzoil Co
Peoples Energy
Pep Boys
PepsiCo Inc
Perkin-Elmer
Pet Inc.
Pfizer, Inc
Phelps Dodge
Philadelphia Electric
Philip Morris
Phillips Petroleum
Pitney-Bowes
Pittston Co
Placer Dome Inc
Polaroid Corp
Potlatch Corp
Premark International
Price Co
Primerica Corp
Procter & Gamble
Promus Inc
Public Serv Enterprise Inc
Quaker Oats
Quantum Chemical Corp
Ralston Purina
Raychem Corp
Raytheon Co
Reebok International
Reynolds Metals
Rite Aid
Roadway Service
Rockwell International
Rohm & Haas
Rollins Environmental
Rowan Cos
Royal Dutch Petroleum
Rubbermaid Inc
Russell Corp
Ryan's Family Steak Hse
Ryder System
SAFECO Corp
SCE Corp
SPX Corp
Safety-Kleen
Salomon Inc
Santa Fe Energy Resources
Sara Lee Corp
Schering-Plough
Schlumberger Ltd
Scientific-Atlanta
Scott Paper
Seagram Ltd
Sears, Roebuck & Co
Service Corp International
Shared Medical Systems
Shawmut National
Sherwin-Williams
Shoney's Inc
Skyline Corp
Snap-On Tools
Sonat Inc
Southern Co
Southwest Bell Corp
Springs Industries Inc
Sprint Corp
Square D
St. Jude Medical
St. Paul Cos
Stanley Works
Stone Container
Sun Co., Inc
SunTrust Banks
Super Valu Stores
Syntex Corp
Sysco Corp
TJX Companies Inc
TRW Inc
Tandem Computers Inc
Tandy Corp
Tektronix Corp
Tele-Communications
Teledyne Inc
Temple-Inland
Tenneco Inc
Texaco Inc
Texas Instruments
Texas Utilities
Textron Inc
Thomas & Betts
Time Warner Inc
Times Mirror
Timken Co
Tonka Corp
Torchmark Corp
Toys R Us
Transamerica Corp
Transco Energy
Travelers Corp
Tribune Co
Trinova Corp
Tyco Labs
UAL Corp
US Bancorp
US West Inc
USAir Group
USF&G Corp
USLIFE Corp
UST Inc
USX Corp
Unilever N.V.
Union Camp
Union Carbide
Union Pacific
Unisys Corp
United States Home
United Technologies
Union Electric
Unocal Corp
Upjohn Co
V F Corp
Varity Corp
Wal Mart Stores
Walgreen Co
Walt Disney Co
Wang Labs Inc CI B
Warner Lambert
Waste Management Inc
Wells Fargo & Co
Wendy's International
Westinghouse Electric
Westmoreland Coal
Westvaco Corp
Wetterau Inc
Weyerhaeuser Corp
Whirlpool Corp
Whitman Corp
Williams Cos
Winn-Dixie
Woolworth Corp
Worthington Ind
Wrigley (Wm) Jr
Xerox Corp
Yellow Freight Systems
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements - Financial Statements for the fiscal year ended
December 31, 1993, will be filed by amendment on or near April 30, 1994.
(b) Exhibits:
(1) (a) Declaration of Trust dated as of March 21, 1988 is incorporated
herein by reference to Exhibit 1 to Registration Statement incorporated on
March 18, 1988.
(b) Supplement to the Declaration of Trust dated January 1, 1990 is
incorporated herein by reference to Exhibit 1(b) to Post-Effective
Amendment No. 3.
(2) None.
(3) None.
(4) None.
(5) (a) Management Contract between Short-Term Portfolio and Fidelity
Management & Research Company dated November 11, 1988 is incorporated
herein by reference to Exhibit 5(a) to Post-Effective Amendment No. 1.
(b) Management Contract between Asset Manager Portfolio and Fidelity
Management & Research Company dated August 31, 1989, is incorporated
herein by reference to Exhibit 5(b) to Post-Effective Amendment No. 4.
(c) Sub-Advisory Agreement between Fidelity Management & Research
Company and Fidelity Management & Research (U.K.) Inc. on behalf of
Asset Manager Portfolio dated January 1, 1990 is incorporated herein by
reference to Exhibit 5(c) to Post-Effective Amendment No. 4.
(d) Sub-Advisory Agreement between Fidelity Management & Research
Company and Fidelity Management & Research (Far East) Inc. on behalf of
Asset Manager Portfolio dated January 1, 1990 is incorporated herein by
reference to Exhibit 5(d) to Post-Effective Amendment No. 4.
(e) Form of Management Contract between Index 500 Portfolio and Fidelity
Management & Research Company, is incorporated herein by reference to
Exhibit 5(e) to Post-Effective Amendment No. 8.
(f) Form of Management Contract between Investment Grade Bond Portfolio
and Fidelity Management & Research Company is incorporated herein by
reference to Exhibit 5(f) to Post-Effective Amendment No. 10.
(g) Form of Management Contract between Asset Manager Portfolio and
Fidelity Management & Research Company is incorporated herein by
reference to Exhibit 5(g) to Post-Effective Amendment No. 10.
(6) (a) General Distribution Agreement between Short-Term Portfolio and
Fidelity Distributors Corporation dated November 11, 1988 is incorporated
herein by reference to Exhibit 6(a) to the Registration Statement.
(b) General Distribution Agreement between Asset Manager Portfolio and
Fidelity Distributors Corporation dated August 31, 1989 is incorporated
herein by reference to Exhibit 6(b) to Post-Effective Amendment No. 5.
(c) Form of General Distribution Agreement between Index 500 Portfolio and
Fidelity Distributors Corporation is incorporated herein by reference to
Exhibit 6(c) to Post-Effective Amendment No. 8.
(7) None.
(8) (a) Custodian Agreement between Short-Term Portfolio and Security
Pacific National Bank, dated July 13, 1988, is incorporated herein by
reference to Exhibit 8 to Pre-Effective Amendment No. 2.
(b) Amendment to Custodian Agreement between Short-Term Portfolio and
Security Pacific National Bank, dated November 20, 1989 is incorporated
herein by reference to Exhibit 8(b) to Post-Effective Amendment No. 4.
(c) Custodian Agreement between Asset Manager Portfolio and Fidelity
Management Trust Company, dated February 15, 1990, is incorporated herein
by reference to Exhibit 8(c) to Post-Effective Amendment No. 4.
(d) Form of Amendment to Custodian Agreement between Short-Term Portfolio
and Security Pacific National Bank, is incorporated herein by reference to
Exhibit 8(d) to Post-Effective Amendment No. 6.
(e) Custodian Agreement between Asset Manager Portfolio and The Chase
Manhattan Bank, N.A., dated July 18, 1991, is incorporated herein by
reference to Exhibit 8(e) to Post-Effective Amendment No. 8.
(f) Custodian Agreement between Investment Grade Bond Portfolio and The
Bank of New York, dated July 18, 1991, is incorporated herein by reference
to Exhibit 8(f) to Post-Effective Amendment No. 8.
(9) (a) Amended Service Agreement between the Registrant and Fidelity
Service Company including Schedules B (pricing and bookkeeping) and C
(securities lending) to that Agreement for Short-Term Portfolio and Asset
Manager Portfolio, dated June 1, 1989, is incorporated herein by reference
to Exhibit 9(a) to Post-Effective Amendment No. 3.
(b) Amended Transfer Agent Agreement between the Registrant and Fidelity
Investments Institutional Operations Company including Schedule A to that
agreement for Short-Term Portfolio and Asset Manager Portfolio, dated June
1, 1989, is incorporated herein by reference to Exhibit 9(b) to
Post-Effective Amendment No. 3.
(c) Form of Amended Schedule B to the Service Agreement between the
Registrant and Fidelity Service Co. for Investment Grade Bond Portfolio and
Asset Manager Portfolio is incorporated herein by reference to Exhibit 9(c)
to Post-Effective Amendment No. 8.
(d) Form of Schedules B (pricing and bookkeeping) and C (securities
lending) to the Service Agreement between the Registrant and Fidelity
Service Co. for Index 500 Portfolio is incorporated herein by reference to
Exhibit 9(d) to Post-Effective Amendment No. 8.
(e) Form of Schedule A to the Transfer Agent Agreement between the
Registrant and Fidelity Investments Institutional Operations Company for
Index 500 Portfolio, is incorporated herein by reference to Exhibit 9(e) to
Post-Effective Amendment No. 8.
(10) None.
(11) None.
(12) None.
(13) None.
(14) None.
(15) (a) Distribution and Service Plan pursuant to Rule 12b-1 for
Short-Term Portfolio is incorporated herein by reference to Exhibit 15 to
Pre-Effective Amendment No. 2.
(b) Distribution and Service Plan pursuant to Rule 12b-1 for Asset Manager
Portfolio is incorporated herein by reference to Exhibit 15(b) to
Post-Effective Amendment No. 3.
(c) Form of Distribution and Service Plan pursuant to Rule 12b-1 for Index
500 Portfolio is incorporated herein by reference to Exhibit 15(c) to
Post-Effective Amendment No. 8.
(16) Schedule for Computation of performance quotations is incorporated
herein by reference to Exhibit 16 to Post-Effective Amendment No. 10.
Item 25. Persons Controlled by or Under Common Control with Registrant
The Board of Trustees of Registrant is the same as the Board of Trustees
of other funds advised by Fidelity Management & Research Company
("FMR"). In addition, the officers of these funds are substantially
identical.
Registrant takes the position that it is not under common control with any
of the above funds since the power residing in the respective companies,
boards and officers arises in each instance as the result of an official
position with the respective funds.
Item 26. Number of Holders of Securities
January 31, 1994
Title of Class Number of Record Holders
Investment Grade Bond Portfolio 21

Asset Manager Portfolio 40

Index 500 Portfolio 20

Item 27. Indemnification
Article XI, Section 2 of the Declaration of Trust sets forth the
reasonable and fair means for determining whether indemnification shall be
provided to any past or present Trustee or officer. It states that the
Registrant shall indemnify any present or past Trustee, or officer to the
fullest extent permitted by law against liability and all expenses
reasonably incurred by him in connection with any claim, action suit or
proceeding in which he is involved by virtue of his service as a trustee,
an officer, or both. Additionally, amounts paid or incurred in settlement
of such matters are covered by this indemnification. Indemnification will
not be provided in certain circumstances, however. These include instances
of willful misfeasance, bad faith, gross negligence, and reckless disregard
of the duties involved in the conduct of the particular office involved.
Item 28. Business and Other Connections of Investment Adviser
(1) FIDELITY MANAGEMENT & RESEARCH COMPANY
FMR serves as investment adviser to a number of other investment
companies. The directors and officers of the Adviser have held, during the
past two fiscal years, the following positions of a substantial nature.

<TABLE>
<CAPTION>
<S> <C>
Edward C. Johnson 3d Chairman of the Executive Committee of FMR;
President and Chief Executive Officer of FMR Corp.;
Chairman of the Board and a Director of FMR, FMR
Corp., FMR Texas Inc., Fidelity Management &
Research (U.K.) Inc. and Fidelity Management &
Research (Far East) Inc.; President and Trustee of funds
advised by FMR;

J. Gary Burkhead President of FMR; Managing Director of FMR Corp.;
President and a Director of FMR Texas Inc., Fidelity
Management & Research (U.K.) Inc. and Fidelity
Management & Research (Far East) Inc.; Senior
Vice President and Trustee of funds advised by FMR.

Peter S. Lynch Vice Chairman of FMR (1992).

David Breazzano Vice President of FMR (1993) and of a fund advised by
FMR.

Stephan Campbell Vice President of FMR (1993).

Rufus C. Cushman, Jr. Vice President of FMR and of funds advised by FMR;
Corporate Preferred Group Leader.

Will Danof Vice President of FMR (1993) and of a fund advised by
FMR.

Scott DeSano Vice President of FMR (1993).

Penelope Dobkin Vice President of FMR and of a fund advised by FMR.

Larry Domash Vice President of FMR (1993).

George Domolky Vice President of FMR (1993) and of a fund advised by
FMR.

Charles F. Dornbush Senior Vice President of FMR; Chief Financial Officer
of the Fidelity funds; Treasurer of FMR Texas Inc.,
Fidelity Management & Research (U.K.) Inc., and
Fidelity Management & Research (Far East) Inc.

Robert K. Duby Vice President of FMR.

Margaret L. Eagle Vice President of FMR and of a fund advised by FMR.

Kathryn L. Eklund Vice President of FMR.

Richard B. Fentin Senior Vice President of FMR (1993) and of a fund
advised by FMR.

Daniel R. Frank Vice President of FMR and of funds advised by FMR.

Gary L. French Vice President of FMR and Treasurer of the funds
advised by FMR. Prior to assuming the position as
Treasurer he was Senior Vice President, Fund
Accounting - Fidelity Accounting & Custody
Services Co.

Michael S. Gray Vice President of FMR and of funds advised by FMR.

Barry A. Greenfield Vice President of FMR and of a fund advised by FMR.

William J. Hayes Senior Vice President of FMR; Income/Growth Group
Leader and International Group Leader.

Robert Haber Vice President of FMR and of funds advised by FMR.

Daniel Harmetz Vice President of FMR and of a fund advised by FMR.

Ellen S. Heller Vice President of FMR.

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C>
John Hickling Vice President of FMR (1993) and of funds advised by
FMR.

</TABLE>

Robert F. Hill Vice President of FMR; and Director of Technical
Research.

Stephan Jonas Vice President of FMR (1993).

David B. Jones Vice President of FMR (1993).

Steven Kaye Vice President of FMR (1993) and of a fund advised by
FMR.

Frank Knox Vice President of FMR (1993).

Robert A. Lawrence Senior Vice President of FMR (1993); and High Income
Group Leader.

Alan Leifer Vice President of FMR and of a fund advised by FMR.

Harris Leviton Vice President of FMR (1993) and of a fund advised by
FMR.

Bradford E. Lewis Vice President of FMR and of funds advised by FMR.

Robert H. Morrison Vice President of FMR and Director of Equity Trading.

David Murphy Vice President of FMR and of funds advised by FMR.

Jacques Perold Vice President of FMR.

Brian Posner Vice President of FMR (1993) and of a fund advised by
FMR.

Anne Punzak Vice President of FMR and of funds advised by FMR.

Richard A. Spillane Vice President of FMR and of funds advised by FMR;
and Director of Equity Research.

Robert E. Stansky Senior Vice President of FMR (1993) and of funds
advised by FMR.

Thomas Steffanci Senior Vice President of FMR (1993); and
Fixed-Income Division Head.

Gary L. Swayze Vice President of FMR and of funds advised by FMR;
and Tax-Free Fixed-Income Group Leader.

Donald Taylor Vice President of FMR (1993) and of funds advised by
FMR.

Beth F. Terrana Senior Vice President of FMR (1993) and of funds
advised by FMR.

Joel Tillinghast Vice President of FMR (1993) and of a fund advised by
FMR.

Robert Tucket Vice President of FMR (1993).

George A. Vanderheiden Senior Vice President of FMR; Vice President of funds
advised by FMR; and Growth Group Leader.

Jeffrey Vinik Senior Vice President of FMR (1993) and of a fund
advised by FMR.

Guy E. Wickwire Vice President of FMR and of a fund advised by FMR.

Arthur S. Loring Senior Vice President (1993), Clerk and General
Counsel of FMR; Vice President, Legal of FMR Corp.;
and Secretary of funds advised by FMR.

</TABLE>

(2) FIDELITY MANAGEMENT & RESEARCH (U.K.) INC. (FMR U.K.)
FMR U.K. provides investment advisory services to Fidelity Management
& Research Company and Fidelity Management Trust Company. The
directors and officers of the Sub-Adviser have held the following positions
of a substantial nature during the past two fiscal years.

<TABLE>
<CAPTION>
<S> <C>
Edward C. Johnson 3d Chairman and Director of FMR U.K.; Chairman of the
Executive Committee of FMR; Chief Executive Officer of
FMR Corp.; Chairman of the Board and a Director of
FMR, FMR Corp., FMR Texas Inc., and Fidelity
Management & Research (Far East) Inc.; President
and Trustee of funds advised by FMR.

J. Gary Burkhead President and Director of FMR U.K.; President of FMR;
Managing Director of FMR Corp.; President and a
Director of FMR Texas Inc. and Fidelity Management
& Research (Far East) Inc.; Senior Vice President
and Trustee of funds advised by FMR.

Richard C. Habermann Senior Vice President of FMR U.K.; Senior Vice President
of Fidelity Management & Research (Far East) Inc.;
Director of Worldwide Research of FMR.

Charles F. Dornbush Treasurer of FMR U.K.; Treasurer of Fidelity
Management & Research (Far East) Inc.; Treasurer
of FMR Texas Inc., Senior Vice President and Chief
Financial Officer of the Fidelity funds.

David Weinstein Clerk of FMR U.K.; Clerk of Fidelity Management
& Research (Far East) Inc.; Secretary of FMR Texas
Inc.

</TABLE>

(3) FIDELITY MANAGEMENT & RESEARCH (FAR EAST) INC. (FMR Far East)
FMR Far East provides investment advisory services to Fidelity Management
& Research Company and Fidelity Management Trust Company. The
directors and officers of the Sub-Adviser have held the following positions
of a substantial nature during the past two fiscal years.

<TABLE>
<CAPTION>
<S> <C>
Edward C. Johnson 3d Chairman and Director of FMR Far East; Chairman
of the Executive Committee of FMR; Chief
Executive Officer of FMR Corp.; Chairman of the
Board and a Director of FMR, FMR Corp., FMR
Texas Inc. and Fidelity Management & Research
(U.K.) Inc.; President and Trustee of funds advised
by FMR.

J. Gary Burkhead President and Director of FMR Far East; President of
FMR; Managing Director of FMR Corp.; President
and a Director of FMR Texas Inc. and Fidelity
Management & Research (U.K.) Inc.; Senior
Vice President and Trustee of funds advised by FMR.

Richard C. Habermann Senior Vice President of FMR Far East; Senior Vice
President of Fidelity Management & Research
(U.K.) Inc.; Director of Worldwide Research of FMR.

William R. Ebsworth Vice President of FMR Far East.

Bill Wilder Vice President of FMR Far East (1993).

Charles F. Dornbush Treasurer of FMR Far East; Treasurer of Fidelity
Management & Research (U.K.) Inc.; Treasurer
of FMR Texas Inc.; Senior Vice President and Chief
Financial Officer of the Fidelity funds.

David C. Weinstein Clerk of FMR Far East; Clerk of Fidelity
Management & Research (U.K.) Inc.; Secretary
of FMR Texas Inc.

</TABLE>

Item 29. Principal Underwriters
(a) Fidelity Distributors Corporation (FDC) acts as distributor for most
funds advised by FMR and the following other funds:
CrestFunds, Inc.
The Victory Funds
ARK Funds
(b)

Name and Principal Positions and Offices Positions and Offices

Business Address* With Underwriter With Registrant

Edward C. Johnson 3d Director Trustee and President

Nita B. Kincaid Director None

W. Humphrey Bogart Director None

Kurt A. Lange President and Treasurer None

William L. Adair Senior Vice President None

Thomas W. Littauer Senior Vice President None

Arthur S. Loring Vice President and Clerk Secretary

* 82 Devonshire Street, Boston, MA
(c) Not applicable.
Item 30. Location of Accounts and Records
All accounts, books, and other documents required to be maintained by
Section 31a of the 1940 Act and the Rules promulgated thereunder are
maintained by Fidelity Management & Research Company or Fidelity
Service Co., 82 Devonshire Street, Boston, MA 02109, or the funds'
respective custodian: The Bank of New York, 110 Washington Street, New
York, N.Y., The Chase Manhattan Bank, 1211 Avenue of the Americas, New
York, N.Y., and Brown Brothers Harriman & Co., 40 Water Street, Boston,
MA.
Item 31. Management Services - Not applicable.
Item 32. Undertakings
The Registrant on behalf of High Income Portfolio, Equity-Income
Portfolio, Growth Portfolio and Overseas Portfolio undertakes, provided the
information required by Item 5A is contained in the annual report, to
furnish each person to whom a prospectus has been delivered, upon their
request and without charge, a copy of the Registrant's latest annual report
to shareholders.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 12 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 14 day of February 1994.

VARIABLE INSURANCE PRODUCTS FUND II
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 14, 1994

Edward C. Johnson 3d (Principal Executive Officer)

</TABLE>

/s/Gary L. French Treasurer February 14, 1994

Gary L. French

/s/J. Gary Burkhead Trustee February 14, 1994

J. Gary Burkhead

/s/Ralph F. Cox * Trustee February 14, 1994

Ralph F. Cox

/s/Phyllis Burke Davis * Trustee February 14, 1994

Phyllis Burke Davis

/s/Richard J. Flynn * Trustee February 14, 1994

Richard J. Flynn

/s/E. Bradley Jones * Trustee February 14, 1994

E. Bradley Jones

/s/Donald J. Kirk * Trustee February 14, 1994

Donald J. Kirk

/s/Peter S. Lynch * Trustee February 14, 1994

Peter S. Lynch

/s/Edward H. Malone * Trustee February 14, 1994

Edward H. Malone

/s/Marvin L. Mann * Trustee February 14, 1994

Marvin L. Mann

/s/Gerald C. McDonough* Trustee February 14, 1994

Gerald C. McDonough

/s/Thomas R. Williams * Trustee February 14, 1994

Thomas R. Williams

(dagger) Signatures affixed by J. Gary Burkhead pursuant to a power of
attorney dated October 20, 1993 and filed herewith.
* Signature affixed by Robert C. Hacker pursuant to a power of attorney
dated October 20, 1993 and filed herewith.
POWER OF ATTORNEY
We, the undersigned Directors, Trustees or General Partners, as the case
may be, of the following investment companies:

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

</TABLE>

plus any other investment company for which Fidelity Management &
Research Company acts as investment adviser and for which the undersigned
individuals serve as Board Members (collectively, the "Funds"), hereby
severally constitute and appoint Arthur J. Brown, Arthur C. Delibert,
Robert C. Hacker, Richard M. Phillips, Dana L. Platt and Stephanie A.
Xupolos, each of them singly, our true and lawful attorneys-in-fact, with
full power of substitution, and with full power to each of them, to sign
for us and in our names in the appropriate capacities, all Pre-Effective
Amendments to any Registration Statements of the Funds, any and all
subsequent Post-Effective Amendments to said Registration Statements, any
Registration Statements on Form N-14, and any supplements or other
instruments in connection therewith, and generally to do all such things in
our names and behalf in connection therewith as said attorneys-in-fact deem
necessary or appropriate, to comply with the provisions of the Securities
Act of 1933 and Investment Company Act of 1940, and all related
requirements of the Securities and Exchange Commission, hereby ratifying
and confirming all that said attorneys-in-fact or their substitutes may do
or cause to be done by virtue hereof.
WITNESS our hands on this twentieth day of October, 1993.

/s/Edward C. Johnson 3d /s/Peter S. Lynch

Edward C. Johnson 3d Peter S. Lynch

/s/J. Gary Burkhead /s/Edward H. Malone

J. Gary Burkhead Edward H. Malone

/s/Richard J. Flynn /s/Gerald C. McDonough

Richard J. Flynn Gerald C. McDonough

/s/E. Bradley Jones /s/Thomas R. Williams

E. Bradley Jones Thomas R. Williams

/s/Donald J. Kirk

Donald J. Kirk

POWER OF ATTORNEY
I, the undersigned President and Director, Trustee or General Partner, as
the case may be, of the following investment companies:

</TABLE>

plus any other investment company for which Fidelity Management &
Research Company acts as investment adviser and for which the undersigned
individual serves as President and Board Member (collectively, the
"Funds"), hereby severally constitute and appoint J. Gary Burkhead, my true
and lawful attorney-in-fact, with full power of substitution, and with full
power to sign for me and in my name in the appropriate capacity, all
Pre-Effective Amendments to any Registration Statements of the Funds, any
and all subsequent Post-Effective Amendments to said Registration
Statements, any Registration Statements on Form N-14, and any supplements
or other instruments in connection therewith, and generally to do all such
things in my name and behalf in connection therewith as said
attorney-in-fact deem necessary or appropriate, to comply with the
provisions of the Securities Act of 1933 and Investment Company Act of
1940, and all related requirements of the Securities and Exchange
Commission. I hereby ratify and confirm all that said attorneys-in-fact or
their substitutes may do or cause to be done by virtue hereof.
WITNESS my hand on the date set forth below.
/s/Edward C. Johnson 3d October 20, 1993

Edward C. Johnson 3d

POWER OF ATTORNEY
I, the undersigned Director, Trustee or General Partner, as the case may
be, of the following investment companies:

<TABLE>
<CAPTION>
<S> <C>
Fidelity Advisor Series I Fidelity Magellan Fund
Fidelity Advisor Series III Fidelity Massachusetts Municipal Trust
Fidelity Advisor Series IV Fidelity Money Market Trust
Fidelity Advisor Series VI Fidelity Mt. Vernon Street Trust
Fidelity Advisor Series VIII Fidelity New York Municipal Trust
Fidelity California Municipal Trust Fidelity Puritan Trust
Fidelity Capital Trust Fidelity School Street Trust
Fidelity Charles Street Trust Fidelity Select Portfolios
Fidelity Commonwealth Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Congress Street Fund Fidelity Summer Street Trust
Fidelity Contrafund Fidelity Trend Fund
Fidelity Deutsche Mark Performance Fidelity Union Street Trust
Portfolio, L.P. Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Devonshire Trust Fidelity U.S. Investments-Government Securities
Fidelity Financial Trust Fund, L.P.
Fidelity Fixed-Income Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Government Securities Fund Spartan U.S. Treasury Money Market
Fidelity Hastings Street Trust Fund
Fidelity Income Fund Variable Insurance Products Fund
Fidelity Institutional Trust Variable Insurance Products Fund II
Fidelity Investment Trust

</TABLE>

plus any other investment company for which Fidelity Management &
Research Company acts as investment adviser and for which the undersigned
individual serves as a Board Member (collectively, the "Funds"), hereby
severally constitute and appoint Arthur J. Brown, Arthur C. Delibert,
Robert C. Hacker, Richard M. Phillips, Dana L. Platt and Stephanie A.
Xupolos, each of them singly, my true and lawful attorneys-in-fact, with
full power of substitution, and with full power to each of them, to sign
for me and in my name in the appropriate capacity, all Pre-Effective
Amendments to any Registration Statements of the Funds, any and all
subsequent Post-Effective Amendments to said Registration Statements, any
Registration Statements on Form N-14, and any supplements or other
instruments in connection therewith, and generally to do all such things in
my name and behalf in connection therewith as said attorneys-in-fact deem
necessary or appropriate, to comply with the provisions of the Securities
Act of 1933 and Investment Company Act of 1940, and all related
requirements of the Securities and Exchange Commission, hereby ratifying
and confirming all that said attorneys-in-fact or their substitutes may do
or cause to be done by virtue hereof.
WITNESS my hand on the date set forth below.
/s/Ralph F. Cox October 20, 1993

Ralph F. Cox

POWER OF ATTORNEY
I, the undersigned Director, Trustee or General Partner, as the case may
be, of the following investment companies:

<TABLE>
<CAPTION>
<S> <C>
Fidelity Advisor Series I Fidelity Investment Trust
Fidelity Advisor Series III Fidelity Mt. Vernon Street Trust
Fidelity Advisor Series IV Fidelity School Street Trust
Fidelity Advisor Series VI Fidelity Select Portfolios
Fidelity Advisor Series VIII Fidelity Sterling Performance Portfolio, L.P.
Fidelity Beacon Street Trust Fidelity Trend Fund
Fidelity Capital Trust Fidelity Union Street Trust
Fidelity Commonwealth Trust Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Contrafund Fidelity U.S. Investments-Government Securities
Fidelity Deutsche Mark Performance Fund, L.P.
Portfolio, L.P. Fidelity Yen Performance Portfolio, L.P.
Fidelity Devonshire Trust Spartan U.S. Treasury Money Market
Fidelity Financial Trust Fund
Fidelity Fixed-Income Trust Variable Insurance Products Fund
Fidelity Government Securities Fund Variable Insurance Products Fund II
Fidelity Hastings Street Trust
Fidelity Institutional Trust

</TABLE>

Phyllis Burke Davis

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 Advisor Series I Fidelity Investment Trust
Fidelity Advisor Series III Fidelity Special Situations Fund
Fidelity Advisor Series IV Fidelity Sterling Performance Portfolio, L.P.
Fidelity Advisor Series VI Fidelity Trend Fund
Fidelity Advisor Series VII Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Advisor Series VIII Fidelity U.S. Investments-Government Securities
Fidelity Contrafund Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity Yen Performance Portfolio, L.P.
Portfolio, L.P. Spartan U.S. Treasury Money Market
Fidelity Fixed-Income Trust Fund
Fidelity Government Securities Fund Variable Insurance Products Fund
Fidelity Hastings Street Trust Variable Insurance Products Fund II
Fidelity Institutional Trust

</TABLE>

Marvin L. Mann